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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 June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
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(State of Incorporation) (I.R.S. Employer Identification No.)
299 PARK AVENUE, NEW YORK, NEW YORK 10171
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
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 June 30, 1999
COMMON STOCK, ------------------
PAR VALUE $.01 PER SHARE 57,577,469
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NIELSEN MEDIA RESEARCH, INC.
INDEX TO FORM 10-Q
PAGE(S)
-------
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements ............................................ 3
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended June 30, 1999 and 1998 ......................... 3
Six Months Ended June 30, 1999 and 1998 ........................... 4
Condensed Consolidated Statements of Financial Position (Unaudited)
June 30, 1999 and December 31, 1998 .............................. 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998 ........................... 6
Notes to Condensed Consolidated Financial Statements (Unaudited) .... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 12
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders ............ 19
Item 6. Exhibits and Reports on Form 8-K ................................. 19
SIGNATURES ............................................................... 20
-2-
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NIELSEN MEDIA RESEARCH, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months
Ended
June 30,
----------------------------
1999 1998
------------ ------------
Operating Revenue ...................................... $ 110,743 $ 97,931
Operating Costs ........................................ 55,007 46,118
Selling and Administrative Expenses .................... 19,999 21,009
Depreciation and Amortization ......................... 9,008 7,791
------------ ------------
Operating Income ....................................... 26,729 23,013
------------ ------------
Interest Expense - Net ................................. (3,267) 0
Gain on Sale of Marketable Securities .................. 0 2,415
------------ ------------
Non-Operating (Expense) Income ......................... (3,267) 2,415
------------ ------------
Income Before Provision for Taxes ...................... 23,462 25,428
Provision for Income Taxes ............................. (9,831) (10,654)
------------ ------------
Net Income ............................................. $ 13,631 $ 14,774
============ ============
Earnings Per Share of Common Stock-Basic ............... $ 0.24 $ 0.27
Earnings Per Share of Common Stock-Diluted ............. $ 0.22 $ 0.25
Weighted Average Number of Shares Outstanding-Basic .... 57,397,000 54,437,000
Dilutive Effect of Stock Option Plans .................. 5,013,000 4,683,000
------------ ------------
Weighted Average Number of Shares Outstanding-Diluted .. 62,410,000 59,120,000
============ ============
See accompanying notes to the condensed consolidated
financial statements (unaudited).
-3-
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NIELSEN MEDIA RESEARCH, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Six Months
Ended
June 30,
----------------------------
1999 1998
------------ ------------
Operating Revenue ...................................... $ 219,918 $ 193,995
Operating Costs ........................................ 111,185 93,312
Selling and Administrative Expenses .................... 38,638 41,440
Depreciation and Amortization ......................... 17,901 14,913
------------ ------------
Operating Income ....................................... 52,194 44,330
------------ ------------
Interest Expense - Net ................................. (6,562) 0
Gain on Sale of Marketable Securities .................. 0 5,600
------------ ------------
Non-Operating (Expense) Income ......................... (6,562) 5,600
------------ ------------
Income Before Provision for Taxes ...................... 45,632 49,930
Provision for Income Taxes ............................. (19,120) (20,921)
------------ ------------
Net Income ............................................. $ 26,512 $ 29,009
============ ============
Earnings Per Share of Common Stock-Basic ............... $ 0.46 $ 0.53
Earnings Per Share of Common Stock-Diluted ............. $ 0.43 $ 0.49
Weighted Average Number of Shares Outstanding-Basic .... 57,046,000 54,343,000
Dilutive Effect of Stock Option Plans ................. 4,700,000 5,305,000
------------ ------------
Weighted Average Number of Shares Outstanding-Diluted .. 61,746,000 59,648,000
============ ============
See accompanying notes to the condensed consolidated
financial statements (unaudited).
-4-
NIELSEN MEDIA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
June 30, December 31,
1999 1998
----------- ------------
ASSETS
Current Assets
Cash and Cash Equivalents .......................... $ 11,197 $ 7,799
Accounts Receivable-Net ............................ 55,572 54,392
Other Current Assets ............................... 7,343 6,092
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Total Current Assets ........................... 74,112 68,283
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Property, Plant and Equipment-Net .................... 70,495 68,286
Computer Software .................................... 50,028 50,575
Deferred Charges and Intangibles ..................... 13,934 22,234
Other Assets ......................................... 24,860 22,787
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Total Assets ......................................... $ 233,429 $ 232,165
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable ................................... $ 9,424 $ 12,965
Accrued and Other Current Liabilities .............. 45,118 54,753
Accrued Income Taxes ............................... 781 2,822
Deferred Revenues .................................. 1,755 2,276
Short-term Debt .................................... 0 225,000
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Total Current Liabilities ...................... 57,078 297,816
--------- ---------
Other Liabilities .................................... 11,854 9,273
Deferred Income Taxes ................................ 52,151 47,938
Long-term Debt ....................................... 215,000 25,000
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Total Liabilities .................................... 336,083 380,027
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Shareholders' Equity (Deficit)
Common Stock ....................................... 576 570
Capital Surplus .................................... 6,568 0
Treasury Stock ..................................... 0 (11,121)
Distribution in Excess of Net Book Value............ (163,542) (163,542)
Retained Earnings .................................. 51,774 25,261
Cumulative Translation Adjustment .................. 1,049 970
Unrealized Gains on Investments .................... 921 0
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Total Shareholders' Equity (Deficit)............ (102,654) (147,862)
--------- ---------
Total Liabilities and Shareholders' Equity (Deficit).. $ 233,429 $ 232,165
========= =========
See accompanying notes to the condensed consolidated
financial statements (unaudited).
-5-
NIELSEN MEDIA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
Six Months
Ended
June 30,
----------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ........................................... $ 26,512 $ 29,009
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ...................... 17,901 14,913
Provision for Deferred Income Taxes ................ 4,213 4,584
Changes in Operating Assets and Liabilities:
Increase in Accounts Receivable .................... (1,146) (6,075)
Change In Deferred Charges and
Accrued and Other Current Liabilities ............ (1,078) 14,623
(Decrease) / Increase in Accounts Payable .......... (3,555) 2,354
Decrease in Accrued Income Taxes ................... (2,067) (779)
Change in Other Operating Assets and Liabilities ... 2,349 (3,611)
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Net Cash Provided by Operating Activities ............ 43,129 55,018
--------- ---------
Cash Flows from Investing Activities:
Capital Expenditures ............................... (12,027) (15,839)
Additions to Computer Software ..................... (8,899) (13.292)
Additions to Intangibles ........................... (1,628) (6,024)
Other .............................................. (323) (801)
--------- ---------
Net Cash Used in Investing Activities ................ (22,877) (35,956)
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Cash Flows from Financing Activities:
Third Party Limited Partnership Investment ......... 0 25,000
Bank Borrowings .................................... 0 275,000
Issuance of Long-term Notes ........................ 150,000 0
Repayment of Bank Borrowings ....................... (185,000) 0
Proceeds from Stock Plans and Other
Financing Activities ............................. 18,108 0
Transfers to Cognizant Corporation ................. 0 (307,326)
--------- ---------
Net Cash Used in Financing Activities ................ (16,892) (7,326)
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash --------- ---------
Equivalents ........................................ 38 (14)
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Increase in Cash and Cash Equivalents ................ 3,398 11,722
Cash and Cash Equivalents, Beginning of Year ......... 7,799 5,993
--------- ---------
Cash and Cash Equivalents, End of Period ............. $ 11,197 $ 17,715
========= =========
See accompanying notes to the condensed consolidated
financial statements (unaudited).
-6-
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 and six months ended
June 30, 1998. The financial statements include allocations of Cognizant
corporate and other expenses relating to Nielsen Media Research's business for
the three and six months ended June 30, 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 June 30, 1998 and during the three and six month periods ended June
30, 1998.
-7-
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3. COMPREHENSIVE INCOME
Comprehensive income includes net income and changes in foreign currency
translation adjustments, and unrealized gains on investments. Total
comprehensive income and its components for the three and six months ended June
30, 1999 and 1998 are as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Income .......................... $ 13,631 $ 14,774 $ 26,512 $ 29,009
Change in Foreign Currency
Translation Adjustment ............ 55 380 79 218
Change in Unrealized Gains on
Investments ....................... 921 1,644 921 1,644
-------- -------- -------- --------
Total Comprehensive Income ......... $ 14,607 $ 16,798 $ 27,512 $ 30,871
======== ======== ======== ========
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, 2001. 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.
-8-
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 5. DEBT
During the second quarter of 1999, the Company completed a public offering
of $150,000 of 7.60% senior notes due 2009 (the "Notes"). Proceeds from the
offering were used to repay existing indebtedness under the Company's bank
credit facilities. The Notes contain certain restrictive covenants.
In connection with the Distribution in 1998, 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 consisted of two tranches: a 364-Day $225,000 tranche and a
Three-Year $100,000 tranche. As of June 30, 1999, $40,000 of the Three-Year
tranche was outstanding. During the second quarter of 1999, the outstanding
balance under the 364-Day tranche of $150,000 was repaid using the proceeds from
the Notes and the 364-Day facility was terminated. The outstanding commitments
under the Three-Year tranche will mature on June 15, 2001. 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 5.32% on June 30, 1999. The Revolving Credit Facility contains
certain restrictive covenants and requires the Company to maintain certain
specified minimum ratios.
In 1998, the Company entered into an agreement to hedge against an
increase in interest rates in anticipation of the issuance of the Notes. The
hedge agreement had a notional amount of $125,000 and was settled in June 1999
when the Notes were issued. The Company has deferred a $1,966 realized gain on
the settlement of the hedge, which has been recorded as a deferred credit within
the caption "Other Liabilities" and is being recognized as an adjustment to
interest expense over the life of the Notes.
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 December 31,
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.
-9-
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.
-10-
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 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.
-11-
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 JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenue for the second quarter of 1999 increased by 13.1% to $110,743 from
$97,931 for the second quarter of the prior year. National revenues continue to
benefit from the September 1998 launch of the Paxson network, an expanded number
of customers for derivative products and the addition of two new cable networks.
Local revenues continued to benefit from the six new markets metered in 1998 and
were further boosted by the addition of two new metered markets (Norfolk and
Oklahoma City) in April 1999. This brings the total number of local markets
using "set meters" to provide daily audience estimates to 46.
Operating costs and selling and administrative expenses for the second quarter
of 1999 increased by 11.7% to $75,006 from $67,127 for the second quarter of
the prior year. Excluding Year 2000 compliance costs of $2,352 and $2,415 for
the second quarter of 1999 and 1998, respectively, operating costs and selling
and administrative expenses increased 12.3%, reflecting an increase in
investment spending, offset, in part, by a reduction in corporate overhead
expenses.
Operating income increased by 16.1% to $26,729 for the second quarter of 1999
compared with $23,013 for the second quarter of the prior year. Operating income
growth reflected a decline in spending for Year 2000 compliance costs of $63.
Excluding Year 2000 compliance costs in both periods, operating income for the
second quarter of 1999 increased by 14.4%.
Interest expense of $3,267 was incurred during the second quarter of 1999 in
conjunction with funds borrowed in connection with the Distribution.
Non-operating income for the second quarter of 1998 included a gain of $2,415
from the sale of marketable securities.
The Company's effective tax rate was 41.9% for the second quarter of 1999 and
1998.
The Company's net income for the second quarter decreased by 7.7% to $13,631
from $14,774 for the second quarter of the prior year, reflecting the factors
discussed above, particularly the incurrence of interest expense in the second
quarter of 1999, and the absence of the gain from the sale of marketable
securities in the second quarter of 1999.
Basic earnings per share for the second quarter of 1999 decreased 11.1% to
$0.24 from $0.27 for the second quarter of the prior year. Diluted earnings per
share for the second quarter of 1999 decreased 12.0% to $0.22 from $0.25 for
the second quarter of 1998.
-12-
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)
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenue for the first six months of 1999 increased by 13.4% to $219,918 from
$193,995 for the comparable period of the prior year. National revenues continue
to benefit from the September 1998 launch of the Paxson network, an expanded
number of customers for derivative products and the addition of two new cable
networks. Local revenues continued to benefit from the six new markets metered
in 1998 and the addition of two new metered markets (Norfolk and Oklahoma City)
in April 1999. This brings the total number of local metered markets to 46.
Operating costs and selling and administrative expenses for the first six months
of 1999 increased by 11.2% to $149,823 from $134,752 for the comparable period
of the prior year. Excluding Year 2000 compliance costs of $4,982 and $5,600 for
the six months of 1999 and 1998, respectively, operating costs and selling and
administrative expenses increased 12.1%, reflecting an increase in investment
spending, offset, in part, by a reduction in corporate overhead expenses.
Operating income increased by 17.7% to $52,194 for the first six months of 1999
compared with $44,330 for the first six months of the prior year. Operating
income growth reflected a decline in spending for Year 2000 compliance costs of
$618. Excluding Year 2000 compliance costs in both periods, operating income for
the first six months of 1999 increased by 14.5%.
Interest expense of $6,562 was incurred during the first six months of 1999 in
conjunction with funds borrowed in connection with the Distribution.
Non-operating income for the first six months of 1998 included a gain of $5,600
from the sale of marketable securities.
The Company's effective tax rate was 41.9% for the first six months of 1999 and
1998.
The Company's net income for the first six months of 1999 decreased by 8.6% to
$26,512 from $29,009 in the comparable period of the prior year, reflecting the
factors discussed above, particularly the incurrence of interest expense in the
first six months of 1999, and the absence of the gain from the sale of
marketable securities in the first six months of 1999.
Basic earnings per share for the first six months of 1999 decreased 13.2% to
$0.46 from $0.53 for the comparable period of the prior year. Diluted earnings
per share for the first six months of 1999 decreased 12.2% to $0.43 from $0.49
for the first six months of 1998.
-13-
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)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Cash and cash equivalents totaled $11,197 and $17,715 at June 30, 1999 and
1998, respectively.
Net cash provided by operating activities was $43,129 and $55,018 for the
six months ended June 30, 1999 and 1998, respectively. The decrease of $11,889
primarily reflects the absence of an increase in liabilities attributable to the
1998 Distribution.
Net cash used in investing activities was $22,877 and $35,956 for the six
months ended June 30, 1999 and 1998, respectively. The decrease of $13,079
primarily reflects lower expenditures for property, plant and equipment,
software, and intangibles, due to timing of such expenditures.
Net cash used in financing activities was $16,892 and $7,326 for the six
months ended June 30, 1999 and 1998, respectively. The increase of $9,566 was
due primarily to a net repayment of debt, offset in part, by proceeds from stock
option plans during the first six months of 1999, and the absence of transfers
to Cognizant Corporation, which included $300,000 of bank borrowings and limited
partnership investment incurred in connection with the Distribution in 1998.
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.
-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'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.
As of June 30, 1999, for its business-critical IT exposures, the Company
has completed 100% of its assessments and was more than 85% complete in the
implementation phase. The Company has also completed 100% of its assessments and
more than 90% 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
Company's software is September 30, 1999. The Company has completed two of four
planned enterprise-wide system tests, which confirmed that work done to date has
been accurate and effective. The last two tests are in the final stages of
validation, and all four enterprise-wide system tests are scheduled to be
completed by September 30, 1999.
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.
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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)
IMPACT OF THE YEAR 2000 ISSUE (CONTINUED)
The assessment of embedded computer chips relating to building
facilities, mailing, and print shop equipment is complete and the risk of
failure of such embedded chips was determined to be low. The items identified
for replacement are minor, have a manual workaround, and are not anticipated to
impact normal business operations.
The Company is utilizing both internal and external resources to address
the Year 2000 issue. This project is estimated to cost $20,325 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 $7,700.
The Company is actively engaged in contingency planning for potential
internal and external disruptions. These plans focus on the impact to customers,
vendors and employees of disruptions in products, supplies, or internal
operations, and include, but are not limited to, the development of emergency
backup and recovery procedures, staffing to react to unforeseen events,
replacement of electronic applications with manual processing in the event of
system disruptions, the testing and addition of backup generators as alternate
power sources in some offices, and increases in supply inventory.
The Company is also establishing an operational command center to
coordinate the year-end rollover from 1999 to 2000. For each area of the
business, employees have been identified as risk managers to be responsible for
developing and executing recovery plans, as necessary.
The Company believes the most likely worst case scenarios in the event
of a Year 2000 disruption would involve the temporary inability to collect
viewing or lineup data due to communications interruptions, resulting in late or
incomplete data delivery, or the inability of some customers to pay on a timely
basis.
The Company believes that its mitigation and remediation efforts will
avoid major disruptions in its business activities; however, the Company remains
dependant on the ability of third parties, particularly data providers,
customers and utilities, to perform as required. Although the Company has
implemented the actions described above to address these issues, it is not able
to insure uninterrupted performance or that a contingency plan will adequately
address the immediate or long term effects of a system failure or business
disruption.
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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 three and six months ended June 30, 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 and six months ended June 30, 1999 and
1998 were not material.
MARKET RISK SENSITIVE INSTRUMENTS
The Company is exposed to market risk on its Revolving Credit Facility,
which consists of a Three-Year tranche, which matures on June 15, 2001.
The Company's sensitivity to changes in interest rates is calculated by
determining the impact on interest expense attributable to the amount
outstanding under its Revolving Credit Facility as of June 30, 1999 based upon
an assumed 10% increase, (or decrease), in interest rates from their June 30,
1999 levels. Any such 10% increase, (or decrease), would result in an
approximate annual increment in, (or a decline in), interest expense of $300 or
approximately $600 over the remaining life of the Revolving Credit Facility.
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. In 1999, the Company has refinanced its short-term
bank borrowing facility and replaced $150 million 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, 2001. 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.
-18-
NIELSEN MEDIA RESEARCH, INC.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Nielsen Media Research, Inc. was held on
April 13, 1999.
The following nominees for Directors of the Company named in the Proxy Statement
dated March 9, 1999 were elected at the meeting:
Number of votes:
Expiration of Term for withheld
------------------------- ----------- ---------
William G. Jacobi 2002 Annual Meeting 48,918,972 98,033
John A. Dimling 2002 Annual Meeting 48,928,980 88,025
M.Bernard Puckett 2002 Annual Meeting 48,912,666 104,339
Ronald Townsend 2001 Annual Meeting 48,908,595 108,410
The votes in favor of the election of the nominees represented at least 99.7% of
the shares present at the meeting.
The following directors were elected prior to the April 13, 1999 meeting, and
continue to serve as members of the Nielsen Media Research, Inc. Board of
Directors:
Expiration of Term
-------------------------
James R. Craigie 2000 Annual Meeting
Peter A. Lund 2000 Annual Meeting
Michael D. Moore 2001 Annual Meeting
Robert E. Weissman 2001 Annual Meeting
Approval of the appointment of PricewaterhouseCoopers LLP as Independent
Accountants to audit the Company's financial statements for 1999 was approved at
the April 13, 1999 meeting by the following vote:
For Against Abstain
-------------- ------------ ------------
Number of Shares 48,957,944 33,710 25,351
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(Filed Electronically)
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 25, 1999 to report under Item
5, Other Events, the issuance of $150,000,000 aggregate principal
amount of a 7.60% Note due 2009 and under Item 7, Exhibit 99.1 a
copy of the Form of Registered Security.
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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: August __, 1999 By:
Thomas W. Young
Executive Vice President & Chief Financial Officer
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Stuart J. Goldshein
Vice President and Controller
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