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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER: 001-12275
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NIELSEN MEDIA RESEARCH, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 06-1450569
(State of Incorporation) (I.R.S. Employer Identification No.)
299 PARK AVENUE, NEW YORK, NEW YORK 10171
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 708-7500
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, par value $.01 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of February 26, 1999, 56,748,953 shares of Common Stock of Nielsen
Media Research, Inc. were outstanding and the aggregate market value of such
Common Stock held by nonaffiliates (based upon its closing transaction price on
the Composite Tape on such date) was approximately $1,114 million.
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DOCUMENTS INCORPORATED BY REFERENCE
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PART I
ITEM 3 Legal Proceedings Page 43, Note 11, Litigation and Contingencies, of
the 1998 Annual Report to Shareholders.
PART II
ITEM 5 Market for the Registrant's Common Page 30, Dividends, and Page 46, Stock
Equity and Related Stockholder Performance Table, of the 1998 Annual
Matters Report to Shareholders.
ITEM 6 Selected Financial Data Page 45, Five-Year Selected Financial Data, of the
1998 Annual Report to Shareholders.
ITEM 7 Management's Discussion and Pages 28 to 30 of the 1998 Annual Report to
Analysis of Financial Condition Shareholders.
and Results of Operations
ITEM 8 Financial Statements and Pages 32 to 44 of the 1998 Annual Report to
Supplementary Data Shareholders.
PART III
ITEM 10 Directors and Executive Officers of Section entitled "Election of Directors" of the
the Registrant Company's Proxy Statement dated March 9,
1999.
ITEM 11 Executive Compensation Section entitled "Compensation of Executive
Officers and Directors" of the Company's Proxy
Statement dated March 9, 1999.
ITEM 12 Security Ownership of Certain Section entitled "Security Ownership of
Beneficial Owners and Management and Others" of the Company's
Management Proxy Statement dated March 9, 1999.
ITEM 13 Certain Relationships and Related Section entitled "Compensation of Executive
Transactions Officers and Directors" of the Company's Proxy
Statement dated March 9, 1999.
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The Index to Exhibits is located on Pages 17-19.
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PART I
ITEM 1. BUSINESS
Nielsen Media Research, Inc. ("Nielsen Media Research" or the "Company")
is the leading source of television audience measurement and related services in
the United States and Canada. Customers have used Nielsen Media Research's
television audience research information in the United States for nearly 50
years. Through its core ratings business, the Company estimates television
audience size and demographics and reports this and related information to a
diverse customer base on a subscription basis. Customers include advertisers,
advertising agencies, broadcast networks, cable networks, program syndicators,
cable operators, sports organizations, television stations and station
representatives. The Company's ratings serve as the "currency" for national and
local television advertising. In 1998, advertisers spent approximately $44
billion in the United States on national and local television advertising,
according to McCann-Erickson Worldwide, to bring a variety of advertising
messages to approximately 99 million U.S. television households. The Company
offers ratings services in four principal areas: (i) National Ratings Services;
(ii) Local Ratings Services; (iii) U.S. Hispanic Ratings Services; and (iv)
Canadian Ratings Services. The Company also offers services that enable
advertisers to manage their media spending by linking television ratings to
commercial occurrences, and that provide Internet and Web-page usage analysis to
the expanding interactive media industry.
Until June 30, 1998, the business of Nielsen Media Research was operated
as part of Cognizant Corporation ("Cognizant") which also included the business
of IMS Health Incorporated ("IMS Health"). On June 30, 1998 (the "Distribution
Date"), Cognizant (which is now the Company) distributed to all holders of its
common stock the shares of IMS Health, which was a wholly-owned subsidiary of
Cognizant and became an independent public company (the "Distribution"). As a
result of the Distribution, the sole business of the Company is the business of
Nielsen Media Research. Because of the relative significance of IMS Health's
business to Cognizant, IMS Health was treated as the "accounting successor" to
Cognizant and the financial statements of the Company have been prepared on a
stand-alone basis. In connection with the Distribution, the Company incurred
$300 million of indebtedness from third parties, the proceeds of which were used
by Cognizant to repay existing intercompany liabilities to certain entities
included in IMS Health.
Prior to November 1, 1996, Cognizant was owned by The Dun & Bradstreet
Corporation ("D&B"). D&B had acquired the Company as a part of A.C. Nielsen
Company in 1984. Cognizant began operating as an independent public company on
November 1, 1996 as a result of its spin-off from D&B (the "D&B Spin-off").
The Company operates in one segment providing national and local
television audience measurement services. At December 31, 1998, the Company had
approximately 3,100 full-time equivalent employees in the United States and
Canada.
NATIONAL SERVICES
Through its U.S. national services, which accounted for approximately 46%
of 1998 revenues, the Company serves the television audience measurement needs
of seven national television broadcast networks, almost 50 national and regional
cable networks, more than 100 program syndicators, and more than 150 national
advertising agencies and advertisers. Audience measurement data are collected
nationally through Nielsen People Meters installed in approximately 5,000
randomly selected households across the U.S. Audience estimates are produced and
delivered to subscribers daily. People Meters not only collect television set
tuning data (which channel the set is tuned to) but also the demographics of the
audience (who in the household is watching).
Three national services are offered in the United States:
o Nielsen Television Index (NTI) provides daily audience total and
demographic estimates for all national broadcast network television
programs to broadcast networks and agencies. This service was
established in 1950.
o Nielsen Homevideo Index (NHI) provides audience estimates of cable
and pay cable television. This service was established in 1980.
o Nielsen Syndication Service (NSS) provides reports and services on
both the local and national levels to the program syndication
segment of the television industry. This service was established in
1985.
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LOCAL SERVICE
The Company's local service, Nielsen Station Index (NSI), which accounted
for approximately 42% of 1998 revenues, serves the television audience
measurement needs of more than 1,000 television stations and over 2,000
national, regional and local advertising agencies and advertisers in over 200
local television markets throughout the United States. This service was
established in 1954. The Company currently provides metered service in 44 of the
nation's largest markets representing about 63% of television households in the
United States. Three additional markets are scheduled to be metered during 1999,
which will bring the total number of local metered markets to 47. Television set
tuning data are collected electronically using a Nielsen Media Research set
meter. Household audience (as opposed to persons) estimates are delivered daily
to subscribers. In these markets, written diaries also are used during
designated measurement periods to collect audience demographic estimates for
integration with the metered tuning data. Diaries are used in the balance of
local markets to collect both tuning and persons-viewing information during
designated periods.
U.S. HISPANIC SERVICES
The Company's Hispanic Services provide both national and local television
audience measurement of U.S. Hispanic households.
o Nielsen Hispanic Television Index (NHTI) provides viewing estimates
of national Hispanic audiences. Begun in November 1992, the NHTI
service remains the first and only metered national Hispanic
audience measurement service. Based on a sample of 800 Hispanic
households across the U.S., it uses the same basic methodology as
the other national services (the Nielsen People Meter) to collect
Hispanic audience data.
o Nielsen Hispanic Station Index (NHSI) uses a language-stratified
sample to reflect the unique characteristics of each local Hispanic
market. Also begun in 1992, the NHSI service provides advertisers,
agencies, networks and syndicators viewing information in 15
television markets with significant Hispanic population. One
additional market is scheduled to be added during 1999. The data
are collected using People Meter, set meter and diary methodologies
in the various markets.
CANADIAN SERVICES
In Canada, the Company has offered national People Meter service since
1989 to Canadian national and regional broadcasters, cable networks, agencies
and advertisers. The Company has also provided local People Meter service in
Canada's two largest English-language markets, Toronto (since 1995) and
Vancouver (begun in the fall of 1997) to local broadcasters, agencies and
advertisers. The Company serves over 150 clients in Canada.
OTHER SERVICES
o Monitor-Plus. Nielsen Media Research's Monitor-Plus service links
television ratings to commercial occurrence data and tracks "share
of spending" and "share of voice" (the proportion of all advertising
within a product category attributable to a brand or advertiser) by
company, by brand, and by product category across 15 monitored
media. These include print, outdoor, radio and free-standing inserts
as well as television, for which Monitor-Plus also reports at the
creative execution and campaign level. This service offers the data
and tools necessary for advertisers and their agencies to actively
manage their media spending by enabling them to understand their own
performance and that of their competitors. Customers use the data to
determine competitive advertising trends and performance within
markets of interest. The media also use this service for sales
planning and targeting. Monitor-Plus currently collects television
advertising data in 75 markets. At the end of 1998, the Company
deployed new digital data collection and processing technology for
the Monitor-Plus service.
o New Media Services (NMS). NMS is a successor to a service formed in
1980 that provides custom research and start-up services for newly
developed syndicated products, both national and local. This
includes measurement performance of non-traditional research such as
place-based media and out-of-home studies. The electronic tracking
of the use of video news releases and the measuring of media
exposure in airports and in-flight are two more examples of NMS
research services.
o Nielsen Interactive Services. In 1995, Nielsen Media Research formed
a separate service to develop research products and services for the
Internet and other interactive media. In October 1998, the Company
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announced a strategic alliance with NetRatings, Inc. to measure
Internet usage and advertising. Under the agreement, Nielsen Media
Research sample recruitment and research expertise will be combined
with NetRatings' Internet measurement software, which is capable of
providing detailed reporting on usage and advertising. Additional
offerings in the interactive/Internet area include the Nielsen
CommerceNet Internet Demographics Study (a periodic study that
profiles the size and audience composition of on-line users) and the
Home Technology Report, a survey that provides data on consumer
interest and use of various technologies in the home.
DATA COLLECTION
PEOPLE METER
The centerpiece of the Nielsen Media Research national and Hispanic
services in the United States and all services in Canada is an electronic
measurement system called the Nielsen People Meter. These meters are placed in a
sample of approximately 5,000 households in the U.S., over 800 U.S. Hispanic
households and over 2,000 households in Canada, randomly selected and recruited
by Nielsen Media Research. The meters measure what channel is being tuned, what
time and for how long the tuning activity occurs, and who is watching.
The U.S. national sample is a multi-stage stratified area probability
sample of U.S. housing units with each housing unit having a known chance of
selection. The current sampling frame is developed based on 1990 Census data
with updates each year based on residential new construction from building
permits as collected and reported by the Census Bureau.
A set meter, which records what channel is being tuned, is installed on
each television set in a sample home along with a device to record who is
watching the television. Each member of the household is assigned a personal
viewing button identified by name or symbol on the People Meter that the viewer
can use to enter his or her viewing status. Each button is linked to the age and
gender of a person in the household. Additional buttons on the meter enable
visitors to a sample household to record when they watch television by entering
their age and gender and pushing a visitor button.
The Nielsen Media Research metering system stores half-minute by
half-minute records of television receiver tuning activity and of People Meter
audience data entries in sample households. The U.S. viewing data are
automatically transmitted by phone every night to Nielsen Media Research's
central computer facility in Dunedin, Florida, where the data are matched with
program line-up information and processed to create ratings estimates each day.
SET METER
In 44 of the largest local markets in the U.S., a set metering system
provides household television ratings information on a daily basis. In each of
these markets, approximately 300-550 households (or approximately 18,500
households across the U.S.) are recruited to participate in samples distinct
from the national People Meter sample. Electronic meters are attached to each
television set in each sample home. Homes recruited for local samples are not
equipped with People Meter attachments, so that the information is limited to
identification of the program to which the set is tuned. The metered market
samples of television households are used to obtain audience estimates with
measurable reliability of television programs for stations that originated in or
are assigned for reporting purposes to Nielsen Media Research's Designated
Market Areas ("DMAs").
The metered household samples are either area probability samples of
housing units in the applicable DMA (12 markets) or samples from a file of
telephone numbers including both listed and unlisted households (32 markets).
This file, known as a total telephone frame ("TTF"), is maintained by Nielsen
Media Research and updated three times each year.
DIARIES
In addition to set meters, Nielsen Media Research uses diaries in local
markets (210 DMAs in the U.S.) to collect viewing data during at least four
designated measurement periods each year. The sample frame in all markets is the
TTF. Diary measurement is used to collect viewing information (both tuning and
demographics) from sample homes in every local television market across the
United States in November, February, May and July (known as "sweeps" months) of
each year. The diary provides audience (both tuning and demographics) data in
the smaller non-metered
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markets and demographic data for the metered markets. In addition to the four
sweeps months, in some larger markets diaries are used to provide viewer
information in as many as three additional months (October, January and March).
Diaries returned to Nielsen Media Research are examined and edited using
established procedures. Audience estimates are then computed separately for each
quarter hour of viewing recorded in the diary.
SERVICE AND PRODUCT DEVELOPMENT
The Company maintains an active investment program to enhance existing
services and develop new services in response to the rapidly changing media
marketplace, as well as to develop the technology necessary to succeed in the
emerging television environment. Nielsen Media Research will need to make
significant capital expenditures over the next several years, particularly in
light of the rapid technological changes affecting its business. The majority of
the investment effort and spending is dedicated to improving the quality and
efficiency of existing services; realizing the full potential of those services
by adding new, value-added or derivative products, especially new software
products; developing a next-generation data collection capability and
infrastructure; and creating new services and businesses.
The Company's most significant investment initiatives include the
Universal Metering Initiative ("UMI"), new client-server based data processing
and delivery software development, the local metered market expansion, and new
business development, notably Nielsen Interactive Services and New Millennium.
As part of its UMI program, Nielsen Media Research is developing a
next-generation metering system, known as the Active/Passive ("A/P") metering
system, to enable measurement of program viewing in the emerging digital
television environment. This new system will use codes, which are imperceptible
to the viewer, inserted in the audio and/or video portions of programs and
commercials that can be detected by metering equipment installed in the sample
households. This encoding approach builds upon Nielsen Media Research's
experience in developing and using its highly successful program video code
technology used in today's analog television environment, which has received
permanent authorization from the Federal Communications Commission (the "FCC").
The system also will have a passive signature-recognition back-up capability.
While preliminary testing of the A/P metering system has been successful, there
can be no assurance that the coding used by the new system will be adopted by
the television industry, be approved by the FCC or be compatible with signal
compression techniques implemented by the industry in the future.
Nielsen Media Research began changing its technology and software systems
in 1993 to provide the television industry with flexible, richer analysis of
large amounts of data. This new "client-server" architecture has enabled Nielsen
Media Research to begin to introduce a range of integrated software systems that
will enable customers to compare daily, demographic-level ratings data across
all national and local television sources, as well as do special analyses at
their desktops.
The Company has introduced electronic measurement through set meters in a
significant number of local markets over the last two years to provide more
detailed and valuable information on local audiences. Nine metered markets were
added in 1997 and 1998, and three additional markets are scheduled to be metered
during 1999, which will bring the total number of local metered markets to 47.
New Millennium is an agency buying system that the Company believes will
be superior in design and concept to any existing competitive product. It is
designed to give advertising agencies the ability to perform pre-buy analyses,
track negotiations and scheduling of ad time, evaluate overall performance in
terms of delivery and cost, and finally, perform the reconciliation and
subsequent accounting functions. By automating tasks now done manually at
agencies, the system may substantially reduce agency costs.
TECHNOLOGY AND COMPETITION
The Company operates in businesses that require sophisticated data
collection and processing systems, software and other technology. The technology
underlying the media industry continues to undergo rapid change and the Company
will need to continue to develop and refine techniques for data collection and
processing to accommodate such changes, including digital television, and for
interactive television transmission and Internet usage. There can be no
guarantee that the Company will be able to develop and refine new techniques for
data collection and processing or that it will be able to do so as quickly or
cost-effectively as its competition.
Nielsen Media Research has maintained a strong leadership position in the
television ratings measurement industry. The Company's ratings systems have been
criticized from time to time by various participants in the
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television industry. This criticism, in part, has increased the likelihood of
additional competition in the Company's business. In particular, a television
ratings project originally funded by the Committee on Nationwide Television
Audience Measurement ("CONTAM") and designed and operated by Statistical
Research, Inc. ("SRI") operated a 500-household sample in Philadelphia as a
national television ratings laboratory from 1996 until 1999. SRI's Philadelphia
sample has provided limited program-level data, although in early 1998 SRI
announced plans to provide more complete program level data. Funding of the
laboratory was contributed primarily by the ABC, CBS and NBC broadcast networks,
which together through CONTAM contributed $40 million from 1994 to 1996. In
addition, Fox Broadcasting as well as four cable networks, 15 major advertising
agencies and buying services, one program syndicator and five of the nation's
largest advertisers agreed to support and participate in the testing phase. In
early 1999, SRI announced that it planned to replace its 500-household
Philadelphia laboratory with a 50-home laboratory panel in New Jersey, and had
begun sample selection as "the first stage in creating a national meter panel."
SRI is actively seeking financial support from major media companies and other
funding sources for a national ratings service. SRI also announced in 1999 that
it had received "letters of intent backing a new national TV ratings service...
from 22 industry companies, including 13 major agencies and other top
advertisers." Based on press reports, the Company does not believe the letters
of intent commit the signers to provide financial support to SRI.
On the local level, ADCOM offers individual cable system measurement. It
is believed to be collecting and issuing local cable measurement data in
Jacksonville, Florida, and has announced an expansion to San Francisco and
Dallas with the support of a major cable system operator. ADCOM is believed to
be seeking cable operator support to roll out a local cable measurement service
in multiple markets in the U.S. Arbitron, a radio audience measurement firm and
a former competitor, discontinued its local syndicated broadcast and cable
television service as of December 31, 1993. Arbitron, however, continues to
develop and test its passive personal metering technology, which is believed to
be capable of measuring television as well as radio audiences. Indirectly, on
both a national and local basis, competition stems from other marketing research
services offering product movement and television audience data and services.
In Canada, BBM Bureau of Measurement, an established media research
organization, has joined with Taylor Nelson/AGB, a U.K.-based media research
company, to provide a competing metered service in Vancouver. BBM, alone or with
Taylor Nelson/AGB, could offer other competitive services in Canada.
The Company's Monitor-Plus service has significant competition from
Competitive Media Reports, a subsidiary of VNU, a Netherlands-based media
company, which has long been the major participant in this market.
The Nielsen/NetRatings Internet audience measurement service faces
significant competition from MediaMetrix, Inc., which has been providing
Internet audience measurement since 1996.
Furthermore, there can be no assurance that additional competition will
not develop in the future for the Company's existing core services or that the
Company will not have significant competition in its other services.
INTELLECTUAL PROPERTY
The Company owns and controls a number of patents, trade secrets,
confidential information, trademarks, trade names, copyrights and other
intellectual property rights which, in the aggregate, are of material importance
to its business. Management believes that the "Nielsen Media Research" name and
related names, marks and logos are of material importance to Nielsen Media
Research. Nielsen Media Research is licensed to use certain technology and other
intellectual property rights owned and controlled by others, and similarly,
other companies are licensed to use certain technology and other intellectual
property rights owned and controlled by Nielsen Media Research.
Pursuant to the Intellectual Property Agreement dated as of October 28,
1996 between the Company, D&B and ACNielsen Corporation ("ACNielsen") (the "D&B
IP Agreement"), Nielsen Media Research has exclusive and unrestricted rights to
the "Nielsen Media Research" name worldwide; however, Nielsen Media Research's
use of the "Nielsen" name, standing alone and as part of a name describing new
products and services to be offered, is subject to certain limitations. In
addition, the D&B IP Agreement provided for the establishment of a limited
liability company jointly owned by the Company and ACNielsen, into which certain
trademarks incorporating or relating to the "Nielsen" name in various countries
were assigned. This company is obligated to license such trademarks on a
royalty-free basis to Nielsen Media Research or ACNielsen for use in a manner
consistent with the D&B IP Agreement and for purposes of conducting their
respective businesses, and is responsible for preserving the quality of those
trademarks and minimizing any risk of possible confusion. Pursuant to the TAM
Master Agreement dated as of
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October 28, 1996 between the Company and ACNielsen, the Company granted a
non-exclusive license to ACNielsen to use certain trademarks, technology and
related intellectual property rights in the conduct of the television audience
measurement business in certain countries outside of the United States and
Canada for a period of at least five years. Except for the restrictions
described above on the use of the "Nielsen" name, these agreements do not
restrict Nielsen Media Research from doing business outside the United States
and Canada.
The technology and other intellectual property rights licensed by Nielsen
Media Research are of importance to its business, although management of Nielsen
Media Research believes that, with the exception of the trademarks incorporating
or relating to the "Nielsen" name, the business, as a whole, is not dependent
upon any one intellectual property or group of such properties.
The names of Nielsen Media Research's and its subsidiaries' products and
services referred to herein are trademarks, service marks, registered trademarks
or registered service marks owned by or licensed to Nielsen Media Research or
one of its subsidiaries.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, oral and written information and statements provided by
the Company may contain "forward-looking statements" as defined by the Private
Securities Litigation Reform Act of 1995. The Company cautions shareholders and
investors that actual results may differ materially from those projected or
suggested in any forward-looking statement as the result of a wide variety of
factors, including but not limited to the factors set forth below:
o The Company operates in businesses that require sophisticated data
collection and processing systems, software and other technology.
The technology underlying the media industry continues to undergo
rapid change and the Company will need to continue to develop and
refine techniques for data collection and processing to accommodate
such changes, including digital television, and for interactive
television transmission and Internet usage. There can be no
guarantee that the Company will be able to develop and refine new
techniques for data collection and processing or that it will be
able to do so as quickly or cost-effectively as its competition.
o Each of the Company's businesses is subject to significant or
potential competition that is likely to intensify in the future, as
described under "Technology and Competition" earlier in this Report.
o The Company is subject to the risks associated with its ability to
find and effectively resolve any problems associated with the Year
2000 issue, as described under "Year 2000" in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1998 Annual Report to Shareholders. The
Company believes that with modifications and replacement of existing
software, the Year 2000 impact on systems and computer code
controlled and maintained by the Company can be mitigated. However,
if such modifications and replacements are not made or are not
completed in a timely manner, if third-party providers fail to
provide timely, accurate and uninterrupted goods and services, or if
customers fail to pay the Company for its services when due, the
Year 2000 issue could materially and adversely affect the Company's
results of operations, liquidity and financial condition.
o Results could be affected by the costs and other effects of
litigation and other contingencies involving the Company. In
particular, management is unable to predict at this time the final
outcome of the IRI Action described in "Note 11, Litigation and
Contingencies" ( "Note 11 ") of the Notes to Consolidated Financial
Statements in the 1998 Annual Report to Shareholders, or the amount
of any future D&B tax and interest payments described in Note 11,
and whether the resolution of such matters could materially affect
Nielsen Media Research's results of operations, cash flows or
financial position.
o The Company's results could be adversely affected by its ability to
successfully achieve estimated effective tax rates and corporate
overhead levels; regulatory and legislative initiatives; leverage
and debt service (including sensitivity to fluctuations in interest
rates); compliance with covenants in loan agreements; the ability to
obtain future financing on satisfactory terms; and deterioration in
economic conditions, particularly in the media or other industries
where customers operate.
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RELATIONSHIP BETWEEN THE COMPANY AND IMS HEALTH
Prior to the Distribution, Nielsen Media Research, Inc. (under its
previous name Cognizant Corporation) and IMS Health entered into certain
agreements governing their relationship subsequent to the Distribution and
providing for the allocation of certain liabilities and obligations arising from
periods prior to the Distribution, including those obligations and liabilities
that arose in connection with the D&B Spin-off. The following descriptions
summarize certain terms of such agreements, but are qualified by reference to
the texts of such agreements, which are incorporated by reference to the
Exhibits to this Form 10-K.
DISTRIBUTION AGREEMENT
Nielsen Media Research and IMS Health entered into a Distribution
Agreement (the "Distribution Agreement") providing for, among other things,
certain corporate transactions required to effect the Distribution, and other
arrangements between Nielsen Media Research and IMS Health subsequent to the
Distribution. In particular, the Distribution Agreement defines the assets and
liabilities that were allocated to and assumed by IMS Health and those that are
allocated to and assumed by Nielsen Media Research. All assets were transferred
without any representation or warranty, "as is-where is," and the relevant
transferee bears the risk that any necessary consent to transfer was not
obtained.
The Distribution Agreement provides for, among other things, assumption of
liabilities and cross indemnities designed to allocate generally, effective as
of the Distribution Date, financial responsibility for the liabilities arising
out of or in connection with (i) the Nielsen Media Research business and certain
other specified liabilities to the Company and (ii) all other liabilities to IMS
Health.
Pursuant to the terms of the 1996 Distribution Agreement (the "1996
Distribution Agreement") among Cognizant, D&B and ACNielsen that governed the
D&B Spin-off, as a condition to the Distribution, IMS Health and Nielsen Media
Research were required to and did undertake to be jointly and severally liable
to D&B and ACNielsen for any liabilities arising thereunder. The Distribution
Agreement allocates between IMS Health and Nielsen Media Research the financial
responsibility for such liabilities including contingent liabilities related to
certain prior business transactions and certain liabilities to D&B that may
arise in connection with the D&B Spin-off. Among other things, IMS Health and
Nielsen Media Research agreed to an allocation of certain potential liabilities
in connection with the action filed by Information Resources, Inc. described in
Note 11 of the Notes to Consolidated Financial Statements in the 1998 Annual
Report to Shareholders, referred to in Item 3, Legal Proceedings (the "IRI
Action"). IMS Health and Nielsen Media Research have agreed that, as between
themselves, IMS Health will assume 75%, and Nielsen Media Research will assume
25%, of any payments to be made by Cognizant in respect of the IRI Action under
the 1996 Indemnity and Joint Defense Agreement among Cognizant, D&B and
ACNielsen (the "IJDA") including any legal fees and expenses incurred in 1999 or
thereafter. IMS Health agreed to be fully responsible for any legal fees and
expenses incurred during 1998. Nielsen Media Research's aggregate liability to
IMS Health for payments in respect of the IRI Action and certain other specified
contingent liabilities is not to exceed $125 million. Under the IJDA, ACNielsen
assumed exclusive liability for the liabilities under the IRI Action up to a
specified amount (the "ACN Maximum Amount"), which is to be calculated at the
time such liabilities, if any, become payable, and Cognizant and D&B were to
share liability equally for any amounts in excess of the ACN Maximum Amount. The
ACN Maximum Amount will be determined by an investment banking firm as the
maximum amount that ACNielsen is able to pay based on ACNielsen's ability to
satisfy such liabilities and remain financially viable, subject to certain
assumptions and limitations.
In addition, pursuant to the Distribution Agreement, on the Distribution
Date, Nielsen Media Research contributed to IMS Health all cash in Nielsen Media
Research accounts other than (i) cash required by Nielsen Media Research to
satisfy certain specified obligations and (ii) such additional cash as was
necessary for the net borrowings of Nielsen Media Research (excluding the items
referred to in clause (i)) to be $300 million as of the Distribution Date.
The Distribution Agreement further provides that neither Nielsen Media
Research nor IMS Health will take any action that would jeopardize the intended
tax consequences of the Distribution. Specifically, each company agrees to
maintain its status as a company engaged in the active conduct of a trade or
business, as defined in Section 355(b) of the Internal Revenue Code, until the
second anniversary of the Distribution Date. As part of the request for a ruling
that the Distribution will be tax-free for Federal income tax purposes, each
company represented to the Internal
7
<PAGE>
Revenue Service that, subject to certain exceptions, it has no plan or intent to
liquidate, merge or sell all or substantially all of its assets. As a result,
the Company may not initiate any action leading to a change in control, and in
the case of a change in control, the foregoing representations, and the ruling
based thereon, could be called into question. As a result, the acquisition of
control of the Company prior to July 1, 2000 may be more difficult or less
likely to occur because of the potential substantial contractual damages
associated with a breach of such provisions of the Distribution Agreement.
TAX ALLOCATION AGREEMENT
Nielsen Media Research and IMS Health entered into a Tax Allocation
Agreement under which IMS Health agreed to pay any taxes, or receive any refunds
or credits of taxes, shown as due on a U.S. federal, state or local income or
franchise tax return for a taxable period beginning prior to the Distribution
Date (including the current taxable period to the extent such taxes, refunds or
credits are attributable to the portion of such taxable period up to and
including the Distribution Date). Any subsequent adjustment of such taxes will
be allocated to IMS Health if such adjustment relates to IMS Health's business
and to Nielsen Media Research if such adjustment relates to the Nielsen Media
Research business, except that any adjustment of such taxes attributable to tax
items or positions initially determined by Cognizant's corporate office will be
allocated to IMS Health. All taxes other than U.S. federal, state and local
income and franchise taxes will be the responsibility of IMS Health if they are
attributable to IMS Health's business and of Nielsen Media Research if they are
attributable to Nielsen Media Research's business. For taxable periods beginning
on or after the Distribution Date (and the portion of the current taxable period
beginning after the Distribution Date), IMS Health and Nielsen Media Research
will be responsible for their own taxes.
EMPLOYEE BENEFITS AGREEMENT
Nielsen Media Research and IMS Health entered into an Employee Benefits
Agreement, which allocates responsibility for certain employee benefits matters
on and after the Distribution Date. Among other things, the Employee Benefits
Agreement requires that the Company continue to sponsor its current defined
benefit pension plans and welfare plans for the benefit of its employees and
former employees and retain the liability for benefits under the Nielsen Media
Research nonqualified supplemental pension plans for such employees, and that
IMS Health adopt defined pension plans, nonqualified supplemental pension plans
and welfare plans for the benefit of IMS Health employees and former employees.
Nielsen Media Research and IMS Health will each generally retain the severance
liabilities of their respective employees who terminated employment prior to the
Distribution Date. Assets and liabilities of the Cognizant Pension Plan
attributable to IMS Health's employees and retirees were transferred to a plan
maintained by IMS Health.
AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT
Nielsen Media Research, IMS Health, D&B, R.H. Donnelley, Inc., ACNielsen
and Gartner Group, Inc. ("Gartner") entered into an Amended and Restated
Transition Services Agreement pursuant to which the parties agreed to certain
basic terms governing the provision by D&B to the other parties of insurance and
risk management services for a transitional period after the Distribution Date.
The Amended and Restated Transition Services Agreement amends and restates in
its entirety the Transition Services Agreement dated as of October 28, 1996
among Cognizant, D&B and ACNielsen entered into in connection with the D&B
Spin-off and includes Gartner as a party to such agreement.
ITEM 2. PROPERTIES
The principal properties of the Company are set forth below:
The executive offices of the Company are located at 299 Park Avenue, New
York, New York, in a leased property.
Owned properties located within the U.S. include one facility, which is
located in Dunedin, Florida.
Operations are conducted from 39 leased office locations throughout the
U.S. and three non-U.S. locations.
Property of the Company is geographically distributed to meet sales and
operating requirements in the U.S. and Canada. The properties of the Company are
generally considered to be both suitable and adequate to meet current operating
requirements and virtually all space is being utilized.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 11 of the Notes to Consolidated Financial
Statements on Page 43 of the 1998 Annual Report to Shareholders which is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT*
Executive officers are elected by the Board of Directors to hold office
until their respective successors are chosen and qualified.
Listed below are the executive officers of the Registrant at March 1, 1999
and brief summaries of their business experience during the past five years.
<TABLE>
<CAPTION>
NAME TITLE AGE
---- ----- ---
<S> <C> <C>
John A. Dimling** ........... President and Chief Executive Officer 60
Thomas W. Young ............. Executive Vice President and Chief Financial Officer 60
Stephen J. Boatti ........... Senior Vice President, Chief Legal Officer and Secretary 49
Barry P. Cook ............... Senior Vice President and Chief Research Officer 54
John A. Loftus .............. Senior Vice President and Chief Communications Officer 56
Anita M. Rubino ............. Senior Vice President and Chief Human Resources Officer 42
Stuart J. Goldshein ......... Vice President and Controller 52
Robert A. Lane .............. Vice President-Finance and Treasurer 39
</TABLE>
- ----------
* Set forth as a separate item pursuant to Items 401(b) and (e) of
Regulation S-K.
** Member of the Board of Directors.
Mr. Dimling was elected President and Chief Executive Officer effective
July 1998. He was previously President and Chief Operating Officer from July
1993 to June 1998.
Mr. Young was appointed Executive Vice President and Chief Financial
Officer in February 1998. He was previously Senior Vice President and Controller
of D&B from April 1992 to October 1996.
Mr. Boatti was appointed Senior Vice President, Chief Legal Officer and
Secretary in July 1998. He was previously Associate General Counsel of Cognizant
from November 1996 to June 1998 and Associate General Counsel of D&B from 1993
to October 1996.
Mr. Cook was appointed Senior Vice President and Chief Research Officer in
November 1990.
Mr. Loftus was appointed Senior Vice President and Chief Communications
Officer in July 1998. He was previously Vice President-Communications from April
1990 to June 1998.
Ms. Rubino was appointed Senior Vice President and Chief Human Resources
Officer in July 1998. She was previously Vice President-Human Resources from May
1994 to June 1998 and Vice President-Organizational Development, Marketing
Information Services Division of D&B from May 1993 to May 1994.
Mr. Goldshein was appointed Vice President and Controller in July 1998. He
was previously Assistant Controller of Cognizant from November 1996 to June 1998
and Assistant Controller of D&B from 1991 to October 1996.
Mr. Lane was appointed Vice President-Finance and Treasurer in July 1998.
He was previously Vice President-Finance and Planning from July 1992 to June
1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Through an oversight, all of the executive officers named above failed to
file reports due with the SEC by February 14, 1999 under Section 16(a) of the
Securities Exchange Act of 1934 to report an exempt grant of employee stock
options to them by the Company in December 1998. The reports have since been
filed.
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information in response to this Item is set forth under Dividends in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on Page 30 and "Stock Performance Table" on Page 46 of the 1998
Annual Report to Shareholders, which information is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data required by this Item are incorporated herein by
reference to the information relating to the years 1994 through 1998 set forth
in the "Five-Year Selected Financial Data" on Page 45 of the 1998 Annual Report
to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this Item is set forth on Pages 28 to 30 of the
1998 Annual Report to Shareholders, which information is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules under Item 14 on Page 12.
ITEM 9. CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference
to the section entitled "Election of Directors" in the Company's Proxy Statement
dated March 9, 1999 filed with the Securities and Exchange Commission, except
that "Executive Officers of the Registrant" on Page 9 of this report responds to
Items 401(b) and (e) and Item 405 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference
to the section entitled "Compensation of Executive Officers and Directors" in
the Company's Proxy Statement dated March 9, 1999 filed with the Securities and
Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference
to the section entitled "Security Ownership of Management and Others" in the
Company's Proxy Statement dated March 9, 1999 filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference
to the section entitled "Compensation of Executive Officers and Directors" in
the Company's Proxy Statement dated March 9, 1999 filed with the Securities and
Exchange Commission.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial Statements
See Index to Financial Statements and Schedule on Page 14.
(2) Financial Statement Schedule
See Index to Financial Statements and Schedule on Page 14.
(3) Other Financial Information
Five-Year Selected Financial Data. See Index to Financial
Statements and Schedule on Page 14.
(4) Exhibits
See Index to Exhibits on Page 17, which indicates which
Exhibits are management contracts or compensatory plans
required to be filed as Exhibits.
(b) Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Nielsen Media Research, Inc.
-------------------------------------
(Registrant)
By: JOHN A. DIMLING
-------------------------------------
(JOHN A. DIMLING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND DIRECTOR)
By: THOMAS W. YOUNG
-------------------------------------
(THOMAS W. YOUNG
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER)
By: STUART J. GOLDSHEIN
-------------------------------------
(STUART J. GOLDSHEIN
VICE PRESIDENT AND CONTROLLER)
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
JAMES R. CRAIGIE MICHAEL D. MOORE
- ------------------------------------------ -------------------------------
(JAMES R. CRAIGIE, DIRECTOR) (MICHAEL D. MOORE, DIRECTOR)
WILLIAM G. JACOBI M. BERNARD PUCKETT
- ------------------------------------------ -------------------------------
(WILLIAM G. JACOBI, CHAIRMAN AND DIRECTOR) (M. BERNARD PUCKETT, DIRECTOR)
PETER A. LUND ROBERT E. WEISSMAN
- ------------------------------------------ -------------------------------
(PETER A. LUND, DIRECTOR) (ROBERT E. WEISSMAN, DIRECTOR)
Date: March 29, 1999
13
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS
The Company's consolidated financial statements, the notes thereto and the
related report thereon of PricewaterhouseCoopers LLP, independent accountants,
for the years ended December 31, 1998, 1997 and 1996, appearing on Pages 28 to
44 of the accompanying 1998 Annual Report to Shareholders, are incorporated by
reference in this Annual Report on Form 10-K (see below). The additional
financial data indicated below should be read in conjunction with such
consolidated financial statements.
<TABLE>
<CAPTION>
PAGE
---------------------------------------
1998 ANNUAL REPORT
10-K TO SHAREHOLDERS
---------------- ------------------
<S> <C> <C>
Report of Independent Accountants ....................................... Exhibit 13 Pg 31 31
Statement of Management's Responsibility for Financial
Statements ............................................................. Exhibit 13 Pg 31 31
As of December 31, 1998 and 1997:
Consolidated Statements of Financial Position .......................... Exhibit 13 Pg 33 33
For the years ended December 31, 1998, 1997 and 1996:
Consolidated Statements of Operations .................................. Exhibit 13 Pg 32 32
Consolidated Statements of Cash Flows .................................. Exhibit 13 Pg 34 34
Consolidated Statements of Shareholders'/Divisional Equity
and Comprehensive Income .............................................. Exhibit 13 Pg 35 35
Notes to Consolidated Financial Statements .............................. Exhibit 13 Pg 36-44 36-44
Selected Quarterly Financial Data (Unaudited) for the
years ended December 31, 1998 and 1997 ................................. Exhibit 13 Pg 44 44
Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. Exhibit 13 Pg 28-30 28-30
Other Financial Information:
Five-Year Selected Financial Data ...................................... Exhibit 13 Pg 45 45
SCHEDULE:
Report of Independent Accountants ....................................... 15 --
Nielsen Media Research, Inc. and Subsidiaries ........................... Exhibit 21 --
II. Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996 ....................................... 16 --
</TABLE>
Schedules other than the one listed above are omitted as not required or
inapplicable because the required information is provided in the consolidated
financial statements, including the notes thereto.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors of Nielsen Media Research, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 27, 1999 appearing on Page 31 of the 1998 Annual Report to
Shareholders of Nielsen Media Research, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included our audits of the financial statement schedule listed in
Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement
schedule presents fairly in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
New York, New York
January 27, 1999
15
<PAGE>
NIELSEN MEDIA RESEARCH, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS
ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------
ADDITIONS
BALANCE CHARGED TO BALANCE
BEGINNIN COSTS AND END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- -------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
For the Year Ended December 31, 1998 ....... $3,294 $317 $617 $2,994
For the Year Ended December 31, 1997 ....... $3,773 $329 $808 $3,294
For the Year Ended December 31, 1996 ....... $3,311 $900 $438 $3,773
</TABLE>
16
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO: DESCRIPTION
- ----------- -----------
3 Articles of Incorporation and By-laws:
3.1 Restated Certificate of Incorporation of Cognizant Corporation dated
October 7, 1996 (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form 10 filed October 7,
1996, file number 001-12275).
3.2 Amended and Restated By-laws of Registrant (incorporated by
reference to Exhibit 3.2 to Registrant's Registration Statement on
Form 10 filed October 7, 1996, file number 001-12275).
3.3 Certificate of Ownership and Merger Merging Nielsen Media Research,
Inc. into Cognizant Corporation filed June 30, 1998 with the
Secretary of State of the State of Delaware (incorporated by
reference to Exhibit 3.3 to Registrant's Registration Statement on
Form S-3 filed July 22, 1998, registration number 333-59563).
3.4 Certificate of Amendment of Restated Certificate of Incorporation of
Nielsen Media Research, Inc. (incorporated by reference to Appendix
A to Registrant's Proxy Statement filed August 5, 1998, file number
001-12275).
10 Material Contracts:
10.1 Distribution Agreement among Cognizant Corporation, The Dun &
Bradstreet Corporation and ACNielsen Corporation dated as of October
28, 1996 (incorporated by reference to Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996,
filed March 27, 1997, file number 001-12275).
10.2 Tax Allocation Agreement among Cognizant Corporation, The Dun &
Bradstreet Corporation and ACNielsen Corporation dated as of October
28, 1996 (incorporated by reference to Exhibit 10.2 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996,
filed March 27, 1997, file number 01-12275).
10.3 Employee Benefits Agreement among Cognizant Corporation, The Dun &
Bradstreet Corporation and ACNielsen Corporation dated as of October
28, 1996 (incorporated by reference to Exhibit 10.3 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996,
filed March 27, 1997, file number 001-12275).
10.4 Indemnity and Joint Defense Agreement among Cognizant Corporation,
The Dun & Bradstreet Corporation and ACNielsen Corporation dated as
of October 28, 1996 (incorporated by reference to Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996, filed March 27, 1997, file number 001-12275).
10.5 TAM Master Agreement between Cognizant Corporation and ACNielsen
Corporation dated as of October 28, 1996 (incorporated by reference
to Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, filed March 27, 1997, file number
001-12275).
10.6 Intellectual Property Agreement among Cognizant Corporation, The Dun
& Bradstreet Corporation and ACNielsen Corporation dated as of
October 28, 1996 (incorporated by reference to Exhibit 10.6 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996, filed March 27, 1997, file number 001-12275).
10.7 Distribution Agreement between Cognizant Corporation and IMS Health
Incorporated dated June 30, 1998 (incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, filed August 13, 1998, file number
001-12275).
10.8 Tax Allocation Agreement between Cognizant Corporation and IMS
Health Incorporated dated June 30, 1998 (incorporated by reference
to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, filed August 13, 1998, file number
001-12275).
17
<PAGE>
EXHIBIT NO: DESCRIPTION
- ----------- -----------
10.9 Employee Benefits Agreement between Cognizant Corporation and IMS
Health Incorporated dated June 30, 1998 (incorporated by reference
to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, filed August 13, 1998, file number
001-12275).
10.10 Amended and Restated Transition Services Agreement between The Dun &
Bradstreet Corporation, The New Dun & Bradstreet Corporation,
Cognizant Corporation, IMS Health Incorporated, ACNielsen
Corporation and Gartner Group, Inc. dated June 30, 1998
(incorporated by reference to Exhibit 10.4 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998, filed
August 13, 1998, file number 001-12275).
10.11 Undertaking of IMS Health Incorporated dated June 29, 1998
(incorporated by reference to Exhibit 10.5 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998, filed
August 13, 1998, file number 001-12275).
10.12 1996 Cognizant Corporation Non-Employee Directors Stock Incentive
Plan, as adopted effective November 1, 1996 (incorporated by
reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, filed March 27, 1997, file
number 001-12275).*
10.13 1996 Cognizant Corporation Non-Employee Directors' Deferred
Compensation Plan, as adopted effective October 15, 1996
(incorporated by reference to Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, filed
March 27, 1997, file number 001-12275).*
10.14 1996 Cognizant Corporation Key Employees' Stock Incentive Plan, as
amended December 16, 1997 (incorporated by reference to Exhibit 10.9
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, filed March 18, 1998, file number 001-12275).*
10.15 1996 Cognizant Corporation Replacement Plan for Certain Employees
Holding The Dun & Bradstreet Corporation Equity-Based Awards, as
adopted effective November 1, 1996 (incorporated by reference to
Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, filed March 27, 1997, file number
001-12275).*
10.16 Form of Non-Employee Directors' Stock Option Agreement (incorporated
by reference to Exhibit 10.12 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996, filed March 27, 1997,
file number 001-12275).*
10.17 Form of Non-Employee Directors' Restricted Stock Agreement
(incorporated by reference to Exhibit 10.13 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, filed
March 27, 1997, file number 001-12275).*
10.18 Forms of Stock Option Agreement (incorporated by reference to
Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, filed March 27, 1997, file number
001-12275).*
10.19 Forms of Purchased Option Agreement (incorporated by reference to
Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, filed March 27, 1997, file number
001-12275).*
10.20 Forms of Limited Stock Appreciation Right Agreement (incorporated by
reference to Exhibit 10.16 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996, file March 27, 1997, file
number 001-12275).*
10.21 Forms of Change-in-Control Agreement for Certain Executives of
Nielsen Media Research, Inc., as adopted effective July 1, 1998.*
10.22 Cognizant Corporation Executive Transition Plan, as adopted
effective November 1, 1996 (incorporated by reference to Exhibit
10.18 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, filed March 27, 1997, file number 001-12275).*
18
<PAGE>
EXHIBIT NO: DESCRIPTION
- ----------- -----------
10.23 Cognizant Corporation Executive Annual Incentive Plan, as adopted
effective January 1, 1997 (incorporated by reference to Exhibit
10.19 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, filed March 27, 1997, file number 001-12275).*
10.24 Cognizant Corporation Supplemental Executive Retirement Plan, as
adopted effective November 1, 1996 (incorporated by reference to
Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, filed March 27, 1997, file number
001-12275).*
10.25 Rights Agreement dated as of October 15, 1996 between Cognizant
Corporation and First Chicago Trust Company of New York
(incorporated by reference to Exhibit 1 to Registrant's Current
Report on Form 8-K filed October 15, 1996, file number 001-12275).
10.26 Cognizant Corporation Retirement Excess Plan, as adopted effective
January 1, 1997 (incorporated by reference to Exhibit 10.22 to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, filed May 13, 1997, file number 001-12275).*
10.27 Cognizant Corporation Savings Equalization Plan, as adopted
effective November 1, 1996 (incorporated by reference to Exhibit
10.23 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, filed May 13, 1997, file number 001-12275).*
10.28 Severance Agreement and Release between Cognizant Corporation and
Dennis G. Sisco dated as of February 28, 1997 (incorporated by
reference to Exhibit 10.24 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, filed November 14,
1997, file number 001-12275).
13 1998 Annual Report to Shareholders.
21 List of Active Subsidiaries as of January 31, 1999.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedules.
- ----------
* Management contract or compensatory plan or arrangement.
19
EXHIBIT 10.21
TIER 1
CHANGE-IN-CONTROL AGREEMENT
For Certain Executives
of Nielsen Media Research
June 30, 1998
PERSONAL AND CONFIDENTIAL
"First Name" "Last Name"
"Job Title"
"Company"
Dear "First Name":
Nielsen Media Research, Inc. (the "Company") considers it essential
to the best interests of its stockholders to foster the continued
employment of key management personnel. In this connection, the Board of
Directors of the Company (the "Board") recognizes that the possibility of
a change in ownership or control of the Company may result in the
departure or distraction of such personnel to the detriment of the Company
and its stockholders. As you are a skilled and dedicated executive with
important management responsibilities and talents, the Company believes
that its best interests will be served if you are encouraged to remain
with the Company.
The Company has determined that your ability to perform your
responsibilities and utilize your talents for the benefit of the Company,
and the Company's ability to retain you as an employee, will be
significantly enhanced if you are provided with fair and reasonable
protection from the risks of a change in ownership or control of the
Company. Accordingly, in order to induce you to remain in the employ of
the Company, you and the Company agree as follows:
1. Term of Agreement.
(a) Generally. Except as provided in Section 1(b) hereof, and
subject to approval of this Agreement by the Board of Directors of the
Company, (i) this Agreement shall be effective as of the date on which the
company becomes an independent company upon the reorganization of
Cognizant Corporation (July 1, 1998) and shall continue in effect through
December 31, 2000, and (ii) commencing on January 1, 2001, and each
January 1 thereafter, this Agreement shall be automatically extended for
one additional year unless, not later than September 30th of the preceding
year, either party to this Agreement gives notice to the other that the
Agreement shall not be extended; provided, however, that no such notice by
the Company shall be effective if a Change in Control or Potential Change
in Control (both as defined herein) shall have occurred prior to the date
of such notice.
<PAGE>
(b) Upon a Change in Control. If a Change in Control shall have
occurred at any time during the period in which this Agreement is effective,
this Agreement shall continue in effect for (i) the remainder of the month in
which the Change in Control occurred and (ii) a term of 15 months beyond the
month in which such Change in Control occurred (such entire period hereinafter
referred to as the "Protected Period").
2. Change in Control; Potential Change in Control.
(a) A "Change in Control" shall be deemed to have occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including
any period prior to the effectiveness of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
(A) a director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv)
hereof, (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control or (C) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for election by
the Company's stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof;
(iii) the stockholders of the Company approve any transaction
or series of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation (A) which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to have occurred
if:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control; or
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(iii) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(c) Employee Covenants. You agree that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control, you
will remain in the employ of the Company until the earliest of (i) a date which
is 180 days from the occurrence of such Potential Change in Control, (ii) the
termination of your employment by reason of Disability (as defined herein) or
(iii) the date on which you first become entitled under this Agreement to
receive the benefits provided in Section 3(b) hereof.
3. Termination.
(a) Termination by the Company for Cause, by You Without Good
Reason, or by Reason of Death or Disability. If during the Protected Period your
employment by the Company is terminated by the Company for Cause, by you without
Good Reason, or because of your death or Disability, the Company shall be
relieved of its obligation to make any payments to you other than (i) its
payment of amounts otherwise accrued and owing but not yet paid and (ii) any
amounts payable under then-existing employee benefit programs at the time such
amounts are due.
(b) Termination by the Company Without Cause or by You for Good
Reason. If during the Protected Period your employment by the Company is
terminated by the Company without cause or by you for Good Reason, you shall be
entitled to the compensation and benefits described in this Section 3(b). If
your employment by the Company is terminated prior to a Change in Control at the
request of a Person engaging in a transaction or series of transactions that
would result in a Change in Control, the Protected Period shall commence upon
the subsequent occurrence of a Change in Control, your actual termination shall
be deemed a termination occurring during the Protected Period and covered by
this Section 3(b), your Date of Termination shall be deemed to have occurred
immediately following the Change in Control, and Notice of Termination shall be
deemed to have been given by the Company immediately prior to your actual
termination. Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder. The compensation and benefits provided under this Section 3(b) are as
follows:
(i) The Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given, no later than the fifth day following the Date of Termination, and you
shall receive all other amounts to which you are entitled under any compensation
or benefit plan of the Company, at the time such payments are due.
(ii) At the time specified in Section 3(d) hereof, the Company
shall pay you, in lieu of any further salary, bonus or severance payments for
periods subsequent to the Date of Termination, a lump sum amount in cash equal
to three times the sum of:
(A) the greater of (I) your annual base salary in effect immediately
prior to the Change in Control of the Company or (II) your annual base
salary in effect at the time Notice of Termination is given; and
(B) the greater of (I) your annual target bonus for the year in
which the Change in Control occurs or, if no such target bonus has yet
been determined for such year, your annual target bonus actually earned
by you in the year immediately preceding the year in which the Change in
Control occurs.
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(iii) At the time specified in Section 3(d) hereof, the
Company shall pay to you, in lieu of amounts which may otherwise be payable to
you under any bonus plan (a "Bonus Plan"), an amount in cash equal to (A) your
annual target bonus for the year in which the Change in Control occurs,
multiplied by a fraction, (I) the numerator of which equals the number of full
or partial days in such annual performance period during which you were employed
by the Company and (II) the denominator of which is 365, and (B) the entire
target bonus opportunity with respect to each performance period in progress
under all other Bonus Plans in effect at the time of termination.
Notwithstanding the foregoing, this Section 3(b)(iii) shall not apply with
respect to any amounts which may otherwise be payable to you under the Company's
Senior Executive Incentive Plan or any other Bonus Plan of the Company that
applies primarily to "covered employees" within the meaning of Section 162(m) of
the Code.
(iv) The Company shall provide you with a cash allowance, at
the time specified in Section 3(d) hereof, for outplacement and job search
activities (including, but not limited to, office and secretarial expenses) in
the amount of 20% of your annual base salary and annual target bonus taken into
account under Section 3(b)(ii) hereof, provided that (A) such cash allowance
shall not exceed $100,000 and (B) such cash allowance shall apply only to those
costs or obligations that are incurred by you during the 36-month period
following your termination of employment.
(v) For a 36-month period following your termination of
employment, the Company shall arrange to provide you with life and health
insurance benefits no less favorable than those which you were receiving
immediately prior to the Notice of Termination. Notwithstanding the foregoing,
any benefit described in the preceding sentence shall constitute secondary
coverage with respect to any life and health insurance benefits actually
received by you in connection with any subsequent employment (or
self-employment) during the 36-month period following your termination.
(vi) Starting at age 55, you shall receive retiree medical and
life benefits from the Company. Such benefits shall be no less favorable than
the benefits that you would have received had you, at the time Notice of
Termination is given, both (A) attained age 55 and (B) retired from the Company.
Notwithstanding the foregoing, any benefit described in the preceding sentence
shall constitute secondary coverage with respect to retiree medical and life
benefits actually received by you in connection with any subsequent employment
(or self-employment) following your termination.
(c) Excise Tax. In the event you become entitled to any amounts
payable in connection with a change in control (whether or not such amounts are
payable pursuant to this Agreement) (the "Severance Payments"), if any of such
Severance Payments are subject to the tax (the "Excise Tax") imposed by Section
4999 of the Code (or any similar federal, state or local tax that may hereafter
be imposed), the Company shall pay to you at the time specified in Section 3(d)
hereof an additional amount (the "Gross-Up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total Payments (as
hereinafter defined) and any federal, state and local income tax and Excise Tax
upon the payment provided for by this Section 3(c), shall be equal to the Total
Payments. For purposes of determining whether any of the Severance Payments will
be subject to the Excise Tax and the amount of such Excise Tax: (i) any other
payments or benefits received or to be received by you in connection with a
Change in Control or your termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (which, together with the Severance
Payments, constitute the "Total Payments") shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of
nationally-recognized tax counsel selected by you such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess
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parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the base amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the
Total Payments which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Payments and (B) the
amount of excess parachute payments within the meaning of Section 280G(b)(1) of
the Code (after applying Section 3(c)(i) hereof); and (iii) the value of any
non-cash benefits or any deferred payments or benefit shall be determined by a
nationally-recognized accounting firm selected by you in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of your residence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of your employment, you shall repay to the Company within ten
days after the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax and/or
federal and state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of your employment (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional gross-up payment
in respect of such excess within ten days after the time that the amount of such
excess is finally determined.
(d) Time of Payment. The payments provided for in Sections 3(b)(ii),
3(b)(iii) and 3(c) hereof shall be made not later than the fifth day following
the Date of Termination; provided, however, that if the amount of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you, payable on the
fifth day after the demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). The payments provided in Section
3(b)(iv) hereof shall be made not later than the fifth day following the
submission of each receipt to the Company evidencing costs or obligations
incurred by you in connection with outplacement counseling and job search
activities.
(e) Notice. During the Protected Period, any purported termination
of your employment by the Company or by you shall be communicated by written
Notice of Termination to the other party hereto.
(f) Certain Definitions. Except as otherwise indicated in this
Agreement, all definitions in this Section 3(f) shall be applicable during the
Protected Period only.
(i) Disability. "Disability" shall mean your absence from the
full-time performance of your duties with the Company for six consecutive months
as a result of your incapacity due to physical or mental illness or disability,
and within 30 days after written Notice of Termination is thereafter given you
shall not have returned to the full-time performance of your duties.
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(ii) Cause. "Cause" shall mean termination on account of (A)
the willful and continued failure by you to substantially perform your duties
with the Company (other than any such failure resulting from your incapacity due
to physical or mental illness or disability or any failure after the issuance of
a Notice of Termination by you for Good Reason) after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. No act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best interest
of the Company. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of the resolution duly adopted by the affirmative vote of not less
than three-quarters (3/4) of the entire membership of the Board at a meeting of
the Board (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board) finding that, in the good faith
opinion of the Board, you were guilty of conduct set forth above in this Section
3(f)(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. "Good Reason" shall mean, without your
express written consent, the occurrence upon or after a Change in Control of any
of the following circumstances unless, in the case of Sections 3(f)(iii)(A),
(E), (F) or (G) hereof, such circumstances are fully corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof:
(A) the assignment to you of any duties inconsistent with the
position in the Company that you held immediately prior to the Change in
Control, or an adverse alteration in the nature or status of your
responsibilities or the conditions of your employment from those in
effect immediately prior to such Change in Control;
(B) a reduction by the Company in your annual base salary, any
target bonus or perquisites as in effect immediately prior to the Change
in Control or as the same may be increased from time to time except for
across-the-board perquisite reductions similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company;
(C) the relocation of the principle place of your employment to a
location outside of (I) New York City, (II) Westchester County, New
York, or (III) Fairfield County, Connecticut; except for required travel
on the Company's business to an extent substantially consistent with
your business travel obligations prior to the Change in Control;
(D) the failure by the Company to pay to you any portion of your
compensation or to pay to you any portion of an installment of deferred
compensation under any deferred compensation program of the Company
within seven days of the date such compensation is due;
(E) the failure by the Company to continue in effect any material
compensation or benefit plan in which you participated immediately prior
to the Change in Control, unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amounts of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control;
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<PAGE>
(F) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof;
(G) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Section 3(f)(iv) hereof (and, if applicable, the requirements of
Section 3(f)(ii) hereof), which purported termination shall not be
effective for purposes of this Agreement; or
(H) the lapse of twelve months following the last day of the month
in which the Change in Control occurs.
(iv) Notice of Termination. "Notice of Termination" shall mean
notice indicating the specific termination provision in this Agreement relied
upon and setting forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of your employment under the provision so
indicated.
(v) Date of Termination. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period) or (B) if your employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given and, in the case
of a termination for Good Reason, shall not be less than 15 nor more than 60
days from the date such Notice of Termination is given).
4. Mitigation. Except as provided in Section 3(b)(v) and (vi) hereof, you
shall not be required to mitigate the amount of payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of
payment or benefit provided for under this Agreement be reduced by any
compensation earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.
5. Costs of Proceedings. The Company shall pay all costs and expenses,
including all attorneys' fees and disbursements, of the Company and, at least
monthly, you in connection with any legal proceedings, whether or not instituted
by the Company or you, relating to the interpretation or enforcement of any
provision of this Agreement; provided that if you instituted the proceeding and
a finding (no longer subject to appeal) is entered that you instituted the
proceeding in bad faith, you shall pay all of your costs and expenses, including
attorneys' fees and disbursements. The Company shall pay prejudgment interest on
any money judgment obtained by you as a result of such proceeding, calculated at
the prime rate of The Chase Manhattan Bank as in effect from time to time from
the date that payment should have been made to you under this Agreement.
6. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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(b) This Agreement shall inure to the benefit of and be enforceable
by you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. In the event of your
death, all amounts otherwise payable to you hereunder shall, unless otherwise
provided herein, be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there is no such designee, to your
estate.
7. Notice. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) personally delivered or (b) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement; provided that all
notice to the Company shall be directed to the attention of the Board with a
copy to the General Counsel of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be designated by the Board. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the time or at any prior or subsequent
time. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without regard
to its conflicts of law principles. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under this Agreement shall survive the expiration of
this Agreement to the extent necessary to give effect to this Agreement.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of this Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereof with respect to the subject matter contained herein. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. Notwithstanding anything to the
contrary in this Agreement, the procedural provisions of this Agreement shall
apply to all benefits payable as a result of a Change in Control (or other
change in control) under any employee benefit plan, agreement, program, policy
or arrangement of the Company.
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If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
NIELSEN MEDIA RESEARCH
By:
-----------------------------------
John A. Dimling
President and Chief Executive Officer
Agreed to this ____________________ day
of ____________________________, 1998.
- -----------------------------------
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TIER 2
CHANGE-IN-CONTROL AGREEMENT
For Certain Executives
of Nielsen Media Research
June 30, 1998
PERSONAL AND CONFIDENTIAL
"First Name" "Last Name"
"Job Title"
"Company"
Dear "First Name":
Nielsen Media Research, Inc. (the "Company") considers it essential
to the best interests of its stockholders to foster the continued
employment of key management personnel. In this connection, the Board of
Directors of the Company (the "Board") recognizes that the possibility of
a change in ownership or control of the Company may result in the
departure or distraction of such personnel to the detriment of the Company
and its stockholders. As you are a skilled and dedicated executive with
important management responsibilities and talents, the Company believes
that its best interests will be served if you are encouraged to remain
with the Company.
The Company has determined that your ability to perform your
responsibilities and utilize your talents for the benefit of the Company,
and the Company's ability to retain you as an employee, will be
significantly enhanced if you are provided with fair and reasonable
protection from the risks of a change in ownership or control of the
Company. Accordingly, in order to induce you to remain in the employ of
the Company, you and the Company agree as follows:
1. Term of Agreement.
(a) Generally. Except as provided in Section 1(b) hereof, and
subject to approval of this Agreement by the Board of Directors of the
Company, (i) this Agreement shall be effective as of the date on which the
company becomes an independent company upon the reorganization of
Cognizant Corporation (July 1, 1998) and shall continue in effect through
December 31, 2000, and (ii) commencing on January 1, 2001, and each
January 1 thereafter, this Agreement shall be automatically extended for
one additional year unless, not later than September 30th of the preceding
year, either party to this Agreement gives notice to the other that the
Agreement shall not be extended; provided, however, that no such notice by
the Company shall be effective if a Change in Control or Potential Change
in Control (both as defined herein) shall have occurred prior to the date
of such notice.
<PAGE>
(b) Upon a Change in Control. If a Change in Control shall have
occurred at any time during the period in which this Agreement is effective,
this Agreement shall continue in effect for (i) the remainder of the month in
which the Change in Control occurred and (ii) a term of 15 months beyond the
month in which such Change in Control occurred (such entire period hereinafter
referred to as the "Protected Period").
2. Change in Control; Potential Change in Control.
(a) A "Change in Control" shall be deemed to have occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including
any period prior to the effectiveness of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
(A) a director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv)
hereof, (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control or (C) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for election by
the Company's stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof;
(iii) the stockholders of the Company approve any transaction
or series of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation (A) which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to have occurred
if:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control; or
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(iii) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(c) Employee Covenants. You agree that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control, you
will remain in the employ of the Company until the earliest of (i) a date which
is 180 days from the occurrence of such Potential Change in Control, (ii) the
termination of your employment by reason of Disability (as defined herein) or
(iii) the date on which you first become entitled under this Agreement to
receive the benefits provided in Section 3(b) hereof.
3. Termination.
(a) Termination by the Company for Cause, by You Without Good
Reason, or by Reason of Death or Disability. If during the Protected Period your
employment by the Company is terminated by the Company for Cause, by you without
Good Reason, or because of your death or Disability, the Company shall be
relieved of its obligation to make any payments to you other than (i) its
payment of amounts otherwise accrued and owing but not yet paid and (ii) any
amounts payable under then-existing employee benefit programs at the time such
amounts are due.
(b) Termination by the Company Without Cause or by You for Good
Reason. If during the Protected Period your employment by the Company is
terminated by the Company without cause or by you for Good Reason, you shall be
entitled to the compensation and benefits described in this Section 3(b). If
your employment by the Company is terminated prior to a Change in Control at the
request of a Person engaging in a transaction or series of transactions that
would result in a Change in Control, the Protected Period shall commence upon
the subsequent occurrence of a Change in Control, your actual termination shall
be deemed a termination occurring during the Protected Period and covered by
this Section 3(b), your Date of Termination shall be deemed to have occurred
immediately following the Change in Control, and Notice of Termination shall be
deemed to have been given by the Company immediately prior to your actual
termination. Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder. The compensation and benefits provided under this Section 3(b) are as
follows:
(i) The Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given, no later than the fifth day following the Date of Termination, and you
shall receive all other amounts to which you are entitled under any compensation
or benefit plan of the Company, at the time such payments are due.
(ii) At the time specified in Section 3(d) hereof, the Company
shall pay you, in lieu of any further salary, bonus or severance payments for
periods subsequent to the Date of Termination, a lump sum amount in cash equal
to two times the sum of:
(A) the greater of (I) your annual base salary in effect immediately
prior to the Change in Control of the Company or (II) your annual base
salary in effect at the time Notice of Termination is given; and
(B) the greater of (I) your annual target bonus for the year in
which the Change in Control occurs or, if no such target bonus has yet
been determined for such year, your annual target bonus actually earned
by you in the year immediately preceding the year in which the Change in
Control occurs.
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(iii) At the time specified in Section 3(d) hereof, the
Company shall pay to you, in lieu of amounts which may otherwise be payable to
you under any bonus plan (a "Bonus Plan"), an amount in cash equal to (A) your
annual target bonus for the year in which the Change in Control occurs,
multiplied by a fraction, (I) the numerator of which equals the number of full
or partial days in such annual performance period during which you were employed
by the Company and (II) the denominator of which is 365, and (B) the entire
target bonus opportunity with respect to each performance period in progress
under all other Bonus Plans in effect at the time of termination.
Notwithstanding the foregoing, this Section 3(b)(iii) shall not apply with
respect to any amounts which may otherwise be payable to you under the Company's
Senior Executive Incentive Plan or any other Bonus Plan of the Company that
applies primarily to "covered employees" within the meaning of Section 162(m) of
the Code.
(iv) The Company shall provide you with a cash allowance, at
the time specified in Section 3(d) hereof, for outplacement and job search
activities (including, but not limited to, office and secretarial expenses) in
the amount of 20% of your annual base salary and annual target bonus taken into
account under Section 3(b)(ii) hereof, provided that (A) such cash allowance
shall not exceed $100,000 and (B) such cash allowance shall apply only to those
costs or obligations that are incurred by you during the 24-month period
following your termination of employment.
(v) For a 24-month period following your termination of
employment, the Company shall arrange to provide you with life and health
insurance benefits no less favorable than those which you were receiving
immediately prior to the Notice of Termination. Notwithstanding the foregoing,
any benefit described in the preceding sentence shall constitute secondary
coverage with respect to any life and health insurance benefits actually
received by you in connection with any subsequent employment (or
self-employment) during the 24-month period following your termination.
(vi) Starting at age 55, you shall receive retiree medical and
life benefits from the Company. Such benefits shall be no less favorable than
the benefits that you would have received had you, at the time Notice of
Termination is given, both (A) attained age 55 and (B) retired from the Company.
Notwithstanding the foregoing, any benefit described in the preceding sentence
shall constitute secondary coverage with respect to retiree medical and life
benefits actually received by you in connection with any subsequent employment
(or self-employment) following your termination.
(c) Excise Tax. In the event you become entitled to any amounts
payable in connection with a change in control (whether or not such amounts are
payable pursuant to this Agreement) (the "Severance Payments"), if any of such
Severance Payments are subject to the tax (the "Excise Tax") imposed by Section
4999 of the Code (or any similar federal, state or local tax that may hereafter
be imposed), the Company shall pay to you at the time specified in Section 3(d)
hereof an additional amount (the "Gross-Up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total Payments (as
hereinafter defined) and any federal, state and local income tax and Excise Tax
upon the payment provided for by this Section 3(c), shall be equal to the Total
Payments. For purposes of determining whether any of the Severance Payments will
be subject to the Excise Tax and the amount of such Excise Tax: (i) any other
payments or benefits received or to be received by you in connection with a
Change in Control or your termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (which, together with the Severance
Payments, constitute the "Total Payments") shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of
nationally-recognized tax counsel selected by you such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess
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parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the base amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the
Total Payments which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Payments and (B) the
amount of excess parachute payments within the meaning of Section 280G(b)(1) of
the Code (after applying Section 3(c)(i) hereof); and (iii) the value of any
non-cash benefits or any deferred payments or benefit shall be determined by a
nationally-recognized accounting firm selected by you in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of your residence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of your employment, you shall repay to the Company within ten
days after the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax and/or
federal and state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of your employment (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional gross-up payment
in respect of such excess within ten days after the time that the amount of such
excess is finally determined.
(d) Time of Payment. The payments provided for in Sections 3(b)(ii),
3(b)(iii) and 3(c) hereof shall be made not later than the fifth day following
the Date of Termination; provided, however, that if the amount of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you, payable on the
fifth day after the demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). The payments provided in Section
3(b)(iv) hereof shall be made not later than the fifth day following the
submission of each receipt to the Company evidencing costs or obligations
incurred by you in connection with outplacement counseling and job search
activities.
(e) Notice. During the Protected Period, any purported termination
of your employment by the Company or by you shall be communicated by written
Notice of Termination to the other party hereto.
(f) Certain Definitions. Except as otherwise indicated in this
Agreement, all definitions in this Section 3(f) shall be applicable during the
Protected Period only.
(i) Disability. "Disability" shall mean your absence from the
full-time performance of your duties with the Company for six consecutive months
as a result of your incapacity due to physical or mental illness or disability,
and within 30 days after written Notice of Termination is thereafter given you
shall not have returned to the full-time performance of your duties.
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(ii) Cause. "Cause" shall mean termination on account of (A)
the willful and continued failure by you to substantially perform your duties
with the Company (other than any such failure resulting from your incapacity due
to physical or mental illness or disability or any failure after the issuance of
a Notice of Termination by you for Good Reason) after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. No act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best interest
of the Company. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of the resolution duly adopted by the affirmative vote of not less
than three-quarters (3/4) of the entire membership of the Board at a meeting of
the Board (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board) finding that, in the good faith
opinion of the Board, you were guilty of conduct set forth above in this Section
3(f)(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. "Good Reason" shall mean, without your
express written consent, the occurrence upon or after a Change in Control of any
of the following circumstances unless, in the case of Sections 3(f)(iii)(A),
(E), (F) or (G) hereof, such circumstances are fully corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof:
(A) the assignment to you of any duties inconsistent with the
position in the Company that you held immediately prior to the Change in
Control, or an adverse alteration in the nature or status of your
responsibilities or the conditions of your employment from those in
effect immediately prior to such Change in Control;
(B) a reduction by the Company in your annual base salary, any
target bonus or perquisites as in effect immediately prior to the Change
in Control or as the same may be increased from time to time except for
across-the-board perquisite reductions similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company;
(C) the relocation of the principle place of your employment to a
location outside of (I) New York City, (II) Westchester County, New
York, or (III) Fairfield County, Connecticut; except for required travel
on the Company's business to an extent substantially consistent with
your business travel obligations prior to the Change in Control;
(D) the failure by the Company to pay to you any portion of your
compensation or to pay to you any portion of an installment of deferred
compensation under any deferred compensation program of the Company
within seven days of the date such compensation is due;
(E) the failure by the Company to continue in effect any material
compensation or benefit plan in which you participated immediately prior
to the Change in Control, unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amounts of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control;
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(F) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof;
(G) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Section 3(f)(iv) hereof (and, if applicable, the requirements of
Section 3(f)(ii) hereof), which purported termination shall not be
effective for purposes of this Agreement; or
(H) the lapse of twelve months following the last day of the month
in which the Change in Control occurs.
(iv) Notice of Termination. "Notice of Termination" shall mean
notice indicating the specific termination provision in this Agreement relied
upon and setting forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of your employment under the provision so
indicated.
(v) Date of Termination. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period) or (B) if your employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given and, in the case
of a termination for Good Reason, shall not be less than 15 nor more than 60
days from the date such Notice of Termination is given).
4. Mitigation. Except as provided in Section 3(b)(v) and (vi) hereof, you
shall not be required to mitigate the amount of payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of
payment or benefit provided for under this Agreement be reduced by any
compensation earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.
5. Costs of Proceedings. The Company shall pay all costs and expenses,
including all attorneys' fees and disbursements, of the Company and, at least
monthly, you in connection with any legal proceedings, whether or not instituted
by the Company or you, relating to the interpretation or enforcement of any
provision of this Agreement; provided that if you instituted the proceeding and
a finding (no longer subject to appeal) is entered that you instituted the
proceeding in bad faith, you shall pay all of your costs and expenses, including
attorneys' fees and disbursements. The Company shall pay prejudgment interest on
any money judgment obtained by you as a result of such proceeding, calculated at
the prime rate of The Chase Manhattan Bank as in effect from time to time from
the date that payment should have been made to you under this Agreement.
6. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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(b) This Agreement shall inure to the benefit of and be enforceable
by you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. In the event of your
death, all amounts otherwise payable to you hereunder shall, unless otherwise
provided herein, be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there is no such designee, to your
estate.
7. Notice. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) personally delivered or (b) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement; provided that all
notice to the Company shall be directed to the attention of the Board with a
copy to the General Counsel of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be designated by the Board. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the time or at any prior or subsequent
time. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without regard
to its conflicts of law principles. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under this Agreement shall survive the expiration of
this Agreement to the extent necessary to give effect to this Agreement.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of this Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereof with respect to the subject matter contained herein. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. Notwithstanding anything to the
contrary in this Agreement, the procedural provisions of this Agreement shall
apply to all benefits payable as a result of a Change in Control (or other
change in control) under any employee benefit plan, agreement, program, policy
or arrangement of the Company.
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If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
NIELSEN MEDIA RESEARCH
By:
-----------------------------------
John A. Dimling
President and Chief Executive Officer
Agreed to this ____________________ day
of ____________________________, 1998.
- -----------------------------------
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TIER 3
CHANGE-IN-CONTROL AGREEMENT
For Certain Executives
of Nielsen Media Research
June 30, 1998
PERSONAL AND CONFIDENTIAL
"First Name" "Last Name"
"Job Title"
"Company"
Dear "First Name":
Nielsen Media Research, Inc. (the "Company") considers it essential
to the best interests of its stockholders to foster the continued
employment of key management personnel. In this connection, the Board of
Directors of the Company (the "Board") recognizes that the possibility of
a change in ownership or control of the Company may result in the
departure or distraction of such personnel to the detriment of the Company
and its stockholders. As you are a skilled and dedicated executive with
important management responsibilities and talents, the Company believes
that its best interests will be served if you are encouraged to remain
with the Company.
The Company has determined that your ability to perform your
responsibilities and utilize your talents for the benefit of the Company,
and the Company's ability to retain you as an employee, will be
significantly enhanced if you are provided with fair and reasonable
protection from the risks of a change in ownership or control of the
Company. Accordingly, in order to induce you to remain in the employ of
the Company, you and the Company agree as follows:
1. Term of Agreement.
(a) Generally. Except as provided in Section 1(b) hereof, and
subject to approval of this Agreement by the Board of Directors of the
Company, (i) this Agreement shall be effective as of the date on which the
company becomes an independent company upon the reorganization of
Cognizant Corporation (July 1, 1998) and shall continue in effect through
December 31, 2000, and (ii) commencing on January 1, 2001, and each
January 1 thereafter, this Agreement shall be automatically extended for
one additional year unless, not later than September 30th of the preceding
year, either party to this Agreement gives notice to the other that the
Agreement shall not be extended; provided, however, that no such notice by
the Company shall be effective if a Change in Control or Potential Change
in Control (both as defined herein) shall have occurred prior to the date
of such notice.
<PAGE>
(b) Upon a Change in Control. If a Change in Control shall have
occurred at any time during the period in which this Agreement is effective,
this Agreement shall continue in effect for (i) the remainder of the month in
which the Change in Control occurred and (ii) a term of 15 months beyond the
month in which such Change in Control occurred (such entire period hereinafter
referred to as the "Protected Period").
2. Change in Control; Potential Change in Control.
(a) A "Change in Control" shall be deemed to have occurred if:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including
any period prior to the effectiveness of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
(A) a director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv)
hereof, (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control or (C) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for election by
the Company's stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof;
(iii) the stockholders of the Company approve any transaction
or series of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation (A) which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and (B) after
which no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to have occurred
if:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control; or
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(iii) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(c) Employee Covenants. You agree that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control, you
will remain in the employ of the Company until the earliest of (i) a date which
is 180 days from the occurrence of such Potential Change in Control, (ii) the
termination of your employment by reason of Disability (as defined herein) or
(iii) the date on which you first become entitled under this Agreement to
receive the benefits provided in Section 3(b) hereof.
3. Termination.
(a) Termination by the Company for Cause, by You Without Good
Reason, or by Reason of Death or Disability. If during the Protected Period your
employment by the Company is terminated by the Company for Cause, by you without
Good Reason, or because of your death or Disability, the Company shall be
relieved of its obligation to make any payments to you other than (i) its
payment of amounts otherwise accrued and owing but not yet paid and (ii) any
amounts payable under then-existing employee benefit programs at the time such
amounts are due.
(b) Termination by the Company Without Cause or by You for Good
Reason. If during the Protected Period your employment by the Company is
terminated by the Company without cause or by you for Good Reason, you shall be
entitled to the compensation and benefits described in this Section 3(b). If
your employment by the Company is terminated prior to a Change in Control at the
request of a Person engaging in a transaction or series of transactions that
would result in a Change in Control, the Protected Period shall commence upon
the subsequent occurrence of a Change in Control, your actual termination shall
be deemed a termination occurring during the Protected Period and covered by
this Section 3(b), your Date of Termination shall be deemed to have occurred
immediately following the Change in Control, and Notice of Termination shall be
deemed to have been given by the Company immediately prior to your actual
termination. Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder. The compensation and benefits provided under this Section 3(b) are as
follows:
(i) The Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given, no later than the fifth day following the Date of Termination, and you
shall receive all other amounts to which you are entitled under any compensation
or benefit plan of the Company, at the time such payments are due.
(ii) At the time specified in Section 3(d) hereof, the Company
shall pay you, in lieu of any further salary, bonus or severance payments for
periods subsequent to the Date of Termination, a lump sum amount in cash equal
to 1.5 times the sum of:
(A) the greater of (I) your annual base salary in effect immediately
prior to the Change in Control of the Company or (II) your annual base
salary in effect at the time Notice of Termination is given; and
(B) the greater of (I) your annual target bonus for the year in
which the Change in Control occurs or, if no such target bonus has yet
been determined for such year, your annual target bonus actually earned
by you in the year immediately preceding the year in which the Change in
Control occurs.
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<PAGE>
(iii) At the time specified in Section 3(d) hereof, the
Company shall pay to you, in lieu of amounts which may otherwise be payable to
you under any bonus plan (a "Bonus Plan"), an amount in cash equal to (A) your
annual target bonus for the year in which the Change in Control occurs,
multiplied by a fraction, (I) the numerator of which equals the number of full
or partial days in such annual performance period during which you were employed
by the Company and (II) the denominator of which is 365, and (B) the entire
target bonus opportunity with respect to each performance period in progress
under all other Bonus Plans in effect at the time of termination.
Notwithstanding the foregoing, this Section 3(b)(iii) shall not apply with
respect to any amounts which may otherwise be payable to you under the Company's
Senior Executive Incentive Plan or any other Bonus Plan of the Company that
applies primarily to "covered employees" within the meaning of Section 162(m) of
the Code.
(iv) The Company shall provide you with a cash allowance, at
the time specified in Section 3(d) hereof, for outplacement and job search
activities (including, but not limited to, office and secretarial expenses) in
the amount of 20% of your annual base salary and annual target bonus taken into
account under Section 3(b)(ii) hereof, provided that (A) such cash allowance
shall not exceed $100,000 and (B) such cash allowance shall apply only to those
costs or obligations that are incurred by you during the 18-month period
following your termination of employment.
(v) For a 18-month period following your termination of
employment, the Company shall arrange to provide you with life and health
insurance benefits no less favorable than those which you were receiving
immediately prior to the Notice of Termination. Notwithstanding the foregoing,
any benefit described in the preceding sentence shall constitute secondary
coverage with respect to any life and health insurance benefits actually
received by you in connection with any subsequent employment (or
self-employment) during the 18-month period following your termination.
(vi) Starting at age 55, you shall receive retiree medical and
life benefits from the Company. Such benefits shall be no less favorable than
the benefits that you would have received had you, at the time Notice of
Termination is given, both (A) attained age 55 and (B) retired from the Company.
Notwithstanding the foregoing, any benefit described in the preceding sentence
shall constitute secondary coverage with respect to retiree medical and life
benefits actually received by you in connection with any subsequent employment
(or self-employment) following your termination.
(c) Excise Tax. In the event you become entitled to any amounts
payable in connection with a change in control (whether or not such amounts are
payable pursuant to this Agreement) (the "Severance Payments"), if any of such
Severance Payments are subject to the tax (the "Excise Tax") imposed by Section
4999 of the Code (or any similar federal, state or local tax that may hereafter
be imposed), the Company shall pay to you at the time specified in Section 3(d)
hereof an additional amount (the "Gross-Up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total Payments (as
hereinafter defined) and any federal, state and local income tax and Excise Tax
upon the payment provided for by this Section 3(c), shall be equal to the Total
Payments. For purposes of determining whether any of the Severance Payments will
be subject to the Excise Tax and the amount of such Excise Tax: (i) any other
payments or benefits received or to be received by you in connection with a
Change in Control or your termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (which, together with the Severance
Payments, constitute the "Total Payments") shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of
nationally-recognized tax counsel selected by you such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess
4
<PAGE>
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the base amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the
Total Payments which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Payments and (B) the
amount of excess parachute payments within the meaning of Section 280G(b)(1) of
the Code (after applying Section 3(c)(i) hereof); and (iii) the value of any
non-cash benefits or any deferred payments or benefit shall be determined by a
nationally-recognized accounting firm selected by you in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of your residence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of your employment, you shall repay to the Company within ten
days after the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax and/or
federal and state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of your employment (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional gross-up payment
in respect of such excess within ten days after the time that the amount of such
excess is finally determined.
(d) Time of Payment. The payments provided for in Sections 3(b)(ii),
3(b)(iii) and 3(c) hereof shall be made not later than the fifth day following
the Date of Termination; provided, however, that if the amount of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you, payable on the
fifth day after the demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). The payments provided in Section
3(b)(iv) hereof shall be made not later than the fifth day following the
submission of each receipt to the Company evidencing costs or obligations
incurred by you in connection with outplacement counseling and job search
activities.
(e) Notice. During the Protected Period, any purported termination
of your employment by the Company or by you shall be communicated by written
Notice of Termination to the other party hereto.
(f) Certain Definitions. Except as otherwise indicated in this
Agreement, all definitions in this Section 3(f) shall be applicable during the
Protected Period only.
(i) Disability. "Disability" shall mean your absence from the
full-time performance of your duties with the Company for six consecutive months
as a result of your incapacity due to physical or mental illness or disability,
and within 30 days after written Notice of Termination is thereafter given you
shall not have returned to the full-time performance of your duties.
5
<PAGE>
(ii) Cause. "Cause" shall mean termination on account of (A)
the willful and continued failure by you to substantially perform your duties
with the Company (other than any such failure resulting from your incapacity due
to physical or mental illness or disability or any failure after the issuance of
a Notice of Termination by you for Good Reason) after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. No act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best interest
of the Company. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of the resolution duly adopted by the affirmative vote of not less
than three-quarters (3/4) of the entire membership of the Board at a meeting of
the Board (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board) finding that, in the good faith
opinion of the Board, you were guilty of conduct set forth above in this Section
3(f)(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. "Good Reason" shall mean, without your
express written consent, the occurrence upon or after a Change in Control of any
of the following circumstances unless, in the case of Sections 3(f)(iii)(A),
(E), (F) or (G) hereof, such circumstances are fully corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof:
(A) the assignment to you of any duties inconsistent with the
position in the Company that you held immediately prior to the Change in
Control, or an adverse alteration in the nature or status of your
responsibilities or the conditions of your employment from those in
effect immediately prior to such Change in Control;
(B) a reduction by the Company in your annual base salary, any
target bonus or perquisites as in effect immediately prior to the Change
in Control or as the same may be increased from time to time except for
across-the-board perquisite reductions similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company;
(C) the relocation of the principle place of your employment to a
location outside of (I) New York City, (II) Westchester County, New
York, or (III) Fairfield County, Connecticut; except for required travel
on the Company's business to an extent substantially consistent with
your business travel obligations prior to the Change in Control;
(D) the failure by the Company to pay to you any portion of your
compensation or to pay to you any portion of an installment of deferred
compensation under any deferred compensation program of the Company
within seven days of the date such compensation is due;
(E) the failure by the Company to continue in effect any material
compensation or benefit plan in which you participated immediately prior
to the Change in Control, unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amounts of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control;
6
<PAGE>
(F) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof;
(G) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Section 3(f)(iv) hereof (and, if applicable, the requirements of
Section 3(f)(ii) hereof), which purported termination shall not be
effective for purposes of this Agreement; or
(H) the lapse of twelve months following the last day of the month
in which the Change in Control occurs.
(iv) Notice of Termination. "Notice of Termination" shall mean
notice indicating the specific termination provision in this Agreement relied
upon and setting forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of your employment under the provision so
indicated.
(v) Date of Termination. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period) or (B) if your employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given and, in the case
of a termination for Good Reason, shall not be less than 15 nor more than 60
days from the date such Notice of Termination is given).
4. Mitigation. Except as provided in Section 3(b)(v) and (vi) hereof, you
shall not be required to mitigate the amount of payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of
payment or benefit provided for under this Agreement be reduced by any
compensation earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.
5. Costs of Proceedings. The Company shall pay all costs and expenses,
including all attorneys' fees and disbursements, of the Company and, at least
monthly, you in connection with any legal proceedings, whether or not instituted
by the Company or you, relating to the interpretation or enforcement of any
provision of this Agreement; provided that if you instituted the proceeding and
a finding (no longer subject to appeal) is entered that you instituted the
proceeding in bad faith, you shall pay all of your costs and expenses, including
attorneys' fees and disbursements. The Company shall pay prejudgment interest on
any money judgment obtained by you as a result of such proceeding, calculated at
the prime rate of The Chase Manhattan Bank as in effect from time to time from
the date that payment should have been made to you under this Agreement.
6. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
7
<PAGE>
(b) This Agreement shall inure to the benefit of and be enforceable
by you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. In the event of your
death, all amounts otherwise payable to you hereunder shall, unless otherwise
provided herein, be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there is no such designee, to your
estate.
7. Notice. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) personally delivered or (b) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement; provided that all
notice to the Company shall be directed to the attention of the Board with a
copy to the General Counsel of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be designated by the Board. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the time or at any prior or subsequent
time. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without regard
to its conflicts of law principles. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under this Agreement shall survive the expiration of
this Agreement to the extent necessary to give effect to this Agreement.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of this Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereof with respect to the subject matter contained herein. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. Notwithstanding anything to the
contrary in this Agreement, the procedural provisions of this Agreement shall
apply to all benefits payable as a result of a Change in Control (or other
change in control) under any employee benefit plan, agreement, program, policy
or arrangement of the Company.
8
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If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
NIELSEN MEDIA RESEARCH
By:
-----------------------------------
John A. Dimling
President and Chief Executive Officer
Agreed to this ____________________ day
of ____________________________, 1998.
- -----------------------------------
9
Nielsen Media Research, Inc.
================================================================================
Financial Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations 28
Report of Independent Accountants 31
Statement of Management Responsibility 31
Consolidated Statements of Operations 32
Consolidated Statements of Financial Position 33
Consolidated Statements of Cash Flows 34
Consolidated Statements of Shareholders'/
Divisional Equity and Comprehensive Income 35
Notes to Consolidated Financial Statements 36
Five-Year Selected Financial Data 45
<PAGE>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
================================================================================
Dollar amounts in thousands
- --------------------------------------------------------------------------------
Overview
Until June 30, 1998, Nielsen Media Research, Inc. ("Nielsen Media Research" or
the "Company") was operated as a subsidiary of Cognizant Corporation
("Cognizant"), which also included the business of IMS Health Incorporated ("IMS
Health"). Prior to November 1, 1996, the Company was a division of The Dun &
Bradstreet Corporation ("D&B"). On June 30, 1998, Cognizant (which is now the
Company) distributed shares of IMS Health (the "Distribution") to all holders of
common stock. Because of the relative significance of the IMS Health business to
Cognizant, IMS Health was treated as the "accounting successor" to Cognizant,
and the financial statements of Nielsen Media Research have been prepared on a
standalone basis. For periods prior to the Distribution, the Company's results
of operations reflect an allocation of Cognizant and D&B corporate and other
expenses. See Notes 1 and 9 to the Company's Consolidated Financial Statements.
Results of Operations
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997:
Nielsen Media Research revenue increased 12.1% in 1998 to $401,932 from $358,594
in 1997. National revenues were fueled by the addition of two new cable network
customers in 1998, higher sales of special analyses and derivative products, the
launch of the new PAX-TV network in September and the growth of the WB network.
Local revenues benefited from the full-year effect of three markets metered in
1997 and the start-up of six additional metered markets in 1998.
Operating costs and selling and administrative expenses in 1998 were
$276,168, compared with $239,670 in 1997, an increase of 15.2%. The increase
reflects higher costs related to increased investment in the business, including
the opening of new metered markets and an increase in Year 2000 expenses of
$7,263. Excluding the Year 2000 expenses, operating costs and selling and
administrative expenses would have increased 12.3%.
Operating income in 1998 was $94,379 compared with $90,261 in 1997, an
increase of 4.6%. The increase resulted primarily from the factors noted above.
Excluding the Year 2000 expenses, operating income would have increased 12.2%.
Interest expense in 1998 was $8,156, reflecting the debt assumed in
connection with the Distribution.
Gain on sales of marketable securities in 1998 was $8,008.
Operating margin in 1998 was 23.5%, compared with 25.2% in 1997. Excluding
the Year 2000 expenses mentioned above, 1998 operating margin was 26.0%.
Nielsen Media Research's consolidated 1998 and 1997 effective tax rates
were 41.9%. The tax rates were computed on a separate-company basis.
Net income in 1998 was $54,748, compared with $52,475 in 1997, an increase
of 4.3%.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996:
Nielsen Media Research revenue increased 12.3% in 1997 to $358,594 from $319,404
in 1996. Revenue growth resulted from additional cable customers, entrance into
three metered markets, an increase in the level of special analyses and the
continued growth of the Hispanic service.
Operating costs and selling and administrative expenses in 1997 were
$239,670, compared with $212,214 in 1996, an increase of 12.9%. The increase
reflects higher costs related to increased investment in the business, including
the opening of new metered markets and Year 2000 expenses of $2,681. Excluding
the Year 2000 expenses, operating costs and selling and administrative expenses
would have increased 11.7%.
Operating income in 1997 was $90,261 compared with $81,961 in 1996, an
increase of 10.1%. The increase resulted primarily from the factors noted above,
partially offset by Year 2000 expenses of $2,681. Excluding the Year 2000
expenses, operating income would have increased 13.4%.
Operating margin in 1997 was 25.2%, compared with 25.7% in 1996. Excluding
the Year 2000 expenses mentioned above, 1997 operating margin was 25.9%.
Nielsen Media Research's consolidated 1997 and 1996 effective tax rates
were 41.9%. The tax rates were computed on a separate-company basis.
Net income in 1997 was $52,475, compared with $47,605 in 1996, an increase
of 10.2%.
Recently Issued Accounting Standards
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides guidance on
costs to be capitalized and when capitalization of such costs should commence.
The Company will adopt SOP 98-1 beginning January 1, 1999 and expects that the
adoption of this SOP will not have a material effect on the Company's financial
position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
an exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, or
an unrecognized foreign-currency-denominated forecasted transaction. The Company
will be required to implement SFAS 133 beginning January 1, 2000. The Company
expects that the adoption of this pronouncement will not have a material effect
on the Company's financial position, results of operations or cash flows.
28
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================================================================================
Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
Year 2000
Many existing computer systems, software applications and embedded computer
chips use two digits, rather than four, to record years, e.g., "98" instead of
"1998". Unless modified, such systems will not properly record or interpret
years after 1999, which could result in system failures or miscalculations
causing disruption of business operations, including, among other things, an
inability to process transactions, deliver reports, send invoices, or engage in
similar normal business activities. This is known as the Year 2000 Issue.
The Company began to address the Year 2000 Issue in 1996. The Company
determined that most of its significant information technology ("IT") systems,
as well as production operations applications that interface with its core IT
systems, could be affected and significant portions of software needed to be
modified or replaced so that those systems and applications would properly
utilize dates beyond December 31, 1999. Affected systems and processes include
software applications and computer software and hardware that sample, collect,
process, report, and deliver television ratings and audience estimates to the
television marketplace in the U.S. and Canada.
The Company's project to resolve the Year 2000 Issue involves four phases:
assessment, remediation, testing and implementation. Once each software
application, computer system, or process has completed all four phases, it is
returned to a production environment. After completing a series of
implementations, the Company's project calls for enterprise-wide system testing
of its business-critical systems and processes to validate that key applications
and systems will function in concert in a Year 2000 test environment producing
the same results as today.
To date, the Company has devoted substantially all of its Year 2000 efforts
to modifying and testing its business-critical processes and computer systems to
be Year 2000 ready by the first quarter of 1999. As of December 31, 1998, for
its IT exposures, the Company has completed 100% of its assessments, and was
nearly 70% complete in the implementation phase. The target to complete the
modifications and testing of the remaining business-critical IT software is the
end of March 1999. By the end of 1998, the Company completed the first of four
planned enterprise-wide system tests, which confirmed that work done to date has
been accurate and effective. All four enterprise-wide system tests are scheduled
to be completed by July 1999.
Remediation, testing and implementation of applications supported and used
by production operations departments that interface with the IT systems is
progressing with substantial completion scheduled for March 1999.
Third parties, including data providers, users of the Company's data, and
application vendors, have been queried about their Year 2000 readiness. To date,
the Company is not aware of any anticipated Year 2000-related failures. Failures
by data providers to be Year 2000 ready could disrupt the flow of data used in
the Company's products. Failures by users could hinder their ability to make use
of the Company's products. Failures by application vendors could impact certain
product delivery schedules until corrected. While the Company believes most
companies it deals with are addressing the issue, it is unable to determine the
effect, if any, such failures might have on the Company's business or future
results of operations.
The Company also relies on local and long-distance telecommunications
companies throughout the U.S. and Canada to transmit viewing data from its
television meters to its computer systems for processing. Given the large number
of telephone companies serving the households where the Company's meters are
installed, the Company may not be able to assess the extent to which
telecommunications failures will occur. Scattered or short-lived
telecommunications outages will be unlikely to materially impair the Company's
ability to deliver television ratings. A serious telecommunications failure,
however, could significantly interrupt the Company's delivery of ratings data to
its metered ratings customers, and, if the failure were lengthy, data could be
lost.
The assessment of embedded computer chips relating to building facilities,
mailing, and print shop equipment is under way. The Company expects to complete
the resolution of any issues by July 1999.
The Company is utilizing both internal and external resources to address
the Year 2000 issue. This project is estimated to cost $19,625 and is being
funded through operating cash flows. The operating income impact of the Year
2000 project was $9,944 and $2,681 in 1998 and 1997, respectively. Based on
current information, the operating income impact of the Year 2000 project for
the full year 1999 is expected to be approximately $7,000.
Because of its focus in ensuring that remediation projects are on schedule,
the Company has not yet fully developed contingency plans to address alternative
solutions in the event the Company or its suppliers fail to make any critical
systems Year 2000 ready. The Company has begun the contingency planning process
with completion expected by September 1999.
The Company believes that with modifications and replacement of existing
software, the Year 2000 impact on systems and computer code controlled and
maintained by the Company can be mitigated. However, if such modifications and
replacements are not made, are not completed in a timely manner, or if third
party providers fail to provide timely, accurate and uninterrupted goods and
services, the Year 2000 Issue could materially and adversely affect the
Company's results of operations, liquidity and financial condition.
29
<PAGE>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations (cont'd)
================================================================================
Dollar amounts in thousands
- --------------------------------------------------------------------------------
Non-U.S. Operating Results and Monetary Assets
Nielsen Media Research operates in the U.S. and Canada. Approximately 2.6% of
Nielsen Media Research's revenues in 1998 were derived from its Canadian
operations. As a result, fluctuations in the value of the Canadian dollar
relative to the U.S. dollar do not significantly affect Nielsen Media Research's
results of operations.
Non-U.S. monetary assets are maintained in Canadian dollars. Changes in the
value of this currency relative to the U.S. dollar are charged or credited to
Shareholders'/Divisional Equity. The effects of exchange rate changes during
1998, 1997 and 1996 were not material.
Market Risk Sensitive Instruments
The Company is exposed to market risk through its variable-rate short-term bank
borrowings. The Company intends to refinance a substantial portion of its
variable-rate bank borrowings and issue fixed-rate long-term debt securities.
Accordingly, the Company has entered into an interest rate hedge agreement to
manage its exposure to changes in interest rates on a portion of the anticipated
issuance. At December 31, 1998, the notional amount of the interest rate hedge
agreement was $125,000 and the deferred unrealized loss thereon was $8,590.
The Company's sensitivity to losses due to interest rate risk is calculated
utilizing estimates of the termination value of the Company's interest rate
hedge agreement and the present value of changes in interest on its short-term
bank borrowings based upon an assumed 10% increase or decrease in interest rates
from their December 31, 1998 levels. Assuming an instantaneous increase in
interest rates of 10% from the December 31, 1998 levels, the unrealized loss on
the Company's interest rate hedge agreement and short-term bank borrowings would
be $3,899. Assuming an instantaneous decrease in interest rates of 10% from the
December 31, 1998 levels, the unrealized loss on the Company's interest rate
hedge agreement and short-term bank borrowings would be $13,491.
Liquidity and Capital Resources
Cash and cash equivalents totaled $7,799 and $5,993 at December 31, 1998 and
1997, respectively, an increase of $1,806.
Net cash provided by operating activities was $122,436 and $94,392 for the
years ended December 31, 1998 and 1997, respectively. The increase of $28,044 in
cash provided by operating activities compared with the prior year primarily
reflected higher earnings, an increase in accrued and other current liabilities
($27,852) primarily related to liabilities assumed in connection with the
Distribution and an increase in accrued compensation, offset, in part, by a
decrease in accounts payable ($8,869) due to the timing of disbursements.
Net cash used in investing activities totaled $68,086 for the year ended
December 31, 1998 compared with $42,842 in the prior year. The increase of
$25,244 primarily reflected increases in additions to property, plant and
equipment ($5,844), computer software ($4,964) and intangibles ($5,298).
Net cash used in financing activities was $52,496 for the year ended
December 31, 1998 compared with $51,107 in the prior year. The increase of
$1,389 in cash used in financing activities compared to the prior year reflected
a repayment of bank borrowings ($50,000), offset, in part, by a decrease in
transfers to Cognizant and D&B ($43,781), exclusive of the proceeds from the
$300,000 bank borrowings and limited partnership investment, which were
distributed to Cognizant in connection with the Distribution, and the proceeds
from employee stock option exercises and the employee stock purchase plan.
Nielsen Media Research's existing balances of cash and cash equivalents,
and cash generated from operations and debt capacity, are expected to be
sufficient to meet Nielsen Media Research's long-term and short-term cash
requirements including continued investment in the business. The Company intends
to refinance its short-term bank borrowing facility in 1999 and replace a
significant portion of such borrowings with fixed-rate long-term debt
securities.
Dividends
The payment and level of cash dividends by Nielsen Media Research are subject to
the discretion of the Board of Directors of Nielsen Media Research. Nielsen
Media Research currently intends to retain future earnings for the development
of its business and does not anticipate paying cash dividends in the near
future. Future dividend decisions will be based on, and affected by, a number of
factors, including the operating results and financial requirements of Nielsen
Media Research. There can be no assurance that any dividends will be declared or
paid.
Forward Looking Statements
Certain statements under the captions "Liquidity and Capital Resources",
"Dividends" and "Year 2000" are forward-looking. These may be identified by the
use of forward-looking words or phrases, such as "believe", "expect", "intend",
"should", "could", "estimated", "target", "efforts" and "scheduled", among
others. The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for such forward-looking statements. In order to comply with the terms
of the safe harbor, the Company notes that a variety of factors could cause the
Company's assessment of the Year 2000 Issue to differ materially from its actual
impact. These risks and uncertainties include, but are not limited to, the
complexity involved in ascertaining all situations in which the Year 2000 Issue
may arise; the availability and cost of personnel trained in this area of
expertise; the receipt and the reliability of responses from users, suppliers
and others to whom compliance inquiries are being made; the success of users and
suppliers in addressing the Year 2000 Issue; and the possibility of unforeseen
events that could delay timely implementation of the Company's Year 2000
project. In addition, factors that could cause actual results to differ
materially from the forward-looking statements relating to liquidity and
dividends include, but are not limited to, the results of litigation and other
contingencies affecting the Company, deterioration in economic conditions, and
the ability to obtain future financing on satisfactory terms.
30
<PAGE>
Report of Independent
Accountants and Statement of
Management Responsibility
================================================================================
Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders of Nielsen Media Research, Inc.:
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, cash flows, and
shareholders'/divisional equity and comprehensive income present fairly, in all
material respects, the financial position of Nielsen Media Research, Inc. and
its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and the significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, NY
January 27, 1999
Statement of Management Responsibility
To the Shareholders of Nielsen Media Research, Inc.:
Management has prepared and is responsible for the consolidated financial
statements and related information presented in this annual report. The
consolidated financial statements, which include amounts based on the estimates
of management, have been prepared in conformity with generally accepted
accounting principles. Other financial information in the annual report is
consistent with that in the consolidated financial statements.
Management believes that the Company's internal control systems provide
reasonable assurance, at reasonable costs, that assets are safeguarded against
loss from unauthorized use or disposition, and that the financial records are
reliable for preparing financial statements and maintaining accountability for
assets. These systems are augmented by written policies, an organizational
structure providing division of responsibilities, careful selection and training
of qualified financial personnel and a program of internal audits.
The independent accountants are engaged to conduct an audit of and issue an
opinion on the financial statements in accordance with generally accepted
auditing standards. These standards include an assessment of the system of
internal controls and tests of transactions to the extent considered necessary
by them to support their opinion.
The Board of Directors, through its Audit Committee consisting solely of
outside directors of the Company, is responsible for reviewing and monitoring
the Company's financial reporting and accounting practices.
PricewaterhouseCoopers LLP have full and free access to the Audit Committee and
meet with it periodically, with and without management.
/s/ JOHN A. DIMLING
John A. Dimling
President and Chief Executive Officer
/s/ THOMAS W. YOUNG
Thomas W. Young
Executive Vice President and Chief Financial Officer
31
<PAGE>
Consolidated Statements
of Operations
================================================================================
Amounts in thousands, except per share data Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $ 401,932 $ 358,594 $ 319,404
Operating Costs 195,301 164,516 146,981
Selling and Administrative Expenses 80,867 75,154 65,233
Depreciation and Amortization 31,385 28,663 25,229
- ---------------------------------------------------------------------------------------------
Operating Income 94,379 90,261 81,961
- ---------------------------------------------------------------------------------------------
Interest Expense (8,156) -- --
Gain on Sales of Marketable Securities 8,008 -- --
- ---------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 94,231 90,261 81,961
- ---------------------------------------------------------------------------------------------
Provision for Income Taxes (39,483) (37,786) (34,356)
- ---------------------------------------------------------------------------------------------
Net Income $ 54,748 $ 52,475 $ 47,605
=============================================================================================
Basic Earnings Per Share of Common Stock $ 0.99 $ 0.95 $ 0.84
=============================================================================================
Diluted Earnings Per Share of Common Stock $ 0.92 $ 0.92 $ 0.84
=============================================================================================
Weighted Average Number of Shares Outstanding - Basic 55,159 55,054 56,648
Dilutive Effect of Stock Option Plans 4,346 2,063 243
- ---------------------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding - Diluted 59,505 57,117 56,891
=============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE>
Consolidated Statements
of Financial Position
================================================================================
Dollar amounts in thousands, except share data Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 7,799 $ 5,993
Accounts Receivable - Net 54,392 51,986
Other Current Assets 6,092 4,551
- ------------------------------------------------------------------------------------------------------
Total Current Assets 68,283 62,530
- ------------------------------------------------------------------------------------------------------
Property, Plant and Equipment - Net 68,286 55,050
Computer Software 50,575 43,093
Intangibles 22,234 10,649
Other Assets 22,787 21,112
- ------------------------------------------------------------------------------------------------------
Total Assets $ 232,165 $ 192,434
======================================================================================================
Liabilities and Shareholders'/Divisional Equity
Current Liabilities
Accounts Payable $ 12,965 $ 14,355
Accrued and Other Current Liabilities 54,753 23,629
Accrued Income Taxes 2,822 5,475
Deferred Revenues 2,276 1,153
Short-term Debt 225,000 --
- ------------------------------------------------------------------------------------------------------
Total Current Liabilities 297,816 44,612
- ------------------------------------------------------------------------------------------------------
Postretirement Benefits 9,273 11,845
Deferred Income Taxes 47,938 34,394
Long-term Debt 25,000 --
- ------------------------------------------------------------------------------------------------------
Total Liabilities 380,027 90,851
- ------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders'/Divisional Equity
Divisional Equity -- 101,583
Preferred Stock, Par Value $.01 Per Share, Authorized - 10,000,000 shares;
Outstanding - None -- --
Series Common Stock, Par Value $.01 Per Share, Authorized - 10,000,000 shares;
Outstanding - None -- --
Common Stock, Par Value $.01 Per Share, Authorized - 400,000,000 shares;
Issued - 57,033,524 shares 570 --
Treasury Stock, at Cost - 723,414 shares (11,121) --
Distribution in Excess of Net Book Value (163,542) --
Retained Earnings 25,261 --
Cumulative Translation Adjustment 970 --
- ------------------------------------------------------------------------------------------------------
Total Shareholders'/Divisional Equity (147,862) 101,583
- ------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders'/Divisional Equity $ 232,165 $ 192,434
======================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
Consolidated Statements
of Cash Flows
================================================================================
Dollar amounts in thousands Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 54,748 $ 52,475 $ 47,605
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 31,385 28,663 25,229
Provision for Deferred Income Taxes 13,352 5,585 10,473
Changes in Operating Assets and Liabilities:
Increase in Accounts Receivable (2,406) (7,213) (14,022)
Increase (Decrease) in Accrued and Other Current Liabilities 31,124 3,272 (67)
(Decrease) Increase in Accounts Payable (1,390) 7,479 896
(Decrease) Increase in Postretirement Benefits (2,572) 3,543 (6,183)
(Decrease) Increase in Accrued Income Taxes (2,653) 665 728
Decrease (Increase) in Other Working Capital Items 848 (77) 8
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 122,436 94,392 64,667
- -------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital Expenditures (30,718) (24,874) (17,929)
Additions to Computer Software (22,085) (17,121) (14,356)
Additions to Intangibles (12,979) (7,681) (6,266)
Other (2,304) 6,834 (2,234)
- -------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (68,086) (42,842) (40,785)
- -------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Third Party Limited Partnership Investment 25,000 -- --
Bank Borrowings 275,000 -- --
Repayment of Bank Borrowings (50,000) -- --
Proceeds from Stock Plans 4,830 -- --
Transfers to Cognizant and D&B (307,326) (51,107) (19,069)
- -------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (52,496) (51,107) (19,069)
- -------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (48) (7) (11)
- -------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 1,806 436 4,802
Cash and Cash Equivalents, Beginning of Year 5,993 5,557 755
- -------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 7,799 $ 5,993 $ 5,557
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE>
Consolidated Statements of
Shareholders'/Divisional Equity
and Comprehensive Income
================================================================================
Dollar amounts in thousands, except share data Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Divisional Common Treasury Capital Distribution
Equity Stock Stock Surplus In Excess of
Book Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1996 $ 70,874
Net Income 47,605
Net Transfers to Cognizant/D&B (19,069)
Change in Cumulative
Translation Adjustment (57)
- --------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 99,353
Net Income 52,475
Net Transfers to Cognizant (51,107)
Change in Cumulative
Translation Adjustment 862
- --------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 101,583
Net Income 29,009
Net Transfers to Cognizant (307,326)
Distribution to Cognizant
Shareholders 176,734 $ 1,711 $ (20,756) $ -- $(160,356)
- --------------------------------------------------------------------------------------------------------------------------------
Balance July 1, 1998 -- 1,711 (20,756) -- (160,356)
Transfer of Treasury Shares
to IMS Health (220,385 shares) 3,186 (3,186)
Reverse Stock Split (1,141) 1,141
Activity under Stock Plans,
including Tax Benefits
(491,992 shares) 6,449 (1,141)
Net Income
Change in Cumulative
Translation Adjustment
Change in Unrealized Gains
- --------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 $ -- $ 570 $ (11,121) $ -- $(163,542)
================================================================================================================================
<CAPTION>
Retained Other Total Comprehensive
Earnings Shareholders' Income
Equity
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 1, 1996
Net Income $ 47,605
Net Transfers to Cognizant/D&B
Change in Cumulative
Translation Adjustment (57)
- ----------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 $ 47,548
=========
Net Income $ 52,475
Net Transfers to Cognizant
Change in Cumulative
Translation Adjustment 862
- ----------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 $ 53,337
=========
Net Income $ 29,009
Net Transfers to Cognizant
Distribution to Cognizant
Shareholders $ -- $ 2,667 $ -- 1,644
- ----------------------------------------------------------------------------------------------------------------
Balance July 1, 1998 -- 2,667 (176,734)
Transfer of Treasury Shares
to IMS Health (220,385 shares) --
Reverse Stock Split --
Activity under Stock Plans,
including Tax Benefits
(491,992 shares) (478) 4,830
Net Income 25,739 25,739 25,739
Change in Cumulative
Translation Adjustment (53) (53) (53)
Change in Unrealized Gains (1,644) (1,644) (1,644)
- ----------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 $ 25,261 $ 970 $(147,862) $ 54,695
================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
Notes to Consolidated
Financial Statements
================================================================================
Dollar amounts in thousands, except per share data
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
Until June 30, 1998, Nielsen Media Research, Inc. ("Nielsen Media Research" or
the "Company") was operated as part of Cognizant Corporation ("Cognizant"),
which also included the business of IMS Health Incorporated ("IMS Health"). On
June 30, 1998, Cognizant (which is now the Company) distributed to all holders
of common stock, the shares of IMS Health (the "Distribution"). Because of the
relative significance of the IMS Health business to Cognizant, IMS Health was
treated as the "accounting successor" to Cognizant and the financial statements
of Nielsen Media Research have been prepared on a standalone basis.
Although Nielsen Media Research, Inc. is the same corporate legal entity as
Cognizant Corporation, except as specifically included or disclosed in these
consolidated financial statements, or specified in agreements between Nielsen
Media Research and IMS Health, Nielsen Media Research has been indemnified by
IMS Health for liabilities of Cognizant incurred before the date of the
Cognizant Distribution. As used in the accompanying consolidated financial
statements, the term "Nielsen Media Research" or the "Company" refers to the
operations of the television audience measurement business, the term "IMS
Health" refers to the operations of the pharmaceutical and healthcare
information business, and the term "Cognizant" refers to the pre-Cognizant
Distribution consolidated entity which operated both businesses. The term "D&B"
refers to Cognizant's former parent, The Dun & Bradstreet Corporation.
On November 1, 1996 (the "D&B Distribution Date"), D&B distributed to its
shareholders all of the outstanding shares of common stock of Cognizant, then a
wholly-owned subsidiary of D&B (the "D&B Distribution"). In the D&B
Distribution, holders of D&B common stock received one share of Cognizant common
stock for every share of D&B common stock held.
The consolidated financial statements have been prepared using Cognizant's
historical basis in the assets and liabilities and historical results of
operations related to the Company's business.
The consolidated financial statements generally reflect the financial
position, results of operations, and cash flows of the Company as if it were a
separate entity for all periods presented. The consolidated financial statements
include allocations of certain Cognizant corporate headquarters assets
(including prepaid pension assets) and liabilities (including pension and
postretirement benefits) as of June 30, 1998 and December 31, 1997 and 1996 and
an allocation of Cognizant corporate and other expenses (including cash
management, legal, accounting, tax, employee benefits, insurance services, data
services and other corporate overhead) relating to the Company's business for
the six months ended June 30, 1998, and the year ended December 31, 1997 and for
the two months ended December 31, 1996 and a corresponding allocation of D&B
corporate and other expenses for the ten months ended October 31, 1996 (the
"Respective Periods"). Management believes these allocations are reasonable.
However, the financial information included herein may not necessarily reflect
the consolidated financial position, results of operations, and cash flows of
the Company in the future or what they would have been if the Company had been a
separate entity during the periods presented.
For purposes of governing certain of the ongoing relationships between the
Company and IMS Health after the Cognizant Distribution and to provide for
orderly transition, the Company and IMS Health entered into various agreements.
Note 2. Summary of Significant Accounting Policies
Consolidation. The consolidated financial statements of the Company include the
accounts of the Company and its subsidiaries after elimination of all material
intercompany accounts and transactions.
Cash Equivalents. The Company considers all highly liquid investments with a
maturity of 90 days or less at the time of purchase to be cash equivalents.
Property, Plant and Equipment. Buildings and machinery and equipment are
depreciated over their estimated useful lives of 40 and 3 to 6 years,
respectively, using the straight-line method. Leasehold improvements are
amortized on a straight-line basis over the shorter of the term of the lease or
the estimated useful life of the improvement.
Computer Software. Certain direct costs incurred in the development of computer
software for external use or to meet the internal needs of the Company are
capitalized. Computer software costs incurred to establish technological
feasibility or in the preliminary project stage of development are expensed in
the periods in which they are incurred. Capitalization ceases and amortization
starts when a computer software product is available for general release to
customers or when the computer software project is placed in service.
Amortization of a computer software product is computed using the greater of (a)
the ratio of a product's current gross revenues to the total of current and
expected gross revenues or (b) the straight-line method computed by dividing the
capitalized costs by the estimated economic life of a product over three to five
years. The costs of computer software developed for internal use are amortized
on a straight-line basis over three to five years. At each balance sheet date
the Company reviews the recoverability of the unamortized capitalized costs of
computer software by comparing the carrying value of computer software with the
estimated net realizable value.
Intangibles. Intangibles primarily result from the deferral of direct costs
related to the installation of meters in markets in which customer contracts
pre-exist. Intangibles are amortized, using the straight-line method, over the
life of the contracts, which are generally five years.
36
<PAGE>
================================================================================
Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
Note 2. Summary of Significant Accounting Policies (cont'd)
Long-lived Assets. Long-lived assets and certain identifiable intangibles held
and used by the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recognition of an impairment loss is recognized when the sum of
undiscounted expected future cash flows is less than the carrying amount of such
assets. The measurement for such impairment loss is then based on the fair value
of the asset.
Revenue Recognition. The Company recognizes subscription revenue as earned,
which is generally pro rata over a one-year period, or as the information is
delivered or related services are performed. For certain metered market
contracts with fixed payment terms, revenue is recognized on a straight-line
basis over the contract period, which is generally five years. The difference
between the amount recognized as revenue and the amount billed for service is
recorded as unbilled receivables.
Foreign Currency Translation. The Company has operations in Canada. Changes in
the value of the Canadian dollar (the functional currency) affect the Company's
consolidated financial statements when translated into U.S. dollars. For
operations in Canada, assets and liabilities are translated using end-of-period
exchange rates; revenues and expenses are translated using average rates of
exchange. Currency translation adjustments are accumulated in a separate
component of Shareholders'/ Divisional Equity, whereas realized transaction
gains and losses are recognized in current income.
Income Taxes. The Company has been included in the Federal and certain state and
Canadian income tax returns of Cognizant and D&B for the Respective Periods. The
provision for income taxes in the Company's consolidated financial statements
has been calculated on a separate-company basis. Income taxes paid on behalf of
the Company by Cognizant and D&B for the Respective Periods are included in
Divisional Equity. Effective after the Cognizant Distribution, the Company will
file separate income tax returns.
Divisional Equity. Divisional Equity includes historical investments and
advances from Cognizant and D&B, including net transfers to/from Cognizant and
D&B, third-party liabilities paid on behalf of the Company by Cognizant and D&B
and amounts due to/from Cognizant and D&B for services and other charges, as
well as current-period income through the Respective Periods.
Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates. Estimates are used for, but are not
limited to, the accounting for: allowance for uncollectible accounts receivable,
depreciation and amortization, capitalized software costs, intangibles, employee
benefit plans, taxes and contingencies.
Earnings Per Share. In 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Basic earnings per
share are calculated by dividing net income by weighted average common shares
outstanding. Diluted earnings per share are calculated by dividing net income by
dilutive potential common shares. Dilutive potential common shares are
calculated in accordance with the treasury stock method, which assumes that
proceeds from the exercise of all Nielsen Media Research employee stock options
are used to repurchase common stock at market value. The number of shares
remaining after the proceeds are exhausted represents the potentially dilutive
effect of the options. In 1998, the computation represents the weighted average
number of common shares of Cognizant common stock outstanding for the six months
ended June 30, 1998 and the weighted average number of Nielsen Media Research
common shares outstanding for the six months ended December 31, 1998. Basic and
fully diluted earnings per share and the average number of shares outstanding
for the years ended December 31, 1998, 1997 and 1996 were adjusted to reflect a
one-for-three reverse stock split of Nielsen Media Research common shares and
the conversion of stock options held by Nielsen Media Research employees in
accordance with the methodology provided for in the Cognizant and D&B
Distributions. The computation for the year ended December 31, 1996 includes the
weighted average number of D&B common shares outstanding, and the weighted
average number of shares of Cognizant common stock outstanding during the
Respective Periods.
Segments. The Company operates in one segment providing national and local
television audience measurement services.
Reclassifications. Certain prior-year amounts have been reclassified to conform
with the 1998 presentation.
Financial Instruments. The Company is using an interest rate hedge agreement to
manage its exposure to changes in interest rate on a portion of its anticipated
issuance of long-term debt securities. The Company does not use derivatives for
trading or speculative purposes. Gains and losses on such interest rate hedge
agreements that qualify as hedges of anticipated transactions are deferred and
will be recognized as an adjustment to interest expense over the life of the
to-be-issued debt securities when the debt is issued. If the interest rate hedge
agreement is sold or terminated prior to maturity, gains or losses will continue
to be deferred until the long-term securities are issued. If the interest rate
hedge ceases to qualify as a hedge, gains and losses are recognized currently in
income.
Concentrations of Credit Risk. The Company had trade accounts receivable and
unbilled receivable balances of $69,073 and $66,207 at December 31, 1998 and
1997, respectively, principally from U.S. based customers in the television
media industry.
37
<PAGE>
Notes to Consolidated
Financial Statements (cont'd)
================================================================================
Dollar amounts in thousands, except share data
- --------------------------------------------------------------------------------
Note 2. Summary of Significant Accounting Policies (cont'd)
Recently Issued Accounting Standards. In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 provides guidance on costs to be capitalized and when
capitalization of such costs should commence. The Company will adopt SOP 98-1
beginning January 1, 1999 and expects that the adoption of this SOP will not
have a material effect on the Company's financial position, results of
operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of an exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, or an unrecognized foreign-currency-denominated forecasted
transaction. The Company will be required to implement SFAS 133 beginning
January 1, 2000. The Company expects that the adoption of this pronouncement
will not have a material effect on the Company's financial position, results of
operations or cash flows.
Note 3. Financial Instruments
At December 31, 1998, the Company's financial instruments included cash, cash
equivalents, receivables, and accounts payable, short-term bank borrowings and
an interest rate hedge agreement. At December 31, 1998, the fair values of cash,
cash equivalents, trade receivables and accounts payable approximated carrying
values because of the short-term nature of these instruments. The carrying value
of the short-term bank borrowing approximates fair value as the interest rate
thereon is variable. The interest rate hedge agreement is carried at fair value.
In 1998, the Company entered into an agreement to hedge against an increase
in interest rates in anticipation of the issuance of long-term debt securities
in 1999 to replace a significant portion of the 364-Day tranche under the
Company's Revolving Credit Facility (see Note 4). The hedge agreement has a
notional amount of $125,000 and will be settled when the long-term debt
securities are issued. If the settlement rate, based on the yield on designated
U.S. Treasury notes is greater than the agreed-upon initial rate, the Company
will receive a cash payment. If the difference is less, the Company will make a
cash payment. The amount paid or received will be recognized as an adjustment to
interest expense over the life of the to-be-issued debt securities. As of
December 31, 1998, the Company has deferred an unrealized loss of $8,590.
Note 4. Debt
In connection with the Distribution, the Company borrowed $275,000 under an
unsecured revolving credit facility ("Revolving Credit Facility") provided by a
group of lenders led by The Chase Manhattan Bank. The Revolving Credit Facility
consists of two tranches: a 364-Day $225,000 tranche and a Three-Year $100,000
tranche. As of December 31, 1998, $225,000 of the 364-Day tranche and none of
the Three-Year tranche were outstanding. The outstanding commitments under the
364-Day tranche will mature on June 15, 1999. Interest under the Revolving
Credit Facility is based upon the London Interbank Offered (LIBO) Rate plus a
spread. The weighted average interest rate on the Revolving Credit Facility was
5.33% on December 31, 1998. The Revolving Credit Facility contains certain
restrictive covenants and requires the Company to maintain certain specified
minimum financial ratios.
The Company and one of its subsidiaries participate in a limited
partnership, one of which serves as general partner. In June 1998, a third party
investor contributed $25,000 to the partnership in exchange for a limited
partnership interest. The partnership is obligated to make distributions to the
third party limited partner of approximately 6.26% per annum. The third party
limited partner has the ability to terminate the partnership at the end of
December 2000, unless, at that time, one or more of the other partners elect to
purchase the entire limited partner interest of the third party limited partner.
The partnership licenses database assets and computer software.
38
<PAGE>
================================================================================
Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
Note 5. Pension and Other Postretirement Benefit Plans
In connection with the Distribution, the Company assumed responsibility for
pension and postretirement benefits for active employees and retirees of the
Company. An allocation of assets and liabilities and expenses for such benefits
prior to July 1, 1998 has been included in the consolidated financial
statements.
Post-
Pension retirement
Benefits Benefits
- --------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at July 1, 1998 $ 37,727 $ 8,040
Service cost 1,644 330
Interest cost 1,316 260
Plan participants' contributions -- 10
Actuarial loss 1,951 280
Benefits paid (242) (80)
- -------------------------------------------------------------------------------
Benefit obligation at December 31, 1998 $ 42,396 $ 8,840
- -------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at July 1, 1998 $ 58,292 $ --
Actual return on plan assets 4,129 --
Company contribution -- 70
Plan participants' contributions -- 10
Benefits paid (242) (80)
- -------------------------------------------------------------------------------
Fair value of plan assets
at December 31, 1998 $ 62,179 $ --
- -------------------------------------------------------------------------------
Funded status
at December 31, 1998 $ 19,783 $ (8,840)
Unrecognized actuarial (gain) loss (11,306) 170
Unamortized Transition Asset (973) --
Unrecognized prior service credit (2,456) (770)
- -------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 5,048 $ (9,440)
- -------------------------------------------------------------------------------
Weighted-average assumptions as of December 31, 1998, except as indicated:
Discount rate
July 1, 1998 7.00% 7.00%
December 31, 1998 6.75% 6.75%
Expected return on plan assets 9.75% N/A
Rate of compensation increase 4.16% 4.16%
For measurement purposes, the assumed rate of future increases in per capita
cost of covered postretirement health care benefits is 7.3% in 1998, decreasing
gradually to 5.0% for the year 2021 and remaining constant thereafter.
Pension Postretirement
Six Months Ended December 31, 1998 Benefits Benefits
- --------------------------------------------------------------------------------
Components of net
periodic benefit cost
Service cost $ 1,644 $ 330
Interest cost 1,316 260
Expected return on plan assets (2,419) --
Amortization of transition asset (242) --
Amortization of prior service cost (117) (170)
Recognized actuarial loss (21) --
- --------------------------------------------------------------------------------
Net periodic benefit cost $ 161 $ 420
- --------------------------------------------------------------------------------
Through June 30, 1998, the Company participated in Cognizant's defined benefit
pension plan and its postretirement health and life insurance plans covering
eligible employees in the U.S. Prior to the D&B Distribution, the Company
participated in D&B's plans. Accordingly, the Company has recorded pension
expense, as allocated in the Respective Periods by Cognizant and D&B, totaling
$334 for the six months ended June 30, 1998, and $1,571 and $2,397 for the years
ended December 31, 1997 and 1996, respectively. The cost of postretirement
benefit plans to the Company and as allocated by Cognizant and D&B during the
respective periods was not significant.
Certain employees of the Company in the U.S. also have been eligible to
participate in the Company's defined contribution plan and in the Cognizant and
D&B-sponsored defined contribution plans during the Respective Periods. The
Company makes a matching contribution of up to 50% of the employee's
contribution based on specified limits of the employee's salary. The Company's
expense related to these plans was $2,278, $2,021, and $1,797 for the years
ended December 31, 1998, 1997, and 1996, respectively.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement health care plans. A
one-percentage-point change in the assumed health care cost trend rates would
have the following effects:
1% Point 1% Point
Increase Decrease
- --------------------------------------------------------------------------------
Effect on total of service and
interest cost components
for the six months ended
December 31, 1998 $ 50 ($ 40)
Effect on postretirement benefit obligation
as of December 31, 1998 $ 850 ($740)
39
<PAGE>
Notes to Consolidated
Financial Statements (cont'd)
================================================================================
Dollar amounts in thousands, except per share data
- --------------------------------------------------------------------------------
Note 6. Employee Stock Plans
The Nielsen Media Research Key Employees Stock Incentive Plan provides for the
grant of stock options and restricted stock to eligible employees. All options
have a life of ten years, vest proportionally over three to six years and have
an exercise price equal to the fair value of the common stock on the grant date.
On November 1, 1996, immediately following the D&B Distribution, outstanding
stock option awards under the D&B Key Employees Stock Option Plans held by
Company employees were canceled and replaced by substitute awards under the
Cognizant Corporation Key Employees Stock Incentive Plan. Immediately following
the Cognizant Distribution, outstanding awards under the Cognizant Key Employees
Stock Incentive Plan held by Company employees were adjusted in accordance with
the Nielsen Media Research Plan. The adjusted awards have the same ratio of the
exercise price per option to the market value per share, the same aggregate
difference between market value and exercise price, and the same vesting
provisions, option periods and other terms and conditions as the original
options. These adjusted awards were further adjusted retroactive to November 1,
1996 to reflect the Company's one-for-three reverse stock split effective August
26, 1998.
Weighted Avg.
Shares Exercise Price
- --------------------------------------------------------------------------------
Options Outstanding November 1, 1996 3,350,314 $ 7.63
Granted 14,804,506 $ 8.12
- --------------------------------------------------------------------------------
Options Outstanding December 31, 1996 18,154,820 $ 8.04
Granted 951,219 $ 8.77
Exercised (575,004) $ 7.37
Expired (1,128,270) $ 8.03
- --------------------------------------------------------------------------------
Options Outstanding December 31, 1997 17,402,765 $ 8.11
Granted 1,372,634 $15.58
Exercised (3,831,547) $ 8.49
Expired (745,094) $ 8.17
- --------------------------------------------------------------------------------
Options Outstanding December 31, 1998 14,198,758 $ 8.87
================================================================================
At December 31, 1998 outstanding options for Nielsen Media Research common stock
held by Company employees were as follows:
Weighted Avg.
Shares ----------------------------
Range of ------------------------- Years Exercise
Exercise Prices Outstanding Exercisable Remaining Price
- --------------------------------------------------------------------------------
$ 5.59 - $ 6.82 116,448 116,448 2 $ 6.11
$ 7.28 - $ 8.59 12,348,098 3,005,263 8 $ 8.12
$ 9.14 - $10.82 369,798 17,460 9 $10.15
$11.86 - $16.44 1,364,414 0 10 $15.61
- --------------------------------------------------------------------------------
14,198,758 3,139,171 8 $ 8.87
================================================================================
The Company maintains an Employee Stock Purchase Plan which allows eligible
employees to purchase a limited amount of common stock at the end of each
quarter at a price equal to the lesser of 90% of fair market value on (a) the
first trading day of the quarter or (b) the last trading day of the quarter.
Fair market value is defined as the average of the high and low prices of the
shares on the relevant day.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires that
companies with stock-based compensation plans either recognize compensation
expense based on the fair value of options granted or continue to apply the
existing accounting rules and disclose pro forma net income and earnings per
share assuming the fair value method had been applied. The Company has chosen to
continue applying Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for the fixed stock option plans. Had compensation cost for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards to Company employees under those plans,
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated as
follows:
Year Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
Net Income
As reported $ 54,748 $ 52,475 $ 47,605
Pro forma $ 51,813 $ 49,059 $ 46,660
Earnings Per Share:
Basic: As reported $ 0.99 $ 0.95 $ 0.84
Pro forma $ 0.94 $ 0.89 $ 0.82
Diluted: As reported $ 0.92 $ 0.92 $ 0.84
Pro forma $ 0.87 $ 0.86 $ 0.82
Note: The pro forma disclosures shown above are not representative of the
effects on net income and earnings per share in future years.
The fair value of the Company's stock options used to compute the Company's pro
forma net income and earnings per share disclosures for the years ended December
31, 1998, 1997 and 1996 are based on the estimated present value of the
Company's stock options at grant date and an allocation of the estimated present
value of the Cognizant stock options at their respective grant dates using the
Black-Scholes option pricing model.
The following weighted average assumptions were used:
Stock Option Grants
- --------------------------------------------------------------------------------
Cognizant
Nielsen ---------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Dividend Yield 0.0% 0.3% 0.3%
Expected Volatility 30.0% 25.0% 25.0%
Risk-Free Interest Rate 4.7% 5.9% 5.9%
Expected Term (years) 3.0 4.5 4.5
Fair Value $ 4.29 $11.46 $10.31
40
<PAGE>
================================================================================
Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
Note 7. Income Taxes
Years ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
Pretax Income $94,231 $90,261 $81,961
================================================================================
The provision for income taxes
consisted of:
U.S. Federal
Current $18,949 $23,600 $16,735
Deferred 9,969 4,674 8,764
- --------------------------------------------------------------------------------
28,918 28,274 25,499
- --------------------------------------------------------------------------------
U.S. State & Local and Foreign
Current 7,182 8,601 7,148
Deferred 3,383 911 1,709
- --------------------------------------------------------------------------------
10,565 9,512 8,857
- --------------------------------------------------------------------------------
Total $39,483 $37,786 $34,356
================================================================================
The following table summarizes the significant differences between the U.S.
Federal statutory taxes and the Company's provision for income taxes for
consolidated financial statement purposes for the years ended December 31:
1998 1997 1996
- --------------------------------------------------------------------------------
Tax Expense at Statutory Rate $32,981 $31,591 $28,686
State and Local Income Taxes,
net of Federal Tax Benefit 6,380 6,053 5,355
Foreign 122 142 315
- --------------------------------------------------------------------------------
Total Taxes $39,483 $37,786 $34,356
================================================================================
The Company's deferred tax assets (liabilities) are comprised of the following
at December 31:
1998 1997
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Postretirement Benefits $ 3,855 $ 4,428
Bad Debts 1,226 1,735
Other 425 151
- -------------------------------------------------------------------------------
5,506 6,314
- -------------------------------------------------------------------------------
Deferred Tax Liabilities:
Computer Software and Intangibles (38,860) (25,524)
Unbilled Revenue (5,299) (3,952)
Postretirement Benefits (2,966) (3,418)
Depreciation (4,669) (5,879)
Other -- (477)
- -------------------------------------------------------------------------------
(51,794) (39,250)
- -------------------------------------------------------------------------------
Net Deferred Tax Liability $(46,288) $(32,936)
================================================================================
Note 8. Lease Commitments
The Company leases office and production facilities, computers and other
equipment under operating leases expiring through 2007. Rental expense under
these leases amounted to $11,309, $10,911, and $10,774 for the years ended
December 31, 1998, 1997 and 1996, respectively. Aggregate minimum rentals under
noncancellable leases are as follows:
Years ending December 31,
- --------------------------------------------------------------------------------
1999 $ 8,763
2000 7,885
2001 7,485
2002 7,572
2003 6,837
Thereafter 6,068
- --------------------------------------------------------------------------------
$44,610
================================================================================
At the Distribution, the Company assumed certain Cognizant leases or entered
into sublease agreements with IMS Health or third parties for certain
facilities, computer and other equipment, which principally are a continuation
of existing lease commitments at market rates. These commitments are included in
the amounts disclosed above.
41
<PAGE>
Notes to Consolidated
Financial Statements (cont'd)
================================================================================
Dollar amounts in thousands, except per share data
- --------------------------------------------------------------------------------
Note 9. Other Transactions with Affiliates
Prior to the Cognizant Distribution, Cognizant, and prior to the D&B
Distribution, D&B, used a centralized cash management system to finance their
operations. Cash deposits from most of the Company's businesses were transferred
to Cognizant and D&B, respectively, on a daily basis. Cognizant and D&B,
respectively, funded the Company's disbursement bank accounts as required. No
interest was charged on these transactions. Cash and cash equivalents at
December 31, 1997 and 1996 in the accompanying consolidated financial statements
represent remaining balances in the Company's accounts.
Cognizant and D&B provided certain centralized services (see Note 1 to the
Consolidated Financial Statements) to the Company. Expenses related to these
services were allocated to the Company based on utilization of specific services
or, where not estimable, based on revenue of the Company in proportion to
Cognizant's and D&B's consolidated revenue. Management believes these allocation
methods are reasonable. These allocations were $16,903 for the six months ended
June 30, 1998, and $34,146 and $34,676 for the years ended December 31, 1997 and
1996, respectively, and are included in operating costs and selling and
administrative expenses in the Consolidated Statements of Operations. Amounts
due to Cognizant and D&B for these allocated expenses are included in Divisional
Equity.
Net transfers to or from Cognizant and D&B, included in Divisional Equity,
include advances and loans from affiliates, net cash transfers to or from
Cognizant and D&B, third-party liabilities paid on behalf of the Company by
Cognizant and D&B, amounts due to or from Cognizant and D&B for services and
other charges, and income taxes paid on behalf of the Company by Cognizant and
D&B during the Respective Periods. No interest has been charged on these
transactions. The weighted average balance due from Cognizant and D&B was
$338,061 for the six months ended June 30, 1998, and $334,329 and $342,319 for
the years ended December 31, 1997 and 1996, respectively.
The activity in the net transfers to Cognizant and D&B account for the
periods included in Divisional Equity in the Consolidated Statements of
Shareholders'/Divisional Equity and Comprehensive Income is summarized as
follows:
Year ended December 31
Six months ended --------------------------
June 30,1998 1997 1996
- --------------------------------------------------------------------------------
Cognizant/D&B Services
and Other Charges $ (16,903) $ (37,738) $ (38,870)
Loans and Advances, Net 14,714 12,151 (28,980)
U.S. Income Taxes (12,551) (23,600) (16,735)
Cash Transfers, Net 322,066 100,294 103,654
- -------------------------------------------------------------------------------
Net Transfers to
Cognizant/D&B $ 307,326 $ 51,107 $ 19,069
===============================================================================
For purposes of governing certain of the ongoing relationships between the
Company and IMS Health after the Cognizant Distribution and to provide for an
orderly transition, the Company and IMS Health have entered into various
agreements including a Distribution Agreement, Tax Allocation Agreement,
Employee Benefits Agreement, Shared Transaction Services Agreement, and
Transition Services Agreement. Among other things, the agreements set forth
principles to be applied in allocating certain Cognizant Distribution-related
costs and specify portions of contingent liabilities (including certain
contingent liabilities arising from the D&B Distribution) to be shared if
certain amounts are exceeded.
Note 10. Capital Stock
On July 8, 1998, the Nielsen Media Research Board of Directors authorized a
one-for-three reverse stock split which was approved at a special shareholders'
meeting held on August 26, 1998. Shareholders at the close of business on that
date have the right to receive one new share of Nielsen Media Research common
stock in exchange for three old shares.
Under a Shareholder Rights Plan (the "Rights Plan") adopted by the
Cognizant Board of Directors, and continued by the Company, each certificate for
a share of Nielsen Media Research's common stock also represents one Preferred
Share Purchase Right (a "Right"). In the event a person or group (an "Acquiring
Person") acquires beneficial ownership of, or commences or announces an
intention to make a tender offer for more than 15% of the outstanding shares of
common stock, each Right entitles the holder to purchase one one-thousandth of a
share of Series A Junior Participating Preferred Stock at $210 per each one
one-thousandth of a share (the "Purchase Price"). In the event a person or group
becomes an Acquiring Person, or Nielsen Media Research is acquired in a merger
or other business combination or 50% or more of its assets or earning power are
sold, each holder of a Right (other than an Acquiring Person) has the right to
receive common stock of Nielsen Media Research or the entity that engaged in
such transaction, as applicable, which has a market value of two times the
Purchase Price. The Rights, which do not have voting rights and are subject to
adjustment in certain circumstances, expire on October 23, 2006 and are
redeemable by Nielsen Media Research at a price of $0.01 per Right under certain
circumstances.
42
<PAGE>
================================================================================
Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
Note 11. Litigation and Contingencies
The Company and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings and litigation, if
decided adversely, could have a material adverse effect on quarterly or annual
operating results or cash flows when resolved in a future period. However, in
the opinion of management, these matters will not materially affect the
Company's consolidated financial position.
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and IMS, a unit of Cognizant (the "IRI
Action"). The complaint alleges, among other things, various violations of the
antitrust laws and damages in excess of $350,000, which amount IRI has asked to
be trebled under the antitrust laws. IRI also seeks punitive damages of an
unspecified amount. In connection with the D&B Distribution, D&B, ACNielsen
Corporation ("ACNielsen") (the parent of A.C. Nielsen Company) and Cognizant
entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint
Defense Agreement") pursuant to which ACNielsen agreed to be responsible for any
potential liabilities which may ultimately be incurred by D&B or Cognizant as a
result of such action, up to a maximum amount to be determined by an independent
investment bank if and when any such liabilities are incurred. The determination
of such maximum amount will be based on ACNielsen's ability to satisfy such
liabilities and remain financially viable, subject to certain assumptions and
limitations. However, Cognizant and D&B agreed that to the extent that ACNielsen
is unable to satisfy any such liabilities in full and remain financially viable,
Cognizant and D&B will each be responsible for 50% of the difference between the
amount, if any, which may be payable as a result of such litigation and the
maximum amount which ACNielsen is then able to pay as determined by such
investment bank. Under the terms of the D&B Distribution Agreement, dated
October 28, 1996, among Cognizant, D&B and ACNielsen (the "1996 Distribution
Agreement"), pursuant to which shares of Cognizant and ACNielsen were
distributed to the stockholders of D&B and as a condition to the Cognizant
Distribution, Nielsen Media Research and IMS Health were required to undertake
to be jointly and severally liable to D&B and ACNielsen for Cognizant's
obligations with respect to the IRI action.
However, pursuant to the Distribution Agreement, dated as of June 30, 1998
between Cognizant and IMS Health, IMS Health and Nielsen Media Research agreed
that, as between themselves, IMS Health will assume 75%, and Nielsen Media
Research will assume 25%, of any payments to be made in respect of the IRI
Action under the Indemnity and Joint Defense Agreement or otherwise, including
any ongoing legal fees and expenses related thereto incurred in 1999 or
thereafter. IMS Health agreed to be fully responsible for any legal fees and
expenses incurred during 1998.
Under the terms of the 1996 Distribution Agreement, Nielsen Media Research
and IMS Health are also jointly and severally liable to D&B for taxes and
accrued interest arising from certain tax assessments that may be levied by the
Internal Revenue Service ("IRS") related to certain D&B tax planning strategies.
Pursuant to the Distribution Agreement, Nielsen Media Research is liable to pay
25% of any payments made by D&B to the IRS, net of any related tax benefits, in
excess of the first $397,000 which is payable by D&B and/or IMS Health.
The IRS is currently reviewing D&B's utilization of certain capital losses
during 1989 and 1990. D&B has stated that it intends to vigorously defend its
position against any assessment that may be made in the future regarding this
transaction. However, if an assessment is made and should the IRS prevail, in
the opinion of management the impact of this transaction would not have a
material effect on the results of operations, cash flows or financial position
of Nielsen Media Research.
In accordance with the Distribution Agreement, Nielsen Media Research's
aggregate liability to IMS Health for payments in respect of the IRI Action and
its share of any future D&B tax and interest payments relating to the tax
uncertainties referred to in the paragraphs above shall not exceed $125,000 and
is not payable until 2001.
Management is unable to predict at this time the final outcome of the IRI
Action, the amount of or any future D&B tax and interest payments and whether
the resolution of such matters could materially affect Nielsen Media Research's
results of operations, cash flows or financial position.
43
<PAGE>
Notes to Consolidated
Financial Statements (cont'd)
================================================================================
Dollar amounts in thousands, except per share data
- --------------------------------------------------------------------------------
Note 12. Supplemental Financial Data
Accounts Receivable - Net: 1998 1997
- --------------------------------------------------------------------------------
Trade $ 56,119 $ 53,641
Less: Allowance for Doubtful Accounts (2,994) (3,294)
Other 1,267 1,639
- -------------------------------------------------------------------------------
$ 54,392 $ 51,986
===============================================================================
Other Current Assets: 1998 1997
- -------------------------------------------------------------------------------
Deferred Income Taxes $ 1,650 $ 1,458
Prepaid Expenses 4,442 3,093
- -------------------------------------------------------------------------------
$ 6,092 $ 4,551
===============================================================================
Property, Plant and Equipment - Net, Carried at Cost, Less
Accumulated Depreciation and Amortization 1998 1997
- --------------------------------------------------------------------------------
Buildings $ 13,448 $ 13,413
Machinery and Equipment 149,472 134,155
Less: Accumulated Depreciation (99,270) (98,325)
Leasehold Improvements, less: Accumulated
Amortization of $2,883 and $2,597 3,586 4,243
Land 1,050 1,564
- -------------------------------------------------------------------------------
$ 68,286 $ 55,050
===============================================================================
Computer
Software Intangibles
- --------------------------------------------------------------------------------
January 1, 1997 $ 35,653 $ 11,686
Additions at Cost 17,121 7,681
Amortization (9,641) (4,934)
Other Deductions and Reclassifications (40) (3,784)
- --------------------------------------------------------------------------------
December 31, 1997 43,093 10,649
Additions at Cost 22,085 12,979
Amortization (10,973) (4,066)
Other Deductions and Reclassifications (3,630) 2,672
- --------------------------------------------------------------------------------
December 31, 1998 $ 50,575 $ 22,234
================================================================================
Accumulated Amortization of Computer Software and Intangibles was $43,173 and
$19,501 at December 31, 1998, and $32,605 and $22,773 at December 31, 1997,
respectively.
Other Assets 1998 1997
- --------------------------------------------------------------------------------
Unbilled Receivables $12,954 $12,566
Pension Assets 7,079 8,546
Investments 2,754 --
- --------------------------------------------------------------------------------
$22,787 $21,112
================================================================================
Accounts Payable 1998 1997
- --------------------------------------------------------------------------------
Trade $10,829 $11,714
Payroll Taxes 2,136 2,641
- --------------------------------------------------------------------------------
$12,965 $14,355
================================================================================
Accrued and Other Current Liabilities: 1998 1997
- --------------------------------------------------------------------------------
Salaries, Wages, Bonuses and
Other Compensation $22,715 $13,386
Sales and Use Taxes 3,511 644
Interest Rate Hedge Obligation 8,590 --
Other 19,937 9,599
- --------------------------------------------------------------------------------
$54,753 $23,629
================================================================================
================================================================================
Note 13. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31, Full Year
Three Months Ended -------------------------------------------------------------
1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenue $ 96,064 $ 97,931 $ 99,394 $108,543 $401,932
Operating Income $ 21,317 $ 23,013 $ 26,001 $ 24,048 $ 94,379
Net Income $ 14,246 $ 14,774 $ 13,258 $ 12,470 $ 54,748
Basic Earnings Per Share $ 0.26 $ 0.27 $ 0.24 $ 0.22 $ 0.99
Diluted Earnings Per Share $ 0.25 $ 0.25 $ 0.23 $ 0.21 $ 0.92 (1)
1997
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Revenue $ 86,271 $ 87,184 $ 89,911 $ 95,228 $358,594
Operating Income $ 21,910 $ 22,980 $ 24,267 $ 21,104 $ 90,261
Net Income $ 12,730 $ 13,351 $ 14,099 $ 12,295 $ 52,475
Basic Earnings Per Share $ 0.22 $ 0.24 $ 0.26 $ 0.23 $ 0.95
Diluted Earnings Per Share $ 0.22 $ 0.24 $ 0.25 $ 0.22 $ 0.92 (1)
</TABLE>
(1) The sum of the quarterly earnings per share does not equal full year
earnings per share due to rounding.
44
<PAGE>
Five-Year Selected
Financial Data
================================================================================
Amounts in thousands, except per share data Nielsen Media Research, Inc.
<TABLE>
<CAPTION>
(Unaudited)
Year Ended, and as of December 31, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenue $ 401,932 $ 358,594 $ 319,404 $ 288,652 $ 250,303
Costs and Expenses 307,553 268,333 237,443 219,084 198,380
- -------------------------------------------------------------------------------------------------------------------------------
Operating Income 94,379 90,261 81,961 69,568 51,923
Non Operating Expense, Net (148) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Income before Provision for Taxes 94,231 90,261 81,961 69,568 51,923
- -------------------------------------------------------------------------------------------------------------------------------
Net Income $ 54,748 $ 52,475 $ 47,605 $ 40,412 $ 30,115
===============================================================================================================================
Earnings Per Share - Basic $ 0.99 $ 0.95 $ 0.84 $ 0.72 N/A
Earnings Per Share - Diluted $ 0.92 $ 0.92 $ 0.84 $ 0.72 N/A
Weighted Average Number of Shares Outstanding:
Basic 55,159 55,054 56,648 56,507 N/A
Diluted 59,505 57,117 56,891 56,507 N/A
Balance Sheet Data:
Total Assets $ 232,165 $ 192,434 $ 170,331 $ 134,521 $ 138,842
Total Debt $ 250,000 -- -- -- --
Shareholders'/Divisional Equity $(147,862) $ 101,583 $ 99,353 $ 70,874 $ 87,893
</TABLE>
45
<PAGE>
Corporate Information
================================================================================
Nielsen Media Research, Inc.
- --------------------------------------------------------------------------------
STOCK PERFORMANCE TABLE
The Company's common stock (symbol NMR) began trading on the New York Stock
Exchange on July 1, 1998. The number of shareholders of record was 9,028 as of
December 31, 1998. The following table summarizes price information for the
Company's common stock during 1998:
Price per Share ($)
- ------------------------------------------------------------------------------
High Low
- ------------------------------------------------------------------------------
Third quarter 15.375 8.250
Fourth quarter 18.000 8.375
- -----------------------------------------------------------------------------
Year 18.000 8.250
=============================================================================
Amounts have been adjusted to reflect a one-for-three reverse stock split on
August 26, 1998.
Nielsen Media Research is the legal successor to Cognizant Corporation, which
spun off IMS Health to shareholders on June 30, 1998 and changed its name.
Nielsen Media Research commenced when-issued trading on the New York Stock
Exchange on June 23, 1998. This table reflects daily closing prices beginning
July 1, 1998. Past performance is not necessarily indicative of future returns
on an investment in Nielsen Media Research.
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Shareholders will be held at 1209 Orange Street,
Wilmington, Delaware on Tuesday, April 13, 1999 at 9:30 a.m.
Inquiries Regarding Your Stock Holdings
Registered shareholders (shares held by you in your own name) should address
communications to:
Nielsen Media Research
First Chicago Trust Company of New York
c/o EquiServe
PO Box 2500
Jersey City, NJ 07303-2500
Tel: 1-800-519-3111
Hearing Impaired: (201) 222-4955
E-mail: [email protected]
or
Office of the Corporate Secretary
Nielsen Media Research, Inc.
299 Park Avenue
New York, NY 10171
Tel: (212) 708-6976
Fax: (212) 708-7012
In all inquiries, please mention Nielsen Media Research, your name as printed on
your stock certificate, your Social Security number, your address and telephone
number.
Beneficial holders (shares held in the name of your bank or broker) should
direct communications on all administrative matters to your stockbroker.
Employee benefit plan participants should direct all inquiries to the Employee
Service Center at 1-800-525-9586.
Earnings announcements and other corporate information are available on our web
site:
www.nielsenmedia.com
INSTITUTIONAL INVESTORS
Securities analysts, portfolio managers, representatives of financial
institutions and others with questions are invited to contact:
Investor Relations
Nielsen Media Research, Inc.
299 Park Avenue
New York, NY 10171
(212) 708-7788
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, NY 10019-6013
FORM 10-K
The Company will file its Annual Report on Form 10-K with the Securities and
Exchange Commission (SEC) by March 31, 1999. Copies of the 10-K and 10-Q SEC
filings can be obtained by submitting a request to the Company's Investor
Relations department at the Corporate address above. Copies of SEC filings also
are available from the SEC at: www.sec.gov.
46
EXHIBIT 21
NIELSEN MEDIA RESEARCH, INC.
ACTIVE SUBSIDIARIES
AS OF JANUARY 31, 1999
STATE OR OTHER
NAME JURISDICTION OF INCORPORATION % OWNERSHIP
- ---- ----------------------------- -----------
CZT/ACN Trademarks, L.L.C. ............. Delaware 50%
Nielsen Media Research Ltd. ............ Nova Scotia 100%
NMR Investing I, Inc. .................. Delaware 100%
NMR Licensing Associates, L.P. ......... Delaware 78.53%
- --Athenian Leasing Corporation ......... Delaware 100%
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Nielsen Media Research, Inc. on Form S-8 (File Nos. 333-13889,
333-14763 and 333-29995) of our reports dated January 27, 1999 on our audits of
the consolidated financial statements and financial statement schedule of
Nielsen Media Research, Inc. as of December 31, 1998 and 1997 and for the years
ended December 31, 1998, 1997 and 1996, which reports are incorporated by
reference or included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 7,799
<SECURITIES> 0
<RECEIVABLES> 57,386
<ALLOWANCES> 2,994
<INVENTORY> 0
<CURRENT-ASSETS> 68,283
<PP&E> 163,970
<DEPRECIATION> 99,270
<TOTAL-ASSETS> 232,165
<CURRENT-LIABILITIES> 297,816
<BONDS> 0
0
0
<COMMON> 570
<OTHER-SE> (147,292)
<TOTAL-LIABILITY-AND-EQUITY> 232,165
<SALES> 0
<TOTAL-REVENUES> 401,932
<CGS> 0
<TOTAL-COSTS> 307,553
<OTHER-EXPENSES> (8,008)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,156
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