WASHINGTON, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2004
Commission file number 1-15967
The Dun & Bradstreet Corporation
(Exact name of registrant as specified in its charter)
Delaware | 103 JFK Parkway, Short Hills, NJ | |||||
---|---|---|---|---|---|---|
(State of incorporation) | (Address of principal executive offices) | |||||
22-3725387 | 07078 | |||||
(I.R.S. Employer Identification No.) | (Zip Code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |||||
---|---|---|---|---|---|---|
Common Stock, par value $.01 per share Preferred Share Purchase Rights | New York Stock Exchange New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Documents Incorporated by Reference
* | Calculated by excluding all shares held by executive officers and directors of the registrant without conceding that all such persons are “affiliates” of the registrant for purposes of federal securities laws. |
INDEX
Page | ||||||||||||
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PART I | ||||||||||||
Item 1. | Business | 1 | ||||||||||
Item 2. | Properties | 13 | ||||||||||
Item 3. | Legal Proceedings | 13 | ||||||||||
Item 4. | Submission of Matters to a Vote of Security Holders | 22 | ||||||||||
Executive Officers of the Registrant | 22 | |||||||||||
PART II | ||||||||||||
Item 5. | Market for Registrant’s Common Equity and Related Stockholder Matters | 25 | ||||||||||
Item 6. | Selected Financial Data | 26 | ||||||||||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 | ||||||||||
Item 7a. | Quantitative and Qualitative Disclosures About Market Risk | 60 | ||||||||||
Item 8. | Financial Statements and Supplementary Data | 61 | ||||||||||
Consolidated Statements of Operations | 65 | |||||||||||
Consolidated Balance Sheets | 66 | |||||||||||
Consolidated Statements of Cash Flows | 67 | |||||||||||
Consolidated Statements of Shareholders’ Equity | 68 | |||||||||||
Notes to Consolidated Financial Statements | 69 | |||||||||||
Item 9. | Changes in and Disagreements with Accountants on Auditing and Financial Disclosure | 115 | ||||||||||
Item 9a. | Controls and Procedures | 115 | ||||||||||
Item 9b. | Other Information | 116 | ||||||||||
PART III | ||||||||||||
Item 10. | Directors and Executive Officers of the Registrant | 117 | ||||||||||
Item 11. | Executive Compensation | 117 | ||||||||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 117 | ||||||||||
Item 13. | Certain Relationships and Related Transactions | 118 | ||||||||||
Item 14. | Principal Accountant Fees and Services | 118 | ||||||||||
PART IV | ||||||||||||
Item 15. | Exhibits and Financial Statement Schedules | 119 | ||||||||||
SIGNATURES | 120 |
PART I
Item 1. Business
Overview
Our Aspiration and Our Strategy
• | Build a Winning Culture; |
• | Leverage our Brand; |
• | Create Financial Flexibility; |
• | Enhance our Current Business; and |
• | Become an Important Player in E-Business. |
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• | First, by leveraging our core competency in Global Data Collection, we bring together data from thousands of sources worldwide and enhance it into quality information to help our customers make profitable decisions. We have the world’s largest global business database, with over 92 million businesses in over 200 countries, including over 35 million business records in the United States. We update our database more than 1.5 million times a day. As a result, we provide our customers a one-stop shop for global business data from around the world. |
• | We integrate the data into our database through our patented Entity Matching process, which produces a single, more accurate picture of each business. Entity Matching ensures that disparate data elements are associated with the right businesses in our database by doing such things as allowing and correcting for variations in spelling, format, trade names and addresses. |
• | We apply our nine-digit global D-U-N-STM Number as a unique means of identifying and tracking a business globally through every step in the life and activity of the business. We use the D-U-N-STM Number to link headquarters, branches, parents and subsidiaries. In today’s global economy, the D-U-N-STM Number has become a standard for business identification and verification. The D-U-N-STM Number is exclusively ours and is never reassigned to another business. It follows a business through every phase of its life, including bankruptcy, and allows verification of information at every stage of the DUNSRightTM quality process. |
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• | We use the Corporate Linkage process to enable our customers to view their total risk or opportunity across related business entities. Linkage means we view each entity in relation to its corporate family, providing our customers with increased awareness of risk exposure, new opportunities to penetrate existing customers, and increased leverage with their suppliers. |
• | Finally, our Predictive Indicators use statistical analysis to rate a business’s past performance and to indicate how the business is likely to perform in the future. As an example, Predictive Indicators are used to predict the likelihood of a company going out of business or not paying its bills. By providing Predictive Indicators, we make the information in our database even more actionable for our customers. |
• | eliminated non-core operations, such as our Receivable Management Services business, which we sold during 2001; |
• | consolidated data collection telecenters; |
• | automated and simplified data collection handled both internally and from third-party data sources; and |
• | outsourced certain technology functions, including our data center operations and systems development, as well as certain portions of our data acquisition and delivery, customer service, and financial processes. |
• | In 2000, we initially reduced our 2001 expense base by $130 million on an annualized basis before any reallocation of spending. Our actions resulted in a $41.5 million restructuring charge in 2000, of which $4.0 million was reversed in 2001 as excess. Our actions also resulted in $17.2 million of transition costs incurred primarily in 2001. |
• | In 2001, we initially reduced our 2001 expense base by $70 million on an annualized basis before any reallocation of spending. Our actions resulted in a $32.8 million restructuring charge in 2001. Our actions also resulted in an aggregate of $30.6 million of transition costs primarily in 2001 and 2002. |
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• | In 2002, we initially reduced our expense base by $80 million on an annualized basis before any reallocation of spending. Our actions resulted in a $30.9 million restructuring charge in 2002 and in an aggregate of $27.4 million of transition costs in 2002 and 2003. |
• | In 2003, we initially reduced our 2003 expense base by $75 million on an annualized basis before any reallocation of spending. Our actions resulted in an aggregate of $17.4 million of restructuring charges in 2003 and an aggregate of $9.3 million of transition costs in 2003 and 2004. |
• | In 2004, we initially reduced our 2004 expense base by $80 million on an annualized basis before any reallocation of spending. Our actions resulted in an aggregate of $32.0 million of restructuring charges in 2004 and in $20.6 million of transition costs in 2004 (see Note 3 of our consolidated financial statements). |
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• | OurRisk Management Solutions help customers mitigate credit risk, increase cash flow and drive increased profitability; |
• | Our Sales & Marketing Solutions help customers increase revenue from new and existing customers; |
• | Our Supply Management Solutions help customers identify purchasing savings, manage purchasing risk and improve compliance within the supply base; and |
• | Our E-Business Solutions help customers convert prospects to clients faster. |
Risk Management Solutions
• | Should I extend credit to this new customer? |
• | What credit limit should I set? |
• | Will this customer pay me on time? |
• | What is my total credit risk exposure? |
• | Should I change my credit policies? |
• | How can I proactively manage my cash flow? |
Sales & Marketing Solutions
• | Who are my best customers? |
• | How can I find prospects that look like my best customers? |
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• | How can I exploit untapped opportunities with my existing customers? |
• | How can I allocate sales force resources to revenue growth potential? |
Supply Management Solutions
• | How much do I spend on purchasing? |
• | How much business do I do with each supplier? |
• | How can I minimize my purchasing costs? |
• | How can I avoid supply chain disruption? |
• | How can I know which suppliers are also customers? |
• | How can I find suppliers to help achieve my corporate diversity objectives? |
E-Business Solutions
• | How do I identify prospects and better prepare for sales calls? |
• | What is the prospect’s business strategy and who are its major competitors? |
• | How does the prospect compare to others in their industry? |
• | Who are the key senior level decision makers? |
• | How do I build a strong relationship with my customers? |
• | How do I find new business opportunities and keep current on market trends and competitors? |
We believe that we can deliver our revenue growth aspiration
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Business Segments
• | North America (which consists of our operations in the United States and Canada), and |
• | International (which consists of our operations in Europe, Asia Pacific, and Latin America). |
• | a leading provider of Risk Management Solutions; |
• | a leading provider of Sales & Marketing Solutions; and |
• | have the potential to grow both. |
• | In 2001 Japan, Australia, New Zealand, Malaysia and Thailand; |
• | In 2002 Korea; |
• | In 2003 Indonesia, Israel and the Nordic region (Sweden, Denmark, Norway and Finland); and |
• | In 2004 India, Distribution Channels in Pakistan and the Middle East, Central Europe (Germany, Austria, Switzerland, Poland, Hungary and the Czech Republic), Iberia (Spain and Portugal) and France. |
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How We Evaluate Our Performance
• | Total revenue excluding the revenue of divested businesses is referred to as “core revenue.” Core revenue includes the revenue from acquired businesses from the date of acquisition; |
• | Core revenue growth, excluding the effects of foreign exchange, is referred to as “revenue growth before the effects of foreign exchange.” We also separately analyze core revenue growth before the effects of foreign exchange among two components, “organic core revenue growth” and “core revenue growth from acquisitions;” |
• | Results (such as operating income, operating income growth, operating margin, net income, tax rate and diluted earnings per share) excluding restructuring charges (whether recurring or non-recurring) and certain other items that we consider do not reflect our underlying business performance. We refer to these restructuring charges and other items as “non-core gains and (charges);” and |
• | Net cash provided by operating activities minus capital expenditures and additions to computer software and other intangibles is referred to as “free cash flow.” |
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Our Products and Services, Sales Force and Principal Customers
• | our Business Information Report, or BIR, and our Comprehensive Report; |
• | our decisioning scores, which help assess the credit risk of a business by assigning a rating or score; |
• | our Risk Assessment Manager, or RAMTM, and enterprise Risk Assessment Manager, or eRAMTM, which help our customers manage their credit portfolios; |
• | our Self Awareness Solutions, which allow our small business customers to establish, improve and protect their own credit; and |
• | e-Portfolio, a Web-enabled, real-time decisioning solution that helps customers minimize risk and maximize opportunity by automating their global risk policy. |
• | our Customer Information Management Solutions, which are a suite of products that cleanse, integrate and enrich customer information with our DUNSRightTM quality process. These products produce a |
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comprehensive view of the customer that powers the Customer Relationship Management (“CRM”) system and business intelligence systems used by our customers to make sales and marketing decisions; |
• | our Market SpectrumTM Web, which allows end-users easy access, through the Web, to a decision support application that provides an integrated view of customers and prospects. Market SpectrumTM Web is used to support accurate targeting and segmentation for marketing campaigns; and |
• | our Direct Marketing Lists, which benefit from our DUNSRightTM quality process to deliver an accurate and comprehensive marketing campaign for our customers. |
• | our Supply Data Services, which provide data content and professional services to remove duplicate records and file fragmentation as well as cleanse, enhance and enrich our customers’ supplier information; |
• | our Supplier reports, particularly our Supplier Qualifier ReportTM, which enable our customers to understand risk in their supply base by providing an in-depth business profile on an individual supplier and help customers understand the nature and performance of a supplier’s business; |
• | our Supply On-RampTM, which is a Web-based solution that allows customers to standardize their supplier registration and evaluation process by creating a single point of entry with consistent procedures; and |
• | our Supply OptimizerTM , which is an analytical software tool that provides customers with a comprehensive view of their supplier relationships: who their suppliers are, how much they are spending by business unit and what categories of products and services are being bought. |
• | our Subscription products delivered online through Hoover’s Online (i.e., Lite, Pro, Pro Plus, Pro Premium) and via electronic data feeds; |
• | our Advertising & e-marketing products through www.hoovers.com and www.hoovers.co.uk; |
• | licensing of Hoover’s proprietary content to third-party content providers; and |
• | the Hoover’s Handbook series. |
Competition
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• | our ability to communicate and demonstrate to our customers the value of our proprietary DUNSRightTM quality process and, as a result, improve customer satisfaction; |
• | our ability to attract local customers to the worldwide information services offered by our unique database; |
• | our ability to demonstrate value through our decision-making tools and integration capabilities; |
• | the reliability and quality of our information; |
• | our brand perception; |
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• | our ability to continue to implement the Financial Flexibility component of our strategy and effectively reallocate our spending to activities that drive revenue growth; |
• | our ability to deliver business information through various media and distribution channels in formats tailored to customer requirements; |
• | our ability to attract and retain a high-performing workforce; |
• | our ability to enhance our existing services or introduce new services; and |
• | our ability to improve our International business model and data quality through the successful management of strategic relationships in our International segment. |
Intellectual Property
Employees
Available Information
Organizational Background of Our Company
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Item 2. Properties
• | a 306,162-square-foot leased space in Bethlehem, Pennsylvania, which houses various sales, finance and data acquisition personnel (approximately one-third of this space is subleased to a third party); |
• | a 147,000-square-foot office building that we own in Parsippany, New Jersey, housing personnel from our U.S. sales, marketing and technology groups; |
• | a 78,000-square-foot office building that is leased in Austin, Texas, which houses a majority of Hoover’s employees; and |
• | 76,000-square-feet of leased space in High Wycombe, England, which houses operational and technology services for Europe and serves as the executive offices for our European operations. |
Item 3. Legal Proceedings
13
Tax Matters
Utilization of Capital Losses — 1989-1990
14
Royalty Expense Deductions — 1993-1997
15
• | challenge our application of the Royalty Expense Indemnity & Defense Provisions of the Tax Sharing Agreements (namely, that NMR must now lead the defense and that NMR and IMS indemnify us for any financial outcome that is less advantageous to us than the final settlement); and |
• | assert breaches of contract and to terminate the obligations of IMS and NMR under the Tax Sharing Agreements generally. |
Amortization and Royalty Expense Deductions/Royalty Income — 1997-2004
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income. We believe that the IRS’ stated positions with respect to the treatment of the royalty expense and royalty income are mutually inconsistent. If the IRS prevails on one of the positions with respect to the royalty expense and royalty income, we believe that it is unlikely that it will prevail on the other position. As a result, we believe that after taking into account certain other tax benefits resulting from the IRS’ position on the partnership it is unlikely that there will be any net impact to cash flow in addition to the amounts noted above related to the amortization expense deduction.
Legal Proceedings
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• | allocate potential liabilities that may relate to, arise out of or result from the IRI lawsuit (“IRI Liabilities”); and |
• | conduct a joint defense of such action. |
18
19
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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.
• | current D&B employees who are participants in The Dun & Bradstreet Corporation Retirement Account and were previously participants in its predecessor plan, The Dun & Bradstreet Master Retirement Plan; |
• | current employees of Receivable Management Services Corporation (“RMSC”) who are participants in The Dun & Bradstreet Corporation Retirement Account and were previously participants in its predecessor plan, The Dun & Bradstreet Master Retirement Plan; |
• | former employees of D&B or D&B’s Receivable Management Services (“RMS”) operations who received a deferred vested retirement benefit under either The Dun & Bradstreet Corporation Retirement Account or The Dun & Bradstreet Master Retirement Plan; and |
• | former employees of D&B’s RMS operations whose employment with D&B terminated after the sale of the RMS operations but who are not employees of RMSC and who, during their employment with D&B, were “Eligible Employees” for purposes of The Dun & Bradstreet Career Transition Plan. |
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benefit rights, but which the motion to dismiss did not address). Plaintiffs’ counsel also stipulated to a dismissal of Count 1, the severance pay claim, agreeing to forego any appeal of the Court’s dismissal of that claim. Plaintiffs’ counsel did file a motion to join party plaintiffs and to amend the amended complaint to add a new count challenging the adequacy of the retirement plan’s mortality tables. The court granted the motion and we have filed our objections.
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
Name | Title | Age | ||||
---|---|---|---|---|---|---|
Allan Z. Loren | Chairman of the Board | 66 | ||||
Steven W. Alesio | Chief Executive Officer and President | 50 | ||||
James P. Burke | Leader — U.S. Risk Management Solutions | 39 | ||||
David T. Clarke | Leader — U.S. Sales & Marketing Solutions | 45 | ||||
Patricia A. Clifford | Leader — Human Resources, Winning Culture and Team Member Communications | 40 | ||||
Charles E. Gottdiener | Leader — Strategy and Business Development | 40 | ||||
Cynthia B. Hamburger | Leader — U.S. DUNSRightTM Operations | 45 | ||||
Lawrence M. Kutscher | Leader — Small & Mid-Size Business Solutions | 40 | ||||
David J. Lewinter | General Counsel and Corporate Secretary | 43 | ||||
Sara Mathew | Chief Financial Officer and Leader — Strategy | 49 | ||||
Gary S. Michel | Leader — Reengineering | 41 | ||||
Gregory E. Nordal | Leader — International | 49 | ||||
Michael Pepe | Leader — U.S. Customers | 50 | ||||
Vicki P. Raeburn | Leader — Global DUNSRightTM Strategy | 58 | ||||
Mary Jane Raymond | Corporate Controller | 44 | ||||
David M. Slade | Interim Chief Information Officer | 41 | ||||
Frederick A. Teague | Leader — U.S. Supply Management Solutions | 42 |
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April 2002, with additional leadership responsibility for data and operations from February 2001 to April 2002, and as senior vice president of marketing, technology, communications and strategy implementation from January 2001 to June 2001. Before joining D&B, Mr. Alesio was with the American Express Company for 19 years, most recently serving as president and general manager of the business services group and as a member of that company’s Planning and Policy Committee, a position he held from January 1996 to December 2000.
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& Gamble, including vice president of finance for the ASEAN region from August 2000 to July 2001, comptroller and chief financial officer of the global baby care business unit from July 1998 to July 2000, and various other positions prior to that.
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PART II
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
2004 | 2003 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
High | Low | High | Low | ||||||||||||||
First Quarter | $ | 57.01 | $ | 47.85 | $ | 38.98 | $ | 32.31 | |||||||||
Second Quarter | $ | 56.19 | $ | 50.97 | $ | 41.80 | $ | 34.00 | |||||||||
Third Quarter | $ | 59.50 | $ | 51.45 | $ | 43.40 | $ | 39.85 | |||||||||
Fourth Quarter | $ | 60.80 | $ | 56.00 | $ | 50.81 | $ | 40.70 |
Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) | Maximum Number of Currently Authorized Shares that May Yet Be Purchased Under the Plans or Programs (a) | ||||||
---|---|---|---|---|---|---|---|---|---|---|
October 1-31, 2004 | 344,900 | $ | 58.32 | 344,900 | — | |||||
November 1-30, 2004 | 346,800 | $ | 58.24 | 346,800 | — | |||||
December 1-31, 2004 | 371,000 | $ | 59.59 | 371,000 | — | |||||
Quarter Ended December 31, 2004 | 1,062,700 | $ | 58.74 | 1,062,700 | 4,382,776 |
(a) | During the fourth quarter of 2004, we repurchased 52,654 shares of stock for $3.1 million to mitigate the dilutive effect of the shares issued under our stock incentive plans and Employee Stock Purchase Plan. This program, was announced in July 2003, and expires in September 2006. The maximum amount authorized under the program is 6.0 million shares. Additionally, during the fourth quarter of 2004, we repurchased 1,010,046 shares for $59.3 million related to our $200 million one-year share repurchase program that was announced in February 2004. |
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Item 6. Selected Financial Data
Five-Year Selected Financial Data
2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in millions, except per share data) | |||||||||||||||||||||
Results of Operations: | |||||||||||||||||||||
Operating Revenues | $ | 1,414.0 | $ | 1,386.4 | $ | 1,275.6 | $ | 1,304.6 | $ | 1,415.1 | |||||||||||
Costs and Expenses(1) | 1,095.2 | 1,094.6 | 1,019.7 | 1,081.0 | 1,244.8 | ||||||||||||||||
Operating Income | 318.8 | 291.8 | 255.9 | 223.6 | 170.3 | ||||||||||||||||
Non-Operating Income (Expense) — Net(2) | 22.0 | (11.4 | ) | (16.7 | ) | 30.0 | (21.1 | ) | |||||||||||||
Income from Continuing Operations before Provision for Income Taxes | 340.8 | 280.4 | 239.2 | 253.6 | 149.2 | ||||||||||||||||
Provision for Income Taxes | 129.2 | 106.2 | 94.1 | 100.2 | 77.8 | ||||||||||||||||
Equity in Net Income (Losses) of Affiliates | 0.2 | 0.3 | (1.7 | ) | (3.5 | ) | — | ||||||||||||||
Income from: | |||||||||||||||||||||
Continuing Operations | 211.8 | 174.5 | 143.4 | 149.9 | 71.4 | ||||||||||||||||
Discontinued Operations, Net of Income Taxes(3) | — | — | — | — | 133.0 | ||||||||||||||||
Net Income | $ | 211.8 | $ | 174.5 | $ | 143.4 | $ | 149.9 | $ | 204.4 | |||||||||||
Basic Earnings Per Share of Common Stock: | |||||||||||||||||||||
Continuing Operations | $ | 3.01 | $ | 2.37 | $ | 1.93 | $ | 1.89 | $ | .88 | |||||||||||
Discontinued Operations | — | — | — | — | 1.64 | ||||||||||||||||
Basic Earnings Per Share of Common Stock | $ | 3.01 | $ | 2.37 | $ | 1.93 | $ | 1.89 | $ | 2.52 | |||||||||||
Diluted Earnings Per Share of Common Stock: | |||||||||||||||||||||
Continuing Operations | $ | 2.90 | $ | 2.30 | $ | 1.87 | $ | 1.84 | $ | .87 | |||||||||||
Discontinued Operations | — | — | — | — | 1.62 | ||||||||||||||||
Diluted Earnings Per Share of Common Stock | $ | 2.90 | $ | 2.30 | $ | 1.87 | $ | 1.84 | $ | 2.49 | |||||||||||
Other Data: | |||||||||||||||||||||
Dividends Paid Per Share(4) | $ | — | $ | — | $ | — | $ | — | $ | .555 | |||||||||||
Dividends Declared Per Share(4) | $ | — | $ | — | $ | — | $ | — | $ | .555 | |||||||||||
Weighted Average Number of Shares Outstanding — Basic | 70.4 | 73.5 | 74.5 | 79.4 | 81.0 | ||||||||||||||||
Weighted Average Number of Shares Outstanding — Diluted | 73.1 | 75.8 | 76.9 | 81.5 | 82.0 | ||||||||||||||||
Balance Sheet: | |||||||||||||||||||||
Total Assets | $ | 1,635.5 | $ | 1,624.7 | $ | 1,527.7 | $ | 1,462.6 | $ | 1,453.2 | |||||||||||
Minority Interest Financing | $ | — | $ | — | $ | — | $ | — | $ | 300.0 | |||||||||||
Long Term Debt | $ | 300.0 | $ | 299.9 | $ | 299.9 | $ | 299.6 | $ | — | |||||||||||
Equity | $ | 54.2 | $ | 48.4 | $ | (18.8 | ) | $ | (19.0 | ) | $ | (46.5 | ) |
(1) | 2004 included a charge of $32.0 million for restructuring related to the Financial Flexibility Program in 2004. 2003 included charges of $17.4 million for restructuring related to the 2003 Financial Flexibility Program and $13.8 million for the loss on the sale of our High Wycombe, England facility. 2002 included a charge of $30.9 million for restructuring related to the 2002 Financial Flexibility Program. 2001 |
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included charges of $28.8 million (net) for restructuring related to the 2001 Financial Flexibility Program, $6.2 million resulting from the impairment of capitalized software and the write-off of certain assets made obsolete or redundant during the year, $1.0 million of asset write-offs for the World Trade Center attack and $6.5 million resulting from an impairment of our Murray Hill facility, which we sold during 2002. Partially offsetting these charges in 2001 was a $7.0 million reversal of excess accrued reorganization costs incurred in connection with the separation of D&B and Moody’s in 2000 (the “2000 Distribution”). 2000 included charges of $41.5 million for restructuring in connection with the 2000 Financial Flexibility Program and $29.5 million for reorganization costs associated with the 2000 Distribution. |
(2) | 2004 included gains on the sales of operations in the Nordic region (Sweden, Denmark, Norway and Finland) of $7.9 million, India and Distribution Channels in Pakistan and the Middle East of $3.8 million, Central Europe (Germany, Austria, Switzerland, Poland, Hungary and Czech Republic) of $5.6 million, France of $12.9 million and Iberia (Spain and Portugal) of $0.1 million. 2003 included gains of $7.0 million on the settlement of an insurance claim to recover losses related to the events of September 11, 2001 and $1.8 million on the sale of equity interests in our Singapore business. Partially offsetting these gains was a $4.3 million loss on the sale of our Israel business. 2002 included gains of $2.6 million on the sale of a portion of our equity interest in our Singapore operation and $2.4 million on the sale of our Korean operation, partially offset by a charge of $2.9 million for the write-off of our remaining investment in Avantrust LLC. 2001 included gains of $36.4 million for the sale of our Receivable Management Services business, $17.7 million for the sale of a majority stake in our Australia/New Zealand operations and $2.2 million for the sale of a major portion of our minority investment in our South African operation. These gains were partially offset by a charge of $6.1 million for the write-off of certain investments. 2000 included a gain related to the settlement of a litigation matter of $10.1 million. |
(3) | Income taxes on Discontinued Operations were $86.2 million in 2000. |
(4) | 2000 included dividends paid and declared through the first three quarters of the year. |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
How We Manage Our Business
• | North America (which consists of operations in the United States and Canada) contributed 73%, 69%, and 72% of our total revenue in 2004, 2003, and 2002, respectively, and contributed 78%, 79%, and 82% of our core revenue in 2004, 2003, and 2002, respectively; and |
• | International (which consists of operations in Europe, Asia Pacific, and Latin America) contributed 27%, 31%, and 28% of our total revenue in 2004, 2003, and 2002, respectively, and contributed 22%, 21%, and 18% of our core revenue in 2004, 2003, and 2002, respectively. |
• | Risk Management Solutions — our largest customer solution set, contributed 62%, 58%, and 59% of our total revenue in 2004, 2003, and 2002, respectively, and contributed 66%, 66%, and 67% of our core revenue in 2004, 2003, and 2002, respectively; |
• | Sales & Marketing Solutions — our second largest customer solution set, contributed 26%, 25%, and 26% of our total revenue in 2004, 2003, and 2002, respectively, and contributed 27%, 28%, and 30% of our core revenue in 2004, 2003, and 2002, respectively; |
• | Supply Management Solutions — contributed 2%, 3%, and 3% of our total revenue in 2004, 2003 and 2002, respectively, and contributed 3% of our core revenue in each of 2004, 2003, and 2002; and |
• | E-Business Solutions — which represents the results of our Hoover’s business acquired in March 2003, contributed 4% and 2% of our total revenue in 2004 and 2003, respectively and contributed 4% and 3% of our core revenue in 2004 and 2003, respectively. |
• | 82%, 81%, and 82% of our Risk Management Solutions revenue; |
• | 51%, 47%, and 48% of our total revenue; and |
• | 54%, 54%, and 55% of our core revenue. |
• | 18%, 19%, and 18% of our Risk Management Solutions revenue; |
• | 11% of our total revenue; and |
• | 12% of our core revenue. |
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• | 47%, 51%, and 59% of our Sales & Marketing Solutions revenue; |
• | 12%, 13%, and 15% of our total revenue; and |
• | 13%, 14%, and 18% of our core revenue. |
• | 53%, 49%, and 41% of our Sales & Marketing Solutions revenue; |
• | 14%, 12%, and 11% of our total revenue; and |
• | 14%, 14%, and 12% of our core revenue. |
• | Korea (sold in the fourth quarter of 2002); |
• | Israel (sold in the third quarter of 2003); |
• | the Nordic region (Sweden, Denmark, Norway and Finland, all sold in the first quarter of 2004); |
• | India and other Distribution Channels in Pakistan and the Middle East (sold in the first quarter of 2004); |
• | Central Europe (Germany, Austria, Switzerland, Poland, Hungary and the Czech Republic, all sold in the second quarter of 2004); |
• | Iberia (Spain and Portugal, both sold in the fourth quarter of 2004); and |
• | France (sold in the fourth quarter of 2004). |
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purposes, we evaluate business segment performance “before non-core gains and (charges)” such as restructuring charges because they are not a component of our ongoing income or expenses and/or may have a disproportionate positive or negative impact on the results of our ongoing underlying business operations. Additionally, transition costs (period costs such as consulting fees, costs of temporary employees, relocation costs and stay bonuses incurred to implement the Financial Flexibility component of our strategy) are reported as “All Other” expenses and are not allocated to our business segments. (See Note 14 to our consolidated financial statements for financial information regarding our segments.)
Our Flexible Business Model and Restructuring
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in 2000 to $318.8 million in 2004, an increase of $148.5 million, or 87%. See “Results of Operations,” below, for a more complete discussion of our financial results, including these restructuring charges. In addition, the Financial Flexibility Program provided us with the funds to invest in our core business and make selective acquisitions. This allowed us to significantly increase our organic and core revenue over this period, with the result that our total revenue declined only slightly from $1,415.1 million in 2000 to $1,414.0 million in 2004 notwithstanding the loss of revenue associated with the sale of non-core businesses and the divestiture of businesses in furtherance of our international market leadership strategy.
Our Critical Accounting Policies and Estimates
• | Expected long-term rate of return on pension plan assets — which is based on current and expected asset allocations as well as expected returns on asset categories of plan investments. |
• | Discount rate — which is used to measure the present value of pension plan obligations and postretirement health care obligations. It is based on investment yields available at year-end on Aa-rated corporate long-term bonds and the Citigroup Pension Curve. |
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• | Rates of compensation increase and cash balance accumulation/conversion rates — which are based on an evaluation of internal plans and external market indicators. |
• | Health care cost trends — which are based on historical cost data, the near-term outlook and an assessment of likely long-term trends. |
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subscription products that provide continuous access to D&B’s generic marketing information and business reference databases, as well as any access fees or hosting fees related to enabling customers’ access to D&B information, revenue is recognized ratably over the term of the contract, which is generally one year.
Results of Operations
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in millions) | |||||||||||||||
Revenue: | |||||||||||||||
North America | $ | 1,038.3 | $ | 960.1 | $ | 912.1 | |||||||||
International | 296.2 | 253.6 | 205.0 | ||||||||||||
Core Revenue | 1,334.5 | 1,213.7 | 1,117.1 | ||||||||||||
Divested Businesses | 79.5 | 172.7 | 158.5 | ||||||||||||
Total Revenue | $ | 1,414.0 | $ | 1,386.4 | $ | 1,275.6 |
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in millions) | |||||||||||||||
Revenue: | |||||||||||||||
Risk Management Solutions | $ | 882.0 | $ | 804.3 | $ | 754.6 | |||||||||
Sales & Marketing Solutions | 368.2 | 342.4 | 331.1 | ||||||||||||
Supply Management Solutions | 34.3 | 38.0 | 31.4 | ||||||||||||
E-Business Solutions | 50.0 | 29.0 | — | ||||||||||||
Core Revenue | 1,334.5 | 1,213.7 | 1,117.1 | ||||||||||||
Divested Businesses | 79.5 | 172.7 | 158.5 | ||||||||||||
Total Revenue | $ | 1,414.0 | $ | 1,386.4 | $ | 1,275.6 |
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• | a $77.7 million, or 10%, increase in Risk Management Solutions (7% increase before the effect of foreign exchange). There were two main drivers of the 2004 growth. The first was our Self Awareness Solutions, which allows our small business customers to establish, improve and protect their own credit. The second driver was the subscription plan we introduced in the United States in the fourth quarter of 2003 for customers that are willing to purchase more data from D&B. This new plan provides expanded access to our Risk Management Solutions in a way that provides more certainty over related costs and generally results in customers increasing their spending on our products. These drivers benefited both our Traditional and our Value-Added Risk Management Solutions. Our Traditional Risk Management Solutions grew by 11% (8% increase before the effect of foreign exchange), and our Value-Added Risk Management Solutions increased by 6% (4% increase before the effect of foreign exchange). |
• | a $25.8 million, or 8%, increase in Sales & Marketing Solutions (6% increase before the effect of foreign exchange). This increase was primarily driven by double-digit growth in North America’s Customer Information Management (“CIM”) products and our migration of customers from traditional lists and labels to our more automated Value-Added Solutions in North America. As a result of this migration and continued weakness in certain of our traditional list and labels business, Traditional Sales & Marketing Solutions declined by 2% (4% decrease before the effect of foreign exchange). The decline in our Traditional Sales & Marketing Solutions revenue was offset by the 18% increase (17% increase before the effect of foreign exchange) in Value-Added Sales Marketing Solutions. |
• | a $3.7 million, or 10%, decline in Supply Management Solutions, our smallest solution set (11% decline before the effect of foreign exchange). This decline was primarily due to product delivery and customer renewal issues. |
• | a $21.0 million, or 72%, increase in E-Business Solutions, representing the results of Hoover’s, Inc. The increase was primarily due to continued growth in subscription revenue, the benefit of our marketing efforts which have driven increased traffic to the Hoover’s Web site and strong ad sales. Additionally, this increase includes twenty percentage points of growth from the purchase accounting adjustments on the 2003 results. |
• | a $49.7 million, or 7%, increase in Risk Management Solutions (3% increase before the effect of foreign exchange), including three percentage points of growth due to the acquisitions of Data House and the Italian real estate data companies. During the year, within our Risk Management Solutions we |
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added product development resources, increased our sales force, and improved our post-sale delivery service. The growth in the customer solution set was driven by both our North America and International segments. Traditional Risk Management Solutions revenue was up 6% (2% increase before the effect of foreign exchange) compared with 2002. We continued our intentional migration of customers from the BIR and related products to our Value-Added Solutions to assist them in re-engineering their processes. The impact of this migration was offset by growth in other traditional products such as e-Portfolio, Self Analysis, Comprehensive Report, and Monitoring. Value-Added Risk Management Solutions grew 9% (8% increase before the effect of foreign exchange). In our Value-Added Risk Management Solutions, our portfolio management solution products continued to perform well, which reflects the benefits of our recent investment spending in Enterprise Risk Assessment Manager, that helps customers manage their credit portfolios. Additionally, the increase was driven by our customers’ preference to continue to automate their decision-making processes through products such as Global Decision MakerTM, and integrate existing systems using our Toolkit solutions. |
• | an $11.3 million, or 3%, increase in Sales & Marketing Solutions (2% increase before the effect of foreign exchange), driven by the growth in North America. Traditional Sales & Marketing Solutions declined 9% (11% decrease before the effect of foreign exchange), compared with 2002. This is the area of our business that is the most sensitive to changes in the economy, as sales and marketing expenses are often viewed as discretionary spending by our customers. We also continued to see competitive pressures in our traditional list and label business. Value-Added Sales & Marketing Solutions grew 22% (20% increase before the effect of foreign exchange), primarily driven by our CIM products and our value-added prospecting solutions, including Market SpectrumTM. Specifically, within the United States, we added 75% additional product specialists, significantly increasing sales capacity relating to our value-added, CIM products. We also added sales leadership in several of our European markets within our International segment, each with a dedicated Sales and Marketing team. |
• | a $6.6 million, or 21%, increase in Supply Management Solutions (19% increase before the effect of foreign exchange). This growth came from both our North America and International segments, primarily driven by our customers’ focus on improving their operating results by optimizing their procurement process. |
• | $29.0 million of revenue from E-Business Solutions, representing the results of Hoover’s, Inc. During the year, we experienced growth in this customer solution set as a result of an increased subscriber base. |
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in millions) | |||||||||||||||
Operating Expenses | $ | 403.9 | $ | 433.3 | $ | 392.1 | |||||||||
Selling and Administrative Expenses | 612.0 | 579.9 | 512.5 | ||||||||||||
Depreciation and Amortization | 47.3 | 64.0 | 84.2 | ||||||||||||
Restructuring Charges | 32.0 | 17.4 | 30.9 | ||||||||||||
Operating Costs | $ | 1,095.2 | $ | 1,094.6 | $ | 1,019.7 | |||||||||
Operating Income | $ | 318.8 | $ | 291.8 | $ | 255.9 |
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Operating Expenses
• | improved efficiency and a reduction in the number of employees in our data collection, fulfillment and technology areas as a result of our process of continuous reengineering (see the discussion of how we create financial flexibility in Our Aspiration and Our Strategy in “Item 1. Business”); |
• | reduced costs as a result of the sale of businesses to strategic partners in 2003 and 2004 as part of our international market leadership strategy (see the discussion of our International segment in Business Segments in “Item 1. Business”); and |
• | the $13.8 million loss on the sale of a building in High Wycombe, England in July 2003 with no comparable loss in 2004. |
• | a $13.8 million loss on the sale of a building in High Wycombe, England in July 2003; |
• | increased investments relating to data and product enhancements; and |
• | an increased expense base as a result of the acquisitions of Hoover’s Inc., Data House and the three Italian real estate data companies. |
Selling and Administrative Expenses
• | additional costs related to revenue-generating investments as well as additional variable costs (such as commissions and bonus) incurred as a result of increased revenues; |
• | consulting costs associated with our reengineering initiatives and costs associated with achieving compliance with Sarbanes-Oxley requirements; |
• | an increase in our expense base as a result of the acquisition of the three Italian real estate data companies; and |
• | the impact of foreign exchange. |
• | additional costs relating to revenue generating investments, such as additions to our sales force to improve our marketplace coverage in Sales & Marketing Solutions; |
• | additional variable costs (such as commissions and bonuses) incurred as a result of increased revenues; and |
• | an increased expense base as a result of the acquisitions of Hoover’s, Inc., Data House, and three Italian real estate data companies. |
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Depreciation and Amortization
Restructuring Charges
38
close facilities and other exit costs. During 2004, approximately 650 employees were terminated in connection with our 2004 Financial Flexibility Program (including 220 employees who transitioned to International Business Machines Corporation (“IBM”) as part of the outsourcing agreement discussed below). Under SFAS No. 146, the current period charges represent the liabilities incurred throughout the year for each of these obligations. As of December 31, 2004, we have a remaining reserve balance of $7.9 million related to these restructuring charges (see Note 3 to our consolidated financial statements). By the end of 2005, we expect that approximately 425 additional employees will be terminated as part of the 2004 Financial Flexibility Program. We recorded a portion of these severance and termination costs in the 2004 Financial Flexibility Program charge in accordance with SFAS No. 146 guidelines.
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Interest Income (Expense) — Net
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in millions) | |||||||||||||||
Interest Income | $ | 8.4 | $ | 4.2 | $ | 3.0 | |||||||||
Interest Expense | (18.9 | ) | (18.6 | ) | (19.5 | ) | |||||||||
$ | (10.5 | ) | $ | (14.4 | ) | $ | (16.5 | ) |
Other Income (Expense) — Net
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in millions) | |||||||||||||||
Miscellaneous Other Income (Expense) — Net(a) | $ | 1.0 | $ | (1.9 | ) | $ | (2.3 | ) | |||||||
Gains (Losses) on Sales of Businesses(b) | 30.3 | (2.5 | ) | 5.0 | |||||||||||
Gains on Sales of Investments(c) | 1.2 | 0.4 | — | ||||||||||||
Write-off of Non-Recoverable Investments(d) | — | — | (2.9 | ) | |||||||||||
Insurance Recovery(e) | — | 7.0 | — | ||||||||||||
$ | 32.5 | $ | 3.0 | $ | (0.2 | ) |
(a) | “Miscellaneous Other Income — Net” increased in 2004 from 2003, primarily due to foreign currency transaction gains. The decrease in “Miscellaneous Other Expense — Net” in 2003 from 2002 is primarily due to lower bank fees. |
(b) | During 2004, we sold the following businesses and recognized the following non-operating gains: |
• | our operation in France during the fourth quarter, resulting in a pre-tax gain of $12.9 million; |
• | our operations in Iberia (Spain and Portugal) during the fourth quarter, resulting in a pre-tax gain of $0.1 million; |
• | our operations in Central Europe (Germany, Austria, Switzerland, Poland, Hungary and the Czech Republic) during the second quarter, resulting in a pre-tax gain of $5.6 million; |
• | our operations in the Nordic region (Sweden, Denmark, Norway and Finland) during the first quarter, resulting in a pre-tax gain of $7.9 million; and |
• | our operation in India and Distribution Channels in Pakistan and the Middle East during the first quarter, resulting in a pre-tax gain of $3.8 million. |
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During 2003, we sold the following businesses and recognized the following non-operating gains (losses): |
• | our operation in Israel during the third quarter, resulting in a pre-tax loss of $4.3 million; and |
• | the equity interest in our Singapore investment, resulting in a pre-tax gain of $1.8 million. |
During 2002, we sold the following businesses and recognized the following non-operating gains: |
• | a portion of our equity interest in our Singapore operation during the third quarter, resulting in a pre-tax gain of $2.6 million; and |
• | our operation in Korea during the fourth quarter, resulting in a pre-tax gain of $2.4 million. |
(c) | During 2004, we sold an investment in the U.S. for a pre-tax gain of $1.2 million. During 2003, we sold an investment in Italy for a pre-tax gain of $0.4 million. |
(d) | During 2002, we exited Avantrust LLC, our joint venture with American International Group, Inc., resulting in a $2.9 million pre-tax write-off of our remaining investment. |
(e) | Represents a settlement on an insurance claim to recover losses related to the events of September 11, 2001. |
Provision for Income Taxes
Equity in Net Income (Loss) of Affiliates
Earnings per Share
2004 | 2003 | 2002 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Basic Earnings per Share | $ | 3.01 | $ | 2.37 | $ | 1.93 | ||||||||
Diluted Earnings per Share | $ | 2.90 | $ | 2.30 | $ | 1.87 |
Non-Core Gains and (Charges)
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(charges). These non-core gains and (charges) are summarized in the table below. We exclude non-core gains and (charges) when evaluating our financial performance because we do not consider these items to reflect our underlying business performance. |
For the Years Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
(Amounts in millions) | |||||||||||||||
Non-core gains and (charges) included in Operating Costs: | |||||||||||||||
Restructuring costs related to our Financial Flexibility programs | $ | (32.0 | ) | $ | (17.4 | ) | $ | (30.9 | ) | ||||||
Loss on the sale of High Wycombe, England building | $ | — | $ | (13.8 | ) | $ | — | ||||||||
Non-core gains and (charges) included in Other Income (Expense) — Net: | |||||||||||||||
Gains on sales of operations in the Nordic region, Central Europe, Iberia, France and India, and Distribution Channels in Pakistan and the Middle East | $ | 30.3 | $ | — | $ | — | |||||||||
Insurance recovery related to the events of September 11, 2001 | $ | — | $ | 7.0 | $ | — | |||||||||
Non-core gains and (charges) included in Provision for Income Taxes: | |||||||||||||||
Increase in Tax Legacy Reserve for “Utilization of Capital Losses — 1998-1990” | $ | (4.5 | ) | $ | — | $ | — | ||||||||
(Provision) Benefit for Income Taxes on the: | |||||||||||||||
Restructuring costs related to our Financial Flexibility programs | $ | 11.2 | $ | 5.8 | $ | 9.3 | |||||||||
Loss on the sale of High Wycombe, England building | $ | — | $ | 2.7 | $ | — | |||||||||
Gains on sales of operations in the Nordic region, Central Europe, Iberia, France and India, and Distribution Channels in Pakistan and the Middle East | $ | (10.9 | ) | $ | — | $ | — | ||||||||
Insurance recovery related to the events of September 11, 2001 | $ | — | $ | (2.7 | ) | $ | — |
Segment Results
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2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in millions) | |||||||||||||||
Revenue: | |||||||||||||||
Risk Management Solutions | $ | 639.7 | $ | 603.6 | $ | 594.3 | |||||||||
Sales & Marketing Solutions | 318.9 | 294.1 | 289.1 | ||||||||||||
Supply Management Solutions | 29.8 | 33.4 | 28.7 | ||||||||||||
E-Business Solutions | 49.9 | 29.0 | — | ||||||||||||
Total and Core North America Revenue | $ | 1,038.3 | $ | 960.1 | $ | 912.1 | |||||||||
Operating Income | $ | 365.3 | $ | 329.9 | $ | 313.1 |
• | a $36.1 million, or 6%, increase in Risk Management Solutions. This growth was driven by a 7% increase in our Traditional Risk Management Solutions, which accounted for 79% of total North America Risk Management Solutions. There were two main drivers of this growth: (i) our Self Awareness Solutions, which allows our small business customers to establish, improve and protect their own credit; and (ii) the subscription plan we introduced in the United States in the fourth quarter of 2003 for customers that are willing to purchase more data from D&B. This new plan provides expanded access to our Risk Management Solutions in a way that provides more certainty over related costs and generally results in customers increasing their spending on our products. In addition, our Value-Added Risk Management Solutions, which accounted for 21% of total North America Risk Management Solutions, increased 3%, below our expectations due to product and customer care execution problems that we are addressing in 2005. |
• | a $24.8 million, or 8%, increase in Sales & Marketing Solutions. This growth was driven by a 21% increase in our Value-Added Solutions revenue, which accounted for 57% of total North America Sales & Marketing Solutions. There were two main drivers of this growth: (i) double-digit growth in our CIM products; and (ii) our planned migration of our customers from our Traditional products to our more automated Value-Added Solutions. Our Value-Added Solutions growth was partially offset by the 4% decline in Traditional Sales & Marketing Solutions, which accounted for 43% of total North America Sales & Marketing Solutions. There were two main drivers of this decline: (i) the planned migration to our Value-Added Solutions; and (ii) continued weakness in certain of our Traditional list and label businesses. |
• | a $3.6 million, or 11%, decrease in Supply Management Solutions, our smallest solution set. This decline was primarily due to product delivery and customer renewal issues. |
• | a $20.9 million, or 72%, increase in E-Business Solutions, representing the results of Hoover’s, Inc. The increase was primarily due to continued growth in subscription revenue, the benefit of our marketing efforts, which have driven increased traffic to the Hoover’s Web site and strong ad sales. Additionally, this increase includes twenty percentage points of growth from the effect of purchase accounting on the 2003 results. |
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• | a $9.3 million, or 2%, increase in Risk Management Solutions. Traditional Risk Management Solutions, which accounted for 78% of total North America Risk Management Solutions, was flat. Value-Added Risk Management Solutions, which accounted for 22% of total North America Risk Management Solutions, increased 9%. In our Value-Added Risk Management Solutions, our portfolio management solution products continued to perform well, which reflected the benefits from our recent investment spending in Enterprise Risk Assessment Manager, that helps customers manage their credit portfolios. Additionally, the increase was driven by our customers’ continued shift towards automating their decision-making process. |
• | a $5.0 million, or 2%, increase in Sales & Marketing Solutions. Traditional Sales & Marketing Solutions, which accounted for 49% of total North America Sales & Marketing Solutions, decreased 12%. This decline was indicative of the then-current economic environment. This is the area of our business that is the most sensitive to changes in the economy, as sales and marketing expenses are often viewed as discretionary spending by our customers. This decline was offset by Value-Added Sales & Marketing Solutions, which accounted for 51% of total North America Sales & Marketing Solutions, and increased by 19%. The increase in our Value-Added Sales & Marketing Solutions was primarily driven by our CIM products and our value-added prospecting solutions, including Market SpectrumTM. |
• | a $4.7 million, or 17%, increase in Supply Management Solutions, reflecting our customers’ focus on improving their operating results through the optimization of the procurement process. |
• | $29.0 million of revenue from E-Business Solutions, representing the results of Hoover’s, Inc., contributing three percentage points of growth. |
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in millions) | |||||||||||||||
Revenue | |||||||||||||||
Risk Management Solutions | $ | 242.3 | $ | 200.7 | $ | 160.3 | |||||||||
Sales & Marketing Solutions | 49.3 | 48.3 | 42.0 | ||||||||||||
Supply Management Solutions | 4.5 | 4.6 | 2.7 | ||||||||||||
E-Business Solutions | 0.1 | — | — | ||||||||||||
Core International Revenue | 296.2 | 253.6 | 205.0 | ||||||||||||
Divested Businesses | 79.5 | 172.7 | 158.5 | ||||||||||||
Total International Revenue | $ | 375.7 | $ | 426.3 | $ | 363.5 | |||||||||
Operating Income | $ | 64.3 | $ | 59.9 | $ | 43.5 |
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• | a $41.6 million, or 21%, increase in Risk Management Solutions (10% increase before the effect of foreign exchange). Traditional Risk Management Solutions, which accounted for 91% of total International Risk Management Solutions, increased 21% (10% increase before the effect of foreign exchange). There were two main drivers of this growth: (i) the continued success of our monitoring product, e-Portfolio; and (ii) the full-year benefit from our acquisition of the Italian real estate data companies, which contributed two percentage points of the growth in Traditional Risk Management Solutions. In addition, our Value-Added Risk Management Solutions, which accounted for 9% of total International Risk Management Solutions, increased 23% (14% increase before the effect of foreign exchange), driven by our customers’ preference to continue to automate their decisioning processes through products such as Global Decision MakerTM, and integrate existing systems using our Toolkit solutions. |
• | a $1.0 million, or 2%, increase in Sales & Marketing Solutions (7% decrease before the effect of foreign exchange). Traditional Sales & Marketing Solutions, which accounted for 69% of our total International Sales & Marketing Solutions, increased 6% (decreased 4% before the effect of foreign exchange), reflecting the highly competitive local marketplace for traditional products. In addition, our Value-Added Sales & Marketing Solutions, which accounted for 31% of our total International Sales & Marketing Solutions, decreased 6% (14% decrease before the effect of foreign exchange), reflecting our need to (i) enhance our value propositions for our customers by offering the same Value-Added Solutions that have been successfully leveraged in our North America segment and (ii) focus on migrating our customers to these Value-Added Solutions from Traditional Sales & Marketing products. |
• | a $0.1 million decrease in Supply Management Solutions (9% decrease before the effect of foreign exchange). |
• | $0.1 million of revenue from E-Business Solutions. We first began offering our Hoover’s solution to customers in Europe in the fourth quarter of 2004. |
• | In most International markets, we do not have market leadership positions. This makes us particularly susceptible to competitive pressures. |
• | Our competition is primarily local, and our customers may have greater loyalty to our local competitors. |
• | Credit insurance is a significant credit risk mitigation tool in certain markets, thus reducing the demand for information-based credit risk mitigation tools, such as those offered by us. |
• | In many local markets, key data elements are generally available from public-sector sources, thus reducing our data collection advantage. |
• | Prior to the launch of our Blueprint for Growth strategy, our investment decisions were made at the country level and not in a coordinated fashion. While we have made significant investments to mitigate this situation, we are still faced with uneven data quality in some local markets. |
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1. | customer acceptance of the price increases, |
2. | the impact that such price increases may have on customers’ utilization of our real estate and other products during the year, |
3. | the full nature and impact of actions that we may take to mitigate the operating income impact of the legislation and |
4. | the actions of our competitors. |
• | a $40.4 million, or 25%, increase in Risk Management Solutions (10% increase before the effect of foreign exchange), including thirteen percentage points of growth due to the acquisitions of Data House and the Italian real estate data companies. Traditional Risk Management Solutions increased by 27% (11% increase before the effect of foreign exchange), including fourteen percentage points of growth due to the acquisitions. Within our traditional products, we experienced competitive pricing pressures |
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on our low-end products. We also experienced a shift in our customers’ spending from higher-priced comprehensive reports to low-priced, less detailed reports. These competitive and pricing pressures were partially offset by the continued success of our new monitoring product, e-Portfolio. Value-Added Risk Management Solutions increased by 13% (3% increase before the effect of foreign exchange), driven by the customers’ preference to continue to automate their decisioning process through products such as Global Decision MakerTM, and integrate existing systems using our Toolkit solutions. |
• | a $6.3 million, or 15%, increase in Sales & Marketing Solutions (4% increase before the effect of foreign exchange). Traditional Sales & Marketing Solutions increased by 3% (7% decrease before the effect of foreign exchange), and our Value-Added Sales & Marketing Solutions increased 50% (35% increase before the effect of foreign exchange). The decline in our traditional Sales & Marketing Solutions was indicative of economic pressures in the Eurozone, compounded by low growth forecasts in larger markets. We also continued to see competitive pricing pressures in our Traditional list and label business. The improvement in our Value-Added Sales & Marketing Solutions can be attributed to specific management actions that occurred in the third quarter of 2003. Those actions included: (i) the addition of sales leadership in five major markets, each with a dedicated sales team, (ii) the continued increased focus by our sales teams on value-added products, (iii) expanded demand generation programs, and (iv) growth in linkage products resulting from our customers’ movement from CD to Web-based solutions. |
• | a $1.9 million, or 67%, increase in Supply Management Solutions (47% increase before the effect of foreign exchange), primarily due to the continued growth in our data rationalization products. |
Market Risk
47
hedges against the long-term, fixed-rate notes. The arrangement is considered a highly effective hedge and, therefore, the accounting for these hedges has no impact on earnings. The changes in the fair value of the hedge and the designated portion of the notes are reflected in our consolidated balance sheets. At December 31, 2004, we had no floating-rate debt outstanding.
Liquidity and Financial Position
• | First, we have invested in our current business, such our proprietary DUNSRightTM quality process and new products and solutions such as our Enterprise Risk Assessment Manager, e-Portfolio, Global Decision MakerTM, Data Integration ToolkitTM and CIM. |
• | Second, over the past three years we have made acquisitions such as Data House, Hoover’s, and a controlling interest in three Italian real estate data companies and RIBES S.p.A. |
• | Third, during 2004, we spent $200.0 million to repurchase 3,601,986 shares as part of the $200 million share repurchase program approved by our Board of Directors. This investment is in addition to 971,654 shares we repurchased for $51.8 million to mitigate the dilutive effect of the shares issued in connection with our stock incentive plans and Employee Stock Purchase Plan. In January 2005, our Board of Directors approved a new two-year, $400 million share repurchase program. |
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(see Note 13 to our consolidated financial statements), excluding the legal matters identified therein for which the exposures are not estimable. We have the ability to access the commercial paper market from time to time to fund working capital needs and share repurchases if needed. Such borrowings would be supported by our bank credit facilities.
Cash Flow for the Years Ended December 31, 2004, 2003 and 2002
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S.p.A. to 35%. In 2002, we also invested $0.9 million in Avantrust LLC, our joint venture with AIG, which we exited during the second quarter of 2002.
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Future Liquidity — Sources and Uses of Funds
Payments Due by Period | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations | Total | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | ||||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||||||||||
Long-Term Debt(1) | $ | 300.0 | $ | — | $ | 300.0 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Operating Leases(2) | $ | 103.9 | $ | 24.3 | $ | 22.0 | $ | 16.0 | $ | 11.7 | $ | 9.4 | $ | 20.5 | |||||||||||||||||
Obligations to Outsourcers(3) | $ | 580.6 | $ | 75.3 | $ | 76.5 | $ | 76.1 | $ | 77.6 | $ | 77.4 | $ | 197.7 | |||||||||||||||||
Pension and Other Postretirement Benefits | |||||||||||||||||||||||||||||||
Payments/Contributions(4) | $ | 870.2 | $ | 42.4 | $ | 34.1 | $ | 38.2 | $ | 35.2 | $ | 31.7 | $ | 688.6 | |||||||||||||||||
Spin-off Obligation(5) | �� | $ | 21.3 | $ | 21.3 | $ | — | $ | — | $ | — | $ | — | $ | — |
(1) | Our $300.0 million debt obligation under our fixed-rate notes is repayable in March 2006. |
(2) | Most of our operations are conducted from leased facilities, which are under operating leases that expire over the next 10 years, with the majority expiring within five years. We also lease certain computer and other equipment under operating leases that expire over the next three years. These leases are frequently renegotiated or otherwise changed as advancements in computer technology present opportunities to lower costs and improve performance. |
(3) | In July 2002, we outsourced certain technology functions to CSC under a 10-year agreement, which we may terminate for a fee at any time effective after July 2003 and under certain other conditions. Under the terms of the agreement, CSC is responsible for the data center operations, technology help desk and network management functions in the United States and in the United Kingdom and for certain application development and maintenance through July 31, 2012. In 2004, we incurred $63.0 million under this contract and have a remaining commitment of approximately $481 million. In December 2003, we signed a three-year agreement with ICT Group, Inc. (“ICT”), effective January 2004, to outsource certain marketing calling activities. We may terminate this agreement for a fee at any time. Under the terms of the agreement, ICT will be responsible for performing certain marketing and credit-calling activities previously performed by D&B’s own call centers in North America. The obligation under the contract is based upon transmitted call volumes, but shall not be less than $3 million per contract year. In 2004, we incurred $5.6 million under this contract and have a remaining commitment of approximately $6 million. On October 15, 2004, we entered into a seven-year outsourcing agreement with IBM. Under the terms of the agreement, we will transition certain portions of our data acquisition and delivery, customer service, and financial processes to IBM. In addition, we can terminate at our discretion, subject to payment of termination fees that decline over the term, or for cause. In 2004, we incurred $2.2 million under this contract and have a remaining commitment of approximately $93 million. |
(4) | Pension and Other Postretirement Benefits Payments/Contributions: Represents projected contributions to our non-U.S. defined benefit plans as well as projected benefit payments related to our unfunded plans, including the U.S. Non-Qualified Plans and our postretirement benefit plan. We do not expect to make any contributions to our U.S. Qualified Plan. The expected benefits are estimated based on the same assumptions used to measure our benefit obligation at the end of 2004 and include benefits attributable to estimated future employee service. A closed group approach is used in calculating the projected benefit payments, assuming only the participants who are currently in the valuation population are included in the projection and the projected benefits continue for approximately 99 years. |
52
(5) | As part of our spin-off from Moody’s/D&B2 in 2000, Moody’s and D&B entered into a Tax Allocation Agreement dated as of September 30, 2000 (the “TAA”). Under the TAA, Moody’s/D&B2 and D&B agreed that Moody’s/D&B2 would be entitled to deduct compensation expense associated with the exercise of Moody’s/D&B2 stock options (including Moody’s/D&B2 options exercised by D&B employees) and D&B would be entitled to deduct the compensation expense associated with the exercise of D&B stock options (including D&B options exercised by employees of Moody’s/D&B2). Put simply, the tax deduction goes to the issuing company of the stock option. The TAA provides, however, that if the IRS issues rules, regulations or other authority contrary to the agreed upon treatment of the tax deductions thereunder, then the party that becomes then entitled to take the deduction may be required to indemnify the other party for the loss of such deduction. The IRS issued rulings discussing an employer’s entitlement to stock option deductions after a spin-off or liquidation that appears to require that the tax deduction belongs to the employer of the optionee and not the issuer of the option. Accordingly, under the TAA, we received the benefit of additional tax deductions and under the TAA we may be required to reimburse Moody’s/D&B2 for the loss of income tax deductions relating to 2003 and 2004 of approximately $21 million in the aggregate for such years. This potential reimbursement is a reduction to Shareholders’ Equity and has no impact on EPS. |
• | Improving operating efficiency with a focus on evaluating opportunities in our International segment, and |
• | Leveraging current outsourcing partners and vendors to drive quality and cost efficiencies primarily in the area of technology. |
53
Forward-Looking Statements
54
• | successfully manage our outsource vendors and our strategic partners in our International segment and fully realize expected DUNSRightTM quality process improvements; |
• | effectively communicate and sell the value of our DUNSRightTM quality process to our customers, improve customer satisfaction and increase penetration into existing customer accounts; |
• | reallocate expenses to invest for growth through our Financial Flexibility Program; |
• | accurately forecast cost increases associated with increasing revenue growth; |
• | accurately forecast the cost of complying with increasing regulatory requirements, such as Sarbanes-Oxley requirements; |
• | invest in our database and maintain our reputation for providing reliable data; |
• | execute our plan to improve the business model of our International segment and thereby improve our global data quality while realizing improved financial performance, including operating margins, in that segment; |
• | manage employee satisfaction and maintain our global expertise as we implement our Financial Flexibility Program; |
• | protect against damage or interruptions affecting our database or our data centers; |
• | develop new products or enhance existing ones to meet customer needs; |
• | sustain growth in the context of our competition, including challenges to our E-Business in light of the acquisition of OneSource by I-USA, the launch of competitive products, the potential improvement of other pan-European networks in Europe, and the efforts by Equifax to grow their position in the small business decision-making market; and |
• | implement pricing programs and policies that enable us to capture the additional value we provide through enhanced data and services. |
Trends, Risks and Uncertainties
55
established a platform to reach these goals, we have not yet achieved our aspiration to attain our revenue growth goals on a sustainable basis. In order to reach our aspiration, we are undertaking a number of initiatives to both increase and maintain our revenue in each of our product lines, including scaling high-growth products, such as our Self-Awareness Solution. While we believe that our initiatives in each product line will be sufficient to achieve and maintain our desired revenue growth, no assurance can be made as to when or if we will be successful. A failure to reach and maintain our desired revenue growth or to continue to reach our earnings per share growth could have a material adverse effect on the market value of our common stock.
56
• | the in-house operations of the businesses we seek as customers; |
• | other general and specialized credit reporting and other business information services; |
• | other information and professional service providers; and |
• | credit insurers. |
• | implementing specific process re-engineering projects designed to improve efficiency and productivity in our business; and |
• | optimizing revenue and profits realized by the sale of data collected by partner organizations in certain markets. |
• | we do not have market leadership positions in all countries in which we operate, making us particularly susceptible to competitive pressures; |
• | our competition is primarily local, and our customers may have greater loyalty to our local competitors; |
57
• | credit insurance is a significant credit risk mitigation tool in certain markets, thus reducing the demand for information-based credit risk mitigation tools, such as those offered by us; |
• | in some markets, key data elements are generally available from public-sector sources, thus reducing our data collection advantage; and |
• | prior to the launch of our Blueprint for Growth strategy in October 2000, our investment decisions were made at the country level and not in a coordinated fashion. While we have made significant investments to mitigate this situation, we are still faced with uneven data quality in some local markets. |
• | longer accounts receivable payment cycles; |
• | the costs and difficulties of managing international operations and alliances; |
• | greater difficulty enforcing intellectual property rights; and |
• | the need to comply with a broader array of regulatory and licensing requirements, the failure of which could result in fines, penalties or business suspensions. |
58
• | successfully utilize marketing to acquire, retain and grow Web-based customers; |
• | successfully accelerate the overall growth of the Hoover’s business; |
• | successfully develop new features to justify higher price points for Hoover’s services; |
• | develop products that are understandable and easy to use over the Web; |
• | minimize disruptions in our service and other system failures that reduce customer satisfaction; |
• | develop features and sales channels in support of increasing market penetration of enterprise customers; |
• | minimize difficulties that delay or prevent the successful development, introduction and marketing of our Web-based products; and |
• | successfully expand the use of Hoover’s into international markets. |
• | acquisitions may cause a disruption in our ongoing business, distract our management and make it difficult to maintain our standards, controls and procedures; |
• | we may not be able to integrate successfully the services, content, products and personnel of any acquisition into our operations; and |
• | we may not derive the revenue improvements, cost savings and other intended benefits of any acquisition. |
59
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
60
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Schedules
Page(s) | ||||||
---|---|---|---|---|---|---|
Management’s Report on Internal Control Over Financial Reporting and Statement of Management Responsibility for Financial Statements | 62 | |||||
Report of Independent Registered Public Accounting Firm | 63 | |||||
Consolidated Financial Statements: | ||||||
At December 31, 2004 and 2003: | ||||||
Consolidated Balance Sheets | 66 | |||||
For the years ended December 31, 2004, 2003 and 2002: | ||||||
Consolidated Statements of Operations | 65 | |||||
Consolidated Statements of Cash Flows | 67 | |||||
Consolidated Statements of Shareholders’ Equity | 68 | |||||
Notes to Consolidated Financial Statements | 69 |
61
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of The Dun & Bradstreet Corporation:
63
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Florham Park, New Jersey
March 9, 2005
64
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
(Dollar amounts in millions, except per share data) | |||||||||||||||
Operating Revenues | $ | 1,414.0 | $ | 1,386.4 | $ | 1,275.6 | |||||||||
Operating Expenses | 403.9 | 433.3 | 392.1 | ||||||||||||
Selling and Administrative Expenses | 612.0 | 579.9 | 512.5 | ||||||||||||
Depreciation and Amortization | 47.3 | 64.0 | 84.2 | ||||||||||||
Restructuring Expense | 32.0 | 17.4 | 30.9 | ||||||||||||
Operating Costs | 1,095.2 | 1,094.6 | 1,019.7 | ||||||||||||
Operating Income | 318.8 | �� | 291.8 | 255.9 | |||||||||||
Interest Income | 8.4 | 4.2 | 3.0 | ||||||||||||
Interest Expense | (18.9 | ) | (18.6 | ) | (19.5 | ) | |||||||||
Other Income (Expense) — Net | 32.5 | 3.0 | (0.2 | ) | |||||||||||
Non-Operating Income (Expense) — Net | 22.0 | (11.4 | ) | (16.7 | ) | ||||||||||
Income before Provision for Income Taxes | 340.8 | 280.4 | 239.2 | ||||||||||||
Provision for Income Taxes | 129.2 | 106.2 | 94.1 | ||||||||||||
Equity in Net Income (Losses) of Affiliates | 0.2 | 0.3 | (1.7 | ) | |||||||||||
Net Income | $ | 211.8 | $ | 174.5 | $ | 143.4 | |||||||||
Basic Earnings Per Share of Common Stock | $ | 3.01 | $ | 2.37 | $ | 1.93 | |||||||||
Diluted Earnings Per Share of Common Stock | $ | 2.90 | $ | 2.30 | $ | 1.87 | |||||||||
Weighted Average Number of Shares Outstanding — Basic | 70,415,000 | 73,490,000 | 74,511,000 | ||||||||||||
Weighted Average Number of Shares Outstanding — Diluted | 73,104,000 | 75,826,000 | 76,874,000 |
The accompanying notes are an integral part of the consolidated financial statements.
65
CONSOLIDATED BALANCE SHEETS
December 31, 2004 | December 31, 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollar amounts in millions, except per share data) | |||||||||||
Assets | |||||||||||
Current Assets | |||||||||||
Cash and Cash Equivalents | $ | 252.9 | $ | 239.0 | |||||||
Marketable Securities | 82.6 | 5.1 | |||||||||
Accounts Receivable — Net of Allowance of $19.4 at December 31, 2004 and $21.8 at December 31, 2003 | 382.1 | 355.8 | |||||||||
Other Receivables | 16.8 | 29.3 | |||||||||
Deferred Income Tax | 15.9 | 27.5 | |||||||||
Assets Held for Sale | — | 52.6 | |||||||||
Other Current Assets | 11.8 | 21.5 | |||||||||
Total Current Assets | 762.1 | 730.8 | |||||||||
Non-Current Assets | |||||||||||
Property, Plant and Equipment, Net of Accumulated Depreciation of $202.5 at December 31, 2004 and $230.1 at December 31, 2003 | 51.2 | 55.1 | |||||||||
Prepaid Pension Costs | 455.3 | 414.5 | |||||||||
Computer Software, Net of Accumulated Amortization of $328.0 at December 31, 2004 and $306.6 at December 31, 2003 | 32.4 | 47.2 | |||||||||
Goodwill, Net | 217.0 | 256.9 | |||||||||
Deferred Income Tax | 60.9 | 56.0 | |||||||||
Other Non-Current Assets | 56.6 | 64.2 | |||||||||
Total Non-Current Assets | 873.4 | 893.9 | |||||||||
Total Assets | $ | 1,635.5 | $ | 1,624.7 | |||||||
Current Liabilities | |||||||||||
Accounts Payable | $ | 51.2 | $ | 50.9 | |||||||
Accrued Payroll | 110.8 | 101.2 | |||||||||
Accrued Income Tax | 22.2 | 49.3 | |||||||||
Liabilities Held for Sale | — | 13.9 | |||||||||
Other Accrued and Current Liabilities | 140.8 | 129.3 | |||||||||
Deferred Revenue | 388.6 | 391.3 | |||||||||
Total Current Liabilities | 713.6 | 735.9 | |||||||||
Pension and Postretirement Benefits | 468.0 | 459.9 | |||||||||
Long Term Debt | 300.0 | 299.9 | |||||||||
Other Non-Current Liabilities | 99.7 | 80.6 | |||||||||
Commitments and Contingencies (Note 12 and Note 13) | |||||||||||
Shareholders’ Equity | |||||||||||
Preferred Stock, $.01 par value per share, authorized — 10,000,000 shares; — outstanding — none | |||||||||||
Series Common Stock, $.01 par value per share, authorized — 10,000,000 shares; — outstanding — none | |||||||||||
Common Stock, $.01 par value per share, authorized — 200,000,000 shares — issued — 81,945,520 shares | 0.8 | 0.8 | |||||||||
Unearned Compensation Restricted Stock | (1.4 | ) | (3.3 | ) | |||||||
Capital Surplus | 198.2 | 204.4 | |||||||||
Retained Earnings | 670.3 | 458.5 | |||||||||
Treasury Stock, at cost, 13,331,966 shares at December 31, 2004 and 9,692,002 shares at December 31, 2003 | (557.6 | ) | (341.6 | ) | |||||||
Cumulative Translation Adjustment | (149.0 | ) | (177.3 | ) | |||||||
Minimum Pension Liability Adjustment | (107.1 | ) | (93.1 | ) | |||||||
Total Shareholders’ Equity | 54.2 | 48.4 | |||||||||
Total Liabilities and Shareholders’ Equity | $ | 1,635.5 | $ | 1,624.7 |
The accompanying notes are an integral part of the consolidated financial statements.
66
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
(Dollar amounts in millions) | |||||||||||||||
Cash Flows from Operating Activities: | |||||||||||||||
Net Income | $ | 211.8 | $ | 174.5 | $ | 143.4 | |||||||||
Reconciliation of Net Income to Net Cash Provided by Operating Activities: | |||||||||||||||
Depreciation and Amortization | 47.3 | 64.0 | 84.2 | ||||||||||||
Loss from Sale of Real Estate | — | 13.8 | — | ||||||||||||
(Gain) Loss from Sales of Businesses and Investments | (31.5 | ) | 2.1 | (5.0 | ) | ||||||||||
Income Tax Benefit due to Exercise of Stock Incentive Plans | 6.9 | 12.4 | 5.4 | ||||||||||||
Equity (Gains) Losses in Excess of Dividends Received from Affiliates | (0.2 | ) | (0.3 | ) | 1.7 | ||||||||||
Restructuring Expense | 32.0 | 17.4 | 30.9 | ||||||||||||
Restructuring Payments | (27.5 | ) | (30.0 | ) | (31.3 | ) | |||||||||
Deferred Income Taxes | 71.1 | 35.5 | 10.2 | ||||||||||||
Accrued Income Taxes, Net | (16.5 | ) | 10.6 | 59.8 | |||||||||||
Changes in Current Assets and Liabilities: | |||||||||||||||
(Increase) Decrease in Accounts Receivable | (8.5 | ) | (9.3 | ) | 2.0 | ||||||||||
Net (Increase) Decrease in Other Current Assets | 8.4 | (1.2 | ) | 2.2 | |||||||||||
Increase (Decrease) in Deferred Revenue | 28.3 | 3.5 | (8.3 | ) | |||||||||||
Increase (Decrease) in Accounts Payable | 0.2 | — | (1.5 | ) | |||||||||||
Net Decrease in Accrued Liabilities | (6.9 | ) | (24.9 | ) | (37.1 | ) | |||||||||
Net Decrease in Other Accrued and Current Liabilities | (6.8 | ) | (7.2 | ) | (7.3 | ) | |||||||||
Changes in Non-Current Assets and Liabilities: | |||||||||||||||
Increase in Other Long-Term Assets | (37.5 | ) | (36.7 | ) | (23.4 | ) | |||||||||
Net Increase (Decrease) in Long-Term Liabilities | (4.8 | ) | 9.4 | (15.7 | ) | ||||||||||
Net, Other Non-Cash Adjustments | 1.8 | 2.1 | 2.9 | ||||||||||||
Net Cash Provided by Operating Activities | 267.6 | 235.7 | 213.1 | ||||||||||||
Cash Flows from Investing Activities: | |||||||||||||||
Proceeds from Sales of Real Estate | — | 80.2 | 21.5 | ||||||||||||
Investments in Marketable Securities | (223.2 | ) | (0.2 | ) | (4.5 | ) | |||||||||
Redemptions in Marketable Securities | 152.4 | 4.5 | — | ||||||||||||
Proceeds from Sales of Businesses, Net of Cash Divested | 65.8 | 3.6 | 4.8 | ||||||||||||
Payments for Acquisitions of Businesses, Net of Cash Acquired | (2.0 | ) | (98.0 | ) | (21.2 | ) | |||||||||
Cash Settlements of Foreign Currency Contracts | (4.8 | ) | (14.6 | ) | (1.1 | ) | |||||||||
Capital Expenditures | (12.1 | ) | (11.0 | ) | (15.8 | ) | |||||||||
Additions to Computer Software and Other Intangibles | (16.7 | ) | (19.3 | ) | (37.7 | ) | |||||||||
Net Assets Held for Sales of Businesses | — | (9.9 | ) | — | |||||||||||
Investments in Unconsolidated Affiliates | — | (1.9 | ) | (0.9 | ) | ||||||||||
Net, Other | 1.4 | 1.3 | (0.3 | ) | |||||||||||
Net Cash Used in Investing Activities | (39.2 | ) | (65.3 | ) | (55.2 | ) | |||||||||
Cash Flows from Financing Activities: | |||||||||||||||
Payments for Purchase of Treasury Shares | (251.8 | ) | (156.1 | ) | (117.7 | ) | |||||||||
Net Proceeds from Stock Plans | 18.0 | 23.4 | 12.1 | ||||||||||||
Net, Other | 0.3 | (0.1 | ) | 0.9 | |||||||||||
Net Cash Used in Financing Activities | (233.5 | ) | (132.8 | ) | (104.7 | ) | |||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 19.0 | 9.5 | (6.6 | ) | |||||||||||
Increase in Cash and Cash Equivalents | 13.9 | 47.1 | 46.6 | ||||||||||||
Cash and Cash Equivalents, Beginning | 239.0 | 191.9 | 145.3 | ||||||||||||
Cash and Cash Equivalents, End | $ | 252.9 | $ | 239.0 | $ | 191.9 | |||||||||
Supplemental Disclosure of Cash Flow Information: | |||||||||||||||
Cash Paid Year to Date for: | |||||||||||||||
Income Taxes, Net of Refunds | $ | 67.6 | $ | 47.5 | $ | 28.3 | |||||||||
Interest Expense | $ | 17.2 | $ | 17.2 | $ | 18.5 |
The accompanying notes are an integral part of the consolidated financial statements.
67
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three Years Ended December 31, 2004 | |||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock ($.01 Par Value) | Unearned Compensation Restricted Stock | Capital Surplus | Retained Earnings | Treasury Stock | Cumulative Translation Adjustment | Minimum Pension Liability Adjustment | Total Shareholders’ Equity | Comprehensive Income (Loss) | |||||||||||||||||||||||||||||||
(Dollar amounts in millions, except per share data) | |||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2002 | $ | 0.8 | $ | (1.8 | ) | $ | 227.3 | $ | 140.7 | $ | (148.7 | ) | $ | (203.7 | ) | $ | (33.6 | ) | $ | (19.0 | ) | ||||||||||||||||||
Net Income | 143.4 | 143.4 | $ | 143.4 | |||||||||||||||||||||||||||||||||||
Treasury Shares Reissued Under Stock Options, Deferred, and Other Compensation Plans and Restricted Stock Plan (714,937) | (8.6 | ) | 22.3 | 13.7 | |||||||||||||||||||||||||||||||||||
Treasury Shares Reissued Under Employee Stock Purchase Plan (120,894) | 3.8 | 3.8 | |||||||||||||||||||||||||||||||||||||
Treasury Shares Acquired (3,355,200) | (117.7 | ) | (117.7 | ) | |||||||||||||||||||||||||||||||||||
Amortization of Restricted Stock Awards | 1.2 | 1.2 | |||||||||||||||||||||||||||||||||||||
Change in Cumulative Translation Adjustment | 9.5 | 9.5 | 9.5 | ||||||||||||||||||||||||||||||||||||
Change in Minimum Pension Liability Adjustment | (53.6 | ) | (53.6 | ) | (53.6 | ) | |||||||||||||||||||||||||||||||||
Unrealized Losses on Investments | (0.1 | ) | (0.1 | ) | (0.1 | ) | |||||||||||||||||||||||||||||||||
Total Comprehensive Income | $ | 99.2 | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2002 | 0.8 | (0.6 | ) | 218.7 | 284.0 | (240.3 | ) | (194.2 | ) | (87.2 | ) | (18.8 | ) | ||||||||||||||||||||||||||
Net Income | 174.5 | 174.5 | $ | 174.5 | |||||||||||||||||||||||||||||||||||
Treasury Shares Reissued Under Stock Options, Deferred, and Other Compensation Plans and Restricted Stock Plan (1,545,362) | (5.1 | ) | (14.3 | ) | 51.5 | 32.1 | |||||||||||||||||||||||||||||||||
Treasury Shares Reissued Under Employee Stock Purchase Plan (108,440) | 3.6 | 3.6 | |||||||||||||||||||||||||||||||||||||
Treasury Shares Acquired (3,759,200) | (156.1 | ) | (156.1 | ) | |||||||||||||||||||||||||||||||||||
Amortization of Restricted Stock Awards | 2.1 | 2.1 | |||||||||||||||||||||||||||||||||||||
Restricted Stock Surrendered | 0.3 | (0.3 | ) | — | |||||||||||||||||||||||||||||||||||
Change in Cumulative Translation Adjustment | 16.9 | 16.9 | 16.9 | ||||||||||||||||||||||||||||||||||||
Change in Minimum Pension Liability Adjustment | (5.9 | ) | (5.9 | ) | (5.9 | ) | |||||||||||||||||||||||||||||||||
Total Comprehensive Income | $ | 185.5 | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2003 | 0.8 | (3.3 | ) | 204.4 | 458.5 | (341.6 | ) | (177.3 | ) | (93.1 | ) | 48.4 | |||||||||||||||||||||||||||
Net Income | 211.8 | 211.8 | $ | 211.8 | |||||||||||||||||||||||||||||||||||
Treasury Shares Reissued Under Stock Options, Deferred, and Other Compensation Plans and Restricted Stock Plan (836,381) | 0.5 | (6.9 | ) | 32.0 | 25.6 | ||||||||||||||||||||||||||||||||||
Treasury Shares Reissued Under Employee Stock Purchase Plan (97,295) | 0.7 | 3.8 | 4.5 | ||||||||||||||||||||||||||||||||||||
Treasury Shares Acquired (4,573,640) | (251.8 | ) | (251.8 | ) | |||||||||||||||||||||||||||||||||||
Amortization of Restricted Stock Awards | 1.4 | 1.4 | |||||||||||||||||||||||||||||||||||||
Change in Cumulative Translation Adjustment | 28.3 | 28.3 | 28.3 | ||||||||||||||||||||||||||||||||||||
Change in Minimum Pension Liability Adjustment | (14.0 | ) | (14.0 | ) | (14.0 | ) | |||||||||||||||||||||||||||||||||
Total Comprehensive Income | $ | 226.1 | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2004 | $ | 0.8 | $ | (1.4 | ) | $ | 198.2 | $ | 670.3 | $ | (557.6 | ) | $ | (149.0 | ) | $ | (107.1 | ) | $ | 54.2 |
The accompanying notes are an integral part of the consolidated financial statements.
68
Notes to Consolidated Financial Statements
(Tabular dollar amounts in millions, except per share data)
Note 1. | Description of Business and Summary of Significant Accounting Policies |
Significant Accounting Policies
69
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
• | our Board of Directors approved a plan, which could be implemented within one year, specifying the number of employees to be terminated, their job classifications or functions, and their location and established termination benefits; and |
• | we communicated benefits to the affected employees. |
70
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
71
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
72
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
translation adjustments are accumulated in a separate component of shareholders’ equity, whereas transaction gains and losses are recognized in other income (expense) — net. Transaction gains were $5.1 million for 2004 and transaction losses were $0.3 million and $0.1 million in 2003 and 2002, respectively.
Years Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
Net Income, as reported | $ | 211.8 | $ | 174.5 | $ | 143.4 | |||||||||
Add: Stock compensation cost included in net income, net of tax benefits | 6.7 | 1.8 | 0.7 | ||||||||||||
Deduct: Total stock compensation cost under fair-value method for all awards, net of tax benefits | (17.2 | ) | (10.5 | ) | (7.7 | ) | |||||||||
Pro forma Net Income | $ | 201.3 | $ | 165.8 | $ | 136.4 | |||||||||
Basic EPS: | |||||||||||||||
As reported | $ | 3.01 | $ | 2.37 | $ | 1.93 | |||||||||
Pro forma | $ | 2.86 | $ | 2.25 | $ | 1.83 | |||||||||
Diluted EPS: | |||||||||||||||
As reported | $ | 2.90 | $ | 2.30 | $ | 1.87 | |||||||||
Pro forma | $ | 2.75 | $ | 2.18 | $ | 1.77 |
2004 | 2003 | 2002 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Expected dividend yield | 0 | % | 0 | % | 0 | % | ||||||||
Expected stock volatility | 30 | % | 30 | % | 30 | % | ||||||||
Risk-free interest rate | 3.83 | % | 2.94 | % | 3.98 | % | ||||||||
Expected holding period (years) | 7.0 | 4.9 | 5.0 | |||||||||||
Weighted average fair value of options granted | $ | 21.66 | $ | 11.08 | $ | 11.82 |
73
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 2. | Recent Accounting Announcements |
74
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
75
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 3. | Impact of Implementation of the Blueprint for Growth Strategy |
76
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
$17.1 million for severance and termination costs related to approximately 500 employees (including a $0.5 million pension plan curtailment charge to the U.S. qualified plan due to the 2003 Financial Flexibility Program employee actions) and $0.3 million for lease termination obligations. As of September 30, 2003, all of the approximately 500 employees had been terminated under the 2003 Financial Flexibility Program.
Severance and Termination | Pension Plan and Postretirement Net Charges | Lease Termination Obligations and Other Exit Costs | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 Restructuring Charges: | ||||||||||||||||||
Total Charge Incurred during 2004 | $ | 28.4 | $ | 0.5 | $ | 3.1 | $ | 32.0 | ||||||||||
Charge Taken during First Quarter 2004 | $ | 9.3 | $ | — | $ | 0.9 | $ | 10.2 | ||||||||||
Payments during First Quarter 2004 | (3.8 | ) | — | (0.9 | ) | (4.7 | ) | |||||||||||
Balance Remaining as of March 31, 2004 | $ | 5.5 | $ | — | $ | — | $ | 5.5 | ||||||||||
Charge Taken during Second Quarter 2004 | $ | 7.5 | $ | — | $ | 0.5 | $ | 8.0 | ||||||||||
Payments during Second Quarter 2004 | (4.1 | ) | — | — | (4.1 | ) | ||||||||||||
Balance Remaining as of June 30, 2004 | $ | 8.9 | $ | — | $ | 0.5 | $ | 9.4 | ||||||||||
Charge Taken during Third Quarter 2004 | $ | 2.6 | $ | — | $ | 0.1 | $ | 2.7 | ||||||||||
Payments during Third Quarter 2004 | (7.1 | ) | — | (0.4 | ) | (7.5 | ) | |||||||||||
Balance Remaining as of September 30, 2004 | $ | 4.4 | $ | — | $ | 0.2 | $ | 4.6 | ||||||||||
Charge Taken during Fourth Quarter 2004 | $ | 9.0 | $ | 0.5 | $ | 1.6 | $ | 11.1 | ||||||||||
Payments/ Pension Plan and Postretirement Net Charges during Fourth Quarter 2004 | (6.2 | ) | (0.5 | ) | (1.1 | ) | (7.8 | ) | ||||||||||
Balance Remaining as of December 31, 2004 | $ | 7.2 | $ | — | $ | 0.7 | $ | 7.9 |
77
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Severance and Termination | Pension Curtailment | Lease Termination Obligations | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 Restructuring Charges: | ||||||||||||||||||
Total Charge Incurred during 2003 | $ | 16.6 | $ | 0.5 | $ | 0.3 | $ | 17.4 | ||||||||||
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 | ||||||||||
Charge Taken during Third Quarter 2003 | $ | 1.6 | $ | — | $ | — | $ | 1.6 | ||||||||||
Payments during Third Quarter 2003 | (4.0 | ) | — | — | (4.0 | ) | ||||||||||||
Balance Remaining as of September 30, 2003 | $ | 5.5 | $ | — | $ | 0.2 | $ | 5.7 | ||||||||||
Payments during Fourth Quarter 2003 | $ | (4.6 | ) | $ | — | $ | (0.1 | ) | $ | (4.7 | ) | |||||||
Balance Remaining as of December 31, 2003 | $ | 0.9 | $ | — | $ | 0.1 | $ | 1.0 | ||||||||||
Payments during First Quarter 2004 | $ | (0.8 | ) | $ | — | $ | — | $ | (0.8 | ) | ||||||||
Balance Remaining as of March 31, 2004 | $ | 0.1 | $ | — | $ | 0.1 | $ | 0.2 | ||||||||||
Payments during Second Quarter 2004 | $ | — | $ | — | $ | (0.1 | ) | $ | (0.1 | ) | ||||||||
Balance Remaining as of June 30, 2004 | $ | 0.1 | $ | — | $ | — | $ | 0.1 | ||||||||||
Payments during Third Quarter 2004 | $ | (0.1 | ) | $ | — | $ | — | $ | (0.1 | ) | ||||||||
Balance Remaining as of September 30, 2004 | $ | — | $ | — | $ | — | $ | — |
Original Charge | 2002 Payments/ Asset Write-offs | Balance at 12/31/2002 | 2003 Payments | Balance at 12/31/2003 | 2004 Payments | Balance at 12/31/2004 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 Restructuring Charge for: | ||||||||||||||||||||||||||||||
Severance and Termination | $ | 18.6 | $ | (7.3 | ) | $ | 11.3 | $ | (10.9 | ) | $ | 0.4 | $ | (0.4 | ) | $ | — | |||||||||||||
Asset Write-Offs | 10.6 | (10.6 | ) | — | — | — | — | — | ||||||||||||||||||||||
Lease Termination Obligations | 1.7 | (0.2 | ) | 1.5 | (0.2 | ) | 1.3 | (1.2 | ) | 0.1 | ||||||||||||||||||||
$ | 30.9 | $ | (18.1 | ) | $ | 12.8 | $ | (11.1 | ) | $ | 1.7 | $ | (1.6 | ) | $ | 0.1 |
78
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
79
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 4. | Acquisitions and Other Investments |
80
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 5. | Income Taxes |
2004 | 2003 | 2002 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
U.S. | $ | 253.6 | $ | 246.4 | $ | 215.2 | ||||||||
Non-U.S. | 87.2 | 34.0 | 24.0 | |||||||||||
Income Before Provision for Income Taxes | $ | 340.8 | $ | 280.4 | $ | 239.2 |
2004 | 2003 | 2002 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current Tax Provision (Benefit): | ||||||||||||||
U.S. federal | $ | 81.2 | $ | 50.5 | $ | 56.0 | ||||||||
State and local | 12.2 | 6.9 | 8.1 | |||||||||||
Non-U.S. | 25.3 | 17.4 | 4.2 | |||||||||||
Total current tax provision | 118.7 | 74.8 | 68.3 | |||||||||||
Deferred Tax Provision (Benefit): | ||||||||||||||
U.S. federal | 11.5 | 32.1 | 22.9 | |||||||||||
State and local | 0.3 | 5.8 | 1.9 | |||||||||||
Non-U.S. | (1.3 | ) | (6.5 | ) | 1.0 | |||||||||
Total deferred tax provision | 10.5 | 31.4 | 25.8 | |||||||||||
Provision for Income Taxes | $ | 129.2 | $ | 106.2 | $ | 94.1 |
81
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
2004 | 2003 | 2002 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
State and local taxes, net of U.S. federal tax benefit | 3.0 | 3.0 | 2.9 | |||||||||||
Non-U.S. taxes | (2.1 | ) | (1.6 | ) | (1.3 | ) | ||||||||
Valuation allowance | 0.5 | 0.6 | — | |||||||||||
Interest | 2.3 | 0.9 | 2.1 | |||||||||||
Tax credits | (0.9 | ) | — | — | ||||||||||
Other | 0.1 | — | 0.6 | |||||||||||
Effective tax rate | 37.9 | % | 37.9 | % | 39.3 | % |
2004 | 2003 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Deferred Tax Assets: | ||||||||||
Operating Losses | $ | 61.2 | $ | 93.8 | ||||||
Fixed Assets | 4.8 | 1.5 | ||||||||
Intangibles | 25.7 | 35.2 | ||||||||
Post-employment Benefits | — | 0.2 | ||||||||
Restructuring and Reorganization Costs | 4.1 | 4.9 | ||||||||
Bad Debts | 6.1 | 5.9 | ||||||||
Accrued Expenses | 9.4 | 7.8 | ||||||||
Deferred Revenue | — | 0.3 | ||||||||
Investments | 20.3 | 4.1 | ||||||||
Minimum Pension Liability | 59.8 | 51.5 | ||||||||
Other | 4.2 | 0.5 | ||||||||
Total Deferred Tax Assets | 195.6 | 205.7 | ||||||||
Valuation Allowance | (55.9 | ) | (76.4 | ) | ||||||
Net Deferred Tax Assets | 139.7 | 129.3 | ||||||||
Deferred Tax Liabilities: | ||||||||||
Tax Leasing Transactions | (3.0 | ) | (4.6 | ) | ||||||
Postretirement Benefits | (59.9 | ) | (41.2 | ) | ||||||
Total Deferred Tax Liability | (62.9 | ) | (45.8 | ) | ||||||
Net Deferred Tax Asset | $ | 76.8 | $ | 83.5 |
82
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 6. | Notes Payable and Indebtedness |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Liability (Asset) | |||||||||||
Long-term, fixed-rate notes | $ | 301.8 | $ | 304.7 | |||||||
Fair value of interest rate swaps | (1.9 | ) | (4.9 | ) | |||||||
Other | 0.1 | 0.1 | |||||||||
Long-Term Debt | $ | 300.0 | $ | 299.9 |
83
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 7. | Financial Instruments with Off-Balance Sheet Risks |
84
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
denominated intercompany loans. Gains and losses associated with these contracts were $0.4 million and $1.0 million, respectively, at December 31, 2004, $0.7 million and $0.2 million, respectively, at December 31, 2003, and $0.8 million and $2.3 million, respectively, at December 31, 2002. In addition, at December 31, 2004 and 2003, we had $91.9 million and $83.6 million, respectively, of foreign exchange forward contracts outstanding associated with our international investments. Losses associated with these contracts were $3.6 million and $4.7 million at December 31, 2004 and 2003, respectively. These contracts typically have various expiration dates within three months of entry into such contracts.
At December 31, 2004 | At December 31, 2003 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying Amount (Asset) Liability | Fair Value (Asset) Liability | Carrying Amount (Asset) Liability | Fair Value (Asset) Liability | |||||||||||||||||
Long-term debt | $ | 301.9 | $ | 309.0 | $ | 304.7 | $ | 321.3 | ||||||||||||
Risk management contracts: | ||||||||||||||||||||
Interest rate swaps (long-term) | $ | (1.9 | ) | $ | (1.9 | ) | $ | (4.9 | ) | $ | (4.9 | ) | ||||||||
Foreign exchange forwards (short-term) — Net | 4.1 | 4.1 | 4.4 | 4.4 | ||||||||||||||||
$ | 2.2 | $ | 2.2 | $ | (0.5 | ) | $ | (0.5 | ) |
Note 8. | Capital Stock |
• | minimize the prospects of changes in control that could jeopardize the tax-free nature of the separation by assuring meaningful Board of Directors’ involvement in any such proposed transaction; and |
85
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
• | enable us to develop our businesses and foster our long-term growth without disruptions caused by the threat of a change in control not deemed by our Board of Directors to be in the best interests of shareholders. |
Note 9. | Reconciliation of Weighted Average Shares |
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Share data in thousands) | |||||||||||||||
Weighted average number of shares — basic | 70,415 | 73,490 | 74,511 | ||||||||||||
Dilutive effect of shares issuable under stock options, restricted stock and performance share plans | 2,625 | 2,213 | 2,309 | ||||||||||||
Adjustment of shares applicable to stock options exercised during the period and performance share plans | 64 | 123 | 54 | ||||||||||||
Weighted average number of shares — diluted | 73,104 | 75,826 | 76,874 |
86
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 10. | Pension and Postretirement Benefits |
Pension Plans | Postretirement Benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2004 | 2003 | ||||||||||||||||
Change in Benefit Obligations | |||||||||||||||||||
Benefit obligation at January 1 | $ | (1,455.3 | ) | $ | (1,366.0 | ) | $ | (162.1 | ) | $ | (250.9 | ) | |||||||
Service cost | (14.7 | ) | (13.9 | ) | (0.9 | ) | (1.2 | ) | |||||||||||
Interest cost | (86.1 | ) | (84.6 | ) | (7.6 | ) | (14.3 | ) | |||||||||||
Benefits paid | 86.6 | 90.5 | 20.2 | 16.7 | |||||||||||||||
Plan amendment | (0.9 | ) | (0.1 | ) | — | 69.4 | |||||||||||||
Impact of curtailment gain (loss) | 3.0 | 1.6 | (0.3 | ) | — | ||||||||||||||
Plan participant contributions | (0.8 | ) | — | (5.5 | ) | (3.8 | ) | ||||||||||||
Actuarial gain (loss) | (30.2 | ) | (0.5 | ) | 33.0 | 22.0 | |||||||||||||
Assumption change | (47.5 | ) | (72.2 | ) | — | — | |||||||||||||
Effect of changes in foreign currency exchange rates | (18.2 | ) | (10.1 | ) | — | — | |||||||||||||
Benefit obligation at December 31 | $ | (1,564.1 | ) | $ | (1,455.3 | ) | $ | (123.2 | ) | $ | (162.1 | ) |
87
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Pension Plans | Postretirement Benefits | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2004 | 2003 | |||||||||||||||||
Change in Plan Assets | ||||||||||||||||||||
Fair value of plan assets at January 1 | $ | 1,289.9 | $ | 1,113.7 | $ | — | $ | — | ||||||||||||
Actual return on plan assets | 128.0 | 235.6 | — | — | ||||||||||||||||
Employer contribution | 19.1 | 23.9 | 14.7 | 12.9 | ||||||||||||||||
Plan participant contributions | 0.8 | 0.6 | 5.5 | 3.8 | ||||||||||||||||
Benefits paid | (86.6 | ) | (90.5 | ) | (20.2 | ) | (16.7 | ) | ||||||||||||
Effect of changes in foreign currency exchange rates | 13.3 | 6.6 | — | — | ||||||||||||||||
Fair value of plan assets at December 31 | $ | 1,364.5 | $ | 1,289.9 | $ | — | $ | — | ||||||||||||
Reconciliation of Funded Status to Total Amount Recognized | ||||||||||||||||||||
Funded status of plan | $ | (199.6 | ) | $ | (165.4 | ) | $ | (123.2 | ) | $ | (162.1 | ) | ||||||||
Unrecognized actuarial loss (gain) | 551.7 | 481.1 | (4.9 | ) | 26.2 | |||||||||||||||
Unrecognized prior service cost | 16.7 | 19.7 | (51.9 | ) | (67.0 | ) | ||||||||||||||
Net amount recognized | $ | 368.8 | $ | 335.4 | $ | (180.0 | ) | $ | (202.9 | ) | ||||||||||
Amounts recognized in the Consolidated Balance Sheets | ||||||||||||||||||||
Prepaid pension costs | $ | 455.3 | $ | 414.5 | $ | — | $ | — | ||||||||||||
Accrued pension and postretirement Benefits | (268.3 | ) | (240.6 | ) | (180.0 | ) | (202.9 | ) | ||||||||||||
Intangible assets | 14.9 | 16.9 | — | — | ||||||||||||||||
Accumulated other comprehensive income | 166.9 | 144.6 | — | — | ||||||||||||||||
Net amount recognized | $ | 368.8 | $ | 335.4 | $ | (180.0 | ) | $ | (202.9 | ) | ||||||||||
Accumulated Benefit Obligation | $ | 1,511.6 | $ | 1,399.9 | N/A | N/A | ||||||||||||||
Increase in minimum liability included in other comprehensive income — Pretax | $ | 22.3 | $ | 9.7 | N/A | N/A |
88
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
2004 | 2003 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Accumulated Benefit Obligation | $ | 379.3 | $ | 330.0 | ||||||
Fair Value of Plan Assets | 111.0 | 89.4 | ||||||||
Unfunded Accumulated Benefit Obligation | $ | 268.3 | $ | 240.6 | ||||||
Projected Benefit Obligation | $ | 397.7 | $ | 355.4 |
Pension Plans | Postretirement Benefits | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||||||
Components of Net Periodic Cost | ||||||||||||||||||||||||||||
Service cost | $ | 14.7 | $ | 13.9 | $ | 14.7 | $ | 0.9 | $ | 1.2 | $ | 1.5 | ||||||||||||||||
Interest cost | 86.1 | 84.6 | 86.2 | 7.6 | 14.3 | 16.6 | ||||||||||||||||||||||
Expected return on plan assets | (126.8 | ) | (128.1 | ) | (142.8 | ) | — | — | — | |||||||||||||||||||
Amortization of prior service Cost | 2.9 | 3.2 | 3.2 | (11.4 | ) | (2.4 | ) | — | ||||||||||||||||||||
Recognized actuarial loss (gain) | 11.4 | 8.2 | 4.7 | (0.1 | ) | 1.8 | 1.8 | |||||||||||||||||||||
Net periodic (income) cost | $ | (11.7 | ) | $ | (18.2 | ) | $ | (34.0 | ) | $ | (3.0 | ) | $ | 14.9 | $ | 19.9 |
89
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Pension Plans | Postretirement Benefits | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2004 | 2003 | |||||||||||||||||
Weighted average discount rate | 5.71 | % | 5.96 | % | 5.25 | % | 6.00 | % | ||||||||||||
Weighted average rate of compensation increase | 3.67 | % | 3.64 | % | N/A | N/A | ||||||||||||||
Cash balance accumulation/conversion rate | 5.00 | % | 5.00 | % | N/A | N/A |
Pension Plans | Postretirement Benefits | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||||||
Weighted average discount rate | 5.98 | % | 6.44 | % | 7.21 | % | 6.00 | % | 6.45 | % | 7.25 | % | ||||||||||||||||
Weighted average expected long-term return on plan assets | 8.66 | % | 8.65 | % | 9.67 | % | N/A | N/A | N/A | |||||||||||||||||||
Weighted average rate of compensation increase | 3.65 | % | 3.65 | % | 4.38 | % | N/A | N/A | N/A | |||||||||||||||||||
Cash balance accumulation/conversion rate | 5.00 | % | 4.75 | % | 5.50 | % | N/A | N/A | N/A |
Asset Allocations | Target Asset Allocations | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2004 | 2003 | |||||||||||||||||
Equity securities | 68 | % | 69 | % | 65 | % | 65 | % | ||||||||||||
Debt securities | 26 | % | 26 | % | 29 | % | 29 | % | ||||||||||||
Real estate | 6 | % | 5 | % | 6 | % | 6 | % | ||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
90
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Postretirement Benefits | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pension Plans | Gross Expected Benefit Payment | Gross Expected Subsidy | Net Expected Benefit Payment | ||||||||||||||||
2005 | $ | 88.1 | $ | 16.0 | $ | — | $ | 16.0 | |||||||||||
2006 | $ | 83.8 | $ | 15.1 | $ | 2.7 | $ | 12.4 | |||||||||||
2007 | $ | 88.8 | $ | 14.5 | $ | 3.0 | $ | 11.5 | |||||||||||
2008 | $ | 87.4 | $ | 13.8 | $ | 3.2 | $ | 10.6 | |||||||||||
2009 | $ | 85.9 | $ | 13.3 | $ | 3.4 | $ | 9.9 | |||||||||||
2010 – 2014 | $ | 469.8 | $ | 58.4 | $ | 18.3 | $ | 40.1 |
91
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
1% Point | �� | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Increase | Decrease | ||||||||||
Benefit obligation at end of year | $ | 3.4 | $ | (4.8 | ) | ||||||
Service cost plus interest cost | $ | 0.2 | $ | (0.2 | ) |
92
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 11. | Employee Stock Plans |
93
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Shares | Weighted Average Exercise Price($) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Options outstanding at January 1, 2002 | 10,681,698 | 20.81 | ||||||||
Granted | 478,995 | 34.92 | ||||||||
Exercised | (718,352 | ) | 11.67 | |||||||
Surrendered or expired | (750,100 | ) | 23.31 | |||||||
Options outstanding at December 31, 2002 | 9,692,241 | 21.99 | ||||||||
Granted | 1,895,645 | 35.15 | ||||||||
Exercised | (1,414,827 | ) | 14.07 | |||||||
Surrendered or expired | (969,939 | ) | 28.40 | |||||||
Options outstanding at December 31, 2003 | 9,203,120 | 25.25 | ||||||||
Granted | 816,286 | 53.75 | ||||||||
Exercised | (877,619 | ) | 16.68 | |||||||
Surrendered or expired | (841,314 | ) | 32.01 | |||||||
Options outstanding at December 31, 2004 | 8,300,473 | 28.20 |
Stock Options Outstanding | Stock Options Exercisable | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | Shares | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||||||||||||||
$10.59 – $14.86 | 1,117,334 | 4.1 Years | $ | 13.63 | 1,053,002 | $ | 13.61 | ||||||||||||||||
$15.06 – $17.59 | 1,341,274 | 5.0 Years | $ | 15.51 | 1,340,236 | $ | 15.51 | ||||||||||||||||
$23.72 – $27.94 | 2,038,248 | 6.0 Years | $ | 24.11 | 1,202,047 | $ | 23.92 | ||||||||||||||||
$31.26 – $35.81 | 1,639,007 | 7.9 Years | $ | 34.10 | 85,773 | $ | 34.33 | ||||||||||||||||
$36.16 – $49.16 | 1,391,984 | 7.2 Years | $ | 36.99 | 310,376 | $ | 36.16 | ||||||||||||||||
$50.07 – $59.86 | 772,626 | 9.2 Years | $ | 53.78 | — | $ | — | ||||||||||||||||
Total | 8,300,473 | 3,991,434 |
94
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
the related option is exercisable, and only upon the occurrence of specified contingent events. During 2004, 2003 and 2002, no shares, 4,600 shares, and no shares of SARs were granted, respectively. At December 31, 2004, 2003, and 2002, 17,736, 57,235 and 64,257 shares of SARs were outstanding, respectively, and we have recognized the associated expense of $0.5 million, $0.6 million, and $0.2 million within “Operating Costs” for the years 2004, 2003 and 2002, respectively. Compensation expense for stock appreciation rights is measured as the amount by which the quoted market value of the shares of our common stock exceeds the base unit price at the date of the grant. Changes, either increases or decreases, in the quoted market value of these shares between the date of grant and at the end of each subsequent quarter result in a change in the measure of compensation for the rights. The compensation expense is recognized proportionally over the vesting period.
Note 12. | Lease Commitments and Contractual Obligations |
95
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
the terms of the agreement, ICT will be responsible for performing certain marketing and credit calling activities previously performed by our own call centers in North America. The obligation under the contract is based upon transmitted call volumes, but shall not be less than $3 million per contract year. In 2004, we incurred $5.6 million under this contract.
2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Leases | $ | 24.3 | $ | 22.0 | $ | 16.0 | $ | 11.7 | $9.4 | $ | 20.5 | $ | 103.9 | |||||||||||||||||
Obligations to Outsourcers | $ | 75.3 | $ | 76.5 | $ | 76.1 | $ | 77.6 | $ | 77.4 | $ | 197.7 | $ | 580.6 |
Note 13. | Contingencies |
96
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Tax Matters
Utilization of Capital Losses — 1989–1990
97
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Royalty Expense Deductions — 1993–1997
98
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
• | challenge our application of the Royalty Expense Indemnity & Defense Provisions of the Tax Sharing Agreements (namely, that NMR must now lead the defense and that NMR and IMS indemnify us for any financial outcome that is less advantageous to us than the final settlement); and |
• | assert breaches of contract and to terminate the obligations of IMS and NMR under the Tax Sharing Agreements generally. |
Amortization and Royalty Expense Deductions/Royalty Income — 1997–2004
99
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Legal Proceedings
100
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Moreover, as described below, on February 1, 2005, the U.S. District Court for the Southern District of New York entered a final judgment against IRI dismissing IRI’s claims. IRI filed a notice of appeal to the Second Circuit Court of Appeals on February 2, 2005. The Court of Appeals for the Second Circuit has ordered that the appeal be argued no earlier than the week of June 13, 2005.
• | allocate potential liabilities that may relate to, arise out of or result from the IRI lawsuit (“IRI Liabilities”); and |
• | conduct a joint defense of such action. |
101
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
102
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
103
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
• | current D&B employees who are participants in The Dun & Bradstreet Corporation Retirement Account and were previously participants in its predecessor plan, The Dun & Bradstreet Master Retirement Plan; |
• | current employees of Receivable Management Services Corporation (“RMSC”) who are participants in The Dun & Bradstreet Corporation Retirement Account and were previously participants in its predecessor plan, The Dun & Bradstreet Master Retirement Plan; |
• | former employees of D&B or D&B’s Receivable Management Services (“RMS”) operations who received a deferred vested retirement benefit under either The Dun & Bradstreet Corporation Retirement Account or The Dun & Bradstreet Master Retirement Plan; and |
• | former employees of D&B’s RMS operations whose employment with D&B terminated after the sale of the RMS operations but who are not employees of RMSC and who, during their employment with D&B, were “Eligible Employees” for purposes of The Dun & Bradstreet Career Transition Plan. |
104
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
requirements that a summary plan description reasonably apprise participants and beneficiaries of their rights and obligations under the plans and that, therefore, undisclosed plan provisions (in this case, the actuarial deduction beneficiaries incur when they leave D&B before age 55 and elect to retire early) cannot be enforced against them. Count 4 claims that the 6-3/5% interest rate (the rate is actually 6-3/4%) used to actuarially reduce early retirement benefits is unreasonable and, therefore, results in a prohibited forfeiture of benefits under ERISA.
105
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 14. | Segment Information |
Year Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
Operating Revenues: | |||||||||||||||
North America | $ | 1,038.3 | $ | 960.1 | $ | 912.1 | |||||||||
International | 375.7 | 426.3 | 363.5 | ||||||||||||
Consolidated Total | $ | 1,414.0 | $ | 1,386.4 | $ | 1,275.6 | |||||||||
Operating Income (Loss): | |||||||||||||||
North America | $ | 365.3 | $ | 329.9 | $ | 313.1 | |||||||||
International | 64.3 | 59.9 | 43.5 | ||||||||||||
Total Divisions | 429.6 | 389.8 | 356.6 | ||||||||||||
All Other(1) | (110.8 | ) | (98.0 | ) | (100.7 | ) | |||||||||
Consolidated Total | 318.8 | 291.8 | 255.9 | ||||||||||||
Non-Operating Income (Expense) — Net | 22.0 | (11.4 | ) | (16.7 | ) | ||||||||||
Income before Provision for Income Taxes | $ | 340.8 | $ | 280.4 | $ | 239.2 | |||||||||
Depreciation and Amortization:(2) | |||||||||||||||
North America | $ | 35.7 | $ | 41.1 | $ | 57.7 | |||||||||
International | 10.9 | 19.6 | 23.9 | ||||||||||||
Total Divisions | 46.6 | 60.7 | 81.6 | ||||||||||||
All Other | 0.7 | 3.3 | 2.6 | ||||||||||||
Consolidated Total | $ | 47.3 | $ | 64.0 | $ | 84.2 | |||||||||
Capital Expenditures: | |||||||||||||||
North America | $ | 7.3 | $ | 7.7 | $ | 10.6 | |||||||||
International | 4.6 | 3.3 | 5.2 | ||||||||||||
Total Divisions | 11.9 | 11.0 | 15.8 | ||||||||||||
All Other | 0.2 | — | — | ||||||||||||
Consolidated Total | $ | 12.1 | $ | 11.0 | $ | 15.8 |
106
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Year Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
Additions to Computer Software and Other Intangibles: | |||||||||||||||
North America | $ | 14.0 | $ | 16.5 | $ | 29.8 | |||||||||
International | 2.6 | 2.8 | 7.7 | ||||||||||||
Total Divisions | 16.6 | 19.3 | 37.5 | ||||||||||||
All Other | 0.1 | — | 0.2 | ||||||||||||
Consolidated Total | $ | 16.7 | $ | 19.3 | $ | 37.7 | |||||||||
Assets: | |||||||||||||||
North America | $ | 467.3 | $ | 456.8 | $ | 366.0 | |||||||||
International | 455.5 | 541.1 | 493.1 | ||||||||||||
Total Divisions | 922.8 | 997.9 | 859.1 | ||||||||||||
All Other (primarily domestic pensions and taxes) | 712.7 | 626.8 | 668.6 | ||||||||||||
Consolidated Total | $ | 1,635.5 | $ | 1,624.7 | $ | 1,527.7 | |||||||||
Goodwill: (3) | |||||||||||||||
North America | $ | 110.9 | $ | 118.0 | $ | 51.6 | |||||||||
International | 106.1 | 138.9 | 131.7 | ||||||||||||
Consolidated Total | $ | 217.0 | $ | 256.9 | $ | 183.3 | |||||||||
Supplemental Geographic and Customer Solution Set Information: | |||||||||||||||
Long-Lived Assets: | |||||||||||||||
North America | $ | 580.6 | $ | 642.8 | $ | 534.8 | |||||||||
International | 136.7 | 167.5 | 267.8 | ||||||||||||
Consolidated Total | $ | 717.3 | $ | 810.3 | $ | 802.6 | |||||||||
Customer Solution Set Revenues: | |||||||||||||||
North America: | |||||||||||||||
Risk Management Solutions | $ | 639.7 | $ | 603.6 | $ | 594.3 | |||||||||
Sales & Marketing Solutions | 318.9 | 294.1 | 289.1 | ||||||||||||
Supply Management Solutions | 29.8 | 33.4 | 28.7 | ||||||||||||
E-Business Solutions | 49.9 | 29.0 | — | ||||||||||||
Total North America Core | 1,038.3 | 960.1 | 912.1 | ||||||||||||
Other Divested Businesses | — | — | — | ||||||||||||
Total North America | 1,038.3 | 960.1 | 912.1 | ||||||||||||
International: | |||||||||||||||
Risk Management Solutions | 242.3 | 200.7 | 160.3 | ||||||||||||
Sales & Marketing Solutions | 49.3 | 48.3 | 42.0 | ||||||||||||
Supply Management Solutions | 4.5 | 4.6 | 2.7 | ||||||||||||
E-Business Solutions | 0.1 | — | — | ||||||||||||
Total International Core | 296.2 | 253.6 | 205.0 |
107
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Year Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
Other Divested Businesses | 79.5 | 172.7 | 158.5 | ||||||||||||
Total International | 375.7 | 426.3 | 363.5 | ||||||||||||
Consolidated Total: | |||||||||||||||
Risk Management Solutions | 882.0 | 804.3 | 754.6 | ||||||||||||
Sales & Marketing Solutions | 368.2 | 342.4 | 331.1 | ||||||||||||
Supply Management Solutions | 34.3 | 38.0 | 31.4 | ||||||||||||
E-Business Solutions | 50.0 | 29.0 | — | ||||||||||||
Consolidated Total Core | 1,334.5 | 1,213.7 | 1,117.1 | ||||||||||||
Other Divested Businesses | 79.5 | 172.7 | 158.5 | ||||||||||||
Consolidated Total | $ | 1,414.0 | $ | 1,386.4 | $ | 1,275.6 |
(1) | The following table itemizes “All Other”: |
Year Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
Operating Income (Loss): | |||||||||||||||
Corporate Costs | $ | (58.2 | ) | $ | (44.5 | ) | $ | (38.4 | ) | ||||||
Transition Costs (Costs to implement our Financial Flexibility Program) | (20.6 | ) | (22.3 | ) | (31.4 | ) | |||||||||
Restructuring Expense | (32.0 | ) | (17.4 | ) | (30.9 | ) | |||||||||
Loss on High Wycombe Building Sale | — | (13.8 | ) | — | |||||||||||
Total “All Other” | $ | (110.8 | ) | $ | (98.0 | ) | $ | (100.7 | ) |
(2) | Includes depreciation and amortization of Property, Plant and Equipment, Computer Software, Goodwill and Other Intangibles. |
(3) | The decrease in goodwill in North America from $118.0 million at December 31, 2003 to $110.9 million at December 31, 2004 is primarily attributed to an adjustment for additional net operating loss carryovers from the Hoover’s acquisition that resulted from an Internal Revenue Service pronouncement. The decrease in goodwill in International from $138.9 million at December 31, 2003 to $106.1 million at December 31, 2004 is primarily attributed to the sales of operations in Iberia, France, Central Europe, the Nordic region and, India (see Note 3 for more detail), partially offset by the positive effect of foreign currency translation and the acquisition of a controlling interest in RIBES S.p.A (see Note 4 for more detail). The increase in goodwill in North America from $51.6 million at December 31, 2002 to $118.0 million at December 31, 2003 is primarily attributed to the acquisition of Hoover’s. The increase in goodwill in International from $131.7 million at December 31, 2002 to $138.9 million at December 31, 2003 is primarily attributed to the acquisition of Data House. (See Note 4 for more detail). |
108
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 15. Supplemental Financial Data
At December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
Restructuring Accruals | $ | 9.3 | $ | 2.7 | |||||||
Professional Fees | 27.5 | 29.5 | |||||||||
Operating Expenses | 31.5 | 37.0 | |||||||||
Spin-Off Obligation(1) | 21.3 | — | |||||||||
Other Accrued Liabilities | 51.2 | 60.1 | |||||||||
$ | 140.8 | $ | 129.3 |
(1) | As part of our spin-off from Moody’s/D&B2 in 2000, Moody’s and D&B entered into a Tax Allocation Agreement dated as of September 30, 2000 (the “TAA”). Under the TAA, Moody’s/D&B2 and D&B agreed that Moody’s/D&B2 would be entitled to deduct compensation expense associated with the exercise of Moody’s/D&B2 stock options (including Moody’s/D&B2 options exercised by D&B employees), and D&B would be entitled to deduct the compensation expense associated with the exercise of D&B stock options (including D&B options exercised by employees of Moody’s/D&B2). Put simply, the tax deduction goes to the issuing company of the stock option. The TAA provides, however, that if the IRS issues rules, regulations or other authority contrary to the agreed upon treatment of the tax deductions thereunder, then the party that becomes then entitled to take the deduction may be required to indemnify the other party for the loss of such deduction. The IRS issued rulings discussing an employer’s entitlement to stock option deductions after a spin-off or liquidation that appears to require that the tax deduction belongs to the employer of the optionee and not the issuer of the option. Accordingly, under the TAA, we received the benefit of additional tax deductions and under the TAA we may be required to reimburse Moody’s/D&B2 for the loss of income tax deductions relating to 2003 and 2004 of approximately $21 million in the aggregate for such years. This potential reimbursement is a reduction to Shareholders’ Equity and has no impact on EPS. |
Property, Plant and Equipment — Net, carried at cost:
At December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
Land | $ | 4.7 | $ | 4.7 | |||||||
Buildings | 29.1 | 28.9 | |||||||||
Machinery and Equipment | 196.3 | 221.0 | |||||||||
230.1 | 254.6 | ||||||||||
Less: Accumulated Depreciation | 186.9 | 209.7 | |||||||||
43.2 | 44.9 | ||||||||||
Leasehold Improvements, less: | |||||||||||
Accumulated Amortization of $15.6 and $20.4 | 8.0 | 10.2 | |||||||||
$ | 51.2 | $ | 55.1 |
109
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Other Income (Expense) — Net:
Year Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | |||||||||||||
Miscellaneous Other Income (Expense) — Net | $ | 1.0 | $ | (1.9 | ) | $ | (2.3 | ) | |||||||
Gains (Losses) on Sales of Businesses(2) | 30.3 | (2.5 | ) | 5.0 | |||||||||||
Gain on Sale of Investment | 1.2 | 0.4 | — | ||||||||||||
Write-off of Non-Recoverable Investments(2) | — | — | (2.9 | ) | |||||||||||
Insurance Recovery | — | 7.0 | — | ||||||||||||
$ | 32.5 | $ | 3.0 | $ | (0.2 | ) |
(2) | See Note 3 to these consolidated financial statements. |
Computer Software and Goodwill:
Computer Software | Goodwill | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
January 1, 2003 | $ | 69.5 | $ | 183.3 | ||||||
Additions at cost | 19.3 | — | ||||||||
Amortization | (40.9 | ) | — | |||||||
Divestitures | — | (2.3 | ) | |||||||
Assets Held for Sale | — | (20.9 | ) | |||||||
Acquisitions | 0.2 | 71.3 | ||||||||
Other(3) | (0.9 | ) | 25.5 | |||||||
December 31, 2003 | 47.2 | 256.9 | ||||||||
Additions at cost | 16.4 | — | ||||||||
Amortization | (31.4 | ) | — | |||||||
Divestitures | (0.1 | ) | (44.0 | ) | ||||||
Acquisitions | 0.9 | (3.8 | ) | |||||||
Other(3) | (0.6 | ) | 7.9 | |||||||
December 31, 2004 | $ | 32.4 | $ | 217.0 |
(3) | Impact of foreign currency fluctuations. |
110
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Other Intangibles:
Customer Lists | Trademarks, Patents and Other | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
January 1, 2003 | $ | 7.6 | $ | 0.1 | $ | 7.7 | ||||||||
Additions at cost | 9.4 | 5.1 | 14.5 | |||||||||||
Operating Amortization | (3.1 | ) | — | (3.1 | ) | |||||||||
Other(4) | (6.3 | ) | — | (6.3 | ) | |||||||||
December 31, 2003 | 7.6 | 5.2 | 12.8 | |||||||||||
Additions at cost | 3.1 | — | 3.1 | |||||||||||
Operating Amortization | (2.5 | ) | — | (2.5 | ) | |||||||||
Disposals | — | 1.4 | 1.4 | |||||||||||
Other(5) | 0.2 | 0.3 | 0.5 | |||||||||||
December 31, 2004 | $ | 8.4 | $ | 6.9 | $ | 15.3 |
(4) | Due to assets held for sale. |
(5) | Impact of foreign currency fluctuations. |
Allowance for Doubtful Accounts: | ||||||
January 1, 2002 | $ | 21.0 | ||||
Additions charged to costs and expenses | 15.3 | |||||
Write-offs | (13.3 | ) | ||||
December 31, 2002 | 23.0 | |||||
Additions charged to costs and expenses | 4.1 | |||||
Write-offs | (5.3 | ) | ||||
December 31, 2003 | 21.8 | |||||
Additions charged to costs and expenses | 6.5 | |||||
Write-offs | (7.9 | ) | ||||
Divestitures | (1.9 | ) | ||||
Other | 0.9 | |||||
December 31, 2004 | $ | 19.4 | ||||
Deferred Tax Asset Valuation Allowance: | ||||||
January 1, 2002 | $ | 70.2 | ||||
Additions charged (credited) to costs and expenses | (13.4 | ) | ||||
December 31, 2002 | 56.8 | |||||
Additions charged (credited) to costs and expenses | 21.9 | |||||
Additions charged (credited) to other accounts(6) | (2.3 | ) | ||||
December 31, 2003 | 76.4 | |||||
Additions charged (credited) to costs and expenses | 9.3 | |||||
Additions charged (credited) due to divestitures | (29.1 | ) | ||||
Additions charged (credited) to other accounts(6) | (0.7 | ) | ||||
December 31, 2004 | $ | 55.9 |
(6) | Amount represents a decrease to goodwill associated with the Data House acquisition. See Note 4 “Acquisitions and Other Investments” to these consolidated financial statements. |
111
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Note 16. | Quarterly Financial Data (Unaudited) |
Three-Months Ended | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31 | June 30 | September 30 | December 31 | Year | ||||||||||||||||||
2004 Operating Revenues: | ||||||||||||||||||||||
North America | $ | 250.5 | $ | 245.4 | $247.8 | $294.6 | $ | 1,038.3 | ||||||||||||||
International | 92.9 | 104.5 | 85.4 | 92.9 | 375.7 | |||||||||||||||||
Consolidated Operating Revenues | $ | 343.4 | $ | 349.9 | $333.2 | $387.5 | $ | 1,414.0 | ||||||||||||||
Operating Income (Loss): | ||||||||||||||||||||||
North America | $ | 87.5 | $ | 73.0 | $ 82.4 | $122.4 | $ | 365.3 | ||||||||||||||
International | 7.1 | 20.2 | 12.1 | 24.9 | 64.3 | |||||||||||||||||
Total Divisions | 94.6 | 93.2 | 94.5 | 147.3 | 429.6 | |||||||||||||||||
All Other(1) | (29.1 | ) | (28.6 | ) | (21.6 | ) | (31.5 | ) | (110.8 | ) | ||||||||||||
Consolidated Operating Income | $ | 65.5 | $ | 64.6 | $ 72.9 | $115.8 | $ | 318.8 | ||||||||||||||
Net Income | $ | 49.8 | $ | 39.5 | $ 47.5 | $ 75.0 | $ | 211.8 | ||||||||||||||
Basic Earnings Per Share of Common Stock(2) | $ | .69 | $ | .56 | $ .68 | $ 1.09 | $ | 3.01 | ||||||||||||||
Diluted Earnings Per Share of Common Stock(2) | $ | .66 | $ | .54 | $ .65 | $ 1.04 | $ | 2.90 | ||||||||||||||
2003 Operating Revenues: | ||||||||||||||||||||||
North America | $ | 226.5 | $ | 229.3 | $229.2 | $275.1 | $ | 960.1 | ||||||||||||||
International | 88.2 | 105.7 | 103.1 | 129.3 | 426.3 | |||||||||||||||||
Consolidated Operating Revenues | $ | 314.7 | $ | 335.0 | $332.3 | $404.4 | $ | 1,386.4 | ||||||||||||||
Operating Income (Loss): | ||||||||||||||||||||||
North America | $ | 80.3 | $ | 68.4 | $ 75.3 | $105.9 | $ | 329.9 | ||||||||||||||
International | 1.3 | 16.4 | 10.8 | 31.4 | 59.9 | |||||||||||||||||
Total Divisions | 81.6 | 84.8 | 86.1 | 137.3 | 389.8 | |||||||||||||||||
All Other(1) | (26.0 | ) | (23.7 | ) | (32.0 | ) | (16.3 | ) | (98.0 | ) | ||||||||||||
Consolidated Operating Income | $ | 55.6 | $ | 61.1 | $ 54.1 | $121.0 | $ | 291.8 | ||||||||||||||
Net Income | $ | 37.1 | $ | 35.1 | $ 28.8 | $ 73.5 | $ | 174.5 | ||||||||||||||
Basic Earnings Per Share of Common Stock(2) | $ | .50 | $ | .47 | $ .39 | $ 1.01 | $ | 2.37 | ||||||||||||||
Diluted Earnings Per Share of Common Stock(2) | $ | .48 | $ | .46 | $ .38 | $ .98 | $ | 2.30 |
(1) | The following table itemizes the components of the “All Other” category of Operating Income (Loss) (see Note 3 to these consolidated financial statements): |
112
Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
Three Months Ended | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31 | June 30 | September 30 | December 31 | Year | ||||||||||||||||||
Operating Income (Loss): | ||||||||||||||||||||||
2004: | ||||||||||||||||||||||
Corporate Costs | $ | (14.8 | ) | $ | (14.6 | ) | $(14.9 | ) | $(13.9 | ) | $ | (58.2 | ) | |||||||||
Restructuring Expense | (10.2 | ) | (8.0 | ) | (2.7 | ) | (11.1 | ) | (32.0 | ) | ||||||||||||
Transition Costs (Costs to implement our Financial Flexibility Program) | (4.1 | ) | (6.0 | ) | (4.0 | ) | (6.5 | ) | (20.6 | ) | ||||||||||||
Total | $ | (29.1 | ) | $ | (28.6 | ) | $(21.6 | ) | $(31.5 | ) | $ | (110.8 | ) | |||||||||
2003: | ||||||||||||||||||||||
Corporate Costs | $ | (9.7 | ) | $ | (11.3 | ) | $ (9.9 | ) | $(13.6 | ) | $ | (44.5 | ) | |||||||||
Restructuring Expense | (10.9 | ) | (4.9 | ) | (1.6 | ) | — | (17.4 | ) | |||||||||||||
Loss on High Wycombe, England, Building Sale | — | — | (13.8 | ) | — | (13.8 | ) | |||||||||||||||
Transition Costs (Costs to implement our Financial Flexibility Program) | (5.4 | ) | (7.5 | ) | (6.7 | ) | (2.7 | ) | (22.3 | ) | ||||||||||||
Total | $ | (26.0 | ) | $ | (23.7 | ) | $(32.0 | ) | $(16.3 | ) | $ | (98.0 | ) |
(2) | The number of weighted average shares outstanding changes as common shares are issued for employee benefit plans and other purposes or as shares are repurchased. For this reason, the sum of quarterly earnings per share may not be the same as earnings per share for the year. |
Note 17. | Subsequent Events |
• | Improving operating efficiency with a focus on evaluating opportunities in our International segment, and |
• | Leveraging current outsourcing partners and vendors to drive quality and cost efficiencies primarily in the area of technology. |
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Notes to Consolidated Financial Statements—(continued)
(Tabular dollar amounts in millions, except per share data)
1. | customer acceptance of the price increases, |
2. | the impact that such price increases may have on customers’ utilization of our real estate and other products during the year, |
3. | the full nature and impact of actions that we may take to mitigate the operating income impact of the legislation, and |
4. | the actions of our competitors. |
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Item 9. Changes in and Disagreements with Accountants on Auditing and Financial Disclosure
Item 9a. Controls and Procedures
115
Item 9b. Other Information
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PART III
Item 10. Directors and Executive Officers of the Registrant*
Code of Ethics and Corporate Governance
Item 11. Executive Compensation*
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters* |
Equity Compensation Plan Information
(A) | (B) | (C) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) | |||||||||||
Equity compensation plans approved by security holders(1) | 8,352,348(2 | ) | $ | 28.03 | 4,647,158(3 | ) |
(1) | This table includes information for two equity compensation plans adopted in connection with our separation from Moody’s. As of December 31, 2004, a total of 2,466,154 shares of D&B common stock were issuable upon exercise of outstanding options and other rights under those two plans. The weighted average exercise price of those outstanding options and other rights is $14.62 per share. No additional options or other rights may be granted under those two plans. |
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(2) | Includes options for 8,300,473 shares of D&B common stock, restricted stock units for 45,129 shares of D&B common stock and deferred performance shares for 6,746 shares of D&B common stock. This amount does not include outstanding shares of restricted common stock of 122,150. |
(3) | Includes shares available for future purchases under our 2000 Employee Stock Purchase Plan (the “ESPP”). As of December 31, 2004, an aggregate of 1,000,275 shares of D&B common stock were available for purchase under the ESPP. |
Item 13. Certain Relationships and Related Transactions*
Item 14. Principal Accountant Fees and Services*
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(1)Financial Statements. |
See Index to Financial Statements and Schedules in Part II, Item 8 of this Form 10-K. |
(2)Financial Statement Schedules. |
None. |
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SIGNATURES
THE DUN & BRADSTREET CORPORATION (Registrant) | ||
By: | /s/ STEVEN W. ALESIO | |
STEVEN W. ALESIO President and Chief Executive Officer |
/s/ ALLAN Z. LOREN | Director and Chairman of the Board | |||
Allan Z. Loren | ||||
/s/ STEVEN W. ALESIO | Director, President and Chief Executive Officer (principal executive officer) | |||
Steven W. Alesio | ||||
/s/ MARY JANE RAYMOND | Corporate Controller (principal accounting officer) | |||
Mary Jane Raymond | ||||
/s/ SARA MATHEW | Chief Financial Officer (principal financial officer) | |||
Sara Mathew | ||||
/s/ JOHN W. ALDEN | Director | |||
John W. Alden | ||||
/s/ CHRISTOPHER J. COUGHLIN | Director | |||
Christopher J. Coughlin | ||||
/s/ JAMES N. FERNANDEZ | Director | |||
James N. Fernandez | ||||
/s/ RONALD L. KUEHN, JR. | Director | |||
Ronald L. Kuehn, Jr. | ||||
/s/ VICTOR A. PELSON | Director | |||
Victor A. Pelson | ||||
/s/ SANDRA E. PETERSON | Director | |||
Sandra E. Peterson | ||||
/s/ MICHAEL R. QUINLAN | Director | |||
Michael R. Quinlan | ||||
/s/ NAOMI O. SELIGMAN | Director | |||
Naomi O. Seligman |
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INDEX TO EXHIBITS
Regulation S-K Exhibit Number | ||||||
---|---|---|---|---|---|---|
3. | Articles of Incorporation and By-laws | |||||
3.1 | Restated Certificate of Incorporation of the Registrant, as amended effective October 1, 2000 (incorporated by reference to Exhibit 3.1 to Registrant’s Report on Form 8-K, file number 1-15967, filed October 4, 2000). | |||||
3.2 | Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit 3.2 to Registrant’s Registration Statement on Form 10, file number 1-15967, filed June 27, 2000). | |||||
4. | Instruments Defining the Rights of Security Holders, Including Indentures | |||||
4.1 | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form 10, file number 1-15967, filed September 11, 2000). | |||||
4.2 | Rights Agreement, dated as of August 15, 2000, between the Registrant (f.k.a. The New D&B Corporation) and EquiServe Trust Company, N.A., as Rights Agent, which includes the Certificate of Designation for the Series A Junior Participating Preferred Stock as Exhibit A thereto, the Form of Right Certificate as Exhibit B thereto and the Summary of Rights to Purchase Preferred Shares as Exhibit C thereto (incorporated by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A, file number 1-15967, filed September 15, 2000). | |||||
4.3 | Five-Year Credit Agreement, dated September 1, 2004, among The Dun & Bradstreet Corporation, the Borrowing Subsidiaries Party thereto, JPMorgan Chase Bank, as Administrative Agent, Bank of Tokyo-Mitsubishi Trust Company and Citicorp USA, Inc., as Syndication Agents, The Bank of New York and Suntrust Bank, as Documentation Agents and the Lenders Party thereto (incorporated by reference to Exhibit 4.1 to Registrant’s Report on Form 8-K, file number 1-15967, filed September 3, 2004). | |||||
4.4 | Indenture dated as of March 22, 2001 by and between the Registrant and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed May 15, 2001). | |||||
4.5 | Forms of 6.625% Senior Notes due 2006 (incorporated by reference to Exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed May 15, 2001). | |||||
10. | Material Contracts | |||||
10.1 | Distribution Agreement, dated as of September 30, 2000, between Moody’s Corporation (f.k.a. The Dun & Bradstreet Corporation) and the Registrant (f.k.a. The New D&B Corporation) (incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 8-K, file number 1-15967, filed October 4, 2000). | |||||
10.2 | Tax Allocation Agreement, dated as of September 30, 2000, between Moody’s Corporation (f.k.a. The Dun & Bradstreet Corporation) and the Registrant (f.k.a. The New D&B Corporation) (incorporated by reference to Exhibit 10.2 to the Registrant’s Report on Form 8-K, file number 1-15967, filed October 4, 2000). | |||||
10.3 | Employee Benefits Agreement, dated as of September 30, 2000, between Moody’s Corporation (f.k.a. The Dun & Bradstreet Corporation) and the Registrant (f.k.a. The New D&B Corporation) (incorporated by reference to Exhibit 10.3 to the Registrant’s Report on Form 8-K, file number 1-15967, filed October 4, 2000). | |||||
10.4 | Undertaking of the Registrant (f.k.a. The New D&B Corporation), dated September 30, 2000, to Cognizant Corporation and ACNielsen Corporation (incorporated by reference to Exhibit 10.9 to the Registrant’s Report on Form 8-K, file number 1-15967, filed October 4, 2000). |
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Regulation S-K Exhibit Number | ||||||
---|---|---|---|---|---|---|
10.5 | Undertaking of the Registrant (f.k.a. The New D&B Corporation), dated September 30, 2000, to R.H. Donnelley Corporation (incorporated by reference to Exhibit 10.10 to the Registrant’s Report on Form 8-K, file number 1-15967, filed October 4, 2000). | |||||
10.6 | Distribution Agreement, dated as of June 30, 1998, between R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation) and Moody’s Corporation (f.k.a. The New Dun & Bradstreet Corporation) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Moody’s Corporation, file number 1-14037, filed August 14, 1998). | |||||
10.7 | Tax Allocation Agreement, dated as of June 30, 1998, between R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation) and Moody’s Corporation (f.k.a. The New Dun & Bradstreet Corporation) (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Moody’s Corporation, file number 1-14037, filed August 14, 1998). | |||||
10.8 | Employee Benefits Agreement, dated as of June 30, 1998, between R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation) and Moody’s Corporation (f.k.a. The New Dun & Bradstreet Corporation) (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Moody’s Corporation, file number 1-14037, filed August 14, 1998). | |||||
10.9 | Distribution Agreement, dated as of October 28, 1996, among R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation (incorporated by reference to Exhibit 10(x) to the Annual Report on Form 10-K of R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation) for the year ended December 31, 1996, file number 1-7155, filed March 27, 1997). | |||||
10.10 | Tax Allocation Agreement, dated as of October 28, 1996, among R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation (incorporated by reference to Exhibit 10(y) to the Annual Report on Form 10-K of R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation) for the year ended December 31, 1996, file number 1-7155, filed March 27, 1997). | |||||
10.11 | Employee Benefits Agreement, dated as of October 28, 1996, among R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation (incorporated by reference to Exhibit 10(z) to the Annual Report on Form 10-K of R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation) for the year ended December 31, 1996, file number 1-7155, filed March 27, 1997). | |||||
10.12 | Amended and Restated Indemnity and Joint Defense Agreement among the Registrant, VNU, N.V., VNU, Inc. ACNielsen Corporation, AC Nielsen (US), Inc., Nielsen Media Research, Inc., R.H. Donnelley Corporation, Moody’s Corporation and IMS Health Incorporated (incorporated by reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed August 4, 2004). | |||||
10.13 | Amended and Restated Agreement of Limited Partnership of D&B Investors L.P., dated April 1, 1997 (incorporated by reference to Exhibit 10.14 to the Quarterly Report on Form 10-Q of Moody’s Corporation, file number 1-14037, filed August 14, 1998). | |||||
10.14 | D&B Guaranty, dated as of April 1, 1997, given by The Dun & Bradstreet Corporation in favor of Utrecht-America Finance Co. and Leiden Inc. (as assumed by the Registrant) (incorporated by reference to Exhibit 10.19 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed November 14, 2000). | |||||
10.15† | The Dun & Bradstreet Executive Transition Plan (incorporated herein by reference to Exhibit 10.20 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed November 14, 2000) (incorporated by reference to Exhibit 10.20 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed November 14, 2000). |
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Regulation S-K Exhibit Number | ||||||
---|---|---|---|---|---|---|
10.16† | Forms of Change in Control Severance Agreements (incorporated by reference to Exhibit 10.21 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed November 14, 2000). | |||||
10.17† | Pension Benefit Equalization Plan of The Dun & Bradstreet Corporation (incorporated by reference to Exhibit 10.22 to the Registrant’s Quarterly Report on Form l0-Q, file number 1-15967, filed November 14, 2000). | |||||
10.18† | Supplemental Executive Benefit Plan of The Dun & Bradstreet Corporation (incorporated by reference to Exhibit 10.23 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed November 14, 2000). | |||||
10.19† | Profit Participation Benefit Equalization Plan of The Dun & Bradstreet Corporation (incorporated by reference to Exhibit 10.24 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed November 14, 2000). | |||||
10.20† | Employment Agreement, dated May 15, 2000, by and between Moody’s Corporation (f.k.a. The Dun & Bradstreet Corporation) and Allan Z. Loren (as assumed by the Registrant) (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form 10/A-3, file number 1-15967, filed September 14, 2000). | |||||
10.21† | The Dun & Bradstreet Career Transition Plan (incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K, file number 1-15967, filed March 4, 2002). | |||||
10.22† | 2000 Dun & Bradstreet Corporation Replacement Plan for Certain Directors Holding Dun & Bradstreet Corporation Equity-Based Awards (incorporated by reference to Exhibit 10.27 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed November 14, 2000). | |||||
10.23† | 2000 Dun & Bradstreet Corporation Replacement Plan for Certain Employees Holding Dun & Bradstreet Corporation Equity-Based Awards (incorporated by reference to Exhibit 10.28 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed November 14, 2000). | |||||
10.24† | The Dun & Bradstreet Corporation 2000 Stock Incentive Plan (as amended and restated June 20, 2001) (incorporated by reference to Exhibit 10.29 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed August 1, 2001). | |||||
10.25† | 2000 Dun & Bradstreet Corporation Non-Employee Directors’ Stock Incentive Plan (incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K, file number 1-15967, filed February 21, 2001). | |||||
10.26† | The Dun & Bradstreet Corporation Nonfunded Deferred Compensation Plan for Non-Employee Directors (as assumed by the Registrant) (incorporated by reference to Exhibit 10.18 to Moody’s Corporation Quarterly Report on Form 10-Q, file number 1-14037, filed October 20, 1999). | |||||
10.27† | Form of Limited Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.25 to Moody’s Corporation Quarterly Report on Form 10-Q, file number 1-14037, filed August 14, 1998). | |||||
10.28† | The Dun & Bradstreet Corporation Covered Employee Cash Incentive Plan (incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K, file number 1-15967, filed February 21, 2001). | |||||
10.29† | The Dun & Bradstreet Corporation Cash Incentive Plan (incorporated by reference to the Registrant’s Annual Report on Form 10-K, file number 1-15967, filed February 21, 2001). | |||||
10.30† | Form of Detrimental Conduct Agreement (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K, file number 1-15967, filed March 4, 2002). | |||||
10.31† | Amendment to Employment Agreement, dated December 31, 2004, between Allan Z. Loren and the Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 8-K, file number 1-15967, filed January 4, 2005). |
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Regulation S-K Exhibit Number | ||||||
---|---|---|---|---|---|---|
10.32† | Key Employees’ Non-Qualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed May 6, 2002). | |||||
10.33† | Employment Agreement, dated December 31, 2004, between Steven W. Alesio and the Company (incorporated by reference to Exhibit 10.2 to the Registrant’s Report on Form 8-K, file number 1-15967, filed January 4, 2005). | |||||
10.34 | Technology Services Agreement between the Registrant and Computer Sciences Corporation, dated June 27, 2002 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-15967, filed August 13, 2002). | |||||
10.35† | 2005 and 2004 Non-Employee Director Compensation Program (incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 8-K, file number 1-15967, filed December 8, 2004). | |||||
10.36† | Form of Restricted Share Unit Award Agreement under the 2000 Non-employee Directors’ Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Report on Form 8-K, file number 1-15967, filed December 8, 2004). | |||||
10.37† | The Dun & Bradstreet Corporation 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K, file number 1-15967, filed March 28, 2003). | |||||
10.38† | Form of Restricted Stock Award Agreement under the 2000 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 8-K, file number 1-15967, filed March 2, 2005). | |||||
10.39† | Form of Stock Option Award Agreement under the 2000 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Report on Form 8-K, file number 1-15967, filed March 2, 2005). | |||||
10.40† | Form of Restricted Stock Unit Award Agreement under the 2000 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Report on Form 8-K, file number 1-15967, filed March 2, 2005). | |||||
10.41† | Form of Stock Option Award Agreement under the 2000 Non-employee Directors’ Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Report on Form 8-K, file number 1-15967, filed March 2, 2005). | |||||
10.42† | Form of Restricted Stock Unit Award Agreement under the 2000 Non-employee Directors’ Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Report on Form 8-K, file number 1-15967, filed March 2, 2005). | |||||
10.43* | Business Process Services Agreement made and effective as of October 15, 2004 by and between the Company and International Business Machines Corporation. This Exhibit has been redacted pursuant to a confidentially request under Rule 24(b)-2 of the Securities Exchange Act of 1934, as amended. | |||||
21. | Subsidiaries of the Registrant | |||||
21.1* | List of Active Subsidiaries as of December 31, 2004. | |||||
23. | Consents of Experts and Counsel | |||||
23.1* | Consent of PricewaterhouseCoopers LLP. | |||||
31. | Rule 13a-14(a)/ 15(d)-14(a) Certifications |
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Regulation S-K Exhibit Number | ||||||
---|---|---|---|---|---|---|
31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
32. | Section 1350 Certifications | |||||
32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||
32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith. |
† | Represents a management contract or compensatory plan. |
125