<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ------------------
Commission file number
001-15967
THE DUN & BRADSTREET CORPORATION
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3725387
(State of Incorporation) (I.R.S. Employer Identification No.)
One Diamond Hill Road, Murray Hill, NJ 07974
--------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 665-5000
--------------
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 No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Shares Outstanding
Title of Class at October 31, 2000
-------------- -------------------
<S> <C>
Common Stock,
par value $0.01 per share 81,557,664
</TABLE>
1
<PAGE> 2
THE DUN & BRADSTREET CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----------------------------- ----
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2000 and 1999 3
Consolidated Balance Sheets (Unaudited)
September 30, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 28
Item 6. Exhibits and Reports on Form 8-K 29-32
SIGNATURES 33
----------
</TABLE>
2
<PAGE> 3
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED YEAR-TO-DATE
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ------------------------------
Amounts in millions, except per share data 2000 1999 2000 1999
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 334.9 $ 334.4 $ 1,039.2 $ 1,038.2
-------------------------------------------------------- ----------- ----------- ------------- -------------
OPERATING COSTS:
Operating Expenses 122.1 132.1 389.9 404.3
Selling and Administrative Expenses 133.5 128.5 412.5 414.2
Depreciation and Amortization 28.7 30.4 85.1 95.5
Reorganization Costs 26.4 - 28.6 -
-------------------------------------------------------- ----------- ----------- ------------- -------------
Operating Costs 310.7 291.0 916.1 914.0
-------------------------------------------------------- ----------- ----------- ------------- -------------
OPERATING INCOME 24.2 43.4 123.1 124.2
-------------------------------------------------------- ----------- ----------- ------------- -------------
NON-OPERATING INCOME (EXPENSE) - NET:
Interest Income 1.2 0.4 3.0 1.4
Interest Expense (3.2) (1.3) (7.2) (3.3)
Minority Interest Expense (5.6) (5.6) (16.8) (16.8)
Other Income (Expense) - Net 8.0 (0.2) 7.0 (1.9)
-------------------------------------------------------- ----------- ----------- ------------- -------------
Non-Operating Income (Expense) - Net 0.4 (6.7) (14.0) (20.6)
-------------------------------------------------------- ----------- ----------- ------------- -------------
Income before Provision for Income Taxes 24.6 36.7 109.1 103.6
Provision for Income Taxes 17.5 15.2 53.9 42.8
-------------------------------------------------------- ----------- ----------- ------------- -------------
Income from Continuing Operations 7.1 21.5 55.2 60.8
Income from Discontinued Operations, Net of Income Taxes
of $29.5 and $86.2 in 2000 and $35.3 and $87.1 in 1999
for the quarter and year-to-date respectively 45.4 44.6 133.0 132.1
-------------------------------------------------------- ----------- ----------- ------------- -------------
NET INCOME $ 52.5 $ 66.1 $ 188.2 $ 192.9
-------------------------------------------------------- ----------- ----------- ------------- -------------
BASIC EARNINGS PER SHARE OF COMMON STOCK:
Continuing Operations $ 0.09 $ 0.27 $ 0.68 $ 0.75
Discontinued Operations 0.56 0.55 1.65 1.62
-------------------------------------------------------- ----------- ----------- ------------- -------------
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.65 $ 0.82 $ 2.33 $ 2.37
-------------------------------------------------------- ----------- ----------- ------------- -------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK:
Continuing Operations $ 0.09 $ 0.26 $ 0.68 $ 0.74
Discontinued Operations 0.55 0.55 1.63 1.60
-------------------------------------------------------- ----------- ----------- ------------- -------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.64 $ 0.81 $ 2.31 $ 2.34
-------------------------------------------------------- ----------- ----------- ------------- -------------
-------------------------------------------------------- ----------- ----------- ------------- -------------
DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.37 $ 0.37 $ 1.11 $ 1.11
-------------------------------------------------------- ----------- ----------- ------------- -------------
-------------------------------------------------------- ----------- ----------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC 81.1 80.5 80.9 81.4
-------------------------------------------------------- ----------- ----------- ------------- -------------
DILUTED 81.9 81.3 81.5 82.4
-------------------------------------------------------- ----------- ----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
<PAGE> 4
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
Dollar amounts in millions, except per share data 2000 1999
------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 39.4 $ 109.4
Accounts Receivable---Net of Allowance of $18.7 in 2000 and $17.4 in 1999 348.6 363.7
Other Current Assets 102.9 133.6
----------- -----------
Total Current Assets 490.9 606.7
------------------------------------------------------------------------------ ----------- -----------
NON-CURRENT ASSETS
Property, Plant and Equipment, Net 216.1 240.3
Prepaid Pension Costs 257.9 217.2
Computer Software, Net 143.3 149.8
Goodwill, Net 146.7 166.6
Other Non-Current Assets 151.7 194.2
----------- -----------
Total Non-Current Assets 915.7 968.1
------------------------------------------------------------------------------ ----------- -----------
TOTAL ASSETS $ 1,406.6 $ 1,574.8
------------------------------------------------------------------------------ ----------- -----------
------------------------------------------------------------------------------ ----------- -----------
CURRENT LIABILITIES
Notes Payable $ 24.1 $ 126.2
Accrued Income Taxes - 175.4
Other Accrued and Current Liabilities 321.1 382.2
Unearned Subscription Income 347.4 353.2
----------- -----------
Total Current Liabilities 692.6 1,037.0
----------- -----------
PENSION AND POSTRETIREMENT BENEFITS 361.8 365.0
NET LIABILITIES OF DISCONTINUED OPERATIONS - 222.8
OTHER NON-CURRENT LIABILITIES 58.6 64.7
CONTINGENCIES (NOTE 9 )
MINORITY INTEREST 302.7 301.9
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value per share,
authorized---10,000,000 shares; --- outstanding---none
Series Common Stock, $.01 par value per share,
authorized---10,000,000 shares; --- outstanding---none
Common Stock, $.01 par value per share,
authorized---200,000,000 shares;
--- issued---81,213,520 shares 0.8 1.7
Capital Surplus 227.3 237.3
Retained Earnings (0.8) (105.9)
Treasury Stock, at cost, 10,627,327 shares
at December 31, 1999 - (330.2)
Cumulative Translation Adjustment (197.9) (181.1)
Minimum Pension Liability (38.5) (38.4)
------------------------------------------------------------------------------ ----------- -----------
TOTAL SHAREHOLDERS' EQUITY (9.1) (416.6)
------------------------------------------------------------------------------ ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,406.6 $ 1,574.8
------------------------------------------------------------------------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
<PAGE> 5
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
<TABLE>
<CAPTION>
Dollar amounts in millions 2000 1999
-------------------------------------------------------------------------------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 188.2 $ 192.9
Less:
Income from Discontinued Operations 133.0 132.1
-------------------------------------------------------------------------------- ---------
Income from Continuing Operations 55.2 60.8
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 85.1 95.5
Restructuring Payments (16.0) -
Postemployment Benefit Payments (2.3) (10.1)
Net Decrease in Accounts Receivable 26.3 7.7
Deferred Income Taxes 31.6 (10.4)
Accrued Income Taxes (175.0) 16.2
(Decrease) Increase in Long Term Liabilities (5.9) 2.0
Increase in Other Long Term Assets (32.3) (25.2)
Net Decrease (Increase) in Other Working Capital Items 12.1 (17.3)
Other 9.8 11.0
--------- ---------
Net Cash (Used in) Provided by Operating Activities:
Continuing Operations (11.4) 130.2
Discontinued Operations (2.5) 150.7
-------------------------------------------------------------------------------- ---------
Net Cash Provided by Operating Activities (13.9) 280.9
-------------------------------------------------------------------------------- ---------
Cash Flows from Investing Activities:
Proceeds from Sales of Marketable Securities 1.2 16.3
Payments for Marketable Securities (1.1) (17.6)
Capital Expenditures (19.8) (23.5)
Additions to Computer Software and Other Intangibles (33.4) (59.5)
Change in Other Investments (5.0) (3.3)
Net Cash Used in Investing Activities of Discontinued Operations (26.2) (5.8)
Other (4.5) 2.7
-------------------------------------------------------------------------------- ---------
Net Cash Used in Investing Activities (88.8) (90.7)
-------------------------------------------------------------------------------- ---------
Cash Flows from Financing Activities:
Payment of Dividends (89.8) (90.3)
Payments for Purchase of Treasury Shares (3.5) (227.5)
Net Proceeds from Stock Plans 30.7 41.7
(Decrease) Increase in Commercial Paper Borrowings (124.7) 66.6
Increase (Decrease) in Other Short-Term Borrowings 24.0 (1.0)
Debt Assumed by Moody's 195.5 -
Other 1.8 1.5
-------------------------------------------------------------------------------- ---------
Net Cash Provided by (Used in) Financing Activities 34.0 (209.0)
-------------------------------------------------------------------------------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (1.3) (0.6)
-------------------------------------------------------------------------------- ---------
Decrease in Cash and Cash Equivalents (70.0) (19.4)
Cash and Cash Equivalents, Beginning of Year 109.4 86.7
-------------------------------------------------------------------------------- ---------
Cash and Cash Equivalents, Nine Months Ended $ 39.4 $ 67.3
-------------------------------------------------------------------------------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
- 5 -
<PAGE> 6
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
Dun & Bradstreet Corporation's 1999 consolidated financial statements and
related notes contained in its Registration Statement on Form 10. 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.
Certain prior year's amounts have been reclassified to conform to the current
years' presentation.
Note 2 - Reorganization Plan & Discontinued Operations
On September 30, 2000, the company then known as The Dun & Bradstreet
Corporation ("Old D&B") separated into two independent, publicly traded
companies - The New D&B Corporation (the "Company") and Moody's Corporation
("Moody's"). The separation was accomplished through a tax-free distribution to
shareholders of Old D&B (the "2000 Distribution") of all of the shares of common
stock of the Company. For every two shares of common stock of Old D&B held,
shareholders received one share of common stock of the Company. Following the
2000 Distribution, Old D&B was renamed "Moody's Corporation" and the Company was
renamed "The Dun & Bradstreet Corporation."
Prior to the 2000 Distribution, Old D&B had completed an internal reorganization
to the effect that, at the time of the 2000 Distribution, the business of the
Company consisted solely of the business of supplying credit, marketing and
purchasing information as well as receivables management services (the "D&B
Business"), and the business of Old D&B (other than the Company and its
subsidiaries) consisted solely of the business of providing ratings and related
research and risk management services (the "Moody's Business").
Old D&B received a ruling letter from the Internal Revenue Service (the "IRS")
on June 15, 2000, to the effect that the receipt by Old D&B shareholders of the
common stock of the Company in the 2000 Distribution would be tax-free to such
stockholders and Old D&B for Federal income tax purposes, except to the extent
of cash received in lieu of fractional shares of common stock of the Company.
For purposes of, among other things, governing certain of the ongoing relations
between the Company and Moody's as a result of the 2000 Distribution as well as
to allocate certain tax, employee benefit and other liabilities arising prior to
the 2000 Distribution, the companies entered into various agreements, including
a Distribution Agreement (the "2000 Distribution Agreement"), Tax Allocation
Agreement, Employee Benefits Agreement, Intellectual Property Assignment, Shared
Transaction Services Agreement, Insurance and Risk Management Services
Agreement, Data Services Agreement and Transition Services Agreement.
6
<PAGE> 7
In general, pursuant to the terms of the 2000 Distribution Agreement, all of the
assets of the D&B Business have been allocated to the Company and all of the
assets of the Moody's Business have been allocated to Moody's. The 2000
Distribution Agreement also provided for assumptions of liabilities and
cross-indemnities designed to allocate generally, as of September 30, 2000,
financial responsibility for (i) all liabilities arising out of or in connection
with the D&B Business to the Company, (ii) all liabilities arising out of or in
connection with the Moody's Business to Moody's and (iii) substantially all
other liabilities as of September 30, 2000 equally between the Company and
Moody's. The liabilities so allocated include contingent and other liabilities
relating to former businesses of Old D&B and its predecessor and certain prior
business transactions, which consist primarily of potential liabilities arising
from a legal action initiated by Information Resources, Inc. ("IRI") or from
reviews by tax authorities of Old D&B's global tax planning initiatives, each of
which is described in Note 9 below .
Pursuant to the terms of a distribution agreement, dated as of June 30, 1998
(the "1998 Distribution Agreement"), between Old D&B (then known as "The New Dun
& Bradstreet Corporation") and R.H. Donnelley Corporation (then known as "The
Dun & Bradstreet Corporation" and herein referred to as "Donnelley"), as a
condition to the 2000 Distribution, the Company was required to undertake to be
jointly and severally liable with Moody's to Donnelley for any liabilities
arising thereunder. The 2000 Distribution Agreement generally allocates the
financial responsibility for liabilities of Old D&B under the 1998 Distribution
Agreement equally between the Company and Moody's, except that any such
liabilities that relate primarily to the D&B Business are liabilities of the
Company and any such liabilities that relate primarily to the Moody's Business
are liabilities of Moody's. Among other things, the Company and Moody's agreed
that, as between themselves, they are each responsible for 50% of any payments
to be made under the 1998 Distribution Agreement in respect of the action by IRI
(as described below in Note 9), including any legal fees and expenses related
thereto.
In connection with the 2000 Distribution, Old D&B borrowed funds to repay in
full its commercial paper obligations. In addition, pursuant to the 2000
Distribution Agreement, immediately prior to the 2000 Distribution, a portion of
Old D&B's indebtedness (plus certain minority interest obligations) and a
portion of Old D&B's cash was allocated to the Company in amounts such that, at
the time of the 2000 Distribution and before giving effect to the agreement
discussed below and certain other factors, the net indebtedness of the Company
(plus the minority interest obligations) approximated the net indebtedness of
Moody's. Under the terms of the Employee Benefits Agreement, substantially all
unexercised Old D&B stock options have been adjusted as of the 2000 Distribution
Date to comprise options to purchase Moody's common stock and separately
exercisable options to purchase common stock of the Company. In light of, among
other things, the numbers of optionees employed by the Company and Moody's,
respectively, this adjustment resulted in a substantially greater number of
outstanding options to purchase common stock of Moody's than would be the case
if options had been adjusted so as to become solely options to purchase common
stock of the optionee's employer. Due to this fact and the fact that, consistent
with past practice, each company is expected to maintain a stock purchase
program designed to offset the increased number of shares otherwise attributable
to option exercises, the Company agreed to adjust the net indebtedness of the
two companies to compensate Moody's for the disproportionate amount of its
estimated future cash costs in this regard. The final amount of the adjustment
discussed in the immediately preceding sentence is reflected in the Company's
consolidated balance sheet at September 30, 2000 and was determined on a formula
basis dependent upon a variety of factors, including the respective trading
prices of Moody's and the Company's common stock at the time of the 2000
Distribution.
Due to the relative significance of the D&B Business as compared to the Moody's
Business, the 2000 Distribution has been accounted for as a reverse spin-off. As
such, the D&B Business has been
7
<PAGE> 8
classified as continuing operations and the Moody's Business as discontinued
operations. Pursuant to Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", the consolidated financial statements of Old D&B have been
reclassified to reflect the Moody's segment as discontinued operations.
For financial reporting purposes, the assets and liabilities of Moody's have
been separately classified on the balance sheet at December 31, 1999 as "Net
Liabilities of Discontinued Operations." A summary of these assets and
liabilities follows:
<TABLE>
<CAPTION>
(amounts in millions) December 31, 1999
-----------------
<S> <C>
Current assets $178.3
Total assets 211.0
Current liabilities 377.8
Total liabilities 433.8
Net liabilities of discontinued operations 222.8
</TABLE>
The net operating results of Moody's have been reported in the caption "Income
from Discontinued Operations, Net of Income Taxes" in the consolidated
statements of operations. Summarized operating results for Moody's were as
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
(amounts in millions) September 30, September 30,
-------------------------------------- ---------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $152.6 $139.3 $441.1 $423.7
Income before provision for income
taxes 74.9 79.9 219.2 219.2
Net income 45.4 44.6 133.0 132.1
</TABLE>
Note 3 - Capital Stock
The total number of shares of all classes of stock that the Company has
authority to issue under its Restated Certificate of Incorporation is
220,000,000 shares of which 200,000,000 shares, par value $.01 per share,
represent Common Stock (the "Common Stock"), 10,000,000 shares, par value $.01
per share, represent shares of Preferred Stock (the "Preferred Stock") and
10,000,000 shares, par value $.01 per share, represent shares of Series Common
Stock (the "Series Common Stock"). The board of directors of the Company has
designated 500,000 shares of the Preferred Stock as Series A Junior
Participating Preferred Stock, par value $.01 per share. The Preferred Stock and
the Series Common Stock can be issued with varying terms, as determined by the
board of directors.
On September 30, 2000, 81,213,520 shares of Common Stock were distributed to the
shareholders of Old D&B. Since the Company has been treated as the successor
entity for accounting purposes, the Company's historical financial statements
reflect the recapitalization in connection with the 2000 Distribution, including
the elimination of treasury shares (which shares became treasury shares of
Moody's) and the authorization of the Common Stock, Preferred Stock and Series
Common Stock.
8
<PAGE> 9
In connection with the 2000 Distribution, the Company entered into a Rights
Agreement with EquiServe Trust Company, N.A., designed to (i) minimize the
prospects of changes in control that could jeopardize the tax-free nature of the
2000 Distribution by assuring meaningful Board of Directors involvement in any
such proposed transaction and (ii) protect shareholders of the Company in the
event of unsolicited offers to acquire the Company and other coercive takeover
tactics that, in the opinion of the board of directors of the Company, could
impair its ability to represent shareholder interests. Under the Rights
Agreement, each share of the Common Stock has a right that trades with the stock
until the right becomes exercisable. Each right entitles the registered holder
to purchase one one-thousandth of a share of Series A Junior Participating
Preferred stock, par value $.01 per share, at a price of $125 per one
one-thousandth of a share, subject to adjustment. The rights will generally not
be exercisable until a person or group (an "Acquiring Person") acquires
beneficial ownership of, or commences a tender offer or exchange offer that
would result in such person or group having beneficial ownership of, 15% or more
of the outstanding Common Stock.
In the event that any person or group becomes an Acquiring Person, each right
will thereafter entitle its holder (other than the Acquiring Person) to receive,
upon exercise, that number of shares of Common Stock having a market value of
two times the exercise price.
In the event that, after a person or group has become an Acquiring Person, the
Company is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power are sold, proper provision
will be made so that each right will entitle its holder (other than the
Acquiring Person) to receive, upon exercise, that number of shares of common
stock of the person with whom the Company has engaged in the foregoing
transaction (or its parent), which number of shares at the time of such
transaction will have a market value of two times the exercise price.
The Company may redeem the rights, which expire on August 15, 2010, for $0.01
per right, under certain circumstances.
Note 4 - Other Income (Expense) - Net
In the third quarter of 2000, the Company received a $10.1 million settlement of
a lawsuit related to a 1991 business transaction. The settlement payment was
recorded as other income.
9
<PAGE> 10
Note 5 - Reconciliation of Weighted Average Shares
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -----------------
September 30, September 30,
------------- -------------
(share data in thousands) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of shares-basic 81,108 80,459 80,884 81,357
Dilutive effect of shares issuable under stock options,
restricted stock and performance share plans 754 842 579 1,004
Adjustment of shares applicable to stock options
exercised during the period and performance share
plans 68 43 76 85
------ ------ ------ ------
Weighted average number of shares-diluted 81,930 81,344 81,539 82,446
====== ====== ====== ======
</TABLE>
As required by Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," the Company has provided a reconciliation of basic
weighted average shares to diluted weighted average shares within the tables
outlined above. As noted in Note 2 - Reorganization Plan & Discontinued
Operations, for every two shares of Old D&B held, shareholders received one
share of the Company. In accordance with SFAS No. 128, the historical share
information has been adjusted to restate the historical share information for
consistency and comparability.
Upon the 2000 Distribution, unexercised Old D&B stock options were adjusted to
comprise options to purchase Moody's Common Stock and separately exercisable
options to purchase the Company's common stock. The value of the replacement
awards preserved as closely as possible the value of the awards that existed
immediately prior to the Distribution. The number of shares of Moody's common
stock covered by the adjusted Moody's Stock Options is the same number of shares
covered by the Old D&B stock options. The number of shares of the Company's
common stock covered by the new D&B stock options equals 50% of the number of
shares covered by the unexercised Old D&B stock options.
Options to purchase approximately 1.5 million and 1.7 million shares of the
Company's common stock were outstanding at September 30, 2000 and 1999,
respectively, 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.
10
<PAGE> 11
Note 6 - Comprehensive Income
The Company's total comprehensive income for the three and nine month periods
ended September 30, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(amounts in millions) September 30, September 30,
----------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $52.5 $66.1 $188.2 $192.9
Other comprehensive income (loss) -
foreign currency translation adjustment 3.0 ( 2.0) (16.8) (15.1)
----- ----- ------ ------
Total comprehensive income $55.5 $64.1 $171.4 $177.8
===== ===== ====== ======
</TABLE>
Note 7 - 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 in connection
with the termination of approximately 700 associates, including two former
corporate executives, 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 quarterly activity with respect to the
components of these restructuring actions, since December 31, 1999:
<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 during the three
months ended March 31, 2000 (7.5) (.4) (7.9)
----- ---- -----
March 31, 2000 22.7 4.1 26.8
Payments made during the three
months ended June 30, 2000 (3.7) (.1) (3.8)
----- ---- -----
June 30, 2000 19.0 4.0 23.0
Payments made during the three
months ended September 30, 2000 (4.1) (.2) (4.3)
----- ---- -----
September 30, 2000 $14.9 $3.8 $18.7
===== ==== =====
</TABLE>
As of September 30, 2000, the Company has terminated 406 of the 700 associates
contemplated in the plan and anticipates completion of the restructuring actions
by the end of 2000.
11
<PAGE> 12
Note 8 - Notes Payable and Other Indebtedness
In September 2000, immediately prior to the 2000 Distribution, the Company
established two committed bank facilities, which remained in effect after the
2000 Distribution. One of the facilities permits borrowings of up to $175
million and matures in September 2001. The second facility permits borrowings of
up to $175 million and matures in September of 2005. Under these facilities the
Company has the ability to borrow at prevailing short-term interest rates. The
Company has no borrowings outstanding under these facilities as of September 30,
2000. Old D&B had commercial paper borrowing outstanding of $124.7 million at
December 31, 1999.
Pursuant to the 2000 Distribution Agreement, immediately prior to the 2000
Distribution, a portion of Old D&B's indebtedness (plus certain minority
interest obligations) and a portion of Old D&B's cash was allocated to the
Company in amounts such that, at the time of the 2000 Distribution and before
giving effect to certain adjustments and other factors described in Note 2, the
net indebtedness of the Company (plus the minority interest obligations)
approximated the net indebtedness of Moody's. The indebtedness that was assumed
by the Company amounted to $24.1 million. The Company also assumed $300 million
in minority interest obligations and was allocated $39.4 million in cash. As of
September 30, 2000, the Company had a receivable from Moody's of $5.6 million,
which represented the final adjustment to the net indebtedness calculation. The
debt that was assumed by Moody's at the 2000 Distribution amounted to $195.5
million. Moody's also was allocated cash of $24.9 million and recorded a payable
to the Company of $5.6 million based on the calculation described above as of
the Distribution Date.
Note 9- Contingencies
The Company and its subsidiaries are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. Although the outcome of
such matters cannot be predicted with certainty, in the opinion of management,
the ultimate liability of D&B in connection with such matters will not have a
material effect on D&B's operating results, cash flows or financial position.
In addition, the Company also has certain other contingencies discussed below.
Information Resources
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 Donnelley, A.C. Nielsen Company (a subsidiary of ACNielsen
Corporation) and IMS International, Inc. (a subsidiary of the company then known
as Cognizant Corporation). At the time of the filing of the complaint, each of
the other defendants was a wholly owned subsidiary of Donnelley.
The complaint alleges various violations of United States antitrust laws,
including alleged violations of Section 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. No amount in
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<PAGE> 13
respect of these alleged damages has been accrued in the consolidated financial
statements of the Company.
In November 1996, Donnelley 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 Donnelley 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 Donnelley 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 which ACNielsen is able to pay after giving effect to (i) any plan
submitted by such investment bank which is designed to maximize the claims
paying ability of ACNielsen without impairing the investment banking firm's
ability to deliver a viability opinion (but which will not require any action
requiring stockholder approval), and (ii) payment of related fees and expenses.
For these purposes, financial viability means the ability of ACNielsen, after
giving effect to such plan, the payment of related fees and expenses, and the
payment of the ACN Maximum Amount, to pay its debts as they become due and to
finance the current and anticipated operating and capital requirements of its
business, as reconstituted by such plan, for two years from the date any such
plan is expected to be implemented.
In June 1998, Donnelley completed a distribution to its shareholders (the "1998
Distribution") of the capital stock of Old D&B and changed its name to R.H.
Donnelley Corporation. In connection with the 1998 Distribution, Old D&B and
Donnelley entered into an agreement (the "1998 Distribution Agreement") whereby
Old D&B 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.
Under the terms of the 2000 Distribution Agreement, as a condition to the 2000
Distribution, the Company undertook to be jointly and severally liable with
Moody's for Old D&B's obligations to Donnelley under the 1998 Distribution
Agreement, including any liabilities arising under the Indemnity and Joint
Defense Agreement. However, as between themselves, each of the Company and
Moody's will be responsible for 50% of any payments to be made with respect to
the IRI action pursuant to the 1998 Distribution Agreement, including legal fees
or expenses related thereto.
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
Old D&B and its predecessors have entered into global tax planning initiatives
in the normal course of business, principally through tax free restructurings of
both their foreign and domestic operations.
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<PAGE> 14
These initiatives are subject to normal review by tax authorities. It is
possible that additional liabilities may be proposed by tax authorities as a
result of these reviews and that some of the reviews could be resolved
unfavorably. At this time, management is unable to predict the extent of such
reviews, the outcome thereof or whether the resolution of these matters could
materially affect the Company's results of operations, cash flows or financial
position.
Pursuant to the 2000 Distribution Agreement, the Company and Moody's agreed to
be each financially responsible for 50% of any potential liabilities that may
arise with respect to the reviews described above, to the extent such potential
liabilities are not directly attributable to their respective business
operations.
The IRS has completed its review of the utilization of certain capital losses
generated during 1989 and 1990. On June 26, 2000, the IRS, as part of its audit
process, issued a formal assessment with respect to the utilization of these
capital losses and Old D&B responded by filing a petition for a refund in the
U.S. District Court on September 21, 2000.
Pursuant to a series of agreements, IMS Health and NMR are jointly and severally
liable to pay one-half, and Donnelley the other half, of any payments for taxes
and accrued interest arising from this matter and certain other potential tax
liabilities after Donnelley pays the first $137 million.
In connection with the 1998 Distribution, Old D&B and Donnelley entered into an
agreement whereby Old D&B has assumed all potential liabilities of Donnelley
arising from these tax matters and has agreed to indemnify Donnelley in
connection with such potential liabilities.
On May 12, 2000, an amended tax return was filed for the 1989 and 1990 tax
periods, which reflects $561.6 million of tax and interest due. Old D&B paid the
IRS approximately $349.3 million of this amount on May 12, 2000, which Old D&B
funded with short-term borrowings. IMS Health has informed Old D&B that it paid
to the IRS approximately $212.3 million on May 17, 2000. The payments were made
to the IRS to stop further interest from accruing. Notwithstanding the filing
and payment, the Company is contesting the IRS's formal assessment and would
also contest the assessment of amounts, if any, in excess of the amounts paid.
Old D&B and the Company have accrued their anticipated share of the probable
liability arising from the utilization of these capital losses.
Note 10 - Summary of Recent Accounting Pronouncements
In December 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes some of the staff's interpretations
of the application of generally accepted accounting principles to revenue
recognition. The staff provided this guidance due, in part, to the large number
of revenue-recognition issues that it has encountered in registrant filings. In
June 2000, SAB 101B, "Second Amendment: Revenue Recognition in Financial
Statements," was issued, which defers the effective date of SAB 101 until the
fourth quarter of 2000. The Company believes it is in compliance with this
guidance.
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
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<PAGE> 15
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 1999, the Financial
Accounting Standards Board issued SFAS No. 137 delaying the effective date of
SFAS No. 133. The provisions of SFAS No. 133, as amended, 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 have a material effect on the Company.
15
<PAGE> 16
NOTE 11- SEGMENT INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED YEAR-TO-DATE
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------
Dollar amounts in millions 2000 1999 2000 1999
------------------------------------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
North America $ 229.6 $ 219.3 $ 715.3 $ 687.5
Europe 88.0 96.9 275.9 301.4
Asia Pacific / Latin America 17.3 18.2 48.0 49.3
--------- --------- ----------- -----------
CONSOLIDATED OPERATING REVENUES $ 334.9 $ 334.4 $ 1,039.2 $ 1,038.2
--------- --------- ----------- -----------
OPERATING INCOME (LOSS):
--------- --------- ----------- -----------
North America $ 64.4 $ 56.8 $ 205.2 $ 181.8
Europe (3.7) (7.2) (19.3) (24.9)
Asia Pacific / Latin America (0.2) (0.5) (6.1) (6.6)
--------- --------- ----------- -----------
Total Divisions 60.5 49.1 179.8 150.3
Corporate and Other (36.3) (5.7) (56.7) (26.1)
--------- --------- ----------- -----------
CONSOLIDATED OPERATING INCOME $ 24.2 $ 43.4 $ 123.1 $ 124.2
--------- --------- ----------- -----------
</TABLE>
SUPPLEMENTAL GEOGRAPHIC AND PRODUCT LINE INFORMATION:
-----------------------------------------------------
<TABLE>
<CAPTION>
QUARTER ENDED YEAR-TO-DATE
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
GEOGRAPHIC REVENUE 2000 1999 2000 1999
------------------------------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
United States $ 222.3 $ 212.1 $ 693.3 $ 666.7
International 112.6 122.3 345.9 371.5
--------- --------- ----------- -----------
Consolidated Operating Revenues $ 334.9 $ 334.4 $ 1,039.2 $ 1,038.2
--------- --------- ----------- -----------
PRODUCT LINE REVENUES
------------------------------------- ----------- ---------- ----------- ------------
Credit Information Solutions $ 211.3 $ 218.3 $ 672.0 $ 697.7
Marketing Information Solutions 74.6 74.0 226.9 217.0
Purchasing Information Solutions 8.5 6.3 20.3 17.8
Receivables Management Services 40.5 35.8 120.0 105.7
--------- --------- ----------- -----------
Consolidated Operating Revenues $ 334.9 $ 334.4 $ 1,039.2 $ 1,038.2
--------- --------- ----------- -----------
</TABLE>
-16-
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
To facilitate an analysis of the Company's operating results, certain
significant events should be considered.
2000 Distribution
On September 30, 2000, the company then known as The Dun & Bradstreet
Corporation ("Old D&B") separated into two independent, publicly traded
companies - The New D&B Corporation (the "Company") and Moody's Corporation
("Moody's"). The separation was accomplished through a tax-free distribution to
shareholders of Old D&B (the "2000 Distribution") of all of the shares of common
stock of the Company. For every two shares of common stock of Old D&B held,
shareholders received one share of common stock of the Company. Following the
2000 Distribution, Old D&B was renamed "Moody's Corporation" and the Company was
renamed "The Dun & Bradstreet Corporation."
Prior to the 2000 Distribution, Old D&B had completed an internal reorganization
to the effect that, at the time of the 2000 Distribution, the business of the
Company consisted solely of the business of supplying credit, marketing and
purchasing information as well as receivables management services (the "D&B
Business"), and the business of Old D&B (other than the Company and its
subsidiaries) consisted solely of the business of providing ratings and related
research and risk management services (the "Moody's Business").
Old D&B received a ruling letter from the Internal Revenue Service (the "IRS")
on June 15, 2000, to the effect that the receipt by Old D&B shareholders of the
common stock of the Company in the 2000 Distribution would be tax-free to such
stockholders and Old D&B for Federal income tax purposes, except to the extent
of cash received in lieu of fractional shares of common stock of the Company.
For purposes of, among other things, governing certain of the ongoing relations
between the Company and Moody's as a result of the 2000 Distribution as well as
to allocate certain tax, employee benefit and other liabilities arising prior to
the 2000 Distribution, the companies entered into various agreements, including
a Distribution Agreement (the "2000 Distribution Agreement"), Tax Allocation
Agreement, Employee Benefits Agreement, Intellectual Property Assignment, Shared
Transaction Services Agreement, Insurance and Risk Management Services
Agreement, Data Services Agreement and Transition Services Agreement.
In general, pursuant to the terms of the 2000 Distribution Agreement, all of the
assets of the D&B Business have been allocated to the Company and all of the
assets of the Moody's Business have been allocated to Moody's. The 2000
Distribution Agreement also provided for assumptions of liabilities and
cross-indemnities designed to allocate generally, as of September 30, 2000,
financial responsibility for (i) all liabilities arising out of or in connection
with the D&B Business to the Company, (ii) all liabilities arising out of or in
connection with the Moody's Business to Moody's and (iii) substantially all
other liabilities as of September 30, 2000 equally between the Company and
Moody's. The liabilities so allocated include contingent and other liabilities
relating to former businesses of Old D&B and its predecessor and certain prior
business transactions, which consist primarily of potential liabilities arising
from a legal action initiated by Information Resources, Inc. or from reviews by
tax
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<PAGE> 18
authorities of Old D&B's global tax planning initiatives, each of which is
described in Note 9 to the consolidated financial statements included in Item 1
above.
Pursuant to the terms of a distribution agreement, dated as of June 30, 1998
(the "1998 Distribution Agreement"), between Old D&B (then known as "The New Dun
& Bradstreet Corporation") and R.H. Donnelley Corporation (then known as "The
Dun & Bradstreet Corporation" and herein referred to as "Donnelley"), as a
condition to the 2000 Distribution, the Company was required to undertake to be
jointly and severally liable with Moody's to Donnelley for any liabilities
arising thereunder. The 2000 Distribution Agreement generally allocates the
financial responsibility for liabilities of Old D&B under the 1998 Distribution
Agreement equally between the Company and Moody's, except that any such
liabilities that relate primarily to the D&B Business are liabilities of the
Company and any such liabilities that relate primarily to the Moody's Business
are liabilities of Moody's. Among other things, the Company and Moody's agreed
that, as between themselves, they are each responsible for 50% of any payments
to be made under the 1998 Distribution Agreement in respect of the action by IRI
(as described in Note 9), including any legal fees and expenses related thereto.
Pursuant to the 2000 Distribution Agreement, immediately prior to the 2000
Distribution, a portion of Old D&B's indebtedness (plus certain minority
interest obligations) and a portion of Old D&B's cash was allocated to the
Company in amounts such that, at the time of the 2000 Distribution and before
giving effect to the agreement discussed below and certain other factors, the
net indebtedness of the Company (plus the minority interest obligations)
approximated the net indebtedness of Moody's. Under the terms of the Employee
Benefits Agreement, substantially all unexercised Old D&B stock options have
been adjusted as of the 2000 Distribution Date to comprise options to purchase
Moody's common stock and separately exercisable options to purchase common stock
of the Company. In light of, among other things, the numbers of optionees
employed by the Company and Moody's, respectively, this adjustment resulted in
substantially greater number of outstanding options to purchase common stock of
Moody's than would be the case if options would have been adjusted so as to
become solely options to purchase common stock of the optionee's employer. Due
to this fact and the fact that, consistent with past practice, each company is
expected to maintain a stock purchase program designed to offset the increased
number of shares otherwise attributable to option exercises, the Company has
agreed to adjust the net indebtedness of the two companies to compensate Moody's
for the disproportionate amount of its estimated future cash costs in this
regard. The final amount of the adjustment discussed in the immediately
preceding sentence is reflected in the Company's consolidated balance sheet as
of September 30, 2000 and has been determined on a formula basis and was
dependent upon a variety of factors, including the respective trading prices of
Moody's and the Company's common stock at the time of the 2000 Distribution.
Due to the relative significance of the Company as compared to Moody's, the
transaction has been accounted for as a reverse spin-off. As such, the Company
has been classified as continuing operations and Moody's as discontinued
operations. Pursuant to Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," the consolidated financial statements of the Company have been
reclassified to reflect the Moody's segment as discontinued operations.
Accordingly, revenues, costs and expenses, assets and liabilities, and cash
flows of Moody's have been excluded from the respective captions in the
Consolidated Statements of Operations, Consolidated Balance Sheets and
Consolidated Statements of Cash Flows. The net operating results of Moody's have
been reported, net of applicable income taxes, as "Income from Discontinued
Operations, Net of Income Taxes", the net
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<PAGE> 19
liabilities have been reported as "Net Liabilities of Discontinued Operations"
and the net cash flows have been reported as "Net Cash (Used in) Provided by
Discontinued Operations."
1999 Restructuring Charge
During the fourth quarter of 1999, Old D&B's board of directors approved plans
to restructure the Company's operations. The restructuring included: (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.
As a result of these actions, a pre-tax restructuring charge of $41.2 million
($27.9 million after-tax, $.34 per share basic and diluted) was included in
operating income in 1999. Employee severance costs from planned terminations of
approximately 700 employees totaled $32.7 million (including severance for two
former corporate executives). The balance of the charge related to the write-off
of certain assets made obsolete or redundant and abandoned by the restructuring
and leasehold termination obligations arising from office closures. The
restructuring actions were designed to strengthen customer service worldwide,
improve operating efficiencies and lower structural costs.
During the first nine months of 2000, the Company made payments of $16.0 million
related to this restructuring. As of September 30, 2000, the Company has
terminated 406 of the 700 contemplated in the plans. The Company anticipates
completion of this restructuring by the end of 2000, including the payment of
the majority of the associated costs.
New Business Strategy - Blueprint for Growth
During the second quarter of 2000, a new chairman and chief executive officer
was appointed for the Company. Under his direction, on October 2, 2000, the
Company announced a new business strategy designed to transform the Company into
a growth company with an important presence on the Web, while also continuing to
deliver shareholder value during the transformation.
The Company plans to reallocate approximately $100 million from its cost base to
create the financial flexibility needed to implement its new strategy. The
Company intends to reallocate current spending through globalizing
administrative functions, streamlining data collection and fulfillment,
rationalizing sales and marketing functions and consolidating and simplifying
technology functions while gaining efficiencies, enhancing data quality,
increasing productivity and maximizing effectiveness. The Company is currently
developing the detailed plans surrounding this strategy and expects to record a
charge of $60 to $80 million for employee termination and other exit costs
related to the implementation of the first phase of the new strategy during the
fourth quarter of 2000. As the Company continues to implement its Blueprint for
Growth strategy, it is possible that future charges may be necessary.
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<PAGE> 20
RESULTS OF OPERATIONS
Consolidated Results
For the third quarter of 2000, the Company reported income from continuing
operations of $7.1 million and earnings per share from continuing operations of
$.09 per share, basic and diluted. Third quarter 2000 results of continuing
operations included one-time pre-tax reorganization costs, in connection with
the 2000 Distribution, of $26.4 million ($.28 per share basic and diluted) and a
gain on the settlement of litigation of $10.1 million ($.08 per share, basic and
diluted). In the third quarter of 1999, the Company reported income from
continuing operations of $21.5 million and earnings per share from continuing
operations of $.27 basic and $.26 diluted. Excluding the one-time items noted
above, when comparing the third quarter of 2000 with the same period in 1999,
income from continuing operations increased 10%, basic earnings per share from
continuing operations increased 7% and diluted earnings per share from
continuing operations increased 12%.
For nine months ended September 30, 2000, income from continuing operations was
$55.2 million and earnings per share from continuing operations was $.68 per
share, basic and diluted. These results included $28.6 million of reorganization
costs and the $10.1 million gain. In the first nine months of 1999 income from
continuing operations was $60.8 million and earnings per share from continuing
operations was $.75 per share, basic and $.74 per share, diluted. For the nine
months ended September 30, 2000, excluding the one time items noted above,
income from continuing operations increased 22%, basic earnings per share from
continuing operations increased 21% and diluted earnings per share from
continuing operations increased 23% from the prior year's same period results.
For the third quarter 2000, the Company reported net income of $52.5 million,
including income from discontinued operations of $45.4 million. In the third
quarter of 1999, the Company reported net income of $66.1 million, including
income from discontinued operations of $44.6 million. Earnings per share for the
third quarter of 2000 of $.65 basic and $.64 diluted, included earnings per
share from discontinued operations of $.56 per share basic and $.55 per share
diluted. These results compared to earnings per share for the third quarter of
1999 of $.82 basic and $.81 diluted which included earning per share from
discontinued operations of $.55 basic and diluted.
Net income was $188.2 million for the first nine months of 2000, including
income from discontinued operations of $133.0 million. In the same period of
1999 net income was $192.9 million, including income from discontinued
operations of $132.1 million. Earnings per share for the first nine months of
2000 were $2.33 basic and $2.31 diluted, including earnings per share from
discontinued operations of $1.65 basic and $1.63 diluted. Earnings per share for
the first nine months of 1999 were $2.37 basic and $2.34 diluted, including
earnings per share from discontinued operations of $1.62 basic and $1.60
diluted.
Operating revenues for the third quarter were $334.9 million in 2000 compared
with $334.4 million in the third quarter of 1999. Revenue growth in North
America of 5% was offset by declines in Europe of 9% and Asia Pacific/Latin
America {"APLA") of 5%. However, excluding the effect of foreign exchange,
operating revenues in the third quarter of 2000 increased 3% compared to the
same period in 1999. On a year-to-date basis, operating revenues were $1,039.2
million in 2000 and $1,038.2 million in 1999, driven by growth in North America,
offset by declines in Europe and APLA. Excluding the effect of foreign exchange,
operating revenues increased 3% in 2000 compared to 1999. For both the quarter
and year to date periods, results reflect a decline in revenues from traditional
credit
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<PAGE> 21
information services. This decline is offset by growth in revenues from value
added products in credit information services in addition to growth in marketing
information services and receivable management services.
Operating expenses decreased 8% to $122.1 million in the third quarter of 2000
as compared to the same period in 1999, resulting from cost reductions
attributable to the restructuring actions implemented in the fourth quarter of
1999 and the positive effect of foreign exchange on expenses. Selling and
administrative expenses increased 4% to $133.5 million in the third quarter of
2000 compared to the same period in 1999, resulting from costs incurred in order
to offer new products and services, and costs associated with the appointment of
the new chairman and chief executive officer of the Company, which offset cost
reductions and the positive effect of foreign exchange. Depreciation and
amortization decreased 6% in the third quarter of 2000 as compared to the same
period in 1999 as a result of lower capitalization over the past two years, the
write-off of certain assets as a result of the restructuring actions and the
positive effect of foreign exchange on expenses. During the third quarter of
2000, the Company incurred $26.4 million of reorganization costs in connection
with the 2000 Distribution.
Operating expenses decreased 4% to $389.9 million, selling and administrative
expenses were relatively flat at $412.5 million and depreciation and
amortization decreased 11% to $85.1 million for the first nine months of 2000 as
compared to the same period in 1999, largely resulting from the same factors
impacting the third quarter. For the nine months ended September 30, 2000, the
Company incurred $28.6 million of reorganization costs in connection with the
2000 Distribution.
Operating income for the third quarter of 2000 was $24.2 million, compared to
$43.4 million during the third quarter of 1999. Excluding the reorganization
costs incurred, operating income for the third quarter of was up 17% from prior
year. This improvement is due to strong growth in operating income in North
America and lower losses in Europe and APLA reflecting higher revenues in North
America and decreased expenses in all units. On a year-to-date basis, operating
income was $123.1 million in 2000, compared to $124.2 million in the same period
of 1999. Excluding the reorganization costs, operating income was up 22%,
resulting from the same factors that impacted the quarter.
Non-operating income -net was $.4 million for the third quarter of 2000 compared
to an expense of $6.7 million for the third quarter of 1999. Other income
(expense) - net for the quarter included a $10.1 million gain on the favorable
settlement of litigation. Interest expense in the third quarter of 2000,
increased in comparison to the same period in 1999 resulting from an increase in
commercial paper borrowing. On a year-to-date basis, non-operating expense-net
was $14.0 million in the first nine months of 2000, compared to $20.6 million in
the same period of 1999. Higher interest expense in the period was offset by the
gain recorded in the third quarter of 2000.
The Company's effective tax rate for the third quarter of 2000 was 71.1% and its
underlying rate was 42.0%. The difference in the rates is attributable to the
non-deductibility of certain reorganization costs incurred in the third quarter
of 2000 in connection with the 2000 Distribution. The effective and underlying
tax rate for the third quarter of 1999 was 41.4%. On a year to date basis the
effective tax rate was 49.4% and the underlying rate was 42.0% for 2000,
compared to both an effective and an underlying tax rate of 41.3% for 1999.
Income from discontinued operations, net of income taxes, was $45.4 million for
the third quarter of 2000, compared with $44.6 million in the third quarter of
1999. For the nine months ended
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<PAGE> 22
September 30, 2000, income from discontinued operations, net of income taxes,
was $133.0 million compared with $132.1 million in the same period of 1999.
Segment Results
North America revenues were $229.6 million in the third quarter of 2000, up 5%
from 1999 third quarter revenues. In comparing the third quarter of 2000
revenues with the third quarter of 1999 revenues, North America's revenues from
credit information solutions increased 1% to $141.0 million, marketing
information solutions increased 5% to $55.4 million, purchasing information
solutions increased 31% to $7.9 million and receivables management services
increased 21% to $25.3 million. Through September 30, 2000, North America
revenues of $715.3 million were up 4% from the same period in the prior year.
Revenues on a year-to-date basis were flat at $447.8 million for credit
information solutions, increased 8% to $174.3 million for marketing information
solutions, increased 12% to $18.9 million for purchasing information solutions
and increased 23% to $74.3 million for receivables management services in
comparison with the same period of the prior year.
For both the quarter and year to date periods, the North American results
reflect a decline in the use of traditional credit information services products
as the Company has migrated its customers from traditional credit information
products to lower price, higher margin value added products. In addition, the
availability of free or lower cost information on the Internet has impacted
revenues from traditional credit information products. However, revenues from
value added credit information services products have offset the decline in
traditional credit products in both the quarter and year-to-date periods. The
growth in revenues from marketing information solutions and purchasing
information services was largely driven by revenues from value added products,
while both traditional and value added products have contributed to the growth
in revenues from receivable management services. The Company intends to expand
its customer base by targeting the small business market and deepening the
penetration of global accounts in order to sustain revenue growth.
North America operating income was $64.4 million in the third quarter of 2000,
up 13% from the prior year, driven by the increase in revenues and the impact of
data collection cost reductions achieved as part of the 1999 fourth quarter
restructuring actions. Consistent with the trend for the quarter, for the nine
months ended September 30, 2000, operating income was $205.2 million, up 13%
from the same period of 1999.
Europe's revenues were $88.0 million in the third quarter of 2000, down 9% when
compared to 1999 third quarter revenues of $96.9 million. However, excluding the
effect of foreign exchange, revenues would have increased by 1%. In comparing
the European reported revenues for third quarter of 2000 with the third quarter
of 1999, revenues from credit information solutions decreased 10% to $60.1
million, revenues from marketing information solutions decreased 11% to $16.3
million, revenues from purchasing information solutions increased $.4 million to
$.6 million and revenues from receivables management services decreased 2% to
$11.0 million. Excluding the effect of foreign exchange, Europe would have
reported in the third quarter of 2000 flat revenues from credit information
solutions, a decrease in revenues from marketing information solutions of 3% and
an increase in revenues from receivables management services of 10%, in each
case in comparison to the third quarter of 1999.
Through September 30, 2000, Europe's operating revenues decreased 9% to $275.9
million from the same period of 1999. However, excluding the effect of foreign
exchange, revenues would have increased by 1%. In comparing Europe's revenues
for the nine months ended September 30, 2000
22
<PAGE> 23
with the same period in 1999, revenues from credit information solutions
decreased 10% to $195.1 million, revenues from marketing information solutions
decreased 8% to $45.2 million, revenues from purchasing information solutions
increased 59% to $1.4 million and receivables management services revenues
decreased 3% to $34.2 million. Excluding the effect of foreign exchange, Europe
would have reported for the nine months ended September 30, 2000 flat revenues
from credit information solutions, a decrease in revenues from marketing
information solutions of 1%, an increase in revenues from purchasing information
solutions of 71% and an increase in revenues from receivables management
services of 8%, in each case in comparison to same period of 1999.
For both the quarter and year-to-date, European revenues from credit information
solutions products have been negatively impacted by ongoing price erosion in the
local markets, as well as continued competition, including availability of free
or lower-cost information from online vendors and other Internet sources. The
Company believes that the decline in revenues from marketing information
solutions products in the third quarter and year-to-date resulted when some
accounts shifted business to the fourth quarter. However, the high growth in
revenues from value added products in Europe has resulted in the overall
improvement in revenues, excluding the negative effect of foreign exchange.
Europe reported an operating loss of $3.7 million in the third quarter of 2000,
compared to a loss of $7.2 million in the same period of the prior year. On a
year-to-date basis, Europe reported an operating loss of $19.3 million in the
first nine months of 2000 compared to $24.9 million in 1999. Europe achieved
modest improvements in profitability, while still spending on the infrastructure
necessary to offer new products and services, as a result of significant cost
reductions realized from the restructuring actions implemented in the fourth
quarter of 1999.
APLA reported operating revenues of $17.3 million in the third quarter of 2000,
down 5% from the same period in 1999. Excluding the effect of foreign exchange,
revenue growth would have been down 4%. The decline largely resulted from the
elimination of Singapore's revenues in 2000 as the business was contributed to a
joint venture in the third quarter of 2000, an important transaction expected to
improve the Company's international profitability. The Company's share of the
venture's results is no longer included in APLA but rather within other income
(expense) - net. Excluding revenue from D&B Singapore from both years' results,
and before the effect of foreign exchange, APLA's revenue was even with a year
ago. In comparing the third quarter of 2000 with the third quarter of 1999, APLA
credit information solutions revenues decreased 13% to $10.2 million, marketing
information solutions revenues increased 8% to $2.9 million and receivables
management services revenues increased 11% to $4.2 million. Excluding the effect
of foreign exchange, APLA would have reported for the third quarter of 2000 a
decrease in revenues from credit information solutions of 13%, an increase in
revenues from marketing information solutions of 11% and an increase in revenues
from receivables management services of 15%, in each case in comparison to the
third quarter of 1999.
Through September 30, 2000 APLA reported operating revenues of $48.0 million,
down 3% when compared to $49.3 million in 1999. Excluding the effect of foreign
exchange, APLA revenues would have decreased by 4%. Excluding revenue from D&B
Singapore from both years' results, and before the effect of foreign exchange,
APLA's revenue was down 3 percent from the prior year period. In comparing the
nine months ended September 30, 2000 with the same period in 1999, credit
information solutions revenues decreased 10% to $29.1 million, while marketing
information solutions revenues increased 4% to $7.4 million and receivables
management services revenues increased 14% to $11.5 million. Excluding the
effect of foreign exchange, APLA would have reported for the year to date 2000 a
decrease in revenues from credit information solutions of 12%, an increase in
revenues from marketing
23
<PAGE> 24
information solutions of 6% and an increase in revenues from receivables
management services of 15%, in each case in comparison to the same period of
1999.
APLA reported an operating loss of $.2 million in the third quarter of 2000,
compared to an operating loss of $.5 million in the same period of 1999. For the
nine months ended September 30, 2000, APLA reported an operating loss of $6.1
million, compared to an operating loss of $6.6 million in the same period of
1999. The modest improvement in profitability is attributable to cost
reductions.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ("SFAS")
In December 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes some of the staff's interpretations
of the application of generally accepted accounting principles to revenue
recognition. The staff provided this guidance due, in part, to the large number
of revenue-recognition issues that it has encountered in registrant filings. In
June 2000, SAB 101B, "Second Amendment: Revenue Recognition in Financial
Statements," was issued, which defers the effective date of SAB 101 until the
fourth quarter of 2000. The Company believes it is in compliance with this
guidance.
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 1999, 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, as amended, beginning January 1, 2001. The effect of adopting SFAS
No. 133 is not expected to have a material effect on the Company.
LIQUIDITY AND FINANCIAL POSITION
Nine Months Ended September 30, 2000 Compared With Nine Months Ended September
30, 1999
At September 30, 2000, cash and cash equivalents totaled $39.4 million, a
decrease of $70.0 million from $109.4 million held at December 31, 1999. During
the nine months ended September 30, 2000, the Company's payment of $349.3
million to the IRS, as discussed below under "Other," and the impact of the 2000
Distribution with respect to the allocation of net indebtedness, impacted the
cash balance.
Operating activities used net cash of $13.9 million during the nine months ended
September 30, 2000 compared to generating net cash of $281.0 million during the
same period in 1999. The $349.3 million payment to the IRS is reflected as a
reduction in continuing operations' accrued
24
<PAGE> 25
income taxes of $174.7 and as a $174.6 million offset to cash used in operating
activities of discontinued operations for the nine months ended September 30,
2000. Excluding the impact of the payment, cash generated by operating
activities for the nine months ended September 30, 2000 would have been $335.4
million, with continuing operations providing $163.3 million and discontinued
operations providing $172.1 million. Cash generated by operating activities for
the nine months ended September 30, 1999 was $281.0 million, with continuing
operations providing $130.2 million and discontinued operations providing $150.7
million. The improvement in cash generated by operating activities of continuing
operations results from increased operating income, excluding the impact of the
reorganization costs, the majority of which will be paid during the next
quarter, and higher sales and accounts receivable collections during 2000
compared with 1999.
During the nine months ended September 30, 2000, the Company made payments of
$16.0 million related to the restructuring actions implemented during the fourth
quarter of 1999. As of September 30, 2000, the Company has terminated 406 of the
700 contemplated in the plan. 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 $88.8 million for the nine months
ended September 30, 2000 compared to $90.7 million in 1999, including net cash
used in investing activities of discontinued operations of $26.2 million in 2000
and $5.8 million in the same period of 1999. Net cash used by discontinued
operations in the first nine months of 2000 included an acquisition by Moody's
of a financial software products company for $17.4 million. Through September
30, 2000, the Company invested $53.2 million for capital expenditures and
additions to computer software and other intangibles compared to $83.0 million
in the comparable period in 1999, due primarily to higher expenditures in the
prior year on systems implemented in 1999.
Net cash provided by financing activities through September 30, 2000 was $34.0
million, compared to net cash used in financing activities of $209.0 million
during the same period of 1999. Payments of dividends accounted for $89.8
million in the nine months ended September 30, 2000 compared to $90.3 million in
the same period of 1999. However, the Company does not intend to pay dividends
in the future. As discussed below, the Company's financing arrangements and
stock repurchases also affected the net cash provided by or used for financing
activities.
Financing Arrangements
In connection with the 2000 Distribution, Old D&B borrowed funds in order to
repay in full Old D&B's commercial paper obligations. Also pursuant to the 2000
Distribution Agreement, immediately prior to the 2000 Distribution, a portion of
Old D&B's indebtedness (plus certain minority interest obligations) and a
portion of Old D&B's cash was allocated to the Company in amounts such that, at
the time of the 2000 Distribution and before giving effect to certain
adjustments and other factors described in Note 2 to the consolidated financial
statements included in Item 1 above, the net indebtedness of the Company (plus
the minority interest obligations) approximated the net indebtedness of Moody's.
The indebtedness that was assumed by the Company amounted to $24.1 million. The
Company also assumed $300 million in minority interest obligations and was
allocated $39.4 million in cash. As of September 30, 2000, the Company had a
receivable from Moody's of $5.6 million, which represented the final adjustment
to the net indebtedness calculation. The debt that was assumed by Moody's at the
2000 Distribution amounted to $195.5 million. At September 30, 2000,
25
<PAGE> 26
Moody's also was allocated cash of $24.9 million and recorded a payable to the
Company of $5.6 million based on the calculation described above.
In September 2000, the Company established two committed bank facilities, which
remained in effect after the 2000 Distribution. One of the facilities permits
borrowings of up to $175 million and matures in September 2001. The second
facility permits borrowings of up to $175 million and matures in September of
2005. Under these facilities the Company has the ability to borrow at prevailing
short-term interest rates. The Company has no borrowings outstanding under these
facilities as of September 30, 2000. It is anticipated that these facilities
will be used for general corporate purposes, including to support the Company's
commercial paper program.
Old D&B had commercial paper borrowings outstanding of $124.7 million at
December 31, 1999.
Stock Repurchase
Through September 30, 2000, Old D&B repurchased 125,000 shares for $3.5 million
in connection with its Employee Stock Purchase Plan and to offset a portion of
the shares issued under incentive plans. During the nine months ended September
30, 1999, Old D&B completed its special stock repurchase program, authorized by
its Board of Directors in June 1998, by purchasing 4.2 million shares for $150.0
million. During the nine months ended September 30, 1999, Old D&B also
repurchased 2.2 million shares for $77.5 million in connection with its Employee
Stock Purchase Plan and to offset awards made under incentive plans. Proceeds
received in connection with Old D&B's stock plans were $30.7 million for the
nine months ended September 30, 2000 compared to $41.7 million in the same
period in 1999.
The Company has authorized a systematic share repurchase program to offset the
dilutive effect of shares issued under the Company's employee benefit
arrangements.
Other
Old D&B and its predecessors have entered into global tax planning initiatives
in the normal course of business, principally through tax free restructurings of
both their foreign and domestic operations. These initiatives are subject to
normal review by tax authorities. It is possible that additional liabilities may
be proposed by tax authorities as a result of these reviews and that some of the
reviews could be resolved unfavorably. At this time, management is unable to
predict the extent of such reviews, the outcome thereof or whether the
resolution of these matters could materially affect the Company's results of
operations, cash flows or financial position.
Pursuant to the 2000 Distribution Agreement, the Company and Moody's agreed to
be each financially responsible for 50% of any potential liabilities that may
arise with respect to the reviews described above, to the extent such potential
liabilities are not directly attributable to their respective business
operations.
The IRS, has completed its review of the utilization of certain capital losses
generated during 1989 and 1990. On June 26, 2000, the IRS, as part of its audit
process, issued a formal assessment with respect to the utilization of these
capital losses and Old D&B responded by filing a petition for a refund in the
U.S. District Court on September 21, 2000.
26
<PAGE> 27
Pursuant to a series of agreements, IMS Health and NMR are jointly and severally
liable to pay one-half, and Donnelley the other half, of any payments for taxes
and accrued interest arising from this matter and certain other potential tax
liabilities after Donnelley pays the first $137 million.
In connection with the 1998 Distribution, Old D&B and Donnelley entered into an
agreement whereby Old D&B assumed all potential liabilities of Donnelley arising
from these tax matters and agreed to indemnify Donnelley in connection with such
potential liabilities.
On May 12, 2000, an amended tax return was filed for the 1989 and 1990 tax
periods, which reflects $561.6 million of tax and interest due. Old D&B paid the
IRS approximately $349.3 million of this amount on May 12, 2000, which Old D&B
funded with short-term borrowings. IMS Health has informed D&B that it paid to
the IRS approximately $212.3 million on May 17, 2000. The payments were made to
the IRS to stop further interest from accruing. Notwithstanding the filing and
payment, the Company is contesting the IRS's formal assessment and would also
contest the assessment of amounts, if any, in excess of the amounts paid. The
Company had accrued its anticipated share of the probable liability arising from
the utilization of these capital losses.
The Company and its subsidiaries are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. Although the outcome of
such matters cannot be predicted with certainty, in the opinion of management,
the ultimate liability of the Company in connection with such matters will not
have a material effect on the Company's operating results, cash flows or
financial position.
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 report are forward looking. These may be identified
by the use of forward-looking words or phrases, such as "believe," "expect,"
"infered, " "anticipate," "should," "planned," "estimated," "potential,"
"target" and "goal," among others. All such forward-looking statements are
27
<PAGE> 28
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, including those driven by the Internet; (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 Company's ability to attract
and retain key employees; (9) fluctuations in foreign currency exchange rates;
(10) the outcome of any reviews by applicable tax authorities of global tax
planning initiatives; (11) the Company's ability to successfully implement its
Blueprint for Growth (its announced plan for the future development of its
businesses); and (12) the absence of any adverse impact on the conduct of the
Company's business arising from its recently-completed separation from Moody's
Corporation.
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 statements made by or on behalf of the
Company. Any such statement is qualified by reference to the factors set forth
above.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's market risks primarily consist of the impact of changes in
currency exchange rates on assets and liabilities of non-U.S. operations and the
impact of changes in interest rates. The Dun & Bradstreet Corporation's 1999
Financial Statements included in its Registration Statement on Form 10
provide a more detailed discussion of the market risks affecting operations. As
of September 30, 2000, no material change had occurred in the Company's market
risks, as compared to the disclosure in the Form 10 for the year ending
December 31, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this item is set forth in Note 9 - Contingencies on
Pages 12-14 in Part I. Item 1 of this Form 10-Q. Reference is made to such Note
and Item 8 of the Company's Registration Statement on Form 10 for information
relating to the IRI case.
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<PAGE> 29
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation, as amended effective
October 1, 2000 (incorporated by reference to Exhibit 3.1 to
the Report on Form 8-K of the Registrant, file number
1-15967, filed October 4, 2000).
3.2 Amended and Restated By-laws of the Registrant (incorporated
by reference to Exhibit 3.2 to the Registration Statement on
Form 10 of the Registrant, file number 1-15967, filed June
27, 2000).
4.1 Specimen Common Stock certificate (incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form 10 of
the Registrant, file number 1-15967, filed September 11,
2000).
4.2* Five-Year Credit Agreement, dated as of September 11, 2000,
among the Registrant, The Chase Manhattan Bank, Citibank,
N.A., and the Bank of New York.
4.3 Rights Agreement, dated as of August 15, 2000, between the
Registrant and Equiserve Trust Company, N.A., as Rights
Agent which includes the Certificate of Designation for the
Series A Junior Participating Preferred Stock as Exhibit A,
the form of Right Certificate as Exhibit B and the Summary
of Rights to Purchase Preferred Shares as Exhibit C
(incorporated by reference to Exhibit 1 to the Registration
Statement on Form 8-A of the Registrant, file number
1-15967, filed September 15, 2000).
10.1 Distribution Agreement, dated as of September 30, 2000,
between Moody's Corporation (f.k.a. The Dun & Bradstreet
Corporation) and the Registrant (f.k.a. The New D&B
Corporation) (incorporated by reference to Exhibit 10.1 to
the Report on Form 8-K of the Registrant, file number
1-15967, filed October 4, 2000).
10.2 Tax Allocation Agreement, dated as of September 30, 2000,
between Moody's Corporation (f.k.a. The Dun & Bradstreet
Corporation) and the Registrant (f.k.a. The New D&B
Corporation) (incorporated by reference to Exhibit 10.2 to
the Report on Form 8-K of the Registrant, file number
1-15967, filed October 4, 2000).
10.3 Employee Benefits Agreement, dated as of September 30, 2000,
between Moody's Corporation (f.k.a. The Dun & Bradstreet
Corporation) and the Registrant (f.k.a. The New D&B
Corporation) (incorporated by reference to Exhibit 10.3 to
the Report on Form 8-K of the Registrant, file number
1-15967, filed October 4, 2000).
10.4 Intellectual Property Assignments, dated as of September 1,
2000, between Moody's Corporation (f.k.a. The Dun &
Bradstreet Corporation) and the Registrant (f.k.a. The New
D&B Corporation) (incorporated by reference to Exhibit 10.4
to the Report on Form 8-K of the Registrant, file number
1-15967, filed October 4, 2000).
10.5 Shared Transaction Services Agreement, dated as of September
30, 2000, between Moody's Corporation (f.k.a. The Dun &
Bradstreet Corporation) and the Registrant (f.k.a. The New
D&B Corporation) (incorporated by reference to Exhibit 10.5
to the Report on Form 8-K of the Registrant, file number
1-15967, filed October 4, 2000).
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.6 Data Services Agreement, dated as of September 30, 2000,
between Moody's Corporation (f.k.a. The Dun & Bradstreet
Corporation) and the Registrant (f.k.a. The New D&B
Corporation) (incorporated by reference to Exhibit 10.6 to
the Report on Form 8-K of the Registrant, file number
1-15967, filed October 4, 2000).
10.7 Transition Services Agreement, dated as of September 30,
2000, between Moody's Corporation (f.k.a. The Dun &
Bradstreet Corporation) and the Registrant (f.k.a. The New
D&B Corporation) (incorporated by reference to Exhibit 10.7
to the Report on Form 8-K of the Registrant, file number
1-15967, filed October 4, 2000).
10.8 Insurance and Risk Management Services Agreement, dated as
of September 30, 2000, between Moody's Corporation (f.k.a.
The Dun & Bradstreet Corporation) and the Registrant (f.k.a.
The New D&B Corporation) (incorporated by reference to
Exhibit 10.8 to the Report on Form 8-K of the Registrant,
file number 1-15967, filed October 4, 2000).
10.9 Undertaking of the Registrant to Cognizant Corporation and
ACNielsen Corporation (incorporated by reference to Exhibit
10.9 to the Report on Form 8-K of the Registrant, file
number 1-15967, filed October 4, 2000).
10.10 Undertaking of the Registrant to R.H. Donnelley Corporation
(incorporated by reference to Exhibit 10.10 to the Report on
Form 8-K of the Registrant, file number 1-15967, filed
October 4, 2000).
10.11 Distribution Agreement dated as of June 30, 1998 between
R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet
Corporation) and Moody's Corporation (f.k.a. The New Dun &
Bradstreet Corporation) (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Moody's
Corporation, file number 1-14037, filed August 14, 1998).
10.12 Tax Allocation Agreement dated as of June 30, 1998 between
R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet
Corporation) and Moody's Corporation (f.k.a. The New Dun &
Bradstreet Corporation) (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Moody's
Corporation, file number 1-14037, filed August 14, 1998).
10.13 Employee Benefits Agreement dated as of June 30, 1998
between R.H. Donnelley Corporation (f.k.a. The Dun &
Bradstreet Corporation) and Moody's Corporation (f.k.a. The
New Dun & Bradstreet Corporation) (incorporated by reference
to Exhibit 10.3 to the Quarterly Report on Form 10-Q of
Moody's Corporation, file number 1-14037, filed August 14,
1998).
10.14 Distribution Agreement dated as of October 28, 1996, among
R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet
Corporation), Cognizant Corporation and ACNielsen
Corporation (incorporated by reference to Exhibit 10(x) to
the Annual Report on Form 10-K of R.H. Donnelley Corporation
(f.k.a. The Dun & Bradstreet Corporation) for the year ended
December 31, 1996, file number 1-7155, filed March 27,
1997).
10.15 Tax Allocation Agreement dated as of October 28, 1996, among
R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet
Corporation), Cognizant Corporation and ACNielsen
Corporation (incorporated by reference to Exhibit 10(y) to
the Annual Report on Form 10-K of R.H. Donnelley Corporation
(f.k.a. The Dun & Bradstreet Corporation) for the year ended
December 31, 1996, file number 1-7155, filed March 27,
1997).
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.16 Employee Benefits Agreement dated as of October 28, 1996,
among R.H. Donnelley Corporation (f.k.a. The Dun &
Bradstreet Corporation), Cognizant Corporation and ACNielsen
Corporation (incorporated by reference to Exhibit 10(z) to
the Annual Report on Form 10-K of R.H. Donnelley Corporation
(f.k.a. The Dun & Bradstreet Corporation) for the year ended
December 31, 1996, file number 1-7155, filed March 27,
1997).
10.17 Indemnity and Joint Defense Agreement dated as of October
28, 1996, among R.H. Donnelley Corporation (f.k.a. The Dun &
Bradstreet Corporation), Cognizant Corporation and ACNielsen
Corporation (incorporated by reference to Exhibit 10(aa) to
the Annual Report on Form 10-K of R.H. Donnelley Corporation
(f.k.a. The Dun & Bradstreet Corporation) for the year ended
December 31, 1996, file number 1-7155, filed March 27,
1997).
10.18 Amended and Restated Agreement of Limited Partnership of D&B
Investors L.P. dated April 1, 1997 (incorporated by
reference to Exhibit 10.14 to the Quarterly Report on Form
10-Q of Moody's Corporation, file number 1-14037, filed
August 14, 1998).
10.19* D&B Guaranty dated as of April 1, 1997, given by The Dun &
Bradstreet Corporation in favor of Utrecht-America Finance
Co. and Leiden, Inc. (as assumed by the Registrant).
10.20* The Dun & Bradstreet Executive Transition Plan.
10.21* Forms of Change in Control Severance Agreements.
10.22* Pension Benefit Equalization Plan of The Dun & Bradstreet
Corporation.
10.23* Supplemental Executive Benefit Plan of The Dun & Bradstreet
Corporation.
10.24* Profit Participation Benefit Equalization Plan of The Dun &
Bradstreet Corporation.
10.25* The Dun & Bradstreet Career Transition Plan.
10.26 Employment Agreement dated May 15, 2000, by and between The
Dun & Bradstreet Corporation and Allan Z. Loren
(incorporated by reference to Exhibit 10.11 to the
Registration Statement on Form 10 of the Registrant, file
number 1-15967, filed September 14, 2000).
10.27* 2000 Dun & Bradstreet Corporation Replacement Plan for
Certain Directors Holding Dun & Bradstreet Corporation
Equity-Based Awards.
10.28* 2000 Dun & Bradstreet Corporation Replacement Plan for
Certain Employees Holding Dun & Bradstreet Corporation
Equity-Based Awards.
10.29* The Dun & Bradstreet Corporation 2000 Stock Incentive Plan.
10.30* 2000 Dun & Bradstreet Corporation Nonemployee Directors'
Stock Incentive Plan.
10.31* Executive Transition Plan Agreement, dated October 1, 1999,
between Andre Dahan and Moody's Corporation (f.k.a. The Dun
& Bradstreet Corporation) (as assumed by the Registrant).
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.32 Executive Transition Plan Agreements dated October 1, 1999,
between Frank Sowinski and Moody's Corporation (f.k.a. The
Dun & Bradstreet Corporation) (incorporated by reference to
Exhibit 10.28 to Moody's Corporation Annual Report on Form
10-K, file number 1-14037, filed on February 16, 2000) (as
assumed by the Registrant).
10.33 The Dun & Bradstreet Corporation Nonfunded Deferred
Compensation Plan for Non-Employee Directors (incorporated
by reference to Exhibit 10.18 to Moody's Corporation
Quarterly Report on Form 10-Q, file number 1-14037, filed
October 20, 1999)(as assumed by the Registrant).
10.34* The Dun & Bradstreet Corporation Covered Employee Cash
Incentive Plan.
10.35 Form of Limited Stock Appreciation Rights Agreement
(incorporated by reference to Exhibit 10.25 to Moody's
Corporation Quarterly Report on Form 10-Q, filed August 14,
1998).
27* Financial Data Schedule
</TABLE>
* - Filed Herewith
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on October 4, 2000 pursuant to
Item 5 - Other Events and Item 7 - Financial Statements: Pro Forma
Financial Statements and Exhibits.
32
<PAGE> 33
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: November 14, 2000, By: /s/ CHESTER J. GEVEDA
-----------------------------------------------
Chester J. Geveda, Jr.
Vice President and Controller and Acting Chief
Financial Officer
(principal financial officer)
33
