| DUN & BRADSTREET CORP/NW Item 1A Risk Factors Our business model is dependent upon third parties to provide data and certain operational services, the loss of which would materially impact our business and financial results |
| We rely significantly on third parties to support our business model |
| For example: • We obtain much of the data that we use from third parties, including public record sources; • We partner with single source providers in certain countries that support the needs of our customers around the globe and rely on our strategic partners in our D&B Worldwide Network to provide local data in countries in which we do not directly operate; • We have outsourced various functions, such as our technology help desk and network management functions in the US and in the UK; and 10 _________________________________________________________________ [70]Table of Contents • We have also outsourced certain portions of our data acquisition and delivery, customer service and some financial processes, such as cash collections and accounts payable |
| If one or more data providers were to withdraw their data, cease making it available, or not adhere to our data quality standards, our ability to provide solutions and services to our customers could be materially adversely impacted, which could result in decreased revenue, net income and earnings per share |
| Similarly, if one of our outsource providers, including our strategic partners, were to experience financial or operational difficulties, their services to us would suffer or they may no longer be able to provide services to us at all, materially impacting our business and financial results |
| In addition, we cannot be certain that we could replace our large third party vendors in a timely manner or on terms commercially reasonable to us |
| We face competition that may cause price reductions or loss of market share |
| We are subject to competitive conditions in all aspects of our business |
| We compete directly with a broad range of companies offering business information services to customers |
| We also face competition from: • The in-house operations of the businesses we seek as customers; • Other general and specialized credit reporting and other business information services; • Other information and professional service providers; and • Credit insurers |
| In addition, business information solutions and services are becoming more readily available, principally due to the expansion of the Internet, greater availability of public data and the emergence of new providers of business information solutions and services |
| Large web search engine companies can provide low-cost alternatives to data gathering and change how our customers perform key activities such as marketing campaigns |
| Such companies, and other third parties which may not be readily apparent today, may become significant low-cost competitors and adversely impact the demand for our solutions and services |
| Weak economic conditions also can result in customers’ seeking to utilize free or lower-cost information that is available from alternative sources such as the Internet and European Commission sponsored projects like the European Business Register |
| Intense competition could harm us by causing, among other things, price reductions, reduced gross margins and loss of market share |
| We are facing increased competition from consumer credit companies that offer consumer information solutions to help their customers make credit decisions regarding small businesses |
| In addition, consumer information companies are seeking to expand their operations more broadly into aspects of the business information space |
| While their presence is currently small in the business information market, given the size of the consumer market in which they play, they have scale advantages in terms of scope of operations and size of relationship with customers, which they can potentially leverage to an advantage |
| Our ability to continue to compete effectively will be based upon a number of factors including our ability to: • Communicate and demonstrate to our customers the value of our proprietary DUNSRight quality process and, as a result, improve customer satisfaction; • Maintain and develop proprietary information and services such as analytics (eg, scoring), and sources of data not publicly available; • Demonstrate value through our decision-making tools and integration capabilities; • Leverage our brand perception and the value of our D&B Worldwide Network; • Continue to implement the Financial Flexibility component of our strategy and effectively reallocate our spending to activities that drive revenue growth; • Deliver reliable and high-quality business information through various media and distribution channels in formats tailored to customer requirements; 11 _________________________________________________________________ [71]Table of Contents • Attract and retain a high-performing workforce; • Enhance our existing services and introduce new services; and • Improve our International business model and data quality through the successful management of strategic partner relationships in our International segment that are part of our D&B Worldwide Network |
| We may not be able to successfully complete undertaking various initiatives in our International segment that are critical to increasing our international revenues and enhancing our operating margins |
| We are undertaking a number of initiatives in our International Segment that are primarily focused on improving our competitive position, growing our revenues and improving our operating margins |
| Examples of initiatives we are currently undertaking or will seek to undertake in the near future include: • Implementing subscription plan pricing for customers to increase their access to our Risk Management reports and data, to help them increase profitability while mitigating risk; • Improving the management of our D&B Worldwide Network in order to, among other things, optimize revenue and profits realized by the sale of data collected by strategic partner organizations in certain markets; and • Implementing specific process re-engineering projects designed to improve efficiency and productivity in our business |
| These and other initiatives we undertake may not be successful in attaining a consistent and sustainable level of improved International financial performance |
| For example, we may not be able to reduce costs of our operations through re-engineering to the extent expected due to challenges in implementing our technology plans, or the efforts by our partner organizations to increase the value of the data they provide us may not result in significant improvements in data quality |
| If we fail to improve the performance of our International segment, the market value of our common stock could be materially adversely affected |
| We rely on annual contract renewals for a substantial part of our revenue and our quarterly results may be significantly impacted by the timing of these renewals |
| We derive a substantial portion of our revenue from annual customer contracts |
| If we are unable to renew a significant number of these contracts, our revenue and results of operations would be harmed |
| In addition, our results of operations from period to period may vary due to the timing of customer contract renewals |
| Changes in the legislative, regulatory and commercial environments in which we operate may adversely impact our ability to collect, manage, aggregate and use data |
| Certain types of information we gather, compile and publish are subject to regulation by governmental authorities in certain markets in which we operate, particularly in Europe and other international markets |
| In addition, there is increasing awareness and concern among the general public regarding marketing and privacy matters, particularly as they relate to individual privacy interests and the ubiquity of the Internet |
| These concerns may result in new laws and regulations |
| In general, compliance with existing laws and regulations has not to date seriously affected our business, financial condition or results of operations |
| Nonetheless, future laws and regulations with respect to the collection, management and use of information, and adverse publicity or litigation concerning the commercial use of such information, could affect our operations |
| This could result in substantial regulatory compliance or litigation expense or a loss of revenue |
| In addition, governmental agencies may seek, from time to time, to increase the fees or taxes that we must pay to acquire, use and/or redistribute data that such governmental agencies collect |
| While we would seek to pass along any such price increases to our customers, there is no guarantee that we would be able to do 12 _________________________________________________________________ [72]Table of Contents so, given competitive pressures or other considerations |
| In addition, any such price increases to our customers may result in reduced usage by our customers and/or loss of market share |
| We may be unable to achieve our revenue and earnings per share growth targets, which could negatively impact our stock price |
| We have established revenue and earnings per share growth targets for 2006 and aspirations for 2007 |
| Our growth is dependent upon successfully executing our strategy to reduce our expense base and reallocating a portion of the savings into new initiatives with higher revenue growth |
| Our initiatives and investments may not be sufficient to achieve and maintain such growth targets |
| A failure to reach and maintain our desired revenue growth or our earnings per share growth targets could have a material adverse affect on the market value of our common stock |
| We may be unable to adapt successfully to changes in our customers’ preferences for our solutions, which could adversely impact our revenues |
| Our success depends in part on our ability to adapt our solutions to our customers’ preferences |
| Advances in information technology and uncertain or changing economic conditions are changing the way our customers use business information |
| As a result, our customers are demanding both lower prices and more features from our solutions, such as decision-making tools like credit scores and electronic delivery formats |
| If we do not successfully adapt our solutions to our customers’ preferences, our business, financial condition and results of operations would be materially adversely affected |
| Specifically, for our larger customers, our continued success will be dependent on our ability to satisfy more of their needs by providing solutions beyond data, such as enhanced analytics and assisting with their data integration efforts |
| For our smaller customers, our success will depend in part on our ability to simplify our solutions and pricing offerings and enhancing our marketing efforts to these customers |
| To address customer needs for pricing certainty and increased access to our solutions, in the fourth quarter of 2003 we began to rollout a subscription pricing plan |
| The subscription pricing plan provides expanded access to our Risk Management Solutions in a way that provides more certainty over related costs to the customer, which in turn generally results in customers increasing their spend on our solutions |
| Our success moving forward is dependent, in part, on the continued penetration of this offering and the successful rollout of similar programs in various markets around the world |
| Similarly, our continued success is dependent on customers’ acceptance of DNBi |
| Our operations in the International segment are subject to various risks associated with operations in foreign countries, which could adversely impact our operating results |
| Our success depends in part on our various operations outside the United States |
| For the three years ended December 31, 2005, 2004 and 2003, our International segment accounted for 25prca, 29prca and 33prca of total revenue |
| Our International business is subject to many challenges, the most significant being: • Our competition is primarily local, and our customers may have greater loyalty to our local competitors; • Credit insurance is a significant credit risk mitigation tool in certain markets, thus reducing the demand for our Risk Management Solutions; and • In some markets, key data elements are generally available from public-sector sources, thus reducing a customers’ need to purchase our data |
| Our International strategy includes forming strategic partner relationships in certain markets with third parties to improve our data quality |
| We form and manage these strategic partner alliances to create a competitive advantage for us over the long term, however, these strategic partnerships may not be successful |
| 13 _________________________________________________________________ [73]Table of Contents The issue of data privacy is an increasingly important area of public policy in various International markets, and we operate in an evolving regulatory environment that could adversely impact aspects of our business or the business of our partners on whom we depend |
| Our operating results could also be negatively affected by a variety of other factors affecting our foreign operations, many of which are beyond our control |
| These factors include currency fluctuations, economic, political or regulatory conditions in a specific country or region, trade protection measures and other regulatory requirements |
| Additional risks inherent in International business activities generally include, among others: • Longer accounts receivable payment cycles; • The costs and difficulties of managing international operations and strategic partnership alliances; and • The need to comply with a broader array of regulatory and licensing requirements, the failure of which could result in fines, penalties or business suspensions |
| A failure in the integrity of our database could harm our brand and result in a loss of sales and an increase in legal claims |
| The reliability of our solutions is dependent upon the integrity of the data in our global database |
| We have in the past been subject to customer and third-party complaints and lawsuits regarding our data, which have occasionally been resolved by the payment of money damages |
| A failure in the integrity of our database could harm us by exposing us to customer or third-party claims or by causing a loss of customer confidence in our solutions |
| Also, we have licensed, and we may license in the future, proprietary rights to third parties |
| While we attempt to ensure that the quality of our brand is maintained by the business partners to whom we grant non-exclusive licenses and by customers, they may take actions that could materially and adversely affect the value of our proprietary rights or our reputation |
| In addition, it cannot be assured that these licensees and customers will take the same steps we have taken to prevent misappropriation of our data solutions or technologies |
| We may lose key business assets, including loss of data center capacity or the interruption of telecommunications links, the Internet, or power sources which could significantly impede our ability to do business |
| Our operations depend on our ability, as well as that of third-party service providers to whom we have outsourced several critical functions, to protect data centers and related technology against damage from fire, power loss, telecommunications failure, impacts of terrorism, breaches in security (such as the actions of computer hackers), natural disasters, or other disasters |
| The on-line services we provide are dependent on links to telecommunications providers |
| In addition, we generate a significant amount of our revenue through telesales centers and websites that we utilize in the acquisition of new customers, fulfillment of solutions and services and responding to customer inquiries |
| We may not have sufficient redundant operations to cover a loss or failure in all of these areas in a timely manner |
| Any damage to our data centers, failure of our telecommunications links or inability to access these telesales centers or websites could cause interruptions in operations that materially adversely affect our ability to meet customers’ requirements, resulting in decreased revenue, net income and earnings per share |
| We are involved in tax and legal proceedings that could have a material adverse impact on us |
| We are involved in tax and legal proceedings, claims and litigations that arise in the ordinary course of business |
| As discussed in greater detail under “Note 13 Contingencies (Legal Proceedings)” in “Notes to Consolidated Financial Statements” herein in Part II, Item 8 of this Annual Report on Form 10-K, certain of these matters could have a material adverse impact on our results of operations, cash flows or financial position |
| 14 _________________________________________________________________ [74]Table of Contents We may be unable to reduce our expense base through our Financial Flexibility Program, and the related reinvestments from savings from this program may not produce the level of desired revenue growth which would negatively impact our financial results |
| Successful execution of our Blueprint for Growth strategy includes reducing our expense base through our Financial Flexibility Program, and reallocating our expense base reductions into initiatives to produce our desired revenue growth |
| The success of this program may be affected by: • Our ability to implement all of the actions required under this program within the established timeframe; • Our ability to implement actions which require process or technology changes to reduce our expense base; • Entering into or amending agreements with third-party vendors to renegotiate terms beneficial to us; • Managing third-party vendor relationships effectively; • Completing agreements with our local works councils and trade unions related to potential reengineering actions in certain International markets; and • Maintaining quality around key business processes utilizing our reduced and/or outsourced resources |
| If we fail to reduce our expense base, or if we do not achieve our desired level of revenue growth from new initiatives, the market value of our common stock may suffer |
| We may not be able to attract and retain qualified personnel which could impact the quality of our performance and customer satisfaction |
| Our success also depends on our continuing ability to attract, retain and motivate highly qualified personnel at all levels and to appropriately utilize the time and resources of such personnel |
| Competition for this personnel is intense, and we may not be able to retain our key personnel or attract, assimilate or retain other highly qualified personnel in the future |
| We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications |
| Acquisitions may disrupt or otherwise have a negative impact on our business |
| As part of our strategy, we may seek to acquire other complementary businesses, products and technologies |
| Acquisitions are subject to the following risks: • Acquisitions may cause a disruption in our ongoing business, distract our management and make it difficult to maintain our standards, controls and procedures; • We may not be able to integrate successfully the services, content, products and personnel of any acquisition into our operations; and • We may not derive the revenue improvements, cost savings and other intended benefits of any acquisition |