SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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
COGNIZANT CORPORATION
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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.)
200 Nyala Farms, Westport, CT 06880
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 222-4200
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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
Common Stock, at September 30, 1997
par value $.01 per share 162,162,940
COGNIZANT CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, 1997 and 1996 3
Nine Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Financial Position (Unaudited)
September 30, 1997 and December 31, 1996 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
-2-
PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
COGNIZANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
Three Months Ended
September 30,
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1997 1996
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Operating Revenue $ 341,041 $ 424,188
Operating Costs 147,159 208,687
Selling and Administrative Expenses 79,228 121,289
Depreciation and Amortization 27,491 34,017
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Operating Income 87,163 60,195
Interest Income 3,151 1,781
Interest Expense (89) (246)
Gartner Equity Income 14,464 0
Gains from 3,955 0
Dispositions, Net
Other (Expense)/ Income - Net (211) 9,444
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Non-Operating Income - Net 21,270 10,979
Income Before Provision for Taxes 108,433 71,174
Provision for Income Taxes (31,367) (31,316)
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Net Income $ 77,066 $ 39,858
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Earnings Per Share of Common Stock $.47 $.23
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Average Number of Shares Outstanding 163,146,000 170,140,000
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<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited)
</FN>
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COGNIZANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
Nine Months Ended
September 30,
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1997 1996
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Operating Revenue $994,877 $ 1,209,910
Operating Costs 442,046 543,369
Selling and Administrative Expenses 260,954 365,623
Depreciation and Amortization 90,126 99,833
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Operating Income 201,751 201,085
Interest Income 8,443 5,483
Interest Expense (670) (657)
Gartner Equity Income 45,135 0
Gains from 9,391 0
Dispositions, Net
Other (Expense)/ Income - Net (2,306) 1,250
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Non-Operating Income - Net 59,993 6,076
Income Before Provision for Taxes 261,744 207,161
Provision for Income Taxes (71,718) (91,151)
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Net Income $ 190,026 $ 116,010
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Earnings Per Share of Common Stock $1.14 $.68
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Average Number of Shares Outstanding 166,148,000 169,916,000
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<FN>
See accompanying notes to the condensed consolidated financial
statements (unaudited).
</FN>
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COGNIZANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
(Dollar amounts in thousands)
September 30, December 31,
1997 1996
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Assets
Current Assets
Cash and Cash Equivalents $ 283,162 $ 428,520
Accounts Receivable-Net 280,800 453,791
Other Current Assets 56,882 112,151
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Total Current Assets 620,844 994,462
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Investment in Gartner Group 170,195 0
Marketable Securities and Other Investments 96,464 117,706
Property, Plant and Equipment-Net 226,230 268,888
Other Assets-Net
Computer Software 127,932 139,040
Goodwill 88,295 251,483
Other Assets 107,135 103,403
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Total Other Assets-Net 323,362 493,926
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Total Assets $ 1,437,095 $ 1,874,982
=================== ====================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts and Notes Payable 51,282 46,923
Accrued and Other Current Liabilities 180,329 266,932
Accrued Income Taxes 68,205 63,416
Deferred Revenues 133,925 292,970
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Total Current Liabilities 433,741 670,241
Postretirement and Postemployment Benefits 50,449 60,269
Deferred Income Taxes 73,579 105,074
Minority Interests 101,730 90,635
Other Liabilities 71,937 76,150
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Total Liabilities 731,436 1,002,369
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Shareholders' Equity 705,659 872,613
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Total Liabilities and Shareholders' Equity $ 1,437,095 $ 1,874,982
=================== ====================
<FN>
See accompanying notes to the condensed consolidated financial
statements (unaudited).
</FN>
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COGNIZANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
Nine Months Ended
September 30,
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1997 1996
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Cash Flows from Operating Activities:
Net Income $ 190,026 $ 116,010
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 90,126 99,833
Gains from Sale of Investments and Businesses, Net (9,391) 0
Write-off of Purchased In-process Research and Development 0 33,233
Restructuring Payments 0 (6,845)
Postemployment Benefits Expense 0 666
Postemployment Benefits Payments (7,186) (7,325)
Payments Related to 1995 Non-recurring Charge (4,332) (10,675)
Net Decrease in Accounts Receivable 21,764 21,239
Net Increase in Deferred Revenues 31,447 57,970
Gartner Group Equity Income, Net of Taxes (26,662) 0
Minority Interest Expense 2,690 2,357
Deferred Income Taxes 7,073 48,523
Net (Decrease) Increase in Accrued Income Taxes (9,756) 15,110
Net Increase in Other Working Capital Items (24,546) (25,327)
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Net Cash Provided by Operating Activities 261,253 344,769
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Cash Flows from Investing Activities:
Proceeds from Maturities of Marketable Securities 0 81,970
Payments for Marketable Securities 0 (113,287)
Payments for Acquisitions of Businesses 0 (24,386)
Proceeds from Sale of Investments 43,601 0
Capital Expenditures (52,650) (51,469)
Additions to Computer Software (37,332) (34,668)
Additions to Deferred Charges (22,261) (16,156)
Increase in Investments (3,086) (20,845)
Deconsolidation of Gartner Group cash (123,697) 0
Payments for Purchase of Gartner Group Stock 0 (42,998)
Other 4,593 14,406
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Net Cash Used in Investing Activities (190,832) (207,433)
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Cash Flows from Financing Activities:
Payments for Purchase of Treasury Shares (302,011) 0
Proceeds from Exercise of Stock Options 11,365 0
Payments of Dividends (15,008) 0
Other Stock Transactions with Employees 0 9,203
Employee Stock Purchase Plan 782 0
Third-Parties Investment in Partnerships 100,000 0
Net Transfers to The Dun & Bradstreet Corporation 0 (122,886)
Other (725) (7,093)
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Net Cash Used in Financing Activities (205,597) (120,776)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (10,182) (1,450)
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(Decrease) Increase in Cash and Cash Equivalents (145,358) 15,110
Cash and Cash Equivalents, Beginning of Year 428,520 157,105
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Cash and Cash Equivalents, End of Period $ 283,162 $ 172,215
=======================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 228 $ 782
Cash paid during the period for income taxes $ 65,385 $ 39,066
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
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COGNIZANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands - (Unaudited)
Note 1 - Interim Consolidated Financial Statements
These interim 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 Cognizant Corporation
(the "Company") in the 1996 Annual Report on Form 10-K. 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 1997 presentation.
Note 2 - Investments
In the third quarter 1997, the Company's voting interest in Gartner Group, Inc.
("Gartner") fell below 50% to 49.5% based upon the exercise of Gartner employee
stock options and employee stock purchases. Accordingly, as of September 30,
1997 and for the three- and nine-month periods ended September 30, 1997 the
Company has deconsolidated Gartner and is accounting for its ownership interest
on the equity basis.
The Company has restated the first and second quarter Statements of Income to
reflect the change to equity accounting. While net income is unchanged, other
income statement line items will change. Selected financial information, on a
previously reported and restated basis, for the quarters ended March 31 and June
30, 1997 is as follows:
For the three months ended
Previously Previously
Reported Restated Reported Restated
March 31, 1997 March 31, 1997 June 30,1997 June 30, 1997
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Operating Revenue $ 434,701 $ 315,576 $ 464,609 $ 338,260
Operating Income $ 77,247 $ 47,887 $ 95,159 $ 66,701
Non-Operating Inc./(Exp.)-Net $ 555 $ 23,373 $ (6,841) $ 15,350
Income Before Provision for Taxes $ 77,802 $ 71,260 $ 88,318 $ 82,051
Net Income $ 52,905 $ 52,905 $ 60,055 $ 60,055
Generally accepted accounting principles do not permit the restatement of prior
year financial statements. However, selected financial information reflecting
the accounting change on a proforma and reported basis for the three- and
nine-month periods ended September 30, 1996 and 1997, respectively, is as
follows:
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COGNIZANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands - (Unaudited)
Note 2 - Investments (continued)
Reported Proforma Reported Proforma
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
Operating Revenue $ 341,041 $ 314,230 $ 994,877 $ 910,895
Operating Income $ 87,163 $ 71,864 $ 201,751 $ 172,088
Non-Operating Inc./(Exp.)- Net $ 21,270 $ (5,425) $ 59,993 $ 21,024
Income Before Provision for Taxes $ 108,433 $ 66,439 $ 261,744 $ 193,112
Net Income $ 77,066 $ 39,858 $ 190,026 $ 116,010
The Company recognizes as income any gains or losses related to the sale or
issuance of stock by a consolidated subsidiary or a company accounted for under
the equity basis.
The proceeds from the issuance of approximately 981,000 shares to Gartner
employees, including associated tax benefits, increased Gartner's equity by
$16,800 and reduced the Company's ownership interest by less than 1%. This was
offset, in part, by an increase in treasury stock of $12,000. Accordingly, the
Company recognized within Gartner equity income, a pre-tax unrealized gain on
Gartner stock of $706 corresponding to the net increase in the value of its
investment in Gartner.
Note 3 - Dispositions
During the third quarter, the Company recorded a $33,855 pre-tax gain on the
sale of its investment in Aspect Development, Inc. and TSI International, Inc.
stock. These investments, which were part of Cognizant Enterprises' portfolio,
generated cash proceeds of $36,597. For the nine months ended September 30,
1997, the Company recorded a $39,291 pre-tax gain and generated cash
proceeds of $43,601 related to Cognizant Enterprise portfolio sales.
Additionally, in the third quarter, the Company sold Pilot Software, Inc.
("Pilot"), a wholly-owned subsidiary, to Platinum Equity Holdings and recorded a
non-cash pre-tax loss of $29,900.
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COGNIZANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands - (Unaudited)
Note 4 - Investment Partnership
Three of the Company's subsidiaries participate in a limited partnership, one of
which serves as general partner. In the second quarter, third party investors
contributed $100,000 to the partnership, in exchange for limited partnership
interests. The partnership, which is a separate and distinct legal entity, is in
the business of licensing database assets and computer software. For financial
reporting purposes, the assets, liabilities, results of operations and cash
flows of the partnership are included in the Company's consolidated financial
statements.
Note 5 - Litigation
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, claims and
litigation, if decided adversely, could have a material 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.
In addition, 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 ("Dun &
Bradstreet"), A.C. Nielsen Company ("A.C. Nielsen") and I.M.S. International,
Inc. ("IMS"), a subsidiary of the Company (the "IRI Action").
The complaint alleges various violations of the United States antitrust laws,
including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with contract and a
claim of tortious interference with a prospective business relationship. These
latter claims relate to the acquisition by defendants of Survey Research Group
Limited ("SRG"). IRI alleges that SRG violated an alleged agreement with IRI
when it agreed to be acquired by the defendants and that the defendants induced
SRG to breach that agreement. IRI's complaint alleges damages in excess of
$350,000, which amount IRI has asked to be trebled under the antitrust laws. IRI
also seeks punitive damages in an unspecified amount.
On October 15, 1996, defendants moved for an order dismissing all claims in the
complaint. On May 6, 1997 the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within sixty days.
The Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen filed a counterclaim alleging
that IRI has made false and misleading statements about its services and
commercial activities. On July 7, 1997, IRI filed an amended complaint
repleading its claim of attempted monopolization in the United States and
realleging its other claims. On August 18, 1997, defendants moved for an order
dismissing IRI's claim of attempted monopolization in the United States. This
motion is under consideration by the Court.
-9-
COGNIZANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands - (Unaudited)
Note 5 - Litigation (continued)
In connection with the IRI Action, Dun & Bradstreet, ACNielsen Corporation
("ACNielsen") (the parent company of A.C. Nielsen) and the Company have entered
into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense
Agreement") pursuant to which they have agreed (i) to certain arrangements
allocating potential liabilities ("IRI Liabilities") that may arise out of or in
connection with the IRI Action and (ii) to conduct a joint defense of such
action. In particular, the Indemnity and Joint Defense Agreement provides that
ACNielsen will assume exclusive liability for IRI Liabilities up to a maximum
amount to be calculated at the time such liabilities, if any, become payable
(the "ACN Maximum Amount"), and that the Company and Dun & Bradstreet will share
liability equally for any amounts in excess of the ACN Maximum Amount.
The ACN Maximum Amount will be determined by an investment banking firm as the
maximum amount which ACNielsen is able to pay after giving effect to (i) any
plan submitted by such investment bank which is designed to maximize the
claims-paying ability of ACNielsen without impairing the investment banking
firm's ability to deliver a viability opinion (but which will not require any
action requiring stockholder approval), and (ii) payment of related fees and
expenses. For these purposes, financial viability means the ability of
ACNielsen, after giving effect to such plan, the payment of related fees and
expenses and the payment of the ACN Maximum Amount, to pay its debts as they
become due and to finance the current and anticipated operating and capital
requirements of its business, as reconstituted by such plan, for two years from
the date any such plan is expected to be implemented.
Management of the Company is unable to predict at this time the final outcome of
this matter or whether the resolution of the matter could materially affect the
Company's results of operations, cash flows or financial position.
Note 6 - Financial Instruments with Off-Balance-Sheet Risk
IMS used foreign exchange forward contracts which provide for the sale of
foreign currencies to hedge a portion of its committed revenues. While these
hedging instruments are subject to fluctuations in value, such fluctuations are
offset by changes in the value of the underlying exposures being hedged. The
principal currencies hedged were the Japanese Yen, German Mark, Swiss Franc and
Italian Lira. At August 31, 1997, the notional amount hedged was $0. Gains and
losses on forward contracts of committed foreign currency revenues are included
in deferred revenues and are deferred until such revenues are recognized.
In addition, foreign exchange forward contracts are entered into in the normal
course of business to hedge against foreign exchange movements on certain assets
and liabilities of subsidiaries that are denominated in currencies other than
the subsidiary's functional currency. At August 31, 1997, IMS had approximately
$58,000 in foreign exchange forward contracts outstanding with various
expiration dates through September 1997.
-10-
COGNIZANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands - (Unaudited)
Note 7 - Adoption of Statements of Financial Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which simplifies existing computational guidelines, revises disclosure
requirements and increases the comparability of earnings-per-share data on an
international basis. The Company is currently evaluating the new statement;
however, the impact of adoption of SFAS No. 128 on the Company's financial
statements is not expected to be significant. This statement is effective for
financial statements for periods ending after December 15, 1997 and requires
restatement of all prior period earnings-per-share data presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. This statement is effective for periods ending after December 15,
1997. Management has not yet evaluated the effects of this change on the
Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which changes the way public companies
report information about segments. SFAS No. 131, which is based on the
management approach to segment reporting, includes requirements to report
selected segment information quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which the
entity holds assets and reports revenues. This statement is effective for
financial statements for periods ending after December 15, 1997. Management has
not yet evaluated the effects of this change on the Company's financial
statements.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Dollar amounts in thousands, except per share data)
In September 1997, the Company's voting interest in Gartner fell below 50% to
49.5% based upon the exercise of Gartner employee stock options and employee
stock purchases. Accordingly, as of September 30, 1997 and for the three- and
nine-month periods ended September 30, 1997 the Company has deconsolidated
Gartner (the "Gartner Deconsolidation") and is accounting for its ownership
interest on the equity basis.
Revenue for the third quarter of 1997 decreased by 19.6% to $341,041 from
$424,188 for the third quarter of the prior year. This decrease is related to
the impact of the Gartner Deconsolidation. Adjusting for this item and the
impact of a stronger U.S. dollar, revenue for the third quarter of 1997
increased by 10.3%. The impact of a stronger U.S. dollar decreased reported
revenue by less than 2% in the third quarter, including the impact of gains
related to the Company's hedging strategy.
Year-to-date revenue decreased by 17.8% to $994,877 from $1,209,910 for the
comparable period of the prior year. The decrease is related to the impact of
the Gartner Deconsolidation. Adjusting for this item and the impact of a
stronger U.S. dollar, year-to-date revenue increased by 11.0%. This increase
reflected double-digit constant dollar revenue growth at IMS and Nielsen Media
Research, Inc. ("Nielsen Media Research"). The impact of a stronger U.S. dollar
decreased reported revenue by less than 2% year-to-date, including the impact of
gains related to the Company's hedging strategy.
Operating income for the third quarter increased by 44.8% to $87,163 from
$60,195 for the third quarter of the prior year. Operating income in 1996
includes an acquisition-related pre-tax charge of $33,233, primarily for
in-process research and development costs associated with Gartner Group's
acquisition of J3 Learning Corporation (the "J3 Acquisition-Related Charge").
Excluding the impact of the J3 Acquisition-Related Charge; discontinued business
units in 1996; and the Gartner Deconsolidation, operating income for the third
quarter increased by 16.5%. As a result of our program to hedge a portion of IMS
committed non-U.S. revenue the stronger U.S. dollar had no significant impact on
operating income in the third quarter. The sale of Pilot during the third
quarter of 1997 enabled the Company to redeploy resources to strategic
technology investments, including an initiative to accelerate Year 2000
compliance. The Company estimates that the impact on operating income of Year
2000 compliance was approximately $5,000 in the third quarter. Management has
not yet completed its assessment of the total Year 2000 compliance expense and
related potential effects on the Company's operating income and earnings.
Year-to-date operating income increased by 0.3% to $201,751 from $201,085 for
the comparable period of the prior year. Excluding the impact of the J3
Acquisition-Related Charge;discontinued business units in 1996; and the Gartner
Deconsolidation, year-to-date operating income for 1997 increased by 16.2%.
Operating income growth outpaced revenue growth primarily due to IMS's ability
to leverage its resources. The impact of a stronger U.S. dollar decreased
operating income by approximately 1% year-to-date, including the impact of
gains related to the Company's hedging strategy.
Non-operating income-net for the third quarter was $21,270 compared with
$10,979 for the third quarter of the prior year. Year-to-date non-operating
income-net was $59,993, $6,076 for the comparable period of the
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued) (Dollar amounts in thousands, except per share data)
prior year. The increase in the quarter and year-to-date non-operating
income-net is primarily related to recording Gartner Equity Income in 1997 as a
result of the Gartner Deconsolidation. The Company recognized within Gartner
Equity Income a pre-tax unrealized gain on Gartner stock of $706
corresponding to the net increase in the value of its investment in Gartner.
In addition, non-operating income-net for the third quarter includes gains
related to the disposition of Cognizant Enterprises' investments in TSI
International, Inc., and Aspect Development, Inc. ($33,855 in total) and a loss
on the sale of Pilot ($29,900).
The Company's effective tax rate was 28.9% for the third quarter and 27.4%
year-to-date in 1997, compared with an effective tax rate of 44.0% in the
comparable periods of the prior year. The Company's lower effective tax rate is
due to the benefits of global tax planning strategies as well as the impact of
the Gartner Deconsolidation.
The Company's net income for the third quarter increased 93.4% to $77,066 from
$39,858 in the third quarter of the prior year. Year-to-date net income
increased 63.8% to $190,026, from $116,010 for the comparable period of the
prior year. Excluding the after-tax impact of the J3 Acquisition-Related
Charge; discontinued business units in 1996; gains associated with the sale of
Cognizant Enterprises' investments and the loss on the sale of Pilot,
net income for the quarter and year-to-date increased 16.6% and 18.1%,
respectively.
Earnings per share for the third quarter increased 104.3% to $.47 from $.23 for
the third quarter of the prior year. Year-to-date earnings per share increased
67.6% to $1.14 from $.68 for the comparable period in the prior year. Excluding
the after-tax impact of the items in the preceding paragraph, earnings per
share for the quarter and year-to-date increased 21.6% and 20.9%, respectively.
On October 21, 1997, the Company announced that its Board of Directors had
authorized a systematic stock repurchase program to buy up to 10.0 million
shares of the Company's outstanding common stock. This is in addition to the
previously approved program to repurchase 8.5 million shares, a portion of which
was intended to cover option exercises. The previously approved program was
completed on September 5, 1997.
Results by Business Segment
As discussed in Note 2, the Company's voting interest in Gartner fell below
50% in September 1997. Accordingly, for the three- and nine-month periods ended
September 30, 1997 the Company has deconsolidated Gartner and is accounting for
its ownership interest on the equity basis. The Information Technology segment,
which consisted solely of Gartner, is therefore no longer being reported.
-13-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued) (Dollar amounts in thousands, except per share
data)
Results by Business Segment- (continued)
The Marketing Information Services segment consists of IMS, Nielsen Media
Research, Pilot (divested during the third quarter), Erisco, Inc., and Cognizant
Technology Solutions Corporation. Marketing Information Services revenue for the
third quarter of 1997 increased 8.5% to $341,041 from $314,230 in the third
quarter of the prior year. Adjusting for the impact of a stronger U.S. dollar,
revenue for the third quarter 1997 increased by 10.3%. IMS had third quarter
revenue in 1997 of $233,196,up 8.0% from $215,907 in the third quarter of 1996.
Excluding the impact of a stronger U.S. dollar and the impact of gains related
to the Company's hedging strategy, IMS revenue increased by 10.5%. IMS revenue
growth benefited from strong performance of its sales management products,
geographic expansion and excellent growth of its electronic territory management
product.
Nielsen Media Research revenue for the third quarter 1997 increased 12.6%
to $89,911 from $79,823 in the third quarter of the prior year. Nielsen Media
Research achieved continuing growth from new metered markets, additional cable
networks, and its local Hispanic and Monitor Plus measurement services.
Marketing Information Services year-to-date revenue increased 9.2% to $994,877
from $910,895 for the comparable period of the prior year. Adjusting for the
impact of a stronger U.S. dollar, year-to-date revenue increased by 11.0%.
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1997 and 1996
(Dollar amounts in thousands)
Net cash provided by operating activities totaled $261,253 for the nine months
ended September 30, 1997 compared with $344,769 for the comparable period in
1996. The decrease of $83,516 principally reflects a net decrease in deferred
and accrued income taxes ($66,316), primarily payment of taxes and the Gartner
Deconsolidation; the 1996 J3 Acquisition-Related Charge at Gartner ($33,233);
lower increase in deferred revenues ($26,523), due to the Gartner
Deconsolidation; and the impact of non-cash equity income ($26,662) in 1997.
These decreases were partially offset by an increase in business operating
results ($64,309) (including net income and depreciation and amortization),
reduced restructuring, postemployment benefit and 1995 non-recurring charge
payments ($13,327).
Net cash used in investing activities totaled $190,832 for 1997 compared
with $207,433 for the comparable period in 1996. The decrease in cash used for
investing activities of $16,601 is principally due to the absence of net
payments for marketable securities ($31,317)and payments for the acquisition of
businesses ($24,386) due to the Gartner Deconsolidation; the absence of Gartner
stock purchases ($42,998); and the proceeds from sale of investments
in 1997 ($43,601). These increases were partially offset by the
impact of the deconsolidation of Gartner cash ($123,697).
-14-
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1997 and 1996 - (continued)
(Dollar amounts in thousands)
Net cash used in financing activities totaled $205,597 for the nine months ended
in 1997 compared with $120,776 for the comparable period in 1996. The increase
in cash usage of $84,821 is primarily due to payments for the purchase of
treasury shares ($302,011) and dividends paid ($15,008) in 1997, partially
offset by third party investments in partnerships ($100,000) in 1997 and
transfers to The Dun & Bradstreet Corporation in 1996 ($122,886).
Changes in Financial Position at September 30, 1997 Compared to
December 31, 1996
(Dollar amounts in thousands)
Cash decreased to $283,162 at September 30, 1997, from $428,520 at December 31,
1996, primarily reflecting the Gartner Deconsolidation ($123,697), share
repurchases ($302,011); offset by third-parties investment in partnerships
($100,000).
Accounts Receivable decreased to $280,800 at September 30, 1997, from $453,791
at December 31, 1996, primarily reflecting the Gartner Deconsolidation
($145,905), the sale of Pilot ($13,766) and seasonality within the Company's
business units.
Other Current Assets decreased to $56,882 at September 30, 1997, from $112,151
at December 31, 1996, primarily reflecting the Gartner Deconsolidation.
Gartner Group Investment represents the accounting for Gartner on an equity
basis at September 30, 1997 ($170,195).
Property, Plant and Equipment decreased to $226,230 at September 30, 1997, from
$268,888 at December 31, 1996, primarily reflecting the Gartner Deconsolidation
($32,813) and the sale of the Company's Wilton, CT building ($14,997).
Goodwill decreased to $88,295 at September 30, 1997, from $251,483 at December
31, 1996, primarily reflecting the Gartner Deconsolidation and the
sale of Pilot ($20,590).
Accrued and Other Current Liabilities decreased to $180,329 at September 30,
1997, from $266,932 at December 31, 1996, primarily reflecting the Gartner
Deconsolidation .
Deferred Revenues decreased to $133,925 at September 30,1997, from $292,970 at
December 31, 1996, primarily reflecting the Gartner Deconsolidation
offset by an increase in subscription sales at IMS.
Minority Interests increased to $101,730 at September 30, 1997, from $90,635 at
December 31, 1996, primarily reflecting the third-parties investment in
partnerships ($100,000) and a decrease in minority interest related to the
Gartner Deconsolidation.
Shareholders' Equity decreased to $705,659 at September 30, 1997, from $872,613
at December 31, 1996, primarily reflecting the purchase of treasury shares
($302,011), payments of dividends ($15,008) and the change in cumulative
translation adjustment ($45,449), partially offset by net income ($190,026).
-15-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10 Material Contracts
.24 Severance Agreement and Release between Cognizant Corporation
and Dennis G. Sisco dated as of February 28, 1997 (executed in the
third quarter 1997) (management contract and or compensatory
plan or arrangement).
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
September 30, 1997.
-16-
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.
COGNIZANT CORPORATION
Date: November 14, 1997 By:/S/Victoria R. Fash
==================================================
Victoria R. Fash
Executive Vice President & Chief Financial Officer
Date: November 14, 1997 By:/S/James C. Malone
===============================================
James C. Malone
Senior Vice President - Finance & Controller