-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Il9L+5O+fZLk7heUyGji+o6jn3eaEEf0nczlsHIdTtXSGi9ETrAMalHfDwS2ukVY mj3xs4Fv0fWM2dyiqkqp2w== 0001115222-03-000022.txt : 20031106 0001115222-03-000022.hdr.sgml : 20031106 20031106171713 ACCESSION NUMBER: 0001115222-03-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUN & BRADSTREET CORP/NW CENTRAL INDEX KEY: 0001115222 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 223725387 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15967 FILM NUMBER: 03983062 BUSINESS ADDRESS: STREET 1: 103 JFK PARKWAY STREET 2: 103 JFK PARKWAY CITY: SHORT HILLS STATE: NJ ZIP: 07078 BUSINESS PHONE: 9739215500 MAIL ADDRESS: STREET 1: 103 JFK PARKWAY STREET 2: 103 JFK PARKWAY CITY: SHORT HILLS STATE: NJ ZIP: 07078 FORMER COMPANY: FORMER CONFORMED NAME: NEW D&B CORP DATE OF NAME CHANGE: 20000523 10-Q 1 qtr3_10q.txt D&B 10-Q 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, 2003 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 1-15967 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.) 103 JFK Parkway, Short Hills, NJ 07078 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (973) 921-5500 Indicate by check mark whether the Registrant: (1) has filed all reports required by Section 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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 September 30, 2003 par value $0.01 per share 72,705,797
THE DUN & BRADSTREET CORPORATION INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statements of Operations (Unaudited) Three and Nine Months Ended September 30, 2003 and 2002 1 Consolidated Balance Sheets September 30, 2003 (Unaudited) and December 31, 2002 2 Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2003 and 2002 3 Notes to Consolidated Financial Statements (Unaudited) 4-17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17-34 Item 3. Quantitative and Qualitative Disclosures about Market Risk 34 Item 4. Controls and Procedures 34-35 PART II. OTHER INFORMATION Item 1. Legal Proceedings 36 Item 6. Exhibits and Reports on Form 8-K 36 SIGNATURES 37 Exhibits 38-43
The Dun & Bradstreet Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) Amounts in millions, except per share data Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ----- ----- ---- ---- Revenue $ 332.3 $ 298.9 $ 982.0 $ 919.5 Operating Expenses 117.8 100.3 325.7 311.3 Selling and Administrative Expenses 144.2 118.9 421.6 368.4 Depreciation and Amortization 14.6 20.9 46.5 60.3 Restructuring Charge 1.6 - 17.4 30.9 --------- --------- -------- -------- Operating Costs 278.2 240.1 811.2 770.9 --------- --------- -------- -------- Operating Income 54.1 58.8 170.8 148.6 --------- --------- -------- -------- Interest Income 1.1 0.7 2.7 2.0 Interest Expense (4.8) (4.9) (14.0) (14.8) Other Income (Expense) - Net (3.2) 1.8 2.9 (2.0) --------- --------- -------- -------- Non-Operating Expense - Net (6.9) (2.4) (8.4) (14.8) --------- --------- -------- -------- Income Before Provision for Income Taxes 47.2 56.4 162.4 133.8 Provision for Income Taxes 18.3 21.7 61.3 53.0 Equity in Net Losses of Affiliates (0.1) - (0.1) (1.7) --------- --------- -------- -------- Net Income $ 28.8 $ 34.7 $ 101.0 $ 79.1 ========== ========== ======== ======== Basic Earnings per Share of Common Stock $ 0.39 $ 0.47 $ 1.36 $ 1.06 ========== ========== ======== ======== Diluted Earnings per Share of Common Stock $ 0.38 $ 0.45 $ 1.32 $ 1.03 ========== ========== ======== ======== Weighted Average Number of Shares Outstanding - Basic 73,534,000 74,295,000 74,118,000 74,559,000 Weighted Average Number of Shares Outstanding - Diluted 76,152,000 76,540,000 76,428,000 77,033,000 The accompanying notes are an integral part of the consolidated financial statements.
The Dun & Bradstreet Corporation and Subsidiaries Consolidated Balance Sheets Amounts in millions, except per share data (Unaudited) September 30, December 31, 2003 2002 ----- ----- Assets Current Assets Cash and Cash Equivalents $ 199.7 $ 191.9 Accounts Receivable, Net of Allowance of $20.1 at September 30, 2003 and $23.0 at December 31, 2002 277.4 334.9 Other Receivables 38.7 48.3 Assets Held for Sale 36.1 - Other Current Assets 29.0 39.1 ----- ----- Total Current Assets 580.9 614.2 ----- ----- Non-Current Assets Property, Plant and Equipment, Net 55.0 149.7 Prepaid Pension Costs 403.4 367.3 Computer Software, Net 52.3 69.5 Goodwill, Net 245.4 183.3 Deferred Income Taxes 97.2 81.9 Other Non-Current Assets 72.2 61.8 ----- ----- Total Non-Current Assets 925.5 913.5 ----- ----- Total Assets $ 1,506.4 $ 1,527.7 ========== ========== Current Liabilities Accounts and Notes Payable $ 40.7 $ 47.5 Accrued Payroll 87.4 102.2 Accrued Income Tax 49.3 49.3 Liabilities Held for Sale 10.8 - Other Accrued and Current Liabilities 128.0 152.0 Deferred Revenue 369.5 367.1 ----- ----- Total Current Liabilities 685.7 718.1 ----- ----- Pension and Postretirement Benefits 448.2 441.5 Long Term Debt 299.9 299.9 Other Non-Current Liabilities 83.3 87.0 Contingencies (Note 7) Shareholders' Equity Preferred Stock, $0.01 par value per share, authorized - 10,000,000 shares; outstanding - none Series Common Stock, $0.01 par value per share, authorized - 10,000,000 shares; outstanding - none Common Stock, $0.01 par value per share, authorized - 200,000,000 shares; issued - 81,945,520 0.8 0.8 Unearned Compensation Restricted Stock (3.8) (0.6) Capital Surplus 205.2 218.7 Retained Earnings 385.0 284.0 Treasury Stock, at cost, 9,239,723 and 7,586,604 shares at September 30, 2003 and December 31, 2002, respectively (316.7) (240.3) Cumulative Translation Adjustment (194.0) (194.2) Minimum Pension Liability Adjustment (87.2) (87.2) ----- ----- Total Shareholders' Equity (10.7) (18.8) ----- ----- Total Liabilities and Shareholders' Equity $ 1,506.4 $ 1,527.7 ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
The Dun & Bradstreet Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Amounts in millions Nine Months Ended September 30, 2003 2002 ---- ---- Cash Flows from Operating Activities: Net Income $ 101.0 $ 79.1 Reconciliation of Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 46.5 60.3 Loss from Sale of Building 13.8 - Loss (Gain) from Sales of Businesses 2.1 (2.6) Equity Losses in Excess of Dividends Received from Affiliates 0.1 1.7 Restructuring Charge, Net and Other Asset Impairments 17.4 30.9 Restructuring Payments (23.8) (25.2) Deferred Income Taxes (6.0) (14.6) Accrued Income Taxes, Net 24.1 48.1 Changes in Current Assets and Liabilities: Decrease in Accounts Receivable 59.2 51.7 Net (Increase) Decrease in Other Current Assets (1.9) 3.1 Net Increase in Deferred Revenue (6.8) (7.7) Net Decrease in Accounts Payable (7.8) (9.2) Net Decrease in Accrued Liabilities (36.1) (46.0) Net Decrease in Other Current Liabilities (9.7) (9.8) Changes in Non-Current Assets and Liabilities: Increase in Other Long Term Assets (31.8) (37.5) Net Increase in Long Term Liabilities 7.6 4.3 Other 8.4 7.1 ----- ----- Net Cash Provided by Operating Activities 156.3 133.7 ----- ----- Cash Flows from Investing Activities: Proceeds from Sales of Real Estate 80.2 21.5 Net Investments in Marketable Securities 3.7 - Proceeds from Sales of Businesses 3.3 1.3 Payments for Acquisitions of Businesses, Net of Cash Acquired (98.0) (21.2) Capital Expenditures (7.0) (8.2) Additions to Computer Software and Other Intangibles (12.8) (25.7) Investments in Unconsolidated Affiliates (1.9) (0.9) Other (16.8) (8.4) ----- ----- Net Cash Used in Investing Activities (49.3) (41.6) ----- ----- Cash Flows from Financing Activities: Payments for Purchases of Treasury Shares (121.3) (114.2) Net Proceeds from Stock Plans 18.3 10.0 Other 1.4 0.8 ----- ----- Net Cash Used in Financing Activities (101.6) (103.4) ----- ----- Effect of Exchange Rate Changes on Cash and Cash Equivalents 2.4 2.0 ----- ----- Net (Decrease) Increase in Cash and Cash Equivalents 7.8 (9.3) Cash and Cash Equivalents, Beginning of Period 191.9 145.3 ----- ----- Cash and Cash Equivalents, End of Period $ 199.7 $ 136.0 ============ ============ Supplemental Disclosure of Cash Flow Information: Cash Paid Income Taxes, Net of Refunds $ 35.2 $ 22.2 Interest $ 17.2 $ 18.3 The accompanying notes are an integral part of the consolidated financial statements.
THE DUN & BRADSTREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Tabular dollar amounts in millions, except per share data) Note 1 - Basis of Presentation These interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. They should be read in conjunction with the consolidated financial statements and related notes, which appear in The Dun & Bradstreet Corporation's ("D&B" or "We") Annual Report on Form 10-K for the year ended December 31, 2002. The consolidated results for interim periods do not include all disclosures required by accounting principles generally accepted in the United States for annual financial statements and are not necessarily indicative of results for the full year or any subsequent period. In the opinion of our 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. We have reclassified certain prior period amounts to conform to our current presentation (see Note 10). Note 2 - Recent Accounting Pronouncements In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition to the fair-value method of accounting for stock-based employee compensation. SFAS No. 148 does not require companies to account for employee stock-based awards using the fair-value method. We will continue to utilize the instrinsic method of accounting for stock-based compensation as allowed in APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 to require quarterly disclosure of the effects of the fair value method of accounting for stock-based employee compensation on reported net income and earnings per share. In the table below, we disclose this effect.
Three Months Nine Months Ended September 30, Ended September 30, 2003 2002 2003 2002 ---- ---- ----- ---- Reported Net Income $ 28.8 $ 34.7 $ 101.0 $ 79.1 Add: Stock compensation cost under the intrinsic method, included in net income, net of tax benefits 0.4 0.2 1.2 0.5 Deduct: Total stock compensation cost under fair-value method for all awards, net of tax benefits (2.6) (2.1) (8.4) (6.0) ---- ---- ---- ---- Pro forma Net Income $ 26.6 $ 32.8 $ 93.8 $ 73.6 ======== ======== ========= ======== Basic EPS: As reported $ 0.39 $ 0.47 $ 1.36 $ 1.06 ========= ========= ========== ========= Pro forma $ 0.36 $ 0.44 $ 1.27 $ 0.99 ========= ========= ========== ========= Diluted EPS: As reported $ 0.38 $ 0.45 $ 1.32 $ 1.03 ========= ========= ========== ========= Pro forma $ 0.35 $ 0.43 $ 1.23 $ 0.95 ========= ========= ========== =========
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 clarifies the accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as described in SFAS No. 133. SFAS No. 149 is generally effective for derivative instruments entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. We have reviewed SFAS No. 149 and determined that it will not have any material impact on our consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires certain financial instruments that have both equity and liability characteristics to be classified as a liability on the balance sheet. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We have reviewed SFAS No. 150 and determined that it will not have any material impact on our consolidated financial statements. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others" ("FIN No. 45"), which expands previously issued accounting guidance and disclosure requirements for certain guarantees. Under the provisions of FIN No. 45, we are required to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability will be applied on a prospective basis to all guarantees issued or modified after December 31, 2002. Guarantees issued or modified during the nine months ended September 30, 2003 did not have a material impact on our consolidated financial statements. With respect to FIN No. 45, D&B is potentially liable for certain tax matters and a legal proceeding commenced by Information Resources, Inc. Please see Note 7 of our consolidated financial statements for a discussion of our obligations with respect to these matters. Additionally, in the normal course of business, D&B indemnifies other parties, including customers, lessors and parties to other transactions with D&B, with respect to certain matters. D&B has agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. D&B has also entered into indemnity obligations with its officers and directors of the company. Additionally, in certain circumstances, D&B issues guarantee letters on behalf of our wholly-owned subsidiaries for specific situations. It is not possible to determine the maximum potential amount of future payments under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by D&B under these agreements have not had a material impact on our consolidated financial statements. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"), which amended Accounting Research Bulletin No. 51, "Consolidated Financial Statements," and established standards for determining the circumstances under which a variable interest entity ("VIE") should be consolidated with its primary beneficiary. FIN No. 46 also requires disclosure about VIEs that we are not required to consolidate but in which we have a significant variable interest. The consolidation requirements of FIN No. 46 apply immediately to VIEs created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after December 31, 2003. We have reviewed FIN No. 46 to determine its impact on future periods, and do not expect any material accounting or disclosure requirements under this interpretation. In November 2002, the Emerging Issues Task Force reached a final consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Elements" ("EITF No. 00-21"), which provides guidance on how arrangement consideration should be measured, whether the arrangement should be divided into separate units of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. EITF No. 00-21 also requires a description of multiple-element arrangements and disclosure of the accounting policy for recognition of revenue from these arrangements. The guidance of EITF No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We have reviewed our revenue recognition practices with respect to multiple deliverables. We have determined that EITF No. 00-21 will not have any material impact on our current revenue recognition practices and will not have any material impact on our consolidated financial statements. Note 3 - Impact of Implementation of the Blueprint for Growth Strategy Since the launch of our Blueprint for Growth strategy, we have implemented four phases of Financial Flexibility initiatives. In each of these phases, we have incurred a restructuring charge, which generally consists of employee severance and termination costs, asset write-offs, and/or costs to terminate lease obligations. During the third quarter of 2003, we recognized a $1.6 million restructuring charge for severance and termination costs in connection with the fourth phase of our Financial Flexibility program. Through the first nine months of 2003, we have recorded $17.4 million of restructuring charges in connection with the fourth phase of our Financial Flexibility program. This completes the charges for the fourth phase of our Financial Flexibility program. The year-to-date charge includes $17.1 million for severance and termination costs related to approximately 500 employees (including a $0.5 million pension plan curtailment charge due to the fourth phase as discussed in the following paragraph) and $0.3 million for lease termination obligations. As of September 30, 2003, all of the approximately 500 employees have been terminated under the fourth phase of our financial flexibility program. In accordance with SFAS No. 87 and SFAS No. 88, we are required to recognize a one-time curtailment charge for the estimated pension expense impact to the Dun & Bradstreet Corporation Retirement Account (the "U.S. Qualified Plan") related to the headcount actions of the fourth phase of our Financial Flexibility program announced on January 13, 2003. The curtailment accounting requirement of SFAS No. 88 requires us to recognize immediately a pro-rata portion of the unrecognized prior service cost and the cost of any special charges related to benefit enhancements that might occur as a result of the layoffs (e.g., full vesting). For the U.S. Qualified Plan, these items together resulted in an immediate curtailment charge to earnings of $0.5 million in the first quarter 2003, which is included in the $17.1 million severance and termination charge above. During the second quarter of 2002, we recognized a $30.9 million restructuring charge in connection with the third phase of our Financial Flexibility program. The charge included $18.6 million for severance and termination costs related to approximately 1,050 employees, $10.6 million for the loss on asset disposals and the write-off of assets that were abandoned (including $9.7 million from the outsourcing discussed in the following paragraph), and $1.7 million for lease termination obligations. As part of this third phase of the Financial Flexibility program, we outsourced certain technology functions to Computer Sciences Corporation ("CSC"). Under the terms of the agreement, approximately 400 D&B employees who performed data center operations, technology help desk and network management functions in the United States and in the United Kingdom were transitioned to CSC. In addition, as part of the agreement, CSC acquired our data center and printmail facility located in Berkeley Heights, New Jersey, and related assets for $10 million, which we determined as the fair value for the assets. This resulted in a $9.7 million impairment loss. As of September 30, 2003, we have terminated approximately 3,200 employees under all four phases of the Financial Flexibility program, including the approximately 400 employees who were transitioned to CSC, as mentioned above. This will bring the total number of employees terminated (via termination and voluntary attrition) in connection with the four phases of the Financial Flexibility program, since its inception in October 2000, to approximately 3,200, reflecting the elimination of 3,500 positions (including 300 open positions). The following table sets forth, in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Acitivities," the restructuring reserves and utilization to date related to the fourth phase of our Financial Flexibility program.
Severance Lease and Pension Termination Termination Curtailment Obligations Total 2003 (Phase IV) Restructuring Charges - Total Charge Incurred during 2003 $ 16.6 $ 0.5 $ 0.3 $ 17.4 ========= ======= ======= ======= Charge Taken during First Quarter 2003 $ 10.1 $ 0.5 $ 0.3 $ 10.9 Payments/Curtailment during First Quarter 2003 (2.6) (0.5) - (3.1) --------- ------- ------- ------- Balance Remaining as of March 31, 2003 $ 7.5 $ - $ 0.3 $ 7.8 ========= ======= ======= ======= Charge Taken during Second Quarter 2003 $ 4.9 $ - $ - $ 4.9 Payments during Second Quarter 2003 (4.5) - (0.1) (4.6) --------- ------- ------- ------- Balance Remaining as of June 30, 2003 $ 7.9 $ - $ 0.2 $ 8.1 ========= ======= ======= ======= Charge Taken during Third Quarter 2003 $ 1.6 $ - $ - $ 1.6 Payments during Third Quarter 2003 (4.0) - - (4.0) --------- ------- ------- ------- Balance Remaining as of September 30, 2003 $ 5.5 $ - $ 0.2 $ 5.7 ========= ======= ======= =======
The following table sets forth, under the requirements of Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," the reserves and utilization to date related to the third phase of our Financial Flexibility program. 2002 Original Payments/ Balance at 2003 Balance at Charge Asset Write-offs 12/31/2002 Payments 9/30/2003 2002 (Phase III) Restructuring Charge for: Severance and Termination $ 18.6 $ (7.3) $ 11.3 $ (9.5) $ 1.8 Asset Write-Offs 10.6 (10.6) - - - Lease Termination Obligations 1.7 (0.2) 1.5 (0.1) 1.4 --- ---- --- ---- --- $ 30.9 $ (18.1) $ 12.8 $ (9.6) $ 3.2 ====== ======= ======= ======= =====
We completed all the actions contemplated under the first phase of our Financial Flexibility program by the end of 2001 and completed the actions under the second phase by June 30, 2002. There have not been any significant changes to our original Financial Flexibility programs. Note 4 - Notes Payable and Indebtedness D&B's $100 million 364-day revolving credit facility due to expire in September 2003, was renewed and the new $100 million facility expires in September 2004. D&B also has an additional $175 million term revolving credit facility expiring in September 2005. Under these facilities, D&B has the ability to borrow at prevailing short-term interest rates. These facilities also support D&B's commercial paper borrowings up to $275 million. D&B has not drawn on these facilities since their inception and has no borrowings outstanding under these facilities at September 30, 2003. D&B has not borrowed under its commercial paper program in 2003. We believe that cash flows generated from its operations, supplemented as needed with its readily available financing arrangements, are sufficient to meet its short-term and long-term needs. In addition, D&B has notes of $300 million in principal, which have a five-year term maturing in March 2006 and bear interest at a fixed annual rate of 6.625% payable semiannually. Our borrowings at September 30, 2003 and December 31, 2002, including interest rate swaps designated as hedges, are summarized below:
September 30, 2003 December 31, 2002 Liab (Asset) Liab (Asset) Notes Payable - Current $ - $ 0.1 ------- -------- Fair Value Of Long-Term Fixed Rate Notes $ 305.0 $ 305.7 Fair Value Of Interest-Rate Swaps (5.2) (6.0) Other 0.1 0.2 ------- -------- Long Term Debt $ 299.9 $ 299.9 ======= ========
Note 5 -Reconciliation of Weighted Average Shares
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- (Shares data in thousands) (Shares data in thousands) Weighted average number of shares-basic 73,534 74,295 74,118 74,559 Dilutive effect of shares issuable under stock options, restricted stock and performance share plans 2,478 2,188 2,167 2,412 Adjustment of shares applicable to stock options exercised during the period and performance share plans 140 57 143 62 --- -- --- -- Weighted average number of shares-diluted 76,152 76,540 76,428 77,033 ====== ====== ====== ======
During the third quarter of 2003 and 2002, we repurchased 666,689 and 85,400 shares of common stock for $27.9 million and $3.0 million, respectively, to mitigate the dilutive effect of the shares issued under our stock incentive plans and Employee Stock Purchase Plan. Additionally, during the third quarter of 2003, we repurchased 948,311 shares in connection with a previously announced $100 million share repurchase program for $39.8 million. For the nine months ended September 30, 2003, we repurchased 1,756,611 shares in connection with the $100 million share repurchase program for $70.1 million. For the nine months ended September 30, 2003 and 2002, we repurchased 1,267,689 and 756,100 for $51.2 million and $29.1 million, respectively, to mitigate the dilutive effect of the shares under our stock incentive plans and Employee Stock Purchase Plan. During the first quarter of 2002, we repurchased 2.5 million shares at the market price of $85.1 million, in a privately negotiated block trade. Options to purchase 163,230 and 1,600,974 shares of common stock at September 30, 2003 and 2002, respectively, were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the current market price of the common stock. Our options generally expire 10 years after the grant date. Note 6 - Comprehensive Income Total comprehensive income for the three months and nine months ended September 30, 2003 and 2002, which includes net income and other gains and losses that affect shareholders' equity, was as follows:
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ------ ------ ------- ------ Net Income $ 28.8 $ 34.7 $ 101.0 $ 79.1 Other Comprehensive Income (Loss) Foreign Currency Translation Adjustment (6.0) 3.9 0.2 6.0 Unrealized Gains (Losses) on Investments 0.1 - - (0.2) ------ ------ ------- ------ Total Comprehensive Income $ 22.9 $ 38.6 $101.2 $ 84.9 ====== ====== ====== ======
Note 7 - Contingencies We are involved in tax and legal proceedings, claims and litigation arising in the ordinary course of business. We periodically assess our liabilities and contingencies in connection with these matters based upon the latest information available. For those matters where it is probable that we have incurred a loss and the loss or range of loss can be reasonably estimated, we have recorded reserves in our consolidated financial statements. In other instances, we are unable to make a reasonable estimate of any liability because of the uncertainties related to both the probability of the outcome and amount or range of loss. As additional information becomes available, we adjust our assessment and estimates of such liabilities accordingly. Based on our review of the latest information available, we believe our ultimate liability in connection with pending tax and legal proceedings, claims and litigation will not have a material effect on our results of operations, cash flows or financial position, with the possible exception of the matters described below. In order to understand our exposure to the potential liabilities described below, it is important to understand the relationship between us and Moody's Corporation, our predecessors and other parties that, through various corporate reorganizations and contractual commitments, have assumed varying degrees of responsibility with respect to such matters. In November 1996, the company then known as The Dun & Bradstreet Corporation ("D&B1") separated through a spin-off into three separate public companies: D&B1, ACNielsen Corporation ("ACNielsen") and Cognizant Corporation ("Cognizant") (the "1996 Distribution"). In June 1998, D&B1 separated through a spin-off into two separate public companies: D&B1, which changed its name to R.H. Donnelley Corporation ("Donnelley/D&B1"), and a new company named The Dun & Bradstreet Corporation ("D&B2") (the "1998 Distribution"). During 1998, Cognizant separated through a spin-off into two separate public companies: IMS Health Incorporated ("IMS") and Nielsen Media Research, Inc. ("NMR") (the "1998 Cognizant Distribution"). In September 2000, D&B2 separated through a spin-off into two separate public companies: D&B2, which changed its name to Moody's Corporation ("Moody's"), and a new company named The Dun & Bradstreet Corporation ("we" or "D&B3" and also referred to elsewhere in this Form 10-Q as "D&B") (the "2000 Distribution"). Tax Matters D&B2 and its predecessors entered into global tax planning initiatives in the normal course of business, principally through tax-free restructurings of both their foreign and domestic operations. The status of Internal Revenue Service reviews of these initiatives is summarized below. Pursuant to a series of agreements, IMS and NMR are jointly and severally liable for and must pay one-half, and we and Moody's are jointly and severally liable for and must pay the other half, of any payments over $137 million for taxes, accrued interest and other amounts resulting from unfavorable IRS rulings on the tax matters summarized below (other than the matter summarized below as "Amortization Expense Deductions -- 1997-2002," for which we and Moody's are solely responsible). D&B2 was contractually obligated to pay, and did pay, that $137 million in connection with the matter summarized below as "Utilization of Capital Losses -- 1989-1990." Under the terms of the 2000 Distribution, we and Moody's have agreed to each be financially responsible for 50% of any potential liabilities that may arise to the extent such potential liabilities are not directly attributable to each party's respective business operations. Utilization of Capital Losses -- 1989-1990. The IRS completed its review of the utilization of certain capital losses generated during 1989 and 1990 and, on June 26, 2000, issued a formal notice of adjustment. On May 12, 2000, an amended tax return was filed for the 1989 and 1990 tax periods, which reflected $561.6 million of tax and interest due. D&B2 paid the IRS approximately $349.3 million of this amount on May 12, 2000, and IMS paid the IRS approximately $212.3 million on May 17, 2000. The payments were made to the IRS to stop further interest from accruing. We are continuing to contest, on behalf of Donnelley/D&B1, the IRS's formal assessment and would also contest any assessment of amounts in excess of the amounts paid. Donnelley/D&B1 filed a complaint for a refund in the U.S. District Court on September 21, 2000. The case is expected to go to trial in 2004. We would share responsibility for any additional assessment, and share in any refund obtained, with IMS, NMR and Moody's, as disclosed above. Royalty Expense Deductions -- 1993-1996. In the second quarter of 2003, we received on behalf of Donnelley/D&B1 an IRS agent's examination report with respect to a partnership transaction entered into in 1993. Specifically, the IRS is disallowing certain royalty expense deductions claimed by Donnelley/D&B1 on its 1993-1996 tax returns. We estimate that the disallowance of the 1993 and 1994 royalty expense deductions would result in a loss to us of $5 million in pending tax refunds. We also estimate that the disallowance of the 1995 and 1996 royalty expense deductions would require payment from us of up to $43 million (tax, interest and penalties, net of associated tax benefits). In addition, and also in the second quarter of 2003, we received on behalf of the partnership associated with the above transaction an IRS agent's examination report challenging the tax treatment of certain royalty payments received by the partnership in which Donnelley/D&B1 was a partner. The IRS is seeking to reallocate certain partnership income to Donnelley/D&B1. Our share of this income would require an additional payment from us of $20 million (tax, interest and penalties, net of associated tax benefits). We believe that this position is inconsistent with the IRS' position with respect to the same royalty expense deductions described above. We have filed protests relating to these proposed adjustments with the IRS Office of Appeals. The parties will attempt to resolve these matters at the Appeals phase before proceeding to litigation, if necessary. If the IRS were to prevail in its position, we would share responsibility for the matter with Moody's, IMS and NMR, as disclosed above. If we, on behalf of Donnelley/D&B1, were to challenge the assessment in U.S. District Court rather than in U.S. Tax Court, the disputed amounts would need to be paid. Amortization Expense Deductions -- 1997-2002. The IRS has challenged the expense deductions with respect to a transaction entered into in 1997 by Donnelley/D&B1 that produces amortization expense deductions. While we believe the deductions are appropriate, the IRS could ultimately issue an assessment. If the IRS were to prevail or we were to challenge the assessment in U.S. District Court, we estimate that our cash payment to the IRS with respect to deductions claimed to date could be up to $49.8 million (tax, interest and penalties, net of associated tax benefits). This transaction is scheduled to expire in 2012 and, unless earlier terminated by us, our cash exposure, based on current interest rates and tax rates, would increase at a rate of approximately $2.1 million per quarter (including potential penalties) as future amortization expenses are deducted. * * * * * * * * * * We have considered the foregoing tax matters and the merits of the legal defenses and the various contractual obligations in our overall assessment of potential tax liabilities and have a reserve of $100 million recorded in the consolidated financial statements, which we believe is adequate for our share of the potential liabilities in these matters. Any payments that would be made for these exposures would be significant to us in the period a cash payment took place. Legal Proceedings Information Resources, Inc. In July 1996, Information Resources, Inc. ("IRI"), filed a complaint in the U.S. District Court for the Southern District of New York, naming as defendants D&B1, A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS International, Inc. (at the time a subsidiary of Cognizant). At the time of the filing of the complaint, each of the other defendants was a wholly-owned subsidiary of D&B1. The complaint alleges various violations of United States antitrust laws, including alleged violations of Sections 1 and 2 of the Sherman Antitrust 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 April 2003, the court denied a motion for partial summary judgement by defendants that sought to dismiss certain of IRI's claims. Discovery in the case is continuing and a trial date has been scheduled for September 2004. In connection with the 1996 Distribution, Cognizant, ACNielsen and Donnelley/D&B1 entered into an Indemnity and Joint Defense Agreement, pursuant to which they agreed to: o allocate potential liabilities ("IRI Liabilities") that may arise out of or in connection with the IRI action; and o conduct a joint defense of such action In particular, the Indemnity and Joint Defense Agreement provides that: o ACNielsen will assume exclusive liability for IRI Liabilities up to a maximum amount to be calculated at such time as such liabilities become payable (the "ACN Maximum Amount"); and o Donnelley/D&B1 and Cognizant will share liability equally for any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment banking firm as the maximum amount that ACNielsen is able to pay after giving effect to: o any plan submitted by such investment bank that is designed to maximize the claims-paying ability of ACNielsen without impairing the investment banking firm's ability to deliver a viability opinion and without requiring stockholder approval; and o payment of related fees and expenses. For these purposes, "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: o pay its debts as they become due; and o 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 2001, ACNielsen merged with VNU N.V. ("VNU"). VNU assumed ACNielsen's liabilities under the Indemnity and Joint Defense Agreement, and VNU's business is to be included for purposes of determining the ACN Maximum Amount. Under the terms of the 1998 Distribution, D&B2 assumed all potential liabilities of Donnelley/D&B1 arising from the IRI action. Under the terms of the 2000 Distribution, we undertook to be jointly and severally liable with Moody's for D&B2's obligations to Donnelley/D&B1 under the 1998 Distribution, including any liabilities arising under the Indemnity and Joint Defense Agreement. However, as agreed between each other, we and Moody's will each be responsible for 50% of any payments to be made with respect to the IRI action under the terms of the 1998 Distribution, including legal fees or expenses related to the IRI action. IMS and NMR are each jointly and severally liable for all Cognizant liabilities under the Indemnity and Joint Defense Agreement. We are unable to predict at this time the final outcome of the IRI action or the financial condition of ACNielsen and VNU at the time of any such final outcome (and hence we cannot estimate the ACN Maximum Amount and the portion of any judgment to be paid by VNU and ACNielsen under the Indemnity and Joint Defense Agreement). Therefore, we are unable to predict at this time whether the ultimate resolution of this matter could materially affect our results of operations, cash flows or financial position. No amount in respect of this matter has been accrued in our consolidated financial statements. Hoover's - Initial Public Offering Litigation On November 15, 2001, a putative shareholder class action lawsuit was filed against Hoover's, certain of its then current and former officers and directors (the "Individual Defendants"), and one of the investment banks that was an underwriter of Hoover's July 1999 initial public offering ("IPO"). The lawsuit was filed in the United States District Court for the Southern District of New York and purports to be a class action filed on behalf of purchasers of the stock of Hoover's during the period from July 20, 1999, through December 6, 2000. An Amended Complaint, which is now the operative complaint, was filed on April 19, 2002. Plaintiffs allege that the underwriter defendant agreed to allocate stock in Hoover's IPO to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases of stock in the aftermarket at predetermined prices above the IPO price. Plaintiffs allege that the Prospectus for Hoover's IPO was false and misleading in violation of the securities laws because it did not disclose these arrangements. The action seeks damages in an unspecified amount. The defense of the action is being coordinated with more than 300 other nearly identical actions filed against other companies. On July 15, 2002, Hoover's moved to dismiss all claims against it and the Individual Defendants. On October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice based upon Stipulations of Dismissal filed by the plaintiffs and the Individual Defendants. On February 19, 2003, the Court denied the motion to dismiss the complaint against Hoover's. Hoover's has approved a Memorandum of Understanding ("MOU") and related agreements setting forth the terms of a settlement between Hoover's and the plaintiff class. The MOU and related agreements are subject to a number of contingencies, including the negotiation of a settlement agreement and approval by the Court. If the settlement is ultimately approved and implemented in its current form, Hoover's reasonably foreseeable exposure in this matter, if any, would be limited to amounts which would be covered by existing insurance. If the settlement is not approved in its current form, we cannot predict the final outcome of this matter or whether such outcome or ultimate resolution of this matter could materially affect our results of operations, cash flows or financial position. No amount in respect of any potential judgment in this matter has been accrued in our consolidated financial statements. Pension Plan Litigation In March 2003, a lawsuit seeking class action status was filed against us in federal court in Connecticut on behalf of 46 specified former employees. The complaint, as amended in July 2003 (the "Amended Complaint"), sets forth the following putative class: o current D&B employees who are participants in the Dun & Bradstreet Corporation Retirement Account and were previously participants in its predecessor plan, The Dun & Bradstreet Master Retirement Plan; o current employees of Receivable Management Services Corporation ("RMSC") who are participants in The Dun & Bradstreet Corporation Retirement Account and were previously participants in its predecessor plan, The Dun & Bradstreet Master Retirement Plan; o former employees of D&B or D&B's receivable management services ("RMS") operations who received a deferred vested retirement benefit under either the Dun & Bradstreet Corporation Retirement Account or The Dun & Bradstreet Master Retirement Plan; and o former employees of D&B's RMS operations whose employment with D&B terminated after the sale of the RMS operations but who are not employees of RMSC and who, during their employment with D&B, were "Eligible Employees" for purposes of The Dun & Bradstreet Career Transition Plan. The Amended Complaint estimates that the proposed class covers over 5,000 individuals. There are four counts in the Amended Complaint: Count 1 claims that we violated ERISA by not paying severance benefits to plaintiffs under our Career Transtion Plan. Count 2 claims a violation of ERISA in that our sale of the RMS business to RMSC and the resulting termination of our employees constituted a prohibited discharge of the plaintiffs and/or discrimination against the plaintiffs for the "intentional purpose of interfering with their employment and/or attainment of employee benefit rights which they might otherwise have attained." Count 3 claims that the plaintiffs were materially harmed by our alleged violation of ERISA's requirements that a summary plan description reasonably apprise participants and beneficiaries of their rights and obligations under the plans and that, therefore, undisclosed plan provisions (in this case, the actuarial deduction beneficiaries incur when they leave D&B before age 55 and elect to retire early) cannot be enforced against them. Count 4 claims that the 6 3/5% interest rate (the rate is actually 6 3/4%) used to actuarially reduce early retirement benefits is unreasonable and, therefore, results in a prohibited forfeiture of benefits under ERISA. The plaintiffs purport to seek payment of severance benefits; equitable relief in the form of either reinstatement of employment with D&B or restoration of employee benefits (including stock options); invalidation of the actuarial reductions applied to deferred vested early retirement benefits, including invalidation of the plan rate of 6 3/5% (the actual rate is 6 3/4%) used to actuarially reduce former employees' early retirement benefits; attorneys' fees and such other relief as the court may deem just. We deny all allegations of wrongdoing and are aggressively defending the case. In September 2003, we filed a motion to dismiss a majority of the claims in the Amended Complaint on the ground that plaintiffs cannot prevail with respect to those claims under any set of facts. We are unable to predict at this time the final outcome of this matter or whether the resolution of this matter could materially affect our results of operations, cash flows or financial position. No amount in respect of this matter has been accrued in our consolidated financial statements. Note 8 - Acquisition On March 3, 2003, we acquired Hoover's, Inc. with cash on hand. The results of Hoover's operations have been included in our consolidated financial statements since that date. Hoover's provides industry and market intelligence on public and private companies, primarily to sales, marketing and business development professionals. The transaction was valued at $7.00 per share in cash, for a total of $119.4 million. In addition, we capitalized $3.3 million of transaction costs in accordance with SFAS No. 141. The acquisition was accounted for under the purchase method of accounting. The purchase price was allocated to the acquired assets and liabilities on the basis of respective fair value. As a result, we recognized goodwill and intangible assets of $66.4 million and $14.5 million, respectively. The goodwill was assigned to our North America segment. Of the $14.5 million of acquired intangible assets, $5.1 million was assigned to trademarks and tradenames that are not subject to amortization and $9.4 million was assigned to subscriber relationships and licensing agreements with useful lives from one to five years. We are in the process of finalizing the valuation of the acquired deferred tax asset in connection with the acquisition. As a result, the allocation of the purchase price is subject to refinement. On April 30, 2003, we paid $6.2 million to acquire controlling interests in three privately-held Italian real estate data companies: 100% interests in Italservice Bologna S.r.l. and Datanet S.r.l. and a 51% interest in RDS S.r.l. In addition, we paid $1.9 million to acquire 17.5% of RIBES S.p.A., a leading provider of business information to Italian banks. As a result, together with the minority interest held by our subsidiary Data House S.p.A., our interest in RIBES S.p.A. increased to 35%. The transaction was funded with cash on hand. The Italian acquisitions were accounted for under the purchase method of accounting in accordance with SFAS No. 141. The purchase price for controlling interests of the three companies, together with the capitalized transaction costs allowed under SFAS No. 141, was allocated to the acquired assets and liabilities on the basis of respective fair value. As a result, goodwill of $7.2 million was recognized and assigned to our International segment. The impact that the Hoover's, Inc. and Italian acquisitions would have had on our results had the acquisitions occurred at the beginning of 2003 is not deemed significant as defined by accounting requirements and, as such, pro-forma results have not been presented. Note 9 - Divestitures Sale of Our European Headquarters Building On July 31, 2003, we sold our High Wycombe, England, building and received proceeds of $80.2 million. We continue to operate from a portion of the building under a multi-year lease after the sale. We recognized a pre-tax loss on the sale of the building of $13.8 million within Operating Costs. Sale of Our Israeli Operations On July 31, 2003, we sold our Israeli operations and recognized a pre-tax loss of $4.3 million in "Other Income (Expense) - Net". Sale of Singapore Investment On July 2, 2003, we sold the equity interest in our Singapore investment and recognized a pre-tax gain of $1.8 million in "Other Income (Expense) - Net". Note 10 - Segment Information We have consolidated the management of all international activities into a single management structure and, effective January 1, 2003, began managing our businesses in Europe, Africa and Middle East region ("Europe") and Asia Pacific and Latin America region ("APLA") as one segment, "International." Since introducing our Blueprint for Growth strategy, we have significantly reduced our investment in the APLA region through the sales of certain businesses and the contribution of other businesses into minority investments. We have reclassified prior period presentations to conform to this revised segment reporting. For internal management purposes, we use total revenue excluding the revenue of divested businesses, which we refer to as "core revenue," to manage and evaluate the performance of our business, because it reflects revenue from our ongoing operations. Core revenue includes the revenue from acquired businesses from the date of acquisition.
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- Operating Revenues: North America $ 229.2 $ 212.2 $ 685.0 $ 667.1 International 103.1 86.7 297.0 252.4 ----- ---- ----- ----- Consolidated Total $ 332.3 $ 298.9 $ 982.0 $ 919.5 ======== ======== ======== ======== Operating Income (Loss): North America $ 75.3 $ 67.6 $ 224.0 $ 213.8 International 10.8 7.8 28.5 17.9 ----- ---- ----- ----- Total Divisions 86.1 75.4 252.5 231.7 All Other (1) (32.0) (16.6) (81.7) (83.1) ----- ---- ----- ----- Consolidated Total 54.1 58.8 170.8 148.6 Non-Operating Income (Expense)-- Net (6.9) (2.4) (8.4) (14.8) ----- ---- ----- ----- Income before Provision for Income Taxes $ 47.2 $ 56.4 $ 162.4 $ 133.8 ======== ======== ======== ======== (1) The following table itemizes "All Other" Corporate Costs $ (9.9) $ (8.0) $ (30.9) $ (26.9) Transition Costs (6.7) (8.6) (19.6) (25.3) Restructuring Expense (1.6) - (17.4) (30.9) High Wycombe, England, Building Sale (13.8) - (13.8) - ----- ---- ----- ----- Total Other $ (32.0) $ (16.6) $ (81.7) $ (83.1) ======== ======== ======== ========
Supplemental Geographic and Product Line Information:
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- Geographic and Product Line Revenues: North America: Risk Management Solutions $ 149.5 $ 146.5 $ 454.2 $ 451.9 Sales & Marketing Solutions 63.7 60.2 191.9 198.7 Supply Management Solutions 7.7 5.5 20.0 16.5 E-Business Solutions 8.3 - 18.9 - ---------- ---------- --------- --------- Core Revenue 229.2 212.2 685.0 667.1 Divested Businesses - - - - ---------- ---------- --------- --------- Total North America $ 229.2 $ 212.2 $ 685.0 $ 667.1 ---------- ---------- --------- --------- International: Risk Management Solutions $ 81.6 $ 68.7 $ 239.1 $ 197.6 Sales & Marketing Solutions 17.3 14.3 47.4 44.6 Supply Management Solutions 2.2 1.3 7.2 5.7 ---------- ---------- --------- --------- Core Revenue 101.1 84.3 293.7 247.9 Divested Businesses 2.0 2.4 3.3 4.5 ---------- ---------- --------- --------- Total International $ 103.1 $ 86.7 $ 297.0 $ 252.4 ---------- ---------- --------- --------- Consolidated Operating Revenues: Risk Management Solutions $ 231.1 $ 215.2 $ 693.3 $ 649.5 Sales & Marketing Solutions 81.0 74.5 239.3 243.3 Supply Management Solutions 9.9 6.8 27.2 22.2 E-Business Solutions 8.3 - 18.9 - ---------- ---------- --------- --------- Core Revenue 330.3 296.5 978.7 915.0 Divested Businesses 2.0 2.4 3.3 4.5 ---------- ---------- --------- --------- Total Revenue $ 332.3 $ 298.9 $ 982.0 $ 919.5 ========== ========== ========= ========= September 30, December 31, Assets: 2003 2002 ---- ---- North America $ 425.3 $ 366.0 International 445.4 493.1 ---------- --------- Total Divisions 870.7 859.1 All Other (primarily U.S. pensions and taxes) 635.7 668.6 ---------- --------- Total Assets $ 1,506.4 $ 1,527.7 ========== ========= September 30, December 31, Goodwill: 2003 2002 ---- ---- North America $ 118.0 $ 51.6 International 127.4 131.7 ---------- --------- Total Goodwill $ 245.4 $ 183.3 ========== =========
Note 11 - Subsequent Events Sale of Nordic Operations On October 9, 2003, we signed an agreement to sell our operations in Sweden, Denmark, Norway, and Finland to Bonnier Affarsinformation AB ("Bonnier Business Information") for approximately $40 to $43 million. We expect to recognize a one-time pre-tax gain of approximately $8 to $11 million at the time the transaction closes. Our Nordic operations generated approximately $44 million in revenue in 2002. We expect the transaction to close in December 2003, subject to regulatory approvals and customary closing conditions, which would be a first quarter 2004 event for our International segment as a result of their November 30 fiscal year end. We have reclassified the assets and liabilities relating to the Nordic operations to Assets and Liabilities Held for Sale in our Consolidated Balance Sheet as of September 30, 2003. Assets Held for Sale of $36.1 million is primarily made up of accounts receivable, other intangible assets, and goodwill. Liabilities Held for Sale of $10.8 million is primarily made up of accounts payable, accrued liabilities, and deferred revenue. The Assets and Liabilities Held for Sale are subject to change through the closing of the transaction. The Nordic operations belong to our International segment. Postretirement Benefits In the fourth quarter of 2003, an amendment was made to D&B's Postretirement Benefit Plan. Starting January 1, 2004, we will limit the amount of our insurance premium contribution based on the amount D&B contributed in 2003 per retiree. This change is expected to reduce our postretirement benefit obligation by approximately $85 million, subject to changes in economic condition and the action plan experience. This non cash reduction will be amortized over the next five to six years, reducing the annual postretirement benefit costs by approximately $17 million a year and approximately $3 million in the fourth quarter 2003. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations How We Evaluate Performance For internal management purposes, we use total revenue excluding the revenue of divested businesses, which we refer to as "core revenue," to manage and evaluate the performance of our business, because it reflects revenue from our ongoing operations. Core revenue includes the revenue from acquired businesses from the date of acquisition. We also isolate the effects of changes in foreign exchange rates on our business. While we take steps to manage our exposure to foreign currency, we believe that changes in revenue growth due to exchange rate movements are not reflective of our underlying business performance. As a result, we monitor our core revenue growth both including and excluding the effects of foreign exchange. We refer to these measures as revenue growth "after the effects of foreign exchange" and "before the effects of foreign exchange," respectively. We evaluate our results excluding restructuring charges (whether recurring or non-recurring) and certain other items that we believe do not reflect our underlying business performance (which we refer to as "non-core gains and charges"). For the third quarter 2003, these non-core gains and charges were restructuring charges of $1.6 million and a loss on the sale of our High Wycombe, England, building of $13.8 million. There were no non-core gains and charges for the third quarter 2002. For the nine months ended September 30, 2003, non-core gains and charges were $17.4 million of total restructuring charges, $13.8 million representing the loss on the High Wycombe, England, building offset by $7.0 million of insurance recovery related to the World Trade Center tragedy. For the nine months ended September 30, 2002, non-core gains and charges were restructuring charges of $30.9 million. We believe these measures are useful to you because they reflect how we manage our business. While we use these measures for the reasons stated above, these measures are not prepared in accordance with US GAAP and should not be considered in isolation or as substitutes for results prepared in accordance with US GAAP. In addition, you should note that because not all companies calculate these financial measures similarly or at all, the presentation of these measures is not likely to be comparable to measures of other companies. We also evaluate the profitability of our business segments before certain operating charges. Restructuring and transition costs are managed at the corporate level, and therefore, such amounts are not included in our segment results. Transition costs, which are period costs such as consulting fees, costs of temporary employees, relocation costs and stay bonuses incurred to implement the Financial Flexibility component of our strategy, are reported as Corporate and Other expenses. Non-operating income or expenses are also managed at the corporate level, and therefore, such amounts are also excluded from segment results. Overview Our discussion and analysis of our financial condition and results of operations for the third quarter 2003, and for the nine months ended September 30, 2003, are based upon D&B's unaudited consolidated financial statements for that period. The consolidated results for interim periods are not necessarily indicative of results for the full year or any subsequent period. Our financial statements should be read in conjunction with the consolidated financial statements and related notes, and management's discussion and analysis of financial condition and results of operations, which appear in D&B's Annual Report on Form 10-K for the year ended December 31, 2002. D&B provides the information, tools and expertise to help customers "Decide with ConfidenceTM." On January 1, 2003, we began managing our businesses in two operating segments: o U.S. and Canada, which we refer to as "North America," is our largest segment, contributing 69% and 70% of our core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively; o Europe, Asia Pacific and Latin America, which we refer to as "International," representing 31% and 30% of our core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively. In each segment, D&B's core product lines are: Risk Management Solutions, Sales & Marketing Solutions and Supply Management Solutions. o Risk Management Solutions-- our largest solution set, contributed 70% and 71% of our core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively; o Sales & Marketing Solutions-- our next largest solution set, contributed 25% and 24% of our core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively; o Supply Management Solutions-- one of our smaller solution sets, contributed 3% of our core revenue for the third quarter 2003 and nine months ended September 30, 2003. The core product lines, or customer solution sets, are discussed in greater detail in "Item 1. Business" of our Form 10-K for the year ended December 31, 2002. In addition, beginning with our first quarter 2003, we began reporting a fourth core product line, E-Business Solutions, representing the results of Hoover's, Inc. since we acquired the business on March 3, 2003. E-Business Solutions contributed 2% of our core revenue for the third quarter 2003 and nine months ended September 30, 2003, and is included in our North American segment results. In 2001, we launched a series of E-Business offerings in North America that provide access to, and delivery of, D&B products via the web. We continue to report the results of these product offerings in our Risk Management Solutions and Sales & Marketing Solutions product lines. Within our Risk Management Solutions and our Sales & Marketing Solutions, we monitor the performance of our older, more "traditional" products and our newer, "value-added products," because we expect the value-added products to be primary drivers of D&B's future revenue growth within these solution sets. Our traditional Risk Management Solutions generally consist of reports derived from our database which are used primarily for making decisions about new credit applications. An example is our Business Information Report, or BIR. Our traditional Risk Management Solutions constituted 83% of our Risk Management Solutions core revenue for the third quarter 2003 and nine months ended September 30, 2003. Traditional Risk Management Solutions constituted 58% and 59% of D&B's core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively. Our value-added Risk Management Solutions generally support automated decision-making and portfolio management through the use of scoring and integrated software solutions. Our value-added Risk Management Solutions constituted 17% of our Risk Management Solutions core revenue for the third quarter 2003 and nine months ended September 30, 2003. Value-added Risk Management Solutions constituted 12% of D&B's core revenue for the third quarter 2003 and nine months ended September 30, 2003. Our traditional Sales & Marketing Solutions generally consist of marketing lists, labels and customized data files used by our customers in their direct mail and direct marketing activities, and constituted 62% and 59% of our Sales & Marketing Solutions core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively. Traditional Sales & Marketing constituted 16% and 14% of D&B's core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively. Our value-added Sales & Marketing Solutions generally include automated decision-making and customer information management solutions, and constituted 38% and 41% of our Sales & Marketing Solutions core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectivley. Value-added Sales & Marketing Solutions constituted 9% and 10% of D&B's core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively. By utilizing our proprietary DUNSRight (TM) process we continue to provide customers with quality information whenever and wherever they need it. The DUNSRight (TM) quality process allows us to achieve best-in-class data quality. The process includes collecting data from multiple sources and enhancing it into insightful information that drives profitable decisions. The process consists of quality assurance plus five quality drivers: Global Data Collection, Entity Matching, the D-U-N-S (R) Number, Corporate Linkage, and Predictive Indicators. The DUNSRight (TM) quality process has been a key enabler of progress to date and will continue to be crucial to our growth going forward. Recently Issued Accounting Standards See Note 2 to our consolidated financial statements for disclosure of the impact that recently issued accounting standards will have on our financial statements. Results of Operations The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, and should be read in conjunction with those financial statements and footnotes, which have been prepared in accordance with US GAAP. Consolidated Revenues The following tables present our revenue by segment and product line for the third quarter 2003 and 2002 and for the nine months ended September 30, 2003 and 2002. Additionally, these tables reconcile the non-GAAP measures of core revenue, both before and after the effect of foreign exchange, and total revenue before the effect of foreign exchange, to the GAAP measure of total revenue.
Growth (Decline) Growth (Decline) vs. Prior Year Less: vs. Prior Year Three Months Ended Period After Effects of Period Before September 30, Effects of Foreign Foreign Effects of Foreign 2003 2002 Exchange Exchange Exchange ---- ---- (Amounts in millions) Revenues by Segment: North America $229.2 $212.2 8% - 8% International 101.1 84.3 20% 14% 6% ----- ---- Core Revenue 330.3 296.5 11% 4% 7% Divested Businesses 2.0 2.4 (14%) 7% (21%) --- --- Total Revenue $332.3 $ 298.9 11% 4% 7% ====== =======
Growth (Decline) Growth (Decline) vs. Prior Year Less: vs. Prior Year Three Months Ended Period After Effects of Period Before September 30, Effects of Foreign Foreign Effects of Foreign 2003 2002 Exchange Exchange Exchange ---- ---- (Amounts in millions) Revenues by Product Line: Risk Management Solutions $ 231.1 $215.2 7% 5% 2% Sales & Marketing Solutions 81.0 74.5 9% 3% 6% Supply Management 9.9 6.8 45% 5% 40% Solutions E-Business Solutions 8.3 - N/M N/M N/M --- --- Core Revenue 330.3 296.5 11% 4% 7% Divested Businesses 2.0 2.4 (14%) 7% (21%) --- --- Total Revenue $332.3 $298.9 11% 4% 7% ====== ======
Growth (Decline) Growth (Decline) vs. Prior Year Less: vs. Prior Year Nine Months Ended Period After Effects of Period Before September 30, Effects of Foreign Foreign Effects of Foreign 2003 2002 Exchange Exchange Exchange ---- ---- (Amounts in millions) Revenues by Segment: North America $685.0 $667.1 3% 1% 2% International 293.7 247.9 19% 17% 2% ----- ----- Core Revenue 978.7 915.0 7% 5% 2% Divested Businesses 3.3 4.5 (26%) 4% (30%) --- --- Total Revenue $ 982.0 $ 919.5 7% 5% 2% ======= =======
Growth (Decline) Less: Growth (Decline) vs. Prior Year Effects vs. Prior Year Nine Months Ended Period After of Period Before September 30, Effects of Foreign Foreign Effects of Foreign 2003 2002 Exchange Exchange Exchange ---- ---- (Amounts in millions) Revenues by Product Line: Risk Management Solutions $ 693.3 $649.5 7% 6% 1% Sales & Marketing Solutions 239.3 243.3 (2%) 2% (4%) Supply Management Solutions 27.2 22.2 22% 5% 17% E-Business Solutions 18.9 - N/M N/M N/M ---- --- Core Revenue 978.7 915.0 7% 5% 2% Divested Businesses 3.3 4.5 (26%) 4% (30%) --- --- Total Revenue $ 982.0 $919.5 7% 5% 2% ======= ======
Three Months Ended September 30, 2003 For the three months ended September 30, 2003, core revenue increased $33.8 million, or 11% (including four percentage points of growth from favorable movements in foreign exchange rates and five percentage points from acquisitions), compared with the three months ended September 30, 2002. The revenue increase was driven by revenue growth in North America of $17.0 million and International of $16.8 million, or 8% and 20% (including 14 percentage points of growth from favorable movements in foreign exchange rates, for International), respectively. Total revenue for the third quarter 2003 includes revenue from our Israel business, which was divested in the third quarter 2003. Total revenue for the third quarter 2002 includes revenue from our Israeli business and Korean business (which was divested in the fourth quarter 2002). On a product-line basis, our core revenue results in the third quarter of 2003 versus the third quarter of 2002 reflect: o a $15.9 million, or 7%, growth in Risk Management Solutions, including five percentage points of growth from favorable movements in foreign exchange rates and three percentage points of growth due to the acquisition of Data House and the Italian real estate acquisitions. Traditional Risk Management Solutions grew 6%, and our value-added Risk Management Solutions grew 14%, benefiting by five and four percentage points of growth due to the effects of foreign exchange, respectively. Traditional Risk Management Solutions continues to contribute to this improvement through our enhanced BIR product which was released in the second quarter 2003, at a higher price, as well as the growth in other traditional products including Comprehensive Report, Self-Analysis, and Monitoring. This growth has been partially offset in our International segment by the continued competition in some of our larger markets, as well as competitive pricing pressures on some of our low-end products. In our value-added Risk Management Solutions, our portfolio management solutions products continued to perform well in the United States, which reflects the benefits from our recent investment spending in Enterprise Risk Assessment Manager, that help customers manage their credit portfolios. The increase in value-added Risk Management Solutions can also be attributed to our customers' preference to continue to automate their decision making process through products such as Global Decision Maker, and integrate their existing systems using Toolkit and Data Integrator solutions. o a $6.5 million, or 9%, increase in Sales & Marketing Solutions, including three percentage points of favorable movement in foreign exchange rates. Traditional Sales & Marketing Solutions grew 2%, while our value-added Sales & Marketing Solutions grew 21%. Both growth rates are reflecting two percentage points of growth from foreign exchange. The overall growth in Sales & Marketing Solutions is largely driven by the improvement in value-added sales in our North America segment and traditional product sales in our International segment. Contributing to the improvement in North America were two of our larger value-added products, Customer Information Management products and our high-end prospecting solutions, including Market Spectrum. o a $3.1 million, or 45%, increase in Supply Management Solutions on a small base, reflecting investment spending and five percentage points of growth from favorable movements in foreign exchange rates. This growth came from both our North America and International segments. Within North America the increase reflects the trend of customers focusing on improving their operating results through the optimization of the procurement process. The growth in our International segment is driven by increased sales of our Data Rationalization and Spend Analysis products. o $8.3 million of revenue from E-Business Solutions, representing the results of Hoover's, Inc. We continue to see growth in this product line as a result of an increase in the subscriber base. Nine Months Ended September 30, 2003 For the nine months ended September 30, 2003, core revenue increased $63.7 million, or 7% (including five percentage points of growth from favorable movements in foreign exchange rates and four percentage points from acquisitions), compared with the nine months ended September 30, 2002. The revenue increase was driven by revenue growth in both our North America segment of $17.9 million, or 3% (including one percentage point of growth from favorable movements in foreign exhange rates), and our International segment of $45.8 million, or 19% (including 17 percentage points of growth from favorable movements in foreign exhange rates). Total revenue for the nine months ended September 30, 2003 includes revenue from our Israel business which was divested in the third quarter 2003. Total revenue for the nine months ended September 30, 2002 includes revenue from our Israeli business and Korean business (which was divested in the fourth quarter 2002). On a product-line basis, our core revenue results for the nine months ended September 30, 2003 versus the nine months ended September 30, 2002 reflect: o a $43.8 million, or 7%, growth in Risk Management Solutions, including six percentage points of growth from favorable movements in foreign exchange rates and three percentage points of growth due to the acquisition of Data House and the Italian real estate acquisitions. For the nine months ended September 30, 2003, Risk Management Solutions was up 1% before the effects of foreign exchange, driven by the improved third quarter results in both North America and International. o a $4.0 million, or 2%, decrease in Sales & Marketing Solutions, including two percentage points of favorable movement in foreign exchange rates. The 4% decline in Sales & Marketing Solutions, before the effects of foreign exchange, reflects the continued improved results in the third quarter from a 6% decline, including three percentage points of favorable impacts from foreign exchange, or a 9% decline before the effects of foreign exchange, in the six months ended June 30, 2003. o a $5.0 million, or 22%, increase in Supply Management Solutions on a small base, reflecting investment spending and five percentage points of growth from favorable movements in foreign exchange rates. This growth came from both our North America and International segments, primarily driven by customers focusing on improving their operating results through the optimization of the procurement process. o $18.9 million of revenue from E-Business Solutions, representing the results of Hoover's, Inc. We continue to see growth in this product line as a result of an increase in the subscriber base. Consolidated Operating Costs The following table presents our consolidated operating costs and operating income for the quarter and nine months ended September 30, 2003 and 2002:
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- (Amounts in millions) (Amounts in millions) Operating Expenses $117.8 $100.3 $325.7 $311.3 Selling and Administrative Expenses 144.2 118.9 421.6 368.4 Depreciation and Amortization 14.6 20.9 46.5 60.3 Restructuring Charge 1.6 - 17.4 30.9 --------------- -------------- -------------- --------------- Operating Costs $ 278.2 $ 240.1 $811.2 $770.9 =============== ============== ============== =============== Operating Income $ 54.1 $ 58.8 $170.8 $148.6 =============== ============== ============== ===============
Operating expenses of $117.8 million for the three months ended September 30, 2003 were up 18% compared to the three months ended September 30, 2002. The increase was primarily due to the loss of $13.8 million on the sale of our High Wycombe, England, building in July 2003. On a year-to-date basis, operating expenses increased 5% to $325.7 million. The increase was primarily due to the loss of $13.8 million on the sale of our High Wycombe, England, building. Selling and administrative expenses increased 21% to $144.2 million in the third quarter of 2003, compared with $118.9 million in the third quarter of 2002. The increase was primarily due to additional costs related to revenue generating investments, such as additions to our sales force to improve our marketplace coverage in Sales & Marketing Solutions as well as additional costs (such as commissions) incurred as a result of increased revenues. Additionally, we have increased our expense base as a result of consolidating the Hoover's, Inc., Data House, and three Italian real estate acquisitions. The increase in the costs mentioned above was partially offset by administrative cost savings such as lower compensation costs achieved through our Financial Flexibility program. On a year-to-date basis, selling and administrative expenses increased 14% to $421.6 million. The increase was primarily due to additional costs as a result of the Hoover's, Inc, Data House, and three Italian real estate acquisitions. Also contributing to the increase were costs relating to revenue generating investments, such as additions to our sales force to improve our marketplace coverage in Sales & Marketing Solutions as well as additional costs incurred as a result of increased revenues. We had net pension income of $5.3 million and $13.8 million for the three and nine months ended September 30, 2003, respectively, compared to $7.8 million and $25.2 million for the three and nine months ended September 30, 2002, respectively. We consider this amount to be part of our compensation costs and, therefore, net pension income is included in operating expenses and in selling and administrative expenses, based upon the classification of the underlying compensation costs. Higher non-cash pension costs resulting from changes in the actuarial assumptions for the U.S. Retirement Plan have resulted in the decline in net pension income compared to 2002. Depreciation and amortization decreased 30% to $14.6 million for the third quarter 2003, compared to $20.9 million for the third quarter 2002. The decrease in the third quarter 2003 was largely driven by the sale of our facilities in Berkeley Heights and Murray Hill, New Jersey in 2002 and lower capitalized spending in 2003. The lower capital spending is a result of D&B delivering more of our products over the web and in turn, investment projects are becoming less capital intensive. Year-to-date depreciation and amortization decreased by 23% to $46.5 million, compared to $60.3 million for the nine months ended September 30, 2002. The decrease in the nine months ended September 30, 2003 was the result of the same factors that affected the third quarter of 2003. During the third quarter of 2003, we recognized a $1.6 million charge in connection with the fourth phase of our Financial Flexibility program for severance and termination costs. This completes the charges for the fourth phase of our Financial Flexibility program. As of September 30, 2003, we have terminated approximately 3,200 employees under all four phases of the Financial Flexibility program, including the approximately 400 employees who were transitioned to Computer Sciences Corporation ("CSC") in connection with the outsourcing of certain technology functions. This will bring the total number of employees terminated (via termination and voluntary attrition) in connection with the four phases of the Financial Flexibility program, since its inception in October 2000, to approximately 3,200, reflecting the elimination of 3,500 positions (including 300 open positions). Year-to-date restructuring charges of $17.4 million have been recognized in connection with the fourth phase of our Financial Flexibility program. As of September 30, 2003 we have recorded $17.1 million for severance and termination costs related to approximately 500 employees and $0.3 million for lease termination obligations. Total restructuring charges are down 44% from prior year levels due primarily to the $10.6 million of asset write-offs recognized as part of the third phase of our Financial Flexibility program in connection with the sale of our Berkeley Heights facility to CSC during the second quarter of 2002. In accordance with SFAS No. 87 and SFAS No. 88, we are required to recognize a one-time curtailment charge for the estimated pension expense impact to the Dun & Bradstreet Corporation Retirement Account (the "U.S. Qualified Plan") related to the headcount actions of the fourth phase of our Financial Flexibility program announced on January 13, 2003. The curtailment accounting requirement of SFAS No. 88 requires us to recognize immediately a pro-rata portion of the unrecognized prior service cost and the cost of any special charges related to benefit enhancements that might occur as a result of the layoffs (e.g., full vesting). For the U.S. Qualified Plan, these items together resulted in an immediate curtailment charge to earnings of $0.5 million in first quarter 2003, included in the $17.1 million charge for severance and termination costs above. Interest Income (Expense) -- Net The following table presents our net interest income and expense for the quarter and nine months ended September 30, 2003 and 2002:
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- (Amounts in millions) (Amounts in millions) Interest Income $1.1 $0.7 $2.7 $2.0 Interest Expense (4.8) (4.9) (14.0) (14.8) --------------- -------------- --------------- --------------- Interest Expense - Net $(3.7) $(4.2) $(11.3) $(12.8) =============== ============== =============== ===============
For the three months ended September 30, 2003, interest income increased $0.4 million and interest expense decreased $0.1 million. For the nine months ended September 30, 2003, interest income increased $0.7 million and interest expense decreased $0.8 million. The increases in interest income were primarily due to additional invested amounts of our combined cash and marketable securities, both short and long term, while the decreases in interest expense were primarily due to lower interest rates. Other Income (Expense) -- Net The following table presents our "Other Income (Expense) -- Net" for the quarter and nine months ended September 30, 2003 and 2002:
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- (Amounts in millions) (Amounts in millions) Miscellaneous Other Income (Expense) - Net $(0.7) $(0.8) $ (1.6) $(1.7) Insurance Recovery related to World Trade Center Tragedy - - 7.0 - Loss on Sale of Israel Business (4.3) - (4.3) - Investment write-off of Avantrust, LLC - - - (2.9) Gain on Sale of Equity Interests in Singapore Business 1.8 2.6 1.8 2.6 --------------- -------------- --------------- --------------- $(3.2) $1.8 $2.9 $(2.0) =============== ============== =============== ===============
For the three months ended September 30, 2003, Other Income (Expense) - Net decreased $5.0 million, primarily due to the loss on the sale of our Israel business in the third quarter 2003 combined with the gain on the sale of equity interests in our Singapore business during the third quarter 2002. These were partially offset by the gain on the sale of equity interests in our Singapore business in the third quarter 2003. For the nine months ended September 30, 2003, Other Income (Expense) - Net increased $4.9 million, primarily due to receipt of a $7.0 million settlement on an insurance claim to recover losses related to the events of September 11, 2001 and our $1.8 million gain on the sale of equity interests in our Singapore business. These items were partially offset by the $4.3 million loss on the sale of our Israel business in the third quarter 2003. Provision for Income Taxes D&B's effective tax rate was 38.7% for the third quarter of 2003, negatively impacted by the non-deductibility of certain costs related to the sale of our High Wycombe, England, building (3.4 points) and the non-deductibility in some countries of certain items included within the restructuring charge (0.6 points), partially offset by a tax benefit related to the sale of our Israeli operations (2.3 points) and the benefits of state tax planning initiatives and global tax planning (1.5 points). Our effective tax rate for the third quarter of 2002 was 38.5% and had no material items impacting the effective rate. For the nine months ended September 30, 2003 our effective tax rate was 37.7%. The effective tax rate for 2003 has been negatively impacted by the non-deductibility of certain costs related to the sale of our High Wycombe, England, building (1.2 points) and the non-deductibility in some countries of certain items included within the restructuring charge (0.4 points), partially offset by a tax benefit related to the sale of our Israeli operations (0.9 points) and the benefits of state tax planning initiatives and global tax planning (1.0 points). The effective tax rate for the nine months ended September 30, 2002 was 39.6%, negatively impacted by the non-deductibility in some countries of certain items included within the restructuring charge (1.6 points). Equity in Net Losses of Affiliates There were no material amounts recorded as Equity in Net Losses of Affiliates in 2003. For the nine months ended September 30, 2002 we recorded $1.7 million as Equity in Net Losses of Affiliates. These net losses were primarily related to Avantrust LLC, our joint venture with American International Group, Inc. In the second quarter 2002, we exited Avantrust LLC. Earnings per Share We reported earnings per share, or EPS, in the quarter and nine months ended September 30, 2003 and 2002, as follows:
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- Basic Earnings Per Share $0.39 $0.47 $1.36 $1.06 ===== ===== ===== ===== Diluted Earnings Per Share $0.38 $0.45 $1.32 $1.03 ===== ===== ===== =====
For the three months ended September 30, 2003, basic EPS decreased 17%, compared with the third quarter of 2002, resulting from a 17% decrease in net income. Diluted EPS decreased 16%, compared with the third quarter of 2002, also primarily driven by a 17% decrease in net income partially offset by a 1% reduction in the weighted average number of diluted shares outstanding. The decreases in EPS were driven by the loss on the sale of our High Wycombe, England, building of $13.8 million. In addition, for the quarter ended September 2003 we had a restructuring charge of $1.6 million as compared to no restructuring charge in the quarter ended September 2002. For the nine months ended September 30, 2003, basic EPS increased 28%, compared with the nine months ended September 30, 2002, reflecting a 28% increase in net income. Diluted EPS increased 28%, compared with the nine months ended September 30, 2002, also primarily driven by a 28% increase in net income and a 1% reduction in the weighted average number of diluted shares outstanding. The primary driver in EPS growth is growth from operations and the $7.0 million settlement on an insurance claim to recover losses related to the events of September 11, 2001. Partially offsetting the growth was the $13.8 million loss on the sale of our High Wycombe, England, building and the $17.4 million restructuring charge, both in 2003, and the $30.9 million restructuring charge in 2002. Segment Results We have consolidated the management of all international activities into a single management structure and, effective January 1, 2003, began managing our businesses in Europe and APLA as one segment, "International." Since introducing our Blueprint for Growth strategy, we have significantly reduced our investment in the APLA region through the sales of certain businesses and the contribution of other businesses into minority investments. We have reclassified prior period presentations to conform to this revised segment reporting. North America North America is our largest segment, representing 69% and 70% of our core revenue for the third quarter 2003 and nine months ended September 30, 2003, respectively. The following tables present our North American product line revenue for the quarter and nine months ended September 30, 2003 and 2002. The tables also reconcile the non-GAAP measure of revenue before the effect of foreign exchange to the GAAP measure of total revenue.
Growth (Decline) Growth (Decline) vs. Prior Year Less: vs. Prior Year Three Months Ended Period After Effects of Period Before September 30, Effects of Foreign Effects of Foreign 2003 2002 Foreign Exchange Exchange Exchange ---- ---- (Amounts in millions) Revenues: Risk Management Solutions $149.5 $ 146.5 2% - 2% Sales & Marketing Solutions 63.7 60.2 6% - 6% Supply Management Solutions 7.7 5.5 38% - 38% E-Business Solutions 8.3 - N/M N/M N/M ------ ------ Total North America Revenue $229.2 $212.2 8% - 8% ====== ======
Growth (Decline) Growth (Decline) vs. Prior Year Less: vs. Prior Year Nine Months Ended Period After Effects of Period Before September 30, Effects of Foreign Effects of Foreign 2003 2002 Foreign Exchange Exchange Exchange ---- ---- (Amounts in millions) Revenues: Risk Management Solutions $454.2 $ 451.9 1% 1% 0% Sales & Marketing Solutions 191.9 198.7 (3%) 1% (4%) Supply Management Solutions 20.0 16.5 20% - 20% E-Business Solutions 18.9 - N/M N/M N/M ------ ------ Total North America Revenue $ 685.0 $ 667.1 3% 1% 2% ======= =======
Three Months Ended September 30, 2003 North American revenue increased $17.0 million, or 8%, from the third quarter of 2002. The increase is due to increased revenue in all of our product lines. The acquisition of Hoover's, Inc. contributed an additional $8.3 million, or four percentage points of growth. On a product-line basis, North America's core revenue results reflect: o a $3.0 million, or 2%, increase in Risk Management Solutions. Traditional Risk Management Solutions, which accounted for 79% of total North American Risk Management Solutions, was flat. Value-added Risk Management Solutions increased 9%, as our portfolio management solutions products continued to perform well in the United States. This increase reflects the benefits of our recent investment spending on our Enterprise Risk Assessment Manager product. The improvement also reflects our customers continued shift towards automating their decision making process. o a $3.5 million, or 6%, increase in Sales & Marketing Solutions. Traditional Sales & Marketing Solutions, which accounted for 58% of total North American Sales & Marketing Solutions, decreased 4%. This decline is indicative of the current economic environment. This area of our business is sensitive to changes in the economy, as sales and marketing expenses are often viewed as discretionary spending by our customers. This decline was offset by the continued strength of value-added Sales & Marketing Solutions, which increased 22%. Within our value-added Sales & Marketing Solutions the increase was driven by Customer Information Management products and our high-end prospecting solutions, including Market Spectrum. o a $2.2 million, or 38%, increase in Supply Management Solutions reflects the trend of customers focusing on improving operating results through the optimization of the procurement process. o $8.3 million of revenue from E-Business Solutions, representing the results of Hoover's, Inc. North America's operating income for the third quarter 2003 was $75.3 million, compared to $67.6 million for the third quarter 2002. The increase in operating income was primarily due to an 8% increase in the overall North America revenue for the third quarter partially offset by additional expenses associated with Hoover's, Inc. Nine Months Ended September 30, 2003 North America revenue increased, $17.9 million, or 3%, as compared to the nine month period ended September 30, 2002. The acquisition of Hoover's, Inc. contributed $18.9 million, or three percentage points of growth. On a product-line basis, North America's revenue results reflect: o a $2.3 million, or 1% increase in Risk Management Solutions. The results for the nine months ended September 30, 2003 continued to improve from a 2% decline in the first quarter 2003 and a flat six months ended June 30, 2003. Traditional Risk Management Solutions continues to contribute to this improvement through our enhanced BIR product which was released in the second quarter 2003, at a higher price, as well as the growth in other traditional products including Comprehensive Report, Self-Analysis, and Monitoring. Additionally, our value-added Risk Management Solutions products continued to perform well in the United States. This increase also reflects the benefits of our recent investment spending in our Enterprise Risk Assessment Manager product. The improvement further reflects our customers continued shift towards automating their decision making process. o a $6.8 million, or 3%, decrease in Sales & Marketing Solutions. Our nine months results reflect a continued improvement relative to a 15% decline in the first quarter 2003 and a 7% decrease for the six months ended June 30, 2003. The improvement was driven by a 15% growth in our value-added Sales & Marketing Solutions, which offset declines in the market sensitive Traditional Sales & Marketing Solutions segment. Within our value-added Sales & Marketing Solutions the increase was driven by Customer Information Management products and our high-end prospecting solutions, including Market Spectrum. o a $3.5 million, or 20% increase in Supply Management Solutions reflects the trend of customers focusing on improving their operating results through the optimization of the procurement process. o $18.9 million of revenue from E-Business Solutions, representing the results of Hoover's Inc. North America's operating income for the nine months ended September 30, 2003 was $224.0 million, an increase of $10.2 million, or 5% from the nine months ended September 30, 2002. Revenues increased 3% from the prior year. Expenses increased from the prior year as a result of higher non-cash pension costs resulting from changes in the actuarial assumptions for the U.S. Retirement Plan and increased expenses associated with our acquisition of Hoover's, Inc. Partially offsetting these expense increases were savings associated with our Financial Flexibility initiatives. International International represented 31% and 30% of our core revenue for the third quarter 2003 and the nine months ended September 30, 2003, respectively. The following tables present our International product line revenue for the quarter and nine months ended September 30, 2003 and 2002. Additionally, the tables reconcile the non-GAAP measures of core revenue, both before and after the effect of foreign exchange, and total revenue before the effect of foreign exchange, to the GAAP measure of total revenue.
Growth (Decline) vs. Prior Year Less: Growth (Decline) Three Months Ended Period After Effects of vs. Prior Year September 30, Effects of Foreign Period Before 2003 2002 Foreign Exchange Exchange Effects of Foreign Exchange ---- ---- (Amounts in millions) Revenues: Risk Management Solutions $ 81.6 $ 68.7 19% 15% 4% Sales & Marketing Solutions 17.3 14.3 20% 12% 8% Supply Management Solutions 2.2 1.3 73% 22% 51% --- --- International Core Revenue 101.1 84.3 20% 14% 6% Divested Businesses 2.0 2.4 (14%) 7% (21%) --- --- Total International Revenue $ 103.1 $ 86.7 19% 14% 5% ======== ======= Growth (Decline) vs. Prior Year Less: Growth (Decline) Nine Months Ended Period After Effects of vs. Prior Year September 30, Effects of Foreign Period Before 2003 2002 Foreign Exchange Exchange Effects of Foreign Exchange ---- ---- (Amounts in millions) Revenues: Risk Management Solutions $ 239.1 $ 197.6 21% 17% 4% Sales & Marketing Solutions 47.4 44.6 6% 13% (7%) Supply Management Solutions 7.2 5.7 28% 21% 7% --- --- International Core Revenue 293.7 247.9 19% 17% 2% Divested Businesses 3.3 4.5 (26%) 4% (30%) --- --- Total International Revenue $ 297.0 $ 252.4 18% 16% 2% ======= =======
Three Months Ended September 30, 2003 International core revenue increased $16.8 million, or 20%, from the third quarter of 2002. The increase in International's revenue was driven by 14 percentage points of growth due to the favorable effect of foreign exchange rate movements and eight percentage points of growth due to our acquisition of Data House and the additional Italian real estate acquisitions. Total revenue for the third quarter 2003 includes revenue from our Israeli business, which was divested in the third quarter 2003. Total revenue for the third quarter 2002 includes revenue from our Israeli business and Korean business (which was divested in the fourth quarter 2002). On a product-line basis, International's core revenue results reflect: o a $12.9 million, or 19%, increase in Risk Management Solutions, including 15 percentage points of growth due to favorable movements in foreign exchange rates and nine percentage points of growth due to the acquisition of Data House and the additional Italian real estate acquisitions. Traditional Risk Management Solutions increased 17%, driven by 14 percentage points of growth due to favorable movements in foreign exchange rates and 10 percentage points of growth due to the acquisition of Data House and the additional Italian real estate acquisitions. Within our traditional products, we continue to experience competition in some of our larger markets. We are also experiencing competitive pricing pressures on our low-end traditional products in the United Kingdom and Nordic region. These competitive and pricing pressures have been partially offset by the continued success of our new monitoring product, e-Portfolio. Value-added Risk Management Solutions increased 36%, including 17 percentage points of growth due to favorable movements in foreign exchange rates. The increase is driven by the customers' preference to continue to automate their decisioning process through products such as Global Decision Maker, and integrate their existing systems using Toolkit solutions. o a $3.0 million, or 20%, increase in Sales & Marketing Solutions, including 12 percentage points of growth due to favorable movements in foreign exchange rates. The overall growth in Sales & Marketing Solutions is the result of the following management actions: (i) added sales leadership in five major markets, each with a dedicated sales team, (ii) continued increase of focus by our sales teams on value-added products, (iii) expanded demand generation programs, and (iv) growth in linkage products resulting from our customers' move from CD to Web-based solutions. Traditional Sales & Marketing Solutions increased 23%, including 13 percentage points of growth due to favorable movements in foreign exchange rates. We continue to see competitive pricing pressure in the low-end list and label business and falling demand for CD products, within our traditional Sales & Marketing Solutions products. Value-added Sales & Marketing Solutions increased by 12%, including 13 percentage points due to favorable effects of foreign exchange. o a $0.9 million, or 73%, increase in Supply Management Solutions, including 22 percentage points of growth due to favorable movements in foreign exchange rates. The growth is driven by increased sales of our Data Rationalization and Spend Analysis products. International's operating income increased by $3.0 million, or 42%, compared with the third quarter 2002. The increase is primarily due to a lower cost base as a result of our Financial Flexibility program combined with a 20% increase in core revenue. The cost reductions were made in the technology, administrative, and data collection areas. Nine Months Ended September 30, 2003 International core revenue increased $45.8 million, or 19%, from the nine months ended September 30, 2003. The increase in International's core revenue was driven by 17 percentage points of growth due to the favorable effect of foreign exchange rate movements and seven percentage points of growth due to our acquisition of Data House and the additional Italian real estate acquisitons. Total revenue for the third quarter 2003 includes revenue from our Israeli business, which was divested in the third quarter 2003. Total revenue for the third quarter 2002 includes revenue from our Israeli business and Korean business (which was divested in the fourth quarter 2002). On a product-line basis, International's core revenue results reflect: o a $41.5 million, or 21%, increase in Risk Management Solutions, including 17 percentage points of growth due to favorable movements in foreign exchange rates and nine percentage points of growth due to the acquisition of Data House and the additional Italian real estate acquisitions. Traditional Risk Management Solutions increased 20%, driven by 17 percentage points of growth due to favorable movements in foreign exchange rates and nine percentage points of growth due to the acquisition of Data House and the additional Italian real estate acquisitions. We continue to experience both competitive and pricing pressures in some of our larger markets. These pressures are partially offset by the continued success of our new monitoring product, e-Portfolio. Value-added Risk Management Solutions increased 29%, including 15 percentage points of growth due to the favorable effects of foreign exchange. The continued improvement in value-added products reflects our customers continued shift towards automating their decision making process. o a $2.8 million, or 6%, increase in Sales & Marketing Solutions, including 13 percentage points of growth due to favorable movements in foreign exchange rates. Traditional Sales & Marketing Solutions increased by 3%, and our value-added Sales & Marketing Solutions increased by 16%, each assisted by 13 percentage points of growth due to favorable effects of foreign exchange. The decline (before foreign exchange impacts) of the Traditional Sales & Marketing Solutions is indicative of a very competitive market, specifically in our low-end list and label business. The increase in our value-added Sales & Marketing Solutions represents a continued improvement in growth from the second quarter 2003. The increase is primarily driven by the following management actions: (i) added sales leadership in five major markets, each with a dedicated sales team, (ii) continued increase of focus by our sales teams on value-added products, (iii) expanded demand generation programs, and (iv) growth in linkage products resulting from our customers' move from CD to Web based solutions. o a $1.5 million, or 28%, increase in Supply Management Solutions, including 21 percentage points of growth due to favorable movements in foreign exchange rates. International's operating income increased by $10.6 million, or 60%, compared with the nine months ended September 30, 2002. The increase is primarily due to a 19% increase in core revenue as well as a lower cost base associated with our Financial Flexibility program. Specifically, cost improvements were achieved in the technology, administrative and data collection areas. The following factors affecting our International business create particular challenges to our revenue growth: o In most International markets we do not have a market leadership position. This makes us particularly susceptible to pricing pressures. We also face entrenched local competitors. o European businesses tend to manage their credit exposures through credit insurance rather than through the credit approval process using business information of the type provided by us. o In many local markets in Europe, key data elements are generally available from public-sector sources thus reducing our data collection advantage. o Prior to the launch of our Blueprint for Growth strategy, our data investment decisions were not made in a coordinated fashion across the International marketplace. While we have made significant investments to mitigate the situation, we are still faced with uneven data quality in some local markets. We will continue to use different approaches to improve our competitive position from market to market worldwide. In some markets, we are investing to strengthen our position, either through organic growth or by acquisition. In other markets, we may establish strategic relationships to strengthen our global data coverage and our customer value propositions. We have used each of these approaches already in different parts of the world, and we anticipate evaluating and implementing these and other approaches in the future. Additionally, we will also continue to leverage our DUNSRight (TM) quality process to establish leadership positions in our International markets. Liquidity and Financial Position At September 30, 2003, cash and cash equivalents totaled $199.7 million, an increase from $191.9 million at December 31, 2002. This $7.8 million increase primarily reflects $98.0 million used for the acquisition of Hoover's and three small Italian real estate companies (net of cash acquired), $121.3 million used to repurchase shares, and $19.8 million of investments in capital expenditures and capitalized software, offset by $156.3 million of cash provided from operations, $80.2 million of proceeds related to the sale of our High Wycombe, England, building, and $18.3 million of net proceeds received in connection with our stock incentive plans. D&B's $100 million 364-day revolving credit facility expired in September 2003. We renewed this facility in September 2003 for $100 million. D&B also has an additional $175 million term revolving credit facility expiring in September 2005. Under these facilities, D&B has the ability to borrow at prevailing short-term interest rates. These facilities also support D&B's commercial paper borrowings up to $275 million. D&B has not drawn on these facilities since their inception and has no borrowings outstanding under these facilities at September 30, 2003. D&B has not borrowed under its commercial paper program in 2003. We believe that cash flows generated from our operations and supplemented as needed with readily available financing in the commercial paper markets are sufficient to meet our short-term and long-term needs, including the cash cost of our restructuring charges, transition costs, lease committments and tax and legal matters. We access the commercial paper market from time to time to fund working capital needs and share repurchases. Such borrowings have been supported by our bank credit facilities. Cash Provided by Operating Activities Net cash provided by operating activities for the nine months ended September 30, 2003, was $156.3 million, while operating activities in the same period of 2002 provided net cash of $133.7 million. This increase of $22.6 million was primarily due to $7.5 million of improvement in our accounts receivables due to increased collections and $9.9 million of improvement in our accrued liabilities due to ongoing operating expense reductions as a result of our Financial Flexibility programs. The remaining difference is primarily due to the receipt of $7.0 million in the first quarter of 2003 in settlement of our insurance claim to recover losses related to the events of September 11, 2001. During the nine months ended September 30, 2003, D&B made payments of $23.8 million related to the restructurings associated with our Financial Flexibility program, compared to payments of $25.2 million in the same period of 2002. Cash Used in Investing Activities Net cash used in investing activities totaled $49.3 million during the first nine months of 2003, compared with net cash used in investing activities of $41.6 million during the first nine months of 2002. This change was primarily related to payments of $92.5 million (net of cash acquired) for the acquisition of Hoover's and $5.5 million (net of cash acquired) for the acquisition of three small Italian real estate companies. Also, as part of this transaction we made a $1.9 million payment to acquire 17.5% of RIBES S.p.A., a leading provider of business information to Italian banks, during the second quarter of 2003. We also received $11.7 million of short-term marketable securities as part of the Hoover's acquisition. Partially offsetting the payments above was the $80.2 million of cash proceeds received from the sale of our High Wycombe, England, building in the third quarter 2003. During the first nine months of 2002, we received $21.5 million of cash proceeds from the sale of our Murray Hill and Berkeley Heights facilities. Cash Used in Financing Activities Net cash used in financing activities was $101.6 million during the first nine months of 2003, compared with net cash used in financing activities of $103.4 million in the same period of 2002. During the first nine months of 2003, we repurchased 1,756,611 shares for $70.1 million in connection with the previously-announced $100 million, two-year share repurchase program authorized by our Board of Directors in October 2002. As of September 30, 2003, there was $29.9 million remaining under this program. In addition, during the first nine months of 2003, we repurchased 1,267,689 shares of common stock for $51.2 million to mitigate the dilutive effect of shares issued under the stock incentive plans and in connection with our Employee Stock Purchase Plan. Net proceeds from these stock plans totaled $18.3 million for the nine months ended September 30, 2003. In January 2002, we acquired 2.5 million shares in a privately-negotiated block trade for $85.1 million. During the first nine months of 2002, we also repurchased 756,100 of our shares for $29.1 million to mitigate the dilutive effect of shares issued under stock incentive plans and in connection with our Employee Stock Purchase Plan. Net proceeds from these plans is $10.0M for the nine months ended September 30, 2002. Our share repurchase activities were funded with cash on hand and/or short-term commercial paper borrowings. We had no commercial paper outstanding as of September 30, 2003. Future Liquidity - Sources and Uses of Funds Potential Payments in Settlement of Tax and Legal Matters We and our predecessors are involved in certain tax and legal proceedings, claims and litigation arising in the ordinary course of business. These matters are at various stages of resolution, but could ultimately result in cash payments in the amounts described in Note 7 - Contingencies above. Share Repurchases and Dividends During October 2002, we announced that our board of directors authorized a share repurchase program of up to $100 million, funded with cash on hand and future cash flow. This two-year program is in addition to our existing share repurchase program to offset the dilutive effect of shares issued under employee benefit plans. It is our intention to repurchase the remaining $30 million in order to complete this program during 2003. We have not paid cash dividends since we seperated from Moody's in 2000. After considering all of the implications of the new U.S. tax laws regarding deductibility of tax dividends, we have decided to continue our policy not to pay dividends to shareholders in the foreseeable future. Forward-Looking Statements We may from time to time make written or oral forward-looking statements, including statements contained in filings with the Securities and Exchange Commission, in reports to shareholders and in press releases and investor Webcasts. You can identify these forward-looking statements by use of words like "anticipates," "aspirations," "believes," "continues," "estimates," "expects," "goals," "guidance," "intends," "plans," "projects," "strategy," "targets," "will" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in, or remain invested in, our securities. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, we are identifying in the following paragraphs important factors that, individually or in the aggregate, could cause actual results to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. Demand for our products is subject to intense competition, changes in customer preferences and economic conditions. Our results are dependent upon our continued ability to: o invest in our database and maintain our reputation for providing reliable data; o develop and maintain a successful Web-based business model; o develop new products; o reallocate expense to achieve growth through our Financial Flexibility program; o manage employee satisfaction and maintain our global expertise as we implement our Financial Flexibility program; and o protect against damage or interruptions affecting our database or our data centers. We are also subject to the effects of economies, exchange rate fluctuations and U.S. and foreign legislative or regulatory requirements. Our results are also dependent upon the availability of data for our database. In addition, the Company's ability to repurchase shares is subject to market conditions, including trading volume in the Company's stock. Developments in any of these areas could cause our results to differ materially from results that have been or may be projected. We elaborate on the above list of important factors throughout this document and in our other filings with the SEC, particularly in the section entitled "Trends, Risks and Uncertainties" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the year ended December 31, 2002. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the above list of important factors or the trends, risks and uncertainties discussed in our Form 10-K to be a complete discussion of all our potential trends, risks and uncertainties. We do not undertake to update any forward-looking statement we may make from time to time. Item 3. Quantitative and Qualitative Disclosures about Market Risk D&B'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 2002 consolidated financial statements included in its Annual Report on Form 10-K provide a more detailed discussion of the market risks affecting operations. As of September 30, 2003, no material change had occurred in our market risks, compared with the disclosure in the Form 10-K for the year ending December 31, 2002. Item 4. Controls and Procedures Evaluation of Disclosure Controls We evaluated the effectiveness of our disclosure controls and procedures ("Disclosure Controls") as of the end of the third quarter of 2003. This evaluation ("Controls Evaluation") was done with the participation of our Chairman and Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Disclosure Controls are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Limitations on the Effectiveness of Controls Our management, including our CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting ("Internal Controls") will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within D&B have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of a control. A design of a control system is also based upon certain assumptions about the likelihood of future events, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Conclusions Based upon our Controls Evaluation, our CEO and CFO have concluded that, subject to the limitations noted above, the Disclosure Controls are effective to timely alert management to material information relating to D&B during the period when our periodic reports are being prepared. There were no changes in our Internal Controls that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our Internal Controls. PART II. OTHER INFORMATION Item 1. Legal Proceedings Information in response to this Item is included in Note 7 - Contingencies on Pages 9-14 in Part I, Item 1, of this Form 10-Q. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 4.7 -Amended and Restated Credit Agreement dated as of September 5, 2003 among The Dun & Bradstreet Corporation, JPMorgan Chase Bank, Citibank, N.A., Bank of Tokyo-Mitsubishi Trust Company, The Bank of New York and The Northern Trust Company. Exhibit 31(a) - Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31(b) - Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32(a) - Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32(b) - Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: During the third quarter of our fiscal year ending September 30, 2003, we furnished one report on Form 8-K. The Current Report on Form 8-K was furnished on July 22, 2003 and covered Item 7. Financial Statements and Exhibits and Item 12. Results of Operations and Financial Condition. 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 6, 2003 By: /s/ SARA MATHEW ------------------------------------------------- Sara Mathew Senior Vice President and Chief Financial Officer Date: November 6, 2003 By: /s/ MARY JANE RAYMOND ------------------------------------------------- Mary Jane Raymond Vice President and Corporate Controller EX-31 3 exhibit_31a-31b.txt CERTICATION Exhibit 31(a) Certification of the Chairman and Chief Executive Officer I, Allan Z. Loren, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2003 of The Dun and Bradstreet Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Omitted in reliance on SEC Release No. 33-8238; 34-47986 Section III.E.] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 6, 2003 By: /s/ ALLAN Z. LOREN --------------------------------------------- Allan Z. Loren Chairman and Chief Executive Officer Exhibit 31(b) Certification of the Chief Financial Officer I, Sara Mathew, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2003 of The Dun and Bradstreet Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Omitted in reliance on SEC Release No. 33-8238; 34-47986 Section III.E.] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 6, 2003 By: /s/ SARA MATHEW -------------------------------------------------- Sara Mathew Senior Vice President and Chief Financial Officer EX-32 4 exhibit_32a-32b.txt CERTIFICATION Exhibit 32(a) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of The Dun & Bradstreet Corporation (the "Company") for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Allan Z. Loren, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ ALLAN Z. LOREN - ------------------------------------ Allan Z. Loren Chairman and Chief Executive Officer November 6, 2003 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to The Dun & Bradstreet Corporation and will be retained by The Dun & Bradstreet Corporation and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 32(b) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of The Dun & Bradstreet Corporation (the "Company") for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sara Mathew, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ SARA MATHEW - ----------------------------------- Sara Mathew Senior Vice President and Chief Financial Officer November 6, 2003 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to The Dun & Bradstreet Corporation and will be retained by The Dun & Bradstreet Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 5 credit_agreement-q3.txt D&B CREDIT AGREEMENT Exhibit 4.7 AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 5, 2003 amending and restating the Credit Agreement dated as of September 6, 2002 (as in effect prior to such amendment and restatement, the "Credit Agreement") among THE DUN & BRADSTREET CORPORATION (the "Company"), the BORROWING SUBSIDIARIES party thereto (the "Borrowing Subsidiaries" and together with the Company, the "Borrowers"), the LENDERS party thereto (the "Lenders"), JPMORGAN CHASE BANK, as Administrative Agent (the "Administrative Agent"), CITIBANK, N.A. and BANK OF TOKYO-MITSUBISHI TRUST COMPANY, as Co-Syndication Agents, and THE BANK OF NEW YORK and THE NORTHERN TRUST COMPANY, as Co-Documentation Agents. W I T N E S S E T H: WHEREAS, the parties hereto desire to amend the Credit Agreement to (i) extend the Revolver Termination Date from the date that is 364 days after the effective date of the Credit Agreement to the date that is 364 days after the Amendment Effective Date (as hereinafter defined), (ii) make any necessary conforming changes with respect to the amendment set forth in clause (i) above, (iii) amend the Negative Covenants in Article 6 of the Credit Agreement, (iv) amend the Confidentiality provisions in Section 10.12 of the Credit Agreement and (v) amend the Commitments of each Lender, all as set forth herein; WHEREAS, the parties hereto wish to amend the Credit Agreement as set forth herein and to restate the Credit Agreement in its entirety to read as set forth in the Credit Agreement with the amendments specified below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after the Amendment Effective Date (as defined below), refer to the Credit Agreement as amended and restated hereby. SECTION 2. Definitions. (a) The definition of "Amendment Effective Date" in Section 1.01 of the Credit Agreement is amended by replacing the reference to "September 6, 2002" with "September 5, 2003". (b) The definition of "Disclosed Matters" in Section 1.01 of the Credit Agreement is amended by replacing the reference to "2002" with "2003". (c) The definition of "Information Memorandum" in Section 1.01 of the Credit Agreement is deleted in its entirety. (d) The definition of "Revolver Termination Date" in Section 1.01 of the Credit Agreement is amended to read in full as follows: "Revolver Termination Date" means September 3, 2004 or, if such day is not a Business Day, the next preceding Business Day. (e) The definitions in Section 1.01 of the Credit Agreement are further amended by adding the following definition in the appropriate alphabetical order: "Existing Five-Year Credit Agreement" means the Five-Year Credit Agreement dated as of September 11, 2000 among the Borrower, the Borrowing Subsidiaries party thereto, the Lenders party thereto, JPMorgan Chase Bank (as successor to The Chase Manhattan Bank), as administrative agent, Citibank, N.A., as syndication agent and The Bank of New York, as documentation agent. SECTION 3. Total Debt to EBITDA Ratio. Section 6.05 of the Credit Agreement is amended by replacing the reference therein to "4.0" with "3.5". SECTION 4. Negative Covenants. The Negative Covenants under Article 6 of the Credit Agreement are amended by adding the following section in the appropriate numerical order: "Section 6.07. Subsidiary Debt. The Company will not permit the aggregate principal amount of Indebtedness of the Subsidiaries (excluding any Indebtedness of a Subsidiary (i) owed to the Borrower or another Subsidiary, (ii) outstanding hereunder or (iii) outstanding under the Existing Five-Year Credit Agreement) at any time outstanding to exceed $50,000,000." SECTION 5. Representation regarding Financial Condition and No Material Adverse Change. (a) Section 3.04(a) of the Credit Agreement are amended by replacing each reference therein to (i) "2001" with "2002" and (ii) "2002" with "2003". (b) Section 3.04(b) of the Credit Agreement is deleted in its entirety. SECTION 6. Confidentiality. Section 10.12 of the Credit Agreement is amended by adding the following new paragraph immediately after the existing paragraph: "Notwithstanding anything herein to the contrary, each party hereto and each of its employees, representatives, or other agents may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of this Agreement and the transactions contemplated hereby and all materials of any kind, including opinions or other tax analyses, that have been provided to it by any other party relating to such tax treatment and tax structure." SECTION 7. Changes in Commitments. With effect from and including the Amendment Effective Date (as defined in Section 11 below), (i) each Person listed on the signature pages hereof which is not a party to the Credit Agreement (each, a "New Lender") shall become a Lender party to the Credit Agreement and (ii) the Commitment of each Lender shall be the amount set forth opposite the name of such Lender on the signature pages hereof. On the Amendment Effective Date, any Lender whose Commitment is changed to zero (each, an "Exiting Lender") shall cease to be a Lender party to the Credit Agreement, and all accrued fees and other amounts payable under the Credit Agreement for the account of each Exiting Lender shall be due and payable on such date; provided that the provisions of Sections 2.14, 2.16 and 10.03 of the Credit Agreement shall continue to inure to the benefit of each Exiting Lender after the Amendment Effective Date. SECTION 8. Representations of Borrower. Each Borrower represents and warrants that (i) the representations and warranties of such Borrower set forth in Article 3 of the Credit Agreement, after giving effect to this Amendment and Restatement, are true and correct as though made on and as of the Amendment Effective Date and (ii) no Default has occurred and is continuing on such date. SECTION 9. Governing Law. This Amendment and Restatement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 10. Counterparts. This Amendment and Restatement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 11. Effectiveness. This Amendment and Restatement shall become effective as of the date hereof when the following conditions are met (the "Amendment Effective Date"): (a) the Administrative Agent shall have received from each of the Borrowers and the Lenders a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Administrative Agent) that such party has signed a counterpart hereof; (b) the Administrative Agent shall have received an opinion of David J. Lewinter, Senior Vice President, General Counsel and Secretary for the Company, dated the Amendment Effective Date substantially in the form of Exhibit A hereto; and (c) all fees and other amounts due and payable on or prior to the Amendment Effective Date, including, to the extent invoiced, reimbursement or payment of all reasonable out-of-pocket expenses required to be reimbursed or paid by the Company hereunder. SECTION 12. Confirmation of Agreement. Except as amended hereby, all of the terms of the Credit Agreement shall remain in full force and effect and are hereby confirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be duly executed as of the date first above written. THE DUN & BRADSTREET CORPORATION By: /s/ Kathy Guinnessey ---------------------------- Name: Kathy Guinnessey Title: Treasurer Commitment $16,500,000 JPMORGAN CHASE BANK, individually, as Lead Arranger and as Administrative Agent By: /s/ Eileen Higgins ------------------------------- Name: Eileen Higgins Title: Vice President $14,750,000 CITIBANK, N.A., individually and as Co-Syndication Agent By: /s/ James R. Stave -------------------------------- Name: James R. Stave Title: Vice President $14,750,000 BANK OF TOKYO-MITSUBISHI TRUST COMPANY, individually and as Co- Syndication Agent By: /s/ Karen Ossolinski ---------------------------------- Name: Karen Ossolinski Title: Vice President $14,750,000 THE BANK OF NEW YORK, individually and as Co-Documentation Agent By: /s/ Ernest Fung --------------------------------- Name: Ernest Fung Title: Vice President $14,750,000 THE NORTHERN TRUST COMPANY, individually and as Co-Documentation Agent By: /s/ Melissa Whitson ------------------------------- Name: Melissa Whitson Title: Vice President $12,250,000 SUNTRUST BANK, individually and as Co-Agent By: /s/ Laura Kahn --------------------------------- Name: Laura Kahn Title: Director $12,250,000 BARCLAYS BANK PLC, individually and as Co-Agent By: /s/ Nicholas Bell --------------------------------- Name: Nicholas Bell Title: Director EXHIBIT A September 5, 2003 To (a) each of the lending institutions (the "Lenders") listed on Schedule 1 hereto which are parties on the date hereof to the Amended and Restated Credit Agreement, dated as of September 5, 2003 (the "Amended and Restated Credit Agreement"), among The Dun & Bradstreet Corporation (the "Company"), the Borrowing Subsidiaries party thereto, the Lenders party thereto, JPMorgan Chase Bank, as Administrative Agent (in such capacity, the "Administrative Agent"), Citibank, N.A. and Bank of Tokyo-Mitsubishi Trust Company, as Co-Syndication Agents and The Bank of New York and The Northern Trust Company, as Co-Documentation Agents and (b) the Administrative Agent Ladies and Gentlemen: I am Senior Vice President, General Counsel and Corporate Secretary of the Company and have acted as counsel to the Company in connection with the preparation, execution and delivery of the Amendment and Restatement, dated as of the date hereof, of the Credit Agreement dated as of September 7, 2001 among the Company, the Borrowing Subsidiaries party thereto, the financial institutions referred to therein, JPMorgan Chase Bank, as Administrative Agent, Citibank, N.A. and Bank of Tokyo-Mitsubishi Trust Company, as Co-Syndication Agents, and The Bank of New York and The Northern Trust Company, as Co-Documentation Agents (the "Amendment and Restatement"). This opinion is delivered to you pursuant to Section 11(b) of the Amendment and Restatement. Terms used herein which are defined in the Amended and Restated Credit Agreement shall have the respective meanings set forth in the Amended and Restated Credit Agreement, unless otherwise defined herein. In connection with this opinion, I have examined a copy of the Amended and Restated Credit Agreement signed by the Company, the Administrative Agent and the other parties thereto. I have also examined the originals, or duplicates or certified or conformed copies, of such records, agreements, instruments and other documents and have made such investigations as I have deemed relevant and necessary in connection with the opinions expressed herein. As to questions of fact material to this opinion, I have relied upon certificates of public officials and officers and representatives of the Company. In addition, I have examined, and have relied as to matters of fact, upon the representations made in the Amended and Restated Credit Agreement. In rendering the opinions set forth below, I have assumed the genuineness of all signatures (other than those on behalf of the Company), the legal capacity of natural persons (other than employees of the Company), the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as duplicates or certified or conformed copies, and the authenticity of the originals of such latter documents. I have assumed without independent investigation that the Amended and Restated Credit Agreement constitutes a valid and legally binding obligation of the Administrative Agent and the Lenders. Based upon and subject to the foregoing, and subject to the assumptions, qualifications and comments set forth herein, I am of the opinion that: 1. The Company (a) is a corporation duly organized, validly existing and in good standing under the laws of Delaware, (b) has all requisite corporate power and authority to carry on its business as now conducted and (c) except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. 2. The Transactions (as hereinafter defined) are within the Company's corporate powers and have been duly authorized by all necessary corporate action and, if required, action of the stockholders of the Company. For the purpose of this opinion, "Transactions" means the execution, delivery and performance by the Borrowers of the Amended and Restated Credit Agreement, the borrowing of Loans and the use of the proceeds thereof. The Amended and Restated Credit Agreement has been duly executed and delivered by the Company. 3. The Amended and Restated Credit Agreement constitutes a valid and legally binding obligation of the Company enforceable against it in accordance with its terms. 4. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except for such consents, approvals, registrations, filings and other actions the failure to obtain or make could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, (b) will not violate any applicable Federal or New York law or regulation or the Delaware General Corporation Law or the charter or by-laws of the Company or any order of any Governmental Authority applicable to the Company, except for such violations which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Company or any of its Subsidiaries, except for such violations and defaults which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, and (d) will not result in the creation or imposition of any Lien on any asset of the Company or any of its Material Subsidiaries. 5. To my knowledge, after due inquiry, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or threatened against or affecting the Borrower or any of its Subsidiaries (a) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect (other than the Disclosed Matters) or (b) that involve the Amended and Restated Credit Agreement or the Transactions. 6. Neither the Company nor any of its Subsidiaries is a "holding company" as defined in, or subject to regulations under, the Public Utility Holding Company Act of 1935. 7. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. The opinion in paragraph 3 above is subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law), an implied covenant of good faith and fair dealing and the effects of the possible judicial application of foreign laws or foreign governmental or judicial action affecting creditors' rights. I express no opinion as to: (a) the effect of any provision of the Amended and Restated Credit Agreement which is intended (i) to establish any standard as the measure of the performance by any party thereto of such party's obligations of good faith, diligence, fair dealing, reasonableness or care or (ii) to permit modification thereof only by means of an agreement in writing signed by the parties thereto; (b) the effect of any provision of the Amended and Restated Credit Agreement insofar as it provides that any Person purchasing a participation from a Lender or other Person may exercise set-off or similar rights with respect to such participation or that any Lender or other Person may exercise set-off or similar rights other than in accordance with applicable law; (c) the effect of any provision of the Amended and Restated Credit Agreement imposing penalties or forfeitures; (d) the effect of any provision of the Amended and Restated Credit Agreement relating to indemnification or exculpation in connection with violations of any securities laws or relating to indemnification, contribution or exculpation in connection with willful, reckless or criminal acts or gross negligence of the indemnified or exculpated Person or the Person receiving contribution; (e) any provision of the Amended and Restated Credit Agreement which purports to provide for a waiver by the Company or any immunity, defense or right which may be available to the Company; and (f) any provision of the Amended and Restated Credit Agreement which purports to establish an evidentiary standard for determinations by any Person. I note that (A) a New York statute provides that, with respect to a foreign currency obligation, a court of the State of New York shall render a judgment or decree in such foreign currency and such judgment or decree shall be converted into currency of the United States at the rate of exchange prevailing on the date of entry of such judgment or decree and (B) with respect to a foreign currency obligation, a United States Federal court in New York may award judgment in United States dollars, provided that I express no opinion as to the rate of exchange such court would apply. In connection with the provisions of the Amended and Restated Credit Agreement whereby the Company submits to the jurisdiction of the United States District Court for the Southern District of New York, I note the limitations of 28 U.S.C. ss.ss.1331 and 1332 on Federal court jurisdiction, and I also note that such submissions cannot supersede such court's discretion in determining whether to transfer an action from one Federal court to another under 28 U.S.C. ss.1404(a). I am a member of the Bar of the State of New York and I do not express any opinion on any laws other than the law of the State of New York, the General Corporation Law of the State of Delaware and the Federal laws of the United States. This opinion is rendered to you and your lawful successors and assigns in connection with the above-described transaction. This opinion may not be relied upon by you for any other purpose, or relied upon by any other person, firm or corporation without my prior written consent. Very truly yours, David J. Lewinter Schedule 1 LENDERS JP Morgan Chase Bank Citibank, N.A. The Bank of New York Barclays Bank PLC The Northern Trust Company SunTrust Bank Bank of Tokyo-Mitsubishi Trust Company -----END PRIVACY-ENHANCED MESSAGE-----