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REGISTRATION NO. 001-12277
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
ACNIELSEN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 06-1454128
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
177 BROAD STREET 06901
STAMFORD, CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(203) 961-3190
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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ITEM 1. BUSINESS.
The information required by this item is contained under the sections
"ACNielsen Business", "ACNielsen Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in the ACNielsen Corporation
Financial Statements of the Information Statement dated October , 1996
included herewith as Exhibit 2.1 (the "Information Statement") and such sections
are incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained under the sections
"ACNielsen Selected Financial Data" and "ACNielsen Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Information
Statement and such sections are incorporated herein by reference.
ITEM 3. PROPERTIES.
The information required by this item is contained under the section
"ACNielsen Business -- Properties" of the Information Statement and such section
is incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is contained under the section
"ACNielsen Security Ownership by Certain Beneficial Owners and Management" of
the Information Statement and such section is incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained under the sections
"ACNielsen Management and Executive Compensation -- ACNielsen Board of
Directors" and "-- ACNielsen Executive Officers" of the Information Statement
and such sections are incorporated herein by reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained under the section
"ACNielsen Management and Executive Compensation" of the Information Statement
and such section is incorporated herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is contained under the section
"Relationship Among D&B, Cognizant and ACNielsen After the Distribution" of the
Information Statement and such section is incorporated herein by reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained under the section
"ACNielsen Business -- Legal Proceedings" of the Information Statement and such
section is incorporated herein by reference.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is contained under the sections "The
Distribution -- Listing and Trading of ACNielsen Common Stock and ACNielsen
Common Stock", "Relationship Among D&B, ACNielsen and ACNielsen After the
Distribution -- Employee Benefits Agreement", "Dividend Policy", "ACNielsen
Management and Executive Compensation" and "Description of ACNielsen Capital
Stock" of the Information Statement and such sections are incorporated herein by
reference.
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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On May 1, 1996, as part of its original incorporation, the Registrant
issued 100 shares of its common stock, for a total consideration of $100.00, to
The Dun & Bradstreet Corporation, which is and will be the Registrant's sole
stockholder until the Distribution Date as defined and described in the section
"The Distribution" of the Information Statement, and such section is
incorporated herein by reference. Subsequent to the Distribution, The Dun &
Bradstreet Corporation will hold no capital stock of the Registrant.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained under the section
"Description of ACNielsen Capital Stock" of the Information Statement and such
section is incorporated herein by reference, except for the information under
the caption "ACNielsen Rights Plan", which is not incorporated by reference as
ACNielsen preferred share purchase rights and shares of Series A Junior
Participating Preferred Stock described under such caption will be registered
separately on a Registration Statement on Form 8-A.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained under the section
"Description of ACNielsen Capital Stock -- Indemnification and Limitation of
Liability for Directors and Officers" of the Information Statement and such
section is incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is identified in the section "Index
to Financial Statements -- ACNielsen Corporation" and is contained in the
section "Financial Statements -- ACNielsen Corporation" of the Information
Statement and such sections are incorporated herein by reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS.
The information required by this item is identified in the section
"ACNielsen Business -- Appointment of Independent Accountants" of the
Information Statement and such section is incorporated herein by reference.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The information required by this item is contained in (i) the "Index to
Financial Statements" on page F-1 of the Information Statement and such
information is incorporated herein by reference, and (ii) Schedule II-
"Valuation and Qualifying Accounts" to this Registration Statement.
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(b) Exhibits
The following documents are filed as exhibits hereto:
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EXHIBIT
NO. DESCRIPTION
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2.1 Information Statement dated as of October , 1996
3.1 Form of Restated Certificate of Incorporation of ACNielsen Corporation*
3.2 Form of Amended and Restated By-laws of ACNielsen Corporation*
4.1 Specimen Common Stock certificate*
10.1 Form of Distribution Agreement among The Dun & Bradstreet Corporation, Cognizant
Corporation and ACNielsen Corporation*
10.2 Form of Tax Allocation Agreement among The Dun & Bradstreet Corporation, Cognizant
Corporation and ACNielsen Corporation*
10.3 Form of Employee Benefits Agreement among The Dun & Bradstreet Corporation, Cognizant
Corporation and ACNielsen Corporation*
10.4 Form of Intellectual Property Agreement between and among The Dun & Bradstreet
Corporation, Cognizant Corporation and ACNielsen Corporation*
10.5 Form of Shared Transaction Services Agreement among The Dun & Bradstreet Corporation,
Cognizant Corporation and ACNielsen Corporation*
10.6 Form of Data Services Agreement among The Dun & Bradstreet Corporation, Cognizant
Corporation and ACNielsen Corporation*
10.7 Form of Transition Services Agreement among The Dun & Bradstreet Corporation,
Cognizant Corporation and ACNielsen Corporation*
10.8 Form of TAM Master Agreement between Cognizant Corporation and ACNielsen Corporation*
10.9 Form of Indemnity and Joint Defense Agreement among The Dun & Bradstreet Corporation,
Cognizant Corporation and ACNielsen Corporation*
16.1 Letter from Coopers & Lybrand L.L.P. to ACNielsen Corporation confirming certain
statements in the Information Statement*
21 List of Subsidiaries of ACNielsen Corporation*
27 Financial Data Schedule of ACNielsen Corporation*
99.1 Chairman's Letter to Stockholders of The Dun & Bradstreet Corporation*
99.2 Form of Rights Agreement between ACNielsen Corporation and First Chicago Trust
Company of New York, as Rights Agent*
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* Previously filed.
4
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
ACNIELSEN CORPORATION
BY: /S/ ELLENORE O'HANRAHAN
-----------------------------------
Name: Ellenore O'Hanrahan
Title: Vice President and
Secretary
Date: October 9, 1996
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of ACNielsen Corporation:
Our report on the combined financial statements of ACNielsen Corporation (a
wholly-owned subsidiary of The Dun & Bradstreet Corporation), as defined in the
notes to the combined financial statements, as of December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995, is
included in this Form 10 on page F-23 of the Information Statement. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule set forth on page 7 of this Form 10.
In our opinion, the financial statement schedule referred to above when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 16, 1996
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SCHEDULE II
ACNIELSEN CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
(IN THOUSANDS)
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COL. B COL. C COL. E
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COL. A BALANCE ADDITIONS COL. D BALANCE
----------- BEGINNING CHARGED TO ------------- AT END
DESCRIPTION OF PERIOD OPERATIONS(A) DEDUCTIONS(B) OF PERIOD
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Allowance for doubtful accounts:
For the Year Ended December 31, 1995............ $ 8,077 $10,523 $ 1,311 $ 17,289
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For the Year Ended December 31, 1994............ $ 6,332 $ 4,443 $ 2,698 $ 8,077
====== ======= ====== =======
For the Year Ended December 31, 1993............ $ 7,546 $ 2,491 $ 3,705 $ 6,332
====== ======= ====== =======
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NOTE:
(a) The increase in additions in 1995 is substantially attributed to bad debt in
Europe.
(b) Represents primarily the charge-off of uncollectible accounts for which a
reserve was provided.
7
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EXHIBIT INDEX
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EXHIBIT
NO. DESCRIPTION PAGE
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2.1 Information Statement dated as of October , 1996
3.1 Form of Restated Certificate of Incorporation of ACNielsen Corporation*
3.2 Form of Amended and Restated By-laws of ACNielsen Corporation*
4.1 Specimen Common Stock certificate*
10.1 Form of Distribution Agreement among The Dun & Bradstreet Corporation,
Cognizant Corporation and ACNielsen Corporation*
10.2 Form of Tax Allocation Agreement among The Dun & Bradstreet Corporation,
Cognizant Corporation and ACNielsen Corporation*
10.3 Form of Employee Benefits Agreement among The Dun & Bradstreet Corporation,
Cognizant Corporation and ACNielsen Corporation*
10.4 Form of Intellectual Property Agreement between and among The Dun & Bradstreet
Corporation, Cognizant Corporation and ACNielsen Corporation*
10.5 Form of Shared Transaction Services Agreement among The Dun & Bradstreet
Corporation, Cognizant Corporation and ACNielsen Corporation*
10.6 Form of Data Services Agreement among The Dun & Bradstreet Corporation,
Cognizant Corporation and ACNielsen Corporation*
10.7 Form of Transition Services Agreement among The Dun & Bradstreet Corporation,
Cognizant Corporation and ACNielsen Corporation*
10.8 Form of TAM Master Agreement between Cognizant Corporation and ACNielsen
Corporation*
10.9 Form of Indemnity and Joint Defense Agreement among The Dun & Bradstreet
Corporation, Cognizant Corporation and ACNielsen Corporation*
16.1 Letter from Coopers & Lybrand L.L.P. to ACNielsen Corporation confirming
certain statements in the Information Statement*
21 List of Subsidiaries of ACNielsen Corporation*
27 Financial Data Schedule of ACNielsen Corporation*
99.1 Chairman's Letter to Stockholders of The Dun & Bradstreet Corporation*
99.2 Form of Rights Agreement between ACNielsen Corporation and First Chicago Trust
Company of New York, as Rights Agent*
</TABLE>
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* Previously filed.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
REGISTRATION STATEMENTS ON FORM 10 RELATING TO THESE SECURITIES HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS PRELIMINARY
INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES.
SUBJECT TO COMPLETION OR AMENDMENT, DATED OCTOBER 9, 1996
INFORMATION STATEMENT
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COGNIZANT CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
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ACNIELSEN CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
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This Information Statement is being furnished in connection with the
distribution (the "Distribution") to holders of common stock, par value $1.00
per share (the "D&B Common Stock"), of The Dun & Bradstreet Corporation ("D&B")
of (i) all outstanding shares of common stock, par value $.01 per share (the
"Cognizant Common Stock"), of Cognizant Corporation ("Cognizant") and (ii) all
outstanding shares of common stock, par value $.01 per share (the "ACNielsen
Common Stock"), of ACNielsen Corporation ("ACNielsen"). As of November , 1996,
D&B will have transferred to Cognizant all or substantially all of those
businesses comprising the Cognizant Business (as defined below) and will have
transferred to ACNielsen all or substantially all of those businesses comprising
the ACNielsen Business (as defined below). See "Cognizant Business" and
"ACNielsen Business".
Shares of Cognizant Common Stock and ACNielsen Common Stock will be
distributed to holders of D&B Common Stock of record as of the close of business
on October , 1996 (the "Record Date"). Each such holder will receive one share
of Cognizant Common Stock for every share of D&B Common Stock held on the Record
Date and one share of ACNielsen Common Stock for every three shares of D&B
Common Stock held on the Record Date. Share certificates representing shares of
Cognizant and ACNielsen will be mailed on November , 1996 or as promptly as
practicable thereafter. No consideration will be paid by D&B's stockholders for
shares of the Cognizant Common Stock or the ACNielsen Common Stock. There is no
current trading market for the Cognizant Common Stock or the ACNielsen Common
Stock, although a "when-issued" market is expected to develop prior to the
Distribution. Application has been made for listing of the shares of each of the
Cognizant Common Stock and the ACNielsen Common Stock on the New York Stock
Exchange under the symbols "CZT" and "ART", respectively. See "The
Distribution -- Listing and Trading of Cognizant Common Stock and ACNielsen
Common Stock."
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
RECIPIENTS OF THE COGNIZANT COMMON STOCK AND THE ACNIELSEN
COMMON STOCK, SEE "CERTAIN CONSIDERATIONS".
---------------------
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
Stockholders of D&B with inquiries related to the Distribution should
contact First Chicago Trust Company of New York, telephone (201) 324-1225, the
Distribution Agent for the Distribution.
The date of this Information Statement is October , 1996.
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TABLE OF CONTENTS
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PAGE
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INFORMATION STATEMENT SUMMARY.......................................................... 1
CERTAIN CONSIDERATIONS................................................................. 8
THE DISTRIBUTION....................................................................... 13
RELATIONSHIP AMONG D&B, COGNIZANT AND ACNIELSEN AFTER THE DISTRIBUTION................. 16
DIVIDEND POLICY........................................................................ 23
COGNIZANT CAPITALIZATION............................................................... 24
COGNIZANT SELECTED FINANCIAL DATA...................................................... 26
COGNIZANT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 27
ACNIELSEN CAPITALIZATION............................................................... 35
ACNIELSEN SELECTED FINANCIAL DATA...................................................... 36
ACNIELSEN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 37
COGNIZANT BUSINESS..................................................................... 45
ACNIELSEN BUSINESS..................................................................... 54
COGNIZANT MANAGEMENT AND EXECUTIVE COMPENSATION........................................ 61
COGNIZANT SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............... 68
ACNIELSEN MANAGEMENT AND EXECUTIVE COMPENSATION........................................ 69
ACNIELSEN SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............... 77
DESCRIPTION OF COGNIZANT CAPITAL STOCK................................................. 79
DESCRIPTION OF ACNIELSEN CAPITAL STOCK................................................. 85
AVAILABLE INFORMATION.................................................................. 92
REPORTS OF COGNIZANT AND ACNIELSEN..................................................... 92
INDEX TO FINANCIAL STATEMENTS.......................................................... F-1
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INFORMATION STATEMENT SUMMARY
The following is a summary of certain information contained in this
Information Statement. This summary is included for convenience only and should
not be considered complete. This summary is qualified in its entirety by the
more detailed information and financial statements contained elsewhere in this
Information Statement. Certain capitalized terms used in this summary are
defined elsewhere in this Information Statement. This Information Statement
contains forward-looking statements which involve risks and uncertainties. In
particular, the actual results of Cognizant and ACNielsen, the trading multiples
of Cognizant Common Stock and the degree to which Cognizant's and ACNielsen's
business strategies are implemented may differ significantly from the results,
trading multiples, and proposed implementation discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in "Certain Considerations".
BUSINESSES OF COGNIZANT AND ACNIELSEN
Cognizant.................. Cognizant Corporation is a newly created Delaware
corporation, the businesses of which will focus on
information systems and services for high-growth
emerging markets in healthcare, high-tech and
media, operating in approximately 100 countries
with over 10,000 employees worldwide. Cognizant's
businesses will include those of I.M.S.
International, Inc. ("IMS"), the leading global
supplier of information and decision-support
services to the pharmaceutical and healthcare
industries; Nielsen Media Research, Inc., ("Nielsen
Media Research"), the leader in U.S. and Canadian
audience measurement for electronic media; Gartner
Group, Inc. ("Gartner Group"), in which Cognizant
has approximately a 51% interest, the leading
independent provider of research and analysis of
the computer hardware, software, communications and
related technology industries; Pilot Software, Inc.
("Pilot"), a leading provider of client/server
decision support solutions for medium and
large-scale enterprises; Erisco, Inc. ("Erisco"), a
leading supplier of information systems for managed
care organizations; Dun & Bradstreet-Satyam
Software Private Limited ("Satyam Software"), in
which Cognizant has a 76% interest, a software
development company based in India; Dun &
Bradstreet HealthCare Information, Inc. ("DBHC"),
which provides information and analytic support
services focusing on healthcare providers; D&B
Technology Asia K.K. ("DBTA"), which provides
financial application software products and
services to the Japanese market; and Cognizant
Enterprises, Inc. ("Enterprises"), which invests in
emerging and established businesses in the
information industry (collectively, the "Cognizant
Business").
Robert E. Weissman is currently Chairman and Chief
Executive Officer of D&B and Chairman and Chief
Executive Officer of Cognizant. Mr. Weissman will
resign from his positions at D&B effective upon the
Distribution. The directors of Cognizant will
consist of certain persons who are currently
directors of D&B and certain persons who are not
currently directors of D&B. See "Cognizant
Management and Executive Compensation -- Cognizant
Board of Directors". In addition to Mr. Weissman,
the other executive officers of Cognizant will be
drawn from the current management of D&B. See
"Cognizant Management and Executive
Compensation -- Cognizant Executive Officers".
ACNielsen.................. ACNielsen Corporation is a newly formed Delaware
corporation. ACNielsen is a global leader in
delivering marketing research, information and
analysis to the consumer products and service
industries.
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ACNielsen services are offered in over 90 countries
around the globe. Employing over 17,000 full-time
equivalent employees worldwide, ACNielsen provides
its customers with marketing research, information
and analysis for understanding and making critical
decisions about their products and their markets.
Outside the United States and Canada, ACNielsen
conducts media measurement and related businesses.
The ACNielsen businesses described above are
referred to hereinafter, collectively, as the
"ACNielsen Business".
Nicholas L. Trivisonno is currently Executive Vice
President-Finance and Chief Financial Officer of
D&B and Chairman and Chief Executive Officer of
ACNielsen. Mr. Trivisonno will resign from his
positions at D&B effective upon the Distribution.
The directors of ACNielsen will consist of one
person who is currently a director of D&B and
certain persons who are not currently directors of
D&B. See "ACNielsen Management and Executive
Compensation -- ACNielsen Board of Directors". In
addition to Mr. Trivisonno, most of the other
executive officers of ACNielsen will be drawn from
the current management of D&B and A. C. Nielsen
Company which, after the Distribution, will be the
primary U.S. operating subsidiary of ACNielsen. See
"ACNielsen Management and Executive
Compensation -- ACNielsen Executive Officers".
THE DISTRIBUTION
Shares to be Distributed... The Distribution will be made to holders of record
on the Record Date of issued and outstanding shares
of D&B Common Stock. Based on the shares of
D&B Common Stock outstanding as of , 1996
[the dividend declaration date], the Distribution
would consist of shares of Cognizant Common
Stock and shares of ACNielsen Common Stock.
Each holder of D&B Common Stock on the Record Date
will receive as a dividend one share of Cognizant
Common Stock for every share of D&B Common Stock
held and one share of ACNielsen Common Stock for
every three shares of D&B Common Stock held.
The Board of Directors of Cognizant has adopted a
stockholder rights plan. Certificates evidencing
shares of Cognizant Common Stock issued in the
Distribution will therefore represent the same
number of Cognizant Rights (as defined below)
issued under the Cognizant Rights Plan. The Board
of Directors of ACNielsen has also adopted a
stockholder rights plan. Certificates evidencing
shares of ACNielsen Common Stock issued in the
Distribution will therefore represent the same
number of ACNielsen Rights (as defined below)
issued under the ACNielsen Rights Plan. See
"Description of Cognizant Capital
Stock -- Cognizant Rights Plan" and "Description of
ACNielsen Capital Stock -- ACNielsen Rights Plan".
Unless the context otherwise requires, references
herein to the Cognizant Common Stock include the
related Cognizant Rights, and references herein to
the ACNielsen Common Stock include the related
ACNielsen Rights.
D&B stockholders will not have to make any payment
or surrender or exchange shares of D&B Common Stock
in order to receive their pro
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rata share of the Distribution. No vote of holders
of D&B Common Stock is required or sought in
connection with the Distribution.
Fractional Share
Interests.................. Fractional shares of ACNielsen Common Stock will
not be distributed. Fractional shares of ACNielsen
Common Stock will be aggregated and sold in the
public market by the Distribution Agent, and the
aggregate net cash proceeds will be distributed
ratably to those stockholders otherwise entitled to
such fractional interests. See "The Distribution --
Manner of Effecting the Distribution".
Record Date................ The Record Date is October , 1996. In order to be
entitled to receive shares of Cognizant Common
Stock and ACNielsen Common Stock in the
Distribution, holders of shares of D&B Common Stock
must be such as of the close of business on the
Record Date.
Distribution Date.......... The "Distribution Date" is presently expected to be
on or about November , 1996.
Distribution Agent......... First Chicago Trust Company of New York will be the
Distribution Agent (the "Distribution Agent") for
the Distribution.
Federal Income Tax
Consequences of the
Distribution............. D&B has received a ruling from the Internal Revenue
Service to the effect that the Distribution will be
tax-free for Federal income tax purposes, except to
the extent that cash is received for fractional
shares of ACNielsen Common Stock. D&B stockholders
will apportion their tax basis in D&B Common Stock
held immediately before the Distribution among such
D&B Common Stock, and Cognizant Common Stock and
ACNielsen Common Stock received in the
Distribution, based on the relative fair market
values of the D&B Common Stock, the Cognizant
Common Stock and the ACNielsen Common Stock as of
the Distribution Date. D&B will provide appropriate
information to each holder of record of D&B Common
Stock as of the Record Date concerning the basis
allocation. See "The Distribution -- Federal Income
Tax Consequences of the Distribution".
Stock Exchange Listings.... There is not currently a public market for either
the Cognizant Common Stock or the ACNielsen Common
Stock. Application has been made to list the
Cognizant Common Stock and the ACNielsen Common
Stock on the New York Stock Exchange ("NYSE") under
the symbols "CZT" and "ART", respectively. It is
presently anticipated that Cognizant Common Stock
and ACNielsen Common Stock will be approved for
listing on the NYSE prior to the Distribution Date,
and trading is expected to commence on a
"when-issued" basis prior to the Distribution. On
the first NYSE trading day following the
Distribution Date, "when-issued" trading in respect
of each of the Cognizant Common Stock and the
ACNielsen Common Stock will end and "regular-way"
trading will begin. See "The
Distribution -- Listing and Trading of Cognizant
Common Stock and ACNielsen Common Stock".
Limited Relationships Among
D&B, Cognizant and
ACNielsen After the
Distribution............. After the Distribution, none of D&B, Cognizant or
ACNielsen will have any ownership interest in the
others, except as set forth under "Relation-
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ship Among D&B, Cognizant and ACNielsen After the
Distribution -- Distribution Agreement", and each
of D&B, Cognizant and ACNielsen will be an
independent public company. D&B, Cognizant and
ACNielsen will enter into certain agreements
governing their relationships subsequent to the
Distribution and providing for the allocation of
tax, employee benefits and certain other
liabilities and obligations arising from periods
prior to the Distribution, including contingent
liabilities relating to certain litigation. In
addition, there will be individuals on the Boards
of Directors of D&B, Cognizant and ACNielsen who
will also serve on the Board of Directors of one
but not both of the other companies. See
"Relationship Among D&B, Cognizant and ACNielsen
After the Distribution".
Dividend Policies.......... The payment and level of cash dividends by
Cognizant and ACNielsen after the Distribution will
be subject to the discretion of the Cognizant Board
of Directors and the ACNielsen Board of Directors,
respectively. It is anticipated that Cognizant will
initially pay quarterly cash dividends in the range
of 5% to 8% of net earnings and that ACNielsen will
not initially pay any dividends. Dividend decisions
will be based on, and affected by, a number of
factors, including the respective operating results
and financial requirements of Cognizant and
ACNielsen on a stand-alone basis. See "Dividend
Policy".
Antitakeover Provisions.... The Restated Certificate of Incorporation and
Amended and Restated By-laws of each of Cognizant
and ACNielsen contain provisions that may have the
effect of discouraging an acquisition of control of
Cognizant or ACNielsen, respectively, not approved
by their respective Boards of Directors. Such
provisions may also have the effect of discouraging
third parties from making proposals involving an
acquisition or change of control of Cognizant or
ACNielsen, although such proposals, if made, might
be considered desirable by a majority of the
stockholders of Cognizant or ACNielsen, as the case
may be. Such provisions could further have the
effect of making it more difficult for third
parties to cause the replacement of the Boards of
Directors of Cognizant or ACNielsen. These
provisions have been designed to enable each of
Cognizant and ACNielsen to develop its businesses
and foster its long-term growth without disruptions
caused by the threat of a takeover not deemed by
its Board of Directors to be in the best interests
of the applicable company and its stockholders.
Certain provisions of the Distribution Agreement to
be entered into among D&B, Cognizant and ACNielsen
may also have the effect of discouraging third
parties from making proposals involving an
acquisition or change of control of Cognizant or
ACNielsen. See "Relationship Among D&B, Cognizant
and ACNielsen After the Distribution -- Tax Sharing
Agreement".
Each of Cognizant and ACNielsen has adopted a
stockholder rights plan. These stockholder rights
plans are designed to protect stockholders in the
event of an unsolicited offer and other takeover
tactics which, in the opinion of the relevant Board
of Directors, could impair its ability to represent
stockholder interests. The provisions of these
stockholder rights plans may render an unsolicited
takeover of Cognizant or ACNielsen, as applicable,
more difficult or less likely to occur or might
prevent such a takeover. See "Description of
Cognizant Capital Stock-- Cognizant
4
<PAGE> 7
Rights Plan" and "Description of ACNielsen Capital
Stock -- ACNielsen Rights Plan".
Each of Cognizant and ACNielsen will be subject to
provisions of Delaware corporate law which may
restrict certain business combination transactions.
See "Description of Cognizant Capital
Stock -- Delaware General Corporation Law" and
"Description of ACNielsen Capital Stock -- Delaware
General Corporation Law".
See also "Description of Cognizant Capital
Stock -- Provisions of Cognizant Restated
Certificate of Incorporation and Amended and
Restated By-laws Affecting Change in Control", and
"Description of ACNielsen Capital
Stock -- Provisions of ACNielsen Restated
Certificate of Incorporation and Amended and
Restated By-laws Affecting Change in Control".
Certain Considerations..... Stockholders should carefully consider the matters
discussed under the section entitled "Certain
Considerations" in this Information Statement.
* * *
This Information Statement is being furnished by D&B solely to provide
information to stockholders of D&B who will receive Cognizant Common Stock and
ACNielsen Common Stock in the Distribution. It is not, and is not to be
construed as, an inducement or encouragement to buy or sell any securities of
D&B, Cognizant or ACNielsen. The information contained in this Information
Statement is believed by D&B, Cognizant and ACNielsen to be accurate with
respect to D&B, Cognizant and ACNielsen, respectively, as of the date set forth
on the cover. Changes may occur after that date, and neither D&B, Cognizant nor
ACNielsen will update the information except in the normal course of their
respective public disclosure practices.
5
<PAGE> 8
COGNIZANT
SUMMARY FINANCIAL DATA
The following table summarizes certain selected combined financial data of
Cognizant which has been derived from the Combined Financial Statements of
Cognizant for the five years ended December 31, 1995, and the six months ended
June 30, 1996 and 1995. The historical financial statements of Cognizant
contained in this Information Statement are presented as if Cognizant were a
separate entity for all periods presented. The information set forth below
should be read in conjunction with the information set forth under "Cognizant
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Cognizant's Combined Financial Statements and the Notes thereto
included in this Information Statement. The following information is qualified
in its entirety by the information and financial statements appearing elsewhere
in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------
1996 1995 1995(1)(2) 1994(2) 1993(2) 1992 1991
----------- ----------- ---------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
($ IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Operating Revenue............. $ 786 $ 710 $1,542 $1,257 $1,039 $ 910 $ 915
Income before cumulative
effect of changes in
accounting principles....... $ 76 $ 63 $ 89 $ 146 $ 109 $ 87 $ 84
PRO FORMA UNAUDITED EARNINGS
PER SHARE OF COMMON
STOCK(3).................... $ 0.45 $ 0.52
BALANCE SHEET DATA:
Total Assets.................. $ 1,475 $ 1,454 $1,442 $1,331 $1,159 $ 894 $ 745
Long-term Debt................ $ 6 $ 11 $ 10 $ 15 $ 5 $ 6 $ 8
</TABLE>
- ---------------
(1) Income before cumulative effect of changes in accounting principles in 1995
includes a non-recurring pre-tax charge in the fourth quarter of $90
million ($50 million after-tax) for costs principally associated with asset
impairments, software write-offs and contractual obligations that have no
future economic benefit.
(2) Income before cumulative effect of changes in accounting principles includes
restructuring expense of $13 million, $8 million and $46 million pre-tax,
in 1995, 1994 and 1993, respectively. Also included in income before
cumulative effect of changes in accounting principles are non-operating
gains from dispositions of $15 million and $21 million pre-tax, in 1995 and
1994, respectively and a non-operating gain from sale of Gartner Group
stock of $21 million pre-tax in 1993.
(3) The computation of pro forma earnings per share for the periods ended June
30, 1996 and December 31, 1995 is based on the average number of shares of
D&B Common Stock outstanding during the respective periods, reflecting the
one for one Distribution ratio.
6
<PAGE> 9
ACNIELSEN
SUMMARY FINANCIAL DATA
The following table summarizes certain selected combined financial data of
ACNielsen which has been derived from the Combined Financial Statements of
ACNielsen for the five years ended December 31, 1995, and the six months ended
June 30, 1996 and 1995. The historical financial statements of ACNielsen
contained in this Information Statement are presented as if ACNielsen were a
separate entity for all periods presented. The information set forth below
should be read in conjunction with the information set forth under "ACNielsen
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and ACNielsen's Combined Financial Statements and the Notes thereto
included in this Information Statement. The following information is qualified
in its entirety by the information and financial statements appearing elsewhere
in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ ---------------------------------------------------
1996 1995 1995(1) 1994(2) 1993(2) 1992 1991
----------- ----------- ------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
($ IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Operating Revenue............... $ 644 $ 611 $1,281 $1,092 $1,045 $ 1,117 $ 1,020
(Loss) Income before cumulative
effect of changes in
accounting principles......... $ (17) $ (37) $ (231 ) $ (65 ) $ (55 ) $ 47 $ 46
PRO FORMA UNAUDITED LOSS PER
SHARE OF COMMON STOCK(3)...... $ (0.31) $(4.09 )
BALANCE SHEET DATA:
Total Assets.................... $ 947 $ 1,052 $ 970 $ 980 $ 845 $ 922 $ 1,385
Long-term Debt.................. $ 7 $ 13 $ 6 $ 9 $ 4 $ 10 $ 12
</TABLE>
- ---------------
(1) (Loss) Income before cumulative effect of changes in accounting principles
in 1995 includes a non-recurring pre-tax charge in the fourth quarter of
$152 million ($141 million after-tax) for costs principally associated with
asset impairments, software write-offs and contractual obligations that
have no future economic benefit.
(2) (Loss) Income before cumulative effect of changes in accounting principles
includes restructuring expense of $9 million and $60 million pre-tax, in
1994 and 1993, respectively.
(3) The computation of pro forma loss per share for the periods ended June 30,
1996 and December 31, 1995 is based on the average number of shares of D&B
Common Stock outstanding during the respective periods, adjusted for the
one for three Distribution ratio.
7
<PAGE> 10
CERTAIN CONSIDERATIONS
CONSIDERATIONS RELEVANT TO COGNIZANT AND ACNIELSEN
Absence of Prior Trading Market for the Cognizant Common Stock and ACNielsen
Common Stock
Prior to the date hereof, there has not been any established trading market
for Cognizant Common Stock or ACNielsen Common Stock. Application has been made
to list the Cognizant Common Stock and ACNielsen Common Stock on the NYSE under
the symbols "CZT" and "ART", respectively. It is presently anticipated that
Cognizant Common Stock and ACNielsen Common Stock will be approved for listing
on the NYSE prior to the Distribution Date, and trading is expected to commence
on a "when-issued" basis prior to the Distribution. See "The
Distribution -- Listing and Trading of Cognizant Common Stock and ACNielsen
Common Stock".
Changes in Trading Prices of Cognizant Common Stock and ACNielsen Common Stock
There can be no assurance as to the prices at which the Cognizant Common
Stock and ACNielsen Common Stock will trade before, on or after the Distribution
Date. Until each of the Cognizant Common Stock and ACNielsen Common Stock is
fully distributed and an orderly market develops in the Cognizant Common Stock
and ACNielsen Common Stock, the respective price at which each such stock trades
may fluctuate significantly and may be lower or higher than the respective price
that would be expected for a fully distributed issue. Prices for each of the
Cognizant Common Stock and ACNielsen Common Stock will be determined in the
marketplace and may be influenced by many factors, including (i) the depth and
liquidity of the market for Cognizant Common Stock and ACNielsen Common Stock,
as applicable, (ii) developments affecting the respective businesses of
Cognizant and ACNielsen generally and the impact of those factors referred to
below in particular, (iii) investor perception of Cognizant and ACNielsen, as
the case may be, and (iv) general economic and market conditions.
Potential Taxation
D&B has received a ruling from the Internal Revenue Service to the effect
that, among other things, the Distribution will qualify as a tax-free spinoff
under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code").
The Internal Revenue Service ruling is based on certain factual
representations and assumptions made by D&B. If such factual representations and
assumptions were incorrect in a material respect, such ruling could become
invalid. D&B is not aware of any facts or circumstances which would cause such
representations and assumptions to be incorrect. Each of D&B, Cognizant and
ACNielsen has agreed in the Distribution Agreement to certain restrictions on
its future actions to provide further assurances that Section 355 of the
Internal Revenue Code will apply to the Distribution. See "Relationship Among
D&B, Cognizant and ACNielsen After the Distribution".
If the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, then, in general, a corporate tax (which would be very
substantial) would be payable by the consolidated group, of which D&B is the
common parent. In addition, under the consolidated return rules, each member of
the consolidated group (including Cognizant and ACNielsen) is jointly and
severally liable for such tax liability. If the Distribution occurred and it
were not to qualify under Section 355 of the Internal Revenue Code, the
resulting tax liability would have a material adverse effect on the financial
position, results of operations and cash flows of each of D&B, Cognizant and
ACNielsen. D&B estimates that the aggregate shared tax liability in this regard
of D&B, Cognizant and ACNielsen would be in the range of approximately $1.5 to
$2.0 billion. See "The Distribution -- Federal Income Tax Consequences of the
Distribution".
D&B has sought ruling letters from the Internal Revenue Service as to the
Federal income tax consequences of certain restructurings which were or are to
be effected by D&B prior to the Distribution. If these ruling letters are not
received by October , 1996 [the dividend declaration date], D&B expects to
receive unqualified opinions of counsel as to some but not all of the issues
raised in the ruling requests. Any
8
<PAGE> 11
tax liabilities which may ultimately arise in connection with the international
restructurings which are the subject of ruling requests will be shared equally
by Cognizant and D&B and are not expected to be material to Cognizant or D&B.
Non-United States Operations
Approximately 46% of Cognizant's 1995 revenues were generated by non-U.S.
operations and approximately 80% of ACNielsen's 1995 revenues were generated by
non-U.S. operations. As a result, fluctuations in the value of foreign
currencies relative to the U.S. dollar could increase the volatility of U.S.
dollar-denominated operating results. The non-U.S. operations of Cognizant and
ACNielsen are also subject to other risks inherent in carrying on business in
countries outside the United States, including possible nationalization,
expropriation, price controls and/or other restrictive government actions.
Management of each of Cognizant and ACNielsen believes that the risks of
nationalization or expropriation are negligible.
Certain Antitakeover Provisions
The Restated Certificate of Incorporation and Amended and Restated By-laws
of each of Cognizant and ACNielsen contain provisions that may have the effect
of discouraging an acquisition of control of Cognizant or ACNielsen,
respectively, not approved by their respective Boards of Directors. Such
provisions may also have the effect of discouraging third parties from making
proposals involving an acquisition or change of control of Cognizant or
ACNielsen, although such proposals, if made, might be considered desirable by a
majority of the stockholders of Cognizant or ACNielsen, as the case may be. Such
provisions could further have the effect of making it more difficult for third
parties to cause the replacement of the Board of Directors of Cognizant or
ACNielsen. These provisions have been designed to enable each of Cognizant and
ACNielsen to develop its businesses and foster its long-term growth without
disruptions caused by the threat of a takeover not deemed by its Board of
Directors to be in the best interests of the applicable company and its
stockholders. Certain provisions of the Distribution Agreement entered into
among D&B, Cognizant and ACNielsen may also have the effect of discouraging
third parties from making proposals involving an acquisition or change of
control of D&B, Cognizant or ACNielsen. See "Relationship Among D&B, Cognizant
and ACNielsen After the Distribution -- Distribution Agreement".
Each of Cognizant and ACNielsen has adopted a stockholder rights plan.
These stockholder rights plans are designed to protect stockholders in the event
of an unsolicited offer and other takeover tactics which, in the opinion of the
relevant Board of Directors, could impair its ability to represent stockholder
interests. The provisions of these stockholder rights plans may render an
unsolicited takeover of Cognizant or ACNielsen, as applicable, more difficult or
less likely to occur or might prevent such a takeover. See "Description of
Cognizant Capital Stock -- Cognizant Rights Plan" and "Description of ACNielsen
Capital Stock -- ACNielsen Rights Plan".
Each of Cognizant and ACNielsen will be subject to provisions of Delaware
corporate law which may restrict certain business combination transactions. See
"Description of Cognizant Capital Stock -- Delaware General Corporation Law" and
"Description of ACNielsen Capital Stock -- Delaware General Corporation Law".
CONSIDERATIONS RELEVANT TO COGNIZANT
Acquisitions
Although an important aspect of Cognizant's business strategy is growth
through acquisitions, there can be no assurance that management of Cognizant
will be able to identify and consummate acquisitions on satisfactory terms.
Furthermore, every acquisition will entail some degree of uncertainty and risk,
and even if consummated, may not produce the operating results or increases in
value over time which were expected at the time of acquisition.
9
<PAGE> 12
Technology
Cognizant intends to compete in businesses which demand or sell
sophisticated information systems, software and other technology. The types of
systems which Cognizant's businesses will require or sell can be expected to be
subject to refinements as such systems and underlying technologies are upgraded
and advanced, and there can be no guarantee that as various systems and
technologies become outdated, Cognizant will be able to replace them, to replace
them as quickly as Cognizant's competition or to develop and market new and
better products and services in the future on a cost-effective basis.
Volatility
Management expects that the market will characterize Cognizant Common Stock
as an information systems and services stock, which category of stock has
historically experienced relatively greater price volatility than broader market
indices.
Gartner Group, Inc.
The Cognizant Business includes Cognizant's ownership of approximately 51%
of the outstanding shares of Gartner Group, a publicly traded provider of
research and analysis of the computer hardware, software, communications and
related technology industries. Gartner Group's common stock has historically
traded at higher multiples than market averages and has generally experienced
greater price volatility than the market as a whole. It can be expected that
variations in the market value of the Gartner Group shares held by Cognizant
will have an impact on the trading prices of Cognizant Common Stock. In
addition, to the extent that Gartner Group issues additional shares of its own
common stock, Cognizant would have to purchase Gartner Group shares in the open
market in order to maintain a majority position. Cognizant might have to effect
such purchases even if Gartner Group shares were trading at relatively high
multiples. There can be no assurance that Cognizant will maintain its majority
position in Gartner Group.
Gartner Group's future success will depend in large measure upon the
continued contributions of its senior management team, professional analysts and
experienced sales personnel. Accordingly, Gartner Group's future operating
results will be largely dependent upon its ability to retain the services of
these individuals and to attract additional qualified personnel. Gartner Group
experiences intense competition for professional personnel with, among others,
producers of information technology products, management consulting firms and
financial services companies. Many of these firms have substantially greater
financial resources than Gartner Group to attract and compensate qualified
personnel. The loss of the services of key management and professional personnel
could have a material adverse effect on Gartner Group's business.
Litigation
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and IMS (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 connection with such action, D&B, ACNielsen and Cognizant will enter
into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense
Agreement") pursuant to which ACNielsen will agree 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 will agree 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. See "Considerations Relevant to
ACNielsen -- Litigation", below, and "Relationship Among D&B, Cognizant and
ACNeilsen After the Distribution -- Indemnity and Joint Defense Agreement".
Management of Cognizant is unable to predict at this time the final outcome of
the IRI
10
<PAGE> 13
Action or whether the resolution of such matter could materially affect
Cognizant's results of operations, cash flows or financial position.
CONSIDERATIONS RELEVANT TO ACNIELSEN
Recent Losses
ACNielsen incurred net losses of approximately $17.5 million in the six
months ended June 30, 1996, $230.9 million in 1995 (including an after-tax
non-recurring charge of $141.3 million and an after-tax provision for
postemployment benefits of $24.2 million), $65.1 million in 1994 and $174.7
million in 1993 (including a net restructuring charge of $56.0 million after tax
and the cumulative effect of changes in accounting principles of $119.5 million
after tax). Accordingly, a significant turnaround must be accomplished in the
United States and in Europe. To effectuate this turnaround, ACNielsen will need
to be able to respond to changes in its markets, including rapid technological
change, increasing global competition, rising costs and declining margins.
Management has developed a turnaround strategy which involves reengineering
ACNielsen's business fundamentals in five key ways: significantly improving
profitability, targeting profitable growth opportunities, further streamlining
operations, redefining its business model and enhancing its investment returns.
However, no assurance can be given that such strategy can be successfully
implemented or that, if implemented, further initiatives will not be necessary
to return ACNielsen to profitability or to sustain such profitability.
Technology
ACNielsen competes in businesses which demand sophisticated information
systems, software and other technology. The types of systems which ACNielsen's
businesses will require can be expected to be subject to refinements as such
systems and underlying technologies are upgraded and advanced, and there can be
no guarantee that as various systems and technologies become outdated, ACNielsen
will be able to replace them, to replace them as quickly as ACNielsen's
competition or to develop and market new and better products and services in the
future on a cost-effective basis.
Global Competition
ACNielsen has numerous competitors in its various lines of business
throughout the world. Some are large companies with diverse product and service
lines; others have more limited product and service offerings. Competition comes
from companies specializing in marketing research; the in-house research
departments of manufacturers and advertising agencies; retailers selling
information directly or through brokers; information management and software
companies; and consulting and accounting firms. IRI is ACNielsen's principal
competitor in the United States. IRI and other firms also participate in the
global marketing research area, where competition is intensifying.
Access to Capital as an Independent Company
Since its acquisition by D&B, ACNielsen has relied on D&B for various
financial and administrative services as well as funding. Except as contemplated
by certain of the agreements described below, after the Distribution, D&B will
not provide ACNielsen with further financial and administrative support
services. In addition, to the extent that ACNielsen may need additional funding
to finance its operations and capital expenditures, no assurance can be given
that ACNielsen 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 and commercially favorable manner, particularly if ACNielsen is unable
to successfully implement its turnaround strategy.
Litigation
As set forth above, on July 29, 1996, IRI filed a complaint in the United
States District Court for the Southern District of New York, naming as
defendants D&B, A.C. Nielsen Company and IMS.
11
<PAGE> 14
The complaint alleges various violations of United States antitrust law:
(1) a violation of Section 1 of the Sherman Act through an alleged practice of
tying A.C. Nielsen Company services in different countries or of A.C. Nielsen
Company and IMS services; (2) a violation of Section 1 of the Sherman Act
through alleged unreasonable restraints of trade consisting of the contracts
described above and through alleged long-term agreements with multi-national
customers; (3) a violation of Section 2 of the Sherman Act for monopolization
and attempted monopolization of export markets through alleged exclusive data
acquisition agreements with retailers in foreign countries, the contracts with
customers described above, and other means; (4) a violation of Section 2 of the
Sherman Act for attempted monopolization of the United States market through the
alleged exclusive data agreements described above, predatory pricing, and other
means; and (5) a violation of Section 2 of the Sherman Act for an alleged use of
market power in export markets to gain an unfair competitive advantage in the
United States.
The complaint also alleges two claims of tortious interference with
contract and tortious interference with a prospective business relationship.
These claims relate to the acquisition by defendants of Survey Research Group
Limited ("SRG"). IRI alleges that SRG violated an alleged agreement with IRI
when it agreed to be acquired by defendants and that defendants induced SRG to
breach that agreement.
IRI's complaint alleges 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 connection with such action, D&B, ACNielsen and Cognizant will enter
into the Indemnity and Joint Defense Agreement pursuant to which they will agree
(i) to certain arrangements allocating potential liabilities ("IRI Liabilities")
that may arise out of or in connection with the IRI Action and (ii) to conduct a
joint defense of such action. In particular, the Indemnity and Joint Defense
Agreement will provide that ACNielsen will assume exclusive liability for IRI
Liabilities up to a maximum amount to be determined at the time such
liabilities, if any, become payable (the "ACN Maximum Amount"), and that
Cognizant and D&B will share liability equally for any amounts in excess of the
ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment
banking firm as the maximum amount which ACNielsen is able to pay after giving
effect to (i) any plan submitted by such investment bank which is designed to
maximize the claims paying ability of ACNielsen without impairing the investment
banking firm's ability to deliver a viability opinion (but which will not
require any action requiring stockholder approval), and (ii) payment of related
fees and expenses. For these purposes, financial viability means the ability of
ACNielsen, after giving effect to such plan, the payment of related fees and
expenses and the payment of the ACN Maximum Amount, to pay its debts as they
become due and to finance the current and anticipated operating and capital
requirements of its business, as reconstituted by any such plan, for two years
from the date such plan is expected to be implemented. See "Relationship Among
D&B, Cognizant and ACNielsen -- Indemnity and Joint Defense Agreement".
Directorate General IV of the Commission of the European Union (the
"Commission") is currently investigating ACNielsen for the possible violation of
European Union competition law. In May 1996, the Commission issued a Statement
of Objections with respect to certain of ACNielsen's practices in Europe,
including discounting and other sales practices. ACNielsen has submitted its
response to the Commission's Statement of Objections. Following the review of
such submission and a hearing at which representatives of European Union member
states will participate, the Commission may uphold ACNielsen's position and
dismiss the complaint or adopt a decision prohibiting any of the practices
identified in the Statement of Objections and imposing substantial fines.
Management of ACNielsen is unable to predict at this time the final outcome
of either the IRI Action or the Commission's investigation or whether the
resolution of either matter could materially affect ACNielsen's results of
operations, cash flows or financial position.
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<PAGE> 15
THE DISTRIBUTION
INTRODUCTION
On January 9, 1996, the Board of Directors of D&B approved in principle a
plan to distribute the Cognizant Common Stock and the ACNielsen Common Stock to
all holders of outstanding D&B Common Stock. On October , 1996, the D&B Board
of Directors formally approved the Distribution and declared a dividend payable
to each holder of record at the close of business on the Record Date, of one
share of Cognizant Common Stock for every one share of D&B Common Stock held by
such holder on the Record Date and one share of ACNielsen Common Stock for every
three shares of D&B Common Stock held by such holder on the Record Date.
D&B has received a tax ruling from the U.S. Internal Revenue Service that
the receipt by D&B stockholders of the Cognizant Common Stock and the ACNielsen
Common Stock in the Distribution will be generally tax-free to such stockholders
and D&B for Federal income tax purposes. On or before the Distribution Date, D&B
will deliver all of the outstanding shares of Cognizant Common Stock and
ACNielsen Common Stock to the Distribution Agent for transfer and distribution
to the holders of record of D&B Common Stock on the Record Date. The
Distribution will be made or about November , 1996.
Questions relating to the Distribution prior to the Distribution Date or
relating to transfers of Cognizant Common Stock and the ACNielsen Common Stock
after the Distribution Date should be directed to: First Chicago Trust Company
of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500, telephone (201)
324-1225.
REASONS FOR THE DISTRIBUTION
The Board of Directors of D&B believes that the Distribution is in the best
interests of D&B and D&B's stockholders and that the separation of Cognizant and
ACNielsen from D&B will provide each of D&B, Cognizant and ACNielsen with
greater managerial, operational and financial flexibility to respond to changing
market conditions in their different business environments. The discussion of
the reasons for the Distribution set forth herein includes forward-looking
statements that are based upon numerous assumptions with respect to the trading
characteristics of the Cognizant and ACNielsen Common Stock, the ability of
Cognizant's management to identify and consummate acquisitions, the ability of
ACNielsen's management to successfully implement a program to return to and
sustain profitability and other factors which may be beyond the control of
either company's management. Many of such factors are discussed above under the
caption "Certain Considerations".
Facilitate Growth of Cognizant. Cognizant intends to pursue acquisition
and growth opportunities in its business areas. Such acquisitions and growth
could be pursuant to transactions in which Cognizant Common Stock is offered in
exchange for the stock of the target, or could be pursuant to cash acquisitions
financed through the sale of capital stock of Cognizant. In either event,
management of D&B believes that the Distribution will facilitate such
acquisition and growth strategy because management of D&B believes that the
Cognizant Common Stock will generally trade at higher price-earnings multiples
than those at which D&B Common Stock has historically traded. Such higher
multiples would make such stock a more attractive acquisition currency for
Cognizant to deliver, and, to the extent such stock is perceived to be a
high-growth stock, a generally more attractive investment opportunity for the
typical seller of a business in Cognizant's industries.
Management Considerations. At present, the financial information services
businesses of D&B (which are to remain with D&B after the Distribution), the
healthcare information, technology and U.S. and Canadian media measurement
businesses of D&B (which are to be transferred to Cognizant) and the marketing
information services businesses and non-U.S and non-Canadian media measurement
businesses of D&B (which are to be transferred to ACNielsen) are conducted as
separate operating groups under the direction of D&B. The Distribution should be
beneficial to each of D&B's three operating groups, because it will enable the
management of each group to design and advance corporate policies and strategies
that are
13
<PAGE> 16
based primarily on the business characteristics of the group and to concentrate
its financial resources wholly on its own operations.
The Distribution will also permit each of D&B, Cognizant and ACNielsen to
design incentive compensation programs that relate more directly to its own
business characteristics and performance.
Investor Understanding. Investors should be able to evaluate better the
financial performance of each of D&B, Cognizant and ACNielsen and their
respective strategies, thereby enhancing the likelihood that each will achieve
appropriate market valuation.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made on the Distribution Date to stockholders of
record of D&B at the close of business on the Record Date. Based on the
shares of D&B Common Stock outstanding as of October , 1996 [the dividend
declaration date], the Distribution would consist of shares of
Cognizant Common Stock and shares of ACNielsen Common Stock. Prior to
the Distribution Date, D&B will deliver all outstanding shares of Cognizant
Common Stock and ACNielsen Common Stock to the Distribution Agent for
distribution. The Distribution Agent will mail, on or about the Distribution
Date, certificates representing the shares of Cognizant Common Stock and
ACNielsen Common Stock to D&B stockholders of record on the Record Date. D&B
stockholders will not be required to pay for shares of Cognizant Common Stock or
ACNielsen Common Stock received in the Distribution, or to surrender or exchange
shares of D&B Common Stock in order to receive shares of Cognizant Common Stock
and ACNielsen Common Stock. No vote of D&B stockholders is required or sought in
connection with the Distribution.
No certificates or scrip representing fractional shares of ACNielsen Common
Stock will be issued to D&B stockholders as part of the Distribution. In lieu of
receiving fractional shares of ACNielsen Common Stock, each holder of D&B Common
Stock who would otherwise be entitled to receive a fractional share will receive
cash for such fractional interests. The Distribution Agent will, as soon as
practicable after the Distribution Date, aggregate and sell all such fractional
interests on the NYSE at then prevailing market prices and distribute the
aggregate proceeds (net of brokerage fees) ratably to D&B stockholders otherwise
entitled to such fractional interests. See "Federal Income Tax Consequences of
the Distribution" below for a discussion of the Federal income tax treatment of
fractional share interests.
IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF COGNIZANT COMMON STOCK OR
ACNIELSEN COMMON STOCK IN THE DISTRIBUTION, D&B STOCKHOLDERS MUST BE
STOCKHOLDERS AT THE CLOSE OF BUSINESS ON THE RECORD DATE, OCTOBER , 1996.
The Board of Directors of Cognizant has adopted a stockholder rights plan.
Certificates evidencing shares of Cognizant Common Stock issued in the
Distribution will therefore represent the same number of Cognizant Rights issued
under the Cognizant Rights Plan. The Board of Directors of ACNielsen has adopted
a stockholder rights plan. Certificates evidencing shares of ACNielsen Common
Stock issued in the Distribution will therefore represent the same number of
ACNielsen Rights issued under the ACNielsen Rights Plan. See "Description of
Cognizant Capital Stock -- Cognizant Rights Plan" and "Description of ACNielsen
Capital Stock -- ACNielsen Rights Plan". Unless the context otherwise requires,
references herein to the Cognizant Common Stock include the related Cognizant
Rights, and references herein to the ACNielsen Common Stock include the related
ACNielsen Rights.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
D&B has received a ruling letter from the Internal Revenue Service to the
effect that, among other things, the Distribution will qualify as a tax-free
spinoff under Section 355 of the Internal Revenue Code. Under Section 355 of the
Internal Revenue Code, in general:
1. Holders of D&B Common Stock will not recognize any income, gain or
loss as a result of the Distribution except that holders of D&B Common
Stock that receive cash in lieu of fractional shares of ACNielsen Common
Stock will recognize gain or loss equal to the difference between such cash
and the
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tax basis allocated to such fractional shares. Any such gain or loss will
constitute capital gain or loss if such fractional shares would have been
held as a capital asset on the Distribution Date.
2. Holders of D&B Common Stock will apportion the tax basis of their
D&B Common Stock among such D&B Common Stock and any Cognizant Common Stock
and ACNielsen Common Stock (including fractional shares of ACNielsen Common
Stock) received by such holder in the Distribution in proportion to the
relative fair market values of such stock on the Distribution Date. D&B
will provide appropriate information to each holder of record of D&B Common
Stock as of the Record Date concerning the basis allocation.
3. The holding period for the Cognizant Common Stock and ACNielsen
Common Stock received in the Distribution by holders of D&B Common Stock
will include the period during which such holder held the D&B Common Stock
with respect to which the Distribution was made, provided that such D&B
Common Stock is held as a capital asset by such holder on the Distribution
Date.
4. The Distribution will not be treated as a taxable disposition of
Cognizant or ACNielsen by D&B.
Current Treasury regulations require each holder of D&B Common Stock who
receives Cognizant Common Stock or ACNielsen Common Stock pursuant to the
Distribution to attach to his or her Federal income tax return for the year in
which the Distribution occurs a detailed statement setting forth such data as
may be appropriate in order to show the applicability of Section 355 of the
Internal Revenue Code to the Distribution. D&B will convey the appropriate
information to each holder of record of D&B Common Stock as of the Record Date.
The Internal Revenue Service ruling is based on certain factual
representations and assumptions made by D&B. If such factual representations and
assumptions were incorrect in a material respect, such ruling could become
invalid. D&B is not aware of any facts or circumstances which would cause such
representations and assumptions to be incorrect. Each of D&B, Cognizant and
ACNielsen has agreed to certain restrictions on its future actions to provide
further assurances that Section 355 of the Internal Revenue Code will apply to
the Distribution. See "Relationship Among D&B, Cognizant and ACNielsen After the
Distribution". If the Distribution were not to qualify under Section 355 of the
Internal Revenue Code, then, in general, a corporate tax (which, as noted below,
would be very substantial) would be payable by the consolidated group, of which
D&B is the common parent, based upon the difference between (x) the fair market
value of the Cognizant Common Stock and the ACNielsen Common Stock and (y) the
adjusted basis of such Cognizant Common Stock and ACNielsen Common Stock. In
addition, under the consolidated return rules, each member of the consolidated
group (including Cognizant and ACNielsen) is jointly and severally liable for
such tax liability. If the Distribution occurred and it were not to qualify
under Section 355 of the Internal Revenue Code, the resulting tax liability
would have a material adverse effect on the financial position, results of
operations and cash flows of each of D&B, Cognizant and ACNielsen. D&B estimates
that the aggregate shared tax liability in this regard of D&B, Cognizant and
ACNielsen would be in the range of approximately $1.5 to $2.0 billion.
Furthermore, if the Distribution were not to qualify as a tax-free spinoff,
each D&B stockholder receiving shares of Cognizant Common Stock and ACNielsen
Common Stock in the Distribution would be treated as if such stockholder had
received a taxable distribution in an amount equal to the fair market value of
Cognizant Common Stock and ACNielsen Common Stock received, which would result
in (y) a dividend to the extent of such stockholder's pro rata share of D&B's
current and accumulated earnings and profits and (z) a reduction in such
stockholder's basis in D&B Common Stock to the extent the amount received
exceeds such stockholder's share of earnings and profits and a capital gain to
the extent the amount received exceeds the stockholder's basis.
D&B has sought ruling letters from the Internal Revenue Service as to the
Federal income tax consequences of certain restructurings which were or are to
be effected by D&B prior to the Distribution. If these ruling letters are not
received by October , 1996 [the dividend declaration date], D&B expects to
receive unqualified opinions of counsel as to some but not all of the issues
raised in the ruling requests. Any tax liabilities which may ultimately arise in
connection with the international restructurings which are the
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subject of ruling requests will be shared equally by Cognizant and D&B and are
not expected to be material to Cognizant or D&B.
The foregoing summary of the anticipated Federal income tax consequences of
the Distribution is for general information only. D&B STOCKHOLDERS SHOULD
CONSULT THEIR OWN ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL
TAX LAWS.
LISTING AND TRADING OF COGNIZANT COMMON STOCK AND ACNIELSEN COMMON STOCK
Prior to the date hereof, there has not been any established trading market
for Cognizant Common Stock or ACNielsen Common Stock. Application has been made
to list the Cognizant Common Stock and ACNielsen Common Stock on the NYSE under
the symbols "CZT" and "ART", respectively. It is presently anticipated that
Cognizant Common Stock and ACNielsen Common Stock will be approved for listing
on the NYSE prior to the Distribution Date, and trading is expected to commence
on a "when-issued" basis at least two days prior to the Record Date. On the
first NYSE trading day following the Distribution Date, "when-issued" trading in
respect of each of the Cognizant Common Stock and the ACNielsen Common Stock
will end and "regular-way" trading will begin.
There can be no assurance as to the prices at which the Cognizant Common
Stock and ACNielsen Common Stock will trade before, on or after the Distribution
Date. Until each of the Cognizant Common Stock and ACNielsen Common Stock is
fully distributed and an orderly market develops in the Cognizant Common Stock
and ACNielsen Common Stock, the respective price at which each such stock trades
may fluctuate significantly and may be lower or higher than the respective price
that would be expected for a fully distributed issue. Prices for each of the
Cognizant Common Stock and ACNielsen Common Stock will be determined in the
marketplace and may be influenced by many factors, including (i) the depth and
liquidity of the market for Cognizant Common Stock and ACNielsen Common Stock,
as applicable, (ii) developments affecting the respective businesses of
Cognizant and ACNielsen generally and the impact of the factors referred to in
"Certain Considerations" above, in particular, (iii) investor perception of
Cognizant and ACNielsen, as the case may be, and (iv) general economic and
market conditions.
Shares of Cognizant Common Stock and ACNielsen Common Stock distributed to
D&B stockholders will be freely transferable, except for shares of Cognizant
Common Stock received by persons who may be deemed to be "affiliates" of
Cognizant under the Securities Act of 1933, as amended (the "Securities Act"),
and shares of ACNielsen Common Stock received by persons who may be deemed to be
"affiliates" of ACNielsen under the Securities Act. Persons who may be deemed to
be affiliates of Cognizant or ACNielsen after the Distribution generally include
individuals or entities that control, are controlled by, or are under common
control with, Cognizant or ACNielsen, as applicable, and may include certain
officers and directors of Cognizant or ACNielsen, as applicable, as well as
principal stockholders of Cognizant or ACNielsen, as applicable. Persons who are
affiliates of Cognizant will be permitted to sell their shares of Cognizant
Common Stock only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption afforded by Section 4(1) of the Securities
Act or Rule 144 thereunder. Similarly, persons who are affiliates of ACNielsen
will be permitted to sell their shares of ACNielsen Common Stock only pursuant
to an effective registration statement under the Securities Act or an exemption
from the registration requirements of the Securities Act, such as the exemption
afforded by Section 4(1) of the Securities Act or Rule 144 thereunder.
RELATIONSHIP AMONG D&B,
COGNIZANT AND ACNIELSEN AFTER THE DISTRIBUTION
Cognizant is wholly owned by D&B, and the results of operations of entities
that are or will be its subsidiaries have been included in D&B's consolidated
financial results. After the Distribution, D&B will not have any ownership
interest in Cognizant, and Cognizant will be an independent public company.
Furthermore, except as described below, all contractual relationships existing
prior to the Distribution between D&B and Cognizant will be terminated except
for contracts specifically set forth in a schedule to the Distribution
Agreement.
ACNielsen is also wholly owned by D&B, and the results of operations of
entities that are or will be its subsidiaries have been included in D&B's
consolidated financial results. After the Distribution, D&B will not
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have any ownership interest in ACNielsen, and ACNielsen will be an independent
public company. Furthermore, except as described below, all contractual
relationships existing prior to the Distribution between D&B and ACNielsen will
be terminated except for contracts specifically set forth in a schedule to the
Distribution Agreement.
After the Distribution, except as described below, neither Cognizant nor
ACNielsen will have any ownership interest in the other. In addition, except as
described below, all contractual relationships existing prior to the
Distribution between Cognizant and ACNielsen will be terminated except for
contracts specifically set forth in a schedule to the Distribution Agreement.
Prior to the Distribution, D&B, Cognizant and ACNielsen will enter into
certain agreements, described below, governing their relationship subsequent to
the Distribution and providing for the allocation of tax, employee benefits and
certain other liabilities and obligations arising from periods prior to the
Distribution. Copies of the forms of such agreements have been filed as exhibits
to the Registration Statements of each of Cognizant and ACNielsen in respect of
the registration of the Cognizant Common Stock and the ACNielsen Common Stock
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
addition, D&B will file a Current Report on Form 8-K in connection with the
Distribution, and the agreements will be filed as exhibits to such Report. Such
agreements may be amended by D&B prior to the Distribution Date. In addition,
there will be individuals on the Boards of Directors of D&B, Cognizant and
ACNielsen who will also serve on the Board of Directors of one but not both of
the other companies. See "Cognizant Management and Executive
Compensation -- Board of Directors" and "ACNielsen Management and Executive
Compensation -- Board of Directors".
The following description summarizes certain terms of such agreements, but
is qualified by reference to the texts of such agreements, which are
incorporated herein by reference.
DISTRIBUTION AGREEMENT
D&B, Cognizant and ACNielsen will enter into the Distribution Agreement
providing for, among other things, certain corporate transactions required to
effect the Distribution and other arrangements among D&B, Cognizant and
ACNielsen subsequent to the Distribution.
In particular, the Distribution Agreement defines the assets and
liabilities which are being allocated to and assumed by Cognizant and those
which are being allocated to and assumed by ACNielsen. The Distribution
Agreement also defines what constitutes the "Cognizant Business" and what
constitutes the "ACNielsen Business".
Pursuant to the Distribution Agreement, D&B is obligated to transfer or
cause to be transferred all its right, title and interest in the assets
comprising the Cognizant Business to Cognizant and all its right, title and
interest in the assets comprising the ACNielsen Business to ACNielsen; Cognizant
is obligated to transfer or cause to be transferred all its right, title and
interest in the assets comprising the D&B business to D&B and all its right,
title and interest in the assets comprising the ACNielsen Business to ACNielsen;
and ACNielsen is obligated to transfer or cause to be transferred all its right,
title and interest in the assets comprising the D&B business to D&B and all its
right, title and interest in the assets comprising the Cognizant Business to
Cognizant. All assets are being transferred without any representation or
warranty, "as is-where is", and the relevant transferee bears the risk that any
necessary consent to transfer is not obtained. Each party also agrees to
exercise its respective commercially reasonable efforts promptly to obtain any
necessary consents and approvals and to take such actions as may be reasonably
necessary or desirable to carry out the purposes of the Distribution Agreement
and the other agreements summarized below.
The Distribution Agreement provides for, among other things, assumptions of
liabilities and cross indemnities designed to allocate generally, effective as
of the Distribution Date, financial responsibility for the liabilities arising
out of or in connection with (i) the businesses conducted by IMS, Nielsen Media
Research, Gartner Group, Pilot, Erisco, Satyam Software, DBHC, DBTA and
Enterprises to Cognizant, (ii) the businesses conducted by A.C. Nielsen Company,
other than those conducted by Nielsen Media Research, to ACNielsen and (iii) all
other liabilities to D&B. For a discussion of such businesses, see "Cognizant
Business" and "ACNielsen Business". The Distribution Agreement provides for the
allocation generally of the financial responsibility for the liabilities arising
out of or in connection with former businesses, including those
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formerly conducted by or associated with Cognizant or ACNielsen, to D&B. The
Distribution Agreement allocates to Cognizant liabilities related to certain
prior business transactions if such liabilities exceed certain specified
amounts.
The Distribution Agreement sets out agreements of the parties in connection
with the Distribution relating to certain specified business transactions by or
among Cognizant, D&B and ACNielsen. In particular, IMS America, Ltd. ("IMSA"),
which is becoming an indirect subsidiary of Cognizant in connection with the
Distribution, will withdraw from a limited partnership (the "Partnership")
formed by IMSA, a subsidiary of D&B and an unaffiliated investor. In connection
with such withdrawal, IMSA will receive from the Partnership, among other
things, 800,000 shares of D&B Common Stock which were previously acquired by the
Partnership in transactions on the NYSE and a warrant to purchase three million
shares of D&B Common Stock (the "Warrant"). IMSA will receive shares of
Cognizant Common Stock and ACNielsen Common Stock in the Distribution. Pursuant
to the Distribution Agreement, Cognizant will be prohibited from selling, or
permitting IMSA or any other subsidiary from selling, to any third party, any of
the D&B Common Stock acquired from the Partnership, the Warrant, any D&B Common
Stock acquired upon exercise of the Warrant or any of the ACNielsen Common Stock
acquired in the Distribution, but Cognizant will be entitled to put such
securities back to the respective issuers thereof at any time at a price
calculated to be the then current market value thereof. Shares of Cognizant
Common Stock received by IMSA in the Distribution will become treasury shares of
Cognizant.
The Distribution Agreement provides that inter-company receivables,
payables and loans existing as of September 30, 1996 and arising thereafter are
to be settled or paid in the ordinary course in a manner consistent with the
payment or settlement of similar accounts arising from transactions with third
parties. In addition, the Distribution Agreement provides that immediately prior
to the Distribution, D&B will transfer $12.7 million in cash to ACNielsen and
will transfer $229.6 million to Cognizant, in each case, as a contribution of
capital, provided, however, that if the businesses known as D&B Software
Services, NCH Promotional Services and/or American Credit Indemnity are not sold
by D&B prior to November 1, 1996, then the $229.6 million to be transferred to
Cognizant will be reduced by the amount of cash proceeds expected to be received
upon the sale of the business or businesses not sold. In the event any such
business is sold after November 1, Cognizant will be entitled to receive the
amount of cash proceeds received upon such sale. In the event that the aggregate
cash consideration received by D&B upon the disposition of such businesses
differs from the aggregate expected amount, the Distribution Agreement provides
that D&B and Cognizant shall share equally in any excess or shortfall.
No party will have any liability to any other party for inaccurate
forecasts or arising out of any pre-Distribution arrangement, course of dealing
or understanding (other than the Distribution Agreement or the other agreements
as described below) unless such arrangement, course of dealing or understanding
is specifically set forth on a schedule to the Distribution Agreement.
The Distribution Agreement includes provisions governing the administration
of certain insurance programs and the procedures for making claims. The
Distribution Agreement also allocates the right to proceeds and the obligation
to incur deductibles under certain insurance policies.
In the event that any transfers contemplated by the Distribution Agreement
are not effected on or prior to the Distribution Date, the parties will be
required to cooperate to effect such transfers as promptly as practicable
following the Distribution Date, and pending any such transfers, to hold any
asset not so transferred in trust for the use and benefit of the party entitled
thereto (at the expense of the party entitled thereto), and to retain any
liability not so transferred for the account of the party by whom such liability
is to be assumed.
The Distribution Agreement provides that neither D&B, Cognizant nor
ACNielsen will take any action that would jeopardize the intended tax
consequences of the Distribution. Specifically, each of D&B, Cognizant and
ACNielsen agree to maintain its status as a company engaged in the active
conduct of a trade or business, as defined in Section 355(b) of the Internal
Revenue Code, until the second anniversary of the Distribution Date. Neither
D&B, Cognizant nor ACNielsen expects this limitation to inhibit its financing or
other activities or its ability to respond to unanticipated developments. As
part of the request for a ruling that
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the Distribution will be tax free for Federal income tax purposes, each of D&B,
Cognizant and ACNielsen has represented to the Internal Revenue Service that,
subject to certain exceptions, it has no plan or intent to liquidate, merge or
sell all or substantially all of its assets. As a result, neither D&B, Cognizant
nor ACNielsen may initiate any action leading to a change of control, and in the
case of a change of control, the foregoing representations, and the ruling based
thereon, could be called into question. As a result, the acquisition of control
of each of D&B, Cognizant and ACNielsen prior to the second anniversary may be
more difficult or less likely to occur because of the potential substantial
contractual damages associated with a breach of such provisions of the
Distribution Agreement.
Under the Distribution Agreement, each of D&B, Cognizant and ACNielsen
agrees to provide to the other parties, subject to certain conditions, access to
certain corporate records and information and to provide certain services on
such terms as are set forth in a Transition Services Agreement among such
parties.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution Date in connection with the Distribution will be
charged to and paid by D&B. D&B agrees to be liable for any claims based upon
actual or alleged misstatements or omissions in the Registration Statements on
Form 10 filed with the Securities and Exchange Commission by each of Cognizant
and ACNielsen. Except as set forth in the Distribution Agreement or any related
agreement, each party shall bear its own costs and expenses incurred after the
Distribution Date.
TAX ALLOCATION AGREEMENT
D&B, Cognizant and ACNielsen will enter into a Tax Allocation Agreement to
the effect that D&B will pay its entire consolidated tax liability for the tax
years that Cognizant and ACNielsen were included in D&B's consolidated Federal
income tax return. For periods prior to the Distribution Date, D&B will
generally be liable for state and local taxes measured by income or imposed in
lieu of income taxes. The Tax Allocation Agreement allocates liability to D&B,
Cognizant and ACNielsen for their respective shares of other state and local
taxes as well as any foreign taxes attributable to periods prior to the
Distribution Date, as well as certain other matters.
EMPLOYEE BENEFITS AGREEMENT
D&B, Cognizant and ACNielsen will enter into an Employee Benefits Agreement
(the "Employee Benefits Agreement"), which allocates responsibility for certain
employee benefits matters on and after the Distribution Date.
The Employee Benefits Agreement provides that Cognizant and ACNielsen will
adopt new defined benefit pension plans for their employees and that D&B will
continue to sponsor its current plan for the benefit of its employees as well as
former employees who terminated employment on or prior to the Distribution Date.
Assets and liabilities of the current D&B pension plan that are attributable to
Cognizant and ACNielsen employees will be transferred to the new Cognizant and
ACNielsen plans, respectively.
In addition, Cognizant and ACNielsen will adopt new savings plans for their
employees, and D&B will continue to sponsor its savings plan for the benefit of
its employees as well as former employees who terminated employment on or prior
to the Distribution Date. Cognizant and ACNielsen employees will be given the
right to elect to keep their balances in the D&B savings plan, receive a
lump-sum payment of their balances or transfer their balances to the new
Cognizant and ACNielsen plans, respectively.
D&B will be required to retain the liability for all benefits under D&B's
nonqualified supplemental pension plans that were vested prior to the
Distribution Date, but Cognizant and ACNielsen will guarantee payment of these
benefits to their respective employees in the event that D&B is unable to
satisfy its obligations.
The Employee Benefits Agreement also provides that D&B will continue to
sponsor its welfare plans for its employees as well as all former employees who
retired or became disabled on or prior to the Distribution Date. As of the
Distribution Date, Cognizant and ACNielsen will adopt welfare plans for the
benefit of their
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employees. Cognizant and ACNielsen will provide retiree welfare benefits to
their continuing employees who would have been eligible to receive these
benefits from D&B had they retired on or prior to the Distribution Date. If
Cognizant or ACNielsen fails to provide any retiree welfare benefits, D&B will
provide such continuing employees with the same level of retiree welfare
benefits that it provides to its retirees generally.
D&B, Cognizant and ACNielsen will each generally retain the severance
liabilities of their respective employees who terminated employment prior to the
Distribution Date.
With respect to equity-based plans, the Employee Benefits Agreement
provides that unexercised D&B stock options held by D&B employees, retirees and
disabled employees as of the Distribution Date will be adjusted to reflect the
Distribution. Specifically, the exercise price per share of an adjusted D&B
stock option will be determined by multiplying the exercise price per share of
an unexercised D&B stock option by a fraction, the numerator of which is the
average of the Daily Average Trading Prices (as defined below) per share of D&B
Common Stock for the five consecutive trading days starting on the first date on
which D&B Common Stock is traded ex-dividend, and the denominator of which is
the average of the Daily Average Trading Prices per share of D&B Common Stock
for the five consecutive trading days immediately preceding the first date on
which D&B Common Stock is traded ex-dividend. The number of shares of D&B Common
Stock covered by the adjusted stock option will be determined by (i) multiplying
the number of shares of D&B Common Stock covered by the unexercised D&B stock
option by a fraction, the numerator of which is the average of the Daily Average
Trading Prices per share of D&B Common Stock for the five consecutive trading
days immediately preceding the first date on which D&B Common Stock is traded
ex-dividend, and the denominator of which is the average of the Daily Average
Trading Prices per share of D&B Common Stock for the five consecutive trading
days starting on the first date on which D&B Common Stock is traded ex-dividend,
and (ii) rounding down the result to a whole number of shares. The Daily Average
Trading Price of a given stock on a given day means the average of the high and
low trading prices for such stock on such date.
Unexercised D&B stock options held by Cognizant employees as of the
Distribution Date will be converted into options that are exercisable into
shares of Cognizant Common Stock. Specifically, each unexercised D&B stock
option held by a Cognizant employee will be cancelled, and such individual will
receive a replacement stock option exercisable into shares of Cognizant Common
Stock. The exercise price per share of a replacement stock option will be
determined by multiplying the exercise price per share of the cancelled D&B
stock option by a fraction, the numerator of which is the average of the Daily
Average Trading Prices per share of Cognizant Common Stock for the five
consecutive trading days starting on the first date on which Cognizant Common
Stock is traded regular way, and the denominator of which is the average of the
Daily Average Trading Prices per share of D&B Common Stock for the five
consecutive trading days immediately preceding the first date on which D&B
Common Stock is traded ex-dividend. The number of shares of Cognizant Common
Stock covered by the replacement stock option will be determined by (i)
multiplying the number of shares of D&B Common Stock covered by the cancelled
D&B stock option by a fraction, the numerator of which is the average of the
Daily Average Trading Prices per share of D&B Common Stock for the five
consecutive trading days immediately preceding the first date on which D&B
Common Stock is traded ex-dividend, and the denominator of which is the average
of the Daily Average Trading Prices per share of Cognizant Common Stock for the
five consecutive trading days starting on the first date on which Cognizant
Common Stock is traded regular way, and (ii) rounding down the result to a whole
number of shares. Except as otherwise provided in the applicable plans, all
other terms of the replacement stock options will remain substantially identical
to the terms of the cancelled D&B stock options. The issuance of the replacement
stock options will not result in a compensation charge to Cognizant.
Unexercised D&B stock options held by ACNielsen employees as of the
Distribution Date will be converted into options that are exercisable into
shares of ACNielsen Common Stock. Specifically, each unexercised D&B stock
option held by an ACNielsen employee will be cancelled, and such individual will
receive a replacement stock option exercisable into shares of ACNielsen Common
Stock. The exercise price per share of a replacement stock option will be
determined by multiplying the exercise price per share of the cancelled D&B
stock option by a fraction, the numerator of which is the average of the Daily
Average Trading Prices per share of ACNielsen Common Stock for the five
consecutive trading days starting on the first date
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on which ACNielsen Common Stock is traded regular way, and the denominator of
which is the average of the Daily Average Trading Prices per share of D&B Common
Stock for the five consecutive trading days immediately preceding the first date
on which D&B Common Stock is traded ex-dividend. The number of shares of
ACNielsen Common Stock covered by the replacement stock option will be
determined by (i) multiplying the number of shares of D&B Common Stock covered
by the cancelled D&B stock option by a fraction, the numerator of which is the
average of the Daily Average Trading Prices per share of D&B Common Stock for
the five consecutive trading days immediately preceding the first date on which
D&B Common Stock is traded ex-dividend, and the denominator of which is the
average of the Daily Average Trading Prices per share of ACNielsen Common Stock
for the five consecutive trading days starting on the first date on which
ACNielsen Common Stock is traded regular way, and (ii) rounding down the result
to a whole number of shares. Except as otherwise provided in the applicable
plans, all other terms of the replacement stock options will remain
substantially identical to the terms of the cancelled D&B stock options. The
issuance of the replacement stock options will not result in a compensation
charge to ACNielsen.
All limited stock appreciation rights will be adjusted or converted in
substantially the same manner as the unexercised D&B stock options. See
"Cognizant Management and Executive Compensation -- Option Grants on D&B Common
Stock to Cognizant Executives in Last Fiscal Year" and "ACNielsen Management and
Executive Compensation -- Option Grants on D&B Common Stock to Executives in
Last Fiscal Year."
The Employee Benefits Agreement also provides that D&B will generally
retain all employee benefit litigation liabilities that are asserted prior to
the Distribution Date (but not such liabilities that relate to the transferred
retirement and savings plan assets of Cognizant or ACNielsen employees). As of
the Distribution Date, Cognizant and ACNielsen employees will generally cease
participation in D&B employee benefit plans, and Cognizant and ACNielsen will
generally recognize, among other things, their respective employees' past
service with D&B under their respective employee benefit plans. Special
provisions apply to certain D&B employees who are eligible to retire (but who do
not in fact retire) from D&B prior to the Distribution Date. Except as
specifically provided therein, nothing in the Employee Benefits Agreement
restricts D&B's, Cognizant's or ACNielsen's ability to amend or terminate any of
their respective employee benefit plans after the Distribution Date.
INDEMNITY AND JOINT DEFENSE AGREEMENT
D&B, Cognizant and ACNielsen will enter into the Indemnity and Joint
Defense Agreement pursuant to which they will agree (i) to certain arrangements
allocating potential IRI Liabilities that may arise out of or in connection with
the IRI Action and (ii) to conduct a joint defense of such action.
In particular, the Indemnity and Joint Defense Agreement will provide that
ACNielsen will assume exclusive liability for IRI Liabilities up to the ACN
Maximum Amount, which is to be calculated at the time such liabilities, if any,
become payable, and that Cognizant and D&B will share liability equally for any
amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be
determined by an investment banking firm as the maximum amount which ACNielsen
is able to pay after giving effect to (i) any plan submitted by such investment
bank which is designed to maximize the claims paying ability of ACNielsen
without impairing the investment banking firm's ability to deliver a viability
opinion (but which will not require any action requiring stockholder approval),
and (ii) payment of related fees and expenses. For these purposes, financial
viability means the ability of ACNielsen, after giving effect to such plan, the
payment of related fees and expenses and the payment of the ACN Maximum Amount,
to pay its debts as they become due and to finance the current and anticipated
operating and capital requirements of its business, as reconstituted by such
plan, for two years from the date any such plan is expected to be implemented.
In addition, ACNielsen will agree to certain restrictions on payments of
dividends and share repurchases above specified levels. ACNielsen will also
agree not to engage in mergers, acquisitions or dispositions, including joint
venture investments, if, after giving effect to any such transaction, ACNielsen
would be unable to meet a specified fixed charge coverage ratio, and, if any
such transaction involves aggregate consideration in excess of $50 million, then
ACNielsen will also be required to receive and to cause to be delivered to
Cognizant and D&B an investment banker's fairness opinion.
21
<PAGE> 24
The Indemnity and Joint Defense Agreement also sets forth certain
provisions governing the defense of the IRI Action pursuant to which the parties
agree to be represented by the same counsel. Legal expenses are to be shared
equally by the three parties.
TAM MASTER AGREEMENT
Cognizant and ACNielsen will enter into the TAM Master Agreement (the "TAM
Master Agreement") relating to the conduct of the television audience
measurement business (the "TAM Business").
The TAM Master Agreement, together with certain ancillary trademark and
technology licensing agreements (together with the TAM Master Agreement, the
"TAM Agreement"), provides that Cognizant or a newly established entity will
license to ACNielsen a nonexclusive right to use certain trademarks, including
the "Nielsen Media" name, in connection with the TAM Business outside the United
States and Canada for five years. Cognizant will also license to ACNielsen a
nonexclusive right to use specified technology in Australia, Ireland and India
in connection with the TAM Business for five years or such longer period as is
required to fulfill contractual obligations existing on the Distribution Date.
In the event that prior to the third anniversary of the Distribution Date,
ACNielsen determines to sell all or substantially all of its assets or the
assets of the TAM Business (as defined in the TAM Master Agreement), or
ACNielsen takes action to be acquired or is acquired by a third party, Cognizant
will have the right to require ACNielsen to sell all of ACNielsen's TAM Business
to Cognizant at the book value thereof (as calculated in accordance with the TAM
Master Agreement) plus certain transfer costs. In addition, in the event that
prior to the third anniversary of the Distribution Date, ACNielsen determines to
sell all or substantially all of its TAM Business in a particular country,
Cognizant will have the right to require ACNielsen to sell such business to
Cognizant at the book value thereof (as calculated in accordance with the TAM
Master Agreement) plus certain transfer costs.
INTELLECTUAL PROPERTY AGREEMENT
D&B, Cognizant and ACNielsen will enter into an Intellectual Property
Agreement (the "IP Agreement") which provides for the allocation and recognition
by and among these companies of rights under patents, copyrights, software,
technology, trade secrets and certain other intellectual property owned by D&B,
Cognizant or ACNielsen and their respective subsidiaries as of the Distribution
Date. The IP Agreement also contains various provisions governing the future use
of certain trademarks owned by ACNielsen prior to the Distribution Date,
including limitations upon both Cognizant's and ACNielsen's use of the "Nielsen"
name, standing alone or as part of a name describing any new product or service
to be offered. See "Cognizant Business -- Intellectual Property" and "ACNielsen
Business -- Intellectual Property."
SHARED TRANSACTION SERVICES AGREEMENTS
D&B, Cognizant and ACNielsen will enter into Shared Transaction Services
Agreements providing for the orderly continuation, for a transitional period
after the Distribution Date, of certain of the shared transaction and other
services (such as payroll, accounts payable, general accounting and computer
processing and support) currently being provided at one or more of the shared
transaction services centers located in the United States, United Kingdom,
Canada, France, Germany and Italy.
DATA SERVICES AGREEMENTS
D&B, Cognizant and ACNielsen will enter into Data Services Agreements
providing for the orderly continuation, for a transitional period after the
Distribution Date, of certain specified computer processing and related services
to be provided by one party to another.
TRANSITION SERVICES AGREEMENT
D&B, Cognizant and ACNielsen will enter into a Transition Services
Agreement pursuant to which the respective parties have agreed to certain basic
terms governing the provision by one party to another of specified
administrative or other support services for a transitional period after the
Distribution Date.
22
<PAGE> 25
OVERLAPPING DIRECTORS
After the Distribution Date, there will be individuals on the Boards of
Directors of D&B, Cognizant and ACNielsen who will also serve on the Board of
Directors of one of the other companies. Clifford L. Alexander, Jr., Robert J.
Lanigan and James R. Peterson will serve on the Boards of Directors of D&B and
Cognizant. John R. Meyer will serve on the Boards of Directors of D&B and
ACNielsen. See "Cognizant Management and Executive Compensation -- Cognizant
Board of Directors" and "ACNielsen Management and Executive
Compensation -- ACNielsen Board of Directors".
DIVIDEND POLICY
COGNIZANT
The payment and level of cash dividends by Cognizant after the Distribution
will be subject to the discretion of the Board of Directors of Cognizant.
Although it is anticipated that Cognizant will initially declare quarterly
dividends in the range of 5% to 8% of net earnings, dividend decisions will be
based on, and affected by, a number of factors, including the operating results
and financial requirements of Cognizant on a stand-alone basis.
ACNIELSEN
The payment and level of cash dividends by ACNielsen after the Distribution
will be subject to the discretion of the Board of Directors of ACNielsen and to
the restrictions imposed by the Indemnity and Joint Defense Agreement. ACNielsen
currently intends to retain future earnings for the development of its business
and does not anticipate paying cash dividends in the near future. Future
dividend decisions will be based on, and affected by, a number of factors,
including the operating results and financial requirements of ACNielsen on a
stand-alone basis. There can be no assurance that any dividends will be declared
or paid.
23
<PAGE> 26
COGNIZANT CAPITALIZATION
The following table sets forth the combined capitalization of Cognizant as
of June 30, 1996 on a historical basis, forecasted at November 1, 1996 (the
anticipated Distribution Date), and at November 1, 1996 as adjusted to give
effect to the Distribution and the transactions contemplated thereby. The
following data is qualified in its entirety by the financial statements of
Cognizant and other information contained elsewhere in this Information
Statement. See "Certain Considerations".
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------------------------
FORECASTED AT FORECASTED AT
JUNE 30, 1996 NOVEMBER 1, 1996 NOVEMBER 1, 1996
ACTUAL BEFORE DISTRIBUTION AFTER DISTRIBUTION(1)
-------------- ------------------- ---------------------
($'S IN MILLIONS)
<S> <C> <C> <C>
Cash and Cash Equivalents..................................... $184.1 $ 225.0 $ 454.6
============ =============== =================
Marketable Securities -- held to maturity..................... $ 60.7 $ 60.7 $ 60.7
============ =============== =================
Equity Marketable Securities -- available for sale............ -- -- $ 29.2
============ =============== =================
Notes Payable................................................. $ -- $ -- $ 55.0
Long-term Debt................................................ 6.2 10.5 10.5
Divisional Equity:
Foreign Currency Translation................................ (2.2) (2.2) (2.2)
Other Divisional Equity..................................... 629.9 666.4 --
Preferred Stock, par value $.01 per share,
authorized -- 10,000,000 shares:
outstanding -- none....................................... -- -- --
Series Common Stock, par value $.01 per share,
authorized -- 10,000,000 shares:
outstanding -- none....................................... -- -- --
Common Stock, par value $.01 per share,
authorized -- 400,000,000 shares:
issued -- 170,890,834..................................... -- -- 1.7
Capital in Excess of Par Value................................ -- -- 823.5
Treasury Stock -- 800,000 shares.............................. -- -- (24.0)
------- ------- -------
Total Equity......................................... 627.7 664.2 799.0
------- ------- -------
Total Capitalization................................. $633.9 $ 674.7 $ 864.5
============ =============== =================
</TABLE>
- ---------------
(1) Assumes transfer by D&B to Cognizant of $229.6 million in cash, the
acquisition by Cognizant of $29.2 million of equity marketable securities as
more fully described in the Information Statement and the assumption by
Cognizant of $69 million in liabilities related to certain prior business
transactions in accordance with the Distribution Agreement and $55 million
of short-term debt.
SUMMARY OF SIGNIFICANT CAPITALIZATION FORECAST ASSUMPTIONS
The financial forecast of the capitalization of Cognizant at November 1,
1996 is based on Cognizant management's forecasts and assumptions concerning
events and circumstances which are expected to occur subsequent to June 30, 1996
but prior to and including November 1, 1996 (the anticipated Distribution Date),
including future results of operations and other events. Significant assumptions
of events between June 30, 1996 and November 1, 1996, include the following:
- Cognizant operating income for the four months ended October 31, 1996
of approximately $93 million.
- Increase in D&B's cash and cash equivalents of approximately $369
million, primarily reflecting operating cash flows for the four months
ended October 31, 1996 and proceeds from divestitures, less dividend
payments by D&B totalling $43 million for the four months ended October
31, 1996. Dividends of $111 million were paid by D&B in the comparable
period of 1995.
Businesses to be divested (D&B Software, NCH Promotional Services and
American Credit Indemnity) are expected to be divested by November 1, 1996 for
$290 million in cash plus certain non-cash consideration. If cash proceeds
differ from the expected amount, D&B and Cognizant will share equally in the
excess or shortfall. If any of the businesses are not sold by November 1, 1996,
Cognizant will not receive those proceeds, (i.e., the $229.6 million cash
transfer at November 1, 1996 will be reduced) until the businesses are sold,
subject to the sharing agreement described in the preceding sentence.
These forecasts and assumptions do not represent an all-inclusive list of
those events or transactions expected to occur prior to the Distribution which
will affect the capitalization of Cognizant; however, in Cognizant management's
judgment, the above assumptions and forecasts are the most significant. There
have been no changes in accounting principles included in this capitalization
forecast.
24
<PAGE> 27
LIMITATIONS ON FORECASTED FINANCIAL INFORMATION
The assumptions and estimates underlying the forecasted data and
information in this Information Statement are inherently uncertain and, although
considered reasonable by management of Cognizant, are subject to significant
business, economic and competitive uncertainties, many of which are beyond the
control of Cognizant. Accordingly, there can be no assurance that the forecasted
financial results will be realized. In fact, actual results in the future
usually will differ from the forecasted financial results, and the differences
may be material. Cognizant does not intend to update any forecasted financial
data or information contained in this Information Statement, and the absence of
any such update should not be construed as an indication that management of
Cognizant continues to believe the forecasted data or information contained in
this Information Statement is reasonable. Cognizant's independent accountants
have not examined, compiled, or applied any agreed-upon procedures to these
forecasts, and accordingly assume no responsibility for these forecasts.
25
<PAGE> 28
COGNIZANT SELECTED FINANCIAL DATA
The following data is qualified in its entirety by the financial statements
of Cognizant and other information contained elsewhere in this Information
Statement. The financial data as of December 31, 1995 and 1994, and for the
years ended December 31, 1995, 1994 and 1993, has been derived from the audited
financial statements of Cognizant contained elsewhere in this Information
Statement. The financial data as of June 30, 1996 and 1995, and December 31,
1992 and 1991, for the six months ended June 30, 1996 and 1995, and for the
years ended December 31, 1992 and 1991, are unaudited. The historical financial
statements of Cognizant contained in this Information Statement are presented as
if Cognizant were a separate entity for all periods presented. The following
financial data should be read in conjunction with the information set forth
under "Cognizant Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Cognizant's Combined Financial Statements and Notes
thereto appearing elsewhere in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------
------------------------ 1995(1)(2) 1994(2) 1993(2) 1992 1991
1995 ---------- ------- ------- ----------- -----------
-----------
(UNAUDITED) (UNAUDITED)
(UNAUDITED)
1996
-----------
(UNAUDITED) ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenue......... $ 786 $ 710 $1,542 $1,257 $1,039 $ 910 $ 915
Income before cumulative
effect of changes in
accounting principles... $ 76 $ 63 $ 89 $ 146 $ 109 $ 87 $ 84
PRO FORMA UNAUDITED
EARNINGS PER SHARE OF
COMMON STOCK(3)......... $ 0.45 $ 0.52
BALANCE SHEET DATA:
Total Assets.............. $ 1,475 $ 1,454 $1,442 $1,331 $1,159 $ 894 $ 745
Long-term Debt............ $ 6 $ 11 $ 10 $ 15 $ 5 $ 6 $ 8
</TABLE>
- ---------------
(1) Income before cumulative effect of changes in accounting principles in 1995
includes a non-recurring pre-tax charge in the fourth quarter of $90
million ($50 million after-tax) for costs principally associated with asset
impairments, software write-offs and contractual obligations that have no
future economic benefit.
(2) Income before cumulative effect of changes in accounting principles includes
restructuring expense of $13 million, $8 million and $46 million pre-tax,
in 1995, 1994 and 1993, respectively. Also included in income before
cumulative effect of changes in accounting principles are non-operating
gains from dispositions of $15 million and $21 million pre-tax, in 1995 and
1994, respectively and a non-operating gain from sale of Gartner Group
stock of $21 million pre-tax in 1993.
(3) The computation of pro forma earnings per share for the periods ended June
30, 1996 and December 31, 1995 is based on the average number of shares of
D&B Common Stock outstanding during the respective periods, reflecting the
one for one Distribution ratio.
26
<PAGE> 29
COGNIZANT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of
operations is prepared as if Cognizant were a separate entity for all periods
discussed. This discussion should be read in conjunction with the Cognizant
Combined Financial Statements and Notes thereto included elsewhere in this
Information Statement.
OVERVIEW
Cognizant is currently a wholly-owned subsidiary of D&B. The combined
financial statements of Cognizant, which are discussed below, reflect the
results of operations, financial position and cash flows of the businesses to be
transferred to Cognizant from D&B in the Distribution. As a result, the combined
financial statements have been prepared using D&B's historical basis in the
assets and liabilities and historical results of operations related to
Cognizant's businesses except for accounting for income taxes. (See Note 2 to
Cognizant's Combined Financial Statements.)
The combined financial statements reflect effective tax rates of Cognizant
on a separate company basis. These rates do not reflect the benefit of D&B's
global tax planning actions which have historically resulted in lower
consolidated tax rates. Cognizant expects to initiate global tax-planning
strategies in the future to minimize its effective tax rate.
Additionally, the combined financial statements include allocations of
certain D&B Corporate headquarters assets (including prepaid pension assets) and
liabilities (including pension and postretirement benefits), and expenses
(including cash management, legal, accounting, tax, employee benefits, insurance
services, data services and other D&B corporate overhead) relating to
Cognizant's businesses that will be transferred from D&B.
Management believes these allocations are reasonable. However, the
financial information included herein may not necessarily reflect the combined
financial position, results of operations, and cash flows of Cognizant in the
future or what they would have been had Cognizant been a separate entity during
the periods presented.
D&B uses a centralized cash management system to finance its operations.
Cash deposits from most of Cognizant's businesses are transferred to D&B on a
daily basis and D&B funds Cognizant's disbursement bank accounts as required.
Cash and cash equivalents reflected in the combined financial statements
represent balances of certain foreign entities and of Gartner Group (which does
not participate in the cash management system). No interest has been charged on
these transactions with D&B.
For purposes of governing certain of the ongoing relationships among
Cognizant, D&B and ACNielsen after the Distribution and to provide for orderly
transition, Cognizant, D&B and ACNielsen will enter into various agreements
including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits
Agreement, Indemnity and Joint Defense Agreement, TAM Master Agreement,
Intellectual Property Agreement, Shared Transaction Services Agreements, Data
Services Agreement and Transition Services Agreement. Summaries of these
agreements are set forth elsewhere in this Information Statement.
FINANCIAL REVIEW
(Dollar amounts in thousands)
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 1995
Cognizant's net income for the six months ended June 30, 1996 increased
20.6 % to $76,152 from $63,143 in the comparable period of the prior year.
Revenue in the first half of 1996 increased 10.7% to $785,722 from $709,749
in the first half of 1995. Revenue growth was held down by the one-time impact
in 1995 of conforming fiscal quarters between Cognizant and Gartner Group.
Excluding the one-time impact in 1995, revenue growth was 13.3%, reflecting
27
<PAGE> 30
excellent growth at Gartner Group, principally from the introduction of new
products and delivery options; strong revenue performance at IMS; and
double-digit revenue growth at Nielsen Media Research, driven by revenue growth
from new products and services and the continued impact of new broadcast and
cable network subscribers.
Operating income in the first half of 1996 increased 22.6% to $140,890 from
$114,907 in the first half of 1995. Operating income growth outpaced revenue
growth primarily due to Gartner Group's continued trend of taking advantage of
economies of scale and leveraging its resources.
Non-operating income/(expense)-net in the first half of 1996 was ($4,903)
compared with non-operating income/(expense)-net of $577 in the first half of
1995. The decrease in non-operating income/(expense)-net in 1996 was due
principally to higher minority interest expense related to Gartner Group.
Cognizant's first-half effective tax rate was 44.0%, compared with the
first-half 1995 effective tax rate of 45.3% computed on a separate-company
basis. Accordingly, the tax rates do not reflect the impact of D&B's global
tax-planning actions, which have historically yielded lower effective tax rates.
Net cash provided by operating activities totaled $142,093 in the first
half of 1996 compared with $131,361 for the comparable period in 1995. The
increase of $10,732 primarily reflected an increase in business operating
results ($13,009), an increase in deferred revenue ($4,573), and a reduced level
of restructuring payments (a reduction of $8,784), partially offset by higher
non-US income taxes paid, net of refunds ($9,197), and payments related to the
1995 non-recurring charge ($8,073).
Net cash used in investing activities totaled $64,649 in the first half of
1996 compared with $40,146 for the comparable period in 1995. The increase of
$24,503 is principally due to net purchases of marketable securities, offset, in
part, by lower additions to computer software.
Net cash used in/(provided by) financing activities totaled $48,709 for the
first half of 1996 compared with $4,400 for the comparable period in 1995. The
increase in cash usage of $44,309 primarily reflected higher cash remittances to
D&B in connection with D&B's centralized cash management system.
Year-ended December 31, 1995 Compared with Year-ended December 31, 1994
Cognizant's net income in 1995 was $88,881 compared with $146,405 in 1994.
The net income decline was primarily due to a non-recurring after-tax charge of
$49,268 in 1995 for costs principally associated with asset impairments,
software write-offs and contractual obligations that have no future economic
benefit, and an incremental 1995 after-tax charge of $17,778 for postemployment
benefits expense. Results for 1995 also include an increase in after-tax
restructuring expense of $2,260, lower after-tax gains on dispositions of
$4,525, and a higher effective tax rate in 1995, as compared with 1994. (See
INCOME TAXES). Excluding the above-mentioned 1995 after-tax charges and the
restructuring expenses and disposition gains for both years, 1995 net income was
$154,656, compared with $138,349 in 1994.
The following discusses the fourth quarter 1995 non-recurring charge:
In the fourth quarter of 1995, Cognizant recorded within operating
costs a charge of $90,070. This charge primarily reflected an impairment
loss in connection with the adoption of the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ($40,570), the write-off of certain computer
software ($20,300), a provision for postemployment benefits ($7,400) under
D&B's severance plan and an accrual for contractual obligations that have
no future economic benefits ($21,800). No payments relating to the accrued
contractual obligations were made in 1995.
SFAS No. 121 requires that long-lived assets and certain intangibles
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
connection with this review, Cognizant recorded an impairment loss of
$40,570 reflecting the revaluation of certain fixed assets, administrative
and production systems and other intangibles that will be replaced or will
no longer be used. In addition, Cognizant recognized a charge of $20,300
principally related to the write-off of certain computer software product
lines at the Pilot Software business unit that were discontinued.
28
<PAGE> 31
The provision for postemployment benefits of $7,400, represents the
cost of workforce reductions. The accrual for contractual obligations that
have no future economic benefits of $21,800 relates to the acquisition of
certain information and other services that are no longer used by
Cognizant.
The non-recurring charge of $90,070 ($49,268 after-tax) evolved from
D&B's annual budget and strategic planning process in the fall of 1995,
which indicated, based on preliminary results, that D&B's consolidated
long-term profitability objectives would not be achieved. Accordingly, a
more comprehensive review was undertaken to review D&B's underlying cost
structure, products and services and assets used in the business. Based
upon such analysis, management having the authority to approve such
business decisions committed in December 1995 to a plan to discontinue
certain product lines and dispose of certain other assets, resulting in the
charge. These decisions were not reversed or modified as a result of D&B's
reorganization plan, which was reviewed and, subject to certain conditions,
approved by the Board of Directors of D&B on January 9, 1996.
Revenue increased 22.7% in 1995 to $1,542,340 from $1,257,415 in 1994,
driven by excellent revenue growth at Gartner Group and strong revenue
performances at IMS and Nielsen Media Research. Excluding the impact of a weaker
U.S. dollar, revenue growth was 19.2%.
1995 operating income was $154,677 compared with $226,635 in 1994. The
decline in 1995 operating income primarily reflected the aforementioned 1995
non-recurring charge of $90,070, the 1995 incremental provision for
postemployment benefits expense of $32,500, and an increase in restructuring
expense in 1995 as compared with 1994. Excluding the 1995 charges mentioned
above, the impact of a weaker dollar, and restructuring expenses in 1995 and
1994, 1995 operating income increased by 17.7% to $276,082 from $234,592.
During 1995 Cognizant recorded a $12,800 restructuring provision primarily
to write off software for product lines that were discontinued at Sales
Technologies, a division of IMS. (See Note 4 to Cognizant's Combined Financial
Statements.)
Cognizant's 1995 operating costs and selling and administrative expenses
were $1,242,331 compared with $911,074 in 1994. The increase in operating costs
and selling and administrative expenses is primarily due to the 1995
non-recurring charge of $90,070, the 1995 incremental provision for
postemployment benefits expense of $32,500, and the effect of a weaker dollar in
1995, as compared with 1994. Excluding the impact of these items, 1995 operating
costs and selling and administrative expenses increased 19.7% in 1995 compared
with 1994, reflecting Cognizant's increased spending in new revenue growth
initiatives which contributed to overall excellent revenue growth of 19.2% in
1995.
Cognizant's 1995 operating margin was 10.0% compared with 18.0% in 1994.
The decline in operating margin reflects the 1995 non-recurring charge, the 1995
incremental provision for postemployment benefits expense, and higher
restructuring expense in 1995, as compared with 1994, discussed above. Excluding
these 1995 charges, and restructuring expense in 1995 and 1994, operating margin
was 18.8% for 1995 compared with 18.7% for 1994.
Non-operating income was $7,880 in 1995 compared with $18,853 in 1994. The
decrease was due principally to higher minority interest expense related to
Gartner Group, and lower disposition gains, offset in part by increased interest
income.
The following discusses results by business segments and geographical area:
Marketing Information Services had an 18.2% increase in 1995 revenue
to $1,204,701 from $1,019,160 in 1994. Excluding the impact of a weaker
U.S. dollar, revenue growth for the segment was 14.2%, reflecting Nielsen
Media Research's entrance into new metered markets and growth in Canada;
new product introductions at IMS and modest revenue growth at DBTA and
DBHC. IMS had 1995 revenue of $818,537, up 18.4% from $691,060 in 1994, and
up 12.9% excluding the impact of a weaker U.S. dollar.
1995 operating income for the segment was $158,037 compared with
$228,864 in 1994. The decline in operating income was primarily due to the
1995 non-recurring charge of $72,870, the 1995 incremental
29
<PAGE> 32
provision for postemployment benefits expense of $24,300, and an increase
in restructuring expense in 1995 as compared with 1994. Excluding these
items, and the impact of a weaker U.S. dollar, operating income for the
segment increased by 7.4% to $254,378 in 1995 compared with $236,821 in
1994 principally due to the impact of increased spending in new revenue
growth initiatives.
Information Technology Services had 1995 revenue of $337,639, up 41.7%
from $238,255 in 1994. Gartner Group had excellent revenue growth in 1995
principally reflecting an increase in its subscription services revenue.
Operating income for the segment increased 49.7% to $51,180 in 1995
from $34,185 in 1994. The increase in operating income was primarily due to
Gartner Group's revenue growth and its ability to take advantage of
economies of scale and leverage its resources, partially offset by the 1995
incremental provision for postemployment benefits expense. Excluding the
incremental provision, and the impact of a weaker U.S. dollar, operating
income for the segment grew 72.7% to $59,044 in 1995 from $34,185 in 1994.
Revenue in the United States increased by 20.7% to $824,424 in 1995
from $682,965 in 1994, reflecting Nielsen Media Research's entrance into
new metered markets and new product introductions by IMS. Revenue increased
in Europe by 21.7% to $449,610 in 1995 from $369,590 in 1994, principally
reflecting continued growth at IMS and Gartner Group's increased
subscription services revenue and expansion into new global markets. All
other non-U.S. revenues increased 31.0% to $268,306 in 1995 from $204,860
in 1994.
Operating income in the U.S. was $32,072 in 1995 compared with $95,627
in 1994. The decline in operating income was primarily attributable to the
1995 non-recurring charge, the 1995 incremental provision for
postemployment benefits expense and a higher restructuring expense in 1995
as compared with 1994. Excluding the impact of these items, 1995 operating
income grew 22.5% to $123,312 from $100,674 in 1994. Operating income in
Europe was $44,051 in 1995 compared with $71,042 in 1994. The decline in
operating income was primarily due to the 1995 non-recurring charge and the
1995 incremental provision for postemployment benefits expense. Operating
income in other non-U.S. countries grew 31.0% to $78,554 in 1995 from
$59,966 in 1994.
Year-ended December 31, 1994 Compared with Year-ended December 31, 1993
Cognizant's 1994 net income increased 116.2% to $146,405 from $67,714 in
1993. The Company's net income in 1993 included the cumulative effects of the
adoption of Financial Accounting Standards Board (FASB) Statements of Financial
Accounting Standards (SFAS) No. 112 and No. 106 ($41,143, after-tax) and an
after tax restructuring charge of $30,212. (See Notes 4 and 7 to Cognizant's
Combined Financial Statements) 1994 net income included after-tax restructuring
expense of $4,742 and an after-tax disposition gain of $12,798. Excluding these
factors net income was $138,349 in 1994 as compared to $139,069 in 1993.
Revenue increased 21.0% in 1994 to $1,257,415, from $1,039,259 in 1993.
Excellent revenue growth at Nielsen Media Research and Gartner Group and good
revenue performance at IMS contributed to the increase. In 1994, the impact of
the U.S. dollar was not significant.
1994 operating income increased by 60.3% to $226,635 from $141,350 in 1993.
The increase in operating income was primarily attributable to restructuring
expense of $7,957 in 1994 compared with $46,408 in 1993, discussed below.
Excluding the impact of restructuring expense in both years, operating income
increased by 24.9% to $234,592 in 1994 from $187,758 in 1993. Operating income
growth outpaced revenue growth primarily because of improved productivity from
workforce reductions, prior restructuring actions and other productivity
initiatives discussed below.
During 1994 Cognizant initiated actions totaling $7,957 to restructure
certain operations and businesses, and to reduce costs and increase operating
efficiencies. These restructuring measures included office consolidations, the
closedown of Sales Technologies' European operations, as well as additional
steps to complete certain actions initiated in 1993. (See Note 4 to Cognizant's
Combined Financial Statements.)
30
<PAGE> 33
Operating costs and selling and administrative expenses increased 18.5% to
$911,074 in 1994 from $769,162 in 1993, reflecting the full-year impact of
Gartner Group ($32,428), acquired in 1993, partially offset by productivity
gains.
Cognizant's 1994 operating margin was 18.0% compared with 13.6% in 1993.
The increase is primarily due to the lower restructuring charge in 1994 compared
with 1993. Excluding the impact of the restructuring charges, Cognizant's
operating margin was 18.7% in 1994 compared with 18.1% in 1993 due to the
productivity gains discussed above.
Non-operating income was $18,853 in 1994, compared with $25,982 in 1993.
The decline was principally due to higher minority interest expense related to
Gartner Group. 1994 results include a $21,473 gain on the sale of the Machinery
Information Division of Dataquest (MID), a non-strategic business. 1993 results
include a $21,022 gain from the initial public offering of Gartner Group.
The following discusses results by business segments and geographical area:
Marketing Information Services had a 14.0% increase in 1994 revenue to
$1,019,160 from $894,053 in 1993. IMS had 1994 revenue of $691,060, up
12.6% from $613,915 in 1993 due to growth in Europe, Japan and North
America. Nielsen Media Research had excellent revenue growth in 1994
reflecting new product and service introductions.
Operating income for the segment increased 26.5% to $228,864 in 1994
from $180,966 in 1993. The increase in segment operating income was
primarily due to a lower level of restructuring expense in 1994, as
compared with 1993. Excluding restructuring expense for both years,
operating income increased by 12.0% to $236,821 in 1994 from $211,379 in
1993 principally reflecting new product introductions at Nielsen Media
Research.
Information Technology Services had 1994 revenue of $238,255, up 64.1%
from $145,206 in 1993. Revenue growth reflects the full-year impact of
Gartner Group (a 1993 acquisition). Gartner Group reported excellent
revenue growth in 1994 as a result of strong new product sales and expanded
worldwide product distribution.
Operating income for the segment was $34,185 in 1994 as compared with
$2,100 in 1993. The increase in segment operating income is primarily due
to Gartner Group's ability to take advantage of economies of scale and
leverage its resources, and the impact of restructuring expense in 1993,
compared with none in 1994.
Cognizant's revenue in the United States increased by 19.4% to
$682,965 in 1994 from $571,815 in 1993. Excellent revenue growth at Nielsen
Media Research and Gartner Group contributed substantially to the increase.
European revenues increased by 18.4% to $369,590 from $312,073 in 1993
principally reflecting growth at IMS and Gartner Group. Other non-U.S.
revenue increased 31.9% to $204,860 from $155,371 in 1993.
Operating income in the United States increased 112.3% to $95,627 in
1994 from $45,047 in 1993. The significant increase in operating income in
the United States was due in part to the impact of lower restructuring
expense in 1994 compared with 1993. Excluding restructuring expenses in
both years, 1994 operating income in the United States increased 23.7% to
$100,674 from $81,373 in 1993. Operating income in Europe increased 71.3%
to $71,042 in 1994 from $41,476 in 1993. The increase in operating income
in Europe was partially attributable to the decline in restructuring
expense from 1993 to 1994. Excluding the impact of restructuring expense in
both years, Europe's operating income increased 43.4% to $73,952 in 1994
from $51,558 in 1993. Operating income growth in the United States and
Europe outpaced revenue growth primarily because of improved productivity
from workforce reductions, prior restructuring actions and other
productivity initiatives discussed previously. Operating income in other
non-U.S. countries increased 9.4% to $59,966 in 1994 from $54,827 in 1993.
INCOME TAXES -- The combined financial statements reflect effective tax
rates of Cognizant on a separate company basis. Cognizant's effective tax rates
were 45.3%, 40.4% and 34.9% in 1995, 1994 and 1993, respectively. As mentioned
previously, these rates do not reflect the benefit of D&B's global tax planning
31
<PAGE> 34
actions which have historically resulted in lower tax rates for D&B. The
increase in Cognizant's 1995 effective tax rate to 45.3% from 40.4% in 1994
primarily reflected the higher tax impact of the repatriation of non-U.S.
subsidiary earnings without offsetting foreign tax credits. The increase in 1994
from 1993 was principally due to a shift in pre-tax income from non-U.S. income
to U.S. income which is taxed at a higher rate. D&B's reported effective tax
rates were 27.7%, 28.4%, and 27.1% in 1995, 1994 and 1993, respectively.
Cognizant expects to initiate global tax-planning strategies in the future to
minimize its effective tax rate, although management does not believe that
Cognizant's effective tax rate will be reduced to the levels historically
achieved by D&B.
CHANGES IN FINANCIAL POSITION AT DECEMBER 31, 1995 COMPARED WITH DECEMBER
31, 1994 -- Accounts Receivable -- Net increased to $432,957 at December 31,
1995 from $338,760 at December 31, 1994 primarily due to excellent revenue
growth at Gartner Group from increased subscription services and expansion into
new global markets, and strong revenue growth at IMS from new product
introductions.
Other Current Assets increased to $114,177 at December 31, 1995 from
$63,041 at December 31, 1994 principally due to increased marketable securities
at Gartner Group as a result of its strong cash position driven by excellent
operating results.
Accrued and Other Current Liabilities increased to $297,465 at December 31,
1995 from $234,677 at December 31, 1994 primarily due to the current component
of the accrual in the third quarter for post employment benefits and the fourth
quarter non-recurring charge.
Deferred Revenues increased to $270,731 at December 31, 1994 from $215,818
at December 31, 1994 primarily due to excellent subscription sales growth at
Gartner Group.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS -- In 1993,
Cognizant adopted the provisions of SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The adoption of SFAS No. 112 and
SFAS No. 106 resulted in one-time, non-cash, after-tax charges of $28,303 and
$12,840, respectively. The adoption of SFAS No. 112 and SFAS No. 106 did not
have a significant effect on 1993 expense. (See Note 7 to Cognizant's Combined
Financial Statements.)
In 1995, Cognizant recorded a pre-tax charge of $90,070 that included an
impairment loss of $40,570 related to long-lived assets for which management,
having the authority to approve such business decisions, committed to a plan to
discontinue certain product lines and dispose of certain real property.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In general, this statement requires recognition of an impairment
loss when the sum of undiscounted expected future cash flows is less than the
carrying amount of such assets. The measurement for such impairment loss is then
based on the fair value of the asset. While SFAS No. 121 affected the
measurement of the impairment charge noted above, it had no affect on the timing
of recognition of the impairment.
The 1995 charge principally reflected an impairment loss of $40,570
reflecting the revaluation of certain fixed assets, administrative and
production systems and other intangibles that will be replaced or will no longer
be used. In addition, Cognizant recognized a charge of $20,300 principally
related to the write-off of certain computer software product lines at the Pilot
business unit that were discontinued. (See Note 3 to Cognizant's Combined
Financial Statements.)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires that companies with stock-based compensation plans
either recognize compensation expense based on the fair value of options granted
or continue to apply existing accounting rules and disclose pro forma net income
and earnings per share assuming the fair value method had been applied.
Cognizant is evaluating the new statement and has not determined whether it will
adopt the recognition or disclosure alternative of the statement. Therefore, the
impact of adoption on Cognizant's financial statements has not been determined.
32
<PAGE> 35
RESTRUCTURING -- In 1993, Cognizant recorded $46,408 of restructuring
expense to restructure certain operations and businesses. (See Note 4 to
Cognizant's Combined Financial Statements.) These actions were designed to
achieve long-term productivity improvements, and reduce costs. The costs
associated with this plan, and all other restructuring actions, included only
specific, direct and incremental costs that could be estimated with reasonable
accuracy and were clearly identifiable with the related plans.
Costs included in the restructuring charge included $5,490 for the
consolidation of data centers in North America and Europe, resulting principally
in lease termination costs, asset write-offs and other costs incident to the
consolidation of such data centers. Cognizant also provided $18,163 to initiate
actions to reduce real estate costs by consolidating office facilities in the
U.S. and Europe. Costs incurred included lease termination costs and asset
writeoffs. The restructuring charge also included $22,755 primarily related to
workforce reductions and write-offs of intangible assets at certain divisions.
NON-U.S. OPERATING AND MONETARY ASSETS -- Cognizant operates globally.
Approximately 47% of Cognizant's revenues and 79% of operating income in 1995
were derived from non-U.S. operations, including approximately 29% of revenues
and 28% of operating income from European operations. As a result, fluctuations
in the value of foreign currencies relative to the U.S. dollar may increase the
volatility of U.S. dollar operating results. In 1995, foreign currency
translation increased U.S. dollar revenue growth and operating income growth by
approximately 4% and 6%, respectively. The effect of foreign currency
translation on revenue and operating income growth in 1994 was insignificant.
Non-U.S. monetary assets are maintained in currencies other than the U.S.
dollar, principally in Germany, Japan, Spain and Italy. Changes in the value of
these currencies relative to the U.S. dollar are charged or credited to
divisional equity. The effect of exchange rate changes during 1995 increased the
U.S. dollar amount of cash and cash equivalents by approximately $4,846.
LIQUIDITY AND CAPITAL RESOURCES -- At December 31, 1995, cash, cash
equivalents and current marketable securities totaled $187,223 (including
$81,392 of Gartner Group cash and marketable securities), an increase of $59,239
from $127,984 (including $43,191 of Gartner Group cash and marketable
securities) at December 31, 1994. The increase in cash was held down by expected
payments for postemployment benefits and restructuring of $18,480 and $15,544
respectively. Cash payments related to these items in 1996 are expected to
aggregate $48,097.
Net cash provided by operating activities was $273,843, $201,049 and
$200,521 in 1995, 1994 and 1993, respectively. The increase of $72,794 in net
cash provided by operating activities in 1995, compared with 1994, primarily
reflected increased operating results (excluding the non-recurring charge) and
lower restructuring payments (a decrease of $8,933), offset in part by a higher
level of accounts receivable (an increase of $10,239), reflecting in part,
increased revenues. The increase of $528 in net cash provided by operating
activities in 1994, compared with 1993, primarily reflected increased operating
results and higher deferred revenue (an increase of $26,560), offset, in part,
by higher restructuring (an increase of $18,355) and postemployment benefit
payments (an increase of $12,251), and a higher level of accounts receivable (an
increase of $53,958), reflecting in part, increased revenues.
Net cash used in investing activities totaled $128,324 for 1995, compared
with $195,476 and $111,367 in 1994 and 1993, respectively. The decrease in cash
usage in 1995 of $67,152 primarily reflected lower payments for acquisitions and
reduced capital expenditures, offset in part by net purchases of marketable
securities. The increase in cash usage of $84,109 in 1994 was principally driven
by the absence of the proceeds from the initial public offering of Gartner Group
in 1993 and by increased payments for acquisitions and higher capital
expenditures, offset in part by proceeds from the sale of MID. Capital
expenditures were $77,032, $104,475, and $70,741 in 1995, 1994 and 1993,
respectively.
Net cash used in/(provided by) financing activities, principally reflecting
net remittances to and cash receipts from D&B, totaled $121,244 in 1995,
compared with $108,353 in 1994 and ($8,599) in 1993.
Following the Distribution, it is expected that the Cognizant's existing
balances of cash, cash equivalents and marketable securities, and cash generated
from operations and debt capacity will be sufficient to meet Cognizant's
long-term and short-term cash requirements including dividends and acquisitions.
33
<PAGE> 36
DIVIDENDS -- The payment and level of cash dividends by Cognizant after the
Distribution will be subject to the discretion of the Board of Directors of
Cognizant. Although it is anticipated that Cognizant will initially declare
quarterly dividends in the range of 5% to 8% of net earnings, dividend decisions
will be based on, and affected by, a number of factors, including the operating
results and financial requirements of Cognizant on a stand-alone basis.
34
<PAGE> 37
ACNIELSEN CAPITALIZATION
The following table sets forth the combined capitalization of ACNielsen as
of June 30, 1996 on a historical basis, forecasted at November 1, 1996 (the
anticipated Distribution Date), and at November 1, 1996 as adjusted to give
effect to the Distribution and the transactions contemplated thereby. The
following data is qualified in its entirety by the financial statements of
ACNielsen and other information contained elsewhere in this Information
Statement. See "Certain Considerations".
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------------------------
FORECASTED AT FORECASTED AT
JUNE 30, 1996 NOVEMBER 1, 1996 NOVEMBER 1, 1996
ACTUAL BEFORE DISTRIBUTION AFTER DISTRIBUTION(1)
-------------- ------------------- ---------------------
($ IN MILLIONS)
<S> <C> <C> <C>
Cash and Cash Equivalents...................... $ 92.0 $ 107.0 $ 119.7
=========== ============== ===============
Notes Payable.................................. $ 38.6 $ 35.5 $ 35.5
Long-term Debt................................. 7.3 4.5 4.5
Divisional Equity:
Unrealized Losses on Securities.............. (1.7) (1.7) (1.7)
Foreign Currency Translation................. (30.4) (30.4) (30.4)
Other Divisional Equity...................... 430.5 427.9 --
Preferred Stock, par value $.01 per share,
authorized -- 5,000,000 shares:
outstanding -- none.......................... -- -- --
Series Common Stock, par value $.01 per share,
authorized -- 5,000,000 shares:
outstanding -- none.......................... -- -- --
Common Stock, par value $.01 per share,
authorized -- 150,000,000 shares: issued and
outstanding -- 56,963,610.................... -- -- 0.6
Capital in Excess of Par Value................. -- -- 440.0
------- ------- -------
Total Equity......................... 398.4 395.8 408.5
------- ------- -------
Total Capitalization................. $444.3 $ 435.8 $ 448.5
=========== ============== ===============
</TABLE>
- ---------------
(1) Assumes transfer by D&B to ACNielsen of $12.7 million in cash in accordance
with the Distribution Agreement.
SUMMARY OF SIGNIFICANT CAPITALIZATION FORECAST ASSUMPTIONS
The financial forecast of the capitalization of ACNielsen at November 1,
1996 is based on ACNielsen management's forecasts and assumptions concerning
events and circumstances which are expected to occur subsequent to June 30, 1996
but prior to and including November 1, 1996 (the anticipated Distribution Date),
including future results of operations and other events. Significant assumptions
of events between June 30, 1996 and November 1, 1996, include the following:
- ACNielsen operating income for the four months ended October 31, 1996
of approximately $36 million.
- Increase in D&B's cash and cash equivalents of approximately $369
million, primarily reflecting operating cash flows for the four months
ended October 31, 1996 and proceeds from divestitures, less dividend
payments by D&B totalling $43 million for the four months ended October
31, 1996. Dividends of $111 million were paid by D&B in the comparable
period of 1995.
These forecasts and assumptions do not represent an all-inclusive list of
those events or transactions expected to occur prior to the Distribution which
will affect the capitalization of ACNielsen; however, in ACNielsen management's
judgment, the above assumptions and forecasts are the most significant. There
have been no changes in accounting principles included in this capitalization
forecast.
LIMITATIONS ON FORECASTED FINANCIAL INFORMATION
The assumptions and estimates underlying the forecasted data and
information in this Information Statement are inherently uncertain and, although
considered reasonable by management of ACNielsen, are subject to significant
business, economic and competitive uncertainties, many of which are beyond the
control of ACNielsen. Accordingly, there can be no assurance that the forecasted
financial results will be realized. In fact, actual results in the future
usually will differ from the forecasted financial results, and the differences
may be material. ACNielsen does not intend to update any forecasted financial
data or information contained in this Information Statement, and the absence of
any such update should not be construed as an indication that management of
ACNielsen continues to believe the forecasted data or information contained in
this Information Statement is reasonable. ACNielsen's independent accountants
have not examined, compiled, or applied any agreed-upon procedures to these
forecasts, and accordingly assume no responsibility for these forecasts.
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<PAGE> 38
ACNIELSEN SELECTED FINANCIAL DATA
The following data is qualified in its entirety by the financial statements
of ACNielsen and other information contained elsewhere in this Information
Statement. The financial data as of December 31, 1995 and 1994, and for the
years ended December 31, 1995, 1994 and 1993, has been derived from the audited
financial statements of ACNielsen contained elsewhere in this Information
Statement. The financial data as of June 30, 1996 and 1995, and December 31,
1992 and 1991, for the six months ended June 30, 1996 and 1995, and for the
years ended December 31, 1992 and 1991, are unaudited. The historical financial
statements of ACNielsen contained in this Information Statement are presented as
if ACNielsen were a separate entity for all periods presented. The following
financial data should be read in conjunction with the information set forth
under "ACNielsen Management's Discussion and Analysis of Financial Condition and
Results of Operations" and ACNielsen's Combined Financial Statements and Notes
thereto appearing elsewhere in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------
------------------------ 1995(1) 1994(2) 1993(2) 1992 1991
1995 ------- ------- ------- ----------- -----------
-----------
(UNAUDITED) (UNAUDITED)
(UNAUDITED)
1996
-----------
(UNAUDITED) ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenue............... $ 644 $ 611 $1,281 $1,092 $1,045 $ 1,117 $ 1,020
(Loss) Income before cumulative
effect of changes in
accounting principles......... $ (17) $ (37) $ (231 ) $ (65 ) $ (55 ) $ 47 $ 46
PRO FORMA UNAUDITED LOSS PER
SHARE OF COMMON STOCK(3)...... $ (0.31) $(4.09 )
BALANCE SHEET DATA:
Total Assets.................... $ 947 $ 1,052 $ 970 $ 980 $ 845 $ 922 $ 1,385
Long-term Debt.................. $ 7 $ 13 $ 6 $ 9 $ 4 $ 10 $ 12
</TABLE>
- ---------------
(1) (Loss) income before cumulative effect of changes in accounting principles
in 1995 includes a non-recurring pre-tax charge in the fourth quarter of
$152 million ($141 million after-tax) for costs principally associated with
asset impairments, software write-offs and contractual obligations that
have no future economic benefit.
(2) (Loss) income before cumulative effect of changes in accounting principles
includes restructuring expense of $9 million and $60 million pre-tax, in
1994 and 1993, respectively.
(3) The computation of pro forma loss per share for the periods ended June 30,
1996 and December 31, 1995 is based on the average number of shares of D&B
Common Stock outstanding during the respective periods, adjusted for the
one for three Distribution ratio.
36
<PAGE> 39
ACNIELSEN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of
operations is prepared as if ACNielsen were a separate entity for all periods
discussed. This discussion should be read in conjunction with the ACNielsen
Combined Financial Statements and Notes thereto included elsewhere in this
Information Statement.
OVERVIEW
ACNielsen is currently a wholly-owned subsidiary of D&B. The combined
financial statements of ACNielsen, which are discussed below, reflect the
results of operations, financial position and cash flows of the businesses to be
transferred to ACNielsen from D&B in the Distribution. As a result, the combined
financial statements have been prepared using D&B's historical basis in the
assets and liabilities and historical results of operations related to
ACNielsen's businesses except for accounting for income taxes. (See Note 2 to
the ACNielsen Combined Financial Statements.)
The combined financial statements reflect effective tax rates of ACNielsen
on a separate company basis. These rates do not reflect the benefit of D&B's
global tax-planning actions which have historically resulted in lower
consolidated tax rates. ACNielsen expects to initiate global tax-planning
strategies in the future to minimize its effective tax rate.
Additionally, the combined financial statements include allocations of
certain D&B Corporate headquarters assets (including prepaid pension assets) and
liabilities (including pension and postretirement benefits), and expenses
(including cash management, legal, accounting, tax, employee benefits, insurance
services, data services and other D&B corporate overhead) relating to
ACNielsen's businesses that will be transferred to ACNielsen from D&B.
Management believes these allocations are reasonable. However, the financial
information included herein may not necessarily reflect the combined financial
position, results of operations, and cash flows of ACNielsen in the future or
what they would have been had ACNielsen been a separate entity during the
periods presented.
D&B uses a centralized cash management system to finance its operations.
Cash deposits from most of ACNielsen's businesses are transferred to D&B on a
daily basis and D&B funds ACNielsen's disbursement bank accounts as required. No
interest has been charged on these transactions. Cash and cash equivalents
reflected in the combined financial statements represents balances of certain
non-U.S. entities.
For purposes of governing certain of the ongoing relationships among
ACNielsen, D&B and Cognizant after the Distribution and to provide for orderly
transition, ACNielsen, D&B and Cognizant will enter into various agreements
including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits
Agreement, Indemnity and Joint Defense Agreement, TAM Master Agreement,
Intellectual Property Agreement, Shared Transaction Services Agreements, Data
Services Agreement and Transition Services Agreement. Summaries of these
agreements are set forth elsewhere in this Information Statement.
FINANCIAL REVIEW
(Dollar amounts in thousands)
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 1995
ACNielsen's net loss for the six months ended June 30, 1996 decreased to
$17,484 compared with a net loss of $36,793 in the comparable period of the
prior year.
Revenue in the first half of 1996 increased 5.4% to $644,240 from $611,169
in the first half of 1995, driven by the strong double-digit revenue growth in
Asia Pacific. The Americas region reported a 5.2% increase in first-half 1996
revenue to $222,091 from $211,175 a year ago. Europe's first-half revenue
increased 1.2% to $286,393 from $283,029 in the first half of 1995, due to
customer service issues resulting from the transition to scanning. Asia
Pacific's first half revenue grew 20.7% to $119,148 from $98,710. Excluding the
37
<PAGE> 40
effect of the acquisition of Reark in Australia in 1995, revenue in Asia Pacific
increased 12.6%. While local currency revenue of ACNielsen Japan increased 3.9%,
driven by growth in scanning services, reported revenue declined 9.0% to $16,608
from $18,255, due to a stronger dollar.
Operating loss in the first six months of 1996 was $7,721 compared with a
loss of $11,029 in the first six months of 1995, reflecting improved U.S.
operations offset in part by increased operating costs in the European business
which resulted in a reduction of the region's profitability compared with
historical levels. In Europe, ACNielsen continues to invest in improving
customer service, data quality and delivery.
Non-operating income-net for the first six months of 1996 was $185 compared
with non-operating expense-net of $3,083 in the first six months of 1995
principally due to lower borrowings in Latin America in 1996.
The income tax provision for the first-half of 1996 decreased to $9,948
from $22,681 in 1995 principally due to lower profits in Europe and a lower
non-U.S. effective tax rate.
Net cash used in operating activities totaled $7,194 in the first six
months of 1996 compared with $40,038 for the comparable period in 1995. The
$32,844 decrease in cash used primarily reflected a decrease in accounts
receivable ($15,353) in 1996, compared with an increase ($20,895) in 1995, lower
postemployment benefit payments (a reduction of $12,343), lower restructuring
payments($4,622), offset in part by higher non-U.S. income taxes paid-net of
refunds (an increase of $18,833) and payments related to the 1995 non-recurring
charge ($15,877).
Net cash used in investing activities for the first six months of 1996
decreased to $44,760 compared with $77,579 for the comparable period in 1995.
The decrease in cash used in investing activities of $32,819 principally
reflected lower capital expenditures of $19,420. First-half 1995 capital
expenditures included the relocation of the U.S. operations to a leased facility
in Schaumburg, Illinois.
Net cash provided by financing activities for the first six months of 1996
totaled $54,397 compared with $123,775 for the comparable period in 1995. The
decrease in cash provided of $69,378 primarily reflected lower remittances from
D&B of $53,275 and a decrease in short-term borrowings of $10,789.
Year-ended December 31, 1995 Compared with Year-ended December 31, 1994
ACNielsen reported a net loss of $230,884 in 1995, compared with a net loss
of $65,061 in 1994. The loss in 1995 reflects a non-recurring pre-tax charge of
$152,170 ($141,260 after-tax) in the fourth quarter of 1995 for costs
principally associated with asset impairments, software write-offs and
contractual obligations that have no future economic benefit. (See Note 3 to the
ACNielsen Combined Financial Statements.) Results for 1995 also included a
pre-tax charge in the third quarter of $31,900 for postemployment benefits.
Excluding the non-recurring charge, ACNielsen reported a net loss of $89,624 in
1995, compared with a net loss of $65,061 in 1994, principally reflecting the
incremental cost of $31,900 for postemployment benefits.
The following discusses the fourth quarter 1995 non-recurring charge:
In the fourth quarter of 1995, ACNielsen recorded within operating
costs a charge of $152,170. This charge primarily reflected an impairment
loss in connection with the adoption of the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ($74,370), a provision for postemployment
benefits ($14,300) under D&B's severance plan, an accrual for contractual
obligations that have no future economic benefits ($55,800) and other asset
revaluations ($7,700). No payments relating to the accrued contractual
obligations were made in 1995.
SFAS No. 121 requires that long-lived assets and certain intangibles
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
connection with this review, ACNielsen recorded an impairment loss of
$74,370 reflecting the revaluation of certain fixed assets, administrative
and production systems and other intangibles that will be replaced or will
no longer be used by ACNielsen.
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The provision for postemployment benefits of $14,300, represents the
cost of workforce reductions. The accrual for contractual obligations that
have no future economic benefits of $55,800 relates to the acquisition of
certain information and services that are no longer used by ACNielsen, and
the other asset revaluations of $7,700 are necessitated based on an
evaluation of the new business initiatives.
The non-recurring charge of $152,170 evolved from D&B's annual budget
and strategic planning process in the fall of 1995, which indicated, based
on preliminary results, that D&B's consolidated long-term profitability
objectives would not be achieved. Accordingly, a more comprehensive review
was undertaken to review D&B's underlying cost structure, products and
services and assets used in the business. Based upon such analysis,
management having the authority to approve such business decisions
committed in December 1995 to a plan to discontinue certain product lines
and dispose of certain other assets, resulting in the charge. These
decisions were not reversed or modified as a result of D&B's reorganization
plan, which was reviewed and, subject to certain conditions, approved by
the Board of Directors of D&B on January 9, 1996.
Revenue increased 17.3% in 1995 to $1,281,345 from $1,092,107 in 1994.
Strong revenue increases ($111,310) were achieved in the Asia Pacific region
principally due to the full year impact of acquiring in 1994 SRG, AGB Australia,
AGB New Zealand and Reark. Growth in the U.S. and Europe aggregated 7.2% and
6.3%, respectively. Positive growth in these regions was achieved despite strong
competition, restructuring and issues related to new product integrations.
Excluding the effects of the acquisitions and foreign exchange, ACNielsen's
revenue increased about 6.0%.
Operating costs increased 47.5% to $859,132 in 1995 from $582,225 in 1994.
Operating costs in 1995 included the non-recurring charge of $152,170 and a
$31,900 provision in the third quarter for postemployment benefits. Excluding
these items and 1994 restructuring expense, operating costs increased 17.8%,
reflecting higher production and other costs related to the scanning transition
issues in Europe, the full year impact of the acquisitions of SRG, AGB
Australia, AGB New Zealand and Reark in 1994, and increased costs in Latin
America resulting from continued geographic expansion. In 1995, the Company
embarked on an aggressive program to begin converting the collection of store
data from a manual process("audit") to an electronic process ("scanning").
Issues that arose during the conversion related to timeliness and quality of
data and customers being unfamiliar with the expanded data generated by the
scanning process. As a result, the Company ran parallel processes for longer
than anticipated and increased its provision for doubtful accounts in Europe.
The issues are being addressed by reengineering efforts that include stepping up
quality control measures, introducing customer service centers and improving
communications with customers and retailers.
Selling and administrative expenses increased 20.7% to $486,992 in 1995
from $403,469 in 1994. This increase resulted from higher expenses in Asia
Pacific, primarily due to the full year impact of 1994 acquisitions and expense
growth in Europe for increased service levels to support the transition from
audit to scanning, partially offset by a reduction in expenses in the U.S.
reflecting the realignment of the functional organization to improve ACNielsen's
position and focus in the U.S. marketplace.
ACNielsen incurred an operating loss in 1995 of $184,008 compared with an
operating loss of $1,169 in 1994. The operating loss in 1995 primarily reflected
the aforementioned charge and provision for postemployment benefits. Excluding
the aforementioned charge and the provision for postemployment benefits in 1995
and restructuring expense in 1994, operating income was $62 in 1995, compared
with $7,753 in 1994. Lower costs drove a $37,798 reduction in the operating loss
in the U.S., excluding the aforementioned charges in 1995, and restructuring
expense in 1994. In Europe, however, higher production and other costs related
to the scanning transition issues resulted in a $39,218 decline in operating
income in 1995 versus 1994, excluding the charges described above. Operating
income in Asia Pacific increased $1,423, excluding the charges, reflecting the
full year impact of 1994 acquisitions.
Non-operating expense-net decreased to $7,040 in 1995 from $13,419 in 1994
primarily reflecting lower foreign exchange losses in hyperinflationary
countries.
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The following discusses results on a geographic basis:
Total Americas revenue increased 9.5% in 1995 to $443,561 from
$405,235 in 1994, and its operating loss increased to $154,004 from $63,343
reflecting the impact of $108,870 of non-recurring charges and $18,500 of
postemployment benefit expense, partially offset by cost reductions in the
U.S. resulting from field force and operational improvements. Excluding the
aforementioned non-recurring charge and provision for postemployment
benefits in 1995, and 1994 restructuring expense, the operating loss
declined $33,313, driven primarily by field force and operational
improvements in the U.S. Revenue in the U.S. increased 7.2% to $274,552 in
1995 from $256,111 in 1994, reflecting increased customer demand for
value-added services in the consumer information, decision support and
analytics product categories. The U.S. operating loss increased to $172,971
in 1995 from $90,665 in 1994 reflecting the aforementioned non-recurring
charge and provision for postemployment benefits. Excluding these charges
and restructuring expense in 1994, operating loss in the U.S. decreased to
$49,471 from $87,269 primarily reflecting significant process improvements
during the year.
Europe's revenue increased 6.3% to $583,269 in 1995 from $548,647 in
1994. The region had an operating loss of $5,599, reflecting, in part, the
fourth quarter charge of $28,400 and provision for postemployment benefits
($13,400). Excluding these charges and restructuring expense in 1994,
operating income declined to $36,201 from $75,419 reflecting increased
expenses in the region to improve customer service, data quality and
delivery and ACNielsen's expansion into Eastern Europe.
Asia Pacific's revenues increased 105% to $216,875 in 1995 from
$105,565 in 1994 reflecting the acquisition of SRG in July 1994. Operating
income increased to $11,695 from $11,172. Excluding the fourth quarter
charge of $900 described above, operating income increased $1,423
reflecting the full year impact of acquisitions as well as continued
investment in China and other new markets.
ACN Japan's operating revenue increased 15.2% to $37,640 from $32,660,
however its operating loss increased to $36,100 from $18,891, reflecting
the non-recurring fourth quarter charge of $14,000. Excluding the
aforementioned charge, operating loss increased by $3,209 reflecting the
highly competitive marketplace and significant costs related to data
collection.
Year-ended December 31, 1994 Compared with Year-ended December 31, 1993
In 1994, ACNielsen's net loss was $65,061 compared with a net loss of
$174,726 in 1993. The Company's net loss in 1993 included the cumulative effects
to January 1, 1993 of the adoption of Financial Accounting Standards Board
(FASB) Statements of Financial Accounting Standards (SFAS) No. 112 and No. 106
(aggregating $119,494 after tax) and a net restructuring charge of $56,038 after
tax. (See Notes 6 and 4 to the ACNielsen Combined Financial Statements.) In
addition, 1994 operating results reflected a decline in revenue in the U.S.
resulting from past competitive losses and increased costs for increased
servicing of client requirements. Excluding the cumulative effects of changes in
accounting in 1993 and a net restructuring charge of $56,038 after tax,
ACNielsen reported 1993 net income of $806.
1994 revenue increased by 4.5% to $1,092,107 from $1,044,676 in 1993.
Excluding the effects of 1994 acquisitions, 1994 revenue increased about 2.5%.
For the full year, the impact of foreign exchange on revenue growth was not
material. Revenue growth in Asia Pacific resulted from the acquisition of SRG in
July 1994 but was more than offset by a decline in revenue in the U.S. resulting
from past competitive losses.
During 1994, D&B took further steps to improve productivity and initiated
other actions to restructure certain operations and businesses, and to reduce
costs and increase operating efficiencies. (See Note 4 to the Combined Financial
Statements.)
Several non-recurring gains and significant changes in costs were included
in ACNielsen's 1994 operating results. ACNielsen also took proactive measures to
improve its future performance by accelerating the introduction of newer
technologies, which resulted in a charge of $6,967. The charge principally
reflected the revaluation of certain computer software and other intangible
assets that will be replaced or no longer be used. In addition, a change in
eligibility requirements for ACNielsen's postretirement medical plan resulted in
a
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curtailment gain of approximately $4,082, which was offset by an increase in
spending for new-product development.
In the fourth quarter of 1994, as part of ACNielsen's global initiative to
improve productivity and increase synergies, ACNielsen realized a $2,303
benefit-plan curtailment gain due to workforce reductions and a $10,200 gain
from the sale of ACNielsen's headquarters in Northbrook, Illinois. These gains
partially offset the high level of spending on new growth initiatives in the
quarter.
Operating costs, including restructuring expense, decreased 1% to $591,147
in 1994 from $597,185 in 1993, primarily reflecting a $51,379 decrease in
restructuring expense, partially offset by higher costs in the U.S. business and
the impact of 1994 acquisitions. Selling and administrative expenses increased
11.0% to $403,469 in 1994 from $363,499 in 1993 reflecting higher expenses in
the U.S. business for increased servicing of client requirements and the impact
of acquisitions.
ACNielsen's operating loss in 1994 was $1,169 compared with an operating
loss of $9,901 in 1993. The reduced operating loss resulted from a reduction in
restructuring expense of $51,379 which was largely offset by increased spending,
as well as the effect of past competitive losses and higher costs in ACNielsen's
U.S. business. To meet the competition and stem further customer losses,
ACNielsen increased spending in the U.S. to improve data delivery capabilities
and applications as well as increase client service levels to meet the demands
of existing customers.
ACNielsen reported 1994 non-operating expense-net of $13,419 compared with
non-operating income-net of $4,257 in 1993 reflecting higher interest expense.
The following discusses results on a geographic basis:
Total Americas revenue decreased 3.9% in 1994 to $405,235 from
$421,534 in 1993 and its operating loss was $63,343 essentially unchanged
from $63,062, reflecting a decrease in restructuring expense largely offset
by the factors described above that affected the U.S. business. Excluding
restructuring expense in 1994 and 1993, operating loss increased $45,005 as
a result of the factors described above.
Europe's revenue was $548,647 in 1994, essentially unchanged from
$550,334 in 1993 reflecting weak economic conditions. For the full year,
the effect of foreign exchange on revenue growth was not significant. The
region's operating income was $69,893 in 1994 compared with $55,985 in 1993
reflecting a decrease in restructuring expense of $6,655 and improved
productivity in data collection and data center consolidations. Excluding
restructuring expense in 1994 and 1993, the region's operating income
increased $7,253 to $75,419 from $68,166 due to the improvements described
above.
Asia Pacific's revenue increased 134% to $105,565 in 1994 from $45,052
in 1993, reflecting the acquisition of SRG, AGB Australia and AGB New
Zealand in the second half of 1994. The region's operating income was
$11,172 in 1994 compared with $13,030 in 1993 reflecting the impact of
integrating acquisitions and higher administrative costs to support
expansion in the region.
ACN Japan's operating revenue increased 17.7% to $32,660 in 1994 from
$27,756 in 1993, but its operating loss increased to $18,891 from $15,854
due to increased field coverage from the launch of the beverage index in
1993.
INCOME TAXES -- ACNielsen's provision for income taxes for 1995, 1994, and
1993 reflects an effective tax rate significantly higher than the Federal
statutory rate as ACNielsen has not recognized benefits on its U.S. losses (see
Note 8 to the ACNielsen Combined Financial Statements). In addition, income tax
provisions on ACNielsen's profitable non-U.S. operations do not reflect the
impact of D&B's global tax-planning actions designed to reduce D&B's effective
tax rate. D&B's effective tax rates were 27.7%, 28.4% and 27.1% in 1995, 1994
and 1993, respectively. ACNielsen expects to initiate global tax-planning
strategies in the future to minimize its effective tax rate, although management
does not believe that ACNielsen's effective tax rate will be reduced to the
levels historically achieved by D&B.
CHANGES IN FINANCIAL POSITION AT DECEMBER 31, 1995 COMPARED WITH DECEMBER
31, 1994 -- Accounts Receivable-Net increased to $272,976 at December 31, 1995
from $233,368 at December 31, 1994, primarily
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reflecting increased revenues in Asia Pacific and an increase in days billings
outstanding in Europe as a result of the issues related to scanning.
Deferred Charges, Computer Software and Other Intangibles decreased to
$68,049, $22,714 and $33,154, at December 31, 1995, respectively, from $81,318,
$55,320 and $65,489 at December 31, 1994, respectively primarily reflecting the
impact of the impairment losses recorded in the fourth quarter of 1995.
Postretirement and Postemployment Benefits increased to $110,191 at
December 31, 1995 from $80,768 at December 31, 1994 primarily reflecting the
impact of the non-current component of the accrual in the third quarter for
postemployment benefits and the fourth quarter non-recurring charge.
Other Liabilities increased to $62,437 at December 31, 1995 from $19,483 at
December 31, 1994 primarily reflecting the non- current component of the
non-recurring charge recorded in the fourth quarter for contractual obligations
that have no future economic benefits.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS -- In 1993,
ACNielsen adopted the provisions of SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The adoption of SFAS No. 112 and
SFAS No. 106 resulted in one-time, non-cash, after-tax charges of $105,294 and
$14,200, respectively, in the first quarter of 1993. The adoption of SFAS No.
112 and SFAS No. 106 did not have a significant effect on 1993 expense. (See
Note 6 to the ACNielsen Combined Financial Statements.)
In the fourth quarter of 1995, ACNielsen recorded a charge within operating
costs of $152,170. This charge included an impairment loss of $74,370 in
connection with the adoption of the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
SFAS No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amounts of an asset may not be recoverable. In general, this
statement requires recognition of an impairment loss when the sum of
undiscounted expected future cash flows is less than the carrying amount of such
assets. The measurement for such impairment loss is then based on the fair value
of the asset. The impairment losses related to long-lived assets based on the
Company's decision to discontinue using such assets. The 1995 charge principally
reflected the revaluation of certain fixed assets, administrative and production
systems and other intangibles that will be replaced or will no longer be used by
ACNielsen. (See Note 3 to the ACNielsen Combined Financial Statements.)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires that companies with stock-based compensation plans
either recognize compensation expense based on the fair value of options granted
or continue to apply the existing accounting rules and disclose pro forma net
income and earnings per share assuming the fair value method had been applied.
ACNielsen is evaluating the new statement and has not determined whether it will
adopt the recognition or disclosure alternative of the statement. Therefore, the
impact of adoption on ACNielsen's financial statements has not been determined.
RESTRUCTURING -- In 1993, ACNielsen recorded $60,301 to restructure certain
operations and businesses. These actions were part of a D&B-wide plan designed
to achieve long-term productivity improvements and reduce costs. The costs
associated with this plan, and all other restructuring actions, included only
specific, direct and incremental costs that could be estimated with reasonable
accuracy and were clearly identifiable with the related plans.
ACNielsen provided $11,811 to initiate approximately sixteen separate
actions to reduce real estate costs by consolidating office facilities in each
of five major geographic regions in the U.S. and eleven geographic regions in
Europe. Costs incurred included lease termination costs and asset write-offs.
The restructuring charge also included $48,490 to discontinue certain systems
and products in the U.S. These costs principally related to write-offs of
computer software and other intangible assets.
At December 31, 1994 and 1995, restructuring accruals for the
aforementioned actions totaled $6,771 and $698, respectively. Other
restructuring accruals totaled $7,619 and $3,627 at December 31, 1994 and 1995,
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respectively. (See Note 4 to the ACNielsen Combined Financial Statements.) The
remaining balances of the restructuring accruals of $4,325 at December 31, 1995
will be expended in 1996.
NON-U.S. OPERATING AND MONETARY ASSETS -- ACNielsen operates globally.
Nearly 80 % of ACNielsen's revenues were generated from non-U.S. operations
during 1994 and 1995. During 1995, European and Asian operations contributed 45%
and 17% of Company revenues, respectively. ACNielsen's operations in Japan
generated approximately $38,000 of revenues during 1995. Primarily as a result
of these non-U.S. operations, changes in the value of local currencies relative
to the U.S. dollar may increase the volatility of the U.S. dollar operating
results. In 1995, foreign currency translation increased U.S. revenue growth by
approximately 4%. The impact of foreign currency translation on operating loss
for 1995 was not significant. In addition, during 1994, the effect of such
foreign currency fluctuations on reported results was not significant.
Consistent with D&B's past practice, ACNielsen plans to enter into foreign
exchange forward contracts and other instruments to mitigate the effects of
currency fluctuations on certain of ACNielsen's non-U.S. net investments and to
hedge against foreign exchange movements between the dates that foreign currency
transactions are recorded and the dates they are settled. In addition, ACNielsen
is also evaluating the merits of implementing a broader program to mitigate the
effects of foreign exchange fluctuations on operating results.
Non-U.S. monetary assets are maintained in currencies other than the U.S.
dollar, principally in Spain, Germany, Italy and Belgium. Changes in the value
of these currencies relative to the U.S. dollar are charged or credited to
divisional equity. The effect of exchange rate changes during 1995 increased the
U.S. dollar amount of cash and cash equivalents by approximately $3,600.
LIQUIDITY AND CAPITAL RESOURCES -- At December 31, 1995, cash, cash
equivalents and non-current marketable securities totaled $117,571 (including
$27,095 of non-U.S. pension fund-marketable securities, which are subject to
local country restrictions), an increase of $10,034 from December 31, 1994.
Short-term debt totaled $29,698, a decrease of $12,990 from December 31, 1994.
The increase in cash at December 31, 1995 was held down by expected payments for
postemployment benefits and restructuring of $50,290 and $10,065, respectively.
Cash payments related to these items in 1996 are expected to aggregate $45,000.
Net cash provided by (used in) operating activities aggregated $24,275,
($39,305) and $74,835 in 1995, 1994 and 1993, respectively. The increase of
$63,580 in net cash provided by operating activities in 1995, compared with
1994, primarily reflected lower restructuring payments ($8,886), lower
postemployment benefit payments ($17,500) and a decrease in other working
capital items ($52,605).
Net cash used in investing activities totaled $111,169 for 1995, compared
with $208,522 and $81,399 in 1994 and 1993, respectively. The decrease in cash
usage in 1995 of $97,353 primarily reflected lower payments for acquisitions and
equity investments (included in Other Investments) of $126,975.
Capital expenditures totaled $86,862, $51,053 and $48,669 in 1995, 1994 and
1993, respectively. The increase in capital expenditures during 1995 was
attributable primarily to higher expenditures in Asia related to SRG's
operations (acquired during 1994) and the acquisition of a building in Brazil.
Net cash provided by financing activities totaled $87,777 in 1995, compared
with $195,521 in 1994 and $17,254 in 1993. A high level of funding from D&B was
required in 1994 to fund acquisitions, primarily SRG.
As a subsidiary of D&B, funding for ACNielsen's U.S. and most non-U.S.
operations was provided by internally generated funds and financing obtained
through D&B. After the Distribution, ACNielsen intends to provide for its normal
capital and operating expenditure needs through internally generated funds and
existing cash reserves. In addition, ACNielsen intends to continue to maintain
its relationships with a world-wide network of banks and plans to secure through
one or more of these banks uncommitted and unsecured lines of credit sufficient
to meet ACNielsen's short-term cash requirements. Management believes that the
combination of cash flows from operations and bank credit lines, as well as
existing cash and cash equivalents are sufficient to support the Company's
long-term cash requirements.
DIVIDENDS -- The payment and level of cash dividends by ACNielsen after the
Distribution will be subject to the discretion of the Board of Directors of
ACNielsen and to the restrictions imposed by the
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Indemnity and Joint Defense Agreement. ACNielsen currently intends to retain
future earnings for the development of its business and does not anticipate
paying cash dividends in the near future. Future dividend decisions will be
based on, and affected by, a number of factors, including the operating results
and financial requirements of ACNielsen on a stand-alone basis. There can be no
assurance that any dividends will be declared or paid.
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COGNIZANT BUSINESS
GENERAL
After the Distribution, Cognizant will be engaged, through its
subsidiaries, in two industry segments: Marketing Information Services and
Information Technology Services.
Cognizant is a Delaware corporation with its headquarters in Westport,
Connecticut.
MARKETING INFORMATION SERVICES
I.M.S. International, Inc.
I.M.S. International, Inc. provides information and decision-support
services to the pharmaceutical and healthcare industries. IMS's principal
services fall into two broad categories: sales management services and market
research services. Specific products include sales territory reports, national
pharmaceutical-sales audits and national medical audits, as well as a
multinational data analysis system. Within each of these product classes,
individual country-level reports may differ in one or more important
characteristics depending on the circumstances of local pharmaceutical sales and
distribution. IMS's reports are provided in printed format, as well as on-line
and as part of electronic customer-site workstations. IMS provides information
services covering 79 countries and maintains offices in 62 countries on six
continents, with 64% of total revenue generated outside the United States in
1995. In 1995, IMS continued its expansion in developing markets in Eastern
Europe and Asia. Revenues in 1995 increased by 30% in these areas over 1994. New
product sales were also initiated in China, Russia and India.
Sales territory reports, representing approximately 43% of IMS's worldwide
revenues, are the principal service within sales management services. These
reports, which are customized for each client, measure the sales of a client's
products and those of competitors in each of a client's sales territories, and
are designed to provide sales management with a reliable measure of each sales
representative's activity and effectiveness within a sales territory. Sales
territory reports are available in 30 countries.
In certain countries, IMS provides call reporting services, which record,
assess and organize the call activity of individual sales representatives to
physicians within a specified sales territory, and physician profiling services,
which measure the prescribing potential of individual physicians. In 1995, the
business of Sales Technologies, Inc., a D&B subsidiary, was refocused on the
healthcare industry and became an operating unit of IMS. Sales Technologies
provides sales automation solutions and develops, installs and supports
networked systems that enable pharmaceutical and healthcare organizations to
improve salesforce effectiveness, productivity and communication.
IMS's principal market research services consist of syndicated
pharmaceutical and medical reports for clients. Pharmaceutical audits measure
the sales of pharmaceutical products through pharmacies, supplemented in some
countries by data collected from prescribing physicians, chains and discount
stores. The reports contain data projected to national estimates, showing
product sales by therapeutic class broken down by package size and dosage form.
Pharmaceutical audits are available in over 65 countries.
National medical audits are based on information collected from panels of
practicing physicians. The reports contain projected national estimates of the
number of consultations for each diagnosed disease with details of the therapy
prescribed, and analyze the use physicians make of individual drugs by listing
the diseases for which they are prescribed, the potential therapeutic action the
physician is expecting, other drugs prescribed at the same time and estimates of
the total number of drugs used for each disease. Medical audits are available in
over 45 countries.
Hospital audits contain data projected to national estimates and show the
sale of pharmaceutical products to hospitals by therapeutic class. IMS publishes
hospital audits for 29 countries. Promotional reports measure pharmaceutical
promotion for a particular market, including salesforce promotion and journal
and mail advertising, based on information received from panels of physicians
and from monitoring medical journals and direct mail. IMS publishes promotional
reports for 19 countries.
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In the United States, IMS has launched Xplorer, a customized client/server
decision support system that integrates customers' internal sales and marketing
data with IMS and other external data. IMS has also launched MediVal to assist
in the management and resolution of Medicaid rebate disputes between states and
pharmaceutical manufacturers. In 1995, IMS acquired Decision Surveys
International Ltd., a South African company providing information services to
the pharmaceutical and healthcare industries.
The raw data from which IMS's services are generated are derived either
from statistically selected panels of drugstores, hospitals, physicians and
other sources, or from activities such as warehouse shipments or wholesalers'
sales data. To protect privacy, no individual patient is identified in any IMS
medical database. IMS generally has well-established relationships with the
sources required to create its databases and in many cases has historical
connections with the trade associations and professional associations involved.
All major pharmaceutical companies are customers of IMS, and many of the
companies subscribe to reports and services in several countries. The scope of
IMS's customer base enables it to avoid dependence on any single customer.
While no competitor provides the geographical reach or breadth of IMS's
services, IMS does have competition in many of the countries in which it
operates from other information services companies, as well as the in-house
capabilities of its customers. Generally, competition has arisen on a
country-by-country basis. In the United States, certain of IMS's market research
services, including medical audits and promotional reports, compete with
services offered by Pharmaceutical Marketing Services Inc., and certain of IMS's
sales management services, including its sales territory reports, representing
approximately 60% of the annual revenue of the IMS America unit, compete with
the services of Source Informatics, Inc. ("Source"), which was recently spun off
by Walsh International Inc. Source, which presently does not sell any sales
territory reports outside the U.S., has announced its intention to develop these
services in certain European countries. If Source were successful in launching
such services, they could be competitive with IMS's sales territory reports.
Quality, completeness and speed of delivery of information services and products
are the principal methods of competition in IMS's market; however, pricing has
become a more significant factor in certain countries, including the United
States.
Nielsen Media Research, Inc.
Following the Distribution, Nielsen Media Research, Inc. will conduct media
measurement and related businesses in the United States and Canada. For a
description of the media measurement and related businesses to be conducted by
ACNielsen outside the United States and Canada, see "ACNielsen Business -- Media
Measurement Services".
Nielsen Media Research measures television audiences and reports this and
related information to advertisers, advertising agencies, syndicators, broadcast
networks, cable networks, cable operators, television stations, station
representatives and others in order to increase the effectiveness of television
advertising and programming. This syndicated information is offered on a
subscription basis. Custom or ad-hoc analyses of the data are also offered. The
information is then used by subscribers to buy, sell, plan and price television
time and to make programming and scheduling decisions.
In 1995, advertisers spent approximately $35.8 billion in the United States
on national and local television advertising, including $2.6 billion on cable
television advertising, according to McCann-Erickson Worldwide, to bring a
variety of programs and advertising messages to approximately 95.9 million U.S.
television households. These data underscore the need for television stations,
networks, advertisers, advertising agencies and others to obtain reports on how
many households and types of people are reached by such programming.
Nielsen Media Research measures television audiences and reports data
through seven services: Nielsen Television Index, Nielsen Syndication Services,
Nielsen Homevideo Index, Nielsen Station Index, Nielsen Hispanic Television
Index, Nielsen Hispanic Station Index and Nielsen Sports Marketing Service.
Nielsen Television Index provides daily audience measurement and demographic
estimates for all national broadcast network-television programs through the use
of the Nielsen People Meter. Nielsen Syndication Services provides reports and
services on both the local and national levels to the program syndication
segment of the
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television industry. Nielsen Homevideo Index provides viewing measurement of
cable, pay cable and other newer television technologies. Nielsen Station Index
provides television audience measurement information in over 200 local markets
and daily information in 33 markets through television set meters in the United
States. Nielsen Hispanic Television Index provides viewing measurement of
national Hispanic audiences, while Nielsen Hispanic Station Index provides
viewing measurement of local Hispanic audiences. Nielsen Sports Marketing
Service provides viewing measurement of national and local sports programs.
During 1995, Nielsen Media Research again expanded its local market
television services and continued to invest to enhance product value, technical
competencies and data quality. Significant investments are being made as Nielsen
Media Research switches from its present mainframe-based systems to a new
flexible client/server architecture for data collection, processing and
delivery. In addition, Nielsen Media Research is developing a new metering
system to enable measurement of program viewing in the emerging digital
television environment. This new system will use codes, which are imperceptible
to the viewer, inserted in the active audio and/or video portions of programs
and commercials that can be detected by metering equipment installed in the
sample households. The system also will have a passive back-up capability. When
implemented, this system will allow Nielsen Media Research to identify the
program or commercial regardless of the delivery method to the home and simplify
the process of installing meters in sample households. There can be no assurance
that the coding used by this 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's Monitor Plus Service links television ratings to
commercial occurrence data and tracks share of spending and share of voice by
company, by brand, and by product category across eleven monitored media,
including print, outdoor, radio and free standing inserts, as well as
television. Customers use the data to determine competitive advertising trends
within markets of interest. While Monitor Plus currently provides service in 50
markets versus the 75 markets covered by its competitor and market leader,
Competitive Media Reporting (CMR), Monitor Plus also includes national
television ratings. Monitor Plus plans to expand its operations to cover 75
markets and to deploy a new digital data collection and processing technology.
This expansion is scheduled for completion in January 1997.
During 1995, Nielsen Media Research entered into a strategic relationship
with Internet Profiles Corporation (I/PRO). Cognizant Enterprises and Nielsen
Media Research have together taken a substantial minority position in the
company. Under the terms of the agreement, Nielsen Media Research and I/PRO will
jointly market and brand two I/PRO products: I/COUNT (monitors Web site usage);
and I/AUDIT (audits and verifies audience usage and characteristics). Also under
the agreement, additional products may be jointly developed and marketed.
Nielsen Media Research has maintained a strong leadership position in
relation to its competitors. Arbitron, a former competitor, discontinued its
syndicated broadcast and cable television ratings service as of December 31,
1993. A television ratings project funded by the Committee on Nationwide
Television Audience Measurement (CONTAM) and designed and operated by
Statistical Research, Inc. (SRI), is developing a national television ratings
laboratory. Installation of a test sample has begun in Philadelphia,
Pennsylvania for completion this year. This sample was scheduled to produce test
data based on codes transmitted in television programs in 1996. As of the date
of this Information Statement, one station in Philadelphia and one station in
Wilkes-Barre, Pennsylvania are transmitting the required codes. Recently, the
NBC and CBS broadcast television networks asked SRI for a business plan for the
creation of a national measurement system that could provide an alternative to
the Nielsen service. This could give rise to a national competitor in the next
few years.
On the local level, ADCOM, an emerging competitor, has announced plans to
offer individual cable system measurement. A coalition of station owners may
issue a "request for proposal" for a new local ratings service that would
potentially compete with the Nielsen Station Index. Arbitron continues to
develop its passive people meter technology and could use this to re-enter the
television audience measurement business. Indirectly, on both a national and
local basis, competition stems from other marketing research services offering
product movement and television audience data and services.
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Pilot Software, Inc.
Pilot Software, Inc. develops interactive decision-support software for
managers and analysts in large organizations who need to make time-critical
decisions based on quantifiable information. Pilot's software products
accelerate the analysis of corporate data to improve understanding of current
key indicators, past performance and predictions of future trends, resulting in
more effective business decisions.
The highly competitive nature of today's global markets is making it
necessary for organizations to quickly identify key trends, problems and
opportunities. In order to accomplish this, they are aggressively building
massive databases from internal and external sources. In addition,
responsibility for analysis and decision-making has been decentralized to permit
more effective action. These factors are driving rapidly increasing demands for
data warehouse and decision-support tools throughout organizations.
Pilot provides a turnkey, client/server on-line analytical processing
(OLAP) environment, including data mining capabilities, that enables companies
to quickly implement decision-support solutions. The comprehensive Pilot
Decision Support Suite includes visual desktop analysis tools, scalable
multidimensional servers, data mining servers, pre-built analysis libraries and
design tools. Its industry-leading support for dynamic and time-based dimensions
can be applied to business problems with thousands of attributes.
Pilot's flexible solution provides several analysis metaphors including
ad-hoc navigation for analysts, graphical analysis for managers and summarized
briefings for executives. It consists of several components and can be installed
as a single-user, workgroup or distributed configuration. The client components
support Windows 95, Windows NT and Windows 3.1 and the server components are
available for Windows NT and six leading UNIX platforms.
Pilot has a multi-channel distribution strategy including business
information providers, value-added resellers and consulting organizations. Pilot
has a strong international presence with offices throughout North and South
America, Europe and the Pacific Rim. Pilot and its business partners offer a
full range of technical support, training and consulting services around the
world.
Pilot experiences competition from other providers of similar products.
Competition is generally based on the range of product offerings, product
functionality and the reliability of the vendor, among other factors.
Revenues are derived primarily from sales of licenses to use Pilot's
products, renewal fees, maintenance fees, and consulting and training services
related to implementation of the products. In 1995, more than 40% of Pilot's
total revenue was generated from operations outside of the United States.
Erisco, Inc.
Erisco, Inc. develops and markets proprietary software applications and
services used primarily in the administration of healthcare benefits and the
support of managed care services. Erisco has successfully completed the
development of the core applications for its newest product, Facets, which is a
managed care administration and information system built using client/server
technology. Erisco's other major product, Facts, provides similar functionality
and operates on a mainframe platform.
Erisco's primary markets include managed care organizations, insurance
carriers, third-party administrators and self-administered corporations. The
target market for Facets consists of managed care companies such as health
maintenance or preferred provider organizations, and has been growing rapidly
over the last several years. Facets combines the latest technology with advanced
managed care business functionality. The continued trend of expanding growth in
managed care membership and the acceptance of enterprise-wide client/server
system architecture positions Facets well in the marketplace.
The marketplace for the Facts product has declined over the past several
years with the trend to managed care and new technology. Nevertheless, Erisco
continues to sell its Facts system to new accounts and to work closely with its
substantial Facts client base to identify new product functionality
requirements. The substantial investment made in mainframe systems will act to
minimize the movement away from these systems. Erisco's management believes that
the "year 2000" issue favorably impacts customer retention and modification
expansion of the existing Facts customer base.
Erisco faces competition from a variety of software vendors in both the new
managed care markets and the traditional indemnity marketplace. With its Facets
product, Erisco faces competition from several
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organizations offering a longer-standing managed care product offering, but for
the most part based on older technology. Erisco believes that it is ahead of the
competition as it relates to a combined functionality/ technological offering.
Satyam Software
Dun & Bradstreet-Satyam Software Private Limited is a software development
company based in India. Satyam Software programmers, located in India and
on-site at customer locations in the United States, provide customers with a
low-cost, high quality alternative to internal mainframe and client-server
software development. Satyam Software's focus over the past two years was on
developing customers within D&B. Beginning in late 1995, Satyam Software
expanded its focus to include select third-party customers. Satyam Software
expects to continue to grow as it expands its capabilities to provide "year
2000" conversion assistance using internally developed, proprietary productivity
tools. Cognizant has a 76% interest in Satyam Software; the remaining 24% is
owned by India-based Satyam Computer Services.
Dun & Bradstreet HealthCare Information, Inc.
Dun & Bradstreet HealthCare Information, Inc. provides syndicated and
custom comparative outcome and resource utilization analyses of healthcare
providers; analytic support for disease state management initiatives; and
software and data processing services that allow healthcare providers to perform
statistically rigorous analyses of electronic healthcare data (such as claims),
including analyses of outcomes and utilization.
D&B Technology Asia K.K.
D&B Technology Asia K.K., based in Japan, markets financial application
software products and services tailored for the Japanese market.
Cognizant Enterprises, Inc.
Cognizant Enterprises, Inc., Cognizant's in-house venture capital business,
invests in emerging and established businesses in the information and technology
industries. It has invested as a limited partner in two venture capital limited
partnerships.
INFORMATION TECHNOLOGY SERVICES
Gartner Group, Inc.
Gartner Group, Inc. ("Gartner Group") is the world's leading independent
provider of research and analysis on the computer hardware, software,
communications and related information technology (IT) industries. Gartner
Group's core business is researching and analyzing significant IT industry
developments, packaging such analysis into annually renewable subscription-based
products and distributing such products through print and electronic media. Its
product offerings collectively provide comprehensive coverage of the IT
industry. Gartner Group's business also comprises the following entities: Real
Decisions, which provides comprehensive assessments of cost, performance,
efficiency and quality for all areas of IT through continuous improvement and
benchmarking services; Dataquest, a leading worldwide provider of IT market
research and consulting for the IT vendor, manufacturer, and financial
communities; and Gartner Group Learning, a leading developer and publisher of
300 software education products and services for computer desktop and technical
applications professionals.
The principal products of Gartner Group are annually renewable subscription
services, called "continuous services", which, on an ongoing basis, highlight
industry developments, review new products and technologies and analyze industry
trends within a particular technology or market sector. There were 53 principal
continuous services products offered at June 30, 1996, not including Dataquest
products. Each service is supported by a team of research staff members with
substantial experience in the covered segment or topic of the IT industry.
Gartner Group staff researches and prepares the published analyses, responds to
on-line and telephone inquiries from client companies, and holds conferences and
executive briefings.
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Gartner Group's "contract value" increased 33 percent to approximately
$334.5 million at June 30, 1996 as compared with June 30, 1995. Gartner believes
that contract value is a significant measure of its volume of business. Contract
value is calculated as the annualized subscription fees under all continuous
services contracts in effect at a given point in time, without regard to the
duration of the contracts outstanding at such time. Historically, a substantial
portion of client companies have renewed subscriptions for an equal or higher
level of total subscription services each year, and annual continuous services
revenues in any fiscal year have closely correlated to contract value at the
beginning of the fiscal year. As of June 30, 1996, approximately 83 percent of
Gartner Group's clients have renewed one or more subscriptions in the last
twelve months. However, this renewal rate is not necessarily indicative of the
rate of retention of Gartner Group's revenue base, and contract value at any
time may not be indicative of future continuous services revenues or cash flows
if the rate of renewal of continuous services contracts or the timing of new
business were to significantly change during the following twelve months
compared to historic patterns. Deferred revenues of $164.6 million at June 30,
1996, represents unamortized revenues from continuous services contracts at the
balance sheet date plus unamortized revenues of certain other products and
noncontinuous services. Therefore, deferred revenues do not directly correlate
to contract value as of the same date because the annualized calculation is made
without regard to the duration of the contracts outstanding at such time, and
contract value is limited to continuous service contracts.
There can be no assurance that Gartner Group will be able to sustain such
high renewal rates. Any deterioration in Gartner Group's ability to generate
significant new business would impact future growth in its business. Moreover, a
significant portion of new contract value in any given year has historically
been generated in the last portion of the year. Accordingly, any such
deterioration might not be apparent until late in Gartner Group's fiscal year
(which ends September 30).
There are approximately 6,500 client organizations which subscribe to
Gartner Group's continuous services products as of June 30, 1996. Gartner Group
delivers its continuous services products in a variety of formats in addition to
mail delivery. Electronic media are becoming an increasingly dominant form of
product delivery, including CD-ROM, Lotus Notes, GartnerWeb and @VANTAGE.
Gartner Group provides telephone support to its continuous services customers
and is currently making significant enhancements to improve the routing,
response and tracking of telephone inquiries.
Gartner Group's subsidiary, Dataquest, publishes subscription-based
research concentrating on quantitative market research, statistical analysis,
growth projections and market share rankings of manufacturers and vendors of IT.
Dataquest sells primarily to the information technology, market research and
financial communities which complements Gartner Group's focus on users,
purchasers, and vendors of IT products and services.
Gartner Group employs a consistent, disciplined research and analysis
methodology across its full product line, and issues published materials, both
on paper and electronic media, using standardized presentation formats, each
optimized to the target presentation medium. Gartner Group conducts its research
and analysis on an ongoing basis, continually modifies its underlying
assumptions, projected scenarios and recommendations for its clients as
developments occur, and highlights to clients material changes to the
assumptions, projections, assigned probabilities or recommendations.
The knowledge and experience of Gartner Group's analysts is critical to the
quality of its products and services. Senior technology analysts at Gartner
Group average more than 15 years of IT industry experience and are located
worldwide. In addition, Gartner Group has a proprietary, electronic research and
collaboration environment whereby draft research in a "research database" can be
easily shared among analysts worldwide. This electronic environment helps
enforce adherence to the research methodology, promotes extensive peer review
and collaboration, and facilitates iterative refinement, quality control and
review by management. This electronic environment is undergoing development to
increase its flexibility in order to meet increasing customer requirements.
Furthermore, Gartner Group has an independent Research Board, which oversees
overall quality and consistency in Gartner Group's research process and
publications. A comprehensive analyst training program reinforces the research
and publication methodology. Periodic surveys of client satisfaction and ongoing
inquiries of clients also ensure that client needs are met.
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Gartner Group has made a substantial investment in recent years in the
expansion of its distribution network and believes that the expanded
organization enables it to better serve clients and to address additional
markets. Gartner Group has expanded its direct sales force in the United States,
the Europe/Middle East/ Africa region and the Asia/Pacific Rim. Additionally, it
has sales relationships with independent distributors in 17 countries in which
it does not have a direct sales force.
As of June 30, 1996, Gartner Group had approximately 19,300 client
interfaces, defined as an individual IT professional at a company who receives
directly from Gartner Group all printed and electronic materials relating to a
particular continuous service. No single client organization accounted for over
two percent of contract value as of June 30, 1996 or 1995.
The principal competitive factors in Gartner Group's industry are quality
of research and analysis, timely delivery of information, customer service, the
ability to offer products that meet changing market needs for information and
analysis and price. Gartner Group believes it competes favorably with respect to
each of these factors.
Gartner Group experiences competition in the market for information
products and services from other independent providers of similar services as
well as the internal marketing and planning organizations of Gartner Group's
clients. Gartner Group also competes indirectly against other information
providers, including electronic and print media companies and consulting firms.
The indirect competitors, many of whom have substantially greater financial,
information gathering and marketing resources than Gartner Group, could choose
to compete directly against it in the future. In addition, although Gartner
Group believes that it has established a significant market presence, there are
few barriers to entry into its market and new competitors could readily seek to
compete against Gartner Group in one or more market segments addressed by the
continuous service products. Increased competition, direct and indirect, could
adversely affect the operating results through pricing pressure and loss of
market share. There can be no assurance that Gartner Group will be able to
continue to compete successfully against existing or new competitors.
FOREIGN OPERATIONS
As indicated above, Cognizant's subsidiaries engage in a significant
portion of their business outside of the United States. Cognizant's foreign
operations are subject to the usual risks inherent in carrying on business
outside of the United States, including fluctuation in relative currency values,
possible nationalization, expropriation, price controls and other restrictive
government actions. Cognizant believes that the risk of nationalization or
expropriation is reduced because its products are software, services and
information, rather than the production of products which require manufacturing
facilities or the use of natural resources.
INTELLECTUAL PROPERTY
Cognizant 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 of Cognizant believes that each of the "IMS",
"Nielsen Media Research" and "Gartner Group" names and related names, marks and
logos are of material importance to Cognizant. Cognizant is licensed to use
certain technology and other intellectual property rights owned and controlled
by others, and, similarly, other companies are or will be licensed to use
certain technology and other intellectual property rights owned and controlled
by Cognizant.
Pursuant to the IP Agreement, Cognizant will have exclusive and
unrestricted rights to the use of the "Nielsen Media Research" name worldwide;
however, Cognizant's future use of the "Nielsen" name, standing alone and as
part of a name describing new products and services to be offered, will be
subject to certain limitations. In addition, the IP Agreement also provides for
the establishment of a new entity, to be jointly owned by Cognizant and
ACNielsen, into which certain trademarks incorporating or relating to the
"Nielsen" name in various countries will be assigned. This entity will be
obligated to license such trademarks on a royalty-free basis to Cognizant or
ACNielsen for use in a manner consistent with the terms of the IP Agreement and
for purposes of conducting their respective businesses after the Distribution
Date, and will be responsible for preserving the quality of those trademarks and
minimizing any risk of possible confusion. Pursuant to the TAM Master Agreement,
Cognizant will grant a non-exclusive license to ACNielsen to use certain
trademarks, technology and related intellectual property rights in the conduct
of the TAM Business
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outside of the United States and Canada for a period of five years. See
"Relationship Among D&B, Cognizant and ACNielsen After the Distribution -- TAM
Master Agreement".
The technology and other intellectual property rights licensed by Cognizant
are of importance to its business, although management of Cognizant believes, as
noted above, that Cognizant's business, as a whole, is not dependent upon any
one intellectual property or group of such properties.
The names of Cognizant's and its subsidiaries' products and services
referred to herein are trademarks, service marks or registered trademarks or
service marks owned by or that are or will be licensed to Cognizant or one of
its subsidiaries.
EMPLOYEES
At June 30, 1996, Cognizant and its subsidiaries had approximately 10,000
full-time equivalent employees. Of this number, approximately 5,500 are located
in the United States, and none of these is represented by labor unions.
Cognizant's non-U.S. employees are subject to numerous labor council
relationships which vary due to the diverse cultures in which the company
operates. Management believes that, generally, labor relations are satisfactory
and have been maintained in a normal and customary manner.
PROPERTIES
Cognizant's real property is geographically distributed to meet sales and
operating requirements worldwide. Most of Cognizant's properties are leased from
third parties, including D&B and ACNielsen. Cognizant's properties are generally
considered to be both suitable and adequate to meet current operating
requirements and virtually all space is being utilized.
STRATEGY
Cognizant's strategy is to focus on high-growth emerging opportunities in
healthcare, high technology and media. Cognizant intends to pursue growth
through innovation and geographic expansion in its existing businesses, and
through an energetic acquisition program. Cognizant's growth is expected to be
driven by the forecasted expansion of the healthcare market, increasing demand
for new products in the high-technology arena, and the fast-growing marketplace
for interactive on-line media.
In the healthcare market, cost-containment pressure is generating new
opportunities for suppliers of information and systems designed to turn
information into knowledge. IMS intends to continue to invest in innovative
technology, products and services, such as its client-server data-warehousing
and decision-support services and workstation products. Geographic expansion
into the emerging Eastern European, Latin American and Asian markets is expected
to continue. Acquisitions are also expected to be an important aspect of IMS's
growth.
Nielsen Media Research intends to bring its television audience measurement
and analytical expertise to the market for interactive on-line media, such as
the Internet and the World Wide Web, an effort that began in 1995 through
several partnerships and ventures. It also expects to continue to increase its
coverage of the television audience research market through, among other things,
expansion of local market and cable television measurement services and ethnic
audience information.
Gartner Group's strategy in the information technology (IT) market is to
strengthen its leadership as a one-stop advisory service for IT professionals.
It plans to continue to introduce new product offerings and to expand
geographically, especially in Asia. Gartner Group has also been moving into
complementary businesses, including computer-based training services, and adding
to the ways its clients can interact with its analysts, such as electronic
delivery of its research.
Cognizant will also seek to acquire or invest in companies in other
high-growth markets, especially in the information and technology areas.
For a discussion of factors which may affect the implementation of
Cognizant's strategy, see "Certain Considerations."
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LEGAL PROCEEDINGS
Cognizant and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of all such current legal proceedings, claims and
litigation, if decided adversely, could have a material effect on quarterly or
annual operating results or cash flows when resolved in a future period.
However, in the opinion of management, these matters will not materially affect
Cognizant's combined financial position.
On July 29, 1996, IRI filed a complaint in the United States District Court
for the Southern District of New York, naming as defendants D&B, A.C. Nielsen
Company and IMS. 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 connection with such action, D&B, ACNielsen
and Cognizant will enter into an Indemnity and Joint Defense Agreement pursuant
to which ACNielsen will agree 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 the ACN Maximum Amount, which is 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 will agree 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. See "Relationship Among D&B, Cognizant and
ACNielsen After the Distribution -- Indemnity and Joint Defense Agreement" and
"ACNielsen Business -- Legal Proceedings". Management of Cognizant is unable to
predict at this time the final outcome of the IRI Action or whether the
resolution of such matter could materially affect Cognizant's results of
operations, cash flows or financial position.
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ACNIELSEN BUSINESS
GENERAL
After the Distribution, ACNielsen will be engaged, through its
subsidiaries, in the marketing research, information and analysis services
business. ACNielsen will hold all the outstanding capital stock of A.C. Nielsen
Company, its primary U.S. operating subsidiary. ACNielsen is a Delaware
corporation with its headquarters in Stamford, Connecticut.
ACNielsen is a global leader in delivering marketing research, information
and analysis to the consumer products and services industries. ACNielsen
services are offered in over 90 countries around the globe. ACNielsen provides
its customers with marketing research, information and analysis for
understanding and making critical decisions about their products and their
markets. Outside the United States and Canada, ACNielsen conducts media
measurement and related businesses.
ACNielsen operates outside the United States through a number of
subsidiaries, affiliates and joint ventures, including ACNielsen SRG, the
largest provider of market research services in the Asia Pacific region, and
Amer Nielsen in Eastern Europe. In 1995, nearly 80% of ACNielsen's revenues were
generated outside the United States.
ACNielsen operates across a wide spectrum of research services. These
services generally fall into four categories: Retail Measurement Services,
Customized Research Services, Media Measurement Services and Consumer Panel
Services.
ACNielsen also offers its customers, through a wide range of modeling and
analytic services, custom-tailored insights into complex marketing issues.
Typical assignments range from marketing-mix modeling to category management,
including topics as diverse as pricing strategy, consumer driven market
structure, variety management, outlet switching and promotion tactics.
ACNielsen's customers include retailers, brokers and distributors of retail
information, manufacturers of consumer packaged goods and other products, and
companies operating in various service industries (including financial services,
telecommunications, advertising, television and radio broadcasting, and
publishing).
ACNielsen operates in one industry segment, Marketing Research, Information
and Analysis Services. The approximate revenues attributable to each type of
service provided by ACNielsen were as follows for the periods shown (in millions
of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Retail Measurement........................................... $ 956 $ 912 $ 890
Customized Research.......................................... 158 58 47
Media Measurement............................................ 99 67 57
Consumer Panel............................................... 68 55 51
------ ------ ------
Total.............................................. $1,281 $1,092 $1,045
====== ====== ======
</TABLE>
RETAIL MEASUREMENT SERVICE
ACNielsen's Retail Measurement Services, the cornerstone of ACNielsen's
business, remains the industry standard in delivering quality data to customers
on product movement and related causal information on six continents. Introduced
in 1933, ACNielsen's original Food and Drug Indexes soon became the industry
measurement tool for understanding the dynamics of product sales. Over the
years, technology has dramatically improved ACNielsen's ability to collect and
analyze information from retailers and consumers. The availability of scanning
technology in retail outlets around the world has broadened both the scope and
capabilities of ACNielsen's original retail indexes.
ACNielsen's Retail Measurement Services are available in over 65 countries.
Retail Measurement Services includes scanning and retail audit services, account
level reports, information delivery, merchandising services and marketing and
sales applications, along with modeling and analytic services.
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Scanning
Using the bar codes printed on products and scanners installed in retail
outlets, ACNielsen gathers information weekly from stores in the United States,
Europe, Latin America and the Asia/Pacific region. ACNielsen's customers can
monitor performance trends and evaluate price and promotion effectiveness by
tracking and forecasting non-promoted as well as promotional product movement.
ACNielsen offers its customers a number of additional services to promote
each customer's understanding of its markets. Among these are services reporting
data by ethnic market, services aggregating consumer data in multiple channels,
and services disaggregating data to satisfy particular needs of customers.
Retail Audit
Because scanning data is only now becoming available in certain industry
sectors and in certain countries, retail audit remains a valuable source of
market information as a basic measurement tool or as a supplement to or in lieu
of scanning data. Retail audit involves the continuous measurement by ACNielsen
field auditors of product and category performance in the retail trade,
reporting to clients on sales, distribution, stocks, price and other measures
which assist them in marketing and trade negotiations.
Retail Audit is divided into industry segments, traditionally called
Indexes. The Food Index is generally the largest, but there are also Health and
Beauty, Durable, Confectionery, Liquor, Cash & Carry, plus a number of local
country Indexes.
In-Store Observation
ACNielsen field auditors collect data on where products are located in
store, how many facings they have, and on which shelf they are positioned, etc.
(broken down by store type, store size and geographic region). ACNielsen also
collects causal data. These checks can help to monitor the implementation of
retailer/manufacturer promotional agreements in terms of numeric distribution,
space allocation and promotional execution.
Levels of Information
ACNielsen provides information and insight to customers from a macro to a
micro level. Whether on a country, market or individual retailer level,
ACNielsen measures the competitive environment in which manufacturers and
retailers conduct business. In some countries ACNielsen also provides store
census level data which allow retailers and manufacturers to understand consumer
behavior within a specific store or group of stores as well as within a retail
trading area or market.
ACNielsen's account-specific information provides sales and marketing
managers with a comprehensive array of retailer-specific sales and merchandising
information, producing reports of product and category performance that
encompass an organization's own brands as well as competing brands.
On a global basis, ACNielsen sells and provides its multi-national
customers international reports within and across country boundaries. Products
include an International Database (periodic reports of a multi-country retail
database) and an International Market Report (a one-time report on a market and
its competitive environment).
Delivery of Information
ACNielsen converts the data which it collects into insights yielding
competitive advantage for its customers. These include multi-dimensional
reporting, analytical modeling, data navigation and expert systems tools, with
services offered in over 90 countries and to more than 20,000 users. ACNielsen
delivers its information to customers via on-line services and reports on paper,
CD-ROM, tape and diskette.
The ACNielsen INF*ACT Workstation is a tightly integrated Windows-based
analytical and applications development tool set used worldwide by ACNielsen's
customers. Employing on-line analytical processing capabilities, the Workstation
enables organizations to access and analyze a wide range of corporate and
syndicated information.
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ACNielsen also offers a series of Windows-based intelligent business
applications that can enhance the ACNielsen INF*ACT Workstation functionality,
giving organizations the ability to plan, analyze and execute successful
marketing and sales programs. Among these applications are Opportunity Explorer,
Executive Spotlight, Business Review, Trade Manager, Category Manager, Promotion
Optimizer, BrandView and BrandTrack.
In addition, ACNielsen offers merchandising tools in connection with the
ACNielsen INF*ACT Workstation, allowing customers to better utilize ACNielsen
syndicated data. Among these are the SPACEMAN portfolio of products and the
PRICEMAN products.
CUSTOMIZED RESEARCH SERVICES
Customized Research Services are used by manufacturers, retailers,
financial institutions and other service organizations that seek to understand
the position of their current, new and proposed products and services in the
marketplace. With customized research capabilities in more than half of the
countries in which it operates, ACNielsen is well-positioned to build on its
global retail measurement database to offer manufacturers and retailers consumer
insights from customized research as well as to understand dynamic new markets
such as entertainment, fast-foods, financial services and telecommunications.
In addition to services at the country level, through its subsidiary, SRG
International, ACNielsen offers multi-country customized studies at both the
regional and global levels. SRG International, with offices in Hong Kong,
London, New York, Tokyo and Singapore, carries out research in Asia/Pacific,
Western Europe, North and South America, the Middle East and Africa.
MEDIA MEASUREMENT SERVICES
ACNielsen's Media Measurement Services businesses operate exclusively
outside the United States. The information produced by Media Measurement
Services includes audience estimates for television, radio and print, plus
advertising expenditure measurement and customized media research. Television
and radio ratings and readership data are utilized by the sellers of programs,
sellers of time and space, advertising media planners and time and space buyers,
on behalf of manufacturers/advertisers and media owners to determine the best,
most cost-efficient way of reaching their customers.
ACNielsen's Television Audience Measurement service, which operates outside
the United States and Canada, utilizes a representative panel of households,
each with a meter attached to televisions in the household. Viewers in the
household log into the meter whenever they watch TV to record their identity. In
some countries written diaries are used instead of, or in addition to, meters,
with viewers writing the channels, programs and the time watched. As in the case
of people-meter panels, individual and household figures are projected to
represent national viewing habits.
Prior to July 1994, ACNielsen's television audience measurement services
were operational in Australia, Colombia (diary service), Finland, Japan,
Singapore and Sweden. ACNielsen's acquisition of AGB McNair, IBIS, IPSA and SRG
International in that year increased coverage to include Argentina, China, Hong
Kong, Indonesia, Korea, Malaysia, South Africa, Taiwan and Thailand. ACNielsen
plans to launch an electronic people meter service in Ireland during 1996.
ACNielsen's Advertising Expenditure Measurement service provides to its
customers, primarily advertising agencies and manufacturers/advertisers,
verification that an individual commercial or commercial campaign ran as
contracted, reports the cost of the manufacturers' own and competitors'
advertisements and alerts users to new, competitive ad campaigns.
For additional information with respect to ACNielsen's Television Audience
Measurement service and ACNielsen's relationship with Cognizant in respect of
such service following the Distribution, see "Relationship Among D&B, Cognizant
and ACNielsen -- TAM Master Agreement."
CONSUMER PANEL SERVICES
Consumer Panel Services help organizations achieve competitive advantage by
applying consumer insights resident in the ACNielsen Consumer Panel database.
With a comprehensive portfolio of tools for reporting and analysis, ACNielsen
measures the multi-faceted dynamics of consumer behavior across all
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<PAGE> 59
outlets including: consumer demographics, percentage of households purchasing,
quantity purchased, frequency of purchases, shopping trips and shopping
expenditures, products purchased, level of deal sensitivity, price paid, and
attitudinal and usage information.
In the United States, the ACNielsen Consumer Panel, called Homescan,
consists of 40,000 demographically balanced U.S. households that use hand-held
scanners to record every bar-coded item purchased. Outside the United States,
more than 60,000 households in 15 countries are included in the ACNielsen
consumer panel databases.
ACNielsen employs multiple data collection processes throughout the world.
In several countries, ACNielsen installs in-home scanners with which panelists
scan items at home as they unpack purchases from each shopping trip, recording
price, promotions and quantity purchased, as well as the age and gender of the
shopper and intended user. Information detailing each shopping trip is
immediately transmitted, via telephone lines, to ACNielsen.
Consumer panel applications can be used by both manufacturers and retailers
to understand demographics and purchasing habits of consumers. As with all
information derived from the ACNielsen Consumer Panel, data-capture activity is
from all outlet types including grocery, drug, mass merchandiser and warehouse
clubs. Customers can choose from a wide variety of applications or analyses,
from customized and complex to syndicated and simple. In the area of syndicated
applications, ACNielsen offers a full suite of category management applications.
These reports give manufacturers and retailers insights into cross outlet
shopping, consumer loyalty and the value of consumer segments.
ACNielsen also provides unique delivery tools that allow marketers to
process, chart and analyze ACNielsen Consumer Panel information quickly and
easily. Among these are CD-ROM tools and Panel*Fact for Windows, which enable
managers to create customized reports to meet their individual analytic needs
and to share data and analyses with various members within an organization.
COMPETITION
ACNielsen has numerous competitors in its various lines of business
throughout the world. Some are large companies with diverse product and service
lines; others have more limited product and service offerings. Competition comes
from companies specializing in marketing research; the in-house research
departments of manufacturers and advertising agencies; retailers selling
information directly or through brokers; information management and software
companies; and consulting and accounting firms.
In Retail Measurement Services, ACNielsen's main competitor in the United
States is IRI. IRI is also active in Canada, Europe and Latin America by itself
and through joint ventures with GfK (Germany), Secodip (France), Taylor Nelson
AGB (U.K.) and other companies, and is expanding globally.
In Customized Research Services, the global leader is Kantar, with three
global brands: BMRB International, Millward Brown International and Research
International.
In Media Measurement Services, Taylor Nelson AGB operates in Europe, IBOPE
in Latin America, GfK in Germany, Sofres in France, Spain and Asia and Video
Research in Japan.
In Consumer Panels Services, NPD is active in North America and in Europe
as part of the Europanel consortium which also include Taylor Nelson AGB,
Secodip, Dympanel (Spain) and other participants. IRI also competes in this
area.
Principal competitive factors include innovation, the quality, reliability
and comprehensiveness of analytical services and data provided, flexibility in
tailoring services to client needs, price and geographical coverage.
FOREIGN OPERATIONS
As indicated above, ACNielsen engages in a significant portion of its
business outside of the United States, with nearly 80% of its revenues in 1995
being generated through non-U.S. sources. ACNielsen's foreign operations are
subject to the usual risks inherent in carrying on business outside of the
United States, including fluctuations in relative currency values, possible
nationalization, expropriation, price controls or other restrictive government
actions. ACNielsen believes that the risk of nationalization or expropriation is
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<PAGE> 60
reduced because its products are services and information, rather than the
production of products which require manufacturing facilities or the use of
natural resources.
INTELLECTUAL PROPERTY
ACNielsen owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights and other intellectual property
rights which, in the aggregate, are of material importance to ACNielsen's
business. Management of ACNielsen believes that the "ACNielsen" name and related
names, marks and logos are of material importance to ACNielsen. ACNielsen 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 ACNielsen.
Pursuant to the IP Agreement, ACNielsen will have exclusive and
unrestricted rights to the use of the "ACNielsen" name worldwide; however,
ACNielsen's future use of the "Nielsen" name, standing alone and as part of a
name describing new products and services to be offered, will be subject to
certain limitations. In addition, the IP Agreement also provides for the
establishment of a new entity, to be jointly owned by Cognizant and ACNielsen,
into which certain trademarks incorporating or relating to the "Nielsen" name in
various countries will be assigned. This entity will be obligated to license
such trademarks on a royalty-free basis to Cognizant or ACNielsen for use in a
manner consistent with the terms of the IP Agreement and for purposes of
conducting their respective businesses after the Distribution Date, and will be
responsible for preserving the quality of those trademarks and minimizing any
risk of possible confusion. Pursuant to the TAM Agreement, ACNielsen will
receive from Cognizant a non-exclusive license to use certain trademarks,
technology and related intellectual property rights in the conduct of the TAM
Business outside of the United States and Canada for a period of five years.
ACNielsen shall not be licensed to use any such names or technology in
connection with the conduct of such business within the United States or Canada.
See "Relationship Among D&B, Cognizant and ACNielsen After the
Distribution -- TAM Master Agreement". The technology and other intellectual
property rights licensed by ACNielsen are important to its business, although
management of ACNielsen believes, as noted above, that ACNielsen's business, as
a whole, is not dependent upon any one intellectual property or group of such
properties.
The names of ACNielsen's products and services referred to herein are
trademarks, service marks or registered trademarks or service marks owned by or
that are or will be licensed to ACNielsen or one of its subsidiaries.
EMPLOYEES
At June 30, 1996, ACNielsen had approximately 17,000 full-time equivalent
employees. Of this number, approximately 2,000 employees are located in the
United States, and none of these is represented by labor unions. ACNielsen's
non-U.S. employees are subject to numerous labor council relationships which
vary due to the diverse cultures in which ACNielsen operates. Management
believes that, generally, labor relations are satisfactory and have been
maintained in a normal and customary manner.
PROPERTIES
ACNielsen's real property is geographically distributed to meet sales and
operating requirements worldwide. Most of ACNielsen's properties are leased from
third parties, including D&B and Cognizant. ACNielsen's properties are generally
considered to be both suitable and adequate to meet current operating
requirements and virtually all space is being utilized.
STRATEGY
ACNielsen's goal is to create and enhance value for its stockholders by
returning ACNielsen to profitability and sustaining and increasing such
profitability.
ACNielsen has developed a comprehensive turnaround plan, already underway,
to utilize its scope of services, brand name, worldwide presence and leading
technology to help its customers succeed in the global marketplace. The strategy
is centered on reengineering ACNielsen's business fundamentals in five key ways:
significantly improving profitability, targeting profitable growth
opportunities, further streamlining operations, redefining its business model,
and enhancing its investment returns.
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ACNielsen intends to continue its geographic expansion in Latin America,
Asia and elsewhere. Outside the United States, the consumer market research
business is very attractive and untapped in many parts of the world. ACNielsen
believes that this, in tandem with the global diversification of its customers,
represents a major growth opportunity.
For a discussion of factors which may bear on the implementation of
ACNielsen's strategy see "Certain Considerations".
LEGAL PROCEEDINGS
On July 29, 1996, IRI filed a complaint in the United States District Court
for the Southern District of New York, naming as defendants D&B, A.C. Nielsen
Company and IMS.
The complaint alleges various violations of United States antitrust law:
(1) a violation of Section 1 of the Sherman Act through an alleged practice of
tying A.C. Nielsen Company services in different countries or of A.C. Nielsen
Company and IMS services; (2) a violation of Section 1 of the Sherman Act
through alleged unreasonable restraints of trade consisting of the contracts
described above and through alleged long-term agreements with multi-national
customers; (3) a violation of Section 2 of the Sherman Act for monopolization
and attempted monopolization of export markets through alleged exclusive data
acquisition agreements with retailers in foreign countries, the contracts with
customers described above, and other means; (4) a violation of Section 2 of the
Sherman Act for attempted monopolization of the United States market through the
alleged exclusive data agreements described above, predatory pricing, and other
means; and (5) a violation of Section 2 of the Sherman Act for an alleged use of
market power in export markets to gain an unfair competitive advantage in the
United States.
The complaint also alleges two claims of tortious interference with
contract and tortious interference with a prospective business relationship.
These claims relate to the acquisition by defendants of SRG. IRI alleges that
SRG violated an alleged agreement with IRI when it agreed to be acquired by
defendants and that defendants induced SRG to breach that agreement.
IRI's complaint alleges 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 connection with such action, D&B, ACNielsen and Cognizant will enter
into the Indemnity and Joint Defense Agreement pursuant to which they will agree
(i) to certain arrangements allocating potential IRI Liabilities that may arise
out of or in connection with the IRI Action and (ii) to conduct a joint defense
of such action. In particular, the Indemnity and Joint Defense Agreement will
provide that ACNielsen will assume exclusive liability for IRI Liabilities up to
the ACN Maximum Amount to be determined at the time such liabilities, if any,
become payable, and that Cognizant and D&B will share liability equally for any
amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be
determined by an investment banking firm as the maximum amount which ACNielsen
is able to pay after giving effect to (i) any plan submitted by such investment
bank which is designed to maximize the claims paying ability of ACNielsen
without impairing the investment banking firm's ability to deliver a viability
opinion (but which will not require any action requiring stockholder approval),
and (ii) payment of related fees and expenses. For these purposes, financial
viability means the ability of ACNielsen, after giving effect to such plan, the
payment of related fees and expenses and the payment of the ACN Maximum Amount,
to pay its debts as they become due and to finance the current and anticipated
operating and capital requirements of its business, as reconstituted by such
plan, for two years from the date any such plan is expected to be implemented,
See "Relationship Among D&B, Cognizant and ACNielsen -- Indemnity and Joint
Defense Agreement".
Directorate General IV of the Commission of the European Union is currently
investigating ACNielsen for the possible violation of European Union competition
law. In May 1996, the Commission issued a Statement of Objections with respect
to certain of ACNielsen's practices in Europe, including discounting and other
sales practices. ACNielsen has submitted its response to the Commission's
Statement of Objections. Following the review of such submission and a hearing
at which representatives of European Union member states will participate, the
Commission may uphold ACNielsen's position and dismiss the complaint or adopt a
decision prohibiting any of the practices identified in the Statement of
Objections and imposing substantial fines.
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Management of ACNielsen is unable to predict at this time the final outcome
of either the IRI Action or the Commission's investigation or whether the
resolution of either matter could materially affect ACNielsen's results of
operations, cash flows or financial position.
A Civil Investigative Demand ("CID") was served on ACNielsen by the
Antitrust Division of the Department of Justice ("DOJ") in January 1995. The CID
requested documents relating to various competitive practices, including
discounting practices. ACNielsen cannot predict what action, if any, the DOJ may
take.
In August 1995, the Canadian Competition Tribunal issued an order
prohibiting ACNielsen from engaging in certain actions in Canada, including
entering into exclusive agreements to purchase retailer scanning data and
long-term contracts for the sale of data to manufacturers. The order has not had
any material adverse effect on ACNielsen's business.
ACNielsen and its subsidiaries are also involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of all such current proceedings, claims and litigation,
if decided adversely, could have a material effect on quarterly or annual
operating results or cash flows when resolved in a future period. However, in
the opinion of management, such matters arising in the ordinary course of
business will not materially affect ACNielsen's combined financial position.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") had been engaged by D&B,
ACNielsen's corporate parent, to audit the financial statements of ACNielsen in
connection with the Distribution. The report of Coopers & Lybrand, which
contains no adverse opinion or a disclaimer of opinion, or qualification or
modification as to uncertainty, audit scope, or accounting principles, is
included in this Information Statement (immediately preceding ACNielsen's
Combined Financial Statements and the Notes thereto). As an independent
corporation, the Board of Directors of ACNielsen decided to engage Arthur
Andersen LLP ("Arthur Andersen") as its independent public accountants effective
as of the Distribution Date.
During ACNielsen's two most recent fiscal years, and any subsequent interim
period prior to engaging Arthur Andersen, neither ACNielsen nor, to the best of
ACNielsen's knowledge, anyone acting on ACNielsen's behalf, consulted Arthur
Andersen regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed, the type of audit opinion
that might be rendered on ACNielsen's financial statements, or a written report
or oral advice provided to ACNielsen that Arthur Andersen concluded was an
important factor considered by ACNielsen in reaching a decision as to the
accounting, auditing or financial reporting issue or (ii) any matter that was
the subject of a disagreement (as defined in paragraph 304(a)(1)(iv) of
Regulation S-K) with the former accountant or a reportable event (as described
in paragraph 304(a)(1)(v) of Regulation S-K).
In connection with the audits of the financial statements of ACNielsen as
of December 31, 1995 and 1994 and for each of the two years in the period ended
December 31, 1995, and in the subsequent interim period, no disagreements
existed between ACNielsen and Coopers & Lybrand on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure that, if not resolved to the satisfaction of Coopers & Lybrand, would
have caused it to make reference to the subject matter of the disagreement in
connection with its report.
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COGNIZANT MANAGEMENT AND EXECUTIVE COMPENSATION
Robert E. Weissman is currently Chairman and Chief Executive Officer of D&B
and Chairman and Chief Executive Officer of Cognizant. Mr. Weissman will resign
from his positions at D&B effective upon the Distribution. The directors of
Cognizant will consist of certain persons who are currently directors of D&B,
and certain persons who are not currently directors of D&B. See "-- Cognizant
Board of Directors". In addition to Mr. Weissman, the other executive officers
of Cognizant will be drawn from the current management of D&B and will resign
from their positions at D&B effective upon the Distribution. See "-- Cognizant
Executive Officers".
COGNIZANT BOARD OF DIRECTORS
Immediately after the Distribution, Cognizant expects to have a board
composed of eight directors.
The following table sets forth the names, in alphabetical order, and
information as to the persons who are expected to serve as directors of
Cognizant following the Distribution, including information as to service with
D&B, if applicable.
<TABLE>
<CAPTION>
DIRECTOR
POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER
NAME DUN & BRADSTREET SINCE DURING LAST FIVE YEARS AGE DIRECTORSHIPS
- ------------------------- ------------------------- -------- ------------------------- --- -------------------------
<S> <C> <C> <C> <C> <C>
Clifford L. Alexander, Director 1993 President, Alexander & 63 D&B; MCI Communications
Jr. Associates, Inc., Corporation; Dreyfus
Washington, D.C. Third Century Fund;
(consulting firm Dreyfus General Family of
specializing in Funds; Dreyfus Premier
work-force Family of Funds; Mutual
inclusiveness), 1/81 to of America Life Insurance
present. Company; American Home
Products Corp.; TLC
Beatrice International
Holdings, Inc.
John P. Imlay, Jr. Chairman, Dun & -- Chairman, Dun & 60 Gartner Group, Inc.;
Bradstreet Software Bradstreet Software Metromedia International
Services, Inc. Services, Inc., Atlanta, Group.
GA (software company),
3/90 to present;
Principal Executive
Officer, 3/90 to 1/93;
President, 3/90 to 3/92.
Robert J. Kamerschen None -- Chairman and Chief 60 ADVO, Inc.; Micrografx,
Executive Officer, ADVO, Inc.; Playboy Enterprises
Inc., Windsor, CT (direct Incorporated.
mail marketing services),
11/88 to present.
Robert J. Lanigan Director 1978 Chairman Emeritus, Owens- 68 D&B; Owens-Illinois,
Illinois, Inc., Toledo, Inc.; Sonat, Inc.; Sonat
OH (glass, plastics and Offshore Drilling Inc.;
other packaging Chrysler Corporation; The
products), 1/92 to Coleman Company, Inc.
present; Chairman of the
Board, 4/84 to 10/91;
Chief Executive Officer,
1/84 to 9/90.
</TABLE>
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<PAGE> 64
<TABLE>
<CAPTION>
DIRECTOR
POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER
NAME DUN & BRADSTREET SINCE DURING LAST FIVE YEARS AGE DIRECTORSHIPS
- ------------------------- ------------------------- -------- ------------------------- --- -------------------------
<S> <C> <C> <C> <C> <C>
H. Eugene Lockhart None -- President and Chief 46 MasterCard International
Executive Officer, Inc.; Niagara Mohawk
MasterCard International Power Corp.
Inc., Purchase, NY
(credit card company),
3/94 to present;
Executive Vice President,
First Manhattan
Consulting Group, New
York, NY (banking
consulting firm), 9/92 to
2/94; Chief Executive
Officer, UK Banking and
Group Operations, Midland
Bank plc, London,
England, 1986 to 1993.
James R. Peterson Director 1977 Former President and 68 D&B; WMX
Chief Executive Officer, Technologies, Inc.
The Parker Pen Company,
Janesville, WI (writing
instruments and temporary
help services), 1/82 to
1/85.
M. Bernard Puckett Director 1995 Consultant, 1/96 to 52 P-Com, Inc.; R.R.
present; President and Donnelley & Sons Company.
Chief Executive Officer,
Mobile Telecommunication
Technologies Corp.,
Jackson, MS
(telecommunications),
5/95 to 1/96; President,
Chief Operating Officer,
1/94 to 5/95; Senior Vice
President -- Corporate
Strategy and Development,
International Business
Machines Corporation,
Armonk, NY (computers),
7/93 to 12/93; General
Manager of Applications
Solutions, 1/91 to 7/93.
Robert E. Weissman Chairman and Chief 1981 Chairman and Chief 56 State Street Boston
Executive Officer, Executive Officer, D&B, Corporation.
Director 4/95 to present; Chairman
and Chief Executive
Officer, Cognizant, 7/96
to present; President and
Chief Executive Officer,
D&B, 1/94 to 3/95;
President and Chief
Operating Officer, 1/85
to 12/93.
</TABLE>
DIRECTORS' COMPENSATION
The Board of Directors of Dun & Bradstreet has approved a Director
compensation program for Cognizant. It is anticipated that the Board of
Directors of Cognizant will adopt and implement such program as described below
prior to, on or shortly after the Distribution Date.
If such program is adopted and implemented, each non-employee Director will
receive a 1996 retainer of $12,500; thereafter, the retainer will be paid at an
annual rate of $25,000. Each non-employee Director who is the Chairman of a
Committee of the Board of Directors will be paid an additional retainer of
$3,000 for 1996 and annually thereafter. A fee of $1,000 will be paid to each
non-employee Director for every Board or Committee meeting attended. Directors
who are employed by Cognizant shall receive no retainers or meeting fees.
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Each non-employee Director who commences service on the Cognizant Board
prior to Cognizant's 1997 Annual Meeting of Shareholders will receive an initial
grant of restricted Cognizant Common Stock valued at $30,000 on the date such
non-employee Director commences service on the Board (the "Service Date") or on
the first day of regular trading in Cognizant Common Stock after the
Distribution, whichever is later. Such restricted shares shall generally vest
five years from the date of grant.
On the Service Date or on the first day of regular trading in Cognizant
Common Stock after the Distribution, whichever is later, a non-employee Director
shall receive an option grant for 7,000 shares of Cognizant Common Stock.
Generally, one-sixth of such options will vest annually commencing on the first
anniversary of the date of grant. On the second anniversary of the Service Date,
and on each anniversary thereafter, a non-employee Director will receive
additional option grants for 3,500 shares of Cognizant Common Stock. Such
options will vest in accordance with a schedule set by the Compensation and
Benefits Committee of the Cognizant Board of Directors at the time of grant. The
exercise price per share of all options granted will be not less than 100% of
the Fair Market Value (as hereinafter defined) of a share on the date of grant.
For purposes of these and the following provisions, Fair Market Value of a share
on a given date means the average of the high and low trading prices of such
share on such date.
At a non-employee Director's election, all cash compensation (i.e., meeting
fees and retainers) may be deferred until such Director ceases being a director.
At such Director's election, such compensation may be deferred in share units
and/or cash units. If a non-employee Director elects to defer in share units, he
or she will receive credit, as of the date on which such compensation would
otherwise have been paid, for a number of share units equal to (i) the amount of
such compensation divided by (ii) the Fair Market Value of one share on such
date. A non-employee Director who defers in share units will also receive
dividend equivalents on credited share units in the form of additional share
units. If a non-employee Director elects to defer in cash units, he or she will
receive credit, as of the date on which such compensation would otherwise have
been paid, for a number of cash units equal to the amount of such compensation
and shall receive notional compound interest, earned at the prime rate of Chase
Manhattan Bank, on credited cash units in the form of additional cash units.
COMMITTEES OF THE COGNIZANT BOARD OF DIRECTORS
Prior to the Distribution, the Cognizant Board of Directors will establish
Audit, Executive, Compensation and Benefits, and Nominating Committees and
designate specific functions and areas of oversight as to such committees. No
final determination has yet been made as to the memberships of such standing
committees.
COGNIZANT EXECUTIVE OFFICERS
Listed below is certain information as to the executive officers who have
been selected to serve after the Distribution.
<TABLE>
<CAPTION>
NAME, POSITION WITH COGNIZANT AND AGE BIOGRAPHICAL DATA
- ------------------------------------------------- ------------------------------------------
<S> <C>
Robert E. Weissman, 56........................... See information under "Cognizant Board of
Chairman and Chief Executive Officer Directors."
Dennis G. Sisco, 50.............................. Executive Vice President, D&B, 2/95 to
Executive Vice President present; Senior Vice President, 7/93 to
2/95; President, D&B Enterprises, Inc.,
12/88 to present.
William G. Jacobi, 52............................ Executive Vice President, D&B, 2/95 to
Executive Vice President present; Senior Vice President, D&B, 7/93
to 2/95; President and Chief Operating
Officer, Nielsen Media Research, 1/91 to
7/93.
Victoria R. Fash, 44............................. Senior Vice President-Business Strategy,
Executive Vice President and Chief Financial D&B, 4/95 to present; Vice
Officer President-Business Operations Planning,
5/94 to 4/95; Assistant to the President,
D&B, 9/91 to 5/94; Assistant to the
President, Dun & Bradstreet Software
Services, Inc. (formerly Management
Science America, Inc.), 1/91 to 9/91.
Alan J. Klutch, 52............................... Vice President-Financial Planning, D&B,
Senior Vice President-Finance 10/84 to present.
</TABLE>
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<PAGE> 66
COMPENSATION OF COGNIZANT EXECUTIVE OFFICERS
The following table discloses the compensation paid by D&B for services
rendered to D&B in 1995 to Cognizant's Chief Executive Officer and to each of
the persons who are anticipated to be one of the four other most highly
compensated executive officers of Cognizant following the Distribution. During
the period presented, the individuals were compensated in accordance with D&B's
plans and policies.
SUMMARY COMPENSATION TABLE
FOR SERVICE WITH D&B
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
------------------------- ----------
ANNUAL COMPENSATION (G)
--------------------------------------- (F) SECURITIES (H)
(A) RESTRICTED UNDERLYING LONG-TERM (I)
NAME AND PRINCIPAL (C) (D) (E) STOCK OPTIONS/ INCENTIVE ALL OTHER
POSITION (B) SALARY BONUS(1) OTHER ANNUAL AWARD(S)(3) SARS(4) PAYOUTS(5) COMPENSATION(6)
WITH COGNIZANT YEAR ($) ($) COMPENSATION(2)($) ($) (#) ($) ($)
- ---------------------- ---- ------- -------- ------------------ ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Weissman.... 1995 830,000 802,095 216 443,895 34,823 887,800 55,063
Chairman and Chief
Executive Officer
Dennis G. Sisco....... 1995 351,615 453,901 0 252,058 15,696 104,220 26,308
Executive Vice
President
William G. Jacobi..... 1995 377,315 277,557 3,448 277,964 13,813 155,996 21,217
Executive Vice
President
Victoria R. Fash...... 1995 258,359 250,901 0 219,283 8,788 38,600 4,176
Executive Vice
President and Chief
Financial Officer
Alan J. Klutch........ 1995 312,500 224,772 34,778 101,303 6,588 202,650 6,795
Senior Vice
President-Finance
</TABLE>
- ---------------
(1) Bonus amounts shown were earned in 1995 and paid in 1996.
(2) Amounts shown represent reimbursement for taxes paid by the named executive
officers with respect to D&B-directed spousal travel and, for Mr. Klutch,
certain relocation expenses.
(3) Amounts shown represent dollar value on the date of grant. The grants to Ms.
Fash and Messrs. Sisco and Jacobi consisted of grants in connection with
performance unit awards of 382, 1,031 and 1,544 shares respectively, and
additional grants with respect to promotions during 1995 of 3,846 shares
each. Restricted stock awards would have vested one-third in each of the
three years following the date of the award, except that the
promotion-related awards would have vested 100% two years following the
date of the award. Dividends are paid at the rate established from time to
time for D&B Common Stock. In addition, the number and value of the
aggregate restricted stock holdings of the named executive officers at
December 31, 1995 were: Mr. Weissman -- 14,576 shares ($943,798); Mr.
Sisco -- 5,575 shares ($360,982); Mr. Jacobi -- 6,049 shares ($391,673);
Ms. Fash -- 4,228 shares ($273,763) and Mr. Klutch -- 7,872 shares
($509,712). Notwithstanding the original vesting schedules, all restricted
stock will vest as of the Distribution Date.
(4) Amounts shown represent the number of non-qualified stock options, without
tandem stock appreciation rights, granted.
(5) Amounts shown represent payments made under the D&B Key Employees
Performance Unit Plan.
(6) Amounts shown represent aggregate D&B contributions for the account of each
named executive officer under the D&B Profit Participation Plan ("PPP") and
the Profit Participation Benefit Equalization Plan ("PPBEP"), plans which
are open to employees of D&B and certain subsidiaries upon completion of
one year of service. The PPP is a tax-qualified defined contribution plan
and the PPBEP is a non-qualified plan which provides a benefit to
participants in the PPP equal to the amount of D&B contributions that would
have been made to the participant's PPP account but for certain Federal tax
laws.
64
<PAGE> 67
OPTIONS GRANTS ON D&B COMMON STOCK TO COGNIZANT EXECUTIVES IN LAST FISCAL YEAR
The following table provides information on fiscal year 1995 grants of
options to the named Cognizant executives to purchase shares of D&B Common
Stock. Options to acquire D&B Common Stock will be replaced by options to
acquire Cognizant Common Stock. See "Relationship Among D&B, Cognizant and
ACNielsen After the Distribution -- Employee Benefits Agreement". For a
discussion of contemplated option grants, see "Contemplated Option Grants"
below.
OPTION GRANTS IN LAST FISCAL YEAR TO PURCHASE D&B COMMON STOCK
<TABLE>
<CAPTION>
(B)
NUMBER OF (C)
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS (D) (F)
OPTIONS/SARS GRANTED TO EXERCISE OR (E) GRANT DATE
(A) GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE(2)
NAME (#) FISCAL YEAR ($/SHARE) DATE ($)
- --------------------------------- ------------- ------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Robert E. Weissman............... 34,823 1.91% 63.75 12/19/05 321,416
Dennis G. Sisco.................. 12,235 0.86% 63.75 12/19/05 112,929
3,461 52.00 04/18/05 24,435
William G. Jacobi................ 10,352 0.76% 63.75 12/19/05 95,549
3,461 52.00 04/18/05 24,435
Victoria R. Fash................. 7,058 0.48% 63.75 12/19/05 65,145
1,730 52.00 04/18/05 12,214
Alan J. Klutch................... 6,588 0.36% 63.75 12/19/05 60,807
</TABLE>
- ---------------
(1) Amounts shown represent the number of non-qualified stock options,
without tandem stock appreciation rights ("SARs"), granted in 1995. Options may
not be exercised for at least one year after grant and may then be exercised in
installments of 25% of the grant amount each year until they are 100% vested.
Payment must be made in full upon exercise in cash or D&B Common Stock. The
option holder may elect to have shares of D&B Common Stock issuable upon
exercise withheld by D&B to pay withholding taxes due. The options shown include
Limited SARs in tandem with the options. Limited SARs are exercisable only if
and to the extent that the related option is exercisable and are exercisable
only during the 30-day period following the acquisition of at least 20% of the
outstanding D&B Common Stock pursuant to a tender or exchange offer not made by
D&B. Each Limited SAR permits the holder to receive cash equal to the excess
over the related option exercise price of the highest price paid pursuant to a
tender or exchange offer for D&B Common Stock which is in effect at any time
during the 60 days preceding the date upon which the Limited SAR is exercised.
Limited SARs can be exercised regardless of whether D&B supports or opposes the
offer.
(2) Grant date present value is based on the Black-Scholes option valuation
model, which makes the following material assumptions for the April 19, 1995
grant and the December 20, 1995 grant, respectively: an expected stock-price
volatility factor of 15.006% and 15.911%, a risk-free rate of return of 7.06%
and 5.93%, dividends at the annualized rate of $2.60 and $2.64 per share, a time
of exercise of ten years, and reductions of approximately 9.73% to reflect the
probability of forfeiture due to termination prior to vesting and approximately
10.47% and 11.24% to reflect the probability of a shortened option term due to
termination of employment prior to the option expiration date. These assumptions
may or may not be fulfilled. The amounts shown cannot be considered predictions
of future value. In addition, the options will gain value only to the extent the
stock price exceeds the option exercise price during the life of the option.
65
<PAGE> 68
AGGREGATE D&B OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END D&B
OPTION VALUES
The following table provides information on option exercises in 1995 by the
named executives of Cognizant and the value of each such executive's unexercised
options to acquire D&B Common Stock at December 31, 1995. See also,
"Relationship Among D&B, Cognizant and ACNielsen After the
Distribution -- Employee Benefits Agreement".
AGGREGATE D&B OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
(D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED D&B IN-THE-MONEY
(B) (C) OPTIONS/SARS AT FISCAL D&B OPTIONS/SARS AT FISCAL
SHARES ACQUIRED VALUE YEAR-END(2)(#) YEAR-END(3)($)
(A) ON EXERCISE REALIZED(1) --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Weissman........... 0 0 219,875 95,174 3,142,125 482,548
Dennis G. Sisco.............. 0 0 29,672 32,158 376,990 178,778
William G. Jacobi............ 2,390 41,974 35,110 28,512 391,548 158,299
Victoria R. Fash............. 0 0 5,406 13,772 48,626 71,296
Alan J. Klutch............... 1,124 16,228 49,530 18,305 711,865 93,277
2,390 34,506
</TABLE>
- ---------------
(1) Amounts shown represent the value realized upon the exercise of stock
options during 1995, which equals the difference between the exercise price
of the options and the closing market price of the underlying D&B Common
Stock on the date preceding the exercise date.
(2) No SARs were outstanding at December 31, 1995.
(3) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the closing market price of the
underlying D&B Common Stock at December 29, 1995. Options are in-the-money
if the fair market value of the D&B Common Stock exceeds the exercise price
of the option.
LONG-TERM D&B INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F)
NO. OF PERFORMANCE ESTIMATED FUTURE PAYOUTS
SHARES, OR OTHER UNDER NON-STOCK PRICE-BASED PLANS(2)
UNITS OR PERIOD UNTIL ----------------------------------------
OTHER MATURATION THRESHOLD ($) TARGET ($) MAXIMUM ($)
NAME RIGHTS(1)($) OR PAYOUT (0%) (100%) (200%)
- ----------------------------------------- ------------ ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Robert E. Weissman....................... 0 N/A N/A N/A N/A
Dennis G. Sisco.......................... 120,000 Three Years 0 120,000 240,000
William G. Jacobi........................ 120,000 Three Years 0 120,000 240,000
Victoria R. Fash......................... 60,000 Three Years 0 60,000 120,000
Alan J. Klutch........................... 0 N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Amounts shown represent the nominal dollar value of grants under the D&B
Performance Unit Plan to Ms. Fash and Messrs. Sisco and Jacobi with respect
to promotions during 1995. In connection with the Distribution, the
three-year performance unit grant that otherwise would have been made to
the named executive officers in 1995 was converted into a one-year cash
award that is not included in this table because it is not a "long-term"
award as defined by the Securities and Exchange Commission.
(2) Awards may range from 0 to 200% of the nominal grant value based on
achievements within a range of performance goals.
D&B RETIREMENT BENEFITS
The following table sets forth the estimated aggregate annual benefits
payable under the D&B Retirement Plan, D&B's Supplemental Executive Benefit Plan
and Pension Benefit Equalization Plan to persons in specified average final
compensation and credited service classifications upon retirement at age 65.
Amounts shown in the table include U.S. Social Security benefits which would be
deducted in calculating
66
<PAGE> 69
benefits payable under these plans. These aggregate annual retirement benefits
do not increase as a result of additional credited service after 15 years.
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE ANNUAL D&B RETIREMENT
BENEFIT ASSUMING CREDITED SERVICE OF:
AVERAGE FINAL --------------------------------------------------------------
COMPENSATION FROM D&B 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 550,000............................ $ 330,000 $ 330,000 $ 330,000 $ 330,000 $ 330,000
700,000........................... 420,000 420,000 420,000 420,000 420,000
850,000........................... 510,000 510,000 510,000 510,000 510,000
1,000,000........................... 600,000 600,000 600,000 600,000 600,000
1,300,000........................... 780,000 780,000 780,000 780,000 780,000
1,600,000........................... 960,000 960,000 960,000 960,000 960,000
1,900,000........................... 1,140,000 1,140,000 1,140,000 1,140,000 1,140,000
</TABLE>
The number of years of credited service for Messrs. Weissman, Sisco,
Jacobi, Ms. Fash and Mr. Klutch are, respectively, 16, 6, 16, 9 and 21.
Compensation, for the purpose of determining retirement benefits, consists
of salary, wages, cash bonuses, commissions and overtime pay. Severance pay,
contingent payments and other forms of special remuneration are excluded.
Bonuses included in the Summary Compensation Table above are not paid until the
year following the year in which they are accrued and expensed; therefore,
compensation for purposes of determining retirement benefits varies from the
Summary Compensation Table amounts in that bonuses expensed in the previous year
but paid in the current year are part of retirement compensation in the current
year and current year's bonuses accrued and included in the Summary Compensation
Table are not. For 1995, compensation for purposes of determining retirement
benefits for the named executive officers differed by less than 10% from the
amounts shown in the table except that compensation for 1995 for purposes of
determining retirement benefits for Mr. Jacobi, Ms. Fash and Mr. Klutch was
$572,384, $375,548 and $487,024, respectively.
Average final compensation is defined as the highest average annual
compensation during five consecutive twelve-month periods in the last ten
consecutive twelve-month periods of the member's credited service. Members vest
in their accrued retirement benefit upon completion of five years' service. The
benefits shown in the table above are calculated on a straight-life annuity
basis.
LIMITED SARS
D&B Limited SARs held by Cognizant executive officers will be converted
into Limited SARs of Cognizant which will have the terms described for D&B
Limited SARs in footnote 1 under the caption "-- Option Grants on D&B Common
Stock to Cognizant Executives in Last Fiscal Year" above. See "Relationship
Among D&B, Cognizant and D&B After the Distribution -- Employee Benefits
Agreement."
CONTEMPLATED OPTION GRANTS
The D&B Board of Directors has approved a program under which certain
Cognizant executive officers and senior management will receive options pursuant
to grants by the Cognizant Compensation Committee having an exercise price per
share equal to the Fair Market Value per share of Cognizant Common Stock on the
date of grant. Options granted upon conversion of unexercised D&B stock options
(see "Relationship Among D&B, Cognizant and ACNielsen After the
Distribution -- Employee Benefits Agreement") and new option grants will
represent a number of shares equal to approximately 2.1% and 11.7%,
respectively, of the anticipated number of outstanding shares (assuming no
exercise of the unexercised D&B stock options). Pursuant to the program, it is
anticipated that no new grants will be made to executive officers for three
years.
67
<PAGE> 70
COGNIZANT SECURITY OWNERSHIP BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All the outstanding shares of Cognizant Common Stock are currently held by
D&B. The following table sets forth information concerning shares of Cognizant
Common Stock that are expected to be beneficially owned after the Distribution
by each of the Cognizant directors, by each of the executive officers named in
the Cognizant Summary Compensation Table, by all such directors and executive
officers as a group and by each person known by Cognizant to beneficially own
more than 5% of the outstanding shares of D&B Common Stock as of August 31,
1996. Stock ownership information is based on (i) the number of shares of D&B
Common Stock held by directors and executive officers as of August 31, 1996 and
includes shares of D&B restricted stock, all of which will vest prior to the
Record Date, (ii) the number of shares held by The Capital Group Companies, Inc.
and a subsidiary thereof as of December 31, 1995 and (iii) one share of
Cognizant Common Stock being distributed for every share of D&B Common Stock.
See "The Distribution" and "Cognizant Management and Executive
Compensation -- Compensation of Cognizant Executive Officers". Information
regarding shares subject to options reflects shares of D&B Common Stock subject
to options as of August 31, 1996 and exercisable within 60 days thereafter, all
of which will be converted into options that are exercisable into shares of
Cognizant Common Stock. See "Relationship Among D&B, Cognizant and ACNielsen
After the Distribution -- Employee Benefits Agreement". All directors and
executive officers as a group beneficially owned less than one percent of the
outstanding shares of D&B Common Stock on August 31, 1996 and are expected to
beneficially own less than one percent of the shares of Cognizant Common Stock
outstanding as of the Distribution Date.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
OPTIONS
NUMBER OF SHARES EXERCISABLE
BENEFICIALLY WITHIN 60
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) DAYS(2)(3)
- ---------------------------------------------------------------- ------------------- ----------------
<S> <C> <C>
Clifford L. Alexander, Jr....................................... 1,300 --
Victoria R. Fash................................................ 4,171 5,838
John P. Imlay, Jr............................................... -- --
William G. Jacobi............................................... 8,073 37,235
Robert J. Kamerschen............................................ -- --
Alan J. Klutch.................................................. 11,687 49,530
Robert J. Lanigan(4)............................................ 7,100 --
H. Eugene Lockhart.............................................. -- --
James R. Peterson............................................... 4,300 --
M. Bernard Puckett.............................................. 600 --
Dennis G. Sisco................................................. 6,012 31,797
Robert E. Weissman.............................................. 119,079 219,875
All Directors and Executive Officers as a Group................. 162,322 344,275
The Capital Group Companies, Inc. and its subsidiary, Capital
Research and Management Company
333 South Hope Street,
Los Angeles, CA 90071......................................... 14,859,800(5)(6) --
</TABLE>
- ---------------
(1) The mailing address for each of the Cognizant directors and executive
officers listed herein is 200 Nyala Farms, Westport, Connecticut 06880.
(2) As of August 31, 1996.
(3) Represents the number of shares of Cognizant Common Stock which would be
obtained in the Distribution if the D&B stock options were exercised prior
to the Record Date. Unexercised D&B stock options held by Cognizant
employees as of the Distribution Date will be converted into options that
are exercisable into shares of Cognizant Common Stock based upon a
conversion formula to be calculated after the Distribution Date. See
"Relationship Among D&B, Cognizant and ACNielsen After the
Distribution -- Employee Benefits Agreement".
(4) Of these shares, 6,200 are held in two revocable trusts (one trust holding
5,000 shares and the other 1,200 shares) for the benefit of Mr. Lanigan in
which he is the settlor and sole beneficial owner and over which he has sole
investment control.
(5) Represents 8.31% of the shares of Cognizant Stock expected to be outstanding
as of the Distribution Date based on one share of Cognizant Common Stock
being distributed for every share of D&B Common Stock held on the Record
Date and assuming (i) no change in the number of outstanding shares of D&B
Common Stock from August 31, 1996 to the Record Date, (ii) all outstanding
D&B stock options are exercised prior to the Record Date and (iii) no change
in beneficial ownership in D&B Common Stock by such persons between December
31, 1995 and the Record Date.
(6) The Capital Group Companies, Inc. ("CGCI") and its wholly-owned subsidiary,
Capital Research and Management Company ("CRMC"), jointly filed a Schedule
13G with the Securities and Exchange Commission ("SEC") on February 9, 1996
with respect to D&B Common Stock. This Schedule 13G shows that CRMC, a
registered investment adviser, had, as of December 31, 1995, sole
dispositive power (but no voting power) over 12,389,000 shares of D&B Common
Stock. Because of the SEC's ownership attribution rules, the Schedule 13G
also shows CGCI as having sole dispositive power over such shares, as well
as sole voting and dispositive power over an additional 1,101,000 shares and
sole dispositive power (but no voting power) over a further 1,369,800
shares.
68
<PAGE> 71
ACNIELSEN MANAGEMENT AND EXECUTIVE COMPENSATION
Nicholas L. Trivisonno is currently Executive Vice President - Finance and
Chief Financial Officer of D&B and Chairman and Chief Executive Officer of
ACNielsen. Mr. Trivisonno will resign from his positions at D&B effective upon
the Distribution. The directors of ACNielsen will include one person who is
currently a director of D&B and certain persons who are not currently directors
of D&B. See "-- ACNielsen Board of Directors". In addition to Mr. Trivisonno,
most of the other executive officers of ACNielsen will be drawn from the current
management of D&B and A.C. Nielsen Company and will resign from their positions
at D&B, if any, effective upon the Distribution. See "-- ACNielsen Executive
Officers".
ACNIELSEN BOARD OF DIRECTORS
Immediately after the Distribution, ACNielsen expects to have a board
composed of eleven directors.
The following table sets forth the names, in alphabetical order, and
information as to the persons who are expected to serve as directors of
ACNielsen following the Distribution, including information as to service with
D&B, if applicable.
<TABLE>
<CAPTION>
DIRECTOR
POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER
NAME DUN & BRADSTREET SINCE DURING LAST FIVE YEARS AGE DIRECTORSHIPS
- ------------------------- ------------------------- -------- ------------------------- --- -------------------------
<S> <C> <C> <C> <C> <C>
Robert H. Beeby None -- Non-Executive Chairman, 64 Applied Extrusion
Service America Technologies, Inc.;
Corporation, Stamford, CT Church & Dwight Company;
(food service Columbia Gas System, Inc.
operations), 9/91 to
present; acting Chief
Executive Officer, 10/92
to 2/93; President &
Chief Executive Officer
of Frito-Lay, Inc. from
1989 to 1991.
Michael P. Connors Senior Vice President and -- Senior Vice President and 41
Chief Human Resources Chief Human Resources
Officer Officer, D&B, 3/95 to
present; Vice Chairman,
ACNielsen, 4/96 to
present; Senior Vice
President, American
Express Travel Related
Services, New York, NY,
9/89 to 3/95.
Donald W. Griffin None -- Chairman, President and 59 Olin Corporation;
Chief Executive Officer, Rayonier, Inc.; Rayonier
Olin Corporation, Forest Products Company.
Norwalk, CT (manufacturer
of chemicals, metals and
ammunition), 4/96 to
present; President and
Chief Executive Officer,
1/96 to 4/96; President
and Chief Operating
Officer, 2/94 to 12/95;
Vice
Chairman -- Operations,
1/93 to 2/94; Executive
Vice President 10/87 to
1/93.
Thomas C. Hays None -- Chairman and Chief 61 American Brands, Inc.
Executive Officer,
American Brands, Inc.,
Old Greenwich, CT
(consumer products), 1/95
to present; President and
Chief Operating Officer,
1/88 to 12/94.
</TABLE>
69
<PAGE> 72
<TABLE>
<CAPTION>
DIRECTOR
POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER
NAME DUN & BRADSTREET SINCE DURING LAST FIVE YEARS AGE DIRECTORSHIPS
- ------------------------- ------------------------- -------- ------------------------- --- -------------------------
<S> <C> <C> <C> <C> <C>
Karen L. Hendricks None -- President and Chief 48 Baldwin Piano & Organ
Executive Officer, Company.
Baldwin Piano & Organ
Company, Loveland, OH
(manufacturer of musical
instruments), 11/94 to
present; Executive Vice
President & General
Manager, Skin Care
Division, The Dial Corp,
Phoenix, AZ (consumer
products), 5/92 to 9/94;
Manager, Worldwide
Strategic Planning, Hair
Care, Procter & Gamble
Company, Cincinnati, OH
(consumer products), 9/71
to 5/92.
Robert M. Hendrickson None -- President, Juno Capital 67
Partners Ltd., Jupiter,
FL (corporate finance and
investment management
consulting), 4/88 to
present; Chairman, Juno
Land Investment
Corporation, Jupiter, FL
(real estate
development), 1/90 to
present.
Robert J Lievense Executive Vice President -- Executive Vice President, 50
D&B, 2/95 to present;
President and Chief
Operating Officer,
ACNielsen, 1/96 to
present; Senior Vice
President, D&B, 7/93 to
2/95; Chairman, Dataquest
Incorporated, 9/91 to
7/93; President, NCH
Promotional Services,
Inc., 8/90 to 7/93.
John R. Meyer Director 1967 Professor, Harvard 68 D&B; Union Pacific
University, 7/73 to Corporation; Missouri
present. Pacific Railroad Company;
The Mutual Life Insurance
Company of New York.
Brian B. Pemberton None -- President -- Skycell 52
Services, American Mobile
Satellite Corporation,
Reston, VA (mobile
communications), 8/96 to
present; President &
Chief Executive Officer,
4/95 to 8/96; President,
4/90 to 4/95.
Robert N. Thurston None -- Business consultant, 1985 64 McDonald's Corporation;
to present; former Ag-Bag International Ltd.
Executive Vice President,
The Quaker Oats Company.
</TABLE>
70
<PAGE> 73
<TABLE>
<CAPTION>
DIRECTOR
POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER
NAME DUN & BRADSTREET SINCE DURING LAST FIVE YEARS AGE DIRECTORSHIPS
- ------------------------- ------------------------- -------- ------------------------- --- -------------------------
<S> <C> <C> <C> <C> <C>
Nicholas L. Trivisonno Executive Vice President- -- Executive Vice President- 49 Rayonier, Inc.; Yankee
Finance and Chief Finance and Chief Energy Systems, Inc.
Financial Officer Financial Officer, D&B,
9/95 to present; Chairman
and Chief Executive
Officer, ACNielsen, 1/96
to present; Executive
Vice President- Strategic
Planning and Group
President, GTE
Corporation, Stamford, CT
(telecommunications),
10/93 to 7/95; Senior
Vice President-Finance,
1/89 to 10/93; director,
4/95 to 7/95.
</TABLE>
DIRECTORS' COMPENSATION
The Board of Directors of Dun & Bradstreet has approved a Director
compensation program for ACNielsen. It is anticipated that the Board of
Directors of ACNielsen will adopt and implement such program as described below
prior to, on or shortly after the Distribution Date.
If such program is adopted and implemented each non-employee Director will
receive a 1996 retainer of $12,500; thereafter, the retainer will be paid at an
annual rate of $25,000. Each non-employee Director who is the Chairman of a
Committee of the Board of Directors will be paid an additional retainer of
$3,000 for 1996 and annually thereafter. A fee of $1,000 will be paid to each
non-employee Director for every Board or Committee meeting attended. Directors
who are employed by ACNielsen shall receive no retainers or meeting fees.
Each non-employee Director who commences service on the ACNielsen Board
prior to ACNielsen's 1997 Annual Meeting of Shareholders will receive an initial
grant of restricted ACNielsen Common Stock valued at $30,000 on the date a
non-employee Director commences service on the Board (the "Service Date") or on
the first day of regular trading in ACNielsen Common Stock after the
Distribution, whichever is later. Such restricted shares shall generally vest
five years from the date of grant.
On the Service Date or on the first day of regular trading in ACNielsen
Common Stock after the Distribution, whichever is later, a non-employee Director
will receive an option grant for 10,000 shares of ACNielsen Common Stock.
Generally, one-sixth of such options shall vest annually commencing on the first
anniversary of the date of grant. On the second anniversary of the Service Date,
and on each anniversary thereafter, a non-employee Director will receive
additional option grants for 5,000 shares of ACNielsen Common Stock. Such
options will vest in accordance with a schedule set by the Compensation
Committee of the ACNielsen Board of Directors at the time of grant. The exercise
price per share of all options granted shall be not less than 100% of the Fair
Market Value of a share on the date of grant.
At a non-employee Director's election, all cash compensation (i.e., meeting
fees and retainers) may be deferred until such Director ceases being a director.
At such Director's election, such compensation may be deferred in share units
and/or cash units. If a non-employee Director elects to defer in share units, he
or she will receive credit, as of the date on which such compensation would
otherwise have been paid, for a number of share units equal to (i) the amount of
such compensation divided by (ii) the Fair Market Value of one share on such
date. A non-employee Director who defers in share units will also receive
dividend equivalents on credited share units in the form of additional share
units. If a Director elects to defer in cash units, he or she will receive
credit, as of the date on which such compensation would otherwise have been
paid, for a number of cash units equal to the amount of such compensation and
will receive notional compound interest, earned at the prime rate of Chase
Manhattan Bank on credited cash units in the form of additional cash units.
71
<PAGE> 74
COMMITTEES OF THE ACNIELSEN BOARD OF DIRECTORS
Prior to the Distribution, the ACNielsen Board of Directors will establish
Audit and Finance, Compensation, and Nominating Committees and designate
specific functions and areas of oversight as to such committees. The Audit and
Finance Committee will consist initially of Messrs. Hendrickson (Chairman),
Griffin, Meyer and Pemberton and Ms. Hendricks. The Compensation Committee will
consist initially of Messrs. Thurston (Chairman), Griffin, Hays and Pemberton.
The Nominating Committee will consist initially of Messrs. Meyer (Chairman),
Beeby, Hays, Hendrickson and Trivisonno.
ACNIELSEN EXECUTIVE OFFICERS
Listed below is certain information as to the executive officers who have
been selected to serve after the Distribution.
<TABLE>
<CAPTION>
NAME, POSITION WITH ACNIELSEN AND AGE BIOGRAPHICAL DATA
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Nicholas L. Trivisonno, 49.................... See information under "ACNielsen Board of
Chairman and Chief Executive Officer Directors."
Robert J Lievense, 50......................... See information under "ACNielsen Board of
President and Chief Operating Officer Directors."
Michael P. Connors, 41........................ See information under "ACNielsen Board of
Vice Chairman Directors."
Earl H. Doppelt, 43........................... Senior Vice President and General Counsel,
Executive Vice President and General Counsel D&B, 5/94 to present; Senior Vice President
and Deputy General Counsel, Paramount
Communications Inc. (and Viacom Inc.), 9/92 to
5/94; Vice President and Deputy General
Counsel 10/86 to 9/92.
Robert J. Chrenc, 52.......................... Executive Vice President and Chief Financial
Executive Vice President and Chief Financial Officer, ACNielsen, 6/96 to present; Partner,
Officer Arthur Andersen LLP, 1979 to 5/96.
</TABLE>
72
<PAGE> 75
COMPENSATION OF ACNIELSEN EXECUTIVE OFFICERS
The following table discloses compensation paid by D&B for services
rendered to D&B in 1995 to ACNielsen's Chief Executive Officer and to each of
the persons who are anticipated to be one of the three other most highly
compensated executive officers of ACNielsen following the Distribution. Mr.
Chrenc, Executive Vice President and Chief Financial Officer, who is anticipated
to be one of the five most highly compensated executive officers of ACNielsen
following the Distribution, was not affiliated with D&B in 1995. During the
period presented, the individuals were compensated in accordance with D&B's
plans and policies.
SUMMARY COMPENSATION TABLE
FOR SERVICE WITH D&B
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ------------------------ ----------
(E) (G)
OTHER (F) SECURITIES (H) (I)
ANNUAL RESTRICTED UNDERLYING LONG- TERM ALL OTHER
(A) (C) (D) COMPENSA- STOCK OPTIONS/ INCENTIVE COMPENSA-
NAME AND PRINCIPAL POSITION (B) SALARY BONUS(1) TION(2) AWARD(S)(3) SARS(4) PAYOUTS(5) TION(6)
WITH ACNIELSEN YEAR ($) ($) ($) ($) (#) ($) ($)
- ----------------------------- ---- ------- -------- --------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nicholas L. Trivisonno (7)... 1995 146,591 175,000 0 0 24,114 0 0
Chairman and Chief
Executive Officer
Robert J Lievense............ 1995 411,026 265,662 1,187 307,988 15,696 116,112 23,216
President and Chief
Operating Officer
Michael P. Connors (8)....... 1995 225,000 439,180 0 249,951 16,759 0 0
Vice Chairman
Earl H. Doppelt.............. 1995 340,000 446,960 0 79,992 9,411 0 5,671
Executive Vice President
and General Counsel
</TABLE>
- ---------------
(1) Bonus amounts shown were earned in 1995 and paid in 1995 and/or 1996.
(2) Amounts shown represent reimbursement for taxes paid by the named executive
officers with respect to D&B-directed spousal travel and certain other
expenses.
(3) Amounts shown represent dollar value on the date of grant. The grant to Mr.
Lievense consisted of a grant in connection with a performance unit award
of 1,149 shares which would have vested one-third in each year of the three
years following the date of the award and an additional grant with respect
to a promotion during 1995 of 4,807 shares which will vest 100% two years
following the date of the award. The grants to Messrs. Connors and Doppelt
consisted of grants made in accordance with the terms of their employment.
Mr. Connors received two grants, one for 3,846 shares which would have
vested 50% in each of the two years following the date of the award and a
second grant for 854 shares which would have vested 100% one year following
the date of the award. Mr. Doppelt received a grant for 1,584 shares which
would have vested one-third in each of the three years following the date
of the award. Dividends are paid at the rate established from time to time
for D&B Common Stock. In addition, the number and value of the aggregate
restricted stock holdings of the named executive officers at December 31,
1995 were: Mr. Lievense -- 8,711 shares ($564,038); Mr. Connors -- 4,700
($304,325) and Mr. Doppelt -- 6,917 shares ($447,876). Notwithstanding the
original vesting schedules, all restricted stock will vest as of the
Distribution.
(4) Amounts shown represent the number of non-qualified stock options, without
tandem stock appreciation rights.
(5) Amount shown represents a payment made under the D&B Key Employees
Performance Unit Plan.
(6) Amounts shown represent aggregate Company contributions for the account of
each named executive officer under the D&B Profit Participation Plan
("PPP") and the D&B Profit Participation Benefit Equalization Plan
("PPBEP"), plans which are open to employees of D&B and certain
subsidiaries upon completion of one year of service. The PPP is a
tax-qualified defined contribution plan and the PPBEP is a non-qualified
plan which provides a benefit to participants in the PPP equal to the
amount of Company
73
<PAGE> 76
contributions that would have been made to the participant's PPP account
but for certain Federal tax laws.
(7) The salary and bonus for Mr. Trivisonno represents the amount earned from
his date of employment, September 5, 1995.
(8) The salary for Mr. Connors represents the amount earned from his date of
employment, April 3, 1995.
OPTION GRANTS ON D&B COMMON STOCK TO ACNIELSEN EXECUTIVES IN LAST FISCAL YEAR
The following table provides information on fiscal year 1995 grants of
options to the named ACNielsen executives to purchase shares of D&B Common
Stock. Options to acquire D&B Common Stock will be replaced by options to
acquire ACNielsen Common Stock. See "Relationship Among D&B, Cognizant and
ACNielsen After the Distribution -- Employee Benefits Agreement". For a
discussion of contemplated option grants, see "Contemplated Option Grants"
below.
OPTION GRANTS IN LAST FISCAL YEAR TO PURCHASE D&B COMMON STOCK
<TABLE>
<CAPTION>
(B)
NUMBER OF (C)
SECURITIES % OF TOTAL (D) (F)
UNDERLYING OPTIONS/SARS EXERCISE GRANT DATE
OPTIONS/SARS GRANTED TO OR BASE (E) PRESENT
(A) GRANTED(1) EMPLOYEES IN PRICE EXPIRATION VALUE(2)
NAME (#) FISCAL YEAR ($/SHARE) DATE ($)
- ---------------------------------- ------------- ------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Nicholas L. Trivisonno............ 11,294 1.32% 63.75 12/19/05 104,244
12,820 58.50 09/19/05 101,919
Robert J Lievense................. 12,235 0.86% 63.75 12/19/05 112,929
3,461 52.00 04/18/05 24,435
Michael P. Connors................ 7,529 0.92% 63.75 12/19/05 69,493
9,230 52.00 04/18/05 65,164
Earl H. Doppelt................... 9,411 0.52% 63.75 12/19/05 86,864
</TABLE>
- ---------------
(1) Amounts shown represent the number of non-qualified stock options, without
tandem stock appreciation rights ("SARs"), granted in 1995. Options may not
be exercised for at least one year after grant and may then be exercised in
installments of 25% of the grant amount each year until they are 100%
vested. Payment must be made in full upon exercise in cash or Common Stock.
The option holder may elect to have shares of D&B Common Stock issuable
upon exercise withheld by D&B to pay withholding taxes due. The options
shown include Limited SARs in tandem with the options. Limited SARs are
exercisable only if and to the extent that the related option is
exercisable and are exercisable only during the 30-day period following the
acquisition of at least 20% of the outstanding D&B Common Stock pursuant to
a tender or exchange offer not made by D&B. Each Limited SAR permits the
holder to receive cash equal to the excess over the related option exercise
price of the highest price paid pursuant to a tender or exchange offer for
D&B Common Stock which is in effect at any time during the 60 days
preceding the date upon which the Limited SAR is exercised. Limited SARs
can be exercised regardless of whether D&B supports or opposes the offer.
(2) Grant date present value is based on the Black-Scholes option valuation
model, which makes the following material assumptions for the April 19,
1995 grant, the September 20, 1995 grant and the December 20, 1995 grant,
respectively: an expected stock-price volatility factor of 15.006%, 15.455%
and 15.911%, a risk-free rate of return of 7.06%, 6.20% and 5.93%,
dividends at the annualized rate of $2.60, $2.64 and $2.64 per share, a
time of exercise of ten years, and reduction of approximately 9.73% to
reflect the probability of forfeiture due to termination prior to vesting
and approximately 10.47%, 10.55% and 11.24% to reflect the probability of a
shortened option term due to termination of employment prior to the option
expiration date. These assumptions may or may not be fulfilled. The
ultimate values of the options will depend on the future market price of
D&B's stock which cannot be forecast with reasonable accuracy. The actual
value, if any, an optionee will realize upon exercise of an option will
depend on the excess of the market value of D&B's Common Stock over the
exercise price on the date the option is exercised.
74
<PAGE> 77
AGGREGATE D&B OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL-YEAR END D&B
OPTION VALUES
The following table provides information on option exercises in 1995 by the
named executives of ACNielsen and the value of each such executive's unexercised
options to acquire D&B Common Stock at December 31, 1995. See also,
"Relationship Among D&B, Cognizant and ACNielsen After the
Distribution -- Employee Benefits Agreement."
AGGREGATE D&B OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
(D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
(B) UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES (C) D&B OPTIONS/SARS AT D&B OPTIONS/SARS AT
ACQUIRED ON VALUE FISCAL YEAR-END(2)(#) FISCAL YEAR-END(3)($)
(A) EXERCISE REALIZED(1) --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas L. Trivisonno...... 0 0 0 24,114 0 91,419
Robert J Lievense........... 0 0 28,828 32,271 341,838 179,569
Michael P. Connors.......... 0 0 0 16,759 0 125,212
Earl H. Doppelt............. 0 0 9,638 38,332 88,172 273,992
</TABLE>
- ---------------
(1) Amounts shown represent the value realized upon the exercise of stock
options during 1995, which equals the difference between the exercise price
of the options and the closing market price of the underlying Common Stock
on the date preceding the exercise date.
(2) No SARs were outstanding at December 31, 1995.
(3) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the closing market price of the
underlying Common Stock at December 29, 1995. Options are in-the-money if
the fair market value of the Common Stock exceeds the exercise price of the
option.
LONG-TERM D&B INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F)
PERFORMANCE
OR OTHER
PERIOD UNTIL ESTIMATED FUTURE PAYOUTS
NO. OF MATURATION UNDER NON-STOCK PRICE-BASED PLANS(2)
SHARES, UNITS OR PAYOUT -------------------------------------
OR OTHER ------------ THRESHOLD($) TARGET($) MAXIMUM($)
NAME RIGHTS(1)($) (0%) (100%) (200%)
- ------------------------------------ ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Nicholas L. Trivisonno.............. 0 N/A N/A N/A N/A
Robert J Lievense................... 120,000 Three Years 0 120,000 240,000
Michael P. Connors.................. 320,000 Three Years 0 320,000 640,000
Earl H. Doppelt..................... 0 N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Amounts shown represent the nominal dollar value of grants under the D&B
Performance Unit Plan to Mr. Lievense with respect to a promotion during
1995 and to Mr. Connors with respect to the terms of his employment. In
connection with the Distribution, the three-year performance unit grant
that otherwise would have been made to the named executive officers in 1995
was converted into a one-year cash award that is not included in this table
because it is not a "long-term" award as defined by the Securities and
Exchange Commission.
(2) Awards may range from 0 to 200% of the nominal grant value based on
achievements within a range of performance goals.
75
<PAGE> 78
D&B RETIREMENT BENEFITS
The following table sets forth the estimated aggregate annual benefits
payable under the D&B Retirement Plan, D&B's Supplemental Executive Benefit Plan
and Pension Benefit Equalization Plan to persons in specified average final
compensation and credited service classifications upon retirement at age 65.
Amounts shown in the table include U.S. Social Security benefits which would be
deducted in calculating benefits payable under these plans. These aggregate
annual retirement benefits do not increase as a result of additional credited
service after 15 years.
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE ANNUAL D&B RETIREMENT
BENEFIT ASSUMING CREDITED SERVICE OF:
AVERAGE FINAL --------------------------------------------------------------
COMPENSATION FROM D&B 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 550,000............................ $ 330,000 $ 330,000 $ 330,000 $ 330,000 $ 330,000
700,000........................... 420,000 420,000 420,000 420,000 420,000
850,000........................... 510,000 510,000 510,000 510,000 510,000
1,000,000........................... 600,000 600,000 600,000 600,000 600,000
1,300,000........................... 780,000 780,000 780,000 780,000 780,000
1,600,000........................... 960,000 960,000 960,000 960,000 960,000
1,900,000........................... 1,140,000 1,140,000 1,140,000 1,140,000 1,140,000
</TABLE>
The number of years of credited service for Messrs. Trivisonno, Lievense,
Connors and Doppelt are, respectively, zero, six, zero and one.
Compensation, for the purpose of determining retirement benefits, consists
of salary, wages, cash bonuses, commissions and overtime pay. Severance pay,
contingent payments and other forms of special remuneration are excluded.
Bonuses included in the Summary Compensation Table above are not paid until the
year following the year in which they are accrued and expensed; therefore,
compensation for purposes of determining retirement benefits varies from the
Summary Compensation Table amounts in that bonuses expensed in the previous year
but paid in the current year are part of retirement compensation in the current
year and current year's bonuses accrued and included in the Summary Compensation
Table are not. For 1995, compensation for purposes of determining retirement
benefits for the named executive officers differed by less than 10% from the
amounts shown in the table except that compensation for 1995 for purposes of
determining retirement benefits for Messrs. Trivisonno, Connors and Doppelt was
$0, $0 and $540,000, respectively.
Average final compensation is defined as the highest average annual
compensation during five consecutive twelve-month periods in the last ten
consecutive twelve-month periods of the member's credited service. Members vest
in their accrued retirement benefit upon completion of five years' service. The
benefits shown in the table above are calculated on a straight-life annuity
basis.
LIMITED SARS
D&B Limited SARs held by ACNielsen executive officers will be converted
into Limited SARs of ACNielsen which will have the terms described for D&B
Limited SARs in footnote 1 under the caption "Option Grants on D&B Common Stock
to ACNielsen Executives in Last Fiscal Year" above. See "Relationship Among D&B,
Cognizant and ACNielsen After the Distribution -- Employee Benefits Agreement."
CONTEMPLATED OPTION GRANTS
The D&B Board of Directors has approved a program under which certain
ACNielsen executive officers and senior management will receive options pursuant
to grants by the ACNielsen Compensation Committee having an exercise price per
share equal to the fair market value per share of ACNielsen Common Stock on the
date of grant. Options granted upon conversion of unexercised D&B stock options
(see "Relationship Among D&B, Cognizant and ACNielsen After the
Distribution -- Employee Benefits Agreement") and new option grants will
represent a number of shares equal to approximately 5.5% and 9.0%, respectively,
of the anticipated number of outstanding shares (assuming no exercise of the
unexercised D&B stock options). Pursuant to the program, it is anticipated that
no new grants will be made to executive officers for three years.
76
<PAGE> 79
ACNIELSEN SECURITY OWNERSHIP BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All the outstanding shares of ACNielsen Common Stock are currently held by
D&B. The following table sets forth information concerning shares of ACNielsen
Common Stock that are expected to be beneficially owned after the Distribution
by each of the ACNielsen directors, by each of the executive officers named in
the ACNielsen Summary Compensation Table, by all such directors and executive
officers as a group and by each person known by ACNielsen to beneficially own
more than 5% of the outstanding shares of D&B Common Stock as of August 31,
1996. Stock ownership information is based on (i) the number of shares of D&B
Common Stock held by directors and executive officers as of August 31, 1996 and
includes shares of D&B restricted stock, all of which will vest prior to the
Record Date, (ii) the number of shares held by The Capital Group Companies, Inc.
and a subsidiary thereof as of December 31, 1995 and (iii) one share of
ACNielsen Common Stock being distributed for every three shares of D&B Common
Stock. See "The Distribution" and "ACNielsen Management and Executive
Compensation -- Compensation of ACNielsen Executive Officers". Information
regarding shares subject to options reflects shares of D&B Common Stock subject
to options as of August 31, 1996 and exercisable within 60 days thereafter, all
of which will be converted into options that are exercisable into shares of
ACNielsen Common Stock. See "Relationship Among D&B, Cognizant and ACNielsen
After the Distribution -- Employee Benefits Agreement". All directors and
executive officers as a group beneficially owned less than one percent of the
outstanding shares of D&B Common Stock on August 31, 1996 and are expected to
beneficially own less than one percent of the shares of ACNielsen Common Stock
outstanding as of the Distribution Date.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
OPTIONS
NUMBER OF SHARES EXERCISABLE
BENEFICIALLY WITHIN 60
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) DAYS(2)(3)
- ------------------------------------------------------ ------------------- ----------------
<S> <C> <C>
Robert H. Beeby....................................... -- --
Robert J. Chrenc...................................... -- --
Michael P. Connors.................................... 1,566 769
Earl H. Doppelt....................................... 1,782 5,500
Donald W. Griffin..................................... -- --
Thomas C. Hays........................................ -- --
Karen L. Hendricks.................................... -- --
Robert M. Hendrickson................................. -- --
Robert J Lievense(4).................................. 1,971 6,137
John R. Meyer......................................... 1,133 --
Brian B. Pemberton.................................... -- --
Robert N. Thurston.................................... -- --
Nicholas L. Trivisonno................................ -- 1,068
All Directors and Executive Officers as a Group....... 6,452 13,474
The Capital Group Companies, Inc. and its subsidiary,
Capital Research and Management Company
333 South Hope Street,
Los Angeles, CA 90071............................... 4,953,266(5)(6) --
</TABLE>
- ---------------
(1) The mailing address for each of the ACNielsen directors and executive
officers listed herein is 177 Broad Street, Stamford, Connecticut 06901.
(2) As of August 31, 1996.
(3) Represents the number of shares of ACNielsen Common Stock which would be
obtained in the Distribution if the D&B stock options were exercised prior
to the Record Date. Unexercised D&B stock options held by ACNielsen
employees as of the Distribution Date will be converted into options that
are exercisable into shares of ACNielsen Common Stock based upon a
conversion formula to be calculated after the Distribution Date. See
"Relationship Among D&B, Cognizant and ACNielsen After the
Distribution -- Employee Benefits Agreement".
(4) Includes 100 shares held in the Robert J Lievense IRA.
77
<PAGE> 80
(5) Represents 8.31% of the shares of ACNielsen Common Stock expected to be
outstanding as of the Distribution Date based on one share of ACNielsen
Common Stock being distributed for every three shares of D&B Common Stock
held on the Record Date and assuming (i) no change in the number of
outstanding shares of D&B Common Stock from August 31, 1996 to the Record
Date, (ii) all outstanding D&B stock options are exercised prior to the
Record Date and (iii) no change in the number of shares of D&B Common Stock
beneficially held by such persons between December 31, 1995 and the Record
Date.
(6) CGCI and its wholly-owned subsidiary, CRMC, jointly filed a Schedule 13G
with the SEC on February 9, 1996 with respect to D&B Common Stock. This
Schedule 13G shows that CRMC, a registered investment adviser, had, as of
December 31, 1995, sole dispositive power (but no voting power) over
12,389,000 shares of D&B Common Stock. Because of the SEC's ownership
attribution rules, the Schedule 13G also shows CGCI as having sole
dispositive power over such shares, as well as sole voting and dispositive
power over an additional 1,101,000 shares and sole dispositive power (but no
voting power) over a further 1,369,800 shares.
78
<PAGE> 81
DESCRIPTION OF COGNIZANT CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that Cognizant has
authority to issue under its Restated Certificate of Incorporation is
420,000,000 shares of which 400,000,000 shares represent shares of Cognizant
Common Stock, 10,000,000 shares represent shares of Preferred Stock (the
"Cognizant Preferred Stock") and 10,000,000 shares represent shares of Series
Common Stock (the "Cognizant Series Common Stock"). Based on shares of
D&B Common Stock outstanding as of October , 1996, and a distribution ratio of
one share of Cognizant Common Stock for every one share of D&B Common Stock,
approximately shares of Cognizant Common Stock would be distributed to
holders of D&B Common Stock on the Distribution Date.
COGNIZANT COMMON STOCK
Subject to any preferential rights of any Cognizant Preferred Stock or
Cognizant Series Common Stock created by the Board of Directors of Cognizant,
each outstanding share of Cognizant Common Stock will be entitled to such
dividends, if any, as may be declared from time to time by the Board of
Directors of Cognizant. See "Dividend Policy -- Cognizant Dividend Policy". Each
outstanding share is entitled to one vote on all matters submitted to a vote of
stockholders. In the event of liquidation, dissolution or winding up of
Cognizant, holders of Cognizant Common Stock are entitled to receive on a pro
rata basis any assets remaining after provision for payment of creditors and
after payment of any liquidation preferences to holders of Cognizant Preferred
Stock and Cognizant Series Common Stock.
COGNIZANT PREFERRED STOCK AND COGNIZANT SERIES COMMON STOCK
Each of the authorized Preferred Stock and the authorized Series Common
Stock of Cognizant is available for issuance from time to time in one or more
series at the discretion of the Cognizant Board of Directors without stockholder
approval. The Cognizant Board of Directors has the authority to prescribe for
each series of Cognizant Preferred Stock or Cognizant Series Common Stock it
establishes the number of shares in that series, the voting rights (if any) to
which such shares in that series are entitled, the consideration for such shares
in that series and the designations, powers, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations or restrictions of the shares in that series. Depending upon the
rights of such Preferred Stock or Series Common Stock, as applicable, the
issuance of Cognizant Preferred Stock or Cognizant Series Common Stock, as
applicable, could have an adverse effect on holders of Cognizant Common Stock by
delaying or preventing a change in control of Cognizant, making removal of the
present management of Cognizant more difficult or resulting in restrictions upon
the payment of dividends and other distributions to the holders of Cognizant
Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the NYSE, which would
apply so long as the Cognizant Common Stock remained listed on the NYSE, require
stockholder approval of certain issuances equal to or exceeding 20% of the then
outstanding voting power or then outstanding number of shares of Cognizant
Common Stock. These additional shares may be used for a variety of corporate
purposes, including future public offerings to raise additional capital or to
facilitate corporate acquisitions. Cognizant currently does not have any plans
to issue additional shares of Cognizant Common Stock, Cognizant Preferred Stock
or Cognizant Series Common Stock other than in connection with employee
compensation plans. See, however, "Certain Considerations -- Considerations
Relevant to Cognizant -- Acquisitions."
One of the effects of the existence of unissued and unreserved Cognizant
Common Stock, Cognizant Preferred Stock and Cognizant Series Common Stock may be
to enable the Board of Directors of Cognizant to issue shares to persons
friendly to current management, which issuance could render more difficult or
discourage an attempt to obtain control of Cognizant by means of a merger,
tender offer, proxy contest or
79
<PAGE> 82
otherwise, and thereby protect the continuity of Cognizant's management and
possibly deprive the stockholders of opportunities to sell their shares of
Cognizant Common Stock at prices higher than prevailing market prices. Such
additional shares also could be used to dilute the stock ownership of persons
seeking to obtain control of Cognizant pursuant to the operation of the
Cognizant Rights Plan, which is discussed below.
COGNIZANT RIGHTS PLAN
On October , 1996 the Board of Directors of Cognizant declared a dividend
of one preferred share purchase right (a "Cognizant Right") for each outstanding
share of Cognizant Common Stock. The dividend was payable on October , 1996
(the "Cognizant Record Date") to D&B, which was the sole stockholder of record
on the Cognizant Record Date. Each Cognizant Right entitles the registered
holder to purchase from Cognizant one one-thousandth of a share of Series A
Junior Participating Cognizant Preferred Stock, par value $.01 per share (the
"Cognizant Preferred Stock"), of Cognizant at a price of $ per one one-
thousandth of a share of Cognizant Preferred Stock (as the same may be adjusted,
hereinafter referred to as the "Purchase Price"), subject to adjustment. The
description and terms of the Cognizant Rights are set forth in a Cognizant
Rights Agreement dated as of October , 1996, as the same may be amended from
time to time (the "Cognizant Rights Agreement"), between Cognizant and First
Chicago Trust Company, as the Cognizant Rights Agent (the "Cognizant Rights
Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, hereinafter referred to in this description of Cognizant Rights, an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding shares of Cognizant Common Stock or (ii) 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
shares of Cognizant Common Stock (the earlier of such dates hereinafter referred
to in this description of Cognizant Rights as the "Rights Distribution Date"),
the Cognizant Rights will be evidenced by the certificates representing
Cognizant Common Stock.
The Cognizant Rights Agreement provides that, until the Rights Distribution
Date (or earlier redemption or expiration of the Cognizant Rights), the
Cognizant Rights will be transferred with and only with the Cognizant Common
Stock. Until the Rights Distribution Date (or earlier redemption or expiration
of the Cognizant Rights), Cognizant Common Stock certificates will contain a
notation incorporating the Cognizant Rights Agreement by reference. Until the
Rights Distribution Date (or earlier redemption or expiration of the Cognizant
Rights), the surrender for transfer of any certificates for shares of Cognizant
Common Stock will also constitute the transfer of the Cognizant Rights
associated with the shares of Cognizant Common Stock represented by such
certificate. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the Cognizant Rights ("Cognizant Right
Certificates") will be mailed to holders of record of the Cognizant Common Stock
as of the close of business on the Rights Distribution Date and such separate
Cognizant Right Certificates alone will evidence the Cognizant Rights.
The Cognizant Rights are not exercisable until the Rights Distribution
Date. The Cognizant Rights will expire on October , 2006 (hereinafter referred
to in this description of Cognizant Rights as the "Final Expiration Date"),
unless the Final Expiration Date is advanced or extended or unless the Cognizant
Rights are earlier redeemed or exchanged by Cognizant, in each case as described
below.
The Purchase Price payable, and the number of shares of Cognizant Preferred
Stock or other securities or property issuable, upon exercise of the Cognizant
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Cognizant Preferred Stock, (ii) upon the grant to
holders of the Cognizant Preferred Stock of certain rights or warrants to
subscribe for or purchase Cognizant Preferred Stock at a price, or securities
convertible into Cognizant Preferred Stock with a conversion price, less than
the then-current market price of the Cognizant Preferred Stock or (iii) upon the
distribution to holders of the Cognizant Preferred Stock of evidences of
80
<PAGE> 83
indebtedness or assets (excluding regular periodic cash dividends or dividends
payable in Cognizant Preferred Stock) or of subscription rights or warrants
(other than those referred to above).
The Cognizant Rights are also subject to adjustment in the event of a stock
dividend on the Cognizant Common Stock payable in shares of Cognizant Common
Stock or subdivisions, consolidations or combinations of the Cognizant Common
Stock occurring, in any such case, prior to the Distribution Date.
Shares of Cognizant Preferred Stock purchasable upon exercise of the
Cognizant Rights will not be redeemable. Each share of Cognizant Preferred Stock
will be entitled, when, as and if declared, to a minimum preferential quarterly
dividend payment of $1 per share but will be entitled to an aggregate dividend
of 1,000 times the dividend declared per share of Cognizant Common Stock. In the
event of liquidation, dissolution or winding up of Cognizant, the holders of the
Cognizant Preferred Stock will be entitled to a minimum preferential liquidation
payment of $100 per share (plus any accrued but unpaid dividends) but will be
entitled to an aggregate payment of 1,000 times the payment made per share of
Cognizant Common Stock. Each share of Cognizant Preferred Stock will have 1,000
votes, voting together with the Cognizant Common Stock. Finally, in the event of
any merger, consolidation or other transaction in which shares of Cognizant
Common Stock are converted or exchanged, each share of Cognizant Preferred Stock
will be entitled to receive 1,000 times the amount received per share of
Cognizant Common Stock. These rights are protected by customary antidilution
provisions.
Because of the nature of the Cognizant Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
share of Cognizant Preferred Stock purchasable upon exercise of each Cognizant
Right should approximate the value of one share of Cognizant Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Cognizant Right, other than
Cognizant Rights beneficially owned by the Acquiring Person (which will
thereupon become void), will thereafter have the right to receive upon exercise
of a Cognizant Right and payment of the Purchase Price, that number of shares of
Cognizant Common Stock having a market value of two times the Purchase Price.
In the event that, after a person or group has become an Acquiring Person,
Cognizant is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Cognizant Right (other than
Cognizant Rights beneficially owned by an Acquiring Person which will have
become void) will thereafter have the right to receive, upon the exercise
thereof, that number of shares of common stock of the person with whom Cognizant
has engaged in the foregoing transaction (or its parent), which number of shares
at the time of such transaction will have a market value of two times the
Purchase Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Cognizant Common Stock or the occurrence of an event described in the
prior paragraph, the Board of Directors of Cognizant may exchange the Cognizant
Rights (other than Cognizant Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one share of
Cognizant Common Stock, or a fractional share of Cognizant Preferred Stock of
equivalent value (or of a share of a class or series of Cognizant's preferred
stock having similar rights, preferences and privileges), per Cognizant Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Cognizant Preferred Stock will be
issued (other than fractions which are integral multiples of one one-thousandth
of a share of Cognizant Preferred Stock, which may, at the election of
Cognizant, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the Cognizant
Preferred Stock on the last trading day prior to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of Cognizant may redeem the Cognizant Rights in whole, but not in
part, at a price of $.01 per Cognizant Right (hereinafter referred to in this
description of Cognizant Rights as the "Redemption Price"). The redemption of
the Cognizant Rights may be made effective at such time, on such basis and with
such conditions as the Board of
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Directors in its sole discretion may establish. Immediately upon any redemption
of the Cognizant Rights, the right to exercise the Cognizant Rights will
terminate and the only right of the holders of Cognizant Rights will be to
receive the Redemption Price.
For so long as the Cognizant Rights are then redeemable, Cognizant may,
except with respect to the redemption price, amend the Cognizant Rights in any
manner. After the Cognizant Rights are no longer redeemable, Cognizant may,
except with respect to the redemption price, amend the Cognizant Rights in any
manner that does not adversely affect the interests of holders of the Cognizant
Rights.
Until a Cognizant Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of Cognizant, including, without limitation, the
right to vote or to receive dividends.
A copy of the Cognizant Rights Agreement has been filed as an Exhibit to
the Registration Statement on Form 10 of Cognizant in respect of the
registration of the Cognizant Common Stock under the Exchange Act. A copy of the
Cognizant Rights Agreement is available free of charge from Cognizant. The
summary description of the Cognizant Rights set forth above does not purport to
be complete and is qualified in its entirety by reference to the Cognizant
Rights Agreement, as the same may be amended from time to time, which is hereby
incorporated herein by reference.
CERTAIN EFFECTS OF THE COGNIZANT RIGHTS AGREEMENT
The Cognizant Rights Agreement is designed to protect stockholders of
Cognizant in the event of unsolicited offers to acquire Cognizant and other
coercive takeover tactics which, in the opinion of the Board of Directors of
Cognizant, could impair its ability to represent stockholder interests. The
provisions of the Cognizant Rights Agreement may render an unsolicited takeover
of Cognizant more difficult or less likely to occur or might prevent such a
takeover, even though such takeover may offer Cognizant's stockholders the
opportunity to sell their stock at a price above the prevailing market rate and
may be favored by a majority of the stockholders of Cognizant.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of Cognizant authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
Cognizant of any kind or class.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the DGCL apply to Cognizant since it is a
Delaware corporation. Pursuant to Section 203, with certain exceptions, a
Delaware corporation may not engage in any of a broad range of business
combinations, such as mergers, consolidations and sales of assets, with an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless (a) the transaction that results
in the person's becoming an interested stockholder or the business combination
is approved by the board of directors of the corporation before the person
becomes an interested stockholder, (b) upon consummation of the transaction
which results in the stockholder becoming an interested stockholder, the
interested stockholder owns 85% or more of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares owned by
persons who are directors and also officers and shares owned by certain employee
stock plans or (c) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by holders of at least two-thirds of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder, at a meeting
of stockholders. Under Section 203, an "interested stockholder" is defined as
any person, other than the corporation and any direct or indirect majority-owned
subsidiary, that is (a) the owner of 15% or more of the outstanding voting stock
of the corporation or (b) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
Section 203 does not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding shares, but such stockholder action does not become effective for 12
months following its adoption and would not apply to
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persons who were already interested stockholders at the time of the amendment.
Cognizant's Restated Certificate of Incorporation does not exclude Cognizant
from the restrictions imposed under Section 203.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring Cognizant to
negotiate in advance with Cognizant's Board of Directors, because the
stockholder approval requirement would be avoided if the Board of Directors
approves either the business combination or the transaction which results in the
stockholder becoming an interested stockholder. Such provisions also may have
the effect of preventing changes in the Board of Directors of Cognizant. It is
further possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
PROVISIONS OF COGNIZANT RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND
RESTATED BY-LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the Cognizant Restated Certificate of Incorporation
and Amended and Restated By-laws may delay or make more difficult unsolicited
acquisitions or changes of control of Cognizant. It is believed that such
provisions will enable Cognizant to develop its business in a manner that will
foster its long-term growth without disruption caused by the threat of a
takeover not deemed by its Board of Directors to be in the best interests of
Cognizant and its stockholders. Such provisions could have the effect of
discouraging third parties from making proposals involving an unsolicited
acquisition or change of control of Cognizant, although such proposals, if made,
might be considered desirable by a majority of Cognizant's stockholders. Such
provisions may also have the effect of making it more difficult for third
parties to cause the replacement of the current Board of Directors of Cognizant.
These provisions include (i) the availability of capital stock for issuance from
time to time at the discretion of the Board of Directors (see "-- Authorized but
Unissued Capital Stock"), (ii) prohibitions against stockholders calling a
special meeting of stockholders or acting by written consent in lieu of a
meeting, (iii) requirements for advance notice for raising business or making
nominations at stockholders' meetings, (iv) the ability of the Board of
Directors to increase the size of the board and to appoint directors to newly
created directorships, (v) a classified Board of Directors and (vi) higher than
majority requirements to make certain amendments to the By-laws and Certificate
of Incorporation. These provisions are present in the Restated Certificate of
Incorporation or Amended and Restated By-laws of Cognizant.
No Stockholder Action by Written Consent; Special Meetings
The Cognizant Restated Certificate of Incorporation and Amended and
Restated By-laws provide that stockholder action can be taken only at an annual
or special meeting and cannot be taken by written consent in lieu of a meeting.
The Cognizant Restated Certificate of Incorporation and Amended and Restated
By-laws also provide that special meetings of the stockholders can be called
only by the Chief Executive Officer of Cognizant or by a vote of the majority of
the Board of Directors. Furthermore, the By-laws of Cognizant provide that only
such business as is specified in the notice of any such special meeting of
stockholders may come before such meeting.
Advance Notice for Raising Business or Making Nominations at Meetings
The By-laws of Cognizant establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of stockholders and
for nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Chairman of the Board
of Directors, or by a stockholder of Cognizant who is entitled to vote at the
meeting who has given to the Secretary of Cognizant timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. The chairman of such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of, the
Chairman of the Board of Directors, or who are nominated by a stockholder who
has given timely written notice, in proper form, to the
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Secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors of Cognizant.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of Cognizant at the principal
executive offices of Cognizant not less than 70 days nor more than 90 days prior
to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 70 days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice shall be delivered to the Secretary of Cognizant at
the principal executive offices of Cognizant not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of Cognizant held by,
the stockholder who intends to make the nomination and the beneficial owner, if
any, on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of Cognizant entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; such other information regarding
each nominee proposed by such stockholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and the consent of each nominee to serve as a director if so elected.
Number of Directors; Filling of Vacancies; Removal
The Cognizant Restated Certificate of Incorporation and Amended and
Restated By-laws provide that newly created directorships resulting from any
increase in the authorized number of directors (or any vacancy) may be filled by
a vote of a majority of directors then in office. Accordingly, the Board of
Directors of Cognizant may be able to prevent any stockholder from obtaining
majority representation on the Board of Directors by increasing the size of the
board and filling the newly created directorships with its own nominees. If any
applicable provision of the DGCL expressly confers power on stockholders to fill
such a directorship at a special meeting of stockholders, such a directorship
may be filled at such meeting only by the affirmative vote of at least 80% in
voting power of all shares of Cognizant entitled to vote generally in the
election of directors, voting as a single class. Directors may be removed only
for cause, and only by the affirmative vote of at least 80% in voting power of
all shares of Cognizant entitled to vote generally in the election of directors,
voting as a single class.
Classified Board of Directors
The Cognizant Restated Certificate of Incorporation provides for
Cognizant's Board of Directors to be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one third of
Cognizant's Board of Directors will be elected each year. See "Cognizant
Management and Executive Compensation -- Cognizant Board of Directors."
Cognizant believes that a classified board will help to assure the
continuity and stability of its Board of Directors, and its business strategies
and policies as determined by its Board, because a majority of the directors at
any given time will have prior experiences as directors of Cognizant. This
provision should also
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help to ensure that Cognizant's Board of Directors, if confronted with an
unsolicited proposal from a third party that has acquired a block of Cognizant's
voting stock, will have sufficient time to review the proposal and appropriate
alternatives and to seek the best available result for all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of Cognizant's Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling stock interest, could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of Cognizant and could thus increase the likelihood
that incumbent directors will retain their positions.
Amendments to the Amended and Restated By-laws
The Cognizant Restated Certificate of Incorporation provides that the
affirmative vote of the holders of at least 80% in voting power of all the
shares of Cognizant entitled to vote generally in the election of directors,
voting together as a single class, shall be required in order for the
stockholders to alter, amend or repeal any provision of the Amended and Restated
By-laws which is to the same effect as provisions contained in the Restated
Certificate of Incorporation relating to (i) the amendment of the Amended and
Restated By-laws, (ii) the classified Board of Directors and the filling of
director vacancies and (iii) calling and taking actions at meetings of
stockholders.
Amendments to the Restated Certificate of Incorporation
The Cognizant Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 80% in voting power of all the
shares of Cognizant entitled to vote generally in the election of directors,
voting together as a single class, to alter, amend or repeal provisions of the
Restated Certificate of Incorporation relating to (i) the amendment of the
Restated Certificate of Incorporation and/or the Amended and Restated By-laws,
(ii) the classified Board of Directors and the filling of director vacancies and
(iii) calling and taking actions at meetings of stockholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
The Cognizant Restated Certificate of Incorporation provides that Cognizant
shall indemnify directors and officers to the fullest extent permitted by the
laws of the State of Delaware. The Cognizant Restated Certificate of
Incorporation also provides that a director of Cognizant shall not be liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended.
The indemnification rights conferred by the Restated Certificate of
Incorporation of Cognizant are not exclusive of any other right to which a
person seeking indemnification may otherwise be entitled. Cognizant will also
provide liability insurance for the directors and officers for certain losses
arising from claims or charges made against them while acting in their
capacities as directors or officers.
DESCRIPTION OF ACNIELSEN CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that ACNielsen has
authority to issue under its Restated Certificate of Incorporation is
160,000,000 shares of which 150,000,000 represent shares of ACNielsen Common
Stock, 5,000,000 represent shares of Preferred Stock (the "ACNielsen Preferred
Stock") and 5,000,000 shares represent shares of Series Common Stock (the
"ACNielsen Series Common Stock"). Based on shares of D&B Common Stock
outstanding as of October , 1996, and a distribution ratio of one share of
ACNielsen Common Stock for every three shares of D&B Common Stock, approximately
shares of ACNielsen Common Stock would be distributed to holders of
D&B Common Stock on the Distribution Date.
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ACNIELSEN COMMON STOCK
Subject to any preferential rights of any ACNielsen Preferred Stock or
ACNielsen Series Common Stock created by the Board of Directors of ACNielsen,
each outstanding share of ACNielsen Common Stock will be entitled to such
dividends as may be declared from time to time by the Board of Directors of
ACNielsen. See "Dividend Policy -- ACNielsen Dividend Policy". Each outstanding
share is entitled to one vote on all matters submitted to a vote of
stockholders. In the event of liquidation, dissolution or winding up of
ACNielsen, holders of ACNielsen Common Stock will be entitled to receive on a
pro rata basis any assets remaining after provision for payment of creditors and
after payment of any liquidation preferences to holders of ACNielsen Preferred
Stock and ACNielsen Series Common Stock.
ACNIELSEN PREFERRED STOCK AND ACNIELSEN SERIES COMMON STOCK
Each of the authorized Preferred Stock and the authorized Series Common
Stock of ACNielsen is available for issuance from time to time in one or more
series at the discretion of the ACNielsen Board of Directors without stockholder
approval. The ACNielsen Board of Directors has the authority to prescribe for
each series of ACNielsen Preferred Stock or ACNielsen Series Common Stock it
establishes the number of shares in that series, the voting rights (if any) to
which such shares in that series are entitled, the consideration for such shares
in that series and the designations, powers, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations or restrictions of the shares in that series. Depending upon the
rights of such Preferred Stock or Series Common Stock, as applicable, the
issuance of ACNielsen Preferred Stock or ACNielsen Series Common Stock, as
applicable, could have an adverse effect on holders of ACNielsen Common Stock by
delaying or preventing a change in control of ACNielsen, making removal of the
present management of ACNielsen more difficult or resulting in restrictions upon
the payment of dividends and other distributions to the holders of ACNielsen
Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the NYSE, which would
apply so long as the ACNielsen Common Stock remained listed on the NYSE, require
stockholder approval of certain issuances that equal or exceed 20% of the then
outstanding voting power or then outstanding number of shares of Common Stock of
ACNielsen. These additional shares may be used for a variety of corporate
purposes, including future public offerings to raise additional capital or to
facilitate corporate acquisitions. ACNielsen currently does not have any plans
to issue additional shares of ACNielsen Common Stock, ACNielsen Preferred Stock
or ACNielsen Series Common Stock other than in connection with employee
compensation plans.
One of the effects of the existence of unissued and unreserved ACNielsen
Common Stock, ACNielsen Preferred Stock and ACNielsen Series Common Stock may be
to enable the Board of Directors of ACNielsen to issue shares to persons
friendly to current management, which issuance could render more difficult or
discourage an attempt to obtain control of ACNielsen by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
ACNielsen's management and possibly deprive the stockholders of opportunities to
sell their shares of ACNielsen Common Stock at prices higher than prevailing
market prices. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of ACNielsen pursuant to the
operation of the ACNielsen Rights Plan, which is discussed below.
ACNIELSEN RIGHTS PLAN
On October , 1996 the Board of Directors of ACNielsen declared a dividend
of one preferred share purchase right (an "ACNielsen Right") for each
outstanding share of ACNielsen Common Stock. The dividend was payable on October
, 1996 (the "ACNielsen Record Date") to D&B, which was the sole stockholder of
record on the ACNielsen Record Date. Each ACNielsen Right entitles the
registered holder to purchase from ACNielsen one one-thousandth of a share of
Series A Junior Participating ACNielsen
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Preferred Stock, par value $.01 per share (the "ACNielsen Preferred Stock"), of
ACNielsen at a price of $ per one one-thousandth of a share of
ACNielsen Preferred Stock (as the same may be adjusted, hereinafter referred to
as the "Purchase Price"), subject to adjustment. The description and terms of
the ACNielsen Rights are set forth in an ACNielsen Rights Agreement dated as of
October , 1996, as the same may be amended from time to time (the "ACNielsen
Rights Agreement"), between ACNielsen and First Chicago Trust Company, as the
ACNielsen Rights Agent (the "ACNielsen Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, hereinafter referred to in this description of ACNielsen Rights, an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding shares of ACNielsen Common Stock or (ii) 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
shares of ACNielsen Common Stock (the earlier of such dates hereinafter referred
to in this description of ACNielsen Rights as the "Rights Distribution Date"),
the ACNielsen Rights will be evidenced by the certificates representing
ACNielsen Common Stock.
The ACNielsen Rights Agreement provides that, until the Rights Distribution
Date (or earlier redemption or expiration of the ACNielsen Rights), the
ACNielsen Rights will be transferred with and only with the ACNielsen Common
Stock. Until the Rights Distribution Date (or earlier redemption or expiration
of the ACNielsen Rights), ACNielsen Common Stock certificates will contain a
notation incorporating the ACNielsen Rights Agreement by reference. Until the
Rights Distribution Date (or earlier redemption or expiration of the ACNielsen
Rights), the surrender for transfer of any certificates for shares of ACNielsen
Common Stock, will also constitute the transfer of the ACNielsen Rights
associated with the shares of ACNielsen Common Stock represented by such
certificate. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the ACNielsen Rights ("ACNielsen Right
Certificates") will be mailed to holders of record of the ACNielsen Common Stock
as of the close of business on the Rights Distribution Date and such separate
ACNielsen Right Certificates alone will evidence the ACNielsen Rights.
The ACNielsen Rights are not exercisable until the Rights Distribution
Date. The ACNielsen Rights will expire on October , 2006 (hereinafter referred
to in this description of ACNielsen Rights as the "Final Expiration Date"),
unless the Final Expiration Date is advanced or extended or unless the ACNielsen
Rights are earlier redeemed or exchanged by ACNielsen, in each case as described
below.
The Purchase Price payable, and the number of shares of ACNielsen Preferred
stock or other securities or property issuable, upon exercise of the ACNielsen
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the ACNielsen Preferred Stock, (ii) upon the grant to
holders of the ACNielsen Preferred Stock of certain rights or warrants to
subscribe for or purchase ACNielsen Preferred Stock at a price, or securities
convertible into ACNielsen Preferred Stock with a conversion price, less than
the then-current market price of the ACNielsen Preferred Stock or (iii) upon the
distribution to holders of the ACNielsen Preferred Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends or dividends
payable in ACNielsen Preferred Stock) or of subscription rights or warrants
(other than those referred to above).
The ACNielsen Rights are also subject to adjustment in the event of a stock
dividend on the ACNielsen Common Stock payable in shares of ACNielsen Common
Stock or subdivisions, consolidations or combinations of the ACNielsen Common
Stock occurring, in any such case, prior to the Distribution Date.
Shares of ACNielsen Preferred Stock purchasable upon exercise of the
ACNielsen Rights will not be redeemable. Each share of ACNielsen Preferred Stock
will be entitled, when, as and if declared, to a minimum preferential quarterly
dividend payment of $1 per share but will be entitled to an aggregate dividend
of 1,000 times the dividend declared per share of ACNielsen Common Stock. In the
event of liquidation, dissolution or winding up of ACNielsen, the holders of the
ACNielsen Preferred Stock will be entitled to a minimum preferential liquidation
payment of $100 per share (plus any accrued but unpaid dividends) but will be
entitled to an aggregate payment of 1,000 times the payment made per share of
ACNielsen Common
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Stock. Each share of ACNielsen Preferred Stock will have 1,000 votes, voting
together with the ACNielsen Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of ACNielsen Common Stock are
converted or exchanged, each share of ACNielsen Preferred Stock will be entitled
to receive 1,000 times the amount received per share of ACNielsen Common Stock.
These rights are protected by customary antidilution provisions.
Because of the nature of the ACNielsen Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
share of ACNielsen Preferred Stock purchasable upon exercise of each ACNielsen
Right should approximate the value of one share of ACNielsen Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of an ACNielsen Right, other than
ACNielsen Rights beneficially owned by the Acquiring Person (which will
thereupon become void), will thereafter have the right to receive upon exercise
of an ACNielsen Right and payment of the Purchase Price, that number of shares
of ACNielsen Common Stock having a market value of two times the Purchase Price.
In the event that, after a person or group has become an Acquiring Person,
ACNielsen is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of an ACNielsen Right (other than
ACNielsen Rights beneficially owned by an Acquiring Person which will have
become void) will thereafter have the right to receive, upon the exercise
thereof and payment of the Purchase Price, that number of shares of common stock
of the person with whom ACNielsen has engaged in the foregoing transaction (or
its parent), which number of shares at the time of such transaction will have a
market value of two times the Purchase Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of ACNielsen Common Stock or the occurrence of an event described in the
prior paragraph, the Board of Directors of ACNielsen may exchange the ACNielsen
Rights (other than ACNielsen Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one share of
ACNielsen Common Stock, or a fractional share of ACNielsen Preferred Stock (or
of a share of a class or series of ACNielsen's preferred stock having similar
rights, preferences and privileges) of equivalent value, per ACNielsen Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of ACNielsen Preferred Stock will be
issued (other than fractions which are integral multiples of one one-thousandth
of a share of ACNielsen Preferred Stock, which may, at the election of
ACNielsen, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the ACNielsen
Preferred Stock on the last trading day prior to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of ACNielsen may redeem the ACNielsen Rights in whole, but not in
part, at a price of $.01 per ACNielsen Right (hereinafter referred to in this
description of ACNielsen Rights as the "Redemption Price"). The redemption of
the ACNielsen Rights may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the ACNielsen Rights, the right to exercise
the ACNielsen Rights will terminate and the only right of the holders of
ACNielsen Rights will be to receive the Redemption Price.
For so long as the ACNielsen Rights are then redeemable, ACNielsen may,
except with respect to the redemption price, amend the ACNielsen Rights in any
manner. After the ACNielsen Rights are no longer redeemable, ACNielsen may,
except with respect to the redemption price, amend the ACNielsen Rights in any
manner that does not adversely affect the interests of holders of the ACNielsen
Rights.
Until an ACNielsen Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of ACNielsen, including, without limitation, the
right to vote or to receive dividends.
A copy of the ACNielsen Rights Agreement has been filed as an Exhibit to
the Registration Statement on Form 10 of ACNielsen in respect of the
registration of the ACNielsen Common Stock under the Exchange Act. A copy of the
ACNielsen Rights Agreement is available free of charge from ACNielsen. The
summary description of the ACNielsen Rights set forth above does not purport to
be complete and is qualified in its
88
<PAGE> 91
entirety by reference to the ACNielsen Rights Agreement, as the same may be
amended from time to time, which is hereby incorporated herein by reference.
CERTAIN EFFECTS OF THE ACNIELSEN RIGHTS AGREEMENT
The ACNielsen Rights Agreement is designed to protect stockholders of
ACNielsen in the event of unsolicited offers to acquire ACNielsen and other
coercive takeover tactics which, in the opinion of the Board of Directors of
ACNielsen, could impair its ability to represent stockholder interests. The
provisions of the ACNielsen Rights Agreement may render an unsolicited takeover
of ACNielsen more difficult or less likely to occur or might prevent such a
takeover, even though such takeover may offer ACNielsen's stockholders the
opportunity to sell their stock at a price above the prevailing market rate and
may be favored by a majority of the stockholders of ACNielsen.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of ACNielsen authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
ACNielsen of any kind or class.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the DGCL apply to ACNielsen since it is a
Delaware corporation. Section 203, with certain exceptions, limits the ability
of a Delaware corporation to engage in any of a broad range of business
combinations, such as mergers, consolidations and sales of assets, with an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder. See "Description of the Cognizant
Capital Stock -- Delaware General Corporation Law".
PROVISIONS OF ACNIELSEN RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND
RESTATED BY-LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the ACNielsen Restated Certificate of Incorporation
and Amended and Restated By-laws may delay or make more difficult unsolicited
acquisitions or changes of control of ACNielsen. It is believed that such
provisions will enable ACNielsen to develop its business in a manner that will
foster its long-term growth without disruption caused by the threat of a
takeover not deemed by its Board of Directors to be in the best interests of
ACNielsen and its stockholders. Such provisions could have the effect of
discouraging third parties from making proposals involving an unsolicited
acquisition or change of control of ACNielsen, although such proposals, if made,
might be considered desirable by a majority of ACNielsen's stockholders. Such
provisions may also have the effect of making it more difficult for third
parties to cause the replacement of the current management of ACNielsen without
the concurrence of the Board of Directors.
These provisions include (i) the availability of capital stock for issuance
from time to time at the discretion of the Board of Directors (see "Authorized
but Unissued Capital Stock"), (ii) prohibitions against stockholders calling a
special meeting of stockholders or acting by written consent in lieu of a
meeting, (iii) requirements for advance notice for raising business or making
nominations at stockholders' meetings, (iv) the ability of the Board of
Directors to increase the size of the board and to appoint directors to newly
created directorships, (v) a classified board of directors and (vi) greater than
majority requirements to make certain amendments to the By-laws and the
Certificate of Incorporation. These provisions are present in the Restated
Certificate of Incorporation or Amended and Restated By-laws of ACNielsen.
No Stockholder Action by Written Consent; Special Meetings
The ACNielsen Restated Certificate of Incorporation and Amended and
Restated By-laws provide that stockholder action can be taken only at an annual
or special meeting and cannot be taken by written consent in lieu of a meeting.
The ACNielsen Restated Certificate of Incorporation and Amended and Restated
By-laws also provide that special meetings of the stockholders can be called
only by the Chief Executive Officer of ACNielsen or by a vote of the majority of
the entire Board of Directors. Furthermore, the By-laws of ACNielsen provide
that only such business as is specified in the notice of any such special
meeting of stockholders may come before such meeting.
89
<PAGE> 92
Advance Notice for Raising Business or Making Nominations at Meetings
The By-laws of ACNielsen establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of stockholders and
for nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Chairman of the Board
of Directors, or by a stockholder of ACNielsen who is entitled to vote at the
meeting who has given to the Secretary of ACNielsen timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. The chairman of such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of, the
Chairman of the Board of Directors, or who are nominated by a stockholder who
has given timely written notice, in proper form, to the Secretary prior to a
meeting at which directors are to be elected will be eligible for election as
directors of ACNielsen.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of ACNielsen at the principal
executive offices of ACNielsen not less than 70 days nor more than 90 days prior
to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 70 days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice shall be delivered to the Secretary of ACNielsen at
the principal executive offices of ACNielsen not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of ACNielsen held by,
the stockholder who intends to make the nomination and the beneficial owner, if
any, on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of ACNielsen entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; such other information regarding
each nominee proposed by such stockholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and the consent of each nominee to serve as a director if so elected.
Number of Directors; Filling of Vacancies; Removal
The ACNielsen Restated Certificate of Incorporation and Amended and
Restated By-laws provide that newly created directorships resulting from any
increase in the authorized number of directors (or any vacancy) may be filled by
a vote of a majority of directors then in office. If any applicable provision of
the DGCL expressly confers power on stockholders to fill such a directorship at
a special meeting of stockholders, such a directorship may be filled at such
meeting only by the affirmative vote of at least 80% in voting power of all
shares of ACNielsen entitled to vote generally in the election of directors,
voting as a single class. Directors may be removed only for cause, and only be
the affirmative vote of at least 80% in voting power of all shares of ACNielsen
entitled to vote generally in the election of directors, voting as a single
class. Accordingly, the Board of Directors of ACNielsen may be able to prevent
any stockholder from obtaining majority
90
<PAGE> 93
representation on the Board of Directors by increasing the size of the board and
filling the newly created directorships with its own nominees.
Classified Board of Directors
The ACNielsen Restated Certificate of Incorporation provides for
ACNielsen's Board of Directors to be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one third of
ACNielsen's Board of Directors will be elected each year. See "ACNielsen
Management and Executive Compensation -- ACNielsen Board of Directors."
ACNielsen believes that a classified board will help to assure the
continuity and stability of its Board of Directors, and its business strategies
and policies as determined by its Board, because a majority of the directors at
any given time will have prior experiences as directors of ACNielsen. This
provision should also help to ensure that ACNielsen's Board of Directors, if
confronted with an unsolicited proposal from a third party that has acquired a
block of ACNielsen's voting stock, will have sufficient time to review the
proposal and appropriate alternatives and to seek the best available result for
all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of ACNielsen's Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling stock interest, could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of ACNielsen and could thus increase the likelihood
that incumbent directors will retain their positions.
Amendments to the Amended and Restated By-laws
The ACNielsen Restated Certificate of Incorporation provides that the
affirmative vote of the holders of at least 80% in voting power of all the
shares of ACNielsen entitled to vote generally in the election of directors,
voting together as a single class, shall be required in order for the
stockholders to alter, amend or repeal any provisions of the Amended and
Restated By-laws which is to the same effect as provisions contained in the
Restated Certificate of Incorporation relating to (i) the amendment of the
Amended and Restated By-laws, (ii) the classified Board of Directors and (iii)
calling and taking actions at meetings of stockholders.
Amendments to the Restated Certificate of Incorporation
The ACNielsen Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 80% in voting power of all the
shares of ACNielsen entitled to vote generally in the election of directors,
voting together as a single class, to alter, amend or repeal provisions of the
Restated Certificate of Incorporation relating to (i) the amendment of the
Restated Certificate of Incorporation and/or the Amended and Restated By-laws,
(ii) the classified Board of Directors and (iii) calling and taking actions at
meetings of stockholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
The ACNielsen Restated Certificate of Incorporation provides that ACNielsen
shall indemnify directors and officers to the fullest extent permitted by the
laws of the State of Delaware. The ACNielsen Restated Certificate of
Incorporation also provides that a director of ACNielsen shall not be liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended.
The indemnification rights conferred by the Restated Certificate of
Incorporation of ACNielsen are not exclusive of any other right to which a
person seeking indemnification may otherwise be entitled. ACNielsen will also
provide liability insurance for the directors and officers for certain losses
arising from claims or charges made against them while acting in their
capacities as directors or officers.
91
<PAGE> 94
AVAILABLE INFORMATION
Cognizant and ACNielsen have each filed with the SEC a Registration
Statement on Form 10 with respect to the shares of Cognizant Common Stock and
ACNielsen Common Stock to be received by the stockholders of D&B in the
Distribution. This Information Statement does not contain all of the information
set forth in the respective Form 10 Registration Statements and the exhibits
thereto, to which reference is hereby made. Statements made in this Information
Statement as to the contents of any contract, agreement or other documents
referred to herein are not necessarily complete. With respect to each such
contract, agreement or other documents filed as an exhibit to the Registration
Statements, reference is made to such exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The respective Registration Statements and the
exhibits thereto may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Regional Offices of the SEC at Seven World Trade Center, Suite
1300, New York, New York 10048 and in the Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. In addition, copies of the Registration
Statement and related documents may be obtained through the SEC Internet address
at http://www.sec.gov.
REPORTS OF COGNIZANT AND ACNIELSEN
After the Distribution, both Cognizant and ACNielsen will be required to
comply with the reporting requirements of the Exchange Act and, in accordance
therewith, to file reports, proxy statements and other information with the SEC.
After the Distribution, such reports, proxy statements and other
information may be inspected and copied at the public reference facilities of
the SEC listed above and obtained by mail from the SEC as described above.
Application has been made to list the shares of Cognizant Common Stock and
ACNielsen Common Stock on the NYSE and, if and when such shares of Cognizant
Common Stock and ACNielsen Common Stock, as applicable, commence trading on the
NYSE, such reports, proxy statements and other information will be available for
inspection at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
Additionally, each of Cognizant and ACNielsen will be required to provide
annual reports, containing audited financial statements, to its stockholders in
connection with its annual meetings of stockholders.
92
<PAGE> 95
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COGNIZANT CORPORATION (COMBINED FINANCIAL STATEMENTS)
Report of Independent Accountants..................................................... F-2
Financial Statements:
Combined Statement of Income for the Six Months Ended June 30, 1996 and 1995
(unaudited) and the Three Years Ended December 31, 1995.......................... F-3
Combined Statement of Financial Position as of June 30, 1996 (unaudited) and
December 31, 1995 and 1994....................................................... F-4
Combined Statement of Cash Flows for the Six Months Ended June 30, 1996 and 1995
(unaudited) and the Three Years Ended December 31, 1995.......................... F-5
Combined Statement of Divisional Equity for the Six Months Ended June 30, 1996
(unaudited) and the Three Years Ended December 31, 1995.......................... F-6
Notes to Combined Financial Statements.............................................. F-7
COGNIZANT CORPORATION
Report of Independent Accountants..................................................... F-20
Financial Statements:
Statement of Financial Position as of June 30, 1996................................. F-21
Notes to Financial Statements....................................................... F-22
ACNIELSEN CORPORATION (COMBINED FINANCIAL STATEMENTS)
Report of Independent Accountants..................................................... F-23
Financial Statements:
Combined Statement of Operations for the Six Months Ended June 30, 1996 and 1995
(unaudited) and the Three Years Ended December 31, 1995.......................... F-24
Combined Statement of Financial Position as of June 30, 1996 (unaudited) and
December 31, 1995 and 1994....................................................... F-25
Combined Statement of Cash Flows for the Six Months Ended June 30, 1996 and 1995
(unaudited) and the Three Years Ended December 31, 1995.......................... F-26
Combined Statement of Divisional Equity for the Six Months Ended June 30, 1996
(unaudited) and the Three Years Ended December 31, 1995.......................... F-27
Notes to Combined Financial Statements.............................................. F-28
ACNIELSEN CORPORATION
Report of Independent Accountants..................................................... F-41
Financial Statements:
Statement of Financial Position as of June 30, 1996................................. F-42
Notes to Financial Statements....................................................... F-43
</TABLE>
F-1
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Cognizant Corporation:
We have audited the combined financial statements of Cognizant Corporation
(a wholly-owned subsidiary of The Dun & Bradstreet Corporation), as defined in
the notes to the combined financial statements, as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995, as
listed in the accompanying Index to Financial Statements. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Cognizant
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in the notes to the combined financial statements, in 1995 the
Company changed its method of accounting for the impairment of long-lived assets
and, in 1993, for postemployment benefits and postretirement benefits other than
pensions.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 16, 1996
F-2
<PAGE> 97
COGNIZANT CORPORATION
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ------------------------------------
------------------------- 1995 1994 1993
1995 ---------- ---------- ----------
-----------
1996 (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating Revenue.................... $ 785,722 $ 709,749 $1,542,340 $1,257,415 $1,039,259
-------- -------- ---------- ---------- ----------
Operating Costs...................... 334,682 282,578 753,466 516,895 439,042
Selling and Administrative
Expenses........................... 244,334 245,099 488,865 394,179 330,120
Depreciation & Amortization.......... 65,816 67,165 132,532 111,749 82,339
Restructuring Expense................ -- -- 12,800 7,957 46,408
-------- -------- ---------- ---------- ----------
Operating Income..................... 140,890 114,907 154,677 226,635 141,350
-------- -------- ---------- ---------- ----------
Interest Income...................... 3,702 4,588 10,325 9,217 14,286
Interest Expense..................... (411) (348) (540) (715) (523)
Gains From Dispositions.............. -- -- 15,124 21,473 --
Gain on Sale of Gartner Group
Stock.............................. -- -- -- -- 21,022
Other Expense -- Net................. (8,194) (3,663) (17,029) (11,122) (8,803)
-------- -------- ---------- ---------- ----------
Non-Operating (Expense)
Income -- Net...................... (4,903) 577 7,880 18,853 25,982
-------- -------- ---------- ---------- ----------
Income Before Provision for Income
Taxes and Cumulative Effect of
Changes in Accounting Principles... 135,987 115,484 162,557 245,488 167,332
Provision for Income Taxes........... (59,835) (52,341) (73,676) (99,083) (58,475)
-------- -------- ---------- ---------- ----------
Income Before Cumulative Effect of
Changes in Accounting Principles... 76,152 63,143 88,881 146,405 108,857
Cumulative Effect to January 1, 1993,
of Changes in Accounting
Principles:
-- SFAS No. 106, "Employers'
Accounting for Postretirement
Benefits Other Than Pensions",
Net of Income Tax Benefits of
$8,560.......................... -- -- -- -- (12,840)
-- SFAS No. 112, "Employers'
Accounting for Postemployment
Benefits", Net of Income Tax
Benefits of $16,982............. -- -- -- -- (28,303)
-------- -------- ---------- ---------- ----------
Net Income........................... $ 76,152 $ 63,143 $ 88,881 $ 146,405 $ 67,714
======== ======== ========== ========== ==========
Pro Forma Unaudited Earnings Per
Share of Common Stock.............. $0.45 $0.52
======== ==========
Pro Forma Unaudited Average Number of
Shares Outstanding................. 169,808 169,522
======== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE> 98
COGNIZANT CORPORATION
COMBINED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
JUNE 30,
1996
----------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents........................... $ 184,052 $ 157,105 $ 127,984
Accounts Receivable -- Net.......................... 415,478 432,957 338,760
Other Current Assets................................ 143,677 114,177 63,041
---------- ---------- ----------
Total Current Assets........................ 743,207 704,239 529,785
---------- ---------- ----------
Investments........................................... 51,067 50,566 55,731
---------- ---------- ----------
Property, Plant and Equipment -- Net.................. 256,729 247,127 274,561
---------- ---------- ----------
Other Assets -- Net
Computer Software................................... 134,129 137,700 124,201
Goodwill............................................ 215,795 230,888 250,127
Other Assets........................................ 74,198 71,570 96,633
---------- ---------- ----------
Total Other Assets -- Net................... 424,122 440,158 470,961
---------- ---------- ----------
Total Assets................................ $1,475,125 $1,442,090 $1,331,038
========== ========== ==========
LIABILITIES AND DIVISIONAL EQUITY
Current Liabilities
Accounts and Notes Payable.......................... $ 43,639 $ 60,966 $ 43,414
Accrued and Other Current Liabilities............... 253,924 297,465 234,677
Accrued Income Taxes................................ 39,853 37,747 72,924
Deferred Revenues................................... 293,387 270,731 215,818
---------- ---------- ----------
Total Current Liabilities................... 630,803 666,909 566,833
---------- ---------- ----------
Postretirement and Postemployment Benefits............ 59,238 48,602 36,229
Deferred Income Taxes................................. 87,935 68,724 74,820
Other Liabilities and Minority Interests.............. 69,462 53,267 46,673
---------- ---------- ----------
Total Liabilities........................... 847,438 837,502 724,555
---------- ---------- ----------
Commitments and Contingencies
Divisional Equity..................................... 627,687 604,588 606,483
---------- ---------- ----------
Total Liabilities and Divisional Equity..... $1,475,125 $1,442,090 $1,331,038
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-4
<PAGE> 99
COGNIZANT CORPORATION
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ---------------------------------
------------------------- 1995 1994 1993
1995 --------- --------- ---------
-----------
(UNAUDITED)
1996
-----------
(UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................... $ 76,152 $ 63,143 $ 88,881 $ 146,405 $ 67,714
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Cumulative Effect of Change in Accounting
Principles:
Postemployment Benefits................ -- -- -- -- 28,303
Postretirement Benefits Other than
Pensions............................ -- -- -- -- 12,840
Depreciation and Amortization............... 65,816 67,165 132,532 111,749 82,339
Gain on Sale of Gartner Group Stock......... -- -- -- -- (21,022)
Gains from Dispositions..................... -- -- (15,124) (21,473) --
Restructuring Provisions.................... -- -- 12,800 7,957 46,408
Non-Recurring Charge........................ -- -- 90,070 -- --
Restructuring Payments...................... (2,036) (10,820) (15,544) (24,477) (6,122)
Postemployment Benefit Expense.............. 3,334 2,424 37,632 1,427 981
Postemployment Benefit Payments............. (8,751) (6,697) (18,480) (19,552) (7,301)
Payments Related to 1995 Non-recurring
Charge................................... (8,073) -- -- -- --
Net Decrease (Increase) in Accounts
Receivable............................... 7,083 3,378 (83,035) (72,796) (18,838)
Deferred Income Taxes....................... 26,255 (1,132) (13,392) 5,189 (9,277)
Non-U.S. Income Taxes Paid.................. (24,734) (18,249) (26,956) (29,287) (20,831)
Non-U.S. Income Tax Refunds................. 55 2,767 4,322 5,351 3,042
Net Decrease in Other Working Capital
Items.................................... 5,415 30,493 88,955 88,766 37,463
Other....................................... 1,577 (1,111) (8,818) 1,790 4,822
-------- -------- --------- --------- ---------
Net Cash Provided by Operating
Activities........................ 142,093 131,361 273,843 201,049 200,521
-------- -------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Maturities of Marketable
Securities............................... 14,129 -- 40,338 -- 9,171
Payments for Marketable Securities.......... (44,685) -- (70,546) -- --
Proceeds from Sale of Gartner Group Stock... -- -- -- -- 54,222
Proceeds from Sale of Businesses............ -- -- 11,349 20,700 --
Payments for Acquisition of Businesses...... -- (1,956) (10,916) (63,579) (22,720)
Capital Expenditures........................ (27,846) (32,937) (77,032) (104,475) (70,741)
Additions to Computer Software.............. (13,543) (26,133) (70,565) (60,241) (50,045)
Decrease (Increase) in Investments.......... 1,704 891 (8,232) (20,479) (4,979)
Other....................................... 5,592 19,989 57,280 32,598 (26,275)
-------- -------- --------- --------- ---------
Net Cash Used in Investing
Activities........................ (64,649) (40,146) (128,324) (195,476) (111,367)
-------- -------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Amount (Remitted to) Received from The
Dun & Bradstreet Corporation............. (44,359) 803 (113,051) (111,212) 10,982
Other....................................... (4,350) (5,203) (8,193) 2,859 (2,383)
-------- -------- --------- --------- ---------
Net Cash (Used in) Provided by
Financing Activities.............. (48,709) (4,400) (121,244) (108,353) 8,599
-------- -------- --------- --------- ---------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents............................ (1,788) 13,193 4,846 9,699 (14,745)
-------- -------- --------- --------- ---------
Increase (Decrease) in Cash and Cash
Equivalents................................. 26,947 100,008 29,121 (93,081) 83,008
Cash and Cash Equivalents, Beginning of
Period...................................... 157,105 127,984 127,984 221,065 138,057
-------- -------- --------- --------- ---------
Cash and Cash Equivalents, End of Period...... $ 184,052 $ 227,992 $ 157,105 $ 127,984 $ 221,065
======== ======== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest...... $ 536 $ 326 $ 425 $ 925 $ 303
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-5
<PAGE> 100
COGNIZANT CORPORATION
COMBINED STATEMENT OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- --------- --------
SIX MONTHS
ENDED
JUNE 30,
1996
-----------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, Beginning of Period.............................. $ 604,588 $ 606,483 $ 540,833 $483,005
Net Income.............................................. 76,152 88,881 146,405 67,714
Net Transfers (to) from The Dun & Bradstreet
Corporation.......................................... (44,359) (113,051) (111,212) 10,982
Foreign Currency Translation............................ (8,694) 22,275 30,457 (20,868)
-------- --------- --------- --------
Balance, End of Period.................................... $ 627,687 $ 604,588 $ 606,483 $540,833
======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-6
<PAGE> 101
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
On January 9, 1996 The Dun & Bradstreet Corporation ("D&B") announced a
plan to reorganize into three publicly traded independent companies by spinning
off through a tax-free distribution (the "Distribution") two of its businesses
to shareholders. The Distribution is subject to final approval by D&B's Board of
Directors. The Internal Revenue Service has ruled that the spin-off will be a
tax-free transaction for shareholders. Certain separate international tax
rulings are pending with respect to the tax-free treatment of the Distribution.
Under the plan, Cognizant Corporation (the "Company") will become a publicly
traded company that will include the I.M.S. International, Inc. ("IMS"), Gartner
Group, Inc. ("Gartner Group"), Nielsen Media Research, Inc. ("Nielsen Media"),
Pilot Software, Inc., Erisco, Inc., Dun & Bradstreet Satyam Software Proprietary
Limited ("Satyam Software"), Cognizant Enterprises, Inc., Dun & Bradstreet
HealthCare Information, Inc. ("DBHC") and D&B Technology Asia KK ("DBTA")
businesses of the former D&B. The Company was incorporated on January 2, 1996,
with 1,000 shares of Common Stock authorized, par value of $.01 per share, and
100 shares outstanding, all of which are owned by D&B. For purposes of these
financial statements, all references to the Company include the assets and
liabilities related to the businesses that will be transferred to the Company
prior to the Distribution.
The combined financial statements have been prepared using D&B's historical
basis in the assets and liabilities and historical results of operations related
to the Company's businesses, except for accounting for income taxes (see Note 2
to the Combined Financial Statements).
Investments in companies over which the Company has significant influence
but not a controlling interest are carried at equity. The effects of all
significant intercompany transactions have been eliminated.
The financial statements of IMS and its affiliates reflect a fiscal year
ending November 30 to facilitate timely reporting of the Company's combined
financial results.
The combined financial statements generally reflect the financial position,
results of operations, and cash flows of the Company as if it were a separate
entity for all periods presented. The combined financial statements include
allocations of certain D&B Corporate headquarters assets (including prepaid
pension assets) and liabilities (including pension and postretirement benefits),
and expenses (including cash management, legal, accounting, tax, employee
benefits, insurance services, data services and other D&B corporate overhead)
relating to the Company's businesses that will be transferred to the Company
from D&B. Management believes these allocations are reasonable. However, the
financial information included herein may not necessarily reflect the combined
financial position, results of operations, and cash flows of the Company in the
future or what they would have been had the Company been a separate entity
during the periods presented.
For purposes of governing certain of the ongoing relationships between the
Company, D&B and ACNielsen Corporation after the Distribution and to provide for
orderly transition, the Company, D&B and ACNielsen Corporation will enter into
various agreements including a Distribution Agreement, which includes among
other items an allocation to Cognizant of liabilities related to certain prior
business transactions if such liabilities exceed certain specified amounts, Tax
Allocation Agreement, Employee Benefits Agreement, Indemnity and Joint Defense
Agreement, TAM Master Agreement, Intellectual Property Agreement, Shared
Transaction Services Agreements, Data Services Agreement and Transition Services
Agreement. Summaries of these agreements are set forth elsewhere in this
Information Statement.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents and Marketable Securities. Marketable securities that
mature within ninety days of purchase date are considered cash equivalents. All
marketable securities that mature in more than ninety days are valued at
amortized cost (which approximates market value) in accordance with the
provisions of
F-7
<PAGE> 102
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Debt and Equity Securities." It is management's intent to hold these
investments to maturity.
Property, Plant and Equipment. Buildings and machinery and equipment are
depreciated over their estimated useful lives using principally the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or the estimated useful life of
the improvement.
Other Assets. Certain internal costs incurred in the development of
computer software are capitalized in accordance with SFAS No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed".
As such, costs incurred to establish technological feasibility of a computer
software product are expensed in the periods in which they are incurred.
Capitalization ceases and amortization starts when the product is available for
general release to customers. Computer software costs are being amortized on a
product by product basis, over three to five years. Annual amortization is the
greater of the amount computed using (a) the ratio that gross revenues for a
product bear to the total of current and anticipated future gross revenues for
that product or (b) the straight-line method over the remaining estimated
economic life of the product. Other intangibles result from acquisitions and
database development and are included in other assets. Other intangibles are
being amortized, using principally the straight-line method, over five to
fifteen years. Goodwill represents the excess purchase price over the fair value
of identifiable net assets of businesses acquired and is amortized on a
straight-line basis over seven to forty years.
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in
1995. This statement requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In general, this statement requires recognition of an
impairment loss when the sum of undiscounted expected future cash flows is less
than the carrying amount of such assets. The measurement for such impairment
loss is then based on the fair value of the asset. See Note 3 to the Combined
Financial Statements.
At each balance sheet date, the Company reviews the recoverability of the
unamortized capitalized costs of computer software products by comparing the
carrying value of computer software with its estimated net realizable value.
At each balance sheet date, the Company reviews the recoverability of
goodwill, not identified with impaired long-lived assets, based on estimated
undiscounted future cash flows from operating activities compared with the
carrying value of goodwill and recognizes any impairment on the basis of such
comparison. The recognition and measurement of goodwill impairment is assessed
at the business unit level.
Revenue Recognition. The Company recognizes revenue as earned, which is
over the contract period or as the information is delivered or related services
are performed. Amounts billed for service and subscriptions are credited to
deferred revenues and reflected in operating revenue over the subscription term,
which is generally one year. Software license revenue is recognized upon
delivery of the software and documentation when there are no significant
remaining related obligations. Revenue from post-contract customer support
(maintenance) is recognized on a straight-line basis over the term of the
contract.
Foreign Currency Translation. For all operations outside the United States
where the Company has designated the local currency as the functional currency,
assets and liabilities are translated using end-of-period exchange rates;
revenues and expenses are translated using average rates of exchange. For these
countries, currency translation adjustments are accumulated in a separate
component of divisional equity, whereas realized transaction gains and losses
are recognized in other expense -- net. For operations in countries that are
considered to be highly inflationary, where the U.S. dollar is designated as the
functional currency, monetary assets and liabilities are translated using
end-of-period exchange rates, nonmonetary accounts are translated using
historical exchange rates, and all translation and transaction adjustments are
recognized in other expense -- net.
F-8
<PAGE> 103
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The Company has significant investments in non-U.S. countries. Therefore,
changes in the value of foreign currencies affect the Company's combined
financial statements when translated into U.S. dollars.
Income Taxes. The Company has been included in the Federal and certain
state and non-U.S. income tax returns of D&B. The provision for income taxes in
the Company's combined financial statements has been calculated on a
separate-company basis. Income taxes paid on behalf of the Company by D&B are
included in divisional equity. Effective after the Distribution, the Company
will file separate income tax returns.
Divisional Equity. Divisional equity includes historical investments and
advances from D&B, including net transfers to/from D&B, third party liabilities
paid on behalf of the Company by D&B and amounts due to/from D&B for services
and other charges, as well as current period income, and foreign currency
translation adjustments.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
Pro Forma Earnings Per Share (Unaudited). The computation of pro forma
earnings per share for the periods ended June 30, 1996 and December 31, 1995 is
based on the average number of shares of D&B common stock outstanding during the
respective periods, reflecting the one for one distribution ratio.
Interim Period Financial Statements. The unaudited condensed combined
interim financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of the
Company at June 30, 1996 and its results of operations and cash flows for the
six months ended June 30, 1996 and 1995. Interim results are not necessarily
indicative of full year performance.
Concentrations of Credit Risk. IMS maintains accounts receivable balances
($252,067 and $184,974 at December 31, 1995 and 1994) principally from customers
in the pharmaceutical industry.
Business Segments. The Company operates in two principal business
segments, Marketing Information Services and Information Technology Services.
Marketing Information Services consists of IMS, Nielsen Media, Pilot Software,
Erisco, Satyam Software, Cognizant Enterprises, DBHC and DBTA. Information
Technology Services consists of Gartner Group.
NOTE 3. NON-RECURRING CHARGES
In the fourth quarter of 1995, the Company recorded within operating costs
a charge of $90,070. This charge primarily reflected an impairment loss in
connection with the adoption of the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
($40,570), the write-off of certain computer software ($20,300), a provision for
postemployment benefits ($7,400) under D&B's severance plan and an accrual for
contractual obligations that have no future economic benefits ($21,800). No
payments relating to the accrued contractual obligations were made in 1995.
SFAS No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In connection with
this review, the Company recorded an impairment loss of $40,570 reflecting the
revaluation of certain fixed assets, administrative and production systems and
other intangibles that will be replaced or will no longer be used. In addition,
the Company recognized a charge of $20,300 principally related to the write-off
of certain computer software product lines at the Pilot Software business unit
that were discontinued.
The provision for postemployment benefits of $7,400, represents the cost of
workforce reductions. The accrual for contractual obligations that have no
future economic benefits of $21,800 relates to the acquisition of certain
information and other services that are no longer used by the Company.
F-9
<PAGE> 104
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
This non-recurring charge evolved from D&B's annual budget and strategic
planning process, which included a review of D&B's underlying cost structure,
products and services and assets used in the business. Based upon such analysis,
management having the authority to approve such business decisions committed in
December 1995 to a plan to discontinue certain product lines and dispose of
certain other assets, resulting in the charge. These decisions were not reversed
or modified as a result of D&B's reorganization plan, which was reviewed and,
subject to certain conditions, approved by the Board of Directors of D&B on
January 9, 1996.
NOTE 4. RESTRUCTURING
In 1995, the Company reported a $12,800 restructuring provision primarily
to write off software for product lines that were discontinued at Sales
Technologies, a division of IMS.
In the second quarter of 1994, the Company initiated actions totaling
$7,957 to restructure certain operations and businesses, and to reduce costs and
increase operating efficiencies. These restructuring actions included office
consolidations, the closedown of Sales Technologies' European operations, as
well as additional steps to complete certain actions initiated in 1993.
In 1993, the Company recorded $46,408 of restructuring expense to
restructure certain operations and businesses. These actions were part of a
D&B-wide plan designed to achieve long-term productivity improvements and reduce
costs. The costs associated with this plan, and all other restructuring actions,
included only specific, direct and incremental costs that could be estimated
with reasonable accuracy and were clearly identifiable with the related plans.
The restructuring charge included $5,490 for the consolidation of data
centers in North America and Europe, resulting principally in lease termination
costs, asset writeoffs and other costs incident to the consolidation of such
data centers. The Company also provided $18,163 to initiate actions to reduce
real estate costs by consolidating office facilities in the U.S. and Europe.
Costs incurred included lease termination costs and asset writeoffs. The
restructuring charge also included $22,755 primarily related to workforce
reductions and write-offs of intangible assets at certain divisions.
In 1995, the Company recognized non-operating gains of $15,124 related to a
number of divestitures.
In 1994, the Company recognized a non-operating gain of $21,473 on the
divestiture of the Machinery Information Division of Dataquest.
In 1993, the Company recognized a $21,022 non-operating gain related to the
initial public offering of Gartner Group, in which 2.7 million shares were sold
for net proceeds of $54,222. As a result of the offering the Company's interest
was reduced from 70% to 52%.
The table below sets forth the details of all restructuring accrual
activity by major category for the years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
1994 ACTIVITY 1995 ACTIVITY
------------------ ------------------
CASH & CASH &
JANUARY 1, NONCASH DECEMBER 31, NONCASH DECEMBER 31,
CATEGORY 1994 EXPENSE ITEMS 1994 EXPENSE ITEMS 1995
- ----------------------------------- ---------- ------- -------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate cost reductions........ $ 18,163 -- $ (4,487) $ 13,676 -- $(12,617) $ 1,059
Data center consolidations......... 5,490 -- (5,490) -- -- -- --
Discontinue production and data
collection systems and
products......................... 1,930 -- (1,930) -- $12,800 (8,400) 4,400
Other.............................. 16,396 $7,957 (12,570) 11,783 -- (5,727) 6,056
------- ------ -------- ------- ------- -------- -------
Total.............................. $ 41,979 $7,957 $(24,477) $ 25,459 $12,800 $(26,744) $ 11,515
======= ====== ======== ======= ======= ======== =======
</TABLE>
NOTE 5. ACQUISITIONS
In 1995, 1994 and 1993, the Company acquired various companies in separate
transactions that were accounted for as purchases.
F-10
<PAGE> 105
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The aggregate purchase price of such acquisitions totaled approximately
$10,900 in 1995.
The aggregate purchase price for acquisitions totaled approximately $63,600
in 1994. The largest acquisition was Pilot Software, a leading provider of
on-line analytic processing software solutions that support business decision
making needs across many industries.
In 1993, the Company acquired a seventy percent interest in Gartner Group,
a provider of research, analysis and advisory services to users and suppliers of
information technology systems and software. The aggregate purchase price for
acquisitions totaled approximately $22,700 in 1993.
The results of operations of all purchases are included in the Combined
Statement of Income from dates of acquisition. Had the acquisitions made in
1993, 1994 and 1995 been consummated on January 1 of the year preceding the year
of acquisition, the results of these acquired operations would not have had a
significant impact on the Company's combined results of operations for any of
the years presented.
NOTE 6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Foreign exchange forward contracts are entered into in the normal course of
business to hedge against foreign exchange movements on certain assets and
liabilities of subsidiaries that are denominated in currencies other than the
subsidiary's functional currency. The counter parties to these instruments are
major international financial institutions. The forward contracts typically have
maturities of three months or less. At December 31, 1995, the Company had
approximately $79,839 in foreign exchange forward contracts outstanding with
various expiration dates through January 1996. Realized and unrealized gains and
losses on these contracts and the offsetting losses and gains on hedged
transactions are included in other expense -- net.
NOTE 7. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
At the Distribution, the Company will assume responsibility for pension and
postretirement benefits for active employees of the Company; the responsibility
for all others, principally retirees, will remain with D&B. An allocation of
assets and liabilities for such benefits, which are not material, has been
included in the combined financial statements.
U.S. Benefit Plans. Certain of the Company's businesses participate in
D&B's defined benefit pension plan covering substantially all employees in the
United States. The benefits to be paid to employees under these plans are based
on years of credited service and average final compensation. The Company
accounts for the plan as a multi-employer plan. Accordingly, the Company has
recorded pension income (costs) as allocated by D&B totaling $(1,241), $890 and
$1,253 for the years 1995, 1994 and 1993. During 1994, the Company recognized a
pension curtailment gain of $2,653 resulting from a workforce reduction.
Certain employees of the Company in the United States also are eligible to
participate in the D&B-sponsored defined contribution plan. The Company's
businesses make a matching contribution of up to 100% of the employee's
contribution based on specified limits of the employee's salary. The Company's
expense related to this plan was $3,178, $2,627 and $2,777 for the years 1995,
1994 and 1993.
Non-U.S. Benefit Plans. The Company's non-U.S. subsidiaries provide
retirement benefits for employees consistent with local practices, primarily
using defined benefit or termination indemnity plans. The projected benefit
obligations for these funded and unfunded plans at December 31, 1995 and 1994
were $52,685 and $45,024, respectively. Prepaid (Accrued) pension costs for the
funded plans totaled ($1,684) and $703 as of December 31, 1995 and 1994. Accrued
pension costs for the unfunded plans totaled $5,059 and $3,021 as of December
31, 1995 and 1994. Pension costs for these plans were $4,078, $3,249 and $3,305
for the years 1995, 1994 and 1993.
The weighted average expected long-term rate of return on pension plan
assets was 9.82%, 9.75% and 10.14% for 1995, 1994 and 1993, respectively. At
December 31, 1995 and 1994, the projected benefit obligations were determined
using weighted average discount rates of 7.76% and 8.46%, respectively, and
F-11
<PAGE> 106
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
weighted average rates of increase in future compensation levels of 5.06% and
5.77%, respectively. Plan assets are invested in diversified portfolios that
consist primarily of equity and debt securities.
Postretirement Benefits. In addition to providing pension benefits, D&B
provides various health-care and life-insurance benefits for retired employees.
Employees at certain businesses of the Company in the United States become
eligible for these benefits if they reach normal retirement age while working
for the Company. Certain of the Company's subsidiaries outside the United States
have postretirement benefit plans, although most participants are covered by
government-sponsored or-administered plans. The cost of Company-sponsored
postretirement benefit plans outside the U.S. is not significant.
During 1993 the Company adopted the provisions of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The initial effect
of adopting SFAS No. 106 was a one-time, non-cash after-tax charge of $12,840.
The adoption of SFAS No. 106 did not have a significant effect on 1993 expense.
The Company accounts for the plan as a multi-employer plan. Accordingly, the
Company has recorded postretirement benefits costs as allocated by D&B totaling
$3,447, $2,129 and $3,775 for the years 1995, 1994 and 1993. During 1994 the
Company recognized a curtailment gain of $4,199 resulting from a change in
eligibility requirements for the postretirement medical plan.
Postemployment Benefits. During 1993, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires that
employers expense the costs of postemployment benefits paid before retirement,
principally severance benefits, over the service lives of employees if certain
conditions are met. Under the Company's previous accounting policy, the total
cost of such benefits was expensed when the event occurred. The initial effect
of adopting SFAS No. 112 was a one-time, after-tax charge of $28,303. The
adoption of SFAS No. 112 did not have a significant effect on 1993 expense.
NOTE 8. EMPLOYEE STOCK PLANS
Under D&B's Key Employees Stock Option Plans, certain employees of the
Company are eligible for the grant of stock options, stock appreciation rights
and limited stock appreciation rights in tandem with stock options. These awards
are granted at the market price on the date of the grant. At December 31, 1995,
outstanding options for D&B common stock held by Company employees totaled
1,936,436, of which 943,072 had vested and were exercisable. The option prices
range from $33.55 to $63.75 per share.
Immediately following the Distribution, outstanding awards under the D&B
Key Employees Stock Option Plans held by Company employees will be replaced by
substitute awards under the Company's plan. The substitute awards will have the
same ratio of the exercise price per option to the market value per share, the
same aggregate difference between market value and exercise price and the same
vesting provisions, option periods and other terms and conditions as the options
they replace.
In 1995, Pilot Software adopted an equity participation plan authorizing
Pilot to grant options up to 19.5% of its stock to its employees. The options
are exercisable after nine years at fair market value, as determined by
independent appraisal; however, vesting may be accelerated based on the
occurrence of "trigger events" as defined by the plan. Two-thirds of the
authorized options were granted in February 1995 at an exercise price of $1.75
per share, which was fair value at the date of grant.
The Company's majority-owned subsidiary Gartner Group has several stock
option plans to provide a method of retention and motivation of its senior
personnel and also to align senior management's objectives with long-term stock
price appreciation. The exercise price of options granted under the plans are
equal to the fair market value at the date of grant of Gartner Group stock.
Options outstanding and exercisable were 10,463,820 and 2,408,050, respectively
at December 31, 1995, at prices ranging from $.04 to $37.876 per share.
F-12
<PAGE> 107
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which requires that
companies with stock-based compensation plans either recognize compensation
expense based on the fair value of options granted or continue to apply the
existing accounting rules and disclose pro forma net income and earnings per
share assuming the fair value method had been applied. The Company is evaluating
the new statement and has not determined whether it will adopt the recognition
or disclosure alternative of the statement. Therefore, the impact of adoption on
the Company's financial statements has not been determined. The new disclosure
requirements are generally effective for financial statements for fiscal years
beginning after December 15, 1995.
NOTE 9. INCOME TAXES
Income before provision for income taxes consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
U.S........................................ $ 43,495 $111,054 $ 43,318
Non-U.S.................................... 119,062 134,434 124,014
-------- -------- --------
$162,557 $245,488 $167,332
======== ======== ========
</TABLE>
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
U.S. Federal and state:
Current.................................. $ 57,596 $ 54,161 $ 50,543
Deferred................................. (23,871) (2,377) (26,930)
-------- -------- --------
Total.................................... 33,725 51,784 23,613
-------- -------- --------
Non-U.S.:
Current.................................. 33,632 40,643 42,271
Deferred................................. 6,319 6,656 (7,409)
-------- -------- --------
Total.................................... 39,951 47,299 34,862
-------- -------- --------
Total.................................... $ 73,676 $ 99,083 $ 58,475
======== ======== ========
</TABLE>
The following table summarizes the significant differences between the U.S.
Federal statutory taxes and the Company's provision for income taxes for
combined financial statement purposes.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Tax expense at statutory rate.............. $ 56,895 $ 85,922 $ 58,565
State and local income taxes, net of
Federal effect........................... 13,079 9,536 5,301
Non-U.S. taxes............................. (3,684) (941) (7,775)
Goodwill amortization...................... 4,457 1,585 1,425
Other...................................... 2,929 2,981 959
------- -------- -------
Total taxes................................ $ 73,676 $ 99,083 $ 58,475
======= ======== =======
</TABLE>
F-13
<PAGE> 108
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The Company's deferred tax assets (liabilities) are comprised of the
following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Operating Losses..................................... $ 20,817 $ 32,748
Non-Recurring Charges................................ 12,840 --
Restructuring Costs.................................. 12,138 8,482
Bad Debts............................................ 2,754 2,637
Postretirement Benefits.............................. 2,608 2,747
Postemployment Benefits.............................. 1,138 4,996
Other................................................ 2,326 5,445
-------- --------
54,621 57,055
Valuation Allowance.................................... (20,817) (32,748)
-------- --------
33,804 24,307
-------- --------
Deferred Tax Liabilities:
Intangibles.......................................... (62,473) (62,838)
Deferred Revenue..................................... (17,385) (17,931)
Depreciation......................................... (2,350) (11,188)
Other................................................ (3,494) (1,800)
-------- --------
(85,702) (93,757)
-------- --------
Net Deferred Tax Liability............................. $(51,898) $(69,450)
======== ========
</TABLE>
The Company has established a valuation allowance attributable to deferred
tax assets in certain U.S. state and foreign tax jurisdictions where, based on
available evidence, it is more likely than not that such assets will not be
realized.
Undistributed earnings of non-U.S. subsidiaries aggregated approximately
$485,221 at December 31, 1995. Deferred tax liabilities have not been recognized
for these undistributed earnings because it has been D&B's policy to permanently
reinvest such undistributed earnings outside the U.S. If such earnings are
repatriated in the future, or are no longer deemed to be permanently reinvested,
applicable taxes will be provided for on such amounts. It is not currently
practicable to determine the amount of applicable taxes.
NOTE 10. OTHER TRANSACTIONS WITH AFFILIATES
D&B uses a centralized cash management system to finance its operations.
Cash deposits from most of the Company's businesses are transferred to D&B on a
daily basis and D&B funds the Company's disbursement bank accounts as required.
No interest has been charged on these transactions. Cash and cash equivalents in
the accompanying combined financial statements represents balances of certain
foreign entities and of the Gartner Group.
D&B provided certain centralized services (see Note 1 to the Combined
Financial Statements) to the Company. Expenses related to these services were
allocated to the Company based on utilization of specific services or, where not
estimable, based on assets employed by the Company in proportion to D&B's total
assets. Management believes these allocation methods are reasonable. These
allocations were $116,900 (including data service charges beginning in 1995),
$65,100 and $61,900 in 1995, 1994, and 1993, respectively, and are included in
operating costs and selling and administrative expenses in the Combined
Statement of Income. Amounts due to D&B for these expenses are included in
divisional equity.
The Company provided certain services to D&B and affiliates at negotiated
prices. Operating revenue from such services totaled $3,539, $9,345 and $3,654
in 1995, 1994, and 1993, respectively.
Net transfers to/from D&B, included in Divisional Equity, includes advances
and loans from affiliates, net cash transfers to/from D&B, third party
liabilities paid on behalf of the Company by D&B, amounts due
F-14
<PAGE> 109
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
to/from D&B for services and other charges, and income taxes paid on behalf of
the Company by D&B. No interest has been charged on these transactions. The
weighted average balance due from D&B was $452,693, $365,120, and $293,635 for
1995, 1994 and 1993, respectively.
The activity in the net transfers (to) from D&B account, included in
Divisional Equity is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
D&B services and other charges.................. $ 121,673 $ 52,801 $ 130,230
Loans and advances -- Net....................... 44,917 (124,561) 6,293
U.S. income taxes............................... 57,596 54,161 50,543
Cash transfers -- Net........................... (337,237) (93,613) (176,084)
--------- --------- ---------
Net transfers (to) from D&B..................... $(113,051) $(111,212) $ 10,982
========= ========= =========
</TABLE>
NOTE 11. LEASE COMMITMENTS
Certain of the Company's operations are conducted from leased facilities,
which are under operating leases. Rental expense under real estate operating
leases for the years 1995, 1994 and 1993 was $34,997, $30,670, and $25,376,
respectively. The totals include $446 and $32 in 1995 and 1994, respectively for
facilities usage charged by D&B or an affiliate. The approximate minimum annual
rental expense for real estate operating leases that have remaining
noncancelable lease terms in excess of one year, net of sublease rentals, at
December 31, 1995, was: 1996 -- $39,034; 1997 -- $35,826; 1998 -- $31,564;
1999 -- $25,962; 2000 -- $22,095; and an aggregate of $80,957 thereafter.
The Company also leases or participates with D&B in leases of certain
computer and other equipment under operating leases. These leases are frequently
renegotiated or otherwise changed as advancements in computer technology produce
opportunities to lower costs and improve performance. Rental expense under
computer and other equipment leases was $21,864, $18,538 and $16,845 for 1995,
1994 and 1993, respectively. At December 31, 1995, the approximate minimum
annual rental expense for computer and other equipment under operating leases
that have remaining noncancelable lease terms in excess of one year was:
1996 -- $21,540; 1997 -- $18,275; 1998 -- $13,101; 1999 -- $8,484;
2000 -- $3,130; and an aggregate of $1,382 thereafter.
Prior to the Distribution the Company will enter into certain lease or
sublease agreements with D&B, an affiliate or third parties for certain leased
facilities, computer and other equipment, which principally are a continuation
of existing lease commitments at market rates. These commitments are included in
the amounts disclosed above.
NOTE 12. LITIGATION
The Company and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings and litigation, if
decided adversely, could have a material effect on quarterly or annual operating
results or cash flows when resolved in a future period. However, in the opinion
of management, these matters will not materially affect the Company's combined
financial position.
In addition, 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 The Dun & Bradstreet Corporation ("D&B"), A.C.
Nielsen Company and I.M.S. International, Inc. ("IMS"), a company that will be
owned by the Company after the Distribution (the "IRI Action").
F-15
<PAGE> 110
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The complaint alleges various violations of the United States antitrust
laws, including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious interference with a prospective business relationship. These
claims relate to the acquisition by defendants of Survey Research Group Limited
("SRG"). IRI alleges that SRG violated an alleged agreement with IRI when it
agreed to be acquired by defendants and that the defendants induced SRG to
breach that agreement.
IRI's complaint alleges 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 connection with the IRI Action, D&B, ACNielsen Corporation ("ACNielsen")
(the parent company of A.C. Nielsen Company) and the Company will enter into an
Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense
Agreement") pursuant to which they will agree (i) to certain arrangements
allocating potential liabilities ("IRI Liabilities") that may arise out of or in
connection with the IRI Action and (ii) to conduct a joint defense of such
action. In particular, the Indemnity and Joint Defense Agreement will provide
that ACNielsen will assume exclusive liability for IRI Liabilities up to a
maximum amount to be calculated at the time such liabilities, if any, become
payable (the "ACN Maximum Amount"), and that the Company and D&B will share
liability equally for any amounts in excess of the ACN Maximum Amount. The ACN
Maximum Amount will be determined by an investment banking firm as the maximum
amount which ACNielsen is able to pay after giving effect to (i) any plan
submitted by such investment bank which is designed to maximize the claims
paying ability of ACNielsen without impairing the investment banking firm's
ability to deliver a viability opinion (but which will not require any action
requiring stockholder approval), and (ii) payment of related fees and expenses.
For these purposes, financial viability means the ability of ACNielsen, after
giving effect to such plan, the payment of related fees and expenses and the
payment of the ACN Maximum Amount, to pay its debts as they become due and to
finance the current and anticipated operating and capital requirements of its
business, as reconstituted by such plan, for two years from the date any such
plan is expected to be implemented.
Management of Cognizant is unable to predict at this time the final outcome of
this matter or whether the resolution of this matter could materially affect
Cognizant's results of operations, cash flows or financial position.
NOTE 13. SUPPLEMENTAL FINANCIAL DATA
Accounts Receivable -- Net:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Trade................................................ $ 386,941 $ 301,649
Less: allowance for doubtful accounts................ (11,446) (10,839)
Unbilled receivables................................. 39,476 34,786
Other................................................ 17,986 13,164
--------- ---------
$ 432,957 $ 338,760
========= =========
</TABLE>
Other Current Assets:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred taxes....................................... $ 16,826 $ 5,370
Prepaid expenses..................................... 42,759 36,059
Inventories.......................................... 24,474 21,612
Marketable securities................................ 30,118 --
--------- ---------
$ 114,177 $ 63,041
========= =========
</TABLE>
F-16
<PAGE> 111
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Property, Plant and Equipment -- Net, carried at cost, less accumulated
depreciation and amortization:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Buildings............................................ $ 125,536 $ 138,882
Machinery and Equipment.............................. 363,305 342,844
Less: accumulated depreciation....................... (281,226) (240,473)
Leasehold improvements, less: accumulated
amortization of $16,117 and $15,528................ 26,276 18,276
Land................................................. 13,236 15,032
--------- ---------
$ 247,127 $ 274,561
========= =========
</TABLE>
Computer Software and Goodwill:
<TABLE>
<CAPTION>
COMPUTER
SOFTWARE GOODWILL
--------- ---------
<S> <C> <C>
January 1, 1994...................................... $ 97,708 $ 183,282
Additions at cost.................................... 60,241 72,630
Amortization......................................... (23,548) (8,793)
Other deductions and reclassifications............... (10,200) 3,008
--------- ---------
December 31, 1994.................................... $ 124,201 $ 250,127
Additions at cost.................................... 70,565 11,799
Amortization......................................... (39,221) (16,167)
Other deductions and reclassifications............... (17,845) (14,871)
--------- ---------
December 31, 1995.................................... $ 137,700 $ 230,888
========= =========
</TABLE>
Accumulated amortization of computer software and goodwill was $164,829 and
$123,258 at December 31, 1995 and 1994, respectively.
Accounts and Notes Payable:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Trade................................................ $ 28,562 $ 19,459
Taxes other than income taxes........................ 14,420 7,212
Notes................................................ 7,424 9,760
Other................................................ 10,560 6,983
--------- ---------
$ 60,966 $ 43,414
========= =========
</TABLE>
Accrued and Other Current Liabilities:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Salaries, wages, bonuses and other compensation...... $ 63,381 $ 64,121
Restructuring costs.................................. 11,515 18,652
Postemployment benefits.............................. 36,582 20,371
Other................................................ 185,987 131,533
--------- ---------
$ 297,465 $ 234,677
========= =========
</TABLE>
F-17
<PAGE> 112
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 14. OPERATIONS BY BUSINESS SEGMENTS
The Company, operating globally, delivers information, software and related
services principally through two business segments referenced below.
<TABLE>
<CAPTION>
MARKETING INFORMATION
INFORMATION TECHNOLOGY
YEAR ENDED DECEMBER 31, 1995 SERVICES(1) SERVICES TOTAL
- -------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Operating Revenue..................................... $ 1,204,701 $337,639 $1,542,340
Restructuring Expense (2)............................. $ 12,800 $ -- $ 12,800
Segment Operating Income (3).......................... $ 158,037 $ 51,180 $ 209,217
General Corporate Expenses (6)........................ 54,540
Non-Operating Income -- Net........................... 7,880
Income Before Provision for Income Taxes.............. $ 162,557
Segment Depreciation and Amortization(4).............. $ 120,545 $ 11,987 $ 132,532
Segment Capital Expenditures.......................... $ 45,975 $ 19,657 $ 65,632
Identifiable Assets at December 31, 1995 (5)............ $ 1,025,787 $355,088 $1,380,875
YEAR ENDED DECEMBER 31, 1994
Operating Revenue..................................... $ 1,019,160 $238,255 $1,257,415
Restructuring Expense (2)............................. $ 7,957 $ -- $ 7,957
Segment Operating Income.............................. $ 228,864 $ 34,185 $ 263,049
General Corporate Expenses............................ 36,414
Non-Operating Income -- Net........................... 18,853
Income Before Provision for Income Taxes.............. $ 245,488
Segment Depreciation and Amortization (4)............. $ 101,826 $ 9,923 $ 111,749
Segment Capital Expenditures.......................... $ 74,686 $ 5,273 $ 79,959
Identifiable Assets at December 31, 1994 (5)............ $ 1,008,507 $275,272 $1,283,779
YEAR ENDED DECEMBER 31, 1993
Operating Revenue..................................... $ 894,053 $145,206 $1,039,259
Restructuring Expense (2)............................. $ 30,413 $ 8,179 $ 38,592
Segment Operating Income.............................. $ 180,966 $ 2,100 $ 183,066
General Corporate Expenses (6)........................ 41,716
Non-Operating Income -- Net........................... 25,982
Income Before Provision for Income Taxes and
Accounting Changes................................. $ 167,332
Segment Depreciation and Amortization (4)............. $ 75,236 $ 7,103 $ 82,339
Segment Capital Expenditures.......................... $ 65,660 $ 3,467 $ 69,127
Identifiable Assets at December 31, 1993 (5)............ $ 908,692 $215,230 $1,123,922
</TABLE>
- ---------------
(1) IMS' operating revenue was $818,537 in 1995, $691,060 in 1994 and $613,915
in 1993.
(2) See Note 4 to the Combined Financial Statements.
(3) Marketing Information Services 1995 Operating Income includes a
non-recurring charge of $72,870 in the fourth quarter. See Note 3 to the
Combined Financial Statements.
(4) Includes depreciation and amortization of Property, Plant and Equipment,
Computer Software, Other Intangibles and Goodwill.
(5) Non-operating assets of $61,215, $47,259 and $34,842 at December 31, 1995,
1994 and 1993, respectively, included primarily Investments and Property,
Plant & Equipment. These assets are not identified with business segments
and represent the reconciling item between the identifiable assets shown and
the Company's total assets.
(6) General Corporate Expenses include $17,200 of non-recurring charges in 1995
and $7,816 of Restructuring expense in 1993 and are principally related to
Corporate owned Property, Plant & Equipment. See Notes 3 and 4 to the
Combined Financial Statements.
F-18
<PAGE> 113
COGNIZANT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 15. OPERATIONS BY GEOGRAPHIC AREA
Financial information by geographic area is summarized as follows.
Inter-area sales were not significant.
<TABLE>
<CAPTION>
OTHER
UNITED STATES EUROPE NON-U.S. TOTAL
------------- -------- -------- ----------
<S> <C> <C> <C> <C>
1995
Operating Revenue................................. $ 824,424 $449,610 $268,306 $1,542,340
Restructuring Expense(1).......................... $ 12,800 $ -- $ -- $ 12,800
Operating Income(2)............................... $ 32,072 $ 44,051 $ 78,554 $ 154,677
Identifiable Assets............................... $ 834,003 $405,059 $141,813 $1,380,875
1994
Operating Revenue................................. $ 682,965 $369,590 $204,860 $1,257,415
Restructuring Expense(1).......................... $ 5,047 $ 2,910 $ -- $ 7,957
Operating Income.................................. $ 95,627 $ 71,042 $ 59,966 $ 226,635
Identifiable Assets............................... $ 800,691 $375,666 $107,422 $1,283,779
1993
Operating Revenue................................. $ 571,815 $312,073 $155,371 $1,039,259
Restructuring Expense(1).......................... $ 36,326 $ 10,082 $ -- $ 46,408
Operating Income.................................. $ 45,047 $ 41,476 $ 54,827 $ 141,350
Identifiable Assets............................... $ 629,861 $405,598 $ 88,463 $1,123,922
</TABLE>
- ---------------
(1) See Note 4 to the Combined Financial Statements.
(2) 1995 Operating Income includes a non-recurring charge of $90,070 ($60,440 in
the U.S., $27,000 in Europe, and $2,630 in Other Non-U.S.) in the fourth
quarter. See Note 3 to the Combined Financial Statements.
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
1995
Operating Revenue.................... $347,519 $362,230 $374,521 $ 458,070 $1,542,340
Restructuring Expense................ $ -- $ -- $ 12,800 $ $ 12,800
Operating Income(1).................. $ 47,881 $ 67,026 $ 34,450 $ 5,320 $ 154,677
Net Income........................... $ 25,853 $ 37,290 $ 15,485 $ 10,253 $ 88,881
1994
Operating Revenue.................... $272,626 $305,150 $311,433 $ 368,206 $1,257,415
Restructuring Expense................ $ -- $ 7,957 $ -- $ -- $ 7,957
Operating Income..................... $ 38,929 $ 56,801 $ 58,877 $ 72,028 $ 226,635
Net Income........................... $ 24,139 $ 45,601 $ 32,712 $ 43,953 $ 146,405
</TABLE>
- ---------------
(1) Includes a non-recurring charge of $90,070 in the fourth quarter. See Note 3
to the Combined Financial Statements.
F-19
<PAGE> 114
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Cognizant Corporation:
We have audited the accompanying balance sheet of Cognizant Corporation, a
wholly owned subsidiary of The Dun & Bradstreet Corporation, as of June 30,
1996. This financial statement is the responsibility of the management of
Cognizant Corporation. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosure in the balance sheet. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe that our audit of
the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Cognizant Corporation as of June
30, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 16, 1996
F-20
<PAGE> 115
COGNIZANT CORPORATION
STATEMENT OF FINANCIAL POSITION
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash................................................................................. $1.00
=====
LIABILITIES AND SHAREHOLDER EQUITY
Common Stock, par value $0.01 per share; authorized -- 1,000 shares; issued and
outstanding -- 100 shares.......................................................... $1.00
=====
</TABLE>
The accompanying notes are an integral part of the financial statement.
F-21
<PAGE> 116
COGNIZANT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
On January 2, 1996, Cognizant Corporation (the "Company") was incorporated
under the General Corporation Law of the State of Delaware. The Company has the
authority under its Certificate of Incorporation to issue 1,000 shares of common
stock, par value $0.01 per share (the "Common Stock"), one hundred shares of
which were issued to The Dun & Bradstreet Corporation ("D&B") on January 3,
1996. The Company has no assets other than cash and has not commenced
operations. The Company's activities to date have been solely related to its
incorporation.
NOTE 2. PROPOSED REORGANIZATIONS
On January 9, 1996, the Board of Directors of D&B approved in principal a
plan to distribute the Common Stock and the common stock of ACNielsen
Corporation to all holders of outstanding shares of common stock of D&B (the
"Distribution"). After the Distribution, Company will operate as an independent
company that will provide information systems and services for high-growth
emerging markets in healthcare, high-tech and media in approximately 100
countries. The Company's businesses will include those of I.M.S. International,
Inc.; Nielsen Media Research, Inc.; Gartner Group, Inc., in which the Company
has approximately a 51% interest; Pilot Software, Inc.; Erisco, Inc.; Dun &
Bradstreet-Satyam Software Private Limited, in which the Company has a 76%
interest; and Cognizant Enterprises, Inc. In connection with the Distribution,
application has been made to list the Common Stock on the New York Stock
Exchange.
NOTE 3. AMENDED CERTIFICATE OF INCORPORATION
Prior to the date of the Distribution, the Company will file a Restated
Certificate of Incorporation which will authorize the issuance of 420,000,000
shares of all classes of stock of which 10,000,000 shares will represent shares
of preferred stock, par value $.01 per share ("Preferred Stock"), 400,000,000
shares will represent shares of Common Stock, and 10,000,000 shares will
represent shares of Series Common Stock, par value $.01 per share ("Series
Common Stock").
F-22
<PAGE> 117
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of ACNielsen Corporation:
We have audited the combined financial statements of ACNielsen Corporation
(a wholly-owned subsidiary of The Dun & Bradstreet Corporation), as defined in
the notes to the combined financial statements, as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995, as
listed in the accompanying Index to Financial Statements. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of ACNielsen
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in the notes to the combined financial statements, in 1995 the
Company changed its method of accounting for the impairment of long-lived assets
and, in 1993, for postemployment benefits and postretirement benefits other than
pensions.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 16, 1996
F-23
<PAGE> 118
ACNIELSEN CORPORATION
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ------------------------------------
------------------------- 1995 1994 1993
1995 ---------- ---------- ----------
-----------
(UNAUDITED)
1996
-----------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Revenue.................. $ 644,240 $ 611,169 $1,281,345 $1,092,107 $1,044,676
-------- -------- ---------- ---------- ----------
Operating Costs.................... 351,634 325,829 859,132 582,225 536,884
Selling and Administrative
Expenses......................... 253,039 238,630 486,992 403,469 363,499
Depreciation & Amortization........ 47,288 57,739 119,229 98,660 93,893
Restructuring Expense.............. -- -- -- 8,922 60,301
-------- -------- ---------- ---------- ----------
Operating Loss..................... (7,721) (11,029) (184,008) (1,169) (9,901)
-------- -------- ---------- ---------- ----------
Interest Income.................... 3,282 4,714 10,025 9,681 11,918
Interest Expense................... (2,651) (7,153) (14,735) (13,111) (1,881)
Other Expense -- Net............... (446) (644) (2,330) (9,989) (5,780)
-------- -------- ---------- ---------- ----------
Non-Operating Income (Expense) --
Net.............................. 185 (3,083) (7,040) (13,419) 4,257
-------- -------- ---------- ---------- ----------
Loss Before Provision for Income
Taxes and Cumulative Effect of
Changes in Accounting
Principles....................... (7,536) (14,112) (191,048) (14,588) (5,644)
Provision for Income Taxes......... (9,948) (22,681) (39,836) (50,473) (49,588)
-------- -------- ---------- ---------- ----------
Loss Before Cumulative Effect of
Changes in Accounting
Principles....................... (17,484) (36,793) (230,884) (65,061) (55,232)
Cumulative Effect to January 1,
1993, of Changes in Accounting
Principles:
-- SFAS No. 106, "Employers'
Accounting for Postretirement
Benefits Other Than Pensions,"
Net of Income Tax Benefits of
$0............................ -- -- -- -- (14,200)
-- SFAS No. 112, "Employers'
Accounting for Postemployment
Benefits," Net of Income Tax
Benefits of $19,697........... -- -- -- -- (105,294)
-------- -------- ---------- ---------- ----------
Net Loss........................... $ (17,484) $ (36,793) $ (230,884) $ (65,061) $ (174,726)
======== ======== ========== ========== ==========
Pro Forma Unaudited Net Loss Per
Share of Common Stock............ $ (0.31) $ (4.09)
======== ==========
Pro Forma Unaudited Average Number
of Shares Outstanding............ 56,603 56,507
======== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-24
<PAGE> 119
ACNIELSEN CORPORATION
COMBINED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
JUNE 30,
1996
-----------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents............................... $ 91,962 $ 89,568 $ 85,036
Accounts Receivable -- Net.............................. 249,137 272,976 233,368
Other Current Assets.................................... 46,969 43,808 30,943
-------- -------- --------
Total Current Assets............................ 388,068 406,352 349,347
-------- -------- --------
Marketable Securities and Other Investments............... 43,469 41,674 51,760
-------- -------- --------
Property, Plant and Equipment -- Net...................... 187,270 189,485 183,050
-------- -------- --------
Other Assets -- Net
Deferred Charges........................................ 61,471 68,049 81,318
Computer Software....................................... 30,595 22,714 55,320
Other Intangibles....................................... 32,111 33,154 65,489
Goodwill................................................ 203,762 208,454 193,464
-------- -------- --------
Total Other Assets -- Net....................... 327,939 332,371 395,591
-------- -------- --------
Total Assets.................................... $ 946,746 $969,882 $979,748
======== ======== ========
LIABILITIES AND DIVISIONAL EQUITY
Current Liabilities
Accounts and Notes Payable.............................. $ 119,198 $118,761 $108,676
Accrued and Other Current Liabilities................... 225,572 239,976 228,992
Accrued Income Taxes.................................... 18,604 33,804 16,653
-------- -------- --------
Total Current Liabilities....................... 363,374 392,541 354,321
-------- -------- --------
Postretirement and Postemployment Benefits................ 106,887 110,191 80,768
Deferred Income Taxes..................................... 28,451 27,588 28,029
Other Liabilities......................................... 49,668 62,437 19,483
-------- -------- --------
Total Liabilities............................... 548,380 592,757 482,601
-------- -------- --------
Commitments and Contingencies
Divisional Equity......................................... 398,366 377,125 497,147
-------- -------- --------
Total Liabilities and Divisional Equity......... $ 946,746 $969,882 $979,748
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-25
<PAGE> 120
ACNIELSEN CORPORATION
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ---------------------------------
------------------------ 1995 1994 1993
1995 --------- --------- ---------
-----------
1996 (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss........................................... $ (17,484) $ (36,793) $(230,884) $ (65,061) $(174,726)
Reconciliation of Net Loss to Net Cash (Used in)
Provided by Operating Activities:
Cumulative Effect of Changes in Accounting
Principles:
Postemployment Benefits..................... -- -- -- -- 105,294
Postretirement Benefits Other than
Pensions................................. -- -- -- -- 14,200
Depreciation and Amortization.................... 47,288 57,739 119,229 98,660 93,893
Restructuring Provisions......................... -- -- -- 8,922 60,301
Non-Recurring Charge............................. -- -- 152,170 -- --
Restructuring Payments........................... (342) (4,964) (10,065) (18,951) (20,134)
Postemployment Benefit Expense................... 3,333 2,016 36,168 2,565 1,816
Postemployment Benefit Payments.................. (14,008) (26,351) (50,290) (67,790) (7,423)
Payments Related to 1995 Non-recurring Charge.... (15,877) -- -- -- --
Net Decrease (Increase) in Accounts
Receivable.................................... 15,353 (20,895) (32,461) (21,693) 2,492
Deferred Income Taxes............................ 1,597 (214) (15,603) 32,347 7,446
Non-U.S. Income Taxes Paid....................... (33,189) (12,088) (19,882) (35,654) (30,131)
Non-U.S. Income Tax Refunds...................... 2,664 396 -- 219 589
Net Decrease (Increase)in Other Working Capital Items.. 7,562 (3,395) 74,371 21,766 22,517
Other............................................ (4,091) 4,511 1,522 5,365 (1,299)
-------- -------- --------- --------- ---------
Net Cash (Used in) Provided by Operating
Activities....................................... (7,194) (40,038) 24,275 (39,305) 74,835
-------- -------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Marketable Securities................ 3 -- 257 5,608 8,541
Payments for Marketable Securities................. (841) (2,283) (2,807) (4,119) (2,421)
Payments for Acquisition of Businesses............. -- (2,766) (11,466) (112,009) (7,255)
Capital Expenditures............................... (29,786) (49,206) (86,862) (51,053) (48,669)
Additions to Computer Software..................... (10,868) (9,610) (20,535) (21,726) (22,389)
Investments in Efficient Market Services and
Manugistics...................................... -- -- -- (21,932) --
(Increase) Decrease in Other Investments........... (1,447) 640 2,199 (2,239) 4,732
Other.............................................. (1,821) (14,354) 8,045 (1,052) (13,938)
-------- -------- --------- --------- ---------
Net Cash Used in Investing Activities.............. (44,760) (77,579) (111,169) (208,522) (81,399)
-------- -------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Amount Received from
The Dun & Bradstreet Corporation................. 41,876 95,151 101,140 155,260 27,025
Increase (Decrease) in Short-Term Borrowings....... 12,924 23,713 (11,731) 38,630 (5,983)
Other.............................................. (403) 4,911 (1,632) 1,631 (3,788)
-------- -------- --------- --------- ---------
Net Cash Provided by Financing Activities.......... 54,397 123,775 87,777 195,521 17,254
-------- -------- --------- --------- ---------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents...................................... (49) 4,775 3,649 12,193 (13,747)
-------- -------- --------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents... 2,394 10,933 4,532 (40,113) (3,057)
Cash and Cash Equivalents, Beginning of Period..... 89,568 85,036 85,036 125,149 128,206
-------- -------- --------- --------- ---------
Cash and Cash Equivalents, End of Period........... $ 91,962 $ 95,969 $ 89,568 $ 85,036 $ 125,149
======== ======== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest........... $ 2,584 $ 3,150 $ 14,713 $ 12,586 $ 2,601
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-26
<PAGE> 121
ACNIELSEN CORPORATION
COMBINED STATEMENT OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
--------- -------- ---------
SIX MONTHS
ENDED
JUNE 30,
1996
-----------
(UNAUDITED)(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, Beginning of Period................ $ 377,125 $ 497,147 $385,793 $ 571,519
Net Loss.................................. (17,484) (230,884) (65,061) (174,726)
Unrealized Gains (Losses) on Securities... 957 (439) (2,252) --
Net Transfers from The Dun & Bradstreet
Corporation............................ 41,876 101,140 155,260 27,025
Foreign Currency Translation.............. (4,108) 10,161 23,407 (38,025)
-------- -------- -------- --------
Balance, End of Period...................... $ 398,366 $ 377,125 $497,147 $ 385,793
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-27
<PAGE> 122
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
On January 9, 1996 The Dun & Bradstreet Corporation ("D&B") announced a
plan to reorganize into three publicly traded independent companies by spinning
off through a tax-free distribution (the "Distribution") two of its businesses
to shareholders. The Distribution is subject to final approval by D&B's Board of
Directors. The Internal Revenue Service has ruled that the spin-off will be a
tax-free transaction for shareholders. Certain separate international tax
rulings are pending with respect to the tax-free treatment of the Distribution.
Under the plan, ACNielsen Corporation (the "Company") will become a publicly
traded company comprised of the D&B businesses and operations that now comprise
the Company, and substantially all of the assets and liabilities of such
businesses. The Company was incorporated on April 30, 1996, with 100 shares of
Common Stock, with a par value of $1.00 per share, authorized and outstanding,
all of which are owned by D&B. The articles of incorporation were subsequently
restated to amend the par value of Common Stock to $.01 per share. For purposes
of these financial statements, all references to the Company include the assets
and liabilities related to the businesses that will be transferred to the
Company prior to the Distribution.
The combined financial statements have been prepared using D&B's historical
basis of accounting for the assets and liabilities and historical results of
operations related to the Company's businesses, except for accounting for income
taxes (see Note 2 to the Combined Financial Statements). Investments in
companies over which the Company has significant influence but not a controlling
interest are carried at equity. The effects of all significant intercompany
transactions have been eliminated.
The financial statements of subsidiaries outside the United States and
Canada reflect a fiscal year ending November 30 to facilitate timely reporting
of the Company's combined financial results.
The combined financial statements generally reflect the financial position,
results of operations, and cash flows of the Company as if it were a separate
entity for all periods presented. The combined financial statements include
allocations of certain D&B Corporate assets (including prepaid pension assets)
and liabilities (including pension and postretirement benefits), and expenses
(including cash management, legal, accounting, tax, employee benefits, insurance
services, data services and other D&B Corporate overhead) relating to the
Company's businesses that will be transferred to the Company from D&B.
Management believes these allocations are reasonable. However, the financial
information included herein may not necessarily reflect the combined financial
position, results of operations, and cash flows of the Company in the future or
what they would have been had the Company been a separate entity during the
periods presented.
For purposes of governing certain of the ongoing relationships between the
Company, D&B and Cognizant Corporation after the Distribution and to provide for
orderly transition, the Company, D&B and Cognizant Corporation will enter into
various agreements including a Distribution Agreement, Employee Benefits
Agreement, Tax Allocation Agreement, Indemnity and Joint Defense Agreement, TAM
Master Agreement, Shared Transaction Services Agreements, Intellectual Property
Agreement, Transition Services Agreement and Data Services Agreement. Summaries
of these agreements are set forth elsewhere in this Information Statement.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents and Marketable Securities. Marketable securities that
mature within 90 days of purchase date are considered cash equivalents. At
December 31, 1995 and 1994, all marketable securities are classified as
'available for sale' and therefore are reported at fair value, with net
unrealized gains and losses reported in divisional equity, in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Debt and Equity Securities."
Property, Plant and Equipment. Buildings and machinery and equipment are
depreciated over their estimated useful lives using principally the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or the estimated useful life of
the improvement.
Other Assets. Deferred charges include prepaid pension costs. Certain
internal costs incurred in the development of computer software are capitalized
in accordance with SFAS 86, "Accounting for the Costs of
F-28
<PAGE> 123
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Computer Software to be Sold, Leased or Otherwise Marketed". As such, costs
incurred to establish technological feasibility of a computer software product
are expensed in the periods in which they are incurred. Capitalization ceases
and amortization starts when the product is available for general release to
customers. Computer software costs are being amortized on a product by product
basis, over three to five years. Annual amortization is the greater of the
amount computed using (a) the ratio that gross revenues for a product bear to
the total of current and anticipated future gross revenues for that product or
(b) the straight-line method over the remaining estimated economic life of the
product. Other intangibles result from acquisitions, customer lists and database
development. Other intangibles are being amortized, using principally the
straight-line method, over five to fifteen years. Goodwill represents the excess
purchase price over the fair value of identifiable net assets of businesses
acquired and is amortized on a straight-line basis over five to forty years.
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in
1995. This statement requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In general, this statement requires recognition of an
impairment loss when the sum of undiscounted expected future cash flows is less
than the carrying amount of such assets. The measurement for such impairment
loss is then based on the fair value of the asset. See Note 3 to the Combined
Financial Statements.
At each balance sheet date, the Company reviews the recoverability of the
unamortized capitalized costs of computer software products by comparing the
carrying value of computer software with its estimated net realizable value.
At each balance sheet date, the Company reviews the recoverability of
goodwill, not identified with impaired long-lived assets, based on estimated
undiscounted future cash flows from operating activities compared with the
carrying value of goodwill and recognizes any impairment on the basis of such
comparison. The recognition and measurement of goodwill impairment is assessed
at the business unit level.
Revenue Recognition. Retail Measurement Service Products generally have
contract terms of one to three years. The base contract revenue from the first
commitment period is recognized ratably over the initial contract term. Revenues
from remaining years of multi-year contracts, extensions and renewals are
recognized ratably over their extension periods. After the initial commitment,
the contract generally continues indefinitely, unless canceled by the client
with a minimum of eight months prior written notice.
Revenue for special analytical services is recognized as services are
performed. Consumer Panel products generally have contract terms of one year
with revenue recognized over the term of the contract on a straight-line basis.
International Media Services are generally provided over longer periods
with revenues recognized on a straight-line basis over the contract term. The
contracts are cancelable only with significant penalties.
Foreign Currency Translation. For all operations outside the United States
where the Company has designated the local currency as the functional currency,
assets and liabilities are translated using end-of-period exchange rates;
revenues and expenses are translated using average rates of exchange. For these
countries, currency translation adjustments are accumulated in a separate
component of divisional equity, whereas realized transaction gains and losses
are recognized in other income (expense)-net. For operations in countries that
are considered to be highly inflationary, where the U.S. dollar is designated as
the functional currency, monetary assets and liabilities are translated using
end-of-period exchange rates, nonmonetary accounts are translated using
historical exchange rates, and all translation and transaction adjustments are
recognized in other income (expense)-net.
The Company has significant operations in non-U.S. countries. Therefore,
changes in the value of foreign currencies affect the Company's combined
financial statements when translated into U.S. dollars.
F-29
<PAGE> 124
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Income Taxes. The Company has been included in the Federal and certain
state and non-U.S. income tax returns of D&B. The provision for income taxes in
the Company's combined financial statements has been calculated on a
separate-company basis. Income taxes paid on behalf of the Company by D&B are
included in divisional equity. Effective after the Distribution, the Company
will file separate income tax returns.
Divisional Equity. Divisional equity includes historical investments and
advances from D&B, including net transfers to/from D&B, third party liabilities
paid on behalf of the Company by D&B and amounts due to/from D&B for services
and other charges, as well as current period loss, unrealized gains (losses) on
securities, and foreign currency translation adjustments.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
Pro Forma Loss Per Share (Unaudited). The computation of pro forma loss
per share for the periods ended June 30, 1996 and December 31, 1995 is based on
the average number of shares of D&B common stock outstanding during the
respective periods, adjusted for the one for three distribution ratio.
Interim Period Financial Statements. The unaudited condensed combined
interim financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the combined financial
position of the Company and its affiliates at June 30, 1996 and its results of
operations and cash flows for the six months ended June 30, 1996 and 1995.
Interim results are not necessarily indicative of full year performance.
NOTE 3. NON-RECURRING CHARGES
In the fourth quarter of 1995, the Company recorded within operating costs
a charge of $152,170. This charge primarily reflected an impairment loss in
connection with the adoption of the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
($74,370), a provision for postemployment benefits ($14,300) under D&B's
severance plan, an accrual for contractual obligations that have no future
economic benefits ($55,800) and other asset revaluations ($7,700). No payments
relating to the accrued contractual obligations were made in 1995.
SFAS No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In connection with
this review, the Company recorded an impairment loss of $74,370 reflecting the
revaluation of certain fixed assets, administrative and production systems and
other intangibles that will be replaced or will no longer be used by the
Company.
The provision for postemployment benefits of $14,300, represents the cost
of workforce reductions. The accrual for contractual obligations that have no
future economic benefits of $55,800 relates to the acquisition of certain
information and services that are no longer used by the Company, and the other
asset revaluations of $7,700 are necessitated based on an evaluation of the new
business initiatives.
This non-recurring charge evolved from D&B's annual budget and strategic
planning process, which included a review of D&B's underlying cost structure,
products and services and assets used in the business. Based upon such analysis,
management having the authority to approve such business decisions committed in
December 1995 to a plan to discontinue certain product lines and dispose of
certain other assets, resulting in the charge. These decisions were not reversed
or modified as a result of D&B's reorganization plan, which was reviewed and,
subject to certain conditions, approved by the Board of Directors of D&B on
January 9, 1996.
F-30
<PAGE> 125
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 4. RESTRUCTURING
In 1994, the Company recorded $8,922 to restructure certain operations and
businesses, and to reduce costs and increase operating efficiencies.
In 1993, the Company recorded $60,301 to restructure certain operations and
businesses. These actions were part of a D&B-wide plan designed to achieve
long-term productivity improvements and reduce costs. The costs associated with
this plan, and all other restructuring actions, included only specific, direct
and incremental costs that could be estimated with reasonable accuracy and were
clearly identifiable with the related plans.
The restructuring charge in 1993 included $11,811 to initiate approximately
16 separate actions to reduce real estate costs by consolidating office
facilities in each of five major geographic regions in the U.S. and eleven
geographic regions in Europe. Costs incurred included lease termination costs
and asset writeoffs. The Company also provided $48,490 to discontinue certain
production systems and products. These costs principally related to writeoffs of
computer software and other intangible assets.
The table below sets forth the details of all restructuring accrual
activity by major category for the years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
1995
1994 ACTIVITY ACTIVITY
------------------ --------
JANUARY 1, CASH DECEMBER 31, CASH DECEMBER 31,
CATEGORY 1994 EXPENSE PAYMENTS 1994 PAYMENTS 1995
- -------------------------------------- ---------- ------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Real estate cost reductions........... $ 11,811 $ -- $ (5,411) $ 6,400 $ (5,702) $ 698
Discontinue production and data
collection systems and products..... 8,319 -- (7,948) 371 (371) --
Other................................. 4,289 8,922 (5,592) 7,619 (3,992) 3,627
------- ------ -------- ------- -------- ------
Total................................. $ 24,419 $8,922 $(18,951) $ 14,390 $(10,065) $4,325
======= ====== ======== ======= ======== ======
</TABLE>
NOTE 5. ACQUISITIONS
In 1995, 1994 and 1993, the Company acquired various companies in separate
transactions that were accounted for as purchases.
The aggregate purchase price of such acquisitions totaled $11,466 in 1995,
$112,009 in 1994 and $7,255 in 1993. In 1994, the largest acquisition was Survey
Research Group, a premier market research firm in Southeast Asia. The purchase
price was $85,351.
The results of operations of all purchases are included in the Combined
Statement of Operations from dates of acquisition. With the exception of the
acquisition of Survey Research Group in 1994, had all other acquisitions made in
1995, 1994 and 1993 been consummated on January 1 of the year preceding the year
of acquisition, the results of these acquired operations would not have had a
significant impact on the Company's combined results of operations for any of
the years presented.
The following unaudited pro forma summary of operations for the years ended
December 31, 1994 and 1993, presents information as if the acquisition of Survey
Research Group occurred as of the beginning of the respective years:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(UNAUDITED)
<S> <C> <C>
Operating Revenue............................................ $1,142,507 $1,114,449
Loss Before Cumulative Effect of Changes in Accounting
Principles................................................. $ (66,947) $ (54,505)
</TABLE>
F-31
<PAGE> 126
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The pro forma information is not necessarily indicative of the results that
would have occurred had the acquisition taken place at the beginning of the
respective years or what may occur in the future.
NOTE 6. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
At the Distribution, the Company will assume responsibility for pension and
postretirement benefits for active employees of the Company; the responsibility
for all others, principally retirees, will remain with D&B. An allocation of
assets and liabilities for such active employee benefits, which are not
material, has been included in the combined financial statements.
U.S. Benefit Plans. Certain of the Company's businesses participate in
D&B's defined benefit pension plan covering substantially all employees in the
United States. The benefits to be paid to employees under these plans are based
on years of credited service and average final compensation. The Company
accounts for the plan as a multi-employer plan. Accordingly, the Company has
recorded pension (costs) income as allocated by D&B totaling $(882), $645 and
$825 for the years 1995, 1994 and 1993, respectively. During 1994, the Company
recognized a pension curtailment gain of $2,303 resulting from a workforce
reduction.
Certain employees of the Company in the United States also are eligible to
participate in the D&B-sponsored defined contribution plan. The Company's
businesses make a matching contribution of up to 100% of the employee's
contribution based on specified limits of the employee's salary. The Company's
expense related to this plan was $4,695, $4,105 and $4,473 for the years 1995,
1994 and 1993, respectively.
Non-U.S. Benefit Plans. The Company's non-U.S. subsidiaries provide
retirement benefits for employees consistent with local practices, primarily
using defined benefit or termination indemnity plans. The projected benefit
obligations for these funded and unfunded plans at December 31, 1995 and 1994
were $196,073 and $182,645, respectively. Prepaid pension costs for the funded
plans totaled $31,393 and $26,547 as of December 31, 1995 and 1994. Accrued
pension costs for the unfunded plans totaled $57,153 and $55,694 as of December
31, 1995 and 1994. Pension costs for these plans were $9,194, $12,427 and $7,514
for the years 1995, 1994 and 1993, respectively.
The weighted average expected long-term rate of return on pension plan
assets was 9.85%, 9.87% and 9.78% for 1995, 1994 and 1993, respectively. At
December 31, 1995 and 1994, the projected benefit obligations were determined
using weighted average discount rates of 8.15% and 8.57%, respectively, and
weighted average rates of increase in future compensation levels of 4.94% and
5.24%, respectively. Plan assets are invested in diversified portfolios that
consist primarily of equity and debt securities.
Postretirement Benefits. In addition to providing pension benefits, D&B
provides various health-care and life-insurance benefits for retired employees.
Employees at certain businesses of the Company in the United States become
eligible for these benefits if they reach normal retirement age while working
for the Company. Certain of the Company's subsidiaries outside the United States
have postretirement benefit plans, although most participants are covered by
government-sponsored or-administered plans. The cost of Company-sponsored
postretirement benefit plans outside the U.S. is not significant.
During 1993 the Company adopted the provisions of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The initial effect
of adopting SFAS No. 106 was a one-time, non-cash, after-tax charge of $14,200.
The adoption of SFAS No. 106 did not have a significant effect on 1993 expense.
The Company accounts for the plan as a multi-employer plan. Accordingly, the
Company has recorded postretirement benefits costs as allocated by D&B totaling
$1,356, $2,365 and $3,629 for the years 1995, 1994 and 1993, respectively.
During 1994 the Company recognized a curtailment gain of $4,082 resulting from a
change in eligibility requirements for the postretirement medical plan.
F-32
<PAGE> 127
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Postemployment Benefits. During 1993, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires that
employers expense the costs of postemployment benefits paid before retirement,
principally severance benefits, over the service lives of employees if certain
conditions are met. Under the Company's previous accounting policy, the total
cost of such benefits was expensed when the event occurred.
The initial effect of adopting SFAS No. 112 was a one-time, after-tax
charge of $105,294. The adoption of SFAS No. 112 did not have a significant
effect on 1993 expense.
NOTE 7. EMPLOYEE STOCK PLANS
Under D&B's Key Employees Stock Option Plans, certain employees of the
Company are eligible for the grant of stock options, stock appreciation rights
and limited stock appreciation rights in tandem with stock options. These awards
are granted at the market price on the date of the grant. At December 31, 1995,
outstanding options for D&B common stock held by Company employees totaled
1,347,020 of which 497,842 had vested and were exercisable. The option prices
range from $41.50 to $63.75 per share.
Immediately following the Distribution, outstanding awards under the D&B
Key Employees Stock Option Plans held by Company employees will be replaced by
substitute awards under the Company's plan. The substitute awards will have the
same ratio of the exercise price per option to the market value per share, the
same aggregate difference between market value and exercise price and the same
vesting provisions, option periods and other terms and conditions as the options
they replace.
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which requires that
companies with stock-based compensation plans either recognize compensation
expense based on the fair value of options granted or continue to apply the
existing accounting rules and disclose pro forma net income and earnings per
share assuming the fair value method had been applied. The Company is evaluating
the new statement and has not determined whether it will adopt the recognition
or disclosure alternative of the statement. Therefore, the impact of adoption on
the Company's financial statements has not been determined. The new disclosure
requirements are generally effective for financial statements for fiscal years
beginning after December 15, 1995.
NOTE 8. INCOME TAXES
Income (loss) before provision for income taxes consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
U.S..................................... $(244,236) $(129,484) $(100,307)
Non-U.S................................. 53,188 114,896 94,663
--------- --------- ---------
$(191,048) $ (14,588) $ (5,644)
========= ========= =========
</TABLE>
The Company has not recognized benefits on the U.S. losses reflected above
since the Company does not believe it is more likely than not that such benefits
could be recognized on a separate-company basis, however the losses have been
included in D&B's consolidated tax return and as such, benefits have been
reflected as a capital transaction in divisional equity.
F-33
<PAGE> 128
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
U.S. Federal and state:
Current................................... $ 32,237 $(6,186) $ 22,704
Deferred.................................. (30,237) 6,860 (21,767)
-------- ------- --------
Total..................................... 2,000 674 937
-------- ------- --------
Non-U.S.:
Current................................... 22,846 24,127 40,740
Deferred.................................. 14,990 25,672 7,911
-------- ------- --------
Total..................................... 37,836 49,799 48,651
-------- ------- --------
Total..................................... $ 39,836 $50,473 $ 49,588
======== ======= ========
</TABLE>
The following table summarizes the significant differences between the U.S.
Federal statutory taxes and the Company's provision for income taxes for
combined financial statement purposes.
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Tax benefit at statutory rate........................ $(66,867) $(5,106) $(1,975)
State and local income taxes, net of Federal
effect............................................. (8,962) (3,488) (3,607)
U.S. losses for which no tax benefits were
provided........................................... 94,445 48,807 38,714
Non-U.S. taxes....................................... 19,220 9,586 15,519
Other................................................ 2,000 674 937
-------- ------- -------
Total taxes.......................................... $ 39,836 $50,473 $49,588
======== ======= =======
</TABLE>
The Company's deferred tax assets (liabilities) are comprised of the
following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Operating Losses..................................... $ 55,043 $ 38,683
Non Recurring Charges................................ 22,928 0
Postemployment Benefits.............................. 8,766 13,806
Postretirement Benefits.............................. 8,197 8,405
Bad Debts............................................ 1,469 924
Restructuring Costs.................................. 747 6,375
Other................................................ 922 841
-------- --------
98,072 69,034
Valuation Allowance.................................... (80,522) (45,105)
-------- --------
17,550 23,929
-------- --------
Deferred Tax Liabilities:
Intangibles.......................................... (10,239) (27,715)
Deferred Revenue..................................... (7,364) (5,854)
Depreciation......................................... (3,847) (9,171)
Other................................................ (3,253) (3,589)
-------- --------
(24,703) (46,329)
-------- --------
Net Deferred Tax Liability............................. $ (7,153) $(22,400)
======== ========
</TABLE>
Undistributed earnings of non-U.S. subsidiaries aggregated approximately
$340,328 at December 31, 1995. Deferred tax liabilities have not been recognized
for these undistributed earnings because it has been
F-34
<PAGE> 129
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
D&B's policy to permanently reinvest such undistributed earnings outside the
U.S. If such earnings are repatriated in the future, or are no longer deemed to
be permanently reinvested, applicable taxes will be provided for on such
amounts. It is not currently practicable to determine the amount of applicable
taxes.
NOTE 9. OTHER TRANSACTIONS WITH AFFILIATES
D&B uses a centralized cash management system to finance its operations.
Cash deposits from most of the Company's businesses are transferred to D&B on a
daily basis and D&B funds the Company's disbursement bank accounts as required.
No interest has been charged on these transactions. Cash and cash equivalents in
the accompanying combined financial statements represents balances of certain
foreign entities.
D&B historically has provided certain centralized services (see Note 1 to
the Combined Financial Statements) to the Company. Expenses related to these
services were allocated to the Company based on utilization of specific services
or, where not estimable, based on assets employed by the Company in proportion
to D&B's total assets. Management believes these allocation methods are
reasonable. These allocations were $85,700 (including data service charges
beginning in 1995), $45,017 and $44,200 in 1995, 1994, and 1993, respectively,
and are included in operating costs and selling and administrative expenses in
the Combined Statement of Operations. Amounts due to D&B for these expenses are
included in divisional equity.
The Company provided certain services to D&B and affiliates at negotiated
prices. Operating revenue from such services totaled $1,531, $2,970 and $721 in
1995, 1994, and 1993, respectively.
Net transfers to/from D&B, included in Divisional Equity, includes advances
and loans from affiliates, net cash transfers to/from D&B, third party
liabilities paid on behalf of the Company by D&B, amounts due to/from D&B for
services and other charges, and income taxes paid on behalf of the Company by
D&B. No interest has been charged on these transactions. The weighted average
balance due to D&B was $713,099, $518,738, and $458,661 for 1995, 1994 and 1993,
respectively.
The activity in the net transfers (to) from D&B account, included in
Divisional Equity is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
D&B services and other charges................. $ 88,505 $ 36,881 $ 182,689
Loans and advances -- Net...................... 132,734 206,835 104,141
U.S. income taxes.............................. 32,237 (6,186) 22,704
Cash transfers -- Net.......................... (152,336) (82,270) (282,509)
--------- --------- ---------
Net transfers from D&B......................... $ 101,140 $ 155,260 $ 27,025
========= ========= =========
</TABLE>
NOTE 10. LEASE COMMITMENTS
Certain of the Company's operations are conducted from leased facilities,
which are under operating leases. Rental expense under real estate operating
leases for the years 1995, 1994 and 1993 was $40,109, $31,781 and $34,581,
respectively. The totals include $115 and $124 in 1995 and 1994, respectively
for facilities usage charged by D&B or an affiliate. The approximate minimum
annual rental expense for real estate operating leases that have remaining
noncancelable lease terms in excess of one year, net of sublease rentals, at
December 31, 1995, was: 1996 -- $33,187; 1997 -- $30,047; 1998 -- $29,051;
1999 -- $26,275; 2000 -- $21,908; and an aggregate of $31,607 thereafter.
The Company also leases or participates with D&B in leases of certain
computer and other equipment under operating leases. These leases are frequently
renegotiated or otherwise changed as advancements in computer technology produce
opportunities to lower costs and improve performance. Rental expense under
computer and other equipment leases was $25,076, $17,796 and $36,124 for 1995,
1994 and 1993, respectively. At December 31, 1995,
F-35
<PAGE> 130
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
the approximate minimum annual rental expense for computer and other equipment
under operating leases that have remaining noncancelable lease terms in excess
of one year was: 1996 -- $27,079; 1997 -- $22,966; 1998 -- $15,106;
1999 -- $10,538; 2000 -- $4,923; and an aggregate of $2,973 thereafter.
The Company has an agreement with a third party to purchase certain data
processing services, extending beyond one year. At December 31, 1995, the
purchases covered by this agreement total approximately: 1996 -- $8,700;
1997 -- $6,500; 1998 -- $3,600; 1999 -- $800; 2000 -- $800; and thereafter
$2,200.
Prior to the Distribution, the Company will enter into certain lease or
sublease agreements with D&B, an affiliate or third parties for certain leased
facilities, computer and other equipment, which principally are a continuation
of existing lease commitments at market rates. The commitments are included in
the amounts disclosed above.
NOTE 11. LITIGATION
The Company and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings, claims and
litigation, if decided adversely, could have a material effect on quarterly or
annual operating results or cash flows when resolved in a future period.
However, in the opinion of management, these matters will not materially affect
the Company's combined financial position.
Directorate General IV of the Commission of the European Union (the
"Commission") is currently investigating the Company for the possible violation
of European Union competition law. In May 1996, the Commission issued a
Statement of Objections with respect to certain of the Company's practices in
Europe, including discounting and other sales practices. The Company has
submitted its response to the Commission's Statement of Objections. Following
the review of such submission and a hearing at which representatives of European
Union member states will participate, the Commission may uphold the Company's
position and dismiss the complaint or adopt a decision prohibiting any of the
practices identified in the Statement of Objections and imposing substantial
fines.
In addition, 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 The Dun & Bradstreet Corporation ("D&B"), A.C.
Nielsen Company (which is a subsidiary of the Company) and I.M.S. International,
Inc. ("IMS") (the "IRI Action").
The complaint alleges various violations of the United States antitrust
laws, including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious interference with a prospective business relationship. These
claims relate to the acquisition by defendants of Survey Research Group Limited
("SRG"). IRI alleges that SRG violated an alleged agreement with IRI when it
agreed to be acquired by the defendants and that the defendants induced SRG to
breach that agreement.
IRI's complaint alleges 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 connection with the IRI Action, D&B, Cognizant Corporation (the parent
company of IMS) and the Company will enter into an Indemnity and Joint Defense
Agreement (the "Indemnity and Joint Defense Agreement") pursuant to which they
will agree (i) to certain arrangements allocating potential liabilities ("IRI
Liabilities") that may arise out of or in connection with the IRI Action and
(ii) to conduct a joint defense of such action. In particular, the Indemnity and
Joint Defense Agreement will provide that the Company will assume exclusive
liability for IRI Liabilities up to a maximum amount to be calculated at the
time such liabilities, if any, become payable (the "ACN Maximum Amount"), and
that Cognizant and D&B will share liability equally for any amounts in excess of
the ACN Maximum Amount. The ACN Maximum
F-36
<PAGE> 131
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Amount will be determined by an investment banking firm as the maximum amount
which the Company is able to pay after giving effect to (i) any plan submitted
by such investment bank which is designed to maximize the claims paying ability
of the Company without impairing the investment banking firm's ability to
deliver a viability opinion (but which will not require any action requiring
stockholder approval), and (ii) payment of related fees and expenses. For these
purposes, financial viability means the ability of the Company, after giving
effect to such plan, the payment of related fees and expenses and the payment of
the ACN Maximum Amount, to pay its debts as they become due and to finance the
current and anticipated operating and capital requirements of its business, as
reconstituted by such plan, for two years from the date any such plan is
expected to be implemented.
Management of ACNielsen is unable to predict at this time the final outcome
of either the IRI Action or the Commission's investigation or whether the
resolution of either matter could materially affect the Company's results of
operations, cash flows or financial position.
NOTE 12. SUPPLEMENTAL FINANCIAL DATA
Accounts Receivable -- Net:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Trade..................................................... $229,492 $197,603
Less: allowance for doubtful accounts..................... (17,289) (8,077)
Unbilled receivables...................................... 30,579 19,305
Other..................................................... 30,194 24,537
-------- --------
$272,976 $233,368
======== ========
</TABLE>
Other Current Assets:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred taxes.............................................. $20,435 $ 5,629
Prepaid expenses............................................ 23,373 25,314
------- -------
$43,808 $30,943
======= =======
</TABLE>
Property, Plant and Equipment -- Net, carried at cost, less accumulated
depreciation and amortization:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Buildings............................................... $ 53,927 $ 52,944
Machinery and Equipment................................. 371,659 344,852
Less: accumulated depreciation.......................... (260,090) (227,221)
Leasehold improvements, less: accumulated amortization
of $20,644 and $18,543................................ 19,237 9,252
Land.................................................... 4,752 3,223
--------- ---------
$ 189,485 $ 183,050
========= =========
</TABLE>
F-37
<PAGE> 132
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Computer Software, Other Intangibles and Goodwill:
<TABLE>
<CAPTION>
COMPUTER OTHER
SOFTWARE INTANGIBLES GOODWILL
-------- ----------- --------
<S> <C> <C> <C>
January 1, 1994............................... $ 47,363 $ 74,882 $106,550
Additions at cost............................. 21,726 8,439 90,536
Amortization.................................. (27,290) (4,815) (5,834)
Other deductions and reclassifications........ 13,521 (13,017) 2,212
-------- -------- --------
December 31, 1994............................. 55,320 65,489 193,464
Additions at cost............................. 20,535 1,793 3,444
Amortization.................................. (36,643) (5,410) (9,609)
Other deductions and reclassifications........ (16,498) (28,718) 21,155
-------- -------- --------
December 31, 1995............................. $ 22,714 $ 33,154 $208,454
======== ======== ========
</TABLE>
Accumulated amortization of computer software, other intangibles and
goodwill was $130,642 and $91,286 at December 31, 1995 and 1994, respectively.
Accounts and Notes Payable:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Trade..................................................... $ 43,692 $ 32,452
Customer advances......................................... 2,768 3,268
Taxes other than income taxes............................. 33,359 25,561
Notes..................................................... 29,698 42,688
Other..................................................... 9,244 4,707
-------- --------
$118,761 $108,676
======== ========
</TABLE>
Accrued and Other Current Liabilities:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Salaries, wages, bonuses and other compensation........... $ 39,633 $ 40,098
Restructuring costs....................................... 4,325 14,390
Postemployment benefits................................... 39,232 62,571
Other..................................................... 156,786 111,933
-------- --------
$239,976 $228,992
======== ========
</TABLE>
F-38
<PAGE> 133
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 13. OPERATIONS BY GEOGRAPHIC AREA
The Company, operating globally, provides marketing research, information
and analysis services to the worldwide consumer products services industry.
Financial information by geographic area is summarized as follows.
Inter-area sales were not significant.
<TABLE>
<CAPTION>
OPERATING OPERATING IDENTIFIABLE
REVENUE INCOME (LOSS) ASSETS
---------- ------------- ------------
<S> <C> <C> <C>
1995
United States...................................... $ 274,552 $(172,971) $192,429
Canada/Latin America............................... 169,009 18,967 112,373
---------- -------- --------
Total Americas........................... 443,561 (154,004) 304,802
---------- -------- --------
Europe............................................. 583,269 (5,599) 457,681
Asia Pacific....................................... 216,875 11,695 198,310
ACN Japan.......................................... 37,640 (36,100) 9,089
---------- -------- --------
Total.................................... $1,281,345 $(184,008)(1) $969,882
========== ======== ========
1994
United States...................................... $ 256,111 $ (90,665) $249,071
Canada/Latin America............................... 149,124 27,322 94,329
---------- -------- --------
Total Americas........................... 405,235 (63,343) 343,400
---------- -------- --------
Europe............................................. 548,647 69,893 434,870
Asia Pacific....................................... 105,565 11,172 178,447
ACN Japan.......................................... 32,660 (18,891) 23,031
---------- -------- --------
Total.................................... $1,092,107 $ (1,169) (2) $979,748
========== ======== ========
1993
United States...................................... $ 296,802 $ (87,168) $256,942
Canada/Latin America............................... 124,732 24,106 61,678
---------- -------- --------
Total Americas........................... 421,534 (63,062) 318,620
---------- -------- --------
Europe............................................. 550,334 55,985 454,721
Asia Pacific....................................... 45,052 13,030 51,718
ACN Japan.......................................... 27,756 (15,854) 20,027
---------- -------- --------
Total.................................... $1,044,676 $ (9,901)(3) $845,086
========== ======== ========
</TABLE>
- ---------------
(1) 1995 Operating Loss includes a non-recurring charge of $152,170 ($107,000 in
the U.S., $1,870 in Canada/Latin America, $28,400 in Europe, $900 in Asia
Pacific and $14,000 in Japan) in the fourth quarter. See Note 3 to the
Combined Financial Statements.
(2) 1994 Operating Income includes restructuring expense of $8,922 ($3,396 in
the U.S. and $5,526 in Europe). See Note 4 to the Combined Financial
Statements.
(3) 1993 Operating Loss includes restructuring expense of $60,301 ($48,120 in
the U.S. and $12,181 in Europe). See Note 4 to the Combined Financial
Statements.
F-39
<PAGE> 134
ACNIELSEN CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
--------- -------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1995
Operating Revenue............ $ 285,341 $325,828 $ 321,235 $ 348,941 $1,281,345
Operating (Loss) Income(1)... $ (19,903) $ 8,874 $ (24,425) $ (148,554) $ (184,008)
Net Loss..................... $ (26,654) $(10,139) $ (33,143) $ (160,948) $ (230,884)
1994
Operating Revenue............ $ 233,041 $254,240 $ 274,538 $ 330,288 $1,092,107
Restructuring Expense........ $ -- $ 8,922 $ -- $ -- $ 8,922
Operating (Loss) Income...... $ (21,270) $ (8,645) $ (6,297) $ 35,043 $ (1,169)
Net (Loss) Income............ $ (26,429) $(26,525) $ (26,257) $ 14,150 $ (65,061)
</TABLE>
- ---------------
(1) Includes a non-recurring charge of $152,170 in the fourth quarter. See Note
3 to the Combined Financial Statements.
F-40
<PAGE> 135
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of ACNielsen Corporation:
We have audited the accompanying balance sheet of ACNielsen Corporation, a
wholly owned subsidiary of The Dun & Bradstreet Corporation, as of June 30,
1996. This financial statement is the responsibility of the management of
ACNielsen Corporation. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of ACNielsen Corporation as of June
30, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 16, 1996
F-41
<PAGE> 136
ACNIELSEN CORPORATION
STATEMENT OF FINANCIAL POSITION
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash............................................................................... $100.00
=======
LIABILITIES AND SHAREHOLDER EQUITY
Common Stock, par value $1.00 per share; authorized, issued and outstanding -- 100
shares........................................................................... $100.00
=======
</TABLE>
The accompanying notes are an integral part of the financial statement.
F-42
<PAGE> 137
ACNIELSEN CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
On April 13, 1996, ACNielsen Corporation (the "Company") was incorporated
under the General Corporation Law of the State of Delaware. The Company has the
authority under its Certificate of Incorporation to issue one hundred shares of
common stock, par value $1.00 per share ("Common Stock"), of which one hundred
shares were issued to The Dun & Bradstreet Corporation ("D&B") on May 1, 1996.
The Company has no assets other than cash and has not commenced operations. The
Company's activities to date have been solely related to its incorporation.
NOTE 2. PROPOSED REORGANIZATION
On January 9, 1996, the Board of Directors of D&B approved in principal a
plan to distribute the Common Stock and the common stock of Cognizant
Corporation to all holders of outstanding shares of common stock of D&B (the
"Distribution"). After the Distribution, the Company will operate as an
independent company which will deliver marketing research, information and
analysis to the consumer products and service industries. Outside the United
States and Canada, the Company will conduct media measurement and related
businesses. The Company will offer its services in over 90 countries around the
globe and will employ over 17,000 employees worldwide. In connection with the
Distribution, application has been made to list the Common Stock on the New York
Stock Exchange.
NOTE 3. AMENDED CERTIFICATE OF INCORPORATION
Prior to the date of the Distribution, the Company will file a Restated
Certificate of Incorporation which will authorize the issuance of 160,000,000
shares of all classes of stock of which 5,000,000 shares will represent shares
of preferred stock, par value $.01 per share ("Preferred Stock"), 150,000,000
shares will represent shares of Common Stock, and 5,000,000 shares will
represent shares of Series Common Stock, par value $.01 per share ("Series
Common Stock").
F-43
