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 June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 001-07155
R.H. DONNELLEY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2740040
(State of Incorporation) (I.R.S. Employer Identification No.)
One Manhattanville Road, Purchase N.Y. 10577
(Address of principal executive offices) (Zip Code)
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:
Title of Class Shares Outstanding at August 9 1999
Common Stock, par value $1 per share 33,646,398
Commission file number 333-59287
R.H. DONNELLEY INC. *
(Exact name of registrant as specified in its charter)
Delaware 36-2467635
(State of Incorporation) (I.R.S. Employer Identification No.)
One Manhattanville Road, Purchase N.Y. 10577
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (914) 933-6400
[FN]
* R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley
Corporation which became subject to the filing requirements of Section 15(d) on
October 1, 1998. As of August 9, 1999, 100 shares of R.H. Donnelley Inc. common
stock, no par value, were outstanding.
</FN>
R.H. DONNELLEY CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Operations for the three and six
months ended June 30, 1999 and 1998 3
Consolidated Balance Sheets at June 30, 1999 and December 31,
1998 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote Of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
R.H. Donnelley Corporation and Subsidiary
Consolidated Statements of Operations (Unaudited)
Three months ended Six months ended
June 30, June 30,
(amounts in thousands, 1999 1998 1999(1) 1998(1)
except per share data) ------- ------ -------- --------
Revenues $40,125 $37,994 $82,209 $71,865
Expenses:
Operating expenses 28,529 26,630 58,341 48,269
General and administrative 6,135 1,406 15,014 7,320
Provision for bad debts 1,327 2,502 3,530 4,484
Depreciation and amortization 4,636 4,903 9,425 9,856
------- ------- ------- -------
Total expenses 40,627 35,441 86,310 69,929
Income from partnerships and
related fees 37,967 36,583 65,454 62,225
------- ------- ------- -------
Operating income 37,465 39,136 61,353 64,161
Interest expense, net 9,150 3,015 18,866 3,015
------- ------- ------- -------
Income before income taxes 28,315 36,121 42,487 61,146
Provision for income taxes 11,442 14,448 17,139 24,458
------- ------- ------- -------
Net income $16,873 $21,673 $25,348 $36,688
======= ======= ======= =======
Earnings per share:
Basic $ 0.50 $ 0.63 $ 0.75 $ 1.07
Diluted $ 0.49 $ 0.63 $ 0.74 $ 1.06
Shares used in computing earnings per share:
Basic 33,805 34,294 33,894 34,263
Diluted 34,392 34,620 34,359 34,574
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
(1) Restated - see Note 2 to the consolidated financial statements.
</FN>
R.H. Donnelley Corporation and Subsidiary
Consolidated Balance Sheets (Unaudited)
June 30, December 31,
(amounts in thousands, except 1999 1998 (1)
share and per share data) -----------------------------
Assets
Current Assets
Cash and cash equivalents $ 6,341 $ 2,302
Accounts receivable
Billed 7,252 6,941
Unbilled 51,976 63,392
Other 8,616 8,712
Allowance for doubtful accounts (5,027) (4,503)
-------- --------
Total accounts receivable, net 62,817 74,542
Deferred contract costs 15,035 10,746
Other current assets 5,343 4,278
-------- --------
Total current assets 89,536 91,868
Property and equipment, net 18,103 21,077
Computer software, net 29,069 33,523
Partnership investments and
related receivables 221,951 216,482
Other non-current assets 21,203 22,891
-------- --------
Total Assets $ 379,862 $ 385,841
======== ========
Liabilities and Shareholders' Deficit
Current Liabilities
Accounts payable $ 2,474 $ 1,654
Accrued and other current liabilities 61,097 67,360
Current portion of long-term debt 6,000 4,125
-------- --------
Total current liabilities 69,571 73,139
Long-term debt 451,750 464,500
Deferred income taxes 49,016 50,909
Postretirement and postemployment
benefits 9,817 9,648
Other liabilities 9,700 12,415
Commitments and contingencies
Shareholders' Deficit
Preferred stock, par value $1 per share,
authorized - 10,000,000 shares,
outstanding - none -- --
Common stock, par value $1 per share,
authorized - 400,000,000 shares;
issued - 51,621,894 shares for
1999 and 1998 51,622 51,622
Additional paid in capital 2,522 274
Retained deficit (233,248) (258,594)
Treasury stock, at cost, 17,963,245
shares for 1999 and 17,419,739
shares for 1998 (30,888) (18,072)
-------- --------
Total shareholders' deficit (209,992) (224,770)
-------- --------
Total Liabilities and Shareholders'
Deficit $379,862 $385,841
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
(1) Restated - see Note 2 to the consolidated financial statements.
</FN>
R.H. Donnelley Corporation and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
Six months ended
June 30,
(amounts in thousands) 1999 (1) 1998 (1)
- --------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 25,348 $ 36,688
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 9,425 9,856
Deferred income taxes (1,893) 4,938
Amortization of deferred financing costs 461 --
Provision for doubtful accounts 3,530 4,484
Cash received in excess of (less than) income
from partnerships and related receivables 3,830 (12,558)
Decrease in accounts receivable 8,195 11,483
Increase in deferred contract costs (4,289) (9,384)
Increase in other assets (924) (1,453)
Decrease in accounts payable, accrued
and other current liabilities (4,700) (5,821)
Decrease in other liabilities (2,546) (2,347)
-------- --------
Net cash provided by operating
activities 36,437 35,886
Cash Flows from Investing Activities:
Additions to property and equipment (1,040) (3,115)
Additions to computer software (1,879) (4,229)
Investment in joint venture (8,000) --
-------- --------
Net cash used in investing activities (10,919) (7,344)
Cash Flows from Financing Activities:
Repayment of debt (10,875) --
Purchase of treasury stock (12,798) --
Proceeds from exercise of stock options 2,194 --
Net proceeds from long-term borrowings -- 490,408
Net distributions to Old D&B -- (518,774)
-------- --------
Net cash used in financing activities (21,479) (28,366)
Increase in cash and cash equivalents 4,039 176
Cash and cash equivalents, beginning of year 2,302 32
-------- --------
Cash and cash equivalents, end of period $ 6,341 $ 208
======== ========
Supplemental cash flow information:
Interest paid $ 22,794 N/A
========
Income taxes paid $ 19,771 N/A
========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
(1) Restated - see Note 2 to the consolidated financial statements.
</FN>
R.H. Donnelley Corporation and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
(amounts in thousands)
1. Background and Basis of Presentation
Prior to July 1, 1998, R.H. Donnelley Corporation (the 'Company') operated
as part of The Dun & Bradstreet Corporation ('Old D&B'). In December 1997, the
Board of Directors of Old D&B approved in principle a plan to separate into two
publicly traded companies - the Company and The New Dun & Bradstreet Corporation
('New D&B'). The distribution ('Distribution') was the method by which Old D&B
distributed to its shareholders shares of New D&B common stock. On July 1,
1998, as part of the Distribution, Old D&B distributed to its shareholders
shares of New D&B stock. In connection with the Distribution, Old D&B changed
its name to R.H. Donnelley Corporation. Since the Distribution, the Company's
only operating subsidiary has been R.H. Donnelley Inc. ('Donnelley') and, on a
consolidated basis, the financial statements of the Company and Donnelley are
substantially identical.
The financial statements at June 30, 1998 and for the three and six months
then ended, represent the financial position, results of operations and cash
flows of the Company as if it were a separate entity. The financial statements
include allocations of certain Old D&B expenses, assets and liabilities related
to the Company's businesses. Management believes these allocations are
reasonable; however, the costs of these services are not necessarily indicative
of the costs that would have been incurred if the Company had performed or
provided these functions as a separate entity.
The interim financial statements have been prepared in accordance with the
instructions to Form 10-Q and should be read in conjunction with the financial
statements and related notes included in the Company's Form 10-K/A for the year
ended December 31, 1998. The results of interim periods are not necessarily
indicative of results for the full year or any subsequent period. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
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 reclassifications to 1998 amounts have been made to conform
to the 1999 presentation.
2. Restatement
The Company's financial statements for the three months ended March 31, 1999
and 1998 have been restated to reflect a change in the recording of revenue for
certain directories in the Sprint relationship. For certain Sprint directories,
the Company earns both revenue from commissions on the sale of directory
advertising, and a share of income from the CenDon partnership ('CenDon'), a
50/50 partnership between Donnelley and an operating unit of Sprint.
Previously, sales commission revenues from these directories, including the
semi-annual Las Vegas directory, were recorded in July and December. However,
the Company's share of income from the partnership, which publishes the
directories, was recorded in July and January when the directories were
published. To be consistent, the Company conformed the interim and year-end
accounting to record both the sales commission revenue and its share of
income from the partnership in July and January. The change impacted the
previously reported results for the first and fourth quarters and had a
minimal impact on the annual results. The effect of the restatement on the
previously reported first quarter 1999 and 1998 results is as follows:
Originally reported Restated
Three months ended Three months ended
March 31, Adjustment March 31,
1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------
(amounts in thousands, except per share data)
Revenues $31,659 $24,344 $10,425 $9,527 $42,084 $33,871
Expenses:
Operating expenses 25,467 17,610 4,345 4,029 29,812 21,639
General and administrative 8,879 5,914 -- -- 8,879 5,914
Provision for bad debts 1,408 1,264 795 719 2,203 1,983
Depreciation and amortization 4,789 4,953 -- -- 4,789 4,953
------- ------- ------- ------ ------- -------
Total expenses 40,543 29,741 5,140 4,748 45,683 34,489
Income from partnerships
and related fees 27,487 25,642 -- -- 27,487 25,642
------- ------- ------- ------ ------- -------
Operating income 18,603 20,245 5,285 4,779 23,888 25,024
Interest expense, net 9,716 -- -- -- 9,716 --
------- ------- ------- ------ ------- -------
Income before income taxes 8,887 20,245 5,285 4,779 14,172 25,024
Provision for income taxes 3,572 8,098 2,125 1,911 5,697 10,009
------- ------- ------- ------ ------- -------
Net income $5,315 $12,147 $3,160 $2,868 $8,475 $15,015
======= ======= ====== ====== ====== =======
Earnings per share:
Basic $0.16 $0.36 $0.09 $0.08 $0.25 $0.44
Diluted $0.15 $0.35 $0.09 $0.08 $0.25 $0.44
Shares used in computing earnings per share:
Basic 33,984 34,210 33,984 34,210 33,984 34,210
Diluted 34,330 34,489 34,330 34,489 34,330 34,489
<FN>
Also as a result of the restatement, at December 31, 1998, total assets
decreased $5,285 and shareholders' deficit increased by $3,160.
</FN>
3. Reconciliation of Shares Used in Computing Earnings Per Share
The table below provides a reconciliation of basic weighted average shares
outstanding to diluted weighted average shares outstanding for each period
presented. The conversion of dilutive shares has no impact on operating
results.
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
Weighted average shares
outstanding - basic 33,805 34,294 33,894 34,263
Effect of potentially dilutive
stock options 587 326 465 311
------ ------ ------ ------
Weighted average number of
shares - diluted 34,392 34,620 34,359 34,574
====== ====== ====== ======
4. Long-term debt
Long-term debt at June 30, 1999 and December 31, 1998 consisted of the
following:
June 30, December 31,
1999 1998
Senior subordinated 9.125% Notes $150,000 $150,000
Senior secured term facilities 297,750 298,875
Senior revolving credit facility 10,000 19,750
-------- --------
Total 457,750 468,625
Less current portion 6,000 4,125
-------- --------
Net long-term debt $451,750 $464,500
======== ========
The committed bank facilities consist of an aggregate $300,000 Senior
Secured Term Facilities ('Term Facilities') and a $100,000 Senior Revolving
Credit Facility (the 'Revolver', together with the Term Facilities, the 'Credit
Agreement'). The Credit Agreement and the Indenture governing the senior
subordinated notes each contain covenants that, among other things, restrict the
Company's and Donnelley's ability to engage in mergers, consolidations and asset
sales, incur additional indebtedness and liens and require that certain
financial ratios be maintained.
5. Treasury Stock Activity
During the six months ended June 30, 1999, the Company repurchased or
acquired 774 shares at a cost of $13,046.
6. Litigation
In April 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow
Pages initiated a lawsuit against Donnelley and Bell Atlantic in the United
States District Court of the Southern District of New York. The Rockland Yellow
Pages is a proprietary directory that competes against a Bell Atlantic directory
in the same region. The complaint alleges that the defendants disseminated
false information concerning the Rockland Yellow Pages, which has resulted in
damages to the Rockland Yellow Pages. The plaintiffs are alleging a variety of
claims including RICO violations, antitrust violations and Lanham Act
violations. They are seeking damages in excess of $30 million, which amount
plaintiffs are seeking to have trebled under the antitrust laws. In addition,
the plaintiffs are also seeking punitive damages in an unspecified amount.
Management intends to mount a vigorous defense of the Company in this matter.
At this preliminary stage in the proceedings, management is unable to predict
the outcome of this matter but believes that the resolution of the action will
not have a material adverse effect on the Company's financial position or
results of operations.
Certain tax planning strategies entered into by Old D&B are currently
subject to review by tax authorities. The Internal Revenue Service (the 'IRS')
is currently reviewing Old D&B's utilization of certain capital losses during
1989 and 1990. While the IRS has not issued a formal assessment with respect to
these transactions, the IRS has assessed other companies that had entered into
similar types of transactions. IMS Health Incorporated ('IMS') and Nielsen
Media Research, Inc. ('NMR'), both of which are former subsidiaries of Old D&B,
are each jointly and severally liable to pay 50%, and Old D&B is liable for the
remaining 50% of any payments for taxes and accrued interest arising from this
matter and certain other potential tax liabilities after Old D&B pays the first
$137 million. As a result of the form of the Distribution, the Company is the
legal entity and the taxpayer referred to herein as Old D&B. However, New D&B,
pursuant to the terms of the Distribution Agreement and the Tax Allocation
Agreement, executed in connection with the Distribution, has assumed and will
indemnify the Company and Donnelley against any payments to be made by the
Company or Donnelley in respect of any tax liability that may be assessed and
any related costs and expenses including ongoing legal fees. Accordingly,
management believes that such tax liabilities and related costs and expenses
will have no material impact on the Company's consolidated financial position.
Management further believes that New D&B, IMS and NMR have sufficient financial
resources to satisfy all such liabilities and to reimburse the Company for all
costs and expenses incurred.
In July 1996, Information Resources, Inc. ('IRI') filed a complaint in the
United States District court for the Southern district of New York, naming as
defendants Old D&B, ACNielsen Company, and IMS International Inc. ('the IRI
Action'). The complaint alleges, among other things, various violations of the
antitrust laws and seeks damages in excess of $350 million, which IRI is seeking
to have trebled under the antitrust laws. IRI also seeks punitive damages of an
unspecified amount. Under the Distribution Agreement, New D&B will assume the
defense and indemnify the Company and Donnelley against any payments to be made
by the Company or Donnelley with respect to the IRI Action, including any
related legal fees and expenses.
Other than the matters described above, the Company is also subject to
proceedings, lawsuits and other claims in the ordinary course of business. In
the opinion of management, the outcome of such current legal proceedings, claims
and litigation will not materially affect the Company's financial position,
results of operations or cash flows.
7. DonTech Partnership
The following is summarized combined financial information of the DonTech
Partnership:
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------
Gross revenues $30,352 $86,673 $50,558 $178,215
Income from operations 14,777 54,029 20,140 112,585
Net income 15,347 54,029 20,927 112,585
The decrease in gross revenues, income from operations and net income in
1999 compared to 1998 is due to the change in the structure of the partnership.
Prior to this change, DonTech published various directories, solicited
advertising, and manufactured and delivered various directories in Illinois and
northwest Indiana. Since the change, DonTech performs the advertising sales
function for the directories and earns a commission, while an operating unit of
Ameritech serves as the publisher. The Company has a 50% interest in the
profits of DonTech and also receives revenue participation income, which is tied
to advertising sales, from an operating unit of Ameritech. This revenue
participation income is not shown in the above table.
Income and related fees recognized in the financial statements is comprised
of the Company's share of the net income above, plus revenue participation
income less other reconciling items. Income and related fees from DonTech was
$36,648 and $34,925 for the three months ended June 30, 1999 and 1998,
respectively, and $57,487 and $54,935 for the six months ended June 30, 1999 and
1998, respectively. Revenue participation income included in these amounts was
$28,810 and $29,592 for the three months ended June 30, 1999 and 1998,
respectively and $47,637 and $46,903 for the six months ended June 30, 1999 and
1998, respectively. Due to the change in the partnership structure and the
timing of revenue recognition, the amounts in the table for 1998 do not
correspond to the income from partnerships and related fees recognized in the
financial statements.
8. Business Segments
The Company provides advertising sales and marketing services of yellow
pages and other directory products under long-term sales agency agreements and
joint venture partnerships with operating units of major telephone companies and
through its own independent operations. The Company also provides publishing
and production services for yellow pages directories. The Company's reportable
operating segments are Directory Advertising Services, DonTech Partnership and
Directory Publishing Services. The DonTech Partnership is viewed as a separate
reportable operating segment since, among other factors, the employees of
DonTech, including officers and managers, are not employees of the Company.
Essentially, all operations are conducted in the United States.
Management evaluates the performance of the operating segments and allocates
resources to them based on operating income and other factors. Operating income
for the reportable segments (except DonTech) includes those costs directly
incurred by each operation plus an allocation of certain shared operating and
general and administrative expenses based on estimated business usage. Interest
expense, income tax expense and non-operating income and expenses are not
allocated to the reportable segments. The operating loss under the Other column
represents general and administrative expenses and other activities not
allocated to the reportable segments. Total assets included in the Other column
represent those assets not allocated to the reportable segments, such as cash
and cash equivalents, prepaid and deferred expenses and corporate property and
equipment.
Selected financial results for the three and six month periods ended June
30, 1999 and 1998 and total assets at June 30, 1999 and 1998 are as follows:
Three month period ended June 30, 1999
Directory Directory Consol-
Advertising DonTech Publishing idated
Services Partnership Services(2) Other Totals
Advertising sales (1)
Calendar cycle $140,123 $120,240 -- -- $260,363
Publication cycle 198,634 82,125 -- -- 280,759
Revenues 32,192 -- $7,933 -- 40,125
Income from partnerships and
related fees 1,319 36,648 -- -- 37,967
EBITDA (3) 7,941 36,648 1,139 $(3,627) 42,101
Depreciation and amortization 1,640 -- 1,664 1,332 4,636
Operating income (loss) 6,301 36,648 (525) (4,959) 37,465
Total assets 119,862 192,421 19,295 48,284 379,862
Three month period ended June 30, 1998
Directory Directory Consol-
Advertising DonTech Publishing idated
Services Partnership Services(2) Other Totals
Advertising sales (1)
Calendar cycle $129,550 $125,781 -- -- $255,331
Publication cycle 191,198 78,868 -- -- 270,066
Revenues 30,367 -- $7,627 -- 37,994
Income from partnerships and
related fees 1,658 34,925 -- -- 36,583
EBITDA (3) 7,389 34,925 921 $804 44,039
Depreciation and amortization 1,495 -- 1,666 1,742 4,903
Operating income (loss) 5,894 34,925 (745) (938) 39,136
Total assets 108,238 209,482 24,123 49,647 391,490
<FN>
(1) Advertising sales represents the billing value of advertisements sold by the
Company and DonTech. Management reviews the performance of the operating
segments on, among other things, the advertising sales generated on a
calendar cycle and a publication cycle basis. Calendar cycle advertising
sales represent the billing value of advertisements sold stated on the same
basis for which revenue is recognized in the consolidated financial
statements (that is, when a sales contract is signed where the Company acts
as a sales agent and when a directory is published where the Company acts as
the publisher). Advertising sales on a publication cycle basis represent
the billing value of advertisements sold based on when a directory is
published, regardless of the Company's role and the recognition of revenue
in the consolidated financial statements.
(2) Directory Publishing Services revenues do not include intracompany revenues
of $245 and $238 for the three months ended June 30, 1999 and 1998,
respectively.
(3) EBITDA represents earnings before interest, taxes and depreciation and
amortization. EBITDA is not a measurement of operating performance computed
in accordance with generally accepted accounting principles and should not
be considered as a substitute for operating income or net income prepared in
conformity with generally accepted accounting principles. In addition,
EBITDA may not be comparable to similarly titled measures of other
companies.
</FN>
Six month period ended June 30, 1999
Directory Directory Consol-
Advertising DonTech Publishing idated
Services(4) Partnership Services(5) Other Totals
Advertising sales
Calendar cycle $283,371 $198,387 -- -- $481,758
Publication cycle 313,443 216,972 -- -- 530,415
Revenues 66,467 -- $15,742 -- 82,209
Income from partnerships and
related fees 7,967 57,487 -- -- 65,454
EBITDA 21,547 57,487 1,401 $(9,657) 70,778
Depreciation and amortization 3,266 -- 3,312 2,847 9,425
Operating income (loss) 18,281 57,487 (1,911) (12,504) 61,353
Six month period ended June 30, 1998
Directory Directory Consol-
Advertising DonTech Publishing idated
Services(4) Partnership Services(5) Other Totals
Advertising sales
Calendar cycle $242,164 $200,913 -- -- $443,077
Publication cycle 297,203 208,081 -- -- 505,284
Revenues 56,562 -- $15,303 -- 71,865
Income from partnerships and
related fees 7,290 54,935 -- -- 62,225
EBITDA 19,108 54,935 2,213 $(2,239) 74,017
Depreciation and amortization 2,890 -- 3,285 3,681 9,856
Operating income (loss) 16,218 54,935 (1,072) (5,920) 64,161
<FN>
(4) Amounts have been restated to reflect the change in the recording of
revenue for certain directories in the Sprint relationship. See Note 2.
(5) Directory Publishing Services revenues do not include intracompany revenues
of $488 and $436 for the six months ended June 30, 1999 and 1998,
respectively.
</FN>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The matters discussed in this Form 10-Q of R.H. Donnelley Corporation (the
'Company') and R.H. Donnelley Inc. ('Donnelley') contain forward looking
statements subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. Where applicable, the words 'believe,'
'expect,' 'anticipate,' 'should,' 'planned,' 'estimated,' 'potential,' 'goal,'
'outlook,' and similar expressions, as they relate to the Company, Donnelley or
its management, have been used to identify such forward looking statements.
These statements and all other forward looking statements reflect the Company's
and Donnelley's current beliefs and specific assumptions with respect to future
business decisions and are based on information currently available.
Accordingly, the statements are subject to significant risks, uncertainties and
contingencies which could cause the Company's and Donnelley's actual operating
results, performance or business prospects to differ from those expressed in,
or implied by, these statements. Such risks, uncertainties and contingencies
include the following: (1) loss of market share through competition; (2)
uncertainties caused by the consolidation of the telecommunications industry;
(3) introduction of competing products or technologies by other companies; (4)
complexity and uncertainty regarding the development of new high technology
products; (5) pricing pressures from competitors and/or customers; (6) changes
in the yellow pages industry and markets; (7) the Company's inability to
complete the implementation of its Year 2000 plans on a timely basis; and (8) a
sustained economic downturn in the United States.
The Company
Except where otherwise indicated, the terms 'Company,' 'we' and 'our' refer
to R.H. Donnelley Corporation and its only wholly owned subsidiary R.H.
Donnelley Inc. ('Donnelley'). We have no other operations other than through
this subsidiary; therefore, on a consolidated basis, our financial statements
and the financial statements of Donnelley are substantially identical.
We provide advertising sales and marketing services for yellow pages and
other directory products under long-term sales agency agreements and joint
venture partnerships with operating units of major telephone companies as well
as through our own independent operation. We are a sales agent in New York
State for an operating unit of Bell Atlantic and in Florida for an operating
unit of Sprint. We also serve as a sales agent and publisher for the CenDon
partnership ('CenDon'), a 50/50 partnership with an operating unit of Sprint
that was formed to publish directories in Florida, Nevada, Virginia and North
Carolina. We also publish our own independent yellow pages directory in the
Cincinnati area. Due to their similarities, we aggregate these businesses in
our Directory Advertising Services ('DAS') segment.
We are also a 50% partner in the DonTech Partnership ('DonTech'), a
partnership with an operating unit of Ameritech, which acts as the exclusive
sales agent for yellow pages directories published by Ameritech in Illinois and
northwest Indiana. In addition to receiving 50% of the profits of DonTech, we
receive direct fees ('Revenue Participation') from an operating unit of
Ameritech, which are tied to advertising sales. While DonTech provides
advertising sales of yellow pages and other directory products, the partnership
is considered a separate operating segment since, among other things, the
employees of DonTech, including officers and managers, are not our employees.
We also provide pre-press publishing services for yellow pages directories,
including advertisement creation, sales contract management, listing database
management, sales reporting and commissions, pagination, billing services and
imaging, to independent yellow pages publishers and certain existing customers
under separately negotiated contracts. This business is classified as Directory
Publishing Services ('DPS').
Factors Affecting Comparability
All data included herein pertaining to the six month periods ended June 30,
1999 and 1998 have been restated to reflect a change in the recording of revenue
for certain directories in the Sprint relationship. See Note 2 to the
consolidated financial statements.
Prior to July 1, 1998, we operated as part of The Dun & Bradstreet
Corporation ('Old D&B'). In December 1997, the Board of Directors of Old D&B
approved in principle a plan to separate into two publicly traded companies -
the Company and The New Dun & Bradstreet Corporation ('New D&B'). The
distribution ('Distribution') was the method by which Old D&B distributed to its
shareholders shares of New D&B common stock. On July 1, 1998, as part of the
Distribution, Old D&B distributed to its shareholders shares of New D&B stock.
In connection with the Distribution, Old D&B changed its name to R.H. Donnelley
Corporation.
The financial statements for the three and six month periods ended June 30,
1998 reflect our results of operations and cash flows as if we were a separate
entity. The financial statements include allocations of certain Old D&B general
and administrative expenses and corporate assets and liabilities related to our
business. Management believes these allocations are reasonable; however, these
costs and allocations are not necessarily indicative of the costs that would
have been incurred had we performed or provided these functions as a separate
entity. For example, we estimate that general and administrative expenses would
have been approximately $2.2 million and $4.4 million higher than the amounts
allocated during the three and six month period ended June 30, 1998,
respectively. Additionally, in connection with the Distribution, we issued Debt
(as defined below; see - 'Liquidity and Capital Resources') and estimate that
additional interest expense of $7.7 million and $18.4 million would have been
incurred for the three and six month period ended June 30, 1998, respectively,
assuming the Debt was outstanding as of the beginning of 1998.
Advertising Sales
Advertising sales represents the billing value of advertisements sold by
the Company and DonTech in a given calendar year (calendar cycle sales). These
sales are recognized on the same basis on which revenues are recognized (that
is, when a customer signs a sales contract where we are a sales agent or when
the directory is published where we are the publisher). Calendar cycle sales in
the second quarter of 1999 were $260.4 million, an increase of $5.0 million or
2.0% over last year's second quarter. For the six month period ended June 30,
1999, advertising sales were $481.8 million, an increase of $38.7 million, or
8.7% over the comparable 1998 period. Advertising sales by segment are as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 Change 1999 1998 Change
DAS $140.1 $129.6 $10.5 8.1% $283.4 $242.2 $41.2 17.0%
DonTech 120.3 125.8 (5.5) (4.5)% 198.4 200.9 (2.5) (1.2)%
----- ----- ---- ----- ----- ----
Total $260.4 $255.4 $5.0 2.0% $481.8 $443.1 $38.7 8.7%
===== ===== === ===== ===== ====
The increase in Directory Advertising Services sales in the second quarter
is primarily due to sales in Bell Atlantic's Buffalo and North Country markets.
In May 1998, we were appointed the exclusive sales agent by Bell Atlantic to
service these markets, and accordingly, there were no sales in the prior year
second quarter or year to date periods. The 4.5% decrease in DonTech sales in
the second quarter is mainly due to the timing of when sales occur. For the six
month period, DAS sales are up 17.0%. Approximately half of the increase is due
to sales from the Buffalo and North Country markets. The remaining increase is
primarily due to the timing of sales in various Bell Atlantic directories
compared to last year. Sales in the Sprint markets were up approximately 3.3%
primarily due to an increase in the January Las Vegas directory, partially
offset by a decrease in sales in Central Florida due to the timing of when sales
occur compared to last year.
Management believes that an additional measurement of sales performance is
the publication cycle method. This method calculates sales on the basis of the
annual value of a directory according to its publication date regardless of when
the advertising for that directory was sold. If a directory publication date
changes from one year to the next, the prior year publication date is adjusted
to conform to the present year to maintain comparability. Publication cycle
sales in the second quarter of 1999 were $280.7 million, an increase of $10.6
million or 3.9% over the second quarter 1998. For the six months ended June 30,
1999, publication cycle sales were $530.4 million, an increase of $25.1 million
or 5.0% over the comparable 1998 period. Advertising sales by segment are
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 Change 1999 1998 Change
DAS $198.6 $191.2 $7.4 3.9% $313.4 $297.2 $16.2 5.5%
DonTech 82.1 78.9 3.2 4.1% 217.0 208.1 8.9 4.3%
----- ----- ---- ----- ----- ----
Total $280.7 $270.1 $10.6 3.9% $530.4 $505.3 $25.1 5.0%
===== ===== ==== ===== ===== ====
The increase in Directory Advertising Services sales for the quarter is
primarily due to directories for the Buffalo and North Country markets that were
published for the first time since we were appointed Bell Atlantic's sales agent
in that region. Accordingly, there were no comparable publications during the
prior year periods. For the six month period, DAS sales increased 5.5%,
however, excluding sales in the Buffalo and North Country markets, DAS sales
increased 2.2%. This increase is primarily due to gains in the Sprint markets,
especially Las Vegas. The increase in DonTech sales for the three and six month
periods is attributable to continued good growth in the Chicago markets and the
successful rebalancing of the directory publication schedule in 1997 and 1998.
Financial Performance
Revenues from Directory Advertising Services consist of sales commissions
from our sales agency agreements and the billing value of advertisements sold
from our independent operation. Revenues from Directory Publishing Services
consist of pre-press publishing services for yellow pages directories provided
to independent yellow pages publishers and certain existing customers under
separately negotiated contracts. Revenues in the second quarter of 1999 of
$40.1 million were $2.1 million or 5.5% higher than the second quarter 1998.
For the six month period ended June 30, 1999, revenues were $82.2 million, an
increase of $10.3 million or 14.3%. Revenues by segment are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 Change 1999 1998 Change
DAS $32.2 $30.4 $1.8 5.9% $66.5 $56.6 $9.9 17.5%
DPS 7.9 7.6 0.3 3.9% 15.7 15.3 0.4 2.6%
----- ----- ---- ----- ----- ----
Total $40.1 $38.0 $2.1 5.5% $82.2 $71.9 $10.3 14.3%
===== ===== ==== ===== ===== ====
The increase in Directory Advertising Services revenues for the quarter and
year to date period is primarily due to the 8.1% and 17.0% increase in calendar
sales mentioned above.
Operating expenses for the second quarter of 1999 of $28.5 million were
$1.9 million, or 7.1% higher than the second quarter of 1998. This increase is
principally related to higher salesperson salaries and commissions due to the
increase in sales. For the six months ended June 30, 1999, operating expenses
were $58.3 million, an increase of $10.1 million or 20.9% over the comparable
1998 period. This increase is principally due to an increase in telemarketing
expenses, higher salesperson commissions and an increase in information
technology related expenses. The increase in information technology related
expenses is principally due to more maintenance type expenditures in 1999, which
are expensed when incurred, compared to developmental type expenditures in 1998,
which are capitalized when incurred and depreciated over a period of time.
General and administrative expenses for the three and six months ended June
30, 1999 of $6.1 million and $15.0 million, respectively, increased
significantly over the prior year comparable period amounts. These increases
are mainly due to higher costs associated with being a stand-alone company and
costs associated with the joint venture with China Unicom (see - 'Liquidity and
Capital Resources').
Income from partnerships and related fees includes our share of the profits
and losses from DonTech, including Revenue Participation, CenDon and our China
joint venture. Income from partnerships and related fees increased in the
second quarter of 1999 by $1.4 million to $38.0 million, primarily due to higher
income from DonTech. For the six months ended June 30, 1999, income from
partnerships and related fees increased $3.2 million over the comparable 1998
period due to an increase in income and related fees from DonTech of $2.6
million and an increase in CenDon income of $0.9 million. Through June 30,
1999, our share of the China joint venture losses was $0.3 million.
Operating income for the three and six months ended June 30, 1999 of $37.4
million and $61.4 million, respectively, was slightly lower than the
corresponding 1998 periods. Operating income (loss) by segment is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 Change 1999 1998 Change
DAS $ 6.3 $ 5.9 $0.4 6.8% $18.3 $16.2 $2.1 13.0%
DonTech 36.6 34.9 1.7 4.9% 57.5 54.9 2.6 4.7%
DPS (0.5) (0.7) 0.2 28.6% (1.9) (1.1) (0.8) (72.7)%
Other (5.0) (0.9) 4.1 n/m (12.5) (5.9) (6.6) n/m
----- ----- ---- ----- ----- ----
Total $37.4 $39.2 $(1.8) (4.6)% $61.4 $64.1 $(2.7) (4.2)%
===== ===== ==== ===== ===== ====
Operating income for Directory Advertising Services for the three and six
month periods increased over last year primarily due to the increase in revenues
partially offset by a corresponding increase in salesperson commissions.
Directory Publishing Services' operating loss for the six months ended June 30,
1999 increased primarily due to higher information technology related expenses
referred to above. Other operating loss represents corporate and general
overhead costs that are not allocated to the business segments. The increase in
the three and six month periods is due to higher costs associated with being a
stand-alone company.
Interest expense represents interest on the Debt issued in connection with
the Distribution. The large increase in interest expense for the 1999 periods
compared to the prior year is due to the issuance of the Debt in June 1998.
Net income for the second quarter 1999 was $16.9 million, or $0.49 per
diluted share compared to $21.7 million, or $0.63 per diluted share in 1998.
For the six month period ended June 30, 1999, net income was $25.3 million, or
$0.74 per diluted share compared to $36.7 million, or $1.06 per diluted share in
1998. As previously stated, we believe that the 1998 results are not comparable
to the current operations as they do not include certain general and
administrative expenses and interest expense that were incurred as a result of
the separation from Old D&B. If the results for the three and six month periods
ended June 30, 1998 are adjusted to (i) include the estimated additional general
and administrative expenses associated with being a stand-alone company and (ii)
assume the Debt was outstanding as of the beginning of 1998, we estimate that
operating income for the second quarter 1998 would have been $36.9 million and
net income would have been $15.8 million or $0.45 per diluted share. For the
six months ended June 30, 1998, operating income would have been $59.7 million
and net income would have been $23.1 million or $0.66 per diluted share.
Liquidity And Capital Resources
In connection with the Distribution, Donnelley borrowed $300 million under
its Senior Secured Term Facilities ('Term Facilities') and issued $150 million
of Senior Subordinated Notes (the 'Notes'). Donnelley also borrowed $50 million
against its $100 million Senior Revolving Credit Facility (the 'Revolver',
together with the Term Facilities, the 'Credit Agreement'). The net proceeds
from these initial borrowings (the 'Debt'), were dividended to Old D&B and
distributed to New D&B in connection with the Distribution. The Term Facilities
mature between June 2004 and December 2006, and require quarterly principal
repayments. The Notes mature in 2008 and pay interest semi-annually in June and
December at the annual rate of 9.125%. The Credit Agreement and the Indenture
governing the Notes each contain various financial and other restrictive
covenants, including restrictions on indebtedness, capital expenditures and
commitments. Through June 30, 1999, the Company has complied with all covenants
under the Credit Agreement and Indenture governing the Notes. At July 31, 1999,
total available borrowing capacity under the Revolver was $93.0 million.
In 1998, the Company entered into a joint venture with China United
Telecommunications Corporation ('China Unicom') to publish yellow pages
directories and to offer Internet directory services in the People's Republic of
China. Under the terms of the joint venture agreement, we acquired a 15%
interest and agreed to invest cash of approximately $15.6 million. As of July
31, 1999, we have invested $9.3 million, including $8.0 million invested during
the second quarter of 1999, and anticipate making additional contributions of
$3.8 million in 2000 and $2.5 million in 2001. These payments will be funded
from cash flows from operations or from borrowings under the Revolver.
We believe that cash from operations and available debt capacity under the
Revolver, will be sufficient to fund our operations and meet our anticipated
investment, capital expenditures and debt service requirements for the
foreseeable future.
Cash Flow
Net cash provided by operations of $36.4 million through June 30, 1999 was
comparable to the net cash provided by operations through June 30, 1998 of $35.9
million. Net income and non-cash charges declined in the first half of 1999
mainly due to an increase in expenses, principally interest and general and
administrative expenses, as a result of the Company's separation from Old D&B,
and changes in deferred taxes. This decrease was offset by the timing of
partnership cash receipts.
Net cash used in investing activities during the first half of 1999 was
$10.9 million compared to $7.3 million in the first half of 1998. The 1999
amount includes the investment of $8.0 million in our China joint venture. We
currently have no material commitments for investment spending, other than the
China joint venture mentioned above.
Net cash used in financing activities was $21.5 million through June 30,
1999 compared to $28.4 million through June 30, 1998. The 1998 amount
represents amounts distributed to Old D&B. Prior to July 1, 1998, all cash
deposits were transferred to Old D&B on a daily basis and Old D&B funded our
disbursement bank accounts as required. Also during the 1998 period, we issued
Debt and the net proceeds of $490.4 million were distributed to New D&B in
connection with the Distribution. For the first half of 1999, cash of $10.8
million was used to repay debt and $12.8 million was used to repurchase stock.
These cash outflows were offset, in part, by proceeds of $2.2 million from the
exercise of employee stock options.
Year 2000 Issue
The Year 2000 ('Y2K') issue is the result of computer programs being
written using two digits rather than four digits to define the applicable year.
Computer programs that have date sensitive software may recognize a date using
'00' as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions.
As part of our Y2K compliance program, all of our installed computer
systems and software products have been assessed for Y2K problems. We replaced
our financial systems (General Ledger, Accounts Payable, and Fixed Assets) with
systems that use programs from Oracle Corporation, which have been tested and
certified to be Y2K compliant. For all remaining systems, software programs are
being modified or replaced. We are requesting assurances from all software
vendors from which we have purchased or licensed software, or from which we may
purchase or license software, that such software will correctly process all date
information at all times. Additionally, all modifications to existing software,
or new software installed is subjected to our internal Y2K compliance program
described below. Through continued modifications to existing software and
conversions to new software, we believe that we will be able to mitigate our
exposure to the Y2K issue before 2000. However, if continued modifications and
conversions are not made, or not completed on a timely basis, the Y2K issue
could have a material adverse effect on our operating results and financial
condition.
We have divided our Y2K compliance program into five major phases - (1) the
assessment of all computer systems and software products (collectively the
'Computer Systems') for Y2K compliance, (2) the remediation (i.e. conversion or
modification) of each Computer System to be Y2K compliant, (3) the testing of
the remediation to confirm that such remediation has not adversely impacted the
operation of the Computer Systems, and that it can process dates correctly, (4)
the implementation of the remediated Computer Systems into production and (5)
certification of the remediation for Y2K compliance. The percentage of
completion of each phase at the end of July 1999 is shown in the table below:
Assessment 100%
Remediation 100%
Testing 100%
Implementation 100%
Certification 82%
The certification testing is expected to be completed by August 31, 1999.
In addition, it is possible that certain computer systems or software
products with which our computer systems, software, databases or other
technology interface or are integrated with may not accept input of, store,
manipulate and output dates in the year 2000 or thereafter without error or
interruption. We have conducted a review of our computer systems to attempt to
identify ways in which the systems could be affected by interface- or
integration-related problems in correctly processing date information. We are
communicating with those third parties with which we maintain business
relationships to monitor and evaluate their progress in identifying and
addressing their Y2K issues and assessing the potential impact, if any, to us.
Currently, nothing has come to our attention that would indicate that the Y2K
compliance efforts of a major third party would have a material adverse effect
on our results of operations and financial condition. However, there can be no
assurance that we will identify all interface- or integration-related or third
party-related problems in advance of their occurrence, or that we will be able
to successfully remedy problems that are discovered. The expenses of our efforts
to identify and address such problems, or the expenses and liabilities to which
we may become subject to as a result of such problems, could have a material
adverse effect on our results of operations and financial condition.
We expect to have our Y2K compliance program substantially completed during
the third quarter. We continually assess the risk of non-compliance of our
systems and the systems of major third parties and are currently in the process
of developing contingency plans and alternative arrangements for circumstances
outside our direct control.
Through June 30, 1999, we have spent approximately $4.9 million addressing
the Y2K issues and estimate that we will spend an additional $0.4 million during
1999. These costs will be funded through cash flows from operations.
Market Risk Sensitive Instruments
We are exposed to interest rate risk through our Credit Agreement where we
borrow at prevailing short-term variable rates. In order to manage our exposure
to fluctuations in interest rates, we have entered into interest rate swap
agreements which allow us to raise funds at floating rates and effectively swap
them into fixed rates that are lower than those available if fixed rate
borrowings were made directly. These derivative financial instruments are
viewed as risk management tools and are entered into for hedging purposes only.
We do not use derivative financial instruments for trading or speculative
purposes. There has been no change in the $175 million outstanding notional
amount of interest rate swaps since December 31, 1998 and the unrealized fair
value of the swaps was a gain of $2.6 million at June 30, 1999.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The requirements of this Item are discussed in Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the discussion of legal proceedings found in the
Annual Report on Form 10-K/A for the year ended December 31, 1998. New D&B has
assumed the defense of the matters discussed therein and to the best of
management's knowledge, there have been no material changes in the status of the
proceedings referenced therein.
Reference is made to the discussion of legal proceedings found in the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. As of the
date of this report, the Company, together with Bell Atlantic, has filed a
motion to dismiss the action and is awaiting plaintiffs' opposition papers.
There have been no material changes in the status of the proceedings referenced
therein.
The Company is also involved in certain legal proceedings incidental to the
normal conduct of its business. Although there can be no assurances, management
believes that the outcome of such legal proceedings will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of R.H. Donnelley Corporation was held
on April 27, 1999. At the meeting, the stockholders elected two directors to
serve three-year terms expiring in 2002, elected to amend the Company's Restated
Certificate of Incorporation to remove the foreign ownership restriction and
ratified the appointment of PricewaterhouseCoopers to serve as independent
accountants for the Company and its subsidiary for 1999. The number of votes
cast for, against and abstained for each matter is as follows:
Votes Votes Votes
For Against Abstained
Election of Directors
Name
William G. Jacobi 30,312,723 161,630 --
Frank R. Noonan 30,331,695 142,658 --
Amendment of the
Company's Restated
Certificate of
Incorporation 27,491,440 178,301 118,587
Ratification of
PricewaterhouseCoopers
as independent accountants
for 1999 30,347,702 26,718 99,933
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Document
3.1 Certificate of Incorporation of the Company
3.2 By-laws of the Company
3.3 Certificate of Incorporation of Donnelley (incorporated by
reference to Exhibit 3.3 to Amendment No. 1 to the
Registration Statement on Form S-4, filed with the Securities
and Exchange Commission on August 7, 1998, Registration No.
333-59287)
3.4 By-laws of Donnelley (incorporated by reference to Exhibit 3.4
to the Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on July 17, 1998,
Registration No. 333-59287)
4.1 Indenture dated as of June 5, 1998 between Donnelley, as
Issuer, the Company, as Guarantor, and the Bank of New York,
as Trustee, with respect to the 9 1/8% Senior Subordinated
Notes due 2008 (incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on July 17, 1998,
Registration No. 333-59287)
4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008 (included
in Exhibit 4.1)
4.3 Company Guarantee (included in Exhibit 4.1)
4.4 Rights Agreement, dated as of October 27, 1998 between R.H.
Donnelley Corporation and First Chicago Trust Company
(incorporated by reference to Exhibit 4 to the Registration
Statement on Form 8-A, filed with the Securities and Exchange
Commission on November 5, 1998, Registration No. 001-07155)
*10.1 Severance Agreement and Release dated March 24, 1999 between
Frederick J. Groser and the Company
*10.2 Severance Agreement and Release dated July 23, 1999 between
Alexander R. Marasco and the Company
*27.1 Financial Data Schedule of the Company
*27.2 Financial Data Schedule of Donnelley
*27.3 Restated Financial Data Schedule of the Company / For 3 Mos.
Ended March 31, 1999
*27.4 Restated Financial Data Schedule of Donnelley / For 3 Mos.
Ended March 31, 1999
<FN>
* filed herewith
</FN>
(b) Reports on Form 8-K:
None
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.
R.H. DONNELLEY CORPORATION
Date: August 12, 1999 By: /s/ Philip C. Danford
_____________________________
Philip C. Danford
Senior Vice President and Chief Financial Officer
Date: August 12, 1999 By: /s/ William C. Drexler
_____________________________
William C. Drexler
Vice President and Controller
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.
R.H. DONNELLEY INC.
Date: August 12, 1999 By: /s/ Philip C. Danford
_____________________________
Philip C. Danford
Senior Vice President and Chief Financial Officer
Date: August 12, 1999 By: /s/ William C. Drexler
_____________________________
William C. Drexler
Vice President and Controller