<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
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:
Title of Class Shares Outstanding
Common Stock, at April 30, 1998
par value $1 per share 171,665,841
<PAGE>
THE DUN & BRADSTREET CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1998 and 1997 3
Consolidated Balance Sheets (Unaudited)
March 31, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements (Unaudited) 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
</TABLE>
<PAGE>
<TABLE>
Dun & Bradstreet Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Three Months Ended
March 31,
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Amounts in millions, except per share data 1998 1997
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<S> <C> <C>
Operating Revenues $ 471.1 $ 436.4
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Operating Costs 145.3 133.2
Selling and Administrative Expenses 197.6 190.1
Depreciation and Amortization 35.4 35.2
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Operating Income 92.8 77.9
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Interest Income 0.9 0.1
Interest Expense (7.3) (21.2)
Other Expense - Net (6.5) (1.4)
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Non-Operating Expense - Net (12.9) (22.5)
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Income from Continuing Operations before Provision for
Income Taxes 79.9 55.4
Provision for Income Taxes 28.4 18.9
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Income from Continuing Operations 51.5 36.5
Income(Loss) from Discontinued Operations, Net of Income Taxes of $8.1 for 1998
and Income Tax Benefit of $0.7 for 1997 12.0 (1.6)
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Income before Cumulative Effect of Accounting Changes 63.5 34.9
Cumulative Effect of Accounting Changes, Net of Income Tax Benefit
of $104.1 - (150.6)
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Net Income (Loss) $ 63.5 $ (115.7)
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Basic Earnings (Loss) Per Share of Common Stock:
Continuing Operations $ 0.30 $ 0.21
Discontinued Operations 0.07 (0.01)
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Before Cumulative Effect of Accounting Changes 0.37 0.20
Cumulative Effect of Accounting Changes, Net of Income Tax Benefit - (0.88)
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Basic Earnings (Loss) Per Share of Common Stock $ 0.37 $ (0.68)
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Diluted Earnings (Loss) Per Share of Common Stock:
Continuing Operations $ 0.30 $ 0.21
Discontinued Operations 0.07 (0.01)
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Before Cumulative Effect of Accounting Changes 0.37 0.20
Cumulative Effect of Accounting Changes, Net of Income Tax Benefit - (0.87)
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Diluted Earnings (Loss) Per Share of Common Stock $ 0.37 $ (0.67)
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Dividends Paid Per Share of Common Stock $ 0.22 $ 0.22
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Weighted Average Number of Shares Outstanding - Basic 171.2 171.2
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Weighted Average Number of Shares Outstanding - Diluted 174.1 172.7
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<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<CAPTION>
March 31, December 31,
Dollar amounts in millions, except per share data 1998 1997
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<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 116.6 $ 81.8
Accounts Receivable---Net of Allowance of $45.2 in 1998 and $39.4 in 1997 474.5 454.5
Other Current Assets 244.8 269.2
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Total Current Assets 835.9 805.5
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Non-Current Assets
Investments and Notes Receivable 12.8 12.3
Property, Plant and Equipment 306.9 317.2
Prepaid Pension Costs 194.6 190.7
Computer Software 128.7 128.0
Goodwill 186.9 194.6
Other Non-Current Assets 139.6 141.2
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Total Non-Current Assets 969.5 984.0
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Net Assets of Discontinued Operations 282.5 296.5
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Total Assets $2,087.9 $2,086.0
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Liabilities and Shareholders' Equity
Current Liabilities
Notes Payable $ 364.8 $ 451.5
Accrued and Other Current Liabilities 449.2 472.0
Unearned Subscription Income 640.4 573.5
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Total Current Liabilities 1,454.4 1,497.0
Postretirement and Postemployment Benefits 387.1 389.0
Other Non-Current Liabilities 390.7 388.3
Minority Interest 301.9 301.9
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---188,420,996 shares for 1998 and 1997 188.4 188.4
Capital Surplus 80.2 80.2
Retained Earnings 396.2 405.2
Treasury Stock, at cost, 16,850,856 and 17,853,652 shares
for 1998 and 1997, respectively (906.5) (964.0)
Cumulative Translation Adjustment (167.1) (162.6)
Minimum Pension Liability Adjustment (37.4) (37.4)
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Total Shareholders' Equity (446.2) (490.2)
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Total Liabilities and Shareholders' Equity $2,087.9 $2,086.0
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<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Quarter Ended Quarter Ended
Dollar amounts in millions March 31, 1998 March 31, 1997
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 63.5 $ (115.7)
Less: Income (Loss) from Discontinued Operations 12.0 (1.6)
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Income (Loss) from Continuing Operations 51.5 (114.1)
Reconciliation of Net Income (Loss) to Net Cash
Provided by Operating Activities:
Cumulative Effect of Accounting Change, Net of Income Tax Benefit - 150.6
Depreciation and Amortization 35.4 35.2
Postemployment Benefit Payments (5.1) (9.9)
Net Increase in Accounts Receivable (25.3) (78.3)
Accrued Income Taxes 38.5 (10.4)
Increase in Long Term Liabilities 4.5 30.0
Net Decrease in Other Working Capital Items 44.9 118.0
Other (1.3) 1.8
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Net Cash Provided by Operating Activities 143.1 122.9
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Cash Flows from Investing Activities:
Proceeds from Sales of Marketable Securities 3.9 0.1
Payments for Marketable Securities (4.3) -
Capital Expenditures (10.0) (4.0)
Additions to Computer Software and Other Intangibles (16.1) (13.1)
Other (7.6) (8.9)
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Net Cash (Used In) Provided by Investing Activities (34.1) (25.9)
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Cash Flows from Financing Activities:
Payment of Dividends (37.7) (37.7)
Payments for Purchase of Treasury Shares - (1.7)
Net Proceeds from Exercise of Stock Options 22.6 13.1
(Decrease) in Other Short-term Borrowings (85.9) (99.2)
Other (0.2) (0.3)
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Net Cash Used in Financing Activities (101.2) (125.8)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents 1.1 2.2
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(Decrease) Increase in Cash and Cash Equivalents 8.9 (26.6)
Net Cash Provided by Discontinued Operations 25.9 51.2
Cash and Cash Equivalents , Beginning of Quarter 81.8 127.8
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Cash and Cash Equivalents, End of Quarter 116.6 152.4
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<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
THE DUN & BRADSTREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Interim Consolidated Financial Statements
These interim consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and should be read in conjunction with the
consolidated financial statements and related notes of The Dun & Bradstreet
Corporation's (the "Company") 1997 Annual Report on Form 10-K. The consolidated
results for interim periods are not necessarily indicative of results for the
full year or any subsequent period. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of financial position, results of operations and cash flows at
the dates and for the periods presented have been included. Certain prior-year
amounts have been reclassified to conform to the 1998 presentation.
Note 2 - Reorganization and Discontinued Operations
On December 17, 1997, the Board of Directors of the Company announced a plan,
subject to receiving a favorable ruling from the Internal Revenue Service, to
separate into two publicly traded companies- The Dun & Bradstreet Corporation
("New D&B") and R.H. Donnelley Corporation ("Donnelley"). The separation (the
"Distribution") of the two companies will be accomplished through a tax-free
dividend of a new entity comprised of the Company's Risk Management Services
segment (Moody's Investors Service ("Moody's") and Dun & Bradstreet, the
operating company ("D&B")). The new entity, New D&B, will be known as "The Dun &
Bradstreet Corporation" and the continuing entity will change its name to "R.H.
Donnelley Corporation" and will consist of the Company's Directory Information
Services segment (R.H. Donnelley Inc., the operating company, and the DonTech
partnership). In April 1998, the Company received a favorable ruling from the
Internal Revenue Service with respect to the tax-free treatment of the
Distribution. The transaction is expected to be completed in the summer of 1998.
Due to the relative significance of the Risk Management Services segment, the
transaction will be accounted for as a reverse spin-off, and as such the Risk
Management Services and Directory Information Services segments have been
classified as continuing and discontinued operations, respectively.
For purposes of governing certain of the ongoing relationships among the Company
and Donnelley as a result of the Distribution, the companies will enter into
various agreements, including a Distribution Agreement, Tax Allocation
Agreement, Employee Benefits Agreement, Intellectual Property Agreement, Shared
Transaction Services Agreement, Data Services Agreement and a Transition
Services Agreement.
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 Company's Directory Information Services segment as discontinued
operations.
For financial reporting purposes the assets and liabilities of the Directory
Information Services segment have been separately classified on the balance
sheet as "Net Assets of Discontinued Operations." A summary of these assets and
liabilities at March 31, 1998 and December 31, 1997 was as follows (in
millions):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Current assets $ 89.8 $ 92.7
Total assets 341.5 362.3
Current liabilities 57.8 64.6
Total liabilities 59.0 65.8
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Net assets of discontinued operations $ 282.5 $ 296.5
</TABLE>
The net operating results of the Directory Information Services segment have
been reported in the caption "Income (Loss) from Discontinued Operations," in
the consolidated statements of operations. Summarized operating results for the
Directory Information Services segment for the quarters ended March 31, were as
follows:
<TABLE>
<CAPTION>
1998 1997*
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<S> <C> <C>
Operating revenues $ 41.5 $ 19.0
Income before provision for income taxes 20.1 (2.3)
Net income $ 12.0 $ (1.6)
*1997 included the results of the East Coast proprietary operations of Donnelley.
Note 3 - Reconciliation of Weighted Average Shares
(share data in thousands) 1998 1997
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Weighted average number of shares-basic 171,153 171,189
Dilutive effect of shares issuable under stock options, restricted
stock and performance unit plans 2,731 1,257
Adjustment of shares applicable to stock options exercised during
the period and performance unit plans 220 204
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Weighted average number of shares-diluted 174,104 172,650
========= =========
<FN>
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 table outlined
above. The conversion of diluted shares has no impact on the Company's operating
results. All options outstanding at March 31, 1998 and 1997 were included in the
computation of diluted earnings per share because the options' exercise prices
were less than the average market price of the Company's common stock. The
Company's options generally expire 10 years after the initial grant date.
</FN>
</TABLE>
<PAGE>
Note 4 - Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires that all items recognized under
accounting standards as components of comprehensive earnings be reported in a
financial statement for the period in which they are recognized and displayed
with the same prominence as other financial statements. This statement also
requires that financial statements for prior periods are reclassified. The
Company's total comprehensive income for the three month period ended March 31,
was as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net income (loss) $ 63.5 $ (115.7)
Other comprehensive loss - foreign currency
translation adjustment (4.5) (7.5)
-------- --------
Total comprehensive income $ 59.0 $ (123.2)
</TABLE>
Note 5 - Notes Payable
In connection with the Distribution, the Company will borrow approximately $550
million. A portion of the proceeds of this borrowing will be used to repay
existing indebtedness of the Company. This approximately $550 million of debt
will become an obligation of Donnelley after the Distribution.
Note 6 - Financial Instruments with Off-Balance-Sheet Risk
The Company enters into interest rate swap agreements to manage exposure to
changes in interest rates. Interest rate swaps allow the Company to raise funds
at floating rates and effectively swap them into fixed rates that are lower than
those available to it if fixed-rate borrowings were made directly. If the
Company terminates a swap agreement, the gain or loss is amortized over the
shorter of the remaining original life of the swap or the debt. At March
31,1998, the unrealized fair value of the interest rate swaps was a loss of
$11.7 million, of which $3.8 million ($.6 million in the first quarter of 1998
and $3.2 million in 1997) has been recognized in income relating to swaps which
do not qualify for settlement accounting. In connection with the Distribution
and repayment of outstanding notes payable, the Company will cancel all of its
interest rate swap agreements and will record into income the previously
unrecognized fair value loss at the time of termination.
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
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.
In addition to the litigation referred to above, 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 International, Inc.
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.
On October 15, 1996, defendants moved for an order dismissing all claims in the
complaint. On May 6, 1997, the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within sixty days.
The Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim
alleging that IRI has made false and misleading statements about its services
and commercial activities. On July 7, 1997, IRI filed an Amended and Restated
Complaint repleading its alleged claim of monopolization in the United States
and realleging its other claims. By notice of motion dated August 18, 1997,
defendants moved for an order dismissing the amended claim. On December 1, 1997,
the Court denied the motion and, on December 16, 1997, defendants filed a
supplemental answer denying the remaining material allegations of the amended
complaint.
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 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.
In connection with the Distribution, the Company and Donnelley will enter into
an agreement whereby the Company will retain all potential liabilities arising
from the IRI Action.
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
On December 17, 1997, the Board of Directors of the Company announced a plan to
separate into two publicly traded companies - The Dun & Bradstreet Corporation
("New D&B") and R.H. Donnelley Corporation ("Donnelley"). The separation (the
"Distribution") of the two companies will be accomplished through a tax-free
dividend of a new entity comprised of Moody's Investors Service ("Moody's") and
Dun & Bradstreet, the operating company ("D&B"). The new entity, New D&B, will
be known as "The Dun & Bradstreet Corporation" and the continuing entity will
change its name to "R.H. Donnelley Corporation" and will consist of R.H.
Donnelley Inc., the operating company and the DonTech partnership. Due to the
relative significance of Moody's and D&B, the transaction will be accounted for
as a reverse spin-off, and as such Moody's and D&B have been classified as
continuing operations and R.H. Donnelley Inc. and DonTech have been classified
as discontinued operations. In April 1998, the Company received a favorable
ruling from the Internal Revenue Service with respect to the tax-free treatment
of the Distribution. The transaction is expected to be completed in the summer
of 1998.
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 reorganization. Accordingly, revenues, costs and expenses, assets
and liabilities, and cash flows of R.H. Donnelley Inc. and DonTech 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 have been reported, net of applicable income
taxes, as "Income from Discontinued Operations", the net assets have been
reported as "Net Assets of Discontinued Operations" and the net cash flows have
been reported as "Net Cash Provided by Discontinued Operations."
Results of Operations
The Company's first quarter 1998 income from continuing operations of $51.5
million was up $15.0 million or 41% from the prior year's first quarter results
from continuing operations. Earnings per share from continuing operations (basic
and diluted) of $.30 was up 43% from the prior year's earnings per share from
continuing operations of $.21. The Company's first quarter net income was $63.5
million or $.37 per share, both basic and diluted. This compares with a first
quarter 1997 net loss of $115.7 million, or a $.68 per share loss basic, $.67
per share loss diluted. The 1997 results include a one-time, non-cash charge for
the cumulative effect of accounting changes of $150.6 million after-tax ($.88
per share basic, $.87 per share diluted), with respect to certain of the
Company's revenue recognition methods. Effective January 1, 1997, the Company
changed its revenue recognition method for its Credit Information Services
business and changed certain of its revenue recognition methods in the Marketing
Information Services, Receivables Management Services and Moody's businesses. In
accordance with APB No. 20, "Accounting Changes," the cumulative effect of these
accounting changes resulted in a pre-tax non-cash charge of $254.7 million
($150.6 million after-tax).
Operating revenues for the first quarter were up 8% to $471.1 million in 1998
from $436.4 million in 1997. Revenues for D&B of $338.6 million were up 2% from
the prior year. Excluding the impact of foreign currency fluctuations, revenue
growth for D&B was 6%. D&B U.S. posted an 8% increase in first quarter revenue,
driven by solid growth in traditional credit products, as well as strong
performance in sales of Value Added Products and Database Marketing. D&B
Europe's revenues decreased 8%, driven by unfavorable foreign exchange
fluctuations. Excluding foreign exchange, Europe's results improved modestly, up
1% over the prior year. Growth in the UK, Eastern Europe, Italy, Holland and
Portugal were offset by declines in Switzerland, Norway and Germany. Revenues
from D&B's other regions were up 3%, driven by a 13% improvement in Receivable
Management Services and growth in Latin America, partially offset by declines in
Canada and Asia Pacific resulting from unfavorable foreign exchange. Moody's
posted revenue growth of 25% to $132.5 million over the prior year reflecting
the continuing favorable interest rate environment, the continuing trend toward
the globalization of capital markets and Moody's success in product innovation.
Operating income for the first quarter of 1998 of $92.8 million was 19% higher
than 1997 first quarter operating income of $77.9 million. This growth reflects
the strong revenue results noted above and continued efforts to control costs.
Non-operating expense-net was $12.9 million for the first quarter of 1998
compared with non-operating expense-net of $22.5 million for the first quarter
of 1997. This significant decrease was a result of sharply lower interest
expense, driven by lower debt and strong cash flow versus prior year.
The effective tax rate was 35.5% for the first quarter of 1998 compared to 34.1%
in 1997.
Income from discontinued operations, net of income taxes, was $12.0 million for
the first quarter of 1998 compared to a loss of $1.6 million for the same period
in 1997. Revenue for Donnelley totaled $41.5 million, an increase of $22.5
million from $19.0 million reported in the first quarter of 1997 (which included
$.8 million of revenues of the East Coast proprietary operations of Donnelley
("P-East") which was sold in the fourth quarter of 1997). This strong increase
is the result of a one-time shift of approximately $19 million in revenues from
the DonTech partnership as well as growth in sales of advertising for both
DonTech's Illinois directories and for Sprint's Las Vegas directory. Certain
revenue that in previous years was reported in later quarters of the year is
being reported in the first quarter this year, a result of the August 1997
restructuring of the DonTech partnership agreement with Ameritech advertising
services. Operating income for Donnelley for the first quarter of 1998 was $20.1
million, up $22.4 million from 1997 (which included the $0.9 million operating
loss of P-East), due mainly to the DonTech revenue shift.
Adoption of Statements of Financial Accounting Standards ("SFAS")
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which revises disclosure
requirements about operating segments and establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 requires that public business enterprises report financial and
descriptive information about their reportable operating segments. The statement
is effective for fiscal years beginning after December 15, 1997, and requires
restatement of prior years in the initial year of application. SFAS No. 131 is
expected to affect the Company's segment disclosures, but will not affect the
Company's results of operations, financial position or cash flows. The Company
is in the process of evaluating the disclosure requirements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132
revises employers' disclosures about pension and other postretirement benefit
plans. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. Restatement of disclosures for earlier periods provided for comparative
purposes are required unless the information is not readily available. The
Company is in the process of evaluating the disclosure requirements. The
adoption of SFAS No. 132 will have no impact on the Company's results of
operations, financial position or cash flows.
Liquidity and Financial Position
At March 31, 1998, cash and cash equivalents totaled $116.6 million, an increase
of $34.8 million from $81.8 million held at December 31, 1997. Cash provided by
continuing operations during the first quarter of 1998 was $8.9 million, while
discontinued operations generated $25.9 million. In comparison, during the first
quarter of 1997, cash and cash equivalents increased by $24.6 million with
continuing operations using $26.6 million and discontinued operations generating
$51.2 million. However, all interest expense, taxes and corporate overhead costs
have been borne by the continuing operations of the Company. Additionally, costs
incurred to complete the Distribution will be the responsibility of the Company.
Operating activities generated net cash of $143.1 million during the first
quarter of 1998 compared to $122.9 million in 1997. This increase is consistent
with the improvement in the income from continuing operations.
Net cash used in investing activities was $34.1 million for the first quarter of
1998 compared to $25.9 million in 1997. In the first quarter of 1998 the Company
invested $26.1 million for capital expenditures and additions to computer
software and other intangibles compared to $17.1 million in the comparable
period in 1997.
Net cash used in financing activities was $101.2 million during the first
quarter of 1998 compared to $125.8 million in the first quarter of 1997.
Payments of dividends accounted for $37.7 million in both 1998 and 1997. During
the first quarter of 1998, the Company reduced short-term borrowings by $85.9
million compared to $99.2 million in the first quarter of 1997. Proceeds from
the exercise of stock options were $22.6 million for the first quarter of 1998
compared to $13.1 million in 1997.
In January 1997, the Company announced a continuation of its systematic stock
repurchase plan, authorizing the purchase of up to 9.8 million shares of common
stock. The shares repurchased were to be held in treasury to issue upon exercise
of employee stock options and for compensation plans. Upon the announcement of
the Distribution the systematic plan was suspended. The Company used $1.7
million during the first quarter of 1997 to repurchase treasury shares. In
connection with the Distribution, these shares will be treasury shares of
Donnelley. The Company intends to start a new systematic stock repurchase plan
in 1998.
In connection with the Distribution, the Company will borrow approximately $550
million. A portion of the proceeds of this borrowing will be used to repay
existing indebtedness of the Company. This debt will be an obligation of
Donnelley after the Distribution.
The Company has interest rate swap agreements, which effectively fix interest
rates on $300.0 million of variable-rate debt through January 2005, at a
weighted average fixed rate of 6.84% (see Note 6 to the consolidated financial
statements). Currently, a portion of the swaps is marked-to-market through
earnings. In connection with the repayment of the outstanding notes payable at
the time of the Distribution, the Company will cancel its outstanding interest
rate swap agreements and recognize into income any previously unrecognized loss.
At March 31, 1998, the unrealized fair value of these agreements was a loss of
$11.7 million, of which $3.8 million had been recorded as interest expense in
1998 and 1997 ($.6 million in 1998 and $3.2 million in 1997).
Management estimates that one-time cash outlays of approximately $25 million to
$30 million, including the costs to terminate the interest rate swaps, will be
required to complete the Distribution of the Company. These costs will be
recorded as incurred.
Dividends
On April 15, 1998, the Board of Directors approved a second quarter 1998
dividend of $.22 per share, payable June 10, 1998 to shareholders of record at
the close of business May 20, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March 31, 1998.
<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: May 12, 1998 By: FRANK S. SOWINSKI
-----------------------------------------------
Frank S. Sowinski
Senior Vice President - Chief Financial Officer
Date: May 12, 1998 By: CHESTER J. GEVEDA, JR.
-----------------------------------------------
Chester J. Geveda, Jr.
Vice President and Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Dun & Bradstreet Corporation and Subsidiaries
Financial Data Schedule
FORM 10-Q
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 116,629
<SECURITIES> 1,654
<RECEIVABLES> 474,502
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 243,155
<PP&E> 765,726
<DEPRECIATION> 458,825
<TOTAL-ASSETS> 2,087,955
<CURRENT-LIABILITIES> 1,454,391
<BONDS> 0
0
0
<COMMON> 188,421
<OTHER-SE> (634,615)
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<TOTAL-REVENUES> 471,055
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<TOTAL-COSTS> 378,222
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<INCOME-PRETAX> 79,886
<INCOME-TAX> 28,392
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