SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- -------------------
Commission file number 001-12277
ACNIELSEN CORPORATION
- - - - - - - - - - - - - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1454128
- - - - - - - - - - - - - --------------------------------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
177 Broad Street, Stamford, CT 06901
- - - - - - - - - - - - - --------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 961-3000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares Outstanding
Title of Class at April 30, 1999
-------------------------- --------------------
Common Stock,
par value $.01 per share 57,835,037
<PAGE>
ACNIELSEN CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Balance Sheets
March 31, 1999 (Unaudited) and December 31, 1998 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
ACNIELSEN CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts)
Three Months Ended
March 31,
--------------------------------------------
1999 1998
----------------------- ----------------
<S> <C> <C>
Operating Revenue $353,951 $325,801
Operating Costs 183,632 169,275
Selling and Administrative Expenses 137,916 131,575
Depreciation and Amortization 21,183 21,411
Year 2000 Expenses 3,844 3,336
------------------ ----------------
Operating Income 7,376 204
Interest Income 2,365 3,081
Interest Expense (794) (284)
Other - Net 993 101
------------------ ----------------
Other Income - Net 2,564 2,898
Income Before Income Tax Provision and Cumulative Effect
of Change in Accounting Principle 9,940 3,102
Income Tax Provision 3,976 1,303
------------------ ----------------
Income Before Cumulative Effect of Change in Accounting
Principle 5,964 1,799
Cumulative Effect to January 1, 1999, of Change in Accounting
For Costs of Start-Up Activities, Net of Income Tax Benefits
of $10,330 (20,173) -
------------------ ----------------
Net Income (Loss) $(14,209) $1,799
================== ================
Basic Earnings (Loss) Per Share:
Income Before Cumulative Effect of Change in Accounting $0.10 $0.03
Cumulative Effect of Change in Accounting (0.35) -
------------------ ----------------
Net Income (Loss) $(0.25) $0.03
================== ================
Diluted Earnings (Loss) Per Share:
Income Before Cumulative Effect of Change in Accounting $0.10 $0.03
Cumulative Effect of Change in Accounting (0.34) -
------------------ ----------------
Net Income (Loss) $(0.24) $0.03
================== ================
Weighted Average Number of Shares Outstanding
Basic 57,554 57,359
Diluted 59,622 59,353
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
</TABLE>
3
<PAGE>
ACNIELSEN CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands)
Three months ended March 31,
------------------------------------------
1999 1998
------------------ ------------------
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) Income $ (14,209) $ 1,799
Reconciliation of Net (Loss) Income to Net Cash
Used in Operating Activities:
Cumulative Effect of Change in Accounting Principle:
Costs of Start-Up Activities 20,173 -
Depreciation and Amortization 21,183 21,411
Deferred Income Taxes 1,570 (220)
Payments Related to Special Charges (715) (3,634)
Postemployment Benefit Expense 632 -
Postemployment Benefit Payments (2,806) (2,486)
Net Decrease in Accounts Receivable 4,445 4,873
Net change in Other Working Capital Items (37,718) (28,117)
Other (42) 782
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Operating Activities (7,487) (5,592)
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital Expenditures (12,792) (7,523)
Additions to Computer Software (8,716) (5,234)
Payments for Acquisition of Businesses (6,990) (1,750)
Other (876) (358)
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (29,374) (14,865)
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Increase (Decrease) in Short-Term Borrowings 18,918 (144)
Treasury Stock Purchases (4,612) (8,869)
Proceeds from the Sale of Common Stock under Option Plans 4,450 3,996
Other 551 858
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 19,307 (4,159)
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (3,589) (4,268)
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (21,143) (28,884)
Cash and Cash Equivalents, Beginning of Period 100,533 205,726
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 79,390 $ 176,842
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for Interest $ 762 $ 231
Cash Paid During the Period for Income Taxes $ 6,787 $ 1,823
Noncash Investing and Financing Activities:
Acquisition of Investment and Note Receivable in exchange for
Business Assets and Liabilities - $ 19,400
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
</TABLE>
4
<PAGE>
ACNIELSEN CORPORATION
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Amounts in thousands)
March 31, December 31,
1999 1998
(Unaudited)
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 79,390 $ 100,533
Accounts Receivable - Net 267,962 279,708
Other Current Assets 63,119 56,527
-------------------- ------------------
Total Current Assets 410,471 436,768
Notes Receivable and Other Investments 27,141 28,230
Property, Plant and Equipment-Net 151,526 157,664
Other Assets-Net
Prepaid Pension 62,330 62,152
Computer Software 45,552 42,588
Intangibles and Other Assets 34,684 69,889
Goodwill 324,069 328,326
-------------------- ------------------
Total Other Assets-Net 466,635 502,955
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,055,773 $ 1,125,617
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 75,362 $ 90,931
Short-Term Debt 70,826 49,032
Accrued and Other Current Liabilities 284,985 308,396
Accrued Income Taxes 45,135 48,901
-------------------- ------------------
Total Current Liabilities 476,308 497,260
Postretirement and Postemployment Benefits 43,502 44,388
Deferred Income Taxes 45,414 55,486
Other Liabilities 29,055 40,435
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 594,279 637,569
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock 592 589
Additional Paid-in Capital 498,018 492,365
Retained Earnings 86,620 100,829
Treasury Stock (38,093) (33,481)
Accumulated Other Comprehensive Income (Loss):
Cumulative Translation Adjustment (86,604) (72,254)
Fair Market Value of Forward Exchange Contracts 961 -
-------------------- ------------------
Total Shareholders' Equity 461,494 488,048
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,055,773 $ 1,125,617
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
</TABLE>
5
<PAGE>
ACNIELSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in
thousands, except per share data) (Unaudited)
Note 1 - Interim Consolidated Financial Statements
These interim consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and should be read in conjunction with the
consolidated financial statements and related notes in the ACNielsen Corporation
(the "Company") 1998 Annual Report on Form 10-K. In the opinion of management,
all adjustments (which include only normal recurring adjustments), considered
necessary for a fair presentation of financial position, results of operations
and cash flows at the dates and for the periods presented have been included.
Certain prior year amounts have been reclassified to conform with the 1999
presentation.
Note 2 - New Accounting Pronouncements
The Company adopted Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities" effective January 1, 1999. SOP 98-5 requires that costs
of start-up activities be expensed as incurred. Prior to the adoption of the new
standard, the Company capitalized certain one-time costs related to introducing
new services and conducting business in new geographic areas. The cumulative
effect of adopting SOP 98-5 resulted in a charge of $20,173, net of income tax
benefits of $10,330 or $0.34 per diluted share.
The Company also adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. At December
31, 1998, the unrealized loss on foreign exchange forward contracts was not
material. At March 31, 1999, the Company had $30,761 of foreign currency forward
contracts outstanding, which mature on various dates over the next nine months.
The net unrealized gain on the contracts that qualify for hedge accounting was
credited to other comprehensive income and totaled $961.
Adoption of the new accounting policies described above is not expected to have
a material impact on the Company's future results of operations.
6
<PAGE>
Note 3 - Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (EPS) for the quarters ended March 31, 1999 and 1998 (Amounts
in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Weighted-average number of shares outstanding for basic EPS 57,554 57,359
Dilutive effect of shares issuable as of period-end under stock option plans 2,068 1,994
------- -------
Weighted-average number of shares and share equivalents for diluted EPS 59,622 59,353
======= =======
Income Before Cumulative Effect of Change in Accounting
Principle $ 5,964 $ 1,799
Cumulative Effect to January 1, 1999, of Change in Accounting For Costs of
Start-Up Activities, Net of Income Tax Benefits of $10,330 (20,173) -
-------- -------
Net Income (Loss) $(14,209) $ 1,799
======== =======
Diluted Earnings (Loss) Per Share:
Income Before Cumulative Effect of Change in Accounting $ 0.10 $ 0.03
Cumulative Effect of Change in Accounting (0.34) -
-------- -------
Net Income (Loss) $ (0.24) $ 0.03
======== =======
</TABLE>
Note 4 - Other Comprehensive Income (Loss)
The Company's comprehensive loss for the quarters ended March 31, 1999 and
1998, reported net of tax, are set forth in the following table:
(In thousands) 1999 1998
- - - - - - - - - - - - - ---------------------------------------------------- ------------ ------------
Net Income (Loss) $(14,209) $1,799
Other Comprehensive Loss, Net of Tax:
Foreign Currency Translation Adjustments (14,350) (10,306)
Fair Market Value of Forward Exchange Contracts 961 -
------------ ------------
Comprehensive Loss $(27,598) $(8,507)
========= ========
7
<PAGE>
Note 5 - Treasury Stock
The terms of the Indemnity and Joint Defense Agreement (see Note 6 below) limit
the Company's ability to make certain payments ("Restricted Payments"),
including payments for dividends and stock repurchases. Pursuant to such
limitation, the aggregate amount of all Restricted Payments made by the Company
cannot exceed the sum of $15,000 and 20% of the Company's cumulative net
earnings, as defined, from November 1, 1996. The Board of Directors has
authorized the Company to repurchase ACNielsen common stock up to the amount
permitted by the Indemnity and Joint Defense Agreement. During the first quarter
of 1999, the Company repurchased 186,700 shares of its common stock for a total
of $4,612.
Note 6 - 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 The Dun & Bradstreet Corporation ("Old D&B"), A.C. Nielsen Company
which is a subsidiary of the Company ("ACNielsenCo"), and I.M.S. International,
Inc. ("IMS"), formerly a subsidiary of Cognizant Corporation ("Cognizant") and a
predecessor of IMS Health Incorporated (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
latter 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 $350,000, which amount IRI has
asked to be trebled under the antitrust laws. IRI also seeks punitive damages in
an unspecified amount.
By notice of motion dated October 15, 1996, defendants moved for an order
dismissing all claims in the complaint. On May 6, 1997 the United States
District Court for the Southern District of New York issued a decision on the
motion to dismiss. The Court dismissed IRI's claim of attempted monopolization
in the United States with leave to replead within sixty days. The Court denied
defendants' motion with respect to the remaining claims in the complaint.
On June 3, 1997, defendants filed an answer and counterclaims. Defendants denied
all material allegations of the complaint. In addition, ACNielsenCo asserted
counterclaims against IRI alleging that IRI has made false and misleading
statements about ACNielsenCo's services and commercial activities and that such
conduct constitutes a violation of Section 43(a) of the Lanham Act and unfair
competition. ACNielsenCo seeks injunctive relief and damages.
On July 7, 1997, IRI filed an amended complaint seeking to replead the claim of
attempted monopolization in the United States, which had been dismissed by the
Court in its May 6, 1997 decision. By notice of motion dated August 18, 1997,
defendants moved for an order dismissing the amended claim. On December 1, 1997,
the Court denied defendants' motion. Discovery is currently ongoing.
8
<PAGE>
In connection with the IRI Action, old D&B, Cognizant (the former parent company
of IMS) and the Company entered into an Indemnity and Joint Defense Agreement
(the "Indemnity and Joint Defense Agreement") pursuant to which they agreed (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 provides 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 old 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 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.
The Indemnity and Joint Defense Agreement also imposes certain restrictions on
the payment of cash dividends and the ability of the Company to purchase its
stock.
In June 1998, (i) old D&B changed its name to R.H. Donnelley Corporation and
spun off (the "D&B Spin") a company now named The Dun & Bradstreet Corporation
("New D&B"), and (ii) Cognizant changed its name to Nielsen Media Research, Inc.
("NMR") and spun off (the "Cognizant Spin") a company named IMS Health
Incorporated ("IMS Health"). Pursuant to the terms of a Distribution Agreement
dated as of October 28, 1996 among the Company, Old D&B and Cognizant, New D&B
was required as a condition to the D&B Spin, and IMS Health was required as a
condition to the Cognizant Spin, to undertake to the Company to be jointly and
severally liable with its former parent company for, among other things, the
obligations of such former parent company under the Indemnity and Joint Defense
Agreement. Each of New D&B and IMS Health did provide such undertaking to the
Company.
Management of ACNielsen is unable to predict at this time the final outcome of
the IRI Action or whether its resolution could materially affect the Company's
results of operations, cash flows or financial position.
The Company and its subsidiaries are also involved in other 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 consolidated financial position.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollar amounts in thousands, except
per share data)
Quarter ended March 31, 1999 compared with Quarter ended March 31, 1998
The Company reported a net loss of $14,209 or $0.24 per diluted share, which
included a $20,173 or $0.34 charge, reflecting the cumulative effect of a
change in accounting for costs of start-up activities (see Note 2).
Income before the cumulative effect of a change in accounting was $5,964 or
$0.10 per diluted share, a $4,165, or $0.07 per share improvement over the first
quarter 1998. First quarter 1999 income included an after-tax negative currency
translation impact of $820, or $0.01 per diluted share.
Revenue for the quarter ended March 31, 1999 was $353,951, an increase of 8.6%
from the first quarter of 1998, reflecting continued strong growth in the United
States and the addition of ACNielsen Bases, which was acquired at the end of
last year's second quarter. Driven by solid growth in the Americas and Europe,
Middle East and Africa, revenue advanced 9.1% in local currency.
Operating income was $7,376, an increase of $7,172 over 1998, despite a negative
currency translation impact of $1,366. Strong revenue growth, coupled with
improved operating efficiency across all three of the Company's regions, drove
the substantial increase. Excluding Year 2000 costs, operating income increased
$7,680 over 1998 to $11,220.
Other income-net was $2,564, compared with $2,898 in the first three months of
1998, primarily reflecting higher interest expense on higher borrowings and
lower interest income, offset by increased gains from foreign exchange.
The Company's operating results by geographic region for the quarters ended
March 31, 1999 and 1998 are set forth in the table below.
Operating Revenue Operating Income
(Loss)
------------------------- ---------------------
1999 1998 1999 1998
United States $108,235 $83,167 $9,728 $5,785
Canada/ Latin America 44,167 48,066 4,491 5,436
------- ------- ----- ------
Total Americas 152,402 131,233 14,219 11,221
Europe, Middle East & Africa 139,113 131,598 (3,950) (5,037)
Asia Pacific 62,436 62,970 951 (2,644)
------- ------- ------ ------
Subtotal 353,951 325,801 11,220 3,540
Year 2000 Costs - - (3,844) (3,336)
--------- --------- ------- -------
Total $353,951 $325,801 $7,376 $204
======== ======== ====== ====
10
<PAGE>
The following discusses results on a geographic basis:
Total Americas revenue increased 16.1% to $152,402 from $131,233. Excluding the
negative impact of currency translation of $5,746, which was primarily due to
currency devaluation in Brazil, revenue grew 20.5%, reflecting strong growth in
the U.S. and the addition of ACNielsen BASES. Operating income was $14,219, a
$2,998 or 26.7% improvement over the prior year, including a $1,251 negative
foreign currency translation impact.
In the United States, revenue grew 30.1% to $108,235, reflecting continued
growth in account-level services and the addition of new revenue from ACNielsen
BASES, acquired June 30, 1998. Excluding ACNielsen BASES, U.S. revenue grew
11.3%, reflecting strong sales of account-level services and the addition of new
clients. Operating income was $9,728, an increase of $3,943, or 68.2% over the
prior year. The gain was driven by revenue growth and continued improvements in
operating efficiency.
In Canada and Latin America, reported revenue of $44,167 was down 8.1%, due to a
negative foreign currency translation impact of $5,746. Revenues advanced 7.2%
in local currency, excluding the media business that was transferred to a joint
venture with IBOPE in the first quarter of 1998. The increase in local currency
revenue, resulted from higher overall revenue in Canada and growing sales of
retail measurement services in Mexico, Brazil and Colombia. Operating income
decreased 17.4% to $4,491 from $5,436 in 1998, as the devaluation of the Brazil
real reduced operating profits by $769. Local currency operating income
increased 5.9% reflecting the higher revenue. In addition, revenue and income
comparisons were negatively impacted by the absence in 1999 of an ad-hoc study
for the Mexican government, which was included in the first quarter of 1998.
Revenue in the Europe, Middle East & Africa ("EMEA") region increased 5.7% to
$139,113, from $131,598 in 1998, due to higher revenue in most European markets,
especially the United Kingdom and France; overall growth in consumer panels,
media measurement and modeling and analytics; and favorable foreign currency
translation. Excluding the positive impact of foreign currency translation,
revenue grew 3.1%. EMEA reduced its operating loss for the quarter by $1,087, to
$3,950. The improvement was the result of revenue growth and efforts to enhance
efficiency and productivity, partially offset by lower earnings in Eastern
Europe due to weak economic conditions. The impact of foreign currency
translation on operating income was not significant.
Asia Pacific's revenue decreased slightly to $62,436 from $62,970, as retail
measurement growth in China, Japan, New Zealand, and the Philippines, and higher
consumer panel sales in Australia and New Zealand, offset weakness in other
markets brought about by the region's continued economic recession. The region
produced an operating profit of $951, an improvement of $3,595 versus the prior
year. The results reflect improved quality and efficiency at ACNielsen Japan,
region-wide productivity gains, and a more profitable revenue mix.
11
<PAGE>
Liquidity and Capital Resources
Three Months Ended March 31, 1999 and 1998
Net cash used in operating activities for the quarter ended March 31, 1999
totaled $7,487, compared with $5,592 for the comparable period in 1998. The
increase primarily is the result of a change in other working capital items,
including increased tax payments ($4,964) offset by increased cash income
($3,937) and lower payments related to special charges ($2,919).
Net cash used in investing activities increased to $29,374 for the quarter ended
March 31, 1999, compared with $14,865 for the comparable period in 1998. The
increase in cash usage was due to higher capital expenditures ($5,269), an
increase in payments made for the acquisition of businesses ($5,240) and higher
additions to computer software ($3,482).
Net cash provided by financing activities for the quarter ended March 31, 1999
totaled $19,307, compared with net cash used of $4,159 for the comparable period
in 1998. The increase in cash provided of $23,466, primarily reflected the
increase in short-term borrowings to meet working capital requirements ($19,062)
and a decrease in the amount of treasury stock repurchases ($4,257).
During the first quarter of 1998, the Company became a partner in a joint
venture that provides media measurement services in Latin America. The joint
venture, IBOPE Media Information, offers television audience measurement (TAM),
radio audience measurement (RAM), and advertising expenditure measurement
services (AEM) in various Latin American markets. Under the terms of the
agreement, the Company received an 11% equity interest in the joint venture and
a $12,772 interest bearing note in exchange for the Company's Latin America TAM,
RAM and AEM business assets and the assumption of certain transition liabilities
in a non-cash transaction.
Year 2000
The Year 2000 problem concerns the inability of older computer systems to
properly recognize and process date-sensitive information beyond December 31,
1999. If not corrected, businesses and other entities relying on such computer
systems are at risk for possible miscalculations or systems failures that could
cause disruptions in their business operations.
ACNielsen's business relies substantially on information technology systems ("IT
Systems") and, to a lesser degree, on other systems that contain embedded
technology ("Non-IT Systems"). As a global leader in delivering market research,
information and analysis to the consumer products and services industries,
ACNielsen uses IT Systems and Non-IT Systems (collectively, "Technology
Systems") to gather data from data suppliers, analyze such data and deliver
information products to its clients. The Company also provides software to its
clients for use in connection with the delivery and analysis of ACNielsen data.
Technology Systems are also used by the Company for its own internal operations.
Accordingly, the Year 2000 issue could arise at many stages in the Company's
supply, processing, distribution and financial chains.
12
<PAGE>
The Company's State of Readiness
The Company is in the process of implementing a Year 2000 readiness program with
the goals of (i) having all of its Technology Systems functioning properly with
respect to Year 2000 before January 1, 2000, and (ii) identifying and minimizing
the other business risks created by the Year 2000 issue. The Company currently
believes that it will be able to modify or replace all of its material
Technology Systems in a timely manner and with no significant disruptions to its
operations. It also believes that its Year 2000 readiness program should
significantly reduce the adverse effects of the Year 2000 issue for the Company.
However, given the general uncertainties inherent in the Year 2000 problem
including, among other things, uncertainties as to the Year 2000 readiness of
material third party suppliers and clients, it is possible that the business and
results of operations of the Company could be materially adversely affected by
an inability of the Company to conduct its business in the ordinary course for a
period of time after December 31, 1999.
The Company's Year 2000 readiness program comprises eight principal phases,
these being (i) inventory, (ii) assessment, (iii) analysis and planning, (iv)
remediation, (v) testing, (vi) implementation, (vii) communication, and (viii)
contingency planning.
The inventory phase comprises the development of a complete list of all
components of the Company's Technology Systems that are used in the collection,
processing and delivery of ACNielsen products and services or that are used in
the administration of its general business activities. The inventory phase is
substantially complete.
The assessment phase comprises the evaluation of each item on the inventory to
determine if it is affected by the Year 2000 problem and, if it is, to determine
the most appropriate remediation approach. There are generally four alternative
approaches: (i) renovation; (ii) retirement; (iii) re-engineering; or (iv)
replacement. The assessment phase is also substantially complete and, based on
the results of the assessment, the Company determined that it would be required
to renovate, retire, re-engineer or replace significant portions of its
Technology Systems to make them Year 2000 compliant.
The analysis and planning phase comprises the development of detailed plans and
timetables to accomplish the required remediation actions identified during the
assessment phase and the assignment of the internal or external resources
required to achieve compliance within the planned timeframes. This phase, which
includes the prioritization of systems for remediation activities, is
substantially complete.
The remediation phase comprises the actual renovation, re-engineering,
retirement or replacement of affected systems. This phase is substantially
complete for the Company's major Technology Systems and the goal is to complete
the remaining work required by this phase by the end of the second quarter of
1999.
The testing phase, which follows remediation, comprises the establishment of
Year 2000 test environments to do systems and user testing of individual
components, as well as complete end-to-end system testing, of the Company's
Technology Systems. In addition, it includes testing of interfacing systems used
by certain external suppliers and clients. A substantial majority of the testing
of individual components of the Company's Technology Systems that have been
remediated is complete. End-to-end system testing that involves the interface
with third party systems used by external suppliers and clients is expected to
continue to the Year 2000 and it may not be feasible to test all such systems
prior to the Year 2000.
13
<PAGE>
The implementation phase, which follows testing, comprises the actual
implementation into the production environment of the compliant Technology
Systems. For products and services provided by the Company to clients, this
phase includes the implementation of the compliant versions of hardware,
software, and communications services into production in the client
environments. The Company is currently devoting substantial time and effort to
the execution of this phase. A majority of the work required by this phase has
been completed in the United States. Other countries are at an earlier stage of
execution. Plans for each country and business segment have been developed to
allow for adequate time to achieve implementation prior to the end of 1999.
The communication phase comprises the implementation, coordination and
management of a communications process to communicate with clients and other
third parties whose Year 2000 state of readiness could significantly affect the
Company. Several levels and types of communications are involved, including
communications with clients, vendors and other service providers. Communications
with clients include communications regarding (i) the implementation of Year
2000 compliant versions of ACNielsen software used by the client, (ii) the state
of readiness of systems used by the client to receive or analyze ACNielsen data,
and (iii) the state of readiness of ACNielsen Technology Systems that are used
to compile and deliver data to the client. Vendor communications include
communications with (i) data suppliers to assess the Year 2000 status of the
systems they use to compile and deliver data to the Company, (ii) data
processors to assess the Year 2000 status of their processing and delivery
systems, and (iii) providers of third party Technology Systems to establish
plans and timetables for the delivery of Year 2000 compliant versions of those
Technology Systems. Communications with other service providers include
communications with utilities, providers of facilities and environmental
systems, banks and other material service providers to assess their Year 2000
readiness insofar as it may affect the services they provide to the Company. The
communication phase with respect to supplier readiness is well underway
worldwide. Communications with clients to assess their readiness as well as to
plan implementation of ACNielsen Year 2000 compliant versions of software and
information products is also underway and is at various stages around the world.
The Company expects that such communications will continue to the Year 2000. As
many third parties either do not respond to requests for information or provide
incomplete information, the Company does not have sufficient information at the
current time to determine whether all of the third parties whose Year 2000
readiness could significantly affect the Company will achieve Year 2000
compliance on a timely basis. The Company will continue its communication
efforts with such parties but there can be no assurance that the Company will be
able to obtain the information needed to make such a determination or that all
such third parties will achieve timely compliance.
The final phase is the development of contingency and business continuation
plans for each organization and company location. Preliminary contingency plans
have been developed at a local country level for substantially all countries in
which the Company has operations. The Company is currently reviewing the quality
and comprehensiveness of those plans. Although the aim of the Company's
contingency plans is to ensure the continuity of critical business functions
before and after December 31, 1999, there can be no assurance that contingency
plans can be developed and/or successfully implemented to deal with all material
risks.
14
<PAGE>
Year 2000 Issues
As mentioned above, Year 2000 issues could arise at many stages in the
Company's supply, processing, distribution, and financial chains.
With respect to data supplies, certain data used by the Company are collected
manually. However, significant amounts of data, including all retail scanning
data and the majority of television audience measurement and consumer panel
services data, are collected and transmitted electronically to ACNielsen or to
its third party data processors. A Year 2000 risk, therefore, is that data
supplies could be disrupted due to Year 2000 problems with the Technology
Systems of data suppliers or of the Company.
Once data has been collected, it is generally transmitted electronically to
ACNielsen or third party data processors, then analyzed and processed and
finally transmitted electronically to the client. Accordingly, other Year 2000
risks include possible disruptions in data processing and transmission
capabilities. Also, certain clients use their own Technology Systems to analyze
ACNielsen data. Revenue, therefore, could be affected in the event that clients
are unable for some period of time to make normal use of the Company's products
and services.
Additional Year 2000 risks include disruptions in the Company's own internal
operations, including financial and administrative systems, and in critical
services and utilities on which the Company relies, such as electricity,
telephone systems, and banking services.
The most reasonably likely worst case scenarios that the Company has identified
include lost revenues and profits due to (i) non-receipt of, or temporary delays
in receiving, scanning data from data suppliers, (ii) delays in deliveries to
clients due to data supply, processing and/or transmission problems, and (iii)
non-compliance of clients' Technology Systems such that they are unable to make
normal use of the Company's products and services. The Company does not
currently anticipate that any such effects would be of a long-term nature.
Costs
Incremental Year 2000 compliance costs, primarily for maintenance and system
modifications, are presently estimated to be between $8,000 and $10,000 for
1999. Costs to acquire new software and computer systems in advance of their
normal replacement schedules are estimated to total between $10,000 and $15,000
over 1998 and 1999. The Company does not separately track internal costs that
are not related to incremental Year 2000 activities. Such costs are principally
for payroll.
15
<PAGE>
The following table sets forth expenditures by category for the periods
indicated:
Year Ended Quarter Ended Total Through
December 31, 1998 March 31, 1999 March 31,1999
----------------- -------------- -------------
Incremental Y2K Expense $15,911 $3,844 $19,755
Capital expenditures for
software and systems $5,407 $2,449 $7,856
Euro
The introduction of a common currency across eleven European countries, the
"Euro", is expected to have a significant impact on the European marketplace and
on the operations of a number of the Company's key clients and data suppliers.
The introduction is on a phased basis between January 1999 and January 2002, at
which date full notes and coinage in Euros will be issued and, no later than
July 1, 2002, will replace existing local currencies.
As the Company has operations in all of the affected countries, it is impacted
by the Euro's introduction. The Company has established a multi-functional,
cross-border taskforce for the purpose of preparing the Company for the
introduction of the Euro. As part of its Euro readiness efforts, the Company has
assessed the capabilities of its existing internal processes and software
systems to deal with the introduction of the Euro. Changes to internal processes
relating to accounting, billing, production and delivery systems, and supporting
software changes, required to meet the initial introduction are substantially
complete. Additional modifications will be made as the phase-in period
progresses.
The Company is communicating with its principal data and other suppliers,
including its banks, and with its principal clients to assess both their own
level of readiness and their requirements over the transitional period and
beyond. These communications will be ongoing as the phase-in period progresses.
Current estimates of the total incremental Euro compliance costs in respect of
internal and production systems are that they will not be material.
Implementation efforts will continue in line with the phased adoption of the
Euro over the transition period, and the related costs will be expensed as
incurred. The Company has not yet developed a contingency plan.
If the Company failed to successfully address the issues raised by the Euro's
introduction, it could have a material adverse effect on the Company. However,
based on progress to date and the Company's Euro readiness program, the Company
currently does not anticipate any material adverse effects as a result of the
Euro's introduction.
Forward-Looking Statements
Certain statements contained herein are forward looking. These may be identified
by the use of forward-looking words or phrases, such as "anticipate," "believe,"
"expect", "could," "should," "planned," "estimated," "potential," "target,"
"aim" and "goal," among others. In addition, the Company may from time to time
make oral forward-looking statements. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
is hereby identifying important factors that could cause actual results to
differ materially from those contained in forward-looking statements made by or
on behalf of the Company. Any such statement is qualified by reference to the
following cautionary statement.
16
<PAGE>
Risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include: (i) the availability of retail
sources that are willing to sell data to the Company at prices acceptable to the
Company; (ii) changes in general economic or competitive conditions which impact
the Company's clients' demand for the Company's services; (iii) significant
price and service competition; (iv) rapid technological developments in the
collection, manipulation and delivery of information; (v) the Company's ability
to complete the implementation of its Year 2000 and Euro plans on a timely
basis; (vi) the impact of foreign currency fluctuations since so much of the
Company's earnings are generated abroad; (vii) the degree of acceptance of new
product introductions; (viii) the uncertainties of litigation, including the IRI
Action; as well as other risks and uncertainties detailed from time to time in
the Company's Securities and Exchange Commission filings.
The risks and uncertainties that may affect the Company's assessment of Year
2000 issues and new European currency issues include: (i) the complexity
involved in ascertaining all situations in which Year 2000 or new European
currency issues may arise; (ii) the ability of the Company to identify, assess,
remediate, test and successfully implement all relevant computer codes and
embedded technology within the scheduled dates for completion thereof; (iii) the
ability of the Company to obtain the services of sufficient personnel to execute
the programs; (iv) possible increases in the cost of personnel required to
execute the programs; (v) delays in scheduled deliveries of new hardware and
software from third party suppliers; (vi) the receipt and reliability of
responses from suppliers, clients and others to whom compliance inquiries are
being made; (vii) the ability of material third parties to bring their affected
systems into compliance; and (viii) unforeseen events which could delay timely
implementation of the programs.
Developments in any of the areas referred to above could cause the Company's
results to differ from results that have been or may be projected by or on
behalf of the Company. The Company cautions that the foregoing list of important
factors is not exclusive. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company uses foreign exchange forward contracts to hedge significant known
transactional exposures. The Company conducts its business in a wide variety of
currencies. Foreign exchange forward contracts are designated for established
and committed transactions that are expected to occur in less than one year.
Gains or losses on such contracts were not material to the consolidated
financial statements for the quarters ended March 31, 1999 and 1998. The Company
does not utilize derivative financial instruments for trading or other
speculative purposes.
17
<PAGE>
The following table presents the notional amounts, fair values and average
exchange rates of the foreign exchange forward contracts outstanding at March
31, 1999 (in thousands of U.S. dollars, except average foreign exchange rates):
Notional Fair Average Foreign
Amounts Value Exchange Rates
----------- --------- ---------------
Euro $22,896 $797 0.8615
Australian dollars 1,510 34 1.5792
Canadian dollars 1,226 (15) 1.5226
Swiss francs 862 33 1.3620
Japanese yen 743 10 115.3846
Other 3,524 100
------------------ ----------- ---------
Total $30,761 $959
------------------ ----------- ---------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(27) Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter
ended March 31, 1999.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACNIELSEN CORPORATION
(Registrant)
Date: May 13, 1999 /s/Robert J. Chrenc
------------------------------------
Robert J. Chrenc
Executive Vice President
and Chief Financial Officer
Date: May 13, 1999 /s/Michael S. Geltzeiler
-------------------------------------
Michael S. Geltzeiler
Senior Vice President and Controller
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 79,390
<SECURITIES> 0
<RECEIVABLES> 267,962
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 410,471
<PP&E> 431,558
<DEPRECIATION> 280,032
<TOTAL-ASSETS> 1,055,773
<CURRENT-LIABILITIES> 476,308
<BONDS> 0
0
0
<COMMON> 592
<OTHER-SE> 460,902
<TOTAL-LIABILITY-AND-EQUITY> 1,055,773
<SALES> 0
<TOTAL-REVENUES> 353,951
<CGS> 0
<TOTAL-COSTS> 346,575
<OTHER-EXPENSES> (993)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,571)
<INCOME-PRETAX> 9,940
<INCOME-TAX> 3,976
<INCOME-CONTINUING> 5,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (20,173)
<NET-INCOME> (14,209)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.24)
</TABLE>
