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 June 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 July 31, 2000
-------------- ------------------
Common Stock,
par value $.01 per share 57,829,737
<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 June 30, 2000 and 1999
Condensed Consolidated Statements of Income (Unaudited) 4
Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (Unaudited) 5
Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Balance Sheets 6
June 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 20
Market Risk
PART II. OTHER INFORMATION PAGE
--------------------------- ----
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
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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
June 30,
--------------------------------------------
2000 1999
------------------ ----------------
<S> <C> <C>
Operating Revenue $401,784 $380,700
Operating Costs 204,279 185,130
Selling and Administrative Expenses 138,450 136,867
Depreciation and Amortization 23,370 20,990
Operation Leading Edge Costs 11,810 -
Year 2000 Expenses - 3,522
------------------ ----------------
Operating Income 23,875 34,191
Interest Income 1,994 1,273
Interest Expense (1,635) (889)
Other - Net (256) 267
------------------ ----------------
Other Income - Net 103 651
Income Before Income Tax Provision 23,978 34,842
Income Tax Provision 9,109 13,937
------------------ ----------------
Net Income $14,869 $20,905
================== ================
Basic Earnings Per Share $0.26 $0.36
================== ================
Diluted Earnings Per Share $0.25 $0.35
================== ================
Weighted Average Number of Shares Outstanding
Basic 57,677 57,808
Diluted 59,051 60,147
<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)
Six Months Ended
June 30,
--------------------------------------------
2000 1999
------------------ ----------------
<S> <C> <C>
Operating Revenue $775,792 $734,651
Operating Costs 403,395 368,762
Selling and Administrative Expenses 279,851 274,783
Depreciation and Amortization 46,088 42,173
Operation Leading Edge Costs 23,134 -
Year 2000 Expenses - 7,366
------------------ ----------------
Operating Income 23,324 41,567
Interest Income 4,051 3,638
Interest Expense (2,840) (1,683)
Other - Net (284) 1,259
------------------ ----------------
Other Income - Net 927 3,214
Income Before Income Tax Provision and Cumulative Effect
of Change in Accounting Principle 24,251 44,781
Income Tax Provision 9,215 17,913
------------------ ----------------
Income Before Cumulative Effect of Change in Accounting
Principle 15,036 26,868
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 $15,036 $6,695
================== ================
Basic Earnings Per Share:
Income Before Cumulative Effect of Change in Accounting $0.26 $0.47
Cumulative Effect of Change in Accounting - (0.35)
------------------ ----------------
Net Income $0.26 $0.12
================== ================
Diluted Earnings Per Share:
Income Before Cumulative Effect of Change in Accounting $0.25 $0.45
Cumulative Effect of Change in Accounting - (0.34)
------------------ ----------------
Net Income $0.25 $0.11
================== ================
Weighted Average Number of Shares Outstanding
Basic 57,705 57,682
Diluted 58,938 60,026
<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)
Six months ended June 30,
------------------------------------------
2000 1999
------------------ ------------------
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 15,036 $ 6,695
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 46,088 42,173
Deferred Income Taxes (8,954) 8,004
Operation Leading Edge Costs 23,134 -
Payments Related to Special Charges (12,271) (1,593)
Postemployment Benefit Expense 1,109 1,137
Postemployment Benefit Payments (4,140) (5,411)
Net Increase in Accounts Receivable (19,599) (17,827)
Net Change in Other Working Capital Items (18,688) (33,653)
Other (3,204) 3,066
----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 18,511 22,764
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Cash Flows from Investing Activities:
Capital Expenditures (23,629) (29,163)
Additions to Computer Software (15,520) (16,735)
Payments for Acquisition of Businesses and Other Investments (28,575) (11,457)
Other 1,339 (9,015)
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Net Cash Used In Investing Activities (66,385) (66,370)
----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Increase in Short-Term Borrowings 26,201 26,111
Treasury Stock Purchases (5,401) (6,111)
Proceeds from the Sale of Common Stock under Option Plans 1,839 9,099
Other (991) 825
----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 21,648 29,924
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Effect of Exchange Rate Changes
on Cash and Cash Equivalents (6,510) (3,843)
----------------------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (32,736) (17,525)
Cash and Cash Equivalents, Beginning of Period 135,199 100,533
----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 102,463 $ 83,008
----------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for Interest $ 2,770 $ 1,331
Cash Paid During the Period for Income Taxes $ 16,068 $ 19,930
<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)
June 30, December 31,
2000 1999
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 102,463 $ 135,199
Accounts Receivable - Net 293,063 294,266
Other Current Assets 70,579 62,041
-------------------- ------------------
Total Current Assets 466,105 491,506
Notes Receivable and Other Investments 74,671 35,812
Property, Plant and Equipment-Net 149,777 159,100
Other Assets-Net
Prepaid Pension 70,593 70,744
Computer Software 63,233 64,310
Intangibles and Other Assets 54,325 53,050
Goodwill 344,437 353,364
-------------------- ------------------
Total Other Assets-Net 532,588 541,468
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TOTAL ASSETS $ 1,223,141 $ 1,227,886
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 70,478 $ 83,099
Short-Term Debt 133,250 109,164
Accrued and Other Current Liabilities 269,423 300,017
Accrued Income Taxes 76,949 74,306
-------------------- ------------------
Total Current Liabilities 550,100 566,586
Postretirement and Postemployment Benefits 52,559 53,369
Deferred Income Taxes 71,138 58,571
Other Liabilities 13,388 27,524
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TOTAL LIABILITIES 687,185 706,050
-----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock 601 599
Additional Paid-in Capital 517,077 512,475
Retained Earnings 172,832 157,796
Treasury Stock (53,490) (48,089)
Accumulated Other Comprehensive Income (Loss):
Cumulative Translation Adjustment (123,730) (101,202)
Unrealized Gains on Investments, Net 22,809 166
Fair Market Value of Forward Exchange Contracts (143) 91
-------------------- ------------------
Total Shareholders' Equity 535,956 521,836
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,223,141 $ 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 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 June 30, 2000 the Company recorded a charge totaling
$11,810, before tax, related to Operation Leading Edge. The charge included
$4,686 to create new capabilities by improving the Company's information
delivery systems, $2,586 for overhead rationalization and $4,538 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>
Balance Balance
April 1, 2000 Charges Payments Non-Cash June 30, 2000
<S> <C> <C> <C> <C> <C>
Severance $7,716 $ 4,690 $(5,344) $ - $ 7,062
Business Re-engineering, Design
and Other Costs 1,510 5,493 (3,904) - 3,099
Transition - 362 (362) - -
Non-Cash - 1,265 - (1,265) -
----------------- -------------- -------------------- --------------- ----------------
Total $9,226 $11,810 $(9,610) $(1,265) $10,161
----------------- -------------- -------------------- --------------- ----------------
</TABLE>
7
<PAGE>
Severance charges in the quarter related to the elimination of 95 positions,
primarily in Asia Pacific, that resulted from streamlining operations and
closedown of a line of business. 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 to establish a
single regional operating platform in Europe. Non-cash charges were for assets
removed from service upon closure of the line of business.
Note 3 - 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 June 30 2000 1999
-------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Weighted-average number of shares outstanding for basic EPS 57,677 57,808
Dilutive effect of shares issuable as of period-end under stock option plans 1,374 2,339
------ ------
Weighted-average number of shares and share equivalents for diluted EPS 59,051 60,147
====== ======
Net Income $14,869 $20,905
======= =======
Basic Earnings Per Share $ 0.26 $ 0.36
====== ======
Diluted Earnings Per Share $ 0.25 $ 0.35
====== ======
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30 2000 1999
-------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Weighted-average number of shares outstanding for basic EPS 57,705 57,682
Dilutive effect of shares issuable as of period-end under stock option plans 1,233 2,344
------ ------
Weighted-average number of shares and share equivalents for diluted EPS 58,938 60,026
Income Before Cumulative Effect of Change in Accounting
Principle $ 15,036 $ 26,868
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 $15,036 $6,695
======= ======
Basic Earnings Per Share:
Income Before Cumulative Effect of Change in Accounting $ 0.26 $ 0.47
Cumulative Effect of Change in Accounting - (0.35)
------ ------
Net Income $ 0.26 $ 0.12
====== ======
Diluted Earnings Per Share:
Income Before Cumulative Effect of Change in Accounting $ 0.25 $ 0.45
Cumulative Effect of Change in Accounting - (0.34)
------ ------
Net Income $ 0.25 $ 0.11
====== ======
</TABLE>
<TABLE>
<CAPTION>
Note 4 - Other Comprehensive Income (Loss)
The Company's Comprehensive Income (Loss) for the periods ended June 30, 2000
and 1999, reported net of tax, are set forth in the following table:
Three Months Ended June 30 2000 1999
----------------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Net Income $14,869 $20,905
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Adjustments (22,853) (350)
Unrealized Gains on Investments 11,795 -
Fair Market Value of Forward Exchange Contracts (119) 391
-------- --------
Comprehensive Income $3,692 $20,946
====== =======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30 2000 1999
----------------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Net Income $15,036 $6,695
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Adjustments (22,528) (14,700)
Unrealized Gains on Investments 22,643 -
Fair Market Value of Forward Exchange Contracts (234) 1,352
-------- --------
Comprehensive Income (Loss) $14,917 $(6,653)
======= ========
</TABLE>
Note 5 - Marketable Securities
Marketable securities are classified as Other Investments in the accompanying
balance sheet. At June 30, those marketable securities (consisting of the
Company's investment in NetRatings, Inc.) which are available for sale were
reported at fair value of $51,154, including a gross unrealized gain of $38,015.
The change in net unrealized gains on such investments totaled $11,795 for the
quarter ended June 30, 2000, and was credited to other comprehensive income.
Note 6 - Treasury Stock
The terms of the Indemnity and Joint Defense Agreement (see Note 7 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 half of
2000, the Company repurchased 281,765 shares of its common stock for a total of
$5,401.
10
<PAGE>
Note 7 - 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. On December 22, 1999, defendants filed a
motion for partial summary judgement 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. 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
11
<PAGE>
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Dollar amounts in thousands, except per share data)
------------------------------------------------------------------
Quarter ended June 30, 2000 compared with Quarter ended June 30, 1999
The Company reported net income of $14,869 or $0.25 per diluted share, which
included a pre-tax charge of $11,810 ($7,436 after-tax) for Operation Leading
Edge, the Company's accelerated growth plan. The current quarter results also
include $4,950 of operating losses ($3,116 after-tax) for ACNielsen eRatings.com
(eRatings), the Company's Internet measurement business. Excluding the
aforementioned charges, the Company's earnings (after-tax) were $25,421,
compared with $20,905 in the prior year.
12
<PAGE>
Revenue for the quarter ended June 30, 2000 was $401,784, an increase of 5.5%
from the second quarter of 1999, after a negative $15,586 impact from foreign
currency translation. In local currency, revenue advanced 9.6%, as all regions
posted solid growth.
Operating income was $23,875, which included $11,810 of costs for Operation
Leading Edge and $4,950 of operating losses for eRatings. Excluding these
charges, operating income increased 18.8% to $40,635 from $34,191 in 1999 (or
increased 22% excluding a negative foreign currency translation impact of
$1,064). Strong revenue growth, particularly in the United States, drove the
increase.
Other income-net was $103, compared with $651 in the second quarter of 1999,
primarily reflecting some losses from foreign exchange.
The Company's operating results for the quarters ended June 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 $132,457 $119,722 $18,724 $15,526
Canada/Latin America 51,480 44,987 8,036 7,458
-------- -------- ------- -------
Total Americas 183,937 164,709 26,760 22,984
Europe, Middle East & Africa 145,548 150,711 8,619 10,468
Asia Pacific 71,844 65,280 5,256 4,261
Year 2000 Costs - - - (3,522)
-------- -------- ------- -------
Subtotal - Regions 401,329 380,700 40,635 34,191
ACNielsen eRatings 455 - (4,950) -
-------- -------- ------- -------
Subtotal 401,784 380,700 35,685 34,191
Operation Leading Edge - (11,810) -
-------- -------- ------- -------
Total $401,784 $380,700 $23,875 $34,191
======== ======== ======= =======
</TABLE>
13
<PAGE>
The following discusses the Company's segment results:
Total Americas revenue increased 11.7% to $183,937 from $164,709. Excluding the
negative impact of currency translation of $591, revenue increased 12.0%, as the
U.S., Canada, and Latin America each reported double-digit growth. Operating
income was $26,760, a $3,776 or 16.4% improvement over the prior year.
In the United States, revenue grew 10.6% to $132,457 led by double-digit growth
from account-level retail measurement and consumer panel services. The growth
also reflected the addition of revenue from ACNielsen Market Decisions (Market
Decisions), which was fully acquired in June 1999. Operating income was $18,724,
an increase of 20.6% over the prior year. The gain was primarily driven by
strong revenue growth from higher margin services.
In Canada and Latin America, reported revenue rose 14.4% to $51,480, after
absorbing $591 in negative foreign currency translation impacts. Revenues
advanced 15.7% in local currency, reflecting especially strong growth in Canada,
Mexico and Brazil. Operating income increased 7.8% to $8,036 from $7,458 in
1999. Local currency operating income increased 9.5%, reflecting the higher
revenue.
Revenue in the Europe, Middle East & Africa ("EMEA") region decreased 3.4% to
$145,548, from $150,711 in 1999, reflecting a $15,178 negative impact from
translating local currencies to the U.S. dollar. Revenue rose 6.6% in local
currency, as the United Kingdom, France, the Nordic countries and Emerging
Markets each turned in a strong quarter, and ACNielsen BASES continued its
expansion in Europe. Total operating income decreased 17.7% to $8,619 from
$10,468 in 1999, including a $986 negative foreign currency translation impact.
Local currency operating income decreased 8.2%, reflecting a decline in Germany,
where difficulties have been experienced with the transition to the new
MarketTrack retail measurement service. However, a number of key markets,
especially France and the U.K., delivered significant operating income
improvements.
Asia Pacific's revenue increased 10.1% to $71,844 from $65,280, led by
double-digit growth in Hong Kong, Korea, and Southeast Asia. In local currency,
revenue increased 9.8%. Along business lines, regionwide results were strong in
media measurement and customized research, especially in the areas of
multi-country and proprietary research. Retail measurement posted solid growth
in Asia and Japan. Reported operating income increased 23.4% to $5,256 from
$4,261, with particularly strong growth in Japan, Korea and Malaysia, partially
offset by a decline in Australia.
ACNielsen eRatings.com began to deliver information from its Internet
measurement service in the United Kingdom, Ireland, Australia, New Zealand, and
Singapore. This resulted in revenue of $455 for the quarter and an operating
loss of $4,950.
14
<PAGE>
Six months ended June 30, 2000 compared with six months ended June 30, 1999
The Company reported net income of $15,036 or $0.25 per diluted share, which
included a pre-tax charge of $23,134 ($14,343 after-tax) for Operation Leading
Edge. The first half 2000 results also include $9,627 ($5,969 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 $35,348, compared with $26,868, before the cumulative effect of a change in
accounting in 1999.
Revenue for the six months ended June 30, 2000 was $775,792, an increase of 5.6%
from the first half of 1999, after a negative $29,891 impact from foreign
currency translation. In local currency, revenue advanced 9.7%.
Operating income was $23,324,which included $23,134 of costs for Operating
Leading Edge and $9,627 of operating losses for eRatings. Excluding these
charges, operating income increased 34.9% to $56,085 from $41,567 in 1999,
reflecting solid performance in the Americas and Asia Pacific.
Other income-net was $927, compared with $3,214 in the first half of 1999,
primarily reflecting higher interest expense on higher borrowings, and the
absence of gains from foreign exchange.
The Company's operating results by segment for the six months ended June 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 $255,009 $227,957 $30,698 $25,504
Canada/ Latin America 99,344 89,154 13,183 11,773
-------- -------- ------- -------
Total Americas 354,353 317,111 43,881 37,277
Europe, Middle East & Africa 281,461 289,824 5,189 6,518
Asia Pacific 139,523 127,716 7,015 5,138
Year 2000 Costs - - - (7,366)
-------- -------- ------- -------
Subtotal - Regions 775,337 734,651 56,085 41,567
ACNielsen eRatings 455 - (9,627) -
-------- -------- ------- ------- -
Subtotal 775,792 734,651 46,458 41,567
Operation Leading Edge - - (23,134) -
-------- -------- ------- -------
Total $775,792 $734,651 $23,324 $41,567
======== ======== ======= =======
</TABLE>
The following discusses the Company's segment results:
Total Americas revenue increased 11.7% to $354,353 from $317,111. Excluding the
negative impact of currency translation of $2,641, which was primarily due to
the devaluation of the Brazilian currency in the first quarter of 1999, revenue
increased 12.6%, as the U.S., Canada and Latin America each turned in strong
results. Operating income was $43,881, a $6,604 or 17.7% improvement over the
prior year. Excluding a $590 negative foreign currency translation impact, due
primarily to the devaluation of currencies in Latin America, operating income
increased 19.3%.
15
<PAGE>
In the United States, revenue grew 11.9% to $255,009, reflecting an increase in
retail measurement services, as account-level sales increased 18% and consumer
panel revenue rose 11%. Operating income was $30,698, an increase of $5,194, or
20.4% over the prior year.
In Canada and Latin America, revenue rose 11.4% to $99,344, after absorbing
$2,642 in negative foreign currency translation impacts. Revenue advanced 14.4%
in local currency reflecting strong growth in Canada, Mexico and Brazil.
Reported operating income increased 12.0% to $13,183 from $11,773. Local
currency operating income increased 17.0%, reflecting the higher revenue.
Revenue in EMEA decreased 2.9% to $281,461, from $289,824 in the first six
months of 1999, reflecting a $29,238 negative impact from local currencies
weakening against the dollar. In local currency, revenue rose 7.2% reflecting
strong increases in the U.K., France and the Nordics. Operating income for the
region declined 20.4% to $5,189 from $6,518. In local currency, operating income
declined 12.5% 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 9.2% to $139,523 from $127,716. In local
currency, revenue increased 7.7% led by increases in Korea, Greater China and
Indonesia. Operating income rose 36.5% to $7,015 from $5,138 in the prior year.
Local currency operating income increased 31.1% reflecting strong results in
North Asia and operating efficiencies in Japan, partially offset by a decline in
Australia.
eRatings spending related to the ongoing rollout of the Nielsen/NetRatings
service and other business activities resulted in a $9,627 operating loss in the
first half of 2000. eRatings is reporting information in its first five markets
and 150 clients were signed to contracts with a total annualized value of $3,000
in the first half of 2000.
16
<PAGE>
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 June 30, 2000, the Company recorded a charge totaling
$11,810, before tax, related to Operation Leading Edge. The charge related to
the U.S. ($1,184), Canada and Latin America ($906), EMEA ($4,038) and Asia
Pacific ($5,682). The charge included $4,686 to create new capabilities by
improving the Company's information delivery systems, $2,586 for overhead
rationalization and $4,538 for business closures. The following table details
the activity for Operation Leading Edge during the quarter:
<TABLE>
<CAPTION>
Balance Balance
April 1, 2000 Charges Payments Non-Cash June 30, 2000
<S> <C> <C> <C> <C> <C>
Severance $7,716 $ 4,690 $(5,344) $ - $ 7,062
Business Re-engineering, Design
and Other Costs 1,510 5,493 (3,904) - 3,099
Transition - 362 (362) - -
Non-Cash - 1,265 - (1,265) -
----------------- -------------- -------------------- --------------- ----------------
Total $9,226 $11,810 $(9,610) $(1,265) $10,161
----------------- -------------- -------------------- --------------- ----------------
</TABLE>
Severance charges in the quarter related to the elimination of 95 positions,
primarily in Asia Pacific, that resulted from streamlining operations and a
closedown of a line of business. 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 to establish a
single regional operating platform in Europe. Non-cash charges were for assets
removed from service upon closure of the line of business. Savings realized from
the actions taken during the quarter were not significant.
17
<PAGE>
Liquidity and Capital Resources
Six Months Ended June 30, 2000 and 1999
Net cash provided by operating activities for the six months ended June 30, 2000
totaled $18,511 compared with $22,764 for the comparable period in 1999. The
decrease resulted from lower cash income ($7,917) and increased deferred income
taxes ($16,958). These decreases were partially offset by the accrual for
Operation Leading Edge in excess of payments for special charges during the
period ($12,456) and a lower increase in other working capital items ($14,965)
as compared with the first half of 1999.
Net cash used in investing activities was $66,385 for the six months ended June
30, 2000, compared with $66,370 for the comparable period in 1999. Total cash
usage was essentially unchanged, as reductions in capital expenditures ($5,534),
computer software additions ($1,215) and other investing ($10,354) were mainly
offset by increased payments for the acquisition of businesses ($17,118). The
first half 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 six months ended June 30, 2000
totaled $21,648, compared with $29,924 for the comparable period in 1999. The
decrease in cash provided of $8,276 primarily reflected a decrease in cash
proceeds from the sale of stock under option plans ($7,260).
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.
18
<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.
19
<PAGE>
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.
The following table presents the notional amounts, fair values and average
exchange rates of the foreign exchange forward contracts outstanding at June 30,
2000 (in thousands of U.S. dollars, except average foreign exchange rates):
<TABLE>
<CAPTION>
Notional Fair Average
Amounts Value Foreign
Exchange
Rates
<S> <C> <C> <C>
Euro $2,840 $(108) 0.9067
Australian dollars 1,024 9 1.7269
Canadian dollars 1,958 (31) 1.5012
Swiss francs 114 (3) 1.7130
Japanese yen 330 13 101.2867
Danish krone 126 (5) 8.2538
Other 1,871 (19)
--------------------------------- -------------- -- ----------
Total $8,263 $(144)
--------------------------------- -------------- -- ----------
</TABLE>
In July, 2000, the Company entered into additional foreign exchange forward
contracts totaling $7,922 (notional amounts) to hedge against the effect of
exchange rate fluctuations on forecasted purchases described above. These
forward contracts mature in monthly installments at various dates through
November 2000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the description of the IRI Action contained in Note 7 to
the condensed consolidated financial statements of the Company earlier in this
report and to the description of such action contained in Part 1, 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 judgement 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.
20
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
-------
The annual meeting of shareholders of ACNielsen Corporation was held on April
19, 2000. The following nominees for director named in the proxy statement dated
March 10, 2000 were elected at the meeting by the votes indicated.
For Withheld
Donald W. Griffin 52,491,470 136,506
Robert M. Hendrickson 52,477,687 150,289
Brian B. Pemberton 52,513,341 114,635
Nicholas L. Trivisonno 52,490,666 137,310
The votes in favor of the election of the nominees represent at least 99.7% of
the shares voted for each of the nominees.
The ratification of the selection of Arthur Andersen LLP as independent public
accountants to audit the Company's consolidated financial statements for 2000
was approved by the following vote:
For Against Abstain
Number of shares 52,495,823 74,599 57,554
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
June 30, 2000.
21
<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: August 10, 2000 /s/ Robert J. Chrenc
------------------------------
Robert J. Chrenc
Executive Vice President
and Chief Financial Officer
Date: August 10, 2000 /s/ Michael S. Geltzeiler
------------------------------
Michael S. Geltzeiler
Senior Vice President and Controller
22
<PAGE>
