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 September 30, 2000
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 001-12277
ACNIELSEN CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 06-1454128
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(State of Incorporation) (I.R.S. Employer Identification No.)
177 Broad Street, Stamford, CT 06901
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(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 October 31, 2000
-------------- -------------------
Common Stock,
par value $.01 per share 57,808,854
<PAGE>
ACNIELSEN CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----------------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited) 3
Three Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Income (Unaudited) 4
Nine Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (Unaudited) 5
Nine Months Ended September 30, 2000 and 1999
Condensed Consolidated Balance Sheets 6
September 30, 2000 (Unaudited) and December 31, 1999
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-12
Item 2. Management's Discussion and Analysis of Financial 12-19
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 19
Market Risk
PART II. OTHER INFORMATION PAGE
--------------------------- ----
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
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</TABLE>
2
<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
September 30,
--------------------------------------------
2000 1999
------------------ ----------------
<S> <C> <C>
Operating Revenue $390,949 $381,911
Operating Costs 196,009 188,796
Selling and Administrative Expenses 134,016 133,552
Depreciation and Amortization 22,031 20,028
Operation Leading Edge Costs 12,118 -
Year 2000 Expenses - 2,590
------------------ ----------------
Operating Income 26,775 36,945
Interest Income 2,517 1,694
Interest Expense (1,759) (900)
Other - Net (161) 1,292
------------------ ----------------
Other Income - Net 597 2,086
Income Before Income Tax Provision 27,372 39,031
Income Tax Provision 10,402 15,612
------------------ ----------------
Net Income $16,970 $23,419
================== ================
Basic Earnings Per Share $0.29 $0.40
================== ================
Diluted Earnings Per Share $0.29 $0.39
================== ================
Weighted Average Number of Shares Outstanding
Basic 57,794 57,952
Diluted 59,467 60,128
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
</TABLE>
3
<PAGE>
ACNIELSEN CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts)
Nine Months Ended
September 30,
--------------------------------------------
2000 1999
------------------ ----------------
<S> <C> <C>
Operating Revenue $1,166,741 $1,116,562
Operating Costs 599,404 557,558
Selling and Administrative Expenses 413,867 408,335
Depreciation and Amortization 68,119 62,201
Operation Leading Edge Costs 35,252 -
Year 2000 Expenses - 9,956
---------------- ----------------
Operating Income 50,099 78,512
Interest Income 6,568 5,343
Interest Expense (4,599) (2,583)
Other - Net (445) 2,540
------------------ ----------------
Other Income - Net 1,524 5,300
Income Before Income Tax Provision and Cumulative Effect
of Change in Accounting Principle 51,623 83,812
Income Tax Provision 19,617 33,525
------------------ ----------------
Income Before Cumulative Effect of Change in Accounting
Principle 32,006 50,287
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 $32,006 $30,114
================== ================
Basic Earnings Per Share:
Income Before Cumulative Effect of Change in Accounting $0.55 $0.87
Cumulative Effect of Change in Accounting - (0.35)
------------------ ----------------
Net Income $0.55 $0.52
================== ================
Diluted Earnings Per Share:
Income Before Cumulative Effect of Change in Accounting $0.54 $0.84
Cumulative Effect of Change in Accounting - (0.34)
------------------ ----------------
Net Income $0.54 $0.50
================== ================
Weighted Average Number of Shares Outstanding
Basic 57,735 57,773
Diluted 59,188 60,203
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
</TABLE>
4
<PAGE>
ACNIELSEN CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands)
Nine months ended September 30,
------------------------------------------
2000 1999
------------------ ------------------
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 32,006 $ 30,114
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Cumulative Effect of Change in Accounting Principle:
Costs of Start-Up Activities - 20,173
Depreciation and Amortization 68,119 62,201
Deferred Income Taxes (8,489) 1,609
Operation Leading Edge Costs 35,252 -
Payments Related to Operating Leading Edge and other Special Charges (27,296) (2,898)
Postemployment Benefit Expense 1,976 1,275
Postemployment Benefit Payments (5,509) (6,052)
Net (Increase) Decrease in Accounts Receivable (23,578) 1,933
Net Change in Other Working Capital Items (479) (33,244)
Other (4,016) 3,004
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Net Cash Provided by Operating Activities 67,986 78,115
----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital Expenditures (33,275) (42,143)
Additions to Computer Software (22,653) (27,163)
Payments for Acquisition of Businesses and Other Investments (28,678) (24,540)
Other 1,710 (4,979)
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Net Cash Used In Investing Activities (82,896) (98,825)
----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Increase in Short-Term Borrowings 17,381 22,447
Treasury Stock Purchases (8,485) (10,109)
Proceeds from the Sale of Common Stock under Option Plans 3,996 12,293
Other (986) 909
----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 11,906 25,540
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Effect of Exchange Rate Changes
on Cash and Cash Equivalents (6,677) (4,619)
----------------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (9,681) 211
Cash and Cash Equivalents, Beginning of Period 135,199 100,533
----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 125,518 $ 100,744
----------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for Interest $ 4,306 $ 1,815
Cash Paid During the Period for Income Taxes $ 24,683 $ 27,837
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
</TABLE>
5
<PAGE>
ACNIELSEN CORPORATION
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Amounts in thousands)
September 30, December 31,
2000 1999
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 125,518 $ 135,199
Accounts Receivable - Net 296,465 294,266
Other Current Assets 71,895 62,041
-------------------- ------------------
Total Current Assets 493,878 491,506
Notes Receivable and Other Investments 60,477 35,812
Property, Plant and Equipment-Net 147,365 159,100
Other Assets-Net
Prepaid Pension 73,269 70,744
Computer Software 62,767 64,310
Intangibles and Other Assets 52,794 53,050
Goodwill 340,215 353,364
-------------------- ------------------
Total Other Assets-Net 529,045 541,468
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TOTAL ASSETS $ 1,230,765 $ 1,227,886
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 71,580 $ 83,099
Short-Term Debt 123,886 109,164
Accrued and Other Current Liabilities 285,044 300,017
Accrued Income Taxes 74,421 74,306
-------------------- ------------------
Total Current Liabilities 554,931 566,586
Post-retirement and Post-employment Benefits 54,969 53,369
Deferred Income Taxes 65,368 58,571
Other Liabilities 10,683 27,524
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TOTAL LIABILITIES 685,951 706,050
-----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock 603 599
Additional Paid-in Capital 520,292 512,475
Retained Earnings 189,802 157,796
Treasury Stock (56,574) (48,089)
Accumulated Other Comprehensive Income (Loss):
Cumulative Translation Adjustment (124,049) (101,202)
Unrealized Gains on Investments, Net 14,574 166
Fair Market Value of Forward Exchange Contracts 166 91
-------------------- ------------------
Total Shareholders' Equity 544,814 521,836
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,230,765 $ 1,227,886
-----------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
</TABLE>
6
<PAGE>
ACNIELSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in
thousands, except share and 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") 1999 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 2000
presentation.
Note 2 - Operation Leading Edge Update
On February 17, 2000, the Board of Directors of the Company approved Operation
Leading Edge, the Company's plan to accelerate its growth beyond 2000 through a
series of business - building initiatives. The initiatives, to be spread over
three years, are designed to accelerate both revenue and profit growth by
enhancing products and services, addressing changing client needs, improving
efficiency and reducing the Company's cost structure.
During the quarter ended September 30, 2000 the Company recorded a charge
totaling $12,118, before tax, related to Operation Leading Edge. The charge
included $9,473 to create new capabilities by improving the Company's
information delivery systems, $2,454 for overhead rationalization and $191 for
business closures. Severance charges were related to overhead rationalization
and business closures. Severance charges are accrued when under the approved
severance plan the number of employees, their job class and locations are known,
and required notification has occurred. Business re-engineering and design costs
are recorded as incurred. The following table details the activity for Operation
Leading Edge during the quarter:
<TABLE>
<CAPTION>
Accrual Charged Accrual
Balance Charges Payments Against Balance
July 1, 2000 Assets September 30, 2000
---------------- ------------ ---------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
Severance $ 7,062 $ 424 $ (3,163) $ - $ 4,323
Business Re-engineering, Design
and Other Costs 3,099 7,562 (9,315) - 1,346
Transition - 1,583 (1,583) - -
Real Estate - 681 (681) - -
Non-Cash - 1,868 - (1,868) -
---------------- ------------ ---------------- -------------- --------------------
Total $10,161 $12,118 $(14,742) $ (1,868) $ 5,669
---------------- ------------ ---------------- -------------- --------------------
</TABLE>
7
<PAGE>
Severance charges in the quarter related to the elimination of 68 positions,
primarily in Europe, that resulted from business closures and overhead
rationalization. Business re-engineering, design and other costs relate
primarily to external consultants retained to assist in re-engineering and
designing the Company's information processing and content delivery systems.
Transition expense represents dual production costs incurred as the Company
continues to convert country-level information to a harmonized regional system
in Europe and to consolidate production sites in Asia. Non-cash charges in the
quarter consisted of $338 for accelerated amortization and $1,530 for impairment
losses. Accelerated amortization relates to computer software that will be
replaced prior to the end of its normal service period, primarily due to the
technology standardization that will result from the redesign of the European
information and content delivery systems, and the impairment loss relates to the
write-down of long-lived assets that will not be used based on management
direction regarding global technological changes that resulted from a review of
global business initiatives.
Note 3 - New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition, presentation, and
disclosure in financial statements. In June 2000, the SEC issued SAB No. 101B to
defer the effective date of implementation of SAB No. 101 until the fourth
quarter of fiscal year 2000. The Company does not expect the adoption of SAB 101
to have a material impact on its financial position or results of operations.
Note 4 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (EPS) for the respective periods (amounts in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months Ended September 30 2000 1999
-------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Weighted-average number of shares outstanding for basic EPS 57,794 57,952
Dilutive effect of shares issuable as of period-end under stock option plans 1,673 2,176
------ ------
Weighted-average number of shares and share equivalents for diluted EPS 59,467 60,128
====== ======
Net Income $16,970 $23,419
======= =======
Basic Earnings Per Share $ 0.29 $ 0.40
======= =======
Diluted Earnings Per Share $ 0.29 $ 0.39
======= =======
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30 2000 1999
-------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Weighted-average number of shares outstanding for basic EPS 57,735 57,773
Dilutive effect of shares issuable as of period-end under stock option
plans 1,453 2,430
--------- ---------
Weighted-average number of shares and share equivalents for diluted EPS 59,188 60,203
========= =========
Income Before Cumulative Effect of Change in Accounting Principle $32,006 $50,287
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 $32,006 $30,114
========= =========
Basic Earnings Per Share:
Income Before Cumulative Effect of Change in Accounting $ 0.55 $ 0.87
Cumulative Effect of Change in Accounting - (0.35)
--------- ---------
Net Income $ 0.55 $ 0.52
========= =========
Diluted Earnings Per Share:
Income Before Cumulative Effect of Change in Accounting $ 0.54 $ 0.84
Cumulative Effect of Change in Accounting - (0.34)
--------- ---------
Net Income $ 0.54 $ 0.50
========= =========
</TABLE>
<TABLE>
<CAPTION>
Note 5 - Other Comprehensive Income
The Company's Comprehensive Income for the periods ended September 30, 2000 and
1999, reported net of tax, are set forth in the following table:
Three Months Ended September 30 2000 1999
----------------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Net Income $16,970 $23,419
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Adjustments (319) (6,254)
Unrealized Gains (Losses) on Investments (8,235) 35
Fair Market Value of Forward Exchange Contracts 309 (671)
-------- ---------
Comprehensive Income $8,725 $16,529
======== =========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30 2000 1999
----------------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Net Income $32,006 $30,114
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Adjustments (22,847) (20,954)
Unrealized Gains on Investments 14,408 35
Fair Market Value of Forward Exchange Contracts 75 681
--------- --------
Comprehensive Income $23,642 $9,876
========= ========
</TABLE>
Note 6- Marketable Securities
Marketable securities are classified as Other Investments in the accompanying
balance sheet. At September 30, those marketable securities (consisting of the
Company's investment in NetRatings, Inc.) which are available for sale were
reported at fair value of $37,429, including a gross unrealized gain of $24,294.
The decrease in net unrealized gains on such investments totaled $8,235 for the
quarter ended September 30, 2000, and was charged to other comprehensive income.
Note 7- Treasury Stock
The terms of the Indemnity and Joint Defense Agreement (see Note 8 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 nine
months of 2000, the Company repurchased 406,854 shares of its common stock for a
total of $8,485.
Note 8- 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.
10
<PAGE>
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. On December 22, 1999, defendants filed a
motion for partial summary judgment seeking to dismiss IRI's non U.S. antitrust
claims. On July 12, 2000, the Court granted the motion dismissing claims of
injury suffered from activities in foreign markets where IRI operates through
subsidiaries or companies owned by joint ventures or "relationships" with local
companies. Discovery is currently ongoing.
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 (such liability of Cognizant being hereinafter referred
to as the "Cognizant Liabilities" and such liability of Old D&B being
hereinafter referred to as the "Old D&B Liabilities"). 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.
11
<PAGE>
In June 1998, (i) Old D&B changed its name to R.H. Donnelley Corporation and
spun off (the "D&B Spin") a company 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"). On September 30, 2000, New D&B changed its name to
Moody's Corporation and spun off (the "Moody's Spin") a company now named The
Dun & Bradstreet Corporation ("Current D&B"). As contemplated by the terms of a
Distribution Agreement (the "Distribution Agreement") dated as of October 28,
1996 among the Company, Old D&B and Cognizant, (i) New D&B, in connection with
the D&B Spin, and Current D&B, in connection with the Moody's Spin, provided
undertakings to the Company to be jointly and severally liable for the Old D&B
Liabilities, and (ii) IMS Health, in connection with the Cognizant Spin,
provided an undertaking to the Company to be jointly and severally liable for
the Cognizant Liabilities. Also, in connection with certain other spin-off
transactions since the date of the Distribution Agreement, the Company has
received comparable undertakings with respect to the Cognizant Liabilities from
Gartner Group, Inc. and Synavant Inc.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations(Dollar amounts in thousands, except per share data)
--------------------------------------------------------------------------------
Quarter ended September 30, 2000 compared with Quarter ended September 30, 1999
The Company reported net income of $16,970 or $0.29 per diluted share, which
included a pre-tax charge of $12,118 ($7,513 after-tax) for Operation Leading
Edge, the Company's accelerated growth plan. The current quarter results also
include $5,520 of operating losses ($3,422 after-tax) for ACNielsen eRatings.com
(eRatings), the Company's Internet measurement business. Excluding the
aforementioned charges, the Company's earnings (after-tax) were $ 27,905,
compared with $ 23,419 in the prior year.
Revenue for the quarter ended September 30, 2000 was $390,949, an increase of
2.4% from the third quarter of 1999, after a negative $17,725 impact from
foreign currency translation. In local currency, revenue advanced 7.0%, as all
regions posted solid growth.
Operating income was $26,775, which included $12,118 of costs for Operation
Leading Edge and $5,520 of operating losses for eRatings. Excluding these
charges, operating income increased 20.2% to $44,413 from $36,945 in 1999 (or
increased 26.2% excluding a negative foreign currency translation impact of
$2,195). Strong revenue growth drove the increase.
Other income-net was $597, compared with $2,086 in the third quarter of 1999,
primarily reflecting decreased gains from foreign exchange.
12
<PAGE>
The Company's operating results for the quarters ended September 30, 2000 and
1999 are set forth in the table below.
<TABLE>
<CAPTION>
Operating Revenue Operating Income
(Loss)
--------------------------- -----------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
United States $130,318 $124,690 $20,085 $17,278
Canada/Latin America 52,105 45,253 8,946 8,116
---------- --------- -------- --------
Total Americas 182,423 169,943 29,031 25,394
Europe, Middle East & Africa 134,035 142,264 7,372 7,429
Asia Pacific 73,648 69,704 8,010 6,712
Year 2000 Costs - - - (2,590)
---------- --------- -------- --------
Subtotal - Regions 390,106 381,911 44,413 36,945
ACNielsen eRatings 843 - (5,520) -
---------- --------- -------- --------
Subtotal 390,949 381,911 38,893 36,945
Operation Leading Edge - - (12,118) -
---------- --------- -------- --------
Total $390,949 $381,911 $26,775 $36,945
========== ========= ======== ========
</TABLE>
The following discusses the Company's segment results:
Total Americas revenue increased 7.3% to $182,423 from $169,943. Excluding the
negative impact of currency translation of $811, revenue increased 7.8%, as
Canada and Latin America each reported strong growth. Operating income was
$29,031, a $3,637 or 14.3% improvement over the prior year.
In the United States, revenue grew 4.5% to $130,318. ACNielsen U.S. revenue grew
9.3% due to rising sales of account-level retail measurement and consumer panel
services. However, lower demand for the test-marketing services of ACNielsen
BASES and ACNielsen Market Decisions held down reported results for the United
States overall. Operating income was $20,085, an increase of 16.2% over the
prior year. The gain was primarily driven by revenue growth and a 33% operating
income increase at ACNielsen U.S.
In Canada and Latin America, reported revenue rose 15.1% to $52,105, after
absorbing $811 in negative foreign currency translation impacts. Revenues
advanced 16.9% in local currency, reflecting especially strong growth in Mexico,
Brazil and Canada. Operating income increased 10.2% to $8,946 from $8,116 in
1999. Local currency operating income increased 13.1%, reflecting the higher
revenue.
Revenue in the Europe, Middle East & Africa ("EMEA") region decreased 5.8% to
$134,035, from $142,264 in 1999, reflecting a $14,939 negative impact from
foreign currency translation, primarily the result of the weak euro and British
pound. Local currency revenue increased 4.7%, led by growth in the United
Kingdom, France, the Nordic countries and Emerging Markets, and by the continued
expansion of ACNielsen BASES in Europe. After a $1,512 negative impact from
foreign-currency translation, total operating income of $7,372 remained
essentially even with the prior year. Local currency operating income increased
19.6%, with the United Kingdom delivering a particularly strong quarter. Overall
growth was held down by a decline in Germany, due to difficulties in the
transition to MarketTrack.
13
<PAGE>
Asia Pacific's revenue increased 5.7% to $73,648 from $69,704, led by overall
growth in customized research and media measurement. Also, retail measurement
sales were up in Asia. The weak Australian and New Zealand dollars, in
particular, held back reported growth. Revenue in local currency increased 8.5%,
as Greater China, Korea, and Southeast Asia produced solid results. Reported
operating income increased 19.3% to $8,010 from $6,712. Excluding foreign
translation, operating income increased 26.1% for the quarter.
During the third quarter, eRatings began delivering Internet audience and
advertising information in six new countries - Denmark, Finland, France, Italy,
Norway and Sweden. The business now operates in 12 markets outside the U.S. and
Canada. For the quarter, eRatings generated revenue of $843 and an operating
loss of $5,520, and signed 74 new clients to contracts valued at $2,400.
Nine months ended September 30, 2000 compared with nine months ended September
30, 1999
The Company reported net income of $32,006 or $0.54 per diluted share, which
included a pre-tax charge of $35,252 ($21,856 after-tax) for Operation Leading
Edge. In the first nine months of 2000 the results also include $15,147 ($9,391
after-tax) of operating losses related to eRatings, the Company's Internet
measurement business. Excluding the aforementioned charges, the Company's
after-tax earnings were $63,253, compared with $50,287, before the cumulative
effect of a change in accounting in 1999.
Revenue for the nine months ended September 30, 2000 was $1,166,741, an increase
of 4.5% from the first nine months of 1999, after a negative $47,616 impact from
foreign currency translation. In local currency, revenue advanced 8.8%.
Operating income was $50,099, which included $35,252 of costs for Operating
Leading Edge and $15,147 of operating losses for eRatings. Excluding these
charges, operating income increased 28% to $100,498 from $78,512 in 1999,
reflecting solid performance in the Americas and Asia Pacific.
Other income-net was $1,524, compared with $5,300 in the first nine months of
1999, primarily reflecting higher interest expense on higher borrowings, and the
absence of gains from foreign exchange.
14
<PAGE>
The Company's operating results by segment for the nine months ended September
30, 2000 and 1999 are set forth in the table below.
<TABLE>
<CAPTION>
Operating Revenue Operating Income
(Loss)
------------------------------ -------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
United States $385,327 $352,647 $50,783 $42,782
Canada/ Latin America 151,449 134,407 22,129 19,889
--------- -------- ------- --------
Total Americas 536,776 487,054 72,912 62,671
Europe, Middle East & Africa 415,496 432,088 12,561 13,947
Asia Pacific 213,171 197,420 15,025 11,850
Year 2000 Costs - - - (9,956)
---------- ---------- -------- --------
Subtotal - Regions 1,165,443 1,116,562 100,498 78,512
ACNielsen eRatings 1,298 - (15,147) -
---------- ---------- -------- --------
Subtotal 1,166,741 1,116,562 85,351 78,512
Operation Leading Edge - - (35,252) -
---------- ---------- -------- --------
Total $1,166,741 $1,116,562 $50,099 $78,512
=========== =========== ======== ========
</TABLE>
The following discusses the Company's segment results:
Total Americas revenue increased 10.2% to $536,776 from $487,054. Excluding the
negative impact of currency translation of $3,453, revenue increased 10.9%, as
the U.S., Canada and Latin America each turned in strong results. Operating
income was $72,912, a $10,241 or 16.3% improvement over the prior year.
Excluding an $821 negative foreign currency translation impact, due primarily to
the devaluation of currencies in Latin America, operating income increased
17.7%.
In the United States, revenue grew 9.3% to $385,327, reflecting an increase in
retail measurement services as account-level sales increased 18.8% and consumer
panel revenue rose 11.2%. Operating income was $50,783, an increase of $8,001,
or 18.7% over the prior year.
In Canada and Latin America, revenue rose 12.7% to $151,449, after absorbing
$3,453 in negative foreign currency translation impacts. Revenue advanced 15.2%
in local currency reflecting strong growth in Mexico, Canada and Brazil.
Reported operating income increased 11.3% to $22,129 from $19,889. Local
currency operating income increased 15.4%, reflecting the higher revenue.
Revenue in EMEA decreased 3.8% to $415,496, from $432,088 in the first nine
months of 1999, reflecting a $44,177 negative impact from local currencies
weakening against the dollar. In local currency, revenue rose 6.4% reflecting
strong increases in the U.K., France and the Nordics. Operating income for the
region declined 9.9% to $12,561 from $13,947, which included $2,024 of negative
foreign currency translation impact. In local currency, operating income rose
4.6% as strong performances in key markets such as France and the U.K. were
offset by a decline in Germany due to difficulties in the transition to
MarketTrack.
Asia Pacific's revenue increased 8.0% to $213,171 from $197,420. In local
currency, revenue increased 8.0% led by increases in Korea, Greater China, Japan
and Indonesia. Operating income rose 26.8% to $15,025 from $11,850 in the prior
year. Local currency operating income increased 28.2% reflecting strong results
in North Asia and operating efficiencies in Japan, partially offset by a decline
in Australia.
15
<PAGE>
In the first nine months of 2000, eRatings spending related to the ongoing
rollout of the Nielsen/NetRatings service and other business activities resulted
in a $15,147 operating loss. In addition, 200 clients were signed to contracts
with a total annualized value of $5,400 during this period.
Operation Leading Edge Update
On February 17, 2000, the Board of Directors of the Company approved Operation
Leading Edge, the Company's plan to accelerate its growth beyond 2000 through a
series of business-building initiatives. The initiatives, to be spread over
three years, are designed to accelerate both revenue and profit growth by
enhancing products and services, addressing changing client needs, improving
efficiency and reducing the Company's cost structure.
During the quarter ended September 30, 2000, the Company recorded a charge
totaling $12,118, before tax, related to Operation Leading Edge. The charge
related to the U.S. ($3,809), Canada and Latin America ($684), EMEA ($6,091) and
Asia Pacific ($1,534). The charge included $9,473 to create new capabilities by
improving the Company's information delivery systems, $2,454 for overhead
rationalization and $191 for business closures. The following table details the
activity for Operation Leading Edge during the quarter:
<TABLE>
<CAPTION>
Accrual Balance Charged Accrual
July 1, 2000 Charges Payments Against Balance
Assets September 30, 2000
------------------ ------------ ---------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
Severance $ 7,062 $ 424 $ (3,163) $ - $ 4,323
Business Re-engineering, Design
and Other Costs 3,099 7,562 (9,315) - 1,346
Transition - 1,583 (1,583) - -
Real Estate - 681 (681) - -
Non-Cash - 1,868 - (1,868) -
------------------ ------------ ---------------- -------------- --------------------
Total $10,161 $12,118 $(14,742) $(1,868) $ 5,669
------------------ ------------ ---------------- -------------- --------------------
</TABLE>
Severance charges in the quarter related to the elimination of 68 positions,
primarily in Europe, that resulted from business closures and overhead
rationalization. Business re-engineering, design and other costs relate
primarily to external consultants retained to assist in re-engineering and
designing the Company's information processing and content delivery systems.
Transition expense represents dual production costs incurred as the Company
continues to convert country- level information to a harmonized regional system
in Europe and to consolidate production sites in Asia. Non-cash charges in the
quarter consisted of $338 for accelerated amortization and $1,530 for impairment
losses. Accelerated amortization relates to computer software that will be
replaced prior to the end of its normal service period, primarily due to the
technology standardization that will result from the redesign of the European
information and content delivery systems, and the impairment loss relates to the
write-down of long-lived assets that will not be used based on management
direction regarding global technological changes that resulted from a review of
global business initiatives. Savings realized from the actions taken
year-to-date were approximately $1,800 for the quarter ended September 30, 2000.
16
<PAGE>
For the full year of 2000, the Company expects charges totaling $55,000 to
$60,000, compared with a previous forecast of $70,000, due to the timing of
expenses.
Liquidity and Capital Resources
Nine Months Ended September 30, 2000 and 1999
Net cash provided by operating activities for the nine months ended September
30, 2000 totaled $67,986 compared with $78,115 for the comparable period in
1999. The decrease resulted from lower cash income ($12,363) and increased
deferred income taxes ($10,098). These decreases were partially offset by the
accrual for Operation Leading Edge in excess of payments for special charges
during the period ($10,854) and a lower increase in accounts receivable and
other working capital items ($7,254) as compared with the first nine months of
1999.
Net cash used in investing activities was $82,896 for the nine months ended
September 30, 2000, compared with $98,825 for the comparable period in 1999.
Total cash usage decreased $15,929 as a result of reductions in capital
expenditures ($8,868) and computer software additions ($4,510) and other
investing ($6,689) partially offset by increased payments for the acquisition of
businesses ($4,138). The first nine months included an installment payment of
$9,294 for ANR Amer Nielsen Research Limited (fully acquired in 1998), $5,661
for Market Decisions (fully acquired in 1999) and an earnout payment of $10,413
for ACNielsen BASES (acquired in 1998).
Net cash provided by financing activities for the nine months ended September
30, 2000 totaled $11,906, compared with $25,540 for the comparable period in
1999. The decrease in cash provided of $13,634 primarily reflected a decrease in
cash proceeds from the sale of stock under option plans ($8,297) and lower
short-term borrowings ($5,066).
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.
17
<PAGE>
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," "designed," "intend," "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.
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 Euro plans on a timely basis; (vi) the
likely incurrence of significant losses by ACNielsen eRatings.com while its
business is being developed, the difficulty of forecasting its future revenues
and costs and uncertainties associated with the international development of an
Internet ratings service; (vii) the Company's ability to successfully implement
Operation Leading Edge (its announced plan to enhance its products and services,
address changing clients needs, improve efficiency and reduce its cost
structure) and to achieve the estimated levels of revenue and profit growth
therefrom; (viii) the impact of foreign currency fluctuations since so much of
the Company's earnings are generated abroad; (ix) the degree of acceptance of
new product introductions; (x) 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.
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 from time to time uses foreign currency forward exchange contracts
to hedge forecasted intercompany transactions and forecasted purchases of data
services from a third party provider. The Company enters into foreign currency
forward exchange contracts with durations of less than twelve months. The
Company does not utilize derivative financial instruments for trading or other
speculative purposes.
18
<PAGE>
The following table presents the notional amounts, fair values and average
exchange rates of the foreign exchange forward contracts outstanding at
September 30, 2000 (in thousands of U.S. dollars, except average foreign
exchange rates):
<TABLE>
<CAPTION>
Average
Foreign
Notional Fair Exchange
Amounts Value Rates
----------- ------------ -------------
<S> <C> <C> <C>
Euro $5,316 $152 1.07327
Japanese yen 2,081 18 104.5197
Canadian dollars 888 1 1.5001
Australian dollars 570 9 1.7258
Mexican Peso 335 (25) 10.0508
Other 720 11
--------------------------------- ----------- ------------
Total $9,910 $166
--------------------------------- ----------- ------------
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the description of the IRI Action contained in Note 8 to
the condensed consolidated financial statements of the Company earlier in this
report and to the description of such action contained in Part I, Item 3, of the
Company's Annual Report on Form 10-K for the 1999 fiscal year. On December 22,
1999, defendants filed a motion for partial summary judgment seeking to dismiss
IRI's non U.S. antitrust claims. On July 12, 2000, the Court granted the motion
dismissing claims of injury suffered from activities in foreign markets where
IRI operates through subsidiaries or companies owned by joint ventures or
"relationships" with local companies.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(27) Financial Data Schedule (filed electronically)
(99) Other Exhibits
(d) Letter of Undertaking dated August 31, 2000 from
Synavant Inc. to R. H. Donnelly Corporation and
ACNielsen Corporation.
(e) Letter of Undertaking dated September 30, 2000 from The
New D&B Corporation (now called The Dun & Bradstreet
Corporation) to Nielsen Media Research, Inc. and
ACNielsen Corporation.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
September 30, 2000.
19
<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: November 9, 2000 /s/ Robert J. Chrenc
-----------------------------
Robert J. Chrenc
Executive Vice President
and Chief Financial Officer
Date: November 9, 2000 /s/ Michael S. Geltzeiler
-----------------------------
Michael S. Geltzeiler
Senior Vice President
and Controller
20
<PAGE>
