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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
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(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to____________________
Commission file number 001-12275
NIELSEN MEDIA RESEARCH, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 06-1450569
------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
299 PARK AVENUE NEW YORK, NEW YORK 10171
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (212) 708-7500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
TITLE OF CLASS SHARES OUTSTANDING
------------- AT MARCH 31, 1999
Common Stock, ------------------
par value $.01 per share 56,943,684
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NIELSEN MEDIA RESEARCH, INC.
INDEX TO FORM 10-Q
PAGE(S)
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended
March 31, 1999 and 1998 ........................................ 3
Condensed Consolidated Statements of Financial
Position (Unaudited)
March 31, 1999 and December 31, 1998 .......................... 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) Three Months Ended
March 31, 1999 and 1998 ........................................ 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) ......................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................. 16
SIGNATURES ................................................................ 17
PART I. FINANCIAL INFORMATION
- - -----------------------------
ITEM I. FINANCIAL STATEMENTS
NIELSEN MEDIA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
-----------------------
1999 1998
-------- --------
Operating Revenue ................................. $109,175 $ 96,064
Operating Costs ................................... 56,177 47,194
Selling and Administrative Expenses ............... 18,639 20,431
Depreciation and Amortization ..................... 8,894 7,122
-------- --------
Operating Income .................................. 25,465 21,317
-------- --------
Interest Expense - Net ............................ (3,296) 0
Gain on Sale of Marketable Securities ............. 0 3,185
-------- --------
Non-Operating (Expense) Income .................... (3,296) 3,185
-------- --------
Income Before Provision for Taxes ................. 22,169 24,502
Provision for Income Taxes ........................ (9,289) (10,256)
======== ========
Net Income ........................................ $ 12,880 $ 14,246
======== ========
Earnings Per Share of Common Stock - Basic ........ $0.23 $0.26
Earnings Per Share of Common Stock - Diluted ...... $0.21 $0.25
Weighted Average Number of Shares Outstanding -
Basic ........................................... 56,695,000 54,135,000
Dilutive Effect of Stock Option Plans ............. 4,637,000 3,764,000
========== ==========
Weighted Average Number of Shares Outstanding -
Diluted ......................................... 61,332,000 57,899,000
========== ==========
See accompanying notes to the condensed consolidated financial statements
(unaudited).
-3-
NIELSEN MEDIA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
ASSETS
Current Assets
Cash and Cash Equivalents ....................... $ 6,054 $ 7,799
Accounts Receivable-Net ......................... 57,705 54,392
Other Current Assets ............................ 6,340 6,092
-------- --------
Total Current Assets .......................... 70,099 68,283
-------- --------
Property, Plant and Equipment-Net ................. 67,483 68,286
Computer Software ................................. 49,062 50,575
Deferred Charges and Intangibles .................. 16,406 22,234
Other Assets ...................................... 22,865 22,787
-------- --------
Total Assets .................................. $225,915 $232,165
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable ................................ $ 11,977 $ 12,965
Accrued and Other Current Liabilities ........... 47,580 54,753
Accrued Income Taxes ............................ 4,505 2,822
Deferred Revenues ............................... 1,962 2,276
Short-term Debt ................................. 200,000 225,000
-------- --------
Total Current Liabilities ..................... 266,024 297,816
-------- --------
Postretirement Benefits ........................... 9,576 9,273
Deferred Income Taxes ............................. 52,151 47,938
Long-term Debt .................................... 25,000 25,000
-------- --------
Total Liabilities ............................. 352,751 380,027
-------- --------
Shareholders' Equity
Common Stock .................................... 570 570
Treasury Stock .................................. (1,843) (11,121)
Distribution in Excess of Net Book Value ........ (163,542) (163,542)
Retained Earnings ............................... 36,985 25,261
Cumulative Translation Adjustment ............... 994 970
-------- --------
Total Shareholders' Equity .................... (126,836) (147,862)
-------- --------
Total Liabilities and Shareholders' Equity .... $225,915 $232,165
======== =========
See accompanying notes to the condensed consolidated financial statements
(unaudited).
-4-
NIELSEN MEDIA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
Three Months Ended
March 31,
---------------------
1999 1998
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .......................................... $12,880 $14,246
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ..................... 8,894 7,122
Provision for Deferred Income Taxes ............... 4,213 2,859
Changes in Operating Assets and Liabilities:
Increase in Accounts Receivable ................... (3,314) (980)
Decrease In Deferred Charges and Accrued and
Other Current Liabilities ....................... (2,310) (4,939)
(Decrease)/Increase in Accounts Payable ........... (990) 3,810
Increase in Postretirement Benefits ............... 303 72
Increase/(Decrease) in Accrued Income Taxes ....... 1,683 (20)
Decrease/(Increase) in Other Operating Assets
and Liabilities ................................. 3,134 (689)
------- -------
Net Cash Provided by Operating Activities ........... 24,493 21,481
------- -------
Cash Flows from Investing Activities:
Capital Expenditures .............................. (4,042) (6,719)
Additions to Computer Software .................... (5,069) (5,151)
Additions to Intangibles .......................... (701) (2,356)
Other ............................................. 452 (718)
------- -------
Net Cash Used in Investing Activities ............... (9,360) (14,944)
------- -------
Cash Flows from Financing Activities:
Repayment of Bank Borrowings ...................... (25,000) 0
Proceeds from Stock Plans ......................... 8,150 0
Transfers to Cognizant Corporation ................ 0 (8,530)
------- -------
Net Cash Used in Financing Activities ............... (16,850) (8,530)
------- -------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents .................................. (28) 4
------- --------
Decrease in Cash and Cash Equivalents ............... (1,745) (1,989)
Cash and Cash Equivalents, Beginning of Year ........ 7,799 5,993
------- --------
Cash and Cash Equivalents, End of Period ............ $ 6,054 $ 4,004
======= ========
See accompanying notes to the condensed consolidated financial statements
(unaudited).
-5-
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
These interim condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and should be read in
conjunction with the consolidated financial statements and related notes of
Nielsen Media Research, Inc. (the "Company" or "Nielsen Media Research") in the
Report on Form 10-K filed March 29, 1999. In the opinion of management, all
adjustments considered necessary for a fair presentation of financial position,
results of operations and cash flows for the periods presented have been
included. Certain prior-period amounts have been reclassified to conform with
the 1999 presentation.
NOTE 2. BASIS OF PRESENTATION
Until June 30, 1998, Nielsen Media Research was operated as part of
Cognizant Corporation ("Cognizant"), which also included the business of IMS
Health Incorporated ("IMS Health"). On June 30, 1998, Cognizant (which is now
the Company) distributed to all holders of common stock the shares of IMS Health
(the "Distribution").
The consolidated financial statements generally reflect the financial
position, results of operations, and cash flows of the Company as if it were a
separate entity for all periods presented. The consolidated financial statements
exclude pro-forma interest income and expense for the three months ended March
31, 1998. The financial statements include allocations of Cognizant corporate
and other expenses relating to Nielsen Media Research's business for the three
months ended March 31, 1998. Management believes that these allocations are
reasonable. However, the financial information included herein may not
necessarily reflect the consolidated financial position, results of operations,
and cash flows of the Company if the Company had been a separate entity as of
and during the period ended March 31, 1998.
-6-
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3. COMPREHENSIVE INCOME
In 1998 the company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income", which requires presentation
of information on comprehensive income and its components in the financial
statements. Comprehensive income includes net income and changes in foreign
currency translation adjustments, and where applicable, unrealized holding gains
on securities. Total comprehensive income and its components for the three
months ended March 31, 1999 and 1998 are as follows:
Three Months Ended
March 31,
------------------
1999 1998
------ ------
Net Income ............................................. $12,880 $14,246
Change in Foreign Currency Translation Adjustment ..... 24 (162)
------- -------
Total Comprehensive Income ............................ $12,904 $14,084
======= =======
NOTE 4. ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of an exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, or an unrecognized foreign-currency-denominated forecasted
transaction. The Company will be required to implement SFAS 133 beginning
January 1, 2000. The Company expects that the adoption of this pronouncement
will not have a material effect on the Company's financial position, results of
operations or cash flows.
-7-
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 5. DEBT
In connection with the Distribution, the Company borrowed $275,000 under an
unsecured revolving credit facility ("Revolving Credit Facility") provided by a
group of lenders led by The Chase Manhattan Bank. The Revolving Credit Facility
consists of two tranches: a 364-Day $225,000 tranche and a Three-Year $100,000
tranche. As of March 31,1999, $200,000 of the 364-Day tranche and none of the
Three-Year tranche were outstanding. The outstanding commitments under the
364-Day and Three-Year tranches will mature on June 15, 1999 and 2001,
respectively. Interest under the Revolving Credit Facility is based upon the
London Interbank Offered (LIBO) Rate plus a spread. The weighted average
interest rate on the Revolving Credit Facility was 5.33% on March 31, 1999. The
Revolving Credit Facility contains certain restrictive covenants and requires
the Company to maintain certain specified minimum ratios.
In July 1998, the Company entered into an agreement to hedge against an
increase in interest rates in anticipation of the issuance of long-term debt
securities in 1999 to replace a significant portion of the 364-Day tranche under
the Revolving Credit Facility referred to above. The hedge agreement has a
notional amount of $125,000 and will be settled when the long-term debt
securities are issued. If the settlement rate, based on the yield on designated
U.S. Treasury notes is greater than the agreed-upon initial rate, the Company
will receive a cash payment. If the difference is less, the Company will make a
cash payment. The amount paid or received will be recognized as an adjustment to
interest expense over the life of the to-be-issued debt securities. As of March
31, 1999, the Company has deferred an unrealized loss of $3,728.
The Company and one of its subsidiaries participate in a limited
partnership, one of which serves as general partner. In June 1998, a third party
investor contributed $25,000 to the partnership in exchange for a limited
partnership interest. The partnership is obligated to make distributions to the
third party limited partner of approximately 6.26% per annum. The third party
limited partner has the ability to terminate the partnership at the end of
December 2000, unless, at that time, one or more of the other partners elect to
purchase the entire limited partner interest of the third party limited partner.
The partnership licenses computer software.
-8-
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 6. LITIGATION AND CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings and litigation, if
decided adversely, could have a material adverse effect on quarterly or annual
operating results or cash flows when resolved in a future period. However, in
the opinion of management, these matters will not materially affect the
Company's consolidated financial position.
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants The Dun & Bradstreet Corporation ("D&B"), A.C. Nielsen Company and
IMS, a unit of Cognizant (the "IRI Action"). The complaint alleges, among other
things, various violations of the antitrust laws and damages in excess of
$350,000, which amount IRI has asked to be trebled under the antitrust laws. IRI
also seeks punitive damages of an unspecified amount. In light of the potential
significant liabilities that could arise from the IRI Action and in order to
facilitate the D&B Spin-off (as defined below), D&B, ACNielsen Corporation
("ACNielsen") (the parent of A.C. Nielsen Company) and Cognizant entered into an
Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense
Agreement") pursuant to which ACNielsen agreed to be responsible for any
potential liabilities that may ultimately be incurred by D&B or Cognizant as a
result of such action, up to a maximum amount to be determined by an independent
investment bank if and when any such liabilities are incurred. The determination
of such maximum amount will be based on ACNielsen's ability to satisfy such
liabilities and remain financially viable, subject to certain assumptions and
limitations. However, Cognizant and D&B agreed that to the extent that ACNielsen
is unable to satisfy any such liabilities in full and remain financially viable,
Cognizant and D&B will each be responsible for 50% of the difference between the
amount, if any, that may be payable as a result of such litigation and the
maximum amount that ACNielsen is then able to pay as determined by such
investment bank. Under the terms of the D&B Distribution Agreement dated as of
October 28, 1996, among Cognizant, D&B and ACNielsen (the "1996 Distribution
Agreement"), pursuant to which shares of Cognizant and ACNielsen were
distributed to the stockholders of D&B (the "D&B Spin-off") and as a condition
to the Cognizant Distribution, the Company and IMS Health were required to
undertake to be jointly and severally liable to D&B and ACNielsen for
Cognizant's obligations under the 1996 Distribution Agreement.
However, pursuant to the Distribution Agreement dated as of June 30, 1998
between Cognizant and IMS Health, IMS Health and the Company agreed that, as
between themselves, IMS Health will assume 75%, and the Company will assume 25%,
of any payments to be made in respect of the IRI Action under the Indemnity and
Joint Defense Agreement or otherwise, including any ongoing legal fees and
expenses related thereto incurred in 1999 or thereafter. IMS Health agreed to be
fully responsible for any legal fees and expenses incurred during 1998.
-9-
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 6. LITIGATION AND CONTINGENCIES (CONTINUED)
Under the terms of the 1996 Distribution Agreement, Nielsen Media Research
and IMS Health are also jointly and severally liable to D&B for taxes and
accrued interest arising from certain tax assessments that may be levied by the
Internal Revenue Service ("IRS") related to certain D&B tax planning strategies.
Pursuant to the Distribution Agreement, Nielsen Media Research is liable to pay
25% of any payments made by D&B to the IRS, net of any related tax benefits, in
excess of the first $397,000 which is payable by D&B and/or IMS Health.
The IRS is currently reviewing D&B's utilization of certain capital losses
during 1989 and 1990. D&B has stated that it intends to vigorously defend its
position against any assessment that may be made in the future regarding this
transaction. However, if an assessment is made and should the IRS prevail, in
the opinion of management the impact of this transaction would not have a
material effect on the results of operations, cash flows or financial position
of Nielsen Media Research.
In accordance with the Distribution Agreement, Nielsen Media Research's
aggregate liability to IMS Health for payments in respect of the IRI Action and
its share of any future D&B tax and interest payments relating to the tax
uncertainties referred to in the paragraphs above shall not exceed $125,000 and
is not payable until 2001.
Management is unable to predict at this time the final outcome of the IRI
Action, the amount of or any future D&B tax and interest payments and whether
the resolution of such matters could materially affect Nielsen Media Research's
results of operations, cash flows or financial position.
-10-
NIELSEN MEDIA RESEARCH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenue for the first quarter increased by 13.6% to $109,175 from $96,064 for
the first quarter of the prior year. National revenues were fueled by the launch
of the new Pax-TV network in September 1998, the addition of two new cable
networks, and increased sales of special analysis and derivative products. Local
revenues benefited from the introduction of electronic measurement in six
markets in 1998 and new station clients, including Pax-TV affiliates.
Operating costs and selling and administrative expenses for the first quarter of
1999 increased by 10.6% to $74,816 from $67,625 for the first quarter of the
prior year. Excluding Year 2000 compliance costs of $2,630 and $3,185 for the
first quarter of 1999 and 1998, respectively, operating costs and selling and
administrative expenses increased 12.0%, reflecting an increase in investment
spending, offset, in part, by a reduction in corporate overhead expenses.
Operating income increased by 19.5% to $25,465 for the first quarter of 1999
compared with $21,317 for the first quarter of the prior year. Operating income
growth reflects a decline in spending for Year 2000 compliance costs of $555.
Excluding Year 2000 compliance costs in both periods, operating income for the
first quarter of 1999 increased by 14.7%.
Interest expense of $3,296 was incurred during the first quarter of 1999 in
conjunction with funds borrowed in connection with the Distribution.
Non-operating income for the first quarter of 1998 included a gain of $ 3,185
from the sale of marketable securities.
The Company's effective tax rate was 41.9% for the first quarter of 1999 and
1998.
The Company's net income for the first quarter decreased by 9.6% to $12,880
from $14,246 in the first quarter of the prior year, reflecting the factors
discussed above, particularly the incurrence of interest expense in the first
quarter of 1999, and the absence of the gain from the sale of marketable
securities in the first quarter of 1999.
Basic earnings per share for the first quarter decreased 11.5% to $0.23 from
$0.26 for the first quarter of the prior year. Diluted earnings per share for
the first quarter decreased 16.0% to $.21 from $.25 for the first quarter of
1998.
-11-
NIELSEN MEDIA RESEARCH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
CHANGES IN FINANCIAL POSITION AT MARCH 31, 1999 COMPARED WITH DECEMBER 31, 1998
Deferred Charges and Intangibles decreased to $16,406 at March 31, 1999
from $22,234 at December 31, 1998 principally due to a decrease in the deferred
unrealized loss on the Company's interest rate hedge.
Accounts Payable and Accrued and Other Current Liabilities decreased to
$59,557 at March 31, 1999 from $67,718 at December 31, 1998 primarily due to a
decline in the deferred unrealized loss on the Company's interest rate hedge and
the payment of year-end bonuses.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Cash and cash equivalents totaled $6,054 and $4,004 at March 31, 1999 and
1998, respectively.
Net cash provided by operating activities was $24,493 and $21,481 for the
three months ended March 31, 1999 and 1998, respectively. The increase of $3,012
primarily reflects increased depreciation and amortization, a greater provision
for current and deferred income taxes and a decrease in other operating assets
and liabilities, offset, in part, by a decrease in net income, a greater
increase in accounts receivable driven by increased revenue and a decrease in
accounts payable compared with an increase in the prior year.
Net cash used in investing activities was $9,360 and $14,944 for the three
months ended March 31, 1999 and 1998, respectively. The decrease of $5,584
primarily reflects lower increases in property, plant and equipment and
intangibles, due to timing of expenditures.
Net cash used in financing activities was $16,850 and $8,530 for the three
months ended March 31, 1999 and 1998, respectively. The increase of $8,320 was
due primarily to repayment of bank borrowings, offset by proceeds from stock
option plans and a decrease in transfers to Cognizant Corporation.
-12-
NIELSEN MEDIA RESEARCH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
IMPACT OF THE YEAR 2000 ISSUE
Many existing computer systems, software applications and embedded computer
chips use two digits, rather than four, to record years, e.g., "98" instead of
"1998". Unless modified, such systems will not properly record or interpret
years after 1999, which could result in system failures or miscalculations
causing disruption of business operations, including, among other things, an
inability to process transactions, deliver reports, send invoices, or engage in
similar normal business activities. This is known as the Year 2000 Issue.
The Company began to address the Year 2000 Issue in 1996. The Company
determined that most of its significant information technology ("IT") systems,
as well as production operations applications that interface with its core IT
systems, could be affected and significant portions of software needed to be
modified or replaced so that those systems and applications would properly
utilize dates beyond December 31, 1999. Affected systems and processes include
software applications and computer software and hardware that sample, collect,
process, report, and deliver television ratings and audience estimates to the
television marketplace in the U.S. and Canada.
The Company's project to resolve the Year 2000 Issue involves four phases:
assessment, remediation, testing and implementation. Once each software
application, computer system, or process has completed all four phases, it is
returned to a production environment. After completing a series of
implementations, the Company's project calls for enterprise-wide system testing
of its business-critical systems and processes to validate that key applications
and systems will function in concert in a Year 2000 test environment producing
the same results as today.
To date, the Company has devoted substantially all of its Year 2000 efforts
to modifying and testing its business-critical processes and computer systems to
be Year 2000 ready by September 30, 1999. As of March 31, 1999, for its IT
exposures, the Company has completed 100% of its assessments and was more than
80% complete in the implementation phase. The target to complete the
modifications and testing of the remaining business-critical IT software is
September 30, 1999. As of March 31, 1999, the Company has also completed 100% of
its assessments and more than 70% of the modifications and testing of the
non-business-critical software, (which includes certain IT software as well as
applications supported and used by production operations departments that
interface with the IT systems), as well as completed customer notifications of
discontinued and replaced products. The target to complete the modifications and
testing of the non-business-critical software is also September 30, 1999. The
Company completed two of four planned enterprise-wide system tests, which
confirmed that work done to date has been accurate and effective. All four
enterprise-wide system tests are scheduled to be completed by September 30,
1999.
-13-
NIELSEN MEDIA RESEARCH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
IMPACT OF THE YEAR 2000 ISSUE (CONTINUED)
Third parties, including data providers, users of the Company's data, and
application vendors, have been queried about their Year 2000 readiness. To date,
the Company is not aware of any anticipated Year 2000-related failures. Failures
by data providers to be Year 2000 ready could disrupt the flow of data used in
the Company's products. Failures by users could hinder their ability to make use
of the Company's products. Failures by application vendors could impact certain
product delivery schedules until corrected. While the Company believes most
companies it deals with are addressing the issue, it is unable to determine the
effect, if any, such failures might have on the Company's business or future
results of operations.
The Company also relies on local and long-distance telecommunications
companies throughout the U.S. and Canada to transmit viewing data from its
television meters to its computer systems for processing. Given the large number
of telephone companies serving the households where the Company's meters are
installed, the Company may not be able to assess the extent to which
telecommunications failures will occur. Scattered or short-lived
telecommunications outages will be unlikely to materially impair the Company's
ability to deliver television ratings. A serious telecommunications failure,
however, could significantly interrupt the Company's delivery of ratings data to
its metered ratings customers, and, if the failure were lengthy, data could be
lost.
The assessment of embedded computer chips relating to building facilities,
mailing, and print shop equipment is well under way. The Company expects to
complete the resolution of any issues by July 1999.
The Company is utilizing both internal and external resources to address
the Year 2000 issue. This project is estimated to cost $19,625 and is being
funded through operating cash flows. The operating income impact of the Year
2000 project was $9,944 and $2,681 in 1998 and 1997, respectively. Based on
current information, the operating income impact of the Year 2000 project for
the full year 1999 is expected to be approximately $7,000.
The Company is actively engaged in contingency planning for potential
internal and external disruptions. For each area of the business, employees have
been identified as "risk managers" to be responsible for executing recovery
plans, as necessary. The Company is in the process of developing a communication
plan for employees, customers, vendors, and cooperating households by September
30, 1999 concerning possible disruptions and our planned response.
-14-
NIELSEN MEDIA RESEARCH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
IMPACT OF THE YEAR 2000 ISSUE (CONTINUED)
The Company believes that with modifications and replacement of existing
software, the Year 2000 impact on systems and computer code controlled and
maintained by the Company can be mitigated. However, if such modifications and
replacements are not made, are not completed in a timely manner, or if third
party providers fail to provide timely, accurate and uninterrupted goods and
services, the Year 2000 Issue could materially and adversely affect the
Company's results of operations, liquidity and financial condition.
NON-U.S. OPERATING RESULTS AND MONETARY ASSETS
The Company operates in the U.S. and Canada. Approximately 3% of the
Company's revenues during the quarters ended March 31, 1999 and 1998 were
derived from its Canadian operations. As a result, fluctuations in the value of
the Canadian dollar relative to the U.S. dollar do not significantly affect the
Company's results of operations. Non-U.S. monetary assets are maintained in
Canadian dollars. Changes in the value of this currency relative to the U.S.
dollar are charged or credited to Shareholders' Equity. The effects of exchange
rate changes during the three months ended March 31, 1999 and for the year ended
December 31, 1998 were not material.
MARKET RISK SENSITIVE INSTRUMENTS
The Company is exposed to market risk through its variable-rate short-term
bank borrowings. The Company intends to refinance a substantial portion of its
variable-rate bank borrowings and issue fixed-rate long-term debt securities.
Accordingly, the Company has entered into an interest rate hedge agreement to
manage its exposure to changes in interest rates on a portion of the anticipated
issuance. At March 31, 1999, the notional amount of the interest rate hedge
agreement was $125,000 and the deferred unrealized loss thereon was $3,728.
The Company's sensitivity to losses due to interest rate risk is calculated
utilizing estimates of the termination value of the company's interest rate
hedge agreement and the present value of changes in interest on its short-term
bank borrowings based upon an assumed 10% increase or decrease in interest rates
from their March 31, 1999 levels. Assuming an instantaneous decrease in interest
rates of 10% from the March 31, 1999 levels, the unrealized loss on the
Company's interest rate hedge agreement and short-term bank borrowings would be
$ 8,998. Assuming an instantaneous increase in interest rates of 10% from the
March 31, 1999 levels, there would be an unrealized gain on the Company's
interest rate hedge agreement and short-term bank borrowings of $ 1,290.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing balances of cash and cash equivalents, and cash
generated from operations and debt capacity, are expected to be sufficient to
meet Nielsen Media Research's long-term and short-term cash requirements
including continued investment in the business. The Company intends to refinance
its short-term bank borrowing facility in 1999 and replace a significant portion
of such borrowings with fixed-rate long-term debt securities.
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NIELSEN MEDIA RESEARCH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
FORWARD LOOKING STATEMENTS
Certain statements under the caption "Impact of the Year 2000 Issue" and
"Liquidity and Capital Resources" are forward-looking. These may be identified
by the use of forward-looking words or phrases, such as "believe," "expect,"
"intend," "should," "could," "estimated," "target," "efforts" and "scheduled,"
among others. The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for such forward-looking statements. In order to comply with the
terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's assessment of the Year 2000 Issue to differ materially from
its actual impact. These risks and uncertainties include, but are not limited
to, the complexity involved in ascertaining all situations in which the Year
2000 Issue may arise; the availability and cost of personnel trained in this
area of expertise; the receipt and the reliability of responses from users,
suppliers and others to whom compliance inquiries are being made; the success of
users and suppliers in addressing the Year 2000 Issue; and the possibility of
unforeseen events that could delay timely implementation of the Company's Year
2000 project. In addition, factors that could cause actual results to differ
materially from the forward-looking statements relating to liquidity and capital
resources include, but are not limited to, the results of litigation and other
contingencies affecting the Company, deterioration in economic conditions, and
the ability to obtain future financing on satisfactory terms.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of an exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, or an unrecognized foreign-currency-denominated forecasted
transaction. The Company will be required to implement SFAS 133 beginning
January 1, 2000. The Company expects that the adoption of this pronouncement
will not have a material effect on the Company's financial position, results of
operations or cash flows.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(Filed Electronically)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
March 31, 1999.
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NIELSEN MEDIA RESEARCH, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NIELSEN MEDIA RESEARCH, INC.
Date: May _____, By:
------------------------------------------
Thomas W. Young
Executive Vice President & Chief Financial
Officer
By:
------------------------------------------
Stuart J. Goldshein
Vice President and Controller
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