News Column

DUN & BRADSTREET CORP/NW - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 7, 2014

Business Overview The Dun & Bradstreet Corporation ("D&B" or "we" or "our" or "us" or the "Company") is the world's leading source of commercial data, analytics and insight on businesses. Our global commercial database as of June 30, 2014 contained more than 235 million business records. We transform commercial data into valuable insight which is the foundation of our global solutions that customers rely on to make critical business decisions. D&B provides solution sets that meet a diverse set of customer needs globally. Customers use D&B Risk Management Solutions™ to mitigate credit and supplier risk, increase cash flow and drive increased profitability, and D&B Sales & Marketing Solutions™ to provide data management capabilities that provide effective and cost efficient marketing solutions to increase revenue from new and existing customers. How We Manage Our Business For internal management purposes, we refer to "core revenue," which we calculate as total operating revenue less the revenue of divested and other businesses. Core revenue is used to manage and evaluate the performance of our segments and to allocate resources because this measure provides an indication of the underlying changes in revenue in a single performance measure. Core revenue does not include reported revenue of divested and other businesses since they are not included in future revenue. During the fourth quarter of 2013, we ceased the operations of our India Event Planning and Rural Marketing Businesses in our Asia Pacific segment. These businesses contributed less than 1% to our Asia Pacific total revenue for each of the three month and six month periods ended June 30, 2013. During the first quarter of 2014, we ceased the operations of our Ireland Small Corporate Registry Business in our Europe and Other International Markets segment. This business contributed less than 1% to our Europe and Other International Markets total revenue for each of the three month and six month periods ended June 30, 2013, as well as the six months ended June 30, 2014. These businesses have been classified as "Divested and Other Businesses." We also isolate the effects of changes in foreign exchange rates on our revenue growth because we believe it is useful for investors to be able to compare revenue from one period to another, both with and without the effects of foreign exchange. The change in our operating performance attributable to foreign currency rates is determined by converting both our prior and current periods by a constant rate. As a result, we monitor our core revenue growth both after and before the effects of foreign exchange. Core revenue growth excludes the effects of foreign exchange. From time-to-time we have analyzed, and we may continue to further analyze, core revenue growth before the effects of foreign exchange among two components, "organic core revenue growth" and "core revenue growth from acquisitions." We analyze "organic core revenue growth" and "core revenue growth from acquisitions" because management believes this information provides an important insight into the underlying health of our business. Core revenue includes the revenue from acquired businesses from the date of acquisition. We evaluate the performance of our business segments based on segment revenue growth before the effects of foreign exchange, and segment operating income growth before certain types of gains and charges that we consider do not reflect our underlying business performance. Specifically, for management reporting purposes, we evaluate business segment performance "before non-core gains and charges" because such charges are not a component of our ongoing income or expenses and/or may have a disproportionate positive or negative impact on the results of our ongoing underlying business operations. A recurring component of non-core gains and charges are our restructuring charges, which we believe do not reflect our underlying business performance. Such charges are variable from period-to-period based upon actions identified and taken during each period. Management reviews operating results before such non-core gains and charges on a monthly basis and establishes internal budgets and forecasts based upon such measures. Management further establishes annual and long-term compensation such as salaries, target cash bonuses and target equity compensation amounts based on performance before non-core gains and charges and a significant percentage weight is placed upon performance before non-core gains and charges in determining whether performance objectives have been achieved. Management believes that by eliminating non-core gains and charges from such financial measures, and by being overt to shareholders about the results of our operations excluding such charges, business leaders are provided incentives to recommend and execute actions that are in the best long-term interests of our shareholders, rather than being influenced by the potential impact a charge in a particular period could have on their compensation. See Note 10 to the unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q for financial information regarding our segments. 29



--------------------------------------------------------------------------------

Table of Contents

Similarly, when we evaluate the performance of our business as a whole, we focus on results (such as operating income, operating income growth, operating margin, net income, tax rate and diluted earnings per share) before non-core gains and charges because such non-core gains and charges are not a component of our ongoing income or expenses and/or may have a disproportionate positive or negative impact on the results of our ongoing underlying business operations and may drive behavior that does not ultimately maximize shareholder value. It may be concluded from our presentation of non-core gains and charges that the items that result in non-core gains and charges may re-occur in the future. We monitor free cash flow as a measure of our business. We define free cash flow as net cash provided by operating activities minus capital expenditures and additions to computer software and other intangibles. Free cash flow measures our available cash flow for potential debt repayment, acquisitions, stock repurchases, dividend payments and additions to cash, cash equivalents and short-term investments. We believe free cash flow to be relevant and useful to our investors as this measure is used by our management in evaluating the funding available after supporting our ongoing business operations and our portfolio of product investments. Free cash flow should not be considered as a substitute measure for, or superior to, net cash flows provided by operating activities, investing activities or financing activities. Therefore, we believe it is important to view free cash flow as a complement to the consolidated statements of cash flows. We manage and report our North America Risk Management Solutions set as:



• DNBi subscription plans - DNBi, our interactive, online application that

offers customers a subscription based real time access to our most complete and up-to-date global information, comprehensive monitoring and portfolio analysis. DNBi subscription plans are contracts that allow customers' unlimited use; • Non-DNBi subscription plans - subscription contracts which provide



increased access to our risk management reports and data to help customers

increase their profitability while mitigating their risk. The non-DNBi

subscription plans allow customers' unlimited use; and • Projects and other risk management solutions - all other revenue



streams. This includes, for example, our Business Information Report, our

Comprehensive Report, our International Report, and D&B Direct.

Management believes that these measures provide further insight into our performance and the growth of our North America Risk Management Solutions revenue. Within our North America Sales & Marketing Solutions, we monitor the performance of our "Traditional" products and our "Value-Added" products. Our Traditional Sales & Marketing Solutions generally consist of our marketing lists and labels used by customers in their direct mail and marketing activities, our education business and our electronic licensing solutions. We manage and report our Internet business as part of our Traditional Sales & Marketing Solutions set. Our Internet business provides highly organized, efficient and easy-to-use products that address the online sales and marketing needs of professionals and businesses, including information on companies, industries and executives. Our Value-Added Sales & Marketing Solutions generally include decision-making and customer information management solutions, including data management solutions like D&B Optimizer™ (which transforms our customers' prospects and data into up-to-date, accurate and actionable commercial insight) and products introduced as part of our Data-as-a-Service (or "DaaS") Strategy, which integrates our data directly into the applications and platforms that our customers use every day. Customer Relationship Management ("CRM") was our first area of focus, with D&B360®, which helps CRM customers manage their data, increase sales and improve customer engagement. In addition, we have a strategic alliance with Salesforce.com with respect to Salesforce's Data.com product. This product combines our business data with Salesforce's contact data directly into their CRM application. The vision for DaaS is to make D&B's data available wherever and whenever our customers need it, thereby powering more effective business processes. The adjustments discussed herein to our results as determined under generally accepted accounting principles in the United States of America ("GAAP") are among the primary indicators management uses as a basis for our planning and forecasting of future periods, to allocate resources, to evaluate business performance and, as noted above, for compensation purposes. However, these financial measures (e.g., results before non-core gains and charges and free cash flow) are not prepared in accordance with GAAP, and should not be considered in isolation or as a substitute for total revenue, operating income, operating income growth, operating margin, net income, tax rate, diluted earnings per share, or net cash provided by operating activities, investing activities and financing activities prepared in accordance with GAAP. In addition, it should be 30



--------------------------------------------------------------------------------

Table of Contents

noted that because not all companies calculate these financial measures similarly, or at all, the presentation of these financial measures is not likely to be comparable to measures of other companies. See "Results of Operations" below for a discussion of our results reported on a GAAP basis. Overview We manage and report our business through the following three segments: • North America (which consists of our operations in the United States ("U.S.") and Canada);



Asia Pacific (which primarily consists of our operations in Australia,

Greater China, India and Asia Pacific Worldwide Network); and



Europe and Other International Markets (which primarily consists of our

operations in the United Kingdom ("U.K."), the Netherlands, Belgium,

Latin America and European Worldwide Network).

The financial statements of our subsidiaries outside North America reflect results for the three month and six month periods ended May 31 in order to facilitate the timely reporting of the unaudited consolidated financial results and unaudited consolidated financial position. The following table presents the contribution by segment to total revenue and core revenue: For the Three Months Ended June



30, For the Six Months Ended June 30,

2014 2013 2014 2013 Total Revenue: North America 72 % 72 % 73 % 73 % Asia Pacific 12 % 13 % 11 % 12 % Europe and Other International Markets 16 % 15 % 16 % 15 % Core Revenue: North America 72 % 72 % 73 % 73 % Asia Pacific 12 % 13 % 11 % 12 % Europe and Other International Markets 16 % 15 % 16 % 15 %



The following table presents contributions by customer solution set to total revenue and core revenue:

For the Three Months Ended June 30,



For the Six Months Ended June 30,

2014 2013 2014 2013 Total Revenue by Customer Solution Set (1): Risk Management Solutions 65 % 67 % 65 % 66 % Sales & Marketing Solutions 35 % 33 % 35 % 34 % Core Revenue by Customer Solution Set: Risk Management Solutions 65 % 67 % 65 % 66 % Sales & Marketing Solutions 35 % 33 % 35 % 34 %



(1) Our Divested and Other Businesses contributed less than 1% to our total

consolidated revenue for the three months ended June 30, 2013. Our Divested

and Other Businesses contributed less than 1% to our total consolidated

revenue for each of the six months ended June 30, 2014 and 2013. See Note 10 to the unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q for further detail. Our customer solution sets are discussed in greater detail in "Item 1. Business" in our Annual Report on Form 10-K for the year ended December 31, 2013. Critical Accounting Policies and Estimates In preparing the unaudited consolidated financial statements and accounting for the underlying transactions and balances reflected therein, we have applied the critical accounting policies described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2013. 31



--------------------------------------------------------------------------------

Table of Contents

Recently Issued Accounting Standards See Note 2 to the unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q for disclosure of the impact that recent accounting pronouncements may have on the unaudited consolidated financial statements. Results of Operations The following discussion and analysis of our financial condition and results of operations are based upon the unaudited consolidated financial statements and should be read in conjunction with the unaudited consolidated financial statements and related notes set forth in Item 1. of this Quarterly Report on Form 10-Q and the audited financial statements and related notes set forth in Item 8. of our Annual Report on Form 10-K for the year ended December 31, 2013, all of which have been prepared in accordance with GAAP. Consolidated Revenue The following table presents our core and total revenue by segment:


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters