-----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, Git3V8VXIXBRiKt+DP4DbK0798LuwEx33lWSVA5RTZ6TH4zocol87JHjNGWKAG76 1dVvFrygAKtD0NFnViWGCw== 0000030419-97-000011.txt : 19971110 0000030419-97-000011.hdr.sgml : 19971110 ACCESSION NUMBER: 0000030419-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971105 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUN & BRADSTREET CORP CENTRAL INDEX KEY: 0000030419 STANDARD INDUSTRIAL CLASSIFICATION: 8700 IRS NUMBER: 132740040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07155 FILM NUMBER: 97708296 BUSINESS ADDRESS: STREET 1: ONE DIAMOND HILL ROAD CITY: MURRAY HILL STATE: NJ ZIP: 07974 BUSINESS PHONE: 2032224200 MAIL ADDRESS: STREET 1: 1 DIAMOND HILL RD CITY: MURRAY HILL STATE: NJ ZIP: 07974 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET COMPANIES INC DATE OF NAME CHANGE: 19790429 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark one) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 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 1-7155 THE DUN & BRADSTREET CORPORATION - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2740040 - - ---------------------------------------- ------------------------------------- - - ---------------------------------------- ------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) One Diamond Hill Road, Murray Hill, NJ 07974 - - ---------------------------------------- ------------------------------------- - - ---------------------------------------- ------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (908) 665-5000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Shares Outstanding Title of Class at October 31, 1997 Common Stock 170,257,019 par value $1 per share THE DUN & BRADSTREET CORPORATION INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, 1997 and 1996 3 Nine months Ended September 30, 1997 and 1996 4 Consolidated Balance Sheets (Unaudited) September 30, 1997 and December 31, 1996 5 Consolidated Statements of Cash Flows (Unaudited) Nine months Ended September 30, 1997 and 1996 6 Notes to Consolidated Financial Statements (Unaudited) 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 -2- The Dun & Bradstreet Corporation and Subsidiaries Consolidated Statements of Operations (unaudited)
Three Months Ended September 30, ------------------------------------ Dollar amounts in millions, except per share data 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues $ 553.9 $ 509.8 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Costs 140.8 150.4 Selling and Administrative Expenses 226.2 226.2 Depreciation and Amortization 38.5 38.3 Reorganization Costs - 18.9 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income 148.4 76.0 - - ------------------------------------------------------------------------------------------------------------------------------------ Interest Expense (8.9) (6.2) Other Expense - Net (6.1) (14.0) - - ------------------------------------------------------------------------------------------------------------------------------------ Non-Operating Expense - Net (15.0) (20.2) - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Continuing Operations before Provision for Income Taxes 133.4 55.8 Provision for Income Taxes 45.7 31.5 - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Continuing Operations 87.7 24.3 - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Discontinued Operations, Net of Income Tax of $16.1 million for 1996 - 26.6 - - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 87.7 $ 50.9 - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share of Common Stock: Continuing Operations $ 0.51 $ 0.14 Discontinued Operations - 0.16 - - ------------------------------------------------------------------------------------------------------------------------------------ Net Earnings Per Share of Common Stock $ 0.51 $ 0.30 - - ------------------------------------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Paid Per Share of Common Stock $ 0.22 $ 0.25 - - ------------------------------------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------------------------------------ Weighted Average Number of Shares Outstanding 170.5 170.1 - - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of the consolidated financial statements. -3-
The Dun & Bradstreet Corporation and Subsidiaries Consolidated Statements of Operations (unaudited)
Nine Months Ended September 30, --------------------------------------- Dollar amounts in millions, except per share data 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues $ 1,511.1 $ 1,465.3 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Costs 411.5 529.7 Selling and Administrative Expenses 659.1 675.0 Depreciation and Amortization 118.7 118.6 Reorganization Costs - 27.9 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income 321.8 114.1 - - ------------------------------------------------------------------------------------------------------------------------------------ Interest Expense (40.0) (16.9) Other Expense - Net (14.1) (38.6) - - ------------------------------------------------------------------------------------------------------------------------------------ Non-Operating Expense - Net (54.1) (55.5) - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Continuing Operations before Provision for Income Taxes 267.7 58.6 Provision for Income Taxes 91.8 56.3 - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Continuing Operations 175.9 2.3 - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Discontinued Operations, Net of Income Tax of $13.4 million for 1996 - 69.2 - - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 175.9 $ 71.5 - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share of Common Stock: Continuing Operations $ 1.03 $ 0.01 Discontinued Operations - 0.41 - - ------------------------------------------------------------------------------------------------------------------------------------ Net Earnings Per Share of Common Stock $ 1.03 $ 0.42 - - ------------------------------------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Paid Per Share of Common Stock $ 0.66 $ 1.57 - - ------------------------------------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------------------------------------ Weighted Average Number of Shares Outstanding 170.9 169.9 - - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of the consolidated financial statements. -4-
The Dun & Bradstreet Corporation and Subsidiaries Consolidated Balance Sheets (unaudited)
September 30, December 31, Dollar amounts in millions, except per share data 1997 1996 - - ----------------------------------------------------------------------------------------------------------- --------------------- Assets Current Assets Cash and Cash Equivalents $90.7 $127.9 Accounts Receivable---Net of Allowance of $43.9 in 1997 and $38.1 in 1996 526.5 600.7 Other Current Assets 205.7 188.8 ---------------- --------------------- Total Current Assets 822.9 917.4 - - ----------------------------------------------------------------------------------------------------------- --------------------- Non-Current Assets Investments and Notes Receivable 173.4 292.2 Property, Plant and Equipment 345.8 373.1 Prepaid Pension Costs 185.0 172.1 Computer Software 156.3 150.7 Goodwill 193.8 218.4 Other Non-Current Assets 277.1 170.3 ---------------- --------------------- Total Non-Current Assets 1,331.4 1,376.8 - - ----------------------------------------------------------------------------------------------------------- --------------------- Total Assets $2,154.3 $2,294.2 - - ----------------------------------------------------------------------------------------------------------- --------------------- - - ----------------------------------------------------------------------------------------------------------- --------------------- Liabilities and Shareholders' Equity Current Liabilities Notes Payable $661.4 $1,120.7 Accrued and Other Current Liabilities 477.0 599.9 Unearned Subscription Income 345.1 297.0 ---------------- --------------------- Total Current Liabilities 1,483.5 2,017.6 Postretirement and Postemployment Benefits 344.3 354.1 Other Non-Current Liabilities 444.0 354.2 Minority Interest 301.8 - Shareholders' Equity Preferred Stock, par value $1 per share, authorized---10,000,000 shares; outstanding---none Common Stock, par value $1 per share, authorized---400,000,000 shares; issued---188,420,996 shares for 1997 and 1996 188.4 188.4 Capital Surplus 69.5 72.6 Retained Earnings 483.8 480.3 Treasury Stock, at cost, 17,835,017 and 17,612,776 shares for 1997 and 1996, respectively (982.9) (1,019.7) Cumulative Translation Adjustment (178.1) (153.3) - - ----------------------------------------------------------------------------------------------------------- --------------------- Total Shareholders' Equity (419.3) (431.7) - - ----------------------------------------------------------------------------------------------------------- --------------------- Total Liabilities and Shareholders' Equity $2,154.3 $2,294.2 - - ----------------------------------------------------------------------------------------------------------- --------------------- The accompanying notes are an integral part of the consolidated financial statements. - 5 -
The Dun & Bradstreet Corporation and Subsidiaries Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, ----------------------------------- Dollar amounts in millions 1997 1996
- - ---------------------------------------------------------------------------------------------------------------- -------------- Cash Flows from Operating Activities: Net Income $175.9 $71.5 Less: Income from Discontinued Operations - (69.2) - - ---------------------------------------------------------------------------------------------------------------- -------------- Income from Continuing Operations 175.9 2.3 Reconciliation of Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 118.7 118.6 Losses from Sale of Businesses, Net of Taxes - 86.6 Distributions Received in Excess of Equity Earnings 82.8 65.9 (Increase)/Decrease Notes Receivable 39.7 (13.1) Non-Recurring Charge - (20.2) Restructuring Payments - (28.6) Postemployment Benefit Payments (24.1) (14.3) Net Decrease in Accounts Receivable 57.1 28.3 Deferred Income Taxes (7.2) 16.2 Accrued Income Taxes (77.2) (169.3) Increase in Long Term Liabilities 34.9 117.7 Increase in Other Long Term Assets (20.5) (1.5) Net Increase/Decrease in Other Working Capital Items (12.5) 33.1 Other 0.3 - - - ---------------------------------------------------------------------------------------------------------------- -------------- Net Cash Provided by Operating Activities 367.9 221.7 - - ---------------------------------------------------------------------------------------------------------------- -------------- Cash Flows from Investing Activities: Proceeds from Marketable Securities 5.8 16.2 Payments for Marketable Securities (7.5) (2.4) Proceeds from Sale of Businesses - 23.5 Capital Expenditures (41.8) (61.3) Additions to Computer Software and Other Intangibles (63.0) (56.7) Other (0.1) (0.9) - - ---------------------------------------------------------------------------------------------------------------- -------------- Net Cash Used In Investing Activities (106.6) (81.6) - - ---------------------------------------------------------------------------------------------------------------- -------------- Cash Flows from Financing Activities: Payment of Dividends (113.0) (268.0) Payments for Purchase of Treasury Shares (55.7) (3.7) Proceeds from Exercise of Stock Options 31.5 45.8 Increase in Commercial Paper Borrowings 613.5 20.8 Increase in Minority Interest 300.0 - Increase/(Decrease) in Short-term Borrowings (1,070.8) 5.7 Other (0.7) (0.9) - - ---------------------------------------------------------------------------------------------------------------- -------------- Net Cash Used in Financing Activities (295.2) (200.3) - - ---------------------------------------------------------------------------------------------------------------- -------------- - - ---------------------------------------------------------------------------------------------------------------- -------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (3.3) (3.0) - - ---------------------------------------------------------------------------------------------------------------- -------------- Increase (Decrease) in Cash and Cash Equivalents (37.2) (63.2) Net Cash Provided By Discontinued Operations - 9.1 Cash and Cash Equivalents , Beginning of Year 127.9 147.1 - - ---------------------------------------------------------------------------------------------------------------- -------------- Cash and Cash Equivalents, End of Period $90.7 $93.0 - - ---------------------------------------------------------------------------------------------------------------- -------------- The accompanying notes are an integral part of the consolidated financial statements. - 6 -
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Interim Consolidated Financial Statements These interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and related notes of The Dun & Bradstreet Corporation's (the "Company") 1996 Annual Report on Form 10-K, as amended by Form 10-K/A-1. The consolidated results for interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Certain prior-year amounts have been reclassified to conform with the 1997 presentation. Note 2 - Reorganization and Discontinued Operations On November 1, 1996, the Company reorganized into three publicly traded independent companies by spinning off through a tax-free distribution two new companies, (1) Cognizant Corporation ("Cognizant") and (2) ACNielsen Corporation ("ACNielsen"), to shareholders. In conjunction with the reorganization, the Company also disposed of Dun & Bradstreet Software ("DBS") and NCH Promotional Services ("NCH"). The Company's continuing operations consist of Dun & Bradstreet, the operating company ("D&B"), Moody's Investors Service ("Moody's") and Reuben H.Donnelley ("RHD"). Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the prior year's consolidated financial statements of the Company have been reclassified to reflect the reorganization. Accordingly, the prior year's revenues, costs and expenses and cash flows of Cognizant, ACNielsen, DBS and NCH have been excluded from the respective captions in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows. The net operating results of these entities have been reported, net of applicable income taxes, as "Income from Discontinued Operations" and the net cash flows of these entities have been reported as "Net Cash Provided by Discontinued Operations." For the three months and nine months ended September 30, 1996, operating revenues for the Discontinued Operations were $851.4 million and $2,468.3 million, respectively. Note 3 - Investment Partnership During 1993, the Company participated in the formation of a limited partnership to invest in various securities, including those of the Company. Third-party investors held limited partner and special investors interests totaling $500.0 million. Funds raised by the partnership provided a source of financing for the Company's repurchase in 1993 of 8.3 million shares of its common stock. During the fourth quarter of 1996, the Company redeemed these partnership interests. This redemption was financed with short-term borrowings. -7- The partnership is presently engaged in the business of licensing database assets and computer software. One of the Company's subsidiaries serves as managing general partner and two subsidiaries hold limited partner interests. In April 1997, the partnership raised $300.0 million of minority interest financing from a third-party investor. The Company's subsidiaries contributed assets to the partnership and the third-party investor contributed cash ($300.0 million) in exchange for a limited partner interest. Funds raised by the partnership were loaned to the Company and used to repay existing short-term debt in April 1997. At September 30, 1997, the third-party investment in this partnership was included in minority interest. For financial reporting purposes, the results of operations, assets, liabilities and cash flows of the partnership described above are included in the Company's consolidated financial statements. Note 4 - Accounting for Derivative Instruments At times, the Company uses forward foreign exchange contracts and interest rate swaps to hedge existing assets, liabilities, firm commitments and anticipated transactions. The Company does not use any derivatives for trading or speculative purposes. Gains and losses on forward foreign exchange contracts which qualify as hedges of existing assets or liabilities are included in the carrying amounts of those assets or liabilities and are ultimately recognized in income as part of those carrying amounts. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions are also deferred and are recognized in income or as adjustments of carrying amounts when the hedged transaction occurs. For foreign forward exchange contracts, the risk reduction is assessed on a transaction basis and contract amounts and terms are matched to existing intercompany transactions. The Company uses interest rate swaps to hedge interest rate risk on commercial paper. Settlement accounting is accorded to the swaps that have contractual, periodic payment terms considered to be aligned to the expected future commercial paper issuances. The commercial paper issuances are expected to continue through the term of the existing interest rate swaps. Periodic swap payments and receipts under the interest rate swaps are recorded as part of interest expense. Neither the swap contracts nor the gains or losses on these contracts which are designated and are effective as hedges are recognized in the financial statements. During the third quarter of 1997, the Company entered into forward start swap agreements in order to fix the interest rate on expected future debt issuances. The start date of the swaps is expected to coincide with the issuance of new debt. Currently the swaps are marked-to-market through earnings. At September 30, 1997, the mark-to-market loss on these instruments was immaterial. If a hedging instrument is sold or terminated prior to maturity, gains and losses will continue to be deferred until the hedged item is recognized in income. If a hedging instrument ceases to qualify as a hedge, any subsequent gains and losses are recognized currently in income. -8- Note 5- Litigation The Company and its subsidiaries are involved in legal proceedings, claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such current legal proceedings, claims and litigation could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, in the opinion of management, these matters will not materially affect the Company's consolidated financial position. In addition to the litigation referred to above, on July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants the Company, A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS International, Inc. The complaint alleges various violations of United States antitrust laws, including alleged violations of Section 1 and 2 of the Sherman Act. The complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a prospective business relationship. These claims relate to the acquisition by defendants of Survey Research Group Limited ("SRG"). IRI alleges SRG violated an alleged agreement with IRI when it agreed to be acquired by the defendants and that the defendants induced SRG to breach that agreement. On October 15, 1996, defendants moved for an order dismissing all claims in the complaint. On May 6, 1997, the United States District Court for the Southern District of New York issued a decision dismissing IRI's claim of attempted monopolization in the United States, with leave to replead within sixty days. The Court denied defendants' motion with respect to the remaining claims in the complaint. On June 3, 1997, defendants filed an answer denying the material allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim alleging that IRI has made false and misleading statements about its services and commercial activities. On July 7, 1997, IRI filed an Amended and Restated Complaint repleading its alleged claim of monopolization in the United States and realleging its other claims. By notice of motion dated August 18, 1997, defendants moved for an order dismissing the amended claim. The motion is under consideration by the Court. IRI's complaint alleges damages in excess of $350 million, which amount IRI asked to be trebled under antitrust laws. IRI also seeks punitive damages in an unspecified amount. In connection with the IRI action, Cognizant, ACNielsen and the Company entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense Agreement") pursuant to which they have agreed (i) to certain arrangements allocating potential liabilities ("IRI Liabilities") that may arise out of or in connection with the IRI Action and (ii) to conduct a joint defense of such action. In particular, the Indemnity and Joint Defense Agreement provides that ACNielsen will assume exclusive liability for IRI Liabilities up to a maximum amount to be calculated at such time such liabilities, if any, become payable (the "ACN Maximum Amount"), and that the Company and Cognizant will share liability equally for any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment banking firm as the maximum amount which ACNielsen is able to pay after giving effect to (i) any plan submitted by such investment bank which is designed to maximize the claims paying ability of ACNielsen without impairing the investment banking firm's ability to deliver a viability opinion (but which will not require any action requiring stockholder approval), and (ii) payment of related -9- fees and expenses. For these purposes, financial viability means the ability of ACNielsen, after giving effect to such plan, the payment of related fees and expenses, and the payment of the ACN Maximum Amount, to pay its debts as they become due and to finance the current and anticipated operating and capital requirements of its business, as reconstituted by such plan, for two years from the date any such plan is expected to be implemented. Management is unable to predict at this time the final outcome of the IRI Action or whether the resolution of this matter could materially affect the Company's results of operations, cash flows or financial position. Note 6 - DonTech During July 1997, RHD signed a series of new agreements with Ameritech advertising services changing the structure of the existing partnership by appointing DonTech as the exclusive sales agent in perpetuity for yellow page directories published by Ameritech in Illinois and Northwest Indiana. Under the new sales agency agreement, DonTech performs the advertising sales function for the directories and earns a commission, while Ameritech serves as the directories' publisher. As a result of the transfer of publishing services to Ameritech, RHD receives a revenue participation interest from Ameritech. The Company formerly recognized its profits from its partnership interest in DonTech as revenues and operating income when the directories were published. Under the new exclusive sales agency agreement, the sales commissions earned by DonTech and the revenues and operating income earned by RHD under the revenue participation agreement are recognized by the Company as earned at the time of the advertising sale. -10- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview On November 1, 1996, The Dun & Bradstreet Corporation (the "Company") reorganized into three publicly traded independent companies by spinning off through a tax-free distribution two new companies, (1) Cognizant Corporation ("Cognizant") and (2) ACNielsen Corporation ("ACNielsen") to shareholders. In conjunction with the reorganization, the Company also disposed of Dun & Bradstreet Software ("DBS") and NCH Promotional Services ("NCH"). The Company's continuing operations consist of Dun & Bradstreet, the operating company ("D&B"), Moody's Investors Service ("Moody's") and Reuben H. Donnelley ("RHD"). Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the prior year's consolidated financial statements of the Company have been reclassified to reflect the reorganization. Accordingly, the prior year's revenues, costs and expenses and cash flows of Cognizant, ACNielsen, DBS and NCH have been excluded from the respective captions in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows. The net operating results of these entities have been reported, net of applicable income taxes, as "Income from Discontinued Operations" and the net cash flows of these entities have been reported as "Net Cash Provided by Discontinued Operations." Results of Operations Consolidated Results The Company's third quarter 1997 net income of $87.7 million was up $63.4 million from the prior year's third quarter income from continuing operations of $24.3 million, which included impairment losses resulting from the disposal of two businesses and certain transaction-related expenses, as discussed below. Earnings per share for the third quarter of $.51 was up from the prior year's earnings per share from continuing operations of $.14. Year-to-date net income of $175.9 million in 1997 was up from prior year's income from continuing operations of $2.3 million and 1997 year-to-date earnings per share of $1.03 was up $1.02 from prior year's earnings per share from continuing operations of $.01. Operating revenues for the third quarter were up 8.6% to $553.9 million in 1997 from $509.8 million from continuing operations for the third quarter of 1996. Excluding the results of American Credit Indemnity ("ACI"), which was divested during 1996, revenues from continuing operations increased by 12.6%, driven by growth at Moody's and D&B U.S. and favorable timing at RHD primarily resulting from the restructuring of the partnership agreements with Ameritech advertising services, offset by declines in the international D&B units. Year-to-date 1997 operating revenues were $1,511.1 million compared with $1,465.3 million in the prior year. Excluding the results of ACI and the Proprietary West Operations of RHD ("P-West"), revenues from continuing operations increased by 7.7% from prior year, driven by the growth discussed above. Operating income for the third quarter of 1997 of $148.4 million was $72.4 million higher than the prior year's third quarter operating income of $76.0 million. Third quarter 1996 operating results included losses related to the sales of ACI and P-West and certain transaction-related -11- expenses totaling $26.8 million. Excluding the impact of those one-time items, operating income increased by 44.4%, reflecting the revenue growth noted above, strong cost controls, and lower corporate expenses after the reorganization. On a year-to-date basis, operating income of $321.8 million in 1997 was up from $114.1 million in 1996, resulting from the factors cited above. Non-operating expense-net which primarily includes interest expense on notes payable and minority interest expense was $15.0 million for the third quarter of 1997 compared with non-operating expense-net of $20.2 million for the third quarter of 1996, due primarily to lower minority interest expense resulting from the redemption of $500 million of partnership interests in the fourth quarter of 1996. Year-to-date 1997, non-operating expense-net was $54.1 million compared with $55.5 million in 1996. The effective tax rate was 34.3% for both the third quarter and nine months ending September 30, 1997 compared to an underlying effective tax rate of 34% for the same periods in 1996. In the third quarter of 1996, the Company's consolidated results included income from discontinued operations, net of income taxes, of $26.6 million. On a year-to-date basis in 1996, the Company's consolidated results included income from discontinued operations, net of income taxes, of $69.2 million or $.41 per share. Segment Results The Risk Management Services segment reported third-quarter revenue growth of 6.2% to $450.4 million from $424.2 million a year ago, excluding the results of ACI which was divested during 1996. D&B, the operating company, reported third-quarter revenue of $333.3 million compared with $334.2 million a year ago. D&B U.S. posted a 6.1% increase in third-quarter revenue, a result of strong performance in all areas of the business and Receivable Management Services in particular over the same quarter last year. D&B Europe's revenue was down 9.4% in the third quarter over the previous year reflecting unfavorable foreign exchange movement. Excluding the impact of foreign exchange, European revenue grew by 1.0% in the third quarter of 1997. D&B Asia Pacific, Latin America and Canada was down 10.5% in the third quarter from the previous year primarily as a result of reorganizing the operations in Latin America and lower than expected performance in Australia and New Zealand. Moody's showed the fastest growth during the third quarter, driven by significant growth in its corporate and structured bond ratings business. High yield bond volumes grew 163% over the third quarter 1996 levels and Moody's continued to benefit from strong volumes and increased ratings coverage in the mortgage backed market. Moody's third-quarter revenue was $117.2 million in 1997, an increase of 30.1% over the prior year. On a year-to-date basis, the Risk Management Services segment reported revenue growth of 6.1% to $1,324.6 million in 1997 from $1,248.7 million a year ago, excluding the results of ACI which was divested during 1996. D&B, the operating company, reported revenue of $983.8 million in 1997, up 1.5% from the prior year. D&B U.S.'s revenue grew 5.4%, a result of strong performance in both the Receivable Management Services and Marketing Information Services divisions. Europe's results were down 3.5% versus the prior year. However, after adjusting for the negative foreign exchange impact, underlying growth for Europe was 4.0%. D&B Asia Pacific, Latin America and Canada was down 8.4% from the prior year due to the factors noted above. Moody's reported revenue growth of 22.1% above the prior year due to gains in corporate bonds, structured ratings and commercial paper. -12- The Directory Information Services segment reported third-quarter revenue of $103.4 million compared with $67.8 million in the prior year, reflecting the favorable timing of revenues at both RHD and DonTech. RHD's results reflect favorable timing of revenues for directories which were published in the third quarter this year versus the second quarter last year. Revenue generated by the DonTech partnerships and the revenue participation interest earned by RHD was approximately $29 million above last year's revenue earned under the old DonTech agreement due to revenue shifts from the fourth quarter to the third quarter which were required by the new partnership agreements discussed below. On a year-to-date basis, the Directory Information Services segment revenue of $186.5 million increased 21.1% from the prior year due to the revenue shift at DonTech and modest increases at RHD. During July 1997, RHD signed a series of new agreements with Ameritech advertising services changing the structure of the existing partnership by appointing DonTech as the exclusive sales agent in perpetuity for yellow page directories published by Ameritech in Illinois and Northwest Indiana. Under the new sales agency agreement, DonTech performs the advertising sales function for the directories and earns a commission, while Ameritech serves as the directories' publisher. As a result of the transfer of publishing services to Ameritech, RHD receives a revenue participation interest from Ameritech. The Company formerly recognized its profits from its partnership interest in DonTech as revenues and operating income when the directories were published. Under the new exclusive sales agency agreement, the sales commissions earned by DonTech and the revenues and operating income earned by RHD under the revenue participation agreement will be recognized by the Company as earned at the time of the advertising sale. As discussed above, as a result of the change in the partnership structure, an approximately $29 million timing shift of revenue and operating income into the third quarter from the fourth quarter of 1997 occurred. However, the impact of these changes on the 1997 full year results is not expected to be significant. Adoption of Statements of Financial Accounting Standards ("SFAS") In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share" ("SFAS No. 128"), which simplifies existing computational guidelines, revises disclosure requirements and increases the comparability of earnings per share data on an international basis. This statement is effective for financial statements for periods ending after December 15, 1997 and requires restatement of all prior-period per share data presented. There would have been no change in the earnings per share as reflected in the accompanying Consolidated Statements of Operations had SFAS No. 128 been effective in the periods ended September 30, 1997 and 1996. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997 and requires reclassification of prior period financial statements. The Company is currently considering the various presentation options of SFAS No. 130. -13- Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which revises disclosure requirements about operating segments and establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS 131 requires that public business enterprises report financial and descriptive information about its reportable operating segments. The statement is effective for periods beginning after December 15, 1997 and requires restatement of prior years in the initial year of application. SFAS No. 131 will impact the Company's segment disclosures, but will not impact the Company's results of operations, financial position or cash flows. Liquidity and Financial Position At September 30, 1997, cash and cash equivalents totaled $90.7 million, a decrease of $37.2 million from $127.9 million held at December 31, 1996. In comparison, during the nine months ended September 30, 1996, cash and cash equivalents from continuing operations decreased by $63.2 million. Operating activities generated net cash of $367.9 million during the nine months ended September 30, 1997 compared to $221.7 million in 1996. Improved operating results, due partially to the absence of transaction-related expenses, as well as timing of tax payments and distributions received from unconsolidated subsidiaries in 1997 contributed to the increase in cash provided by operating activities during 1997 compared to 1996. Additionally, during the third quarter of 1997, the Company received $41.3 million from the buyer of Dun & Bradstreet Software to satisfy the note which was due in May 1998. Net cash used in investing activities was $106.6 million for the nine months ended September 30, 1997 compared to $81.6 million for the comparable nine month period in 1996. In 1997 the Company invested $104.8 million for capital expenditures and additions to computer software and other intangibles compared to $118.0 million in 1996. However, during 1996, the Company received proceeds from the sale of P-West of $23.5 million and generated $16.2 million of proceeds from marketable securities. Net cash used in financing activities was $295.2 million during the nine months ended September 30, 1997 compared to $200.3 million in the nine months ended September 30, 1996. Payments of dividends accounted for $113.0 million during the first nine months of 1997 compared to $268.0 million in 1996, which represented the dividend policy prior to the reorganization. The Company used $55.7 million during the nine months ended September 30, 1997 for the repurchase of stock compared to $3.7 million in the first nine months of the prior year. Proceeds from the exercise of stock options was $31.5 million for the first nine months of 1997 compared to $45.8 million in the comparable period in 1996. On April 1, 1997, the Company completed a $300.0 million minority interest financing. Funds raised by the minority interest financing were loaned to the Company and used to repay a portion of the outstanding short-term debt in April 1997. Also, during the second quarter of 1997, the Company re-entered the commercial paper market and used the proceeds to repay the additional amounts outstanding on the short-term debt facility. -14- During the third quarter of 1997, the Company entered into forward start swap agreements in order to fix the interest rate on expected future debt issuances. The start date of the swaps is expected to coincide with the issuance of new debt. Currently the swaps are marked-to-market through earnings. At September 30, 1997, the mark-to-market loss on these instruments was immaterial. Dividends On October 15, 1997, the Board of Directors approved a third quarter 1997 dividend of $.22 per share, payable December 10, 1997 to shareholders of record at the close of business November 20, 1997. -15- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: (11) Statement Re: Computation of Per Share Earnings (27) Financial Data Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the quarter ended September 30, 1997. -16- 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 4, 1997 By: FRANK S. SOWINSKI =============================================== Frank S. Sowinski Senior Vice President - Chief Financial Officer Date: November 4, 1997 By: CHESTER J. GEVEDA, JR. =============================================== Chester J. Geveda, Jr. Vice President and Controller -17- 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 , 1997 By: =============================================== Frank S. Sowinski Senior Vice President - Chief Financial Officer Date: November , 1997 By: =============================================== Chester J. Geveda, Jr. Vice President and Controller -17- EX-27 2
5 1000 9-MOS DEC-31-1997 SEP-30-1997 90690 2822 526503 0 0 202901 822908 477134 2154260 1483498 0 0 0 188421 (607765) 2154260 0 1511134 0 1189382 (2340) 0 39979 267665 91809 175856 0 0 0 175856 1.03 1.03
EX-11 3 Exhibit 11 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK ON A FULLY DILUTED BASIS FOR THE QUARTER ENDED SEPTEMBER 30, Amounts in Millions, Except Per Share Data 1997 1996
---- ---- (Average share data in thousands) Weighted average number of shares. . . . . . . . . . . . . . . . . . . . . . . . . 170,501 170,140 . . . . . . . . . . . Dilutive effect of shares issuable as of year-end under stock option plans, stock appreciation rights and restricted stock plan. . . . . . . . . . . 3,535 602 . . . . . . . Adjustment of shares applicable to stock options and stock appreciation rights exercised during the year. . . . . . . . . . . . . . . . . (121) 70 . . . . . . . . . . . --------- ----------- ========= =========== Weighted average number of shares on a fully diluted basis . . . . . . . . . . . 173,915 170,812 . . . . .. ========= =========== ========= =========== Income from Continuing Operations. . . . . . . . . . . . . . . .. . . . . . . . . $87.7 $24.3 . . . . . . Income from Discontinued Operations. .. . . . . . . . . . . . . . . . . . . . . . - 26.6 . . . . . . . . . . ======== =========== Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $87.7 $50.9 . . . . . . . . . . . . . . . . . . . ========= =========== Earnings Per Share of Common Stock on a Fully Diluted Basis: Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.50 $0.14 . . . . . . . . . . . . . . . . Discontinued Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - $0.16 . . . . . . . . . . . . . . . ========= =========== Earnings Per Share of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . $0.50 $0.30 . . . . . . . . . . ========= ===========
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