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, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 1-7155
THE DUN & BRADSTREET CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-2740040
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(State of Incorporation) (I.R.S. Employer Identification No.)
One Diamond Hill Road, Murray Hill, NJ 07974
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 665-5000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares Outstanding
Title of Class at October 31, 1996
Common Stock,
par value $1 per share 170,257,540
<PAGE>
THE DUN & BRADSTREET CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, 1996 and 1995 3
Nine Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Financial Position (Unaudited)
September 30, 1996 and December 31, 1995 5
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements (Unaudited) 7-11
Item 2. Management's Discussion and Analysis of Financial 12-15
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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<TABLE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
The Dun & Bradstreet Corporation
Consolidated Statements of Income (Unaudited)
<CAPTION>
Three Months Ended
September 30
-----------------------------------
Dollar amounts in millions, except share data 1996 1995
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<S> <C> <C>
Operating Revenues $529.8 $530.7
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Operating Costs
134.1 109.6
Selling and Administrative Costs
264.5 259.5
Depreciation & Amortization
38.3 39.0
Restructuring (Income) / Expense - Net
- (90.0)
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Operating Income
92.9 212.6
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Interest Income 0.3 1.8
Interest Expense
(7.3) (9.4)
Other Income / (Expense) - Net
(13.3) (11.0)
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Non-Operating (Expense) - Net
(20.3) (18.6)
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Income from Continuing Operations before Provision for Income Taxes
72.6 194.0
Provision For Income Taxes
37.2 66.4
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Income from Continuing Operations
35.4 127.6
Income from Discontinued Operations (Net of Income Taxes of
$16.1 and ($0.7), respectively)
26.6 43.8
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Net Income $ 62.0 $171.4
===================================================================================================================================
Earnings Per Share of Common Stock:
Income from Continuing Operations $0.21 $0.75
Income from Discontinued Operations
0.15 0.26
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Net Earnings Per Share of Common Stock $0.36 $1.01
===================================================================================================================================
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Dividends Paid Per Share of Common Stock $0.25 $0.66
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Average Number of Shares Outstanding 170.1 169.6
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<FN>
See accompanying notes to the consolidated financial statements (unaudited).
</FN>
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</TABLE>
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<TABLE>
The Dun & Bradstreet Corporation
Consolidated Statements of Income (Unaudited)
<CAPTION>
Nine Months Ended
September 30
-----------------------------------
Dollar amounts in millions, except share data 1996 1995
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<S> <C> <C>
Operating Revenues $1,562.7 $1,532.9
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Operating Costs
453.9 267.4
Selling and Administrative Costs
796.1 815.4
Depreciation & Amortization
118.6 119.5
Restructuring (Income) / Expense - Net
- (118.0)
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Operating Income
194.1 448.6
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Interest Income
0.7 5.6
Interest Expense
(19.7) (27.5)
Other Income / (Expense) - Net
(36.5) (33.4)
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Non-Operating (Expense) - Net
(55.5) (55.3)
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Income from Continuing Operations before Provision for Income Taxes
138.6 393.3
Provision For Income Taxes
83.5 134.6
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Income from Continuing Operations
55.1 258.7
Income from Discontinued Operations (Net of Income Taxes of
$13.4 and $28.8, respectively)
69.2 167.8
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Net Income $ 124.3 $ 426.5
===================================================================================================================================
Earnings Per Share of Common Stock:
Income from Continuing Operations $ 0.32 $ 1.52
Income from Discontinued Operations
0.41 0.99
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Net Earnings Per Share of Common Stock $ 0.73 $ 2.51
===================================================================================================================================
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Dividends Paid Per Share of Common Stock $ 1.57 $ 1.97
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Average Number of Shares Outstanding
169.9 169.6
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<FN>
See accompanying notes to the consolidated financial statements (unaudited).
</FN>
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</TABLE>
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<TABLE>
The Dun & Bradstreet Corporation
Consolidated Statements of Financial Position (Unaudited)
<CAPTION>
September 30 December 31
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Dollar amounts in millions, except share data 1996 1995
<S> <C> <C>
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Assets
Current Assets:
Cash & Cash Equivalents $ 93.0 $ 147.1
Marketable Securities 14.9 22.6
Accounts Receivable - Net 543.2 588.9
Other Current Assets 400.7 257.6
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Total Current Assets 1,051.8 1,016.2
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Other Investments and Notes Receivable 376.3 376.2
Property, Plant & Equipment - Net
375.1 382.9
Other Assets -Net:
Deferred Charges 265.0 266.1
Computer Software 115.7 83.5
Other Intangibles 80.0 95.4
Goodwill 227.8 295.5
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Total Other Assets -Net
688.5 740.5
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Net Assets of Discontinued Operations
1,301.2 1,326.3
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====================================================================================================================================
Total Assets $3,792.9 $3,842.1
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Liabilities and Shareholders' Equity
Current Liabilities:
Accounts and Notes Payable $ 518.9 503.4
Accrued and Other Current Liabilities 428.9 456.4
Accrued Income Taxes 52.0 20.6
Redeemable Partnership Interests
625.0 625.0
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Total Current Liabilities 1,624.8 1,605.4
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Unearned Subscription Income 375.1 319.6
Postemployment and Postretirement Benefits 365.9 393.0
Deferred Income Taxes 77.1 57.8
Other Liabilities 275.3 283.8
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Total Liabilities 2,718.2 2,659.6
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Shareholders' Equity:
Preferred Stock, par value $1 per share,
authorized - 10,000,000 shares; outstanding - none
Common Stock, par value $1 per share,
authorized - 400,000,000 shares; issued and outstanding 188,420,996 and
188,420,996 shares at September 30, 1996 and December 31, 1995,
respectively 188.4 188.4
Capital in Excess of Par Value 70.0 70.0
Retained Earnings 2,061.0 2,204.7
Treasury Stock, at cost, 17,398,156 and 19,031,922 shares at September 30, 1996
and December 31, 1995, respectively (1,065.2) (1,107.3)
Cumulative Translation Adjustment (181.3) (177.3)
Unrealized Gains on Investments 1.8 4.0
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Total Shareholders' Equity 1,074.7 1,182.5
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====================================================================================================================================
Total Liabilities and Shareholders' Equity $3,792.9 3,842.1
====================================================================================================================================
<FN>
See accompanying notes to the consolidated financial statements (unaudited).
</FN>
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</TABLE>
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<TABLE>
The Dun & Bradstreet Corporation
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
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Dollar amounts in millions 1996 1995
<CAPTION>
<S> <C> <C>
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Cash Flows from Operating Activities:
Net Income $ 124.3 $ 426.5
Less: Income from Discontinued Operations (69.2) (167.8)
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Income from Continuing Operations 55.1 258.7
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 118.6 119.5
Impairment and Other Losses from Sale of Businesses, Net of Taxes 86.6 -
Gain from Sale of Businesses - (118.0)
Restructuring Payments (28.6) (69.4)
Payments Related to 1995 Non-Recurring Charge (20.2) -
Net Decrease in Accounts Receivable 28.3 42.7
Unearned Subscription Income 55.7 65.2
Deferred Income Taxes 16.2 (7.7)
Accrued Income Taxes (169.3) (108.4)
Accrued Postemployment Benefits (14.3) (21.3)
Net Decrease in Other Working Capital Items 62.7 67.2
Other - 9.5
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Net Cash Provided by Operating Activities of Continuing Operations 190.8 238.0
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Cash Flows from Investing Activities:
Proceeds from Marketable Securities 16.2 17.8
Payments for Marketable Securities (2.4) (8.4)
Proceeds from Sale of Businesses 23.5 230.0
Capital Expenditures (61.3) (86.0)
Additions to Computer Software and Other Intangibles (56.7) (66.3)
Increase in Other Investments and Notes Receivable (18.0) (5.2)
Other 48.0 (29.5)
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Net Cash (Used in)/ Provided by Investing Activities of Continuing Operations (50.7) 52.4
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Cash Flows from Financing Activities:
Payment of Dividends (268.0) (334.4)
Payments for Purchase of Treasury Shares (3.7) (50.7)
Net Proceeds from Exercise of Stock Options 45.8 17.7
Increase in U.S. Short-term Borrowings 20.8 13.2
Other 4.8 -
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Net Cash Used in Financing Activities of Continuing Operations (200.3) (354.2)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (3.0) 10.1
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(Decrease) in Cash and Cash Equivalents (63.2) (53.7)
Net Cash Provided by Discontinued Operations 9.1 72.0
Cash and Cash Equivalents from Continuing Operations, Beginning of Year 147.1 122.1
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============================================================================================================================
Cash and Cash Equivalents from Continuing Operations, End of Period $ 93.0 $ 140.4
============================================================================================================================
<FN>
See accompanying notes to the consolidated financial statements (unaudited).
</FN>
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</TABLE>
<PAGE>
THE DUN & BRADSTREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Interim Consolidated Financial Statements
These interim consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and should be read in conjunction with the
consolidated financial statements and related notes of The Dun & Bradstreet
Corporation's (the "Company") 1995 Annual Report on Form 10-K, as amended by
Form 10-K/A-1 and Form 10-K/A-2 and Current Report on Form 8-K dated October 24,
1996 ("Form 8-K"). The consolidated results for interim periods are not
necessarily indicative of results for the full year or any subsequent period. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of financial position,
results of operations and cash flows at the dates and for the periods presented
have been included. Certain prior-year amounts have been reclassified to conform
with the 1996 presentation.
On January 9, 1996, the Company announced a plan to reorganize into three
publicly traded independent companies by spinning off through a tax-free
distribution two new companies to shareholders. The three companies are:
Cognizant Corporation ("Cognizant"), consisting of I.M.S. International, Inc.
("IMS"), the Company's 51% interest in Gartner Group, Inc., Nielsen Media
Research, Inc., Pilot Software, Inc., Erisco, Inc., Dun & Bradstreet Satyam
Software Proprietary Limited, Cognizant Enterprises, Inc., D&B HealthCare
Information, Inc., and D&B Technology Asia KK; The Dun & Bradstreet Corporation,
consisting of Dun & Bradstreet, the operating company ("D&B"), Moody's Investors
Service ("Moody's") and Reuben H. Donnelley; and ACNielsen Company
("ACNielsen"). In connection with the reorganization, Dun & Bradstreet Software
("DBS") and American Credit Indemnity ("ACI") were slated for divestiture. NCH
Promotional Services ("NCH") was subsequently added to the business units to be
sold. The Company has received a tax ruling from the U.S. Internal Revenue
Service indicating that the receipt by the Company's shareholders of the
Cognizant Common Stock and the ACNielsen Common Stock in the spin-off
distribution will be generally tax-free to such shareholders and the Company for
Federal income tax purposes. The Company's Board of Directors on October 10,
1996 declared a dividend distribution to shareholders of record on October 21,
1996 consisting of one share of Cognizant Common Stock for each share of the
Company's Common Stock and one share of ACNielsen for every three shares of the
Company's Common Stock held on such record date. The distribution was effected
on November 1, 1996.
For purposes of governing certain of the on-going relationships among the
Company, Cognizant and ACNielsen after the distribution and to provide for
orderly transition, the three new companies have entered into various
agreements, including a Distribution Agreement, Tax Allocation Agreement,
Employee Benefits Agreement, Indemnity and Joint Defense Agreement, Intellectual
Property Agreement, Shared Transaction Services Agreements, Data Services
Agreement and Transaction Services Agreement. These agreements were filed with
the Securities and Exchange Commission as part of the Cognizant and ACNielsen
Form 10 and the Company's Form 8-K.
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<PAGE>
Note 2 - 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 probable dispositions of the companies that comprise the Company's
Marketing Information Services, Software Services and Other Business Services
business segments. These segments include the companies that make up Cognizant,
ACNielsen, along with DBS and NCH. Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows of Cognizant, ACNielsen, DBS
and NCH have been excluded from the respective captions in the Consolidated
Statements of Income, Consolidated Statements of Financial Position and
Consolidated Statements of Cash Flows. The net operating results of these
entities have been reported, net of applicable income taxes, as "Income from
Discontinued Operations", the net assets of these entities have been reported as
"Net Assets of Discontinued Operations" and the net cash flows of these entities
have been reported as "Net Cash (Used in)/Provided by Discontinued Operations".
Summarized financial information for the Discontinued Operations were as follows
(in millions):
Quarter Nine Months
Ended Ended
9/30/96 9/30/96
Operating Revenue $851.4 $2,468.3
Income Before Income Taxes $42.7 $82.6
Net Income $26.6 $69.2
At 9/30/96 At 12/31/95
Current Assets $1,352.9 $1,312.7
Total Assets $2,927.0 $3,030.5
Current Liabilities $1,215.4 $1,258.6
Total Liabilities $1,625.8 $1,704.2
Net Assets of Discontinued $1,301.2 $1,326.3
Operations
Note 3 - Assets Sold and/or Held for Sale
The sales of the Proprietary West operations of Reuben H. Donnelley and ACI were
completed in May and October of 1996, respectively. In connection with these
divestitures, the Company recorded within operating costs a charge of $96.7
million ($86.6 million, after tax).
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<PAGE>
For the quarter and nine months ended September 30, 1996, aggregate operating
results of the businesses sold or held for sale before the applicable losses, as
discussed above, were as follows (in millions):
Quarter Nine Months
Ended Ended
9/30/96 9/30/96
Operating Revenue $16.7 $60.9
Operating (Loss) $(2.4) $(0.2)
The carrying amount at September 30, 1996 for ACI totaled $107.4 million.
Note 4 - Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet-risk,
which are entered into in the normal course of business to reduce exposure to
fluctuations in interest and foreign exchange rates. Interest rate swap
agreements are entered into primarily as hedges against variable interest rate
exposures. During the third quarter of 1996, the Company executed swap
agreements which effectively fixed interest rates on an additional $100 million
of variable rate debt. As a result, at September 30, 1996, the Company had swap
agreements outstanding to fix interest rates on a total of $600 million of
variable rate debt through January 2005. The weighted average fixed rate payable
under these agreements is 6.96%. The differential interest to be paid or
received under these agreements is included in interest expense over the life of
the debt.
Note 5 - Credit Facility
In August 1996, in connection with the Company's reorganization, the Company
negotiated new bank lines of credit increasing available borrowing from previous
levels. The syndicated lines of credit total $1.2 billion and consist of a
5-year revolving facility of $1.0 billion and a 1-year revolving facility of
$200 million with variable interest payable based on prevailing short-term
interest rates. These lines serve as back-up for the Company's commercial paper
program and as a funding source for the Company's operations. At September 30,
1996 there was no outstanding balance on the syndicated lines of credit.
Note 6 - Investment Partnerships
During 1993, three of the Company's subsidiaries contributed assets and
third-party investors contributed cash ($125 million) to a limited partnership.
One of the Company's subsidiaries serves as general partner. All of the other
partners, including the third-party investors, hold limited partner interests.
The partnership, which is a separate and distinct legal entity, is in the
business of licensing database assets and computer software.
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<PAGE>
In addition, during 1993, the Company participated in the formation of a limited
partnership to invest in various securities including those of the Company. One
of the Company's subsidiaries serves as managing general partner. Third-party
investors hold limited partner and special investors interests totaling $500
million. The special investors are entitled to a specified return on their
investments. Funds raised by the partnership provided a source of the financing
for the Company's repurchase in 1993 of 8.3 million shares of its common stock.
For financial reporting purposes, the assets, liabilities, results of operations
and cash flows of the partnerships described above are included in the Company's
consolidated financial statements. The third-parties investments in these
partnerships at September 30, 1996 and December 31, 1995 totaled approximately
$625 million, and are reflected in redeemable partnership interests.
Third-parties share of partnerships results of operations, including specified
returns, is reflected in Other Expense-Net.
In October 1996, in conjunction with the Company's reorganization, the Company
redeemed $450 million of redeemable partnership interests. This redemption was
financed with commercial paper.
Note 7- Litigation
The Company and its subsidiaries are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings, claims and
litigation, if decided adversely, could have a material effect on quarterly or
annual operating results or cash flows when resolved in a future period.
However, in the opinion of management, these matters will not materially affect
the Company's consolidated financial position.
European Union
Directorate General IV of the Commission of the European Union (the
"Commission") is currently investigating ACNielsen for the possible violation of
European Union competition law. In May 1996, the Commission issued a Statement
of Objections with respect to certain of ACNielsen's practices in Europe,
including discounting and other sales practices. ACNielsen has submitted its
response to the Commission's Statement of Objections. Following the review of
such submission and a hearing at which representatives of European Union member
states will participate, the Commission may uphold ACNielsen's position and
dismiss the complaint or adopt a decision prohibiting any of the practices
identified in the Statement of Objections and imposing substantial fines.
Any liabilities relating to or arising out of the European Union investigation
ceased to be liabilities of the Company effective November 1, 1996 with the
spin-off distribution of ACNielsen. ACNielsen will be responsible for any such
liabilities in connection with this investigation.
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 the Company, A.C. Nielsen Company (a subsidiary of ACNielsen) and
IMS.
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<PAGE>
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.
In connection with the IRI action, Cognizant, ACNielsen and the Company have
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 the Company 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.
Management is unable to predict at this time the final outcome of either the IRI
Action or the Commission's investigation or whether the resolution of either
matter could materially affect the Company's results of operations, cash flows
or financial position.
Note 8 - Adoption of New Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation", which requires that companies with stock-based compensation plans
either recognize compensation expense based on new fair value accounting methods
or continue to apply the existing accounting rules and disclose pro forma net
income and earnings per share assuming the fair value method has been applied.
The Company will adopt this standard by disclosing the pro forma net income and
earnings per share amounts assuming the fair value method was adopted January 1,
1995. As a result, the adoption of this standard will not impact the Company's
results of operations, financial position or cash flows.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On January 9, 1996, the Company announced a plan to reorganize into three
publicly traded independent companies by spinning off through a tax-free
distribution two new companies to shareholders. The three companies are:
Cognizant Corporation ("Cognizant"), consisting of I.M.S. International, Inc.
("IMS"), the Company's 51% interest in Gartner Group, Inc., Nielsen Media
Research, Inc., Pilot Software, Inc., Erisco, Inc., Dun & Bradstreet Satyam
Software Proprietary Limited, Cognizant Enterprises, Inc., D&B HealthCare
Information, Inc., and D&B Technology Asia KK; The Dun & Bradstreet Corporation,
consisting of Dun & Bradstreet, the operating company ("D&B"), Moody's Investors
Service ("Moody's") and Reuben H. Donnelley; and ACNielsen Company
("ACNielsen"). In connection with the reorganization, Dun & Bradstreet Software
("DBS") and American Credit Indemnity ("ACI") were slated for divestiture. NCH
Promotional Services ("NCH") was subsequently added to the business units to be
sold. The Company has received a tax ruling from the U.S. Internal Revenue
Service indicating that the receipt by the Company's shareholders of the
Cognizant Common Stock and the ACNielsen Common Stock in the spin-off
distribution will be generally tax-free to such shareholders and the Company for
Federal income tax purposes. The Company's Board of Directors on October 10,
1996 declared a dividend distribution to shareholders of record on October 21,
1996 consisting of one share of Cognizant Common Stock for each share of the
Company's Common Stock and one share of ACNielsen for every three shares of the
Company's Common Stock held on such record date. The distribution was effected
on November 1, 1996.
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 probable dispositions of the companies that comprise the Company's
Marketing Information Services, Software Services and Other Business Services
business segments. These segments include the companies that make up Cognizant,
ACNielsen, along with DBS and NCH. Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows of Cognizant, ACNielsen, DBS
and NCH have been excluded from the respective captions in the Consolidated
Statements of Income, Consolidated Statements of Financial Position and
Consolidated Statements of Cash Flows. The net operating results of these
entities have been reported, net of applicable income taxes, as "Income from
Discontinued Operations", the net assets of these entities have been reported as
"Net Assets of Discontinued Operations" and the net cash flows of these entities
have been reported as "Net Cash (Used in)/Provided by Discontinued Operations".
For a detailed discussion of the results for Cognizant and ACNielsen, refer to
their separate Forms 10-Q to be filed with the Securities and Exchange
Commission for the third quarter and nine months then ended. The following
discussion relates to Continuing Operations only.
Reported third-quarter revenue of $529.8 million was essentially unchanged from
$530.7 million a year ago. Consolidated nine months revenue increased 1.9% to
$1,562.7 million from $1,532.9 million in 1995.
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<PAGE>
Risk Management and Business Marketing Information Services reported
third-quarter revenue growth of 3.6% to $442.0 million from $426.7 million a
year ago. D&B, the operating company, reported third-quarter revenue growth of
7.3% to $335.3 million from $312.4 million a year ago, excluding the results of
ACI for each period. D&B U.S. posted a 3.9% increase in third-quarter revenue, a
result of strong performance in Business Marketing Services over the same
quarter last year. D&B Europe's revenue was up 10.7% in the third quarter over
the previous year, reflecting improving credit trends in the Germany, Spain and
Italy offset by weakness in Switzerland. Moody's Investors Service posted strong
revenue growth for the third quarter, driven by continued positive results in
the bond market.
Year-to-date the Risk Management and Business Marketing Information Services
segment reported revenue of $1,309.2 million up 3.8% from $1,261.4 million a
year ago. Excluding ACI and Interactive Data ("IDC") the year-to-date revenue
would have been 8.1% favorable to the prior year. D&B U.S. reported revenue of
$578.7 million, a 4.1% increase in revenue over the prior year. Moody's
Investors Service posted an 18.9% year-to-date revenue increase over prior year,
resulting from the strong bond market.
Directory Information Services reported third quarter revenue of $87.7 million,
a decrease of 15.6% from prior year. The decrease from prior year resulted
principally from the sale of the Proprietary West operations of Reuben H.
Donnelley. On a year-to-date basis, Directory Information Services declined from
$271.5 million a year ago to $253.5 million primarily resulting from the sale of
the Proprietary West operations of Reuben H. Donnelley.
Operating income in the third quarter declined to $92.9 million, compared with
$212.6 million in the third quarter of 1995. This variance primarily resulted
from expenses related to the Company's reorganization ($18.9 million) which are
included in the current year's results, and a $90 million gain on the sale of
IDC in the prior year.
Nine months operating income was $194.1 million, compared with operating income
of $448.6 million in 1995. On a year-to-date basis, this variance primarily
resulted from expenses related to the Company's reorganization ($27.9 million),
losses relating to the sale of ACI ($68.2 million) and the Proprietary West
operations of Reuben H. Donnelley ($28.5 million) which are included in the
current year's results, and a $90 million gain on the sale of Interactive Data
and a $28 million gain on the sale of Donnelley Marketing in the prior year.
Non-operating expense-net in the third quarter was $20.3 million, compared with
$18.6 million of expense in 1995. For nine months non-operating expense totaled
$55.5 million as compared to $55.3 million for the same period in 1995.
Income from Discontinued Operations, net of taxes, was $26.6 million for the
quarter ended September 30, 1996 as compared to $43.8 million in the prior year.
For nine months of 1996 Income from Discontinued Operations, net of taxes, was
$69.2 million versus $167.8 million in 1995. In the third quarter of 1996 an
additional $60.0 million, net of taxes, was recorded for the DBS impairment
loss, totaling $132.5 million, net of taxes, year-to-date. At November 1, 1996
the sale of DBS was completed with an additional loss of $40.4 million, net of
taxes, to be recorded in the fourth quarter. For a detailed discussion of the
results for Cognizant and ACNielsen, refer to their separate Forms 10-Q to be
filed with the Securities and Exchange Commission for the third quarter and nine
months then ended.
-13-
<PAGE>
Net Income of $62.0 million was reported by the Company in the third quarter as
compared with $171.4 million in the third quarter 1995. For the nine months
ended September 30, 1996 net income was $124.3 million as compared to $426.5
million for the same period of 1995.
The effective tax rate was 60.2% and 34.2% for the first nine months of 1996 and
1995, respectively. The higher rate in 1996 primarily reflects the lower tax
benefits as a result of reorganization costs and losses on assets held for sale.
Excluding the tax effects of the non-recurring charges, the 1996 effective tax
rate is 34.0%.
Outlook
For the full year 1996, the Company anticipates revenue growth from continuing
operations (which excludes discontinued operations and divested companies) in
the mid-single digits. Some operational weakness is expected in the fourth
quarter, primarily due to lower directory sales at Reuben H. Donnelley and
higher start-up costs at Donnelley's new production facility in Raleigh, N.C.
Management estimates costs of approximately $128 million to complete the
reorganization. In addition, approximately $86 million of costs that would have
been recorded in 1996 and future years will be accelerated entirely into 1996.
Reorganization costs include legal, investment banking, other advisory fees and
employee and management incentive payments payable by reason of the completion
of the distribution.
Changes in Financial Position at September 30, 1996 compared with December 31,
1995.
Goodwill decreased to $227.8 million at September 30, 1996, from $295.5 million
at December 31, 1995, primarily reflecting impairment losses recorded in the
second and third quarter of 1996 in connection with the divestiture of ACI.
Unearned Subscription Income increased to $375.1 million at September 30, 1996
from $319.6 million at December 31, 1995, reflecting the cyclical pattern of
lower subscription sales in the fourth quarter.
Liquidity
At November 1, 1996, after giving effect to a transfer of cash to Cognizant and
to ACNielsen pursuant to the Distribution Agreement and the dividend of the net
assets of Cognizant and ACNielsen in the distribution (aggregating approximately
$1,250 million), the capitalization of the Company is expected to consist of net
debt (net of cash and short-term debt) in the range of $900 million to $1,000
million and a deficiency in shareholders' equity in the range of $200 million.
In connection with the Company's reorganization, the Company negotiated new bank
lines of credit increasing available borrowing from previous levels. The
syndicated lines of credit total $1.2 billion and consist of a 5-year revolving
facility of $1.0 billion and a 1-year revolving facility of $200 million with
variable interest payable based on prevailing short-term interest rates. These
lines serve as back-up for the Company's commercial paper program and as a
funding source for the Company's operations.
-14-
<PAGE>
In the opinion of management, cash flows from its core businesses and available
credit facilities provide sufficient resources for working capital requirements,
servicing debt and payment of dividends.
Certain of the statements made under the captions "Outlook" and "Liquidity"
involve forecasted data and estimates which are inherently uncertain. Although
considered reasonable by management of the Company, certain of such forecasts
are subject to significant business, economic and competitive uncertainties,
many of which are beyond the control of the Company. There can be no assurance
that forecasted financial results or estimates will be realized or that
calculations based upon such results and estimates will be accurate.
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1996 and 1995
Net cash provided by continuing operating activities for the nine months ended
September 30, 1996 totaled $190.8 million compared with $238.0 million for the
comparable period in 1995. The increase of $47.2 million primarily reflected a
decrease in working capital and accrued income taxes. The current year results
were also impacted by impairment and other losses from the sale of the
Proprietary West operations of Reuben H. Donnelley and ACI businesses ($86.6
million, net of taxes) and the prior year included a $118.0 million gain on the
sale of IDC and Donnelley Marketing.
Net cash used in investing activities for the nine months ended September 30,
1996 totaled $50.7 million, compared to $52.4 million of cash provided by
investing activities during the first nine months of 1995. The prior year
included $230.0 million in proceeds from the sale of businesses (IDC and
Donnelley Marketing, as mentioned previously).
Net cash used in financing activities for the nine months ended September 30,
1996 totaled $200.3 million compared with $354.2 million for the comparable
period of 1995 primarily reflecting a decrease in the payment of shareholder
dividends, $268.0 million in the first nine months of 1996 compared with $334.4
million for the nine months ended September 30, 1995.
Other
The Board of Directors declared on October 10, 1996 a special stock dividend to
shareholders for the spin-off of Cognizant and ACNielsen on November 1, 1996.
In addition to the special stock dividend discussed above, the Board of
Directors also declared on October 16, 1996 a dividend of 25 cents per share
payable December 10, 1996, to shareholders of record at the close of business
November 20, 1996. Of such dividend, 22 cents per share is attributable to the
continuing operations of the Company and three cents per share of the dividend
is attributable to Cognizant.
The Company expects to maintain a 22 cents per share quarterly dividend through
1997, but there is no assurance thereof.
-15-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(27) Financial Data Schedule
(Filed Electronically)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended
September 30,1996.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DUN & BRADSTREET CORPORATION
Date: November 13, 1996 By: FRANK S. SOWINSKI
============================================
Frank S. Sowinski
Senior Vice President - Finance & Corporate
Development and Chief Financial Officer
Date: November 13, 1996 By: CHESTER J. GEVEDA, JR.
===========================================
Chester J. Geveda, Jr.
Vice President and Controller
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DUN & BRADSTREET CORPORATION
Date: November 13, 1996 By:
============================================
Frank S. Sowinski
Senior Vice President - Finance & Corporate
Development and Chief Financial Officer
Date: November 13, 1996 By:
============================================
Chester J. Geveda, Jr.
Vice President and Controller
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