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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ---------- EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
- - ---------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM___________TO_________________.
COMMISSION FILE NUMBER 1-7155.
THE DUN & BRADSTREET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2740040
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE DIAMOND HILL ROAD, MURRAY HILL, NJ 07974
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (908) 665-5000.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $1 per share. . . . . . . . . . .New York Stock Exchange
Preferred Stock Purchase Rights . . . . . . . . . . . . .New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's 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.___________
As of January 31, 1997, 170,988,313 shares of Common Stock of The Dun &
Bradstreet Corporation were outstanding and the aggregate market value of such
Common Stock held by nonaffiliates* (based upon its closing transaction price on
the Composite Tape on such date) was approximately $4,103.7 million.
*Calculated by excluding all shares held by executive officers and directors of
the registrant without conceding that all such persons are "affiliates" of
registrant for purposes of federal securities laws.
(Continued)
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DOCUMENTS INCORPORATED BY REFERENCE
PART I
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ITEM 1 -Business Note 16 Segment Information on page 42
and 43, of the 1996 Annual Report.
PART II
- - -------
ITEM 5 -Market for the Registrant's Common Page 24, Financial Review, of the 1996
Equity and Related Stockholder Annual Report.
Matters
ITEM 6 -Selected Financial Data Page 46, Five-Year Selected Financial
Data, of the 1996 Annual Report.
ITEM 7 -Management's Discussion and Analysis Pages 20 to 24, Financial Review, of
of Financial Condition and Results of the 1996 Annual Report.
Operations
ITEM 8 -Financial Statements and Supplementary Pages 26 to 46 of the 1996 Annual Report.
Data
PART III
- - --------
ITEM 10 -Directors and Executive Officers of the Pages 2 to 4 of the Company's Proxy
Registrant Statement dated March 27, 1997.
ITEM 11 -Executive Compensation Pages 11 to 24 of the Company's Proxy
Statement dated March 27, 1997.
ITEM 12 -Security Ownership of Certain Beneficial Pages 24 to 26 of the Company's Proxy
Owners and Management Statement dated March 27, 1997.
ITEM 13 -Certain Relationships and Related Pages 24 to 26 of the Company's Proxy
Transactions Statement dated March 27, 1997.
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The Index to Exhibits is located on Pages 18 to 20.
PART I
As used in this report, except where the context indicates otherwise, the
term "Company" means The Dun & Bradstreet Corporation and all subsidiaries
consolidated in the financial statements contained herein.
ITEM 1. BUSINESS
(a)(1) The Dun & Bradstreet Corporation was incorporated under the laws of
the State of Delaware on February 6, 1973 and became the parent holding company
of Dun & Bradstreet, Inc. and its subsidiaries on June 1, 1973. Dun &
Bradstreet, Inc. was incorporated under the laws of the State of Delaware in
1930 and is the successor to a business commenced in 1841.
On November 1, 1996, The Dun & Bradstreet Corporation reorganized into
three publicly traded independent companies by spinning off through a tax-free
distribution two of its businesses to shareholders (the "Distribution"). The
Distribution resulted in the following three companies: (1) The Dun & Bradstreet
Corporation, consisting of Dun & Bradstreet, the operating company ("D&B"),
Moody's Investors Service ("Moody's") and Reuben H. Donnelley; (2) ACNielsen
Corporation ("ACNielsen"); and (3) Cognizant Corporation ("Cognizant"),
consisting of IMS International, Inc. ("IMS"), Gartner Group, Nielsen Media
Research, Pilot Software, Cognizant Technology Solutions Corporation ("CTSC"),
Cognizant Enterprises and Erisco. In connection with the reorganization, Dun &
Bradstreet Software ("DBS"), NCH Promotional Services ("NCH"), and American
Credit Indemnity ("ACI") were divested. On October 10, 1996, following receipt
of a ruling from the Internal Revenue Service that the transaction would be
tax-free to the Company and its U.S. shareholders, the Company's Board of
Directors declared a dividend distribution to shareholders of record on October
21, 1996 consisting of one share of Cognizant common stock for each share of the
Company's common stock and one share of ACNielsen common stock for every three
shares of the Company's common stock held on such record date. The Distribution
was effected on November 1, 1996 (the "Distribution Date"). These transactions
resulted in a noncash dividend which reduced shareholders' equity by $1,240.9
million.
For purposes of effecting the transaction and of governing certain of the
continuing relationships among the Company, Cognizant and ACNielsen after the
Distribution, the three companies have entered into various agreements,
including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits
Agreement and an Indemnity and Joint Defense Agreement.
DISTRIBUTION AGREEMENT
The Company, Cognizant and ACNielsen entered into the Distribution
Agreement providing for, among other things, certain corporate transactions
required to effect the Distribution and other arrangements among the Company,
Cognizant and ACNielsen subsequent to the Distribution.
In particular, the Distribution Agreement defines the assets and
liabilities which are being allocated to and assumed by Cognizant and those
which are being allocated to and assumed by ACNielsen. The Distribution
Agreement also defines what constitutes the "Cognizant Business" and what
constitutes the "ACNielsen Business."
Pursuant to the Distribution Agreement, the Company transferred or caused
to be transferred all its right, title and interest in the assets comprising the
Cognizant business to Cognizant and all its right, title and interest in the
assets comprising the ACNielsen business to ACNielsen; Cognizant is obligated to
transfer or cause to be transferred all its right, title and interest in the
assets comprising the Company's business to the Company; and ACNielsen is
obligated to transfer or cause to be transferred all its right, title and
interest in the assets comprising the Company's business to the Company. All
assets were transferred without any representation or warranty, "as is-where
is," and the relevant transferee bears the risk that any necessary consent to
transfer was not obtained. Each party also agreed to exercise its respective
commercially reasonable efforts promptly to obtain any necessary consents and
approvals and to take such actions as may be reasonably necessary or desirable
to carry out the purposes of the Distribution Agreement and the other agreements
summarized below.
The Distribution Agreement provides for, among other things, assumptions of
liabilities and cross indemnities designed to allocate generally, effective as
of the Distribution Date, financial responsibility for the liabilities arising
out of or in connection with (i) the businesses conducted by IMS, Nielsen Media
Research, Pilot Software, Gartner Group, CTSC, Erisco, and Cognizant Enterprises
to Cognizant, (ii) the businesses conducted by A.C. Nielsen Company, other than
those conducted by Nielsen Media Research, to ACNielsen and (iii) all other
liabilities to the Company. The Distribution Agreement provides for the
allocation generally of the financial responsibility for the liabilities arising
out of or in connection with former businesses, including those formerly
conducted by or associated with Cognizant or ACNielsen, to the Company. The
Distribution Agreement allocates to Cognizant liabilities related to certain
prior business transactions if such liabilities exceed certain specified
amounts.
No party to the Distribution Agreement will have any liability to any other
party for inaccurate forecasts or arising out of any pre-Distribution
arrangement, course of dealing or understanding (other than the Distribution
Agreement or the other agreements as
1
described below) unless such arrangement, course of dealing or understanding is
specifically set forth on a schedule to the Distribution Agreement.
The Distribution Agreement includes provisions governing the administration
of certain insurance programs and the procedures for making claims. The
Distribution Agreement also allocates the right to proceeds and the obligation
to incur deductibles under certain insurance policies.
With respect to any transfers contemplated by the Distribution Agreement
that were not effected on or prior to the Distribution Date, the parties are
required to cooperate to effect such transfers as promptly as practicable
following the Distribution Date, and pending any such transfers, to hold any
asset not so transferred in trust for the use and benefit of the party entitled
thereto (at the expense of the party entitled thereto), and to retain any
liability not so transferred for the account of the party by whom such liability
is to be assumed.
The Distribution Agreement provides that neither the Company, Cognizant nor
ACNielsen will take any action that would jeopardize the intended tax
consequences of the Distribution. Specifically, each of the Company, Cognizant
and ACNielsen agrees to maintain its status as a company engaged in the active
conduct of a trade or business, as defined in Section 355(b) of the Internal
Revenue Code, until the second anniversary of the Distribution Date. As part of
the request for a ruling that the Distribution will be tax free for Federal
income tax purposes, each of the Company, Cognizant and ACNielsen has
represented to the Internal Revenue Service that, subject to certain exceptions,
it had no plan or intent to liquidate, merge or sell all or substantially all of
its assets. The Company does not intend to initiate any action leading to a
change of control, and in the case of a change of control, the foregoing
representations, and the ruling based thereon, could be called into question. As
a result, the acquisition of control of the Company prior to the second
anniversary may be more difficult or less likely to occur because of the
potential substantial contractual damages associated with a breach of such
provisions of the Distribution Agreement.
Under the Distribution Agreement, each of the Company, Cognizant and
ACNielsen agrees to provide to the other parties, subject to certain conditions,
access to certain corporate records and information and to provide certain
services on such terms as are set forth in a Transition Services Agreement among
such parties.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution Date in connection with the Distribution will be
charged to and paid by the Company. The Company agreed to be liable for any
claims based upon actual or alleged misstatements or omissions in the
Registration Statements on Form 10 filed with the Securities and Exchange
Commission by each of Cognizant and ACNielsen. Except as set forth in the
Distribution Agreement or any related agreement, each party is to bear its own
costs and expenses incurred after the Distribution Date.
TAX ALLOCATION AGREEMENT
The Company, Cognizant and ACNielsen entered into a Tax Allocation
Agreement to the effect that the Company will pay its entire consolidated tax
liability for the tax years that Cognizant and ACNielsen were included in the
Company's consolidated Federal income tax return. For periods prior to the
Distribution Date, the Company will generally be liable for state and local
taxes measured by income or imposed in lieu of income taxes. The Tax Allocation
Agreement allocates liability to the Company, Cognizant and ACNielsen for their
respective shares of other state and local taxes as well as any foreign taxes
attributable to periods prior to the Distribution Date, as well as certain other
matters.
EMPLOYEE BENEFITS AGREEMENT
The Company, Cognizant and ACNielsen entered into an Employee Benefits
Agreement (the "Employee Benefits Agreement"), which allocates responsibility
for certain employee benefits matters on and after the Distribution Date.
The Employee Benefits Agreement provides that Cognizant and ACNielsen will
adopt new defined benefit pension plans for their employees and that the Company
will continue to sponsor its current plan for the benefit of its employees as
well as former employees who terminated employment on or prior to the
Distribution Date. Assets and liabilities of the current Company pension plan
that are attributable to Cognizant and ACNielsen employees were transferred to
the new Cognizant and ACNielsen plans, respectively.
In addition, Cognizant and ACNielsen are to adopt new savings plans for
their employees, and the Company will continue to sponsor its savings plan for
the benefit of its employees as well as former employees who terminated
employment on or prior to the Distribution Date. Cognizant and ACNielsen
employees are given the right to elect to keep their balances in the Company's
savings
2
plan, receive a lump-sum payment of their balances or transfer their balances to
the new Cognizant and ACNielsen plans, respectively.
The Company is required to retain the liability for all benefits under the
Company's nonqualified supplemental pension plans that were vested prior to the
Distribution Date.
The Employee Benefits Agreement also provides that the Company will
continue to sponsor its welfare plans for its employees as well as all former
employees who retired or became disabled on or prior to the Distribution Date.
Cognizant and ACNielsen are required to provide retiree welfare benefits to
their continuing employees who would have been eligible to receive these
benefits from the Company had they retired on or prior to the Distribution Date.
If Cognizant or ACNielsen fails to provide any retiree welfare benefits, the
Company is required to provide such continuing employees with the same level of
retiree welfare benefits that it provides to its retirees generally.
The Company, Cognizant and ACNielsen will each generally retain the
severance liabilities of their respective employees who terminated employment
prior to the Distribution Date.
With respect to equity-based plans, the Employee Benefits Agreement
provides that unexercised Company stock options held by the Company employees,
retirees and disabled employees as of the Distribution Date will be adjusted to
reflect the Distribution.
The Employee Benefits Agreement also provides that the Company will
generally retain all employee benefit litigation liabilities that were asserted
prior to the Distribution Date (but not such liabilities that relate to the
transferred retirement and savings plan assets of Cognizant or ACNielsen
employees). Except as specifically provided therein, nothing in the Employee
Benefits Agreement restricts the Company's ability to amend or terminate any of
its employee benefit plans after the Distribution Date.
INDEMNITY AND JOINT DEFENSE AGREEMENT
The Company, Cognizant and ACNielsen have entered into the Indemnity and
Joint Defense Agreement pursuant to which they have agreed (i) to certain
arrangements allocating potential IRI Liabilities (as defined below) that may
arise out of or in connection with the IRI Action (as defined on Page 9) and
(ii) to conduct a joint defense of such action. See "Legal
Proceedings-Information Resources."
In connection with the IRI Action, the Company, Cognizant and ACNielsen
entered into the Indemnity and Joint Defense Agreement pursuant to which they
agreed (i) to certain arrangements allocating potential liabilities ("IRI
Liabilities") that may arise out of or in connection with the IRI Action and
(ii) to conduct a joint defense of the IRI Action. In particular, the Indemnity
and Joint Defense Agreement provides that ACNielsen will assume exclusive
liability for IRI Liabilities up to a maximum amount to be calculated at such
time such liabilities, if any, become payable (the "ACN Maximum Amount"), and
that the Company and Cognizant will share liability equally for any amounts in
excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by
an investment banking firm as the maximum amount which ACNielsen is able to pay
after giving effect to (i) any plan submitted by such investment bank which is
designed to maximize the claims paying ability of ACNielsen without impairing
the investment banking firm's ability to deliver a viability opinion (but which
will not require any action requiring stockholder approval), and (ii) payment of
related fees and expenses. For these purposes, financial viability means the
ability of ACNielsen, after giving effect to such plan, the payment of related
fees and expenses, and the payment of the ACN Maximum Amount, to pay its debts
as they become due and to finance the current and anticipated operating and
capital requirements of its business, as reconstituted by such plan, for two
years from the date any such plan is expected to be implemented.
In addition, ACNielsen agreed to certain restrictions on payments of
dividends and share repurchases above specified levels. ACNielsen also agreed
not to engage in mergers, acquisitions or dispositions, including joint venture
investments, if, after giving effect to any such transaction, ACNielsen would be
unable to meet a specified fixed charge coverage ratio, and, if any such
transaction involves aggregate consideration in excess of $50 million, then
ACNielsen will also be required to receive and to cause to be delivered to
Cognizant and the Company an investment banker's fairness opinion.
The Indemnity and Joint Defense Agreement also sets forth certain
provisions governing the defense of the IRI Action pursuant to which the parties
agree to be represented by the same counsel. Legal expenses are to be shared
equally by the three parties.
3
(b) The response to this item is incorporated herein by reference to Note
16 Segment Information on Pages 42 to 43 of the 1996 Annual Report.
(c) The Dun & Bradstreet Corporation is a non-operating holding company
whose revenue is derived primarily from dividends received from its
subsidiaries. A descriptive narrative of the Company's business segments follows
item (d).
The number of full-time equivalent employees at December 31, 1996 was
approximately 15,400.
(d) The response to this item is incorporated herein by reference to Note
16 Segment Information on Pages 42 and 43 of the 1996 Annual Report.
The Company is the world's leading marketer of information and services for
business decision-making. Its operations can be divided into two business
segments: Risk Management Services and Directory Information Services. The
businesses formerly comprising the Marketing Information Services, Software
Services and Other Business Services segments were spun-off pursuant to the
reorganization and are treated as discontinued operations. A narrative
description of the Company's operations by business segment follows.
RISK MANAGEMENT SERVICES
DUN & BRADSTREET
D&B is the world's largest supplier of business, commercial-credit and
business-marketing information services, with operations in 37 countries and a
worldwide database covering more than 44 million businesses. Data is gathered
through personal visits, telephone interviews, and third party sources. D&B also
provides receivable management services worldwide. D&B is organized into three
regions: United States, Europe and Asia-Pacific, Canada, Latin America.
DUN & BRADSTREET, U.S.
D&B, U.S. provides business-to-business credit, marketing and receivable
management information and services. The three lines of business are described
below:
Credit Information Services
Credit Information Services provides its customers with access to a
database on more than 10 million U.S. businesses. Its core products include the
Business Information Report, Payment Analysis Report, Credit Scoring Report and
reference services. Value-added solutions are provided through Specialized
Industry Services, Predictive Scoring Services, Industry and Financial
Consulting Services, Business Development Services, Analytical Services and
Monitoring Services. Customers can order and receive information in a variety of
ways, including mail, phone, fax, personal computers and through a variety of
customized high-volume connections between D&B and customer computer systems.
Credit Information Services licenses its data to customers. It also
distributes its information via a number of other firms, including leading
vendors of online services.
Customers of Credit Information Services (approximately 62,000 subscription
customers and over 175,000 non-subscription customers in the U.S.) use this
information in making decisions to extend commercial credit, approve loans and
leases, underwrite insurance, evaluate vendors, and make other financial and
risk assessment decisions. Credit Information Services' largest customers are
major manufacturers and wholesalers, insurance companies, banks and other credit
and financial institutions.
The Business Information Report contains commercial credit information on
specific businesses. This report includes the D&B Rating and the PAYDEX score, a
dollar-weighted numerical score of the company's payment performance. Both the
D&B Rating and the PAYDEX score are based on information in the D&B database.
The Business Information Report also includes summary information and detailed
payment data, as well as financial, banking, public filing, historical and
operational data. The Dun & Bradstreet Reference Book of American Business
contains listings on approximately 3 million businesses in the United States and
Puerto Rico. This book also contains the D&B Rating, which reflects the credit
and financial strength of a business. The Payment Analysis Report provides
information on a company's payment record and includes the current PAYDEX score,
the 90-day PAYDEX score, historical trends and industry comparisons. Predictive
Scoring Services combine advanced statistical modeling with Dun &
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Bradstreet's database to help customers automate their risk management
processes. D&B Express and other mass market services provide non-subscription
customers who have an occasional need for business information with data on a
specific company. Credit Information Services also markets other specialized
reports and business information.
Credit Information Services is the leading commercial credit reporting
agency in the United States. However, it faces competition both from in-house
operations of the businesses it seeks as customers and from other general and
specialized credit reporting and other information services. It believes the
principal attributes in judging the competition are information quality,
availability, service and price.
Receivable Management Services
Receivable Management Services ("RMS") provides its customers with a full
range of accounts receivable management services, including third party
collection of accounts, letter demand services and receivable management
outsourcing programs. These services substitute and/or enhance its customers'
own internal management of accounts receivable.
RMS services and collects delinquent receivables on behalf of 30,000
customers primarily in the business-to-business marketplace. Principal markets
include insurance, telecommunications, and transportation services. Customers
select the applicable RMS service that best meets their receivable portfolio
needs.
RMS uses the Dun & Bradstreet name to correspond with debtors about
delinquent accounts for collection services. Revenues are generally earned on a
contingent fee basis. Letter demand services are purchased for high volume-lower
dollar portfolios with revenues earned on a transactional basis. Receivable
outsourcing programs are selected when customers seek to outsource their
accounts receivable function to a third party vendor. Services include debt
verification and collection, customer service functions and analytical
reporting.
In 1995 and 1996, RMS offered and sold sales franchises covering portions
of 27 states. As a complement to its field and telesales sales forces, these
franchises are located in less concentrated markets where local presence is
preferred. RMS continues to be responsible for all product fulfillment. Customer
ownership remains with RMS with franchisees retaining exclusive access in their
markets.
Certain states require licensing for consumer and commercial debt
collection. RMS, and in some instances the individual collectors, must be
licensed in order to conduct business in applicable states. The laws under which
such licenses are granted generally provide for annual license renewals, as well
as denials, suspensions or revocations for improper actions or other factors.
RMS is considered to be a leader in the commercial receivable management
industry in the U.S. There are several consumer collection agencies that have
larger receivable portfolios, particularly health care and credit card
collection providers. The third party commercial collection market is highly
fragmented with over 5,000 collection agencies. The outsourcing market has
significantly fewer competitors due to the need for larger scale operations by
the receivable providers. Both markets are very price competitive with status
and statistical reporting and speed of service as key qualitative attributes.
Internationally, RMS provides cross-border receivable services in which the
RMS worldwide offices service cross-border claims for one another. This service
has grown significantly but comprises only 2% of total revenue.
Marketing Information Services
Marketing Information Services provides marketing information for
business-to-business and educational marketers. Marketing Information Services
provides comprehensive information and related services used to plan, execute
and evaluate the results of marketing programs; model, target and reach
prospects; and track sales activities. This information is derived from a
proprietary database covering more than 44 million businesses in over 200
countries. Information is delivered in print and on diskette, magnetic tape,
CD-ROM and online formats. Additionally, Marketing Information Services offers a
line of Database marketing products providing solutions for marketing
professionals by organizing various databases into an "information warehouse."
The development of such a "warehouse" facilitates market penetration, market
segmentation, territory alignment and demand estimation analyses as well as the
identification of the best prospective customers. Database marketing products
are available in both a PC desktop version and on a larger computing platform.
Market Data Retrieval offers services that help businesses sell to the
education market. The products provided include information about course
offerings, facilities, teachers and administrators in primary and secondary
schools, school districts, preschools, libraries, colleges and universities.
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Marketing Information Services, while a market leader in its industry,
faces competition from other data providers in competitive distribution
channels, delivery formats and data quality enhancements.
DUN & BRADSTREET EUROPE/MIDDLE EAST/AFRICA AND
DUN & BRADSTREET ASIA-PACIFIC, CANADA, LATIN AMERICA
Dun & Bradstreet Europe/Middle East/Africa and Dun & Bradstreet
Asia-Pacific, Canada, Latin America ("D&B Europe" and "D&B Asia-Pacific, Canada,
Latin America," respectively) opened their first overseas office in 1857 and
today conduct operations in offices and branches located throughout Europe,
Latin America, Africa, the Middle East, Asia, Japan, the Pacific Rim and Canada.
D&B Europe and D&B Asia-Pacific, Canada, Latin America provide
substantially the same business information, marketing information and
receivable management services outside the United States as those provided by
D&B U.S. The Business Information Report contains background and financial
information on businesses located throughout the world obtained from D&B offices
in the 37 countries where there are full operations and from D&B correspondents
in over 150 other countries. D&B Europe and D&B Asia Pacific, Canada, Latin
America's other major products or services include analytical tools to help the
customer make better business decisions, local and international
credit-reference publications, marketing publications, marketing information
systems, consumer-credit information, as well as receivable management services.
Customers can receive information through a direct link to the computer, in
printed form, by fax, on CD-ROM or through third parties.
In 1996, D&B Asia Pacific, Canada, Latin America reorganized its operations
in Brazil, Mexico, Chile and Venezuela. It continues to provide cross-border
services through local affiliates, small local operations centers and an
operations center in Florida.
D&B Europe continues to invest in data systems. Also, in late 1995 a new
range of cross-border products was rolled-out to the European market. D&B Europe
also continued investing heavily in a new technology platform, which will result
in enhanced product/service flexibility as well as opportunities to streamline
operations.
D&B Europe and D&B Asia-Pacific, Canada, Latin America's operations are
subject to the usual risks inherent in carrying on business in certain countries
outside of the U.S., including currency fluctuations, possible nationalization,
expropriation, price controls, changes in the availability of data from public
sector sources, limits on providing information across borders or other
restrictive government action. Management believes that the risk of
nationalization or expropriation is reduced because its basic service is the
delivery of information, rather than the production of products that require
manufacturing facilities or the use of natural resources.
D&B Europe and D&B Asia-Pacific, Canada, Latin America face competition
from banks, consumer information companies, application software developers,
online content providers and in-house operations of businesses as well as direct
competition from businesses providing similar services. D&B Europe is believed
to be the largest single supplier of credit information services in Europe. The
competition is primarily local and there are no competitors offering a
comparable range of global services or capabilities.
MOODY'S INVESTORS SERVICE, INC.
Moody's publishes credit opinions on investment securities, assigning
ratings to fixed-income securities and other credit obligations. It also
provides a broad range of business and financial information. Moody's was
founded in 1900. It now employs approximately 600 analysts and has a total of
more than 1,500 associates located around the world. Moody's provides ratings
and information on governmental and commercial entities in over 70 countries.
Moody's customers include investors (both institutional and individual), banks
and other financial intermediaries, and a wide range of corporate and
governmental issuers of securities.
Moody's publishes rating opinions on a broad range of credit obligations.
These include various United States corporate and governmental obligations,
Eurosecurities, structured finance securities and commercial paper issues. In
recent years, Moody's has moved beyond its traditional core ratings activity,
assigning ratings to insurance companies' obligations, bank loans, derivative
product companies, debt, mutual funds and derivatives. At the end of 1996,
Moody's had outstanding ratings on approximately 70,000 corporate and 60,000
public finance obligations. Ratings are disseminated to the public through a
variety of electronic and print media. Detailed descriptions of both the rated
issue and issuer, along with a summary of the rating rationale for the
assignment of the specific rating, also appear in various Moody's credit
research products.
6
The ratings fees charged to most issuers account for a majority of Moody's
revenues. Therefore, a substantial portion of Moody's revenues is dependent upon
the volume of debt securities issued in the global capital markets.
In addition to revenues from its ratings activities, Moody's derives
revenues from its publication of investor-oriented credit research services to
over 30,000 subscribers globally. Moody's publishes more than 100 research
products, including in-depth research on major issuers, industry studies,
special comments and summary credit opinion handbooks. Product selection
includes insurance, utilities, speculative grade instruments, bank and global
credit research.
Moody's also offers current and historical business and financial
information for investment research and reference uses. Moody's publishes more
than 30 different products and services, including manuals, handbooks and
guides, as well as CD-ROM and other electronic formats. These products and
services cover over 46,000 major U.S. and non-U.S. entities, as well as over
22,000 municipalities and governmental entities and their securities.
Moody's international operations have continued to grow as a result of the
expansion and development of international debt markets in recent years. Moody's
maintains offices in ten countries outside of the U.S. Moody's non-U.S.
operations are subject to the usual risks inherent in carrying on business in
countries outside the U.S., including currency fluctuations, possible
nationalization, expropriation, price controls and/or other restrictive
government actions. Management believes that the risks of nationalization or
expropriation are negligible. Moody's international business is not solely
dependent on non-U.S. office staff, as these offices are supported by travel
from Moody's internationally-focused staff.
Moody's is one of the two largest ratings agencies in the world. Both in
the United States and internationally, competition is increasing as the volume
of rateable credit-sensitive instruments increases and additional ratings
agencies are created or existing agencies enter new markets.
Moody's is registered as an investment advisor under the Investment
Advisers Act of 1940.
DIRECTORY INFORMATION SERVICES
THE REUBEN H. DONNELLEY CORPORATION
The Reuben H. Donnelley Corporation ("RHD") provides sales, marketing and
publishing services for yellow pages and other directory products. RHD provides
these services for almost 400 directories in 18 states and the District of
Columbia, and is the largest independent marketer of yellow pages advertising in
the U.S. RHD serves the yellow pages marketing needs of over a half million
small and medium size business and service organizations who purchase yellow
pages advertising.
RHD's major telephone company clients include Ameritech Advertising
Services ("AAS"), NYNEX Information Resources Company ("NIRC") and Sprint
Publishing & Advertising ("Sprint") in addition to other smaller telephone
companies. RHD's client agreements include both partnership and agency
relationships.
DonTech, a partnership between RHD and AAS, is responsible for marketing
and publishing telephone directories throughout Illinois and northwestern
Indiana. DonTech also publishes Street Address Directories in Illinois, Michigan
and Indiana and operates a fulfillment center which markets telephone
directories primarily throughout Illinois. The partnership agreement provides
for a bidding process which permits either partner to purchase the other's
interest in the event of a change in control of either partner. The agreement
also provides for a perpetual partnership.
RHD serves as the sales agent for NIRC for directories published in New
York State. The agreement with NIRC represents the largest sales agency
relationship for RHD. Unless a renewal is successfully negotiated, the agreement
will expire in 2005.
RHD's relationship with Sprint includes the CenDon partnership agreement
with Centel Directory Company, and directory contracts with several of Sprint's
operating subsidiaries to publish, manufacture and distribute telephone
directories in Florida, Illinois, Nevada, North Carolina and Virginia. In
addition, RHD serves as the sales agent for Sprint in central Florida markets.
Unless a renewal is successfully negotiated, these agreements will expire in
2004.
RHD provides both sales and publishing services as part of its agency
relationship with Cincinnati Bell Directory for customers in Ohio and northern
Kentucky. The agreement will expire in August of 1997.
7
RHD's relationship with Commonwealth Telephone Company includes the C-Don
partnership with Commonwealth Communications Inc., which serves customers in
northeastern Pennsylvania. In addition, RHD has joint venture agreements with
North Pittsburgh Telephone Company, Conestoga Telephone and Telegraph and Denver
and Ephrata Telephone and Telegraph Company in Pennsylvania. RHD also has an
agency agreement to provide sales and publishing services for CFW Telephone
Company in Virginia.
In addition to the services provided to telephone company clients discussed
above, RHD also publishes proprietary yellow pages directories. These
directories are located in Delaware, Maryland, New Jersey, Pennsylvania,
Virginia and the District of Columbia.
RHD's publishing and marketing operations handle a variety of pre-press and
information management services relating to directory publishing. These services
include graphics and ad creation, contract processing, database management and
pagination which RHD provides for both clients and its own proprietary business.
Publishing operations are based in RHD's state-of-the-art facility in Raleigh,
North Carolina which was opened in 1995. Prior to the transition to this new
facility, publishing operations were located in Terre Haute, Indiana. This
facility closed in 1996.
The competitive marketplace for the directory business takes many forms.
Competition from other yellow pages publishers exists in most markets. In
addition, RHD competes for advertising dollars against newspapers, radio, direct
mail, online information services and television. Also, advances in technology
have brought in new industry participants, new products and new channels. In
response, RHD has developed non-traditional relationships with businesses not
formerly associated with the directory industry to develop capabilities in
multi-product selling, including sales of advertising through online products.
The passage of the landmark Telecommunications Act of 1996 has set the
stage for profound change in the telecommunications and directory industries
which will impact RHD. By providing a framework to encourage competition for
local telephone service, mandating non-discriminatory access to listings
databases and eventually allowing Bell Operating Companies to offer long
distance service, this legislation ushers in a new era for directory publishers.
RHD owns and controls a number of trademarks and other intellectual
property rights that, in the aggregate, are of material importance to its
proprietary business. This includes the licensing of its name, The Donnelley
Directory(R), and marketing and licensing of YPTVSM. However, its business is
not dependent on any one intellectual property or group of such properties.
ITEM 2. PROPERTIES
The principal properties of the Company, by business segment, are set forth
below.
The executive offices of the Company are located at One Diamond Hill Road,
Murray Hill, New Jersey in a property owned by D&B.
The other properties of the Company are geographically distributed to meet
sales and operating requirements worldwide. They are generally considered to be
both suitable and adequate to meet current operating requirements and virtually
all space is being utilized.
RISK MANAGEMENT SERVICES
Owned properties located within the U.S. include two buildings in Berkeley
Heights, New Jersey and one each in Murray Hill and Parsippany, New Jersey and
New York, New York.
Owned properties located outside the U.S. are located in Melbourne,
Australia; Curitiba, Brazil; Santiago, Chile; Mexico City, Mexico; Caracas,
Venezuela; High Wycombe, England; Lyon, France and seven properties within
Italy. The operations of this segment are also conducted from 93 leased offices
located throughout the U.S. and 105 leased non-U.S. office locations.
DIRECTORY INFORMATION SERVICES
Operations are conducted from 35 leased locations throughout the U.S.
8
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of all current proceedings, claims and litigation, if
decided adversely, could have a material effect on quarterly or annual operating
results when resolved in a future period. However, in the opinion of management,
these matters will not materially affect the Company's consolidated financial
position.
Information Resources
Additionally, on July 29, 1996, IRI filed a complaint in the United States
District Court for the Southern District of New York, naming as defendants the
Company, A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS (a subsidiary
of Cognizant).
The complaint (the "IRI Action") alleges various violations of United
States antitrust laws, including alleged violations of Section 1 and 2 of the
Sherman Act. The complaint also alleges a claim of tortious interference with a
contract and a claim of tortious interference with a prospective business
relationship. These claims relate to the acquisition by defendants of Survey
Research Group Limited ("SRG"), prior to the Distribution described in Item 1.
IRI alleges SRG violated an alleged agreement with IRI when it agreed to be
acquired by the defendants and that the defendants induced SRG to breach that
agreement.
IRI's complaint alleges damages in excess of $350 million, which amount IRI
asked to be trebled under antitrust laws. IRI also seeks punitive damages in an
unspecified amount.
In connection with the IRI Action, the Company, Cognizant and ACNielsen and
entered into the Indemnity and Joint Defense Agreement pursuant to which they
agreed (i) to certain arrangements allocating potential liabilities ("IRI
Liabilities") that may arise out of or in connection with the IRI Action and
(ii) to conduct a joint defense of the IRI Action. In particular, the Indemnity
and Joint Defense Agreement provides that ACNielsen will assume exclusive
liability for IRI Liabilities up to a maximum amount to be calculated at such
time such liabilities, if any, become payable (the "ACN Maximum Amount"), and
that the Company and Cognizant will share liability equally for any amounts in
excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by
an investment banking firm as the maximum amount which ACNielsen is able to pay
after giving effect to (i) any plan submitted by such investment bank which is
designed to maximize the claims paying ability of ACNielsen without impairing
the investment banking firm's ability to deliver a viability opinion (but which
will not require any action requiring stockholder approval), and (ii) payment of
related fees and expenses. For these purposes, financial viability means the
ability of ACNielsen, after giving effect to such plan, the payment of related
fees and expenses, and the payment of the ACN Maximum Amount, to pay its debts
as they become due and to finance the current and anticipated operating and
capital requirements of its business, as reconstituted by such plan, for two
years from the date any such plan is expected to be implemented.
Management is unable to predict at this time the final outcome of the IRI
Action or whether the resolution of the matter could materially affect the
Company's results of operations, cash flows or financial position.
9
EXECUTIVE OFFICERS OF THE REGISTRANT*
Officers are elected by the Board of Directors to hold office until their
respective successors are chosen and qualified.
Listed below are the executive officers of the registrant at March 27, 1997
and brief summaries of their business experience during the past five years.
Name Title Age
---- ----- ---
Volney Taylor** Chairman of the Board and Chief Executive Officer 57
Clifford L. Bateman Senior Vice President and Chief Information Officer 51
William F. Doescher Senior Vice President and Chief Communications Officer 59
Nancy L. Henry Senior Vice President and Chief Legal Counsel 51
Frank R. Noonan Senior Vice President and President - The Reuben H. Donnelley Corporation 54
Peter J. Ross Senior Vice President and Chief Human Resources Officer 51
Frank S. Sowinski Senior Vice President and Chief Financial Officer 40
Chester J. Geveda, Jr. Vice President and Controller 50
* Set forth as a separate item pursuant to Items 401(b) and (e) of Regulation
S-K.
** Member of the Board of Directors since December 19, 1984.
Mr. Taylor was elected Chairman of the Board and Chief Executive Officer,
The Dun & Bradstreet Corporation, effective November 1, 1996. He served as
Executive Vice President, The Dun & Bradstreet Corporation, from February 1,
1982 to October 31, 1996. He also serves as Chairman, Dun & Bradstreet (formerly
known as Dun & Bradstreet Information Services), to which position he was
appointed, effective January 1, 1991, and as President, Dun & Bradstreet, Inc.,
and President, Dun & Bradstreet International, Ltd., to which offices he was
elected, effective January 1, 1991.
Mr. Bateman was elected Senior Vice President and Chief Information
Officer, The Dun & Bradstreet Corporation, effective November 1, 1996. He also
serves as Executive Vice President - Technology and Business Systems, Dun &
Bradstreet (formerly known as Dun & Bradstreet Information Services), effective
October 1995. From November 1994 until September 1995, Mr. Bateman was Senior
Vice President - Host Technologies, Dun & Bradstreet Software. From September
1993 until October 1994, he served as President and Chief Executive Officer, Dun
& Bradstreet Plan Services, and served as Vice President - Technology Strategy,
The Dun & Bradstreet Corporation, from March 1993 until August 1993. Previously,
Mr. Bateman served as Chairman and Chief Executive Officer, Erisco, from January
1990 until February 1993.
Mr. Doescher was elected Senior Vice President and Chief Communications
Officer, The Dun & Bradstreet Corporation, effective November 1, 1996. He also
serves as Senior Vice President - Global Communications, Dun & Bradstreet
(formerly known as Dun & Bradstreet Information Services), effective April 1992.
Previously, he served as Vice President - Public Relations and Advertising, The
Dun & Bradstreet Corporation, from December 1978 until October 1996.
Ms. Henry was elected Senior Vice President and Chief Legal Counsel, The
Dun & Bradstreet Corporation, effective March 27, 1997. Prior thereto, she was
with the New York City law firm of Skadden, Arps, Slate, Meagher & Flom from
1980.
Mr. Noonan was elected Senior Vice President, The Dun & Bradstreet
Corporation, and President, The Reuben H. Donnelley Corporation, effective
November 1, 1996. He previously served, until October 1996, as Senior Vice
President, The Dun & Bradstreet Corporation, effective February 20, 1995, and as
Chairman, President and Chief Executive Officer, The Reuben H. Donnelley
Corporation, to which offices he was elected, effective August 7, 1991
(President), January 1, 1994 (Chief Executive Officer) and February 20, 1995
(Chairman).
10
Mr. Ross was elected Senior Vice President and Chief Human Resources
Officer, The Dun & Bradstreet Corporation, effective November 1, 1996. He also
serves as Senior Vice President - Human Resources, Dun & Bradstreet (formerly
known as Dun & Bradstreet Information Services), effective June 1988.
Mr. Sowinski was elected Senior Vice President and Chief Financial Officer,
The Dun & Bradstreet Corporation, effective November 1, 1996. He also serves as
Executive Vice President - Applications, Mass Marketing & Alliances, Dun &
Bradstreet (formerly known as Dun & Bradstreet Information Services), effective
March 1993. He also served as Senior Vice President - Finance and Planning, Dun
& Bradstreet Information Services - U.S., from June 1989 until March 1993.
Mr. Geveda was elected Vice President and Controller, The Dun & Bradstreet
Corporation, effective November 1, 1996. He also serves as Senior Vice President
- - - Finance, Dun & Bradstreet (formerly known as Dun & Bradstreet Information
Services), effective November 1996. From April 1993 until October 1996, he
served as Senior Vice President - Finance and Planning, Dun & Bradstreet
Information Services - U.S. He had previously served as Senior Vice President -
Finance and Administration, Dun & Bradstreet Information Services - Europe, from
September 1990 until March 1993.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information in response to this Item is set forth under Dividends and
Common Stock Information in the "Financial Review" on Page 24 of the 1996 Annual
Report, which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data required by this Item is incorporated herein by
reference to the information relating to the years 1992 through 1996 set forth
in the "Five-Year Selected Financial Data" on Page 46 of the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this Item is set forth in the "Financial Review"
on Pages 20 to 24 of the 1996 Annual Report, which information is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules under Item 14 on Page 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference to
the section entitled "Election of Directors" in the Company's proxy statement
dated March 27, 1997 filed with the Securities and Exchange Commission, except
that "Executive Officers of the Registrant" on Pages10 and 11 of this report
responds to Item 401(b) and (e) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference to
the section entitled "Compensation of Executive Officers and Directors" in the
Company's proxy statement dated March 27, 1997 filed with the Securities and
Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference to
the section entitled "Security Ownership of Management and Others" in the
Company's proxy statement dated March 27, 1997 filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference to
the section entitled "Security Ownership of Management and Others" in the
Company's proxy statement dated March 27, 1997 filed with the Securities and
Exchange Commission.
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report.
(1) Financial Statements.
See Index to Financial Statements and Schedules on Page 15.
(2) Financial Statement Schedule.
See Index to Financial Statements and Schedules on Page 15.
(3) Exhibits.
See Index to Exhibits on Pages 18 to 20.
(b) Reports on Form 8-K.
Filed October 24, 1996, Item 5. Other Events Reported
Financial Statements include:
Consolidated Statement of Income for the six months ended June
30, 1996 and the years ended December 31, 1995, 1994 and 1993.
Consolidated Statement of Financial Position at June 30, 1996
and December 31, 1995 Financial Data Schedules
(d) Separate Financial Statements of Subsidiaries Not Consolidated and
Fifty Percent Owned
(1) Financial Statements of Dontech
See Index on Page 15
13
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.
THE DUN & BRADSTREET CORPORATION
(Registrant)
By: /s/VOLNEY TAYLOR
-----------------------------
(Volney Taylor,
Chairman and Chief Executive
Officer)
By: /s/FRANK S. SOWINSKI
-----------------------------
(Frank S. Sowinski,
Senior Vice President and
Chief Financial Officer)
By: /s/CHESTER J. GEVEDA, JR.
-----------------------------
(Chester J. Geveda, Jr.
Vice President - Controller)
Date: March 27, 1997
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 the date indicated.
/s/HALL ADAMS, JR. /s/JOHN R. MEYER
----------------------------------- ----------------------------------
(Hall Adams, Jr., Director) (John R. Meyer, Director)
/s/CLIFFORD L. ALEXANDER, JR., /s/JAMES R. PETERSON
----------------------------------- ----------------------------------
(Clifford L. Alexander, Director) (James R. Peterson, Director)
/s/MARY JOHNSTON EVANS /s/MICHAEL R. QUINLAN
----------------------------------- ----------------------------------
(Mary Johnston Evans, Director) (Michael R. Quinlan, Director)
/s/RONALD L. KUEHN, JR. /s/VOLNEY TAYLOR
----------------------------------- ----------------------------------
(Ronald L. Kuehn, Jr., Director) (Volney Taylor, Director)
/s/ROBERT J. LANIGAN
-----------------------------------
(Robert J. Lanigan, Director)
/s/VERNON R. LOUCKS JR.
-----------------------------------
(Vernon R. Loucks Jr., Director)
Date: March 27 , 1997
14
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS:
The Company's consolidated financial statements, the notes thereto and the
related report thereon of Coopers & Lybrand L.L.P., independent accountants, for
the years ended December 31, 1996, 1995 and 1994, appearing on Pages 25 to 46 of
the accompanying 1996 Annual Report, are incorporated by reference into this
Annual Report on Form 10-K (see below). The additional financial data indicated
below should be read in conjunction with such consolidated financial statements.
PAGE
------------------------------------------
10-K 1996 ANNUAL
REPORT
-------------------- ------------------
-------------------- ------------------
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ................................... F-6 25
Statement of Management Responsibility
for Financial Statements .......................................... F-6 25
At December 31, 1996 and 1995:
Consolidated Balance Sheets ....................................... F-8 27
For the years ended December 31, 1996, 1995 and 1994:
Consolidated Statement of Operations .............................. F-7 26
Consolidated Statement of Cash Flows .............................. F-9 28
Consolidated Statement of Shareholders' Equity .................... F-10 29
Notes to Consolidated Financial Statements ........................ F-11 to F-24 30 to 45
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... F-1 to F-5 20 to 24
Other financial information
Five-year selected financial data ................................. F-27 46
SCHEDULE:
Report of Independent Accountants ................................. 16 --
II-Valuation and Qualifying Accounts for the years ended
December 31, 1996, 1995 and 1994 ................................ 17 --
Schedules other than the one listed above are omitted as not required or
inapplicable or because the required information is provided in the
consolidated financial statements, including the notes thereto.
SEPARATE FINANCIAL STATEMENTS OF FIFTY-PERCENT OWNED UNCONSOLIDATED
SUBSIDIARY
Report of Independent Accountants ................................... S-1 --
At December 31, 1996 and 1995:
Balance Sheets .................................................... S-2 --
For the years ended December 31, 1996, 1995 and 1994:
Statement of Operations ........................................... S-4 --
Statement of Cash Flows ........................................... S-5 --
Statement of Partners' Capital .................................... S-3 --
Notes to Financial Statements ..................................... S-6 to S-10 --
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors of
The Dun & Bradstreet Corporation:
Our report on the consolidated financial statements of The Dun & Bradstreet
Corporation at December 31, 1996 and 1995, and for the years ended December 31,
1996, 1995 and 1994, has been incorporated by reference in this Form 10-K from
page 25 of the 1996 Annual Report of The Dun & Bradstreet Corporation. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 15 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 26, 1997
16
SCHEDULE II
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
(IN MILLIONS)
- - ---------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(A) OF PERIOD
----------- --------- -------- ------------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the Year Ended December 31, 1996.......... $35.7 $25.8 $(23.4) $38.1
======= ====== ========= ============
For the Year Ended December 31, 1995.......... $47.8 $35.2 $(47.3) $35.7
======= ====== ========= ============
For the Year Ended December 31, 1994.......... $52.9 $41.8 $(46.9) $47.8
======= ====== ========= ============
NOTE:
(a) Represents primarily the charge-off of uncollectible accounts for which a
reserve was provided.
17
INDEX TO EXHIBITS
REGULATION S-K
EXHIBIT NUMBER
- - --------------
(3) Articles of Incorporation and By-laws.
(a) Restated Certificate of Incorporation of The Dun & Bradstreet
Corporation dated June 15, 1988 (incorporated herein by reference to
Exhibit 4(a) to Registrant's Registration No. 33-25774 on Form S-8 filed
November 25, 1988).
(b) By-laws of Registrant dated December 15, 1993 (incorporated herein by
reference to Exhibit E to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993, file number 1-7155, filed March 25,
1994).
(4) Instruments Defining the Rights of Security Holders, Including Indentures.
*(a)Credit Agreement, dated as of August 30, 1996 among The Dun & Bradstreet
Corporation, The Borrowing Subsidiaries Party Hereto, The Lenders Party
Hereto, The Chase Manhattan Bank, Citibank, N.A. and Morgan Guaranty
Trust Company of New York, $1,000,000,000 Revolving Credit and
Competitive Advance Facility. Another Instrument with respect to an
issue of long term debt has not been filed as an exhibit to this Annual
Report on Form 10-K, as the authorized principal amount of such issue
does not exceed 10% of total assets of registrant and subsidiaries on a
consolidated basis. The Dun & Bradstreet Corporation agrees to furnish a
copy of such instrument to the Commission upon request.
(10) Material Contracts.
*+(a) Nonfunded Deferred Compensation Plan for Non-Employee Directors of
Registrant, as amended November 20, 1996.
+(b) Pension Benefit Equalization Plan, as amended December 21, 1994
(incorporated herein by reference to Exhibit F to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, file number
1-7155, filed March 27, 1995).
+(c) Profit Participation Benefit Equalization Plan, as amended and restated
effective January 1, 1995 (incorporated herein by reference to Exhibit E
to Registrant's Annual Report on Form 10-K for the year ended December
31, 1995, file number 1-7155, filed March 27, 1995).
+(d) 1982 Key Employees Stock Option Plan for Registrant and Subsidiaries,
as amended April 18, 1995 (incorporated herein by reference to Exhibit F
to Registrant's Annual Report on Form 10-K for the year ended December
31, 1995, file number 1-7155, filed March 27, 1995.)
+(e) 1991 Key Employees Stock Option Plan for Registrant and Subsidiaries,
as amended April 18, 1995 (incorporated herein by reference to Exhibit C
to Registrant's Proxy Statement dated March 10, 1995, file number
1-7155).
+(f) Ten-Year Incentive Stock Option Agreement (incorporated herein by
reference to Exhibit 28(b) to Registrant's Registration No. 33-44551 on
Form S-8, filed December 18, 1991).
+(g) Ten-Year Non-Qualified Stock Option Agreement (incorporated herein by
reference to Exhibit 28(c) to Registrant's Registration No. 33-44551 on
Form S-8, filed December 18, 1991).
+(h) Stock Appreciation Rights Agreement relating to Incentive Stock Options
(incorporated herein by reference to Exhibit 28(d) to Registrant's
Registration No. 33-44551 on Form S-8, filed December 18, 1991).
+(i) Stock Appreciation Rights Agreement relating to Non-Qualified Stock
Options (incorporated herein by reference to Exhibit 28(e) to
Registrant's Registration No. 33-44551 on Form S-8, filed December 18,
1991).
+(j) Limited Stock Appreciation Rights Agreement relating to Incentive Stock
Options (incorporated herein by reference to Exhibit 28(f) to
Registrant's Registration No. 33-44551 on Form S-8, filed December 18,
1991).
18
REGULATION S-K
EXHIBIT NUMBER
- - --------------
+(k) Limited Stock Appreciation Rights Agreement relating to Non-Qualified
Stock Options (incorporated herein by reference to Exhibit 28(g) to
Registrant's Registration No. 33-44551 on Form S-8, filed December 18,
1991).
+(l) Key Employees Performance Unit Plan for Registrant and Subsidiaries, as
amended October 16, 1996 subject to Shareholder approval on May 1, 1997
(incorporated by reference to Exhibit B to Registrant's Proxy Statement
dated March 27, 1997, file number 1-7155).
+(m) Corporate Management Incentive Plan, as amended October 16, 1996 and
February 19, 1997 (incorporated herein by reference to Exhibit A to
Registrant's Proxy Statement dated March 27, 1997, file number 1-7155).
+(n) 1989 Key Employees Restricted Stock Plan for Registrant and
Subsidiaries, as amended April 18, 1995 (incorporated herein by
reference to Exhibit D to Registrant's Proxy Statement dated March 10,
1995, file number 1-7155).
+(o) Restricted Stock Agreement (incorporated herein by reference to Exhibit
L to Registrant's Annual Report on Form 10-K for the year ended December
31, 1989, file number 1-7155, filed March 26, 1990).
+(p) Form of Change-in-Control Severance Agreement, approved July 19, 1989
(incorporated herein by reference to Exhibit M to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989, file number
1-7155, filed March 26, 1990).
+(q) Supplemental Executive Benefit Plan, as amended December 21, 1994
(incorporated herein by reference to Exhibit G to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, file number
1-7155, filed March 27, 1995).
+(r) Restricted Stock Plan for Non-Employee Directors, adopted July 20, 1994
(incorporated by reference to Exhibit E to Registrant's Proxy Statement
dated March 10, 1995, file number 1-7155).
*+(s) Executive Transition Plan, as amended on February 19, 1997.
*+(t) 1996 The Dun & Bradstreet Corporation Non Employee Directors' Stock
Incentive Plan, adopted December 18, 1996 and amended January 15, 1997.
(u) Agreement of Limited Partnership of D&B Investors L.P., dated as of
October 14, 1993 (incorporated herein by reference to Exhibit H to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993, file number 1-7155, filed March 25, 1994).
(v) Purchase Agreement and Purchase Agreement Amendment dated October 14,
1993 among D&B Investors L.P. and other parties (incorporated herein by
reference to Exhibit I to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993, file number 1-7155, filed March 25,
1994).
*(w) Agreement to Retire General Partner Interest dated October 21, 1996 by
and between D&B Investors L.P. and IMS America, Ltd.
*(x) Distribution Agreement dated as of October 28, 1996, among the Company,
Cognizant Corporation and ACNielsen Corporation .
*(y) Tax Allocation Agreement dated as of October 28, 1996, among the
Company, Cognizant Corporation and ACNielsen Corporation.
*(z) Employee Benefits Agreement dated as of October 28, 1996, among the
Company, Cognizant Corporation and ACNielsen Corporation.
*(aa) Indemnity and Joint Defense Agreement dated as of October 28, 1996,
among the Company, Cognizant Corporation and ACNielsen Corporation.
19
REGULATION S-K
EXHIBIT NUMBER
- - --------------
*(11) Statement Re Computation of Per Share Earnings.
Computation of Earnings Per Share of Common Stock on a Fully Diluted Basis
*(13) Annual Report to Security Holders.
1996 Annual Report
*(21) Subsidiaries of the Registrant.
List of Active Subsidiaries as of January 31, 1997
*(23) Consents of Experts and Counsel.
Consent of Independent Accountants
*(27) Financial Data Schedules
*Filed herewith
+Represents a management contract or compensatory plan.
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Partners of AM-DON
We have audited the financial statements of AM-DON (doing business as and
hereafter referred to as "DonTech") listed on the index on page 15. These
financial statements are the responsibility of DonTech's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DonTech as of December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Chicago, Illinois
January 3, 1997
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DONTECH
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 4,559,000 $ 2,491,000
Accounts receivable, net of allowances of
$13,908,000 (1996) and $23,106,000 (1995) 261,252,000 240,566,000
Deferred expenses 86,329,000 80,737,000
Other 3,057,000 1,382,000
------------ ------------
Total current assets 355,197,000 325,176,000
Fixed assets, net of accumulated depreciation
and amortization 6,621,000 9,118,000
----------- -----------
Total assets $361,818,000 $334,294,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 23,720,000 $ 22,797,000
Accrued liabilities 5,106,000 10,526,000
Deferred sales revenue 174,105,000 168,825,000
------------ ------------
Total current liabilities 202,931,000 202,148,000
Partners' capital 158,887,000 132,146,000
------------ ------------
Total liabilities and partners' capital $361,818,000 $334,294,000
============ ============
The accompanying notes are an integral part of the financial statements.
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DONTECH
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
THE AMERITECH
REUBEN H. PUBLISHING
DONNELLEY OF
CORPORATION ILLINOIS, TOTAL
INC.
Balance, December 31, 1993 $58,910,000 $44,205,000 $103,115,000
Net income 109,079,000 85,705,000 194,784,000
Distributions to partners (100,240,000) (78,760,000) (179,000,000)
----------- ---------- -----------
Balance, December 31, 1994 67,749,000 51,150,000 118,899,000
Net income 112,446,000 92,001,000 204,447,000
Distributions to partners (107,525,000) (83,675,000) (191,200,000)
----------- ---------- -----------
Balance, December 31, 1995 72,670,000 59,476,000 132,146,000
Net income 120,039,000 102,255,000 222,294,000
Distributions to partners (106,920,000) (88,633,000) (19,5553,000)
---------- --------- -----------
Balance, December 31, 1996 $85,789,000 $73,098,000 $158,887,000
========== ========== ===========
The accompanying notes are an integral part of the financial statements.
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DONTECH
STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Sales $459,083,000 $442,952,000 $436,577,000
Less allowances 50,202,000 51,076,000 50,310,000
------------ ------------ ------------
Net sales 408,881,000 391,876,000 386,267,000
------------ ------------ ------------
Expenses:
Operating expenses 135,136,000 139,447,000 145,257,000
Selling, general & administrative 45,980,000 45,582,000 45,449,000
Occupancy and depreciation 8,148,000 6,175,000 3,587,000
------------ ------------ ------------
Total expenses 189,264,000 191,204,000 194,293,000
------------ ------------ ------------
Income from operations 219,617,000 200,672,000 191,974,000
Other income 2,677,000 3,775,000 2,810,000
------------ ------------ ------------
Net income $222,294,000 $204,447,000 $194,784,000
============ ============ ============
The accompanying notes are an integral part of the financial statements.
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DONTECH
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
STATEMENTS OF CASH FLOWS
for Net income $ 222,294,000 $ 204,447,000 $ 194,784,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,526,000 2,806,000 1,670,000
Provision for uncollectible accounts 21,307,000 30,189,000 24,566,000
Changes in assets and liabilities:
Increase in accounts receivable (41,993,000) (52,294,000) (59,542,000)
Increase in deferred printing and
manufacturing (5,592,000) (6,855,000) (4,578,000)
(Increase) decrease in other
current assets (1,675,000) 75,000 622,000
Increase (decrease) in accounts
payable 923,000 (3,433,000) 12,983,000
(Decrease) increase in accrued
liabilities (5,420,000) 712,000 (7,167,000)
Increase in deferred sales revenue 5,280,000 17,920,000 13,962,000
------------- --------------- ---------------
Total adjustments (23,644,000) (10,880,000) (17,484,000)
------------- --------------- ---------------
Net cash provided by operating 198,650,000 193,567,000 177,300,000
activities
Cash flows from investing activities:
Purchases of fixed assets (1,029,000) (5,850,000) (3,077,000)
Cash flows from financing activities:
Distributions to partners (195,553,000) (191,200,000) (179,000,000)
------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents 2,068,000 (3,483,000) (4,777,000)
Cash and cash equivalents, beginning of
year 2,491,000 5,974,000 10,751,000
------------- --------------- ---------------
Cash and cash equivalents, end of year $ 4,559,000 $ 2,491,000 $ 5,974,000
============= =============== ===============
The accompanying notes are an integral part of the financial statements.
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DONTECH
1. FORM OF ORGANIZATION AND NATURE OF BUSINESS
AM-DON d.b.a. DonTech (the "Partnership") is a general partnership between
The Reuben H. Donnelley Corporation ("Donnelley"), a wholly owned
subsidiary of The Dun & Bradstreet Corporation, a Delaware corporation, and
Ameritech Publishing of Illinois, Inc. ("API/IL"), a wholly owned
subsidiary of Ameritech, Inc., an Illinois corporation, doing business as
Ameritech Advertising Services. The Partnership will be dissolved only upon
certain events as specified in the amended and restated partnership
agreement dated September 20, 1990, effective January 1, 1991.
The Partnership participates in a Directory Agreement with Donnelley,
Illinois Bell Telephone Company ("IBT"), doing business as Ameritech
Illinois, API/IL and Ameritech Publishing, Inc. ("API"), doing business as
Ameritech Advertising Services. The Partnership also participates in a
Subcontracting Agreement with API to perform certain of API's obligations
under the Publishing Services Contract between API and Indiana Bell
Telephone Company, Incorporated ("Indiana Bell"), doing business as
Ameritech Indiana. The Partnership publishes various directories, as
identified in the Directory Agreements, solicits advertising, its primary
source of revenues, and manufactures and delivers such directories.
A Board of Directors (the "Board") was appointed to administer the
activities of the Partnership. From time to time during the term of the
Partnership, the Board may call for additional capital contributions in
equal amounts from each of the Partners if, in the opinion of the Board,
additional capital is required for the operation of the Partnership. The
Partnership's net income is allocated to each Partner based on a predefined
percentage as set forth in the amended and restated partnership agreement.
In addition, API/IL is required to make an annual contribution to the
Partnership sufficient to maintain this predefined partnership interest
percentage.
2. SIGNIFICANT ACCOUNTING POLICIES
A. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an
initial maturity date of three months or less. The carrying value of
cash equivalents estimates fair value due to their short-term nature.
B. SALES AND DEFERRED SALES REVENUE
Substantially all sales made to customers in the cities covered by the
directories are recorded as deferred sales revenue and accounts
receivable in the month of publication. Revenue related to these sales
is recognized over the lives of the directories, generally twelve
months.
Sales made to customers outside the cities covered by the directories
are recognized each quarter. Sales for national accounts are recognized
in full in the month of publication.
C. FIXED ASSETS
Fixed assets are recorded at cost and are depreciated on a straight-line
basis over the estimated useful lives of the assets. Upon asset
retirement or other disposition, cost and the related accumulated
depreciation are removed from the accounts, and gain or loss is included
in the
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statement of operations. Amounts incurred for repairs and maintenance
are charged to operations.
D. DEFERRED EXPENSES
The printing, manufacturing, compilation, sales, delivery and
administrative costs of publications are deferred and recognized in
proportion to revenue.
E. INCOME TAXES
No provision for income taxes is made as the proportional share of the
Partnership's income is the responsibility of the individual Partners.
F. RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1995 and
1994 financial statements to conform with the December 31, 1996
presentation. These reclassifications had no impact on previously
reported net income or partners' capital.
3. DEFERRED EXPENSES
Deferred expenses consist of the following at December 31:
1996 1995
Printing and manufacturing $ 34,720,000 $ 29,260,000
Selling 33,407,000 31,977,000
Other 18,202,000 19,500,000
------------- ------------
$ 86,329,000 $ 80,737,000
============= ============
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DONTECH
4. FIXED ASSETS
Fixed assets consist of the following at December 31:
1996 1995
Machinery and equipment $ 17,329,000 $ 16,497,000
Furniture and fixtures 3,712,000 3,639,000
Leasehold improvements 974,000 850,000
------------- ------------
22,015,000 20,986,000
Less accumulated depreciation
and amortization 15,394,000 11,868,000
------------- ------------
$ 6,621,000 9,118,000
============= ============
5. RELATED PARTY TRANSACTIONS
Under the Directory Agreement, the Partnership is obligated to pay Illinois
Bell Telephone (IBT) a minimum of $75 million per year in exchange for the
exclusive right to publish certain regional directories and for billing and
collection services performed by IBT. The base fee for these services is
$75 million for each calendar year until the Directory Agreement is
terminated. A termination fee of $37 million is payable in the year
following the date the Directory Agreement terminates. On April 14, 1993,
the Partnership and IBT renewed the Directory Agreement through December
31, 1999, with the anticipation there will be future renewals.
In addition to the base fee, the Partnership has agreed to pay IBT an
amount equal to 7 1/2% of the increase in total revenue received from
certain sources identified in the Directory Agreement over such revenues
received in the immediately preceding calendar year. The additional fee due
to IBT was $1,122,000 in 1996 and $487,000 in 1995. In 1994, no such
additional fee was due.
In addition, Donnelley provides compilation, photocomposition, and data
processing services to the Partnership. The Dun & Bradstreet Corporation
(Donnelley's parent company) provides employee benefits and administrative
services, and certain business insurance coverages for the Partnership. The
amount paid for these services is determined at the beginning of each year
based upon estimated activity and adjusted to actual at the end of each
year. The total amount paid for these services was approximately $22
million in 1996 and 1995 and $21.4 million in 1994. The amount paid for
employee benefits includes the administration of the Partnership's Profit
Sharing and 401(k) Plans as well as its health care, long and short term
disability, dental and pension plans.
The Partnership has also entered into subcontracting agreements for the
publishing of certain Indiana Bell directories and the delivery of
directories for Donnelley. In addition, under a Directory Fulfillment
Memorandum of Understanding, the Partnership is obligated to perform
certain directory fulfillment services for Ameritech Advertising Services
(AAS).
6. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Partnership to
concentration of credit risk consist principally of commercial paper and
accounts receivables. The Partnership invests its
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DONTECH
excess cash in commercial paper with an investment rating of AA or higher
and has not experienced any losses on these investments.
The Partnership's trade accounts receivable are primarily composed of
amounts due from customers whose businesses are in the state of Illinois.
Collateral is generally not required from the Partnership's customers.
7. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expense
during the reporting period. Actual results could differ from those
estimates.
8. LEASE COMMITMENTS
The Partnership leases certain office and warehouse facilities under
noncancelable lease arrangements. Rent expense under these operating leases
was approximately $2,564,000 and $2,323,000 and $2,655,000 for 1996, 1995
and 1994, respectively.
The future minimum lease payments required under noncancelable operating
leases that have initial or remaining lease terms in excess of one year as
of December 31, 1996 are as follows:
DECEMBER 31, AMOUNT
1997 $ 2,445,000
1998 2,257,000
1999 2,287,000
2000 2,316,000
2001 2,282,000
Thereafter 3,893,000
------------
$ 15,480,000
============
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DONTECH
9. EMPLOYEE RETIREMENT AND PROFIT PARTICIPATION PLANS
The Partnership has a defined benefit pension plan covering substantially
all of its employees (the "Principal Plan"). The Principal Plan's assets
are invested in equity funds, fixed income funds and real estate. Total
expense for the Principal Plan was approximately $1,181,000, $1,647,000 and
$1,247,000 in 1996, 1995 and 1994, respectively. The Partnership
contributes amounts to the plan which are actuarially determined to meet
future benefit payments.
Additionally, the Partnership has a Profit Participation Plan (the "Profit
Plan") that covers substantially all its employees. Employees may
voluntarily contribute up to 6% of their salaries to the Profit Plan and
are guaranteed a matching contribution by the Partnership of fifty cents
per dollar contributed. The Partnership also makes contributions to the
Profit Plan based on a formula and contingent upon the attainment of
financial goals set in advance as defined in the plan. The contributions to
the plan by the Partnership were $809,000, $1,025,000, and $760,000 in
1996, 1995 and 1994, respectively.
10. VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31:
Col. A Col B. Col C. Col. D Col. E
- - --------------------- ------------ --------------------- ---------- -----------
Additions
(1) (2)
Balance at Charged Charged
Beginning to Costs to Other Balance
of Period and Accounts at End of
Expenses Period
Description (a) Deductions
(a)
- - --------------------- ------------ ---------- ---------- ---------- -----------
1996:
Allowance for $23,106,000 $21,307,000 - $30,505,000 $13,908,000
doubtful
accounts............
1995:
Allowance for $18,777,000 $30,189,000 - $25,860,000 $23,106,000
doubtful
accounts............
1994:
Allowance for $18,441,000 $24,566,000 - $24,230,000 $18,777,000
doubtful
accounts............
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