D&B Announces Strong First Quarter 2006 Results and Confirms Guidance

D&B, the leading provider of global business information, tools and business insight, today reported results for the first quarter ended March 31, 2006.

“We are very pleased with our revenue, operating income and EPS results in the first quarter,” said Steve Alesio, chairman and CEO of D&B.

“We feel good about the continued momentum we are driving in the U.S. and the improvements we are seeing within our International segment. With investments geared toward improving our customers’ experience and a winning team in place, we are well positioned to deliver strong results in 2006.”

First Quarter 2006 Results

Diluted earnings per share before non-core gains and charges for the quarter ended March 31, 2006, were $0.81, up 16 percent from $0.70 in the prior year quarter. On a GAAP basis, diluted earnings per share were $0.75, up 3 percent from $0.73 in the prior year quarter.

See attached Schedule 3 for a reconciliation of earnings per share before non-core gains and charges to earnings per share on a GAAP basis, as well as the definitions of the non-GAAP financial measures that the Company uses to evaluate the business.

Core and total revenue for the quarter was $367.2 million, up 9 percent before the effect of foreign exchange (up 8 percent after the effect of foreign exchange) from the prior year quarter.

Core and total revenue results for the first quarter of 2006 reflect the following:

• Risk Management Solutions revenue of $243.9 million, up 7 percent before the effect of foreign exchange (up 5 percent after the effect of foreign exchange);
• Sales & Marketing Solutions revenue of $95.1 million, up 10 percent (both before and after the effect of foreign exchange);
• E-Business Solutions revenue of $20.6 million, up 33 percent (both before and after the effect of foreign exchange); and
• Supply Management Solutions revenue of $7.6 million, up 11 percent before the effect of foreign exchange (up 10 percent after the effect of foreign exchange).

Operating income before non-core gains and charges was $92.4 million, up 12 percent from the prior year quarter. On a GAAP basis, operating income was $86.0 million, up 19 percent from the prior year quarter. During the quarter, the Company also incurred transition costs of $4.5 million compared with $5.8 million in the prior year quarter.

Net income before non-core gains and charges was $55.7 million for the quarter, up 11 percent from $50.2 million in the prior year quarter. On a GAAP basis, net income was $51.5 million, down 1 percent from $52.1 million in the prior year quarter.

Free cash flow for the first quarter of 2006, excluding the impact of legacy tax matters, was $70.3 million, down 10 percent from the first quarter of 2005. Free cash flow now includes the effect of our adoption of expensing stock options pursuant to SFAS No. 123R, which resulted in a reclassification of $18.1 million from Cash Flow from Operating Activities to Cash Flow from Financing Activities in the quarter.

The Company defines free cash flow as net cash provided by operating activities less capital expenditures and additions to computer software and other intangibles. On a GAAP basis, net cash provided by operating activities was $36.2 million, down 46 percent from the prior year period. Net cash provided by operating activities, excluding $39.8 million of legacy tax matters was $76.0 million for the first quarter of 2006, down 8 percent from the prior year period.

Share repurchases during the quarter, under the Company’s current two-year program commenced in the first quarter of 2005 totaled $91.9 million, with $291.9 million repurchased since inception. This amount is in addition to the Company’s existing repurchase program to offset the dilutive effect of shares issued under employee benefit plans, which totaled $30.6 million in the first quarter of 2006.

The Company ended the quarter with $229.3 million of cash, cash equivalents and marketable securities.

First Quarter 2006 Segment Results

United States

Core and total revenue for the quarter was $286.0 million, up 9 percent from $263.2 million in the prior year quarter.

U.S. core and total revenue results for the first quarter of 2006 reflect the following:

• Risk Management Solutions revenue of $176.1 million, up 7 percent;
• Sales & Marketing Solutions revenue of $83.6 million, up 8 percent;
• E-Business Solutions revenue of $19.6 million, up 29 percent; and
• Supply Management Solutions revenue of $6.7 million, up 14 percent.

Operating income for the quarter was $103.7 million, up 6 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, partially offset by higher benefit costs, including stock option expensing, and the impact of increased costs associated with data purchases from our International segment.

International

Core and total revenue for the quarter was $81.2 million, up 11 percent before the effect of foreign exchange (up 4 percent after the effect of foreign exchange from $78.1 million in the prior year quarter). During the first quarter, the Italian real estate data business contributed 3 percentage points of core revenue growth with the majority of the growth due to a price increase.

International core and total revenue results for the first quarter of 2006 reflect the following:

• Risk Management Solutions revenue of $67.8 million, up 8 percent before the effect of foreign exchange (up 1 percent after the effect of foreign exchange);
• Sales & Marketing Solutions revenue of $11.5 million, up 30 percent before the effect of foreign exchange (up 23 percent after the effect of foreign exchange);
• E-Business Solutions revenue of $1.0 million; and
• Supply Management Solutions revenue of $0.9 million, down 5 percent before the effect of foreign exchange (down 13 percent after the effect of foreign exchange).

Operating income for the quarter was $8.7 million, up $6.8 million from $1.9 million in the prior year quarter. This increase was primarily due to improved revenue in the International segment, benefits from the Company’s Financial Flexibility program and data sales to our US segment, as referenced earlier.

Non-Core Gains and Charges

During the first quarter of 2006, the Company recorded a net pre-tax, non-core charge of $6.4 million related to its Financial Flexibility initiatives.

During the first quarter of 2005, the Company recorded pre-tax, non-core charges of $10.4 million related to its Financial Flexibility initiatives and a non-core gain for taxes of $9.0 million related to tax benefits recognized upon the liquidation of dormant international entities whose assets were divested as part of the Company’s International strategy.

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.

2006 Outlook

The Company confirmed the following full year guidance for 2006, which includes the expensing of stock options:

• Core revenue growth of 6 percent to 8 percent, before the effect of foreign exchange, all of which will be organic;
• Operating income growth before non-core gains and charges of 8 percent to 10 percent; Diluted EPS of $3.83 to $3.93 before non-core gains and charges, representing 10 percent to 13 percent growth;
• Free cash flow of $290 million to $305 million. As a reminder, the Company’s free cash flow outlook excludes the impact of the Company’s legacy tax matters; and
• Tax rate before non-core gains and charges of approximately 38 percent.

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.