SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 1-14037
THE DUN & BRADSTREET CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3998945
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(State of Incorporation) (I.R.S. Employer Identification No.)
One Diamond Hill Road, Murray Hill, NJ 07974
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 665-5000
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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:
Title of Class Shares Outstanding
Common Stock, at March 31, 2000
par value $.01 per share 161,705,834
<PAGE>
THE DUN & BRADSTREET CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 2000 and 1999 3
Consolidated Balance Sheets (Unaudited)
March 31, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
<PAGE>
<TABLE>
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Quarter Ended
March 31,
--------------------------
Amounts in millions, except per share data 2000 1999
- --------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Operating Revenues $495.7 $490.9
- --------------------------------------------------------------------------- ------------ ------------
Operating Costs:
Operating Expenses 146.8 146.1
Selling and Administrative Expenses 195.0 204.8
Depreciation and Amortization 34.1 35.4
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Operating Costs 375.9 386.3
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Operating Income 119.8 104.6
- --------------------------------------------------------------------------- ------------ ------------
Non-Operating Expense - Net:
Interest Income 0.8 0.5
Interest Expense (1.1) (0.8)
Minority Interest Expense (5.6) (5.6)
Other Expense - Net (0.3) (0.5)
- --------------------------------------------------------------------------- ------------ ------------
Non-Operating Expense - Net (6.2) (6.4)
- --------------------------------------------------------------------------- ------------ ------------
Income before Provision for Income Taxes 113.6 98.2
Provision for Income Taxes 45.8 37.8
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Net Income $ 67.8 $ 60.4
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Basic Earnings Per Share of Common Stock $ 0.42 $ 0.37
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Diluted Earnings Per Share of Common Stock $ 0.42 $ 0.36
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Dividends Paid Per Share of Common Stock $0.185 $0.185
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Weighted Average Number of Shares Outstanding:
Basic 161.2 165.1
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Diluted 162.5 167.9
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<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<CAPTION>
March 31, December 31,
Dollar amounts in millions, except per share data 2000 1999
- -------------------------------------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 70.0 $ 113.2
Accounts Receivable---Net of Allowance of $40.2 in 2000 and $38.0 in 1999 508.0 454.4
Other Current Assets 219.9 217.4
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Total Current Assets 797.9 785.0
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Non-Current Assets
Property, Plant and Equipment, Net 275.7 280.0
Prepaid Pension Costs 284.1 266.9
Computer Software, Net 150.3 156.2
Goodwill, Net 174.1 167.5
Other Non-Current Assets 129.3 130.1
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Total Non-Current Assets 1,013.5 1,000.7
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Total Assets $ 1,811.4 $1,785.7
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- -------------------------------------------------------------------------------------------- ----------------- ----------------
Current Liabilities
Notes Payable $ 38.9 $ 127.3
Accrued Income Taxes 396.9 349.1
Other Accrued and Current Liabilities 395.0 486.9
Unearned Subscription Income 534.8 451.5
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Total Current Liabilities 1,365.6 1,414.8
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Pension and Postretirement Benefits 371.4 368.0
Other Non-Current Liabilities 104.7 117.6
Contingencies (Note 6)
Minority Interest 302.1 301.9
Shareholders' Equity
Preferred Stock, authorized---10,000,000 shares;
$.01 par value per share--- outstanding---none
Series Common Stock, authorized---10,000,000 shares;
$.01 par value per share--- outstanding---none
Common Stock, authorized---400,000,000 shares;
$.01 par value per share---2000 and 1999, issued---171,451,136 shares 1.7 1.7
Capital Surplus 230.4 237.3
Retained Earnings (39.0) (105.9)
Treasury Stock, at cost, 9,745,302 and 10,627,327 shares
for 2000 and 1999, respectively (301.5) (330.2)
Cumulative Translation Adjustment (185.6) (181.1)
Minimum Pension Liability (38.4) (38.4)
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Total Shareholders' Equity (332.4) (416.6)
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Total Liabilities and Shareholders' Equity $ 1,811.4 $ 1,785.7
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<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Quarter Ended March 31,
<CAPTION>
Dollar amounts in millions 2000 1999
- ------------------------------------------------------ -------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 67.8 $ 60.4
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 34.1 35.4
Restructuring Payments (7.9) -
Net Increase in Accounts Receivable (54.2) (76.8)
Accrued Income Taxes 47.8 40.1
(Decrease) Increase in Long Term Liabilities (12.5) 6.1
Increase in Other Long Term Assets (14.5) (0.3)
Net Decrease (Increase) in Other Working Capital
Items 31.8 (2.6)
Other 6.8 5.0
- ------------------------------------------------------ -------- --------
Net Cash Provided by Operating Activities 99.2 67.3
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Cash Flows from Investing Activities:
Proceeds from Sales of Marketable Securities 0.9 9.0
Payments for Marketable Securities (1.1) (9.9)
Payments for Acquisition of Business (17.4) -
Capital Expenditures (11.2) (10.3)
Additions to Computer Software and Other Intangibles (14.1) (18.2)
Other 7.6 9.4
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Net Cash Used in Investing Activities (35.3) (20.0)
- ------------------------------------------------------ -------- --------
Cash Flows from Financing Activities:
Payment of Dividends (29.9) (30.6)
Payments for Purchase of Treasury Shares (3.5) (91.1)
Net Proceeds from Stock Plans 16.0 27.0
(Decrease) Increase in Commercial Paper Borrowings (86.7) 27.9
Other (2.7) 0.3
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Net Cash Used in Financing Activities (106.8) (66.5)
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Effect of Exchange Rate Changes on Cash and Cash
Equivalents (0.3) (0.5)
- --------------------------------------------------------------- --------
Decrease in Cash and Cash Equivalents (43.2) (19.7)
Cash and Cash Equivalents, Beginning of Year 113.2 90.6
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Cash and Cash Equivalents, End of Quarter $ 70.0 $ 70.9
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<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
THE DUN & BRADSTREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 of The Dun & Bradstreet
Corporation's (the "Company") 1999 Annual Report on Form 10-K. The consolidated
results for interim periods are not necessarily indicative of results for the
full year or any subsequent period. In the opinion of management, all
adjustments (consisting of normal recurring accruals) 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.
Effective January 1, 2000, responsibility for the management of the D&B
operating company's Canadian business was moved from its Asia Pacific and Latin
America segment to its U.S. segment (now called D&B North America) to take
advantage of marketing synergies between the U.S. and Canada. As such, in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of a Business Enterprise," prior year's segment
information has been restated to reflect the change. Certain other prior-year
amounts have been reclassified to conform to the 2000 presentation.
Note 2 - Reconciliation of Weighted Average Shares
<TABLE>
<CAPTION>
(share data in thousands) Three Months ended March 31
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2000 1999
---- ----
<S> <C> <C>
Weighted average number of shares-basic 161,197 165,118
Dilutive effect of shares issuable under stock options,
restricted stock and performance share plans 944 2,188
Adjustment of shares applicable to stock options exercised during the
period and performance share plans 360 610
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Weighted average number of shares-diluted 162,501 167,916
======= =======
<FN>
As required by SFAS No. 128, "Earnings per Share," the Company has provided a
reconciliation of basic weighted average shares to diluted weighted average
shares within the table outlined above. The conversion of diluted shares has no
impact on the Company's operating results. Options to purchase 9.1 million and
3.3 million shares of common stock were outstanding at March 31, 2000 and 1999,
respectively, but were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market
price of the Company's common stock. The Company's options generally expire 10
years after the initial grant date.
</FN>
</TABLE>
<PAGE>
Note 3 - Comprehensive Income
The Company's total comprehensive income for the three-month periods ended March
31, were as follows:
<TABLE>
<CAPTION>
Amounts in millions 2000 1999
---- ----
<S> <C> <C>
Net income $67.8 $60.4
Other comprehensive (loss) income - foreign
currency translation adjustment (4.5) 1.7
-------- --------
Total comprehensive income $63.3 $62.1
======== ========
</TABLE>
Note 4 - Acquisitions
On January 27, 2000, Moody's acquired the net assets of a financial software
products company for $17.4 million in cash. The acquisition was accounted for
using the purchase method of accounting for business combinations. The purchase
price has been preliminarily allocated based on estimated fair values at the
date of acquisition, pending final determination of certain acquired balances.
This preliminary allocation has resulted in acquired goodwill and other
intangibles of approximately $17.2 million, which will be amortized on a
straight-line basis over 3-10 years.
The following unaudited pro-forma information presents the results of operations
of the Company for the three months ended March 31, as if the acquisition had
taken place on January 1, 1999:
<TABLE>
<CAPTION>
Amounts in millions, except per share data 2000 1999
---- ----
<S> <C> <C>
Operating revenues $496.4 $492.6
Net income $68.1 $59.5
Earnings per share of common stock
Basic $.42 $.36
Diluted $.42 $.35
<FN>
These unaudited pro-forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the acquisition occurred on the date indicated,
or which may result in the future.
</FN>
</TABLE>
Note 5 - Restructuring
During the fourth quarter of 1999, the Company recorded a restructuring charge
of $41.2 million, comprised of severance costs of $32.7 million, write off of
certain assets made obsolete or redundant and abandoned of $3.9 million and
leasehold termination obligations of $4.6 million. The restructuring includes:
(1) office consolidations and organization changes in both Europe and other
international locations and improvements in sales and data collection operations
in Europe; (2) realigning and streamlining the Company's global technology
organization and outsourcing certain software and product development to
resources outside the United States and Europe; and (3) migrating data
collection in the U.S. to telephonic data collection and closing 15 U.S. field
data collection offices.
The following chart summarizes the activity with respect to the components of
these restructuring actions during the three months ended March 31, 2000:
<TABLE>
<CAPTION>
Lease
termination
(Amounts in millions) Severance costs obligations Total
<S> <C> <C> <C>
December 31, 1999 $30.2 $4.5 $34.7
Payments made (7.5) (.4) $(7.9)
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March 31, 2000 $22.7 $4.1 $26.8
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<FN>
As of March 31, 2000, the Company has terminated 316 associates and anticipates
completion of the restructuring actions by the end of 2000.
</FN>
</TABLE>
Note 6 - Contingencies
The Company and its subsidiaries are involved in legal proceedings, claims,
litigation and tax matters arising in the ordinary course of business. In the
opinion of management, the outcome of such matters could have a material effect
on quarterly or annual operating results or cash flows. However, in the opinion
of management, these matters will not materially affect the Company's financial
position when resolved in a future period.
In addition, the Company also has certain other contingencies discussed below.
Information Resources, Inc.
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 corporation then known as "The Dun & Bradstreet Corporation"
("Old D&B"), A.C. Nielsen Company (a subsidiary of ACNielsen Corporation) and
IMS International, Inc. (a subsidiary of Cognizant Corporation). At the time of
the filing of the complaint, each of the other defendants, as well as a
predecessor of the Company, was a wholly owned subsidiary of Old D&B.
The complaint alleges various violations of United States antitrust laws,
including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious interference with a prospective business relationship. These
claims relate to the acquisition by defendants of Survey Research Group Limited
("SRG"). IRI alleges SRG violated an alleged agreement with IRI when it agreed
to be acquired by the defendants and that the defendants induced SRG to breach
that agreement.
IRI's complaint alleges damages in excess of $350 million, which amount IRI
asked to be trebled under antitrust laws. IRI also seeks punitive damages in an
unspecified amount.
In November 1996, Old D&B completed a distribution to its shareholders (the
"1996 Distribution") of the capital stock of ACNielsen Corporation ("ACNielsen")
and Cognizant Corporation ("Cognizant"). On October 28, 1996, in connection with
the 1996 Distribution, Cognizant, ACNielsen and Old D&B entered into an
Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense
Agreement") pursuant to which they have 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
ACNielsen will assume exclusive liability for IRI Liabilities up to a maximum
amount to be calculated at such time such liabilities, if any, become payable
(the "ACN Maximum Amount"), and that Old D&B and Cognizant 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
that ACNielsen is able to pay after giving effect to (i) any plan submitted by
such investment bank that is designed to maximize the claims-paying ability of
ACNielsen without impairing the investment banking firm's ability to deliver a
viability opinion (but which will not require any action requiring stockholder
approval), and (ii) payment of related fees and expenses. For these purposes,
financial viability means the ability of ACNielsen, after giving effect to such
plan, the payment of related fees and expenses and the payment of the ACN
Maximum Amount, to pay its debts as they become due and to finance the current
and anticipated operating and capital requirements of its business, as
reconstituted by such plan, for two years from the date any such plan is
expected to be implemented.
In June 1998, Old D&B completed a distribution to its shareholders (the "1998
Distribution") of the capital stock of the Company and changed its name to R.H.
Donnelley Corporation ("Donnelley") In connection with the 1998 Distribution,
the Company and Donnelley entered into an agreement whereby the Company has
assumed all potential liabilities of Donnelley arising from the IRI action and
agreed to indemnify Donnelley in connection with such potential liabilities.
During 1998, Cognizant separated into two new companies, IMS Health Incorporated
("IMS") and Nielsen Media Research, Inc. ("NMR"). IMS and NMR are each jointly
and severally liable for all Cognizant liabilities under the Indemnity and Joint
Defense Agreement.
Management is unable to predict at this time the final outcome of the IRI action
or whether the resolution of this matter could materially affect the Company's
results of operations, cash flows or financial position.
Tax matters
The Company enters into global tax planning initiatives in the normal course of
business. These initiatives are subject to review by tax authorities. As a
result of the review process, uncertainties exist, and it is possible that some
of these matters could be resolved unfavorably for the Company.
The Internal Revenue Service ("IRS"), as part of its audit process, is
continuing its review of the Company's utilization of certain capital losses
generated during 1989 and 1990. While the Company has not received a formal
assessment with respect to these transactions, the Company expects that the IRS
will challenge the Company's utilization of these capital losses and expects to
receive an assessment during the second quarter of 2000. The Company believes
that as of March 31, 2000, the cash obligation to the IRS is approximately $565
million for taxes and accrued interest. Pursuant to a series of agreements, IMS
and NMR are jointly and severally liable to pay one-half, and the Company the
other half of any payments for taxes and accrued interest, arising from this
matter and certain other potential tax liabilities after the Company pays the
first $137 million.
In connection with the 1998 Distribution, the Company and Donnelley entered into
an agreement whereby the Company has assumed all potential liabilities of
Donnelley arising from these tax matters and has agreed to indemnify Donnelley
in connection with such potential liabilities.
As of March 31, 2000, the Company has accrued its anticipated share of the
probable liability (approximately $351 million, including $189 million of
tax-deductible interest) arising from the Company's utilization of these capital
losses in 1989 and 1990. As a result, the Company believes that the final
resolution of this matter will not have a material effect on the results of
operations, but could have a material effect on cash flows and financial
position.
Note 7 - Reorganization Plan
On December 15, 1999, the Company announced that it will pursue the separation
of Moody's and the D&B operating company into two independent, publicly traded
companies. On February 16, 2000, the Company announced that the separation would
be accomplished by spinning off, through a tax-free distribution to shareholders
(the "2000 Distribution"), all of the shares of common stock of a newly formed,
wholly owned subsidiary corporation ("New D&B") comprising the business of the
D&B operating company. The 2000 Distribution is subject to final approval by the
Company's Board of Directors and obtaining a favorable ruling from the IRS with
respect to the tax-free treatment of the distribution. After the 2000
Distribution, the business of the Company will consist entirely of the business
conducted by Moody's, and New D&B will be a new publicly traded company
(comprising the business of the D&B operating company) that will succeed to the
name "The Dun & Bradstreet Corporation." The Company expects to complete the
reorganization by the end of the third quarter of 2000.
<PAGE>
<TABLE>
Note 8 - Segment Information
<CAPTION>
Quarter Ended
March 31,
------------------------------
Amounts in millions 2000 1999
- --------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Operating Revenues:
Dun & Bradstreet North America $253.2 $241.6
Dun & Bradstreet Europe 88.8 98.8
Dun & Bradstreet Asia Pacific/Latin America 14.5 13.6
-------------- --------------
Total Dun & Bradstreet Operating Company 356.5 354.0
Moody's Investors Service 139.2 136.9
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Consolidated Operating Revenues $495.7 $490.9
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Operating Income (Loss):
Dun & Bradstreet North America $ 80.5 $ 71.8
Dun & Bradstreet Europe (13.3) (15.1)
Dun & Bradstreet Asia Pacific/Latin America (3.7) (3.8)
-------------- --------------
Total Dun & Bradstreet Operating Company 63.5 52.9
Moody's Investors Service 65.5 63.7
Corporate and Other (9.2) (12.0)
-------------- --------------
Consolidated Operating Income $119.8 $104.6
-------------- --------------
Supplemental Geographic and Product Line Information:
Quarter Ended
March 31,
------------------------------
Geographic Revenue 2000 1999
- --------------------------------------------------------------------------- -------------- --------------
United States $345.8 $344.3
International 149.9 146.6
-------------- --------------
Consolidated Operating Revenues $495.7 $490.9
-------------- --------------
Product Line Revenues
- --------------------------------------------------------------------------- -------------- --------------
Credit Information Services $235.0 $240.1
Marketing Information Services 78.1 75.3
Purchasing Information Services 4.7 4.3
Receivables Management Services 38.7 34.3
-------------- --------------
Total Dun & Bradstreet Operating Company $356.5 $354.0
-------------- --------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
2000 Distribution
On December 15, 1999, the Company announced that it will pursue the separation
of Moody's and the D&B operating company into two independent, publicly traded
companies. On February 16, 2000, the Company announced that the separation would
be accomplished by spinning off, through a tax-free distribution to shareholders
(the "2000 Distribution"), all of the outstanding shares of a newly formed
subsidiary corporation ("New D&B") comprising the business of the D&B operating
company. The 2000 Distribution is subject to final approval by the Company's
Board of Directors and obtaining a favorable ruling from the Internal Revenue
Service ("IRS") with respect to the tax-free treatment of the distribution.
After the 2000 Distribution, the business of the Company will consist entirely
of the business conducted by Moody's, and New D&B will be a new publicly traded
company (comprising the business of the D&B operating company) that will succeed
to the name "The Dun & Bradstreet Corporation." The Company expects to complete
the 2000 Distribution by the end of the third quarter of 2000.
Management Reorganization
Effective January 1, 2000, responsibility for the management of the D&B
operating company's Canadian business was moved from its Asia Pacific and Latin
America ("D&B APLA") segment to its U.S. segment (now called D&B North America)
to take advantage of marketing synergies between the U.S. and Canada. As such,
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of a Business Enterprise," prior year's segment
information has been restated to reflect the change.
Results of Operations
Consolidated Results
For the first quarter of 2000, the Company reported net income of $67.8 million,
up 12% compared with $60.4 million reported for the first quarter of 1999.
Earnings per share for the first quarter of 2000 of $.42 basic and diluted were
up 14% and 17% compared with 1999 first quarter basic earnings per share of $.37
and diluted earnings per share of $.36.
Operating revenues for the first quarter were up 1% to $495.7 million in 2000
from $490.9 million in 1999. Revenue growth for the quarter reflects 1% growth
for D&B operating company and 2% growth at Moody's. Moderate growth for D&B
North America and APLA was offset by a decline in Europe. An unfavorable capital
markets environment in the U.S negatively influenced Moody's revenue growth.
Excluding the impact of foreign exchange, revenues for the first quarter of 2000
would have increased 3% compared with the first quarter of 1999, with D&B
operating company growth of 3% and Moody's growth of 2%.
Operating expenses were essentially flat at $146.8 million during the first
quarter of 2000 compared to $146.1 million in the same period in 1999. Selling
and administrative costs decreased by 5% to $195.0 million during the first
quarter of 2000 compared to the same period of 1999, resulting from cost
reductions attributable to the restructuring actions implemented in the fourth
quarter of 1999 by the D&B operating company and lower expenses incurred by
corporate headquarters for compensation and consulting services.
Operating income for the first quarter of 2000 of $119.8 million was 15% higher
than 1999 first quarter operating income of $104.6 million. This increase
reflects strong growth in operating income at the D&B operating company, largely
resulting from the higher revenues and lower expenses, as well as the lower
expenses incurred by corporate headquarters.
Non-operating expense-net was $6.2 million for the first quarter of 2000
compared with non-operating expense-net of $6.4 million for the first quarter of
1999. The components of non-operating expense-net, including interest income and
expense, minority interest expense and other income-net, remained level when
comparing the first quarter of 2000 with the first quarter of 1999.
The effective tax rate was 40.3% for the first quarter of 2000 compared with
38.5% in 1999. This increase resulted from a number of factors, including the
refinement of certain estimates during the third and fourth quarters of 1999 and
the inclusion in the first quarter of 1999 of certain one-time refunds of state
and local taxes.
Segment Results
D&B North America revenues were $253.2 million in the first quarter of 2000, up
5% from 1999 first quarter revenues of $241.6 million. In comparing the first
quarter of 2000 with the first quarter of 1999, Credit Information Services
("Credit") increased 2% to $162.2 million, Marketing Information Services
("Marketing") increased 8% to $62.7 million, Purchasing Information Services
("Purchasing") was flat at $4.3 million and Receivables Management Services
("RMS") increased 24% to $24.0 million. D&B North America operating income was
$80.5 million in the first quarter of 2000, up 12% from the prior year operating
income of $71.8 million, driven by the higher revenues and lower expenses
resulting from the restructuring actions implemented in the fourth quarter of
1999.
D&B Europe's revenues were $88.8 million in the first quarter of 2000, down 10%
when compared to 1999 first quarter revenues of $98.8 million. Excluding the
impact of foreign exchange, D&B Europe's revenues were down 1%. In comparing the
first quarter of 2000 with the first quarter of 1999, Credit revenues decreased
11% to $63.5 million, Marketing revenues decreased 12% to $13.5 million, and RMS
revenues decreased 4% to $11.4 million. In the first quarter of 2000, D&B Europe
had $.4 million revenues from Purchasing products, which were introduced in the
second half of 1999. Excluding the impact of foreign exchange, D&B Europe would
have reported in the first quarter of 2000 a decrease in Credit revenues of 2%,
a decrease in Marketing revenues of 5% and an increase in RMS revenues of 7%, in
each case in comparison with 1999. D&B Europe reported an operating loss of
$13.3 million for the first quarter of 2000, compared with $15.1 million in the
prior year, an improvement of 12%. Excluding the impact of foreign exchange, the
operating loss would have been reduced by 10%. The reduction of loss was
influenced by the restructuring actions implemented in the fourth quarter of
1999, which have reduced the cost structure.
D&B APLA's revenues were $14.5 million in the first quarter of 2000, up 6%
compared with1999 first quarter revenues of $13.6 million. Excluding the impact
of foreign exchange rates, revenue would have increased by 3%. In comparing the
first quarter of 2000 with the first quarter of 1999, D&B APLA Credit revenues
increased 3% to $9.3 million, Marketing revenues increased 11% to $1.9 million
and RMS revenues increased 14% to $3.3 million. Excluding the impact of foreign
exchange, D&B APLA would have reported a decline in Credit revenues of 1%, an
increase in Marketing revenues of 7% and an increase in RMS of 12%. D&B APLA
reported an operating loss of $3.7 million in the first quarter of 2000 compared
with a loss of $3.8 million in the first quarter of 1999.
Moody's revenues of $139.2 million in the first quarter of 2000 were up 2% from
$136.9 million reported in the first quarter of 1999. Securities issuances in
the U.S. capital markets declined in the first quarter 2000 versus the same
period in 1999 as a result of unsettled market conditions related to interest
rate increases. This resulted in revenue declines in the taxable, structured
and tax-exempt markets. Offsetting the declines, however, were bank loan
ratings revenues which doubled from prior-year levels, and increases in
international ratings revenues and revenues from research and risk management
services. International ratings revenues increased 44%, driven by new
corporate issuers in Europe and strong growth in structured finance in Europe
and Japan. Revenue from research and risk management services products grew
24% to $17.4 million, after including first quarter of 2000 revenues of
$.8 million attributable to the acquisition of a financial software
products company during the quarter. The growth in research and risk
management services revenues resulted strong international sales and demand for
Internet delivery. Moody's operating income of $65.5 million in the first
quarter of 2000 was up 3% from first quarter 1999, reflecting the modest
revenue growth. Operating income was negatively affected by $1.5 million of
costs related to the acquisition.
Adoption of Statements of Financial Accounting Standards ("SFAS")
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities on the balance sheet and measurement
of those instruments at fair value. If certain conditions are met, a derivative
may be designated specifically as: (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm commitment
(a fair value hedge); (b) a hedge of the exposure to variable cash flows of a
forecasted transaction (a cash flow hedge); or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. In June, the Financial
Accounting Standards Board issued SFAS No. 137 delaying the effective date of
SFAS No. 133. The provisions of SFAS No. 133 are effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company
currently hedges foreign-currency-denominated transactions and expects to adopt
SFAS No. 133 beginning January 1, 2001. The effect of adopting SFAS No. 133 is
not expected to be material.
Liquidity and Financial Position
The Company intends to complete the 2000 Distribution by the end of the third
quarter of 2000. Although the capital structures of the two independent
companies have not been finalized, it is expected that operating cash flows,
supplemented as needed with financing arrangements, will be sufficient to meet
the needs of the two companies in the future.
At March 31, 2000, cash and cash equivalents totaled $70.0 million, a decrease
of $43.2 million from $113.2 million held at December 31, 1999. An acquisition
made by Moody's and the paydown of commercial paper outstanding at December 31,
1999, affected cash flows for the quarter ended March 31, 2000. During the first
quarter of 1999, the increase in commercial paper borrowings needed to support
the Company's share repurchase program (described below) affected cash flows.
Operating activities generated net cash of $99.2 million during the first
quarter of 2000 compared with $67.3 million from continuing operations in 1999.
Higher operating income at the D&B operating company and lower incentive
compensation payments contributed to the improvement in cash flows when
comparing the first quarter of 2000 with the same period of the prior year.
During the first quarter of 2000, the company made payments of $7.9 million
related to the restructuring actions implemented during the fourth quarter of
1999. As of March 31, 2000, the Company has terminated 316 associates out of the
700 contemplated in the plans. The Company anticipates completion of the
restructuring actions by the end of 2000, including the payment of the majority
of the associated costs.
Net cash used in investing activities was $35.3 million for the first quarter of
2000 compared to $20.0 million in 1999. The first quarter of 2000 included an
acquisition by Moody's of a financial software products company for $17.4
million in cash. The acquisition was accounted for using the purchase method of
accounting for business combinations. In the first quarter of 2000 capital
expenditures and additions to computer software and other intangibles totaled
$25.3 million compared with $28.5 million in the first quarter of 1999, due to
higher expenditures in the prior year on back office systems implemented in
1999.
Net cash used in financing activities was $106.8 million during the first
quarter of 2000 compared with $66.5 million in the first quarter of 1999.
Payments of dividends accounted for $29.9 million in the first quarter of 2000
compared with $30.6 million in the first quarter of 1999.
During the first quarter of 2000, the Company decreased its net commercial paper
borrowings by $86.7 million, while during the first quarter of 1999, the Company
increased its net commercial paper borrowings by $27.9 million in order to
support its share repurchase program. At March 31, 2000 and 1999, the Company
had $38.9 million and $63.9 million, respectively, of commercial paper
borrowings outstanding.
During the first quarter of 2000, the Company repurchased 125,000 shares for
$3.5 million in connection with the Company's Employee Stock Purchase Plan and
to offset a portion of the shares issued under incentive plans. During the first
quarter of 1999, the Company purchased 1.6 million shares for $56.4 million
under the Company's $300 million special stock repurchase program authorized by
its Board of Directors in June 1998 and completed during 1999. During the first
quarter of 1999, the Company also repurchased 1.0 million shares for $34.7
million in connection with the Company's Employee Stock Purchase Plan and to
offset shares issued under incentive plans. Shares issued for Company incentive
plans totaled 1.0 million and 1.6 million shares during the first quarter of
2000 and 1999, respectively. Proceeds received from the exercise of stock
options were $16.0 million for the first quarter of 2000 compared to $27.0
million in 1999.
The IRS is continuing its review of the Company's utilization of certain capital
losses generated during 1989 and 1990. The Company believes that as of March 31,
2000, the cash obligation to the IRS is approximately $565 million for taxes and
accrued interest. Pursuant to a series of agreements, IMS Health Incorporated
and Nielsen Media Research, Inc. are jointly and severally liable to pay
one-half, and the Company the other half, of any payments for taxes and accrued
interest, arising from this matter and certain other potential tax liabilities
after the Company pays the first $137 million. The Company's share of the taxes
and accrued interest with respect to this matter is approximately $351 million
as of March 31, 2000, of which $189 million represents tax-deductible interest.
The Company expects that an assessment will be issued from the IRS during the
second quarter of 2000. At that time, the Company will consider its options,
which include satisfying its obligation to the IRS for its share of the
liability. The funds that would be needed to make such a payment are expected to
come from external borrowings.
New European Currency
On January 1, 1999, eleven of the countries in the European Union began a
three-year transition to a single European currency ("euro") to replace the
national currency of each participating country. The Company intends to phase in
the transition to the euro over the next two years. The Company has established
a task force to address issues related to the euro. The Company believes that
the euro conversion may have a material impact on its operations and financial
condition if it fails to successfully address such issues. The task force has
prepared a project plan and is proceeding with the implementation of that plan.
The Company's project plan includes the following: ensuring that the Company's
information technology systems that process data for inclusion in the Company's
products and services can appropriately handle amounts denominated in euro
contained in data provided to the Company by third-party data suppliers;
modification of the Company's products and services to deal with euro-related
issues; and modification of the Company's internal systems (such as payroll,
accounting and financial reporting) to deal with euro-related issues. The
Company does not believe that the cost of such modifications will have a
material effect on the Company's results of operations or financial condition.
There is no guarantee that all problems will be foreseen and corrected, or that
no material disruption of the Company's business will occur. The conversion to
the euro may have competitive implications for the Company's pricing and
marketing strategies, which could be material in nature; however, any such
impact is not known at this time.
Forward-Looking Statements
Certain statements in this on Form 10-Q are forward-looking. These may be
identified by the use of forward-looking words or phrases, such as "believe,"
"expect," "anticipate," "should," "aims," "intends," "planned," "estimated,"
"potential," "target" and "goal," among others. All such forward-looking
statements are based on the Company's reasonable expectations at the time they
are made. The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for such forward-looking statements. In order to comply with the terms
of the safe harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. The risks and uncertainties that may affect the operations,
performance, development and results of the Company's businesses include: (1)
complexity and uncertainty regarding the development of new high-technology
products; (2) possible loss of market share through competition; (3)
introduction of competing products or technologies by other companies; (4)
pricing pressures from competitors and/or customers; (5) changes in the business
information and risk management industries and markets; (6) the Company's
ability to protect proprietary information and technology or to obtain necessary
licenses on commercially reasonable terms; (7) the Company's ability to complete
the implementation of its euro plans on a timely basis and the competitive
implications that the conversion to the euro may have on the Company's pricing
and marketing strategies; (8) the possible loss of key employees to investment
or commercial banks, or elsewhere; (9) fluctuations in foreign currency exchange
rates; (10) changes in the interest rate environment; (11) the outcome of the
IRS's review of the Company's utilization of capital losses described above
under the Liquidity and Financial Position section and the associated cash flow
implications; (12) the ability to complete the restructuring actions at the D&B
operating company in a timely fashion at forecasted costs without adverse
effects on operations; and (13) the ability to implement the 2000 Distribution
on a timely basis without adverse impact on the conduct of the Company's
business.
The Company undertakes no obligation to publicly release any revision to any
forward-looking statement to reflect any future events or circumstances.
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 any such forward-looking statement made by or on behalf of the
Company. Any such statement is qualified by reference to the factors set forth
above.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this Item is included in Note 6 - Contingencies on
Pages 8-10 in Part I, Item 1 of this Form 10-Q.
The following summarizes certain developments with respect to the IRI case
discussed in Note 6:
On 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 dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within 60 days. The
Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim
alleging that IRI had made false and misleading statements about its services
and commercial activities. On July 7, 1997, IRI filed an Amended and Restated
Complaint repleading its alleged claim of monopolization in the United States
and realleging its other claims. By notice of motion dated August 18, 1997,
defendants moved for an order dismissing the amended claim.
On December 1, 1997, the Court denied the motion. Discovery in this case is
ongoing.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March 31, 2000.
<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.
THE DUN & BRADSTREET CORPORATION
Date: April 18, 2000 By:CHESTER J. GEVEDA, JR.
--------------------------------------------
Chester J. Geveda, Jr.
Vice President and Controller and Acting Chief
Financial Officer
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