SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 30, 1998
Common Stock,
par value $.01 per share 57,114,620
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 September 30, 1998 and 1997
Condensed Consolidated Statements of Income (Unaudited) 4
Nine Months Ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows (Unaudited) 5
Nine Months Ended September 30, 1998 and 1997
Condensed Consolidated Balance Sheets 6
September 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 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
-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
September 30,
--------------------------------------------
1998 1997
----------------------- ----------------
Operating Revenue $ 364,665 $ 346,864
Operating Costs 175,079 174,140
Selling and Administrative Expenses 134,441 125,928
Depreciation and Amortization 22,102 23,653
Year 2000 Expenses 4,219 -
------------------ ----------------
Operating Income 28,824 23,143
Interest Income 2,322 2,413
Interest Expense (572) (432)
Other - Net (50) (233)
------------------ ----------------
Other Income - Net 1,700 1,748
------------------ ----------------
Income Before Income Taxes 30,524 24,891
Income Taxes 12,821 11,160
------------------ ----------------
Net Income $ 17,703 $ 13,731
================== ================
Net Income Per Share of Common Stock - Basic $ 0.31 $ 0.24
================== ================
Net Income Per Share of Common Stock - Diluted $ 0.30 $ 0.23
================== ================
Weighted Average Number of Shares Outstanding
Basic 57,111 57,209
Diluted 59,013 59,540
<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)
Nine Months Ended
September 30,
--------------------------------------------
1998 1997
----------------------- ----------------
Operating Revenue $ 1,036,961 $ 1,027,963
Operating Costs 510,661 540,839
Selling and Administrative Expenses 396,624 383,941
Depreciation and Amortization 64,472 70,561
Year 2000 Expenses 10,256 -
------------------ ----------------
Operating Income 54,948 32,622
Interest Income 7,745 5,465
Interest Expense (1,173) (2,117)
Other - Net (156) 278
------------------ ----------------
Other Income - Net 6,416 3,626
------------------ ----------------
Income Before Income Taxes 61,364 36,248
Income Taxes 25,774 16,384
------------------ ----------------
Net Income $ 35,590 $ 19,864
================== ================
Net Income Per Share of Common Stock - Basic $ 0.62 $ 0.35
================== ================
Net Income Per Share of Common Stock - Diluted $ 0.60 $ 0.34
================== ================
Weighted Average Number of Shares Outstanding
Basic 57,249 57,055
Diluted 59,436 58,047
<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)
Nine Months Ended
September 30,
--------------------------------------------
1998 1997
--------------------------------------------
Net Income $ 35,590 $ 19,864
Reconciliation of Net Income to Net Cash Provided By
Operating Activities:
Depreciation and Amortization 64,472 70,561
Deferred Income Taxes (378) 3,399
Payments Related to Special Charges (20,937) (29,612)
Postemployment Benefit Expense 1,971 227
Postemployment Benefit Payments (10,410) (10,529)
Net (Increase) Decrease in Accounts Receivable (3,702) 3,187
Net Increase in Other Working Capital Items (10,102) (12,573)
Other (2,744) 4,048
- - ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 53,760 48,572
- - ---------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital Expenditures (32,453) (31,840)
Additions to Computer Software (16,834) (9,328)
Payments for Acquisition of Businesses (94,468) (5,082)
Decrease in Other Investments 1,570 2,332
Other (14,654) (13,244)
- - ---------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (156,839) (57,162)
- - ---------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Increase (Decrease) in Short-Term Borrowings 8,541 (10,491)
Treasury Stock Purchases (23,498) -
Proceeds from the Sale of Common Stock under Option Plans 7,729 3,847
Other 1,190 509
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Net Cash Used in Financing Activities (6,038) (6,135)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (9,148) (7,894)
- - ---------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (118,265) (22,619)
Cash and Cash Equivalents, Beginning of Period 205,726 185,005
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Cash and Cash Equivalents, End of Period $ 87,461 $ 162,386
- - ---------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash Paid During the Period for Interest $ 1,069 $ 1,983
Cash Paid During the Period for Income Taxes $ 24,478 $ 22,624
Noncash Investing and Financing Activities:
Acquisition of Investment and Note Receivable in exchange for $ 19,400 -
Business Assets and Liabilities disposed
<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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September 30, December 31,
1998 1997
(Unaudited)
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Assets
Current Assets
Cash and Cash Equivalents $ 87,461 $ 205,726
Accounts Receivable-Net 264,295 260,821
Other Current Assets 50,903 38,423
----------------- -------------
Total Current Assets 402,659 504,970
Notes Receivable and Other Investments 29,589 10,281
Property, Plant and Equipment-Net 145,408 165,660
Other Assets-Net
Prepaid Pension 60,121 57,425
Computer Software 29,862 25,288
Intangibles & Other Assets 60,064 55,001
Goodwill 308,187 220,483
----------------- -------------
Total Other Assets-Net 458,234 358,197
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TOTAL ASSETS $ 1,035,890 $ 1,039,108
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 86,308 $ 86,908
Short-Term Debt 39,744 25,957
Accrued and Other Current Liabilities 291,741 313,864
Accrued Income Taxes 43,666 42,385
----------------- -------------
Total Current Liabilities 461,459 469,114
Postretirement and Postemployment Benefits 44,437 49,400
Deferred Income Taxes 27,066 27,609
Other Liabilities 44,647 32,881
- - ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 577,609 579,004
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Commitments and Contingencies
Shareholders' Equity
Common Stock 584 577
Additional Paid-in Capital 483,480 471,493
Retained Earnings 79,210 43,620
Treasury Stock (27,464) (3,966)
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment (77,529) (51,620)
----------------- -------------
Total Shareholders' Equity 458,281 460,104
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,035,890 $ 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 September 30, 1998 the Company had $11,225 of
foreign currency forward contracts outstanding, which 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 September 30 1998 1997
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Weighted-average number of shares outstanding for basic EPS 57,111 57,209
Dilutive effect of shares issuable under stock option plans 1,902 2,331
----- -----
Weighted-average number of shares and share equivalents for diluted EPS
59,013 59,540
Net Income $ 17,703 $ 13,731
========= ========
Basic Earnings Per Share $ 0.31 $ 0.24
====== ======
Diluted Earnings Per Share $ 0.30 $ 0.23
====== ======
-7-
Nine months ended September 30 1998 1997
- - ----------------------------------------------------------------------------------------------------------------
Weighted-average number of shares outstanding for basic EPS 57,249 57,055
Dilutive effect of shares issuable under stock option plans 2,187 992
----- ---
Weighted-average number of shares and share equivalents for diluted EPS
59,436 58,047
Net Income $ 35,590 $ 19,864
======== ========
Basic Earnings Per Share $ 0.62 $ 0.35
====== ======
Diluted Earnings Per Share $ 0.60 $ 0.34
====== ======
Note 4 - Acquisitions
On September 23, 1998, the Company acquired full ownership in ANR Amer Nielsen
Research Limited ("ANR"), a joint-venture business covering Eastern Europe, the
former Soviet Union, Sub-Sahara Africa and the India subcontinent. The purchase
price of $43,030 was comprised of an initial cash payment of $20,000 and three
installment payments due in January 1999, 2000 and 2001 for $4,912, $9,294 and
$8,824, respectively. The installment payments are supported by a stand-by
letter of credit with an international bank. The terms of the agreement provide
for additional cash payments if ANR achieves certain operating goals. Such
payments, if earned, would be paid in 2003 and 2006.
The Company has also agreed to acquire a 49% interest in AMER World Research
Limited, serving the Middle East and Northern Africa. In addition, the Company
will increase its ownership interest in ANR Amer Nielsen Research Hellas S.A.,
to 100% from 80%. The approximate cost of these acquisitions is $10,200.
On June 30, 1998, the Company acquired BBI Marketing Services, Inc. ("ACNielsen
BASES"), a provider of simulated test-marketing services. The Company paid
$65,000 and may be required to make additional cash payments if ACNielsen 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 excess of the purchase price over assets acquired has been
recorded as goodwill in the accompanying condensed consolidated balance sheet as
of September 30, 1998.
If the ACNielsen BASES and ANR acquisitions had occurred on January 1, 1997,
they would not have had a material impact on the Company's consolidated results
of operations for any of the periods presented.
-8-
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. As of
September 30, 1998, the Company was in compliance with such requirements. At
September 30, 1998, approximately $21,535 was outstanding under this credit
facility. There are no compensating balance requirements or material commitment
fees associated with this credit facility.
Note 6 - Other Comprehensive Income (Loss)
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 September 30 1998 1997
- - --------------------------------------------------------------------- ---------------- ---------------
Net Income $ 17,703 $ 13,731
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (12,240) (13,302)
Unrealized loss on securities - (4,628)
-------- --------
Comprehensive income (loss) $ 5,463 $ (4,199)
======== =========
Nine months ended September 30 1998 1997
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Net Income $ 35,590 $ 19,864
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (25,909) (25,481)
Unrealized gain on securities - 10,823
-------- --------
Comprehensive income $9,681 $ 5,206
======= ========
-9-
Note 7 - Treasury Stock
The terms of the Indemnity and Joint Defense Agreement (see Note 9 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 1998, the Company
repurchased 962,449 shares of its common stock for a total of $23,498.
Note 8 - New Accounting Pronouncements Not Yet Adopted
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" ("Statement 133"). 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.
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 impact 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.
-10-
Note 9 - 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.
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
-11-
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollar amounts in thousands, except per share data)
Quarter ended September 30, 1998 compared with Quarter ended September 30, 1997
Net income for the third quarter was $17,703 or $0.30 per diluted share, a
$3,972, or $0.07 per share improvement over the third quarter of 1997. Net
income included an after-tax negative currency translation impact of $2,708, or
$0.05 per diluted share.
Revenue for the quarter ended September 30, 1998 increased 5.1% to $364,665,
despite $24,321 in negative foreign currency translation impacts. The increase
was primarily due to growth in the United States and the addition of new
businesses, particularly ACNielsen BASES, which was consolidated for the first
time this quarter. Revenue advanced 12.1% in local currency.
-12-
The Company's operating income in the third quarter increased 24.5% or,
$5,681, to $28,824, despite a negative currency translation impact of $4,668.
Strong U.S. revenuegrowth, coupled with improved operating efficiency
across all three of the Company's regions, drove the substantial increase.
Excluding Year 2000 costs, operating income increased 42.8% or $9,900, to
$33,043.
Other income-net of $1,700 was essentially unchanged as compared to the third
quarter of 1997.
The Company's operating results by geographic region for the quarters ended
September 30, 1998 and 1997 are set forth in the table
below.
Operating Revenue Operating Income
----------------------------- ---------------------------
1998 1997 1998 1997
United States $ 109,160 $ 78,248 $ 12,478 $ 8,240
Canada/ Latin America 48,018 51,128 9,562 6,922
------ ------ ----- -----
Total Americas 157,178 129,376 22,040 15,162
Europe, Middle East & Africa 143,919 139,514 7,425 5,393
Asia Pacific * 63,568 77,974 3,578 2,588
------ ------ ----- ------
Subtotal 364,665 346,864 33,043 23,143
Year 2000 Costs - - (4,219) -
------- ------- ------ ------
Total $ 364,665 $ 346,864 $ 28,824 $ 23,143
========= ========= ======== ========
<FN>
*Includes ACNielsen Japan
</FN>
The following discusses results on a geographic basis:
Total Americas revenue increased 21.5% to $157,178 from $129,376. Excluding the
impact of currency translation, revenue grew 25.1%. Operating income was
$22,040, a $6,878 improvement over the prior year, including a $1,385 negative
currency translation impact.
In the United States, revenue grew 39.5% to $109,160, reflecting the acquisition
of ACNielsen BASES (acquired in June 1998) and ACNielsen EDI (acquired in
December 1997), and continued strong demand for account-level information,
growth in consumer panel information and additional revenue from new clients.
Excluding the acquisitions, U.S. revenue grew 12.2% to $87,770. Operating income
rose 51.4% to $12,478, reflecting the substantial increases in revenue and the
impact of acquisitions. Excluding the acquisitions, U.S. operating income
increased 25.7% to 10,359 in the quarter.
In Canada and Latin America, reported revenue of $48,018 was down 6.1% 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
$4,686. Excluding the transfer, local currency revenue from the base business
rose 13.5%, resulting from higher retail measurement sales in Mexico, Colombia,
Brazil and Canada and a major customized research project for the Mexican
government. Operating income increased 38.1% to $9,562 from $6,922 in 1997,
including a $1,385 negative impact of foreign currency translation. The increase
reflected ongoing operational and cost efficiencies, and the sale of
higher-margin products.
-13-
Revenue in the Europe, Middle East & Africa ("EMEA") region increased 3.2% to
$143,919, from $139,514 in 1997, after absorbing a $3,117 negative impact of
foreign currency translation. Revenue for EMEA grew 5.4% in local currency,
primarily the result of a 45.5 % increase in Eastern Europe along with growth in
the United Kingdom, France, Turkey and South Africa. EMEA increased its
operating income for the quarter by $2,032, or 37.7%, to $7,425, including a
negative currency translation impact of $367. The improvement was the result of
revenue growth and improved operating efficiency and productivity.
Asia Pacific's revenue decreased 18.5% to $63,568 from $77,974, due to a $16,518
negative impact from currency translation. Revenue growth in local currency for
Asia Pacific slowed to 2.7% reflecting lower demand for ad-hoc customized
research among local clients due to Asia's economic turmoil. Local currency
revenues continued to grow in the Philippines, China/Hong Kong and Australia,
with particularly solid results in retail measurement. Operating income
increased 38.2% or $990 to $3,578, including a negative currency translation
impact of $2,937. Operating income in local currency rose 151.7% reflecting
region-wide efforts to streamline operations, improve efficiencies and lower
costs, particularly in Japan.
Nine months ended September 30, 1998 compared with Nine months ended September
30, 1997.
Net income for the nine months ended September 30, 1998 was $35,590 or $0.60 per
diluted share, a $15,726, or $0.26 per share improvement over the prior year.
Net income included an after-tax negative currency translation impact of $6,409,
or $0.11 per diluted share.
Revenue for the nine months ended September 30, 1998 was $1,036,961, an increase
of $8,998 or 0.9% from the first nine months of 1997, reflecting a negative
foreign currency translation impact of $78,724. Revenue advanced 8.5% in local
currency.
The Company's operating income for the nine months ended September 30, 1998
increased $22,326 to $54,948, despite a negative currency translation impact of
$11,047. 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 $32,582 to $65,204.
Other income-net was $6,416, compared with $3,626 in the first nine months of
1997, primarily reflecting lower interest expense on borrowings and increased
interest income on higher average cash and investment balances.
-14-
The Company's operating results by geographic region for the nine months ended
September 30, 1998 and 1997 are set forth in the table below.
Operating Revenue Operating Income
(Loss)
----------------------------- ---------------------------
1998 1997 1998 1997
United States $ 281,656 $ 229,761 $ 27,883 $ 12,958
Canada/ Latin America 142,913 151,686 22,310 16,818
------- ------- ------ ------
Total Americas 424,569 381,447 50,193 29,776
Europe, Middle East & Africa 421,522 422,513 12,087 6,638
Asia Pacific * 190,870 224,003 2,924 (3,792)
------- ------- ------ ------
Subtotal $1,036,961 $1,027,963 65,204 32,622
Year 2000 Costs - - (10,256) -
---------- ---------- ------- ------
Total $1,036,961 $1,027,963 $ 54,948 $ 32,622
========== ========== ======== ========
<FN>
*Includes ACNielsen Japan
</FN>
The following discusses results on a geographic basis:
Total Americas revenue increased 11.3% to $424,569 from $381,447. Excluding the
negative impact of currency translation, revenue grew 14.2%. Operating income
increased 68.6% to $50,193, a $20,417 improvement over the prior year, including
a $3,016 negative foreign translation impact.
In the United States, revenue grew $51,895 or 22.6% to $281,656, reflecting the
acquisition of ACNielsen BASES and ACNielsen EDI, continued growth in
account-level information, consumer panel, and additional revenue from new
clients. Excluding the two acquisitions, U.S. revenue grew 11.3%. Operating
income was $27,883, an increase of $14,925 over the prior year. Excluding the
acquisitions, U.S. operating income increased 93.4% over the first nine months
of 1997. Revenue growth and continuing improvements in operating efficiency
drove the gain.
In Canada and Latin America, reported revenue of $142,913 was down 5.8% or,
$8,773 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 $11,144. Excluding the transfer, local currency revenue from the base
business rose 10.2%, resulting from higher retail measurement sales in Mexico,
Brazil, Colombia and Canada. Operating income increased 32.7% to $22,310 from
$16,818 in 1997, including a $3,016 negative impact of foreign currency
translation. The increase represents ongoing operational and cost efficiencies
and the sale of higher-margin products.
Revenue in the Europe, Middle East & Africa ("EMEA") remained relatively
unchanged at $421,522 from $422,513 in 1997, reflecting a $23,565 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 $5,449 to
$12,087, despite a negative currency translation impact of $1,750, reflecting
improved operating efficiency and increased productivity.
-15-
Asia Pacific's revenue decreased 14.8% to $190,870 from $224,003 due to a
$44,015 negative impact from currency translation. Revenue for Asia Pacific grew
4.9% 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
reported operating income of $2,924 compared with an operating loss of $3,792 in
the first nine months of 1997, including a negative currency translation impact
of $6,330. Operating income in local currency improved substantially. The profit
improvement reflects ongoing efforts to increase productivity, improve operating
efficiency and lower costs, particularly in Japan.
Liquidity and Capital Resources
Nine Months Ended September 30, 1998 and 1997
Net cash provided by operating activities for the nine months ended September
30, 1998 totaled $53,760 compared with $48,572 for the comparable period in
1997. The change primarily is the result of improved operating results (net
income of $35,590 in 1998 as compared to net income of $19,864 in 1997) and
lower payments related to special charges ($8,675), partially offset by a
greater increase in accounts receivable ($6,889) and a decrease in deferred
income taxes ($3,777).
Net cash used in investing activities totaled $156,839 for the nine months ended
September 30, 1998 compared with $57,162 for the comparable period in 1997. The
increase in cash used in investing activities of $99,677 primarily represents
cash paid to acquire ACNielsen BASES ($65,401) and ANR AMER Nielsen Research
($20,445), and increased additions to computer software ($7,506).
Net cash used in financing activities for the nine months ended September 30,
1998, totaled $6,038 compared with cash used in financing activities of $6,135
for the comparable period in 1997. The current period includes an increase in
short-term borrowings ($8,541) to partially fund the acquisition of ACNielsen
BASES, as compared with a decrease in borrowings of $10,491 during the
comparable period in 1997, and payments to repurchase common stock ($23,498).
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 Company is accounting for its investment in the
joint venture on the cost basis.
Year 2000
The Year 2000 problem concerns the inability of older computer systems to
properly recognize and process date-sensitive information beyond January 1,
2000. If not corrected, businesses and other entities relying on such computer
systems are at risk for possible miscalculations or systems failures that could
cause disruptions in their business operations.
-16-
ACNielsen's business relies substantially on information technology systems ("IT
Systems") and, to a lesser degree, on other systems that contain embedded
technology ("Non-IT Systems"). As a global leader in delivering market research,
information and analysis to the consumer products and services industries,
ACNielsen uses IT Systems and Non-IT Systems (collectively, "Technology
Systems") to gather data from data suppliers, analyze such data and deliver
information products to its clients. The Company also provides software to its
clients for use in connection with the delivery and analysis of ACNielsen data.
Technology Systems are also used by the Company for its own internal operations.
Accordingly, the Year 2000 issue could arise at many stages in the Company's
supply, processing, distribution and financial chains.
The Company's State of Readiness
The Company is in the process of implementing a Year 2000 readiness program with
the goals of (i) having all of its Technology Systems functioning properly with
respect to Year 2000 before January 1, 2000, and (ii) identifying and minimizing
the other business risks created by the Year 2000 issue. The Company currently
believes that it will be able to modify or replace all of its material
Technology Systems in a timely manner and with no significant disruptions to its
operations. It also believes that its Year 2000 readiness program should
significantly reduce the adverse effects of the Year 2000 issue for the Company.
However, given the general uncertainties inherent in the Year 2000 problem
including, among other things, uncertainties as to the Year 2000 readiness of
material third party suppliers and clients, it is possible that the business and
results of operations of the Company could be materially adversely affected by
an inability of the Company to conduct its business in the ordinary course for a
period of time after January 1, 2000.
The Company's Year 2000 readiness program comprises eight principal phases,
these being (i) inventory, (ii) assessment, (iii) analysis and planning, (iv)
remediation, (v) testing, (vi) implementation, (vii) communication, and (viii)
contingency planning.
The inventory phase comprises the development of a complete list of all
components of the Company's Technology Systems that are used in the collection,
processing and delivery of ACNielsen products and services or that are used in
the administration of its general business activities. The inventory phase is
substantially complete.
The assessment phase comprises the evaluation of each item on the inventory to
determine if it is affected by the Year 2000 problem and, if it is, to determine
the most appropriate remediation approach. There are generally four alternative
approaches: (i) renovation; (ii) retirement; (iii) re-engineering; or (iv)
replacement. The assessment phase is also substantially complete and, based on
the results of the assessment, the Company determined that it would be required
to renovate, retire, re-engineer or replace significant portions of its
Technology Systems to make them Year 2000 compliant.
The analysis and planning phase comprises the development of detailed plans and
timetables to accomplish the required remediation actions identified during the
assessment phase and the assignment of the internal or external resources
required to achieve compliance within the planned timeframes. This phase
includes the prioritization of systems for remediation activities. This phase is
substantially complete in the United States and Canada, and in major business
units throughout Latin America, Europe and Asia Pacific. Planning for the
remaining business units is underway and scheduled for completion prior to the
end of 1998.
-17-
The remediation phase comprises the actual renovation, re-engineering,
retirement or replacement of affected systems. This phase is in progress and
proceeding based upon the original prioritization. Because of the number of
systems, countries and business segments involved and the varying importance of
different systems to the Company's business and results of operations, it is
difficult to quantify precisely the status of completion of this phase on an
overall Company basis. However, the Company believes that this phase is
approximately 50% complete. Plans are for the remediation phase to be
substantially completed in the first quarter of 1999.
The testing phase, which follows remediation, comprises the establishment
of Year 2000 test environments to do systems and user testing of
individual components, as well as complete end-to-end system testing, of the
Company's Technology Systems. In addition, it includes testing of interfacing
systems used by certain external suppliers and customers. This testing phase has
begun for a number of major systems throughout the world. Detailed Year 2000
plans call for testing of the Company's Technology Systems to be completed
during the first two quarters of 1999. Testing of systems used by external
suppliers and customers is expected to continue to the Year 2000.
The implementation phase, which follows testing, comprises the actual
implementation into the production environment of the compliant Technology
Systems. For products and services provided by the Company to clients, this
phase includes the implementation of the compliant versions of hardware,
software, and communications services into production in the client
environments. This phase is at various stages around the world but overall is in
the early stages of execution. Plans for each country and business segment have
been developed to allow for adequate time to achieve implementation prior to the
end of 1999.
The communication phase comprises the implementation, coordination and
management of a communications process to communicate with clients and other
third parties whose Year 2000 state of readiness could significantly affect the
Company. Several levels and types of communications are involved, including
communications with clients, vendors and other service providers. Communications
with clients include communications regarding (i) the implementation of Year
2000 compliant versions of ACNielsen software used by the client, (ii) the state
of readiness of systems used by the client to receive or analyze ACNielsen data,
and (iii) the state of readiness of ACNielsen Technology Systems that are used
to compile and deliver data to the client. Vendor communications include
communications with (i) data suppliers to assess the Year 2000 status of the
systems they use to compile and deliver data to the Company, (ii) data
processors to assess the Year 2000 status of their processing and delivery
systems, and (iii) providers of third party Technology Systems to establish
plans and timetables for the delivery of Year 2000 compliant versions of those
Technology Systems. Communications with other service providers include
communications with utilities, providers of facilities and environmental
systems, banks and other material service providers to assess their Year 2000
readiness insofar as it may affect the services they provide to the Company. The
communication phase with respect to supplier readiness is well underway in all
major countries. Communications efforts will continue to determine the state of
readiness of material third parties. During the next three months, the Company
plans to engage in increased communications with clients to assess their
readiness as well as to plan implementation of ACNielsen Year 2000 compliant
versions of software and information products.
-18-
The final phase is the development of contingency and business continuation
plans for each organization and company location. In general, contingency
planning is scheduled to begin before the end of 1998 and to be completed by the
end of the first quarter of 1999. Although the Company anticipates being able to
develop contingency plans to deal with certain situations, it is not yet
possible to determine if contingency plans can be developed and/or successfully
implemented to deal with all material risks.
Year 2000 Risks
As mentioned above, Year 2000 issues could arise at many stages in the Company's
supply, processing, distribution, and financial chains.
With respect to data supplies, certain data used by the Company are collected
manually. However, significant amounts of data, including all retail scanning
data and the majority of television audience measurement and consumer panel
services data, are collected and transmitted electronically to ACNielsen or to
its third party data processors. A Year 2000 risk, therefore, is that data
supplies could be disrupted due to Year 2000 problems with the Technology
Systems of data suppliers or of the Company.
Once data has been collected, it is generally transmitted electronically to
ACNielsen or third party data processors, then analyzed and processed and
finally transmitted electronically to the client. Accordingly, other Year 2000
risks include possible disruptions in data processing and transmission
capabilities. Also, certain clients use their own Technology Systems to analyze
ACNielsen data. Revenue, therefore, could be affected in the event that clients
are unable for some period of time to make normal use of the Company's products
and services.
Additional Year 2000 risks include disruptions in the Company's own internal
operations, including financial and administrative systems, and in critical
services and utilities on which the Company relies, such as electricity,
telephone systems, and banking services.
The most reasonably likely worst case scenarios that the Company has identified
include lost revenues and profits due to (i) non-receipt of, or temporary delays
in receiving, scanning data from data suppliers, (ii) delays in deliveries to
clients due to data supply, processing and/or transmission problems, and (iii)
non-compliance of clients' Technology Systems such that they are unable to make
normal use of the Company's products and services. The Company does not
currently anticipate that any such effects would be of a long-term nature.
Costs
Incremental Year 2000 compliance costs, primarily for maintenance and system
modifications, are presently estimated to approximate between $20,000 and
$25,000, of which approximately $16,000 is expected to be incurred in 1998. Such
costs totaled $10,256 for the nine months ended September 30, 1998. Costs to
acquire new software and computer systems in advance of their normal replacement
schedules are estimated to total between $10,000 and $15,000 over 1998 and 1999.
At September 30, 1998, $2,900 had been incurred. The Company does not separately
track internal costs that are not related to incremental Year 2000 activities.
Such costs are principally for payroll.
-19-
EURO
The introduction of a common currency across eleven European countries, the
"Euro", will 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 also will be
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 compliance of its existing internal process and
software systems in readiness for 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 have been comprehensively specified and are substantially complete
and on track to be implemented by January 1, 1999. 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.
Preliminary 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.
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", "could," "should," "planned," "estimated," "potential," "target" 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.
-20-
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 Year 2000 and Euro plans on a timely
basis; (vi) the impact of foreign exchange rate fluctuations since so much of
the Company's earnings are generated abroad; (vii) the degree of acceptance of
new product introductions; (viii) 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.
The risks and uncertainties that may affect the Company's assessment of Year
2000 issues and new European currency issues include: (i) the complexity
involved in ascertaining all situations in which Year 2000 or new European
currency issues may arise; (ii) the ability of the Company to identify, assess,
remediate, test and successfully implement all relevant computer codes and
embedded technology within the scheduled dates for completion thereof; (iii) the
ability of the Company to obtain the services of sufficient personnel to execute
the programs; (iv) possible increases in the cost of personnel required to
execute the programs; (v) delays in scheduled deliveries of new hardware and
software from third party suppliers; (vi) the receipt and reliability of
responses from suppliers, clients and others to whom compliance inquiries are
being made; (vii) the ability of material third parties to bring their affected
systems into compliance; and (viii) unforeseen events which could delay timely
implementation of the programs.
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.
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
September 30, 1998.
-21-
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: November 13, 1998 /s/ Robert J. Chrenc
------------------------------------
Robert J. Chrenc
Executive Vice President
And Chief Financial Officer
Date: November 13, 1998 /s/ Michael S. Geltzeiler
------------------------------------
Michael S. Geltzeiler
Senior Vice President and Controller