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 June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- --------------------
Commission file number 001-12277
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 July 31, 1998
Common Stock,
par value $.01 per share 57,117,645
ACNIELSEN CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited) 3
Three Months Ended June 30, 1998 and 1997
Condensed Consolidated Statements of Income (Unaudited) 4
Six Months Ended June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows (Unaudited) 5
Six Months Ended June 30, 1998 and 1997
Condensed Consolidated Balance Sheets 6
June 30, 1998 (Unaudited) and December 31, 1997
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
-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
June 30,
--------------------------------------------
1998 1997
----------------------- -----------------
Operating Revenue $ 346,495 $ 356,325
Operating Costs 163,608 184,599
Selling and Administrative Expenses 133,307 130,011
Depreciation and Amortization 20,959 23,058
Year 2000 Expenses 2,701 -
----------------- -----------------
Operating Income 25,920 18,657
Interest Income 2,342 1,021
Interest Expense (317) (384)
Other - Net (207) (315)
----------------- -----------------
Other Income - Net 1,818 322
Income Before Income Tax Provision 27,738 18,979
Income Tax Provision 11,650 8,730
----------------- -----------------
Net Income $ 16,088 $ 10,249
================= =================
Net Income Per Share of Common Stock - Basic $ 0.28 $ 0.18
================= =================
Net Income Per Share of Common Stock - Diluted $ 0.27 $ 0.18
================= =================
Weighted Average Number of Shares Outstanding
Basic 57,281 57,035
Diluted 59,670 57,536
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
-3-
PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
ACNIELSEN CORPORATION
Condensed Consolidated Statements Of Income (Unaudited)
(Amounts in thousands except per share amounts)
Six Months Ended
June 30,
--------------------------------------------
1998 1997
----------------------- -----------------
Operating Revenue $ 672,296 $ 681,099
Operating Costs 335,582 366,700
Selling and Administrative Expenses 262,183 258,013
Depreciation and Amortization 42,370 46,907
Year 2000 Expenses 6,037 -
----------------- -----------------
Operating Income 26,124 9,479
Interest Income 5,423 3,052
Interest Expense (601) (1,685)
Other - Net (106) 511
----------------- -----------------
Other Income - Net 4,716 1,878
Income Before Income Tax Provision 30,840 11,357
Income Tax Provision 12,953 5,224
----------------- -----------------
Net Income $ 17,887 $ 6,133
================= =================
Net Income Per Share of Common Stock - Basic $ 0.31 $ 0.11
================= =================
Net Income Per Share of Common Stock - Diluted $ 0.30 $ 0.11
================= =================
Weighted Average Number of Shares Outstanding
Basic 57,319 56,977
Diluted 59,604 57,313
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
-4-
ACNIELSEN CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in Thousands)
Six Months Ended
June 30,
-----------------------------------------------
1998 1997
-----------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 17,887 $ 6,133
Reconciliation of Net Income to Net Cash Provided By
Operating Activities:
Depreciation and Amortization 42,370 46,907
Deferred Income Taxes 205 2,846
Payments Related to Special Charges (15,162) (21,157)
Postemployment Benefit Expense 1,923 227
Postemployment Benefit Payments (6,879) (5,718)
Net Increase in Accounts Receivable (14,769) (4,082)
Net Increase in Other Working Capital Items (3,589) (26,667)
Other (1,472) 4,552
- - ----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 20,514 3,041
- - ----------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital Expenditures (19,551) (20,827)
Additions to Computer Software (11,535) (6,719)
Payments for Acquisition of Businesses (68,360) (5,082)
Decrease in Other Investments 1,931 1,800
Other (11,189) (9,788)
- - ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (108,704) (40,616)
- - ----------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Increase (Decrease) in Short-Term Borrowings 20,797 (10,347)
Treasury Stock Purchases (21,517) -
Proceeds from the Sale of Common Stock under Option Plans 7,035 1,613
Other (142) 222
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Net Cash Provided by (Used in) Financing Activities 6,173 (8,512)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (4,380) (5,171)
- - ----------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (86,397) (51,258)
Cash and Cash Equivalents, Beginning of Period 205,726 185,005
- - ----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 119,329 $ 133,747
- - ----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash Paid During the Period for Interest $ 609 $ 1,751
Cash Paid During the Period for Income Taxes $ 13,778 $ 19,562
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>
-5-
ACNIELSEN CORPORATION
Condensed Consolidated Balance Sheets
(Amounts in thousands)
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June 30, December 31,
1998 1997
(Unaudited)
- - --------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and Cash Equivalents $ 119,329 $ 205,726
Accounts Receivable-Net 267,373 260,821
Other Current Assets 48,598 38,423
----------------- -------------
Total Current Assets 435,300 504,970
Notes Receivable and Other Investments 28,181 10,281
Property, Plant and Equipment-Net 146,817 165,660
Other Assets-Net
Prepaid Pension 58,685 57,425
Computer Software 28,302 25,288
Intangibles & Other Assets 56,593 55,001
Goodwill 275,025 220,483
----------------- -------------
Total Other Assets-Net 418,605 358,197
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TOTAL ASSETS $ 1,028,903 $ 1,039,108
- - --------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 77,352 $ 86,908
Short-Term Debt 45,358 25,957
Accrued and Other Current Liabilities 314,956 313,864
Accrued Income Taxes 39,513 42,385
----------------- -------------
Total Current Liabilities 477,179 469,114
Postretirement and Postemployment Benefits 45,757 49,400
Deferred Income Taxes 27,129 27,609
Other Liabilities 25,769 32,881
- - --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 575,834 579,004
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Commitments and Contingencies
Shareholders' Equity
Common Stock 583 577
Additional Paid-in Capital 481,751 471,493
Retained Earnings 61,507 43,620
Treasury Stock (25,483) (3,966)
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment (65,289) (51,620)
----------------- -------------
Total Shareholders' Equity 453,069 460,104
- - --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,028,903 $ 1,039,108
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to the condensed consolidated financial statements
(unaudited).
</FN>
-6-
ACNIELSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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") 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 June 30, 1998 the Company had $21,583 of foreign
currency forward contracts outstanding, which mature on various dates over the
next six months. These forward contracts mature in monthly installments through
December 31, 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 per
share (EPS) for the respective periods:
Three months ended June 30 1998 1997
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Weighted-average number of shares outstanding for basic EPS 57,281 57,035
Dilutive effect of shares issuable as of period-end under stock option
plans 2,389 501
-------------- ---------------
Weighted-average number of shares and share equivalents for diluted EPS
59,670 57,536
============== ===============
============== ===============
Net Income $ 16,088 $ 10,249
============== ===============
============== ===============
Basic Earnings Per Share $ 0.28 $ 0.18
============== ===============
Diluted Earnings Per Share $ 0.27 $ 0.18
============== ===============
-7-
Six months ended June 30 1998 1997
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Weighted-average number of shares outstanding for basic EPS 57,319 56,977
Dilutive effect of shares issuable as of period-end under stock option
plans 2,285 336
============== ===============
Weighted-average number of shares and share equivalents for diluted EPS
59,604 57,313
============== ===============
Net Income $ 17,887 $ 6,133
============== ===============
Basic Earnings Per Share $ 0.31 $ 0.11
============== ===============
============== ===============
Diluted Earnings Per Share $ .30 $ 0.11
============== ===============
Note 4 - Acquisition
On June 30, 1998, the Company acquired BBI Marketing Services, Inc. ("BASES"), a
provider of simulated test-marketing services. The Company paid $65,000 and may
be required to make additional cash payments if BASES achieves certain operating
goals. The maximum amount of contingent consideration is approximately $36,000
(payable through 2001).
The purchase price allocations have been prepared on a preliminary basis and
changes are expected as evaluations of assets and liabilities are completed and
as additional information becomes available. Pending the receipt of additional
information, the purchase price of $65,000 has been recorded as goodwill in the
accompanying condensed consolidated balance sheet as of June 30, 1998.
If BASES had been acquired on January 1, 1997, this acquisition would not have
had a material impact on the Company's consolidated results of operations for
any of the periods presented.
Note 5 - Bank Credit Line
In April 1998, the Company replaced its existing $125,000 bank credit facility
with a new $250,000 bank credit facility. The new credit facility, which is
provided by a global bank syndicate comprising twelve banks, is unsecured and
has a three-year term. The new credit facility includes subfacilities for
borrowings in foreign currencies and for the issuance of letters of credit. The
base interest rates applicable to borrowings may be fixed or various floating
rates, depending on the type and currency of the borrowing. Interest spreads and
fees are based upon the Company's fixed charge coverage ratio for the preceding
four quarters. The terms of the credit agreement contain, among other things,
limitations on debt of the Company and its subsidiaries and financial covenants
requiring the Company to maintain compliance with a minimum fixed charge
coverage ratio requirement and a maximum leverage ratio requirement. At June 30,
1998, approximately $41,600 was outstanding under the new credit facility. There
are no compensating balance requirements or material commitment fees associated
with the new credit facility.
-8-
Note 6 - 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
income for the respective periods, reported net of tax, are set forth in the
following table:
Three months ended June 30 1998 1997
- - ------------------------------------------------------------------- ------------ -----------
Net Income $ 16,088 $ 10,249
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (3,363) (3,296)
Unrealized gain on securities - 16,443
----------- -----------
Comprehensive income $ 12,725 $ 23,396
============== ============
Six months ended June 30 1998 1997
- - ------------------------------------------------------------------- ---------------- ---------------
Net Income $ 17,887 $ 6,133
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (13,669) (12,179)
Unrealized gain on securities - 15,451
----------- ------------
Comprehensive income $ 4,218 $ 9,405
================= ==============
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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
-9-
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the Company's election, before January
1, 1998).
The Company has not yet quantified the impacts of adopting Statement 133 on its
financial statements and has not determined the timing of or method of adoption
of Statement 133. However, the Statement could increase volatility in earnings
and other comprehensive income.
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
currently a subsidiary 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 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.
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.
-10-
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. Donnelly 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.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollar amounts in thousands, except per share data)
Quarter ended June 30, 1998 compared with Quarter ended June 30, 1997
Net income for the second quarter was $16,088 or $0.27 per diluted share, a
$5,839, or $0.09 per share improvement over the second quarter of 1997. Net
income included an after-tax negative currency translation impact of $2,372, or
$0.04 per diluted share.
Revenue for the quarter ended June 30, 1998 was $346,495, a decrease of 2.8%
from the second quarter of 1997, reflecting the negative impact of a strong U.S.
dollar. Driven by solid growth in all regions, revenue advanced 4.2% in local
currency.
The Company's operating income in the second quarter increased 38.9% or, $7,263,
to $25,920, despite a negative currency translation impact of $4,089. Strong
U.S. 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 53.4% or $9,964, to $28,621.
Other income-net was $1,818, compared with $322 in the second quarter of 1997,
primarily reflecting increased interest income on higher average cash balances.
The Company's operating results by geographic region for the quarters ended
June 30, 1998 and 1997 are set forth in the table below.
Operating Revenue Operating Income
(Loss)
---------------------------- -------------------------
1998 1997 1998 1997
United States $ 89,329 $ 78,206 $ 9,620 $ 4,268
Canada/ Latin America 46,829 52,499 7,312 7,065
------ ------ ----- -----
Total Americas 136,158 130,705 16,932 11,333
Europe, Middle East & Africa 146,005 149,374 9,699 8,243
Asia Pacific * 64,332 76,246 1,990 (919)
------ ------ ------ -------
Subtotal 346,495 356,325 28,621 18,657
Year 2000 Costs - - (2,701) -
------- ------- ------- -------
Total $ 346,495 $ 356,325 $ 25,920 $ 18,657
========= ========= ======== ========
<FN>
*Includes ACNielsen Japan
</FN>
The following discusses results on a geographic basis:
Total Americas revenue increased 4.2% to $136,158 from $130,705. Excluding the
impact of currency translation, revenue grew 6.6%. Operating income was $16,932,
a $5,599 improvement over the prior year, including an $897 negative foreign
translation impact.
In the United States, revenue grew 14.2% to $89,329, reflecting continued growth
in account-level information, advances in modeling and analytics and additional
revenue from new clients and from ACNielsen EDI, acquired in December 1997.
Excluding ACNielsen EDI, U.S. revenue grew 11.3%. Operating income was $9,620,
an increase of $5,352 over the prior year. Revenue growth and continuing
improvements in operating efficiency drove the gain.
-12-
In Canada and Latin America, reported revenue of $46,829 was down 10.8%, $5,670
from the prior year quarter, due to the transfer in January 1998 of ACNielsen's
media business to the IBOPE joint venture and a negative foreign translation
impact of $3,175. Excluding the transfer, local currency revenue from the base
business rose 3.8%, resulting from higher retail measurement sales in Canada,
Mexico, Brazil and Colombia. Operating income increased 3.5% to $7,312 from
$7,065 in 1997, including a $897 negative impact of foreign currency
translation.
Revenue in the Europe, Middle East & Africa ("EMEA") region declined 2.3% to
$146,005, from $149,374 in 1997, due to a $7,497 negative impact of foreign
currency translation. Revenue for EMEA grew 2.8% in local currency, primarily
the result of strong growth in Eastern Europe and higher revenue in the United
Kingdom and France. EMEA increased its operating income for the quarter by
$1,456, or 17.7%, to $9,699, despite a negative currency translation impact of
$887. The improvement was the result of improved operating efficiency and
increased productivity.
Asia Pacific's revenue decreased 15.6% to $64,332 from $76,246, due to a $14,081
negative impact from currency translation. Revenue for Asia Pacific grew 2.8% in
local currency due to increases in the Philippines, China/Hong Kong, Japan and
Australia, as well as new revenues from the Company's expanded operation in
India. Operating income increased $2,909 to $1,990, including a negative
currency translation impact of $2,326. Operating income in local currency rose
$5,235. The profit improvement reflects ongoing efforts to increase
productivity, improve operating efficiency and lower costs, particularly in
Japan.
Six months ended June 30, 1998 compared with Six months ended June 30, 1997.
Net income for the six months ended June 30, 1998 was $17,887 or $0.30 per
diluted share, a $11,754, or $0.19 per share improvement over the prior year.
Net income included an after-tax negative currency translation impact of $3,700,
or $0.06 per diluted share.
Revenue for the six months ended June 30, 1998 was $672,296, a decrease of
$8,803 or 1.3% from the first six months of 1997, reflecting a negative foreign
currency translation impact of $54,403. Driven by solid growth in all regions,
revenue advanced 6.7% in local currency.
The Company's operating income for the six months ended June 30, 1998 increased
$16,645 to $26,124, despite a negative currency translation impact of $6,379.
Strong U.S. 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 $22,682 to $32,161.
Other income-net was $4,716, compared with $1,878 in the first six months of
1997, primarily reflecting lower interest expense on lower borrowings and
increased interest income on higher average cash balances.
-13-
The Company's operating results by geographic region for the six months
ended June 30, 1998 and 1997 are set forth in the table below.
Operating Revenue Operating Income
(Loss)
------------------------- ------------------------
1998 1997 1998 1997
United States $ 172,496 $ 151,513 $ 15,405 $ 4,718
Canada/ Latin America 94,895 100,558 12,748 9,896
------ ------- ------ -----
Total Americas 267,391 252,071 28,153 14,614
Europe, Middle East & Africa 277,603 282,999 4,662 1,245
Asia Pacific * 127,302 146,029 (654) (6,380)
------- ------- ------ ------
Subtotal 672,296 681,099 32,161 9,479
Year 2000 Costs - - (6,037) -
--------- --------- -------- -------
Total $ 672,296 $ 681,099 $ 26,124 $ 9,479
========= ========= ======== =======
<FN>
*Includes ACNielsen Japan
</FN>
The following discusses results on a geographic basis:
Total Americas revenue increased 6.1% to $267,391 from $252,071. Excluding the
impact of currency translation, revenue grew 8.6%. Operating income was $28,153,
a $13,539 improvement over the prior year, including a $1,632 negative foreign
translation impact.
In the United States, revenue grew $20,983, or 13.8% to $172,496, reflecting
continued growth in account-level information, consumer panel, advances in
modeling and analytics and additional revenue from new clients and from
ACNielsen EDI, acquired in December 1997. Excluding ACNielsen EDI, U.S. revenue
grew 10.9%. Operating income was $15,405, an increase of $10,687 over the prior
year. Revenue growth and continuing improvements in operating efficiency drove
the gain.
In Canada and Latin America, reported revenue of $94,895 was down 5.6% or,
$5,663 from the prior year, due to the transfer in January 1998, of ACNielsen's
media business to the IBOPE joint venture and a negative foreign translation
impact of $6,459. Excluding the transfer, local currency revenue from the base
business rose 8.6%, resulting from higher retail measurement sales in Brazil,
Mexico, Canada and Colombia. Operating income increased 28.8% to $12,748 from
$9,896 in 1997, including a $1,632 negative impact of foreign currency
translation.
Revenue in the Europe, Middle East & Africa ("EMEA") region declined 1.9% to
$277,603, from $282,999 in 1997, reflecting a $20,447 negative impact of foreign
currency translation. Revenue for EMEA grew 5.3% in local currency, primarily
the result of strong growth in Eastern Europe, higher revenue in France and the
United Kingdom and the new acquisitions in South Africa, Turkey and Israel. EMEA
increased its operating income $3,417 to $4,662 despite a negative currency
translation impact of $1,384, reflecting improved operating efficiency and
increased productivity.
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Asia Pacific's revenue decreased 12.8% to $127,302 from $146,029, due to a
$27,497 negative impact from currency translation. Revenue for Asia Pacific grew
6.0% in local currency due to increases in China/Hong Kong, the Philippines and
Japan, as well as new revenues from expanded operations in India. The region
reduced its operating loss from $6,380 to $654, including a negative currency
translation impact of $3,394. Operating income in local currency rose $9,120.
The profit improvement reflects ongoing efforts to increase productivity,
improve operating efficiency and lower costs, particularly in Japan.
Liquidity and Capital Resources
Six Months Ended June 30, 1998 and 1997
Net cash provided by operating activities for the six months ended June 30, 1998
totaled $20,514 compared with $3,041 for the comparable period in 1997. The
change primarily is the result of improved operating results (net income of
$17,887 in 1998 as compared to net income of $6,133 in 1997) and lower payments
related to special charges ($5,995) and for income taxes ($5,784), partially
offset by a greater increase in accounts receivable ($10,687).
Net cash used in investing activities totaled $108,704 for the six months ended
June 30, 1998 compared with $40,616 for the comparable period in 1997. The
increase in cash used in investing activities of $68,088 primarily represents
cash paid to acquire BASES ($65,000), and increased additions to computer
software ($4,816).
Net cash provided by financing activities for the six months ended June 30,
1998, totaled $6,173 compared with cash used in financing activities of $8,512
for the comparable period in 1997. The increase in cash provided of $14,685
primarily reflected borrowings in the current year of $20,797 to partially fund
the acquisition of BASES, as compared with a decrease in borrowings of $10,347
during the comparable period in 1997, offset by payments to repurchase common
stock ($21,517).
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, offers 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 half 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.
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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 $6,037
and $0 for the six months ended June 30, 1998 and 1997, respectively.
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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of ACNielsen Corporation was held on April
15, 1998.
The following nominees for director named in the Proxy Statement dated March 13,
1998 were elected at the Meeting by the votes indicated.
For Withheld
Robert H. Beeby 52,189,621 319,192
Thomas C. Hays 52,191,434 317,379
Robert J Lievense 52,154,808 354,005
John R. Meyer 52,180,230 328,583
The votes in favor of the election of the nominees represent at least 99.3%
of the shares voted for each of the nominees.
The ratification of the selection of Arthur Andersen LLP as independent public
accountants to audit the Company's consolidated financial statements for 1998
was approved by the following vote:
For Against Abstain
Number of shares 52,427,890 36,439 44,484
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(4) Instruments Defining the Rights of Security Holders, including
Indentures
(b) ACNielsen Corporation U.S. $250,000,000 Credit Agreement
dated as of April 15, 1998
(27) Financial Data Schedule (filed electronically)
(99) Other Exhibits
(a) Letter of Undertaking dated June 29, 1998 from The New Dun
& Bradstreet Corporation to Cognizant Corporation and
ACNielsen Corporation
(b) Letter of Undertaking dated June 29, 1998 from IMS Health
Incorporated to The Dun & Bradstreet Corporation and
ACNielsen Corporation
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended June 30,
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: August 13, 1998 /s/ Robert J. Chrenc
-------------------------------------
Robert J. Chrenc
Executive Vice President
And Chief Financial Officer
Date: August 13, 1998 /s/ Michael S. Geltzeiler
-------------------------------------
Michael S. Geltzeiler
Senior Vice President and Controller
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