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, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 001-15967
THE DUN & BRADSTREET CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-3725387
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(State of Incorporation) (I.R.S. Employer Identification No.)
One Diamond Hill Road, Murray Hill, NJ 07974
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 665-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Title of Class Shares Outstanding
Common Stock, at March 31, 2002
par value $.01 per share 74,559,220
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 March 31, 2002 and 2001 3
Consolidated Balance Sheets (Unaudited)
March 31, 2002 and December 31, 2001 4
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2002 and 2001 5
Notes to Consolidated Financial Statements (Unaudited) 6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Year-to-Date
March 31,
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Amounts in millions, except per share data 2002 2001
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Operating Revenues $318.5 $357.6
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Operating Costs:
Operating Expenses 108.8 131.5
Selling and Administrative Expenses 127.4 143.0
Depreciation and Amortization 19.5 24.8
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Operating Costs 255.7 299.3
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Operating Income 62.8 58.3
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Non-Operating Income (Expense) - Net:
Interest Income 0.7 0.8
Interest Expense (5.0) (1.2)
Minority Interest Expense - (5.4)
Other Expense - Net (0.3) (0.3)
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Non-Operating Expense - Net (4.6) (6.1)
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Income before Provision for Income Taxes 58.2 52.2
Provision for Income Taxes 22.1 20.6
Equity in Net Losses of Affiliates (0.5) (0.7)
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Net Income $35.6 $30.9
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Basic Earnings Per Share of Common Stock $0.47 $0.38
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Diluted Earnings Per Share of Common Stock $0.46 $0.37
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Weighted Average Number of Shares Outstanding:
Basic 75.0 80.3
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Diluted 77.9 82.6
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The accompanying notes are an integral part of the consolidated financial
statements.
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
Dollar amounts in millions, except per share data 2002 2001
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Assets
Current Assets
Cash and Cash Equivalents $ 89.4 $ 145.3
Accounts Receivable---Net of Allowance of $20.5 in 2002 and $21.0 in 2001 346.1 317.8
Other Current Assets 111.9 117.1
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Total Current Assets 547.4 580.2
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Non-Current Assets
Property, Plant and Equipment, Net 155.4 158.0
Prepaid Pension Costs 349.5 333.7
Computer Software, Net 96.5 103.6
Goodwill, Net 139.7 139.6
Other Non-Current Assets 109.5 116.1
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Total Non-Current Assets 850.6 851.0
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Total Assets $ 1,398.0 $ 1,431.2
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Current Liabilities
Notes Payable $ 35.7 $ -
Other Accrued and Current Liabilities 275.5 332.7
Unearned Subscription Income 369.1 330.0
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Total Current Liabilities 680.3 662.7
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Pension and Postretirement Benefits 379.8 377.3
Long Term Debt 299.6 299.6
Other Non-Current Liabilities 108.3 111.2
Contingencies (Note 7)
Minority Interest 1.3 1.3
Shareholders' Equity
Preferred Stock, $.01 par value per share, authorized---10,000,000 shares;
--- outstanding---none
Series Common Stock, $.01 par value per share, authorized---10,000,000 shares;
--- outstanding---none
Common Stock, $.01 par value per share, authorized---200,000,000 and
400,000,000 shares for 2002 and 2001 respectively---issued---81,945,520 0.8 0.8
Unearned Compensation Restricted Stock (1.5) (1.8)
Capital Surplus 222.5 227.3
Retained Earnings 198.0 162.3
Treasury Stock, at cost, 7,386,300 and 5,067,235 shares for
2002 and 2001 respectively (230.8) (148.7)
Cumulative Translation Adjustment (204.7) (205.2)
Minimum Pension Liability (55.6) (55.6)
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Total Shareholders' Equity (71.3) (20.9)
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Total Liabilities and Shareholders' Equity $ 1,398.0 $ 1,431.2
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The accompanying notes are an integral part of the consolidated financial statements.
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
Quarter Ended March 31,
Dollar amounts in millions 2002 2001
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Cash Flows from Operating Activities:
Net Income $35.6 $ 30.9
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization 19.5 24.8
Equity Losses in Excess of Dividends Received from Affiliates 0.5 0.7
Deferred Income Taxes 10.9 2.6
Changes in Current Assets and Liabilities:
Increase in Accounts Receivable (29.4) (16.8)
Net Decrease (Increase) in Other Current Assets 1.3 (1.1)
Net Increase in Unearned Subscription Income 39.5 65.2
Net Decrease in Other Accrued and Current Liabilities (62.9) (52.0)
Net Increase in Accrued Income Taxes 3.5 12.6
Net Increase in Long Term Liabilities 0.3 4.3
Increase in Other Long Term Assets (13.9) (16.2)
Other 2.6 2.7
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Net Cash Provided by Operating Activities 7.5 57.7
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Cash Flows from Investing Activities:
Capital Expenditures (3.3) (4.8)
Additions to Computer Software and Other Intangibles (6.0) (5.9)
Investments in Unconsolidated Affiliates (0.9) (8.9)
Other 1.1 4.6
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Net Cash Used in Investing Activities (9.1) (15.0)
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Cash Flows from Financing Activities:
Payments for Purchase of Treasury Shares (95.2) (9.0)
Net Proceeds from Stock Plans 5.9 5.1
Increase (Decrease) in Commercial Paper Borrowings 35.6 (49.5)
Repayment of Minority Interest Obligations - (300.0)
Increase in Long-Term Borrowings - 299.6
Other 0.2 (1.5)
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Net Cash Used in Financing Activities (53.5) (55.3)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (0.8) 0.4
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Decrease in Cash and Cash Equivalents (55.9) (12.2)
Cash and Cash Equivalents, Beginning of Year 145.3 70.1
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Cash and Cash Equivalents, End of Quarter $89.4 $ 57.9
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Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Quarter for:
Income Taxes, Net of Refunds $4.4 $2.1
Interest and Minority Interest Expense $4.0 $5.4
The accompanying notes are an integral part of the consolidated financial statements.
THE DUN & BRADSTREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Interim Consolidated Financial Statements
These interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the consolidated financial statements and related notes of The Dun &
Bradstreet Corporation's ("D&B" or the "Company") 2001 Annual Report on Form
10-K. The consolidated results for interim periods are not necessarily
indicative of results for the full year or any subsequent period. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of financial position, results of
operations and cash flows at the dates and for the periods presented have been
included.
Note 2 - Recent Accounting Pronouncements
Effective January 1, 2002, the Company adopted the Statement of Financial
Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses the financial accounting and reporting for
intangible assets acquired individually or with a group of other assets (but not
those acquired in a business combination) at acquisition. SFAS No. 142 also
addresses financial accounting and reporting for goodwill and other intangible
assets subsequent to their acquisition. Under the new rules, the Company is no
longer required to amortize goodwill and other intangible assets with indefinite
lives. Rather, the Company's goodwill will be subject to periodic testing for
impairment at the reporting unit level. D&B considers its operating segments,
North America, Europe/Africa/Middle East ("Europe") and Asia Pacific/Latin
America ("APLA"), as its reporting units under the definitions of SFAS No. 142
for consideration of potential impairment of intangible and goodwill balances.
The Company performed the impairment test required by the new standard on the
recorded balance of goodwill as of December 31, 2001, in the amount of $139.6
million and determined that no charge for impairment was required.
The adoption of SFAS No. 142 resulted in a $1.3 million reduction in
amortization expense in the first quarter of 2002 compared to the same period in
2001. The full year impact in 2002 is expected to be a reduction of $5.3 million
in amortization expense.
The proforma impact of this accounting policy change is outlined in the table
below:
Dollar amounts in millions, except per share data
Quarter Ended March 31,
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2002 2001
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Reported Net Income $ 35.6 $ 30.9
Add Back: Goodwill Amortization - 1.3
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Adjusted Net Income $ 35.6 $ 32.2
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Basic EPS:
Reported Net Income $ 0.47 $ 0.38
Add Back: Goodwill Amortization - 0.02
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Adjusted Net Income $ 0.47 $ 0.40
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Diluted EPS:
Reported Net Income $ 0.46 $ 0.37
Add Back: Goodwill Amortization - 0.02
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Adjusted Net Income $ 0.46 $ 0.39
================= =================
SFAS No. 142 also provides that intangible assets that have finite useful
lives will continue to be amortized over their useful lives, but those lives
will no longer be limited to 40 years. SFAS No. 142 supersedes APB Opinion No.
17, "Intangible Assets." Other intangible assets of $9.2 million at December 31,
2001, that continue to be amortized, have been reclassified and are now included
in Other Non-Current Assets on the Balance Sheet.
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144 (SFAS No. 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement addresses financial accounting and reporting
for the impairment of long-lived assets. The adoption of SFAS No. 144 did not
have any impact on the Company's consolidated results of operations and
financial position this quarter.
Note 3 - Impact of Implementation of the "Blueprint for Growth" Strategy
"Blueprint for Growth" Strategy
In October 2000, D&B announced a new business strategy, the Blueprint for
Growth, designed to transform D&B into a growth company with an important
presence on the Web, while also delivering shareholder value during the
transformation. The implementation of the Blueprint for Growth requires
significant investments. In order to fund these investments, D&B has identified
opportunities to reallocate spending in order to invest for growth and deliver
shareholder value. D&B also reviewed its non-core businesses and assets with a
view to converting them into cash.
Restructuring
With the first phase of its financial flexibility program, the Company
recorded a pre-tax restructuring charge of $41.5 million in the fourth quarter
2000 to globalize administrative functions, streamline data collection and
fulfillment, rationalize sales and marketing functions and consolidate and
simplify technology functions. During the second quarter of 2001, the Company
reversed $4.0 million of the 2000 restructuring charge. The Company determined
that severance for approximately 50 employees would not be utilized and also
lowered its estimate of its remaining lease termination liabilities.
In the second quarter of 2001, D&B announced the second phase of its
financial flexibility program and recorded a pre-tax restructuring charge of
$32.8 million to reengineer administrative functions and institute common
business practices worldwide.
As of March 31, 2002, D&B has terminated approximately 1,400 of the
employees affected under the initial two phases of the financial flexibility
program. Since the financial flexibility initiatives began in October 2001, the
total employees expected to be terminated under these phases of the program will
be approximately 1,700.
The restructuring reserves and utilization to date were as follows:
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(amounts in millions) Original Balance at 2002 Balance at
Charge 12/31/2001 Payments 3/31/2002
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2001 Restructuring Charge
Severance and Termination $20.7 $19.2 $(3.8) $15.4
Asset Write-Offs 8.9 - - -
Lease Termination Obligations 3.2 1.6 (.1) 1.5
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$32.8 $20.8 $(3.9) $16.9
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2000 Restructuring Charge
Severance and Termination $28.2 $4.4 $(2.2) $2.2
Asset Write-Offs 4.5 - - -
Lease Termination Obligations 8.8 4.0 (.4) 3.6
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$41.5 $8.4 $(2.6) $5.8
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The Company completed all the actions contemplated under the first phase of
its financial flexibility program as of the end of 2001 and plans to complete
the remainder of the actions under the second phase by June 30, 2002. The
remaining accruals largely relate to future payments to be made in accordance
with the Company's severance policy for actions that have already been taken.
Note 4 - Notes Payable and Indebtedness
The Company's borrowings at March 31, 2002 and December 31, 2001, including
interest rate swaps designated as hedges, are summarized below:
(amounts in millions) 2002 2001
Commercial paper........................... $ 35.6 $ -
Bank notes................................. .1 -
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Notes Payable......................... $ 35.7 -
Fair value of long term fixed rate notes... $ 296.2 $ 297.3
Fair value of interest rate swap........... 3.4 2.3
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Long Term Debt........................ $ 299.6 $ 299.6
Note 5 - Reconciliation of Weighted Average Shares
Three Months Ended
March 31,
(share data in thousands) 2002 2001
Weighted average number of shares-basic 74,986 80,272
Dilutive effect of shares issuable under stock options,
restricted stock and performance share plans 2,741 2,151
Adjustment of shares applicable to stock options exercised
during the period and performance share plans 157 137
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Weighted average number of shares-diluted 77,884 82,560
During the first quarter of 2002, the Company repurchased 2.5 million
shares of common stock at market prices totaling $85.1 million, in a privately
negotiated block trade. In addition, D&B repurchased 244,800 shares for $10.1
million in the first quarter of 2002 to mitigate the dilutive effect of the
shares issued under stock incentive plans and in connection with its Employee
Stock Purchase Plan.
Options to purchase 4,300 and 75,000 shares of Common Stock at March 31,
2002 and 2001, respectively, were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the Common Stock. The Company's options generally expire
10 years after the initial grant date.
Note 6 - Comprehensive Income
The Company's total comprehensive income for the three-month periods ended March
31 was as follows:
Three Months Ended
(amounts in millions) March 31,
-------------------------
2002 2001
Net income $35.6 $30.9
Other comprehensive income-
Foreign currency translation adjustment .6 8.2
Unrealized mark to market impact on investments (.2) -
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Total comprehensive income $36.0 $39.1
Note 7 - Contingencies
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. Although the outcome
of such matters cannot be predicted with certainty, in the opinion of
management, the ultimate liability of the Company, in connection with such
matters will not have a material effect on the Company's results of operations,
cash flows or financial position.
In addition, the Company also has certain other contingencies discussed below.
Information Resources
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants R.H. Donnelley Corporation ("Donnelley"), A.C. Nielsen Company (a
subsidiary of ACNielsen Corporation) and IMS International, Inc. (a subsidiary
of the company then known as Cognizant Corporation). At the time of the filing
of the complaint, each of the other defendants was a wholly owned subsidiary of
Donnelley.
The complaint alleges various violations of United States antitrust laws,
including alleged violations of Section 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious interference with a prospective business relationship. These
claims relate to the acquisition by defendants of Survey Research Group Limited
("SRG"). IRI alleges SRG violated an alleged agreement with IRI when it agreed
to be acquired by the defendants and that the defendants induced SRG to breach
that agreement.
IRI's complaint alleges damages in excess of $350 million, which amount IRI
asked to be trebled under antitrust laws. IRI also seeks punitive damages in an
unspecified amount. No amount in respect of these alleged damages has been
accrued in the consolidated financial statements of the Company.
In November 1996, Donnelley completed a distribution to its shareholders
(the "1996 Distribution") of the capital stock of ACNielsen Corporation
("ACNielsen") and Cognizant Corporation ("Cognizant"). On October 28, 1996, in
connection with the 1996 Distribution, Cognizant, ACNielsen and Donnelley
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 Donnelley 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 2001, ACNielsen merged with VNU N.V.
Pursuant to the Indemnity and Joint Defense Agreement, VNU N.V. is to be
included for purposes of determining the ACN Maximum Amount, and VNU N.V.
assumed ACNielsen's liabilities under that agreement.
In June 1998, Donnelley completed a distribution to its shareholders (the
"1998 Distribution") of the capital stock of the company then known as The Dun &
Bradstreet Corporation ("Old D&B") and changed its name to R.H. Donnelley
Corporation. In connection with the 1998 Distribution, Old D&B and Donnelley
entered into an agreement (the "1998 Distribution Agreement") whereby Old D&B
assumed all potential liabilities of Donnelley arising from the IRI action and
agreed to indemnify Donnelley in connection with such potential liabilities.
During 1998, Cognizant separated into two new companies, IMS Health
Incorporated ("IMS") and Nielsen Media Research, Inc. ("NMR"). IMS and NMR are
each jointly and severally liable for all Cognizant liabilities under the
Indemnity and Joint Defense Agreement.
In September 2000, the Company and Moody's Corporation separated through a
tax-free distribution to shareholders of Old D&B ("2000 Distribution"). Under
the terms of the 2000 Distribution, the Company undertook to be jointly and
severally liable with Moody's for Old D&B's obligations to Donnelley under the
1998 Distribution Agreement, including any liabilities arising under the
Indemnity and Joint Defense Agreement. However, as between themselves, each of
the Company and Moody's will be responsible for 50% of any payments to be made
with respect to the IRI action pursuant to the 1998 Distribution Agreement,
including legal fees or expenses related thereto.
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.
Tax Matters
Old D&B and its predecessors had entered into global tax planning
initiatives in the normal course of business, principally through tax free
restructurings of both their foreign and domestic operations. These initiatives
are subject to normal review by tax authorities. It is possible that additional
liabilities may be proposed by tax authorities as a result of these reviews and
that some of the reviews could be resolved unfavorably. At this time, management
is unable to predict the extent of such reviews, the outcome thereof or whether
the resolution of these matters could materially affect the Company's results of
operations, cash flows or financial position.
Pursuant to the 2000 Distribution Agreement, the Company and Moody's agreed
to each be financially responsible for 50% of any potential liabilities that may
arise with respect to these reviews, to the extent such potential liabilities
are not directly attributable to their respective business operations.
The IRS has completed its review of the utilization of certain capital
losses generated during 1989 and 1990. On June 26, 2000, the IRS, as part of its
audit process, issued a formal assessment with respect to the utilization of
these capital losses.
Pursuant to a series of agreements, IMS Health and NMR are jointly and
severally liable to pay one-half, and Donnelley the other half, of any payments
for taxes and accrued interest arising from this matter and certain other
potential tax liabilities after Donnelley pays the first $137 million.
In connection with the 1998 Distribution, Old D&B and Donnelley entered
into an agreement whereby Old D&B has assumed all potential liabilities of
Donnelley arising from these tax matters and has agreed to indemnify Donnelley
in connection with such potential liabilities.
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. Old D&B paid
the IRS approximately $349.3 million of this amount on May 12, 2000, which Old
D&B funded with short-term borrowings. IMS Health informed Old D&B that it paid
to the IRS approximately $212.3 million on May 17, 2000. The payments were made
to the IRS to stop further interest from accruing. Notwithstanding the filing
and payment, the Company is contesting the IRS's formal assessment and would
also contest the assessment of amounts, if any, in excess of the amounts paid.
Old D&B and the Company had accrued their anticipated share of the probable
liability arising from the utilization of these capital losses and Old D&B
responded by filing a petition for a refund in the U.S. District Court on
September 21, 2000.
Subsequent to making its May 2000 payment to the IRS, IMS sought partial
reimbursement from NMR under their 1998 Distribution Agreement (the "IMS/NMR
Agreement"). Neither the Company nor Donnelley was a party to the IMS/NMR
Agreement. NMR paid IMS less than the amount sought by IMS under the IMS/NMR
Agreement and, in 2001, IMS filed an arbitration proceeding against NMR to
recover the difference. IMS sought to include Donnelley in this arbitration,
arguing that if NMR should prevail in its interpretation of the IMS/NMR
Agreement, then IMS could seek the same interpretation in an alternative claim
against Donnelley. During the first quarter of 2002, the arbitration panel ruled
that Donnelley properly belonged as a party to the arbitration. If NMR should
prevail in the arbitration against IMS and, in turn, IMS should prevail against
Donnelley, then the Company believes that the additional liability to Donnelley
would be approximately $15 million, net of tax benefits. As noted above, under
the 2000 Distribution Agreement, the Company is responsible for one-half of any
amount for which Donnelley is liable in this matter. The Company believes that
the claim asserted against Donnelley by IMS is without merit.
Note 9 - Subsequent Event
In April 2002, the Company announced a third phase of its financial
flexibility program. The actions expected to be taken include consolidating
functions and streamlining processes, automating data collection and fulfillment
functions, migrating revenue to the web while creating a more efficient business
model, and outsourcing select activities.
The Company currently expects to incur a charge in the range of $30 to $35
million pre-tax in the 2002 second quarter resulting from these actions,
primarily relating to severance and the write-off of assets.
Note 10 - Segment Information
Year-to-Date
March 31,
----------------------------
Amounts in millions 2002 2001
--------------------------------------------------------- ------------ ------------
Operating Revenues:
North America $ 244.3 $ 263.3
Europe 66.5 80.3
Asia Pacific / Latin America 7.7 14.0
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Consolidated Operating Revenues $ 318.5 $ 357.6
------------ ------------
Operating Income (Loss):
North America $ 84.8 $ 84.8
Europe (4.1) (7.4)
Asia Pacific / Latin America (0.7) (3.3)
------------ ------------
Total Divisions 80.0 74.1
Corporate and Other (17.2) (15.8)
------------ ------------
Consolidated Operating Income $ 62.8 $ 58.3
Supplemental Geographic and Product Line Information: Year-to-Date
March 31,
----------------------------
Geographic Revenue 2002 2001
---------------------------------------------------- ------------ ------------
United States $ 237.8 $ 256.1
International 80.7 101.5
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Consolidated Operating Revenues $ 318.5 $ 357.6
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Product Line Revenues
---------------------------------------------------- ------------ ------------
North America:
Risk Management Solutions $ 159.5 $ 161.8
Sales & Marketing Solutions 79.0 67.1
Supply Management Solutions 5.8 5.9
------------ ------------
Core Businesses 244.3 234.8
Receivables Management Services and
Other Divested Businesses - 28.5
------------ ------------
Total North America 244.3 263.3
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Europe:
Risk Management Solutions 53.9 56.6
Sales & Marketing Solutions 11.2 13.4
Supply Management Solutions 1.4 0.6
------------ ------------
Core Businesses 66.5 70.6
Receivables Management Services and
Other Divested Businesses - 9.7
------------ ------------
Total Europe 66.5 80.3
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APLA:
Risk Management Solutions 5.9 5.5
Sales & Marketing Solutions 1.8 1.4
Supply Management Solutions - -
------------ ------------
Core Businesses 7.7 6.9
Receivables Management Services and
Other Divested Businesses - 7.1
------------ ------------
Total APLA 7.7 14.0
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Consolidated Operating Revenues:
Risk Management Solutions 219.3 223.9
Sales & Marketing Solutions 92.0 81.9
Supply Management Solutions 7.2 6.5
------------ ------------
Core Businesses 318.5 312.3
Receivables Management Services and
Other Divested Businesses - 45.3
------------ ------------
Consolidated Operating Revenues $ 318.5 $ 357.6
------------ ------------
Assets: Mar 2002 Dec 2001
------------ ------------
North America $ 437.6 $ 387.7
Europe 409.5 447.2
Asia Pacific / Latin America 26.2 26.5
------------ ------------
Total Divisions 873.3 861.4
Corporate and Other (primarily domestic pensions and taxes) 524.7 569.8
------------ ------------
Consolidated Assets $ 1,398.0 $ 1,431.2
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Dun & Bradstreet Corporation's ("D&B" or the "Company") discussion and
analysis of its financial condition and results of operations for the first
quarter of 2002 are based upon the Company'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.
These financial statements should be read in conjunction with the consolidated
financial statements and related notes filed with the Securities and Exchange
Commission on Form 10-K, which have been prepared in accordance with accounting
principles generally accepted in the United States of America.
D&B, which provides the information, tools and expertise to help customers
Decide with Confidence, is managed on a geographical basis with three operating
segments: North America, Europe/Africa/Middle East ("Europe") and Asia
Pacific/Latin America ("APLA"). In each segment, the Company is focused on its
core product lines: Risk Management Solutions, Sales & Marketing Solutions, and
Supply Management Solutions. In this discussion of the Company's results,
revenues from Receivable Management Services ("RMS"), which was sold in the
second quarter of 2001, and all other divested businesses have been reclassified
as "RMS and Other Divested Businesses" and certain prior-period amounts have
been adjusted to conform to the 2002 presentation. Other divested businesses
also include results of the Australia/New Zealand operation, sold in the third
quarter of 2001, and operations in other countries in APLA that underwent
business model changes. D&B evaluates performance and allocates resources based
on segment revenues and operating income. For management reporting purposes,
restructuring charges, transition costs and other transactions incurred in
connection with the Blueprint Strategy are not allocated to any of the business
segments.
The following table sets forth condensed financial information derived from the
Company's consolidated financial statements for the periods indicated:
Quarter Ended
March 31,
---------------------------
Amounts in millions, except per share data 2002 2001
Operating Revenues:
North America $ 244.3 $ 234.8
Europe 66.5 70.6
Asia Pacific/Latin America 7.7 6.9
-------------------------------------------------- ------------- -------------
Total Core Revenues 318.5 312.3
Receivable Management Services and
Other Divested Businesses - 45.3
--------------------------------------------------- ------------- -------------
Consolidated Operating Revenues $ 318.5 $ 357.6
--------------------------------------------------- ------------- -------------
Operating Income (Loss):
North America $ 84.8 $ 84.8
Europe (4.1) (7.4)
Asia Pacific/Latin America (.7) (3.3)
------------- -------------
Total Divisions 80.0 74.1
Corporate and Other (17.2) (15.8)
--------------------------------------------------- ------------- -------------
Consolidated Operating Income $ 62.8 $ 58.3
--------------------------------------------------- ------------- -------------
Non-Operating Income (Expense) - Net (4.6) (6.1)
Provision for Income Taxes 22.1 20.6
Equity in Net Losses of Affiliates (0.5) (0.7)
--------------------------------------------------- ------------- -------------
Net Income $ 35.6 $ 30.9
--------------------------------------------------- ------------- -------------
Basic Earnings Per Share of Common Stock $ 0.47 $ 0.38
--------------------------------------------------- ------------- -------------
Diluted Earnings Per Share of Common Stock $ 0.46 $ 0.37
--------------------------------------------------- ------------- -------------
To facilitate an understanding of D&B's results, certain significant events
should be considered, including:
Impact of "Blueprint for Growth" Strategy (See Note 3 to the consolidated
financial statements)
In October 2001, D&B launched a new business strategy, the Blueprint for
Growth, designed to transform D&B into a growth company with an important
presence on the Web, while also delivering shareholder value during the
transformation. The implementation of the Blueprint for Growth requires
significant investments. In order to fund these investments, D&B has created a
flexible business model whereby the Company has, and will continue to, identify
opportunities to reallocate spending in order to invest for growth and deliver
shareholder value.
Financial Flexibility
During the fourth quarter of 2000, D&B began the first phase of its
financial flexibility program, which reduced expenses to generate approximately
$130 million in annualized funds that can be reallocated for investment. In
connection with this program, D&B recorded a pre-tax restructuring charge of
$41.5 million to globalize administrative functions, streamline data collection
and fulfillment, rationalize sales and marketing functions and consolidate and
simplify technology functions. During the second quarter of 2001, the Company
reversed $4.0 million of the 2000 restructuring charge. The Company determined
that severance for approximately 50 employees would not be utilized and lowered
its estimate of its remaining lease termination liabilities.
In the second quarter of 2001, D&B announced a second phase of its
financial flexibility program that will reduce expenses to generate
approximately $70 million in funds that can be reallocated for investment in
2002. Actions taken include reengineering administrative functions and
instituting common business practices worldwide. The Company recorded a pre-tax
restructuring charge of $32.8 million in connection with these actions.
As of March 31, 2002, D&B has terminated approximately 1,400 of the
employees affected under the initial two phases of the financial flexibility
program. Since the financial flexibility initiatives began in October 2001, the
total employees expected to be terminated under these phases of the program will
be approximately 1,700. The Company completed all the actions contemplated under
the first phase of its financial flexibility program as of the end of 2001, and
plans to complete the remainder of the actions under the second phase by June
30, 2002.
In April 2002, the Company announced the third phase of its financial
flexibility program that is expected to capture approximately $80 million in
additional funds that can be reallocated in 2003. The Company will continue
consolidating functions and streamlining processes, automating data collection
and fulfillment functions, migrating revenue to the web while creating a more
efficient business model, and outsourcing select activities. In the third phase
an additional 1,300 people worldwide are expected to have their positions
eliminated by June 2003. This brings the total number of people reduced from the
core business since the start of the Blueprint for Growth's financial
flexibility initiatives in October 2000 to 3,000 and positions eliminated to
3,300.
The Company currently expects to incur a charge in the range of $30 to $35
million pre-tax in the 2002 second quarter resulting from implementing the third
phase of its financial flexibility program, primarily for severance and the
write-off of assets.
Results of Operations
Consolidated Results
For the quarter ended March 31, 2002, D&B reported net income of $35.6
million, or $.47 per share basic and $.46 per share diluted. This compares with
the first quarter of 2001 net income of $30.9 million and earnings per share of
$.38 basic and $.37 diluted. Net income increased 15% and earnings per share
increased 24% for both basic and diluted earnings.
Reported operating revenues declined 11% to $318.5 million in the first
quarter of 2002, compared with $357.6 million in the first quarter of 2001. Core
revenues, which excludes revenues from RMS and other divested businesses,
increased 2%, as revenue growth in North America of 4% and in APLA of 13% were
partially offset by a decline in Europe of 6%. Before the effect of foreign
exchange, core revenues increased 3% in the first quarter of 2002 as compared to
the first quarter of 2001, with a European revenue decline of 2% offset by APLA
revenue growth of 17% from the prior year. D&B's results, before the effect of
foreign exchange, reflect a 1% decline in revenues from traditional Risk
Management Solutions and flat performance in value-added Risk Management
Solutions, a 13% increase in Sales & Marketing Solutions and a 12% increase in
Supply Management Solutions. The revenue growth in Sales & Marketing Solutions
has been driven by the strategic acquisitions of iMarket and Harris Infosource
and growth in value-added solutions.
Operating expenses decreased 15% to $255.7 million in the first quarter of
2002 compared with $299.3 million in the first quarter of 2001, primarily as a
result of net cost savings achieved through the financial flexibility program
discussed above. Selling and administrative expenses declined 11% to $127.4
million in the first quarter of 2002 compared with $143.0 million in the first
quarter of 2001. Administrative cost savings achieved through the financial
flexibility program were partially offset by transition costs incurred in
implementing the Blueprint for Growth strategy and planned spending in the B2B
e-business. Depreciation and amortization decreased 21% to $19.5 million in the
first quarter of 2002, as compared to the first quarter of 2001 as a result of
lower capitalized spending during the past few years and the write-off of
certain assets in connection with the financial flexibility programs. The $1.3
million impact of the elimination of amortization of goodwill, upon adoption of
SFAS No 142 in the first quarter of 2002, also contributed to the decrease in
the prior period.
Operating income increased 8% in the first quarter of 2002 to $62.8 million
from $58.3 million in the first quarter of 2001 as a result of the financial
flexibility program initiatives, which continue to reduce costs throughout the
Company.
Non-operating expense -- net was $4.6 million in the first quarter of 2002
compared with $6.1 million in the first quarter of 2001. Included in
non-operating income (expense) -- net is interest income and expense, minority
interest expense in the prior year and other income (expense) -- net. Interest
income was $.7 million and $.8 million in the first quarter of 2002 and 2001,
respectively. Interest expense of $5.0 million in the first quarter of 2002
decreased by $1.6 million compared to combined interest and minority interest
expense of $6.6 million in the first quarter of the prior year, as the Company's
cost of financing has decreased. Other expense -- net was $0.3 million in the
first quarter of both years.
D&B's effective tax rate was 38.0% in the first quarter of 2002 compared
with 39.5% in the first quarter of 2001. The tax rate has declined as result of
better global tax planning as well as improvements in our tax planning at the
state and local level.
D&B recognized $0.5 million and $0.7 million as equity in net losses of
affiliates for the quarters ended March 31, 2002 and 2001, respectively. These
losses result from the Company's investment in a joint venture with American
International Group, Inc. called Avantrust LLC.
Segment Results (see Note 10 to the consolidated financial statements)
North America
North America's core revenues were $244.3 million in the first quarter of
2002, up 4% from the first quarter of 2001 core revenues. In comparing first
quarter 2002 and first quarter 2001 revenues, North America's revenues from Risk
Management Solutions of $159.5 million decreased 1%, revenues from Sales &
Marketing Solutions increased 18% to $79.0 million, and revenues from Supply
Management Solutions were relatively flat at $5.8 million. The decline in
revenues in Risk Management Solutions reflected a 2% decline in the traditional
products, which were adversely impacted by one less business day in 2002 than in
the prior year quarter and an underlying decline in the usage of these products,
partially offset by a 3% increase in sales of value-added products. The 18%
increase in revenues from Sales & Marketing Solutions was driven by growth in
both traditional and value-added marketing products and last year's acquisitions
of iMarket and Harris Infosource. In the first quarter of 2001 total North
American reported revenues were $263.3 million, which included RMS and Other
Divested Businesses revenues of $28.5 million. Total North American reported
revenues declined 7% from the first quarter last year.
North America's operating income in the first quarter of 2002 was $84.8
million, flat with the first quarter of the prior year, reflecting the benefits
of the Company's financial flexibility initiatives offset by planned investments
in the D&B E-Business Solutions and the loss of operating income from the RMS
business sold in the second quarter of 2001.
Europe
Europe's core revenues were $66.5 million in the first quarter of 2002,
down 6% when compared with the first quarter of 2001 core revenues of $70.6
million. However, before the effect of foreign exchange, Europe's core revenues
would have decreased 2%. Before the effect of foreign exchange, Europe would
have reported in the first quarter of 2002 a decrease in revenues from Risk
Management Solutions of 1%, a decrease in revenues from Sales & Marketing
Solutions of 13%, and a substantial increase in revenues from Supply Management
Solutions on a relatively small base. Europe's results were impacted by weak
economic conditions tied to the global slowdown. In the first quarter of 2001,
total European reported revenues were $80.3 million, which included RMS and
Other Divested Businesses revenues of $9.7 million. Total Europe's reported
revenues declined 17% from the first quarter last year.
Europe reported an operating loss of $4.1 million in the first quarter of
2002 as compared to an operating loss of $7.4 million in the first quarter of
2001. The Company's financial flexibility initiatives, including a
reorganization in the management of Europe from 19 separate country operations
to a "One Europe" business model, continued to contribute to the improvement in
European results.
APLA
APLA reported core revenues of $7.7 million in the first quarter of 2002,
compared to $6.9 million in the first quarter of 2001. Before the effect of
foreign exchange, core revenues would have increased 17%. Before the effect of
foreign exchange, APLA's revenues from Risk Management Solutions increased 11%
and revenues from Sales & Marketing Solutions increased 40% as a result of
strong performance of value-added products. In the first quarter of 2001, total
APLA reported revenues were $14.0 million, which included RMS and Other Divested
Businesses revenues of $7.1 million. Total APLA's reported revenues declined 45%
from the first quarter last year. The reported revenues in the first quarter of
2001 include the revenues of the RMS business and Australia/New Zealand
operation as well as revenues related to other business model changes in the
region.
APLA reported an operating loss of $0.7 million in the first quarter of
2002, compared with an operating loss of $3.3 million in the first quarter of
2001. The improvement in APLA's results reflects the benefit of the Company's
on-going financial flexibility initiatives including business model changes
designed to align investment in the region with revenue growth and profit
potential.
Recent Accounting Pronouncements
As of January 1, 2002, the Company adopted the Statement of Financial
Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses the financial accounting and reporting for
intangible assets acquired individually or with a group of other assets (but not
those acquired in a business combination) at acquisition. SFAS No. 142 also
addresses financial accounting and reporting for goodwill and other intangible
assets subsequent to their acquisition. Under the new rules, the Company is no
longer required to amortize goodwill and other intangible assets with indefinite
lives. Rather, the Company's goodwill will be subject to periodic testing for
impairment at the reporting unit level. D&B considers its operating segments,
North America, Europe and APLA, as its reporting units under the definitions of
SFAS No. 142 for consideration of potential impairment of intangible and
goodwill balances. The Company performed the impairment test required by the new
standard on the recorded balance of goodwill as of December 31, 2001, in the
amount of $139.6 million and determined that no charge for impairment was
required.
The adoption of SFAS No. 142 resulted in a $1.3 million reduction in
amortization expense in the first quarter of 2002 compared to the same period in
2001. The full year impact in 2002 will be a reduction of $5.3 million.
The proforma impact of this accounting policy change is outlined in the table
below:
Dollar amounts in millions, except per share data
Quarter Ended March 31,
-------------------------------------
2002 2001
----------------- -----------------
Reported Net Income $ 35.6 $ 30.9
Add Back: Goodwill Amortization - 1.3
----------------- -----------------
Adjusted Net Income $ 35.6 $ 32.2
================= =================
Basic EPS:
Reported Net Income $ 0.47 $ 0.38
Add Back: Goodwill Amortization - 0.02
----------------- -----------------
Adjusted Net Income $ 0.47 $ 0.40
================= =================
Diluted EPS:
Reported Net Income $ 0.46 $ 0.37
Add Back: Goodwill Amortization - 0.02
----------------- -----------------
Adjusted Net Income $ 0.46 $ 0.39
================= =================
SFAS No. 142 also provides that intangible assets that have finite useful
lives will continue to be amortized over their useful lives, but those lives
will no longer be limited to 40 years. SFAS No. 142 supersedes APB Opinion No.
17, "Intangible Assets." Other intangible assets of $9.2 million at December 31,
2001 that continue to be amortized have been reclassified and are now included
in Other Non-Current Assets on the Balance Sheet.
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144 (SFAS No. 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement addresses financial accounting and reporting
for the impairment of long-lived assets. The adoption of SFAS No. 144 did not
have any impact on the Company's consolidated results of operations and
financial position this quarter.
Liquidity and Financial Position
Management believes that cash flows generated from its operations and
supplemented as needed with readily available financing arrangements are
sufficient to meet the short-term and long-term needs of D&B. D&B accesses the
commercial paper market from time to time to fund working capital needs and
share repurchases. Such borrowings have been supported by D&B's bank credit
facilities.
At March 31, 2002, cash and cash equivalents totaled $89.4 million, a
decrease from $145.3 million at December 31, 2001, primarily driven by an
acquisition of 2.5 million shares in the first quarter of 2002 and lower cash
provided by operating activities as discussed below.
Cash provided by operating activities
Cash provided by operating activities in the first quarter of 2002 was $7.5
million. Operating activities in the first quarter of 2001 provided net cash of
$57.7 million. Cash flows from operations were negatively impacted by the loss
of cash provided by the RMS business, which was sold in the second quarter of
2001, an increase in accounts receivable and a decline in unearned subscription
income compared to the first quarter of last year due to timing of contract
renewals, a slowdown in the sales of traditional risk management services and
mix effects. During the first quarter 2002, D&B made payments of $6.5 million
related to restructuring actions under the Blueprint for Growth compared to $9.9
million for the first quarter of 2001.
Cash used in investing activities
Net cash used in investing activities totaled $9.1 million in the first
quarter of 2002, compared with net cash used in investing activities of $15.0
million in the first quarter of 2001. In the first quarter of 2002, D&B spent
$9.3 million on capital expenditures, computer software and other intangibles,
compared to $10.7 million in the first quarter of 2001. The Company invested
$0.9 million in the first quarter of 2002 and $8.9 million in the first quarter
of 2001 in a joint venture with American International Group, Inc. called
Avantrust LLC.
Cash used in financing activities
Net cash used in financing activities was $53.5 million in the first
quarter of 2002, compared with net cash used in financing activities of $55.3
million during 2001.
In January 2002, the Company acquired 2.5 million shares in a
privately-negotiated block trade for $85.1 million, funded with cash on hand and
short-term commercial paper borrowings. At March 31, 2002, the Company had $35.7
million of commercial paper outstanding. At March 31, 2001 the Company had no
short-term debt outstanding, having repaid $49.5 million during the first
quarter of 2001.
D&B repurchased 244,800 shares of common stock for $10.1 million in the
first quarter of 2002 to mitigate the dilutive effect of shares issued under
stock incentive plans and in connection with its Employee Stock Purchase Plan.
Net proceeds from D&B stock plans totaled $5.9 million in 2002.
During the first quarter of 2001, D&B repurchased 345,900 shares of common
stock for $9.0 million to mitigate the dilutive effect of shares issued under
stock incentive plans and in connection with the D&B Employee Stock Purchase
Plan. D&B received proceeds in connection with its stock plans of $5.1 million
in the first quarter of 2001.
There was no change in long-term borrowings in the first quarter of 2002.
In the first quarter of 2001, the Company issued $300 million in principal of
notes. The cash proceeds from the issuance of these notes were used to repay a
$300 million obligation resulting from the purchase of an unrelated partner's
interest in a limited partnership.
Forward-Looking Statements
Certain statements in this Form 10-Q are forward-looking statements. Statements
that are not historical facts are forward-looking statements. In addition, words
such as "expects," "anticipates," "believes," "plans," "guidance" and similar
expressions are intended to identify forward-looking statements. All such
forward-looking statements are based on D&B's reasonable expectations at the
time that they are made. However, forward-looking statements are not guarantees
of future performance as they involve risks, uncertainties and assumptions that
may prove to be incorrect and that may cause D&B's actual results and experience
to differ materially from the anticipated results or other expectations
expressed in such forward-looking statements. The risks, uncertainties and
assumptions that may affect D&B's performance, which are discussed more fully in
the Company's 2001 Form 10-K, include: the possibility that economic or other
conditions might lead to a reduction in the demand for D&B products and services
worldwide; the possibility that the current economic slowdown may worsen and/or
persist for an unpredictable period of time; D&B's ability to successfully
implement its Blueprint for Growth, including the ability to achieve its
financial flexibility objectives on terms and conditions contemplated by D&B;
changes in the business information and risk management industries and markets,
including changes in customer preferences for products and product delivery
formats resulting from advances in information technology; competitive pressures
causing price reductions and/or loss of market share; risks associated with
investments and operations in foreign countries, including foreign economic
conditions, exchange rate fluctuations, regulatory environment, and cultural
factors; D&B's ability to successfully integrate recent and future acquisitions,
alliances and investments; D&B's ability to protect its proprietary information
and technology or to obtain necessary licenses on commercially reasonable terms;
the potential loss of key business assets, including data center capacity, or
interruption of telecommunication links or power sources; changes in the
legislative, accounting, regulatory and commercial environments affecting D&B's
ability to collect, manage, aggregate and use data; D&B's ability to attract and
retain key employees; and the competitive implications that the conversion to
the euro may have on D&B's pricing and marketing strategies. D&B undertakes no
obligations to update any forward-looking statements to reflect future events or
circumstances.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company'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 2001
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 March 31, 2002, no material change had occurred in the Company's market
risks, as compared to the disclosure in the Form 10-K for the year ending
December 31, 2001.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Information in response to this Item is included in
Note 8 - Contingencies on Pages 9-12 in Part I, Item 1 of this Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on April 17, 2002.
(c) The matters voted upon and the results of the vote are as follows:
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NUMBER OF SHARES
NOMINEE FOR WITHHELD
Ronald l. Kuehn, Jr. 66,242,611 614,196
Naomi O. Seligman 66,176,256 680,551
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
NUMBER OF SHARES
FOR AGAINST ABSTAIN BROKER
NON-VOTES
PricewaterhouseCoopers LLP 65,079,816 1,616,352 160,639 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Key Employees' Non-Qualified Deferred Compensation Plan (10.2)
Letter agreement dated March 20, 2002 between the Registrant and Steven W.
Alesio
(b) Reports on Form 8-K:
No current reports filed during quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DUN & BRADSTREET CORPORATION
Date: May 6, 2002 By: /s/ SARA MATHEW
-------------------------------------------------
Sara Mathew
Senior Vice President and Chief Financial Officer
Date: May 6, 2002 By: /s/ MARY JANE RAYMOND
-------------------------------------------------
Mary Jane Raymond
Vice President and Corporate Controller