Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
-------------
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 1-15967
The Dun & Bradstreet Corporation
(Exact name of registrant as specified in its charter)
Delaware 22-3725387
(State of incorporation) (I.R.S. Employer Identification No.)
103 JFK Parkway, Short Hills, NJ 07078
-------------------------------- -----
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (973) 921-5500
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 ( or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of Class Shares Outstanding
Common Stock, at June 30, 2003
par value $0.01 per share 73,819,383
THE DUN & BRADSTREET CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 2003 and 2002 1
Consolidated Balance Sheets
June 30, 2003 (Unaudited) and December 31, 2002 2
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2003 and 2002 3
Notes to Consolidated Financial Statements (Unaudited) 4-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-33
Item 3. Quantitative and Qualitative Disclosures about Market Risk 33
Item 4. Controls and Procedures 33-34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 35
Item 4. Submission of Matters to a Vote of Shareholders 35
Item 6. Exhibits and Reports on Form 8-K 35-36
SIGNATURES 37-43
- ----------
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Amounts in millions, except per share data
Three Months Ended Six Months Ended
June 30, June 30,
--------- --------
2003 2002 2003 2002
---- ---- ---- ----
Revenue $ 335.0 $ 305.9 $ 649.7 $ 620.6
Operating Expenses 101.8 102.2 207.9 211.0
Selling and Administrative Expenses 151.5 122.1 277.4 249.5
Depreciation and Amortization 15.7 19.9 31.9 39.4
Restructuring Charge 4.9 30.9 15.8 30.9
------- ------- ------- -------
Operating Costs 273.9 275.1 533.0 530.8
------- ------- ------- -------
Operating Income 61.1 30.8 116.7 89.8
------- ------- ------- -------
Interest Income 0.8 0.6 1.6 1.3
Interest Expense (4.7) (4.9) (9.2) (9.9)
Other Income (Expense) - Net (0.7) (3.5) 6.1 (3.8)
------- ------- ------- -------
Non-Operating Income (Expense) - Net (4.6) (7.8) (1.5) (12.4)
------- ------- ------- -------
Income Before Provision for Income Taxes 56.5 23.0 115.2 77.4
Provision for Income Taxes 21.4 10.9 43.0 31.3
Equity in Net Losses of Affiliates - (1.2) - (1.7)
------- ------- ------- -------
Net Income $ 35.1 $ 10.9 $ 72.2 $ 44.4
========== ========== ======= =======
Basic Earnings per Share of Common Stock $ 0.47 $ 0.15 $ 0.97 $ 0.60
========== ========== ======== ========
Diluted Earnings per Share of Common Stock $ 0.46 $ 0.14 $ 0.94 $ 0.57
========== ========== ======== ========
Weighted Average Number of Shares Outstanding - Basic 74,383,000 74,404,000 74,415,000 74,693,000
Weighted Average Number of Shares Outstanding - Diluted 76,893,000 77,126,000 76,722,000 77,439,000
The accompanying notes are an integral part of the consolidated financial
statements.
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Balance Sheets
Amounts in millions, except per share data
(Unaudited)
June 30, December 31,
2003 2002
------ ------
Assets
Current Assets
Cash and Cash Equivalents $ 127.4 $ 191.9
Accounts Receivable, Net of Allowance of $21.7 at June 30, 2003 and $23.0 at
December 31, 2002 306.6 334.9
Short Term Marketable Securities 36.9 4.5
Other Receivables 37.5 48.3
Other Current Assets 36.5 34.6
----------- -----------
Total Current Assets 544.9 614.2
---------- ----------
Non-Current Assets
Property, Plant and Equipment, Net 154.1 149.7
Prepaid Pension Costs 391.3 367.3
Computer Software, Net 58.3 69.5
Goodwill, Net 279.4 183.3
Deferred Income Taxes 94.3 81.9
Other Non-Current Assets 84.0 61.8
----------- -----------
Total Non-Current Assets 1,061.4 913.5
--------- ----------
Total Assets $1,606.3 $1,527.7
======== ========
Current Liabilities
Accounts and Notes Payable $ 52.2 $ 47.5
Accrued Payroll 81.2 102.2
Accrued Income Tax 49.3 49.3
Other Accrued and Current Liabilities 152.9 152.0
Deferred Revenue 413.5 367.1
---------- ----------
Total Current Liabilities 749.1 718.1
---------- ----------
Pension and Postretirement Benefits 450.8 441.5
Long Term Debt 299.8 299.9
Other Non-Current Liabilities 84.2 87.0
Contingencies (Note 7)
Shareholders' Equity
Preferred Stock, $0.01 par value per share, authorized - 10,000,000 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 (4.2) (0.6)
Capital Surplus 210.6 218.7
Retained Earnings 356.1 284.0
Treasury Stock, at cost, 8,126,137 and 7,586,604 shares at June 30, 2003 and
December 31, 2002, respectively (265.7) (240.3)
Cumulative Translation Adjustment (188.0) (194.2)
Minimum Pension Liability Adjustment (87.2) ( 87.2)
------------ -----------
Total Shareholders' Equity 22.4 (18.8)
----------- -----------
Total Liabilities and Shareholders' Equity $1,606.3 $1,527.7
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
The Dun & Bradstreet Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Amounts in millions
Six Months Ended
June 30,
2003 2002
---- ----
Cash Flows from Operating Activities:
Net Income $ 72.2 $ 44.4
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization 31.9 39.4
Gain from Sales of Businesses (0.4) -
Equity Losses in Excess of Dividends Received from Affiliates - 1.7
Restructuring Charge, Net and Other Asset Impairments 15.8 30.9
Restructuring Payments (15.9) (16.1)
Deferred Income Taxes (3.1) 12.1
Accrued Income Taxes, Net 16.3 5.5
Changes in Current Assets and Liabilities:
Decrease in Accounts Receivable 48.6 40.8
Net (Increase) Decrease in Other Current Assets (5.2) 0.8
Net Increase in Deferred Revenue 22.8 15.5
Net Decrease in Accounts Payable (2.0) (5.5)
Net Decrease in Accrued Liabilities (36.5) (45.6)
Net Decrease in Other Current Liabilities (3.8) (3.7)
Changes in Non-Current Assets and Liabilities:
Increase in Other Long Term Assets (22.5) (21.5)
Net Increase in Long Term Liabilities 7.5 0.4
Other 5.0 6.0
-------- --------------
Net Cash Provided by Operating Activities 130.7 105.1
----- -----
Cash Flows from Investing Activities:
Proceeds from Sales of Real Estate - 21.5
Net Investments in Marketable Securities (28.3) -
Proceeds from Sales of Businesses 1.1 -
Payments for Acquisitions of Businesses, Net of Cash Acquired (98.0) -
Capital Expenditures (5.9) (6.1)
Additions to Computer Software and Other Intangibles (9.4) (15.0)
Investments in Unconsolidated Affiliates (1.9) (0.9)
Other (14.4) (1.5)
------------ -------------
Net Cash Used in Investing Activities (156.8) (2.0)
------------ -------------
Cash Flows from Financing Activities:
Payments for Purchases of Treasury Shares (53.6) (111.3)
Net Proceeds from Stock Plans 10.3 7.8
Other 0.8 0.5
------------- -------------
Net Cash Used in Financing Activities (42.5) (103.0)
------------ ------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 4.1 1.7
------------ -------------
Net (Decrease) Increase in Cash and Cash Equivalents (64.5) 1.8
Cash and Cash Equivalents, Beginning of Period 191.9 145.3
----------- ------------
Cash and Cash Equivalents, End of Period $ 127.4 $ 147.1
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash Paid
Income Taxes, Net of Refunds $ 28.0 $ 12.5
Interest $ 8.6 $ 9.3
The accompanying notes are an integral part of the consolidated financial statements.
THE DUN & BRADSTREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular dollar amounts in millions, except per share data)
Note 1 - Basis of Presentation
These interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q. They should be read in
conjunction with the consolidated financial statements and related notes, which
appear in The Dun & Bradstreet Corporation's ("D&B" or "We") Annual Report on
Form 10-K for the year ended December 31, 2002. The consolidated results for
interim periods do not include all disclosures required by accounting principles
generally accepted in the United States for annual financial statements and are
not necessarily indicative of results for the full year or any subsequent
period. In the opinion of our management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of financial
position, results of operations and cash flows at the dates and for the periods
presented have been included. We have reclassified certain prior period amounts
to conform to our current presentation (see Note 9).
Note 2 - Recent Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board ("FASB") issued
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. It nullifies
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)." The principal difference
between SFAS No. 146 and EITF Issue No. 94-3 is the timing of liability
recognition. SFAS No. 146 requires that a liability for a cost associated with
an exit or disposal activity, including severance and lease termination
obligations, be recognized when the liability is incurred, rather than at the
date of a company's commitment to an exit plan. SFAS No. 146 is effective for
exit or disposal activities after December 31, 2002. Our adoption of SFAS No.
146 will result in expense recognition over a period of time rather than at one
time for the restructuring activities we undertake after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." FASB No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition to the fair-value method of accounting for stock-based
employee compensation. SFAS No. 148 does not require companies to account for
employee stock-based awards using the fair-value method. We will continue to
utilize the instrinsic method of accounting for stock-based compensation as
allowed in APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 to
require disclosure of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share. In the table below, we disclose this effect.
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2003 2002 2003 2002
-------------- -------------- --------------- -----------------
Reported Net Income $ 35.1 $ 10.9 $ 72.2 $ 44.4
Add: Stock compensation cost under the intrinsic
method, included in net income, net of tax
benefit 0.5 0.1 0.8 0.3
Deduct: Total stock compensation cost under
fair-value method for all awards, net of tax
benefits (3.3) (2.0) (5.8) (3.9)
-------- -------- -------- -----
Pro forma Net Income $ 32.3 $ 9.0 $67.2 $40.8
======= ====== ======= =====
Basic EPS:
As reported $ 0.47 $ 0.15 $ 0.97 $ 0.60
====== ====== ======= =======
Pro forma $ 0.43 $ 0.12 $ 0.90 $ 0.55
====== ====== ======= =======
Diluted EPS:
As reported $ 0.46 $ 0.14 $ 0.94 $ 0.57
====== ====== ======= ========
Pro forma $ 0.42 $ 0.12 $ 0.88 $ 0.53
====== ======= ======= ========
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 clarifies the
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In particular, SFAS No. 149 clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
as described in SFAS 133. SFAS No. 149 also clarifies when a derivative contains
a financing component. SFAS No. 149 is generally effective for derivative
instruments entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. SFAS No. 149 is effective for D&B
beginning with our third quarter, 2003. We are currently assessing the impacts,
if any, that the specific requirements of SFAS No. 149 may have on our
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 requires certain financial instruments that have both equity and
liability characteristics to be classified as a liability on the balance sheet.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. We do not expect the adoption of
SFAS No. 150 to have a material impact on our consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others" ("FIN No. 45"), which expands previously
issued accounting guidance and disclosure requirements for certain guarantees.
Under the provisions of FIN No. 45, we are required to recognize an initial
liability for the fair value of an obligation assumed by issuing a guarantee.
The provision for initial recognition and measurement of the liability will be
applied on a prospective basis to all guarantees issued or modified after
December 31, 2002. Guarantees issued or modified during the six months ended
June 30, 2003 did not have a material impact on our consolidated financial
statements.
With respect to FIN No. 45, D&B is potentially liable for certain tax
matters and a legal proceeding commenced by Information Resources, Inc. Please
see Note 7 of our consolidated financial statements for a discussion of our
obligations with respect to these matters.
Additionally, 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 party
harmless against losses arising from a breach of representations or covenants,
or 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.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN No. 46"), 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. The
consolidation requirements of FIN No. 46 apply immediately to VIEs created after
January 31, 2003. The consolidation requirements apply to older entities in the
first fiscal year or interim period beginning after June 15, 2003. We have
reviewed FIN No. 46 to determine its impact, if any, on future periods, and do
not expect any material accounting or disclosure requirement under the
provisions of the interpretation.
In November 2002, the Emerging Issues Task Force reached a final
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Elements"
("EITF No. 00-21"), which provides guidance on how arrangement consideration
should be measured, whether the arrangement should be divided into separate
units of accounting, and how the arrangement consideration should be allocated
among the separate units of accounting. EITF No. 00-21 also requires a
description of multiple-element arrangements and disclosure of the accounting
policy for recognition of revenue from these arrangements. The guidance of EITF
No. 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. We have reviewed our revenue recognition
practices with respect to multiple deliverables. We have determined that EITF
No. 00-21 will not have any material impact on our current revenue recognition
practices and will not have any material 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 four phases of Financial Flexibility initiatives. In each of these
phases, we have incurred a restructuring charge, which generally consists of
employee severance and termination costs, asset write-offs, and/or costs to
terminate lease obligations.
During the second quarter of 2003, we recognized a $4.9 million
restructuring charge for severance and termination costs in connection with the
fourth phase of our Financial Flexibility program in accordance with SFAS No.
146. Through the first six months of 2003, we have recorded $15.8 million of
restructuring charges in connection with the fourth phase of our Financial
Flexibility program. The year-to-date charge includes $15.5 million for
severance and lease termination costs related to approximately 450 employees
(including a $0.5 million pension plan curtailment charge due to the fourth
phase headcount actions discussed in the following paragraph) and $0.3 million
for lease termination obligations. As of June 30, 2003, approximately 300
employees have been terminated under the fourth phase of our financial
flexibility program. Under SFAS No. 146, the amount recorded represents the
liabilities incurred during the first and second quarter for each of these
obligations. Additional restructuring charges are expected to be incurred in the
third quarter 2003 as additional program actions are taken. In total, we expect
to record approximately $16.4 million for all restructuring charges related to
the fourth phase of our Financial Flexibility program. This includes $16.1
million for severance and termination costs related to approximately 550
employees and $0.3 million for lease termination obligations.
In accordance with SFAS No. 87 and SFAS No. 88, we are required to
recognize a one-time curtailment charge for the estimated pension expense impact
to the Dun & Bradstreet Corporation Retirement Account (the "U.S. Qualified
Plan") related to the headcount actions of the fourth phase of our Financial
Flexibility program announced on January 13, 2003. The curtailment accounting
requirement of SFAS No. 88 requires us to recognize immediately a pro-rata
portion of the unrecognized prior service cost and the cost of any special
charges related to benefit enhancements that might occur as a result of the
layoffs (e.g., full vesting). For the U.S. Qualified Plan, these items together
resulted in an immediate curtailment charge to earnings of $0.5 million in the
first quarter 2003, included in the $16.1 million full year charge above.
During the second quarter of 2002, we recognized a $30.9 million
restructuring charge in connection with the third phase of our Financial
Flexibility program. The charge included $18.6 million for severance and
termination costs related to approximately 1,050 employees, $10.6 million for
the write-off of assets that were sold or abandoned (including $9.7 million from
the outsourcing action discussed in the following paragraph), and $1.7 million
for lease termination obligations.
As part of this third phase of the Financial Flexibility program, we
outsourced certain technology functions to Computer Sciences Corporation
("CSC"). Under the terms of the agreement, approximately 400 D&B 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. In addition, as part of the agreement, CSC acquired our data center and
printmail facility located in Berkeley Heights, New Jersey, and related assets
for $10 million, which we considered the fair value for the assets. This
resulted in a $9.7 million impairment loss.
As of June 30, 2003, we have terminated approximately 2,900 of the 3,250
employees affected under all four phases of the Financial Flexibility program,
including the approximately 400 employees who were transitioned to CSC, as
mentioned above. By the end of the third quarter 2003, approximately 250
additional employees worldwide will have their positions terminated in
connection with the fourth phase. By September 30, 2003 approximately 100
employees will be terminated in connection with the third phase of our Financial
Flexibility program due primarily to the timing of certain actions taken in our
North American operations. This will bring the total number of employees
terminated (via termination and voluntary attrition) in connection with the four
phases of the Financial Flexibility program, since its inception in October
2000, to approximately 3,250, reflecting the elimination of 3,550 positions
(including 300 open positions).
The following table sets forth the restructuring reserves and utilization
to date related to the fourth phase of our Financial Flexibility program in
accordance with SFAS No. 146.
Lease
Severance and Pension Termination
Termination Curtailment Obligations Total
------------- ------------- ------------- -------------
Total Charge to be Incurred during 2003 $ 15.6 $ 0.5 $ 0.3 $ 16.4
======== ======= ======= =======
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
========= ======= ======= ========
The following table sets forth the reserves and utilization to date
related to the third phase of our Financial Flexibility program under the
requirements of EITF No. 94-3 (see Note 2).
2002
Original Payments/ Balance at 2003 Balance at
Charge Asset Write-offs 12/31/2002 Payments 6/30/2003
------------- ----------------- ------------- ------------- -------------
2002 (Phase III)
Restructuring
Charge for:
Severance and
Termination $18.6 $ (7.3) $ 11.3 $ (6.7) $ 4.6
Asset Write-Offs 10.6 (10.6) - - -
Lease Termination
Obligations 1.7 (0.2) 1.5 - 1.5
-------- ------------- --------- ----------- ---------
$30.9 $ (18.1) $ 12.8 $ (6.7) $ 6.1
====== =========== ======= ======== ========
We completed all the actions contemplated under the first phase of our
Financial Flexibility program by the end of 2001 and completed the actions under
the second phase by June 30, 2002. As of June 30, 2003, the remaining
restructuring reserves under phase one and phase two of our Financial
Flexibility programs were not material. Due to the timing of certain events in
our North American operations, we will complete the actions under the third
phase of our Financial Flexibility program by September 30, 2003. There have not
been any significant changes to our original plans.
Note 4 - Notes Payable and Indebtedness
Our borrowings at June 30, 2003 and December 31, 2002, including interest
rate swaps designated as hedges, are summarized below:
June 30, 2003 December 31, 2002
------------- -----------------
Liab (Asset) Liab (Asset)
Notes Payable - Current $ 0.1 $ 0.1
--------- -----------
Fair Value Of Long-Term Fixed Rate Notes $ 307.0 $ 305.7
Fair Value Of Interest-Rate Swaps (7.3) (6.0)
Other 0.1 0.2
-------- -----------
Long Term Debt $ 299.8 $ 299.9
========= ==========
Note 5 -Reconciliation of Weighted Average Shares
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2003 2002 2003 2002
---- ---- ---- ----
(Shares data in thousands) (Shares data in thousands)
Weighted average number of shares-basic 74,383 74,404 74,415 74,693
Dilutive effect of shares issuable under stock options,
restricted stock and performance share plans 2,391 2,682 2,183 2,672
Adjustment of shares applicable to stock options exercised
during the period and performance share plans 119 40 124 74
-------- -------- --------- ----------
Weighted average number of shares-diluted 76,893 77,126 76,722 77,439
======= ======= ========= ==========
During the second quarter of 2003 and 2002, we repurchased 531,000 and
425,900 shares of stock for $20.9 million and $16.1 million, respectively, to
mitigate the dilutive effect of the shares issued under our stock incentive
plans and Employee Stock Purchase Plan. Additionally, during the second quarter
of 2003, we repurchased 493,800 shares in connection with a previously announced
$100 million share repurchase program for $19.5 million. For the six months
ended June 30, 2003, we repurchased 808,300 shares in connection with the $100
million share repurchase program for $30.3 million. For the six months ended
June 30, 2003 and 2002, we repurchased 601,000 and 670,700 for $23.3 million and
$26.2 million, respectively, to mitigate the dilutive effect of the shares under
our stock incentive plans and Employee Stock Purchase Plan. During the first
quarter of 2002, we repurchased 2.5 million shares at the market price of $85.1
million, in a privately negotiated block trade.
Options to purchase 216,130 and 43,425 shares of common stock at June 30,
2003 and 2002, respectively, were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common stock. Our options generally expire 10 years
after the grant date.
Note 6 - Comprehensive Income
Total comprehensive income for the three months and six months ended June
30, 2003 and 2002, which includes net income and other gains and losses that
affect shareholders' equity, was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Net Income $ 35.1 $ 10.9 $ 72.2 $ 44.4
Other Comprehensive Income (Loss)
Foreign Currency Translation Adjustment 4.7 1.5 6.2 2.0
Unrealized Losses On Investments (0.1) - (0.1) (0.2)
----- ------ ------ -----
Total Comprehensive Income $ 39.7 $ 12.4 $ 78.3 $ 46.2
====== ====== ======= ======
Note 7 - 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 our consolidated financial statements. In other
instances, we are unable to make a reasonable estimate of any liability because
of the uncertainties related to both the probability of the outcome and amount
or range of loss. As additional information becomes available, we adjust our
assessment and estimates of such liabilities accordingly.
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
Moody's 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"). In June 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 through a spin-off 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 Moody's
Corporation ("Moody's"), and a new company named The Dun & Bradstreet
Corporation ("we" or "D&B3" and also referred to elsewhere in this Form 10-Q as
"D&B") (the "2000 Distribution").
Tax Matters
- -----------
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. The status of Internal Revenue
Service reviews of these initiatives is summarized below.
Pursuant to a series of agreements, IMS and NMR are jointly and severally
liable for and must pay one-half, and we and Moody's are jointly and severally
liable for and must pay the other half, of any payments over $137 million for
taxes, accrued interest and other amounts resulting from unfavorable IRS rulings
on the tax matters summarized below (other than the matter summarized below as
"Amortization Expense Deductions -- 1997-2002," for which we and Moody's are
solely responsible). D&B2 was contractually obligated to pay, and did pay, the
first $137 million in connection with the matter summarized below as
"Utilization of Capital Losses -- 1989-1990."
Under the terms of the 2000 Distribution, we and Moody's have agreed to
each be financially responsible for 50% of any potential liabilities that may
arise to the extent such potential liabilities are not directly attributable to
each party's respective business operations.
Utilization of Capital Losses -- 1989-1990.
The IRS completed its review of the utilization of certain capital losses
generated during 1989 and 1990 and, on June 26, 2000, issued a formal notice of
adjustment. On May 12, 2000, an amended tax return was filed for the 1989 and
1990 tax periods, which reflected $561.6 million of tax and interest due. D&B2
paid the IRS approximately $349.3 million of this amount on May 12, 2000, and
IMS paid the IRS approximately $212.3 million on May 17, 2000. The payments were
made to the IRS to stop further interest from accruing. We are continuing to
contest, on behalf of Donnelley/D&B1, the IRS's formal assessment and would also
contest any assessment of amounts in excess of the amounts paid. Donnelley/D&B1
filed a complaint for a refund in the U.S. District Court on September 21, 2000.
The case is expected to go to trial in 2004. We would share responsibility for
any additional assessment, and share in any refund obtained, with IMS, NMR and
Moody's, as disclosed above.
Subsequent to making its 2000 payment to the IRS, IMS sought to obtain
partial reimbursement from NMR under the terms of the 1998 Cognizant
Distribution. NMR paid IMS less than IMS sought. In 2001, IMS filed an
arbitration proceeding against NMR claiming that NMR underpaid to IMS its proper
allocation of the above tax payments. Neither Donnelley/D&B1 nor we are a party
to the 1998 Cognizant Distribution. IMS nonetheless sought to include
Donnelley/D&B1 in this arbitration, arguing that if NMR should prevail in its
interpretation, then IMS could seek the same interpretation in an alternative
claim against Donnelley/D&B1. In 2002, the arbitration panel ruled that
Donnelley/D&B1 properly belonged as a party to the arbitration. Hearings before
the arbitration panel were held in 2002. In April 2003, the arbitration panel
found in favor of IMS on its claim against NMR and dismissed IMS' alternative
claim against Donnelley/D&B1. Therefore, D&B has no potential current or future
liability relating to IMS' claim.
Royalty Expense Deductions -- 1993-1996.
In the second quarter of 2003, we received on behalf of Donnelley/D&B1 an
IRS agent's examination report with respect to a partnership transaction entered
into in 1993.
Specifically, the IRS is disallowing certain royalty expense deductions
claimed by Donnelley/D&B1 on its 1993-1996 tax returns. We estimate that the
disallowance of the 1993 and 1994 royalty expense deductions would result in a
loss to us of $5 million in pending tax refunds. We also estimate that the
disallowance of the 1995 and 1996 royalty expense deductions would require
payment from us of up to $42 million (tax, interest and penalties, net of
associated tax benefits).
In addition, and also in the second quarter of 2003, we received on
behalf of the partnership associated with the above transaction an IRS agent's
examination report challenging the tax treatment of certain royalty payments
received by the partnership in which Donnelley/D&B1 was a partner. The IRS is
seeking to reallocate certain partnership income to Donnelley/D&B1. Our share of
this income would require an additional payment from us of $20 million (tax,
interest and penalties, net of associated tax benefits). We believe that this
position is inconsistent with the IRS' position with respect to the same royalty
expense deductions described above.
If the IRS were to prevail in its position, we would share responsibility
for the matter with Moody's, IMS and NMR, as disclosed above. If we, on behalf
of Donnelley/D&B1, were to challenge the assessment in U.S. District Court
rather than in U.S. Tax Court, the disputed amounts would need to be paid. We
are reviewing the options available to vigorously contest the IRS' position.
Amortization Expense Deductions -- 1997-2002.
The IRS has requested documentation with respect to a transaction entered
into in 1997 by Donnelley/D&B1 that produces amortization expense deductions.
While we believe the deductions are appropriate, the IRS could ultimately
challenge them and issue an assessment. If the IRS were to prevail or the
assessment were to be challenged by us in U.S. District Court, we estimate that
our cash payment to the IRS with respect to deductions claimed to date and
including any potential assessment of penalties of $7.1 million, could be up to
$47.7 million (tax, interest and penalties, net of associated tax benefits).
This transaction is scheduled to expire in 2012 and, unless earlier terminated
by us, our cash exposure, based on current interest rates and tax rates, would
increase at a rate of approximately $2.1 million per quarter (including
potential penalties) as future amortization expenses are deducted.
* * * * * * * * * *
We have considered the foregoing tax matters and the merits of the legal
defenses and the various contractual obligations in our overall assessment of
potential tax liabilities and have an overall reserve of $98 million recorded in
the consolidated financial statements, which we believe is adequate for our
share of the current exposures in these matters. Any payments that would be made
for these exposures would be significant to us in the period a cash payment took
place.
Legal Proceedings
- -----------------
Information Resources, Inc.
In July 1996, Information Resources, Inc. ("IRI"), filed a complaint in
the U.S. District Court for the Southern District of New York, naming as
defendants D&B1, A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS
International, Inc. (at the time a subsidiary of Cognizant). At the time of the
filing of the complaint, each of the other defendants was a wholly-owned
subsidiary of D&B1.
The complaint alleges various violations of United States antitrust laws,
including alleged violations of Sections 1 and 2 of the Sherman Antitrust Act.
The complaint also alleges a claim of tortious interference with a contract and
a claim of tortious interference with a prospective business relationship. These
claims relate to the acquisition by defendants of Survey Research Group Limited
("SRG"). IRI alleges SRG violated an alleged agreement with IRI when it agreed
to be acquired by the defendants and that the defendants induced SRG to breach
that agreement.
IRI's complaint alleges damages in excess of $350 million, which amount
IRI asked to be trebled under antitrust laws. IRI also seeks punitive damages in
an unspecified amount.
In April 2003, the court denied a motion for partial summary judgement by
defendants that sought to dismiss certain of IRI's claims. Discovery in the case
is continuing and a trial date has been scheduled for September 2004.
In connection with the 1996 Distribution, Cognizant, ACNielsen and
Donnelley/D&B1 entered into an Indemnity and Joint Defense Agreement, pursuant
to which they agreed to:
o allocate potential liabilities ("IRI Liabilities") that may arise out of or
in connection with the IRI action; and
o conduct a joint defense of such action
In particular, the Indemnity and Joint Defense Agreement provides that:
o ACNielsen will assume exclusive liability for IRI Liabilities up to a
maximum amount to be calculated at such time as such liabilities become
payable (the "ACN Maximum Amount"); and
o Donnelley/D&B1 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 that ACNielsen is able to pay after giving effect to:
o any plan submitted by such investment bank that is designed to maximize the
claims-paying ability of ACNielsen without impairing the investment banking
firm's ability to deliver a viability opinion and without requiring
stockholder approval; and
o payment of related fees and expenses.
For these purposes, "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:
o pay its debts as they become due; and
o finance the current and anticipated operating and capital requirements of
its business, as reconstituted by such plan, for two years from the date
any such plan is expected to be implemented.
In 2001, ACNielsen merged with VNU N.V. ("VNU"). VNU assumed ACNielsen's
liabilities under the Indemnity and Joint Defense Agreement, and VNU's business
is to be included for purposes of determining the ACN Maximum Amount.
Under the terms of the 1998 Distribution, D&B2 assumed all potential
liabilities of Donnelley/D&B1 arising from the IRI action. Under the terms of
the 2000 Distribution, we undertook to be jointly and severally liable with
Moody's for D&B2's obligations to Donnelley/D&B1 under the 1998 Distribution,
including any liabilities arising under the Indemnity and Joint Defense
Agreement. However, as agreed between each other, we and Moody's will each be
responsible for 50% of any payments to be made with respect to the IRI action
under the terms of the 1998 Distribution, including legal fees or expenses
related to the IRI action.
IMS and NMR are each jointly and severally liable for all Cognizant
liabilities under the Indemnity and Joint Defense Agreement.
We are unable to predict at this time the final outcome of the IRI action
or the financial condition of ACNielsen and VNU at the time of any such final
outcome (and hence we cannot estimate the ACN Maximum Amount and the portion of
any judgment to be paid by VNU and ACNielsen under the Indemnity and Joint
Defense Agreement). Therefore, we are unable to predict at this time whether the
ultimate 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.
Hoover's - Initial Public Offering Litigation
On November 15, 2001, a putative shareholder class action lawsuit was
filed against Hoover's, certain of its current and former officers and directors
(the "Individual Defendants"), and one of the investment banks that was an
underwriter of Hoover's 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 Hoover's during the period from July 20, 1999, through December 6,
2000. An Amended Complaint, which is now the operative complaint, was filed on
April 19, 2002. Plaintiffs allege that the underwriter defendants agreed to
allocate stock in Hoover's initial public offering 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 Hoover's initial public offering 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, Hoover's moved to dismiss all claims against
it and the Individual Defendants. On October 9, 2002, the Court dismissed the
Individual Defendants from the case without prejudice 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 Hoover's. A
Memorandum of Understanding ("MOU") and related agreements setting forth the
terms of a settlement between Hoover's and the plaintiff class have been drafted
for consideration. The MOU and related agreements are subject to a number of
contingencies, including the approval of the MOU by a sufficient number of the
approximately three hundred companies that are the subject of similar actions,
the negotiation of a settlement agreement, and approval by the Court. Hoover's
expects to participate in the proposed settlement.
If the settlement is ultimately approved and implemented in its current
form, Hoover's reasonably foreseeable exposure in this matter, if any, would be
limited to amounts which 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, as
well as:
o current D&B employees who are participants in the Dun & Bradstreet
Retirement Account and were previously participants in its
predecessor plan, The Dun & Bradstreet Master Retirement Plan;
o current employees of Receivable Management Services Corporation
("RMSC") who are participants in The Dun & Bradstreet Retirement
Account and were previously participants in its predecessor plan,
The Dun & Bradstreet Master Retirement Plan; and
o former D&B or RMSC employees who received a deferred vested
retirement benefit under either the Dun & Bradstreet Retirement
Account or The Dun & Bradstreet Master Retirement Plan.
The complaint estimates that the proposed class covers over 5,000 individuals.
There are three counts in the complaint: Count 1 claims a violation of
ERISA in that our sale of the Receivable Management Services business to RMSC
and the resulting termination of our employees involved 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 2
claims that the plaintiffs were materially harmed by our alleged violation of
ERISA's 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) cannot be
enforced against them. Count 3 claims that the 6 3/5% interest rate used to
actuarially reduce early retirement benefits is unreasonable and, therefore,
results in a prohibited forfeiture of benefits under ERISA.
The plaintiffs purport to seek appropriate equitable relief in the form
of either reinstatement of employment with D&B or restoration of employee
benefits (including stock options); invalidation of the plan rate of 6 3/5% 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. 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.
Note 8 - Acquisition
On March 3, 2003, we acquired Hoover's, Inc. with cash on hand. The
results of Hoover's operations have been included in the consolidated financial
statements since that date. Hoover's provides industry and market intelligence
on public and private companies, primarily to sales, marketing and business
development professionals.
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 liabilities on the basis of respective fair value. As a result, we
recognized goodwill and intangible assets of $66.4 million and $14.5 million,
respectively. The goodwill was assigned to our North America segment. Of the
$14.5 million of acquired intangible assets, $5.1 million was assigned to
trademarks and tradenames 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.
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 refinement.
On April 30, 2003, we paid $6.2 million to acquire controlling interests
in three privately-held Italian real estate data companies: 100% interests 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. As a result, together with
the minority interest held by our subsidiary Data House S.p.A., our interest in
RIBES S.p.A. increases to 35%. The transaction was funded with cash on hand.
The Italian acquisitions were accounted for under the purchase method of
accounting in accordance with SFAS No. 141. The purchase price for controlling
interests of 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 respective fair value. As a result, goodwill of $7.2
million was recognized and assigned to our International segment.
The impact that the Hoover's, Inc. and Italian acquisitions would have
had on our results had the acquisitions occurred at the beginning of 2003 is not
deemed significant as defined by accounting requirements and, as such, pro-forma
results have not been presented.
Note 9 - Segment Information
We have consolidated the management of all international activities into
a single management structure and, effective January 1, 2003, began managing our
businesses in Europe, Africa and Middle East region ("Europe") and Asia Pacific
and Latin America region ("APLA") as one segment, "International." Since
introducing our Blueprint for Growth strategy, we have significantly reduced our
investment in the APLA region through the sales of certain businesses and the
contribution of other businesses into minority investments. We have reclassified
prior period presentations to conform to this revised segment reporting.
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2003 2002 2003 2002
---- ---- ---- ----
Operating Revenues:
North America $ 229.3 $ 215.2 $ 455.8 $ 454.9
International 105.7 90.7 193.9 165.7
--------- -------- --------- ------------
Consolidated Total $ 335.0 $ 305.9 $ 649.7 $ 620.6
======== ======== ======== ===========
Operating Income (Loss):
North America $ 68.4 $ 66.0 $ 148.7 $ 146.2
International 16.4 14.1 17.7 10.1
--------- ------------ ---------- -------------
Total Divisions 84.8 80.1 166.4 156.3
All Other (1) (23.7) (49.3) (49.7) (66.5)
--------- ------------ ---------- --------------
Consolidated Total 61.1 30.8 116.7 89.8
Non-Operating Income (Expense)-- Net (4.6) (7.8) (1.5) (12.4)
--------- ------------ ----------- -------------
Income before Provision for Income Taxes $ 56.5 $ 23.0 $ 115.2 $ 77.4
======= ========== ======== ===========
(1) The following table itemizes "Other"
Corporate Costs ($11.3) ($9.1) ($21.0) ($18.9)
Transition Costs (7.5) (9.3) (12.9) (16.7)
Restructuring Expense (4.9) (30.9) (15.8) (30.9)
----- ------ ------ ------
Total Other ($23.7) ($49.3) ($49.7) ($66.5)
======= ======= ======= =======
Supplemental Geographic and Product Line Information:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2003 2002 2003 2002
---- ---- ---- ----
Geographic Revenues:
United States $ 221.2 $ 208.0 $ 440.1 $ 441.3
International 113.8 97.9 209.6 179.3
-------- ----------- -------- ----------
Total Geographic Revenue $ 335.0 $ 305.9 $ 649.7 $ 620.6
======= ========= ======== =========
Product Line Revenues:
North America:
Risk Management Solutions $ 153.0 $ 150.5 $ 304.7 $ 305.4
Sales & Marketing Solutions 61.3 59.5 128.2 138.5
Supply Management Solutions 6.9 5.2 12.3 11.0
E-Business Solutions 8.1 - 10.6 -
---------- --------- ----------- -------------
Core Revenue 229.3 215.2 455.8 454.9
Divested Businesses - - - -
----------- ----------- ------------- -------------
Total North America $ 229.3 $ 215.2 $ 455.8 $ 454.9
------- ------- --------- ---------
International:
Risk Management Solutions $ 86.2 $ 70.0 $ 158.6 $ 130.2
Sales & Marketing Solutions 16.6 17.4 30.3 30.6
Supply Management Solutions 2.9 3.0 5.0 4.4
--------- ---------- ------------ -----------
Core Revenue 105.7 90.4 193.9 165.2
Divested Businesses - 0.3 - 0.5
----------- ---------- ------------ -----------
Total International $105.7 $ 90.7 $ 193.9 $ 165.7
------- -------- --------- --------
Consolidated Operating Revenues:
Risk Management Solutions $ 239.2 $ 220.5 $ 463.3 $ 435.6
Sales & Marketing Solutions 77.9 76.9 158.5 169.1
Supply Management Solutions 9.8 8.2 17.3 15.4
E-Business Solutions 8.1 - 10.6 -
---------- ---------- ---------- -----------
Core Revenue 335.0 305.6 649.7 620.1
Divested Businesses - 0.3 - 0.5
----------- ---------- ---------- ----------
Total Revenue $ 335.0 $ 305.9 $ 649.7 $ 620.6
======= ======= ======== =======
June 30, December 31,
2003 2002
------ ------
Assets:
North America $ 442.9 $ 366.0
International 504.3 493.1
--------- -------------
Total Divisions 947.2 859.1
All Other (primarily U.S. pensions and taxes) 659.1 668.6
--------- -------------
Total Assets $1,606.3 $ 1,527.7
======== =========
Goodwill:
June 30, December 31,
2003 2002
------ ------
North America $ 118.0 $ 51.6
International 161.4 131.7
---------- ------------
Total Goodwill $ 279.4 $ 183.3
========= ===========
Note 10 - Subsequent Events
Sale of Our European Headquarters Building
On April 9, 2003, we signed a contract to sell our High Wycombe, England,
building. We will continue to operate from a portion of the building for a
multi-year period after the sale. The transaction closed on July 31, 2003. In
the third quarter 2003, we will recognize a pre-tax loss on the sale of the
building of approximately $14 million. Cash proceeds received from the sale were
approximately $80 million.
Sale of Our Israeli Operations
On July 31, 2003, we sold our Israeli operations. In the third quarter
2003, we will recognize a pre-tax loss on the sale of approximately $4 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Dun & Bradstreet Corporation's ("D&B" or "We") discussion and
analysis of our financial condition and results of operations for the second
quarter 2003, and for the six months ended June 30, 2003, are based upon D&B's
unaudited consolidated financial statements for that period. The consolidated
results for interim periods are not necessarily indicative of results for the
full year or any subsequent period. Our financial statements should be read in
conjunction with the consolidated financial statements and related notes, and
management's discussion and analysis of financial condition and results of
operations, which appear in D&B's Annual Report on Form 10-K for the year ended
December 31, 2002.
D&B provides the information, tools and expertise to help customers
"Decide with ConfidenceTM." On January 1, 2003, we began managing our businesses
in two operating segments:
o U.S. and Canada, which we refer to as "North America," is our largest
segment, contributing 68% and 70% of our total revenue for the second
quarter 2003 and six months ended June 30, 2003, respectively;
o Europe, Asia Pacific and Latin America, which we refer to as
"International," representing 32% and 30% of our total revenue for the
second quarter 2003 and six months ended June 30, 2003, respectively.
In each segment, D&B's core product lines are: Risk Management Solutions,
Sales & Marketing Solutions and Supply Management Solutions.
o Risk Management Solutions -- our largest solution set, contributed 71% of
our total revenue for the second quarter 2003 and six months ended June 30,
2003;
o Sales & Marketing Solutions-- our next largest solution set, contributed
23% and 24% of our total revenue for the second quarter 2003 and six months
ended June 30, 2003, respectively;
o Supply Management Solutions -- one of our smaller solution sets,
contributed 3% of our total revenue for the second quarter 2003 and six
months ended June 30, 2003.
These core product lines, or customer solution sets, are discussed in
greater detail in "Item 1. Business" of our Form 10-K for the year ended
December 31, 2002.
In addition, beginning with our first quarter 2003, we began reporting a
fourth core product line, E-Business Solutions, representing the results of
Hoover's, Inc. since we acquired the business on March 3, 2003. E-Business
Solutions contributed 3% and 2% of our total revenue for the second quarter 2003
and six months ended June 30, 2003 respectively, and is included in our North
American segment results.
In 2001, we launched a series of E-Business offerings in North America
that provide access to, and delivery of, D&B products via the web. We continue
to report the results of these product offerings in our Risk Management
Solutions and Sales & Marketing Solutions product lines.
Within our Risk Management Solutions and our Sales & Marketing Solutions,
we monitor the performance of our older, more "traditional" products and our
newer, "value-added products," because we expect the value-added products to be
primary drivers of D&B's future revenue growth.
Our traditional Risk Management Solutions generally consist of reports
derived from our database which are used primarily for making decisions about
new credit applications. An example is our Business Information Report, or BIR.
Our traditional Risk Management Solutions constituted 84% and 83% of our Risk
Management Solutions revenue for the second quarter 2003 and six months ended
June 30, 2003, respectively. Traditional Risk Management Solutions constituted
60% and 59% of D&B's total revenue for the second quarter 2003 and six months
ended June 30, 2003, respectively. 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 16% and 17% of our Risk Management Solutions
revenue for the second quarter 2003 and six months ended June 30, 2003,
respectively. Value-added Risk Management Solutions constituted 11% and 12% of
D&B's total revenue for the second quarter 2003 and six months ended June 30,
2003.
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, and constituted 59% and 58% of our
Sales & Marketing Solutions revenue for the second quarter 2003 and six months
ended June 30, 2003, respectively. Traditional Sales & Marketing constituted 14%
of D&B's total revenue for the second quarter 2003 and six months ended June 30,
2003. Our value-added Sales & Marketing Solutions generally include automated
decision-making and customer information management solutions, and constituted
41% and 42% of our Sales & Marketing Solutions revenue for the second quarter
2003 and six months ended June 30, 2003 respectivley. Value-added Sales &
Marketing Solutions constituted 10% of D&B's total revenue for the second
quarter 2003 and six months ended June 30, 2003.
How We Evaluate Performance
For internal management purposes, we use total revenue excluding the
revenue of divested businesses, which we refer to as "core revenue," to manage
and evaluate the performance of our business, because it reflects revenue from
our ongoing operations. Core revenue includes the revenue from acquired
businesses from the date of acquisition.
We also isolate the effects of changes in foreign exchange rates on our
business. While we take steps to manage our exposure to foreign currency, we
believe that changes in revenue growth due to exchange rate movements are not
reflective of our underlying business performance. As a result, we monitor our
core revenue growth both including and excluding the effects of foreign
exchange. We refer to these measures as revenue growth "after the effects of
foreign exchange" and "before the effects of foreign exchange," respectively.
We evaluate our results excluding restructuring charges (whether
recurring or non-recurring) and certain other items that we consider do not
reflect our underlying business performance (which we refer to as "non-core
gains and charges"). For the second quarter 2003 and 2002, these non-core gains
and charges were restructuring charges of $4.9 million and $30.9 million,
respectively. For the six months ended June 30, 2003, these non-core gains and
charges were $15.8 million of restructuring charges and $7.0 million of
insurance recovery related to the World Trade Center tragedy. For the six months
ended June 30, 2002, these non-core gains and charges were restructuring charges
of $30.9 million.
We believe these measures are useful to you because they reflect how we
manage our business. While we use these measures for the reasons stated above,
these measures are not prepared in accordance with GAAP and should not be
considered in isolation or as substitutes for results prepared in accordance
with GAAP. In addition, you should note that because not all companies calculate
these financial measures similarly or at all, the presentation of these measures
is not likely to be comparable to measures of other companies.
We also evaluate the profitability of our business segments before
certain operating charges. Restructuring and transition costs are managed at the
corporate level, and therefore such amounts are not included in our segment
results. Transition costs, which are 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. Non-operating income or expenses are also managed at the
corporate level, and therefore such amounts are also excluded from segment
results.
Recently Issued Accounting Standards
See Note 2 to our consolidated financial statements for disclosure of the
impact that recently issued accounting standards will have on our 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, and
should be read in conjunction with those financial statements and footnotes,
which have been prepared in accordance with GAAP.
Consolidated Revenues
The following tables present our revenue by segment and product line for
the second quarter 2003 and 2002 and for the six months ended June 30, 2003 and
2002. Additionally, these tables reconcile the non-GAAP measures of core
revenue, both before and after the effect of foreign exchange, and total revenue
before the effect of foreign exchange, to the GAAP measure of total revenue.
Growth (Decline) Growth (Decline)
vs. Prior Year Less: vs. Prior Year
Three Months Ended Period After Effects of Period Before
June 30, Effects of Foreign Foreign Effects of Foreign
2003 2002 Exchange Exchange Exchange
----- ----- -------- -------- --------
(Amounts in millions)
Revenues by Segment:
North America $229.3 $215.2 7% 1% 6%
International 105.7 90.4 17% 18% (1%)
------ --------
Core Revenue 335.0 305.6 10% 6% 4%
Divested Businesses - 0.3 N/M - N/M
--------- ---------
Total Revenue $335.0 $ 305.9 10% 6% 4%
====== =======
Growth (Decline) Growth (Decline)
vs. Prior Year Less: vs. Prior Year
Three Months Ended Period After Effects of Period Before
June 30, Effects of Foreign Foreign Effects of Foreign
2003 2002 Exchange Exchange Exchange
----- ----- -------- -------- -------
(Amounts in millions)
Revenues by Product Line:
Risk Management Solutions $ 239.2 $220.5 9% 7% 2%
Sales & Marketing Solutions 77.9 76.9 1% 3% (2%)
Supply Management 9.8 8.2 19% 8% 11%
Solutions
E-Business Solutions 8.1 - N/M - N/M
--------- ---------
Core Revenue 335.0 305.6 10% 6% 4%
Divested Businesses - 0.3 N/M - N/M
---------- --------
Total Revenue $335.0 $305.9 10% 6% 4%
====== ======
Growth (Decline) Growth (Decline)
vs. Prior Year Less: vs. Prior Year
Six Months Ended Period After Effects of Period Before
June 30, Effects of Foreign Foreign Effects of Foreign
2003 2002 Exchange Exchange Exchange
----- ----- -------- -------- -------
(Amounts in millions)
Revenues by Segment:
North America $455.8 $454.9 - - -
International 193.9 165.2 17% 17% -
------- -------
Core Revenue 649.7 620.1 5% 5% -
Divested Businesses - 0.5 N/M - N/M
--------- ---------
Total Revenue $649.7 $ 620.6 5% 5% -
====== =======
Growth (Decline) Growth (Decline)
vs. Prior Year Less: vs. Prior Year
Six Months Ended Period After Effects of Period Before
June 30, Effects of Foreign Foreign Effects of Foreign
2003 2002 Exchange Exchange Exchange
----- ----- -------- -------- -------
(Amounts in millions)
Revenues by Product Line:
Risk Management Solutions $ 463.3 $435.6 6% 5% 1%
Sales & Marketing Solutions 158.5 169.1 (6%) 3% (9%)
Supply Management Solutions 17.3 15.4 13% 6% 7%
E-Business Solutions 10.6 - N/M - N/M
--------- ---------
Core Revenue 649.7 620.1 5% 5% -
Divested Businesses - 0.5 N/M - N/M
---------- --------
Total Revenue $ 649.7 $620.6 5% 5% -
======= ======
Three Months Ended June 30, 2003
For the three months ended June 30, 2003, core revenue increased $29.4
million, or 10% (including six percentage points of growth from favorable
movements in foreign exchange rates and five percentage points from
acquisitions), compared with the three months ended June 30, 2002. The revenue
increase was driven by revenue growth in North America of $14.1 million and
International of $15.3 million, or 7% (including one percentage point of growth
from favorable movements in foreign exchange rates) and 17% (including eighteen
percentage points of growth from favorable movements in foreign exchange rates),
respectively. First quarter 2002 total revenue includes revenue from our Korean
business, which was divested in the quarter ended December 31, 2002.
On a product-line basis, our core revenue results in the second quarter
of 2003 versus the second quarter of 2002 reflect:
o an $18.7 million, or 9%, growth in Risk Management Solutions, including
seven percentage points of growth from favorable movements in foreign
exchange rates and three percentage points of growth due to the acquisition
of Data House in the third quarter of 2002 and the Italian real estate
acquisitions in April 2003. Traditional Risk Management Solutions grew 9%,
and our value-added Risk Management Solutions grew 8%, benefiting by seven
and three percentage points of growth due to the effects of foreign
exchange, respectively. Within our Traditional Risk Management Solutions,
the increase was primarily driven by the launch of the enhanced BIR at a
higher price as well as growth in other traditional products including
Comprehensive Report, Self-Analysis, and Monitoring. In our value-added
Risk Management Solutions, our portfolio management solutions products
continued to perform well in the United States, which reflects our recent
investments in our Enterprise Risk Assessment Manager product line, that
provides more value to our customers in managing their credit portfolios.
Additionally, we have increased the portion of our customers' portfolio
that we manage through this product.
o a $1 million, or 1%, increase in Sales & Marketing Solutions, including
three percentage points of favorable movement in foreign exchange rates.
Traditional Sales & Marketing Solutions declined 7%, while our value-added
Sales & Marketing Solutions grew 15%, reflecting four and two percentage
points of growth from foreign exchange, respectively. Traditional Sales &
Marketing Solutions is the area of our business that is very sensitive to
the economy, since it is often viewed as discretionary spending by our
customers. The decline is indicative of the current economic environment.
The increase in value-added Sales & Marketing Solutions is largely driven
by greater customer penetration in our customer information management
products.
o a $1.6 million, or 19%, increase in Supply Management Solutions on a small
base, reflecting investment spending and eight percentage points of growth
from favorable movements in foreign exchange rates. This growth came from
our North America segment, reflecting the trend of customers focusing on
improving their operating results through the optimization of the
procurement process.
o $8.1 million of revenue from E-Business Solutions, representing the results
of Hoover's, Inc., which was acquired on March 3, 2003.
Six Months Ended June 30, 2003
For the six months ended June 30, 2003, core revenue increased $29.6
million, or 5% (including five percentage points of growth from favorable
movements in foreign exchange rates and four percentage points from
acquisitions), compared with the six months ended June 30, 2002. The revenue
increase was primarily driven by revenue growth in our International segment of
$28.7 million, or 17% (including seventeen percentage points of growth from
favorable movements in foreign exhange rates) . Total revenue for the six months
ended June 30, 2002 includes revenue from our Korean business, which was
divested in the quarter ended December 31, 2002.
On a product-line basis, our core revenue results for the six months
ended June 30, 2003 versus the six months ended June 30, 2002 reflect:
o a $27.7 million, or 6%, growth in Risk Management Solutions, including five
percentage points of growth from favorable movements in foreign exchange
rates and three percentage points of growth due to the acquisition of Data
House in the third quarter of 2002 and the Italian real estate acquisitions
in April 2003. For the six months ended June 30, 2003, Risk Management
Solutions was up 1% before the effects of foreign exchange, driven by the
strong second quarter results in North America.
o a $10.6 million, or 6%, decrease in Sales & Marketing Solutions, including
three percentage points of favorable movement in foreign exchange rates.
The 9% decline in Sales & Marketing Solutions, before the effects of
foreign exchange, reflects the improved results in the second quarter from
a 13% decline, including two percentage points of favorable impacts from
foreign exchange, or a 15% decline before the effects of foreign exchange,
in the first quarter of 2003.
o a $1.9 million, or 13%, increase in Supply Management Solutions on a small
base, reflecting investment spending and six percentage points of growth
from favorable movements in foreign exchange rates. This growth came from
both our North America and International segments, reflecting the ongoing
benefit of the investments we made in this area in 2002. The growth was
also driven by customers focusing on improving their operating results
through the optimization of the procurement process.
o $10.6 million of revenue from E-Business Solutions, representing the
results of Hoover's, Inc. since its acquisition on March 3, 2003.
Consolidated Operating Costs
The following table presents our consolidated operating costs and
operating income for the quarter and six months ended June 30, 2003 and 2002:
Three Months Ended Six Months Ended
June 30, June 30,
--------- --------
2003 2002 2003 2002
---- ---- ---- ----
(Amounts in millions) (Amounts in millions)
Operating Expenses $101.8 $102.2 $207.9 $211.0
Selling and Administrative Expenses 151.5 122.1 277.4 249.5
Depreciation and Amortization 15.7 19.9 31.9 39.4
Restructuring Charge 4.9 30.9 15.8 30.9
--------------- -------------- -------------- --------------
Operating Costs $ 273.9 $ 275.1 $533.0 $530.8
=============== ============== ============== ===============
Operating Income $ 61.1 $ 30.8 $116.7 $89.8
=============== ============== ============== ===============
Operating expenses of $101.8 million for the three months ended June 30,
2003 were down 1% compared to the three months ended June 30, 2002.
On a year-to-date basis, operating expenses decreased 2% to $207.9
million. The underlying decrease reflects the reduction in headcount in the data
collection, fulfillment and technology areas.
Selling and administrative expenses increased 24% to $151.5 million in
the second quarter of 2003, compared with $122.1 million in the second quarter
of 2002. The increase was primarily due to additional costs related to revenue
generating investments, such as additions to our sales force to improve our
marketplace coverage in Sales & Marketing Solutions as well as additional costs
incurred as a result of increased revenues. Additionally, we have increased our
expense base as a result of consolidating the Hoover's, Inc. acquisition that
closed on March 3, 2003. The increase in the costs mentioned above was partially
offset by administrative cost savings such as lower compensation costs achieved
through our Financial Flexibility program.
On a year-to-date basis, selling and administrative expenses increased
11% to $277.4 million compared to the six months ended June 30, 2002. The
increase was primarily due to additional costs as a result of the Hoover's, Inc.
acquisition that closed on March 3, 2003. Also contributing to the increase were
costs relating to revenue generating investments, such as additions to our sales
force to improve our marketplace coverage in Sales & Marketing Solutions as well
as additional costs incurred as a result of increased revenues.
We had net pension income of $4.3 million and $8.5 million for the three
and six months ended June 30, 2003, respectively, compared to $8.9 million and
$17.4 million for the three and six months ended June 30, 2002, respectively. We
consider this amount to be part of our compensation costs and, therefore, net
pension income is included in operating expenses and in selling and
administrative expenses, based upon the classification of the underlying
compensation costs. Higher non-cash pension costs resulting from changes in the
actuarial assumptions for the U.S. Retirement Plan has resulted in the decline
in net pension income compared to 2002.
Depreciation and amortization decreased 21% to $15.7 million in the
second quarter of 2003, as compared to the second quarter of 2002. The decrease
in the second quarter 2003 was largely driven by the sale of our facilities in
Berkeley Heights and Murray Hill, New Jersey in 2002 and lower capitalized
spending in 2003.
Year-to-date depreciation and amortization decreased by 19% to $31.9
million, compared to $39.4 million for the six months ended June 30, 2002. The
decrease in the six months ended June 30, 2003 was the result of the same
factors that affected the second quarter of 2003.
During the second quarter of 2003, we recognized a $4.9 million charge in
connection with the fourth phase of our Financial Flexibility program for
severance and termination costs in accordance with SFAS No. 146. Under SFAS No.
146, this amount represents the liabilities incurred during the quarter for each
of these obligations. We expect that additional restructuring charges will be
incurred during the third quarter of 2003 as additional program actions are
completed. In total, we expect to record approximately $16.4 million for all
costs related to the fourth phase of our Financial Flexibility program,
including $16.1 million for severance and termination costs related to
approximately 550 employees and $0.3 million for lease termination obligations.
As of June 30, 2003, we have terminated approximately 2,900 of the 3,250
employees affected under all four phases of the Financial Flexibility program,
including the approximately 400 employees who were transitioned to Computer
Sciences Corporation ("CSC") in connection with the outsourcing of certain
technology functions. By the end of the third quarter 2003, approximately 250
additional employees worldwide will have their positions terminated in
connection with the fourth phase. By September 30, 2003 approximately 100
employees will be terminated in connection with the third phase of our Financial
Flexibility program due primarily to the timing of certain actions taken in our
North American operations. This will bring the total number of employees
terminated (via termination and voluntary attrition) in connection with the four
phases of the Financial Flexibility program, since its inception in October
2000, to approximately 3,250, reflecting the elimination of 3,550 positions
(including 300 open positions).
Year-to-date restructuring charges of $15.8 million have been recognized
in connection with the fourth phase of our Financial Flexibility program. As of
June 30, 2003 we have recorded $15.5 million for severance and termination costs
related to approximately 450 employees and $0.3 million for lease termination
obligations. Total restructuring charges are down 49% from prior year levels due
primarily to the $10.6 million of asset write-offs recognized as part of the
third phase of our Financial Flexibility program in connection with the sale of
our Berkeley Heights facility to CSC during the second quarter of 2002.
In accordance with SFAS No. 87 and SFAS No. 88, we are required to
recognize a one-time curtailment charge for the estimated pension expense impact
to the Dun & Bradstreet Corporation Retirement Account (the "U.S. Qualified
Plan") related to the headcount actions of the fourth phase of our Financial
Flexibility program announced on January 13, 2003. The curtailment accounting
requirement of SFAS No. 88 requires us to recognize immediately a pro-rata
portion of the unrecognized prior service cost and the cost of any special
charges related to benefit enhancements that might occur as a result of the
layoffs (e.g., full vesting). For the U.S. Qualified Plan, these items together
resulted in an immediate curtailment charge to earnings of $0.5 million in first
quarter 2003, included in the $15.8 million charge above.
Interest Income (Expense) -- Net
The following table presents our net interest income and expense for the
quarter and six months ended June 30, 2003 and 2002:
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(Amounts in millions) (Amounts in millions)
Interest Income $0.8 $0.6 $1.6 $1.3
Interest Expense (4.7) (4.9) (9.2) (9.9)
--------------- -------------- --------------- ---------------
$(3.9) $(4.3) $(7.6) $(8.6)
=============== ============== =============== ===============
For the three months ended June 30, 2003, interest income increased $0.2
million and interest expense decreased $0.2 million. For the six months ended
June 30, 2003, interest income increased $0.3 million and interest expense
decreased $0.7 million. The increases in interest income was primarily due to
additional invested amounts of our combined cash and marketable securities, both
short and long term, while the decrease in interest expense was primarily due to
lower interest rates.
Other Income (Expense) -- Net
The following table presents our "Other Income (Expense) -- Net" for the
quarter and six months ended June 30, 2003 and 2002:
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(Amounts in millions) (Amounts in millions)
Miscellaneous Other Income (Expense) - Net $(0.7) $(0.6) $(0.9) $(0.9)
Insurance Recovery related to World Trade Center
Tragedy - - 7.0 -
Investment write-off of Avantrust, LLC - (2.9) - (2.9)
--------------- -------------- --------------- ---------------
$(0.7) $(3.5) $6.1 $(3.8)
=============== ============== =============== ===============
For the three months ended June 30, 2003, Other Expense - Net decreased
$2.8 million, primarily due to the write-off of the Avantrust, LLC investment in
2002. For the six months ended June 30, 2003, Other Income -Net of $6.1 million
increased by $9.9 million, primarily due to receipt of a $7.0 million settlement
on an insurance claim to recover losses related to the events of September 11,
2001 combined with our $2.9 million write-off of the Avantrust, LLC investment
in the six months ended June 30, 2002.
Provision for Income Taxes
D&B's effective tax rate has been negatively impacted by the
non-deductibility in some countries of certain items included within
restructuring charges. Our effective tax rate for the second quarter of 2003 was
37.9%, compared with 47.5% in the second quarter of 2002, reflecting a 0.9 point
and 10.1 point impact from non-deductibility of restructuring charges in the
respective periods. For the six months ended June 30, 2003 and June 30, 2002,
our effective tax rate was 37.3% and 40.4%, respectively, reflecting a 0.3 point
and 2.9 point impact from non-deductibility of restructuring charges in the
respective periods. In addition to lower restructuring charges, the decrease in
our effective tax rate in the second quarter of 2003 and six months ended June
30, 2003 is attributable to state tax planning initiatives and global tax
planning.
Equity in Net Losses of Affiliates
In the second quarter of 2002, we exited Avantrust LLC, our joint venture
with American International Group, Inc., resulting in D&B's no longer
recognizing net losses of affiliates. In the first and second quarter of 2002,
we recorded $0.5 million and $1.2 million as Equity in Net Losses of Affiliates,
respectively.
Earnings per Share
We reported earnings per share, or EPS, in the quarter and six months
ended June 30, 2003 and 2002, as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Basic Earnings Per Share $0.47 $0.15 $0.97 $0.60
===== ===== ===== =====
Diluted Earnings Per Share $0.46 $0.14 $0.94 $0.57
===== ===== ===== =====
For the three months ended June 30, 2003, basic EPS increased 213%,
compared with the second quarter of 2002, driven by a 222% increase in net
income. Diluted EPS increased 229%, compared with the second quarter of 2002,
reflecting a 222% increase in net income. The increases in EPS were primarily
driven by a smaller restructuring charge in the three months ended June 30, 2003
as compared to 2002. Restructuring charges for the quarter ended June 30, 2003
and 2002 were $4.9 million and $30.9 million, respectively.
For the six months ended June 30, 2003, basic EPS increased 62%, compared
with the the six months ended June 30, 2002, reflecting a 62% increase in net
income. Diluted EPS increased 65%, compared with the six months ended June 30,
2002, reflecting a 62% increase in net income and a 1% reduction in weighted
average number of diluted shares outstanding. The primary driver in EPS growth
is a smaller restructuring charge in the six months ended June 30, 2003 as
compared to 2002. Restructuring charges for the six months ended June 30, 2003
and 2002 were $15.8 million and $30.9 million, respectively. Additionally,
during the six months ended June 30, 2003, D&B received a $7.0 million
settlement on an insurance claim to recover losses related to the events of
September 11, 2001.
Segment Results
We have consolidated the management of all international activities into
a single management structure and, effective January 1, 2003, began managing our
businesses in Europe and APLA as one segment, "International." Since introducing
our Blueprint for Growth strategy, we have significantly reduced our investment
in the APLA region through the sales of certain businesses and the contribution
of other businesses into minority investments. We have reclassified prior period
presentations to conform to this revised segment reporting.
North America
North America is our largest segment, representing 68% and 70% of our
total revenue for the second quarter 2003 and six months ended June 30, 2003,
respectively. The following tables present our North American product line
revenue for the quarter and six months ended June 30, 2003 and 2002. The tables
also reconcile the non-GAAP measure of revenue before the effect of foreign
exchange to the GAAP measure of total revenue.
Growth (Decline) Growth (Decline)
vs. Prior Year Less: vs. Prior Year
Three Months Ended Period After Effects of Period Before
June 30, Effects of Foreign Foreign Effects of Foreign
2003 2002 Exchange Exchange Exchange
----- ----- -------- -------- -------
(Amounts in millions)
Revenues:
Risk Management Solutions $153.0 $ 150.5 2% 1% 1%
Sales & Marketing Solutions 61.3 59.5 3% - 3%
Supply Management Solutions 6.9 5.2 31% - 31%
E-Business Solutions 8.1 - N/M - N/M
--------- ---------
Total North America Revenue $229.3 $215.2 7% 1% 6%
====== ======
Growth (Decline) Growth (Decline)
vs. Prior Year Less: vs. Prior Year
Six Months Ended Period After Effects of Period Before
June 30, Effects of Foreign Foreign Effects of Foreign
2003 2002 Exchange Exchange Exchange
----- ----- -------- -------- -------
(Amounts in millions)
Revenues:
Risk Management Solutions $304.7 $ 305.4 - 1% (1%)
Sales & Marketing Solutions 128.2 138.5 (7%) 1% (8%)
Supply Management Solutions 12.3 11.0 12% - 12%
E-Business Solutions 10.6 - N/M - N/M
--------- ---------
Total North America Revenue $ 455.8 $ 454.9 - - -
======= =======
Three Months Ended June 30, 2003
North American revenue increased $14.1 million, or 7%, from the second
quarter of 2002. The increase is due to increased revenue in all of our product
lines. The acquisition of Hoover's, Inc. on March 3, 2003, contributed an
additional $8.1 million, or four percentage points of growth.
On a product-line basis, North America's revenue results reflect:
o a $2.5 million, or 2%, increase in Risk Management Solutions. Traditional
Risk Management solutions, which accounted for 79% of total North American
Risk Management Solutions, was up 1%. The increase was primarily driven by
the launch of the enhanced BIR at a higher price as well as growth in other
traditional products including Comprehensive Report, Self-Analysis, and
Monitoring. Value-added Risk Management Solutions increased 6%, as our
portfolio management solutions products continued to perform well in the
United States. This increase reflects our recent investments in our
Enterprise Risk Assessment Manager product line, that provides more value
to our customers in managing their credit portfolios. Additionally, we have
increased the portion of our customers' portfolio that we manage through
this product.
o a $1.8 million, or 3%, increase in Sales & Marketing Solutions. Traditional
Sales & Marketing Solutions, which accounted for 57% of total North
American Sales & Marketing Solutions, decreased 3%. This is the area of our
business that is very sensitive to the economy, since it is often viewed as
discretionary spending by our customers. The decline is indicative of the
current economic environment. Value-added Sales & Marketing Solutions
increased 11%, largely driven by greater customer penetration in customer
information management products.
o a $1.7 million, or 31%, increase in Supply Management Solutions reflects
the trend of customers focusing on improving operating results through the
optimization of the procurement process.
o $8.1 million of revenue from E-Business Solutions, representing the results
of Hoover's, Inc., which was acquired on March 3, 2003.
North America's operating income for the second quarter 2003 was $68.4
million, compared to $66.0 million for the second quarter 2002. The increase in
operating income was primarily due to a 7% increase in the overall North America
revenues for the second quarter, as well as reduced costs associated with our
financial flexibility program, partially offset by additional costs as a result
of the Hoover's, Inc. acquisition on March 3, 2003.
Six Months Ended June 30, 2003
North America revenue was slightly higher compared to the six month
period ended June 30, 2002. The acquisition of Hoover's, Inc. on March 3, 2003,
contributed $10.6 million, or two percentage points of growth.
On a product-line basis, North America's revenue results reflect:
o Risk Management Solutions was virtually equal to the results from the six
months ended June 30, 2002. The results for the six months ended June 30,
2003 improved from a 2% decline in the first quarter 2003. Traditional Risk
Management Solutions contributed to this improvement through the launch of
the enhanced BIR at a higher price as well as growth in other traditional
products including Comprehensive Report, Self-Analysis, and Monitoring.
Additionally, our value-added Risk Management Solutions products continued
to perform well in the United States. This increase reflects our recent
investments in our Enterprise Risk Assessment Manager product line, that
provides more value to our customers in managing their credit portfolios.
o a $10.3 million, or 7%, decrease in Sales & Marketing Solutions reflects a
significant improvement from the first quarter 2003 decline of 15%. The
improvement was driven by continued strength in our value-added Sales &
Marketing Solutions that significantly reduced the rate of decline in the
overall product line.
o a $1.3 million, or 12% increase in Supply Management Solutions reflects the
trend of customers focusing on improving their operating results through
the optimization of the procurement process.
o $10.6 million of revenue from E-Business Solutions, representing the
results of Hoover's Inc., which was acquired on March 3, 2003.
North America's operating income for the six months ended June 30, 2003
was $148.7 million, an increase of $2.5 million, or 2% from the six months ended
June 30, 2002. Revenues were slightly higher from prior year, while expenses
were slightly lower as a result of a generally lower operating cost base due to
our financial flexibility initiatives. Offsetting these improvements were higher
non-cash pension costs resulting from changes in the actuarial assumptions for
the U.S. Retirement Plan and increased expenses associated with our acquisition
of Hoover's, Inc. on March 3, 2003.
International
International represented 32% and 30% of our revenue for the second
quarter 2003 and the six months ended June 30, 2003, respectively. The following
tables present our International product revenue for the quarter and six months
ended June 30, 2003 and 2002. Additionally, the tables reconcile the non-GAAP
measures of core revenue, both before and after the effect of foreign exchange,
and total revenue before the effect of foreign exchange, to the GAAP measure of
total revenue.
Growth (Decline) Growth (Decline)
vs. Prior Year Less: vs. Prior Year
Three Months Ended Period After Effects of Period Before
June 30, Effects of Foreign Foreign Effects of Foreign
2003 2002 Exchange Exchange Exchange
----- ----- -------- -------- -------
(Amounts in millions)
Revenues:
Risk Management Solutions $ 86.2 $ 70.0 23% 19% 4%
Sales & Marketing Solutions 16.6 17.4 (4%) 13% (17%)
Supply Management Solutions 2.9 3.0 (3%) 18% (21%)
---------- ---------
International Core Revenue 105.7 90.4 17% 18% (1%)
Divested Businesses - 0.3 N/M - N/M
---------- ---------
Total International Revenue $ 105.7 $ 90.7 17% 18% (1%)
======== =======
Growth (Decline) Growth (Decline)
vs. Prior Year Less: vs. Prior Year
Six Months Ended Period After Effects of Period Before
June 30, Effects of Foreign Foreign Effects of Foreign
2003 2002 Exchange Exchange Exchange
----- ----- -------- -------- -------
(Amounts in millions)
Revenues:
Risk Management Solutions $ 158.6 $130.2 22% 18% 4%
Sales & Marketing Solutions 30.3 30.6 (1%) 13% (14%)
Supply Management Solutions 5.0 4.4 15% 20% (5%)
---------- ---------
International Core Revenue 193.9 165.2 17% 17% -
Divested Businesses - 0.5 N/M - N/M
---------- ---------
Total International Revenue $ 193.9 $ 165.7 17% 17% -
======= =======
Three Months Ended June 30, 2003
International revenue increased $15 million, or 17%, from the second
quarter of 2002. The increase in International's revenue was driven by 18
percentage points of growth due to the favorable effect of foreign exchange rate
movements and seven percentage points of growth due to our acquisition of Data
House in the third quarter of 2002 and the additional Italian real estate
acquisitions in April 2003.
On a product-line basis, International's revenue results reflect:
o a $16.2 million, or 23%, increase in Risk Management Solutions, including
19 percentage points of growth due to favorable movements in foreign
exchange rates and nine percentage points of growth due to the acquisition
of Data House and the additional Italian real estate acquisitions.
Traditional Risk Management Solutions increased 24%, driven by 20
percentage points of growth due to favorable movements in foreign exchange
rates and ten percentage points of growth due to the acquisition of Data
House and the additional Italian real estate acquisitions. Within our
traditional products, we continue to experience pricing pressure from local
competition in our larger markets, specifically United Kingdom, Italy,
Germany, and France. This pricing pressure has been partially offset by the
successful launch of a new monitoring product, e-Portfolio. Value-added
Risk Management Solutions increased 19%, including 12 percentage points of
growth due to favorable movements in foreign exchange rates. The increase
is driven by the customers' preference to automate the decisioning process
through products such as Global Decision Maker, and integrate their
existing systems using Toolkit solutions.
o a $0.8 million, or 4%, decrease in Sales & Marketing Solutions, including
13 percentage points of growth due to favorable movements in foreign
exchange rates. Traditional Sales & Marketing Solutions decreased 18%,
including 12 percentage points of growth due to favorable movements in
foreign exchange rates. The results are indicative of the highly
competitive market and challenging market conditions, where the customers
continue to cut back on discretionary spending. Value-added Sales &
Marketing Solutions increased by 36%, impacted by 15 percentage points due
to favorable effects of foreign exchange. The growth in value-added Sales &
Marketing Solutions reflects customers' movement to higher value product
solutions, with products such as Market Insight and Customer Information
Management.
o a $0.1 million, or 3%, decrease in Supply Management Solutions, including
18 percentage points of growth due to favorable movements in foreign
exchange rates.
International's operating income increased by $2.3 million, or 16%,
compared with the second quarter 2002. The increase was primarily due to a 17%
increase in revenue.
Six Months Ended June 30, 2003
International revenue increased $28.2 million, or 17%, from the six
months ended June 30, 2003. The increase in International's revenue was driven
by 17 percentage points of growth due to the favorable effect of foreign
exchange rate movements and seven percentage points of growth due to our
acquisition of Data House in the third quarter of 2002 and the additional
Italian real estate acquisitons in April 2003.
On a product-line basis, International's revenue results reflect:
o a $28.4 million, or 22%, increase in Risk Management Solutions, including
18 percentage points of growth due to favorable movements in foreign
exchange rates and nine percentage points of growth due to the acquisition
of Data House and the additional Italian real estate acquisitions.
Traditional Risk Management Solutions increased 22%, driven by 19
percentage points of growth due to favorable movements in foreign exchange
rates and nine percentage points of growth due to the acquisition of Data
House and the additional Italian real estate acquisitions. We are
experiencing a shift in customer spending from higher-priced comprehensive
reports to lower-priced, less detailed reports. Value-added Risk Management
Solutions increased 24%, including 13 percentage points of growth due to
the favorable effects of foreign exchange. The continued improvement in
value-added products reflects our customers shift to decision making
products.
o a $0.3 million, or 1%, decrease in Sales & Marketing Solutions, including
13 percentage points of growth due to favorable movements in foreign
exchange rates. Traditional Sales & Marketing Solutions decreased by 7%,
and our value-added Sales & Marketing Solutions increased by 19%, impacted
by 13 and 15 percentage points of growth, respectively, due to favorable
effects of foreign exchange. The continued decline of the Traditional Sales
& Marketing Solutions is indicative of a highly competitive market, strong
economic pressures and lower discretionary spending. The increase in our
value-added Sales & Marketing Solutions represents a significant reversal
from the decline in the first quarter 2003. The increase is primarily
driven by the growth of Market Insight and Customer Information Managemen
products.
o a $0.6 million, or 15%, increase in Supply Management Solutions, including
20 percentage points of growth due to favorable movements in foreign
exchange rates.
International's operating income increased by $7.6 million, or 74%,
compared with the six months ended June 30, 2003. The increase was primarily due
to a 17% increase in revenue as well as a lower cost base associated with our
Financial Flexibility program. Specifically, cost improvements were achieved in
the technology, administrative and data collection areas.
The following factors affecting our International business create
particular challenges to our revenue growth:
o In most International markets we do not have a market leadership position.
This makes us particularly susceptible to pricing pressures. We also face
entrenched local competitors.
o European businesses tend to manage their credit exposures through credit
insurance rather than through the credit approval process using business
information of the type provided by us.
o In many local markets in Europe, key data elements are generally available
from public-sector sources thus reducing our data collection advantage.
o Prior to the launch of our Blueprint for Growth strategy, our data
investment decisions were not made in a coordinated fashion across the
International marketplace. While we have made significant investments to
mitigate the situation, we are still faced with uneven data quality in some
local markets.
Liquidity and Financial Position
At June 30, 2003, cash and cash equivalents totaled $127.4 million, a
decrease from $191.9 million at December 31, 2002. This $64.5 million decrease
primarily reflects $98.0 million used for the acquisitions of Hoover's and three
small Italian real estate companies (net of cash acquired), $53.6 million used
to repurchase shares, $28.3 million used to purchase marketable securities and
$15.3 million of investments in capital expenditures and capitalized software,
partially offset by $130.7 million of cash provided from operations and $10.3
million of net proceeds received in connection with our stock incentive plans.
We believe that cash flows generated from our operations and supplemented
as needed with readily available financing in the commercial paper markets are
sufficient to meet our short-term and long-term needs, including the cash cost
of our restructuring charges, transition costs, lease committments and tax and
legal matters. We access the commercial paper market from time to time to fund
working capital needs and share repurchases. Such borrowings have been supported
by our bank credit facilities.
Cash Provided by Operating Activities
Net cash provided by operating activities for the six months ended June
30, 2003, was $130.7 million, while operating activities in the same period of
2002 provided net cash of $105.1 million. This increase of $25.6 million was
primarily due to $7.8 million improvement in our accounts receivables due to
collections improvements, $7.3 million improvement in our deferred revenue due
to sales increases primarily in our International operations, and $8.9 million
improvement in our accrued liabilities due to ongoing operating expense
reductions. The remaining difference is primarily due to the receipt of $7.0
million in the first quarter of 2003 in settlement of our insurance claim to
recover losses related to the events of September 11, 2001. During the six
months ended June 30, 2003, D&B made payments of $15.9 million related to the
restructuring actions associated with our Financial Flexibility program,
compared to payments of $16.1 million in the same period of 2002.
Cash Used in Investing Activities
Net cash used in investing activities totaled $156.8 million during the
first six months of 2003, compared with net cash used in investing activities of
$2.0 million during the first six months of 2002. This change primarily was
related to the payments of $92.5 million (net of cash acquired) for the
acquisition of Hoover's in the first quarter of 2003 and $5.5 million (net of
cash acquired) for the acquisition of three small Italian real estate companies.
Also, as part of this transaction we made a $1.9 million payment to acquire
17.5% of RIBES S.p.A., a leading provider of business information to Italian
banks, during the second quarter of 2003. We also received $11.7 million of
short term marketable securities as part of the acquisition of Hoover's. During
the first six months of 2003, we also have purchased $28.3 million of marketable
securities. During the first six months of 2002 we received $21.5 million of
cash proceeds from the sale of our Murray Hill and Berkeley Heights facilities.
Cash Used in Financing Activities
Net cash used in financing activities was $42.5 million during the first
six months of 2003, compared with net cash used in financing activities of
$103.0 million in the same period of 2002.
During the first six months of 2003, we repurchased 808,300 shares for
$30.3 million in connection with the previously-announced $100 million, two-year
share repurchase program authorized by our board of directors in October 2002.
As of June 30, 2003, there was $69.7 million remaining under this program. In
addition, during the first six months of 2003, we repurchased 601,000 shares of
common stock for $23.3 million to mitigate the dilutive effect of shares issued
under the stock incentive plans and in connection with our Employee Stock
Purchase Plan. Net proceeds from these stock plans totaled $10.3 million for the
six months ended June 30, 2003.
In January 2002, we acquired 2.5 million shares in a privately-negotiated
block trade for $85.1 million. During the first six months of 2002, we also
repurchased 670,700 of our shares for $26.2 million to mitigate the dilutive
effect of shares issued under stock incentive plans and in connection with our
Employee Stock Purchase Plan. Net proceeds from these plans totaled $7.8 million
for the six months ended June 30, 2003.
Our share repurchase activities were funded with cash on hand and/or
short-term commercial paper borrowings. We had no commercial paper outstanding
as of June 30, 2003.
Future Liquidity - Sources and Uses of Funds
Sale of Our European Headquarters Building
On April 9, 2003, we signed a contract to sell our High Wycombe, England,
building. We will continue to operate from a portion of the building for a
multi-year period after the sale. The transaction closed on July 31, 2003. In
the third quarter 2003, we will recognize a pre-tax loss on the sale of the
building of approximately $14 million. Cash proceeds received from the sale were
approximately $80 million.
Potential Payments in Settlement of 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 cash payments in the amounts described in Note 7 - Contingencies above. Of
the matters currently pending, we believe it is possible that a payment to the
IRS of up to $62 million in connection with the Royalty Expense Deductions taken
in 1993 - 1996 may be made during 2003.
Share Repurchases and Dividends
During October 2002, we announced that our board of directors authorized
a share repurchase program of up to $100 million, funded with cash on hand and
future cash flow. This two-year program is in addition to our existing share
repurchase program to offset the dilutive effect of shares issued under employee
benefit plans. It is our intention to complete this program during 2003.
We have not paid cash dividends since we seperated from Moody's in 2000.
After considering all of the implications of the new U.S. tax laws regarding
deductibility of tax dividends, we have decided to continue our policy not to
pay dividends to shareholders in the foreseeable future.
Forward-Looking Statements
We may from time to time make written or oral forward-looking statements,
including statements contained in filings with the Securities and Exchange
Commission, in reports to shareholders and in press releases and investor
Webcasts. You can identify these forward-looking statements by use of words like
"anticipates," "aspirations," "believes," "continues," "estimates," "expects,"
"goals," "guidance," "intends," "plans," "projects," "strategy," "targets,"
"will" and other words of similar meaning. You can also identify them 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,
although we believe we have been prudent in our plans and assumptions.
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.
Demand for our products is subject to intense competition, changes in
customer preferences and economic conditions. Our results are dependent upon our
continued ability to:
o develop new products;
o invest in our database and maintain our reputation for providing reliable
data;
o develop and maintain a successful Web-based business model;
o reallocate expense to achieve growth through our Financial Flexibility
program;
o manage employee satisfaction and maintain our global expertise as we
implement our Financial Flexibility program; and
o protect against damage or interruptions affecting our database or our data
centers.
We are also subject to the effects of economies, exchange rate
fluctuations and U.S. and foreign legislative or regulatory requirements. Our
results are also dependent upon the availability of data for our database.
Developments in any of these areas could cause our results to differ materially
from results that have been or may be projected.
We elaborate on the above list of important factors throughout this
document and in our other filings with the SEC, particularly in the section
entitled "Trends, Risks and Uncertainties" in "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our Form 10-K
for the year ended December 31, 2002. You should understand that it is not
possible to predict or identify all risk factors. Consequently, you should not
consider the above list of important factors or the trends, risks and
uncertainties discussed in our Form 10-K to be a complete discussion of all our
potential trends, risks and uncertainties. We do not undertake to update any
forward-looking statement we may make from time to time.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
D&B's market risks primarily consist of the impact of changes in currency
exchange rates on assets and liabilities of non-U.S. operations and the impact
of changes in interest rates. The Dun & Bradstreet Corporation's 2002
consolidated financial statements included in its Annual Report on Form 10-K
provide a more detailed discussion of the market risks affecting operations. As
of June 30, 2003, no material change had occurred in our market risks, compared
with the disclosure in the Form 10-K for the year ending December 31, 2002.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Internal Controls
We evaluated the effectiveness of our disclosure controls and procedures
("Disclosure Controls") as of the end of the second quarter of 2003. This
evaluation ("Controls Evaluation") was done with the participation of our
Chairman and 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 Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the SEC's 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 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 ("Internal
Controls") will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, but not absolute,
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. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of a control. A design of a control system is also based upon certain
assumptions about the likelihood of future events, 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.
Conclusions
Based upon our Controls Evaluation, our CEO and CFO have concluded that,
subject to the limitations noted above, the Disclosure Controls are effective to
timely alert management to material information relating to D&B during the
period when our periodic reports are being prepared.
There were no changes in our Internal Controls that occurred during the
quarter covered by this report that have materially affected, or are reasonably
likely to materially affect, our Internal Controls.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this Item is included in Note 7 - Contingencies on
Pages 10-14 in Part I, Item 1, of this Form 10-Q.
Item 4. Submission of Matters to a Vote of Shareholders
Our Annual Meeting of Shareholders was held on May 22, 2003. 66,424,119
shares of our common stock was represented in person or by proxy equal to 89.13%
of the issued and outstanding shares entitled to vote.
The matters voted upon and the results of the vote are as follows:
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The three directors listed below were elected to three-year terms
expiring in 2006 at the Annual Meeting of Shareholders. Each of the directors
received at least 96% of the votes.
Number of Shares
Nominee For Withheld
------- --- --------
Sandra E. Peterson 64,025,941 2,398,078
Michael R. Quinlan 64,038,723 2,385,296
Frederic V. Salerno 65,059,353 1,364,666
In addition to these directors, our other incumbent directors, John W.
Alden, Allan Z. Loren, Victor A. Pelson, Steven W. Alesio, Ronald L. Kuehn, Jr.,
and Naomi O. Seligman, had terms that continued after the 2003 Annual Meeting.
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The selection of PricewaterhouseCoopers LLP as independent accountants
was approved: 63,285,218 voted in favor; 3,061,755 voted against; and 77,046
shares abstained.
There were no broker non-votes on any of the above matters.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 31(a) - 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.
Exhibit 31(b) - 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.
Exhibit 32(a) - 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.
Exhibit 32(b) - 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.
(b) Reports on Form 8-K:
During the second quarter of our fiscal year ending June 30, 2003,
we furnished three reports on Form 8-K. The three Current Reports on Form
8-K were furnished on April 9, 2003 (Item 7. Financial Statements and
Exhibits and Item 12. Results of Operations and Financial Condition),
April 22, 2003 (Item 7. Financial Statements and Exhibits and Item 12.
Results of Operations and Financial Condition), and May 20, 2003 (Item 9.
Regulation FD Disclosure and Item 12. Results of Operations and Financial
Condition).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DUN & BRADSTREET CORPORATION
Date: August 6, 2003 By: /s/ SARA MATHEW
----------------------------------
Sara Mathew
Senior Vice President and
Chief Financial Officer
Date: August 6, 2003 By: /s/ MARY JANE RAYMOND
----------------------------------
Mary Jane Raymond
Vice President and Corporate
Controller
Exhibit 31(a)
Certification of the Chairman and Chief Executive Officer
I, Allan Z. Loren, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended
June 30, 2003 of The Dun and Bradstreet Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) [Omitted in reliance on SEC Release No. 33-8238; 34-47986 Section
III.E.]
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 6, 2003 By: /s/ ALLAN Z. LOREN
------------------------------------
Allan Z. Loren
Chairman and Chief Executive Officer
Exhibit 31(b)
Certification of the Chief Financial Officer
I, Sara Mathew, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended
June 30, 2003 of The Dun and Bradstreet Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) [Omitted in reliance on SEC Release No. 33-8238; 34-47986 Section
III.E.]
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 6, 2003 By: /s/ SARA MATHEW
------------------------------------------
Sara Mathew
Senior Vice President and
Chief Financial Officer
Exhibit 32(a)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of The Dun &
Bradstreet Corporation (the "Company") for the period ending June 30, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Allan Z. Loren, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of
1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ ALLAN Z. LOREN
- --------------------------------------
Allan Z. Loren
Chairman and Chief Executive Officer
August 6, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to The Dun & Bradstreet Corporation
and will be retained by The Dun & Bradstreet Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
Exhibit 32(b)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of The Dun &
Bradstreet Corporation (the "Company") for the period ending June 30, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Sara Mathew, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ SARA MATHEW
- ------------------------------------------------
Sara Mathew
Senior Vice President and Chief Financial Officer
August 6, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to The Dun & Bradstreet Corporation
and will be retained by The Dun & Bradstreet Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.