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 March 31, 2000
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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 001-12277
ACNIELSEN CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 06-1454128
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(State of Incorporation) (I.R.S. Employer Identification No.)
177 Broad Street, Stamford, CT 06901
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 961-3000
--------------
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:
Shares Outstanding
Title of Class at April 28, 2000
---------------------- ---------------------
Common Stock,
par value $.01 per share 57,638,667
ACNIELSEN CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
- - ----------------------------- ----
Item 1. Financial Statements 3
Condensed Consolidated Statements of Income (Unaudited) 3
Three Months Ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (Unaudited) 4
Three Months Ended March 31, 2000 and 1999
Condensed Consolidated Balance Sheets 5
March 31, 2000 (Unaudited) and December 31, 1999
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial 10-14
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 15
Market Risk
PART II. OTHER INFORMATION PAGE
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Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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2
PART I. FINANCIAL INFORMATION
- - -----------------------------
Item I. FINANCIAL STATEMENTS
ACNIELSEN CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended
March 31,
--------------------------------------------
2000 1999
------------------ ----------------
Operating Revenue $374,008 $353,951
Operating Costs 199,116 183,632
Selling and Administrative Expenses 141,401 137,916
Depreciation and Amortization 22,718 21,183
Operation Leading Edge Costs 11,324 -
Year 2000 Expenses - 3,844
------------------ ----------------
Operating (Loss) Income (551) 7,376
Interest Income 2,057 2,365
Interest Expense (1,205) (794)
Other - Net (28) 993
------------------ ----------------
Other Income - Net 824 2,564
Income Before Income Tax Provision and Cumulative Effect
of Change in Accounting Principle 273 9,940
Income Tax Provision 106 3,976
------------------ ----------------
Income Before Cumulative Effect of Change in Accounting
Principle 167 5,964
Cumulative Effect to January 1, 1999, of Change in Accounting
For Costs of Start-Up Activities, Net of Income Tax Benefits
of $10,330 - (20,173)
------------------ ----------------
Net Income (Loss) $167 $(14,209)
================== ================
Basic Earnings (Loss) Per Share:
Income Before Cumulative Effect of Change in Accounting $0.00 $0.10
Cumulative Effect of Change in Accounting - (0.35)
------------------ ----------------
Net Income (Loss) $0.00 $(0.25)
================== ================
Diluted Earnings (Loss) Per Share:
Income Before Cumulative Effect of Change in Accounting $0.00 $0.10
Cumulative Effect of Change in Accounting - (0.34)
------------------ ----------------
Net Income (Loss) $0.00 $(0.24)
================== ================
Weighted Average Number of Shares Outstanding
Basic 57,729 57,554
Diluted 58,711 59,622
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
3
ACNIELSEN CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Three months ended March 31,
------------------------------------------
2000 1999
------------------ ------------------
- - ----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income (Loss) $ 167 $ (14,209)
Reconciliation of Net Income (Loss) to Net Cash
Used in Operating Activities:
Cumulative Effect of Change in Accounting Principle:
Costs of Start-Up Activities - 20,173
Depreciation and Amortization 22,718 21,183
Deferred Income Taxes 492 1,570
Operation Leading Edge Charge 11,324 -
Payments Related to Special Charges (2,380) (715)
Postemployment Benefit Expense 1,063 632
Postemployment Benefit Payments (3,159) (2,806)
Net (Increase) Decrease in Accounts Receivable (8,689) 4,445
Net Change in Other Working Capital Items (32,838) (37,718)
Other (2,260) (42)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Operating Activities (13,562) (7,487)
- - ----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital Expenditures (10,728) (12,792)
Additions to Computer Software (8,022) (8,716)
Payments for Acquisition of Businesses and Other Investments (13,001) (6,990)
Other 3,496 (876)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (28,255) (29,374)
- - ----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Increase in Short-Term Borrowings 17,759 18,918
Treasury Stock Purchases (5,401) (4,612)
Proceeds from the Sale of Common Stock under Option Plans 125 4,450
Other (697) 551
- - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 11,786 19,307
- - ----------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes
on Cash and Cash Equivalents (1,069) (3,589)
- - ----------------------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (31,100) (21,143)
Cash and Cash Equivalents, Beginning of Period 135,199 100,533
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Cash and Cash Equivalents, End of Period $ 104,099 $ 79,390
- - ----------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for Interest $ 1,281 $ 762
Cash Paid During the Period for Income Taxes $ 7,183 $ 6,787
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
4
ACNIELSEN CORPORATION
Condensed Consolidated Balance Sheets
(Amounts in thousands)
March 31, December 31,
2000 1999
(Unaudited)
- - -----------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and Cash Equivalents $ 104,099 $ 135,199
Accounts Receivable - Net 297,204 294,266
Other Current Assets 70,447 62,041
-------------------- ------------------
Total Current Assets 471,750 491,506
Notes Receivable and Other Investments 57,019 35,812
Property, Plant and Equipment-Net 155,590 159,100
Other Assets-Net
Prepaid Pension 72,556 70,744
Computer Software 65,148 64,310
Intangibles and Other Assets 50,907 53,050
Goodwill 350,201 353,364
-------------------- ------------------
Total Other Assets-Net 538,812 541,468
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TOTAL ASSETS $ 1,223,171 $ 1,227,886
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 75,499 $ 83,099
Short-Term Debt 123,714 109,164
Accrued and Other Current Liabilities 286,914 300,017
Accrued Income Taxes 71,733 74,306
-------------------- ------------------
Total Current Liabilities 557,860 566,586
Postretirement and Postemployment Benefits 53,655 53,369
Deferred Income Taxes 65,314 58,571
Other Liabilities 17,287 27,524
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TOTAL LIABILITIES 694,116 706,050
- - -----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock 599 599
Additional Paid-in Capital 513,870 512,475
Retained Earnings 157,963 157,796
Treasury Stock (53,490) (48,089)
Accumulated Other Comprehensive Income (Loss):
Cumulative Translation Adjustment (100,877) (101,202)
Unrealized Gains on Investments 11,014 166
Fair Market Value of Forward Exchange Contracts (24) 91
-------------------- ------------------
Total Shareholders' Equity 529,055 521,836
- - -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,223,171 $ 1,227,886
- - -----------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
5
ACNIELSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in
thousands, except per share data) (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 in the ACNielsen Corporation
(the "Company") 1999 Annual Report on Form 10-K. In the opinion of management,
all adjustments (which include only normal recurring adjustments) considered
necessary for a fair presentation of financial position, results of operations
and cash flows at the dates and for the periods presented have been included.
Certain prior year amounts have been reclassified to conform with the 2000
presentation.
Note 2 - Operation Leading Edge Update
On February 17, 2000, the Board of Directors of the Company approved Operation
Leading Edge, the Company's plan to accelerate its growth beyond 2000 through a
series of business - building initiatives. The initiatives, to be spread over
three years, are designed to accelerate both revenue and profit growth by
enhancing products and services, addressing changing client needs, improving
efficiency and reducing the Company's cost structure.
During the quarter ended March 31, 2000, the Company recorded a charge totaling
$11,324, before tax, related to Operation Leading Edge. The charge included
$2,210 to create new capabilities by improving the Company's information
delivery systems and $9,114 for overhead rationalization of which $8,738 was
severance. Severance charges are accrued when under the approved severance plan
the number of employees, their job class and locations are known, and required
notification has occurred. Business reengineering and design costs are recorded
as incurred. The following table details the activity for Operation Leading Edge
during the quarter:
Balance Balance
January 1, 2000 Charges Payments March 31, 2000
Severance $0 $8,738 $(1,022) $7,716
Business Re-engineering, Design
and Other Costs 0 2,586 (1,076) 1,510
---------------------- ------------------- -------------------- ---------------------
Total $0 $11,324 $(2,098) $9,226
---------------------- ------------------- -------------------- ---------------------
Severance charges in the quarter related to the elimination of 105 positions,
primarily in Europe, that resulted from streamlining operations and overhead
rationalization. Business re-engineering, design and other costs relate
primarily to external consultants retained to assist in re-engineering and
designing the Company's information processing and content delivery systems.
6
Note 3 - Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (EPS) for the quarters ended March 31, 2000 and 1999 (Amounts
in thousands, except per share data):
2000 1999
------ ------
Weighted-average number of shares outstanding for basic EPS 57,729 57,554
Dilutive effect of shares issuable as of period-end under stock option plans 982 2,068
-------- --------
Weighted-average number of shares and share equivalents for diluted EPS 58,711 59,622
======== ========
Income Before Cumulative Effect of Change in Accounting
Principle $ 167 $ 5,964
Cumulative Effect to January 1, 1999, of Change in Accounting For Costs of
Start-Up Activities, Net of Income Tax Benefits of $10,330 - (20,173)
------- ---------
Net Income (Loss) $ 167 $(14,209)
======= =========
Basic Earnings (Loss) Per Share:
Income Before Cumulative Effect of Change in Accounting $ 0.00 $ 0.10
Cumulative Effect of Change in Accounting - (0.35)
------- --------
Net Income (Loss) $ 0.00 $ (0.25)
======= ========
Diluted Earnings (Loss) Per Share:
Income Before Cumulative Effect of Change in Accounting $ 0.00 $ 0.10
Cumulative Effect of Change in Accounting - (0.34)
------ --------
Net Income (Loss) $ 0.00 $ (0.24)
====== ========
Note 4 - Other Comprehensive Income (Loss)
The Company's Comprehensive Income (Loss) for the quarters ended March 31, 2000
and 1999, reported net of tax, are set forth in the following table:
(In thousands) 2000 1999
- - ----------------------------------------------------------------------------- ----------------- --------------
Net Income (Loss) $167 $(14,209)
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Adjustments 325 (14,350)
Unrealized Gains on Investments 10,848 -
Fair Market Value of Forward Exchange Contracts (115) 961
------- ---------
Comprehensive Income (Loss) $11,225 $(27,598)
======== =========
7
Note 5 - Marketable Securities
Marketable securities are classified as Other Investments in the accompanying
balance sheet. At March 31, 2000, those marketable securities (consisting of the
Company's investment in NetRatings, Inc.) which are available for sale were
reported at fair value of $31,495, including a gross unrealized gain of $18,356.
The change in net unrealized gains on such investments totaled $10,848 for the
quarter ended March 31, 2000, and was credited to other comprehensive income.
Note 6 - Treasury Stock
The terms of the Indemnity and Joint Defense Agreement (see Note 7 below) limit
the Company's ability to make certain payments ("Restricted Payments"),
including payments for dividends and stock repurchases. Pursuant to such
limitation, the aggregate amount of all Restricted Payments made by the Company
cannot exceed the sum of $15,000 and 20% of the Company's cumulative net
earnings, as defined, from November 1, 1996. The Board of Directors has
authorized the Company to repurchase ACNielsen common stock up to the amount
permitted by the Indemnity and Joint Defense Agreement. During the first quarter
of 2000, the Company repurchased 281,765 shares of its common stock for a total
of $5,401.
Note 7 - Litigation
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 ("Old D&B"), A.C. Nielsen Company
which is a subsidiary of the Company ("ACNielsenCo"), and I.M.S. International,
Inc. ("IMS"), formerly a subsidiary of Cognizant Corporation ("Cognizant") and a
predecessor of IMS Health Incorporated (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 a 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 defendants and that 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.
By notice of motion dated 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 on the
motion to dismiss. The Court dismissed 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 and counterclaims. Defendants denied
all material allegations of the complaint. In addition, ACNielsenCo asserted
counterclaims against IRI alleging that IRI has made false and misleading
statements about ACNielsenCo's services and commercial activities and that such
conduct constitutes a violation of Section 43(a) of the Lanham Act and unfair
competition. ACNielsenCo seeks injunctive relief and damages.
8
On July 7, 1997, IRI filed an amended complaint seeking to replead the claim of
attempted monopolization in the United States, which had been dismissed by the
Court in its May 6, 1997 decision. By notice of motion dated August 18, 1997,
defendants moved for an order dismissing the amended claim. On December 1, 1997,
the Court denied defendants' motion. Discovery is currently ongoing.
In connection with the IRI Action, Old D&B, Cognizant (the former parent company
of IMS) and the Company entered into an Indemnity and Joint Defense Agreement
(the "Indemnity and Joint Defense Agreement") pursuant to which they 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 the Company 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
Cognizant and Old D&B 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 the Company 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 the Company 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 the Company, 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.
The Indemnity and Joint Defense Agreement also imposes certain restrictions on
the payment of cash dividends and the ability of the Company to purchase its
stock.
In June 1998, (i) Old D&B changed its name to R.H. Donnelley Corporation and
spun off (the "D&B Spin") a company now named The Dun & Bradstreet Corporation
("New D&B"), and (ii) Cognizant changed its name to Nielsen Media Research, Inc.
("NMR") and spun off (the "Cognizant Spin") a company named IMS Health
Incorporated ("IMS Health"). Pursuant to the terms of a Distribution Agreement
dated as of October 28, 1996 among the Company, Old D&B and Cognizant, New D&B
was required as a condition to the D&B Spin, and IMS Health was required as a
condition to the Cognizant Spin, to undertake to the Company to be jointly and
severally liable with its former parent company for, among other things, the
obligations of such former parent company under the Indemnity and Joint Defense
Agreement. Each of New D&B and IMS Health did provide such undertaking to the
Company.
Management of ACNielsen is unable to predict at this time the final outcome of
the IRI Action or whether its resolution could materially affect the Company's
results of operations, cash flows or financial position.
The Company and its subsidiaries are also involved in other 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.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Dollar amounts in thousands, except per share data)
------------------------------------------------------------------
Quarter ended March 31, 2000 compared with Quarter ended March 31, 1999
- - -----------------------------------------------------------------------
The Company reported net income of $167 or $0.00 per diluted share, which
included a pre-tax charge of $11,324 ($6,908 after-tax) for Operation Leading
Edge, the Company's accelerated growth plan. The current quarter results also
include $4,677 of start-up expenses ($2,853 after-tax) for ACNielsen
eRatings.com (eRatings), the Company's Internet measurement business. Excluding
the aforementioned charges, the Company's earnings (after-tax) were $9,928,
compared with $5,964, before the cumulative effect of a change in accounting in
1999.
Revenue for the quarter ended March 31, 2000 was $374,008, an increase of 5.7%
from the first quarter of 1999, after a negative $14,305 impact from
foreign-currency translation. In local currency, revenue advanced 9.7%, as all
regions posted solid growth.
Operating loss was $551, which included $11,324 of costs for Operation Leading
Edge and $4,677 of start-up expenses for eRatings. Excluding these charges,
operating income more than doubled to $15,450 from $7,376 in 1999. Strong
revenue growth, particularly in the United States, drove the increase. The
impact of foreign currency translation on operating income growth was
insignificant.
Other income-net was $824, compared with $2,564 in the first quarter of 1999,
primarily reflecting decreased gains from foreign exchange, higher interest
expense on increased short-term borrowings and a reduction in interest income.
The Company's operating performance for the quarters ended March 31, 2000 and
1999 are set forth in the table below.
Operating Revenue Operating Income
(Loss)
------------------------------ --------------------------
2000 1999 2000 1999
United States $122,552 $108,235 $11,974 $9,978
Canada/Latin America 47,864 44,167 5,147 4,315
---------- ---------- --------- --------
Total Americas 170,416 152,402 17,121 14,293
Europe, Middle East & Africa 135,913 139,113 (3,430) (3,950)
Asia Pacific 67,679 62,436 1,759 877
Year 2000 Costs - - - (3,844)
---------- ---------- --------- --------
Subtotal - Regions 374,008 353,951 15,450 7,376
ACNielsen eRatings - - (4,677) -
---------- ---------- --------- --------
Subtotal 374,008 353,951 10,773 7,376
Operation Leading Edge - - (11,324) -
---------- ---------- --------- --------
Total $374,008 $353,951 $(551) $7,376
========= ========== ========= ========
10
The following discusses the Company's segment results:
Total Americas revenue increased 11.8% to $170,416 from $152,402. Excluding the
negative impact of currency translation of $2,050, due primarily to the
devaluation of the Brazilian currency in the first quarter of 1999, revenue
increased 13.2%, as the U.S., Canada, and Latin America each turned in strong
results. Operating income was $17,121, a $2,828 or 19.8% improvement over the
prior year, including a $463 negative foreign currency translation impact.
In the United States, revenue grew 13.2% to $122,552 led by double-digit growth
from account-level retail measurement and ACNielsen BASES, along with revenue
from new clients. The growth also reflected the addition of revenue from
ACNielsen Market Decisions (Market Decisions), which was fully acquired in July
1999. Excluding Market Decisions, U.S. revenue increased 10.0%. Operating income
was $11,974, an increase of 20.0% over the prior year. The gain was primarily
driven by revenue growth.
In Canada and Latin America, reported revenue rose 8.4% to $47,864, after
absorbing $2,050 in negative foreign currency translation impacts. Revenues
advanced 13.0% in local currency, reflecting especially strong growth in Canada,
Mexico and Brazil. Operating income increased 19.3% to $5,147 from $4,315 in
1999. Local currency operating income increased 30.0% reflecting the higher
revenue.
Revenue in the Europe, Middle East & Africa ("EMEA") region decreased 2.3% to
$135,913, from $139,113 in 1999, reflecting a $14,060 negative impact from
translating local currencies to the U.S. dollar. Revenue rose 7.8% in local
currency, as virtually all markets and major businesses registered growth.
Increases were particularly strong in the United Kingdom, the Nordic countries
and in the Emerging Markets. The region's revenue performance was also enhanced
by the addition of ACNielsen BASES in Europe and the addition of ACNielsen MMS,
the U.K.'s leading advertising measurement company, acquired in December 1999.
EMEA reduced its operating loss to $3,430, from $3,950, as the U.K., the
Nordics, France, Turkey and the Emerging Markets delivered significant
improvements. This performance was partially offset by higher costs in Germany
and expenses related to the expansion of consumer panels and ACNielsen BASES in
Europe.
Asia Pacific's revenue increased 8.4% to $67,679 from $62,436, as virtually all
markets achieved growth, reflecting improving economic conditions across Asia,
and a favorable impact from currency translation. In local currency, revenue
increased 5.5%. Reported operating income doubled to $1,759 from $877, as
profits grew strongly in most markets, and currency translation overall had a
favorable impact.
ACNielsen eRatings.com continued to develop Internet research panels in the
United Kingdom, Ireland, Australia, New Zealand and Singapore. The Company spent
$4,677 on these activities in the first quarter. The Company expects to begin
realizing revenue from its international rollout of the Nielsen/NetRatings
service during the second quarter of 2000.
11
Operation Leading Edge Update
On February 17, 2000, the Board of Directors of the Company approved Operation
Leading Edge, the Company's plan to accelerate its growth beyond 2000 through a
series of business-building initiatives. The initiatives, to be spread over
three years, are designed to accelerate both revenue and profit growth by
enhancing products and services, addressing changing client needs, improving
efficiency and reducing the Company's cost structure.
During the quarter ended March 31, 2000, the Company recorded a charge totaling
$11,324, before tax, related to Operation Leading Edge. The charge related to
the U.S. ($1,714), Canada and Latin America ($462), EMEA ($8,410) and Asia
Pacific ($738). The charge included $2,210 to create new capabilities by
improving the Company's information delivery systems and $9,114 for overhead
rationalization of which $8,738 was severance. The following table details the
activity for Operation Leading Edge during the quarter:
Balance Balance
January 1, 2000 Charges Payments March 31, 2000
Severance $0 $8,738 $(1,022) $7,716
Business Re-engineering, Design
and Other Costs 0 2,586 (1,076) 1,510
---------------------- ----------------- --------------------- ----------------------
Total $0 $11,324 $(2,098) $9,226
---------------------- ----------------- --------------------- ----------------------
Severance charges in the quarter related to the elimination of 105 positions,
primarily in Europe, that resulted from streamlining operations and overhead
rationalization. Business re-engineering, design and other costs relate
primarily to external consultants retained to assist in re-engineering and
designing the Company's information processing and content delivery systems.
Savings realized from the actions taken during the quarter were not significant.
12
Liquidity and Capital Resources
Three Months Ended March 31, 2000 and 1999
Net cash used in operating activities for the quarter ended March 31, 2000
totaled $13,562 compared with $7,487 for the comparable period in 1999. The
increase resulted from lower cash income ($4,262) and increased accounts
receivable ($13,134), which relate to increased revenue and the timing of
billings. These increases were partially offset by the accrual for Operation
Leading Edge in excess of payments for special charges during the quarter
($8,944) and a lower increase in other working capital items ($4,880) as
compared with the first quarter of 1999.
Net cash used in investing activities was $28,255 for the quarter ended March
31, 2000, compared with $29,374 for the comparable period in 1999. Total cash
usage decreased slightly, as reductions in capital expenditures ($2,064),
computer software additions ($694) and other investing ($4,372) were mainly
offset by increased payments for the acquisition of businesses ($6,011). The
current quarter included an installment payment of $9,294, for ANR Amer Nielsen
Research Limited, acquired in 1998.
Net cash provided by financing activities for the quarter ended March 31, 2000
totaled $11,786, compared with $19,307 for the comparable period in 1999. The
decrease in cash provided of $7,521 primarily reflected a decrease in cash
proceeds from the sale of stock under option plans ($4,325).
Euro
The introduction of a common currency across eleven European countries, the
"Euro", is expected to have a significant impact on the European marketplace and
on the operations of a number of the Company's key clients and data suppliers.
The introduction is on a phased basis between January 1999 and January 2002, at
which date full notes and coinage in Euros will be issued and, no later than
July 1, 2002, will replace existing local currencies.
As the Company has operations in all of the affected countries, it is impacted
by the Euro's introduction. The Company has established a multi-functional,
cross-border taskforce for the purpose of preparing the Company for the
introduction of the Euro. As part of its Euro readiness efforts, the Company has
assessed the capabilities of its existing internal processes and software
systems to deal with the introduction of the Euro. Changes to internal processes
relating to accounting, billing, production and delivery systems, and supporting
software changes, required to meet the initial introduction are substantially
complete. Additional modifications will be made as the phase-in period
progresses.
The Company is communicating with its principal data and other suppliers,
including its banks, and with its principal clients to assess both their own
level of readiness and their requirements over the transitional period and
beyond. These communications will be ongoing as the phase-in period progresses.
Current estimates of the total incremental Euro compliance costs in respect of
internal and production systems are that they will not be material.
Implementation efforts will continue in line with the phased adoption of the
Euro over the transition period, and the related costs will be expensed as
incurred. The Company has not yet developed a contingency plan.
13
If the Company failed to successfully address the issues raised by the Euro's
introduction, it could have a material adverse effect on the Company. However,
based on progress to date and the Company's Euro readiness program, the Company
currently does not anticipate any material adverse effects as a result of the
Euro's introduction.
Forward-Looking Statements
Certain statements contained herein are forward looking. These may be identified
by the use of forward-looking words or phrases, such as "anticipate," "believe,"
"expect," "designed," "intend," "could," "should," "planned," "estimated,"
"potential," "target," "aim," and "goal," among others. In addition, the Company
may from time to time make oral forward-looking statements. In connection with
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company is hereby identifying important factors that could cause
actual results to differ materially from those contained in forward-looking
statements made by or on behalf of the Company. Any such statement is qualified
by reference to the following cautionary statement.
Risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include: (i) the availability of retail
sources that are willing to sell data to the Company at prices acceptable to the
Company; (ii) changes in general economic or competitive conditions which impact
the Company's clients' demand for the Company's services; (iii) significant
price and service competition; (iv) rapid technological developments in the
collection, manipulation and delivery of information; (v) the Company's ability
to complete the implementation of its Euro plans on a timely basis; (vi) the
likely incurrence of significant losses by ACNielsen eRatings.com while its
business is being developed, the difficulty of forecasting its future revenues
and costs and uncertainties associated with the international development of an
Internet ratings service; (vii) the Company's ability to successfully implement
Operation Leading Edge (its announced plan to enhance its products and services,
address changing clients needs, improve efficiency and reduce its cost
structure) and to achieve the estimated levels of revenue and profit growth
therefrom; (viii) the impact of foreign currency fluctuations since so much of
the Company's earnings are generated abroad; (ix) the degree of acceptance of
new product introductions; (x) the uncertainties of litigation, including the
IRI Action; as well as other risks and uncertainties detailed from time to time
in the Company's Securities and Exchange Commission filings.
Developments in any of the areas referred to above could cause the Company's
results to differ from results that have been or may be projected by or on
behalf of the Company. The Company cautions that the foregoing list of important
factors is not exclusive. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company from time to time uses foreign currency forward exchange contracts
to hedge forecasted intercompany transactions and forecasted purchases of data
services from a third party provider. The Company enters into foreign currency
forward exchange contracts with durations of less than twelve months. The
Company does not utilize derivative financial instruments for trading or other
speculative purposes.
At March 31, 2000, foreign currency forward exchange contracts for Japanese yen
with notional amounts totaling $495, an average exchange rate of 102.031 yen to
the U.S. dollar, and fair value totaling ($24) were outstanding.
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, 2000.
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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.
ACNIELSEN CORPORATION
(Registrant)
Date: May 12, 2000 /s/ Robert J. Chrenc
--------------------------------
Robert J. Chrenc
Executive Vice President
and Chief Financial Officer
Date: May 12, 2000 /s/ Michael S. Geltzeiler
--------------------------------
Michael S. Geltzeiler
Senior Vice President and Controller
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