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, 1998
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 30, 1998
Common Stock,
par value $.01 per share 57,348,708
ACNIELSEN CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1998 and 1997 4
Condensed Consolidated Balance Sheets
March 31, 1998 (Unaudited) and December 31, 1997 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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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,
--------------------------------------------
1998 1997
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Operating Revenue $325,801 $324,774
Operating Costs 171,974 182,100
Selling and Administrative Expenses 128,876 128,002
Depreciation and Amortization 21,411 23,850
Year 2000 Expenses 3,336 -
----------------- -----------------
Operating Income (Loss) 204 (9,178)
Interest Income 3,081 2,118
Interest Expense (284) (1,388)
Other - Net 101 826
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-----------------
Other Income - Net 2,898 1,556
Income (Loss) Before Income Tax Provision 3,102 (7,622)
Income Tax Provision (Benefit) 1,303 (3,506)
----------------- -----------------
Net Income (Loss) $1,799 $(4,116)
================= =================
Net Income (Loss) Per Share of Common Stock - Basic $0.03 $(.07)
================= =================
Net Income (Loss) Per Share of Common Stock - Diluted $0.03 $(.07)
================= =================
Weighted Average Number of Shares Outstanding
Basic 57,359 56,919
Diluted 59,353 56,919
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
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ACNIELSEN CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in Thousands)
Three Months Ended
March 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
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Cash Flows from Operating Activities:
Net Income (Loss) $ 1,799 $ (4,116)
Reconciliation of Net Income (Loss) to Net Cash Used In
Operating Activities:
Depreciation and Amortization 21,411 23,850
Deferred Income Taxes (220) 456
Payments Related to Special Charges (3,634) (12,188)
Postemployment Benefit Payments (2,486) (2,496)
Net Decrease in Accounts Receivable 4,873 4,283
Net Increase in Other Working Capital Items (28,117) (29,892)
Other 782 1,154
--
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Net Cash Used In Operating Activities (5,592) (18,949)
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Cash Flows from Investing Activities:
Capital Expenditures (7,523) (9,357)
Additions to Computer Software (5,234) (3,752)
Decrease in Other Investments 813 901
Other (2,921) (7,289)
--
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Net Cash Used in Investing Activities (14,865) (19,497)
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Cash Flows from Financing Activities:
Decrease in Short-Term Borrowings (144) (2,646)
Treasury Stock Purchases (8,869) -
Proceeds from the Sale of Common Stock under Option Plans 3,996 448
Other 858 274
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Net Cash Used in Financing Activities (4,159) (1,924)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (4,268) (4,542)
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Decrease in Cash and Cash Equivalents (28,884) (44,912)
Cash and Cash Equivalents, Beginning of Period 205,726 185,005
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Cash and Cash Equivalents, End of Period $ 176,842 $ 140,093
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Supplemental disclosure of cash flow information:
Cash Paid During the Period for Interest $ 231 $ 1,350
Cash Paid During the Period for Income Taxes $ 1,823 $ 5,347
Noncash Investing and Financing Activities:
Acquisition of Investment and Note Receivable in exchange for $ 19,400 -
Business Assets and Liabilities assumed
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
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ACNIELSEN CORPORATION
Condensed Consolidated Balance Sheets
(Amounts in thousands)
[CAPTION]
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March 31, December 31,
1998 1997
(Unaudited)
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Assets
Current Assets
Cash and Cash Equivalents $ 176,842 $ 205,726
Accounts Receivable-Net 246,843 260,821
Other Current Assets 47,756 38,423
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Total Current Assets 471,441 504,970
Notes Receivable and Other Investments 29,050 10,281
Property, Plant and Equipment-Net 147,054 165,660
Other Assets-Net
Prepaid Pension 56,634 57,425
Computer Software 26,481 25,288
Intangibles & Other Assets 53,633 55,001
Goodwill 211,081 220,483
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Total Other Assets-Net 347,829 358,197
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TOTAL ASSETS $ 995,374 $ 1,039,108
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 81,127 $ 86,908
Short-Term Debt 25,653 25,957
Accrued and Other Current Liabilities 295,486 313,864
Accrued Income Taxes 41,118 42,385
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Total Current Liabilities 443,384 469,114
Postretirement and Postemployment Benefits 47,931 49,400
Deferred Income Taxes 26,809 27,609
Other Liabilities 29,439 32,881
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TOTAL LIABILITIES 547,563 579,004
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Commitments and Contingencies
Shareholders' Equity
Common Stock 580 577
Additional Paid-in Capital 476,573 471,493
Retained Earnings 45,419 43,620
Treasury Stock (12,835) (3,966)
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment (51,620)
(61,926)
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Total Shareholders' Equity 447,811 460,104
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 995,374 $1,039,108
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<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
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ACNIELSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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") 1997 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 1998
presentation.
Note 2 - Financial Instruments with Off-Balance-Sheet Risk
The Company uses foreign exchange forward contracts to hedge significant known
transactional exposures. At March 31, 1998 the Company had $30,040 of foreign
currency forward contracts outstanding, which mature on various dates over the
next nine months. These forward contracts mature in monthly installments through
December 1998. Any gain or loss on the forward contract is deferred and included
in the measurement of the related foreign currency transaction.
The Company does not utilize derivative financial instruments for trading or
other speculative purposes.
Note 3 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (EPS) for the quarters ended March 31, 1998 and 1997 (Amounts
in Thousands, Except Per Share Data):
1998 1997
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Weighted-average number of shares outstanding for basic EPS 57,359 56,919
Dilutive effect of shares issuable as of period-end under stock option
plans 1,994 0
============== ===============
Weighted-average number of shares and share equivalents for diluted EPS
59,353 56,919
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Net Income (Loss) $1,799 $(4,116)
============== ===============
Diluted earnings (loss) per share $.03 $(0.07)
============== ===============
No adjustments were made to March, 1997 basic EPS to compute diluted EPS as it
would result in anti-dilution. As such, no adjustment was made for options to
purchase 8,404,035 shares of common stock at share prices ranging from $11.10 to
$17.05 per share, which were outstanding at the end of March, 1997.
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Note 4 - New Accounting Pronouncements
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", which establishes standards for the reporting
and disclosure of comprehensive income and its components in the financial
statements. This statement is effective for interim and annual periods for
fiscal years beginning after December 15,1997. The Company's comprehensive loss
for the quarters ended March 31, 1998 and 1997, reported net of tax, are set
forth in the following table:
(in thousands)
1998 1997
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Net Income (Loss) $1,799 $(4,116)
Other Comprehensive Loss, Net of Tax
Foreign Currency Translation Adjustments (10,306) (8,883)
Unrealized Loss on Securities - (992)
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Comprehensive Loss $(8,507) $(13,991)
======== =========
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP, which the Company plans to adopt on January 1, 1999,
requires that costs of the Company's start-up activities be expensed as
incurred. The Company currently capitalizes certain one-time costs related to
introducing new services and conducting business in new geographic areas.
Adoption of this SOP is expected to result in a one-time, non-cash, after-tax
charge recorded as a cumulative effect of a change in accounting in the range of
$15,000 to $20,000. However, adoption of the new accounting policy is not
expected to have a material impact on the Company's future results of
operations.
Note 5 - 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 D&B, A.C. Nielsen Company (which is a subsidiary of the Company
"ACNielsenCo") and I.M.S. International, Inc., a subsidiary of Cognizant
Corporation ("IMS") (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 the defendants and that the defendants induced
SRG to breach that agreement.
IRI's complaint alleges damages in excess of $350 million, which amount IRI has
asked to be trebled under the antitrust laws. IRI also seeks punitive damages in
an unspecified amount.
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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.
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.
In connection with the IRI Action, D&B, Cognizant Corporation (the parent
company of IMS) 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 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 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.
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.
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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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollar amounts in thousands, except per share data)
Net income for the first quarter was $1,799 or $0.03 per diluted share, a
$5,915, or $0.10 per share improvement over the first quarter 1997 loss of
$4,116 or $0.07 per diluted share. Net income included an after-tax negative
currency translation impact of $1,317, or $0.02 per diluted share.
Revenue for the quarter ended March 31, 1998 was $325,801, an increase of 0.3%
from the first quarter of 1997, reflecting the negative impact of a strong U.S.
dollar. Driven by solid growth in all regions, revenue advanced 9.4% in local
currency.
Operating income was $204, an increase of $9,382 over 1997, despite a negative
currency translation impact of $2,281. Strong local currency revenue growth,
coupled with improved operating efficiency across all three of the Company's
regions, drove the substantial increase. Excluding Year 2000 costs, operating
income increased $12,718 over 1997 to $3,540.
Other income-net was $2,898, compared with $1,556 in the first three months of
1997, primarily reflecting lower interest expense on lower borrowings and higher
interest income.
The Company's operating results by geographic region for the quarters
ended March 31, 1998 and 1997 are set forth in the table below.
(in thousands)
Operating Revenue Operating Income
(Loss)
------------------------- ------------------------
1998 1997 1998 1997
United States $83,167 $73,307 $5,785 $450
Canada/ Latin America 48,066 48,059 5,436 2,831
-------- --------- -------- -------
Total Americas 131,233 121,366 11,221 3,281
Europe, Middle East & Africa 131,598 133,625 (5,037) (6,998)
Asia Pacific * 62,970 69,783 (2,644) (5,461)
-------- --------- -------- -------
Subtotal 325,801 324,774 3,540 (9,178)
Year 2000 Costs - - (3,336) -
--------- --------- -------- -------
Total $325,801 $324,774 $204 $(9,178)
======== ======== ======= ========
*Includes ACNielsen Japan
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The following discusses results on a geographic basis:
Total Americas revenue increased 8.1% to $131,233 from $121,366. Excluding the
impact of currency translation, revenue grew 10.8%. Operating income was
$11,221, a $7,940 improvement over the prior year, including a $735 negative
foreign translation impact.
In the United States, revenue grew 13.5% to $83,167, reflecting continued growth
in account-level information, consumer panels and the addition of new revenue
from ACNielsen EDI, acquired in December. Excluding ACNielsen EDI, U.S. revenue
grew 10.5%. Operating income was $5,785, an increase of $5,335 over the prior
year. The gain was driven by revenue growth, continuing improvements in
operating efficiency and additional income from ACNielsen EDI.
In Canada and Latin America, reported revenue of $48,066 was essentially
unchanged, due to a negative foreign translation impact of $3,284. In local
currency, revenue grew 6.8%. The increase in local currency revenue, even after
the transfer of ACNielsen's Latin American media measurement businesses to the
IBOPE Media Information joint venture, resulted from higher retail measurement
sales in Canada, Mexico, Brazil and Colombia, and revenue from a major
customized research project in Mexico. Excluding the transferred media business,
revenue grew more than 13% in local currency. Operating income increased 92% to
$5,436 from $2,831 in 1997, including a $735 negative impact of foreign currency
translation. The improvement was the result of local-currency revenue growth,
improved operating efficiency and the elimination of losses from the Company's
Latin American media measurement business.
Revenue in the Europe, Middle East & Africa ("EMEA") region declined 1.5% to
$131,598, from $133,625 in 1997, due to a $12,922 negative impact of foreign
currency translation. Revenue for EMEA grew 8.2% in local currency, reflecting
continuing growth in the United Kingdom, France and in the Nordic region; nearly
40% growth in Eastern Europe; revenue from businesses in South Africa and
Israel, acquired in last year's second quarter; and the addition of revenue from
ACNielsen EDI's European operations. Excluding the impact of acquisitions,
local-currency revenue grew 3.6%. EMEA reduced its operating loss for the
quarter $1,961, to $5,037, despite a negative currency translation impact of
$478. The improvement was the result of local-currency revenue growth, increased
productivity and lower costs, as the region continued to make progress on its
turnaround.
Asia Pacific's revenue decreased 9.8% to $62,970 from $69,783, due to a $13,416
negative impact from currency translation. Revenue for Asia Pacific grew 9.5% in
local currency due to solid growth in Southeast Asia, China, Hong Kong and New
Zealand, and from ACNielsen's multi-country research business. The region
reduced its operating loss from $5,461 to $2,644, despite a $1,068 negative
currency translation impact. The improvement was the result of productivity
gains, improved operating efficiency, lower costs and a more disciplined
approach to customized research.
In Japan, continuing efforts to reduce costs and improve efficiency contributed
to the region's overall income improvement in the first quarter. Additional
operating improvements, from actions announced at the end of 1997, are expected
to be realized in the second half of 1998.
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Liquidity and Capital Resources
Three Months Ended March 31, 1998 and 1997
Net cash used in operating activities for the quarter ended March 31, 1998
totaled $5,592, compared with $18,949 for the comparable period in 1997. The
change primarily is the result of improved operating results (net income of
$1,799 in 1998 as compared with a net loss of $4,116 in 1997) and a decrease in
payments related to special charges ($8,554).
Net cash used in investing activities totaled $14,865 for the quarter ended
March 31, 1998, compared with $19,497 for the comparable period in 1997.
Net cash used in financing activities for the quarter ended March 31, 1998,
totaled $4,159, compared with $1,924 for the comparable period in 1997. The
increase in the cash used of $2,235 primarily reflected the purchase of treasury
stock ($8,869) offset by an increase in proceeds from the sale of common stock
under option plans ($3,548) and a reduction in the amount of cash used to retire
short-term borrowings ($2,502).
During the first quarter of 1998, the Company became a partner in a joint
venture that provides media measurement services in Latin America. The joint
venture, IBOPE Media Information, will offer television audience measurement
(TAM), radio audience measurement (RAM), and advertising expenditure measurement
services (AEM) in various Latin American markets. Under the terms of the
agreement, the Company received an 11% equity interest in the joint venture and
a $9,400 interest bearing note in exchange for the Company's Latin America TAM,
RAM and AEM business assets and the assumption of certain transition liabilities
in a non-cash transaction. The first quarter 1998 financial statements reflect a
preliminary allocation of the business assets exchanged that will be finalized
later in the year. The Company did not recognize a gain or loss on the
transaction.
Year 2000
The Company relies on software and related technologies in the operation of its
business. Based on a comprehensive assessment, the Company determined that it
will be required to modify or replace significant portions of its software so
that its computer systems will be Year 2000 compliant. The Company is utilizing
internal and external resources to execute its Year 2000 compliance program.
Third-party contract programmers have been retained, and are presently
renovating and testing software. Renovation of code is scheduled to be
substantially complete by year end 1998, with testing and implementation of new
programs to be completed by mid-1999. The Company currently believes that it
will be able to modify or replace its affected systems in a timely manner and
with no significant disruptions to its operations.
Preliminary estimates of the total Year 2000 compliance costs to be incurred
with respect to the affected systems approximate $15,000 to $20,000 over the
costs of normal software upgrades and replacements. Maintenance and modification
costs will be expensed as incurred, while the costs of new software will be
capitalized and amortized over the software's useful life. Such costs are
expected to be incurred primarily in 1998 and totaled $3,336 and $0 for the
three months ended March 31, 1998 and 1997, respectively.
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The Company also is communicating with its data suppliers and customers
regarding the Year 2000 issue. Failure by data suppliers to successfully address
the issue could result in delays in data becoming available to the Company for
use in its products and services. Failure by customers could disrupt their
ability to maximize their use of such products and services. The Company is
currently unable to determine the effect, if any, that such failures might have
on the Company's operations or future business results.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10(g) 1996 ACNielsen Corporation Non-Employee Directors' Stock
Incentive Plan (As amended February 19, 1998)
10(i) 1996 ACNielsen Corporation Key Employees' Stock Incentive Plan
(As amended February 19, 1998)
(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, 1998.
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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 8, 1998 By: /s/ Robert J. Chrenc
---------------------------
Robert J. Chrenc
Executive Vice President
and Chief Financial Officer
Date: May 8, 1998 By: /s/ Michael S. Geltzeiler
------------------------------------
Michael S. Geltzeiler
Senior Vice President and Controller
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