D&B Announces Strong Second Quarter 2005 Results; Risk Management Solutions Revenue Up 10%

D&B, the leading provider of global business information, tools and business insight, today reported results for the second quarter ended June 30, 2005.

“In the second quarter, D&B once again delivered strong growth in revenue, operating income and EPS, while continuing to invest in our brand and customer value proposition,” said Steve Alesio, chairman, chief executive officer and president of D&B. “Our U.S. business, which accounts for the majority of our revenue, once again reported strong organic revenue growth and profitability. Additionally, during the quarter we made progress addressing the challenges in our International business. With our proven track record of growth, and our plans to continue to invest in our business, we are confident our success is sustainable.”

Second Quarter 2005 Results
Diluted earnings per share before non-core gains and charges for the quarter ended June 30, 2005, were $0.73, up 20 percent from $0.61 in the prior year quarter. On a GAAP basis, diluted earnings per share were $0.67, up 24 percent from $0.54 in the prior year quarter.

Core revenue for the quarter was $351.7 million, up 10 percent compared with the prior year quarter. Core revenue was up 8 percent before the effect of foreign exchange.

Core revenue results for the second quarter of 2005 reflect the following by customer solution set:

• Risk Management Solutions revenue of $248.0 million, up 10 percent (up 8 percent before the effect of foreign exchange);
• Sales & Marketing Solutions revenue of $80.4 million, up 6 percent (up 5 percent before the effect of foreign exchange);
• E-Business Solutions revenue of $16.7 million, up 39 percent; and
• Supply Management Solutions revenue of $6.6 million, down 11 percent (down 12 percent before the effect of foreign exchange).

Total revenue for the quarter was $351.7 million, up 1 percent compared with the prior year quarter (down 1 percent before the effect of foreign exchange). The decline in total revenue year-over-year was due to the impact of the divested international businesses that had revenue of $28.8 million in the second quarter of 2004.

Operating income for the quarter was $83.5 million, up 15 percent from the year-ago period, before non-core gains and charges in both years. Strong growth in the U.S. was partially offset by a decline in operating income in the International segment. On a GAAP basis, operating income was $76.2 million, up 18 percent from the year-ago period. During the quarter, the Company also incurred transition costs of $8.1 million as compared to $6.0 million in the prior year quarter.

Net income before non-core gains and charges was $51.4 million for the quarter, up 14 percent from $45.0 million in the prior year period. On a GAAP basis, net income was $47.1 million, up 19 percent compared with $39.5 million in the prior year period.

Free cash flow for the first six months of 2005, excluding the impact of a $15.8 million legacy tax payment made during the first quarter of 2005, was $127.6 million, up 8 percent from the first six months of 2004. The Company defines free cash flow as net cash provided by operating activities less capital expenditures and additions to computer software and other intangibles. Net cash provided by operating activities, excluding the $15.8 million legacy tax payment, was $137.2 million for the first six months of 2005, up 7 percent from the prior year period. On a GAAP basis, net cash provided by operating activities was $121.4 million, down 5 percent from the prior year period.

Share repurchases during the quarter, under the Company’s $400 million two-year program, totaled $60.8 million, with $99.9 million repurchased year-to-date under that program.

The Company ended the quarter with $245.3 million of cash and cash equivalents.

Second Quarter 2005 Segment Results
As outlined in the Company’s Annual Report on Form 10-K for the year ending December 31, 2004, filed with the Securities and Exchange Commission (SEC) on March 14, 2005, D&B began reporting the results of its business in Canada as part of its International segment in the first quarter of 2005. Prior to 2005, the Canadian results were reported as part of the North America segment.

All references to 2005 financial results in this release have been adjusted to reflect this change.

United States

Total and core revenue for the quarter was $253.7 million, up 7 percent from $236.1 million in the prior year period.

U.S. total and core revenue results for the 2005 second quarter reflect the following by customer solution set:

• Risk Management Solutions revenue of $165.3 million, up 7 percent;
• Sales & Marketing Solutions revenue of $66.8 million, up 7 percent;
• E-Business Solutions revenue of $16.1 million, up 34 percent; and
• Supply Management Solutions revenue of $5.5 million, down 12 percent.

Operating income for the quarter was $82.3 million, up 17 percent from the prior year quarter. This increase was due to improved revenue in the U.S. segment and benefits from the Company’s Financial Flexibility program.

International
Core revenue for the quarter was $98.0 million, up 15 percent (up 10 percent before the effect of foreign exchange) from $85.0 million in the prior year quarter. During the second quarter, International core revenue was positively impacted by the price increase in the Company’s Italian real estate data business. This was outlined in the Company’s Form 10-Q for the quarter ending March 31, 2005, filed with the SEC on May 5, 2005. The Italian real estate data business contributed 9 percentage points of growth driven by the acquisition of RIBES S.p.A. and the price increases.

International core revenue results for the second quarter of 2005 reflect the following by customer solution set:

• Risk Management Solutions revenue of $82.7 million, up 17 percent (up 12 percent before the effect of foreign exchange);
• Sales & Marketing Solutions revenue of $13.6 million, up 3 percent (down 1 percent before the effect of foreign exchange);
• E-Business Solutions revenue of $0.6 million; and
• Supply Management Solutions revenue of $1.1 million, down 8 percent (down 13 percent before the effect of foreign exchange).

Total revenue for the quarter was $98.0 million, down 14 percent (down 18 percent before the effect of foreign exchange) compared with the prior year quarter revenue of $113.8 million. This decline was due to the impact of the divested international businesses that had revenue of $28.8 million in the second quarter of 2004.

Operating income for the quarter was $21.3 million, down $1.7 million or 8 percent, before non-core gains and charges, as compared to $23 million in the prior year quarter. This decline was primarily due to lower operating income in the UK as a result of lower revenue and the loss of income from the Company’s divested businesses, partially offset by strength in other international markets and savings from the Company’s Financial Flexibility program. On a GAAP basis, operating income was $20.5 million, down $2.5 million or 11 percent.

Non-Core Gains and Charges
During the second quarter of 2005, the Company recorded net pre-tax, non-core charges of $6.5 million related to both the 2005 and 2004 Financial Flexibility initiatives and charges totaling $1.9 million related to a dispute on the sale of the Company’s French business. These charges were partially offset by pre-tax, non-core gains of $3.5 million related to the sale of a 5 percent investment in a South African company and $0.8 million related to lower than expected costs related to the sale of the Company’s Iberian business.

During the second quarter of 2004, the Company recorded a pre-tax, non-core charge of $8.0 million related to 2004 Financial Flexibility initiatives and a non-core impairment charge of approximately $1.2 million to write down the net assets of the Company’s Iberian business to its fair market value based on expected proceeds in connection with the anticipated sale of these operations. These charges were partially offset by a pre-tax, non-core gain of $5.6 million related to the sale of the Company’s operations in Germany, Austria, Switzerland, Poland, Hungary and the Czech Republic.

D&B’s restructuring charges may be viewed as recurring as they are part of its Financial Flexibility initiatives. In addition to reporting GAAP results, the Company reports results before restructuring charges and other non-core gains and charges because they are not a component of its ongoing income or expenses and may have a disproportionate positive or negative impact on the results of its ongoing underlying business operations. For additional information, see the section titled “Use of Non-GAAP Financial Measures” below.

Acquisition of LiveCapital®
The Company announced today that it has acquired LiveCapital, located in San Mateo, California, for $16 million, funded with cash on hand. LiveCapital is a provider of online credit management software that enables users to manage the entire credit process within an enterprise-wide system. D&B expects the acquisition will be approximately $0.03 per share dilutive in 2005 and accretive in 2006.

“LiveCapital’s credit management software will complement our existing Risk Management capabilities, providing our customers with an enhanced credit management experience,” said Alesio. “Our acquisition of LiveCapital is part of our ongoing effort to improve the way our customers access and leverage DUNSRight™ so they can make confident business decisions,” concluded Alesio.

2005 Outlook
The Company revised its 2005 EPS and operating income guidance primarily due to the two partially off-setting factors described above: the acquisition of LiveCapital and the deferral of stock option expensing, as well as the Company’s plans to continue to invest during the second half of the year.

The Company’s 2005 guidance is now as follows:

• Core revenue growth of 6 percent to 8 percent, before the effect of foreign exchange (no change);
• Operating income growth before non-core gains and charges of 12 percent to 14 percent (compared with the previously announced range of 11 percent to 14 percent);
• Diluted EPS of $3.43 to $3.51 before non-core gains and charges, representing 15 percent to 18 percent growth (compared with the previously announced range of $3.39 to $3.49 before non-core gains and charges, representing 14 percent to 17 percent growth);
• Free cash flow of $265 million to $280 million before the impact of any payments made in connection with the Company’s legacy tax matters (no change); and
• Tax rate before non-core gains and charges of 36 percent to 37 percent (no change).

D&B does not provide revenue growth guidance on a GAAP basis because D&B is unable to predict, with reasonable certainty, the future movement of foreign exchange rates. Additionally, the Company does not provide EPS guidance, operating income growth, free cash flow or tax rate guidance on a GAAP basis because the Company is unable to predict, with reasonable certainty, the future impact of non-core gains and charges, such as restructuring charges and legacy tax matters, which are a component of the most comparable financial measures calculated in accordance with GAAP. Non-core gains and charges are uncertain and will depend on several factors, including industry conditions. The impact of these non-core gains and charges could be material to D&B’s results computed in accordance with GAAP.