FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2005
Commission file number 1-15967
The Dun & Bradstreet Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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103 JFK Parkway, Short Hills, NJ
(Address of principal executive offices) |
22-3725387
(I.R.S. Employer Identification No.) |
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07078
(Zip Code) |
Registrants telephone number, including area code:
(973) 921-5500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered |
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Common Stock, par value $0.01 per share
Preferred Share Purchase Rights
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New York Stock Exchange
New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act).
Yes o No þ
As of June 30, 2005, the aggregate market value of all
shares of Common Stock of The Dun & Bradstreet
Corporation outstanding and held by nonaffiliates* (based upon
its closing transaction price on the New York Stock Exchange
Composite Tape on June 30, 2005) was approximately
$4.128 billion.
As of January 31, 2006, 66,936,840 shares of Common
Stock of The Dun & Bradstreet Corporation were
outstanding.
Documents Incorporated by Reference
Portions of the registrants definitive proxy statement for
use in connection with its annual meeting of shareholders
scheduled to be held on May 2, 2006, are incorporated into
Part III of this
Form 10-K.
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Calculated by excluding all shares held by executive officers
and directors of the registrant. Such exclusions will not be
deemed to be an admission that all such persons are
affiliates of the registrant for purposes of federal
securities laws. |
PART I
Overview
The Dun & Bradstreet Corporation (D&B or
we or our) is the leading provider of
global business information, tools and insight, and has enabled
customers to Decide with
Confidence®
for over 160 years. Our proprietary
DUNSRight®
quality process provides our customers with quality business
information. This quality information is the foundation of our
solutions that customers rely on to make critical business
decisions. Customers use our Risk Management
Solutionstm
to mitigate credit risk, increase cash flow and drive increased
profitability, our Sales & Marketing
Solutionstm
to increase revenue from new and existing customers, our
E-Business
Solutionstm
to convert prospects to clients faster by enabling business
professionals to research companies, executives and industries
and our Supply Management
Solutionstm
to increase cash by generating ongoing savings from our
customers suppliers and protecting our customers from
serious financial, operational and regulatory risk.
Our Aspiration and Our Strategy
In October 2000, we launched a new business strategy called the
Blueprint for Growth. This strategy has been successful and
continues to be our roadmap for driving our performance and
achieving our aspiration, which is: To be the most trusted
source of business insight so our customers can decide with
confidence. Our aspiration reflects the belief that by
intensifying our customer focus, our customers will be even more
successful in the marketplace.
Our Blueprint for Growth strategy has five components:
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Brand; |
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Financial Flexibility; |
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Winning Culture; |
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Current Business; and |
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E-Business.
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For the reasons described below, we believe that our Brand, our
Financial Flexibility and our Winning Culture are powerful
competitive advantages that drive the growth and profitability
of our Current Business and
E-Business.
Leverage Our Brand
We believe that the
D&B®
Brand stands for confidence: our customers rely on D&B when
they make critical business decisions.
This confidence is the product of DUNSRight, our proprietary
quality process that powers all of our customer solution sets.
Through our DUNSRight quality process, our customers have access
to comprehensive business information that we constantly
endeavor to make more accurate, complete, timely and consistent,
on a global basis. We believe that our quality process is the
best in our industry.
The foundation of our DUNSRight quality process is Quality
Assurance, which includes over 2,000 separate automated and
manual checks to ensure that data meets our high quality
standards. In addition, five Quality Drivers work
sequentially to enhance the data and make it useful to our
customers in making critical business decisions. Each of these
quality drivers is described below:
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First, by leveraging our core competency in Global Data
Collection, we bring together data from thousands of sources
worldwide and enhance it into quality information to help our
customers make profitable decisions. We have the worlds
largest global business database, with over 101 million
business records in over 200 countries, including over
41 million business records in the United States. |
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We update our database more than 1.5 million times a day.
As a result, we provide our customers a one-stop shop for global
business data from around the world. |
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We integrate the data into our database through our patented
Entity Matching process, which produces a single, more
accurate picture of each business. Entity Matching ensures that
disparate data elements are associated with the right businesses
in our database by doing such things as allowing and correcting
for variations in spelling, format, trade names and addresses. |
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We apply our nine-digit global
D-U-N-S®
Number as a unique means of identifying and tracking a
business globally through every step in the life and activity of
the business. We use the
D-U-N-S Number to link
headquarters, branches, parents and subsidiaries. In
todays global economy, the
D-U-N-S
Number has become a standard for business identification and
verification. The
D-U-N-S Number is
exclusively ours and is never reassigned to another business. It
follows a business through every phase of its life, including
bankruptcy, and allows verification of information at every
stage of the DUNSRight quality process. |
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We use the Corporate Linkage process to enable our
customers to view their total risk or opportunity across related
business entities. Corporate linkage means we view each entity
in relation to its corporate family, providing our customers
with increased awareness of risk exposure, new opportunities to
penetrate existing customers, and increased leverage with their
suppliers. |
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Finally, our Predictive Indicators use statistical
analysis to rate a businesss past performance and to
indicate how the business is likely to perform in the future. As
an example, Predictive Indicators are used to predict the
likelihood of a company going out of business or not paying its
bills. By providing Predictive Indicators, we make the
information in our database even more actionable for our
customers. |
With the power of our DUNSRight quality process at its
foundation, we believe the D&B Brand is another competitive
advantage that will help us achieve our aspiration.
Create Financial Flexibility
We continually seek opportunities to reallocate our spending
from low-growth activities to activities that will drive revenue
growth, while, at the same time, improving our profitability. We
view almost every dollar that we spend as flexible. What this
means is that we view very little of our costs as
fixed we make a conscious decision about every
investment we make.
We call this process Creating Financial Flexibility,
and we continually and systematically seek ways to improve our
performance in terms of quality and cost. Specifically, we seek
to eliminate, standardize, consolidate, and automate our
business functions, or migrate them to the Web. In addition, we
evaluate the possibility that we can achieve improved quality
and greater efficiencies through outsourcing. We have outsourced
a number of technology functions over the past several years and
have recently reviewed our existing outsourcing technology
arrangements for areas where we can achieve further
efficiencies. For example, during 2005, we increased the scope
of our technology development outsourcing with respect to
scheduled maintenance of our applications and routine testing of
our software.
In addition, as part of our Financial Flexibility Programs, we
eliminate non-core operations; consolidate operations such as
our data collection telecenters; and automate and simplify data
collection handled both internally and from third-party data
sources.
Since the launch of our Blueprint for Growth strategy, we have
implemented Financial Flexibility Programs. In each of these
programs, we identified ways to reduce our expense base and then
reallocated some of the identified spending to other areas of
our operations to improve revenue growth. With each program we
have incurred restructuring charges (which generally consists of
employee severance and termination costs, contract terminations,
asset write-offs, and/or costs to terminate lease obligations less sublease income)
and transition costs (which consist of other costs necessary to
accomplish the process changes such as consulting fees, costs of
temporary workers, relocation costs and stay bonuses).
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Our Financial Flexibility Programs are continuing. On
January 31, 2006, our Board of Directors approved our 2006
Financial Flexibility Program. In 2006, we will create financial
flexibility through initiatives, including the following:
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Eliminating, standardizing, and consolidating redundant
technology platforms, software licenses and maintenance
agreements; |
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Standardizing and consolidating customer service teams and
processes to increase productivity and capacity utilization; |
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Consolidating our vendors to improve purchasing power; and |
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Improving operating efficiencies of facilities. |
We expect to complete all actions under the 2006 program by
December 2006. On an annualized basis, these actions are
expected to create $70 million to $75 million of
financial flexibility, of which approximately $50 million
to $55 million will be generated in 2006, before any
transition costs and restructuring charges and before any
reallocation of spending. To implement these initiatives, we
expect to incur transition costs of approximately
$15 million. In addition, we expect to incur non-core
charges, as described in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations in this Annual Report on
Form 10-K,
totaling $23 million to $28 million pre-tax, of which
$10 million to $14 million relate to severance,
approximately $9 million to $10 million relate to
lease termination obligations and approximately $4 million
relate to other exit costs in 2006. Approximately
$36 million to $41 million of these transition costs
and restructuring charges are expected to result in cash
expenditures. In addition, as a result of this re-engineering
program, we expect that approximately 125 to 150 positions will
be eliminated globally.
As a result of our ability to provide funds for activities that
drive growth while at the same time improving our profitability,
we believe financial flexibility is another competitive
advantage.
Build a Winning Culture
We believe that a Winning Culture is built by strong leadership
that will drive results and create shareholder value. To build
such leadership, we have developed and deployed a consistent,
principles-based leadership model throughout our Company.
Our leadership development process ensures that team member
performance goals and financial rewards are linked to our
Blueprint for Growth strategy. For example, we link a component
of leadership compensation to our overall financial results and
require each of our team members to be certified in our
DUNSRight quality process. It also enables team members, which
include our management and employees, to receive ongoing
feedback on their performance goals and on their leadership. All
team members are expected to have personal leadership action
plans that are focused on their own personal development,
building on their leadership strengths and working on their
areas of development.
We have a talent assessment process that provides a framework to
assess and improve skill levels and performance across the
organization and which acts as a tool to aid talent development
and succession planning. We also have an employee survey
mechanism that enables team members worldwide to give feedback
on our progress in building a Winning Culture.
We believe that improving our leadership and building a Winning
Culture are competitive advantages that will help us achieve our
aspiration.
Enhance Our Current Business and Become an Important Player
in E-Business
We have four customer solution sets: Risk Management Solutions,
Sales & Marketing Solutions,
E-Business Solutions
and Supply Management Solutions. We believe each of our customer
solution sets will contribute to our growth and enable us to
achieve our aspiration.
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Our Risk Management Solutions help customers mitigate
credit risk, increase cash flow and drive increased
profitability; |
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Our Sales & Marketing Solutions help customers
increase revenue from new and existing customers; |
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Our E-Business Solutions help customers convert prospects
to clients faster by enabling business professionals to research
companies, executives and industries; and |
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Our Supply Management Solutions help customers increase
their cash by generating ongoing savings from their suppliers
and protecting our customers from serious financial, operational
and regulatory risk. |
Business Segments
We currently manage and report our business globally through two
business segments:
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United States (which consists solely of our United States or
U.S. operations); and |
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International (which consists of our operations in Canada,
Europe, Asia Pacific, and Latin America). |
On January 1, 2005, we began managing our operations in
Canada as part of our International segment and we have
reclassified our historical financial results set forth in this
Annual Report on
Form 10-K to
reflect this change. Prior to January 1, 2005, we reported
the results of our Canadian operations together with our
U.S. operations.
U.S. Our U.S. segment accounted for 75%, 71% and 67%
of our total revenue for the years ended December 31, 2005,
2004 and 2003, respectively.
International. The International segment has offices in
approximately 13 countries and has 134 independent
correspondents, and through our D&B Worldwide Network conducts
operations through strategic partner relationships with local
players in more than 20 countries and through minority equity
investments. The International segment accounted for 25%, 29%
and 33% of our total revenue for the years ended
December 31, 2005, 2004 and 2003, respectively.
As part of our ongoing effort to Enhance Our Current
Business, we have been strengthening our D&B Worldwide Network
through the continued implementation of a focused market
leadership strategy for our International segment, through which
we intend to establish a leading competitive position in every
major market. We define a leading competitive position as one
where we are, or we are partnered with:
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A leading provider of Risk Management Solutions; |
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A leading provider of Sales & Marketing
Solutions; and |
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Have the potential to grow both profitably. |
We use different approaches to improve our competitive position
from market to market worldwide. As part of this process, we
evaluate our competitive position and potential in each country
(or market) and determine whether we can best achieve our
objectives through continued direct ownership of, and investment
in, our local business, or by forming strategic relationships
with local players.
Since the launch of the Blueprint for Growth strategy, we have
entered into strategic relationships with strong local players
in the following countries (markets), which have strengthened
our DUNSRight quality process and improved our competitive
position by enhancing our brand and increasing the size and
quality of our database in these markets:
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In 2001, Japan, Australia, New Zealand, Malaysia and Thailand; |
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In 2002, Korea; |
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In 2003, Indonesia, Israel and the Nordic region (Sweden,
Denmark, Norway and Finland); and |
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In 2004, India, Distribution Channels in Pakistan and the Middle
East, Central Europe (Germany, Austria, Switzerland, Poland,
Hungary and the Czech Republic), Iberia (Spain and Portugal) and
France. |
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Our D&B Worldwide Network enables our customers globally to make
business decisions with confidence, because we incorporate data
from our strategic partners that has been put through the
DUNSRight quality process into our database and utilize it in
our customer solutions. Our customers, therefore, have access to
a more powerful database and global solution sets they can rely
on to make their risk management, sales and marketing and supply
management business decisions.
Acquisitions to Enhance Our Business Growth
In addition, we have from time to time, acquired complementary
businesses, products and technologies. For example:
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In 2003, we acquired Hoovers, Inc.; |
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In 2003, we also acquired controlling interests in three
privately held Italian real estate data companies and a minority
interest in RIBES S.p.A.; |
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In 2004, we acquired an additional interest in RIBES S.p.A.,
resulting in our controlling interest of such entity; and |
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In 2005, we acquired LiveCapital, Inc. |
Segment data and other information for the years ended
December 31, 2005, 2004 and 2003 are included in
Note 14 to our consolidated financial statements included
in Item. 8 of this Annual Report on
Form 10-K.
Our Customer Solutions and Services
Risk Management Solutions
Risk Management Solutions is our largest customer solution set,
accounting for 66%, 62% and 58% of our total revenue for the
years ended December 31, 2005, 2004 and 2003, respectively.
Within this customer solution set we offer traditional and
value-added solutions. Our traditional solutions, which consist
of reports from our database used primarily for making decisions
about new credit applications, constituted 81% of our Risk
Management Solutions revenue and 53% of our total revenue for
the year ended December 31, 2005. Our value-added
solutions, which constituted 19% of our Risk Management
Solutions revenue and 13% of our total revenue for the year
ended December 31, 2005, generally support automated
decision-making and portfolio management through the use of
scoring and integrated software solutions. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations in this
Annual Report on
Form 10-K for a
discussion of trends in this customer solutions set.
Our Risk Management Solutions help customers increase cash flow
and profitability while mitigating credit risk by helping them
answer questions such as:
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Should I extend credit to this new customer? |
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What credit limit should I set? |
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Will this customer pay me on time? |
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What is my total credit risk exposure? |
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Should I change my credit policies? |
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How can I proactively manage my cash flow? |
Our principal Risk Management Solutions are:
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Our Business Information Report, or BIR, and our Comprehensive
Report, which provide overall profiles of a company, including,
based on the report, financial information, payment information,
history of a business, ownership details, operational
information and similar information; |
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Our Self Awareness Solutions, which allow our small business
customers to establish, improve and protect their own credit; |
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Our decisioning scores, which help assess the credit risk of a
business by assigning a rating or score; |
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Our Risk Assessment Manager, or
RAMtm,
and enterprise Risk Assessment Manager, or
eRAMtm,
which help our customers manage their credit portfolios; and |
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e-Portfolio, a Web-enabled, real-time decisioning solution that
helps customers minimize risk and maximize opportunity by
automating their global risk policy. |
In addition, certain of our solutions are available on a
subscription basis. For example, in the U.S. our DNBi
interactive Web-based solution offers our customers real time
access to our global database, enabling them to make more timely
and more confident decisions to mitigate risk and drive top line
results. We also introduced a subscription plan in our European
market in the second half of 2005. This new plan provides
increased access to our Risk Management reports and data to help
customers increase their profitability while mitigating their
risk.
Sales & Marketing Solutions
Sales & Marketing Solutions is our second-largest
customer solution set accounting for 27%, 26% and 25% of our
total revenue for the years ended December 31, 2005, 2004
and 2003, respectively. Within this customer solution set we
offer traditional and value-added solutions. Our traditional
solutions generally consist of marketing lists, labels and
customized data files used by our customers in their direct mail
and marketing activities. These solutions constituted 45% of our
Sales & Marketing Solutions revenue and 12% of our
total revenue for the year ended December 31, 2005. Our
value-added solutions generally include decision-making and
customer information management solutions. These value-added
solutions constituted 55% of Sales & Marketing
Solutions revenue and 15% of our total revenue for the year
ended December 31, 2005. See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations for a discussion on trends in
this customer solutions set.
Our Sales & Marketing Solutions help customers increase
revenue from new and existing customers by helping them answer
questions such as:
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Who are my best customers? |
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How can I find prospects that look like my best customers? |
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How can I exploit untapped opportunities with my existing
customers? |
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How can I allocate sales force resources to revenue growth
potential? |
Our principal Sales & Marketing Solutions are:
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Our Customer Information Management Solutions, which are a suite
of solutions that cleanse, integrate and enrich customer
information with our DUNSRight quality process. These solutions
produce a comprehensive view of the customer that powers the
Customer Relationship Management (CRM) system and
business intelligence systems used by our customers to make
sales and marketing decisions; |
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Our Market
Spectrumtm
Web, which allows end-users easy access, through the Web, to a
decision support application that provides an integrated view of
customers and prospects. Market Spectrum Web is used to support
accurate targeting and segmentation for marketing
campaigns; and |
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Our Direct Marketing Lists, which benefit from our DUNSRight
quality process to enable our customers to create an accurate
and comprehensive marketing campaign. |
E-Business Solutions
E-Business Solutions represents the results of Hoovers,
Inc., a business we acquired in March 2003. In addition to
offering Hoovers in the U.S., we began offering our
Hoovers solution to customers in Europe in the fourth
quarter of 2004. Hoovers accounted for 4%, 4% and 2% of
our total revenue for the years ended December 31, 2005,
2004 and 2003, respectively. See Item 7.
Managements Discussion and Analysis of
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Financial Condition and Results of Operations in this
Annual Report on
Form 10-K for a
discussion on trends in this customer solutions set.
Hoovers provides information on public and private
companies, and their executives and industries, primarily to
senior executives and sales professionals worldwide. The
database includes industry and company briefs, information on
competitors, corporate financials, executive contact
information, current news and research and analysts reports.
Hoovers subscribers primarily access the data online via
Hoovers Online.
Our E-Business
Solutions help customers convert prospects to clients faster by
helping them answer questions such as:
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How do I identify prospects and better prepare for sales calls? |
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What is the prospects business strategy and who are its
major competitors? |
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How does the prospect compare to others in their industry? |
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Who are the key senior level decision-makers? |
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How do I build a strong relationship with my customers? |
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How do I find new business opportunities and keep current on
market trends and competitors? |
Our principal
E-Business Solutions
are:
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Our subscription solutions delivered online through
Hoovers Online (such as Lite, Pro,
Pro Plus, Pro Premium) and via
electronic data feeds; |
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Our advertising and
e-marketing solutions
provided through www.hoovers.com and related websites; |
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Licensing of Hoovers proprietary content to third-party
content providers; and |
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The Hoovers Handbook series, a series of authoritative,
printed reference materials. |
Supply Management Solutions
Supply Management Solutions accounted for 3%, 2% and 3% of our
total revenue for the years ended December 31, 2005, 2004
and 2003, respectively. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations in this Annual Report on
Form 10-K for a
discussion on trends in this customer solutions set.
Our Supply Management Solutions help our customers to increase
cash by generating ongoing savings from our customers
suppliers and protecting our customers from serious financial,
operational and regulatory risk by helping them answer questions
such as:
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How much do I spend on purchasing? |
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How much business do I do with each supplier? |
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How can I minimize my purchasing costs? |
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How can I avoid supply chain disruption? |
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How can I know which suppliers are also customers? |
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How can I find suppliers to help achieve my corporate diversity
objectives? |
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How do I know whether I am in compliance with regulatory acts? |
Our principal Supply Management Solutions are:
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Our Supply Data Services, which provide data content and
professional services to remove duplicate records and file
fragmentation as well as cleanse, enhance and enrich our
customers supplier information; |
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Our Supplier reports, particularly our Supplier Qualifier
Reporttm,
which enable our customers to understand risk in their supply
base by providing an in-depth business profile on an individual
supplier and help customers understand the nature and
performance of a suppliers business; |
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Our Supply
On-Ramptm,
which is a Web-based solution that allows customers to
standardize their supplier registration and evaluation process
by creating a single point of entry with consistent procedures;
and |
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Our Supply
Optimizer®,
which is an analytical software tool that provides customers
with a comprehensive view of their supplier relationships: who
their suppliers are, how much they are spending by business unit
and what categories of customers solutions and services are
being bought. |
Our Sales Force
We rely primarily on our sales force of approximately 1,700 team
members worldwide to sell our customers solutions, of which
approximately 1,200 are in our U.S. segment and 500 are in
our International segment as of December 31, 2005. Our
sales force includes relationship managers and solution
specialists who sell to our higher-revenue customers, teams of
telesales people who sell to our lower-revenue customers and a
team that sells to resellers of our solutions and our data.
We deliver our solutions primarily through the Web and other
electronic methods, including desktop and enterprise application
software, as well as through third-party resellers and
enterprise software vendors.
Our Customers
Our principal customers are banks and other credit and financial
institutions, major manufacturers and wholesalers, insurance
companies and telecommunication companies. The principal
customers for our
E-Business Solutions
are sales, marketing and business development professionals.
None of our customers accounted for more than 2% of our 2005
total revenue or of the revenue of our U.S. or
International business segments. Accordingly, neither we nor
either of our business segments is dependent on a single
customer or a few customers, such that a loss of any one would
have a material adverse effect on our consolidated annual
results of operations or the annual results of either of our
business segments.
Competition
We are subject to highly competitive conditions in all aspects
of our business. A number of competitors are active in specific
aspects of our business. However, we believe no competitor offers
our complete line of solutions or can match our global data
quality resulting from our DUNSRight quality process.
In the U.S., we are a market leader in our Risk Management
Solutions business in terms of market share and revenue,
including revenue from sales of third-party business credit
information. We compete with our customers own internal
business practices by continually developing more efficient
alternatives to our customers risk management processes in order
to capture more of their internal spend. We also directly
compete with a broad range of companies, including consumer
credit companies such as Equifax, Inc. and Experian Information
Solutions, Inc. (Experian), which have traditionally
offered primarily consumer information services, but now offer
products that combine consumer information with business
information as a tool to help customers make credit decisions
with respect to small businesses.
We also compete in the U.S. with a broad range of companies
offering solutions similar to our Sales & Marketing
Solutions and Supply Management Solutions as well as our
customers own purchasing departments. In our
Sales & Marketing Solutions business, our direct
competitors include companies such as Experian and infoUSA, Inc.
(infoUSA). In our Supply Management Solutions
business, we directly compete with consulting firms, specialty
data providers and specialty software companies.
In our E-Business
Solutions, Hoovers competition varies based on the size of
the customer and the level of spending available for services
such as Hoovers Online. On the high end of product
pricing, Hoovers Pro, Hoovers Pro Plus and
Hoovers Pro Premium products compete with other business
information providers
8
such as infoUSA. On the lower end of product pricing, our
Hoovers Lite solution mainly competes with
advertising-supported websites and other free or low-priced
information sources, such as Yahoo! Finance and CBS MarketWatch.
Outside the U.S., the competitive environment varies by country,
and in some countries we are a market leader. For example, in
Europe, our direct competition is primarily local, such as
Cerved in Italy and Experian in the United Kingdom
(UK). In addition, common links exist among some of
these competitors through their membership in European
information network alliances, such as BIGNet (Experian), and we
believe that competitors may be pursuing the establishment of
their own pan-European network through direct investment, which
could ultimately be positioned by them as an alternative to our
D&B Worldwide Network. However, we believe we offer superior
solutions when compared to these networks because of our
DUNSRight quality process. In addition, the Sales &
Marketing Solutions landscape is both localized and fragmented
throughout Europe, where numerous local players of varying size
compete for business.
We also face significant competition from the in-house
operations of the businesses we seek as customers, other general
and specialized credit reporting and business information
services, other information and professional service providers,
and credit insurers. For example, in certain International
markets, such as Europe, some credit insurers have identified
the provision of credit information as an additional revenue
stream. In addition, business information solutions and services
are becoming more readily available, principally due to the
expansion of the Internet, greater availability of public data
and the emergence of new providers of business information
solutions and services.
As discussed in Our Aspiration and Our Strategy
above, we believe that our Brand, our Financial Flexibility and
our Winning Culture form a powerful competitive advantage.
Our ability to continue to compete effectively will be based on
a number of factors, including our ability to:
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Communicate and demonstrate to our customers the value of our
proprietary DUNSRight quality process and, as a result, improve
customer satisfaction; |
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Maintain and develop proprietary information and services such
as analytics (e.g., scoring) and sources of data not
publicly available; |
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Leverage our brand perception and the value of our D&B Worldwide
Network; and |
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Attract and retain a high-performing workforce. |
Intellectual Property
We own and control various intellectual property rights, such as
trade secrets, confidential information, trademarks, trade
names, copyrights, patents and applications therefor. These
rights, in the aggregate, are of material importance to our
business. We also believe that each of the D&B name and
related trade names, marks and logos are of material importance
to our business. We are licensed to use certain technology and
other intellectual property rights owned and controlled by
others, and other companies are licensed to use certain
technology and other intellectual property rights owned and
controlled by us. We consider our trademarks, service marks,
databases, software, patents, patent applications and other
intellectual property to be proprietary, and we rely on a
combination of statutory (e.g., copyright, trademark,
trade secret, patent, etc.) and contract and liability
safeguards for protection thereof throughout the world.
Unless the context indicates otherwise, the names of our branded
solutions and services referred to in this Annual Report on
Form 10-K are
trademarks, service marks or registered trademarks or service
marks owned by or licensed to us or one or more of our
subsidiaries.
We own patents and patent applications both in the U.S. and in
other selected countries of strategic importance to us. The
patents and patent applications include claims which pertain to
certain technologies which we have determined are proprietary
and warrant patent protection. We believe that the protection of
our innovative technology, especially technology pertaining to
our proprietary DUNSRight quality process,
9
through the filing of patent applications is a prudent business
strategy and we will continue to seek to protect those assets
for which we have expended substantial research and development
capital. Filing of these patent applications may or may not
provide us with a dominant position in the fields of technology.
However, these patent applications may provide us with legal
defenses should subsequent patents in these fields be issued to
third parties and later asserted against us. Where appropriate,
we may also consider asserting or cross-licensing our patents.
Employees
As of December 31, 2005, we employed approximately
4,350 team members worldwide, of which approximately 2,950
were in our U.S. segment and Corporate and approximately
1,400 were in our International segment. We believe that we have
good relations with our employees. There are no unions in our
U.S. segment. Workers Councils and Trade Unions represent a
portion of our employees in the European and Latin American
operations of our International segment.
Available Information
We are required to file annual, quarterly and current reports,
proxy statements and other information with the SEC. Investors
may read and copy any document that we file, including this
Annual Report on
Form 10-K, at the
SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. Investors may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330. In
addition, the SEC maintains an Internet site at www.sec.gov that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC, from which investors can electronically access our SEC
filings.
We make available free of charge on or through our website
(www.dnb.com) our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q, Current
Reports on
Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended, as soon as reasonably practicable after we
electronically file such material with, or furnish the material
to, the SEC. The information on our website is not, and shall
not be deemed to be, a part of this Annual Report on Form 10-K or
incorporated into any other filings we make with the SEC.
Organizational Background of Our Company
As used in this report, except where the context indicates
otherwise, the terms D&B, Company,
we, us, or our refer to The
Dun & Bradstreet Corporation and our subsidiaries.
We were incorporated in 2000 in the State of Delaware. For more
information on our history, including the various spin-offs
leading to our formation and our becoming a public company in
September 2000, see Item 3. Legal Proceedings.
Item 1A. Risk
Factors
Our business model is dependent upon third parties to
provide data and certain operational services, the loss of which would materially impact our business and financial results.
We rely significantly on third parties to support our business
model. For example:
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We obtain much of the data that we use from third parties,
including public record sources; |
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We partner with single source providers in certain countries
that support the needs of our customers around the globe and
rely on our strategic partners in our D&B Worldwide Network to
provide local data in countries in which we do not directly
operate; |
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We have outsourced various functions, such as our technology
help desk and network management functions in the U.S. and in
the UK; and |
10
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We have also outsourced certain portions of our data acquisition
and delivery, customer service and some financial processes,
such as cash collections and accounts payable. |
If one or more data providers were to withdraw their data, cease
making it available, or not adhere to our data quality
standards, our ability to provide solutions and services to our
customers could be materially adversely impacted, which could
result in decreased revenue, net income and earnings per share.
Similarly, if one of our outsource providers, including our
strategic partners, were to experience financial or operational
difficulties, their services to us would suffer or they may no
longer be able to provide services to us at all, materially
impacting our business and financial results. In addition, we
cannot be certain that we could replace our large third party
vendors in a timely manner or on terms commercially reasonable
to us.
We face competition that may cause price reductions or
loss of market share.
We are subject to competitive conditions in all aspects of our
business. We compete directly with a broad range of companies
offering business information services to customers. We also
face competition from:
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The in-house operations of the businesses we seek as customers; |
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Other general and specialized credit reporting and other
business information services; |
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Other information and professional service providers; and |
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Credit insurers. |
In addition, business information solutions and services are
becoming more readily available, principally due to the
expansion of the Internet, greater availability of public data
and the emergence of new providers of business information
solutions and services. Large web search engine companies can
provide low-cost alternatives to data gathering and change how
our customers perform key activities such as marketing
campaigns. Such companies, and other third parties which may not
be readily apparent today, may become significant low-cost
competitors and adversely impact the demand for our solutions
and services.
Weak economic conditions also can result in customers
seeking to utilize free or lower-cost information that is
available from alternative sources such as the Internet and
European Commission sponsored projects like the European
Business Register. Intense competition could harm us by causing,
among other things, price reductions, reduced gross margins and
loss of market share.
We are facing increased competition from consumer credit
companies that offer consumer information solutions to help
their customers make credit decisions regarding small
businesses. In addition, consumer information companies are
seeking to expand their operations more broadly into aspects of
the business information space. While their presence is
currently small in the business information market, given the
size of the consumer market in which they play, they have scale
advantages in terms of scope of operations and size of
relationship with customers, which they can potentially leverage
to an advantage.
Our ability to continue to compete effectively will be based
upon a number of factors including our ability to:
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Communicate and demonstrate to our customers the value of our
proprietary DUNSRight quality process and, as a result, improve
customer satisfaction; |
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Maintain and develop proprietary information and services such
as analytics (e.g., scoring), and sources of data not
publicly available; |
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Demonstrate value through our decision-making tools and
integration capabilities; |
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Leverage our brand perception and the value of our D&B Worldwide
Network; |
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Continue to implement the Financial Flexibility component of our
strategy and effectively reallocate our spending to activities
that drive revenue growth; |
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Deliver reliable and high-quality business information through
various media and distribution channels in formats tailored to
customer requirements; |
11
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Attract and retain a high-performing workforce; |
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Enhance our existing services and introduce new
services; and |
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Improve our International business model and data quality
through the successful management of strategic partner
relationships in our International segment that are part of our
D&B
Worldwide Network. |
We may not be able to successfully complete undertaking various initiatives in our
International segment that are critical to increasing our international revenues and enhancing our operating margins.
We are undertaking a number of
initiatives in our International Segment that are primarily focused on improving our competitive
position, growing our revenues and improving our operating margins.
Examples of initiatives we are currently undertaking or will
seek to undertake in the near future include:
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Implementing subscription plan pricing for customers to increase
their access to our Risk Management reports and data, to help
them increase profitability while mitigating risk; |
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Improving the management of our D&B Worldwide Network in order to,
among other things, optimize revenue and profits realized by the
sale of data collected by strategic partner organizations in
certain markets; and |
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Implementing specific process re-engineering projects designed
to improve efficiency and productivity in our business. |
These and other initiatives we undertake may not be successful
in attaining a consistent and sustainable level of improved
International financial performance. For example, we may not be
able to reduce costs of our operations through re-engineering to
the extent expected due to challenges in implementing our
technology plans, or the efforts by our partner organizations to
increase the value of the data they provide us may not result in
significant improvements in data quality.
If we fail to improve the performance of our
International segment, the market value of our common stock
could be materially adversely affected.
We rely on annual contract renewals for a substantial part
of our revenue and our quarterly results may be significantly impacted by the timing of these renewals.
We derive a substantial portion of our revenue from annual
customer contracts. If we are unable to renew a significant
number of these contracts, our revenue and results of operations
would be harmed. In addition, our results of operations from
period to period may vary due to the timing of customer contract
renewals.
Changes in the legislative, regulatory and commercial
environments in which we operate may adversely impact our ability to collect, manage, aggregate and use data.
Certain types of information we gather, compile and publish are
subject to regulation by governmental authorities in certain
markets in which we operate, particularly in Europe and other
international markets. In addition, there is increasing
awareness and concern among the general public regarding
marketing and privacy matters, particularly as they relate to
individual privacy interests and the ubiquity of the Internet.
These concerns may result in new laws and regulations. In
general, compliance with existing laws and regulations has not
to date seriously affected our business, financial condition or
results of operations. Nonetheless, future laws and regulations
with respect to the collection, management and use of
information, and adverse publicity or litigation concerning the
commercial use of such information, could affect our operations.
This could result in substantial regulatory compliance or
litigation expense or a loss of revenue.
In addition, governmental agencies may seek, from time to time,
to increase the fees or taxes that we must pay to acquire, use
and/or redistribute data that such governmental agencies
collect. While we would seek to pass along any such price
increases to our customers, there is no guarantee that we would
be able to do
12
so, given competitive pressures or other considerations. In
addition, any such price increases to our customers may result
in reduced usage by our customers and/or loss of market share.
We may be unable to achieve our revenue and earnings per
share growth targets, which could negatively impact our stock price.
We have established revenue and earnings per share growth
targets for 2006 and aspirations for 2007. Our growth is
dependent upon successfully executing our strategy to reduce our
expense base and reallocating a portion of the savings into new
initiatives with higher revenue growth. Our initiatives and
investments may not be sufficient to achieve and maintain such
growth targets. A failure to reach and maintain our desired
revenue growth or our earnings per share growth targets could
have a material adverse affect on the market value of our common
stock.
We may be unable to adapt successfully to changes in our
customers preferences for our solutions, which could adversely impact our revenues.
Our success depends in part on our ability to adapt our
solutions to our customers preferences. Advances in
information technology and uncertain or changing economic
conditions are changing the way our customers use business
information. As a result, our customers are demanding both lower
prices and more features from our solutions, such as
decision-making tools like credit scores and electronic delivery
formats. If we do not successfully adapt our solutions to our
customers preferences, our business, financial condition
and results of operations would be materially adversely
affected. Specifically, for our larger customers, our continued
success will be dependent on our ability to satisfy more of
their needs by providing solutions beyond data, such as enhanced
analytics and assisting with their data integration efforts. For
our smaller customers, our success will depend in part on our
ability to simplify our solutions and pricing offerings and
enhancing our marketing efforts to these customers.
To address customer needs for pricing certainty and increased
access to our solutions, in the fourth quarter of 2003 we began
to rollout a subscription pricing plan. The subscription pricing
plan provides expanded access to our Risk Management Solutions
in a way that provides more certainty over related costs to the
customer, which in turn generally results in customers
increasing their spend on our solutions. This plan has been an
important driver of our growth in 2005. Our success moving
forward is dependent, in part, on the continued penetration of
this offering and the successful rollout of similar programs in
various markets around the world. Similarly, our continued
success is dependent on customers acceptance of DNBi.
Our operations in the International segment are subject to
various risks associated with operations in foreign countries, which could adversely impact our operating results.
Our success depends in part on our various operations outside
the United States. For the three years ended December 31,
2005, 2004 and 2003, our International segment accounted for
25%, 29% and 33% of total revenue. Our International business is
subject to many challenges, the most significant being:
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Our competition is primarily local, and our customers may have
greater loyalty to our local competitors; |
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Credit insurance is a significant credit risk mitigation tool in
certain markets, thus reducing the demand for our Risk
Management Solutions; and |
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In some markets, key data elements are generally available from
public-sector sources, thus reducing a customers need to
purchase our data. |
Our International strategy includes forming strategic partner
relationships in certain markets with third parties to improve
our data quality. We form and manage these strategic partner
alliances to create a competitive advantage for us over the long
term, however, these strategic partnerships may not be
successful.
13
The issue of data privacy is an increasingly important area of
public policy in various International markets, and we operate
in an evolving regulatory environment that could adversely
impact aspects of our business or the business of our partners
on whom we depend.
Our operating results could also be negatively affected by a
variety of other factors affecting our foreign operations, many
of which are beyond our control. These factors include currency
fluctuations, economic, political or regulatory conditions in a
specific country or region, trade protection measures and other
regulatory requirements. Additional risks inherent in
International business activities generally include, among
others:
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Longer accounts receivable payment cycles; |
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The costs and difficulties of managing international operations
and strategic partnership alliances; and |
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The need to comply with a broader array of regulatory and
licensing requirements, the failure of which could result in
fines, penalties or business suspensions. |
A failure in the integrity of our database could harm our
brand and result in a loss of sales and an increase in legal claims.
The reliability of our solutions is dependent upon the integrity
of the data in our global database. We have in the past been
subject to customer and third-party complaints and lawsuits
regarding our data, which have occasionally been resolved by the
payment of money damages. A failure in the integrity of our
database could harm us by exposing us to customer or third-party
claims or by causing a loss of customer confidence in our
solutions.
Also, we have licensed, and we may license in the future,
proprietary rights to third parties. While we attempt to ensure
that the quality of our brand is maintained by the business
partners to whom we grant non-exclusive licenses and by
customers, they may take actions that could materially and
adversely affect the value of our proprietary rights or our
reputation. In addition, it cannot be assured that these
licensees and customers will take the same steps we have taken
to prevent misappropriation of our data solutions or
technologies.
We may lose key business assets, including loss of data
center capacity or the interruption of telecommunications links, the Internet, or power sources which could significantly impede our ability to do business.
Our operations depend on our ability, as well as that of
third-party service providers to whom we have outsourced several
critical functions, to protect data centers and related
technology against damage from fire, power loss,
telecommunications failure, impacts of terrorism, breaches in
security (such as the actions of computer hackers), natural
disasters, or other disasters. The on-line services we provide
are dependent on links to telecommunications providers. In
addition, we generate a significant amount of our revenue
through telesales centers and websites that we utilize in the
acquisition of new customers, fulfillment of solutions and
services and responding to customer inquiries. We may not have
sufficient redundant operations to cover a loss or failure in
all of these areas in a timely manner. Any damage to our data
centers, failure of our telecommunications links or inability to
access these telesales centers or websites could cause
interruptions in operations that materially adversely affect our
ability to meet customers requirements, resulting in
decreased revenue, net income and earnings per share.
We are involved in tax and legal proceedings that could
have a material adverse impact on us.
We are involved in tax and legal proceedings, claims and
litigations that arise in the ordinary course of business. As
discussed in greater detail under Note 13
Contingencies (Legal Proceedings) in Notes to
Consolidated Financial Statements herein in Part II,
Item 8 of this Annual Report on
Form 10-K, certain
of these matters could have a material adverse impact on our
results of operations, cash flows or financial position.
14
We may be unable to reduce our expense base through our
Financial Flexibility Program, and the related reinvestments from savings from this program may not produce the level of desired revenue growth which would negatively impact our
financial results.
Successful execution of our Blueprint for Growth strategy
includes reducing our expense base through our Financial
Flexibility Program, and reallocating our expense base
reductions into initiatives to produce our desired revenue
growth. The success of this program may be affected by:
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Our ability to implement all of the actions required under this
program within the established timeframe; |
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Our ability to implement actions which require process or
technology changes to reduce our expense base; |
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Entering into or amending agreements with third-party vendors to
renegotiate terms beneficial to us; |
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Managing third-party vendor relationships effectively; |
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Completing agreements with our local works councils and trade
unions related to potential reengineering actions in certain
International markets; and |
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Maintaining quality around key business processes utilizing our
reduced and/or outsourced resources. |
If we fail to reduce our expense base, or if we do not achieve
our desired level of revenue growth from new initiatives, the
market value of our common stock may suffer.
We may not be able to attract and retain qualified
personnel which could impact the quality of our performance and customer satisfaction.
Our success also depends on our continuing ability to attract,
retain and motivate highly qualified personnel at all levels and
to appropriately utilize the time and resources of such
personnel. Competition for this personnel is intense, and we may
not be able to retain our key personnel or attract, assimilate
or retain other highly qualified personnel in the future. We
have from time to time experienced, and we expect to continue to
experience, difficulty in hiring and retaining employees with
appropriate qualifications.
Acquisitions may disrupt or otherwise have a negative
impact on our business.
As part of our strategy, we may seek to acquire other
complementary businesses, products and technologies.
Acquisitions are subject to the following risks:
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Acquisitions may cause a disruption in our ongoing business,
distract our management and make it difficult to maintain our
standards, controls and procedures; |
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We may not be able to integrate successfully the services,
content, products and personnel of any acquisition into our
operations; and |
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We may not derive the revenue improvements, cost savings and
other intended benefits of any acquisition. |
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Item 1B. |
Unresolved Staff Comments |
Not applicable.
Our executive offices are located at 103 JFK Parkway, Short
Hills, New Jersey, in a
123,000-square-foot
property that we lease. This property also serves as the
executive offices of our U.S. segment.
Our other properties are geographically distributed to meet
sales and operating requirements worldwide. We generally
consider these properties to be both suitable and adequate to
meet current operating
15
requirements, and most of the space is being utilized. As of
December 31, 2005, the most important of these other
properties include the following sites:
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a 302,000-square-foot
leased space in Bethlehem, Pennsylvania, which houses various
sales, finance and data acquisition personnel (approximately
one-third of this space is subleased to a third party); |
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a 147,000-square-foot
office building that we own in Parsippany, New Jersey, housing
personnel from our U.S. sales, marketing and technology
groups (approximately one-third of this space is leased to a
third party); |
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a 78,000-square-foot
office building that is leased in Austin, Texas, which houses a
majority of Hoovers employees; and |
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a 70,000-square-foot
leased space in High Wycombe, England, which houses operational
and technology services for Europe and serves as the executive
office for our European operations. |
In addition to the above locations, we also conduct operations
from 43 other offices located throughout the U.S., of which 42
are leased, and 33
non-U.S. office
locations, of which 32 are leased.
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Item 3. |
Legal Proceedings |
We are involved in tax and legal proceedings, claims and
litigation arising in the ordinary course of business. We
periodically assess our liabilities and contingencies in
connection with these matters based upon the latest information
available. For those matters where it is probable that we have
incurred a loss and the loss or range of loss can be reasonably
estimated, we have recorded reserves in our consolidated
financial statements. In other instances, we are unable to make
a reasonable estimate of any liability because of the
uncertainties related to the probability of the outcome and/or
amount or range of loss. As additional information becomes
available, we adjust our assessment and estimates of such
liabilities accordingly. It is possible that the ultimate
resolution of our liabilities and contingencies could be at
amounts that are different from our currently recorded reserves
and that such differences could be material.
Based on our review of the latest information available, we
believe our ultimate liability in connection with pending tax
and legal proceedings, claims and litigation will not have a
material effect on our results of operations, cash flows or
financial position, with the possible exception of the matters
described below.
In order to understand our exposure to the potential liabilities
described below, it is important to understand the relationship
between us and Moodys Corporation, our predecessors and
other parties that, through various corporate reorganizations
and contractual commitments, have assumed varying degrees of
responsibility with respect to such matters.
In November 1996, the company then known as The Dun &
Bradstreet Corporation (D&B1) separated through
a spin-off into three separate public companies: D&B1,
ACNielsen Corporation (ACNielsen) and Cognizant
Corporation (Cognizant) (the 1996
Distribution). This was accomplished through a spin off by
D&B1 of its stock in ACNielsen and Cognizant. In September
1998, D&B1 separated through a spin off into two separate
public companies: D&B1, which changed its name to R.H.
Donnelley Corporation (Donnelley/ D&B1), and a
new company named The Dun & Bradstreet Corporation
(D&B2) (the 1998 Distribution).
During 1998, Cognizant separated into two separate public
companies: IMS Health Incorporated (IMS) and Nielsen
Media Research, Inc. (NMR) (the 1998 Cognizant
Distribution). In September 2000, D&B2 separated
through a spin-off into two separate public companies: D&B2,
which changed its name to Moodys Corporation
(Moodys and also referred to elsewhere in this
Annual Report on Form 10-K as
Moodys/D&B2), and a new company named The
Dun & Bradstreet Corporation (we or
D&B3 and also referred to elsewhere in this
Annual Report on Form 10-K as
D&B) (the 2000 Distribution).
Tax Matters
Moodys/ D&B2 and its predecessors entered into global
tax-planning initiatives in the normal course of business,
principally through tax-free restructurings of both their
foreign and domestic operations. As further
16
described below, we undertook contractual obligations to be
financially responsible for a portion of certain liabilities
arising from certain historical tax-planning initiatives
(Legacy Tax Matters).
As of the end of 2005, settlement agreements have been executed
with the IRS with respect to the Legacy Tax Matters previously
referred to in our SEC filings as Utilization of Capital
Losses and Royalty Expense Deductions. With
respect to the Utilization of Capital Losses matter, the
settlement agreement resolved the matter in its entirety. For
the Royalty Expense Deductions matter, the settlement covered tax
years 1995 and 1996, which represented approximately 90% of the
total potential liability to the IRS, including penalties. We
believe we are adequately reserved for the remaining exposure.
In addition, with respect to these two settlement agreements, we
believe that IMS and NMR did not pay their allocable share to
the IRS under applicable agreements. Under our agreement with
Donnelley/ D&B1, we and Moodys were each required to
cover the shortfall, and each of us paid to the IRS
approximately $12.8 million in excess of our
respective allocable shares. If we are unable to resolve our
dispute with IMS and NMR through the negotiation process
contemplated by our agreements, we will commence arbitration to
enforce our rights and collect these amounts from IMS and NMR.
We believe that the resolution of the remaining exposure to the
IRS under the Royalty Expense Deduction matter and the foregoing
disputes with IMS and NMR will not have a material adverse
impact on D&Bs financial position, results of
operations or cash flows.
Our remaining Legacy Tax Matter is referred to as
Amortization and Royalty Expense Deductions/Royalty
Income
1997-2005.
Beginning in the fourth quarter of 2003, we received a series of
notices with respect to a partnership agreement entered into in
1997. In these notices the IRS asserted, among other things,
that certain amortization expense deductions claimed by
Donnelley/D&B1, Moodys/D&B2 and D&B3 on
applicable tax returns for years
1997-2002 should be
disallowed. In addition to the foregoing, the IRS has asserted
that royalty expense deductions claimed for
1997-2002 for royalties
paid to the partnership should be disallowed. We have filed
protests with the IRS with respect to these notices. The IRS has
also asserted that the receipt of these same royalties by the
partnership should be reallocated to and reported as royalty
income by the taxpayers, including the portions of the royalties
that were allocated to third-party partners in the partnership,
and thus included in their taxable income. We believe that the
IRS positions with respect to the treatment of the royalty
expense and royalty income are mutually inconsistent. If the IRS
prevails on one of the positions, we believe that it is unlikely
that it will prevail on the other. In addition to the foregoing,
the IRS has asserted that certain business expenses incurred by
Moodys/D&B2 and D&B3 during 1999-2002 should be
capitalized and amortized over a
15-year period, if (but
only if) the proposed adjustments described above are not
sustained.
We estimate that the net impact to cash flow as a result of the
disallowance of the
1997-2002 amortization
expense deductions and the disallowance of such deductions claimed from
2003 to date could be up to $69.0 million (tax, interest
and penalties, net of tax benefits but not taking into account
the Moodys/ D&B2 repayment to us of $32.9 million
described below). This transaction is scheduled to expire in
2012 and, unless terminated by us, the net impact to cash flow,
based on current interest rates and tax rates would increase at
a rate of approximately $2.3 million per quarter (including
potential penalties) as future amortization expenses are
deducted. We anticipate making a deposit to the IRS of approximately $40 million in the first quarter of 2006 in
order to stop the accrual of statutory interest on potential tax
deficiencies up to or equal to that amount with respect to tax
years 1997-2002. This deposit would not impact our free cash flow and will be a component of other assets on our
consolidated balance sheet.
We also estimate that, with regard to the possible disallowance
of deductions for royalty expenses paid to the partnership and
the reallocation of royalty income from the partnership, after
taking into account certain other tax benefits resulting from
the IRS position on the partnership, it is unlikely that
there will be any net impact to cash flow in addition to the
amounts noted above related to the amortization expense
deduction disallowance. In the unlikely event the IRS were to
prevail on both positions with respect to the royalty expense
and royalty income, we estimate that the net impact to cash flow
as a result of the disallowance of the 1997-2002 royalty expense
deductions, and the inclusion of the reallocated royalty income
for all relevant
17
years, could be up to $146.5 million (tax, interest, and
penalties, net of tax benefits). This $146.5 million would
be in addition to the $69.0 million noted above related to
the amortization expense deduction.
At the time of the 2000 Distribution, we paid
Moodys/D&B2 approximately $55.0 million in cash
representing the discounted value of future tax benefits
associated with this transaction. Pursuant to the terms of the
2000 Distribution, should the transaction be terminated,
Moodys/D&B2 would be required to repay us an amount
equal to the discounted value of its 50% share of the related
future tax benefits. If the transaction was terminated at
December 31, 2005, the amount of such repayment from
Moodys/D&B2 to us would be approximately
$32.9 million and would decrease by approximately
$4.0 million to $5.0 million per year.
We are attempting to resolve this matter with the IRS before
proceeding to litigation, if necessary. If we, on behalf of
Donnelley/ D&B1, Moodys/ D&B2, and D&B3 were
to challenge, at any time, any of these IRS positions for years
1997-2002 in U.S. District court or the U.S. Court of
Federal Claims, rather than in U.S. Tax Court, the disputed
amounts for each applicable year would need to be paid in
advance for the court to have jurisdiction over the case.
We have considered the foregoing Legacy Tax Matters and the
merits of the legal defenses and the various contractual
obligations in our overall assessment of potential tax
liabilities. As of December 31, 2005, we have net
$69.2 million of reserves recorded in the consolidated
financial statements, made up of the following components:
$6.0 million in Accrued Income Tax and $63.2 million
in Other Non-Current Liabilities. We believe that these reserves
are adequate for our share of the liabilities in these Legacy
Tax Matters. Any payments that would be made for these exposures
could be significant to our cash from operations in the period a
cash payment took place, including any payments for the purpose
of obtaining jurisdiction in U.S. District Court or the
U.S. Court of Federal Claims to challenge any of the
IRSs positions.
Information Resources, Inc.
On or about February 16, 2006, this antitrust lawsuit was
settled and mutual releases were signed by the parties. The dismissal
of the lawsuit is subject to Court approval and the mutual releases
are being held in escrow pending dismissal of the lawsuit. As more
fully explained below, we were fully indemnified for this matter and
therefore did not contribute to the settlement payment.
Under an Amended Joint Defense Agreement, VNU N.V., a
publicly-traded Dutch company and certain of its U.S. subsidiaries
(collectively, the VNU Parties), assumed exclusive
joint and several liability for any judgment or settlement of
this lawsuit. Because of this indemnity obligation, D&B did
not have any exposure to a judgment or settlement of this
lawsuit unless the VNU Parties defaulted on their obligations,
which did not occur. Accordingly, the VNU Parties paid the
entire settlement amount of $55 million.
By way of background, in 1996, IRI filed a complaint,
subsequently amended in 1997, in federal court in New York that
named as defendants a company then known as The Dun &
Bradstreet Corporation and now known as R.H. Donnelley (referred
to in this
Annual Report on Form 10-K as
Donnelley/ D&B1), A.C. Nielsen Company (a subsidiary of
ACNielsen) 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/ D&B1. The amended
complaint alleged various violations of US antitrust laws. IRI
sought damages in excess of $650 million, which IRI asked
to be trebled, as well as punitive damages and attorneys fees.
As noted above, we did not contribute to the settlement payment
and, therefore, the resolution of this matter did not impact our
results of operations, cash flows or financial position. No
amount in respect of this matter had been accrued in our
consolidated financial statements.
Hoovers Initial Public Offering Litigation
On November 15, 2001, a putative shareholder class action
lawsuit was filed against Hoovers, certain of its then
current and former officers and directors (the Individual
Defendants), and one of the investment banks that was an
underwriter of Hoovers July 1999 initial public offering
(IPO). The lawsuit was filed in the
18
United States
District Court for the Southern District of New York and
purports to be a class action filed on behalf of purchasers of
the stock of Hoovers during the period from July 20,
1999 through December 6, 2000.
A Consolidated Amended Complaint, which is now the operative
complaint, was filed on April 19, 2002. The purported class
action alleges violations of Sections 11 and 15 of the
Securities Act of 1933, as amended, (the
1933 Act) and Sections 10(b),
Rule 10b-5 and
20(a) of the Securities Exchange Act of 1934, as amended,
against Hoovers and the Individual Defendants. Plaintiffs
allege that the underwriter defendant agreed to allocate stock
in Hoovers IPO to certain investors in exchange for
excessive and undisclosed commissions and agreements by those
investors to make additional purchases of stock in the
aftermarket at predetermined prices above the IPO price.
Plaintiffs allege that the Prospectus for Hoovers IPO was
false and misleading in violation of the securities laws because
it did not disclose these arrangements. The action seeks damages
in an unspecified amount. The defense of the action is being
coordinated with more than 300 other nearly identical actions
filed against other companies. On July 15, 2002,
Hoovers moved to dismiss all claims against it and the
Individual Defendants. On October 9, 2002, the Court
dismissed the Individual Defendants from the case based upon
Stipulations of Dismissal filed by the plaintiffs and the
Individual Defendants. On February 19, 2003, the Court
denied the motion to dismiss the complaint against
Hoovers. On October 13, 2004, the Court certified a
class in six of the approximately 300 other nearly identical
actions and noted that the decision is intended to provide
strong guidance to all parties regarding class certification in
the remaining cases. Plaintiffs have not yet moved to certify a
class in the case involving Hoovers.
Hoovers has approved a settlement agreement and related
agreements that set forth the terms of a settlement between
Hoovers, the plaintiff class and the vast majority of the
other approximately 300 issuer defendants. Among other
provisions, the settlement provides for a release of
Hoovers and the Individual Defendants for the conduct
alleged in the action to be wrongful. Hoovers would agree
to undertake certain responsibilities, including agreeing to
assign away, not assert, or release certain potential claims
Hoovers may have against its underwriters. The settlement
agreement also provides a guaranteed recovery of $1 billion
to plaintiffs for the cases relating to all of the approximately
300 issuers. To the extent that the underwriter defendants
settle all of the cases for at least $1 billion, no payment
will be required under the issuers settlement agreement.
To the extent that the underwriter defendants settle for less
than $1 billion, the issuers are required to make up the
difference. It is anticipated that any potential financial
obligation of Hoovers to plaintiffs pursuant to the terms
of the settlement agreement and related agreements will be
covered by existing insurance. Hoovers currently is not
aware of any material limitations on the expected recovery of
any potential financial obligation to plaintiffs from its
insurance carriers. Its carriers are solvent, and Hoovers
is not aware of any uncertainties as to the legal sufficiency of
an insurance claim with respect to any recovery by plaintiffs.
Therefore, we do not expect that the settlement will involve any
payment by Hoovers. If material limitations on the
expected recovery of any potential financial obligation to the
plaintiffs from Hoovers insurance carriers should arise,
Hoovers maximum financial obligation to plaintiffs
pursuant to the settlement agreement is less than
$3.4 million. On February 15, 2005, the court granted
preliminary approval of the settlement agreement, subject to
certain modifications consistent with its opinion. Those
modifications have been made. There is no assurance that the
court will grant final approval to the settlement. A further
hearing with regard to the settlement is scheduled for
April 24, 2006.
As previously noted, if the settlement is ultimately approved
and implemented in its current form, Hoovers reasonably
foreseeable exposure in this matter, if any, would be limited to
amounts that would be covered by existing insurance. If the
settlement is not approved in its current form, we cannot
predict the final outcome of this matter or whether such outcome
or ultimate resolution of this matter could materially affect
our results of operations, cash flows or financial position. No
amount in respect of any potential judgment in this matter has
been accrued in our consolidated financial statements.
Pension Plan Litigation
In March 2003, a lawsuit seeking class action status was filed
against us in federal court in Connecticut on behalf of 46
specified former employees relating to our retirement plans. As
noted below, during the fourth
19
quarter of 2004, most of the counts in the complaint were
dismissed. The complaint, as amended in July 2003 (the
Amended Complaint), sets forth the following
putative class:
|
|
|
|
|
Current D&B employees who are participants in The
Dun & Bradstreet Corporation Retirement Account and
were previously participants in its predecessor plan, The
Dun & Bradstreet Master Retirement Plan; |
|
|
|
Current employees of Receivable Management Services Corporation
(RMSC) who are participants in The Dun &
Bradstreet Corporation Retirement Account and were previously
participants in its predecessor plan, The Dun &
Bradstreet Master Retirement Plan; |
|
|
|
Former employees of D&B or D&Bs Receivable
Management Services (RMS) operations who received a
deferred vested retirement benefit under either The
Dun & Bradstreet Corporation Retirement Account or The
Dun & Bradstreet Master Retirement Plan; and |
|
|
|
Former employees of D&Bs RMS operations whose
employment with D&B terminated after the sale of the RMS
operations but who are not employees of RMSC and who, during
their employment with D&B, were Eligible
Employees for purposes of The Dun & Bradstreet
Career Transition Plan. |
The Amended Complaint estimates that the proposed class covers
over 5,000 individuals.
There are four counts in the Amended Complaint. Count 1 claims
that we violated ERISA by not paying severance benefits to
plaintiffs under our Career Transition Plan. Count 2 claims
a violation of ERISA in that our sale of the RMS business to
RMSC and the resulting termination of our employees constituted
a prohibited discharge of the plaintiffs and/or discrimination
against the plaintiffs for the intentional purpose of
interfering with their employment and/or attainment of employee
benefit rights which they might otherwise have attained.
Count 3 claims that the plaintiffs were materially harmed
by our alleged violation of ERISAs requirements that a
summary plan description reasonably apprise participants and
beneficiaries of their rights and obligations under the plans
and that, therefore, undisclosed plan provisions (in this case,
the actuarial deduction beneficiaries incur when they leave
D&B before age 55 and elect to retire early) cannot be
enforced against them. Count 4 claims that the 6.60% interest
rate (the rate is actually 6.75%) used to actuarially reduce
early retirement benefits is unreasonable and, therefore,
results in a prohibited forfeiture of benefits under ERISA.
In the Amended Complaint, the plaintiffs sought payment of
severance benefits; equitable relief in the form of either
reinstatement of employment with D&B or restoration of
employee benefits (including stock options); invalidation of the
actuarial reductions applied to deferred vested early retirement
benefits, including invalidation of the plan rate of 6.60% (the
actual rate is 6.75%) used to actuarially reduce former
employees early retirement benefits; attorneys fees
and such other relief as the court may deem just.
We deny all allegations of wrongdoing and are aggressively
defending the case. In September 2003, we filed a motion to
dismiss Counts 1, 3 and 4 of the Amended Complaint on the
ground that plaintiffs cannot prevail on those claims under any
set of facts, and in February 2004, the Court heard oral
argument on our motion. With respect to Count 4, the court
requested that the parties conduct limited expert discovery and
submit further briefing. In November 2004, after completion of
expert discovery on Count 4, we moved for summary judgment
on Count 4 on the ground that an interest rate of 6.75% is
reasonable as a matter of law. On November 30, 2004, the
Court issued a ruling granting our motion to dismiss
Counts 1 and 3. Shortly after that ruling, plaintiffs
counsel stipulated to dismiss with prejudice Count 2 (which
challenged the sale of the RMS business as an intentional
interference with employee benefit rights, but which the motion
to dismiss did not address). Plaintiffs counsel also
stipulated to a dismissal with prejudice of Count 1, the
severance pay claim, agreeing to forego any appeal of the
Courts dismissal of that claim. Plaintiffs counsel
did file a motion to join party plaintiffs and to amend the
Amended Complaint to add a new count challenging the adequacy of
the retirement plans mortality tables. The Court granted
the motion and we filed our objections. On June 6, 2005,
the Court granted D&Bs motion for summary judgment as
to Count 4 (the interest rate issue) and also denied the
plaintiffs motion to further amend the Amended Complaint
to add a new claim challenging the mortality tables. On
July 8, 2005, the plaintiffs filed their notice of appeal;
they are appealing the ruling granting the motion to dismiss,
the ruling granting summary judgment, and the denial of leave to
amend their Amended Complaint. Oral Argument
before the Second Circuit took place on
February 15, 2006. A decision is expected within six weeks.
20
While we believe we have strong defenses in this matter, we are
unable to predict at this time the final outcome of this matter
or whether the resolution of this matter could materially affect
our results of operations, cash flows or financial position. No
amount in respect of this matter has been accrued in our
consolidated financial statements.
In addition to the foregoing proceeding, a lawsuit seeking class
action status was filed in September of 2005 against us in
federal court in the Northern District of Illinois on behalf of
a current employee relating to our retirement plans. The
complaint (the Complaint) seeks certification of the
following putative class: Current or former D&B employees
(other than employees who on December 31, 2001
(i) were at least age 50 with 10 years of vesting
service, (ii) had attained an age which, when added to his
or her years of vesting service, was equal to or greater than
70; or (iii) had attained age 65), who participated in
The Dun & Bradstreet Master Retirement Plan before
January 1, 2002 and who have participated in The
Dun & Bradstreet Corporation Retirement Account at
any time since January 1, 2002.
The Complaint estimates that the proposed class covers over
1,000 individuals.
There are five counts in the Complaint. Count 1 claims that
we violated ERISA by reducing the rate of an employees
benefit accrual on the basis of age. Count 2 claims a
violation of ERISAs non-forfeitability requirement,
because the plan allegedly conditions receipt of cash balance
benefits on foregoing the early retirement benefits plaintiff
earned prior to the adoption of the cash balance amendment.
Count 3 claims that the cash balance plan violates
ERISAs anti-backloading rule. Count 4
claims that D&B failed to supply advance notice of a
significant benefit decrease. Count 5 claims that D&B
failed to provide an adequate Summary Plan Description.
In the Complaint, the plaintiff seeks (1) a declaration
that (a) D&Bs cash balance plan is ineffective
and that the D&B Master Retirement Plan is still in force
and effect, and (b) plaintiffs benefit accrual under
the cash balance plan must be unconditional and not reduced
because of age, (2) an injunction (a) prohibiting the
application of the cash balance plans reduction in the
rate of benefit accruals because of age and its conditions of
benefits due under the plan, and (b) ordering appropriate
equitable relief to determine plan participant losses caused by
D&Bs payment of benefits under the cash balance
plans terms and requiring the payment of additional
benefits as appropriate, (3) attorneys fees and
costs, (4) interest, and (5) such other relief as the
court may deem just.
A Motion to Transfer Venue to the District of New Jersey was
filed on January 27, 2006. A decision is expected by the end of
March 2006.
We believe we have strong defenses in this matter and we will
deny all allegations of wrongdoing and aggressively defend the
case.
We are unable to predict at this time the final outcome of this
matter or whether the resolution of this matter could materially
affect our results of operations, cash flows or financial
position. No amount in respect of this matter has been accrued
in our consolidated financial statements.
Other
In addition, in the normal course of business, D&B
indemnifies other parties, including customers, lessors and
parties to other transactions with D&B, with respect to
certain matters. D&B has agreed to hold the other parties
harmless against losses arising from a breach of representations
or covenants, or arising out of other claims made against certain
parties. These agreements may limit the time within which an
indemnification claim can be made and the amount of the claim.
D&B has also entered into indemnity obligations with its
officers and directors of the Company. Additionally, in certain
circumstances, D&B issues guarantee letters on behalf of our
wholly owned subsidiaries for specific situations. It is not
possible to determine the maximum potential amount of future
payments under these indemnification agreements due to the
limited history of prior indemnification claims and the unique facts and circumstances
involved in each particular agreement. Historically, payments
made by D&B under these agreements have not had a material
impact on our consolidated financial statements.
21
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders in the
fourth quarter of fiscal year 2005.
PART II
|
|
Item 5. |
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Our common stock is listed on the New York Stock Exchange and
trades under the symbol DNB. We had 3,706 shareholders of
record as of December 31, 2005.
The following table summarizes the high and low sales prices for
our common stock, as reported in the periods shown:
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|
2005 | |
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2004 | |
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| |
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| |
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|
High | |
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Low | |
|
High | |
|
Low | |
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| |
|
| |
|
| |
|
| |
First Quarter
|
|
$ |
62.69 |
|
|
$ |
55.04 |
|
|
$ |
57.01 |
|
|
$ |
47.85 |
|
Second Quarter
|
|
$ |
64.71 |
|
|
$ |
58.97 |
|
|
$ |
56.19 |
|
|
$ |
50.97 |
|
Third Quarter
|
|
$ |
66.27 |
|
|
$ |
61.08 |
|
|
$ |
59.50 |
|
|
$ |
51.45 |
|
Fourth Quarter
|
|
$ |
67.88 |
|
|
$ |
62.30 |
|
|
$ |
60.80 |
|
|
$ |
56.00 |
|
We did not pay any dividends on our common stock during the
years ended December 31, 2005 and 2004 and we do not
currently have plans to pay dividends to shareholders in 2006.
Issuer Purchases of Equity Securities
The following table provides information about purchases made by
or on our behalf during the quarter ended December 31, 2005
of shares of equity that are registered pursuant to
Section 12 of the Exchange Act:
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|
Maximum Number |
|
Approximate Dollar |
|
|
|
|
|
|
|
|
of Currently |
|
Value of Currently |
|
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|
|
|
|
Total Number of |
|
Authorized Shares |
|
Authorized Shares |
|
|
|
|
|
|
Shares Purchased |
|
that May Yet Be |
|
that May Yet Be |
|
|
Total Number |
|
Average |
|
as Part of Publicly |
|
Purchased Under |
|
Purchased Under |
|
|
of Shares |
|
Price Paid |
|
Announced Plans |
|
the Plans or |
|
the Plans or |
Period |
|
Purchased(a)(b) |
|
per Share |
|
or Programs(a)(b) |
|
Programs(a) |
|
Programs(b) |
|
|
|
|
|
|
|
|
|
|
|
October 1-31, 2005
|
|
|
281,200 |
|
|
$ |
65.35 |
|
|
|
281,200 |
|
|
|
|
|
|
|
|
|
November 1-30, 2005
|
|
|
534,200 |
|
|
$ |
64.28 |
|
|
|
534,200 |
|
|
|
|
|
|
|
|
|
December 1-31, 2005
|
|
|
542,800 |
|
|
$ |
65.03 |
|
|
|
542,800 |
|
|
|
|
|
|
|
|
|
|
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|
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|
Quarter Ended December 31, 2005
|
|
|
1,358,200 |
|
|
$ |
64.80 |
|
|
|
1,358,200 |
|
|
|
2,730,234 |
|
|
|
$200,000,000 |
|
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|
(a) |
During the fourth quarter of 2005, we repurchased
593,741 shares of stock for $38.6 million to mitigate
the dilutive effect of the shares issued under our stock
incentive plans and Employee Stock Purchase Plan. This program
was announced in July 2003 and expires in September 2006. The
maximum amount authorized for repurchase under this program is
6.0 million shares, of which 3,269,766 shares have
been repurchased as of December 31, 2005. |
|
(b) |
During the fourth quarter of 2005, we repurchased
764,459 shares for $49.4 million related to a
previously announced $400 million two-year share repurchase
program approved by our board in February, 2005. This program
expires in February 2007. We have repurchased
$200.0 million in shares under this program as of
December 31, 2005. On January 31, 2006, our Board of
Directors approved the addition of $100 million to this
repurchase program. |
22
|
|
Item 6. |
Selected Financial Data |
Five-Year Selected Financial Data
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For the Years Ended December 31, | |
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| |
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|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
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|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in millions, except per share data) | |
Results of Operations:
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|
|
|
|
|
|
Operating Revenues
|
|
$ |
1,443.6 |
|
|
$ |
1,414.0 |
|
|
$ |
1,386.4 |
|
|
$ |
1,275.6 |
|
|
$ |
1,304.6 |
|
Costs and Expenses(1)
|
|
|
1,079.6 |
|
|
|
1,095.2 |
|
|
|
1,094.6 |
|
|
|
1,019.7 |
|
|
|
1,081.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
364.0 |
|
|
|
318.8 |
|
|
|
291.8 |
|
|
|
255.9 |
|
|
|
223.6 |
|
Non-Operating (Expense) Income Net(2)
|
|
|
(9.9 |
) |
|
|
22.0 |
|
|
|
(11.4 |
) |
|
|
(16.7 |
) |
|
|
30.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations before Provision for Income
Taxes
|
|
|
354.1 |
|
|
|
340.8 |
|
|
|
280.4 |
|
|
|
239.2 |
|
|
|
253.6 |
|
Provision for Income Taxes
|
|
|
133.6 |
|
|
|
129.2 |
|
|
|
106.2 |
|
|
|
94.1 |
|
|
|
100.2 |
|
Equity in Net Income (Losses) of Affiliates
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
(1.7 |
) |
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
221.2 |
|
|
$ |
211.8 |
|
|
$ |
174.5 |
|
|
$ |
143.4 |
|
|
$ |
149.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share of Common Stock
|
|
$ |
3.31 |
|
|
$ |
3.01 |
|
|
$ |
2.37 |
|
|
$ |
1.93 |
|
|
$ |
1.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share of Common Stock
|
|
$ |
3.19 |
|
|
$ |
2.90 |
|
|
$ |
2.30 |
|
|
$ |
1.87 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding Basic
|
|
|
66.8 |
|
|
|
70.4 |
|
|
|
73.5 |
|
|
|
74.5 |
|
|
|
79.4 |
|
Weighted Average Number of Shares Outstanding Diluted
|
|
|
69.4 |
|
|
|
73.1 |
|
|
|
75.8 |
|
|
|
76.9 |
|
|
|
81.5 |
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
1,613.4 |
|
|
$ |
1,635.5 |
|
|
$ |
1,624.7 |
|
|
$ |
1,527.7 |
|
|
$ |
1,462.6 |
|
Long-Term Debt
|
|
$ |
0.1 |
|
|
$ |
300.0 |
|
|
$ |
299.9 |
|
|
$ |
299.9 |
|
|
$ |
299.6 |
|
Equity
|
|
$ |
77.6 |
|
|
$ |
54.2 |
|
|
$ |
48.4 |
|
|
$ |
(18.8 |
) |
|
$ |
(19.0 |
) |
|
|
(1) |
2005 included a charge of $30.7 million for restructuring
related to the 2005 and 2004 Financial Flexibility Programs and
a charge of $0.4 million for the final resolution of all
disputes on the sale of our French business. 2004 included a
charge of $32.0 million for restructuring related to the
2004 Financial Flexibility Program. 2003 included charges of
$17.4 million for restructuring related to the 2003
Financial Flexibility Program and $13.8 million for the
loss on the sale of our High Wycombe, England facility. 2002
included a charge of $30.9 million for restructuring
related to the 2002 Financial Flexibility Program. 2001 included
charges of $28.8 million for restructuring related to the
2001 Financial Flexibility Program, $6.2 million resulting
from an impairment of capitalized software and the write-off of
certain assets made obsolete or redundant during 2001,
$1.0 million of asset write-offs for the World Trade Center
attack and $6.5 million resulting from an impairment of our
Murray Hill facility, which we sold during 2002. Partially
offsetting these charges in 2001, was a $7.0 million
reversal of excess accrued reorganization costs incurred in
connection with the separation of D&B and Moodys in
2000 (the 2000 Distribution). |
|
(2) |
2005 included a $3.5 million gain on the sale of a 5%
investment in a South African company, a $0.8 million gain
as a result of lower costs related to the 2004 sale of Iberia
(Spain and Portugal) and a charge of $3.7 million for the
final resolution of all disputes on the sale of our French
business. 2004 included gains on the sales of operations in the
Nordic region (Sweden, Denmark, Norway and Finland) of
$7.9 million; India and Distribution Channels in Pakistan
and the Middle East of $3.8 million; Central Europe
(Germany, Switzerland, Poland, Hungary and Czech Republic) of
$5.6 million; France of $12.9 million; and Iberia
(Spain and Portugal) of $0.1 million. 2003 included gains
of $7.0 million on the |
23
|
|
|
settlement of an insurance claim to recover losses related to
the events of September 11, 2001 and $1.8 million on
the sale of equity interests in our Singapore business.
Partially offsetting these gains was a $4.3 million loss on
the sale of our Israel business. 2002 included gains of
$2.6 million on the sale of a portion of our equity
interest in our Singapore operation and $2.4 million on the
sale of our Korean operation, partially offset by a charge of
$2.9 million for the write-off of our remaining investment
in Avantrust LLC. 2001 included gains of $36.4 million for
the sale of our Receivable Management Services business,
$17.7 million for the sale of a majority stake in our
Australia/ New Zealand operations and $2.2 million for the
sale of a major portion of our minority investment in a South
African company. These gains were partially offset by a charge
of $6.1 million for the write-off of certain investments. |
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
How We Manage Our Business
For internal management purposes, we refer to core
revenue which we calculate as total revenue less the
revenue of divested businesses. Core revenue is used to manage
and evaluate the performance of our business segments and to
allocate resources because this measure provides an indication
of the underlying direction of changes in revenue in a single
performance measure. Core revenue does not include reported
revenue of divested businesses since they are not included in
future revenue. Divested business revenue for the three years of
results included in this Annual Report on
Form 10-K includes
the revenue from our operations in:
|
|
|
|
|
Israel (sold in the third quarter of 2003); |
|
|
|
the Nordic region (Sweden, Denmark, Norway and Finland, all sold
in the first quarter of 2004); |
|
|
|
India and other Distribution Channels in Pakistan and the Middle
East (sold in the first quarter of 2004); |
|
|
|
Central Europe (Germany, Austria, Switzerland, Poland, Hungary
and the Czech Republic, all sold in the second quarter of 2004); |
|
|
|
Iberia (Spain and Portugal, both sold in the fourth quarter of
2004); and |
|
|
|
France (sold in the fourth quarter of 2004). |
These divested businesses have been classified as
Divestitures in Note 3 to our consolidated
financial statements included in Item 8. of this Annual
Report on
Form 10-K.
Management believes that this measure provides valuable insight
into our revenue from ongoing operations and enables investors
to evaluate business performance and trends by facilitating a
comparison of results of ongoing operations with past reports of
financial results.
We also isolate the effects of changes in foreign exchange rates
on our revenue growth because we believe it is useful for
investors to be able to compare revenue from one period to
another, both with and without the effects of foreign exchange.
As a result, we monitor our core revenue growth both after and
before the effects of foreign exchange. Core revenue growth
excluding the effects of foreign exchange is referred to as
revenue growth before the effects of foreign
exchange.
We further analyze core revenue growth before the effects of
foreign exchange among two components, organic core
revenue growth and core revenue growth from
acquisitions. We analyze organic core revenue
growth and core revenue growth from
acquisitions because management believes this information
provides an important insight into the underlying health of our
business. Core revenue includes the revenue from acquired
businesses from the date of acquisition. In addition, with
respect to our Italian real estate data business, we analyze
core revenue both before and after the impact of price increases.
We evaluate the performance of our business segments based on
segment revenue growth before the effects of foreign exchange,
and segment operating income growth before certain types of
gains and charges that we consider do not reflect our underlying
business performance. Specifically, for management reporting
purposes, we evaluate business segment performance before
non-core gains and (charges) because such
24
charges are not a component of our ongoing income or expenses
and/or may have a disproportionate positive or negative impact
on the results of our ongoing underlying business operations. A
recurring component of non-core gains and (charges) are our
restructuring charges, which result from a foundational element
of our growth strategy that we refer to as financial
flexibility. Through financial flexibility, management
identifies opportunities to improve the performance of the
business in terms of quality, efficiency and cost, in order to
generate savings primarily to invest for growth. Such charges
are variable from
period-to-period based
upon actions identified and taken during each period. Management
reviews operating results before such charges on a monthly basis
and establishes internal budgets and forecasts based upon such
measures. Management further establishes annual and long-term
compensation such as salaries, target cash bonuses and target
equity compensation amounts based on such measures and a
significant percentage weight is placed upon such measures in
determining whether performance objectives have been achieved.
Management believes that by eliminating restructuring charges
from such financial measures, and by being overt to shareholders
about the results of our operations excluding such charges,
business leaders are provided incentives to recommend and
execute actions that are in the best long term interests of our
shareholders, rather than being influenced by the potential
impact a charge in a particular period could have on their
compensation. Additionally, transition costs (period costs such
as consulting fees, costs of temporary employees, relocation
costs and stay bonuses incurred to implement the Financial
Flexibility component of our strategy) are reported as
Corporate and Other expenses and are not allocated
to our business segments. (See Note 14 to our consolidated
financial statements included in Item 8. of this Annual
Report on
Form 10-K for
financial information regarding our segments).
Similarly, when we evaluate the performance of our business as a
whole, we focus on results (such as operating income, operating
income growth, operating margin, net income, tax rate and
diluted earnings per share) before non-core gains and charges
because such non-core gains and charges are not a component of
our ongoing income or expenses and/or may have a
disproportionate positive or negative impact on the results of
our ongoing underlying business operations and may drive
behavior that does not ultimately maximize shareholder value. It
should not be concluded from our presentation of non-core gains
and charges that the items that result in non-core gains and
charges will not occur in the future.
Other components of how we manage our business are free cash flow and net debt position:
|
|
|
We define free cash flow as net cash provided by operating activities minus
capital expenditures and additions to computer software and other intangibles. Free cash
flow measures our available cash flow for potential debt repayment, acquisitions, stock
repurchases and additions to cash, cash equivalents and short-term investments. We believe
free cash flow to be relevant and useful to our investors as this measure is used by our
management in evaluating the funding available after supporting our ongoing business
operations and our portfolio of product investments. |
|
|
|
|
We define net debt position as cash, cash equivalents and marketable securities
minus short-term debt and long-term debt. We believe net debt position to be relevant and
useful to our investors as this measure is used by our management in evaluating our
liquidity on a global consolidated basis. |
Free
cash flow and net debt position should not be considered as a
substitute measure for net
cash flows provided by operating activities, investing activities or
financing activities, or cash, cash equivalents, marketable securities,
short-term debt and long-term debt, respectively. Therefore, we believe it is important to view
free cash flow and net debt position as complements to our consolidated statements of cash flows
and consolidated balance sheets, respectively.
The adjustments discussed herein to our results as determined
under generally accepted accounting principles in the United
States (GAAP) are among the primary indicators
management uses as a basis for our planning and forecasting of
future periods, to allocate resources, to evaluate business
performance and, as noted above, for compensation purposes.
However, these financial measures (results before non-core gains
and charges and free cash flow) are not prepared in accordance
with GAAP, and should not be considered in isolation or as a
substitute for total revenue, operating income, operating income
growth, operating margin, net income, tax rate, diluted earnings
per share, or net cash provided by operating activities,
investing activities and financing activities prepared in
accordance with GAAP. In addition, it should be noted that
because not all companies calculate these financial measures
similarly or at all, the presentation of these financial
measures is not likely to be comparable to measures of other
companies.
25
See Results of Operations, below, for a discussion
of our results reported on a GAAP basis.
Overview
On January 1, 2005, we began managing and reporting our
operations in Canada as part of our International segment. As
part of this change, our results are reported under the
following two segments:
|
|
|
|
|
United States (U.S.); and |
|
|
|
International (which consists of operations in Europe, Canada,
Asia Pacific, and Latin America). |
The financial statements of our subsidiaries outside the United
States and Canada reflect a fiscal year ended November 30
to facilitate timely reporting of our consolidated financial
results and financial position.
Prior to January 1, 2005, we reported our business through
the following segments:
|
|
|
|
|
North America (which consisted of operations in the United
States and Canada); and |
|
|
|
International (which consisted of operations in Europe, Asia
Pacific, and Latin America). |
In accordance with GAAP, throughout this Annual Report on
Form 10-K, we have
reclassified prior period presentations to conform to our
current segment reporting.
The following table presents the contribution by segment to core
revenue and total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Core Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
75% |
|
|
|
75% |
|
|
|
76% |
|
|
International
|
|
|
25% |
|
|
|
25% |
|
|
|
24% |
|
Total Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
75% |
|
|
|
71% |
|
|
|
67% |
|
|
International
|
|
|
25% |
|
|
|
29% |
|
|
|
33% |
|
The following table presents the contribution by customer
solution set to core revenue and total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Core Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Solutions
|
|
|
66% |
|
|
|
66% |
|
|
|
67% |
|
|
Sales & Marketing Solutions
|
|
|
27% |
|
|
|
28% |
|
|
|
28% |
|
|
E-Business Solutions
|
|
|
4% |
|
|
|
3% |
|
|
|
2% |
|
|
Supply Management Solutions
|
|
|
3% |
|
|
|
3% |
|
|
|
3% |
|
Total Revenue(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Solutions
|
|
|
66% |
|
|
|
62% |
|
|
|
58% |
|
|
Sales & Marketing Solutions
|
|
|
27% |
|
|
|
26% |
|
|
|
25% |
|
|
E-Business Solutions
|
|
|
4% |
|
|
|
4% |
|
|
|
2% |
|
|
Supply Management Solutions
|
|
|
3% |
|
|
|
2% |
|
|
|
3% |
|
|
|
(1) |
Divested businesses contributed 6% and 12% of our total revenue
for the years December 31, 2004 and 2003, respectively.
There were no divestitures for the year ended December 31,
2005. |
These customer solution sets are discussed in greater detail in
Item 1. Business.
Within our Risk Management Solutions and Sales &
Marketing Solutions, we monitor the performance of our
Traditional products and our Value-Added
products.
26
Risk Management Solutions
Our Traditional Risk Management Solutions generally consist of
reports derived from our database which our customers use
primarily to make decisions about new credit applications. Our
Traditional Risk Management Solutions constituted the following
percentages of total Risk Management Solutions Revenue, Total
Revenue and Core Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Risk Management Solutions Revenue
|
|
|
81% |
|
|
|
82% |
|
|
|
81% |
|
Total Revenue
|
|
|
53% |
|
|
|
51% |
|
|
|
47% |
|
Core Revenue
|
|
|
53% |
|
|
|
54% |
|
|
|
54% |
|
Our Value-Added Risk Management Solutions generally support
automated decision-making and portfolio management through the
use of scoring and integrated software solutions. Our
Value-Added Risk Management Solutions constituted the following
percentages of total Risk Management Solutions Revenue, Total
Revenue and Core Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Risk Management Solutions Revenue
|
|
|
19% |
|
|
|
18% |
|
|
|
19% |
|
Total Revenue
|
|
|
13% |
|
|
|
11% |
|
|
|
11% |
|
Core Revenue
|
|
|
13% |
|
|
|
12% |
|
|
|
12% |
|
Sales & Marketing Solutions
Our Traditional Sales & Marketing Solutions generally
consist of marketing lists, labels and customized data files
used by our customers in their direct mail and direct marketing
activities. Our Traditional Sales & Marketing Solutions
constituted the following percentages of total Sales &
Marketing Solutions Revenue, Total Revenue and Core Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Sales & Marketing Solutions Revenue
|
|
|
45% |
|
|
|
47% |
|
|
|
51% |
|
Total Revenue
|
|
|
12% |
|
|
|
12% |
|
|
|
13% |
|
Core Revenue
|
|
|
12% |
|
|
|
13% |
|
|
|
14% |
|
Our Value-Added Sales & Marketing Solutions generally
include decision-making and customer information management
products. Our Value-Added Sales & Marketing Solutions
constituted the following percentages of total Sales &
Marketing Solutions Revenue, Total Revenue and Core Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Sales & Marketing Solutions Revenue
|
|
|
55% |
|
|
|
53% |
|
|
|
49% |
|
Total Revenue
|
|
|
15% |
|
|
|
15% |
|
|
|
12% |
|
Core Revenue
|
|
|
15% |
|
|
|
15% |
|
|
|
14% |
|
Our Flexible Business Model and Restructuring
Since the launch of our Blueprint for Growth strategy, we have
implemented Financial Flexibility Programs. In each of
these Programs, we identified ways to reduce our expense base,
then reallocated some of the identified spending to other areas
of our operations to improve revenue growth. With each program
we have incurred a restructuring charges (which generally
consists of employee severance and termination costs,
27
contract terminations, asset write-offs, and/or costs to terminate
lease obligations, less
assumed sublease income)
and transition costs (which consist of other costs necessary to
accomplish the process changes such as consulting fees, costs of
temporary workers, relocation costs and stay bonuses).
Our Financial Flexibility Programs are continuing. On
January 31, 2006, our Board of Directors approved our 2006
Financial Flexibility Program. This Program will create
financial flexibility through initiatives including the
following:
|
|
|
|
|
Eliminating, standardizing, and consolidating redundant
technology platforms, software licenses and maintenance
agreements; |
|
|
|
Standardizing and consolidating customer service teams and
processes to increase productivity and capacity utilization; |
|
|
|
Consolidating our vendors to improve purchasing power; and |
|
|
|
Improving operating efficiencies of facilities. |
We expect to complete all actions under the 2006 program by
December 2006. On an annualized basis, these actions are
expected to create $70 million to $75 million of
financial flexibility, of which approximately $50 million
to $55 million will be generated in 2006, before any
transition costs and restructuring charges and before any
reallocation of spending. To implement these initiatives, we
expect to incur transition costs of approximately
$15 million. In addition, we expect to incur non-core
charges, totaling $23 million to $28 million pre-tax,
of which $10 million to $14 million relate to
severance, approximately $9 million to $10 million
relate to lease termination obligations and approximately
$4 million relate to other exit costs in 2006.
Approximately $36 million to $41 million of these
transition costs and restructuring charges are expected to
result in cash expenditures. In addition, as a result of this
re-engineering program, we expect that approximately 125 to 150
positions will be eliminated globally.
Our Critical Accounting Policies and Estimates
In preparing our consolidated financial statements and
accounting for the underlying transactions and balances
reflected therein, we have applied the significant accounting
policies described in Note 1 to our consolidated financial
statements included in Item 8. of this Annual Report on
Form 10-K. Of
those policies, we consider the policies described below to be
critical because they are both most important to the portrayal
of our financial condition and results, and they require
managements subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters
that are inherently uncertain. We base our estimates on
historical experience and on various other factors that we
believe to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or
conditions.
If actual results ultimately differ from previous estimates, the
actual results could have a material impact on such period.
We have discussed the selection and application of our critical
accounting policies and estimates with the Audit Committee of
our Board of Directors, and the Audit Committee has reviewed the
disclosure regarding critical accounting policies and estimates
as well as the other sections in this Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
|
|
Pension and Postretirement Benefit Obligations |
We offer substantially all of our
U.S.-based employees
coverage in a defined benefit plan called The Dun &
Bradstreet Corporation Retirement Account (the
U.S. Qualified Plan). The defined benefit plan
covers active and retired employees including retired
individuals from spin-off companies (see Note 13 to our
consolidated financial statements included in Item 8. of
this Annual Report on
Form 10-K for
further discussion of spin-off companies). Pension costs are
determined actuarially and funded in accordance with the
Internal Revenue Code. We also maintain supplemental and excess
plans in the United States (the U.S. Non-Qualified
Plans) to provide additional retirement benefits to
certain key employees. These plans are unfunded, pay-as-you-go
plans. The U.S. Qualified Plan and the
U.S. Non-Qualified Plans account for
28
approximately 73% and 15% of our pension obligations,
respectively, at December 31, 2005. Our employees in
certain of our international operations are also provided
retirement benefits through defined benefit plans representing
the remaining balance of our pension obligations.
In addition to providing pension benefits, we provide various
health care and life insurance benefits for retirees.
U.S. based employees
who retire with 10 years of vesting service after
age 45 are eligible to receive benefits. Postretirement
benefit costs and obligations are determined actuarially.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 87, Employers Accounting
for Pensions, our pension benefit obligations and the
related effects on operations are calculated using actuarial
assumptions and methodologies. Other postretirement benefits
(i.e., health care) are accounted for in accordance with
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions, and are also
dependent on the application of our assumptions by our outside
actuaries. The key assumptions used in the measurement of the
pension and postretirement obligations and net periodic pension
and postretirement costs are;
|
|
|
|
|
Expected long-term rate of return on pension plan
assets which is based on current and expected
asset allocations as well as expected returns on asset
categories of plan investments; |
|
|
|
Discount rate which is used to measure the
present value of pension plan obligations and postretirement
health care obligations. The discount rates are derived by using
a yield curve approach which matches projected plan benefit
payment streams with an applicable yield curve developed from
high quality bond portfolios; |
|
|
|
Rates of compensation increase and cash balance
accumulation/conversion rates which are based on
an evaluation of internal plans and external market
indicators; and |
|
|
|
Health care cost trends which are based on
historical cost data, the near-term outlook and an assessment of
likely long-term trends. |
We believe that the assumptions used are appropriate, though
changes in these assumptions would affect our pension and other
postretirement benefit costs. The factor with the most immediate
impact on our financial statements is a change in the expected
long-term rate of return on pension plan assets for the
U.S. Qualified Plan. For 2006, we will lower this
assumption to 8.25% from 8.50% in 2005 and from 8.75% in 2004. The
8.25% assumption represents our best estimate of the expected
long-term future investment performance of the
U.S. Qualified Plan, after considering expectations for
future capital market returns and the plans asset
allocation. As of December 31, 2005, the plan was 66%
invested in publicly traded equity securities, 26% invested in
debt securities and 8% invested in real estate investments. We
expect this one-quarter percentage-point decrease in the
long-term rate of return will reduce our 2006 annual operating
income by approximately $3.1 million by reducing our net
periodic pension income.
Changes in the discount rate, rate of compensation increase and
cash balance accumulation/conversion rates also have an effect
on our annual operating income. The discount rate is adjusted at
each remeasurement date while other assumptions are reviewed
annually, based on the factors noted above. For example, as of
December 31, 2005, for all of our U.S. pension plans,
we lowered the discount rate to 5.50% from 5.75% used at
December 31, 2004. We expect that this
one-quarter-percentage-point decrease in the discount rate
applied with respect to the U.S. Qualified and
Non-Qualified Plans will reduce our 2006 annual operating income
by approximately $4.4 million by reducing our net periodic
pension income. As of December 31, 2005, we increased the
discount rate for our Postretirement Benefit Plan to 5.30% from
5.25% used at December 31, 2004. The discount rate has a
minimal effect on the postretirement cost and, therefore, we do
not expect this five basis point increase in the discount rate
to have a significant impact on our 2006 annual operating income.
Differences between the assumptions stated above and actual
experience could affect our pension and other postretirement
benefit costs. When actual plan experience differs from the
assumptions used, actuarial gains or losses arise in accordance
with SFAS No. 87 and SFAS No. 106. These
gains and losses are aggregated and amortized generally over the
average future service periods of employees to the extent that
such gains or losses exceed a corridor as defined in
SFAS No. 87. The purpose of the corridor is to average
29
the volatility caused by the difference between actual
experience and the pension-related assumptions noted above, on a
plan-by-plan basis. For all of our pension plans, total
unrecognized actuarial losses as of December 31, 2005 and
2004 were $597.0 million and $551.7 million,
respectively, of which $392.7 million and
$360.6 million, respectively, was attributable to the
U.S. Qualified Plan, $114.0 million and
$99.1 million, respectively, was attributable to the
U.S. Non-Qualified Plans, and the remainder was
attributable to the
non-U.S. pension
plans. (Also see discussion in Note 10 to our consolidated
financial statements included in Item 8. of this Annual
Report on
Form 10-K). We
expect to recognize such losses in our 2006 net periodic
pension cost of approximately $21.2 million,
$6.8 million and $2.2 million, for the
U.S. Qualified Plan, U.S. Non-Qualified Plans and
non-U.S. plans,
respectively, compared to $16.7 million, $6.6 million
and $1.9 million, respectively, in 2005. The increased
amortization of actuarial loss of $4.5 million related to
the U.S. Qualified Plan, which will be included in our
pension cost in 2006, is primarily due to higher amortization of
unrecognized actuarial losses exceeding the corridor threshold
under SFAS No. 87 at January 1, 2006.
Differences between the expected long-term rate of return
assumption and actual experience could affect our net periodic
pension cost. We recorded net periodic cost for our pension
plans of $12.9 million for 2005 and net periodic pension
income of $11.7 million and $18.2 million for the
years 2004 and 2003, respectively. A major component of the net
periodic pension cost is the expected return on plan assets,
which was $119.2 million, $126.8 million and
$128.1 million in 2005, 2004 and 2003, respectively. The
expected return on plan assets was determined by multiplying the
expected long-term rate of return assumption by the
market-related value of plan assets. The market-related value of
plan assets recognizes asset gains and losses over five years to
reduce the effects of short-term market fluctuations on net
periodic cost. In 2005, 2004 and 2003, we recorded investment
gains of $112.6 million, $128.0 million and
$235.6 million, respectively, in our pension plans, of
which $90.2 million, $116.2 million and
$228.6 million, respectively, were attributable to the
U.S. Qualified Plan and $22.4 million,
$11.8 million and $7.0 million, respectively, were
attributable to the
non-U.S. plans. At
January 1, 2006, the market-related value of plan assets of
our U.S. Qualified Plan and the
non-U.S. plans was
$1,285.3 million and $137.5 million, respectively,
which excludes $25.0 million of unrecognized investment
loss and $4.7 million of unrecognized investment gain,
respectively, from prior periods. If the unrecognized losses are
not recovered in future years, our market-related value of
assets will decrease, causing our expected return on plan assets
to fall and our net periodic pension costs to rise.
Changes in the funded status of our pension plans could result
in a significant future charge to our equity. Under the
requirements of SFAS No. 87, if the plan asset value
falls below the related accumulated benefit obligation, we would
be required to record a minimum pension liability for the
difference between the two amounts and reverse our prepaid
pension cost. This charge would be recorded against a component
of shareholders equity, net of applicable deferred taxes.
We recognized charges of $5.6 million, $14.0 million
and $5.9 million, net of applicable taxes, to
shareholders equity for minimum pension liabilities
related to our U.S. Non-Qualified Plans and
non-U.S. plans for
2005, 2004 and 2003, respectively.
The U.S. Qualified Plan, our principal plan, is currently
over-funded. The excess of the fair value of plan assets over
the related accumulated benefit obligation was
$102.0 million at December 31, 2005, compared with
$120.9 million at December 31, 2004. The prepaid
pension cost associated with this plan was $470.4 million
and $452.3 million at December 31, 2005 and
December 31, 2004, respectively.
A change in the discount rate assumption could result in a
change in the funded status of our pension plans by changing the
amount of the accumulated benefit obligation. For the
U.S. Qualified Plan, every one-quarter percentage-point
increase or decrease in the discount rate reduces or increases
our accumulated benefit obligation by approximately
$39.0 million. For the Non-Qualified Plans, every
one-quarter percentage-point increase or decrease in the
discount rate reduces or increases our accumulated benefit
obligation by approximately $6.0 million.
For information on pension and Postretirement Benefit Plan
contribution requirements, please see Future
Liquidity Sources and Uses of Funds
Pension Plan and Postretirement Benefit Plan Contribution
Requirements in the Contractual Cash Obligations table
included in this Annual Report on
Form 10-K.
30
Also see Note 10 to our consolidated financial statements
included in Item 8. of this Annual Report on
Form 10-K for more
information regarding costs of, and assumptions for, our pension
and postretirement benefit obligations and costs.
|
|
|
Contingencies and Litigation |
We establish reserves in connection with tax and legal
proceedings, claims and litigation when it is probable that a
loss has been incurred and the amount of loss is reasonably
estimable. Contingent liabilities are often resolved over long
periods of time. Estimating probable losses requires analyses of
multiple forecasts that often depend on judgments concerning
potential actions by third parties and regulators. This is an
inherently subjective and complex process, and actual results
may differ from our estimates by material amounts. For more
information, see Note 13 to our consolidated financial
statements included in Item 8. of this Annual Report on
Form 10-K.
Our Risk Management Solutions are generally sold under monthly
or annual contracts that enable a customer to purchase our
information solutions during the period of contract at prices
per an agreed price list, up to the contracted dollar limit.
Revenue on these contracts is recognized as solutions are
delivered to the customer, based on the per-solution price. Any
additional solutions purchased over this limit may be subject to
pricing variations and revenue is recognized as the solutions
are delivered. If customers do not use the full value of their
contract and forfeit the unused portion, we recognize the
forfeited amount as revenue at contract expiration.
We have fixed price subscription contracts for larger customers
that allow those customers unlimited use within predefined
ranges, subject to certain conditions. In these instances, we
recognize revenue ratably over the term of the contract, which
is generally one year.
Revenue related to services provided over the contract term,
such as monitoring services, is recognized ratably over the
contract period, which is typically one year.
For Sales & Marketing Solutions and Supply Management
Solutions, we generally recognize revenue upon delivery of the
information file to the customer. For arrangements that include
periodic updates to that information file over the contract
term, the portion of the revenue related to updates expected to
be delivered is deferred as a liability on the balance sheet and
recognized as the updates are delivered, usually on a quarterly
or monthly basis. For subscription solutions that provide
continuous access to our generic marketing information and
business reference databases, as well as any access fees or
hosting fees related to enabling customers access to our
information, revenue is recognized ratably over the term of the
contract, which is typically one year.
We have certain solution offerings that are sold as
multi-element arrangements. The multiple elements may include
information files, file updates for certain solutions, software,
services, trademarks and/or other intangibles. Revenue for each
element is recognized when that element is delivered to the
customer, based upon the relative fair value for each element.
For offerings that include software that is considered to be
more than incidental, we recognize revenue when a non-cancelable
license agreement has been signed and the software has been
shipped and installed. Maintenance revenue, which consists of
fees for ongoing support and software updates, is recognized
ratably over the term of the contract, which is typically one
year, when the maintenance for the software is considered
significant. When maintenance is insignificant, we recognize the
revenue when the agreement is signed and the software is shipped.
Revenue from consulting and training services is recognized as
the services are performed.
For E-Business
Solutions, which consists of Hoovers, Inc., we provide
subscription solutions that provide continuous access to our
business information databases. Revenue is recognized ratably
over the term of the contract, which is generally one year. Any
additional solutions purchased are recognized once they are
delivered and billed to the customer.
31
Amounts billed in advance are recorded as a liability on the
balance sheet. The deferred revenue is recognized as the
services are performed.
Recently Issued Accounting Standards
See Note 2 Recent Accounting Pronouncements to
our consolidated financial statements included in Item 8.
of this Annual Report on
Form 10-K for
disclosure of the impact that recently issued accounting
standards may have on our audited consolidated financial
statements.
Results of Operations
The following discussion and analysis of our financial condition
and results of operations are based upon our consolidated
financial statements. They should be read in conjunction with
the consolidated financial statements and related footnotes set
forth in Item 8 of this Annual Report on
Form 10-K, which
have been prepared in accordance with GAAP.
The following table presents our revenue by segment:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
1,087.8 |
|
|
$ |
1,004.9 |
|
|
$ |
927.6 |
|
|
International
|
|
|
355.8 |
|
|
|
329.6 |
|
|
|
286.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Revenue
|
|
|
1,443.6 |
|
|
|
1,334.5 |
|
|
|
1,213.7 |
|
|
Divested Businesses
|
|
|
|
|
|
|
79.5 |
|
|
|
172.7 |
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$ |
1,443.6 |
|
|
$ |
1,414.0 |
|
|
$ |
1,386.4 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents our revenue by customer solution
set:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Solutions
|
|
$ |
953.2 |
|
|
$ |
882.0 |
|
|
$ |
804.3 |
|
|
Sales & Marketing Solutions
|
|
|
382.8 |
|
|
|
368.2 |
|
|
|
342.4 |
|
|
E-Business Solutions
|
|
|
70.0 |
|
|
|
50.0 |
|
|
|
29.0 |
|
|
Supply Management Solutions
|
|
|
37.6 |
|
|
|
34.3 |
|
|
|
38.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Revenue
|
|
|
1,443.6 |
|
|
|
1,334.5 |
|
|
|
1,213.7 |
|
|
Divested Businesses
|
|
|
|
|
|
|
79.5 |
|
|
|
172.7 |
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$ |
1,443.6 |
|
|
$ |
1,414.0 |
|
|
$ |
1,386.4 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 vs. Year ended
December 31, 2004
Total revenue increased $29.6 million, or 2% (1% increase
before the effect of foreign exchange), for the year ended
December 31, 2005 as compared to the year ended
December 31, 2004. The increase in total revenue was
primarily driven by an increase in total U.S. revenue of
$82.9 million, or 8% increase, partially offset by a
decrease in total International revenue of $53.3 million,
or 13% decrease (15% decrease before the effect of foreign
exchange).
32
This $29.6 million increase is primarily attributed to:
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|
|
|
growth in the U.S. subscription plan for existing customers
willing to increase the level of business they do with us. The
subscription plan provides our customers unlimited use of
our Risk Management reports and data, within pre-defined ranges,
provided such customers commit to an increased level of spend
from their historical levels; |
|
|
|
growth in our
E-Business Solutions,
representing the results of Hoovers, Inc. The increase was
primarily due to continued growth in subscription revenue and
increased advertising sales; |
|
|
|
growth in our Italian real estate data business, which
contributed two percentage points of total revenue growth,
mainly due to a price increase and the acquisition of a
controlling interest in RIBES S.p.A., a leading provider of
business information to Italian banks; and |
|
|
|
an increase in our Self Awareness Solutions, which allow our
small business customers to establish, improve and protect their
own credit; |
partially offset by:
|
|
|
|
|
our having divested certain businesses in 2004, which accounted
for $79.5 million of revenue for the year ended
December 31, 2004; and |
|
|
|
a decrease in revenues from our United Kingdom (UK)
market. |
Core revenue, which reflects total revenue less revenue from
divested businesses, increased $109.1 million or 8% (8%
increase before the effect of foreign exchange), for the year
ended December 31, 2005, as compared to the year ended
December 31, 2004.
On a customer solution set basis, the $109.1 million
increase in core revenue reflects:
|
|
|
|
|
a $71.2 million, or 8%, increase in Risk Management
Solutions (7% increase before the effect of foreign exchange).
The increase was driven by growth in the U.S. of
$42.7 million, or 7%, and growth in International of
$28.5 million, or 11% (8% increase before the effect of
foreign exchange). International includes our Italian real
estate data business, which contributed two percentage points of
total Risk Management Solutions growth with the majority of the
growth due to a price increase and the acquisition of a
controlling interest in RIBES S.p.A.; |
|
|
|
a $14.6 million, or 4%, increase in Sales &
Marketing Solutions (4% increase before the effect of foreign
exchange). The increase was driven by growth in the U.S. of
$19.2 million, or 6%, partially offset by a decrease in
International of $4.6 million, or 8% (9% decrease before
the effect of foreign exchange); |
|
|
|
a $20.0 million, or 40%, increase in
E-Business Solutions
(40% increase before the effect of foreign exchange). The
increase was driven by growth in the U.S. of
$17.3 million, or 35%, and growth in International of
$2.7 million. We first began offering our Hoovers
solution to customers in Europe in the fourth quarter of
2004; and |
|
|
|
a $3.3 million, or 10%, increase in Supply Management
Solutions, (9% increase before the effect of foreign exchange).
The increase was driven by growth in the U.S. of
$3.7 million, or 13%, partially offset by a decrease in
International of $0.4 million or 11% (12% decrease before
the effect of foreign exchange). |
Year ended December 31, 2004 vs. Year ended
December 31, 2003
Total revenue increased $27.6 million, or 2% (1% decrease
before the effect of foreign exchange), for the year ended
December 31, 2004, as compared to the year ended
December 31, 2003. The increase in total revenue was
primarily driven by an increase in total U.S. revenue of
$77.3 million, or 8%, partially offset by a
33
decrease in total International revenue of $49.7 million,
or 11% (19% decrease before the effect of foreign exchange).
This $27.6 million increase is primarily attributed to:
|
|
|
|
|
an increase in our Self Awareness Solutions, which allows our
small business customers to establish, improve and protect their
own credit; |
|
|
|
growth in the U.S. subscription plan for existing customers
that are willing to increase the level of business they do with
us; and |
|
|
|
acquisitions of Hoovers, Inc., in the first quarter of
2003, and our Italian real estate data companies in the second
quarter of 2003; |
partially offset by:
|
|
|
|
|
our having divested certain businesses, which for the two years
ended December 31, 2004 and 2003, accounted for
$79.5 million and $172.7 million of revenue,
respectively. |
Core revenue, which reflects total revenue less revenue from
divested businesses, increased $120.8 million, or 10% (8%
increase before the effect of foreign exchange), for the year
ended December 31, 2004, as compared to the year ended
December 31, 2003.
On a customer solution set basis, the $120.8 million
increase in core revenue reflects:
|
|
|
|
|
a $77.7 million, or 10%, increase in Risk Management
Solutions (7% increase before the effect of foreign exchange).
The increase was driven by growth in the U.S. of
$35.7 million, or 6%, and growth in International of
$42.0 million, or 18% (9% increase before the effect of
foreign exchange); |
|
|
|
a $25.8 million, or 8%, increase in Sales &
Marketing Solutions (6% decrease before the effect of foreign
exchange). The increase was driven by growth in the U.S. of
$24.1 million, or 8%, and growth in International of
$1.7 million, or 3% (6% decrease before the effect of
foreign exchange); |
|
|
|
a $21.0 million, or 72%, increase in
E-Business Solutions,
representing the results of Hoovers, Inc. The increase was
driven by growth in the U.S. of $20.9 million, or 72%,
which includes twenty percentage points of growth from the
purchase accounting adjustments on the 2003 results. We acquired
Hoovers, Inc. in the first quarter of 2003. This increase
was also driven by $0.1 million of International revenue.
We first began offering Hoovers solution to customers in
Europe in the fourth quarter of 2004; and |
|
|
|
a $3.7 million, or 10%, decline in Supply Management
Solutions (11% decrease before the effect of foreign exchange).
The decrease was driven by a decline in the U.S. of
$3.4 million, or 11%, and a decrease in growth in
International of $0.3 million, or 2% (10% decrease before
the effect of foreign exchange). |
34
|
|
|
Consolidated Operating Costs |
The following table presents our consolidated operating costs
and operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Operating Expenses
|
|
$ |
412.0 |
|
|
$ |
403.9 |
|
|
$ |
433.3 |
|
Selling and Administrative Expenses
|
|
|
600.8 |
|
|
|
612.0 |
|
|
|
579.9 |
|
Depreciation and Amortization
|
|
|
36.1 |
|
|
|
47.3 |
|
|
|
64.0 |
|
Restructuring Charges
|
|
|
30.7 |
|
|
|
32.0 |
|
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
Operating Costs
|
|
$ |
1,079.6 |
|
|
$ |
1,095.2 |
|
|
$ |
1,094.6 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
364.0 |
|
|
$ |
318.8 |
|
|
$ |
291.8 |
|
|
|
|
|
|
|
|
|
|
|
As described above in the section Managements
Discussion and Analysis of Financial Condition and Results of
Operations How We Manage Our Business, when we
evaluate the performance of our business as a whole, we focus on
our operating income (and, therefore, operating costs) before
non-core gains and (charges), because we do not view these items
as reflecting our underlying business operations. We have
identified under the caption Non-Core Gains and
(Charges) below, such non-core gains and charges that are
included in our GAAP results.
Operating Expenses
Operating expenses increased by $8.1 million, or 2%, for
the year ended December 31, 2005 as compared to
December 31, 2004. The increase was primarily due to the
following:
|
|
|
|
|
certain tax legislation in Italy which has increased the
operating costs of our Italian real estate data business in 2005; |
|
|
|
investments in our DUNSRight quality process; and |
|
|
|
the impact of foreign exchange; |
partially offset by:
|
|
|
|
|
reduced costs as a result of the sale of our divested businesses
to strategic partners in 2004 as part of our international
market leadership strategy; and |
|
|
|
improved efficiency and a reduction in the number of employees
as a result of our process of continuous reengineering. |
Operating expenses decreased by $29.4 million, or 7%, for
the year ended December 31, 2004 as compared to
December 31, 2003. The decrease was primarily due to the
following:
|
|
|
|
|
improved efficiency and a reduction in the number of employees
in our data collection, fulfillment and technology areas as a
result of our process of continuous reengineering; |
|
|
|
reduced costs as a result of the sale of our divested businesses
to strategic partners in 2003 and 2004 as part of our
international market leadership strategy; and |
|
|
|
a $13.8 million loss on the sale of a building in High
Wycombe, England in July 2003 with no comparable loss in 2004; |
partially offset by:
|
|
|
|
|
an increased expense base as a result of the acquisition of
three Italian real estate data companies; and |
|
|
|
|
|
the impact of
foreign exchange. |
35
Selling and Administrative Expenses
Selling and administrative expenses decreased
$11.2 million, or 2%, for the year ended December 31,
2005 as compared to December 31, 2004. The decrease was
primarily due to the following:
|
|
|
|
|
reduced costs associated with the sale of our divested
businesses; and |
|
|
|
administrative cost savings, such as lower compensation costs
achieved through our Financial Flexibility Programs and lower
spending for Sarbanes-Oxley related expenses; |
partially offset by:
|
|
|
|
|
the impact of foreign exchange. |
Selling and administrative expenses increased
$32.1 million, or 6%, for the year ended December 31,
2004 as compared to December 31, 2003. The increase was
primarily due to the following:
|
|
|
|
|
additional costs related to revenue-generating investments as
well as additional variable costs (such as commissions and
bonuses) incurred as a result of increased revenues; |
|
|
|
consulting costs associated with our reengineering initiatives
and costs associated with achieving compliance with
Sarbanes-Oxley requirements; |
|
|
|
an increase in our expense base as a result of the acquisition
of three Italian real estate data companies; and |
|
|
|
the impact of foreign exchange; |
partially offset by:
|
|
|
|
|
cost savings, such as lower compensation costs, achieved through
our Financial Flexibility Programs; and |
|
|
|
the sale of our divested businesses to strategic partners in
2003 and 2004 as part of our international market leadership
strategy. |
We had a net pension cost of $12.9 million for the year
ended December 31, 2005 and net pension income of
$11.7 million and $18.2 million for the years ended
December 31, 2004 and 2003, respectively, for all of our
global pension plans. The increase in pension cost or decrease
in pension income from 2003 to 2005 was primarily due to
increased actuarial loss amortizations included in annual
expense as required by SFAS No. 87. Actuarial loss
amortizations included in annual pension expense for all global
plans were $25.2 million, $11.4 million and
$8.2 million for the years ended December 31, 2005,
2004 and 2003, respectively, of which $23.3 million,
$8.1 million and $5.4 million was attributable,
respectively for such years, to our U.S. plans. The losses subject to
amortization are primarily the result of asset losses from 2000
through 2002, and the impact of lower discount rates.
Additionally, a one-quarter percentage-point decrease in the
long-term rate of return assumption for our U.S. Qualified
Plan, and a three-quarter percent decrease in the discount rate
used to value our U.S. plans also contributed to the
increase in expense during the period. We lowered the long-term
rate of return assumption to 8.50% in 2005 from 8.75% for the
years ended December 31, 2004 and 2003. The discount rate
used to measure the pension costs for our U.S. plans for
the years ended December 31, 2005, 2004 and 2003 was 5.75%,
6.00% and 6.50%, respectively.
We expect that the net pension cost will be approximately
$25.4 million in 2006 for all of our global pension plans.
The increase in pension cost from 2005 to 2006 is primarily
driven by increased actuarial loss amortization included in
2006, a one-quarter percentage-point decrease in the long-term
rate of return for our U.S. Qualified Plan, and a
one-quarter percentage-point decrease in the discount rate
applied to our U.S. plans at January 1, 2006.
We had postretirement benefit income of $5.7 million and
$3.0 million for the years ended December 31, 2005 and
2004, respectively, and postretirement benefit costs of
$14.9 million for the year ended December 31, 2003.
The increase in postretirement benefit income or decrease in
cost for the years ended December 31, 2005 and 2004 was due
to the employer contribution cap that we put in place effective
at January 1, 2004 as
36
well as the impact of Medicare Reform Act. Specifically, in the
fourth quarter of 2003, we amended our Postretirement Benefit
Plan and starting January 1, 2004, we began to limit the
amount of our insurance premium contribution based on the amount
we contributed in 2003 per retiree. This change is expected
to reduce our annual postretirement benefit costs by
approximately $11 million a year for five to six years,
starting in 2004. The impact of the Medicare Reform Act in the
third quarter of 2004 also contributed to the decreased
postretirement benefit cost. Postretirement benefit income was
greater in 2005 than in 2004 primarily due to the savings from
Medicare Reform for a full year as well as an actuarial gain
from the 2005 plan valuation.
We expect postretirement benefit income will be approximately
$3 million for the year ended December 31, 2006. The
expected decrease in 2006 postretirement benefit income is
primarily due to a portion of the negative unrecognized prior
service cost recognized immediately in 2005 as a one-time
curtailment gain as a result of the 2004 and 2005 Financial
Flexibility Program. The curtailment gain is included within
Restructuring Charges.
We consider net pension income and postretirement benefit costs
to be part of our compensation costs and, therefore, they are
included in operating expenses and in selling and administrative
expenses, based upon the classifications of the underlying
compensation costs. See the discussion of Our Critical
Accounting Policies and Estimates Pension and
Postretirement Benefit Obligations, above, and
Note 10 to our consolidated financial statements included
in Item 8. of this Annual Report on
Form 10-K.
Depreciation and Amortization
Depreciation and amortization decreased $11.2 million, or
24%, for the year ended December 31, 2005 as compared to
December 31, 2004. This decrease is primarily driven by
changes in our business model, which have enabled us to reduce
the capital requirements of our business through continuous
reengineering, leveraging strategic partners in key markets and
outsourcing capital intensive activities.
Depreciation and amortization decreased $16.7 million, or
26%, for the year ended December 31, 2004 as compared to
December 31, 2003. This decrease was largely driven by
changes in our business model which have enabled us to reduce
the capital requirements of our business through continuous
reengineering, leveraging strategic partners in key markets and
outsourcing capital intensive activities. Also, contributing to
the decrease was the sale of our building in High Wycombe,
England, in July 2003. The decrease for the year ended
December 31, 2004 as compared to December 31, 2003 was
partially offset by the acquisition of three Italian real estate
data companies and the impact of foreign exchange.
Restructuring Charge
During the year ended December 31, 2005, we recorded a
$30.8 million restructuring charge in connection with the
Financial Flexibility Program announced in February 2005
(2005 Financial Flexibility Program) and a
$0.1 million net restructuring gain in connection with the
Financial Flexibility Program announced in February 2004
(2004 Financial Flexibility Program). The
restructuring charges were recorded in accordance with
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The curtailments were
recorded in accordance with SFAS No. 87,
Employers Accounting for Pension,
SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits and SFAS 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions. The components of these charges and
gains included:
|
|
|
|
|
severance and termination costs of $23.3 million associated
with approximately 425 employees related to the 2005 Financial
Flexibility Program and $5.7 million associated with
approximately 310 employees related to the 2004 Financial
Flexibility Program; |
|
|
|
lease termination obligations, other costs to consolidate or
close facilities and other exit costs of $4.7 million
related to the 2005 Financial Flexibility Program; |
|
|
|
curtailment charges of $3.1 million related to our pension
plans and an immediate reduction to ongoing pension income of
$3.4 million related to the U.S. Qualified Plan
resulting from employee actions for |
37
|
|
|
|
|
the 2005 Financial Flexibility Program. In accordance with
SFAS No. 87 and SFAS No. 88 we were required
to recognize immediately a pro-rata portion of the unrecognized
prior service cost as a result of the employee terminations and the pension
plan was required to be re-measured which reduced our periodic
pension income; and |
|
|
|
curtailment gains of $3.7 million and $5.8 million
related to the U.S. postretirement benefit plan resulting
from employee actions for the 2005 Financial Flexibility Program
and 2004 Financial Flexibility Program, respectively. In
accordance with SFAS No. 106, we were required to
recognize immediately a pro-rata portion of the unrecognized
prior service cost as a result of the employee terminations. |
At December 31, 2005, all actions under these programs were
substantially completed.
During the year ended December 31, 2004, we recorded
$32.0 million of restructuring charges in connection with
the 2004 Financial Flexibility Program. The components of the
restructuring charges included:
|
|
|
|
|
severance and termination costs of $28.4 million associated
with approximately 900 employees; |
|
|
|
lease termination obligations, other costs to consolidate or
close facilities and other exit costs of $3.1 million; |
|
|
|
curtailment charges (in accordance with SFAS No. 87
and SFAS No. 88) of $0.9 million and an immediate
reduction to ongoing pension income of $3.3 million related
to our pension plans; and |
|
|
|
curtailment gain (in accordance with SFAS No. 106) of
$3.7 million related to the U.S. postretirement
benefit plan. |
In October 2004, as part of the 2004 Financial Flexibility
Program, we entered into an agreement with International
Business Machines Corporation (IBM) to outsource
certain portions of our data acquisition and delivery, customer
service and financial processes. Under the terms of the
agreement, approximately 220 employees who primarily performed
certain customer service functions in the United States, Canada,
United Kingdom and the Netherlands were transitioned to IBM. We
made total payments of approximately $1.8 million to IBM as
full satisfaction of any of our existing liabilities for future
severance benefits related to the transitioned employees. The
severance benefits for the employees who transitioned to IBM are
included in the restructuring charges for the years ended
December 31, 2005 and 2004.
During the year ended December 31, 2004, approximately 650
employees (including 220 employees who transitioned to IBM as
part of the outsourcing agreement discussed below) were
terminated in connection with the 2004 Financial Flexibility
Program. During the year ended December 31, 2005,
approximately 310 employees were terminated in connection with
the 2004 Financial Flexibility Program which resulted in 960
employees terminated for this program in total.
During the year ended December 31, 2003, we recorded
$17.4 million of restructuring charges in connection with
the Financial Flexibility Program announced in February 2003
(2003 Financial Flexibility Program). The components
of the restructuring charges included:
|
|
|
|
|
severance and termination costs of $16.6 million associated
with approximately 500 employees; |
|
|
|
lease termination obligations of $0.3 million; and |
|
|
|
curtailment charge (in accordance with SFAS No. 87 and
SFAS No. 88) of $0.5 million related to the
U.S. Qualified Plan. |
During the year ended December 31, 2003, all of the
approximately 500 employees had been terminated in connection
with the 2003 Financial Flexibility Program.
See Note 3 to our consolidated financial statements
included in Item. 8 of this Annual Report on
Form 10-K.
38
Interest Income (Expense) Net
The following table presents our Interest Income
(Expense) Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Interest Income
|
|
$ |
10.6 |
|
|
$ |
8.4 |
|
|
$ |
4.2 |
|
Interest Expense
|
|
|
(21.1 |
) |
|
|
(18.9 |
) |
|
|
(18.6 |
) |
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense) Net
|
|
$ |
(10.5 |
) |
|
$ |
(10.5 |
) |
|
$ |
(14.4 |
) |
|
|
|
|
|
|
|
|
|
|
Interest income increased $2.2 million, or 26%, for the
year ended December 31, 2005 as compared to
December 31, 2004, primarily due to higher investment
balances in marketable securities, as well as higher interest
rates. Interest income increased $4.2 million, or 100%, for
the year ended December 31, 2004 as compared to
December 31, 2003, primarily due to higher investment
balances in cash and marketable securities, as well as higher
interest rates.
We expect a significant reduction in interest income in 2006, due
to a decision to target lower cash balances.
Interest expense increased by $2.2 million, or 11%, for the
year ended December 31, 2005 as compared to
December 31, 2004, primarily due to higher interest rates.
Interest expense increased by $0.3 million, or 2%, for the
year ended December 31, 2004 as compared to
December 31, 2003, primarily due to higher interest rates.
Other Income (Expense) Net
The following table presents the components of Other
Income (Expense) Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Miscellaneous Other Income (Expense) Net(a)
|
|
$ |
|
|
|
$ |
1.0 |
|
|
$ |
(1.9 |
) |
Gains (Losses) on Sales of Businesses(b)
|
|
|
|
|
|
|
30.3 |
|
|
|
(2.5 |
) |
Gains on Sales of Investments(c)
|
|
|
3.5 |
|
|
|
1.2 |
|
|
|
0.4 |
|
Final Resolution of All Disputes on the Sale of our French
Business(d)
|
|
|
(3.7 |
) |
|
|
|
|
|
|
|
|
Lower Costs Related to the Sale of the Iberian Business(e)
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
Insurance Recovery(f)
|
|
|
|
|
|
|
|
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) Net
|
|
$ |
0.6 |
|
|
$ |
32.5 |
|
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Miscellaneous Other Income (Expense) Net
decreased for the year ended December 31, 2005 as compared
to December 31, 2004, primarily due to lower foreign
currency transaction gains partially offset by lower bank fees.
Miscellaneous Other Income (Expense) Net
increased for the year ended December 31, 2004 as compared
to December 31, 2003, primarily due to foreign currency
transaction gains. |
|
(b) |
|
During the year ended December 31, 2004, we sold the
following businesses and recognized the following non-operating
gains: |
|
|
|
|
|
our operation in France during the fourth quarter, resulting in
a pre-tax gain of $12.9 million; |
|
|
|
our operations in Iberia (Spain and Portugal) during the fourth
quarter, resulting in a pre-tax gain of $0.1 million; |
|
|
|
our operations in Central Europe (Germany, Austria, Switzerland,
Poland, Hungary and the Czech Republic) during the second
quarter, resulting in a pre-tax gain of $5.6 million; |
39
|
|
|
|
|
our operations in the Nordic region (Sweden, Denmark, Norway and
Finland) during the first quarter, resulting in a pre-tax gain
of $7.9 million; and |
|
|
|
our operation in India and Distribution Channels in Pakistan and
the Middle East during the first quarter, resulting in a pre-tax
gain of $3.8 million. |
|
|
|
During the year ended December 31, 2003, we sold the
following businesses and recognized the following non-operating
gains (losses): |
|
|
|
|
|
our operation in Israel, resulting in a pre-tax loss of
$4.3 million; and |
|
|
|
the equity interest in our Singapore investment, resulting in a
pre-tax gain of $1.8 million. |
|
|
|
(c) |
|
During the year ended December 31, 2005, we sold a 5%
investment in a South African company for a pre-tax gain of
$3.5 million. During the year ended December 31, 2004,
we sold an investment in the U.S. for a pre-tax gain of
$1.2 million. During the year ended December 31, 2003,
we sold an investment in Italy for a pre-tax gain of
$0.4 million. |
|
(d) |
|
During the year ended December 31, 2005, we recorded a
$3.7 million charge, related to the final resolution of all
disputes on the sale of our French business. |
|
(e) |
|
During the year ended December 31, 2005, we recorded a
reversal of $0.8 million of costs as a result of lower than
expected costs related to the sale of our Iberian business. |
|
(f) |
|
During the year ended December 31, 2003, we recorded a
settlement on an insurance claim to recover losses related to
the events of September 11, 2001. |
Provision for Income Taxes
For the year ended December 31, 2005, our effective tax
rate was 37.8% as compared to 37.9% for the year ended
December 31, 2004. The effective tax rate for 2005 as
compared to 2004 was positively impacted by 4.5 points for
foreign income taxes primarily related to the liquidation of
dormant international entities that remained after the sale of
our divested businesses in the Nordic region (Sweden, Denmark,
Norway and Finland) and Iberia, by 0.7 points for interest
expense on tax reserves, and by 0.1 points for global tax
initiatives and was negatively impacted by 2.6 points for the tax
associated with the repatriation of foreign cash in connection
with the adoption of Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP)
No. FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004 (see Note 2 to
our consolidated financial statements included in Item 8.
of this Annual Report on
Form 10-K), by 0.8
points resulting from the non-deductibility in some countries of
certain items included within the restructuring charges and by
1.0 point for state and local income taxes. The effective tax
rate for the year ended December 31, 2004 had been
positively impacted by 0.8 points related to research and
development tax credits.
For the year ended December 31, 2004, our effective tax
rate remained the same at 37.9% as compared to the year ended
December 31, 2003. The effective tax rate for the year
ended December 31, 2004 as compared to the year ended
December 31, 2003 was positively impacted by 0.5 points for
foreign income taxes primarily related to tax benefits in the
UK, by 0.1 points for valuation allowances primarily related to
capital and net operating losses, and by 0.9 points for research and
development tax credits, and was negatively impacted by 1.4 points
for interest expense on tax reserves and by 0.1 points for other
items.
Equity in Net Income (Loss) of Affiliates
We recorded $0.7 million, $0.2 million and
$0.3 million as Equity in Net Income of Affiliates for the
years ended December 31, 2005, 2004 and 2003, respectively.
40
Earnings Per Share
We reported the following earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Basic Earnings Per Share
|
|
$ |
3.31 |
|
|
$ |
3.01 |
|
|
$ |
2.37 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
$ |
3.19 |
|
|
$ |
2.90 |
|
|
$ |
2.30 |
|
|
|
|
|
|
|
|
|
|
|
Basic EPS and diluted EPS each increased 10% for the year ended
December 31, 2005 as compared to the year ended
December 31, 2004, reflecting a 5% reduction in the
weighted average number of shares outstanding and a 4% increase
in net income. Basic EPS and diluted EPS increased 27% and 26%,
respectively, for the year ended December 31, 2004 as
compared to the year ended December 31, 2003, reflecting a
4% reduction in the weighted average number of shares
outstanding and a 21% increase in net income. Shares outstanding
were reduced as a result of our repurchase of shares, as
described in Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Financial Position Cash Used in
Financing Activities.
Non-Core Gains and (Charges)
For internal management purposes, we treat certain gains and
charges that are included in Consolidated Operating
Costs, Other Income (Expense) Net
and Provision for Income Taxes as non-core gains and
(charges). These non-core gains and (charges) are
summarized in the table below. We exclude non-core gains and
(charges) when evaluating our financial performance because
we do not consider these items to reflect our underlying
business performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Non-core gains and (charges) included in Operating
Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs related to our Financial Flexibility Programs
|
|
$ |
(30.7 |
) |
|
$ |
(32.0 |
) |
|
$ |
(17.4 |
) |
|
Final resolution of all disputes on the sale of our French
business
|
|
$ |
(0.4 |
) |
|
$ |
|
|
|
$ |
|
|
|
Loss on the sale of High Wycombe, England building
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(13.8 |
) |
Non-core gains and (charges) included in Other Income
(Expense) Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of an investment in a South African Company
|
|
$ |
3.5 |
|
|
$ |
|
|
|
$ |
|
|
|
Final resolution of all disputes on the sale of our French
business
|
|
$ |
(3.7 |
) |
|
$ |
|
|
|
$ |
|
|
|
Lower costs related to the sale of Iberia
|
|
$ |
0.8 |
|
|
$ |
|
|
|
$ |
|
|
|
Gains on sales of operations in the Nordic region, Central
Europe, Iberia, France and India, and Distribution Channels in
Pakistan and the Middle East
|
|
$ |
|
|
|
$ |
30.3 |
|
|
$ |
|
|
|
Insurance recovery related to the events of September 11,
2001
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7.0 |
|
Non-core gains and (charges) included in Provision for
Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Tax Legacy Reserve for Utilization of Capital
Losses 1989-1990
|
|
$ |
|
|
|
$ |
(4.5 |
) |
|
$ |
|
|
|
Restructuring costs related to our Financial Flexibility Programs
|
|
$ |
8.1 |
|
|
$ |
11.2 |
|
|
$ |
5.8 |
|
|
Tax benefits recognized upon the liquidation of dormant
international entities
|
|
$ |
16.3 |
|
|
$ |
|
|
|
$ |
|
|
|
Gain on sale of an investment in a South African Company
|
|
$ |
(1.5 |
) |
|
$ |
|
|
|
$ |
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Final resolution of all disputes on the sale of our French
business
|
|
$ |
1.5 |
|
|
$ |
|
|
|
$ |
|
|
Tax charge related to our repatriation of foreign cash
|
|
$ |
(9.3 |
) |
|
$ |
|
|
|
$ |
|
|
Increase in Tax Legacy Reserve for Royalty Expense
Deductions 1993-1997
|
|
$ |
(6.3 |
) |
|
$ |
|
|
|
$ |
|
|
Tax Legacy Refund for Utilization of Capital
Losses 1989-1990
|
|
$ |
0.9 |
|
|
$ |
|
|
|
$ |
|
|
Loss on the sale of High Wycombe, England building
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2.7 |
|
Gains on sales of operations in the Nordic region, Central
Europe, Iberia, France and India, and Distribution Channels in
Pakistan and the Middle East
|
|
$ |
|
|
|
$ |
(10.9 |
) |
|
$ |
|
|
Insurance recovery related to the events of September 11,
2001
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2.7 |
) |
Segment Results
The operating segments reported below are our segments for which
separate financial information is available and upon which
operating results are evaluated by management on a timely basis
to assess performance and to allocate resources. On
January 1, 2005, we began managing and reporting our
operations in Canada as part of our International segment. As
part of this change, our results are reported under the
following two segments: U.S. and International. We have
conformed historical amounts to reflect the new segment
structure.
U.S. is our largest segment, representing 75%, 71% and 67%
of our total revenue for the years ending December 31,
2005, 2004 and 2003, respectively, and 75%, 75%, and 76% of our
core revenue for the years ending December 31, 2005, 2004
and 2003, respectively.
There were no divestitures within this segment during the years
ended December 31, 2005, 2004 and 2003. The following table
presents our U.S. revenue by customer solution set and
U.S. operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Solutions
|
|
$ |
655.7 |
|
|
$ |
613.0 |
|
|
$ |
577.3 |
|
|
Sales & Marketing Solutions
|
|
|
331.5 |
|
|
|
312.3 |
|
|
|
288.2 |
|
|
E-Business Solutions
|
|
|
67.2 |
|
|
|
49.9 |
|
|
|
29.0 |
|
|
Supply Management Solutions
|
|
|
33.4 |
|
|
|
29.7 |
|
|
|
33.1 |
|
|
|
|
|
|
|
|
|
|
|
Total and Core U.S. Revenue
|
|
$ |
1,087.8 |
|
|
$ |
1,004.9 |
|
|
$ |
927.6 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
405.5 |
|
|
$ |
354.9 |
|
|
$ |
320.3 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 vs. Year ended
December 31, 2004
U.S. total and core revenue increased $82.9 million,
or 8%, for the year ended December 31, 2005 as compared to
the year ended December 31, 2004. The increase is primarily
due to increased revenue in all of our customer solution sets.
42
|
|
|
U.S. Customer Solution Set |
On a customer solutions set basis, the $82.9 million
increase in core revenue for the year ended December 31,
2005 as compared to the year ended December 31, 2004
reflects:
|
|
|
Risk Management Solutions |
|
|
|
|
|
a $42.7 million, or 7%, increase in Risk Management
Solutions. For the year ended December 31, 2005,
Traditional Risk Management Solutions, which accounted for 77%
of total U.S. Risk Management Solutions, increased 5%.
There were two main drivers of this growth: |
|
|
|
|
|
the continued growth in our subscription plan for existing
customers who are willing to increase the level of business they
do with us. The subscription plan provides our customers
unlimited use of our Risk Management reports and data, within
pre-defined ranges, provided such customers commit to an
increased level of spend from their historical levels; and |
|
|
|
our Self Awareness Solutions, which allow our small business
customers to establish, improve and protect their own credit. |
|
|
|
|
|
For the year ended December 31, 2005, Value-Added Risk
Management Solutions, which accounted for 23% of total
U.S. Risk Management Solutions, increased 15%. The increase
was primarily attributable to higher renewal rates on software,
and the sale of tailored, customized solutions and services that
meet our customers needs. |
|
|
|
Sales & Marketing Solutions |
|
|
|
|
|
a $19.2 million, or 6%, increase in Sales &
Marketing Solutions. For the year ended December 31, 2005,
Traditional Sales & Marketing Solutions, which
accounted for 43% of total U.S. Sales & Marketing
Solutions, increased 7%. The increase was primarily driven by
growth in our third party channels. |
|
|
|
For the year ended December 31, 2005, Value-Added
Sales & Marketing Solutions, which accounted for 57% of
total U.S. Sales & Marketing Solutions increased
by 6%. The increase was primarily driven by new customer
acquisition and retention rates in our existing customer base. |
|
|
|
|
|
a $17.3 million, or 35%, increase in
E-Business Solutions,
representing the results of Hoovers, Inc. The increase was
primarily due to continued growth in subscription revenue and
increased advertising sales. |
|
|
|
Supply Management Solutions |
|
|
|
|
|
a $3.7 million, or 13%, increase in Supply Management
Solutions is due to an increase in acquisition of new customers
and increased value of our customer contract renewals. |
U.S. operating income for the year ended December 31,
2005 was $405.5 million, as compared to $354.9 million
for the year ended December 31, 2004, an increase of
$50.6 million, or 14%. The increase in operating income was
due to an 8% increase in U.S. revenue for the year ended
December 31, 2005 and the benefits of our reengineering
efforts, partially offset by related investments made to drive
revenue growth.
Year ended December 31, 2004 vs. Year ended
December 31, 2003
U.S. total and core revenue increased $77.3 million,
or 8%, for the year ended December 31, 2004 as compared to
the year ended December 31, 2003. The increase is primarily
driven by increases in our three largest customer solution sets.
43
|
|
|
U.S. Customer Solution Set |
On a customer solutions set basis, the $77.3 million
increase in total and core revenue for the year ended
December 31, 2004 as compared to the year ended
December 31, 2003 reflects:
|
|
|
Risk Management Solutions |
|
|
|
|
|
a $35.7 million, or 6%, increase in Risk Management
Solutions. For the year ended December 31, 2004,
Traditional Risk Management Solutions, which accounted for 79%
of total U.S. Risk Management Solutions, increased 7%.
There were two main drivers of this growth: |
|
|
|
|
|
our Self Awareness Solutions; and |
|
|
|
the subscription plan we introduced in the United States in the
fourth quarter of 2003. |
|
|
|
|
|
For the year ended December 31, 2004, Value-Added Risk
Management Solutions, which accounted for 21% of total
U.S. Risk Management Solutions, increased only 4%, due to
product and customer care execution problems. |
|
|
|
Sales & Marketing Solutions |
|
|
|
|
|
a $24.1 million, or 8%, increase in Sales &
Marketing Solutions. For the year ended December 31, 2004,
Value-Added Solutions revenue, which accounted for 57% of total
U.S. Sales & Marketing Solutions, increased 21%.
There were two main drivers of this growth: |
|
|
|
|
|
double-digit growth in our Customer Information Management
(CIM) solutions; and |
|
|
|
our planned migration of our customers from our Traditional
solutions to our more automated Value-Added Solutions. |
|
|
|
|
|
For the year ended December 31, 2004, our Value-Added
Sales & Marketing Solutions growth was partially offset
by the 5% decrease in Traditional Sales & Marketing
Solutions, which accounted for 43% of total
U.S. Sales & Marketing Solutions. The decline was
primarily attributed to continued weakness in certain of our
Traditional list and label businesses. |
|
|
|
|
|
a $20.9 million, or 72%, increase in
E-Business Solutions,
representing the results of Hoovers, Inc. The increase was
primarily due to continued growth in subscription revenue and
the benefit of our marketing efforts, which have driven
increased traffic to the Hoovers Web site and strong ad
sales. Additionally, this increase includes twenty percentage
points of growth from the purchase accounting adjustments on the
2003 results. |
|
|
|
Supply Management Solutions |
|
|
|
|
|
a $3.4 million, or 11%, decrease in Supply Management
Solutions. This decline was primarily due to product delivery
and customer renewal issues. |
U.S. operating income increased $34.6 million, or 11%,
for the year ended December 31, 2004 as compared to the
year ended December 31, 2003, primarily due to the increase
in revenue and the benefits of our reengineering initiatives,
partially offset by increased investments to drive revenue
growth.
44
International represented 25%, 29% and 33% of our total revenue
for the three years ending December 31, 2005, 2004 and
2003, respectively, and 25%, 25% and 24% of our core revenue for
the three years ending December 31, 2005, 2004 and 2003, respectively. The
following table presents our International revenue by customer
solution set and International operating income:
Additionally, this table reconciles the non-GAAP measure of core
revenue to the GAAP measure of total revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in millions) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Solutions
|
|
$ |
297.5 |
|
|
$ |
269.0 |
|
|
$ |
227.0 |
|
|
Sales & Marketing Solutions
|
|
|
51.3 |
|
|
|
55.9 |
|
|
|
54.2 |
|
|
E-Business Solutions
|
|
|
2.8 |
|
|
|
0.1 |
|
|
|
|
|
|
Supply Management Solutions
|
|
|
4.2 |
|
|
|
4.6 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
Core International Revenue
|
|
|
355.8 |
|
|
|
329.6 |
|
|
|
286.1 |
|
|
Divested Businesses
|
|
|
|
|
|
|
79.5 |
|
|
|
172.7 |
|
|
|
|
|
|
|
|
|
|
|
Total International Revenue
|
|
$ |
355.8 |
|
|
$ |
409.1 |
|
|
$ |
458.8 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
62.2 |
|
|
$ |
74.7 |
|
|
$ |
69.5 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 vs. Year ended
December 31, 2004
International total revenue decreased $53.3 million, or 13%
(15% decrease before the effect of foreign exchange), for the
year ended December 31, 2005, as compared to the year ended
December 31, 2004. The decline is primarily a result of:
|
|
|
|
|
our having divested certain businesses, which for the year ended
December 31, 2004, accounted for $79.5 million of
revenue; and |
|
|
|
a decrease in revenues from our United Kingdom (UK)
market; |
partially offset by:
|
|
|
|
|
our Italian real estate data business, which contributed six
percentage points of revenue growth, mainly due to a price
increase and the acquisition of a controlling interest in RIBES
S.p.A., a leading provider of business information to Italian
banks; and |
|
|
|
an aggregate increase in revenue from our other International
markets. |
International core revenue, which reflects International total
revenue less revenue from businesses divested in 2004, increased
$26.2 million or 8% (6% increase before the effect of
foreign exchange), for the year ended December 31, 2005, as
compared to the year ended December 31, 2004.
|
|
|
International Customer Solution Set |
On a customer solution set basis, the $26.2 million
increase in International core revenue for the year ended
December 31, 2005 versus the year ended December 31,
2004 reflects:
|
|
|
Risk Management Solutions |
|
|
|
|
|
a $28.5 million, or 11%, increase in Risk Management
Solutions (8% increase before the effect of foreign exchange).
For the year ended December 31, 2005, Traditional Risk
Management Solutions, |
45
|
|
|
|
|
which accounted for 89% of International Risk Management
Solutions, increased 10% (8% increase before the effect of
foreign exchange). This growth was attributable primarily to: |
|
|
|
|
|
our Italian real estate data business, which contributed eight
percentage points of such growth, mainly due to a price increase
and the acquisition of a controlling interest in RIBES
S.p.A.; and |
|
|
|
an increase in revenue in our other International markets,
primarily resulting from increased product usage by existing
customers; |
partially offset by:
|
|
|
|
|
a decrease in revenue in the UK resulting primarily from the
continued impact of lower customer product usage due to our
insufficient focus on customer renewals in late 2004 and the
first quarter of 2005. |
In the second half of 2005, we introduced a subscription plan in
our European markets, leveraging our success in rolling out a
similar program in the U.S. This new plan provides our
customers unlimited use, within pre-defined ranges, of our
Risk Management reports and data, provided such customers commit
to an increased level of spend from their historical levels. We
believe that the subscription plan will be an important
contribution to our revenue growth in future years.
|
|
|
|
|
For the year ended December 31, 2005, Value-Added Risk
Management Solutions, which accounted for 11% of total
International Risk Management Solutions, increased 14% (12%
increase before the effect of foreign exchange). The increase
was primarily driven by new project oriented business in our
Canadian and Asia Pacific markets. |
|
|
|
Sales & Marketing Solutions |
|
|
|
|
|
a $4.6 million, or 8%, decrease in Sales &
Marketing Solutions (9% decrease before the effect of foreign
exchange). For the year ended December 31, 2005,
Traditional Sales & Marketing Solutions, which
accounted for 56% of our International Sales &
Marketing Solutions, decreased 24% (25% decrease before the
effect of foreign exchange). Such decrease was primarily
attributed to lower revenues in the UK, resulting from a highly
competitive marketplace. |
|
|
|
For the year ended December 31, 2005, our Value-Added
Sales & Marketing Solutions, which accounted for 44% of
our total International Sales & Marketing Solutions,
increased 23% (22% increase before the effect of foreign
exchange). This was primarily attributable to an increase in
purchases by customers utilizing our new value- added
solutions and revenue from our international partners. |
|
|
|
|
|
International revenue also benefited from $2.8 million of
revenue from E-Business
Solutions. We first began offering our Hoovers solution to
customers in Europe in the fourth quarter of 2004. |
|
|
|
Supply Management Solutions |
|
|
|
|
|
a $0.4 million, or 11% decrease in Supply Management
Solutions (12% decrease before the effect of foreign exchange). |
International operating income decreased $12.5 million, or
17%, for the year ended December 31, 2005 as compared to
the year ended December 31, 2004, primarily due to:
|
|
|
|
|
a decline in revenue in the UK; |
|
|
|
the loss of income from our divested businesses; and |
|
|
|
increased expenses related to the investigation and final
resolution of a dispute arising out of the sale of our French
business; |
46
partially offset by:
|
|
|
|
|
the benefits of our reengineering efforts; and |
|
|
|
an increase in revenue from other International markets. |
The following factors affecting International create particular
challenges to our international business:
|
|
|
|
|
Our competition is primarily local, and our customers may have
greater loyalty to our local competitors; |
|
|
|
Credit insurance is a significant credit risk mitigation tool in
certain markets. This reduces the demand for our Risk Management
Solutions; |
|
|
|
In certain local markets, key data elements are generally
available from public-sector sources, thus reducing a
customers need to purchase our data; and |
|
|
|
Governmental agencies, which may seek, from time to time, to
increase the fees or taxes that we must pay to acquire, use
and/or redistribute data. For example: |
|
|
|
|
|
In February 2005, regulations implementing new tax legislation
became effective in Italy that significantly increased data
acquisition costs for our Italian real estate data business and
required that we pay a fee each time we resell that data. In
response to this, we instituted a combination of price increases
to our customers and reengineering efforts. As a result, both
our revenue and our operating costs increased, without a
material impact to our operating income. We believe that aspects
of the regulations are illegal and, therefore, are challenging
them in court and with anti-trust authorities. We cannot predict
the outcome of these efforts. |
|
|
|
Similar to its actions at the end of 2004, which led to the
February 2005 regulations set forth above, the Italian
government is considering legislation that could seek to
increase the data acquisition costs and re-use fees for other
public data that we currently use to support our Italian Risk
Management Solutions business. At this time we cannot predict
whether any such legislation will be enacted or its final form
or the impact of any such legislation on our results of
operations. |
We continue to monitor our Italian operations and we are
continuing to consider our strategic alternatives with respect
to this business.
As we continue to implement our international market leadership
strategy, we will continue to use different approaches to
improve our competitive position from market to market
worldwide. In some markets, we are investing to strengthen our
position, either through organic growth or by acquisition. In
other markets, we have established strategic relationships to
strengthen our global data coverage and our customer value
propositions. Additionally, we will continue to leverage our
DUNSRight quality process to establish leadership positions in
our International markets.
Year ended December 31, 2004 vs. Year ended
December 31, 2003
International total revenue decreased $49.7 million, or 11%
(19% decrease before the effect of foreign exchange), for the
year ended December 31, 2004, as compared to the year ended
December 31, 2003, primarily as a result of:
|
|
|
|
|
our having divested certain businesses, which, for the two years
ended December 31, 2004 and 2003, accounted for
$79.5 million and $172.7 million of revenue,
respectively; |
partially offset by:
|
|
|
|
|
the success of our monitoring solution,
e-Portfolio; and |
|
|
|
the impact of having a full year of revenue from our 2003
acquisitions of Italian real estate data companies, which
contributed two percentage points of growth in 2004. |
47
International core revenue, which reflects International total
revenue less revenue from businesses divested, increased
$43.5 million or 15% (6% increase before the effect of
foreign exchange), for the year ended December 31, 2004, as
compared to the year ended December 31, 2003.
|
|
|
International Customer Solution Set |
On a customer solution set basis, the $43.5 million
increase in International core revenue for the year ended
December 31, 2004 as compared to the year ended
December 31, 2003 reflects:
|
|
|
Risk Management Solutions |
|
|
|
|
|
a $42.0 million, or 18%, increase in Risk Management
Solutions (9% increase before the effect of foreign exchange).
For the year ended December 31, 2004, Traditional Risk
Management Solutions, which accounted for 90% of total
International Risk Management Solutions, increased 19% (9%
increase before the effect of foreign exchange). The two main
drivers of this growth were: |
|
|
|
|
|
the success of our monitoring solution,
e-Portfolio; and |
|
|
|
the full-year benefit from our acquisition of the Italian real
estate data companies, which contributed two percentage points
of the growth in Traditional Risk Management Solutions. |
|
|
|
|
|
For the year ended December 31, 2004, our Value-Added Risk
Management Solutions, which accounted for 10% of total
International Risk Management Solutions, increased 17% (8%
increase before the effect of foreign exchange). This increase
was driven by our customers preference to continue to
automate their decisioning processes through solutions such as
Global Decision
Makertm,
and to integrate existing systems using our Toolkit solutions. |
|
|
|
Sales & Marketing Solutions |
|
|
|
|
|
a $1.7 million, or 3%, increase in Sales &
Marketing Solutions (6% decrease before the effect of foreign
exchange). For the year ended December 31, 2004,
Traditional Sales & Marketing Solutions, which
accounted for 67% of our total International Sales &
Marketing Solutions, increased 7% (3% decrease before the effect
of foreign exchange), reflecting the highly competitive local
marketplace for traditional solutions. |
|
|
|
For the year ended December 31, 2004, our Value-Added
Sales & Marketing Solutions, which accounted for 33% of
our total International Sales & Marketing Solutions,
decreased 4% (11% decrease before the effect of foreign
exchange). Such decrease was primarily attributed to our need to: |
|
|
|
|
|
enhance our value propositions for our customers by offering the
same value-added solutions that have been successfully leveraged
in our U.S. segment; and |
|
|
|
our focus on migrating our customers to value-added solutions
from traditional solutions. |
|
|
|
|
|
$0.1 million of revenue from
E-Business Solutions.
We first began offering our Hoovers solution to customers
in Europe in the fourth quarter of 2004. |
|
|
|
Supply Management Solutions |
|
|
|
|
|
a $0.3 million, or 2%, decrease in Supply Management
Solutions (10% decrease before the effect of foreign exchange). |
International operating income increased $5.2 million, or
7%, for the year ended December 31, 2004 as compared to the
year ended December 31, 2003, primarily due to:
|
|
|
|
|
the increase in core revenue; |
|
|
|
reduced operating expenses as a result of divested businesses; |
48
|
|
|
|
|
the benefits of our reengineering initiatives; and |
|
|
|
the positive effect of foreign exchange. |
Market Risk
We are exposed to the impact of interest rate changes, foreign
currency fluctuations and changes in the market value of certain
of our investments.
We employ established policies and procedures to manage our
exposure to changes in interest rates and foreign currencies. We
use short-term foreign exchange forward contracts to hedge
short-term foreign currency-denominated loans, investments and
certain third party and intercompany transactions and, from time
to time, we have used foreign exchange option contracts to
reduce our international earnings exposure to adverse changes in
foreign currency exchange rates. In addition, we use interest
rate swap agreements to hedge a portion of the interest rate
exposure on our outstanding fixed-rate notes, as discussed under
Interest Rate Risk, below.
A discussion of our accounting policies for financial
instruments is included in the summary of significant accounting
policies in Note 1 to our consolidated financial statements
included in Item 8. of this Annual Report on
Form 10-K, and
further disclosure relating to financial instruments is included
in Note 7 to our consolidated financial statements included
in Item 8. of this Annual Report on
Form 10-K.
Our objective in managing exposure to interest rates is to limit
the impact of interest rate changes on earnings, cash flows and
financial position and to lower overall borrowing costs. To
achieve these objectives, we maintain a policy that floating
rate debt be managed within a minimum and maximum range of our
total debt exposure. To achieve our policy objectives, we may
use fixed-rate debt, floating-rate debt and/or interest rate
swaps.
In 2001, we issued $300 million in principal of five-year,
fixed-rate notes that mature in March 2006 (see Note 7 to
our consolidated financial statements included in this Annual
Report on
Form 10-K). In
connection with that note issuance, we entered into fixed to
floating interest rate swap agreements in the third quarter of
2001 with notional principal amounts totaling $100 million
(see Note 7 to our consolidated financial statements
included in Item 8. of this Annual Report on
Form 10-K), and
designated these swaps as fair value hedges against the
long-term, fixed-rate notes. The arrangement is considered a
highly effective hedge and therefore, the accounting for these
hedges has no impact on earnings. The changes in the fair value
of the hedge and the designated portion of the notes are
reflected in our consolidated balance sheets. At
December 31, 2005, we had no floating-rate debt outstanding.
During September 2005, we entered into an interest rate
derivative transaction with the objective of hedging a portion
of the variability of future cash flows from market changes in
treasury rates in the anticipation of a future debt issuance
during the first half of 2006. This transaction was accounted
for as a cash flow hedge. As such, changes in fair value of the
swap that take place through the date of debt issuance are
recorded in accumulated other comprehensive income. As of
December 31, 2005, the derivative transaction had a
mark-to-market value of
$0.8 million recorded to accumulated other comprehensive
income.
We have offices in 13 countries outside the U.S. and conduct
operations through minority equity investments and strategic
relationships with local players in more than 20 additional
countries. Our International operations generated approximately
25% and 29% of total revenue for the years ended
December 31, 2005 and 2004, respectively. Approximately 29%
and 31% of our assets, as of December 31, 2005 and 2004,
respectively, were located outside the U.S., and no country
outside the U.S., other than the UK, had a significant
concentration of our aggregate cash balances.
49
Our objective in managing exposure to foreign currency
fluctuations is to reduce the volatility caused by foreign
exchange rate changes on the earnings, cash flows and financial
position of our International operations. We follow a policy of
hedging balance sheet positions denominated in currencies other
than the functional currency applicable to each of our various
subsidiaries. In addition, we are subject to foreign exchange
risk associated with our international earnings and investments.
We use short-term foreign exchange forward and option contracts
to implement our hedging strategies. Typically, these contracts
have maturities of twelve months or less. These contracts are
executed with creditworthy institutions and are denominated
primarily in the British pound sterling and the Euro. The gains
and losses on the forward contracts associated with the balance
sheet position hedges are recorded in Other Income
(Expense) Net in our consolidated financial
statements and are essentially offset by the gains and losses on
the underlying foreign currency transactions. The gains and
losses on the forward contracts associated with net investment
hedges are recorded in Cumulative Translation
Adjustment in our consolidated financial statements.
As in prior years, we have hedged substantially all balance
sheet positions denominated in a currency other than the
functional currency applicable to each of our various
subsidiaries with short-term forward foreign exchange contracts.
In addition, from time to time we use foreign exchange option
contracts to hedge certain foreign earnings and foreign exchange
forward contracts to hedge certain net investment positions. As
of December 31, 2005 and 2004, there were no option
contracts outstanding. The underlying transactions and the
corresponding forward exchange and option contracts are marked
to market at the end of each quarter, and are reflected within
our consolidated financial statements.
At December 31, 2005 and 2004, we had a notional amount of
approximately $212.1 million and $241.4 million,
respectively, of foreign exchange forward contracts outstanding
that offset foreign currency-denominated intercompany loans.
Gains and losses associated with these contracts were
$0.2 million and $0.5 million, respectively, at
December 31, 2005, $0.4 million and $1.0 million,
respectively, at December 31, 2004, and $0.7 million
and $0.2 million, respectively, at December 31, 2003.
In addition, at December 2004, we had $91.9 million of
foreign exchange forward contracts outstanding associated with
our international investments. Losses associated with these
contracts were $3.6 million at December 31, 2004.
These contracts typically have various expiration dates within
three months of entry into such contracts.
If exchange rates on average were to increase 10% from year-end
levels, the unrealized loss would be approximately
$6.3 million. If exchange rates on average were to decrease
10% from year-end levels, the unrealized gain would be
approximately $7.7 million. However, the estimated
potential gain and loss on these contracts is expected to be
offset substantially by changes in the dollar value of the
underlying transactions.
Subsequent to the completion of our $150.0 million foreign
cash repatriation in the fourth quarter of 2005, we had a notional amount of approximately
$170.8 million in foreign exchange forward contracts
outstanding, with net unrealized gain of $0.1 million. If
exchange rates on average were to increase 10% from those
levels, the unrealized loss would be approximately
$8.7 million. If exchange rates on average were to decrease
10% from those levels, the unrealized gain would be
approximately $10.9 million. However, the estimated
potential gain and loss on these contracts is expected to be
offset substantially by changes in the dollar value of the
underlying transactions.
Liquidity and Financial Position
In accordance with our Blueprint for Growth strategy, we have
used our cash for three primary purposes: investments in the
current business, acquisitions, as appropriate, and our share
repurchase programs.
We believe that cash provided by operating activities,
supplemented as needed with readily available financing
arrangements, are sufficient to meet our short-term and
long-term needs, including the cash cost of our restructuring
charges, transition costs, contractual obligations and
contingencies (see Note 13 to our consolidated financial
statements included in Item 8. of this Annual Report on
Form 10-K),
excluding the legal matters identified therein for which the
exposures are not estimable. In addition, our $300 million
debt obligation under our fixed-rate notes is repayable in March
2006, and we believe that we will refinance such
50
debt during the
first half of 2006. We have the ability to access the short-term
borrowings market from time to time to fund working capital needs, acquisitions and share
repurchases, if needed. Such borrowings would be supported by
our bank credit facilities.
Cash Flow for the Years Ended December 31, 2005, 2004
and 2003
|
|
|
Cash Provided by Operating Activities |
Net cash provided by operating activities was
$261.5 million, $267.6 million and $235.7 million
for the years ended December 31, 2005, 2004 and 2003,
respectively.
|
|
|
Year ended December 31, 2005 vs. Year ended
December 31, 2004 |
Net cash provided by operating activities decreased by
$6.1 million for the year ended December 31, 2005
compared to the year ended December 31, 2004. This decline
was driven by increased tax payments due to the settlement of
certain legacy tax matters. In addition, restructuring payments
for the year ended December 31, 2005 related to our
Financial Flexibility Programs were higher than those made for
the year ended December 31, 2004. Partially offsetting
these increased uses of cash were increased profitability of our
underlying business, increased tax refunds, a decline in
outflows in accrued liabilities due to timing of amounts due and
an increase in deferred revenue resulting from higher sales.
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|
|
Year ended December 31, 2004 vs. Year ended
December 31, 2003 |
Net cash provided by operating activities increased by
$31.9 million to $267.6 million for the year ending
December 31, 2004 as compared to the year ended
December 31, 2003, primarily due to the increased
profitability of our underlying business and improved working
capital primarily due to an increase in deferred revenue
resulting from higher sales and a slight improvement to trade
days sales outstanding in accounts receivable. In addition,
restructuring payments made for the year ended December 31,
2004 related to our Financial Flexibility Program actions were
lower than those made for the year ended December 31, 2003.
Partially offsetting these increases were increased payments
relating to taxes for the year ended December 31, 2004 and
the impact of a $7.0 million receipt for the settlement of
the World Trade Center business interruption claim we filed in
2002 and tax refunds of $7.0 million relating to the 1998
spin-off of R.H. Donnelley, which were both received during the
year ended December 31, 2003.
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|
Cash Used in Investing Activities |
Our business is not capital-intensive, and most of our spending
to grow the business is funded by operating cash flow. As a
result of our Financial Flexibility Programs, we have sold
non-core businesses and real estate assets. Proceeds from these
sales have partially (or in some cases, fully) offset our
capital expenditures and additions to computer software and
other intangibles, as described below.
Net cash used in investing activities was $54.1 million,
$39.2 million and $65.3 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
|
|
|
Year ended December 31, 2005 vs. Year ended
December 31, 2004 |
Net cash used in investing activities totaled $54.1 million
for the year ended December 31, 2005, compared with net
cash used in investing activities of $39.2 million for the
year ended December 31, 2004. This increase primarily
relates to the following activities in both years.
During the year ended December 31, 2005, we increased our
net investment in marketable securities by $26.8 million.
During the year ended December 31, 2004, we increased our
net investment in marketable securities by $70.8 million.
51
For the years ended December 31, 2005 and 2004, we received
net proceeds of $16.5 million and $65.8 million,
respectively, primarily due to the sale of the following:
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|
During the first quarter of 2005, we sold our equity investment
in South Africa for net proceeds of $5.0 million. |
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|
During the second quarter of 2005, we collected the remaining
$2.0 million other receivables balance related to the sale
in May 2004 of our Central European operations to Bonnier
Affarsinformation AB (Bonnier). Proceeds were
$25.7 million, consisting of $18.1 million in cash and
$7.6 million in other receivables, of which
$5.6 million was collected in June 2004. |
|
|
|
During the year ended December 31, 2005, we collected
$9.5 million related to the sale in October 2004 of our
operations in France to Base DInformations Legales Holding
S.A.S. (BIL Holding). Proceeds from the sale were
$30.1 million, primarily consisting of $15.0 million
in cash ($2.1 million net of cash divested),
$14.0 million in other receivables and $1.1 million in
other assets. |
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|
During the first quarter of 2004, we sold our operations in
India and our Distribution Channels in Pakistan and the Middle
East for $7.7 million. We received proceeds of
$7.3 million (net of withholding tax), consisting of cash
of $6.5 million and an investment in the amount of
$0.8 million representing a 10% remaining interest in the
divested entity. |
|
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|
During the first quarter of 2004, we sold our operations in the
Nordic region to Bonnier. We received proceeds from the sale of
$42.7 million, consisting of cash of $35.9 million,
notes receivable of $5.9 million, of which
$0.8 million had been collected in 2004 and another
receivable of $0.9 million. In the second quarter of 2004,
we wrote-off the other receivable of $0.9 million related
to this transaction. |
|
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|
During the second quarter of 2004, we completed the sale of our
Central European operations to Bonnier. Proceeds were
$25.7 million, consisting of $18.1 million in cash
($7.6 million net of cash divested) and $7.6 million
in other receivables, of which $5.6 million was collected
in June 2004. |
|
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|
During the fourth quarter of 2004, we completed the sale of our
operations in Iberia. Proceeds from the sale of our Iberian
operations to Informa S.A. were $13.5 million which
consisted of $13.2 million in cash ($6.3 million net
of cash divested) and $0.3 million in other assets. |
For the years ended December 31, 2005 and 2004, we made
payments of $18.1 million and $2.0 million,
respectively, primarily due to the following:
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|
During the third quarter of 2005, we acquired LiveCapital, Inc.
We paid $16.7 million, net of cash acquired of
$0.5 million. |
|
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|
During the third quarter of 2005, we paid the remaining balance
of $1.4 million to RIBES S.p.A relating to the 2004
acquisition of an additional 16% interest in RIBES S.p.A. This
additional interest resulted in a 51% ownership interest in
RIBES S.p.A. During the fourth quarter of 2004, we acquired the
additional 16% interest in RIBES S.p.A. for $3.4 million
(net of cash acquired), of which $2.0 million was paid
during the fourth quarter of 2004. For the year ended
December 31, 2003, we invested $1.9 million to acquire
17.5% of RIBES S.p.A. |
Investments in total capital expenditures, including computer
software and other intangibles were $28.6 million and
$28.8 million, for the year ended December 31, 2005
and 2004, respectively, primarily in the U.S. segment for
both periods.
Cash settlements of our foreign currency contracts for our
hedged transactions were $2.0 million cash inflow for the year ended
December 31, 2005 as compared to a cash outflow of
$4.8 million for the year ended December 31, 2004. See
Note 7 to the consolidated financial statements in
Item 8. of this Annual Report on
Form 10-K related
to our financial instruments.
52
|
|
|
Year ended December 31, 2004 vs. Year ended
December 31, 2003 |
Net cash used in investing activities totaled $39.2 million
for the year ended December 31, 2004, compared with
$65.3 million for the year ended December 31, 2003.
This change primarily relates to the following activities in
both years.
During the year ended December 31, 2004, we increased our
net investment in marketable securities by $70.8 million.
During the year ended December 31, 2003, we had a net
redemption of $4.3 million in marketable securities.
During the years December 31, 2004 and 2003, we received
net proceeds of $65.8 million and $83.8 million,
respectively, related to the sale of the following:
|
|
|
|
|
During the first quarter of 2004, we sold our operations in
India and our Distribution Channels in Pakistan and the Middle
East for $7.7 million. We received proceeds of
$7.3 million (net of withholding tax), consisting of cash
of $6.5 million and an investment in the amount of
$0.8 million representing a 10% remaining interest in the
divested entity. |
|
|
|
During the second quarter of 2004, we completed the sale of our
Central European operations to Bonnier. Proceeds were
$25.7 million, consisting of $18.1 million in cash
($7.6 million net of cash divested) and $7.6 million
in other receivables, of which $5.6 million was collected
in June 2004. |
|
|
|
During the fourth quarter of 2004, we completed the sale of our
operations in France and Iberia. Proceeds from the sale of our
operations in France to BIL Holding were $30.1 million
which consisted of $15.0 million in cash ($2.1 million
net of cash divested), $14.0 million in other receivables,
and $1.1 million in other assets. Proceeds from the sale of
our Iberian operations to Informa S.A. were $13.5 million
which consisted of $13.2 million in cash ($6.3 million
net of cash divested) and $0.3 million in other assets. |
|
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|
During the first quarter of 2004, we sold our operations in the
Nordic region to Bonnier. We received proceeds from the sale of
$42.7 million, consisting of cash of $35.9 million,
notes receivable of $5.9 million of which $0.8 million
had been collected in 2004 and another receivable of
$0.9 million. In the second quarter of 2004, we wrote-off
the other receivable of $0.9 million related to this
transaction. |
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|
During the year ended December 31, 2003, we received
proceeds of $80.2 million from the sale of our European
headquarters building in High Wycombe, England. |
|
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|
During the year ended December 31, 2003, we received
$1.9 million in connection with the sale of our interest in
Singapore in the third quarter of 2003, collection of
$1.3 million on a note receivable received during the sale
of our Korean operations in the fourth quarter of 2002, and
$0.4 million received in connection with the sale of our
equity interest in our Italian operations during the first
quarter of 2003. |
For the years ended December 31, 2004 and 2003, we made
payments of $2.0 million and $98.0 million,
respectively, related to the following:
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|
We acquired an additional 16% of RIBES S.p.A., a leading
provider of business information to Italian banks for
$3.4 million (net of cash acquired), of which
$2.0 million was paid during the fourth quarter of 2004.
For the year ended December 31, 2003, we invested
$1.9 million to acquire 17.5% of RIBES S.p.A. |
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|
During 2003, we used $92.5 million of cash generated from
operations to acquire Hoovers, Inc. and $5.5 million
to obtain a controlling interest in three Italian real estate
data companies, net of cash acquired. |
Investments in total capital expenditures, including computer
software, and other intangibles were $28.8 million and
$30.3 million for the years ended December 31, 2004
and 2003, respectively, primarily in the U.S. segment for
both periods.
53
Cash settlements of our foreign currency contracts for our
hedged transactions were $4.8 million cash outflow for the year ended
December 31, 2004 as compared to a cash outflow of
$14.6 million for the year ended December 31, 2003.
See Note 7 to the consolidated financial statements in
Item 8. of this Annual Report on Form 10-K related to our
financial instruments.
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|
Cash Used in Financing Activities |
Net cash used in financing activities was $241.2 million,
$233.5 million and $132.8 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
We have notes with a face value of $300 million and a
five-year term maturing in March 2006. These notes bear interest
at a fixed annual rate of 6.625%, payable semi-annually. During
the first quarter of 2005, these notes were reclassified from
long-term debt to short-term debt because they will mature
within one year. Since the third quarter of 2001, we have
entered into interest rate swap agreements to hedge a portion of
this long-term debt (see Note 7 to our consolidated
financial statements included in Item 8. of this Annual
Report on
Form 10-K). The
weighted average interest rates on the long-term notes,
including the benefit of the swaps on December 31, 2005 and
2004, were 6.21% and 5.62%, respectively. The notes and the fair
value of the interest rate swaps are recorded as Short-Term
Debt and Long-Term Debt, at
December 31, 2005 and 2004, respectively.
At December 31, 2005 and 2004, we had a total of
$300 million of bank credit facilities available at
prevailing short-term interest rates, which will expire in
September 2009. These facilities also support our commercial
paper borrowings. We have not drawn on the facilities and we did
not have any borrowings outstanding under these facilities at
December 31, 2005 and 2004. We also have not borrowed under
our commercial paper program for the years ended
December 31, 2005 and 2004. The facility requires the
maintenance of interest coverage and total debt to EBITDA ratios
(each as defined in the agreement). We were in compliance with
these requirements at December 31, 2005 and 2004.
We believe that cash flows generated from operations,
supplemented as needed with readily available financing
arrangements, are sufficient to meet our short-term and
long-term needs, including any payments that may be required in
connection with our Financial Flexibility Program restructuring
charges discussed in Note 3 to our consolidated financial
statements included in Item 8. of this Annual Report on
Form 10-K; to meet
commitments and contractual obligations as presented in
Note 12 to our consolidated financial statements included
in Item 8. of this Annual Report on
Form 10-K, and to
settle or resolve the contingencies discussed in Note 13 to
consolidated financial statements included in Item 8. of
this Annual Report on
Form 10-K,
excluding our legal matters identified therein for which the
exposures are not estimable.
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|
Year ended December 31, 2005 vs. Year ended
December 31, 2004 |
Net cash used in financing activities was $241.2 million
for the year December 31, 2005 and $233.5 million for
December 31, 2004.
During the years ended December 31, 2005 and 2004,
respectively, cash used in financing activities was largely
attributable to the purchase of treasury shares. For the year
ended December 31, 2005, we repurchased
1,517,835 shares of our stock for $95.6 million to
mitigate the dilutive effect of the shares issued under our
stock incentive plans and Employee Stock Purchase Plan.
Additionally, we repurchased 3,179,840 shares for
$200.0 million related to a previously announced
$400 million two-year share repurchase program approved by
our Board of Directors in February 2005. For the year ended
December 31, 2004, we repurchased 971,654 shares of
stock for $51.8 million to mitigate the dilutive effect of
the shares issued under our stock incentive plans and Employee
Stock Purchase Plan. Additionally, we repurchased
3,601,986 shares for $200.0 million related to a
$200 million one-year share repurchase program approved by
our Board of Directors in February 2004. This program was
completed by December 31, 2004.
For the year ended December 31, 2005, net proceeds from our
employee stock plans were $64.5 million, compared to
$18.0 million for the year ended December 31, 2004.
The increase was driven by increased stock option exercise
activity during 2005.
54
As part of our spin-off from Moodys/ D&B2 in 2000,
Moodys and D&B entered into a Tax Allocation Agreement
dated as of September 30, 2000. Based on the Tax Allocation
Agreement, we made a payment of $9.2 million to
Moodys/ D&B2 during the second quarter of 2005. See
Future Liquidity Sources and Uses of
Funds Contractual Cash Obligations for further detail.
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|
|
Year ended December 31, 2004 vs. Year ended
December 31, 2003 |
Net cash used in financing activities was $233.5 million
for the year ended December 31, 2004 and
$132.8 million for the year ended December 31, 2003.
During the years ended December 31, 2004 and 2003,
respectively, cash used in financing activities was largely
attributable to the purchase of treasury shares. For the year
ended December 31, 2004, we repurchased 971,654 shares
of our stock for $51.8 million to mitigate the dilutive
effect of the shares issued under our stock incentive plans and
Employee Stock Purchase Plan. Additionally, we repurchased
3,601,986 shares for $200.0 million related to a
previously announced $200 million one-year share repurchase
program approved by our Board of Directors in February 2004. For
the year ended December 31, 2003, we repurchased
1,381,276 shares of stock for $56.1 million to
mitigate the dilutive effect of the shares issued under our
stock incentive plans and Employee Stock Purchase Plan.
Additionally, for the year ended December 31, 2003, we
repurchased 2,377,924 shares for $100.0 million to
complete a previously announced $100 million two-year share
repurchase program approved by our Board in October 2002. This
program was completed by December 31, 2003.
For the year ended December 31, 2004, net proceeds from our
employee stock plans were $18.0 million, compared with
$23.4 million for the year ended December 31, 2003.
Future Liquidity Sources and Uses of Funds
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Contractual Cash Obligations |
The following table quantifies as of December 31, 2005, our
contractual obligations that will require the use of cash in the
future.
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Payments Due by Period | |
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| |
Contractual
Obligations |
|
Total | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
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| |
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| |
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| |
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| |
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| |
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| |
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| |
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|
(Amounts in millions) | |
Short-Term Debt(1)
|
|
$ |
300.0 |
|
|
$ |
300.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Operating Leases(2)
|
|
$ |
88.2 |
|
|
$ |
23.0 |
|
|
$ |
17.4 |
|
|
$ |
14.1 |
|
|
$ |
10.9 |
|
|
$ |
8.4 |
|
|
$ |
14.4 |
|
Obligations to Outsourcers(3)
|
|
$ |
540.3 |
|
|
$ |
91.8 |
|
|
$ |
82.4 |
|
|
$ |
82.6 |
|
|
$ |
81.7 |
|
|
$ |
80.4 |
|
|
$ |
121.4 |
|
Pension and Other Postretirement Benefits
Payments/Contributions(4)
|
|
$ |
1,082.5 |
|
|
$ |
44.8 |
|
|
$ |
36.3 |
|
|
$ |
32.6 |
|
|
$ |
31.8 |
|
|
$ |
33.7 |
|
|
$ |
903.3 |
|
Spin-off Obligation(5)
|
|
$ |
35.0 |
|
|
$ |
35.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
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(1) |
Our $300 million debt obligation under our fixed-rate notes
is repayable in March 2006. On September 30, 2005, we
entered into an interest rate derivative transaction with an
aggregate notional amount of $200 million. The objective of
the hedge is to mitigate the variability of future cash flows
from market changes in treasury rates in the anticipation of a
future debt issuance during the first half of 2006. This
transaction has been accounted for as a cash flow hedge. As
such, changes in fair value of the swap that take place through
the date of debt issuance are recorded in accumulated other
comprehensive income. At December 31, 2005, the derivative
had a fair value of approximately $0.8 million. |
|
(2) |
Most of our operations are conducted from leased facilities,
which are under operating leases that expire over the next
10 years, with the majority expiring within five years. We
also lease certain computer and other equipment under operating
leases that expire over the next three years. These computer and
other equipment leases are frequently renegotiated or otherwise
changed as the lease terms expire and as advancements in
computer technology present opportunities to lower costs and
improve performance. |
55
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(3) |
In July 2002, we outsourced certain technology functions to CSC
under a 10-year
agreement, which we may terminate for a fee at any time and
under certain conditions. Under the terms of the agreement, CSC
is responsible for the data center operations, technology help
desk, network management functions and for certain application
development and maintenance in the U.S. and UK. For the year
ended December 31, 2005, we incurred $65.4 million
under this contract and have a remaining commitment of
approximately $436 million. |
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In December 2003, we signed a three-year agreement with ICT
Group, Inc. (ICT), effective January 2004, to
outsource certain marketing calling activities. We may terminate
this agreement for a fee at any time. Under the terms of the
agreement, ICT will be responsible for performing certain
marketing and credit-calling activities previously performed by
D&Bs own call centers in North America. The obligation
under the contract is based upon transmitted call volumes, but
shall not be less than $3 million per contract year. For
the year ended December 31, 2005, we incurred
$5.2 million under this contract and have a remaining
commitment of approximately $3 million. |
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On October 15, 2004, we entered into a seven-year
outsourcing agreement with IBM. Under the terms of the
agreement, we have transitioned certain portions of our data
acquisition and delivery, customer service, and financial
processes to IBM. In addition, we may terminate this agreement
for a fee at any time. For the year ended December 31,
2005, we incurred $24.4 million under this contract and
have a remaining commitment of approximately $80 million. |
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(4) |
Pension and Other Postretirement Benefits Payments/Contributions: |
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|
Represents projected contributions to our
non-U.S. defined
benefit plans as well as projected benefit payments related to
our unfunded plans, including the U.S. Non-Qualified Plans
and our postretirement benefit plan. We do not expect to make
any contributions to our U.S. Qualified Plan. The expected
benefits are estimated based on the same assumptions used to
measure our benefit obligation at the end of 2005 and include
benefits attributable to estimated future employee service. A
closed group approach is used in calculating the projected
benefit payments, assuming that only the participants who are
currently in the valuation population are included in the
projection and the projected benefits continue for up to
approximately 99 years. |
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(5) |
As part of our spin-off from Moodys/ D&B2 in 2000,
Moodys and us entered into a Tax Allocation Agreement
dated as of September 30, 2000 (the TAA). Under
the TAA, Moodys/ D&B2 and D&B agreed that
Moodys/ D&B2 would be entitled to deduct compensation
expense associated with the exercise of Moodys/ D&B2
stock options (including Moodys/ D&B2 options
exercised by D&B employees) and we would be entitled to
deduct the compensation expense associated with the exercise of
D&B stock options (including D&B options exercised by
employees of Moodys/ D&B2). In other words, the tax
deduction goes to the company that issued the stock options. The
TAA provides, however, that if the IRS issues rules, regulations
or other authority contrary to the agreed upon treatment of the
tax deductions thereunder, then the party that becomes entitled
under such new guidance to take the deduction may be required to
reimburse the tax benefit it has realized, in order to indemnify
the other party for its loss of such deduction. The IRS issued
rulings discussing an employers entitlement to stock
option deductions after a spin-off or liquidation that appear
to require that the tax deduction belongs to the employer of the
optionee and not the issuer of the option. Accordingly, under
the TAA, we received the benefit of additional tax deductions
and under the TAA we may be required to reimburse Moodys/
D&B2 for the loss of income tax deductions relating to 2002
to 2005 of approximately $35.0 million in the aggregate for
such years. This potential reimbursement is a reduction to
shareholders equity and has no impact on EPS. |
Every year we examine our capital structure and review our plans. For 2006, we have made
decisions to target:
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returning all excess cash to shareholders; and |
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maintaining our current debt rating. |
56
In the past, we had chosen to keep excess cash on our balance sheet so it would be available
to us as we worked through our legacy matters. Given that we have significantly reduced our
exposure to these matters and have visibility into our cash requirements for 2006, we are
comfortable with the position of no excess cash on hand. In addition, we have the ability to access
the short-term borrowings market from time to time to fund working capital needs, acquisitions and
share repurchases, if needed. Such borrowings would be supported by our bank credit facilities.
The lower cash position will decrease our interest income in 2006.
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Share Repurchases and Dividends |
On January 31, 2006, our Board of Directors approved the
addition of $100 million to our existing $400 million
two-year special share repurchase program, of which
$200.0 million was repurchased during the year ended
December 31, 2005. The program is to be completed by the
end of fiscal year 2006 and we plan to buy a total of
$300 million under our special share repurchase program in
2006. This amount is in addition to the existing repurchase
program to offset the dilutive effect of shares issued under our
stock incentive plans and Employee Stock Purchase Plan. For the
year ended December 31, 2005, we repurchased
3,179,840 shares associated with this two-year special share
repurchase program at an
aggregate cost of $200.0 million.
In addition, we continued to repurchase shares, subject to
market conditions, to offset the dilutive effect of the shares
issued under our stock incentive plans and Employee Stock
Purchase Plan. For the year ended December 31, 2005, we
repurchased 1,517,835 shares of stock for
$95.6 million. Partially offsetting the cash used for
repurchase is $64.5 million of net proceeds from employees
related to the stock incentive plans and Employee Stock Purchase
Plan. In 2006, we expect to see a significant increase in share
repurchases to offset dilution from our equity plans.
We did not pay any dividends on our common stock during the
years ended December 31, 2005 and 2004, respectively, and
we do not currently have plans to pay dividends to shareholders
in 2006.
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Potential Payments in Tax and Legal Matters |
We and our predecessors are involved in certain tax and legal
proceedings, claims and litigation arising in the ordinary
course of business. These matters are at various stages of
resolution, but could ultimately result in significant cash
payments as described in Item 3. Legal
Proceedings. We believe we have adequate reserves recorded
in our consolidated financial statements for our share of
current exposures in these matters.
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|
Financial Flexibility Program |
On January 31, 2006, our Board of Directors approved our
2006 Financial Flexibility Program. Through this program, we
will create financial flexibility through a number of
initiatives in 2006, including:
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Eliminating, standardizing, and consolidating redundant
technology platforms, software licenses and maintenance
agreements; |
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Standardizing and consolidating customer service teams and
processes to increase productivity and capacity utilization; |
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|
Consolidating our vendors to improve purchasing power; and |
|
|
|
Improving operating efficiencies of facilities. |
We expect to complete all actions under the 2006 program by
December 2006. On an annualized basis, these actions are
expected to create $70 million to $75 million of
financial flexibility, of which approximately $50 million
to $55 million will be generated in 2006, before any
transition costs and restructuring charges and before any
reallocation of spending. To implement these initiatives, we
expect to incur transition costs of approximately
$15 million. In addition, we expect to incur non-core
charges totaling $23 million to $28 million pre-tax, of which $10 million to $14 million relate to
severance, approximately $9 million to $10 million
relate to lease termination obligations and approximately
$4 million relate to other exit costs in 2006.
57
Approximately $36 million to $41 million of these
transition costs and restructuring charges are expected to
result in cash expenditures. In addition, as a result of this
re-engineering program, we expect that approximately 125 to 150
positions will be eliminated globally.
|
|
|
Pension Plan and Postretirement Benefit Plan Contribution
Requirements |
For financial statement reporting purposes, the funded status of
our pension plans, as determined in accordance with GAAP, was a
surplus of $76.2 million for the U.S. Qualified Plan,
a deficit of $247.4 million for the U.S. Non-Qualified
Plans, and a deficit of $55.5 million for the
non-U.S. plans at
December 31, 2005, as compared to a surplus of
$89.8 million, a deficit of $231.0 million, and a
deficit of $58.4 million, respectively for such plans, at
December 31, 2004. The reduction in funded status of the
U.S. plans was due primarily to the higher projected
benefit obligation at December 31, 2005 driven by a lower
discount rate and other assumption changes and experience loss
during the year, partially offset by the gains in the
plans equity investments. This is detailed further in
Note 10 to our consolidated financial statements included
in Item 8. of this Annual Report on
Form 10-K.
For funding purposes, as governed by the Internal Revenue Service
regulations, we are not required to contribute to the
U.S. Qualified Plan, the largest of our plans in 2006, as
the plan is considered fully funded under the
provisions of the Internal Revenue Code.
If the U.S. Qualified Plan asset returns are flat and the
assets decline by the amount of benefits paid to plan
participants, and all other factors affecting when contributions
are required remain the same, we would not be required to make
contributions to this plan until 2010. If plan assets appreciate
between now and 2010, the need to make a required contribution
would be delayed beyond 2010. If plan assets depreciate, we
could be required to make contributions sooner than 2010. In
addition, if the U.S. Congress renews the Pension Funding
Equity Act, we could delay contributions beyond 2010, assuming
there is no return on plan assets. (This Act includes a
provision governing the Current Liability Interest Rate to be
used beginning in 2004 for calculating the Additional Funding
Requirement under the Internal Revenue Code. However, the Act
provides only two years of relief). Currently there are two
pension reform bills in Congress that have been passed
separately in the House and in the Senate. If either of these is
passed into law, a contribution to the Retirement Account could
be due sooner than 2010. Whether or not contributions are
required, we may voluntarily make contributions to this plan
sooner than 2010, if allowable under Internal Revenue Code
funding provisions.
We expect to continue to make cash contributions to our other
pension plans for the year ended December 31, 2006. The
expected 2006 contribution is approximately $32.4 million,
compared to $32.2 million in 2005. In addition, we expect
to make benefit payments related to our postretirement benefit
plan of approximately $12.4 million for the year ended
December 31, 2006, compared to $14.7 million for the
year ended December 31 2005. See the table of Contractual
Cash Obligations above for projected contributions and benefit
payments beyond 2006.
|
|
|
Off-Balance Sheet Arrangements and Related Party
Transactions |
We do not have any transactions, obligations or relationships
that could be considered off-balance sheet arrangements.
Additionally, we have not engaged in any significant
related-party transactions.
|
|
|
Foreign Earnings Repatriation |
During the third quarter of fiscal year 2005, our Chief
Executive Officer and Board of Directors approved a domestic
reinvestment plan as required by the American Jobs Creation Act
of 2004. During the fourth quarter of fiscal year 2005, we
repatriated $150.0 million in extraordinary dividends, as
defined in the Act, and accordingly have recorded a tax
liability of $9.3 million as of December 31, 2005. The
$150.0 million of cash funds repatriated will be invested
in the business to drive growth and to pay U.S. salary and wages
pursuant to our Domestic Reinvestment Program approved by our
Board of Directors.
58
Forward-Looking Statements
We may from time to time make written or oral
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, including statements contained in filings with the
Securities and Exchange Commission, in reports to shareholders
and in press releases and investor Webcasts. These
forward-looking statements can be identified by the use of words
like anticipates, aspirations,
believes, continues,
estimates, expects, goals,
guidance, intends, plans,
projects, strategy, targets,
will and other words of similar meaning. They can
also be identified by the fact that they do not relate strictly
to historical or current facts.
We cannot guarantee that any forward-looking statement will be
realized. Achievement of future results is subject to risks,
uncertainties and inaccurate assumptions. Should known or
unknown risks or uncertainties materialize, or should underlying
assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected.
Investors should bear this in mind as they consider
forward-looking statements and whether to invest in, or remain
invested in, our securities. In connection with the safe
harbor provisions of the Private Securities Litigation
Reform Act of 1995, we are identifying in the following
paragraphs important factors that, individually or in the
aggregate, could cause actual results to differ materially from
those contained in any forward-looking statements made by us;
any such statement is qualified by reference to the following
cautionary statements.
The following important factors could cause actual results to
differ materially from those projected in such forward-looking
statements:
|
|
|
|
|
We rely significantly on third parties to support critical
components of our business model in a continuous and high
quality manner, including third-party data providers, strategic
partners in our D&B Worldwide Network, and outsourcing partners; |
|
|
|
Demand for our products is subject to intense competition,
changes in customer preferences and, to a lesser extent,
economic conditions which impact customer behavior; |
|
|
|
The profitability of our International segment depends on our
ability to identify and execute on various initiatives, such as
the implementation of subscription plan pricing and successfully
managing our D&B Worldwide Network, and our ability to identify and contend with
various challenges present in foreign markets, such as local
competition and the availability of public records at no cost; |
|
|
|
Our ability to renew large contracts and the timing thereof may
impact our results of operations from period to period; |
|
|
|
Our results, including operating income, are subject to the
effects of foreign economies, exchange rate fluctuations and
U.S. and foreign legislative or regulatory requirements, and the
adoption of new or changes in accounting policies and practices,
including pronouncements by the Financial Accounting Standards
Board or other standard setting bodies; |
|
|
|
Our solutions and brand image are dependent upon the integrity
of our global database and the continued availability thereof
through the internet and by other means, as well as our ability
to protect key assets, such as data center capacity; |
|
|
|
We are involved in various tax matters and legal proceedings,
the outcomes of which are unknown and uncertain with respect to
the impact on our cash flow and profitability; |
|
|
|
Our ability to successfully implement our Blueprint for Growth
Strategy requires that we successfully reduce our expense base
through our Financial Flexibility Program, and reallocate
certain of the expense base reductions into initiatives that
produce desired revenue growth; |
|
|
|
Our future success requires that we attract and retain qualified
personnel in regions throughout the world; |
59
|
|
|
|
|
Our ability to repurchase shares is subject to market
conditions, including trading volume in our stock, and our
ability to repurchase securities in accordance with applicable
securities laws; |
|
|
|
Our projection for free cash flow in 2006 is dependent upon our
ability to generate revenue, our collection processes, customer
payment patterns and the amount and timing of payments related
to the tax and other matters and legal proceedings in which we
are involved; and |
|
|
|
Our ability to acquire and successfully integrate
other complimentary businesses, products and technologies into
our existing business, without significant disruption to our
existing business or to our financial results. |
We elaborate on the above list of important factors throughout
this document and in our other filings with the SEC,
particularly in the discussion of our Risk Factors in
Item 1A of this Annual Report on
Form 10-K. It
should be understood that it is not possible to predict or
identify all risk factors. Consequently, the above list of
important factors and the Risk Factors discussed in this Annual
Report on the
Form 10-K should
not be considered to be a complete discussion of all our
potential trends, risks and uncertainties. Except as otherwise
required by federal securities laws, we do not undertake to
update any forward-looking statement we may make from time to
time.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
Information in response to this Item is set forth under the
caption Market Risk in Item 7, in
this Annual Report on Form 10-K.
60
|
|
Item 8. |
Financial Statements and Supplementary Data |
Index to Financial Statements and Schedules
|
|
|
|
|
|
|
|
|
Page(s) | |
|
|
| |
|
|
|
62 |
|
|
|
|
62 |
|
|
|
|
63 |
|
Consolidated Financial Statements:
|
|
|
|
|
|
At December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
66 |
|
|
For the years ended December 31, 2005, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
67 |
|
|
|
|
|
|
68 |
|
|
|
|
|
|
69 |
|
These schedules are omitted as they are not required or
inapplicable or because the required information is provided in
our consolidated financial statements, including the notes to
our consolidated financial statements.
61
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation of the
consolidated financial statements and related information
appearing in this report. Management believes that the
consolidated financial statements fairly reflect the form and
substance of transactions and that the financial statements
reasonably present our financial position and results of
operations in conformity with generally accepted accounting
principles. Management also has included in the financial
statements amounts that are based on estimates and judgements
which it believes are reasonable under the circumstances.
The independent registered public accounting firm audits our
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board and
provides an objective, independent review of the fairness of
reported operating results and financial position.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Management designed
our internal control systems in order to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with accounting principals generally accepted in the
United States of America. Our internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
generally accepted accounting principals, and that receipts and
expenditures are being made only in accordance with
authorizations of management and directors; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on
the financial statements.
Our internal control systems are augmented by written policies, an
organizational structure providing for division of
responsibilities, careful selection and training of qualified
financial personnel and a program of internal audits.
Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its evaluation, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2005.
Our managements assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their attestation report, which is
included herein.
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of The Dun &
Bradstreet Corporation:
We have completed integrated audits of The Dun &
Bradstreet Corporations 2005 and 2004 consolidated
financial statements and of its internal control over financial
reporting as of December 31, 2005, and an audit of its 2003
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions based on our audits, are presented
below.
|
|
|
Consolidated financial statements |
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders equity
and cash flows present fairly, in all material respects, the
financial position of The Dun & Bradstreet Corporation
at December 31, 2005 and December 31, 2004, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 2005 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Notes 2, 5 and 10, the Company adopted the
provisions of FASB Staff Position
No. 106-2,
Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug Improvement and Modernization Act of
2003 in 2004, and FASB Staff Position
No. 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004 in 2005.
|
|
|
Internal control over financial reporting |
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control Over
Financial Reporting appearing on page 62, that the
Company maintained effective internal control over financial
reporting as of December 31, 2005 based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly
stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2005, based on criteria
established in Internal Control Integrated
Framework issued by the COSO. The Companys management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on
the effectiveness of the Companys internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control
63
over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Florham Park, New Jersey
February 28, 2006
64
THE DUN & BRADSTREET CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollar amounts in millions, | |
|
|
except per share data) | |
Operating Revenues
|
|
$ |
1,443.6 |
|
|
$ |
1,414.0 |
|
|
$ |
1,386.4 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
412.0 |
|
|
|
403.9 |
|
|
|
433.3 |
|
Selling and Administrative Expenses
|
|
|
600.8 |
|
|
|
612.0 |
|
|
|
579.9 |
|
Depreciation and Amortization
|
|
|
36.1 |
|
|
|
47.3 |
|
|
|
64.0 |
|
Restructuring Expense
|
|
|
30.7 |
|
|
|
32.0 |
|
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
Operating Costs
|
|
|
1,079.6 |
|
|
|
1,095.2 |
|
|
|
1,094.6 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
364.0 |
|
|
|
318.8 |
|
|
|
291.8 |
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
10.6 |
|
|
|
8.4 |
|
|
|
4.2 |
|
Interest Expense
|
|
|
(21.1 |
) |
|
|
(18.9 |
) |
|
|
(18.6 |
) |
Other Income Net
|
|
|
0.6 |
|
|
|
32.5 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
Non-Operating (Expense) Income Net
|
|
|
(9.9 |
) |
|
|
22.0 |
|
|
|
(11.4 |
) |
|
|
|
|
|
|
|
|
|
|
Income before Provision for Income Taxes
|
|
|
354.1 |
|
|
|
340.8 |
|
|
|
280.4 |
|
Provision for Income Taxes
|
|
|
133.6 |
|
|
|
129.2 |
|
|
|
106.2 |
|
Equity in Net Income of Affiliates
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
221.2 |
|
|
$ |
211.8 |
|
|
$ |
174.5 |
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share of Common Stock
|
|
$ |
3.31 |
|
|
$ |
3.01 |
|
|
$ |
2.37 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share of Common Stock
|
|
$ |
3.19 |
|
|
$ |
2.90 |
|
|
$ |
2.30 |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding
Basic
|
|
|
66,843,000 |
|
|
|
70,415,000 |
|
|
|
73,490,000 |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding
Diluted
|
|
|
69,415,000 |
|
|
|
73,104,000 |
|
|
|
75,826,000 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
65
THE DUN & BRADSTREET CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollar amounts in millions, | |
|
|
except per share data) | |
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$ |
195.3 |
|
|
$ |
252.9 |
|
Marketable Securities
|
|
|
109.4 |
|
|
|
82.6 |
|
Accounts Receivable Net of Allowance of $22.0 at
December 31, 2005 and $19.4 at December 31, 2004
|
|
|
380.3 |
|
|
|
382.1 |
|
Other Receivables
|
|
|
36.0 |
|
|
|
16.8 |
|
Deferred Income Tax
|
|
|
22.3 |
|
|
|
15.9 |
|
Other Current Assets
|
|
|
16.0 |
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
759.3 |
|
|
|
762.1 |
|
|
|
|
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net of Accumulated Depreciation
of $190.2 at December 31, 2005 and $202.5 at
December 31, 2004
|
|
|
44.2 |
|
|
|
51.2 |
|
Prepaid Pension Costs
|
|
|
470.8 |
|
|
|
455.3 |
|
Computer Software, Net of Accumulated Amortization of $315.9 at
December 31, 2005 and $328.0 at December 31, 2004
|
|
|
32.0 |
|
|
|
32.4 |
|
Goodwill
|
|
|
220.2 |
|
|
|
217.0 |
|
Deferred Income Tax
|
|
|
37.9 |
|
|
|
60.9 |
|
Other Non-Current Assets
|
|
|
49.0 |
|
|
|
56.6 |
|
|
|
|
|
|
|
|
|
Total Non-Current Assets
|
|
|
854.1 |
|
|
|
873.4 |
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
1,613.4 |
|
|
$ |
1,635.5 |
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$ |
43.9 |
|
|
$ |
50.2 |
|
Accrued Payroll
|
|
|
108.7 |
|
|
|
110.8 |
|
Accrued Income Tax
|
|
|
1.5 |
|
|
|
22.2 |
|
Short-Term Debt
|
|
|
300.8 |
|
|
|
|
|
Other Accrued and Current Liabilities
|
|
|
160.5 |
|
|
|
141.8 |
|
Deferred Revenue
|
|
|
413.7 |
|
|
|
388.6 |
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,029.1 |
|
|
|
713.6 |
|
|
|
|
|
|
|
|
Pension and Postretirement Benefits
|
|
|
432.6 |
|
|
|
468.0 |
|
Long-Term Debt
|
|
|
0.1 |
|
|
|
300.0 |
|
Other Non-Current Liabilities
|
|
|
74.0 |
|
|
|
99.7 |
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,535.8 |
|
|
|
1,581.3 |
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 12 and
Note 13)
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Series A Junior Participating Preferred Stock,
$0.01 par value per share, authorized
500,000 shares; outstanding none
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value per share,
authorized 9,500,000 shares;
outstanding none
|
|
|
|
|
|
|
|
|
Series Common Stock, $0.01 par value per share,
authorized 10,000,000 shares;
outstanding none
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value per share,
authorized 200,000,000 shares;
issued 81,945,520
|
|
|
0.8 |
|
|
|
0.8 |
|
Unearned Compensation Restricted Stock
|
|
|
(5.4 |
) |
|
|
(1.4 |
) |
Capital Surplus
|
|
|
183.8 |
|
|
|
198.2 |
|
Retained Earnings
|
|
|
891.5 |
|
|
|
670.3 |
|
Treasury Stock, at cost, 14,888,499 shares at
December 31, 2005 and 13,331,966 shares at
December 31, 2004
|
|
|
(705.5 |
) |
|
|
(557.6 |
) |
Cumulative Translation Adjustment
|
|
|
(175.7 |
) |
|
|
(149.0 |
) |
Minimum Pension Liability Adjustment
|
|
|
(112.7 |
) |
|
|
(107.1 |
) |
Other Comprehensive Income
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
77.6 |
|
|
|
54.2 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$ |
1,613.4 |
|
|
$ |
1,635.5 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
66
THE DUN & BRADSTREET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollar amounts in millions) | |
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
221.2 |
|
|
$ |
211.8 |
|
|
$ |
174.5 |
|
Reconciliation of Net Income to Net Cash Provided by Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
36.1 |
|
|
|
47.3 |
|
|
|
64.0 |
|
|
|
Loss from Sale of Real Estate
|
|
|
|
|
|
|
|
|
|
|
13.8 |
|
|
|
(Gain) Loss from Sales of Businesses and Investments
|
|
|
(0.6 |
) |
|
|
(31.5 |
) |
|
|
2.1 |
|
|
|
Income Tax Benefit due to Exercise of Stock Incentive Plans
|
|
|
74.7 |
|
|
|
6.9 |
|
|
|
12.4 |
|
|
|
Amortization of Restricted Stock
|
|
|
12.3 |
|
|
|
1.4 |
|
|
|
2.1 |
|
|
|
Restructuring Expense
|
|
|
30.7 |
|
|
|
32.0 |
|
|
|
17.4 |
|
|
|
Restructuring Payments
|
|
|
(32.5 |
) |
|
|
(27.5 |
) |
|
|
(30.0 |
) |
|
|
Deferred Income Taxes, Net
|
|
|
(4.0 |
) |
|
|
71.1 |
|
|
|
35.5 |
|
|
|
Accrued Income Taxes, Net
|
|
|
(39.4 |
) |
|
|
(16.5 |
) |
|
|
10.6 |
|
|
|
Changes in Current Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Accounts Receivable
|
|
|
(23.7 |
) |
|
|
(8.5 |
) |
|
|
(9.3 |
) |
|
|
|
Net (Increase) Decrease in Other Current Assets
|
|
|
(5.2 |
) |
|
|
8.4 |
|
|
|
(1.2 |
) |
|
|
|
Increase in Deferred Revenue
|
|
|
37.1 |
|
|
|
28.3 |
|
|
|
3.5 |
|
|
|
|
(Decrease) Increase in Accounts Payable
|
|
|
(2.8 |
) |
|
|
0.2 |
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Accrued Liabilities
|
|
|
16.4 |
|
|
|
(6.9 |
) |
|
|
(24.9 |
) |
|
|
|
Net Decrease in Other Accrued and Current Liabilities
|
|
|
(6.0 |
) |
|
|
(6.8 |
) |
|
|
(7.2 |
) |
|
|
Changes in Non-Current Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Other Long-Term Assets
|
|
|
(18.4 |
) |
|
|
(37.5 |
) |
|
|
(36.7 |
) |
|
|
|
Net (Decrease) Increase in Long-Term Liabilities
|
|
|
(34.8 |
) |
|
|
(4.8 |
) |
|
|
9.4 |
|
|
|
Net, Other Non-Cash Adjustments
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
261.5 |
|
|
|
267.6 |
|
|
|
235.7 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Sales of Real Estate
|
|
|
|
|
|
|
|
|
|
|
80.2 |
|
Investments in Marketable Securities
|
|
|
(225.6 |
) |
|
|
(223.2 |
) |
|
|
(0.2 |
) |
Redemptions of Marketable Securities
|
|
|
198.8 |
|
|
|
152.4 |
|
|
|
4.5 |
|
Proceeds from Sales of Businesses, Net of Cash Divested
|
|
|
16.5 |
|
|
|
65.8 |
|
|
|
3.6 |
|
Payments for Acquisitions of Businesses, Net of Cash Acquired
|
|
|
(18.1 |
) |
|
|
(2.0 |
) |
|
|
(98.0 |
) |
Cash Settlements of Foreign Currency Contracts
|
|
|
2.0 |
|
|
|
(4.8 |
) |
|
|
(14.6 |
) |
Capital Expenditures
|
|
|
(5.7 |
) |
|
|
(12.1 |
) |
|
|
(11.0 |
) |
Additions to Computer Software and Other Intangibles
|
|
|
(22.9 |
) |
|
|
(16.7 |
) |
|
|
(19.3 |
) |
Net Assets Held for Sales of Businesses
|
|
|
|
|
|
|
|
|
|
|
(9.9 |
) |
Investments in Unconsolidated Affiliates
|
|
|
|
|
|
|
|
|
|
|
(1.9 |
) |
Net, Other
|
|
|
0.9 |
|
|
|
1.4 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(54.1 |
) |
|
|
(39.2 |
) |
|
|
(65.3 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for Purchase of Treasury Shares
|
|
|
(295.6 |
) |
|
|
(251.8 |
) |
|
|
(156.1 |
) |
Net Proceeds from Stock Plans
|
|
|
64.5 |
|
|
|
18.0 |
|
|
|
23.4 |
|
Spin-off Obligation
|
|
|
(9.2 |
) |
|
|
|
|
|
|
|
|
Decrease in Short-Term Borrowings
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
Net, Other
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Financing Activities
|
|
|
(241.2 |
) |
|
|
(233.5 |
) |
|
|
(132.8 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
(23.8 |
) |
|
|
19.0 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in Cash and Cash Equivalents
|
|
|
(57.6 |
) |
|
|
13.9 |
|
|
|
47.1 |
|
Cash and Cash Equivalents, Beginning
|
|
|
252.9 |
|
|
|
239.0 |
|
|
|
191.9 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End
|
|
$ |
195.3 |
|
|
$ |
252.9 |
|
|
$ |
239.0 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid Year to Date for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes, Net of Refunds
|
|
$ |
102.4 |
|
|
$ |
67.6 |
|
|
$ |
47.5 |
|
|
|
Interest
|
|
$ |
19.0 |
|
|
$ |
17.2 |
|
|
$ |
17.2 |
|
The accompanying notes are an integral part of the consolidated
financial statements.
67
THE DUN & BRADSTREET CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, 2005 | |
|
|
| |
|
|
|
|
Mark-to- | |
|
|
|
Common | |
Unearned | |
|
Minimum | |
Market | |
|
|
|
Stock | |
Compensation | |
|
|
Cumulative | |
Pension | |
Interest | |
Total | |
Comprehensive | |
|
|
($0.01 Par | |
Restricted | |
Capital | |
Retained | |
Treasury | |
Translation | |
Liability | |
Rate | |
Shareholders | |
Income | |
|
|
Value) | |
Stock | |
Surplus | |
Earnings | |
Stock | |
Adjustment | |
Adjustment | |
Derivative | |
Equity | |
(Loss) | |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
|
(Dollar amounts in millions, except per share data) | |
Balance, January 1, 2003
|
|
|
$ |
0.8 |
|
|
|
$ |
(0.6 |
) |
|
|
$ |
218.7 |
|
|
|
$ |
284.0 |
|
|
|
$ |
(240.3 |
) |
|
|
$ |
(194.2 |
) |
|
|
$ |
(87.2 |
) |
|
|
$ |
|
|
|
|
$ |
(18.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174.5 |
|
|
|
$ |
174.5 |
|
Treasury Shares Reissued Under Stock Options, Deferred, and
Other Compensation Plans and Restricted Stock Plan (1,545,362)
|
|
|
|
|
|
|
|
|
(5.1 |
) |
|
|
|
(14.3 |
) |
|
|
|
|
|
|
|
|
51.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
Treasury Shares Reissued Under Employee Stock Purchase Plan
(108,440)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6 |
|
|
|
|
|
|
Treasury Shares Acquired (3,759,200)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(156.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(156.1 |
) |
|
|
|
|
|
Amortization of Restricted Stock Awards
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
Restricted Stock Surrendered
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Cumulative Translation Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.9 |
|
|
|
|
16.9 |
|
Change in Minimum Pension Liability Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.9 |
) |
|
|
|
|
|
|
|
|
(5.9 |
) |
|
|
|
(5.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
185.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
|
0.8 |
|
|
|
|
(3.3 |
) |
|
|
|
204.4 |
|
|
|
|
458.5 |
|
|
|
|
(341.6 |
) |
|
|
|
(177.3 |
) |
|
|
|
(93.1 |
) |
|
|
|
|
|
|
|
|
48.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211.8 |
|
|
|
$ |
211.8 |
|
Treasury Shares Reissued Under Stock Options, Deferred, and
Other Compensation Plans and Restricted Stock Plan (836,381)
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
32.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.6 |
|
|
|
|
|
|
Treasury Shares Reissued Under Employee Stock Purchase Plan
(97,295)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
|
|
|
|
Treasury Shares Acquired (4,573,640)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251.8 |
) |
|
|
|
|
|
Amortization of Restricted Stock Awards
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
Change in Cumulative Translation Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.3 |
|
|
|
|
28.3 |
|
Change in Minimum Pension Liability Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.0 |
) |
|
|
|
|
|
|
|
|
(14.0 |
) |
|
|
|
(14.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
226.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
|
0.8 |
|
|
|
|
(1.4 |
) |
|
|
|
198.2 |
|
|
|
|
670.3 |
|
|
|
|
(557.6 |
) |
|
|
|
(149.0 |
) |
|
|
|
(107.1 |
) |
|
|
|
|
|
|
|
|
54.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221.2 |
|
|
|
$ |
221.2 |
|
Treasury Shares Reissued Under Stock Options, Deferred, and
Other Compensation Plans and Restricted Stock Plan (3,046,981)
|
|
|
|
|
|
|
|
|
(16.3 |
) |
|
|
|
(15.2 |
) |
|
|
|
|
|
|
|
|
143.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112.0 |
|
|
|
|
|
|
Treasury Shares Reissued Under Employee Stock Purchase Plan
(94,161)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0 |
|
|
|
|
|
|
Treasury Shares Acquired (4,697,675)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(295.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(295.6 |
) |
|
|
|
|
|
Amortization of Restricted Stock Awards
|
|
|
|
|
|
|
|
|
12.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.3 |
|
|
|
|
|
|
Change in Cumulative Translation Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(26.7 |
) |
|
|
|
(26.7 |
) |
Change in Minimum Pension Liability Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.6 |
) |
|
|
|
|
|
|
|
|
(5.6 |
) |
|
|
|
(5.6 |
) |
Mark-to-Market Interest Rate Derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
|
0.8 |
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
189.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
$ |
0.8 |
|
|
|
$ |
(5.4 |
) |
|
|
$ |
183.8 |
|
|
|
$ |
891.5 |
|
|
|
$ |
(705.5 |
) |
|
|
$ |
(175.7 |
) |
|
|
$ |
(112.7 |
) |
|
|
$ |
0.8 |
|
|
|
$ |
77.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
68
Notes to Consolidated Financial Statements
(Tabular dollar amounts in millions, except per share
data)
|
|
Note 1. |
Description of Business and Summary of Significant Accounting
Policies |
Description of Business. The Dun &
Bradstreet Corporation (D&B or we or
our) provides global business information, tools and
insight, and has enabled customers to Decide with
Confidence®
for over 160 years. Our proprietary
DUNSRight®
quality process provides our customers with quality business
information. This quality information is the foundation of our
solutions that customers rely on to make critical business
decisions. Customers use our Risk Management
Solutionstm
to mitigate credit risk, increase cash flow and drive increased
profitability, our Sales & Marketing
Solutionstm
to increase revenue from new and existing customers, our
E-Business
Solutionstm
to convert prospects to clients faster by enabling business
professionals to research companies, executives and industries
and our Supply Management
Solutionstm
to increase cash by generating ongoing savings from our
customers suppliers and protecting our customers from
serious financial, operational and regulatory risk.
Basis of Presentation. The preparation of
financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the period reported. As discussed throughout
this Note 1, we base our estimates on historical
experience, current conditions and various other factors that we
believe to be reasonable under the circumstances. Significant
items subject to such estimates and assumptions include
valuation allowances for receivables and deferred income tax
assets; liabilities for potential tax deficiencies and potential
litigation claims and settlements; assets and obligations
related to employee benefits; allocation of the purchase price
in acquisition accounting; long-term asset and amortization
recoverability; revenue deferrals; and restructuring charges. We
review estimates and assumptions periodically and reflect the
revisions in the consolidated financial statements in the period
in which we determine any revisions to be necessary. Actual
results could differ from those estimates under different
assumptions or conditions.
The consolidated financial statements include our accounts, as
well as those of our subsidiaries and investments in which we
have a controlling interest. Investments in companies over which
we have significant influence but not a controlling interest are
carried under the equity method. Investments over which we do
not have significant influence are recorded at cost. We
periodically review our investments to determine if there has
been any impairment judged to be other than temporary. Such
impairments are recorded as write-downs in the statement of
operations.
All intercompany transactions and balances have been eliminated
in consolidation.
The financial statements of our subsidiaries outside the United
States and Canada reflect a fiscal year ended November 30
to facilitate timely reporting of our consolidated financial
results and financial position.
Certain prior-year amounts have been reclassified to conform to
the current year presentation.
Significant Accounting Policies
Revenue Recognition. Our Risk Management Solutions
are generally sold under monthly or annual contracts that enable
a customer to purchase our information solutions during the
period of contract at prices per an agreed price list, up to the
contracted dollar limit. Revenue on these contracts is
recognized as solutions are delivered to the customer based on
the per-solution price. Any additional solutions purchased over
this limit may be subject to pricing variations and revenue is
recognized as the solutions are delivered. If customers do not
use the full value of their contract and forfeit the unused
portion, we recognize the forfeited amount as revenue at
contract expiration.
69
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
We have fixed price subscription contracts for larger customers
that allow those customers unlimited use within predefined
ranges, subject to certain conditions. In these instances, we
recognize revenue ratably over the term of the contract, which
is generally one year.
Revenue related to services provided over the contract term,
such as monitoring services, is recognized ratably over the
contract period, which is typically one year.
For Sales & Marketing Solutions and Supply Management
Solutions, we generally recognize revenue upon delivery of the
information file to the customer. For arrangements that include
periodic updates to that information file over the contract
term, the portion of the revenue related to updates expected to
be delivered is deferred and recognized as the updates are
delivered, usually on a quarterly or monthly basis. For
subscription solutions that provide continuous access to our
generic marketing information and business reference databases,
as well as any access fees or hosting fees related to enabling
customers access to our information, revenue is recognized
ratably over the term of the contract, which is typically one
year.
We have certain solution offerings that are sold as
multi-element arrangements. The multiple elements may include
information files, file updates for certain solutions, software
and/or services. Revenue for each element is recognized when
that element is delivered to the customer based upon the
relative fair value for each element. For offerings that include
software that is considered to be more than incidental, we
recognize revenue when a non-cancelable license agreement has
been signed, the software has been shipped and installed.
Maintenance revenues, which consist of fees for ongoing support
and software updates, are recognized ratably over the term of
the contract, typically one year, when the maintenance for the
software is considered significant. When maintenance is
insignificant, we recognize the revenue associated with the
software and maintenance when the agreement is signed and
product is shipped.
Revenues from consulting and training services are recognized as
the services are performed.
For E-Business
Solutions, which includes Hoovers, Inc., we provide
subscription solutions that provide continuous access to our
business information databases. Revenue is recognized ratably
over the term of the contract, which is generally one year. Any
additional solutions purchased are recognized once they are
delivered and billed to the customer.
Amounts billed in advance are recorded as deferred revenue on
the balance sheet. The deferred revenue is recognized as the
services are performed.
Sales Cancellations. In determining sales
cancellation allowances, we analyze historical trends,
customer-specific factors, current economic trends and changes
in customer demand.
Allowance For Bad Debts. With respect to
estimating bad debt allowances, we analyze the aging of accounts
receivable, historical bad debts, customer creditworthiness and
current economic trends.
Restructuring Charges. We account for
restructuring charges initiated after December 31, 2002, in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 146, Accounting for Costs
Associated with Exit or Disposal Activities.
SFAS No. 146 addresses financial accounting and
reporting for costs associated with restructuring activities,
including severance and lease termination obligations, and other
related exit costs. Under SFAS No. 146, we establish a
liability for a cost associated with an exit or disposal
activity, including severance and lease termination obligations,
and other related exit costs, when the liability is incurred,
rather than at the date that we commit to an exit plan. We
reassess the expected cost to complete the exit or disposal
activities at the end of each reporting period and adjust our
remaining estimated liabilities, if necessary.
Prior to January 1, 2003, we accounted for our
restructuring activities in accordance with Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring).
70
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
Employee Benefit Plans. We offer defined benefit
pension plans to substantially all of our employees in our
operations in the U.S. as well as certain of our
International operations. The plans provide benefits that are
based on the employees average annual compensation, age
and years of service. We also provide various health care and
life insurance benefits for our retired employees. We use
actuarial assumptions to calculate pension and benefit costs as
well as pension assets and liabilities included in our
consolidated financial statements.
Income Taxes. Income taxes are determined in
accordance with SFAS No. 109, Accounting for
Income Taxes, which requires recognition of deferred
income tax liabilities and assets for the expected future tax
consequences of events that have been included in the
consolidated financial statements or tax returns. Under this
method, deferred income tax liabilities and assets are
determined based on the difference between financial statement
and tax basis of liabilities and assets using enacted tax rates
in effect for the year in which the differences are expected to
reverse. SFAS No. 109 also provides for the
recognition of deferred tax assets if it is more likely than not
that the assets will be realized in future years. We have
established a valuation allowance for deferred tax assets for
which realization is not likely. In assessing the valuation
allowance, we have considered future taxable income and ongoing
prudent and feasible tax planning strategies.
Legal and Tax Contingencies. We are involved in
tax and legal proceedings, claims and litigation arising in the
ordinary course of business. We periodically assess our
liabilities and contingencies in connection with these matters,
based upon the latest information available. For those matters
where it is probable that we have incurred a loss and the loss
or range of loss can be reasonably estimated, we have recorded
reserves in the consolidated financial statements. In other
instances, because of the uncertainties related to both the
probable outcome and amount or range of loss, we are unable to
make a reasonable estimate of a liability, if any. As additional
information becomes available, we adjust our assessment and
estimates of such liabilities accordingly.
Cash and Cash Equivalents. We consider all
investments purchased with an initial term to maturity of three
months or less to be cash equivalents. These instruments are
stated at cost, which approximates market value because of the
short maturity of the instruments.
Marketable Securities. In accordance with
SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities, certain of our marketable
securities are classified as available for sale and
are reported at fair value, with net unrealized gains and losses
reported in shareholders equity. The fair value of the
marketable securities is based on quoted market prices. Realized
gains and losses on marketable securities are determined using
the specific identification method.
Marketable available for sale securities classified
as current assets were $109.4 million and
$82.6 million at December 31, 2005 and 2004,
respectively.
Restricted Assets. At December 31, 2005 and
2004, the restricted assets solely consisted of cash and cash
equivalents. Such amounts are included in Other
Non-Current Assets. We had restricted assets of
$13.6 million and $12.5 million at December 31,
2005 and 2004, respectively, held in grantor trusts primarily to
fund certain pension obligations (see Note 10 to these
consolidated financial statements included in this Annual Report
on Form 10-K).
Property, Plant and Equipment. Property, plant and
equipment are stated at cost, except for property, plant and
equipment that have been impaired for which the carrying amount
is reduced to the estimated fair value at the impairment date.
Property, plant and equipment are depreciated principally using
the straight-line method. Buildings are depreciated over a
period of 40 years. Equipment is depreciated over a period
of three to 10 years. Leasehold improvements are amortized
on a straight-line basis over the shorter of the term of the
lease or the estimated useful life of the improvement. The
property, plant and equipment depreciation expense for the years
ended December 31, 2005, 2004 and 2003 was
$10.9 million, $13.2 million and $17.6 million,
respectively.
71
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
Computer Software. We account for computer
software used in our business in accordance with Statement of
Position (SOP) 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal
Use. In addition, certain computer software costs related
to software sold to customers are capitalized in accordance with
SFAS No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise
Marketed. Capitalized computer software costs are
amortized over its estimated useful life, typically three to
five years, and are reported at the lower of unamortized cost or
net realizable value. We review the valuation of capitalized
software whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Factors that could trigger an impairment review include
significant changes in the manner of use of the assets or
strategic decisions made relating to future plans for those
assets, as well as consideration of future operating results,
significant negative industry trends or economic trends. The
computer software amortization expense for the three years ended
December 31, 2005, 2004 and 2003 was $22.7 million,
$31.6 million and $43.1 million, respectively.
Goodwill and Other Intangible Assets. Pursuant to
SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill and intangibles with an indefinite life
are not subject to regular periodic amortization.
Instead, the carrying amount of the goodwill and intangibles is
tested for impairment at least annually, and between annual
tests if events or circumstances warrant such a test. An
impairment loss would be recognized if the carrying amount
exceeded the fair value.
We consider our segments, U.S. and International, as our
reporting units under SFAS No. 142 for consideration
of potential impairment of goodwill. Goodwill and
indefinite-lived intangibles are tested for impairment at least
annually, or if an event or circumstance indicates that an
impairment loss has been incurred. We assess the recoverability
of our goodwill at the reporting unit level.
For goodwill, we perform a two-step impairment test. In the
first step, we compare the fair value of each reporting unit to
its carrying value. We determine the fair value of our reporting
units based on the market approach. Under the market approach,
we estimate the fair value based on market multiples of revenue.
If the market value of the reporting unit exceeds the carrying
value of the net assets assigned to that reporting unit,
goodwill is not impaired and no further test is performed. If
the carrying value of the net assets assigned to the reporting
unit exceeds the fair value of the reporting unit, then we must
perform the second step of the impairment test in order to
determine the implied fair value of the reporting units
goodwill. If the carrying value of the reporting unit exceeds
its implied fair value, we record an impairment loss equal to
the difference.
For indefinite-lived intangibles, other than goodwill, the
estimated fair value is determined by utilizing the expected
present value of the future cash flows of the assets. An
impairment is recognized if the carrying value exceeds the fair
value. Based on our analyses at December 31, 2005 and 2004,
no impairment charges related to goodwill and other intangible
assets with indefinite lives have been recognized.
Other intangibles, which primarily include customer lists and
relationships, resulting from acquisitions are being amortized
over three to 15 years using the straight-line method.
Other Intangibles amortization expense for the three years ended
December 31, 2005, 2004, and 2003 was $2.5 million,
$2.5 million, and $3.3 million, respectively.
The value of our customer lists in our Italian real estate data
business in our International segment was negatively impacted by
tax legislation enacted in Italy in 2005. This tax legislation
increased the operating costs of our Italian real estate data
business. For the year December 31, 2005, we recorded an
impairment charge to our operating costs of $0.4 million
related to customer lists.
Foreign Currency Translation. For all operations
outside the United States where we have designated the local
currency as the functional currency, assets and liabilities are
translated using the
end-of-year exchange
rates, and revenues and expenses are translated using average
exchange rates for the year. For these countries where we
designate the local currency as the functional currency,
translation adjustments are accumulated in a separate component
of shareholders equity. Transaction gains and losses are
recognized in
72
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
earnings in Other Income (Expense) Net.
Transaction gains were $1.0 million and $5.1 million
for the years ended December 31, 2005 and 2004,
respectively, and transaction losses were $0.3 million for
the year ended December 31, 2003.
Earnings Per Share of Common Stock. In accordance
with SFAS No. 128, Earnings Per Share
(EPS), basic EPS is calculated based on the weighted
average number of shares of common stock outstanding during the
reporting period. Diluted EPS is calculated giving effect to all
potentially dilutive common shares, assuming such shares were
outstanding during the reporting period. The difference between
basic and diluted EPS is solely attributable to stock options
and restricted stock programs. We use the treasury stock method
to calculate the impact of outstanding stock options.
Stock-Based Compensation. Our stock-based
compensation plans are described more fully in Note 11 to
these consolidated financial statements included in this Annual
Report on
Form 10-K. We
account for those plans under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25
Accounting for Stock Issued to Employees (APB
No. 25), and related interpretations. Accordingly, no
stock-based employee compensation cost is reflected in net
income for our outstanding stock options as all options granted
under our plans had an exercise price equal to the market value
of the underlying common stock on the date of grant. Also, no
stock-based compensation cost is reflected in our net income for
our Employee Stock Purchase Plan. The cost associated with our
restricted stock grants, stock appreciation rights and
restricted stock units is included in net income.
The following table summarizes the pro forma effect of
stock-based compensation on net income and net income per share
as if the fair value expense recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure, had been adopted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net Income, as reported
|
|
$ |
221.2 |
|
|
$ |
211.8 |
|
|
$ |
174.5 |
|
|
Add: Stock compensation cost included in net income, net of tax
benefits
|
|
|
7.3 |
|
|
|
6.7 |
|
|
|
1.8 |
|
|
Deduct: Total stock compensation cost under fair-value method
for all awards, net of tax benefits
|
|
|
(17.5 |
) |
|
|
(17.2 |
) |
|
|
(10.5 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma Net Income
|
|
$ |
211.0 |
|
|
$ |
201.3 |
|
|
$ |
165.8 |
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
3.31 |
|
|
$ |
3.01 |
|
|
$ |
2.37 |
|
|
Pro forma
|
|
$ |
3.16 |
|
|
$ |
2.86 |
|
|
$ |
2.25 |
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
3.19 |
|
|
$ |
2.90 |
|
|
$ |
2.30 |
|
|
Pro forma
|
|
$ |
3.04 |
|
|
$ |
2.75 |
|
|
$ |
2.18 |
|
73
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected stock volatility
|
|
|
30 |
% |
|
|
30 |
% |
|
|
30 |
% |
Risk-free interest rate
|
|
|
4.19 |
% |
|
|
3.83 |
% |
|
|
2.94 |
% |
Expected holding period (years)
|
|
|
6.9 |
|
|
|
7.0 |
|
|
|
4.9 |
|
Weighted average fair value of options granted
|
|
$ |
25.14 |
|
|
$ |
21.66 |
|
|
$ |
11.08 |
|
Financial Instruments. We recognize all
derivatives as either assets or liabilities on the balance sheet
and measure those instruments at fair value.
We use foreign exchange forward and option contracts to hedge
cross-border intercompany transactions and certain
non-U.S. earnings.
These forward and option contracts are
marked-to-market and
gains and losses are recorded as other income or expense. In
addition, foreign exchange forward contracts are used to hedge
certain of our foreign net investments. The gains and losses
associated with these contracts are recorded in Cumulative
Translation Adjustments, a component of shareholders
equity.
We use interest rate swap agreements to hedge long-term
fixed-rate debt. When executed, we designate the swaps as
fair-value hedges and assess whether the swaps are highly
effective in offsetting changes in the fair value of the hedged
debt. We formally document all relationships between hedging
instruments and hedged items, and we have documented policies
for management of our exposures. Changes in fair values of
interest rate swap agreements that are designated fair-value
hedges are recognized in earnings as an adjustment of interest
expense. The effectiveness of hedge accounting is monitored on
an ongoing basis, and if considered ineffective, we discontinue
hedge accounting prospectively.
We entered into an interest rate derivative transaction in 2005
with the objective to mitigate the variability of future cash
flows from market changes in treasury rates in the anticipation
of a future debt issuance during the first half of 2006. This
transaction is accounted for as a cash flow hedge. As such,
changes in fair value of the swap that take place through the
date of debt issuance are recorded in accumulated other
comprehensive income.
Note 2. Recent Accounting Pronouncements
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Medicare
Reform Act) was signed into law. The Medicare
Reform Act expands Medicare,
primarily by adding a prescription drug benefit for
medicare-eligibles starting in 2006. The Medicare
Reform Act provides employers
currently providing postretirement prescription drug benefits
with a range of options for coordinating with the new
government-sponsored program potentially to reduce this benefit,
including providing for a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at
least actuarially equivalent to the benefit established by the
law (sharing strategy). In connection with the
Medicare Reform Act, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP)
No. FAS 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003. FSP
No. FAS 106-2 provides guidance on accounting for the
effects of the new Medicare prescription drug legislation for
employers whose prescription drug benefits are actuarially
equivalent to the drug benefit under Medicare Part D and
are therefore entitled to receive subsidies from the federal
government beginning in 2006. The FSP was adopted for periods
beginning after July 1, 2004. Under the FSP, if a company
concludes that its defined benefit post-retirement benefit plan
is actuarially equivalent to the Medicare Part D benefit,
the employer should recognize subsidies from the federal
government in the measurement of the accumulated postretirement
benefit obligation (APBO) under
SFAS No. 106, Employers Accounting for
Post-retirement Benefits Other Than Pensions. The
74
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
resulting reduction of the APBO should be accounted for as an actuarial gain. On
January 21, 2005, the Centers for Medicare and Medicaid
Services (CMS) released final regulations
implementing major provisions of the Medicare Reform Act of
2003. The regulations address key concepts, such as defining a
plan, as well as the actuarial equivalence test for purposes of
obtaining a government subsidy. Pursuant to the guidance in FSP
No. FAS 106-2,
we have assessed the financial impact of the regulations and
concluded that our postretirement benefit plan will qualify for
the direct subsidies for an additional seven years and that our
APBO decreased by, approximately, an additional
$5.8 million. As a result, our 2005 postretirement benefit
cost decreased by, approximately, $2.5 million. The APBO as
of December 31, 2005 decreased by a total of
$37.1 million and our plan is expected to be actuarially
equivalent in 2006 until 2023, before the impact of the sharing
strategy.
In December 2004, the FASB issued SFAS No. 123
(revised 2004) or SFAS No. 123R,
Share-Based Payments, which revises
SFAS No. 123, Accounting for Stock-Based
Compensation, and supercedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. This
standard requires companies to recognize in the statement of
operations the cost of employee services received in exchange
for awards of equity instruments based on the grant-date fair
value of the award (with limited exceptions). The cost will be
recognized over the period that an employee provides service in
exchange for the award, which normally would be the vesting
period. The standard has two transition application methods to
choose from. They are the Modified Prospective application or
Modified Retrospective application. Under the Modified
Prospective application, compensation cost is recognized for new
grants and modifications made after the required effective date,
plus the remaining unrecognized expense associated with
previously issued awards that are not vested as of the date of
adoption. Prior periods remain unchanged and pro forma
disclosures previously required by SFAS No. 123
continue to be required. Under the Modified Retrospective
application, a company is required to restate its financial
statements back either (a) to all prior years for which
SFAS No. 123 was effective or (b) to only prior
interim periods in the year in which SFAS No. 123R is
adopted. In April 2005, the Securities and Exchange Commission
(SEC) announced the adoption of a rule that defers
the required effective date of SFAS No. 123R. The SEC
rule provides that Statement No. 123R is now effective for
registrants as of the beginning of the first fiscal year
beginning after June 15, 2005, instead of at the beginning
of the first quarter after June 15, 2005 (as prescribed
originally by the FASB Statement). Accordingly, we have deferred
the adoption of SFAS No. 123R until January 1,
2006 at which time we began to utilize the Modified Prospective
application. Based on management assumptions, utilizing the
Black Scholes model, we anticipate a full year impact to our
Consolidated Statement of Operations of approximately
$14 million in expenses. In addition,
SFAS No. 123R also requires the benefits of tax
deductions in excess of tax impact of recognized compensation
expense to be reported as a financing cash flow, rather than as
an operating cash flow. This requirement may reduce net
operating cash flows and increase net financing cash flows in
periods after adoption. The total change in cash and cash
equivalents will remain the same.
In December 2004, the FASB issued FSP
No. FAS 109-1,
Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs
Creation Act of 2004. On October 22, 2004, the
American Jobs Creation Act of 2004 (the Act) was
signed into law. The Act provides a deduction from income for
qualified domestic production activities, which will be phased
in from 2005 through 2010. In return, the Act also provides for
a two-year phase-out of the existing extra-territorial income
exclusion (ETI) for foreign sales. FSP
No. FAS 109-1
provides guidance on the accounting implications of the Act
related to the deduction for qualified domestic production
activities. The deduction will be treated as a special
deduction as described in SFAS No. 109. As such,
the special deduction has no effect on deferred tax assets and
liabilities existing at the enactment date. Rather, the impact
of this deduction, if any, will be reported in the period in
which the deduction is claimed on our tax return. Until final
treasury regulations are issued on this matter, management will
be unable to determine the full impact, if any, this will have
on our effective income tax rate.
75
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
In December 2004, the FASB issued FSP
No. FAS 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004. FSP
No. FAS 109-2
provides guidance under SFAS No. 109 with respect to
recording the potential impact of the repatriation provisions of
the Act in income tax expense and deferred tax liability. The
Act provides for a temporary 85% dividends received deduction on
certain foreign earnings repatriated from our controlled foreign
corporations. To qualify for the deduction, the earnings must be
reinvested in the United States pursuant to a domestic
reinvestment plan established by our senior management and
approved by the Board of Directors. During the third quarter of
fiscal year 2005, our Chief Executive Officer and Board of
Directors approved a domestic reinvestment plan as required by
the Act. During the fourth quarter of fiscal year 2005, we
repatriated approximately $150.0 million in extraordinary
dividends, as defined in the Act, and accordingly have recorded
a tax liability of $9.3 million as of December 31,
2005.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, which amended APB
Opinion No. 29, Accounting for Nonmonetary
Transactions. The guidance in APB No. 29 is based on
the underlying principle that the measurement of exchanges of
nonmonetary assets should be based on the fair value of the
assets exchanged. However, APB No. 29 included certain
exceptions to that principle, including a requirement that
exchanges of similar productive assets should be recorded at the
carrying amount of the asset relinquished.
SFAS No. 153 eliminates that exception and replaces it
with a general exception for exchanges of nonmonetary assets
that lack commercial substance. Only nonmonetary exchanges in
which an entitys future cash flows are expected to
significantly change as a result of the exchange will be
considered to have commercial substance. SFAS No. 153
must be applied to nonmonetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. The adoption
of this statement did not have a material impact on our
financial statements.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, which
changes the accounting and reporting requirements for a change
in accounting principle. APB Opinion 20, Accounting
Changes and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements, are
superseded by SFAS No. 154 which requires
retrospective application to prior periods financial
statements of changes in an accounting principle.
SFAS No. 154 applies to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions.
When a pronouncement includes specific transition provisions,
those provisions should be followed. SFAS No. 154 also
defines a restatement as the revising of previously issued
financial statements to reflect the correction of an error.
SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005. We will apply the requirements of
SFAS No. 154 on any changes in principle made on or
after January 1, 2006. We do not anticipate that the
adoption of this statement will have a material impact on our
financial statements.
In January 2003, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation (FIN)
No. 46, Consolidation of Variable Interest
Entities, which amended Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, and established standards for determining the
circumstances under which a variable interest entity
(VIE) should be consolidated with its primary
beneficiary. FIN No. 46 also requires disclosure about
VIEs that we are not required to consolidate but in which we
have a significant variable interest. In December 2003, the FASB
issued FIN No. 46R which made some revisions and
replaced the original FIN No. 46. The adoption of
FIN No. 46R in the first quarter of 2004 did not have
an impact on our consolidated financial statements as we did not
have any VIEs.
In December 2003, the U.S. Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition,
which supercedes SAB No. 101, Revenue
Recognition in Financial Statements. The primary purpose
of SAB No. 104 is to rescind accounting guidance
contained in SAB No. 101 related to multiple element
revenue arrangements, superceded as a result of the issuance of
EITF Issue
No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. Additionally, SAB No. 104 rescinds
the SECs Revenue Recognition in Financial Statements
Frequently Asked Questions
76
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
and Answers (FAQ) issued with SAB No. 101.
The adoption of SAB No. 104 in the first quarter of 2004
did not have a material impact on our consolidated financial
statements.
In March 2004, the EITF Task Force reached a consensus on EITF
No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments.
EITF 03-1 provides
guidance for determining when an investment is
other-than-temporarily impaired and disclosure requirements
relating to those impairments. The adoption of
EITF 03-1 in the
first quarter of 2004 did not have an impact on our consolidated
financial statements.
Note 3. Impact of Implementation of the Blueprint
for Growth Strategy
Since the launch of our Blueprint for Growth strategy, we have
implemented Financial Flexibility Programs. In each of these
Programs, we identified ways to reduce our expense base, then we
reallocated some of the identified spending to other areas of
our operations to improve revenue growth. With each Program, we
have incurred restructuring charges (which generally consists
of employee severance and termination costs, contract
terminations, asset write-offs, and/or costs to terminate lease
obligations less assumed sublease income). These charges are
incurred as a result of eliminating, consolidating,
standardizing, automating and/or outsourcing operations of our
business. We have also incurred transition costs such as
consulting fees, costs of temporary workers, relocation costs
and stay bonuses to implement our Financial Flexibility Programs.
During the year ended December 31, 2005, we recorded a
$30.8 million restructuring charge in connection with the
Financial Flexibility Program announced in February 2005
(2005 Financial Flexibility Program) and a
$0.1 million net restructuring gain in connection with the
Financial Flexibility Program announced in February 2004
(2004 Financial Flexibility Program). The
restructuring charges were recorded in accordance with
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The curtailments were
recorded in accordance with SFAS No. 87,
Employers Accounting for Pension,
SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits and SFAS 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions. The components of these charges and
gains included:
|
|
|
|
|
severance and termination costs of $23.3 million associated
with approximately 425 employees related to the 2005 Financial
Flexibility Program and $5.7 million associated with
approximately 310 employees related to the 2004 Financial
Flexibility Program; |
|
|
|
lease termination obligations, other costs to consolidate or
close facilities and other exit costs of $4.7 million
related to the 2005 Financial Flexibility Program; |
|
|
|
curtailment charges of $3.1 million related to our pension
plans and an immediate reduction to ongoing pension income of
$3.4 million related to the U.S. Qualified Plan
resulting from employee actions for the 2005 Financial
Flexibility Program. In accordance with SFAS No. 87
and SFAS No. 88 we were required to recognize
immediately a pro-rata portion of the unrecognized prior service
cost as a result of the employee terminations and the pension plan was
required to be re-measured which reduced our periodic pension
income; and |
|
|
|
curtailment gains of $3.7 million and $5.8 million
related to the U.S. postretirement benefit plan resulting
from employee actions for the 2005 Financial Flexibility Program
and 2004 Financial Flexibility Program, respectively. In
accordance with SFAS No. 106, we were required to
recognize immediately a pro-rata portion of the unrecognized
prior service cost as a result of the employee terminations. |
At December 31, 2005, all actions under these programs were
substantially completed.
77
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
During the year ended December 31, 2004, we recorded
$32.0 million of restructuring charges in connection with
the 2004 Financial Flexibility Program. The components of the
restructuring charges included:
|
|
|
|
|
severance and termination costs of $28.4 million associated
with approximately 900 employees; |
|
|
|
lease termination obligations, other costs to consolidate or
close facilities and other exit costs of $3.1 million; |
|
|
|
curtailment charges (in accordance with SFAS No. 87
and SFAS No. 88) of $0.9 million and an immediate
reduction to ongoing pension income of $3.3 million related
to our pension plans; and |
|
|
|
curtailment gain (in accordance with SFAS No. 106) of
$3.7 million related to the U.S. postretirement
benefit plan. |
In October 2004, as part of the 2004 Financial Flexibility
Program, we entered into an agreement with International
Business Machines Corporation (IBM) to outsource
certain portions of our data acquisition and delivery, customer
service, and financial processes. Under the terms of the
agreement, approximately 220 employees who primarily performed
certain customer service functions in the United States, Canada,
United Kingdom and the Netherlands were transitioned to IBM. We
made total payments of approximately $1.8 million to IBM as
full satisfaction of any of our existing liabilities for future
severance benefits related to the transitioned employees. The
severance benefits for the employees who transitioned to IBM are
included in the restructuring charges for the year ended
December 31, 2005 and 2004.
During the year ended December 31, 2004, approximately 650
employees (including 220 employees who transitioned to IBM as
part of the outsourcing agreement discussed below) were
terminated in connection with the 2004 Financial Flexibility
Program. During the year ended December 31, 2005,
approximately 310 employees were terminated in connection with
the 2004 Financial Flexibility Program which resulted in 960
employees terminated for this program in total.
During the year ended December 31, 2003, we recorded
$17.4 million of restructuring charges in connection with
the Financial Flexibility Program announced in February 2003
(2003 Financial Flexibility Program). The components
of the restructuring charges included:
|
|
|
|
|
severance and termination costs of $16.6 million associated
with approximately 500 employees; |
|
|
|
lease termination obligations of $0.3 million; and |
|
|
|
curtailment charge (in accordance with SFAS No. 87 and
SFAS No. 88) of $0.5 million related to the
U.S. Qualified Plan. |
During the year ended December 31, 2003, all of the
approximately 500 employees had been terminated in connection
with the 2003 Financial Flexibility Program.
As of December 31, 2005, we have eliminated approximately
4,900 positions which included 300 open positions and terminated
(via attrition and termination) approximately 4,600 employees
under our Financial Flexibility Programs since inception in
October 2000. These figures include the 220 employees who were
transitioned to IBM as part of the 2004 Financial Flexibility
Program and the approximately 400 employees who were
transitioned to Computer Sciences Corporation (CSC)
as part of the 2002 Financial Flexibility Program. Under the
terms of the CSC agreement, we outsourced certain technology
functions in which approximately 400 of our employees who
performed data center operations, technology help desk and
network management functions in the United States and in the
United Kingdom were transitioned to CSC.
78
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
The following table sets forth, in accordance with
SFAS No. 146, the restructuring reserves and
utilization to date related to our 2005 Financial Flexibility
Program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan/ | |
|
Lease | |
|
|
|
|
|
|
Postretirement | |
|
Termination | |
|
|
|
|
Severance | |
|
Curtailment | |
|
Obligations | |
|
|
|
|
and | |
|
Charges | |
|
and Other | |
|
|
|
|
Termination | |
|
(Gains) | |
|
Exit Costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
2005 Restructuring Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during First Quarter 2005
|
|
$ |
7.9 |
|
|
$ |
|
|
|
$ |
0.3 |
|
|
$ |
8.2 |
|
Payments during First Quarter 2005
|
|
|
(2.4 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of March 31, 2005
|
|
$ |
5.5 |
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Second Quarter 2005
|
|
$ |
8.2 |
|
|
$ |
0.3 |
|
|
$ |
0.8 |
|
|
$ |
9.3 |
|
Payments/Pension Plan Curtailment Charge during Second Quarter
2005
|
|
|
(5.0 |
) |
|
|
(0.3 |
) |
|
|
(0.1 |
) |
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of June 30, 2005
|
|
$ |
8.7 |
|
|
$ |
|
|
|
$ |
0.8 |
|
|
$ |
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Third Quarter 2005
|
|
$ |
4.1 |
|
|
$ |
0.1 |
|
|
$ |
0.3 |
|
|
$ |
4.5 |
|
Payments/Pension Plan Curtailment Charge during Third Quarter
2005
|
|
|
(6.8 |
) |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(7.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of September 30, 2005
|
|
$ |
6.0 |
|
|
$ |
|
|
|
$ |
0.8 |
|
|
$ |
6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Fourth Quarter 2005
|
|
$ |
3.1 |
|
|
$ |
2.4 |
|
|
$ |
3.3 |
|
|
$ |
8.8 |
|
Payments/Pension Plan and Postretirement Curtailment, Net
Charges during Fourth Quarter 2005
|
|
|
(2.2 |
) |
|
|
(2.4 |
) |
|
|
(3.1 |
) |
|
|
(7.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of December 31, 2005
|
|
$ |
6.9 |
|
|
$ |
|
|
|
$ |
1.0 |
|
|
$ |
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
The following table sets forth, in accordance with
SFAS No. 146, the restructuring reserves and
utilization to date related to our 2004 Financial Flexibility
Program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan/ | |
|
Lease | |
|
|
|
|
|
|
Postretirement | |
|
Termination | |
|
|
|
|
Severance | |
|
Curtailment | |
|
Obligations | |
|
|
|
|
and | |
|
Charges | |
|
and Other | |
|
|
|
|
Termination | |
|
(Gains) | |
|
Exit Costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
2004 Restructuring Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during First Quarter 2004
|
|
$ |
9.3 |
|
|
$ |
|
|
|
$ |
0.9 |
|
|
$ |
10.2 |
|
Payments during First Quarter 2004
|
|
|
(3.8 |
) |
|
|
|
|
|
|
(0.9 |
) |
|
|
(4.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of March 31, 2004
|
|
$ |
5.5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Second Quarter 2004
|
|
$ |
7.5 |
|
|
$ |
|
|
|
$ |
0.5 |
|
|
$ |
8.0 |
|
Payments during Second Quarter 2004
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of June 30, 2004
|
|
$ |
8.9 |
|
|
$ |
|
|
|
$ |
0.5 |
|
|
$ |
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Third Quarter 2004
|
|
$ |
2.6 |
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
2.7 |
|
Payments during Third Quarter 2004
|
|
|
(7.1 |
) |
|
|
|
|
|
|
(0.4 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of September 30, 2004
|
|
$ |
4.4 |
|
|
$ |
|
|
|
$ |
0.2 |
|
|
$ |
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Fourth Quarter 2004
|
|
$ |
9.0 |
|
|
$ |
0.5 |
|
|
$ |
1.6 |
|
|
$ |
11.1 |
|
Payments/ Pension Plan and Postretirement Net Charges during
Fourth Quarter 2004
|
|
|
(6.2 |
) |
|
|
(0.5 |
) |
|
|
(1.1 |
) |
|
|
(7.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of December 31, 2004
|
|
$ |
7.2 |
|
|
$ |
|
|
|
$ |
0.7 |
|
|
$ |
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during First Quarter 2005
|
|
$ |
5.0 |
|
|
$ |
(2.8 |
) |
|
$ |
|
|
|
$ |
2.2 |
|
Payments/ Postretirement Gain during First Quarter 2005
|
|
|
(3.6 |
) |
|
|
2.8 |
|
|
|
|
|
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of March 31, 2005
|
|
$ |
8.6 |
|
|
$ |
|
|
|
$ |
0.7 |
|
|
$ |
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Second Quarter 2005
|
|
$ |
0.1 |
|
|
$ |
(2.9 |
) |
|
$ |
|
|
|
$ |
(2.8 |
) |
Payments/ Postretirement Gain during Second Quarter 2005
|
|
|
(4.6 |
) |
|
|
2.9 |
|
|
|
(0.1 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of June 30, 2005
|
|
$ |
4.1 |
|
|
$ |
|
|
|
$ |
0.6 |
|
|
$ |
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Third Quarter 2005
|
|
$ |
0.3 |
|
|
$ |
(0.1 |
) |
|
$ |
|
|
|
$ |
0.2 |
|
Payments/ Postretirement Gain during Third Quarter 2005
|
|
|
(3.0 |
) |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of September 30, 2005
|
|
$ |
1.4 |
|
|
$ |
|
|
|
$ |
0.5 |
|
|
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Fourth Quarter 2005
|
|
$ |
0.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.3 |
|
Payments during Fourth Quarter 2005
|
|
|
(0.8 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of December 31, 2005
|
|
$ |
0.9 |
|
|
$ |
|
|
|
$ |
0.3 |
|
|
$ |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
The following table sets forth, in accordance with
SFAS No. 146, the restructuring reserves and
utilization to date related to our 2003 Financial Flexibility
Program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance | |
|
|
|
Lease | |
|
|
|
|
and | |
|
Pension | |
|
Termination | |
|
|
|
|
Termination | |
|
Curtailment | |
|
Obligations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
2003 Restructuring Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during First Quarter 2003
|
|
$ |
10.1 |
|
|
$ |
0.5 |
|
|
$ |
0.3 |
|
|
$ |
10.9 |
|
Payments/Curtailment during First Quarter 2003
|
|
|
(2.6 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of March 31, 2003
|
|
$ |
7.5 |
|
|
$ |
|
|
|
$ |
0.3 |
|
|
$ |
7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Second Quarter 2003
|
|
$ |
4.9 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4.9 |
|
Payments during Second Quarter 2003
|
|
|
(4.5 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of June 30, 2003
|
|
$ |
7.9 |
|
|
$ |
|
|
|
$ |
0.2 |
|
|
$ |
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge Taken during Third Quarter 2003
|
|
$ |
1.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.6 |
|
Payments during Third Quarter 2003
|
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of September 30, 2003
|
|
$ |
5.5 |
|
|
$ |
|
|
|
$ |
0.2 |
|
|
$ |
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments during Fourth Quarter 2003
|
|
$ |
(4.6 |
) |
|
$ |
|
|
|
$ |
(0.1 |
) |
|
$ |
(4.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of December 31, 2003
|
|
$ |
0.9 |
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments during First Quarter 2004
|
|
$ |
(0.8 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of March 31, 2004
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments during Second Quarter 2004
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.1 |
) |
|
$ |
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of June 30, 2004
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments during Third Quarter 2004
|
|
$ |
(0.1 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Remaining as of September 30, 2004
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, on January 31, 2006, our Board of Directors
approved our 2006 Financial Flexibility Program (see
Note 17 to our consolidated financial statements included
in this Annual Report of
Form 10-K).
As part of our Blueprint for Growth Strategy, we implemented our
international market leadership strategy which has led to
various dispositions over the years.
On October 4, 2004, we sold our operations in Iberia to
Informa S.A for $13.5 million, primarily consisting of
cash, and recognized a pre-tax gain of $0.1 million in 2004
in Other Income (Expense) Net. Our
Iberian operations generated approximately $24 million of
revenue in 2003. During the year ended December 31, 2005,
we recorded a $0.8 million gain in Other Income
(Expense) Net related to lower costs on the sale of
Iberia.
On October 1, 2004, we completed the sale of our operation
in France to Base DInformations Legales Holding S.A.S.
(BIL Holding) for $30.1 million, consisting of
$15.0 million in cash, $14.0 million in other
receivables and $1.1 million in other assets. We recognized
a pre-tax gain of $12.9 million in the fourth quarter of
2004 in Other Income (Expense) Net. Our
French operation generated approximately $38 million of
revenue in 2003. In May 2005, we were contacted by BIL Holding,
regarding allegations of improper sales
81
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
related activities involving those operations consisting
primarily of debits to customer accounts for product usage
without appropriate documentation (the Alleged
Conduct). Based on our investigation into the Alleged
Conduct, including reviewing evidence that BIL Holding made
available, we concluded that the evidence presented was
insufficient to substantiate the Alleged Conduct and BIL Holding
withdrew its allegations. In addition, we resolved the specified
post-closing purchase adjustments under the purchase and sale
agreement. The final resolution of the BIL Holding allegations
and the post closing purchase price adjustments resulted in
charges of $3.7 million and $0.4 million,
respectively, recorded within Other Income
(Expense) Net and Operating Costs,
respectively, for the year ended December 31, 2005.
On May 10, 2004, we sold our operations in Germany,
Austria, Switzerland, Poland, Hungary and the Czech Republic
(Central European Operations) to Bonnier
Affarsinformation AB (Bonnier) for
$25.7 million, consisting of $18.1 million in cash and
$7.6 million in other receivables, of which
$5.6 million has been collected in 2004 and the remaining
balance of $2.0 million was collected in 2005. We
recognized a pre-tax gain of $5.6 million in the second
quarter of 2004 in Other Income (Expense)
Net. Our Central European Operations generated
approximately $52 million in revenue in 2003.
On February 29, 2004, we sold our operations in India and
our Distribution Channels in Pakistan and the Middle East for
$7.7 million. We received proceeds of $7.3 million
(net of withholding tax), consisting of cash of
$6.5 million and an investment of $0.8 million
representing a 10% interest in the newly formed entity. We
recognized a pre-tax gain of $3.8 million in Other
Income (Expense) Net in the first quarter of
2004. In 2003, revenue generated from these operations and
distribution channels was approximately $6.4 million.
During the third quarter of 2003, we sold our operations in
Israel. We recorded a pre-tax loss of $4.3 million in
Other Income (Expense) Net.
On December 1, 2003, we sold our operations in Sweden,
Denmark, Norway, and Finland (Nordic operations) to
Bonnier, for $42.7 million. The proceeds consisted of cash
of $35.9 million, notes receivable of $5.9 million and
another receivable of $0.9 million. As a result of our
International segment November 30 fiscal year end, we
recognized a pre-tax gain of $7.9 million in Other
Income (Expense) Net in the first quarter of
2004. Additionally, we wrote-off the $0.9 million other
receivable in the second quarter of 2004. Our Nordic operations
generated approximately $50.9 million of revenue in 2003.
As part of the divestitures noted above, we established a
strategic relationship in each of these countries where the
buyer operates the acquired businesses under the D&B name,
continues to distribute D&B-branded products and services,
and provides us with data to support our global customer needs.
All these divestitures were part of our International segment.
During the first quarter of 2005, we sold our equity investment
in a South African company. We received proceeds of
$5.3 million and recognized a pre-tax gain of approximately
$3.5 million in the second quarter of 2005 in Other
Income (Expense) Net.
During the third quarter of 2003, we sold our equity interest in
our Singapore investment and recognized a pre-tax gain of
$1.8 million in Other Income (Expense)
Net.
During the third quarter of 2003, we sold our High Wycombe,
England, building and received proceeds of $80.2 million.
We continue to occupy a portion of the building under a
multi-year lease after the sale. We recognized a pre-tax loss on
the sale of the building of $13.8 million within
Operating Costs.
82
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
Note 4. Acquisitions
During the third quarter of 2005, we acquired a 100% ownership
interest in LiveCapital, Inc., located in San Mateo,
California, with cash on hand. The results of LiveCapital
Inc.s, operations have been included in our consolidated
financial statements. LiveCapital, Inc. is a provider of online
credit management software that enables users to manage the
entire credit process within an enterprise-wide system. The
acquisition is part of our ongoing effort to improve our
customers access to our DUNSRight quality process, so that
they can make confident business decisions.
The transaction was valued at $17.2 million, inclusive of
cash acquired of $0.5 million, and $0.3 million of
transaction costs recorded in accordance with
SFAS No. 141, Business Combinations. The
acquisition was accounted for under the purchase method of
accounting. As a result, we recognized goodwill and intangible
assets of $11.9 million and $1.8 million,
respectively. The remaining purchase price was allocated to the
acquired tangible assets and liabilities on the basis of their
respective fair values. The goodwill was assigned to our
U.S. segment. The intangible asset acquired for
$1.8 million was related to module technology with a useful
life of four years. The acquisition would not have had a
material impact on our results had the acquisition occurred at
the beginning of 2005 and 2004, and, as such, the pro forma
results have not been presented.
We are in the process of finalizing the valuation of the
acquired deferred tax asset in connection with the acquisition.
As a result, the allocation of the purchase price is subject to
future adjustment.
|
|
|
Italian Real Estate Data Companies |
During the second quarter of 2003, we paid $6.2 million to
acquire controlling interests in three privately held Italian
real estate data companies: 100% interest in Italservice Bologna
S.r.l. and Datanet S.r.l. and a 51% interest in RDS S.r.l. In
addition, we paid $1.9 million to acquire 17.5% of RIBES
S.p.A., a leading provider of business information to Italian
banks. Together with the 17.5% interest held by our subsidiary,
Datahouse, we had a 35% interest at December 31, 2003.
During the fourth quarter of 2004, we acquired an additional 16%
of RIBES S.p.A. for $4.0 million, resulting in a 51%
interest at December 31, 2004. The transaction was funded
with cash on hand.
These three Italian acquisitions were accounted for under the
purchase method of accounting in accordance with
SFAS No. 141. The purchase price for controlling
interests in the three companies, together with the capitalized
transaction costs allowed under SFAS No. 141, was
allocated to the acquired assets and liabilities on the basis of
their respective fair values. As a result, goodwill of
$7.2 million was recognized and assigned to our
International segment. No separately identifiable intangible
assets were acquired. During the first quarter of 2004, we
recorded a purchase accounting adjustment. This adjustment
reduced goodwill by $0.9 million.
The impact the acquisition would have had on our results had the
acquisition occurred at the beginning of 2003 is not material,
and, as such, pro forma results have not been presented.
During the first quarter of 2003, we acquired Hoovers,
Inc. with cash on hand. The results of Hoovers operations
have been included in our consolidated financial statements
since that date. Hoovers provides information on public
and private companies, primarily to senior executives and sales
professionals worldwide.
The transaction was valued at $7.00 per share in cash, for
a total of $119.4 million. In addition, we capitalized
$3.3 million of transaction costs in accordance with
SFAS No. 141. The acquisition was accounted for under
the purchase method of accounting. The purchase price was
allocated to the acquired assets and
83
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
liabilities on the basis of their respective fair values. As a
result, we recognized goodwill and intangible assets of
$66.4 million and $14.5 million, respectively. The
goodwill was assigned to our U.S. segment. Of the
$14.5 million of acquired intangible assets,
$5.1 million was assigned to trademarks and trade names
that are not subject to amortization, and $9.4 million was
assigned to subscriber relationships and licensing agreements
with useful lives from one to five years. The impact the
acquisition would have had on our results had the acquisition
occurred at the beginning of 2003 is not material, and as such,
pro forma results have not been presented.
In 2004, we recorded purchase accounting adjustments which
increased deferred tax assets and reduced goodwill by
$7.1 million. The majority of the adjustments represents
recognition of additional net operating loss carryovers as a
result of an Internal Revenue Service pronouncement.
All the acquisitions noted above were part of our Blueprint for
Growth strategy to enhance our current business through
value-creating acquisitions. In addition, all the acquisitions
noted above were stock acquisitions, and as a result there was
no goodwill deductible for tax purposes.
Note 5. Income Taxes
Income before provision for income taxes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
U.S.
|
|
$ |
314.8 |
|
|
$ |
253.6 |
|
|
$ |
246.4 |
|
Non-U.S.
|
|
|
39.3 |
|
|
|
87.2 |
|
|
|
34.0 |
|
|
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes
|
|
$ |
354.1 |
|
|
$ |
340.8 |
|
|
$ |
280.4 |
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Current Tax Provision (Benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$ |
105.0 |
|
|
$ |
81.2 |
|
|
$ |
50.5 |
|
State and local
|
|
|
12.4 |
|
|
|
12.2 |
|
|
|
6.9 |
|
Non-U.S.
|
|
|
(3.6 |
) |
|
|
25.3 |
|
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
113.8 |
|
|
|
118.7 |
|
|
|
74.8 |
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Provision (Benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
15.4 |
|
|
|
11.5 |
|
|
|
32.1 |
|
State and local
|
|
|
2.8 |
|
|
|
0.3 |
|
|
|
5.8 |
|
Non-U.S.
|
|
|
1.6 |
|
|
|
(1.3 |
) |
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision
|
|
|
19.8 |
|
|
|
10.5 |
|
|
|
31.4 |
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
$ |
133.6 |
|
|
$ |
129.2 |
|
|
$ |
106.2 |
|
|
|
|
|
|
|
|
|
|
|
84
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
The following table summarizes the significant differences
between the U.S. Federal statutory tax rate and our
effective tax rate for financial statement purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Statutory tax rate:
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local taxes, net of U.S. federal tax benefit
|
|
|
4.0 |
|
|
|
3.0 |
|
|
|
3.0 |
|
Non-U.S. taxes
|
|
|
(5.1 |
) |
|
|
(2.1 |
) |
|
|
(1.6 |
) |
Valuation allowance
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
0.6 |
|
Interest
|
|
|
1.6 |
|
|
|
2.3 |
|
|
|
0.9 |
|
Tax credits
|
|
|
(0.1 |
) |
|
|
(0.9 |
) |
|
|
|
|
Repatriation of foreign cash, including state taxes
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.4 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
|
|
|
37.8 |
% |
|
|
37.9 |
% |
|
|
37.9 |
% |
|
|
|
|
|
|
|
|
|
|
Income taxes paid were approximately $115.5 million,
$74.2 million and $59.2 million for the years ended
December 31, 2005, 2004 and 2003, respectively. Income
taxes refunded were approximately $13.1 million,
$6.6 million, and $11.7 million for the years ended
December 31, 2005, 2004 and 2003 respectively.
Deferred tax assets (liabilities) are comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Operating Losses
|
|
$ |
63.0 |
|
|
$ |
61.2 |
|
Fixed Assets
|
|
|
0.2 |
|
|
|
4.8 |
|
Intangibles
|
|
|
13.5 |
|
|
|
25.7 |
|
Restructuring Costs
|
|
|
4.0 |
|
|
|
4.1 |
|
Bad Debts
|
|
|
6.0 |
|
|
|
6.1 |
|
Accrued Expenses
|
|
|
13.9 |
|
|
|
9.4 |
|
Investments
|
|
|
16.4 |
|
|
|
20.3 |
|
Minimum Pension Liability
|
|
|
62.9 |
|
|
|
59.8 |
|
Other
|
|
|
0.9 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
Total Deferred Tax Assets
|
|
|
180.8 |
|
|
|
195.6 |
|
Valuation Allowance
|
|
|
(52.0 |
) |
|
|
(55.9 |
) |
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
|
128.8 |
|
|
|
139.7 |
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Tax Leasing Transactions
|
|
|
(1.0 |
) |
|
|
(3.0 |
) |
Postretirement Benefits
|
|
|
(76.3 |
) |
|
|
(59.9 |
) |
|
|
|
|
|
|
|
Total Deferred Tax Liabilities
|
|
|
(77.3 |
) |
|
|
(62.9 |
) |
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$ |
51.5 |
|
|
$ |
76.8 |
|
|
|
|
|
|
|
|
We have not provided for U.S. deferred income taxes or
foreign withholding taxes on $254.6 million of
undistributed earnings of our
non-U.S. subsidiaries
as of December 31, 2005, since we intend to reinvest these
earnings indefinitely. Additionally, we have not determined the
tax liability if such earnings were remitted to
85
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
the U.S., as the determination of such liability is not
practicable. See Note 1 to these consolidated financial
statements included in this Annual Report on
Form 10-K for our
significant accounting policy related to income taxes.
We have federal, state and local, and foreign tax loss carry
forwards, the tax effect of which was $63.0 million as of
December 31, 2005. Approximately $46.7 million of
these tax benefits have an indefinite carry forward period. Of
the remainder, $1.6 million expire in 2006, and
$14.7 million expire at various times between 2007 and 2024.
We have established a valuation allowance against
non-U.S. net
operating losses in the amount of $42.6 million,
$43.4 million, and $76.4 million, for the years ended
December 31, 2005, 2004, and 2003, respectively, that in
the opinion of management, are more likely than not to expire
before we can utilize them.
During the fourth quarter of fiscal year 2005, we repatriated
approximately $150.0 million in extraordinary dividends, as
defined in the American Jobs Creation Act, and accordingly have
recorded a tax liability of $9.3 million as of
December 31, 2005. See Note 2 to these consolidated
financial statements included in this Annual Report on
Form 10-K for
further discussion on the foreign cash repatriation.
|
|
Note 6. |
Notes Payable and Indebtedness |
Our borrowings including interest rate swaps designated as
hedges, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Liability (Asset) | |
|
|
| |
Debt Maturing Within One Year:
|
|
|
|
|
|
|
|
|
Fixed-rate notes
|
|
$ |
300.0 |
|
|
$ |
|
|
Other
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Maturing Within One Year
|
|
$ |
300.8 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Debt Maturity After One Year:
|
|
|
|
|
|
|
|
|
Long-term, fixed-rate notes
|
|
$ |
|
|
|
$ |
301.8 |
|
Fair value of interest rate swaps
|
|
|
|
|
|
|
(1.9 |
) |
Other
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Total Debt Maturing After One Year
|
|
$ |
0.1 |
|
|
$ |
300.0 |
|
|
|
|
|
|
|
|
The notes with a face value of $300 million have a
five-year term maturing in March 2006 and bear interest at a
fixed annual rate of 6.625%, payable semi-annually. During the
first quarter of 2005, these notes were reclassified from
long-term debt to short-term debt because they will mature
within one year. Since the third quarter of 2001, we entered
into interest rate swap agreements to hedge a portion of this
long-term debt (see Note 7 to our consolidated financial
statements included in this Annual Report on
Form 10-K). The
weighted average interest rates on the long-term notes,
including the benefit of the swaps on December 31, 2005 and
2004, were 6.21% and 5.62%, respectively. The notes and the fair
value of the interest rate swaps are recorded as
Short-Term Debt and Long-Term Debt, at
December 31, 2005 and 2004, respectively.
On September 30, 2005, we entered into an interest rate
derivative transaction with an aggregate notional amount of
$200 million. The objective of the hedge is to mitigate the
variability of future cash flows from market changes in treasury
rates in the anticipation of future debt issuance during the
first half of 2006. This transaction is accounted for as a cash
flow hedge. As such, changes in fair value of the swap that take
place through the date of debt issuance are recorded in
accumulated other comprehensive income.
86
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
At December 31, 2005 and 2004, we had a total of
$300 million of bank credit facilities available at
prevailing short-term interest rates, which will expire in
September 2009. These facilities also support our commercial
paper borrowings up to $300 million. We have not drawn on
the facilities and we did not have any borrowings outstanding
under these facilities at December 31, 2005 and 2004. We
also have not borrowed under our commercial paper program for
the years ended December 31, 2005 and 2004. The facility
requires the maintenance of interest coverage and total debt to
EBITDA ratios (each as defined in the agreement). We were in
compliance with these requirements at December 31, 2005 and
2004.
At December 31, 2005 and 2004, certain of our international
operations also had non-committed lines of credit of
$17.2 million and $5.9 million, respectively. We had
no borrowings outstanding under these lines of credit as of
December 31, 2005 and 2004. These arrangements have no
material commitment fees or compensating balance requirements.
At December 31, 2005, we are contingently liable under open
standby letters of credit issued by our bank in favor of third
parties totaling $7.9 million.
Interest paid totaled $19.0 million, $17.2 million and
$17.2 million for the years ended December 31, 2005,
2004 and 2003, respectively.
Note 7. Financial Instruments with Off-Balance
Sheet Risks
We employ established policies and procedures to manage our
exposure to changes in interest rates and foreign currencies. We
use short-term foreign exchange forward contracts to hedge
short-term foreign currency denominated loans, investments and
certain third party and intercompany transactions and, from time
to time, we have used foreign exchange option contracts to
reduce our international earnings exposure to adverse changes in
currency exchange rates. In addition, we use interest rate
derivatives to hedge a portion of the interest rate exposure on
our outstanding fixed-rate notes and in anticipation of future
debt issuance, as discussed under Interest Rate Risk
Management, below.
We do not use derivative financial instruments for trading or
speculative purposes. If a hedging instrument ceases to qualify
as a hedge, any subsequent gains and losses are recognized
currently in income. Collateral is generally not required for
these types of instruments.
By their nature, all such instruments involve risk, including
the credit risk of non-performance by counterparties. However,
at December 31, 2005 and 2004, in our opinion, there was no
significant risk of loss in the event of non-performance of the
counterparties to these financial instruments. We control our
exposure to credit risk through monitoring procedures.
Our trade receivables do not represent a significant
concentration of credit risk at December 31, 2005 and 2004,
due to the fact that we sell to a large number of customers in
different geographical locations.
|
|
|
Interest Rate Risk Management |
Our objective in managing exposure to interest rates is to limit
the impact of interest rate changes on earnings, cash flows and
financial position, and to lower overall borrowing costs. To
achieve these objectives, we maintain a policy that
floating-rate debt be managed within a minimum and maximum range
of our total debt exposure. To manage our exposure, we may use
fixed-rate debt, floating-rate debt and/or interest rate swaps.
In connection with the $300 million, five-year, fixed-rate
note maturing March 2006, we entered into fixed-to-floating
(LIBOR rate indexed) interest rate swap agreements in the third
quarter of 2001 with a notional principal amount totaling
$100 million, and designated these swaps as fair-value
hedges against the long-term fixed rate notes. The arrangement
is considered a highly effective hedge, and therefore the
87
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
accounting for these hedges has no impact on earnings. The
changes in the fair value of the hedge and the designated
portion of the notes are reflected in our consolidated balance
sheets. At December 31, 2005 and 2004, we had no
floating-rate debt outstanding.
On September 30, 2005, in connection with the above
$300 million note maturing in March 2006, we entered into
an interest rate derivative transaction with an aggregate
notional amount of $200 million. The objective of the
transaction is to hedge a portion of the variability of future
cash flows from changes in treasury rates in anticipation of a
debt issuance during the first half of 2006. This transaction is
accounted for as a cash flow hedge. As such, changes in fair
value of the swap that take place through the date of debt
issuance are recorded in accumulated other comprehensive income.
For the year ended December 31, 2005, we recorded an
$0.8 million gain in accumulated other comprehensive income.
|
|
|
Foreign Exchange Risk Management |
Our objective in managing exposure to foreign currency
fluctuations is to reduce the volatility caused by foreign
exchange rate changes on the earnings, cash flows and financial
position of our International operations. We follow a policy of
hedging balance sheet positions denominated in currencies other
than the functional currency applicable to each of our various
subsidiaries. In addition, we are subject to foreign exchange
risk associated with our international earnings and investments.
We use short-term, foreign exchange forward and option contracts
to implement our hedging strategies. Typically, these contracts
have maturities of twelve months or less. These contracts are
executed with creditworthy institutions and are denominated
primarily in the British pound sterling and the Euro. The gains
and losses on the forward contracts associated with the balance
sheet positions hedge are recorded in Other Income
(Expense) Net in our consolidated financial
statements and are essentially offset by the gains and losses on
the underlying foreign currency transactions. The gains and
losses on the forward contracts associated with net investment
hedges are recorded in Cumulative Translation
Adjustment in our consolidated financial statements.
As in prior years, we have hedged substantially all balance
sheet positions denominated in a currency other than the
functional currency applicable to each of our various
subsidiaries with short-term forward foreign exchange contracts.
In addition, from time to time we use foreign exchange option
contracts to hedge certain foreign earnings and foreign exchange
forward contracts to hedge certain net investment positions. As
of December 31, 2005 and 2004, there were no option
contracts outstanding. The underlying transactions and the
corresponding forward exchange and option contracts are marked
to market at the end of each quarter, and are reflected within
our consolidated financial statements.
At December 31, 2005 and 2004, we had a notional amount of
approximately $212.1 million and $241.4 million,
respectively, of foreign exchange forward contracts outstanding
that offset foreign currency denominated intercompany loans.
Gains and losses associated with these contracts were
$0.2 million and $0.5 million, respectively, at
December 31, 2005, $0.4 million and $1.0 million,
respectively, at December 31, 2004, and $0.7 million
and $0.2 million, respectively, at December 31, 2003.
In addition, at December 2004, we had $91.9 million of
foreign exchange forward contracts outstanding associated with
our international investments. Losses associated with these
contracts were $3.6 million at December 31, 2004.
These contracts typically have various expiration dates within
three months of entry into such contracts.
|
|
|
Fair Value of Financial Instruments |
At December 31, 2005 and 2004, our financial instruments
included cash and cash equivalents (including commercial paper
investments), marketable securities, accounts receivable, other
receivables, accounts payable, short-term and long-term
borrowings and foreign exchange forward contracts.
At December 31, 2005 and 2004, the fair values of cash and
cash equivalents, marketable securities, accounts receivable,
other receivables and accounts and notes payable approximated
carrying value due to the
88
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
short-term nature of these instruments. The estimated fair
values of other financial instruments subject to fair-value
disclosures, determined based on third-party quotes from
financial institutions, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 | |
|
At December 31, 2004 | |
|
|
| |
|
| |
|
|
Carrying Amount | |
|
Fair Value | |
|
Carrying Amount | |
|
Fair Value | |
|
|
(Asset) Liability | |
|
(Asset) Liability | |
|
(Asset) Liability | |
|
(Asset) Liability | |
|
|
| |
|
| |
|
| |
|
| |
Short-term debt
|
|
$ |
300.0 |
|
|
$ |
300.7 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
|
|
|
$ |
|
|
|
$ |
301.9 |
|
|
$ |
309.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (long-
term)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1.9 |
) |
|
$ |
(1.9 |
) |
Interest rate derivative
|
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
Foreign exchange forwards
(short-term) Net
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
4.1 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.5 |
) |
|
$ |
(0.5 |
) |
|
$ |
2.2 |
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Capital Stock
The total number of shares of all classes of stock that we have
authority to issue under our Certificate of Incorporation is
220,000,000 shares, of which 200,000,000 shares, par
value $0.01 per share, represent Common Stock (the
Common Stock); 10,000,000 shares, par value
$0.01 per share, represent Preferred Stock (the
Preferred Stock); and 10,000,000 shares, par
value $0.01 per share, represent Series Common Stock
(the Series Common Stock). The Preferred Stock
and the Series Common Stock can be issued with varying
terms, as determined by our Board of Directors. Our Board of
Directors has designated 500,000 shares of the Preferred
Stock as Series A Junior Participating Preferred Stock, par
value $0.01 per share.
On September 30, 2000, we separated from Moodys, and
81,213,520 shares of our Common Stock were distributed to
the shareholders of Moodys/ D&B2 (see Note 13 to
these consolidated financial statements included in this Annual
Report on
Form 10-K for
further discussion on Moodys/ D&B2). Since we have
been treated as the successor entity for accounting purposes,
our historical financial statements reflect the recapitalization
in connection with the 2000 Distribution (see Note 13 to
our consolidated financial statements included in this Annual
Report on
Form 10-K for
further discussion on the 2000 Distribution), including the
elimination of treasury shares (which shares became treasury
shares of Moodys) and the authorization of our Common
Stock, Preferred Stock and Series Common Stock.
In connection with our separation from Moodys, we entered
into a Rights Agreement with EquiServe Trust Company, N.A.,
designed to:
|
|
|
|
|
minimize the prospects of changes in control that could
jeopardize the tax-free nature of the separation by assuring
meaningful Board of Directors involvement in any such
proposed transaction; and |
|
|
|
enable us to develop our businesses and foster our long-term
growth without disruptions caused by the threat of a change in
control not deemed by our Board of Directors to be in the best
interests of shareholders. |
Under the Rights Agreement, each share of our Common Stock has a
right that trades with the stock until the right becomes
exercisable. Each right entitles the registered holder to
purchase one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $0.01 per share,
at a price of $125 per one one-thousandth of a share,
subject to adjustment. The rights will generally not be
exercisable until a person or group (an Acquiring
Person) acquires beneficial ownership of, or commences a
tender offer or
89
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
exchange offer that would result in such person or group having
beneficial ownership of 15% or more of the outstanding Common
Stock.
In the event that any person or group becomes an Acquiring
Person, each right will thereafter entitle its holder (other
than the Acquiring Person) to receive, upon exercise of a right
and payment of the adjusted purchase price, that number of
shares of our Common Stock having a market value of two times
the purchase price.
In the event that, after a person or group has become an
Acquiring Person, we are acquired by another person in a merger
or other business combination transaction, or 50% or more of our
consolidated assets or earning power are sold, each right will
entitle its holder (other than the Acquiring Person) to receive,
upon exercise, that number of shares of common stock of the
person with whom we have engaged in the foregoing transaction
(or its parent) having a market value of two times the purchase
price.
We may redeem the rights, which expire on August 15, 2010,
for $0.01 per right, under certain circumstances.
Note 9. Reconciliation of Weighted Average
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Share data in thousands) | |
Weighted average number of shares basic
|
|
|
66,843 |
|
|
|
70,415 |
|
|
|
73,490 |
|
Dilutive effect of shares issuable under stock option and
restricted
stock programs
|
|
|
1,711 |
|
|
|
2,625 |
|
|
|
2,213 |
|
Adjustment of shares applicable to stock options exercised and
restricted stock vesting during the period
|
|
|
861 |
|
|
|
64 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares diluted
|
|
|
69,415 |
|
|
|
73,104 |
|
|
|
75,826 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 95,300, 73,546 and 158,540 shares
of common stock were outstanding at December 31, 2005, 2004
and 2003, respectively, but 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. Our options generally expire 10 years after the
grant date.
Our share repurchases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Program |
|
Shares | |
|
$ Amount | |
|
Shares | |
|
$ Amount | |
|
Shares | |
|
$ Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Share Repurchase Program
|
|
|
3,179,840 |
(a) |
|
$ |
200.0 |
|
|
|
3,601,986 |
(b) |
|
$ |
200.0 |
|
|
|
2,377,924 |
(c) |
|
$ |
100.0 |
|
Repurchases to mitigate the dilutive effect of the shares issued
under our stock incentive plans and Employee
Stock Purchase Plan
|
|
|
1,517,835 |
|
|
|
95.6 |
|
|
|
971,654 |
|
|
|
51.8 |
|
|
|
1,381,276 |
|
|
|
56.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Repurchases
|
|
|
4,697,675 |
|
|
$ |
295.6 |
|
|
|
4,573,640 |
|
|
$ |
251.8 |
|
|
|
3,759,200 |
|
|
$ |
156.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Repurchased under the $400 million, two-year share
repurchase program approved by the Board of Directors in
February 2005. |
|
(b) |
|
Repurchased under the $200 million, one-year share
repurchase program approved by the Board of Directors in
February 2004. |
90
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
|
|
|
(c) |
|
Repurchased under the $100 million, two-year share
repurchase program approved by the Board of Directors in October
2002. |
Note 10. Pension and Postretirement Benefits
We offer substantially all of our
U.S.-based employees
coverage in a defined benefit plan called The Dun &
Bradstreet Corporation Retirement Account (the
U.S. Qualified Plan). The defined benefit plan
covers active and retired employees including retired
individuals from spin-off companies (see Note 13 to these
consolidated financial statements included in this Annual Report
on Form 10-K for
further discussion of spin-off companies). The benefits to be
paid upon retirement are based on a percentage of the
employees annual compensation. The percentage of
compensation allocated annually to a retirement account ranges
from 3% to 12.5%, based on age and service. Amounts allocated
under the plan also receive interest credits based on the
30-year Treasury rate
or equivalent rate published by the Internal Revenue Service.
Pension costs are determined actuarially and funded in
accordance with the Internal Revenue Code. We also maintain
supplemental and excess plans in the United States (the
U.S. Non-Qualified Plans) to provide additional
retirement benefits to certain key employees of the Company.
These plans are unfunded, pay-as-you-go plans. The
U.S. Qualified Plan and the U.S. Non-Qualified Plans
account for approximately 73% and 15% of our pension obligation,
respectively, at December 31, 2005. Our employees in
certain of our international operations are also provided
retirement benefits through defined benefit plans, representing
the remaining balance of our pension obligations.
In addition to providing pension benefits, we provide various
health care and life insurance benefits for retired employees.
U.S.-based employees
who retire with 10 years of vesting service after
age 45 are eligible to receive benefits. Postretirement
benefit costs and obligations are also determined actuarially.
Certain of our
non-U.S.-based
employees receive postretirement benefits through
government-sponsored or administered programs.
We use an annual measurement date of December 31 for our
U.S. and Canada plans and November 30 for other
non-U.S. plans.
|
|
|
Benefit Obligation and Plan Assets |
The following table sets forth the changes in our benefit
obligations and plan assets for our pension and postretirement
plans. The table also reconciles the funded status of these
obligations to the amounts reflected
91
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
in our financial statements, and identifies the line items in
our consolidated balance sheets where the related assets and
liabilities are recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement | |
|
|
Pension Plans | |
|
Benefits | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Change in Benefit Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$ |
(1,564.1 |
) |
|
$ |
(1,455.3 |
) |
|
$ |
(123.2 |
) |
|
$ |
(162.1 |
) |
Service cost
|
|
|
(16.7 |
) |
|
|
(14.7 |
) |
|
|
(1.1 |
) |
|
|
(0.9 |
) |
Interest cost
|
|
|
(87.4 |
) |
|
|
(86.1 |
) |
|
|
(4.8 |
) |
|
|
(7.6 |
) |
Benefits paid
|
|
|
96.9 |
|
|
|
86.6 |
|
|
|
20.7 |
|
|
|
20.2 |
|
Plan amendment
|
|
|
(1.1 |
) |
|
|
(0.9 |
) |
|
|
(8.1 |
) |
|
|
|
|
Impact of curtailment gain (loss)
|
|
|
7.5 |
|
|
|
3.0 |
|
|
|
|
|
|
|
(0.3 |
) |
Plan participant contributions
|
|
|
(0.9 |
) |
|
|
(0.8 |
) |
|
|
(6.0 |
) |
|
|
(5.5 |
) |
Actuarial gain (loss)
|
|
|
(45.9 |
) |
|
|
(30.2 |
) |
|
|
25.7 |
|
|
|
33.0 |
|
Assumption change
|
|
|
(33.6 |
) |
|
|
(47.5 |
) |
|
|
|
|
|
|
|
|
Effect of changes in foreign currency exchange rates
|
|
|
16.1 |
|
|
|
(18.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31
|
|
$ |
(1,629.2 |
) |
|
$ |
(1,564.1 |
) |
|
$ |
(96.8 |
) |
|
$ |
(123.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$ |
1,364.5 |
|
|
$ |
1,289.9 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets
|
|
|
112.6 |
|
|
|
128.0 |
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
32.2 |
|
|
|
19.1 |
|
|
|
14.7 |
|
|
|
14.7 |
|
Plan participant contributions
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
6.0 |
|
|
|
5.5 |
|
Benefits paid
|
|
|
(96.9 |
) |
|
|
(86.6 |
) |
|
|
(20.7 |
) |
|
|
(20.2 |
) |
Effect of changes in foreign currency exchange rates
|
|
|
(10.8 |
) |
|
|
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31
|
|
$ |
1,402.5 |
|
|
$ |
1,364.5 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Funded Status to Total Amount Recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$ |
(226.7 |
) |
|
$ |
(199.6 |
) |
|
$ |
(96.8 |
) |
|
$ |
(123.2 |
) |
Unrecognized actuarial loss (gain)
|
|
|
597.0 |
|
|
|
551.7 |
|
|
|
(28.6 |
) |
|
|
(4.9 |
) |
Unrecognized prior service cost
|
|
|
12.5 |
|
|
|
16.7 |
|
|
|
(24.0 |
) |
|
|
(51.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
382.8 |
|
|
$ |
368.8 |
|
|
$ |
(149.4 |
) |
|
$ |
(180.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
92
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement | |
|
|
Pension Plans | |
|
Benefits | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Amounts Recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pension costs
|
|
$ |
470.8 |
|
|
$ |
455.3 |
|
|
$ |
|
|
|
$ |
|
|
Accrued pension and postretirement benefits
|
|
|
(274.8 |
) |
|
|
(268.3 |
) |
|
|
(149.4 |
) |
|
|
(180.0 |
) |
Intangible assets
|
|
|
11.1 |
|
|
|
14.9 |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
175.7 |
|
|
|
166.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
382.8 |
|
|
$ |
368.8 |
|
|
$ |
(149.4 |
) |
|
$ |
(180.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation
|
|
$ |
1,575.3 |
|
|
$ |
1,511.6 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in minimum liability included in Other Comprehensive
Income Pretax
|
|
$ |
8.8 |
|
|
$ |
22.3 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount recorded in Accumulated Other Comprehensive
Income is included in our Consolidated Statements of
Shareholders Equity as Minimum Pension Liability
Adjustment, net of tax. The associated deferred tax assets
were $63.0 million and $59.8 million for the years
ended December 31, 2005 and 2004, respectively. We recorded
a Change in Minimum Pension Liability Adjustment of
$5.6 million and $14.0 million, net of applicable tax,
in the years ended December 31, 2005 and 2004, respectively.
Grantor Trusts are used to fund the U.S. Non-Qualified
Plans. While our Non-Qualified plans are largely unfunded, at December 31, 2005 and 2004, the balances in these
trusts were approximately $13.6 million and
$12.5 million, respectively, included as components of
other non-current assets in the consolidated balance sheet.
As of December 31, 2005 and 2004, our pension plans have
aggregate unrecognized losses of $597.0 million and
$551.7 million, respectively. These unrecognized losses
represent the cumulative effect since the inception of
SFAS No. 87 of demographic and investment experience,
as well as assumption changes that have been made in measuring
the plans liabilities. At December 31, 2005 and 2004,
approximately $20.3 million and $96.9 million of this
total unrecognized loss, respectively, was excluded when
determining the loss amortization because it represents deferred
asset experience not yet reflected in the market-related value
of plan assets. The remaining unrecognized loss, to the extent
it exceeds the greater of 10% of the projected benefit
obligation or market-related value of plan assets, will be
amortized into expense each year on a straight-line and
plan-by-plan basis, over the remaining expected future working
lifetime of active participants or the average remaining life
expectancy of the inactive participants if all or almost all of
the plan participants are inactive. Currently, the amortization
periods range from 11 to 14 years for the U.S. plans
and 15 to 37 years for the
non-U.S. plans.
For certain of our
non-U.S. plans,
almost all of the plan participants are inactive. In addition,
the postretirement benefit plan had a $28.6 million and
$4.9 million unrecognized gain as of December 31,
2005 and 2004, respectively. It will be amortized into expense
in the same manner as described above. The amortization period
approximates 10 years.
93
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
|
|
|
Additional Minimum Pension Liability |
Under SFAS No. 87, we are required to recognize an
additional minimum pension liability for pension plans with
accumulated benefit obligations in excess of plan assets. At
December 31, 2005 and 2004, our unfunded accumulated
benefit obligations and the related projected benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Accumulated benefit obligation
|
|
$ |
417.0 |
|
|
$ |
379.3 |
|
Fair value of plan assets
|
|
|
142.2 |
|
|
|
111.0 |
|
|
|
|
|
|
|
|
Unfunded Accumulated Benefit Obligation
|
|
$ |
274.8 |
|
|
$ |
268.3 |
|
|
|
|
|
|
|
|
Projected Benefit Obligation
|
|
$ |
445.1 |
|
|
$ |
397.7 |
|
|
|
|
|
|
|
|
The unfunded accumulated benefit obligations at
December 31, 2005 consisted of $228.2 million and
$46.6 million related to our U.S. Non-Qualified Plans
and
non-U.S. defined
benefit plans, respectively. The unfunded accumulated benefit
obligations at December 31, 2004 consisted of
$218.9 million and $49.4 million related to our
U.S. Non-Qualified Plans and
non-U.S. defined
benefit plans, respectively.
|
|
|
Net Periodic Pension Costs |
The following table sets forth the components of the net
periodic cost associated with our pension plans and our
postretirement benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans | |
|
Postretirement Benefits | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Components of Net Periodic Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
16.7 |
|
|
$ |
14.7 |
|
|
$ |
13.9 |
|
|
$ |
1.1 |
|
|
$ |
0.9 |
|
|
$ |
1.2 |
|
Interest cost
|
|
|
87.4 |
|
|
|
86.1 |
|
|
|
84.6 |
|
|
|
4.8 |
|
|
|
7.6 |
|
|
|
14.3 |
|
Expected return on plan assets
|
|
|
(119.2 |
) |
|
|
(126.8 |
) |
|
|
(128.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
2.8 |
|
|
|
2.9 |
|
|
|
3.2 |
|
|
|
(10.6 |
) |
|
|
(11.4 |
) |
|
|
(2.4 |
) |
Recognized actuarial loss (gain)
|
|
|
25.2 |
|
|
|
11.4 |
|
|
|
8.2 |
|
|
|
(1.0 |
) |
|
|
(0.1 |
) |
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic (Income) Cost
|
|
$ |
12.9 |
|
|
$ |
(11.7 |
) |
|
$ |
(18.2 |
) |
|
$ |
(5.7 |
) |
|
$ |
(3.0 |
) |
|
$ |
14.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, we incurred curtailment charges of
$3.1 million, $1.3 million and $0.5 million for
our pension plans for the years ended December 31, 2005,
2004 and 2003, respectively. In addition, we recognized
curtailment gains of $9.5 million and $3.7 million for
our postretirement benefit plan for the years ended
December 31, 2005 and 2004, respectively.
We apply our long-term expected rate of return assumption to the
market-related value of assets to calculate the expected return
on plan assets, which is a major component of our annual net
periodic pension expense. The market-related value of assets
recognizes short-term fluctuations in the fair value of assets
over a period of five years, using a straight-line amortization
basis. The methodology has been utilized to reduce the effect of
short-term market fluctuations on the net periodic pension cost,
as provided under SFAS No. 87. Since the
market-related value of assets recognizes gains or losses over a
five-year-period, the future value of assets will be impacted as
previously deferred gains or losses are recorded. At
December 31, 2005 and 2004, the market-related value of
assets of our pension plans was $1,422.8 million and
$1,461.4 million, respectively, which exceeded the fair
value of the plan assets by $20.3 million and
$96.9 million, respectively.
94
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
The following table sets forth the assumptions we used to
determine our pension plan and postretirement benefit plan
obligations for December 31, 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement | |
|
|
Pension Plans | |
|
Benefits | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Weighted average discount rate
|
|
|
5.43 |
% |
|
|
5.71 |
% |
|
|
5.30 |
% |
|
|
5.25 |
% |
Weighted average rate of compensation increase
|
|
|
3.66 |
% |
|
|
3.67 |
% |
|
|
N/A |
|
|
|
N/A |
|
Cash balance accumulation/conversion rate
|
|
|
4.75 |
% |
|
|
5.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
The following table sets forth the assumptions we used to
determine net periodic benefit cost for the years ended
December 31, 2005, 2004 and 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans | |
|
Postretirement Benefits | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Weighted average discount rate
|
|
|
5.63 |
% |
|
|
5.98 |
% |
|
|
6.44 |
% |
|
|
5.08 |
% |
|
|
6.00 |
% |
|
|
6.45 |
% |
Weighted average expected long-term return on plan assets
|
|
|
8.41 |
% |
|
|
8.66 |
% |
|
|
8.65 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Weighted average rate of compensation increase
|
|
|
3.66 |
% |
|
|
3.65 |
% |
|
|
3.65 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Cash balance accumulation/conversion rate
|
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
4.75 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
The expected long-term rate of return assumption was 8.50%,
8.75% and 8.75% for the years ended December 31, 2005, 2004
and 2003, respectively, for the U.S. Qualified Plan, our
principal pension plan. For the year ended December 31,
2006, we will lower the expected long-term rate of return
assumption to 8.25% for the U.S. Qualified Plan. This
assumption is based on the plans target asset allocation
of 65% equity securities, 29% debt securities and 6% real
estate. The expected long-term rate of return assumption
reflects long-term capital market return forecasts for the asset
classes employed, assumed excess returns from active management
within each asset class, the portion of plan assets that are
actively managed, and periodic rebalancing back to target
allocations. Current market factors such as inflation and
interest rates are evaluated before the long-term capital market
assumptions are determined. In addition, peer data and
historical returns are reviewed to check for reasonableness.
Although we review our expected long-term rate of return
assumption annually, our plan performance in any one particular
year does not, by itself, significantly influence our
evaluation. Our assumption is generally not revised unless there
is a fundamental change in one of the factors upon which it is
based, such as the target asset allocation or long-term capital
market return forecasts.
The following table sets forth the weighted average asset
allocations and target asset allocations by asset category, as
of the measurement dates of the plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset | |
|
Target Asset | |
|
|
Allocations | |
|
Allocations | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Equity securities
|
|
|
67 |
% |
|
|
68 |
% |
|
|
65 |
% |
|
|
65 |
% |
Debt securities
|
|
|
26 |
|
|
|
26 |
|
|
|
29 |
|
|
|
29 |
|
Real estate
|
|
|
7 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The U.S. Qualified Plan, our principal plan, employs a
total return investment approach in which a mix of equity, debt
and real estate investments are used to maximize the long-term
return on plan assets at a prudent level of risk. The
plans target asset allocation is 65% equity securities
(range of 60% to 70%), 29% debt securities (range of 24% to 34%)
and 6% real estate (range of 3% to 9%). The target allocation is
controlled by periodic rebalancing back to target. Plan assets
are invested using a combination of active and passive
(indexed) investment strategies. Active strategies employ
multiple investment management firms.
95
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
The plans equity securities are diversified across U.S.
and
non-U.S. stocks.
The active investment managers employ a range of investment
styles and approaches that are combined in a way that
compensates for capitalization and style biases versus benchmark
indices. The plans debt securities are diversified
principally among securities issued or guaranteed by the
U.S. government or its agencies, mortgage-backed
securities, including collateralized mortgage obligations,
corporate debt obligations and dollar-denominated obligations
issued in the U.S. by
non-U.S. banks and
corporations. Generally, up to 10% of the debt securities may be
invested in securities rated lower than A. The plans real
estate investments are made through a commingled equity real
estate fund of U.S. properties diversified by property type
and geographic location.
Investment risk is controlled through diversification among
multiple asset classes, managers, styles and securities. Risk is
further controlled at the investment manager level by requiring
managers to follow formal written investment guidelines and by
assigning them excess return and tracking error targets.
Investment results and risk are measured and monitored on an
ongoing basis and quarterly investment reviews are conducted.
The plans active investment managers are prohibited from
investing plan assets in equity or debt securities issued or
guaranteed by us. In addition, we are not part of any index fund
in which the plan invests.
We use the discount rate to measure the present value of pension
plan obligations and postretirement health care obligations at
year-end as well as to calculate next years pension income
or cost. It is derived by using a yield curve approach which
matches projected plan benefit payment streams with an
applicable yield curve developed from high quality bond
portfolios. The rate is adjusted at each remeasurement date,
based on the factors noted above. As of December 31, 2005,
for all of our U.S. pension plans we lowered the discount
rate to 5.50% from 5.75% used at December 31, 2004.
We expect to contribute $32.4 million to our Non-Qualified
U.S. plans and
non-U.S. pension
plans and $12.4 million to our postretirement benefit plan
for the year ended December 31, 2006. We do not expect to
contribute to the U.S. Qualified Plan.
The following table summarizes expected benefit payments from
our pension plans and postretirement plans through 2015. Actual
benefit payments may differ from expected benefit payments.
These amounts are reflected net of expected plan participant
contributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits |
|
|
|
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
|
Expected |
|
Expected |
|
Net Expected |
|
|
Pension Plans |
|
Benefit Payment |
|
Subsidy |
|
Benefit Payment |
|
|
|
|
|
|
|
|
|
2006
|
|
$ |
96.0 |
|
|
$ |
14.9 |
|
|
$ |
2.5 |
|
|
$ |
12.4 |
|
2007
|
|
$ |
89.0 |
|
|
$ |
14.3 |
|
|
$ |
2.8 |
|
|
$ |
11.5 |
|
2008
|
|
$ |
86.3 |
|
|
$ |
13.6 |
|
|
$ |
3.0 |
|
|
$ |
10.6 |
|
2009
|
|
$ |
87.7 |
|
|
$ |
13.0 |
|
|
$ |
3.2 |
|
|
$ |
9.8 |
|
2010
|
|
$ |
91.7 |
|
|
$ |
12.5 |
|
|
$ |
3.4 |
|
|
$ |
9.1 |
|
2011-2015
|
|
$ |
489.9 |
|
|
$ |
55.5 |
|
|
$ |
18.5 |
|
|
$ |
37.0 |
|
For measurement purposes, a 12.0% annual rate of increase in
the per capita cost of covered health care benefits was assumed
for the year ended December 31, 2006. The rate was assumed
to decrease gradually to 5.0% by 2013 and remain at that level
thereafter.
Assumed health care cost trend rates have an effect on the
amounts reported for the health care plans. A
one-percentage-point change in the assumed health care cost
trend rates would have the following effects.
|
|
|
|
|
|
|
|
|
|
|
1% Point | |
|
|
| |
|
|
Increase | |
|
Decrease | |
|
|
| |
|
| |
Benefit obligation at end of year
|
|
$ |
0.7 |
|
|
$ |
(1.4 |
) |
Service cost plus interest cost
|
|
$ |
|
|
|
$ |
(0.1 |
) |
96
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
In the fourth quarter of 2003, an amendment was made to
D&Bs Postretirement Benefit Plan and starting
January 1, 2004, we began to limit the amount of our
insurance premium contribution based on the amount we
contributed for the year ended December 31, 2003 per
retiree. This change is expected to reduce our postretirement
benefit obligation by approximately $71.4 million, subject
to changes in economic conditions and actual plan experience.
This non-cash reduction will be amortized over five to six
years, starting in 2004. This change has reduced the annual
postretirement benefit costs by approximately $11 million
for the years ended December 31, 2005 and 2004.
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Medicare
Reform Act) was signed into law. The Medicare
Reform Act expands Medicare,
primarily by adding a prescription drug benefit for
medicare-eligibles starting in 2006. The Medicare
Reform Act provides employers
currently providing postretirement prescription drug benefits
with a range of options for coordinating with the new
government-sponsored program potentially to reduce this benefit,
including providing for a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at
least actuarially equivalent to the benefit established by the
law. In connection with the Medicare Reform Act, the FASB issued
FSP No. FAS 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003. FSP
No. FAS 106-2 provides guidance on accounting for the
effects of the new Medicare prescription drug legislation for
employers whose prescription drug benefits are actuarially
equivalent to the drug benefit under Medicare Part D and
are therefore entitled to receive subsidies from the federal
government beginning in 2006.
Under the FSP, if a company concludes that its defined benefit
postretirement benefit plan is actuarially equivalent to the
Medicare Part D benefit, the employer should recognize
subsidies from the federal government in the measurement of the
accumulated postretirement benefit obligation (APBO)
under SFAS No. 106. The resulting reduction of the
APBO should be accounted for as an actuarial gain. D&B
adopted the FSP for periods beginning after July 1, 2004.
On January 21, 2005, the Centers for Medicare and Medicaid
Services (CMS) released final regulations
implementing major provisions of the Medicare Reform Act of
2003. The regulations address key concepts, such as defining a
plan, as well as the actuarial equivalence test for purposes of
obtaining a government subsidy. Pursuant to the guidance in FSP
No. FAS 106-2, we have assessed the financial impact
of the regulations and concluded that our postretirement benefit
plan will qualify for the direct subsidies in 2006 until 2023
and the APBO decreased by $37.1 million, including the
$33.1 million related to the subsidy and $4.0 million
related to the impact of the future participant opt-out
assumption as participants seek more affordable drug coverage
under Medicare Part D benefit. Of the $37.1 million,
$31.3 million was reflected in December 31, 2004
results and the remaining balance in December 31, 2005
results. As a result of the implementation of Medicare Reform
Act, our 2005 and 2004 postretirement benefit cost decreased by
approximately $2.5 million and $1.3 million,
respectively, including the reduction in interest cost of
$1.8 million for the year ended December 31, 2005 and
$1.1 million for the year ended December 31, 2004, and
the increase in recognized actuarial gain of $0.7 million
for the year ended December 31, 2005 and $0.2 million
for the year ended December 31, 2004.
In the fourth quarter of 2005, we communicated to our retirees
we would share 25% of the projected federal subsidies with the
retirees starting in fiscal year 2006. In the future, we may
consider increasing our sharing percentage as necessary in order
to ensure our retiree prescription drug plan remains actuarially
equivalent and continues to qualify for federal subsidies. The
impact of sharing was accounted for in accordance with FSP
No. FAS 106-2. As a result, our APBO increased by
approximately $1.5 million and our annual postretirement
benefit income will decrease by approximately $1.0 million
for the year ended December 31, 2006.
Effective April 1, 2004, an amendment was made to the UK
final pay defined benefit pension plan. After the amendment, the
final pay defined benefit plan was closed to new participants.
Under the revised defined
97
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
benefit plan, the method used to accrue pension benefits is
based on career average salary, which would reduce plan
members future benefit. Existing participants in the
revised defined benefit plan are required to increase their
contributions. Existing participants under the defined benefit
plan also have the option to participate in a defined
contribution plan which will offer enhanced benefits.
|
|
|
Profit Participation Plan |
We have a profit participation plan covering substantially all
U.S. employees that provides for an employee salary
deferral contribution and employer contributions. Employees may
contribute up to 16% of their pay. We contribute an amount equal
to 50% of an employees first 6% of contributions, up to a
maximum of 3% of the employees salary. We also make
contributions to the plan if certain financial performance
objectives are met, based on performance over a one-year period
(Supplemental Match). We recognized expense
associated with our employer contributions to the plan of
$7.4 million, $10.4 million, and $8.7 million for
the year ended December 31, 2005, 2004 and 2003,
respectively.
In February 2006, we communicated to our employees that in 2006
we would eliminate the supplemental match provision.
|
|
Note 11. |
Employee Stock Plans |
Under The Dun & Bradstreet Corporation 2000 Stock
Incentive Plan (2000 SIP) and Non-Employee
Directors Stock Incentive Plan (2000 DSIP), we
have granted options to certain employees and non-employee
directors to purchase shares of our common stock at the market
price on the date of the grant. Options granted under the 2000
SIP prior to February 9, 2004 generally vest in three equal
installments, beginning on the third anniversary of the grant.
Options granted under the 2000 SIP on or after February 9,
2004 generally vest in four equal installments beginning on the
first anniversary of the grant. Options granted under the 2000
DSIP generally vest 100% on the first anniversary of the grant.
All options generally expire 10 years from the date of the
grant. The 2000 SIP and 2000 DSIP provide for the granting of up
to 9.7 million and 0.3 million shares of our common
stock, respectively.
Under The Dun & Bradstreet Corporation 2000 Employee
Stock Purchase Plan (ESPP), which became effective
October 2000, we are authorized to sell up to 1.5 million
shares of our common stock to our eligible employees of which
906,114 remain available for future purchases at
December 31, 2005. Under the terms of the ESPP, employees
may have up to 10% of their earnings withheld to purchase our
common stock. The purchase price of the stock on the date of
purchase is 85% of the average high and low sale prices of
shares on the New York Stock Exchange on the last trading day of
the month. Under the ESPP, we sold 94,161, 97,295, and
108,440 shares to employees for the years ended
December 31, 2005, 2004 and 2003, respectively.
We apply APB No. 25 and related interpretations in
accounting for our plans. Accordingly, no compensation cost has
been recognized for stock option grants under the plans or
purchases under the ESPP (See Note 1 to these consolidated
financial statements included in this Annual Report on
Form 10-K for the
pro forma effect disclosure under the provisions of
SFAS No. 123).
Options outstanding at December 31, 2005 were originally
granted during the years 1996 through 2005 and are exercisable
over periods ending not later than 2015. At December 31,
2005, 2004 and 2003, options for 3,115,172 shares,
3,991,434 shares, and 3,479,627 shares of our common
stock, respectively, were exercisable, and
3,111,171 shares, 3,646,883 shares, and
3,650,541 shares of our common stock, respectively, were
available for future grants under the stock option plans.
98
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
Changes in stock options for the three years ended
December 31, 2005 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Average |
|
|
|
|
Exercise |
|
|
Shares |
|
|
Price($) |
|
|
|
|
|
|
Options outstanding at January 1, 2003
|
|
|
9,692,241 |
|
|
|
21.99 |
|
|
Granted
|
|
|
1,895,645 |
|
|
|
35.15 |
|
|
Exercised
|
|
|
(1,414,827 |
) |
|
|
14.07 |
|
|
Surrendered or expired
|
|
|
(969,939 |
) |
|
|
28.40 |
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2003
|
|
|
9,203,120 |
|
|
|
25.25 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
816,286 |
|
|
|
53.75 |
|
|
Exercised
|
|
|
(877,619 |
) |
|
|
16.68 |
|
|
Surrendered or expired
|
|
|
(841,314 |
) |
|
|
32.01 |
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2004
|
|
|
8,300,473 |
|
|
|
28.20 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
632,908 |
|
|
|
61.17 |
|
|
Exercised
|
|
|
(2,764,625 |
) |
|
|
21.79 |
|
|
Surrendered or expired
|
|
|
(428,131 |
) |
|
|
39.96 |
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2005
|
|
|
5,740,625 |
|
|
|
34.05 |
|
|
|
|
|
|
|
|
The annual stock options awarded to employees are generally
granted in February of the following year after the approval of
the compensation program and Business Plan. For the years ended
December 31, 2005, 2004 and 2003, the annual stock options
awarded to employees were 358,500, 470,400 and 628,440 at an
exercise price of $71.28, $60.54 and $53.30, respectively.
The following table summarizes information about stock options
outstanding at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding |
|
Stock Options Exercisable |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
|
|
|
|
Remaining |
|
Average |
|
|
|
Average |
Range of |
|
|
|
Contractual |
|
Exercise |
|
|
|
Exercise |
Exercise Prices |
|
Shares |
|
Life |
|
Price |
|
Shares |
|
Price |
|
|
|
|
|
|
|
|
|
|
|
$10.59-$17.59
|
|
|
915,938 |
|
|
|
3.0 Years |
|
|
$ |
14.52 |
|
|
|
915,938 |
|
|
$ |
14.52 |
|
$23.72-$27.94
|
|
|
1,424,919 |
|
|
|
5.0 Years |
|
|
$ |
24.13 |
|
|
|
1,254,011 |
|
|
$ |
23.99 |
|
$31.36-$35.81
|
|
|
1,213,941 |
|
|
|
6.9 Years |
|
|
$ |
34.12 |
|
|
|
168,404 |
|
|
$ |
34.08 |
|
$36.16-$42.05
|
|
|
920,194 |
|
|
|
6.2 Years |
|
|
$ |
36.94 |
|
|
|
476,520 |
|
|
$ |
36.22 |
|
$48.07-$59.86
|
|
|
674,125 |
|
|
|
8.2 Years |
|
|
$ |
53.65 |
|
|
|
300,299 |
|
|
$ |
53.58 |
|
$60.54-$66.09
|
|
|
591,508 |
|
|
|
9.2 Years |
|
|
$ |
61.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,740,625 |
|
|
|
|
|
|
|
|
|
|
|
3,115,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2000 SIP and 2000 DSIP plans also provide for the granting
of stand-alone stock appreciation rights (SARs) and
limited stock appreciation rights (LSARs) in tandem
with stock options to certain key employees and non-employee
directors. At December 31, 2005, 2004 and 2003, 1,087,840,
3,685,680, and 3,326,200 shares of LSARs attached to stock
options were outstanding, respectively, which are exercisable
only if, and to the extent that, the related option is
exercisable, and only upon the occurrence of specified
contingent events. Beginning in 2005 LSARs are no longer being
granted. For the years ended December 31, 2005 and 2004, no
SARs were granted, and during 2003, 4,600 SARs were granted. At
December 31, 2005, 2004, and 2003, 10,918, 17,736, and
57,235 shares of SARs were outstanding, respectively, and
we have
99
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
recognized the associated expense of $0.1 million,
$0.5 million, and $0.6 million within Operating
Costs for the years ended December 31, 2005, 2004 and
2003, respectively. Compensation expense for stock appreciation
rights is measured as the amount by which the quoted market
value of the shares of our common stock exceeds the base unit
price at the date of the grant. Changes, either increases or
decreases, in the quoted market value of these shares between
the date of grant and at the end of each subsequent quarter
result in a change in the measure of compensation for the
rights. The compensation expense is recognized proportionally
over the vesting period.
For the years ended December 31, 2005 and 2003, 310,834 and
147,870 shares of restricted stock were granted and for the
year ended December 31, 2004 no shares of restricted stock
were granted. For the years ended December 31, 2005, 2004,
and 2003, 28,303, 14,420 and 11,300 shares of restricted
stock were forfeited, respectively. The restrictions on the
majority of such shares lapse over a period of three years from
date of the grant, and the cost is charged to compensation
expense ratably. We record compensation expense for the
amortization of restricted stock issued to employees, utilizing
the intrinsic-value method, which would result in the same
amount of compensation expense that would be recognized as if we
had applied the fair value recognition provisions of
SFAS No. 123. We recognized compensation expense
recorded under APB No. 25 associated with the restricted
stock of $6.0 million, $1.4 million, and
$2.1 million for the years ended December 31, 2005,
2004 and 2003, respectively.
For the years ended December 31, 2005, 2004 and 2003,
57,834 shares, 9,238 shares, and 27,550 shares of
restricted stock units were granted, respectively. For the years
ended December 31, 2005, 2004 and 2003, 14,585 shares,
2,660 shares, and 2,290 shares of restricted stock
units were forfeited, respectively. The restrictions on the
majority of such shares lapse over a period of three years from
the date of the grant. We recognized expense associated with the
restricted stock units of $1.4 million, $0.6 million,
and $0.7 million for the years ended December 31,
2005, 2004 and 2003, respectively.
Beginning in 2004, certain employees were provided an
opportunity to receive an award of restricted stock or
restricted stock units in the future. That award is contingent
on performance against the same goals that drive payout of the
annual bonus plan. These awards will be granted, if at all,
after the one year performance goal has been met and will then
vest over a three-year period. For the years ended
December 31, 2005 and 2004, we recognized expense
associated with the restricted stock opportunity of
$4.4 million and $8.3 million, respectively.
Note 12. Lease Commitments and Contractual
Obligations
Most of our operations are conducted from leased facilities,
which are under operating leases that expire over the next
10 years, with the majority expiring within five years. We
also lease certain computer and other equipment under operating
leases that expire over the next three years. These computer and
other equipment leases are frequently renegotiated or otherwise
changed as advancements in computer technology produce
opportunities to lower costs and improve performance. Rental
expenses under operating leases (cancelable and
non-cancelable) were $26.6 million, $32.8 million and
$34.7 million for the years ended December 31, 2005,
2004 and 2003, respectively.
In July 2002, we outsourced certain technology functions to
Computer Sciences Corporation (CSC) under a
10-year agreement,
which we may terminate for a fee at any time effective after
July 2003 and under certain other conditions. Under the terms of
the agreement, CSC is responsible for the data center
operations, technology help desk and network management
functions in the United States and United Kingdom and for
certain application development and maintenance through
July 31, 2012. The obligation under the contract is based
on our historical and expected future level of usage and volume.
If our future volume changes, payments under the contract could
vary up or down based on specified formulas. Charges are subject
to increases to partially offset inflation. We incurred costs of
$65.4 million, $63.0 million and $58.9 million
under this contract for the years ended December 31, 2005,
2004 and 2003, respectively.
100
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
In December 2003, we signed a three year agreement with ICT
Group, Inc., effective January 2004, to outsource certain
marketing calling activities. We may terminate this agreement
for a fee at any time. Under the terms of the agreement, ICT is
responsible for performing certain marketing and credit calling
activities previously performed by our own call centers in North
America. The obligation under the contract is based upon
transmitted call volumes, but shall not be less than
$3 million per contract year. We incurred costs of
$5.2 million and $5.6 million under this contract for
the years ended December 31, 2005 and 2004, respectively.
On October 15, 2004, we entered into a seven-year
outsourcing agreement with IBM. Under the terms of the
agreement, we have transitioned certain portions of our data
acquisition and delivery, customer service, and financial
processes to IBM. In addition, we may terminate this agreement
for a fee at any time. We incurred costs of $24.4 million
and $2.2 million under this contract for the years ended
December 31, 2005 and 2004, respectively.
The following table quantifies our future contractual
obligations as discussed above as of December 31, 2005:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
Thereafter |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
$ |
23.0 |
|
|
$ |
17.4 |
|
|
$ |
14.1 |
|
|
$ |
10.9 |
|
|
$ |
8.4 |
|
|
$ |
14.4 |
|
|
$ |
88.2 |
|
Obligations to Outsourcers
|
|
$ |
91.8 |
|
|
$ |
82.4 |
|
|
$ |
82.6 |
|
|
$ |
81.7 |
|
|
$ |
80.4 |
|
|
$ |
121.4 |
|
|
$ |
540.3 |
|
Excludes pension obligations in which funding requirements are
uncertain and long-term contingent liabilities. Our obligations
with respect to pension and postretirement medical benefit plans
are described in Note 10 to our consolidated financial
statements included in this Annual Report on
Form 10-K. Our
long-term contingent liabilities with respect to tax and legal
matters are discussed in Note 13 to our consolidated
financial statements included in this Annual Report on
Form 10-K.
We are involved in tax and legal proceedings, claims and
litigation arising in the ordinary course of business. We
periodically assess our liabilities and contingencies in
connection with these matters based upon the latest information
available. For those matters where it is probable that we have
incurred a loss and the loss or range of loss can be reasonably
estimated, we have recorded reserves in our consolidated
financial statements. In other instances, we are unable to make
a reasonable estimate of any liability because of the
uncertainties related to the probability of the outcome and/or
amount or range of loss. As additional information becomes
available, we adjust our assessment and estimates of such
liabilities accordingly. It is possible that the ultimate
resolution of our liabilities and contingencies could be at
amounts that are different from our currently recorded reserves
and that such differences could be material.
Based on our review of the latest information available, we
believe our ultimate liability in connection with pending tax
and legal proceedings, claims and litigation will not have a
material effect on our results of operations, cash flows or
financial position, with the possible exception of the matters
described below.
In order to understand our exposure to the potential liabilities
described below, it is important to understand the relationship
between us and Moodys Corporation, our predecessors and
other parties that, through various corporate reorganizations
and contractual commitments, have assumed varying degrees of
responsibility with respect to such matters.
In November 1996, the company then known as The Dun &
Bradstreet Corporation (D&B1) separated through
a spin-off into three separate public companies: D&B1,
ACNielsen Corporation (ACNielsen) and Cognizant
Corporation (Cognizant) (the 1996
Distribution). This was accomplished through a spin off by
D&B1 of its stock in ACNielsen and Cognizant. In September
1998, D&B1 separated through a spin-off into two separate
public companies: D&B1, which changed its name to R.H.
Donnelley Corporation
101
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
(Donnelley/ D&B1), and a new company named The
Dun & Bradstreet Corporation (D&B2)
(the 1998 Distribution). During 1998, Cognizant
separated into two separate public companies: IMS Health
Incorporated (IMS) and Nielsen Media Research, Inc.
(NMR) (the 1998 Cognizant Distribution).
In September 2000, D&B2 separated through a spin off into
two separate public companies: D&B2, which changed its name
to Moodys Corporation (Moodys and also
referred to elsewhere in this
Annual Report on Form 10-K as
Moodys/ D&B2), and a new company named The
Dun & Bradstreet Corporation (we or
D&B3 and also referred to elsewhere in this
Annual Report on Form 10-K as
D&B) (the 2000 Distribution).
Tax Matters
Moodys/D&B2 and its predecessors entered into global
tax-planning initiatives in the normal course of business,
principally through tax-free restructurings of both their
foreign and domestic operations. As further described below, we
undertook contractual obligations to be financially responsible
for a portion of certain liabilities arising from certain
historical tax-planning initiatives (Legacy Tax
Matters).
As of the end of 2005, settlement agreements have been executed
with the IRS with respect to the Legacy Tax Matters previously
referred to in our SEC filings as Utilization of Capital
Losses and Royalty Expense Deductions. With
respect to the Utilization of Capital Losses matter, the
settlement agreement resolved the matter in its entirety. For
the Royalty Expense Deductions matter, the settlement covered tax
years 1995 and 1996, which represented approximately 90% of the
total potential liability to the IRS, including penalties. We
believe we are adequately reserved for the remaining exposure.
In addition, with respect to these two settlement agreements, we
believe that IMS and NMR did not pay their allocable share to
the IRS under applicable agreements. Under our agreement with
Donnelley/D&B1, we and Moodys were each required to
cover the shortfall, and each of us paid to the IRS
approximately $12.8 million in excess of our respective
allocable shares. If we are unable to resolve our dispute with
IMS and NMR through the negotiation process contemplated by our
agreements, we will commence arbitration to enforce our rights
and collect these amounts from IMS and NMR. We believe that
the resolution of the remaining exposure to the IRS under the
Royalty Expense Deduction matter and the foregoing disputes with
IMS and NMR will not have a material adverse impact on
D&Bs financial position, results of operations or cash
flows.
Our remaining Legacy Tax Matter is referred to as
Amortization and Royalty Expense Deductions/Royalty
Income 1997-2005.
Beginning in the fourth quarter of 2003, we received a series of
notices with respect to a partnership agreement entered into in
1997. In these notices the IRS asserted, among other things,
that certain amortization expense deductions claimed by
Donnelley/D&B1, Moodys/D&B2 and D&B3 on
applicable tax returns for years 1997-2002 should be disallowed.
In addition to the foregoing, the IRS has asserted that royalty
expense deductions claimed for 1997-2002 for royalties paid to
the partnership should be disallowed. We have filed protests
with the IRS with respect to these notices. The IRS has also
asserted that the receipt of these same royalties by the
partnership should be reallocated to and reported as royalty
income by the taxpayers, including the portions of the royalties
that were allocated to third-party partners in the partnership,
and thus included in their taxable income. We believe that the
IRS positions with respect to the treatment of the royalty
expense and royalty income are mutually inconsistent. If the IRS
prevails on one of the positions, we believe that it is unlikely
that it will prevail on the other. In addition to the foregoing,
the IRS has asserted that certain business expenses incurred by
Moodys/D&B2 and D&B3 during 1999-2002 should be
capitalized and amortized over a
15-year period, if (but
only if) the proposed adjustments described above are not
sustained.
We estimate that the net impact to cash flow as a result of the
disallowance of the 1997-2002 amortization expense deductions and the
disallowance of such deductions claimed from 2003 to date could
be up to $69.0 million (tax, interest and penalties, net of
tax benefits but not taking into account the
Moodys/
102
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
D&B2 repayment to us of $32.9 million
described below). This transaction is scheduled to expire in
2012 and, unless terminated by us, the net impact to cash flow, based on current
interest rates and tax rates would increase at a rate of
approximately $2.3 million per quarter (including potential
penalties) as future amortization expenses are deducted. We
anticipate making a deposit to the IRS of
approximately $40 million in the first quarter of 2006 in order to
stop the accrual of statutory interest on potential tax
deficiencies up to or equal to that amount with respect to tax
years 1997-2002. This deposit would not impact our free cash flow and
will be a component of other assets on our
consolidated balance sheet.
We also estimate that, with regard to the possible disallowance
of deductions for royalty expenses paid to the partnership and
the reallocation of royalty income from the partnership, after
taking into account certain other tax benefits resulting from
the IRS position on the partnership, it is unlikely that
there will be any net impact to cash flow in addition to the
amounts noted above related to the amortization expense
deduction disallowance. In the unlikely event the IRS were to
prevail on both positions with respect to the royalty expense
and royalty income, we estimate that the net impact to cash flow
as a result of the disallowance of the 1997-2002 royalty expense
deductions, and the inclusion of the reallocated royalty income
for all relevant years, could be up to $146.5 million (tax,
interest, and penalties, net of tax benefits). This
$146.5 million would be in addition to the
$69.0 million noted above related to the amortization
expense deduction.
At the time of the 2000 Distribution, we paid
Moodys/D&B2 approximately $55.0 million in cash
representing the discounted value of future tax benefits
associated with this transaction. Pursuant to the terms of the
2000 Distribution, should the transaction be terminated,
Moodys/D&B2 would be required to repay us an amount
equal to the discounted value of its 50% share of the related
future tax benefits. If the transaction was terminated at
December 31, 2005, the amount of such repayment from
Moodys/D&B2 to us would be approximately
$32.9 million and would decrease by approximately
$4.0 million to $5.0 million per year.
We are attempting to resolve this matter with the IRS before
proceeding to litigation, if necessary. If we, on behalf of
Donnelley/D&B1, Moodys/D&B2, and D&B3 were to
challenge, at any time, any of these IRS positions for years
1997-2002 in U.S. District Court or the U.S. Court of
Federal Claims, rather than in U.S. Tax Court, the disputed
amounts for each applicable year would need to be paid in
advance for the court to have jurisdiction over the case.
We have considered the foregoing Legacy Tax Matters and the
merits of the legal defenses and the various contractual
obligations in our overall assessment of potential tax
liabilities. As of December 31, 2005, we have net
$69.2 million of reserves recorded in the consolidated
financial statements, made up of the following components:
$6.0 million in Accrued Income Tax and $63.2 million
in Other Non-Current Liabilities. We believe that these reserves
are adequate for our share of the liabilities in these Legacy
Tax Matters. Any payments that would be made for these exposures
could be significant to our cash from operations in the period a
cash payment took place, including any payments for the purpose
of obtaining jurisdiction in U.S. District Court or the
U.S. Court of Federal Claims to challenge any of the
IRSs positions.
Legal Proceedings
Information Resources, Inc.
On or about February 16, 2006, this antitrust lawsuit was
settled and mutual releases were signed by the parties. The dismissal
of the lawsuit is subject to Court approval and the mutual releases
are being held in escrow pending dismissal of the lawsuit. As more
fully explained below, we were fully indemnified for this matter and
therefore did not contribute to the settlement payment.
Under an Amended Joint Defense Agreement, VNU N.V., a
publicly-traded Dutch company and certain of its U.S. subsidiaries
(collectively, the VNU Parties), assumed exclusive
joint and several liability for any judgment or settlement of
this lawsuit. Because of this indemnity obligation, D&B did
not have any exposure
103
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
to a judgment or settlement of this
lawsuit unless the VNU Parties defaulted on their obligations,
which did not occur. Accordingly, the VNU Parties paid the
entire settlement amount of $55 million.
By way of background, in 1996, IRI filed a complaint,
subsequently amended in 1997, in federal court in New York that
named as defendants a company then known as The Dun &
Bradstreet Corporation and now known as R.H. Donnelley (referred
to in this
Annual Report on Form 10-K as
Donnelley/D&B1), A.C. Nielsen Company (a subsidiary of
ACNielsen) 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/D&B1. The amended
complaint alleged various violations of US antitrust laws. IRI
sought damages in excess of $650 million, which IRI asked
to be trebled, as well as punitive damages and attorneys fees.
As noted above, we did not contribute to the settlement payment
and, therefore, the resolution of this matter did not impact our
results of operations, cash flows or financial position. No
amount in respect of this matter had been accrued in our
consolidated financial statements.
Hoovers Initial Public Offering
Litigation
On November 15, 2001, a putative shareholder class action
lawsuit was filed against Hoovers, certain of its then
current and former officers and directors (the Individual
Defendants), and one of the investment banks that was an
underwriter of Hoovers July 1999 initial public offering
(IPO). The lawsuit was filed in the United States
District Court for the Southern District of New York and
purports to be a class action filed on behalf of purchasers of
the stock of Hoovers during the period from July 20,
1999 through December 6, 2000.
A Consolidated Amended Complaint, which is now the operative
complaint, was filed on April 19, 2002. The purported class
action alleges violations of Sections 11 and 15 of the
Securities Act of 1933, as amended, (the
1933 Act) and Sections 10(b),
Rule 10b-5 and
20(a) of the Securities Exchange Act of 1934, as amended,
against Hoovers and the Individual Defendants. Plaintiffs
allege that the underwriter defendant agreed to allocate stock
in Hoovers IPO to certain investors in exchange for
excessive and undisclosed commissions and agreements by those
investors to make additional purchases of stock in the
aftermarket at predetermined prices above the IPO price.
Plaintiffs allege that the Prospectus for Hoovers IPO was
false and misleading in violation of the securities laws because
it did not disclose these arrangements. The action seeks damages
in an unspecified amount. The defense of the action is being
coordinated with more than 300 other nearly identical actions
filed against other companies. On July 15, 2002,
Hoovers moved to dismiss all claims against it and the
Individual Defendants. On October 9, 2002, the Court
dismissed the Individual Defendants from the case based upon
Stipulations of Dismissal filed by the plaintiffs and the
Individual Defendants. On February 19, 2003, the Court
denied the motion to dismiss the complaint against
Hoovers. On October 13, 2004, the Court certified a
class in six of the approximately 300 other nearly identical
actions and noted that the decision is intended to provide
strong guidance to all parties regarding class certification in
the remaining cases. Plaintiffs have not yet moved to certify a
class in the case involving Hoovers.
Hoovers has approved a settlement agreement and related
agreements that set forth the terms of a settlement between
Hoovers, the plaintiff class and the vast majority of the
other approximately 300 issuer defendants. Among other
provisions, the settlement provides for a release of
Hoovers and the Individual Defendants for the conduct
alleged in the action to be wrongful. Hoovers would agree
to undertake certain responsibilities, including agreeing to
assign away, not assert, or release certain potential claims
Hoovers may have against its underwriters. The settlement
agreement also provides a guaranteed recovery of $1 billion
to plaintiffs for the cases relating to all of the approximately
300 issuers. To the extent that the underwriter defendants
settle all of the cases for at least $1 billion, no payment
will be required under the issuers settlement agreement.
To the extent that the underwriter defendants settle for less
than $1 billion, the issuers are required to make up the difference. It is anticipated that
any potential financial obligation of Hoovers to
104
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
plaintiffs pursuant to the terms of the settlement agreement and
related agreements will be covered by existing insurance.
Hoovers currently is not aware of any material limitations
on the expected recovery of any potential financial obligation
to plaintiffs from its insurance carriers. Its carriers are
solvent, and Hoovers is not aware of any uncertainties as
to the legal sufficiency of an insurance claim with respect to
any recovery by plaintiffs. Therefore, we do not expect that the
settlement will involve any payment by Hoovers. If
material limitations on the expected recovery of any potential
financial obligation to the plaintiffs from Hoovers
insurance carriers should arise, Hoovers maximum financial
obligation to plaintiffs pursuant to the settlement agreement is
less than $3.4 million. On February 15, 2005, the
court granted preliminary approval of the settlement agreement,
subject to certain modifications consistent with its opinion.
Those modifications have been made. There is no assurance that
the court will grant final approval to the settlement. A further
hearing with regard to the settlement is scheduled for
April 24, 2006.
As previously noted, if the settlement is ultimately approved
and implemented in its current form, Hoovers reasonably
foreseeable exposure in this matter, if any, would be limited to
amounts that would be covered by existing insurance. If the
settlement is not approved in its current form, we cannot
predict the final outcome of this matter or whether such outcome
or ultimate resolution of this matter could materially affect
our results of operations, cash flows or financial position. No
amount in respect of any potential judgment in this matter has
been accrued in our consolidated financial statements.
Pension Plan Litigation
In March 2003, a lawsuit seeking class action status was filed
against us in federal court in Connecticut on behalf of 46
specified former employees relating to our retirement plans. As
noted below, during the fourth quarter of 2004 most of the
counts in the complaint were dismissed. The complaint, as
amended in July 2003 (the Amended Complaint), sets
forth the following putative class:
|
|
|
|
|
Current D&B employees who are participants in The
Dun & Bradstreet Corporation Retirement Account and
were previously participants in its predecessor plan, The
Dun & Bradstreet Master Retirement Plan; |
|
|
|
Current employees of Receivable Management Services Corporation
(RMSC) who are participants in The Dun &
Bradstreet Corporation Retirement Account and were previously
participants in its predecessor plan, The Dun &
Bradstreet Master Retirement Plan; |
|
|
|
Former employees of D&B or D&Bs Receivable
Management Services (RMS) operations who received a
deferred vested retirement benefit under either The
Dun & Bradstreet Corporation Retirement Account or The
Dun & Bradstreet Master Retirement Plan; and |
|
|
|
Former employees of D&Bs RMS operations whose
employment with D&B terminated after the sale of the RMS
operations but who are not employees of RMSC and who, during
their employment with D&B, were Eligible
Employees for purposes of The Dun & Bradstreet
Career Transition Plan. |
The Amended Complaint estimates that the proposed class covers
over 5,000 individuals.
There are four counts in the Amended Complaint. Count 1 claims
that we violated ERISA by not paying severance benefits to
plaintiffs under our Career Transition Plan. Count 2 claims a
violation of ERISA in that our sale of the RMS business to RMSC
and the resulting termination of our employees constituted a
prohibited discharge of the plaintiffs and/or discrimination
against the plaintiffs for the intentional purpose of
interfering with their employment and/or attainment of employee
benefit rights which they might otherwise have attained.
Count 3 claims that the plaintiffs were materially harmed by our
alleged violation of ERISAs requirements that a summary
plan description reasonably apprise participants and
beneficiaries of their rights and obligations under the plans and that, therefore, undisclosed
plan provisions (in this case, the actuarial
105
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
deduction
beneficiaries incur when they leave D&B before age 55
and elect to retire early) cannot be enforced against them.
Count 4 claims that the 6.60% interest rate (the rate is
actually 6.75%) used to actuarially reduce early retirement
benefits is unreasonable and, therefore, results in a prohibited
forfeiture of benefits under ERISA.
In the Amended Complaint, the plaintiffs sought payment of
severance benefits; equitable relief in the form of either
reinstatement of employment with D&B or restoration of
employee benefits (including stock options); invalidation of the
actuarial reductions applied to deferred vested early retirement
benefits, including invalidation of the plan rate of 6.60% (the
actual rate is 6.75%) used to actuarially reduce former
employees early retirement benefits; attorneys fees
and such other relief as the court may deem just.
We deny all allegations of wrongdoing and are aggressively
defending the case. In September 2003, we filed a motion to
dismiss Counts 1, 3 and 4 of the Amended Complaint on the
ground that plaintiffs cannot prevail on those claims under any
set of facts, and in February 2004, the Court heard oral
argument on our motion. With respect to Count 4, the court
requested that the parties conduct limited expert discovery and
submit further briefing. In November 2004, after completion of
expert discovery on Count 4, we moved for summary judgment
on Count 4 on the ground that an interest rate of 6.75% is
reasonable as a matter of law. On November 30, 2004, the
Court issued a ruling granting our motion to dismiss Counts 1
and 3. Shortly after that ruling, plaintiffs counsel
stipulated to dismiss with prejudice Count 2 (which challenged
the sale of the RMS business as an intentional interference with
employee benefit rights, but which the motion to dismiss did not
address). Plaintiffs counsel also stipulated to a
dismissal with prejudice of Count 1, the severance pay
claim, agreeing to forego any appeal of the Courts
dismissal of that claim. Plaintiffs counsel did file a
motion to join party plaintiffs and to amend the Amended
Complaint to add a new count challenging the adequacy of the
retirement plans mortality tables. The Court granted the
motion and we filed our objections. On June 6, 2005, the
Court granted D&Bs motion for summary judgment as to
Count 4 (the interest rate issue) and also denied the
plaintiffs motion to further amend the Amended Complaint
to add a new claim challenging the mortality tables. On
July 8, 2005, the plaintiffs filed their notice of appeal;
they are appealing the ruling granting the motion to dismiss,
the ruling granting summary judgment, and the denial of leave to
amend their Amended Complaint. Oral
Argument before the Second Circuit took place on
February 15, 2006. A decision is expected within six weeks.
While we believe we have strong defenses in this matter, we are
unable to predict at this time the final outcome of this matter
or whether the resolution of this matter could materially affect
our results of operations, cash flows or financial position. No
amount in respect of this matter has been accrued in our
consolidated financial statements.
In addition to the foregoing proceeding, a lawsuit seeking class
action status was filed in September of 2005 against us in
federal court in the Northern District of Illinois on behalf of
a current employee relating to our retirement plans. The
complaint (the Complaint) seeks certification of the
following putative class: Current or former D&B employees
(other than employees who on December 31, 2001
(i) were at least age 50 with 10 years of vesting
service, (ii) had attained an age which, when added to his
or her years of vesting service, was equal to or greater than
70; or (iii) had attained age 65), who participated in
The Dun & Bradstreet Master Retirement Plan before
January 1, 2002 and who have participated in The
Dun & Bradstreet Corporation Retirement Account at any
time since January 1, 2002.
The Complaint estimates that the proposed class covers over
1,000 individuals.
There are five counts in the Complaint. Count 1 claims that we
violated ERISA by reducing the rate of an employees
benefit accrual on the basis of age. Count 2 claims a violation
of ERISAs non-forfeitability requirement, because the plan
allegedly conditions receipt of cash balance benefits on
foregoing the early retirement benefits plaintiff earned prior to the adoption of
the cash balance amendment. Count 3 claims that
106
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
the cash balance
plan violates ERISAs anti-backloading rule.
Count 4 claims that D&B failed to supply advance notice of a
significant benefit decrease. Count 5 claims that D&B failed
to provide an adequate Summary Plan Description.
In the Complaint, the plaintiff seeks (1) a declaration
that (a) D&Bs cash balance plan is ineffective
and that the D&B Master Retirement Plan is still in force
and effect, and (b) plaintiffs benefit accrual under
the cash balance plan must be unconditional and not reduced
because of age, (2) an injunction (a) prohibiting the
application of the cash balance plans reduction in the
rate of benefit accruals because of age and its conditions of
benefits due under the plan, and (b) ordering appropriate
equitable relief to determine plan participant losses caused by
D&Bs payment of benefits under the cash balance
plans terms and requiring the payment of additional
benefits as appropriate, (3) attorneys fees and
costs, (4) interest, and (5) such other relief as the
court may deem just.
A Motion to Transfer Venue to the District of New Jersey was
filed on January 27, 2006. A decision is expected by the end of March 2006.
We believe we have strong defenses in this matter and we will
deny all allegations of wrongdoing and aggressively defend the
case.
We are unable to predict at this time the final outcome of this
matter or whether the resolution of this matter could materially
affect our results of operations, cash flows or financial
position. No amount in respect of this matter has been accrued
in our consolidated financial statements.
Other
In addition, in the normal course of business, D&B
indemnifies other parties, including customers, lessors and
parties to other transactions with D&B, with respect to
certain matters. D&B has agreed to hold the other parties
harmless against losses arising from a breach of representations
or covenants, or arising out of other claims made against certain
parties. These agreements may limit the time within which an
indemnification claim can be made and the amount of the claim.
D&B has also entered into indemnity obligations with its
officers and directors of the Company. Additionally, in certain
circumstances, D&B issues guarantee letters on behalf of our
wholly owned subsidiaries for specific situations. It is not
possible to determine the maximum potential amount of future
payments under these indemnification agreements due to the
limited history of prior indemnification claims and the unique
facts and circumstances involved in each particular agreement.
Historically, payments made by D&B under these agreements
have not had a material impact on our consolidated financial
statements.
Note 14. Segment Information
The operating segments reported below are our segments for which
separate financial information is available and upon which
operating results are evaluated by management on a timely basis
to assess performance and to allocate resources. On
January 1, 2005, we began managing our operations in Canada
as part of our International segment. As part of this change,
our results are reported under the following two segments:
United States (U.S.) and International. We have conformed
historical amounts to reflect the new segment structure. Our
customer solution sets are Risk Management Solutions,
Sales & Marketing Solutions,
E-Business Solutions
and Supply Management Solutions. Inter-segment sales are
immaterial and no single customer accounted for 10% or more of
our total revenues. For management reporting purposes, we
evaluate business segment performance before restructuring
charges because restructuring charges are not a component of our
ongoing income or expenses and may have a disproportionate
positive or negative impact on the results of our ongoing
underlying business (see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations, under the heading How We Manage Our
Business for further details). Additionally, transition
costs, which are period costs such as consulting fees, costs of
temporary
107
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
employees, relocation costs and stay bonuses incurred to
implement our Financial Flexibility Program, are not allocated
to our business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
1,087.8 |
|
|
$ |
1,004.9 |
|
|
$ |
927.6 |
|
|
International
|
|
|
355.8 |
|
|
|
409.1 |
|
|
|
458.8 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$ |
1,443.6 |
|
|
$ |
1,414.0 |
|
|
$ |
1,386.4 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
405.5 |
|
|
$ |
354.9 |
|
|
$ |
320.3 |
|
|
International
|
|
|
62.2 |
|
|
|
74.7 |
|
|
|
69.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divisions
|
|
|
467.7 |
|
|
|
429.6 |
|
|
|
389.8 |
|
|
Corporate and Other(1)
|
|
|
(103.7 |
) |
|
|
(110.8 |
) |
|
|
(98.0 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
|
364.0 |
|
|
|
318.8 |
|
|
|
291.8 |
|
|
Non-Operating (Expense) Income Net
|
|
|
(9.9 |
) |
|
|
22.0 |
|
|
|
(11.4 |
) |
|
|
|
|
|
|
|
|
|
|
Income before Provision for Income Taxes
|
|
$ |
354.1 |
|
|
$ |
340.8 |
|
|
$ |
280.4 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
27.2 |
|
|
$ |
35.4 |
|
|
$ |
40.8 |
|
|
International
|
|
|
8.6 |
|
|
|
11.2 |
|
|
|
19.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divisions
|
|
|
35.8 |
|
|
|
46.6 |
|
|
|
60.7 |
|
|
Corporate and Other
|
|
|
0.3 |
|
|
|
0.7 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$ |
36.1 |
|
|
$ |
47.3 |
|
|
$ |
64.0 |
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
4.0 |
|
|
$ |
6.6 |
|
|
$ |
7.6 |
|
|
International
|
|
|
1.6 |
|
|
|
5.3 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divisions
|
|
|
5.6 |
|
|
|
11.9 |
|
|
|
11.0 |
|
|
Corporate and Other
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$ |
5.7 |
|
|
$ |
12.1 |
|
|
$ |
11.0 |
|
|
|
|
|
|
|
|
|
|
|
Additions to Computer Software and Other Intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
18.1 |
|
|
$ |
14.0 |
|
|
$ |
16.5 |
|
|
International
|
|
|
4.8 |
|
|
|
2.6 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divisions
|
|
|
22.9 |
|
|
|
16.6 |
|
|
|
19.3 |
|
|
Corporate and Other
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$ |
22.9 |
|
|
$ |
16.7 |
|
|
$ |
19.3 |
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
452.8 |
|
|
$ |
423.3 |
|
|
$ |
423.5 |
|
|
International
|
|
|
464.2 |
|
|
|
499.5 |
|
|
|
574.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divisions
|
|
|
917.0 |
|
|
|
922.8 |
|
|
|
997.9 |
|
|
Corporate and Other (primarily domestic pensions and taxes)
|
|
|
696.4 |
|
|
|
712.7 |
|
|
|
626.8 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$ |
1,613.4 |
|
|
$ |
1,635.5 |
|
|
$ |
1,624.7 |
|
|
|
|
|
|
|
|
|
|
|
108
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Goodwill:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
122.9 |
|
|
$ |
110.9 |
|
|
$ |
118.0 |
|
|
International
|
|
|
97.3 |
|
|
|
106.1 |
|
|
|
138.9 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$ |
220.2 |
|
|
$ |
217.0 |
|
|
$ |
256.9 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Geographic and Customer Solution Set
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
568.2 |
|
|
$ |
577.0 |
|
|
$ |
637.6 |
|
|
|
International
|
|
|
125.1 |
|
|
|
140.3 |
|
|
|
172.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$ |
693.3 |
|
|
$ |
717.3 |
|
|
$ |
810.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Customer Solution Set Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Solutions
|
|
$ |
655.7 |
|
|
$ |
613.0 |
|
|
$ |
577.3 |
|
|
|
|
Sales & Marketing Solutions
|
|
|
331.5 |
|
|
|
312.3 |
|
|
|
288.2 |
|
|
|
|
E-Business Solutions
|
|
|
67.2 |
|
|
|
49.9 |
|
|
|
29.0 |
|
|
|
|
Supply Management Solutions
|
|
|
33.4 |
|
|
|
29.7 |
|
|
|
33.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Core Revenue
|
|
|
1,087.8 |
|
|
|
1,004.9 |
|
|
|
927.6 |
|
|
|
|
Divested Businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Revenue
|
|
|
1,087.8 |
|
|
|
1,004.9 |
|
|
|
927.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Solutions
|
|
|
297.5 |
|
|
|
269.0 |
|
|
|
227.0 |
|
|
|
|
Sales & Marketing Solutions
|
|
|
51.3 |
|
|
|
55.9 |
|
|
|
54.2 |
|
|
|
|
E-Business Solutions
|
|
|
2.8 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Supply Management Solutions
|
|
|
4.2 |
|
|
|
4.6 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International Core Revenue
|
|
|
355.8 |
|
|
|
329.6 |
|
|
|
286.1 |
|
|
|
|
Divested Businesses
|
|
|
|
|
|
|
79.5 |
|
|
|
172.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International Revenue
|
|
|
355.8 |
|
|
|
409.1 |
|
|
|
458.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Solutions
|
|
|
953.2 |
|
|
|
882.0 |
|
|
|
804.3 |
|
|
|
Sales & Marketing Solutions
|
|
|
382.8 |
|
|
|
368.2 |
|
|
|
342.4 |
|
|
|
E-Business Solutions
|
|
|
70.0 |
|
|
|
50.0 |
|
|
|
29.0 |
|
|
|
Supply Management Solutions
|
|
|
37.6 |
|
|
|
34.3 |
|
|
|
38.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total Core Revenue
|
|
|
1,443.6 |
|
|
|
1,334.5 |
|
|
|
1,213.7 |
|
|
|
Divested Businesses
|
|
|
|
|
|
|
79.5 |
|
|
|
172.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total Revenue
|
|
$ |
1,443.6 |
|
|
$ |
1,414.0 |
|
|
$ |
1,386.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The following table itemizes Corporate and Other: |
109
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Costs
|
|
$ |
(51.5 |
) |
|
$ |
(58.2 |
) |
|
$ |
(44.5 |
) |
|
Transition Costs (Costs to implement our Financial Flexibility
Program)
|
|
|
(21.5 |
) |
|
|
(20.6 |
) |
|
|
(22.3 |
) |
|
Restructuring Expense
|
|
|
(30.7 |
) |
|
|
(32.0 |
) |
|
|
(17.4 |
) |
|
Loss on High Wycombe Building Sale
|
|
|
|
|
|
|
|
|
|
|
(13.8 |
) |
|
|
|
|
|
|
|
|
|
|
Total Corporate and Other
|
|
$ |
(103.7 |
) |
|
$ |
(110.8 |
) |
|
$ |
(98.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
Includes depreciation and amortization of Property, Plant and
Equipment, Computer Software, and Other Intangibles. |
|
(3) |
The increase in goodwill in the U.S. from
$110.9 million at December 31, 2004 to
$122.9 million at December 31, 2005 is attributable to
the acquisition of LiveCapital, Inc. (see Note 4 to our
consolidated financial statements included in this Annual Report
on Form 10-K). The
decrease in goodwill in International from $106.1 million at
December 31, 2004 to $97.3 million at December 31, 2005 is
attributable to the negative impact of foreign currency
translation. |
|
|
|
|
|
The decrease in goodwill in the U.S. from $118.0 million at
December 31, 2003 to $110.9 million at
December 31, 2004 is primarily attributed to an adjustment
for additional net operating loss carryovers from the
Hoovers acquisition that resulted from an Internal Revenue
Service pronouncement. The decrease in goodwill in International
from $138.9 million at December 31, 2003 to
$106.1 million at December 31, 2004 is primarily
attributed to the sales of operations in Iberia, France, Central
Europe, the Nordic Region and India (see Note 3 to our
consolidated financial statements included in this Annual Report
on Form 10-K),
partially offset by the positive effect of foreign currency
translation and the acquisition of a controlling interest in
RIBES S.p.A (see Note 4 to our consolidated financial
statements included in this Annual Report on
Form 10-K).
|
110
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
Note 15. Supplemental Financial Data
Other Accrued and Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Restructuring Accruals
|
|
$ |
9.4 |
|
|
$ |
9.3 |
|
Professional Fees
|
|
|
27.4 |
|
|
|
27.5 |
|
Operating Expenses
|
|
|
27.0 |
|
|
|
31.5 |
|
Spin-Off Obligation(1)
|
|
|
35.0 |
|
|
|
21.3 |
|
Other Accrued Liabilities
|
|
|
61.7 |
|
|
|
52.2 |
|
|
|
|
|
|
|
|
|
|
$ |
160.5 |
|
|
$ |
141.8 |
|
|
|
|
|
|
|
|
|
|
(1) |
As part of our spin-off from Moodys/D&B2 in 2000,
Moodys and us entered into a Tax Allocation Agreement
dated as of September 30, 2000 (the TAA). Under
the TAA, Moodys/D&B2 and D&B agreed that
Moodys/D&B2 would be entitled to deduct compensation
expense associated with the exercise of Moodys/D&B2
stock options (including Moodys/D&B2 options exercised
by D&B employees) and we would be entitled to deduct the
compensation expense associated with the exercise of D&B
stock options (including D&B options exercised by employees
of Moodys/D&B2). In other words, the tax deduction
goes to the company that issued the stock options. The TAA
provides, however, that if the IRS issues rules, regulations or
other authority contrary to the agreed upon treatment of the tax
deductions thereunder, then the party that becomes entitled
under such new guidance to take the deduction may be required to
reimburse the tax benefit it has realized, in order to indemnify
the other party for its loss of such deduction. The IRS issued
rulings discussing an employers entitlement to stock
option deductions after a spin-off or liquidation that appear
to require that the tax deduction belongs to the employer of the
optionee and not the issuer of the option. Accordingly, under
the TAA, we received the benefit of additional tax deductions
and under the TAA we may be required to reimburse
Moodys/D&B2 for the loss of income tax deductions
relating to 2002 to 2005 of approximately $35.0 million in
the aggregate for such years. This potential reimbursement is a
reduction to Shareholders Equity and has no impact on EPS. |
Property, Plant and Equipment at cost Net:
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Land
|
|
$ |
4.7 |
|
|
$ |
4.7 |
|
Buildings
|
|
|
29.2 |
|
|
|
29.1 |
|
Machinery and Equipment
|
|
|
176.7 |
|
|
|
196.3 |
|
|
|
|
|
|
|
|
|
|
|
210.6 |
|
|
|
230.1 |
|
Less: Accumulated Depreciation
|
|
|
173.6 |
|
|
|
186.9 |
|
|
|
|
|
|
|
|
|
|
|
37.0 |
|
|
|
43.2 |
|
Leasehold Improvements, less:
|
|
|
|
|
|
|
|
|
Accumulated Amortization of $16.6 and $15.6
|
|
|
7.2 |
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
$ |
44.2 |
|
|
$ |
51.2 |
|
|
|
|
|
|
|
|
111
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
Other Income (Expense) Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Miscellaneous Other Income (Expense) Net
|
|
$ |
|
|
|
$ |
1.0 |
|
|
$ |
(1.9 |
) |
Gain on Sales of Investments
|
|
|
3.5 |
|
|
|
1.2 |
|
|
|
0.4 |
|
Final resolution of all disputes on the sale of our French
business
|
|
|
(3.7 |
) |
|
|
|
|
|
|
|
|
Gains (Losses) on Sales of Businesses(2)
|
|
|
|
|
|
|
30.3 |
|
|
|
(2.5 |
) |
Lower costs related to the sale of the Iberian business
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
Insurance Recovery
|
|
|
|
|
|
|
|
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.6 |
|
|
$ |
32.5 |
|
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
See Note 3 to our consolidated financial statements
included in this Annual Report on
Form 10-K.
|
Computer Software and Goodwill:
|
|
|
|
|
|
|
|
|
|
|
Computer | |
|
|
|
|
Software | |
|
Goodwill | |
|
|
| |
|
| |
January 1, 2004
|
|
$ |
47.2 |
|
|
$ |
256.9 |
|
Additions at cost
|
|
|
16.4 |
|
|
|
|
|
Amortization
|
|
|
(31.4 |
) |
|
|
|
|
Divestitures
|
|
|
(0.1 |
) |
|
|
(44.0 |
) |
Acquisitions
|
|
|
0.9 |
|
|
|
(3.8 |
) |
Other(3)
|
|
|
(0.6 |
) |
|
|
7.9 |
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
32.4 |
|
|
|
217.0 |
|
Additions at cost
|
|
|
24.6 |
|
|
|
|
|
Amortization
|
|
|
(23.1 |
) |
|
|
|
|
Acquisitions(4)
|
|
|
|
|
|
|
11.1 |
|
Other(3)
|
|
|
(1.9 |
) |
|
|
(7.9 |
) |
|
|
|
|
|
|
|
December 31, 2005
|
|
$ |
32.0 |
|
|
$ |
220.2 |
|
|
|
|
|
|
|
|
|
|
(3) |
Impact of foreign currency fluctuations. |
|
(4) |
Primarily due to the acquisition of LiveCapital,
Inc. See Note 4 to our consolidated financial
statements included in this Annual Report on
Form 10-K.
|
Other Intangibles (included in Other Non-Current Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, | |
|
|
|
|
Customer | |
|
Patents and | |
|
|
|
|
Lists | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
January 1, 2004
|
|
$ |
7.6 |
|
|
$ |
5.2 |
|
|
$ |
12.8 |
|
Additions at cost
|
|
|
3.1 |
|
|
|
|
|
|
|
3.1 |
|
Amortization
|
|
|
(2.5 |
) |
|
|
|
|
|
|
(2.5 |
) |
Disposals
|
|
|
|
|
|
|
1.4 |
|
|
|
1.4 |
|
Other(5)
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
8.4 |
|
|
|
6.9 |
|
|
|
15.3 |
|
112
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, | |
|
|
|
|
Customer | |
|
Patents and | |
|
|
|
|
Lists | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
Acquisitions(4)
|
|
|
|
|
|
|
1.8 |
|
|
|
1.8 |
|
Amortization
|
|
|
(2.5 |
) |
|
|
|
|
|
|
(2.5 |
) |
Write-offs
|
|
|
(0.4 |
) |
|
|
|
|
|
|
(0.4 |
) |
Other(5)
|
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
$ |
5.2 |
|
|
$ |
8.5 |
|
|
$ |
13.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
Impact of foreign currency fluctuations. |
Allowance for Doubtful Accounts:
|
|
|
|
|
January 1, 2003
|
|
$ |
23.0 |
|
Additions charged to costs and expenses
|
|
|
4.1 |
|
Write-offs
|
|
|
(5.3 |
) |
|
|
|
|
December 31, 2003
|
|
|
21.8 |
|
Additions charged to costs and expenses
|
|
|
6.5 |
|
Write-offs
|
|
|
(7.9 |
) |
Divestitures
|
|
|
(1.9 |
) |
Other
|
|
|
0.9 |
|
|
|
|
|
December 31, 2004
|
|
|
19.4 |
|
Additions charged to costs and expenses
|
|
|
6.0 |
|
Write-offs
|
|
|
(2.5 |
) |
Other
|
|
|
(0.9 |
) |
|
|
|
|
December 31, 2005
|
|
$ |
22.0 |
|
|
|
|
|
Deferred Tax Asset Valuation Allowance:
|
|
|
|
|
January 1, 2003
|
|
$ |
56.8 |
|
Additions charged (credited) to costs and expenses
|
|
|
21.9 |
|
Additions charged (credited) to other accounts(6)
|
|
|
(2.3 |
) |
|
|
|
|
December 31, 2003
|
|
|
76.4 |
|
Additions charged (credited) to costs and expenses
|
|
|
9.3 |
|
Additions charged (credited) due to divestitures
|
|
|
(29.1 |
) |
Additions charged (credited) to other accounts(6)
|
|
|
(0.7 |
) |
|
|
|
|
December 31, 2004
|
|
|
55.9 |
|
Additions charged (credited) to costs and expenses
|
|
|
0.5 |
|
Additions charged (credited) due to foreign currency
fluctuations(7)
|
|
|
(4.4 |
) |
|
|
|
|
December 31, 2005
|
|
$ |
52.0 |
|
|
|
|
|
|
|
(6) |
Amount represents a decrease to goodwill associated with the
Datahouse acquisition. See Note 4 to our consolidated
financial statements included in this Annual Report on
Form 10-K.
|
|
(7) |
Amount represents a decrease in Deferred Tax Asset and Deferred
Tax Valuation Allowance due to foreign currency fluctuations. |
113
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
Note 16. Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Months Ended | |
|
|
|
|
| |
|
|
|
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
|
Full Year | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
263.2 |
|
|
$ |
253.7 |
|
|
$ |
259.0 |
|
|
$ |
311.9 |
|
|
$ |
1,087.8 |
|
|
|
International
|
|
|
78.1 |
|
|
|
98.0 |
|
|
|
82.6 |
|
|
|
97.1 |
|
|
|
355.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Operating Revenues
|
|
$ |
341.3 |
|
|
$ |
351.7 |
|
|
$ |
341.6 |
|
|
$ |
409.0 |
|
|
$ |
1,443.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
98.1 |
|
|
$ |
82.3 |
|
|
$ |
87.3 |
|
|
$ |
137.8 |
|
|
$ |
405.5 |
|
|
|
International
|
|
|
1.9 |
|
|
|
20.5 |
|
|
|
13.1 |
|
|
|
26.7 |
|
|
|
62.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divisions
|
|
|
100.0 |
|
|
|
102.8 |
|
|
|
100.4 |
|
|
|
164.5 |
|
|
|
467.7 |
|
|
|
Corporate and Other(1)
|
|
|
(28.0 |
) |
|
|
(26.6 |
) |
|
|
(21.2 |
) |
|
|
(27.9 |
) |
|
|
(103.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Operating Income
|
|
$ |
72.0 |
|
|
$ |
76.2 |
|
|
$ |
79.2 |
|
|
$ |
136.6 |
|
|
$ |
364.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
52.1 |
|
|
$ |
47.1 |
|
|
$ |
31.7 |
|
|
$ |
90.3 |
|
|
$ |
221.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share of Common Stock(2)
|
|
$ |
0.76 |
|
|
$ |
0.70 |
|
|
$ |
0.48 |
|
|
$ |
1.37 |
|
|
$ |
3.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share of Common Stock(2)
|
|
$ |
0.73 |
|
|
$ |
0.67 |
|
|
$ |
0.46 |
|
|
$ |
1.32 |
|
|
$ |
3.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
242.2 |
|
|
$ |
236.1 |
|
|
$ |
240.2 |
|
|
$ |
286.4 |
|
|
$ |
1,004.9 |
|
|
|
International
|
|
|
101.2 |
|
|
|
113.8 |
|
|
|
93.0 |
|
|
|
101.1 |
|
|
|
409.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Operating Revenues
|
|
$ |
343.4 |
|
|
$ |
349.9 |
|
|
$ |
333.2 |
|
|
$ |
387.5 |
|
|
$ |
1,414.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
85.3 |
|
|
$ |
70.2 |
|
|
$ |
81.0 |
|
|
$ |
118.4 |
|
|
$ |
354.9 |
|
|
|
International
|
|
|
9.3 |
|
|
|
23.0 |
|
|
|
13.5 |
|
|
|
28.9 |
|
|
|
74.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divisions
|
|
|
94.6 |
|
|
|
93.2 |
|
|
|
94.5 |
|
|
|
147.3 |
|
|
|
429.6 |
|
|
|
Corporate and Other(1)
|
|
|
(29.1 |
) |
|
|
(28.6 |
) |
|
|
(21.6 |
) |
|
|
(31.5 |
) |
|
|
(110.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Operating Income
|
|
$ |
65.5 |
|
|
$ |
64.6 |
|
|
$ |
72.9 |
|
|
$ |
115.8 |
|
|
$ |
318.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
49.8 |
|
|
$ |
39.5 |
|
|
$ |
47.5 |
|
|
$ |
75.0 |
|
|
$ |
211.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share of Common Stock(2)
|
|
$ |
0.69 |
|
|
$ |
0.56 |
|
|
$ |
0.68 |
|
|
$ |
1.09 |
|
|
$ |
3.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share of Common Stock(2)
|
|
$ |
0.66 |
|
|
$ |
0.54 |
|
|
$ |
0.65 |
|
|
$ |
1.04 |
|
|
$ |
2.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
|
|
(1) |
The following table itemizes the components of the
Corporate and Other category of Operating Income
(Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
|
|
| |
|
|
|
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
|
Full Year | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Costs
|
|
$ |
(11.8 |
) |
|
$ |
(12.0 |
) |
|
$ |
(12.3 |
) |
|
$ |
(15.4 |
) |
|
$ |
(51.5 |
) |
|
|
Restructuring Expense
|
|
|
(10.4 |
) |
|
|
(6.5 |
) |
|
|
(4.7 |
) |
|
|
(9.1 |
) |
|
|
(30.7 |
) |
|
|
Transition Costs (Costs to implement our Financial Flexibility
Program)
|
|
|
(5.8 |
) |
|
|
(8.1 |
) |
|
|
(4.2 |
) |
|
|
(3.4 |
) |
|
|
(21.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(28.0 |
) |
|
$ |
(26.6 |
) |
|
$ |
(21.2 |
) |
|
$ |
(27.9 |
) |
|
$ |
(103.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Costs
|
|
$ |
(14.8 |
) |
|
$ |
(14.6 |
) |
|
$ |
(14.9 |
) |
|
$ |
(13.9 |
) |
|
$ |
(58.2 |
) |
|
|
Restructuring Expense
|
|
|
(10.2 |
) |
|
|
(8.0 |
) |
|
|
(2.7 |
) |
|
|
(11.1 |
) |
|
|
(32.0 |
) |
|
|
Transition Costs (Costs to implement our Financial Flexibility
Program)
|
|
|
(4.1 |
) |
|
|
(6.0 |
) |
|
|
(4.0 |
) |
|
|
(6.5 |
) |
|
|
(20.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(29.1 |
) |
|
$ |
(28.6 |
) |
|
$ |
(21.6 |
) |
|
$ |
(31.5 |
) |
|
$ |
(110.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
The number of weighted average shares outstanding changes as
common shares are issued for employee benefit plans and other
purposes or as shares are repurchased. For this reason, the sum
of quarterly earnings per share may not be the same as earnings
per share for the year. |
Note 17. Subsequent Events
|
|
|
Addition to Existing Share Repurchase Program |
On January 31, 2006, our Board of Directors approved the
addition of $100 million to our existing $400 million
two-year share repurchase program, of which $200.0 million
was repurchased during the year ended December 31, 2005. We
expect that the share repurchase program will be funded from
cash provided by operating activities, supplemented as needed
with readily available financing arrangements. The program is to
be completed by the end of fiscal year 2006 and we plan to buy a
total of $300 million under our special share repurchase
program in 2006. This amount is in addition to our existing
repurchase program to offset the dilutive effect of shares
issued under our stock incentive plans and Employee Stock
Purchase Plan. For the year ended December 31, 2005, we
repurchased 3,179,840 shares under this program at an aggregate cost of
$200.0 million.
|
|
|
Financial Flexibility Program |
On January 31, 2006, the Board of Directors approved our
2006 Financial Flexibility Program. Through this program, we
will create financial flexibility through a number of
initiatives in 2006, including:
|
|
|
|
|
Eliminating, standardizing, and consolidating redundant
technology platforms, software licenses and maintenance
agreements; |
|
|
|
Standardizing and consolidating customer service teams and
processes to increase productivity and capacity utilization; |
115
Notes to Consolidated Financial Statements
(Continued)
(Tabular dollar amounts in millions, except per share
data)
|
|
|
|
|
Consolidating our vendors to improve purchasing power; and |
|
|
|
Improving operating efficiencies of facilities. |
We expect to complete all actions under the 2006 program by
December 2006. On an annualized basis, these actions are
expected to create $70 million to $75 million of
financial flexibility, of which approximately $50 million
to $55 million will be generated in 2006, before any
transition costs and restructuring charges and before any
reallocation of spending. To implement these initiatives, we
expect to incur transition costs of approximately
$15 million. In addition, we expect to incur non-core
charges totaling $23 million to $28 million pre-tax, of which $10 million to $14 million relate to
severance, approximately $9 million to $10 million
relate to lease termination obligations and approximately
$4 million relate to other exit costs in 2006.
Approximately $36 million to $41 million of these
transition costs and restructuring charges are expected to
result in cash expenditures. In addition, as a result of this
re-engineering program, we expect that approximately 125 to 150
positions will be eliminated globally.
116
|
|
Item 9. |
Changes in and Disagreements with Accountants on Auditing
and Financial Disclosure |
Not Applicable.
|
|
Item 9A. |
Controls and Procedures |
|
|
|
Evaluation of Disclosure Controls |
We evaluated the effectiveness of our disclosure controls and
procedures (Disclosure Controls) as defined in
Rules 13a-15(e)
and 15d-15(e) under the
Securities Exchange Act of 1934 (Exchange Act) as of
the end of the period covered by this report. This evaluation
(Controls Evaluation) was done with the
participation of our Chief Executive Officer (CEO)
and Chief Financial Officer (CFO).
Disclosure Controls are controls and other procedures that are
designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. Disclosure
controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to
be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our
management, including our CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure.
|
|
|
Limitations on the Effectiveness of Controls |
Our management, including our CEO and CFO, does not expect that
our Disclosure Controls or our internal control over financial
reporting will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide
only reasonable assurance that the objectives of a control
system are met. Further, any control system reflects limitations
on resources, and the benefits of a control system must be
considered relative to its costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within D&B have been detected.
Judgments in decision-making can be faulty and breakdowns can
occur because of simple error or mistake. Additionally, controls
can be circumvented by individual acts, by collusion of two or
more people, or by management override. A design of a control
system is also based upon certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may
not be detected. Our Disclosure Controls are designed to provide
reasonable assurance of achieving their objectives.
|
|
|
Conclusions regarding Disclosure Controls |
Based upon our Controls Evaluation, our CEO and CFO have
concluded that as of the end of our fiscal year ended
December 31, 2005, our Disclosure Controls are effective at
a reasonable assurance level.
|
|
|
Managements Report on Internal Control over Financial
Reporting |
Managements Report on Internal Control Over Financial
Reporting and Management's Statement of Management's Responsibility for
Financial Statements are contained in Item 8 of this
Annual Report on Form 10-K.
|
|
|
Attestation Report of the Independent Registered Public
Accounting Firm |
The attestation report of our independent registered public
accounting firm on our managements assessment of internal
control over financial reporting is contained in Item 8 of
this Annual Report Form 10-K.
|
|
|
Change in Internal Control Over Financial Reporting |
There was no change in our internal control over financial
reporting that occurred during the fourth quarter of 2005 that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B. |
Other Information |
Not applicable.
117
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
The information required to be filed by this Item 10.
Directors and Executive Officers of the Registrant,
is incorporated herein by reference from our Notice of Annual
Meeting of Stockholders and Proxy Statement to be filed within
120 days after D&Bs fiscal year end of
December 31, 2005 (the Proxy Statement).
|
|
Item 11. |
Executive Compensation |
The information required to be filed by this Item 11.
Executive Compensation, is incorporated herein by
reference from our Proxy Statement. Such incorporation by
reference shall not be deemed to specifically incorporate by
reference the information referred to in Item 402(a)(8) of
Regulation S-K.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required to be filed by this Item 12.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters, is
incorporated herein by reference from our Proxy Statement.
|
|
Item 13. |
Certain Relationships and Related Transactions |
The information required to be filed by this Item 13.
Certain Relationships and Related Transactions, is
incorporated herein by reference from our Proxy Statement.
|
|
Item 14. |
Principal Accountant Fees and Services |
The information required to be filed by this Item 14.
Principal Accountant Fees and Services, is
incorporated herein by reference from our Proxy Statement.
118
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules |
(a) List of documents filed as part of this report.
(1) Financial Statements.
See Index to Financial Statements and Schedules in Part II,
Item 8 of this
Form 10-K.
(2) Financial Statement Schedules.
None.
(b) Exhibits.
See Index to Exhibits of this Annual Report on the
Form 10-K.
119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
February 28, 2006.
|
|
|
The Dun &
Bradstreet Corporation
|
|
(Registrant) |
|
|
|
|
By: |
/s/ Steven W. Alesio
|
|
|
Steven W. Alesio |
|
|
Chairman and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on
February 28, 2006.
|
|
|
|
|
|
/s/ Steven W. Alesio
Steven W. Alesio |
|
Director, Chairman and Chief Executive Officer
(principal executive officer) |
|
/s/ Sara Mathew
Sara Mathew |
|
Chief Financial Officer and President, D&B International
(principal financial officer) |
|
/s/ Anastasios G.
Konidaris
Anastasios G. Konidaris |
|
Senior Vice President, Finance Operations
(principal accounting officer) |
|
/s/ John W. Alden
John W. Alden |
|
Director |
|
/s/ Christopher J.
Coughlin
Christopher J. Coughlin |
|
Director |
|
/s/ James N. Fernandez
James N. Fernandez |
|
Director |
|
/s/ Ronald L. Kuehn, Jr.
Ronald L. Kuehn, Jr. |
|
Director |
|
/s/ Victor A. Pelson
Victor A. Pelson |
|
Director |
|
/s/ Sandra E. Peterson
Sandra E. Peterson |
|
Director |
|
/s/ Michael R. Quinlan
Michael R. Quinlan |
|
Director |
|
/s/ Naomi O. Seligman
Naomi O. Seligman |
|
Director |
|
/s/ Michael J. Winkler
Michael J. Winkler |
|
Director |
120
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit |
|
|
Number |
|
|
|
|
|
|
|
3 |
|
|
Articles of Incorporation and By-laws |
|
|
3 |
.1 |
|
Restated Certificate of Incorporation of the Registrant, as
amended effective October 1, 2000 (incorporated by
reference to Exhibit 3.1 to Registrants Report on
Form 8-K, file number 1-15967, filed October 4, 2000) and Certificate of Designation for the Series A Junior
Participating Preferred Stock as Exhibit A to the Rights Agreement, dated as of August 15, 2000,
between the Registrant (f.k.a. The New D&B Corporation) and EquiServe Trust Company, N.A.,
as Rights Agent (incorporated by reference to Exhibit 1 to the Registrants Registration
Statement on Form 8-A, file number 1-15967, filed September 15, 2000).
|
|
|
3 |
.2 |
|
Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2 to Registrants Registration
Statement on Form 10, file number 1-15967, filed
June 27, 2000). |
|
|
4 |
|
|
Instruments Defining the Rights of Security Holders,
Including Indentures |
|
|
4 |
.1 |
|
Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrants Registration Statement
on Form 10, file number 1-15967, filed September 11,
2000). |
|
|
4 |
.2 |
|
Rights Agreement, dated as of August 15, 2000, between the
Registrant (f.k.a. The New D&B Corporation) and EquiServe
Trust Company, N.A., as Rights Agent, which includes the
Certificate of Designation for the Series A Junior
Participating Preferred Stock as Exhibit A thereto, the
Form of Right Certificate as Exhibit B thereto and the
Summary of Rights to Purchase Preferred Shares as Exhibit C
thereto (incorporated by reference to Exhibit 1 to the
Registrants Registration Statement on Form 8-A, file
number 1-15967, filed September 15, 2000). |
|
|
4 |
.3 |
|
Five-Year Credit Agreement, dated September 1, 2004, among
The Dun & Bradstreet Corporation, the Borrowing
Subsidiaries Party thereto, JPMorgan Chase Bank, as
Administrative Agent, Bank of Tokyo-Mitsubishi Trust Company and
Citicorp USA, Inc., as Syndication Agents, The Bank of New York
and Suntrust Bank, as Documentation Agents and the Lenders Party
thereto (incorporated by reference to Exhibit 4.1 to
Registrants Report on Form 8-K, file number 1-15967,
filed September 3, 2004). |
|
|
4 |
.4 |
|
Indenture dated as of March 22, 2001 by and between the
Registrant and The Bank of New York, as Trustee (incorporated by
reference to Exhibit 4.1 to Registrants Quarterly
Report on Form 10-Q, file number 1-15967, filed
May 15, 2001). |
|
|
4 |
.5 |
|
Forms of 6.625% Senior Notes due 2006 (incorporated by
reference to Exhibit 4.2 to Registrants Quarterly
Report on Form 10-Q, file number 1-15967, filed
May 15, 2001). |
|
|
10 |
|
|
Material Contracts |
|
|
10 |
.1 |
|
Distribution Agreement, dated as of September 30, 2000,
between Moodys Corporation (f.k.a. The Dun &
Bradstreet Corporation) and the Registrant (f.k.a. The New
D&B Corporation) (incorporated by reference to
Exhibit 10.1 to the Registrants Report on
Form 8-K, file number 1-15967, filed October 4, 2000). |
|
|
10 |
.2 |
|
Tax Allocation Agreement, dated as of September 30, 2000,
between Moodys Corporation (f.k.a. The Dun &
Bradstreet Corporation) and the Registrant (f.k.a. The New
D&B Corporation) (incorporated by reference to
Exhibit 10.2 to the Registrants Report on
Form 8-K, file number 1-15967, filed October 4, 2000). |
|
|
10 |
.3 |
|
Employee Benefits Agreement, dated as of September 30,
2000, between Moodys Corporation (f.k.a. The
Dun & Bradstreet Corporation) and the Registrant
(f.k.a. The New D&B Corporation) (incorporated by reference
to Exhibit 10.3 to the Registrants Report on
Form 8-K, file number 1- 15967, filed October 4, 2000). |
|
|
10 |
.4 |
|
Undertaking of the Registrant (f.k.a. The New D&B
Corporation), dated September 30, 2000, to Cognizant
Corporation and ACNielsen Corporation (incorporated by reference
to Exhibit 10.9 to the Registrants Report on
Form 8-K, file number 1-15967, filed October 4, 2000). |
|
|
10 |
.5 |
|
Undertaking of the Registrant (f.k.a. The New D&B
Corporation), dated September 30, 2000, to R.H. Donnelley
Corporation (incorporated by reference to Exhibit 10.10 to
the Registrants Report on Form 8-K, file number
1-15967, filed October 4, 2000). |
121
|
|
|
|
|
Exhibit |
|
|
Number |
|
|
|
|
|
|
|
10 |
.6 |
|
Distribution Agreement, dated as of June 30, 1998, between
R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet
Corporation) and Moodys Corporation (f.k.a. The New
Dun & Bradstreet Corporation) (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q of Moodys Corporation, file number 1-14037,
filed August 14, 1998). |
|
|
10 |
.7 |
|
Tax Allocation Agreement, dated as of June 30, 1998,
between R.H. Donnelley Corporation (f.k.a. The Dun &
Bradstreet Corporation) and Moodys Corporation (f.k.a. The
New Dun & Bradstreet Corporation) (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on
Form 10-Q of Moodys Corporation, file number 1-14037,
filed August 14, 1998). |
|
|
10 |
.8 |
|
Employee Benefits Agreement, dated as of June 30, 1998,
between R.H. Donnelley Corporation (f.k.a. The Dun &
Bradstreet Corporation) and Moodys Corporation (f.k.a. The
New Dun & Bradstreet Corporation) (incorporated by
reference to Exhibit 10.3 to the Quarterly Report on
Form 10-Q of Moodys Corporation, file number 1-14037,
filed August 14, 1998). |
|
|
10 |
.9 |
|
Distribution Agreement, dated as of October 28, 1996, among
R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet
Corporation), Cognizant Corporation and ACNielsen Corporation
(incorporated by reference to Exhibit 10(x) to the Annual
Report on Form 10-K of R.H. Donnelley Corporation (f.k.a.
The Dun & Bradstreet Corporation) for the year ended
December 31, 1996, file number 1-7155, filed March 27,
1997). |
|
|
10 |
.10 |
|
Tax Allocation Agreement, dated as of October 28, 1996,
among R.H. Donnelley Corporation (f.k.a. The Dun &
Bradstreet Corporation), Cognizant Corporation and ACNielsen
Corporation (incorporated by reference to Exhibit 10(y) to
the Annual Report on Form 10-K of R.H. Donnelley
Corporation (f.k.a. The Dun & Bradstreet Corporation)
for the year ended December 31, 1996, file number 1-7155,
filed March 27, 1997). |
|
|
10 |
.11 |
|
Employee Benefits Agreement, dated as of October 28, 1996,
among R.H. Donnelley Corporation (f.k.a. The Dun &
Bradstreet Corporation), Cognizant Corporation and ACNielsen
Corporation (incorporated by reference to Exhibit 10(z) to
the Annual Report on Form 10-K of R.H. Donnelley
Corporation (f.k.a. The Dun & Bradstreet Corporation)
for the year ended December 31, 1996, file number 1-7155,
filed March 27, 1997). |
|
|
10 |
.12 |
|
Amended and Restated Indemnity and Joint Defense Agreement among
the Registrant, VNU, N.V., VNU, Inc. ACNielsen Corporation, AC
Nielsen (U.S.), Inc., Nielsen Media Research, Inc., R.H.
Donnelley Corporation, Moodys Corporation and IMS Health
Incorporated (incorporated by reference to Exhibit 10.12 to
the Registrants Quarterly Report on Form 10-Q, file
number 1-15967, filed August 4, 2004). |
|
|
10 |
.13 |
|
Amended and Restated Agreement of Limited Partnership of D&B
Investors L.P., dated April 1, 1997 (incorporated by
reference to Exhibit 10.14 to the Quarterly Report on
Form 10-Q of Moodys Corporation, file number 1-14037,
filed August 14, 1998). |
|
|
10 |
.14 |
|
D&B Guaranty, dated as of April 1, 1997, given by The
Dun & Bradstreet Corporation in favor of
Utrecht-America Finance Co. and Leiden Inc. (as assumed by the
Registrant) (incorporated by reference to Exhibit 10.19 to
the Registrants Quarterly Report on Form 10-Q, file
number 1-15967, filed November 14, 2000). |
|
|
10 |
.15 |
|
The Dun & Bradstreet Executive Transition Plan (incorporated by
reference to Exhibit 10.20 to the Registrants
Quarterly Report on Form 10-Q, file number 1-15967, filed
November 14, 2000). |
|
|
10 |
.16 |
|
Forms of Change in Control Severance Agreements (incorporated by
reference to Exhibit 10.21 to the Registrants
Quarterly Report on Form 10-Q, file number 1-15967, filed
November 14, 2000). |
|
|
10 |
.17 |
|
Pension Benefit Equalization Plan of The Dun &
Bradstreet Corporation (incorporated by reference to
Exhibit 10.22 to the Registrants Quarterly Report on
Form 10-Q, file number 1-15967, filed November 14,
2000). |
|
|
10 |
.18 |
|
Supplemental Executive Benefit Plan of The Dun &
Bradstreet Corporation (incorporated by reference to
Exhibit 10.23 to the Registrants Quarterly Report on
Form 10-Q, file number 1-15967, filed November 14,
2000). |
122
|
|
|
|
|
Exhibit |
|
|
Number |
|
|
|
|
|
|
|
10 |
.19 |
|
Profit Participation Benefit Equalization Plan of The
Dun & Bradstreet Corporation (incorporated by reference
to Exhibit 10.24 to the Registrants Quarterly Report
on Form 10-Q, file number 1-15967, filed November 14,
2000). |
|
|
10 |
.20 |
|
The Dun & Bradstreet Corporation Non-Employee Directors Deferred Compensation Plan (as Amended and Restated
effective December 6, 2005) (incorporated by reference to
Exhibit 10.2 to the Registrants Report on Form 8-K, file
number 1-15967, filed December 12, 2005). |
|
|
10 |
.21 |
|
The Dun & Bradstreet Career Transition Plan
(incorporated by reference to Exhibit 10.26 to the
Registrants Annual Report on Form 10-K, file number
1-15967, filed March 4, 2002). |
|
|
10 |
.22 |
|
2000 Dun & Bradstreet Corporation Replacement Plan for
Certain Directors Holding Dun & Bradstreet Corporation
Equity-Based Awards (incorporated by reference to
Exhibit 10.27 to the Registrants Quarterly Report on
Form 10-Q, file number 1-15967, filed November 14,
2000). |
|
|
10 |
.23 |
|
2000 Dun & Bradstreet Corporation Replacement Plan for
Certain Employees Holding Dun & Bradstreet Corporation
Equity-Based Awards (incorporated by reference to
Exhibit 10.28 to the Registrants Quarterly Report on
Form 10-Q, file number 1-15967, filed November 14,
2000). |
|
|
10 |
.24 |
|
The Dun & Bradstreet Corporation 2000 Stock Incentive
Plan (as amended and restated May 3, 2005) (incorporated
by reference to Exhibit 10.1 to the Registrants
Report on Form 8-K, file number 1-15967, filed
May 9, 2005). |
|
|
10 |
.25 |
|
2000 Dun & Bradstreet Corporation NonEmployee
Directors Stock Incentive Plan, as amended May 3,
2005 (incorporated by reference
to Exhibit 10.2 to the Registrants Report on
Form 8-K, file number 1-15967, filed May 9, 2005). |
|
|
10 |
.26 |
|
The Dun & Bradstreet Corporation Nonfunded Deferred
Compensation Plan for Non-Employee Directors (as assumed by the
Registrant) (incorporated by reference to Exhibit 10.18 to
Moodys Corporation Quarterly Report on Form 10-Q,
file number 1-14037, filed October 20, 1999). |
|
|
10 |
.27 |
|
Form of Limited Stock Appreciation Rights Agreement
(incorporated by reference to Exhibit 10.25 to Moodys
Corporation Quarterly Report on Form 10-Q, file number
1-14037, filed August 14, 1998). |
|
|
10 |
.28 |
|
The Dun & Bradstreet Corporation Covered Employee Cash
Incentive Plan (incorporated by reference to Exhibit 10.35
to the Registrants Annual Report on Form 10-K, file
number 1-15967, filed February 22, 2001). |
|
|
10 |
.29 |
|
The Dun & Bradstreet Corporation Cash Incentive Plan
(incorporated by reference to the Registrants Annual
Report on Form 10-K, file number 1-15967, filed
February 21, 2001). |
|
|
10 |
.30 |
|
Form of Detrimental Conduct Agreement (incorporated by reference
to Exhibit 10.36 to the Registrants Annual Report on
Form 10-K, file number 1-15967, filed March 4, 2002). |
|
|
10 |
.31* |
|
Form of 2000 Dun & Bradstreet Corporation Non-Employee
Directors Stock Incentive Plan Restricted Stock Unit Award. |
|
|
10 |
.32 |
|
Key Employees Non-Qualified Deferred Compensation Plan
(incorporated by reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q, file
number 1-15967, filed May 6, 2002). |
|
|
10 |
.33 |
|
Employment Agreement, dated December 31, 2004, between
Steven W. Alesio and the Company (incorporated by reference to
Exhibit 10.2 to the Registrants Report on
Form 8-K, file number 1-15967, filed January 4, 2005). |
|
|
10 |
.34 |
|
Technology Services Agreement between the Registrant and
Computer Sciences Corporation, dated June 27, 2002
(incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q, file
number 1-15967, filed August 13, 2002). |
|
|
10 |
.35 |
|
2006 Non-Employee Director Compensation Program
(incorporated by reference to Exhibit 10.1 to the
Registrants Report on Form 8-K, file number 1-15967,
filed December 12, 2005). |
123
|
|
|
|
|
Exhibit |
|
|
Number |
|
|
|
|
|
|
|
10 |
.36 |
|
Form of Restricted Share Unit Award Agreement under the 2000
Non-employee Directors Plan (incorporated by reference to
Exhibit 10.2 to the Registrants Report on
Form 8-K, file number 1-15967, filed December 8, 2004). |
|
|
10 |
.37 |
|
The Dun & Bradstreet Corporation 2000 Employee Stock
Purchase Plan (incorporated by reference to Exhibit 10.36
to the Registrants Annual Report on Form 10-K, file
number 1-15967, filed March 28, 2003). |
|
|
10 |
.38 |
|
Form of Restricted Stock Award Agreement under the 2000 Employee
Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Registrants Report on
Form 8-K, file number 1-15967, filed March 2, 2005). |
|
|
10 |
.39 |
|
Form of Stock Option Award Agreement under the 2000 Employee
Stock Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Registrants Report on
Form 8-K, file number 1-15967, filed March 2, 2005). |
|
|
10 |
.40 |
|
Form of Restricted Stock Unit Award Agreement under the 2000
Employee Stock Incentive Plan (incorporated by reference to
Exhibit 10.3 to the Registrants Report on
Form 8-K, file number 1-15967, filed March 2, 2005). |
|
|
10 |
.41 |
|
Form of Stock Option Award Agreement under the 2000 Non-employee
Directors Plan (incorporated by reference to
Exhibit 10.4 to the Registrants Report on
Form 8-K, file number 1-15967, filed March 2, 2005). |
|
|
10 |
.42 |
|
Form of Restricted Stock Unit Award Agreement under the 2000
Non-employee Directors Plan (incorporated by reference to
Exhibit 10.5 to the Registrants Report on
Form 8-K, file number 1-15967, filed March 2, 2005). |
|
|
10 |
.43 |
|
Business Process Services Agreement made and effective as of
October 15, 2004 by and between the Company and
International Business Machines Corporation. This Exhibit has
been redacted pursuant to a confidentially request under
Rule 24(b)-2 of the Securities Exchange Act of 1934, as
amended. |
|
|
21 |
|
|
Subsidiaries of the Registrant |
|
|
21 |
.1* |
|
Subsidiaries of the Registrant as of December 31, 2005. |
|
|
23 |
|
|
Consents of Experts and Counsel |
|
|
23 |
.1* |
|
Consent of Independent Registered Public Accounting Firm. |
|
|
31 |
|
|
Rule 13a-14(a)/15(d)-14(a) Certifications |
|
|
31 |
.1* |
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|
|
31 |
.2* |
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|
|
32 |
|
|
Section 1350 Certifications |
|
|
32 |
.1* |
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|
|
32 |
.2* |
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
Represents a management contract or compensatory plan. |
124