PROSPECTUS
$150,000,000
NIELSEN MEDIA RESEARCH
7.60% NOTES DUE 2009
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Interest payable on June 15 and December 15
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NIELSEN MEDIA RESEARCH, INC. MAY REDEEM ANY OF THE NOTES AT THE REDEMPTION
PRICES DESCRIBED IN THIS PROSPECTUS. SEE "DESCRIPTION OF THE NOTES".
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PRICE 99.948% AND ACCRUED INTEREST, IF ANY
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
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Per Note .......... 99.948% .650% 99.298%
Total ............. $149,922,000 $975,000 $148,947,000
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The Underwriters expect to deliver the Notes to purchasers on June 25, 1999.
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MORGAN STANLEY DEAN WITTER CHASE SECURITIES INC.
June 22, 1999
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TABLE OF CONTENTS
PAGE
The Company ............................................................. 3
Use of Proceeds ......................................................... 10
Capitalization .......................................................... 11
Selected Financial Data and Pro Forma
Information ........................................................... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................................................ 15
Factors That May Affect Future Results;
Forward Looking Statements ............................................ 20
Description of the Notes ................................................ 21
Underwriters ............................................................ 30
Validity of the Notes ................................................... 31
Experts ................................................................. 31
You should rely only on the information contained or incorporated by
reference in this Prospectus. We have not authorized anyone to provide you with
information different from that contained or incorporated by reference in this
Prospectus. We are offering to sell the Notes, and seeking offers to buy the
Notes, only in jurisdictions where offers and sales are permitted. The
information contained or incorporated by reference in this Prospectus is
accurate only as of the date of this Prospectus, regardless of the time of
delivery of this Prospectus or any sales of the Notes.
WHERE YOU CAN FIND MORE INFORMATION
As required by the Securities Act of 1933, we filed a Registration
Statement (No. 333-59563) relating to the Notes offered by this Prospectus with
the Securities and Exchange Commission. This Prospectus is a part of that
Registration Statement, which includes additional information.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. You can also request copies of the documents upon payment of
a duplicating fee, by writing the Public Reference Section of the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. These SEC filings are also available to the public from the SEC's web
site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus. We incorporated by reference the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934:
o Annual Report on Form 10-K for the year ended December 31, 1998, filed
with the SEC on March 29, 1999; and
o Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
filed with the SEC on May 17, 1999.
All documents we file pursuant to Section 13(a), 13(c), 14 or 14(d) of the
Securities Exchange Act of 1934 after the date of this Prospectus and before the
later of (1) the completion of the offering of the Notes and (2) the date we
stop offering the Notes pursuant to this Prospectus shall be incorporated by
reference in this Prospectus from the date of filing of such documents.
Information that we file later with the SEC will automatically update
information in this Prospectus. In all cases, you should rely on the later
information over different information included in this Prospectus.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Chief Legal Officer
Nielsen Media Research, Inc.
299 Park Avenue
New York, New York 10171
(212) 708-7004
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THE COMPANY
GENERAL
Nielsen Media Research, Inc. (the "Company" or "Nielsen Media Research") 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 rating 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, 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. For additional
information on the relationship between Nielsen Media Research and IMS Health,
see Part I--Item 1-- "Relationship between the Company and IMS Health" in the
Company's 1998 Annual Report on Form 10-K.
STRATEGY
The Company's strategic goal is to be the acknowledged worldwide leader in
satisfying the media industry's needs for high quality information which defines
the value of media and for services which enable its customers and the
marketplace to operate more effectively.
The Company's strategy has two components: first, to realize the potential
of its existing businesses, both national and local; and second, to optimize its
market strengths and capabilities into realizing new opportunities in adjacent
markets and new businesses.
o Nielsen Media Research intends to realize the potential of its core
businesses by enhancing quality in its operations, enhancing
productivity, anticipating environmental and marketplace changes and
competitive threats, responding with fast moving and flexible
capabilities and decision support solutions, adding derivative
products and services, and providing value-added solutions. Central to
this strategy are its investments in data collection and processing
technology, as well as in data and sample quality.
o Nielsen Media Research intends to optimize its capabilities and
infrastructure into new high-potential opportunities by providing
services that not only enable its customers to make
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better decisions but allow them to better anticipate their own
futures. Nielsen Media Research's most significant initiatives in this
area include Monitor-Plus, New Media Services, Nielsen Interactive
Services (including Nielsen//NetRatings) and New Millennium, which are
described below.
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, over 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.
LOCAL SERVICES
The Company's primary 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 46 of the
nation's largest markets representing about 64% of television households in the
United States. The Company has announced that two additional markets are
scheduled to be metered by mid-2000, which will bring the total number of local
metered markets to 48. 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 1992, the NHTI service remains
the first and only metered national Hispanic audience measurement
service. Based on a sample of approximately 800 Hispanic households
across the U.S., it uses the same 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
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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.
OTHER SERVICES
o Monitor-Plus. Nielsen Media Research's Monitor-Plus service provides
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 automated 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 announced a strategic alliance with
NetRatings, Inc. to measure Internet usage and advertising. The
definitive agreements governing the alliance are in the process of
being completed. Under the arrangement, Nielsen Media Research sample
recruitment and research expertise are combined with NetRatings'
Internet measurement software, which is capable of providing detailed
reporting on usage and advertising. The Company believes the
NetRatings technology is unique in its method of tracking Internet
banner advertising. The joint service, Nielsen//Net Ratings, was
launched in March 1999 and currently serves over 100 customers with
weekly reports.
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 heart 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
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are placed in a sample of approximately 5,000 households in the U.S.,
approximately 800 U.S. Hispanic households and over 2,000 households in Canada,
randomly selected and recruited by Nielsen Media Research. The meters enable the
measurement of 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. tuning records are
automatically transmitted by phone 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 46 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 channel 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 which 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 (34 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 (over 200 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 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 both
tuning and demographics data in the smaller non-metered 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
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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 (including
Nielsen//NetRatings) and New Millennium.
As part of its UMI program, Nielsen Media Research is developing a
next-generation metering system, known as the Active/Passive, or ("A/P")
metering system, to enable measurement of program viewing in the emerging
digital television environment. This new system uses 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 in the event that the codes are not available. 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. Eleven metered markets
were added since 1997, and the Company has announced that two additional markets
are scheduled to be metered by mid-2000, which will bring the total number of
local metered markets to 48.
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 being
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
from time to time criticized by various participants in the television industry.
This criticism, in part, has increased the likelihood of additional
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competition in its 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. 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 also announced in
early 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." However, on May 27, 1999, SRI announced that it was
"concluding its . . . TV metering project" and that "while it is obviously
disappointing that the necessary funding for a national rollout has not been
forthcoming, SRI is still pursuing options and remains ready to serve the
industry."
On the local level, ADcom Information Services 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 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 Management, 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 and has announced
plans to provide metered ratings services in Ontario (including Toronto) and
Quebec by September 2000. 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 Reporting, 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 Media Metrix, 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
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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, to 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 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.
LITIGATION AND CONTINGENCIES
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 (a subsidiary of ACNielsen), and a
predecessor of IMS Health (the "IRI Action"). The complaint alleges, among other
things, various violations of the antitrust laws and damages in excess of $350
million, which amount IRI has asked to be trebled under the antitrust laws. IRI
also seeks punitive damages in an unspecified amount. In light of the
potentially significant liabilities which could arise from the IRI Action and in
order to facilitate the D&B spin-off (as defined below) in 1996, D&B, ACNielsen
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 Distribution Agreement dated as of 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 (the "D&B
spin-off"), as a condition to the Distribution, IMS Health and the Company were
required to undertake to be jointly and severally liable to D&B and ACNielsen
for Cognizant's obligations under the 1996 Distribution Agreement. However,
pursuant to the Distribution Agreement dated as of June 30, 1998, between
Cognizant and IMS Health, IMS Health and the Company agreed that, as between
themselves, IMS Health will assume 75%, and the Company 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 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.
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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 million that 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 paid and should the IRS prevail, in
the opinion of the Company's 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 million
and is not payable until 2001.
Management is unable to predict at this time the final outcome of the IRI
Action, the amount of the aggregate 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.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
(before deducting estimated expenses of approximately $500,000 payable by the
Company) will be approximately $149 million. The net proceeds from the Offering
will be used by the Company to repay approximately $150 million of indebtedness.
This indebtedness was part of $300 million of indebtedness that the Company had
incurred under facilities provided by third parties. The facilities were
established by Cognizant to provide funds for the repayment by Cognizant at the
time of the Distribution of existing intercompany liabilities to certain
entities included in IMS Health and for general corporate purposes. At June 14,
1999, approximately $225 million was outstanding under these facilities. The
weighted average interest rate on the $150 million indebtedness being repaid was
5.50% on June 14, 1999 and approximately $100 million of such indebtedness is
scheduled to mature in December 1999; the balance is scheduled to mature in June
2001. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
March 31, 1999 on a historical basis and (ii) at March 31, 1999 as adjusted to
give effect to the offering of the Notes and draw-down of $50 million under the
Three-Year tranche of the Revolving Credit Facility, and the use of the proceeds
therefrom. After giving effect to the offering, the Company will have $50
million outstanding under the Three-Year tranche of the Revolving Credit
Facility and unused availability under the Three-Year tranche of $50 million.
The following data are qualified in their entirety by the consolidated financial
statements of the Company and other information contained elsewhere in this
Prospectus or incorporated by reference herein.
<TABLE>
<CAPTION>
MARCH 31, 1999
(UNAUDITED)
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cash and Cash Equivalents ....................................... $ 6,054 $ 6,054
========= =========
Short-Term Debt ................................................. $ 200,000 $ 0
========= =========
Long-Term Debt
Revolving Credit Facility (Three-Year tranche) ................. $ 0 $ 50,000
Other Long-Term Debt ........................................... 25,000 25,000
7.60% Notes offered hereby ....................................... 0 150,000
Shareholders' Equity:
Preferred Stock, par value $.01 per share,
authorized--10,000,000 shares; outstanding--none .............. $ 0 $ 0
Series Common Stock, par value $.01 per
share, authorized--10,000,000 shares; outstanding--none ....... 0 0
Common Stock, par value $.01 per share,
authorized--400,000,000 shares; issued
57,033,524 shares ............................................. 570 570
Treasury Stock--89,840 shares .................................. (1,843) (1,843)
Distribution in Excess of Net Book Value ....................... (163,542) (163,542)
Retained Earnings .............................................. 36,985 36,985
Cumulative Translation Adjustment .............................. 994 994
--------- ---------
Total Equity .................................................... (126,836) (126,836)
--------- ---------
Total Capitalization ............................................ $(101,836) $ 98,164
========= =========
Total Capitalization and Short-term Debt ........................ $ 98,164 $ 98,164
========= =========
</TABLE>
11
<PAGE>
SELECTED FINANCIAL DATA AND PRO FORMA INFORMATION
The following data are qualified in their entirety by the financial
statements of the Company and other information contained elsewhere in this
Prospectus or incorporated by reference herein. The financial data as of
December 31, 1998, 1997 and 1996 and for the years ended December 31, 1998,
1997, 1996 and 1995, have been derived from the audited financial statements of
the Company. The financial data as of March 31, 1999 and 1998, and December 31,
1994 and for the three months ended March 31, 1999 and 1998 and for the year
ended December 31, 1994 are unaudited. 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. The following financial data should be read in
conjunction with the information set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus or incorporated by reference herein.
The pro forma statements of income information give effect to (i) the
impact of pro forma interest expense for the six months ended June 30, 1998
related to the borrowing by the Company of $300 million of third-party debt to
repay existing intercompany liabilities to IMS Health in connection with the
Distribution as if such borrowing was made on the first day of such period and
(ii) actual interest incurred for the six months ended December 31, 1998 on a
weighted average balance of approximately $275 million of such debt and actual
interest incurred for the three months ended March 31, 1999 on a weighted
average balance of $237.5 million of such debt, in each case of clause (ii) for
purposes of the pro forma fixed charge coverage ratios, as adjusted to give pro
forma effect to the increase in interest expense relating to the issuance of the
Notes and the borrowings under the Three-Year tranche of the Revolving Credit
Facility as if such issuance and borrowings had occurred on the first day of
each such period. The pro forma data are for informational purposes only and may
not necessarily reflect future results of operations or what the results of
operations would have been had the Company incurred such borrowings on the first
day of each such period.
12
<PAGE>
SELECTED FINANCIAL DATA AND PRO FORMA INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
ACTUAL
PRO FORMA ------------------------------------------------------
1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
OPERATING REVENUE ................... $ 401,932 $ 401,932 $358,594 $319,404 $288,652 $250,303
Operating Costs and Selling
and Administrative
Expenses ........................... 276,168 276,168 239,670 212,214 194,741 176,752
Depreciation and
Amortization ....................... 31,385 31,385 28,663 25,229 24,343 21,628
--------- --------- -------- -------- -------- --------
OPERATING INCOME .................... 94,379 94,379 90,261 81,961 69,568 51,923
Interest Expense .................... (18,356) (8,156) 0 0 0 0
Other Income ........................ 8,008 8,008 0 0 0 0
Income Before Provision
for Income Taxes .................. 84,031 94,231 90,261 81,961 69,568 51,923
--------- --------- -------- -------- -------- --------
Provision for Income Taxes .......... 35,209 39,483 37,786 34,356 29,156 21,808
--------- --------- -------- -------- -------- --------
NET INCOME .......................... $ 48,822 $ 54,748 $ 52,475 $ 47,605 $ 40,412 $ 30,115
========= ========= ======== ======== ======== ========
EARNINGS PER SHARE:
Basic ............................... $ 0.89 $ 0.99 $ 0.95 $ 0.84 $ 0.72 N/A
Diluted ............................. 0.82 0.92 0.92 0.84 0.72 N/A
OTHER DATA:
Capital Investment
Expenditures(1) ................... $ 65,782 $ 65,782 $ 49,676 $ 38,551 $ 30,817 $ 28,594
EBITDA(2) ........................... $ 125,764 $ 125,764 $118,924 $107,190 $ 93,911 $ 73,550
Fixed Charge Coverage
Ratio(3) ........................... 4.42 8.34 21.24 20.59 16.93 13.06
BALANCE SHEET DATA
(AT PERIOD END):
Current Assets ...................... $ 68,283 $ 68,283 $ 62,530 $ 55,475 $ 35,175 $ 47,314
Property, Plant and
Equipment--Net ..................... 68,286 68,286 55,050 44,310 39,677 38,413
Capitalized Computer
Software ........................... 50,575 50,575 43,093 35,653 27,601 19,625
Deferred Charges
and Intangibles .................... 22,234 22,234 10,649 11,686 12,299 14,968
Other Assets ........................ 22,787 22,787 21,112 23,207 19,769 18,522
--------- --------- -------- -------- -------- --------
TOTAL ASSETS ..................... $ 232,165 $ 232,165 $192,434 $170,331 $134,521 $138,842
========= ========= ======== ======== ======== ========
Current Liabilities
(Other Than Short-Term
Debt) ............................. $ 72,816 $ 72,816 $ 44,612 $ 33,338 $ 30,528 $ 23,836
Short-Term Debt ..................... 25,000 225,000 0 0 0 0
Long-Term Debt ...................... 225,000 25,000 0 0 78 244
Other Long-Term Liabilities ......... 57,211 57,211 46,239 37,640 33,041 26,869
--------- --------- -------- -------- -------- --------
TOTAL LIABILITIES ................ 380,027 380,027 90,851 70,978 63,647 50,949
--------- --------- -------- -------- -------- --------
Shareholders'/Divisional
Equity ............................. (147,862) (147,862) 101,583 99,353 70,874 87,893
--------- --------- -------- -------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS'/
DIVISIONAL EQUITY ............... $ 232,165 $ 232,165 $192,434 $170,331 $134,521 $138,842
========= ========= ======== ======== ======== ========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------------------
PRO FORMA ACTUAL
--------- -----------------------
1999 1999 1998
--------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS
AND PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
OPERATING REVENUE ............................................... $ 109,175 $ 109,175 $ 96,064
Operating Costs and Selling and Administrative Expenses ......... 74,816 74,816 67,625
Depreciation and Amortization ................................... 8,894 8,894 7,122
--------- --------- --------
OPERATING INCOME ................................................ 25,465 25,465 21,317
Interest Expense ................................................ (3,296) (3,296) 0
Other Income .................................................... 0 0 3,185
--------- --------- --------
Income Before Provision for Income Taxes ........................ 22,169 22,169 24,502
Provision for Income Taxes ...................................... 9,289 9,289 10,256
--------- --------- --------
NET INCOME ...................................................... $ 12,880 $ 12,880 $ 14,246
========= ========= ========
EARNINGS PER SHARE:
Basic ........................................................... $ 0.23 $ 0.23 $ 0.26
Diluted ......................................................... 0.21 0.21 0.25
OTHER DATA:
Capital Investment Expenditures(1) .............................. $ 9,812 $ 9,812 $ 14,226
EBITDA(2) ....................................................... $ 34,359 $ 34,359 $ 28,439
Fixed Charge Coverage Ratio(3) .................................. 4.89 5.63 22.40
BALANCE SHEET DATA (AT PERIOD END):
Current Assets .................................................. $ 70,099 $ 70,099 $ 62,085
Property, Plant and Equipment--Net .............................. 67,483 67,483 58,023
Capitalized Computer Software ................................... 49,062 49,062 45,724
Deferred Charges and Intangibles ................................ 16,406 16,406 12,085
Other Assets .................................................... 22,865 22,865 21,728
--------- --------- --------
TOTAL ASSETS ................................................... $ 225,915 $ 225,915 $199,645
========= ========= ========
Current Liabilities (Other than Short-Term Debt) ................ $ 66,024 $ 66,024 $ 43,539
Short-Term Debt(4) .............................................. 0 200,000 0
Long-Term Debt(4) ............................................... 225,000 25,000 0
Other Long-Term Liabilities ..................................... 61,727 61,727 48,969
--------- --------- --------
TOTAL LIABILITIES .............................................. 352,751 352,751 92,508
--------- --------- --------
Shareholders'/Divisional Equity ................................. (126,836) (126,836) 107,137
--------- --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'/DIVISIONAL EQUITY .......... $ 225,915 $ 225,915 $199,645
========= ========= ========
</TABLE>
- ----------
(1) Includes additions to property, plant and equipment, software additions and
additions to intangibles.
(2) EBITDA represents earnings before interest, taxes, depreciation,
amortization and other income. EBITDA is presented because the Company
believes that investors use it as a financial indicator of a company's
ability to service or incur debt. EBITDA is not a measurement of operating
performance computed in accordance with generally accepted accounting
principles and should not be considered a substitute for operating income,
net income, cash flows from operations or other statement of operations or
cash flow data prepared in conformity with generally accepted accounting
principles, or as a measure of profitability or liquidity. In addition,
EBITDA may not be comparable to similarly titled measures of other
companies. EBITDA may not be indicative of the historical operating results
of the Company, nor is it meant to be predictive of future results of
operations or cash flows.
(3) For the purpose of determining the ratio of earnings to fixed charges,
earnings include pre-tax income plus fixed charges. Fixed charges consist
of interest on all indebtedness plus that portion of operating lease
rentals representative of the interest factor (deemed to be one-third of
operating lease rentals). The Company's historical statements for the years
ended December 31, 1997, 1996, 1995 and 1994 and for the three months ended
March 31, 1998 do not reflect the $300 million of indebtedness incurred in
connection with the Distribution and, accordingly, the historical ratios of
earnings to fixed charges for these periods do not reflect any interest for
this indebtedness. Actual interest expense incurred (other than in the pro
forma column) is reflected for the six months ended December 31, 1998 and
the three months ended March 31, 1999. For purposes of the pro forma
column, the calculation reflects pro forma interest expense for the year
ended December 31, 1998 and three months ended March 31, 1999 of $19.5
million and $4.0 million, respectively.
(4) See "Capitalization."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In 1984, D&B acquired Nielsen Media Research as part of the acquisition of
A.C. Nielsen Company. In November 1996, D&B spun-off Cognizant which included
Nielsen Media Research. On June 30, 1998, Cognizant (which is now the Company)
distributed to all holders of its common stock the shares of IMS Health. 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. The financial statements of the Company and the following discussion
have been prepared on a stand-alone basis. References to Cognizant, in the
discussion below, refer to the accounting successor of Cognizant, IMS Health.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared with Three Months Ended March
31, 1998
Revenue for the first quarter increased by 13.6% to $109.2 million from
$96.1 million for the first quarter of the prior year. National revenues were
fueled by the launch of the new PAX-TV network in September 1998, the addition
of two new cable networks, and increased sales of special analysis and
derivative products. Local revenues benefited from the introduction of
electronic measurement in six markets in 1998 and new station clients, including
PAX-TV affiliates.
Operating costs and selling and administrative expenses for the first
quarter of 1999 increased by 10.6% to $74.8 million from $67.6 million for the
first quarter of the prior year. Excluding Year 2000 compliance costs of $2.6
million and $3.2 million from the first quarter of 1999 and 1998, respectively,
operating costs and selling and administrative expenses increased 12.0%,
reflecting higher costs related to increased investment in the business, offset,
in part, by a reduction in corporate overhead expenses.
Operating income increased by 19.5% to $25.5 million for the first quarter
of 1999 compared with $21.3 million for the first quarter of the prior year.
Operating income growth included a decline in spending for Year 2000 compliance
costs of $0.6 million. Excluding Year 2000 compliance costs in both periods,
operating income for the first quarter of 1999 increased by 14.7%.
Interest expense of $3.3 million was incurred during the first quarter of
1999 in conjunction with funds borrowed in connection with the Distribution.
Non-operating income for the first quarter of 1998 included a gain of $3.2
million from the sale of marketable securities.
The Company's effective tax rate was 41.9% for the first quarter of 1999
and 1998.
The Company's net income for the first quarter decreased by 9.6% to $12.9
million from $14.2 million in the first quarter of the prior year, reflecting
the factors discussed above, particularly the incurrence of interest expense in
the first quarter of 1999, and the absence of the gain from the sale of
marketable securities in the first quarter of 1999.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Nielsen Media Research revenue increased 12.1% in 1998 to $401.9 million
from $358.6 million 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 $276.2
million compared with $239.7 million in 1997, an increase of 15.2%. The increase
reflects higher costs related to increased
15
<PAGE>
investment in the business, including the opening of new metered markets and an
increase in Year 2000 expenses of $7.3 million. Excluding the Year 2000
expenses, operating costs and selling and administrative expenses would have
increased 12.3%.
Operating income in 1998 was $94.4 million compared with $90.3 million 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 $8.2 million, reflecting the debt assumed in
connection with the Distribution.
Gain on sales of marketable securities in 1998 was $8.0 million. 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 $54.7 million, compared with $52.5 million 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 $358.6 million
from $319.4 million 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 $239.7
million, compared with $212.2 million 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 $2.7
million. Excluding the Year 2000 expenses, operating costs and selling and
administrative expenses would have increased 11.7%.
Operating income in 1997 was $90.3 million compared with $82.0 million in
1996, an increase of 10.1%. The increase resulted primarily from the factors
noted above, partially offset by Year 2000 expenses of $2.7 million. 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 $52.5 million, compared with $47.6 million in 1996,
an increase of 10.2%.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1999 Compared with Three Months Ended March
31, 1998
Cash and cash equivalents totaled $6.1 million and $4.0 million at March
31, 1999 and 1998, respectively.
Net cash provided by operating activities was $24.5 million and $21.5
million for the three months ended March 31, 1999 and 1998, respectively. The
increase of $3.0 million primarily reflects increased depreciation and
amortization, a greater provision for current and deferred income taxes and a
decrease in other operating assets and liabilities, offset, in part, by a
decrease in net income, a greater increase in accounts receivable driven by
increased revenue and a decrease in accounts payable compared with an increase
in the prior year.
Net cash used in investing activities was $9.4 million and $14.9 million
for the three months ended March 31, 1999 and 1998, respectively. The decrease
of $5.5 million primarily reflects lower increases in property, plant and
equipment and intangibles, due to timing of expenditures.
16
<PAGE>
Net cash used in financing activities was $16.9 million and $8.5 million
for the three months ended March 31, 1999 and 1998, respectively. The increase
of $8.2 million was due primarily to repayment of bank borrowings, offset by
proceeds from stock option plans and a decrease in transfers to Cognizant
Corporation.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Cash and cash equivalents totaled $7.8 million and $6.0 million at December
31, 1998 and 1997, respectively, an increase of $1.8 million.
Net cash provided by operating activities was $122.4 million and $94.4
million for the years ended December 31, 1998 and 1997, respectively. The
increase of $28.0 million in cash provided by operating activities compared with
the prior year primarily reflected higher earnings, an increase in accrued and
other current liabilities 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 due to the timing of disbursements.
Net cash used in investing activities totaled $68.1 million for the year
ended December 31, 1998 compared with $42.8 million in the prior year. The
increase of $25.3 million primarily reflected increases in additions to
property, plant and equipment, computer software and intangibles.
Net cash used in financing activities was $52.5 million for the year ended
December 31, 1998 compared with $51.1 million in the prior year. The increase of
$1.4 million in cash used in financing activities compared to the prior year
reflected a repayment of bank borrowings, offset, in part, by a decrease in
transfers to Cognizant and D&B, exclusive of the proceeds from the $300.0
million indebtedness consisting of 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.
The Company currently expects that over the next three years it will invest
an estimated $225 million (including amounts already spent in 1999) focused
principally on deployment of digital broadcast measurement technology, new
software development and deployment, additional metered markets and Internet
initiatives.
The Company's existing balances of cash and cash equivalents, cash
generated from operations and debt capacity currently are expected to be
sufficient to meet the Company's long-term and short-term cash requirements
including continued investment in the business. To the extent that the Company
needs additional funding to finance its operations and investments, no assurance
can be given that the Company will be able to access the capital markets or
otherwise obtain necessary financing in the future, or that any such financing
can be obtained in a timely manner or on commercially favorable terms.
In connection with the Distribution, the Company borrowed $275 million
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 Short-Term $225 million tranche and
a Three-Year $100 million tranche. As of March 31, 1999, $200 million of the
Short-Term tranche and none of the Three-Year tranche were outstanding. The
weighted average interest rate on the Revolving Credit Facility was 5.33% on
March 31, 1999. On June 14, 1999, the commitment under the Short-Term tranche
was reduced to $150 million and extended until December 31, 1999. On the same
day, $100 million was drawn down under the Three-Year tranche to pay down $100
million of $200 million previously outstanding under the Short-Term tranche.
Approximately $100 million under the Short-Term tranche and $50 million under
the Three-Year tranche will be repaid with the proceeds of the Offering and the
Short-Term tranche will be terminated. The outstanding commitments under the
Three-Year tranche will mature on June 15, 2001. Interest under the Revolving
Credit Facility is based upon the London Interbank Offered (LIBO) Rate plus a
spread. The spread for the Three-Year tranche is .50% per annum and may change
based on the credit rating of the Company. The Revolving Credit Facility
contains restrictive covenants which provide, among other things, limitations
on: (i) the incurrence of indebtedness, (ii) the creation of mortgages and
17
<PAGE>
security interests, (iii) certain fundamental changes, (iv) investments and
acquisitions and (v) the existence of certain types of restrictive agreements.
Under the Revolving Credit Facility, the Company is required to maintain certain
specified minimum ratios of cash flow to fixed charges and to total borrowings
and certain minimum levels of net worth. The Revolving Credit Facility contains
various event of default provisions, including default in payment of principal
or interest, material misrepresentation in the Revolving Credit Facility,
default in compliance with other terms of the Revolving Credit Facility or the
related guarantees, bankruptcy, default on other indebtedness, failure to
satisfy or stay certain judgments or orders entered against the Company or any
of its subsidiaries, failure to pay when due certain amounts with respect to
certain employee benefit plans and the occurrence of a change in control. After
giving effect to the Offering, the Company will have $50 million outstanding
under the Revolving Credit Facility and availability under the Revolving Credit
Facility of $50 million.
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 million to the partnership in exchange for a limited
partnership interest, which is included in the indebtedness of the Company. 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 computer software.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
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 entities 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, 2001. 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.
NON-U.S. OPERATING AND MONETARY ASSETS
The Company operates in the U.S. and Canada. Approximately 3% of the
Company's revenues during the quarters ended March 31, 1999 and 1998 and for the
three years ended December 31, 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 the Company'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 the
three months ended March 31, 1999 and 1998 and for the years ended December 31,
1998, 1997 and 1996 were not material.
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.
18
<PAGE>
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 September 30, 1999. As of March 31, 1999, for its IT
exposures, the Company has completed 100% of its assessments and was more than
80% complete in the implementation phase. The target to complete the
modifications and testing of the remaining business-critical IT software is
September 30, 1999. As of March 31, 1999, the Company has also completed 100% of
its assessments and more than 70% of the modifications and testing of the
non-business-critical software (which includes certain IT software as well as
applications supported and used by production operations departments that
interface with the IT systems), as well as completed customer notifications of
discontinued and replaced products. The target to complete the modifications and
testing of the non-business-critical software is also September 30, 1999. The
Company completed two 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 September 30,
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 well 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 $19.6 million and is
being funded through operating cash flows. The operating income impact of the
Year 2000 project was $9.9 million and $2.7 million 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 $7.0
million.
The Company is actively engaged in contingency planning for potential
internal and external disruptions. For each area of the business, employees have
been identified as "risk managers" to be
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responsible for executing recovery plans, as necessary. The Company is in the
process of developing a communication plan for employees, customers, vendors,
and cooperating households by September 30, 1999 concerning possible disruptions
and our planned response.
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.
FACTORS THAT MAY AFFECT FUTURE RESULTS; FORWARD LOOKING STATEMENTS
This Prospectus and the documents that are incorporated by reference herein
contain statements which, in the opinion of the Company, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Litigation Reform Act"). These statements
include, but are not limited to, all statements relating to plans for future
growth and other business development activities as well as capital
expenditures, financing sources and the effects of regulation and competition
and all other statements regarding the intent, plans, beliefs or expectations of
the Company or its directors or officers. Investors are cautioned that such
forward-looking statements are not assurances of future performance or events
and involve risks and uncertainties that could cause actual results and
developments to differ materially from those covered in such forward-looking
statements. These risks and uncertainties include, but are 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
Prospectus.
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".
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 or the amount of any future D&B tax and interest payments
described in "The Company--Litigation and Contingencies", 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.
The Company has no obligation to publicly release any revision to any
forward-looking statement contained or incorporated herein to reflect any future
events or occurrences.
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DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, to be dated as of June 25,
1999 (the "Indenture"), between the Company and The Chase Manhattan Bank, as
Trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject, and are qualified in their entirety by reference, to all the
provisions of the Indenture, including the definitions therein of certain terms.
Wherever particular Sections or defined terms of the Indenture are referred to
herein, such Sections or defined terms are incorporated by reference herein. The
Indenture provides for the issuance of debt securities in one or more series at
any time and from time to time, and does not limit the principal amount of debt
securities which may be issued thereunder.
GENERAL
The Notes will be unsecured obligations of the Company, will rank pari
passu in right of payment with all existing and future unsecured unsubordinated
indebtedness of the Company, will be limited to $150,000,000 aggregate principal
amount and will mature on June 15, 2009. The Notes will bear interest at the
rate per annum shown on the front cover of this Prospectus from June 25, 1999 or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually on June 15 and December 15 of each year,
commencing December 15, 1999 (each, an "Interest Payment Date"). Interest on
each Note will be paid to the Person in whose name the Note (or any predecessor
Note) is registered at the close of business on the preceding June 1 or December
1, as the case may be (each, a "Regular Record Date").
The Notes will not have the benefit of any sinking fund.
OPTIONAL REDEMPTION. The Notes will be redeemable as a whole or in part, at
the option of the Company at any time, at a redemption price equal to the
greater of (i) 100% of their principal amount or (ii) the sum of the product
values of the remaining scheduled payments of principal of and interest on the
Notes being redeemed discounted to the date of redemption on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 15 basis points, plus, in either case, accrued and unpaid interest on
the principal amount being redeemed to such redemption date.
"Business Day" means any calendar day that is not a Saturday, Sunday or
legal holiday in New York, New York and on which commercial banks are open for
business in New York, New York.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term ("Remaining Life") of the Notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such Notes.
"Independent Investment Banker" means Morgan Stanley & Co. Incorporated or,
if such firm is unwilling or unable to select the Comparable Treasury Issue, an
independent investment banking institution of national standing appointed by the
Trustee.
"Comparable Treasury Price" means (i) the average of five Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (ii) if the Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Reference Treasury Dealer" means (i) Morgan Stanley & Co. Incorporated and
Chase Securities Inc., and their respective successors, provided, however, that
if either of the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), the Company
shall substitute therefor another Primary Treasury Dealer and (ii) any other
Primary Treasury Dealer selected by the Independent Investment Banker after
consultation with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Independent Investment Banker, of the bid
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and asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Independent
Investment Banker at 5:00 p.m., New York City time, on the third Business Day
preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, (1) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recent published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the Board
of Governors of the Federal Reserve System and which establishes yields in
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months before
or after the Remaining Life, yields for the two published maturities most
closely corresponding to the Comparable Treasury Issue shall be determined and
the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight time basis, rounding to the nearest month) or (2) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate shall be calculated on the third
Business Day preceding the redemption date.
Holders of Notes to be redeemed will receive notice thereof by first-class
mail at least 30 and not more than 60 days prior to the date fixed for
redemption. If fewer than all of the Notes are to be redeemed, the Trustee will
select, not more than 60 days prior to the redemption date, the particular Notes
or portions thereof for redemption from the outstanding Notes not previously
called by such method as the Trustee deems fair and appropriate.
Unless the Company defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption.
FORM, EXCHANGE AND TRANSFER
The Notes will be issuable only in fully registered form, without coupons,
in denominations of $1,000 and integral multiples thereof.
At the option of the holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities (as defined below), the Notes will
be exchangeable for other Notes of any authorized denomination and of a like
tenor and aggregate principal amount.
Subject to the terms of the Indenture and the limitations applicable to
Global Securities, Notes may be presented for exchange as provided above or for
registration of transfer (duly endorsed or with the form of transfer endorsed
thereon duly executed) at the office of the Security Registrar (as defined in
the Indenture) or at the office of any transfer agent designated by the Company
for such purpose. No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. The Company
has appointed the Trustee as Security Registrar. The Company may at any time
designate additional transfer agents or rescind the designation of any transfer
agent or approve a change in the office through which any transfer agent acts,
except that the Company will be required to maintain a transfer agent in each
Place of Payment (as defined in the Indenture) for the Notes.
If the Notes are to be redeemed in part, the Company will not be required
to (i) issue, register the transfer of or exchange any Note during a period
beginning at the opening of business 15 days before the day of mailing of a
notice of redemption of any such Note that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any Note so selected for redemption, in whole or in
part, except the unredeemed portion of any such Note being redeemed in part.
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BOOK-ENTRY SYSTEM
Upon issuance, the Notes will be represented by one or more global
securities (each, a "Global Security"). Each such Global Security will be
deposited with, or on behalf of, The Depository Trust Company, as depositary
(the "Depositary"), and registered in the name of Cede & Co., the nominee of the
Depositary.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. The Depositary holds
securities that its participants ("Participants") deposit with it. The
Depositary also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. The Depositary is owned
by a number of its Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary's system is also available to others such
as securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. The rules applicable to the Depositary and its Participants are on
file with the Securities and Exchange Commission.
Ownership of beneficial interests in the Global Securities will be limited
to Participants or persons that may hold interests through Participants. The
Company expects that upon the issuance of the Global Securities representing the
Notes, the Depositary will credit, on its book-entry registration and transfer
system, the Participants' accounts with the respective principal amounts of the
Notes beneficially owned by such Participants. Ownership of beneficial interests
in such Global Securities will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by the Depositary
(with respect to the interests of Participants) and on the records of
Participants (with respect to interests of persons holding through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability of certain persons to own, transfer
or pledge beneficial interests in a Global Security.
No Global Security may be exchanged in whole or in part for Notes
registered, and no transfer of a Global Security in whole or in part may be
registered, in the name of any Person other than the Depositary or a nominee
thereof unless (A) such Depositary (i) has notified the Company that it is
unwilling or unable to continue as Depositary for such Global Security or (ii)
has creased to be a clearing agency registered under the Exchange Act or (B)
there shall have occurred and be continuing an Event of Default with respect to
such Global Security.
So long as the Depositary, or its nominee, is the registered owner of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and holder of such Global Security and the Notes
represented thereby for all purposes under the Notes and the Indenture. Except
in the limited circumstances referred to above, owners of beneficial interests
in a Global Security will not be entitled to have such Global Security or the
Notes represented thereby registered in their names, will not receive or be
entitled to receive physical delivery of certificated Notes in exchange therefor
and will not be considered to be the owners or holders of such Global Security
or the Notes represented thereby for any purpose under the Notes or the
Indenture. Accordingly, each person owning a beneficial interest in a Global
Security must rely on the procedures of the Depositary and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder under the
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of holders or that an owner of a
beneficial interest in such a Global Security desires to give or take any action
which a holder is entitled to give or take under the Indenture, the Depositary
would authorize the Participants holding the relevant beneficial interests to
give or take such
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action, and such Participants would authorize beneficial owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of beneficial owners holding through them.
Payment of principal of and interest on the Notes registered in the name of
the Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the holder thereof. None of the Company, the Trustee or any
agent of the Company or the Trustee will have any responsibility or liability
for any aspect of the records relating to, or payments made on account of,
beneficial interests in a Global Security, or for maintaining, supervising or
reviewing any records relating to such beneficial interests. The Company expects
that the Depositary, upon receipt of any payment of principal or interest in
respect of a Global Security, will credit the accounts of the Participants with
payment in amounts proportionate to their respective beneficial interests in
such Global Security as shown on the records of the Depositary. The Company also
expects that payments by Participants to owners of beneficial interests in a
Global Security will be governed by standing customer instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name", and will be the responsibility of
such Participants.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among Participants,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Trustee nor the
Company will have any responsibility for the performance by the Depositary or
its Participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
The Depositary's management is aware that some computer applications,
systems and the like for processing data that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems". The Depositary has informed its participants and other members of the
financial community that it has developed and is implementing a program so that
its systems, as they relate to the timely payment of distributions (including
principal and interest payments) to security holders, book-entry deliveries and
settlements of trades within the Depositary, continue to function appropriately.
This program includes a technical assessment and a remediation plan, each of
which is complete. In addition, the Depositary's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, the Depositary's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom the Depositary licenses
software and hardware, and third party vendors on whom the Depositary relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. The Depositary has informed
its Participants and other members of the financial community that it is
contacting, and will continue to contact, third party vendors from whom the
Depositary acquires services to (1) impress upon them the importance of such
services being Year 2000 compliant and (2) determine the extent of their efforts
for Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Depositary is in the process of developing such contingency plans
as it deems appropriate.
PAYMENT AND PAYING AGENTS
Payment of interest on a Note on any Interest Payment Date will be made to
the Person in whose name such Note is registered at the close of business on the
Regular Record Date for such interest.
Principal of and any premium and interest on the Notes will be payable at
the office of such Paying Agent or Paying Agents as the Company may designate
for such purpose from time to time, except that at the option of the Company
payment of any interest may be made by check mailed to the address of the Person
entitled thereto as such address appears in the Security Register. The corporate
trust office of the Trustee in The City of New York will be designated initially
as the Company's sole Paying Agent for payments with respect to Notes. The
Company may at any time designate additional Paying Agents or
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rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, except that the Company will be required to
maintain a Paying Agent in each Place of Payment for the Notes.
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Note which remains unclaimed at
the end of two years after such principal, premium or interest has become due
and payable will be repaid to the Company, and the holder of such Note
thereafter may look only to the Company for payment thereof.
COVENANTS
The Indenture contains the following covenants:
Limitation on Secured Debt
The Company may not issue, incur, create, assume or guarantee, and may not
permit any Restricted Subsidiary to issue, incur, create, assume or guarantee,
any debt for borrowed money secured by a mortgage, security interest, pledge,
lien, charge or other encumbrance ("mortgages") upon any assets of the Company
or any Restricted Subsidiary or upon any shares of stock or indebtedness of any
Restricted Subsidiary (whether such assets, shares or indebtedness are now
existing or owned or hereafter created or acquired) without in any such case
effectively providing concurrently with the issuance, incurrence, creation,
assumption or guarantee of any such secured debt, or the grant of a mortgage
with respect to any such indebtedness, that the Notes (together with, if the
Company shall so determine, any other indebtedness of or guaranteed by the
Company ranking equally with the Notes or any indebtedness of or guaranteed by
any Restricted Subsidiary, as the case may be) shall be secured equally and
ratably with (or, at the option of the Company, prior to) such secured debt. The
foregoing restriction, however, will not apply to: (a) mortgages on property
existing at the time of acquisition thereof by the Company or any Subsidiary;
(b) mortgages on property, shares of stock or indebtedness or other assets of
any corporation existing at the time such corporation becomes a Restricted
Subsidiary; (c) mortgages on property, shares of stock or indebtedness to secure
the payment of all or any part of the purchase price thereof, or mortgages on
property, shares of stock or indebtedness to secure any indebtedness for
borrowed money incurred prior to, at the time of, or within 180 days after, the
latest of the acquisition thereof, or, in the case of property, the completion
of construction, the completion of improvements, or the commencement of
substantial commercial operation of such property, for the purpose of financing
all or any part of the purchase price thereof, such construction, or the making
of such improvements; (d) mortgages to secure indebtedness owing to the Company
or to a Restricted Subsidiary; (e) mortgages existing at the date of the
issuance of the Notes; (f) mortgages on property of a corporation existing at
the time such corporation is merged into or consolidated with the Company or a
Restricted Subsidiary or at the time of a sale, lease or other disposition of
all or substantially all the properties of a corporation to the Company or a
Restricted Subsidiary; (g) mortgages in favor of the United States or any State,
territory or possession thereof (or the District of Columbia) or Canada, or any
department, agency, instrumentality or political subdivision of the United
States or any State, territory or possession thereof (or the District of
Columbia) or Canada, to secure partial, progress, advance or other payments
pursuant to any contract or statute or to secure any indebtedness incurred for
the purpose of financing all or any part of the purchase price or the cost of
constructing or improving the property subject to such mortgages; and (h)
extensions, renewals, refinancings or replacements of any mortgage referred to
in the foregoing clauses (a), (b), (c), (e) and (f); provided, however, that any
mortgages permitted by any of the foregoing clauses (a), (b), (c), (e) and (f)
shall not extend to or cover any property of the Company or such Restricted
Subsidiary, as the case may be, other than the property, if any, specified in
such clauses and improvements thereto.
Notwithstanding the restrictions outlined in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee, debt secured by a mortgage which would otherwise be subject
to such restrictions, without equally and ratably securing the Notes, provided
that after giving effect thereto, the sum of (i) all debt so secured by
mortgages (not including
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mortgages permitted under clauses (a) through (h) above) and (ii) all
Attributable Debt (as defined below) with respect to Sale and Lease-Back
Transactions (as defined below), at the time of determination, does not exceed
10% of the Consolidated Net Assets of the Company.
Limitation on Sale and Lease-Back Transactions
The Company may not, nor may any Restricted Subsidiary, enter into any Sale
and Lease-Back Transaction with respect to any property, other than any such
transaction involving a lease for a term of not more than three years or any
such transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries, unless: (a) the Company or such Restricted Subsidiary
would be entitled to incur indebtedness pursuant to the first or second
paragraph under "Limitation on Secured Debt" described above secured by a
mortgage on the property involved in such transaction at least equal in amount
to the Attributable Debt with respect to such Sale and Lease-Back Transaction
without equally and ratably securing the Notes; or (b) the Company shall apply
an amount equal to the greater of the net proceeds of such sale or the
Attributable Debt with respect to such Sale and Lease-Back Transaction within
180 days of such sale to either (or a combination of) the retirement of debt for
borrowed money (other than mandatory scheduled principal payments) of the
Company or a Restricted Subsidiary that matures more than twelve months after
the creation of such indebtedness or the purchase, acquisition, construction or
development of property, plant and equipment, computer software or other
intangibles to be used in the business of the Company or its Restricted
Subsidiaries.
Consolidation, Merger and Sale of Assets
The Company may not consolidate with or merge into, or convey, transfer or
lease all or substantially all of its properties and assets to, any Person (as
defined in the Indenture), unless (i) the Person formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, all or substantially all of the properties and assets
of the Company shall be a corporation, partnership or trust, shall be organized
and validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee, the due and punctual payment of the principal of
and any premium and interest on all the Notes and the performance or observance
of every covenant of the Indenture on the part of the Company to be performed or
observed, (ii) immediately after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing, (iii) if, as a
result of the transaction, property of the Company would become subject to a
mortgage that would not be permitted under the limitation on mortgages described
above under "Limitation on Secured Debt", the successor Person takes such steps
as shall be necessary to secure the Notes equally and ratably with (or prior to)
the indebtedness secured by such mortgage and (iv) certain other conditions are
met.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Attributable Debt" when used in connection with a Sale and Lease-Back
Transaction means, at the time of determination, the lesser of: (a) the fair
value of the property involved (as determined in good faith by the Board of
Directors of the Company); or (b) the present value of the total net amount of
rent required to be paid under such lease during the remaining term thereof
(including any renewal term or period for which such lease has been extended),
discounted at the rate of interest set forth or implicit in the terms of such
lease or, if not practicable to determine such rate, the interest rate per annum
borne by the Notes compounded semi-annually. For purposes of the foregoing
definition, rent shall not include amounts required to be paid by the lessee,
whether or not designated as rent or additional rent, on account of or
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contingent upon maintenance and repairs, insurance, taxes, assessments, water
rates and similar charges. In the case of any lease which is terminable by the
lessee upon the payment of a penalty, such net amount shall be the lesser of the
net amount determined assuming termination upon the first date such lease may be
terminated (in which case the net amount shall also include the amount of the
penalty, but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated) or the net
amount determined assuming no such termination.
"Consolidated Net Assets" means, at any time of determination, (i) the
aggregate amount of assets of the Company and its Subsidiaries at such time
minus (ii) the aggregate amount of current liabilities at such time, calculated
in accordance with generally accepted accounting principles.
"Restricted Subsidiary" means any Subsidiary organized and validly existing
under the laws of the United States of America, any State thereof or the
District of Columbia or Canada or any province thereof.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing by the Company or any Restricted Subsidiary of any
property, which property has been or is to be sold or transferred by the Company
or such Restricted Subsidiary to such person.
"Subsidiary" means (i) a corporation more than 50% of the voting stock of
which is owned by the Company and/or one or more Subsidiaries or (ii) any other
Person (other than a corporation) of which the Company and/or one or more
Subsidiaries has at least a majority ownership and power to direct the policies,
management and affairs.
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) under the Indenture with respect to the
Notes: (a) failure to pay principal of or any premium on any Note when due; (b)
failure to pay any interest on any Note when due, continued for 30 days; (c)
failure to perform any other covenant of the Company in the Indenture, continued
for 60 days after written notice has been given by the Trustee, or the holders
of at least 25% in principal amount of the Notes Outstanding (as defined in the
Indenture), as provided in the Indenture; (d) acceleration of any indebtedness
for money borrowed by the Company having an aggregate principal amount
outstanding of at least $20 million, if such indebtedness has not been
discharged, or such acceleration has not been rescinded or annulled, within 10
days after written notice has been given by the Trustee, or the Holders of at
least 25% in principal amount of Notes, as provided in the Indenture; and (e)
certain events of bankruptcy, insolvency or reorganization involving the
Company.
If an Event of Default (other than an Event of Default described in clause
(e) above) with respect to the Notes at the time Outstanding shall occur and be
continuing, either the Trustee or the holders of at least 25% in aggregate
principal amount of the Outstanding Notes by notice as provided in the Indenture
may declare the principal amount of the Notes to be due and payable immediately.
If an Event of Default described in clause (e) above shall occur, the principal
amount of all the Notes will automatically, and without any action by the
Trustee or any holder, become immediately due and payable. After any such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of the Outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal, have been cured or
waived as provided in the Indenture. For information as to waiver of defaults,
see "Modification and Waiver".
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders, unless such holders
shall have offered to the Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the Trustee, the holders of a majority in
aggregate principal amount of the Outstanding Notes will have the right
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to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes.
No holder of a Note will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless (i) such holder has previously given to
the Trustee written notice of a continuing Event of Default with respect to the
Notes, (ii) the holders of at least 25% in aggregate principal amount of the
Outstanding Notes have made written request, and such holder or holders have
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee and (iii) the Trustee has failed to institute such proceeding, and has
not received from the holders of a majority in aggregate principal amount of the
Outstanding Notes a direction inconsistent with such request, within 60 days
after such notice, request and offer of indemnity. However, such limitations do
not apply to a suit instituted by a holder of a Note for the enforcement of
payment of the principal of or any premium or interest on such Note on or after
the applicable due date specified in such Note.
The Company will be required to furnish to the Trustee annually a statement
by certain of its officers as to whether or not the Company, to their knowledge,
is in default in the performance or observance of any of the terms, provisions
and conditions of the Indenture and, if so, specifying all such known defaults.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture with respect to the Notes may
be made by the Company and the Trustee with the consent of the holders of a
majority in aggregate principal amount of the Outstanding Notes affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each Outstanding Note
affected thereby, (a) change the stated maturity of the principal of, or any
instalment of principal of or interest on, any Note, (b) reduce the principal
amount of, or any premium or interest on, any Note, (c) reduce the amount of
principal of the Notes payable upon acceleration of the maturity thereof, (d)
change the place or currency of payment of principal of, or any premium or
interest on, any Note, (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Note, (f) reduce the
percentage in principal amount of Outstanding Notes, the consent of whose
holders is required for modification or amendment of the Indenture or for waiver
of compliance with certain provisions of the Indenture or for waiver of certain
defaults or (g) modify such provisions with respect to modification and waiver.
Without the consent of the holders of the Notes, the Company and the
Trustee, at any time and from time to time, may modify the Indenture with
respect to the Notes for, among other things, any of the following purposes: (a)
to evidence the succession of another Person to the Company and the assumption
by any such successor of the covenants of the Company in the Indenture and in
the Notes, (b) to add to the covenants of the Company for the benefit of the
holders of the Notes or to surrender any right or power conferred in the
Indenture upon the Company, (c) to add any additional Events of Default for the
benefit of the holders, (d) to secure the Notes, (e) to evidence and provide for
the acceptance of appointment hereunder by a successor Trustee with respect to
the Notes and to add to or change any of the provisions of the Indenture as
shall be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, (f) to cure any ambiguity, to correct or
supplement any provision herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions with respect to matters
or questions arising under the Indenture provided that such action shall not
adversely affect the interests of the holders of Notes in any material respect,
and (g) to change or modify any of the provisions of the Indenture, provided
that such action shall not adversely affect the interests of the holders of
Notes in any material respect.
The holders of a majority in principal amount of the Outstanding Notes may
waive compliance by the Company with certain restrictive provisions of the
Indenture. The holders of a majority in principal amount of the Outstanding
Notes may waive any past default under the Indenture, except a default in the
payment of principal, premium or interest and certain covenants and provisions
of the Indenture which cannot be amended without the consent of the holder of
each Outstanding Note affected.
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Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the holders of
Outstanding Notes entitled to give or take any direction, notice, consent,
waiver or other action under the Indenture, in the manner and subject to the
limitations provided in the Indenture. In certain limited circumstances, the
Trustee will be entitled to set a record date for action by holders. If a record
date is set for any action to be taken by holders, such action may be taken only
by persons who are holders of Outstanding Notes on the record date. To be
effective, such action must be taken by holders of the requisite principal
amount of such Notes within a specified period following the record date. For
any particular record date, this period will be 180 days or such period as may
be specified by the Company (or the Trustee, if it set the record date), and may
be shortened or lengthened (but not beyond 180 days) from time to time.
DEFEASANCE AND COVENANT DEFEASANCE
Defeasance and Discharge. The Indenture will provide that, upon the
Company's exercise of its option to have the defeasance and discharge provisions
of the Indenture applied to the Notes, the Company will be discharged from all
its obligations with respect to such Notes (except for certain obligations to
exchange or register the transfer of Notes, to replace stolen, lost or mutilated
Notes, to maintain paying agencies and to hold moneys for payment in trust) upon
the deposit in trust for the benefit of the holders of the Notes of money or
U.S. Government Obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the principal of and any premium and
interest on the Notes on the stated maturity in accordance with the terms of the
Indenture and the Notes. Such defeasance or discharge may occur only if, among
other things, the Company has delivered to the Trustee an Opinion of Counsel (as
defined in the Indenture) to the effect that the Company has received from, or
there has been published by, the United States Internal Revenue Service a
ruling, or there has been a change in tax law, in either case to the effect that
holders of the Notes will not recognize gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit, defeasance and discharge
were not to occur.
Defeasance of Certain Covenants. The Indenture will provide that, upon the
Company's exercise of its option to have the provisions relating to the
defeasance of certain covenants applied to the Notes, the Company may omit to
comply with certain restrictive covenants, including those described under
"Covenants" and in clause (iii) under "Consolidation, Merger and Sale of Assets"
and the occurrence of certain Events of Default, which are described in clause
(c) (with respect to such restrictive covenants) under "Events of Default", will
be deemed not to be or result in an Event of Default, in each case with respect
to the Notes. The Company, in order to exercise such option, will be required to
deposit, in trust for the benefit of the holders of the Notes, money or U.S.
Government Obligations, or both, which, through the payment of principal and
interest in respect thereof in accordance with their terms, will provide money
in an amount sufficient to pay the principal of and any premium and interest on
the Notes on the stated maturity in accordance with the terms of the Indenture
and the Notes. The Company will also be required, among other things, to deliver
to the Trustee an Opinion of Counsel to the effect that holders of the Notes
will not recognize gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain obligations and will be subject to
federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit and defeasance were not to occur. In
the event the Company exercised this option with respect to the Notes and the
Notes were declared due and payable because of the occurrence of any Event of
Default, the amount of money and U.S. Government Obligations so deposited in
trust would be sufficient to pay amounts due on the Notes at the time of their
stated maturity but may not be sufficient to pay amounts due on the Notes upon
any acceleration resulting from such Event of Default. In such case, the Company
would remain liable for such payments.
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TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Note is registered as the absolute owner
thereof (whether or not such Note may be overdue) for the purpose of making
payment and for all other purposes.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the law of the State of New York.
REGARDING THE TRUSTEE
The Chase Manhattan Bank, an affiliate of Chase Securities Inc., is a
lender to the Company under the Revolving Credit Facility and will receive a
portion of the amounts repaid under such facility with the proceeds of the
offering. Pursuant to the Trust Indenture Act, upon the occurrence of a default,
The Chase Manhattan Bank will be required to resign as Trustee within 90 days of
such default unless it is cured or waived.
UNDERWRITERS
Under the terms and subject to the conditions set forth in the Underwriting
Agreement, dated June 22, 1999 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters") have severally agreed to purchase, and the
Company has agreed to sell to them, severally, the respective principal amount
of the Notes set forth opposite their respective names below:
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- ------------
Morgan Stanley & Co. Incorporated ........................... $ 97,500,000
Chase Securities Inc. ....................................... 52,500,000
------------
Total ..................................................... $150,000,000
============
The Underwriting Agreement provides that the several obligations of the
Underwriters to pay for and accept delivery of the Notes are subject to, among
other things, the approval of certain legal matters by their counsel and certain
other conditions. The Underwriters are obliged to take and pay for all the Notes
if any are taken.
The Underwriters propose initially to offer part of the Notes to the public
at the public offering price set forth on the cover page hereof and in part to
certain dealers at prices that represent a concession not in excess of .40% of
the principal amount of the Notes. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of .25% of the principal amount of the
Notes to certain other dealers. After the initial offering of the Notes, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market making may be discontinued at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Notes.
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In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Notes. Specifically, the Underwriters may over-allot in connection with this
offering, creating short positions in the Notes for their own account. In
addition, to cover over-allotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, Notes in the open market. Finally, the
Underwriters may reclaim selling concessions allowed to an underwriter or dealer
for distributing Notes in this offering, if the Underwriters repurchase
previously distributed Notes in transactions that cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Notes above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Underwriters and their affiliates maintain ongoing business
relationships with the Company and in connection therewith may provide
investment banking, commercial banking and advisory services. The Chase
Manhattan Bank, an affiliate of Chase Securities Inc., is the administrative
agent and a lender to the Company under the Revolving Credit Facility and will
receive a portion of the amounts repaid under such facility with the proceeds of
the offering. Because more than 10% of the proceeds of the offering will be paid
to affiliates of a member of the National Association of Securities Dealers,
Inc. ("NASD") who are participating in the offering, the offering is being made
pursuant to Rule 2710(c)(8) of the Conduct Rules of the NASD. The Chase
Manhattan Bank is also the Trustee under the Indenture.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
VALIDITY OF THE NOTES
The validity of the Notes offered hereby will be passed upon for the
Company by Simpson Thacher & Bartlett, New York, New York and for the
Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The financial statements and financial statement schedule incorporated in
this Prospectus by reference to the Annual Report on Form 10-K for the year
ended December 31, 1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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