-----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, AdBHbAQt+QIvpKsIWeGdlRwCKi01sc10n+aZK05vihooEHTAw+ov/Dz1BCEeiCmF USDBk8dnxpGmf+D22Oay5w== 0000950123-98-006360.txt : 19980701 0000950123-98-006360.hdr.sgml : 19980701 ACCESSION NUMBER: 0000950123-98-006360 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980630 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUN & BRADSTREET CORP CENTRAL INDEX KEY: 0000030419 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 132740040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-07155 FILM NUMBER: 98657887 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/A 1 AMENDMENT NO. 1 TO FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q/A (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO 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)
(908) 665-5000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: TITLE OF CLASS Shares Outstanding Common Stock, at April 30, 1998 par value $1 per share 171,665,841
================================================================================ 2 The undersigned registrant hereby amends Part I of its Quarterly Report on Form 10-Q, for the quarterly period ended March 31, 1998 in its entirety, as follows: PART I. FINANCIAL INFORMATION
PAGE ----- Item 1. Financial Statements Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 1998 and 1997................ 2 Consolidated Balance Sheets (Unaudited) at March 31, 1998 and December 31, 1997..................................... 3 Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1998 and 1997................ 4 Notes to Consolidated Financial Statements (Unaudited)...... 5-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 9-11
1 3 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 -------- ---------- (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Operating Revenues.......................................... $471.1 $ 436.4 ------ -------- Operating Costs............................................. 145.3 133.2 Selling and Administrative Expenses......................... 197.6 190.1 Depreciation and Amortization............................... 35.4 35.2 ------ -------- Operating Income............................................ 92.8 77.9 ------ -------- Interest Income............................................. 0.9 0.1 Interest Expense............................................ (7.3) (21.2) Other Expense -- Net........................................ (6.5) (1.4) ------ -------- Non-Operating Expense -- Net................................ (12.9) (22.5) ------ -------- Income from Continuing Operations before Provision for Income Taxes.............................................. 79.9 55.4 Provision for Income Taxes.................................. 28.4 18.9 ------ -------- Income from Continuing Operations........................... 51.5 36.5 Income (Loss) from Discontinued Operations, Net of Income Taxes of $8.1 for 1998 and Income Tax Benefit of $0.7 for 1997...................................................... 12.0 (1.6) ------ -------- Income before Cumulative Effect of Accounting Changes....... 63.5 34.9 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit of $87.7.......................................... -- (127.0) ------ -------- Net Income (Loss)........................................... $ 63.5 $ (92.1) ====== ======== Basic Earnings (Loss) Per Share of Common Stock: Continuing Operations..................................... $ 0.30 $ 0.21 Discontinued Operations................................... 0.07 (0.01) ------ -------- Before Cumulative Effect of Accounting Changes............ 0.37 0.20 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit................................................ -- (0.74) ------ -------- Basic Earnings (Loss) Per Share of Common Stock............. $ 0.37 $ (0.54) ====== ======== Diluted Earnings (Loss) Per Share of Common Stock: Continuing Operations..................................... $ 0.30 $ 0.21 Discontinued Operations................................... 0.07 (0.01) ------ -------- Before Cumulative Effect of Accounting Changes............ 0.37 0.20 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit................................................ -- (0.73) ------ -------- Diluted Earnings (Loss) Per Share of Common Stock........... $ 0.37 $ (0.53) ====== ======== Dividends Paid Per Share of Common Stock.................... $ 0.22 $ 0.22 ------ -------- Weighted Average Number of Shares Outstanding -- Basic...... 171.2 171.2 ------ -------- Weighted Average Number of Shares Outstanding -- Diluted.... 174.1 172.7 ------ --------
The accompanying notes are an integral part of the consolidated financial statements. 2 4 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31, 1998 1997 ----------- -------------- (DOLLAR AMOUNTS IN MILLIONS, ASSETS EXCEPT PER SHARE DATA) Current Assets Cash and Cash Equivalents................................... $ 116.6 $ 81.8 Accounts Receivable -- Net of Allowance of $45.2 in 1998 and $39.4 in 1997............................................. 474.5 454.5 Other Current Assets........................................ 244.8 269.2 --------- -------- Total Current Assets.............................. 835.9 805.5 --------- -------- Non-Current Assets Investments and Notes Receivable............................ 12.8 12.3 Property, Plant and Equipment............................... 306.9 317.2 Prepaid Pension Costs....................................... 194.6 190.7 Computer Software........................................... 128.7 128.0 Goodwill.................................................... 186.9 194.6 Other Non-Current Assets.................................... 139.6 141.2 --------- -------- Total Non-Current Assets.......................... 969.5 984.0 Net Assets of Discontinued Operations....................... 282.5 296.5 --------- -------- Total Assets................................................ $ 2,087.9 $2,086.0 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes Payable............................................... $ 364.8 $ 451.5 Accrued and Other Current Liabilities....................... 449.2 472.0 Unearned Subscription Income................................ 640.4 573.5 --------- -------- Total Current Liabilities......................... 1,454.4 1,497.0 Postretirement and Postemployment Benefits.................. 387.1 389.0 Other Non-Current Liabilities............................... 390.7 388.3 Minority Interest........................................... 301.9 301.9 Shareholders' Equity Preferred Stock, par value $1 per share, authorized -- 10,000,000 shares; outstanding -- none Common Stock, par value $1 per share, authorized -- 400,000,000 shares; issued -- 188,420,996 shares for 1998 and 1997.................................. 188.4 188.4 Capital Surplus............................................. 80.2 80.2 Retained Earnings........................................... 396.2 405.2 Treasury Stock, at cost, 16,850,856 and 17,853,652 shares for 1998 and 1997, respectively........................... (906.5) (964.0) Cumulative Translation Adjustment........................... (167.1) (162.6) Minimum Pension Liability Adjustment........................ (37.4) (37.4) --------- -------- Total Shareholders' Equity.................................. (446.2) (490.2) --------- -------- Total Liabilities and Shareholders' Equity.................. $ 2,087.9 $2,086.0 ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 3 5 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
QUARTER ENDED MARCH 31, ------------------ 1998 1997 ------- ------- (DOLLAR AMOUNTS IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss)........................................... $ 63.5 $ (92.1) Less: Income (Loss) from Discontinued Operations............ 12.0 (1.6) ------- ------- Income (Loss) from Continuing Operations.................. 51.5 (90.5) Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities: Cumulative Effect of Accounting Change, Net of Income Tax Benefits............................................... -- 127.0 Depreciation and Amortization............................. 35.4 35.2 Postemployment Benefit Payments........................... (5.1) (9.9) Net Decrease in Accounts Receivable....................... (25.3) (78.3) Accrued Income Taxes...................................... 38.5 (10.4) Increase in Long Term Liabilities......................... 4.5 30.0 Net Decrease in Other Working Capital Items............... 44.9 118.0 Other..................................................... (1.3) 1.8 ------- ------- Net Cash Provided by Operating Activities: Continuing Operations..................................... 143.1 122.9 Discontinued Operations................................... 28.4 59.9 ------- ------- Net Cash Provided by Operating Activities................... 171.5 182.8 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Marketable Securities......................... 3.9 0.1 Payments for Marketable Securities.......................... (4.3) -- Capital Expenditures........................................ (10.0) (4.0) Additions to Computer Software and Other Intangibles........ (16.1) (13.1) Net Cash Used in Investing Activities of Discontinued Operations................................................ (2.5) (8.7) Other....................................................... (7.6) (8.9) ------- ------- Net Cash Used In Investing Activities....................... (36.6) (34.6) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of Dividends........................................ (37.7) (37.7) Payments for Purchase of Treasury Shares.................... -- (1.7) Net Proceeds from Exercise of Stock Options................. 22.6 13.1 Decrease in Short-term Borrowings........................... (85.9) (99.2) Other....................................................... (0.2) (0.3) ------- ------- Net Cash Used in Financing Activities....................... (101.2) (125.8) ------- ------- Effect of Exchange Rate Changes on Cash and Cash Equivalents............................................... 1.1 2.2 ------- ------- Increase in Cash and Cash Equivalents....................... 34.8 24.6 Cash and Cash Equivalents, Beginning of Quarter............. 81.8 127.8 ------- ------- Cash and Cash Equivalents, End of Quarter................... $ 116.6 $ 152.4 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 4 6 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) NOTE 1 INTERIM CONSOLIDATED FINANCIAL STATEMENTS These interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and related notes of The Dun & Bradstreet Corporation's (the "Company") 1997 Annual Report on Form 10-K/A-2. The consolidated results for interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Certain prior-year amounts have been reclassified to conform to the 1998 presentation. NOTE 2 ACCOUNTING CHANGES Effective January 1, 1997, the Company changed its revenue recognition method for its Credit Information Services business to recognize revenue as products and services are used by its customers. Previously, the Company recognized revenue ratably over the contract period. This change is consistent with the Company's change in focus from a sales contract basis to a product usage basis in order to drive revenue growth and increase customer satisfaction. Additionally, the Company changed its revenue recognition method for its Moody's Investors Service ("Moody's") business to recognize revenue over the service period from previously recognizing revenues and costs at the time of billing. In the opinion of management, these accounting changes bring revenue recognition methods more in line with the economics of the business and provide a better measure of operating results. In accordance with Accounting Principles Board Opinion ("APB") No. 20, "Accounting Changes," the cumulative effect of changing the accounting for certain of the Company's revenue recognition policies resulted in a pre-tax, non-cash charge of $214.7 million ($127.0 million after tax or $.74 per share basic, $.73 per share diluted) in the quarter ended March 31, 1997. The Company also changed certain of its revenue recognition methods for its Marketing Information Services and Receivable Management Services businesses to recognize revenue over the service period from previously recognizing revenues and costs at the time of shipment or billing. Previously, the Company included the effect of these changes as a part of the cumulative effect of accounting changes in the Consolidated Statements of Operations effective January 1, 1997. Subsequent to the initial issuance of these financial statements and after discussions with the staff of the Securities and Exchange Commission, it was determined that the accounting for these changes in revenue recognition methods be amended and therefore applied retroactively. The effects of such changes decreased the pre-tax non-cash charge by $40.0 million to $214.7 million ($127.0 million after tax or $0.74 share basic, $0.73 per share diluted). The effects of these changes increased net income by $23.6 in the quarter ended March 31, 1997 and increased basic and fully diluted earnings per share for the first quarter of 1997 by $0.14. NOTE 3 REORGANIZATION AND DISCONTINUED OPERATIONS On December 17, 1997, the Board of Directors of the Company announced a plan, subject to receiving a favorable ruling from the Internal Revenue Service, to separate into two publicly traded companies -- The New Dun & Bradstreet Corporation ("New D&B") and R.H. Donnelley Corporation ("R.H. Donnelley"). The separation (the "Distribution") of the two companies will be accomplished through a tax-free dividend of a new entity comprised of the Company's Risk Management Services segment (Moody's Investors Service ("Moody's") and Dun & Bradstreet, the operating company ("D&B Inc.")). The new entity, New D&B, will be known as "The Dun & Bradstreet Corporation" and the continuing entity will change its name to 5 7 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (UNAUDITED) (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) "R.H. Donnelley Corporation" and will consist of the Company's Directory Information Services segment (R.H. Donnelley Inc., the operating company, and the DonTech partnership). In April 1998, the Company received a favorable ruling from the Internal Revenue Service with respect to the tax-free treatment of the Distribution. The transaction is expected to be completed in the summer of 1998. Due to the relative significance of the Risk Management Services segment, the transaction will be accounted for as a reverse spin-off, and as such the Risk Management Services and Directory Information Services segments have been classified as continuing and discontinued operations, respectively. For purposes of governing certain of the ongoing relationships among the Company and R.H. Donnelley as a result of the Distribution, the companies will enter into various agreements, including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement, Intellectual Property Agreement, Shared Transaction Services Agreement, Data Services Agreement and Transition Services Agreements. Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the consolidated financial statements of the Company have been reclassified to reflect the Company's Directory Information Services segment as discontinued operations. For financial reporting purposes the assets and liabilities of the Directory Information Services segment have been separately classified on the balance sheet as "Net Assets of Discontinued Operations." A summary of these assets and liabilities at March 31, 1998 and December 31, 1997 was as follows:
MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- Current assets................................ $ 89.8 $ 92.7 Total assets.................................. 341.5 362.3 Current liabilities........................... 57.8 64.6 Total liabilities............................. 59.0 65.8 Net assets of discontinued operations......... 282.5 296.5
The net operating results of the Directory Information Services segment have been reported in the caption "Income (Loss) from Discontinued Operations," in the consolidated statements of operations. Summarized operating results for the Directory Information Services segment for the quarters ended March 31, were as follows:
1998 1997* ----- ----- Operating revenues.......................................... $41.5 $19.0 Income before provision for income taxes.................... 20.1 (2.3) Net income.................................................. 12.0 (1.6)
- --------------- * 1997 included the results of the East Coast proprietary operations of R.H. Donnelley. NOTE 4 RECONCILIATION OF WEIGHTED AVERAGE SHARES
(SHARE DATA IN THOUSANDS) 1998 1997 ------------------------- ------- ------- Weighted average number of shares -- basic.................. 171,153 171,189 Dilutive effect of shares issuable under stock options, restricted stock and performance unit plans............... 2,731 1,257 Adjustment of shares applicable to stock options exercised during the period and performance unit plans.............. 220 204 ------- ------- Weighted average number of shares -- diluted................ 174,104 172,650 ======= =======
6 8 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (UNAUDITED) (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) As required by Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," the Company has provided a reconciliation of basic weighted average shares to diluted weighted average shares within the table outlined above. The conversion of diluted shares has no impact on the Company's operating results. All options outstanding at March 31, 1998 and 1997 were included in the computation of diluted earnings per share because the options' exercise prices were less than the average market price of the Company's common stock. The Company's options generally expire 10 years after the initial grant date. NOTE 5 COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in a financial statement for the period in which they are recognized and displayed with the same prominence as other financial statements. This statement also requires that financial statements for prior periods are reclassified. The Company's total comprehensive income for the three month period ended March 31, was as follows:
1998 1997 ----- ------ Net income (loss)........................................... $63.5 $(92.1) Other comprehensive loss -- foreign currency translation adjustment................................................ (4.5) (7.5) ----- ------ Total comprehensive income.................................. $59.0 $(99.6) ===== ======
NOTE 6 NOTES PAYABLE In connection with the Distribution, R.H. Donnelley will borrow approximately $350 million under the R.H. Donnelley Credit Facility and issue $150 million of senior subordinated notes under the R.H. Donnelley Indenture, all of which will be guaranteed by D&B. A portion of the proceeds of this indebtedness will be used to repay existing indebtedness of the Company. This $500 million of debt will become an obligation of R.H. Donnelley after the Distribution. NOTE 7 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Company enters into interest rate swap agreements to manage exposure to changes in interest rates. Interest rate swaps allow the Company to raise funds at floating rates and effectively swap them into fixed rates that are lower than those available to it if fixed-rate borrowings were made directly. If the Company terminates a swap agreement, the gain or loss is amortized over the shorter of the remaining original life of the swap or the debt. At March 31, 1998, the unrealized fair value of the interest rate swaps was a loss of $11.7 million, of which $3.8 million ($.6 million in the first quarter of 1998 and $3.2 million in 1997) has been recognized in income relating to swaps which do not qualify for settlement accounting. In connection with the Distribution and repayment of outstanding notes payable, the Company will cancel all of its interest rate swap agreements and will record into income the previously unrecognized fair value loss at the time of termination. NOTE 8 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. 7 9 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (UNAUDITED) (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) In addition to the litigation referred to above, on July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants the Company, A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS International, Inc. The complaint alleges various violations of United States antitrust laws, including alleged violations of Section 1 and 2 of the Sherman Act. The complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a prospective business relationship. These claims relate to the acquisition by defendants of Survey Research Group Limited ("SRG"). IRI alleges SRG violated an alleged agreement with IRI when it agreed to be acquired by the defendants and that the defendants induced SRG to breach that agreement. On October 15, 1996, defendants moved for an order dismissing all claims in the complaint. On May 6, 1997, the United States District Court for the Southern District of New York issued a decision dismissing IRI's claim of attempted monopolization in the United States, with leave to replead within sixty days. The Court denied defendants' motion with respect to the remaining claims in the complaint. On June 3, 1997, defendants filed an answer denying the material allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim alleging that IRI has made false and misleading statements about its services and commercial activities. On July 7, 1997, IRI filed an Amended and Restated Complaint repleading its alleged claim of monopolization in the United States and realleging its other claims. By notice of motion dated August 18, 1997, defendants moved for an order dismissing the amended claim. On December 1, 1997, the Court denied the motion and, on December 16, 1997, defendants filed a supplemental answer denying the remaining material allegations of the amended complaint. IRI's complaint alleges damages in excess of $350 million, which amount IRI asked to be trebled under antitrust laws. IRI also seeks punitive damages in an unspecified amount. In connection with the IRI action, Cognizant, ACNielsen and the Company entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense Agreement") pursuant to which they have agreed (i) to certain arrangements allocating potential liabilities ("IRI Liabilities") that may arise out of or in connection with the IRI Action and (ii) to conduct a joint defense of such action. In particular, the Indemnity and Joint Defense Agreement provides that ACNielsen will assume exclusive liability for IRI Liabilities up to a maximum amount to be calculated at such time such liabilities, if any, become payable (the "ACN Maximum Amount"), and that the Company and Cognizant will share liability equally for any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment banking firm as the maximum amount which ACNielsen is able to pay after giving effect to (i) any plan submitted by such investment bank which is designed to maximize the claims paying ability of ACNielsen without impairing the investment banking firm's ability to deliver a viability opinion (but which will not require any action requiring stockholder approval), and (ii) payment of related fees and expenses. For these purposes, financial viability means the ability of ACNielsen, after giving effect to such plan, the payment of related fees and expenses, and the payment of the ACN Maximum Amount, to pay its debts as they become due and to finance the current and anticipated operating and capital requirements of its business, as reconstituted by such plan, for two years from the date any such plan is expected to be implemented. In connection with the Distribution, the Company and R.H. Donnelley will enter into an agreement whereby the Company will retain all potential liabilities arising from the IRI Action. Management is unable to predict at this time the final outcome of the IRI Action or whether the resolution of this matter could materially affect the Company's results of operations, cash flows or financial position. 8 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW On December 17, 1997, the Board of Directors of the Dun & Bradstreet Corporation ("D&B") announced a plan to separate into two publicly traded companies -- The Dun & Bradstreet Corporation ("New D&B") and R.H. Donnelley Corporation ("R.H. Donnelley"). The separation (the "Distribution") of the two companies will be accomplished through a tax-free dividend of a new entity comprised of Moody's Investors Service ("Moody's") and Dun & Bradstreet, the operating company ("D&B Inc."). The new entity, New D&B, will be known as "The Dun & Bradstreet Corporation" and the continuing entity will change its name to "R.H. Donnelley Corporation" and will consist of R.H. Donnelley Inc., the operating company and the DonTech partnership. Due to the relative significance of Moody's and D&B Inc., the transaction will be accounted for as a reverse spin-off, and as such Moody's and D&B Inc. have been classified as continuing operations and R.H. Donnelley Inc. and DonTech have been classified as discontinued operations. In April 1998, the Company received a favorable ruling from the Internal Revenue Service with respect to the tax-free treatment of the Distribution. The transaction is expected to be completed in the summer of 1998. Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the consolidated financial statements of the Company have been reclassified to reflect the reorganization. Accordingly, revenues, costs and expenses, assets and liabilities, and cash flows of R.H. Donnelley Inc. and DonTech have been excluded from the respective captions in the Consolidated Statements of Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows. The net operating results have been reported, net of applicable income taxes, as "Income from Discontinued Operations", the net assets have been reported as "Net Assets of Discontinued Operations" and the net cash flows have been reported as "Net Cash Provided by Discontinued Operations." RESULTS OF OPERATIONS D&B's first quarter 1998 income from continuing operations of $51.5 million was up $15.0 million or 41% from the prior year's first quarter results from continuing operations. Earnings per share from continuing operations (basic and diluted) of $.30 was up 43% from the prior year's earnings per share from continuing operations of $.21. D&B's first quarter net income was $63.5 million or $.37 per share, both basic and diluted. This compares with a first quarter 1997 net loss of $92.1 million, or a $.54 per share loss basic, $.53 per share loss diluted. The 1997 results include a one-time, non-cash charge for the cumulative effect of accounting changes of $127.0 million after-tax ($.74 per share basic, $.73 per share diluted), with respect to certain of D&B's revenue recognition methods. Effective January 1, 1997, D&B changed its revenue recognition method for its Credit Information Services and Moody's businesses. In accordance with APB No. 20, "Accounting Changes," the cumulative effect of these accounting changes resulted in a pre-tax non-cash charge of $214.7 million ($127.0 million after-tax). The company also changed certain of its revenue recognition methods for its Marketing Information Services and Receivable Management Services businesses. Previously, the Company included the effect of these changes as part of the cumulative effect of accounting changes in the Consolidated Statements of Operations effective January 1, 1997. Subsequent to the initial issuance of the financial statements and after discussions with the staff of the Securities and Exchange Commission, it was determined that the accounting for these changes in revenue recognition methods be amended and therefore applied retroactively for all periods presented. As such the pre-tax non-cash charge was reduced by $40.0 million ($23.6 after-tax). Operating revenues for the first quarter were up 8% to $471.1 million in 1998 from $436.4 million in 1997. Revenues for D&B Inc. of $338.6 million were up 2% from the prior year. Excluding the impact of foreign currency fluctuations, revenue growth for D&B Inc. was 6%. D&B U.S. posted an 8% increase in first quarter revenue, driven by solid growth in traditional credit products, as well as strong performance in sales of Value Added Products and Database Marketing. D&B Europe's revenues decreased 8%, driven by unfavorable foreign exchange fluctuations. Excluding foreign exchange, Europe's results improved modestly, up 1% over the prior year. Growth in the UK, Eastern Europe, Italy, Holland and Portugal were offset by declines in Switzerland, Norway and Germany. Revenues from D&B Inc.'s other regions were up 3%, driven by a 13% 9 11 improvement in Receivable Management Services and growth in Latin America, partially offset by declines in Canada and Asia Pacific resulting from unfavorable foreign exchange. Moody's posted revenue growth of 25% to $132.5 million over the prior year reflecting the continuing favorable interest rate environment, the continuing trend toward the globalization of capital markets and Moody's success in product innovation. Operating income for the first quarter of 1998 of $92.8 million was 19% higher than 1997 first quarter operating income of $77.9 million. This growth reflects the strong revenue results noted above and continued efforts to control costs. Non-operating expense-net was $12.9 million for the first quarter of 1998 compared with non-operating expense-net of $22.5 million for the first quarter of 1997. This significant decrease was a result of sharply lower interest expense, driven by lower debt and strong cash flow versus prior year. The effective tax rate was 35.5% for the first quarter of 1998 compared to 34.1% in 1997. Income from discontinued operations, net of income taxes, was $12.0 million for the first quarter of 1998 compared to a loss of $1.6 million for the same period in 1997. Revenue for the R.H. Donnelley Business totaled $41.5 million, an increase of $22.5 million from $19.0 million reported in the first quarter of 1997 (which included $.8 million of revenues of the East Coast proprietary operations of the R.H. Donnelley Business ("P-East") which was sold in the fourth quarter of 1997). This strong increase is the result of a one-time shift of approximately $19 million in revenues from the DonTech partnership as well as growth in sales of advertising for both DonTech's Illinois directories and for Sprint's Las Vegas directory. Certain revenue that in previous years was reported in later quarters of the year is being reported in the first quarter this year, a result of the August 1997 restructuring of the DonTech partnership agreement with Ameritech advertising services. Operating income for the R.H. Donnelley Business for the first quarter of 1998 was $20.1 million, up $22.4 million from 1997 (which included the $.9 million operating loss of P-East), due mainly to the DonTech revenue shift. ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes are required unless the information is not readily available. D&B is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 132 will have no impact on D&B's results of operations, financial position or cash flows. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which revises disclosure requirements about operating segments and establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 requires that public business enterprises report financial and descriptive information about their reportable operating segments. The statement will be adopted by D&B effective year end December 31, 1998 and will require restatement of prior years. SFAS No. 131 is expected to affect D&B's segment disclosures, but will not affect D&B's results of operations, financial position or cash flows. D&B is in the process of evaluating the disclosure requirements. LIQUIDITY AND FINANCIAL POSITION D&B generates significant, predictable cash flows from its business operations. Management believes that these cash flows are sufficient to fund its operating needs, service debt and pay dividends and will continue to be so subsequent to the Distribution. At March 31, 1998, cash and cash equivalents totaled $116.6 million, an increase of $34.8 million from $81.8 million held at December 31, 1997. Operating activities of continuing operations generated net cash of $143.1 million during the first quarter of 1998 compared to $122.9 million in 1997. This increase is consistent with the improvement in the income from continuing operations. Discontinued operations generated $28.4 million in the first quarter of 1998 compared to $59.9 million in 1997. All interest expense, taxes and corporate overhead costs have been borne by the continuing operations of D&B. Additionally, costs incurred to complete the Distribution are the responsibility of D&B. 10 12 Net cash used in investing activities was $36.6 million for the first quarter of 1998 compared to $34.6 million in 1997 including net cash used in investing activities of discontinued operations of $2.5 million in the first quarter of 1998 and $8.7 million in 1997. In the first quarter of 1998 D&B invested $26.1 million for capital expenditures and additions to computer software and other intangibles compared to $17.1 million in the comparable period in 1997. Net cash used in financing activities was $101.2 million during the first quarter of 1998 compared to $125.8 million in the first quarter of 1997. Payments of dividends accounted for $37.7 million in both 1998 and 1997. During the first quarter of 1998, D&B reduced short-term borrowings by $85.9 million compared to $99.2 million in the first quarter of 1997. Proceeds from the exercise of stock options were $22.6 million for the first quarter of 1998 compared to $13.1 million in 1997. D&B is in the process of arranging $600 million of committed revolving credit facilities with a group of banks, which are expected to replace D&B's existing $900 million facilities. D&B expects these facilities to be in place prior to the Distribution. D&B also expects to replace its existing commercial paper program with a new program subsequent to the Distribution. While it is expected that the new revolving credit facilities will be used to support any commercial paper borrowings, D&B may also borrow under these facilities at prevailing short-term interest rates. In connection with the Distribution, R.H. Donnelley will borrow approximately $350 million under the R.H. Donnelley Credit Facility and issue $150 million of senior subordinated notes under the R.H. Donnelley Indenture, all of which will be guaranteed by D&B. A portion of the proceeds of this indebtedness will be used to repay existing indebtedness of D&B. This $500 million of debt will be an obligation of R.H. Donnelley after the Distribution. D&B has interest rate swap agreements, which effectively fix interest rates on $300.0 million of variable-rate debt through January 2005, at a weighted average fixed rate of 6.84% (see Note 5 to D&B's consolidated financial statements). Currently, a portion of the swaps is marked-to-market through earnings. In connection with the repayment of the outstanding notes payable at the time of the Distribution, D&B will cancel its outstanding interest rate swap agreements and recognize into income any previously unrecognized loss. At March 31, 1998, the unrealized fair value of these agreements was a loss of $11.7 million, of which $3.8 million had been recorded as interest expense in 1998 and 1997 ($.6 million in 1998 and $3.2 million in 1997). Management estimates that one-time cash outlays of approximately $25 million to $30 million, including the costs to terminate the swaps, will be required to complete the Distribution. These costs will be recorded as incurred. Subsequent to the Distribution, D&B will report a deficit in both retained earnings and shareholders' equity. The changes in these balance sheet accounts in connection with the Distribution are primarily the result of recording the dividend of the net assets of the R.H. Donnelley Business (for accounting purposes only) and the elimination of treasury stock, which shares will be treasury shares of R.H. Donnelley after the Distribution. The resultant decrease in retained earnings and increase in shareholders' equity will not require the use of cash and are not expected to have any impact on D&B's liquidity. Additionally, since November 1996 D&B has reported a deficit in shareholders' equity without adverse effect on its liquidity. In January 1997, D&B announced a continuation of its systematic stock repurchase plan, authorizing the purchase of up to 9.8 million shares of D&B Common Stock. The stock was held in treasury and issued upon exercise of employee stock options and for compensation plans. Under this plan, D&B repurchased 2,271,851 shares of its D&B Common Stock for $60.1 million in 1997. In connection with the Distribution, these shares will be treasury shares of R.H. Donnelley. New D&B intends to start a new systematic stock repurchase plan in 1998. On April 15, 1998, the Board of Directors of D&B approved a second quarter 1998 dividend of $.22 per share, payable June 10, 1998 to shareholders of record at the close of business May 20, 1998. Subject to the approval of its Board of Directors, it is anticipated that New D&B will initially pay a quarterly dividend of $0.185 per share. 11 13 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: June 30, 1998 By: /s/ FRANK S. SOWINSKI ------------------------------------ Frank S. Sowinski Senior Vice President -- Chief Financial Officer Date: June 30, 1998 By: /s/ CHESTER J. GEVEDA, JR. ------------------------------------ Chester J. Geveda, Jr. Vice President and Controller 12 -----END PRIVACY-ENHANCED MESSAGE-----