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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, 2001
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 1, 2001
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Common Stock, par value $1 per share 30,108,078
Commission file number 333-59287
R.H. DONNELLEY INC. *
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(Exact name of registrant as specified in its charter)
Delaware 36-2467635
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(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
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* R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley
Corporation. R.H. Donnelley Inc. became subject to the filing requirements of
Section 15(d) on October 1, 1998 in connection with the public offer and sale of
its 9 1/8% Senior Subordinated Notes. As of August 1, 2001, 100 shares of R.H.
Donnelley Inc. common stock, no par value, were outstanding.
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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, 2001 and 2000.............................. 3
Consolidated Balance Sheets at June 30, 2001 and December 31,
2000............................................................. 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 2000........................................... 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............ 21
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings.................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders.................. 22
Item 6. Exhibits and Reports on Form 8-K..................................... 23
SIGNATURES....................................................................... 28
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R.H. DONNELLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------
(amounts in thousands, except per share data) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------
Gross revenue.................................. $ 20,342 $ 62,405 $ 39,532 $ 107,701
Less: sales allowances......................... (308) (2,245) (659) (6,152)
--------- -------- -------- ---------
Net revenue................................ 20,034 60,160 38,873 101,549
Expenses
Operating expenses.......................... 13,286 38,613 23,838 69,347
General and administrative expenses......... 5,013 6,297 9,160 14,385
Provision for doubtful accounts............. 983 1,995 1,599 2,644
Depreciation and amortization............... 2,755 4,249 5,640 8,773
--------- -------- -------- ---------
Total expenses............................. 22,037 51,154 40,237 95,149
Income from partnerships and related fees...... 41,211 43,204 68,235 71,383
--------- -------- -------- ---------
Operating income........................... 39,208 52,210 66,871 77,783
Interest income................................ 270 306 1,546 442
Interest expense............................... (6,498) (9,472) (14,300) (18,822)
Gain on disposition of businesses.............. -- 89,435 -- 89,435
--------- -------- -------- ---------
Income before taxes and extraordinary loss. 32,980 132,479 54,117 148,838
Provision for income taxes..................... 12,368 50,628 20,294 57,302
--------- -------- -------- ---------
Income before extraordinary loss........... 20,612 81,851 33,823 91,536
Extraordinary loss (net of taxes of $208)...... -- -- 348 --
--------- -------- -------- ---------
Net income................................. $ 20,612 $ 81,851 $ 33,475 $ 91,536
========= ======== ======== =========
Earnings per share before extraordinary loss
Basic...................................... $ 0.68 $ 2.56 $ 1.10 $ 2.83
Diluted.................................... $ 0.66 $ 2.50 $ 1.07 $ 2.78
Earnings per share after extraordinary loss
Basic...................................... $ 0.68 $ 2.56 $ 1.09 $ 2.83
Diluted.................................... $ 0.66 $ 2.50 $ 1.06 $ 2.78
Shares used in computing earnings per share
Basic...................................... 30,519 31,989 30,696 32,303
Diluted.................................... 31,465 32,727 31,580 32,887
The accompanying notes are an integral part of the consolidated financial
statements.
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R.H. DONNELLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, December 31,
(amounts in thousands, except share and per share data) 2001 2000
- --------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................ $ 7,655 $ 55,437
Accounts receivable ...................................... 37,919 37,646
Less: sales allowance and allowance for doubtful accounts (7,684) (7,355)
------------- -------------
Net accounts receivable .............................. 30,235 30,291
Other current assets ..................................... 10,232 13,321
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Total current assets ................................. 48,122 99,049
Fixed assets and computer software, net .................. 17,181 21,633
Partnership investments and related receivables .......... 211,027 213,834
Investment in ChinaBig.com ............................... 13,432 13,432
Prepaid pension .......................................... 20,195 19,457
Other non-current assets ................................. 6,091 6,379
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TOTAL ASSETS ......................................... $ 316,048 $ 373,784
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities ................. $ 27,522 $ 44,648
Accrued interest payable ................................. 5,466 6,490
Current portion of long-term debt ........................ -- 4,224
------------- -------------
Total current liabilities ............................ 32,988 55,362
Long-term debt ........................................... 301,750 347,526
Deferred income taxes .................................... 58,871 60,913
Postretirement and postemployment benefits ............... 10,070 8,598
Other liabilities ........................................ 15,776 9,895
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
2001 and 2000 ......................................... 51,622 51,622
Additional paid-in capital ............................... 24,937 18,373
Unamortized restricted stock ............................. (439) (232)
Equity options outstanding ............................... 315 242
Retained deficit ......................................... (45,210) (78,685)
Accumulated other comprehensive loss ..................... (2,291) --
Treasury stock, at cost, 21,497,770 shares for 2001 and
20,682,293 shares for 2000 ............................ (132,341) (99,830)
------------- -------------
Total shareholders' deficit .......................... (103,407) (108,510)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT .......... $ 316,048 $ 373,784
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
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R.H. DONNELLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
----------------------
(amounts in thousands) 2001 2000
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................... $ 33,475 $ 91,536
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization ............................. 5,640 8,773
Provision for doubtful accounts ........................... 1,599 2,644
Deferred income taxes ..................................... (500) 776
Other noncash charges ..................................... 662 1,254
Extraordinary loss (net of taxes of $208) ................. 348 --
Gain on disposition of businesses (net of taxes of $34,433) -- (55,002)
Cash received in excess of income from partnerships ....... 9,148 8,392
(Increase) decrease in accounts receivable ................ (1,543) 29,338
Decrease in other assets .................................. 1,599 3,235
(Decrease) increase in accounts payable and accrued
liabilities ............................................ (17,204) 10,568
Increase in other liabilities ............................. 1,472 689
--------- ---------
Net cash provided by operating activities ................ 34,696 102,203
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets and computer software ................ (1,952) (5,511)
Investment in ChinaBig.com ..................................... (1,550) (3,938)
Proceeds from disposition of businesses ........................ -- 122,009
--------- ---------
Net cash (used in) provided by investing activities ...... (3,502) 112,560
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt .............................................. (50,000) (3,000)
Purchase of treasury stock ..................................... (32,538) (25,531)
Proceeds from exercise of stock options ........................ 3,562 2,416
--------- ---------
Net cash used in financing activities .................... (78,976) (26,115)
(Decrease) increase in cash and cash equivalents ............... (47,782) 188,648
Cash and cash equivalents, beginning of year ................... 55,437 2,390
--------- ---------
Cash and cash equivalents, end of period ....................... $ 7,655 $ 191,038
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid .................................................. $ 12,292 $ 17,327
========= =========
Income taxes paid .............................................. $ 21,867 $ 13,750
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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R.H. DONNELLEY CORPORATION AND SUBSIDIARIES
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 (in the context of specifically
describing the Distribution, referred to as "Old D&B," otherwise "D&B"). The
Board of Directors of Old D&B approved 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 and Old D&B changed its name to R.H. Donnelley Corporation.
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 for the year
ended December 31, 2000. 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 2000 amounts have been reclassified to conform to the 2001
presentation.
2. DISPOSITION OF BUSINESSES AND RELATED COST CUTTING ACTIONS
On April 27, 2000, the Company sold its Cincinnati proprietary directory
business to Yellow Book USA, Inc. for $8,000.
On June 30, 2000, the Company entered into an agreement ("Agreement") with an
affiliate of Bell Atlantic Corporation ("Bell Atlantic") for the early
termination of the directory services agreements between the Company and Bell
Atlantic dated September 5, 1985 and May 5, 1998, as amended (the "Agency
Agreements"). Pursuant to the Agency Agreements, the Company had served as
exclusive advertising sales agent for Bell Atlantic directories covering
substantially all of New York State. The Agency Agreements had been scheduled to
expire in 2005 and 2003, respectively. The transactions contemplated by the
Agreement were also consummated on June 30, 2000.
Under the terms of the Agreement, the Company received cash proceeds of
$114,009. The Company also received commissions of approximately $42,000 for
sales which occurred prior to the closing, but which were not yet payable under
the terms of the Agency Agreements and approximately $15,000 in connection with
its sales for certain directories that published in the pre-closing period.
In connection with the above actions, the Company also implemented cost-cutting
measures, including headcount reductions, at its Raleigh, NC facility and
corporate headquarters consistent with its new streamlined operating structure.
The Company recognized a pretax gain from the above transactions of $89,435
($55,002 after taxes), net of approximately $39,800 of costs incurred for
severance and other related costs associated with work-force reductions, asset
write-offs, including internal software, and other transaction related costs,
partially offset by pension related gains of $7,200.
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3. 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.
Three months ended Six months ended
June 30, June 30,
----------------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Weighted average shares outstanding - basic........ 30,519 31,989 30,696 32,303
Potentially dilutive shares........................ 946 738 884 584
------ ------ ------ ------
Weighted average shares outstanding - diluted...... 31,465 32,727 31,580 32,887
====== ====== ====== ======
4. LONG-TERM DEBT
Long-term debt consisted of the following:
June 30, Dec. 31,
2001 2000
---------------------
Senior Subordinated 9.125% Notes............................... $150,000 $150,000
Senior Secured Term Facilities................................. 151,750 201,750
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Total...................................................... 301,750 351,750
Less current portion........................................... -- 4,224
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Net long-term debt......................................... $301,750 $347,526
======= =======
In March 2001, the Company prepaid $50,000 of Senior Secured Term Facilities,
and in connection with the prepayment, recorded an after-tax extraordinary loss
of $348 relating to the write-off of related deferred financing costs.
5. PARTNERSHIP INVESTMENTS
The Company has a 50/50 perpetual partnership ("DonTech") with an operating unit
of SBC Communications Inc. ("SBC"). DonTech acts as the exclusive sales agent
for yellow pages directories published in Illinois and northwest Indiana by
Ameritech Corporation ("Ameritech"), a wholly owned subsidiary of SBC. The
Company has a 50% interest in the profits of DonTech and also receives revenue
participation income from SBC, which is tied to advertising sales. The table
below shows summarized financial information of DonTech. Revenue participation
income is not shown in the table.
Three months ended Six months ended
June 30, June 30,
-------------------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenue.................................... $ 31,673 $ 30,489 $ 52,778 $ 50,394
Operating income............................... 14,093 13,981 17,654 18,198
Net income..................................... 14,185 14,062 17,838 18,843
Total assets................................... 133,566 131,064 133,566 131,064
Income and related fees ("partnership income") from DonTech were as follows:
Three months ended Six months ended
June 30, June 30,
-------------------------------------------
2001 2000 2001 2000
---- ---- ---- ----
50% share of DonTech profits................... $ 7,093 $ 7,030 $ 8,919 $ 9,422
Revenue participation income................... 29,992 28,973 50,165 48,013
------ ------ ------ ------
Total partnership income....................... $37,085 $36,003 $59,084 $57,435
====== ====== ====== ======
The Company also has a joint venture, CenDon LLC ("CenDon"), with Centel
Directory Company ("Centel"), a
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subsidiary of Sprint Corporation ("Sprint"). Partnership income from CenDon
consists of a priority distribution on the Company's membership interest in
CenDon, which is tied to advertising sales. Through June 30, 2000, the Company
had a 50/50 partnership with Centel, the CenDon Partnership, formed to publish
directories in Nevada, Florida, Virginia and North Carolina. Partnership income
for the quarter and six months ended June 30, 2000 consisted of the Company's
share of the profits of the CenDon Partnership. Effective for directories that
published after June 30, 2000, the Company and Centel entered into a series of
agreements that effectively restructured the CenDon Partnership as a limited
liability company - CenDon LLC. Under the modified arrangement, Centel assumed
responsibility for the marketing, printing and delivery of directories and
related support services such as customer support and collections and the
Company continued to be the exclusive sales agent in Nevada, Florida, Virginia
and North Carolina and to provide certain pre-press publishing services. As a
result of the modified arrangement, revenue and related cost are now recognized
at the time of sale, rather than at the time of directory publication as had
historically been the case for the CenDon Partnership. Accordingly, the Company
recognized a one-time operating income benefit of $15,771, which included a
one-time partnership income benefit of $5,422, for the quarter and six months
ended June 30, 2000. The CenDon sales agency agreement extends through 2010.
Partnership income from CenDon was as follows:
Three months ended Six months ended
June 30, June 30,
-------------------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Total partnership income....................... $4,126 $7,746 $9,151 $15,026
===== ===== ===== ======
CHINABIG.COM
The Company has an 18% interest in ChinaBig.com Limited (previously known as
Unicom Media Limited, "ChinaBig"), which publishes yellow pages directories and
offers Internet directory services in the People's Republic of China. In
connection with an equity investment by an unaffiliated third party and in order
to facilitate the raising of additional capital and provide greater flexibility,
ChinaBig and each existing investor (including the Company), restructured the
existing joint venture agreement of ChinaBig to, among other things,
significantly reduce the Company's influence on the daily operations of
ChinaBig. As a result of the restructured agreement, effective June 15, 2000,
the Company became a passive investor in ChinaBig and now accounts for this
investment under the cost method. Prior to June 15, 2000, the Company accounted
for this investment under the equity method and recognized its share of the
losses of $545 for the quarter ended June 30, 2000 and $1,078 for the six months
ended June 30, 2000. Subsequent to June 15, 2000, the Company no longer
recognizes its share of the losses of ChinaBig.
6. COMPREHENSIVE INCOME
The provisions of FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," ("FAS 133") became effective for the Company on January 1, 2001.
FAS 133 requires the Company to recognize the fair value of its derivative
instruments on the balance sheet. Subsequent changes in the fair value would be
recognized either in earnings or shareholders' deficit, depending on the purpose
of the derivative instrument.
At June 30, 2001, the fair value of the Company's interest rate swaps was a loss
of $2,291. The fair value of the interest rate swaps was recognized as other
liabilities on the balance sheet with a corresponding charge to accumulated
other comprehensive loss, a component of shareholders' deficit.
Comprehensive income for the quarter and six months ended June 30, 2001 and 2000
was as follows:
Three months ended Six months ended
June 30, June 30,
-------------------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net income..................................... $ 20,612 $ 81,851 $ 33,475 $ 91,536
Change in fair value of interest rate swaps.... 152 -- (2,291) --
-------- -------- -------- --------
Comprehensive income........................... $ 20,764 $ 81,851 $ 31,184 $ 91,536
======== ======== ======== ========
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7. LITIGATION
In 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages
initiated a lawsuit against the Company and Bell Atlantic Corporation (now known
as Verizon Communications, "Bell Atlantic") in the United States District Court
for 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, for which the Company served as Bell Atlantic's advertising sales
agent through June 30, 2000. The complaint alleged that the defendants
disseminated false information concerning the Rockland Yellow Pages, which
resulted in damages to the Rockland Yellow Pages. The complaint alleged damages
in excess of $30,000, which amount plaintiffs sought to have trebled under the
antitrust laws. In addition, the plaintiffs also sought punitive damages in an
unspecified amount. In May 2001, the Court dismissed substantially all of
plaintiff's claims, including the antitrust claims; only a false advertising
claim under the Lanham Act and a state law tort claim with respect to only one
advertiser survive. The Court ordered limited discovery through July 9, 2001 on
jurisdictional issues with respect to the Lanham Act claim. Under the Lanham Act
claim, plaintiff sought an injunction and disgorgement of profits in an
unspecified sum. A Court conference is scheduled for August 17, 2001. While at
this stage in the proceedings management is unable to predict the outcome of
this matter, management intends to continue to vigorously defend this action,
and it presently believes that the resolution of the action will not have a
material adverse effect on the Company's financial position or results of
operations.
In 1996, Information Resources, Inc. ("IRI") filed a complaint in the United
States District Court for the Southern District of New York, naming as
defendants the Company (as successor of Old D&B), ACNielsen Company and IMS
International Inc., each former subsidiaries of D&B ("IRI Action"). The
complaint alleges, among other things, various violations of the antitrust laws
and seeks damages in excess of $350,000, which IRI is seeking to have trebled
under the antitrust laws. IRI also seeks punitive damages of an unspecified
amount. Under the definitive agreement entered into in connection with the
Distribution (the "Distribution Agreement"), New D&B has assumed the defense and
will indemnify the Company against any payments to be made by the Company in
respect of the IRI Action, including any related legal fees and expenses. As
required by the Distribution Agreement, Moody's Corporation, which recently
separated from New D&B, has agreed to be jointly and severally liable with New
D&B for the indemnity obligation to the Company. Management presently believes
that New D&B and Moody's have sufficient financial resources and/or borrowing
capacity to satisfy all such liabilities and to reimburse the Company for all
costs and expenses incurred.
Certain tax planning strategies entered into by Old D&B are currently subject to
review by tax authorities. Pursuant to a series of agreements, IMS Health
Incorporated ("IMS") and Nielsen Media Research, Inc. ("NMR") (both of which are
former subsidiaries of 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 $137,000 of tax liability. As a result
of the form of the Distribution, the Company is the corporate successor of, and
the taxpayer referred to herein as, Old D&B. However, pursuant to the terms of
the Distribution Agreement and the Tax Allocation Agreement, New D&B assumed the
defense and agreed to indemnify the Company against any payments to be made by
the Company in respect of any tax liability that may be assessed and any related
costs and expenses. In 2000, New D&B filed an amended tax return for 1989 and
1990, which reflected $561,600 of tax and interest due and paid the IRS
approximately $349,300, while IMS paid approximately $212,300. The Company
understands that these payments were paid under dispute in order to stop
additional interest from accruing. As required by the Distribution Agreement,
Moody's Corporation has agreed to be jointly and severally liable with New D&B
for the indemnity obligation to the Company. Management presently believes that
New D&B, Moody's, IMS and NMR have sufficient financial resources and/or
borrowing capacity to satisfy all such liabilities and to reimburse the Company
for all related costs and expenses.
In May 2001, Image One filed a complaint against certain Sprint Corporation
affiliates and the Company in the Untied States District Court for the Middle
District of Florida. In the complaint, Image One alleges that it creates and
licenses original text, graphics, images and other artwork specifically for
yellow pages advertising and that the defendants engaged in copyright
infringement and false designation of origin. Image One is seeking actual
damages of approximately $95,000 and statutory damages in excess of $330,000.
While at this preliminary stage in the proceedings management is unable to
predict the outcome of this matter, management intends to vigorously
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defend this action and it presently believes that the resolution of the action
will not have a material adverse effect on the Company's financial position or
results of operations.
Other than the matters described above, the Company is involved in legal
proceedings, claims and litigation arising in the ordinary conduct of its
business. Although there can be no assurances, management presently believes
that the outcome of such legal proceedings will not have a material adverse
affect on the Company's financial position, results of operations or cash flows.
8. BUSINESS SEGMENTS
The Company's reportable operating segments are DonTech and Directory
Advertising Services ("DAS"). The Company evaluates the performance of its
operating segments and allocates resources to them primarily based on operating
income contribution. Interest expense, interest income, income tax expense and
non-operating income and expenses are not allocated to the operating segments.
The DonTech segment includes the Company's 50% interest in the profits of
DonTech and revenue participation income, but does not include an allocation of
certain operating and general and administrative expenses incurred to support
this business. Although DonTech provides advertising sales of yellow pages and
other directory products similar to DAS, the partnership is considered a
separate operating segment since, among other things, the partnership has its
own Board of Directors and the employees of DonTech, including officers and
managers, are not employees of the Company.
Within the DAS segment, the Company sells advertising for yellow pages and other
directory products for affiliated entities of Sprint and performs pre-press
publishing services for yellow pages directories for DonTech, Sprint and another
third party. DAS also includes all information technology costs and an
allocation of certain shared general and administrative expenses based on
estimated business usage.
Get Digital Smart ("GDS") included the results of the Company's Internet
business. The Company ceased operations of this business in December 2000 and
accordingly, GDS is not reported as an operating segment in 2001.
General & Corporate (previously referred to as Other) represents expenses not
allocated to the operating segments.
Selected financial results for the three and six month periods ended June 30,
2001 and 2000 are as follows:
Directory Get
DonTech Advertising Digital General & Consolidated
Partnership Services (1) Smart Corporate Totals
-----------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 2001
Advertising sales (2)
Calendar cycle ............... $ 125,248 $ 53,308 -- -- $ 178,556
Publication cycle ............ 89,547 28,855 -- -- 118,402
Net revenue .................... -- 20,034 -- -- 20,034
Operating income (loss) ........ 37,085 6,069 -- $ (3,946) 39,208
Depreciation and amortization .. -- 2,592 -- 163 2,755
EBITDA (3) ..................... 37,085 8,661 -- (3,783) 41,963
Total assets ................... 194,790 42,940 -- 78,318 316,048
THREE MONTHS ENDED JUNE 30, 2000
Advertising sales (2)
Calendar cycle ............... $ 120,628 $ 229,329 -- -- $ 349,957
Publication cycle ............ 87,456 218,526 -- -- 305,982
Net revenue .................... -- 60,136 $ 24 -- 60,160
Operating income (loss) ........ 36,003 22,064 (2,250) $ (3,607) 52,210
Depreciation and amortization .. -- 3,821 24 404 4,249
EBITDA (3) ..................... 36,003 25,885 (2,226) (3,203) 56,459
Total assets ................... 164,179 95,961 222 255,554 515,916
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Directory Get
DonTech Advertising Digital General & Consolidated
Partnership Services (1) Smart Corporate Totals
-------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2001
Advertising sales (2)
Calendar cycle ............. $208,647 $ 98,243 -- -- $306,890
Publication cycle .......... 223,171 80,451 -- -- 303,622
Net revenue .................. -- 38,873 -- -- 38,873
Operating income (loss) ...... 59,084 15,536 -- $ (7,749) 66,871
Depreciation and amortization -- 5,246 -- 394 5,640
EBITDA (3) ................... 59,084 20,782 -- (7,355) 72,511
SIX MONTHS ENDED JUNE 30, 2000
Advertising sales (2)
Calendar cycle ............. $199,315 $368,133 -- -- $567,448
Publication cycle .......... 219,050 314,843 -- -- 533,893
Net revenue .................. -- 101,525 $ 24 -- 101,549
Operating income (loss) ...... 57,435 33,387 (4,390) $ (8,649) 77,783
Depreciation and amortization -- 7,925 24 824 8,773
EBITDA (3) ................... 57,435 41,312 (4,366) (7,825) 86,556
(1) For the quarter and six months ended June 30, 2000, DAS includes the
following results of the Bell Atlantic and Cincinnati businesses, which
were disposed of in 2000 and one-time operating items related to the
CenDon restructuring (see Notes 2 and 5). Accordingly, no financial
results for these businesses are included for the 2001 periods.
Three Six
Months Ended Months Ended
June 30, 2000 June 30, 2000
------------------------------
Advertising sales (2)
Calendar cycle............ $ 189,231 $ 277,768
Publication cycle......... 190,323 238,131
Net revenue................. 41,816 63,831
Operating income............ 18,615 22,105
Depreciation and amortization 1,303 2,703
EBITDA (3).................. 19,918 24,808
Total assets................ -- --
(2) Advertising sales represent the billing value of advertisements sold for
an annual directory by the Company and DonTech. Calendar cycle advertising
sales represent the billing value of advertisements sold for an annual
directory stated on the same basis as revenue is recognized (that is, when
a sales contract is signed where the Company acts as a sales agent and
when a directory was published where the Company acted as the publisher).
Publication cycle sales represent sales for directories that published in
the current period regardless of when the advertising for that directory
was sold. These sales are compared against sales for the same directories
published in the prior year period. If events occur during the current
year that effect the comparability of publication sales to the prior year,
such as changes in directory publication dates or other contractual
changes, then prior year publication sales are adjusted to conform to the
current year presentation and maintain comparability. Accordingly, for
comparative purposes, DAS publication sales for the six months ended June
30, 2000 have been increased by $1,671.
(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.
9. ACCOUNTING PRONOUNCEMENTS
During the second quarter of 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 141, Business
Combinations ("SFAS 141") and Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 is effective
for all business combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001. The provisions of SFAS 142 will be effective
for fiscal years beginning after December 15, 2001. However, early adoption of
SFAS 142 is permitted for companies with a fiscal year beginning after March 15,
2001, provided their first quarter financial statements have not been previously
issued. The Company has determined that SFAS 141 and SFAS 142 will not have any
impact on its historical consolidated financial statements.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements contained in this Form 10-Q regarding R.H. Donnelley's future
operating results or performance or business plans or prospects and any other
statements not constituting historical fact are "forward-looking statements"
subject to the safe harbor created by the Private Securities Litigation Reform
Act of 1995. Where possible, the words "believe," "expect," "anticipate,"
"should," "planned," "estimated," "potential," "goal," "outlook," and similar
expressions, as they relate to R.H. Donnelley or its management, have been used
to identify such forward-looking statements. Regardless of any identifying
phrases, these statements and all other forward-looking statements reflect only
management's current beliefs and specific assumptions with respect to future
business plans, prospects, decisions and results, and are based on information
currently available to R.H. Donnelley. Accordingly, the statements are subject
to significant risks, uncertainties and contingencies which could cause R.H.
Donnelley's actual operating results, performance or business plans or prospects
to differ from those expressed in, or implied by, these statements. Such risks,
uncertainties and contingencies include, without limitation, 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 and/or deployment of new high technology products, and
uncertainty regarding the acceptance rate of such products; (5) pricing
pressures from competitors and/or customers; (6) changes in the yellow pages
industries and markets; (7) an economic downturn in the United States; and (8)
the fact that the repurchase of the Company's common stock is subject to market
conditions and compliance with legal restrictions and the Company's debt
covenants. Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to update any forward-looking statements.
THE COMPANY
R.H. Donnelley Corporation is a leading marketer of yellow pages advertising
tailored for small and medium-sized businesses. Unless otherwise indicated, the
terms "Company," "we," "us" and "our" refer to R.H. Donnelley Corporation and
its direct and indirect wholly owned subsidiaries. Unless otherwise specified,
all tabular amounts are presented in millions of dollars.
The Company is organized into two reportable operating segments as of January 1,
2001 - the DonTech Partnership ("DonTech") and Directory Advertising Services
("DAS"). DonTech is a 50/50 perpetual partnership with an operating unit of SBC
Communications Inc. ("SBC"), which acts as the exclusive sales agent for yellow
pages directories published by Ameritech Corporation ("Ameritech"), a wholly
owned subsidiary of SBC, in Illinois and northwest Indiana. In addition to our
50% interest in the profits of DonTech, we receive revenue participation income
from our partner, which is tied to advertising sales. Although DonTech provides
advertising sales of yellow pages and other directory products similar to DAS,
the partnership is considered a separate operating segment since, among other
things, the partnership has its own Board of Directors and the employees of
DonTech, including its officers and managers, are not our employees.
Within our DAS segment, we sell advertising for yellow pages and other directory
products for affiliated entities of Sprint Corporation ("Sprint") and perform
pre-press publishing services for yellow pages directories. We are the exclusive
sales agent in Central Florida for an operating unit of Sprint and the exclusive
sales agent in Nevada, Florida, Virginia and North Carolina for CenDon LLC, a
joint venture with Centel Directory Company ("Centel"), a subsidiary of Sprint.
We receive sales commissions on all advertising sold and receive a priority
distribution on our membership interest in CenDon LLC, which is tied to
advertising sales. We also provide pre-press publishing services for yellow
pages directories to publishers for whom we serve as sales agent as well as for
an otherwise unaffiliated independent yellow pages publisher under separately
negotiated contracts. DAS also includes all information technology costs. The
results for DAS for the quarter and six month periods ended June 30, 2000 also
include the operating results of the disposed Bell Atlantic and Cincinnati
businesses, and our share of the losses in ChinaBig (see " - 2000 Strategic
Actions" below).
For the quarter and six-month periods ended June 30, 2000, we served as the
exclusive sales agent to the CenDon Partnership, a 50/50 partnership between the
Company and Centel formed to publish directories in Florida,
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Nevada, Virginia and North Carolina. Effective for directories that published
after June 30, 2000, the Company and Centel entered into a series of agreements
that effectively restructured the CenDon Partnership as a limited liability
company - CenDon LLC ("CenDon"). Under the modified arrangement, Centel assumed
responsibility for marketing, printing and delivery of directories and related
support services such as customer service and collections and we continued to be
the exclusive sales agent in Nevada, Florida, Virginia and North Carolina and to
provide certain pre-press publishing services. As a result of the modified
arrangement, our commission revenue and related costs are now recognized at the
time of sale, rather than at the time of directory publication as had
historically been the case when we acted as sales agent for the CenDon
Partnership. Accordingly, the recognition of revenue and expenses for the CenDon
operations in the first half of 2001 has been accounted for differently than in
the first half of 2000.
The quarter and six-month periods ended June 30, 2000 also include the operating
results of Get Digital Smart ("GDS"), the Company's Internet business, which was
reported as a separate operating segment during 2000. GDS ceased operations in
December 2000 and, accordingly, there were no financial results for the 2001
periods.
As a sales agent, we recognize revenue from sales commissions at the time an
advertising contract is executed with a customer. This includes sales commission
revenue realized from Sprint, including CenDon (for directories that published
after June 30, 2000), and Bell Atlantic (through June 30, 2000). Where we were
the publisher, we recognized revenue when a directory was published. This
included revenue realized from publication of directories by CenDon before June
30, 2000. There were no advertising sales or revenue recognized in 2000 from our
Cincinnati proprietary operation as the business was sold prior to the scheduled
directory publication date. We recognize revenue from our pre-press publishing
services on a straight-line basis throughout the year as the services are
performed.
Income from partnerships and related fees ("partnership income") includes our
share of the net income of DonTech, revenue participation income from SBC,
priority distribution income on our membership interest in CenDon (for the 2001
periods only) and our share of the net income of the CenDon Partnership (for the
2000 periods only). Partnership income for the 2000 periods also includes our
share of the losses of ChinaBig through June 15, 2000.
2000 STRATEGIC ACTIONS
DISPOSITION OF BUSINESSES AND RELATED COST CUTTING ACTIONS
On April 27, 2000, we sold our Cincinnati proprietary directory business to
Yellow Book USA, Inc. for $8 million.
On June 30, 2000, we entered into an agreement ("Agreement") with an affiliate
of Bell Atlantic Corporation ("Bell Atlantic") for the early termination of the
directory services agreements between the Company and Bell Atlantic dated
September 5, 1985 and May 5, 1998, as amended (the "Agency Agreements").
Pursuant to the Agency Agreements, the Company had served as exclusive sales
agent for Bell Atlantic directories covering substantially all of New York
State. The Agency Agreements had been scheduled to expire in 2005 and 2003,
respectively. The transactions contemplated by the Agreement were also
consummated on June 30, 2000.
Under the terms of the Agreement, we received cash proceeds of $114 million. We
also received commissions of approximately $42 million for sales which occurred
prior to the closing, but which were not yet payable under the terms of the
Agency Agreements, and commissions of approximately $15 million for sales in
directories that published in the pre-closing period.
In connection with the above actions, we also implemented cost-cutting measures,
including headcount reductions, at our Raleigh, NC facility and corporate
headquarters consistent with our new streamlined operating structure.
Through June 30, 2000, the Company recognized a pretax gain from the above
transactions of approximately $89 million ($55 million after taxes), net of
approximately $40 million of costs incurred for severance and other related
costs associated with work-force reductions, asset write-offs, including
internal software, and other transaction related costs, partially offset by
pension related gains of $7 million.
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In December 2000, we entered into an agreement pursuant to which Innuity Inc., a
provider of e-commerce services to small and medium-sized businesses, assumed
all of the rights and obligations under our GDS contracts. One-time costs of
$2.9 million for severance and other related costs were recognized in December
2000.
CENDON PARTNERSHIP RESTRUCTURING AND EXTENSION
Effective for directories that published after June 30, 2000, the Company and
Centel entered into a series of agreements which effectively restructured the
existing CenDon Partnership as a limited liability company and extended the
existing sales agency agreement through 2010. Both the partnership agreement and
sales agency agreement were set to expire in 2004. The modified arrangement
focused our responsibilities on sales and certain pre-press publishing services
(the latter through 2003 only) and established us as the exclusive sales agent
for Centel's print and electronic / Internet directory products in the markets
previously covered by the partnership agreement. Centel assumed responsibility
for the marketing, printing and delivery of directories and related support
services such as customer service and collections. We receive sales commissions
on all advertising sold and a priority distribution on our membership interest
in CenDon based on the value of advertising sold. We recognize sales commissions
as revenue and the priority distribution as partnership income. As a result of
this modified arrangement, revenue and related cost are recognized at the time
of sale, rather than at the time of directory publication as had historically
been the case when we acted as sales agent for the CenDon Partnership.
Accordingly, a one-time operating income benefit of $15.8 million was recognized
for the quarter and six-month periods ended June 30, 2000. This one-time
operating income benefit was comprised of sales commission revenue of $21.0
million based on calendar advertising sales of $95.8 million, less related
expenses of $10.6 million and partnership income of $5.4 million.
CHINABIG INVESTMENT
We have an 18% interest in ChinaBig.com Limited (previously knows as Unicom
Media Limited, "ChinaBig"), which publishes yellow pages directories and offers
Internet directory services in the People's Republic of China. In connection
with an equity investment by an unaffiliated third party and in order to
facilitate the raising of additional capital and provide greater flexibility, on
June 15, 2000, ChinaBig and each existing investor (including the Company),
restructured the existing joint venture agreement of ChinaBig to, among other
things, significantly reduce our influence on the daily operations of ChinaBig.
As a result of the restructured agreement, we are a passive investor in ChinaBig
and account for this investment under the cost method. Prior to June 15, 2000,
we accounted for this investment under the equity method. Therefore, subsequent
to June 15, 2000, our share of the losses of ChinaBig is no longer recognized in
the consolidated statement of operations.
FACTORS AFFECTING COMPARABILITY
The three and six-month periods ended June 30, 2000 include the results of our
Bell Atlantic, Cincinnati and GDS businesses (each of which was disposed during
2000) and certain one-time operating items from the restructuring of the CenDon
relationship. Due to the inclusion of these amounts for the three and six-month
periods ended June 30, 2000, we do not believe that a comparison of 2001 results
to 2000 reported amounts would be meaningful. Accordingly, the information below
for the three and six-month periods ended June 30, 2000 are presented on both a
reported basis and an as adjusted basis. The "Results of Operations" discussion
ignores as no longer relevant or material changes between the 2001 and 2000
periods related to the disposed operations or the effect of the one-time items.
The as adjusted amounts assume these operations were disposed as of January 1,
2000 and are derived by excluding the relevant amounts for the Bell Atlantic,
Cincinnati and GDS operations, as well as the one-time operating items from the
restructuring of the CenDon relationship, from the reported 2000 amounts. The
as adjusted amounts are presented for comparison purposes only and do not
purport to represent what our actual results would have been for the three and
six-month periods ended June 30, 2000 had the businesses been disposed as of
January 1, 2000, nor do they project the financial condition or results of
operations for any future period. For a discussion of the results of the
disposed businesses during the three and six-month periods ended June 30, 2000
and a more detailed discussion of the one-time operating items, see Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
Quarterly Report on Form 10-Q for our second quarter of 2000 and in our Form
10-K for the year ended December 31, 2000.
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RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
ADVERTISING SALES
Calendar Cycle Basis
Calendar cycle advertising sales represent the billing value of advertisements
sold for an annual directory by the Company and DonTech in a given calendar
year. These sales are recognized on the same basis on which revenues are
recognized (that is, when a sales contract is signed where we are a sales agent
or when the directory was published where we were the publisher of the
directory). The selling of advertising for a specific directory is managed as a
sales campaign. The typical sales campaign begins approximately six to eight
months prior to the scheduled publication date. As a result, the amount of
calendar sales can fluctuate from the prior year due to various factors,
including changes in the commencement date of a sales campaign and the timing of
sales during the sales campaign.
Reported and as adjusted calendar cycle advertising sales by segment are
presented below:
2001 Reported vs.
Reported 2000 As adjusted
---------------------- As adjusted -----------------------
2001 2000 2000 $ Change % Change
--------- ---------- ----------- ----------- -----------
QUARTER ENDED JUNE 30,
DonTech $ 125.2 $ 120.6 $ 120.6 $ 4.6 3.8%
DAS 53.3 229.3 40.1 (a) 13.2 32.9
------- ------- ------- -------
Total $ 178.5 $ 349.9 $ 160.7 $ 17.8 11.1%
======= ======= ======= =======
SIX MONTHS ENDED JUNE 30,
DonTech $ 208.7 $ 199.3 $ 199.3 $ 9.4 4.7%
DAS 98.2 368.1 90.3 (b) 7.9 8.7
------- ------- ------- -------
Total $ 306.9 $ 567.4 $ 289.6 $ 17.3 6.0%
======= ======= ======= =======
(a) Excludes Bell Atlantic calendar sales of $93.4 million and one-time sales
benefit of $95.8 million from the restructuring of the CenDon relationship
for the quarter ended June 30, 2000.
(b) Excludes Bell Atlantic calendar sales of $182.0 million and one-time sales
benefit of $95.8 million from the restructuring of the CenDon relationship
for the six months ended June 30, 2000.
Calendar cycle sales for the quarter and six months ended June 30, 2001 were
$178.5 million and $306.9 million, respectively, compared to as adjusted
calendar sales of $160.7 million and $289.6 million for the quarter and six
months ended June 30, 2000. DonTech sales in 2001 for the quarter and six months
were higher than the comparable prior year periods due to sales growth in the
DonTech markets, driven partially by improvements in the billing and collection
processes implemented by SBC during 2001. The increase in DAS sales for the
current year quarter compared to the prior year quarter was mainly due to the
change in the timing of sales recognition resulting from the restructuring of
the CenDon relationship in the second quarter of 2000. For the six-month period,
the increase in 2001 compared to 2000 was driven partially by modest growth in
the Sprint markets and partially by the timing of sales.
Publication Cycle Basis
We believe that an additional useful measure of sales performance is publication
cycle sales. Publication cycle sales represent sales for directories that
published in the current period regardless of when the advertising for that
directory was sold. These sales are compared against sales for the same
directories published in the prior year period. If events occur during the
current year that effect the comparability of publication sales to the prior
year, such as changes in directory publication dates or other contractual
changes, then prior year publication sales are adjusted to conform to the
current year presentation and maintain comparability. Accordingly, for
comparative purposes, prior year DAS publication sales for the six months ended
June 30, 2000 have been increased by $1.7 million.
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Reported and as adjusted publication cycle advertising sales by segment are
presented below:
2001 Reported vs.
Reported As 2000 As adjusted
---------------------- adjusted ----------------------
2001 2000 2000 $ Change % Change
--------- ---------- ----------- ---------- -----------
QUARTER ENDED JUNE 30,
DonTech $ 89.5 $ 87.5 $ 87.5 $ 2.0 2.3%
DAS 28.9 218.6 28.3(a) 0.6 2.1
------- ------- ------- -----
Total $ 118.4 $ 306.1 $ 115.8 $ 2.6 2.2%
======= ======= ======= =====
SIX MONTHS ENDED JUNE 30,
DonTech $ 223.2 $ 219.1 $ 219.1 $ 4.1 1.9%
DAS 80.5 314.9 76.8(b) 3.7 4.8
------- ------- ------- -----
Total $ 303.7 $ 534.0 $ 295.9 $ 7.8 2.6%
======= ======= ======= =====
(a) Excludes Bell Atlantic sales of $190.3 million for the quarter ended
June 30, 2000.
(b) Excludes Bell Atlantic sales of $238.1 million for the six months ended
June 30, 2000.
Publication cycle sales for the quarter and six months ended June 30, 2001 were
$118.4 million and $303.7 million, respectively, compared to as adjusted
publication sales of $115.8 million and $295.9 million for the quarter and six
months ended June 30, 2000. Publication sales at DonTech were up 2.3% in the
quarter and 1.9% for the six months ended June 30, 2001 compared to the prior
year periods due to growth in most markets, partially driven by improvements in
the billing and collection processes implemented by SBC during 2001. Publication
sales for DAS were also higher in 2001 compared to the 2000 periods due to
modest growth in certain markets. However, growth in the DAS markets has been,
and is projected to be for the remainder of 2001, below historical growth rates.
A tightening of credit policies in light of the weakening economy has adversely
impacted renewal rates and the weakening economy has also impacted the number of
customers that increased their prior year advertising spending.
NET REVENUE
Net revenue consists principally of sales commissions earned on the value of
advertising sold, less an estimate for potential claims and allowances, and fees
for pre-press publishing services. Net revenues are derived entirely from our
DAS segment.
Reported and as adjusted net revenues were as follows:
2001 Reported vs.
Reported 2000 As adjusted
---------------------- As adjusted ----------------------
2001 2000 2000 $ Change % Change
--------- ---------- ----------- ---------- -----------
QUARTER ENDED JUNE 30, $ 20.0 $ 60.2 $ 18.4(a) $ 1.6 8.7%
====== ======== ====== =====
SIX MONTHS ENDED JUNE 30, $ 38.9 $ 101.5 $ 37.7(b) $ 1.2 3.2%
====== ======== ====== =====
(a) Excludes Bell Atlantic revenue of $20.8 million and one-time revenue benefit
from the CenDon restructuring of $21.0 million in the second quarter of
2000.
(b) Excludes Bell Atlantic revenue of $42.8 million and one-time revenue benefit
from the CenDon restructuring of $21.0 million for the six months ended June
30, 2000.
Net revenue was $20.0 million and $38.9 million for the quarter and six months
ended June 30, 2001, respectively, compared to as adjusted net revenue of $18.4
million and $37.7 million for the quarter and six months ended June 30, 2000.
The $1.6 million, or 8.7% increase in the quarter was due to higher sales at DAS
due to the change in revenue recognition associated with the restructuring of
the CenDon relationship, slightly offset by lower pre-press publishing revenue
due to timing factors. The $1.2 million, or 3.2% increase for the six-month
period was due to the increase in DAS sales.
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EXPENSES
Reported and as adjusted expenses were as follows:
2001 Reported vs.
Reported As 2000 As adjusted
---------------------- Adjusted ------------------------
2001 2000 2000 $ Change % Change
--------- ---------- ----------- ---------- -----------
QUARTER ENDED JUNE 30,
Operating expenses $13.3 $38.6 $11.6(a) $ 1.7 14.7%
G&A expenses 5.0 6.3 5.0(b) -- --
Provision for bad debts 1.0 2.0 0.8(c) 0.2 25.0
D&A expense 2.7 4.3 2.9(d) (0.2) (6.9)
----- ----- ----- -----
Total $22.0 $51.2 $20.3 $ 1.7 8.4%
===== ===== ===== =====
SIX MONTHS ENDED JUNE 30,
Operating expenses $23.8 $69.3 $24.4(e) $(0.6) (2.5)%
G&A expenses 9.2 14.4 11.7(f) (2.5) (21.4)
Provision for bad debts 1.6 2.6 1.4(g) 0.2 14.3
D&A expense 5.6 8.8 6.1(h) (0.5) (8.2)
----- ----- ----- -----
Total $40.2 $95.1 $43.6 $(3.4) (7.8)%
===== ===== ===== =====
(a) Excludes Bell Atlantic operating expenses of $15.2 million, Cincinnati
operating expenses of $0.1 million, GDS operating expenses of $2.3 million
and one-time operating expenses of $9.4 from the CenDon restructuring for
the second quarter of 2000.
(b) Excludes general and administrative expenses for Bell Atlantic of $1.2
million and Cincinnati of $0.1 million for the second quarter of 2000.
(c) Excludes one-time provision of $1.2 million from the CenDon restructuring.
The provision for Bell Atlantic and Cincinnati for the second quarter of
2000 was minimal.
(d) Excludes depreciation and amortization expense for Bell Atlantic of $1.3
million and Cincinnati of $0.1 million for the second quarter of 2000.
(e) Excludes Bell Atlantic operating expenses of $30.4 million, Cincinnati
operating expenses of $0.7 million, GDS operating expenses of $4.4 million
and one-time operating expenses of $9.4 from the CenDon restructuring for
the six months ended June 30, 2000.
(f) Excludes general and administrative expenses for Bell Atlantic of $2.4
million and Cincinnati of $0.3 million for the six months ended June 30,
2000.
(g) Excludes one-time provision of $1.2 million from the CenDon restructuring
for the six months ended June 30, 2000. The provision for Bell Atlantic and
Cincinnati for the six months ended June 30, 2000 was minimal.
(h) Excludes depreciation and amortization expense for Bell Atlantic of $2.6
million and Cincinnati of $0.1 million for the six months ended June 30,
2000.
Operating expenses were $13.3 million and $23.8 million for the quarter and six
months ended June 30, 2001, respectively, compared to as adjusted operating
expenses of $11.6 million and $24.4 million for the quarter and six months ended
June 30, 2000. The increase of $1.7 million, or 14.7% in the quarter was
primarily due to the timing of expenses associated with the restructuring of the
CenDon relationship. The decrease of $0.6 million, or 2.5% for the six-month
period was primarily due to lower publishing and information technology costs
from improved operational efficiencies and headcount reductions, and lower
expenses relating to our investment in ChinaBig due to the change in our role
from an active investor to a passive investor.
General and administrative expenses were $5.0 million and $9.2 million for the
quarter and six months ended June 30, 2001, respectively, compared to as
adjusted operating expenses of $5.0 million and $11.7 million for the quarter
and six months ended June 30, 2000. For the quarter ended June 30, 2001, cost
savings from the strategic actions taken in 2000 described above were offset by
consulting costs incurred during the quarter. The decrease in the six-month
period was due to cost cutting actions and headcount reductions.
Provision for bad debts was $1.0 million and $1.6 million for the quarter and
six months ended June 30, 2001, respectively, compared to as adjusted provision
for bad debts of $0.8 million and $1.4 million for the quarter and six months
ended June 30, 2000. The slight increase in the quarter and six-month periods is
primarily due to the increase in sales.
Depreciation and amortization expense was $2.7 million and $5.6 million for the
quarter and six months ended
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June 30, 2001, respectively, compared to as adjusted depreciation and
amortization expense of $2.9 million and $6.1 million for the quarter and six
months ended June 30, 2000. The decrease in the quarter and six-month periods is
due to the write-off of assets associated with the strategic actions taken in
2000 as well as lower capital spending in 2001.
PARTNERSHIP INCOME
Partnership income by relationship was as follows:
2001 Reported vs.
Reported As 2000 As adjusted
---------------------- Adjusted ----------------------
2001 2000 2000 $ Change % Change
--------- ---------- ----------- ---------- -----------
QUARTER ENDED JUNE 30,
DonTech $ 37.1 $ 36.0 $ 36.0 $ 1.1 3.1%
CenDon 4.1 7.7 2.3 (a) 1.8 78.3
ChinaBig -- (0.5) (0.5) 0.5 n/m
------ ------ ------ -----
Total $ 41.2 $ 43.2 $ 37.8 $ 3.4 9.0%
====== ====== ====== =====
SIX MONTHS ENDED JUNE 30,
DonTech $ 59.1 $ 57.4 $ 57.4 $ 1.7 3.0%
CenDon 9.1 15.0 9.6 (a) (0.5) (5.2)
ChinaBig -- (1.0) (1.0) 1.0 n/m
------ ------ ------ -----
Total $ 68.2 $ 71.4 $ 66.0 $ 2.2 3.3%
====== ====== ====== =====
(a) Excludes one-time partnership income benefit of $5.4 million from the CenDon
restructuring for the quarter and six-month periods ended June 30, 2000.
Partnership income was $41.2 million and $68.2 million for the quarter and six
months ended June 30, 2001, respectively, compared to as adjusted partnership
income of $37.8 million and $66.0 million for the quarter and six months ended
June 30, 2000. Partnership income from DonTech increased in the quarter and
six-months ended June 30, 2001 primarily due to higher revenue participation
income from the increase in sales. The year-to-date increase in DonTech
partnership income was partially offset by lower equity income as the
partnership incurred one-time employee benefit related expenses of $0.8 million
in the first quarter of 2001 and recognized a one-time benefit of $0.4 million
in the first quarter of 2000 from a favorable settlement of litigation.
The increase in CenDon partnership income for the quarter and the decrease in
the six-month period were primarily due to the restructuring of the CenDon
relationship. As a result of the restructuring, the partnership income amounts
for 2001 and 2000 as adjusted are not comparable. In 2001, we recognize a
priority distribution on our interest in CenDon based on sales, while in 2000 we
recognized our 50% share of the CenDon Partnership net income.
We did not recognize any losses from ChinaBig in the 2001 periods due to the
restructuring of this investment in 2000 and the corresponding change from
equity method accounting to cost method accounting as previously discussed.
OPERATING INCOME
Operating income for DonTech includes our 50% interest in the profits of DonTech
and revenue participation income from SBC, but does not include an allocation of
certain operating and general and administrative expenses incurred to support
this business. Operating income for DAS includes revenue and direct expenses
incurred by each DAS business unit plus an allocation of certain shared
operating and general and administrative expenses based on estimated business
usage. DAS operating income also includes the priority distribution from Sprint
on our membership interest in CenDon. General & Corporate represents overhead
costs that are not allocated to the business segments.
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Reported and as adjusted operating income by segment was as follows:
2001 Reported vs.
Reported As 2000 As adjusted
---------------------- Adjusted ----------------------
2001 2000 2000 $ Change % Change
--------- ---------- ----------- ---------- -----------
QUARTER ENDED JUNE 30,
DonTech $ 37.1 $ 36.0 $ 36.0 $ 1.1 3.1%
DAS 6.0 22.1 3.5 (a) 2.5 71.4
GDS -- (2.3) -- (b) -- --
General & Corporate (3.9) (3.6) (3.6) (0.3) (8.3)
------ ------ ------ -----
Total $ 39.2 $ 52.2 $ 35.9 $ 3.3 9.2%
====== ====== ====== =====
SIX MONTHS ENDED JUNE 30,
DonTech $ 59.1 $ 57.4 $ 57.4 $ 1.7 3.0%
DAS 15.5 33.4 11.3 (c) 4.2 37.2
GDS -- (4.4) -- (b) -- --
General & Corporate (7.7) (8.6) (8.6) 0.9 10.5
------ ------ ------ -----
Total $ 66.9 $ 77.8 $ 60.1 $ 6.8 11.3%
====== ====== ====== =====
(a) Excludes operating income from Bell Atlantic of $3.0 million, operating loss
for Cincinnati of $0.2 million and a one-time operating income benefit of
$15.8 million from the CenDon restructuring for the second quarter of 2000.
(b) Excludes the operating loss for GDS for the quarter and six months ended
June 30, 2000.
(c) Excludes operating income from Bell Atlantic of $7.3 million, operating loss
for Cincinnati of $1.0 million and a one-time operating income benefit of
$15.8 million from the CenDon restructuring for the six months ended June
30, 2000.
Reported operating income was $39.2 million and $66.9 million for the quarter
and six months ended June 30, 2001, respectively, compared to as adjusted
operating income of $35.9 million and $60.1 million for the quarter and six
months ended June 30, 2000. See "- Partnership Income" above for an explanation
of the increase in DonTech operating income for the quarter and six-month
periods. The increase in DAS operating income for the quarter was due to the
restructuring of the CenDon relationship and corresponding change in the timing
of revenue and expense recognition, as well as sales growth and lower
information technology costs. The year-to-date increase in DAS operating income
was due to modest sales growth in Sprint and increased efficiencies and cost
controls in information technology and publishing. In addition, there were costs
and equity losses associated with ChinaBig in the quarter and six-month periods
ended June 30, 2000, which are no longer being recognized in 2001. General &
Corporate costs increased in the quarter primarily due to consulting costs, but
were lower for the six month period due to continued cost controls.
INTEREST AND TAXES
Net interest expense was $6.2 million and $12.8 million for the quarter and six
months ended June 30, 2001, respectively, compared to $9.2 million and $18.4
million for the quarter and six months ended June 30, 2000. The decrease in 2001
is primarily due to the prepayment of $90 million of debt in the third quarter
of 2000 and an additional $50 million in the first quarter of 2001.
The effective tax rate for the quarter and six months ended June 30, 2001 was
37.5% compared to 38.2% for the second quarter 2000 and 38.5% for the six months
ended June 30, 2000. The decrease in the effective rate is due to various
previously disclosed actions taken during 2000.
EXTRAORDINARY LOSS
In connection with the prepayment of debt in the first quarter of 2001, we
recognized an extraordinary after-tax loss of $0.3 million from the write-off of
related deferred financing costs. The extraordinary loss had the effect of
reducing diluted earnings per share by $0.01 in the six-month period ended June
30, 2001.
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NET INCOME AND EARNINGS PER SHARE
Net income for the second quarter 2001 was $20.6 million, or $0.66 per diluted
share compared to net income of $81.9 million, or $2.50 per diluted share for
the second quarter 2000. For the six month period ended June 30, 2001, net
income was $33.5 million, or $1.06 per diluted share compared to net income of
$91.5 million, or $2.78 per diluted share for the six months ended June 30,
2000. However, as described above, the 2000 results include the gain from the
Bell Atlantic and Cincinnati transactions ($55.0 million after-tax) and the
one-time benefit from the restructuring of the CenDon relationship ($9.7 million
after-tax). Excluding these items, net income for the second quarter 2000 was
$17.1 million, or $0.52 per diluted share, and $26.8 million, or $0.82 per
diluted share for the six months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, we had cash on hand of $7.7 million and borrowing capacity of
$100 million under our $100 million Senior Revolving Credit Facility (the
"Revolver").
Net cash provided by operations was $34.7 million for the first half of 2001
compared to $102.2 million in the first half of 2000. The decrease of $67.5
million was driven primarily by lower accounts receivable collections and higher
accounts payable and accrued liability payments. Accounts receivable collections
for the six month period ended June 30, 2000 included $57 million for Bell
Atlantic directories that published during the period as well as payment for
sales made prior to the sale of the Bell Atlantic operation for directories that
had not yet published. Also affecting the cash flow from accounts receivable is
the change in the timing of receivable recognition and receipt of commission
payments resulting from the restructuring of the CenDon relationship. Under the
modified arrangement, commissions receivable are recognized at the time of sale
and payment is received in the month of directory publication whereas, under the
prior partnership arrangement, commissions receivable were recognized in the
month of directory publication and payment was received in the month following
publication. The higher liability payments in the six months ended June 30, 2001
compared to June 30, 2000 was due to the payment of severance and other items
relating to the sale of the Bell Atlantic, Cincinnati and GDS businesses, higher
bonus payments made in 2001 versus 2000 resulting from the strong full-year 2000
financial performance, and higher estimated tax payments. 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.
Net cash used in investing activities during the first half of 2001 was $3.5
million compared to net cash provided by investing activities of $112.6 million
in the first half of 2000, which included proceeds of $122 million from the sale
of our Bell Atlantic and Cincinnati operations. Expenditures for fixed assets
and computer software during the first half of 2001 were $1.9 million, $3.6
million lower than the previous year period due to lower capital expenditure
requirements as a result of the strategic actions taken in 2000. Finally, we
made additional investments in ChinaBig of $1.6 million and $3.9 million during
the first six months of 2001 and 2000, respectively. The $1.6 million investment
made in 2001 represented our final required payment for this investment. We
currently have no material commitments for investment spending or capital
expenditures.
Net cash used in financing activities was $79.0 million in the first half of
2001 compared to $26.1 million in the first half of 2000. The increase over the
prior year is primarily due to the prepayment of $50 million of debt in the
first quarter and higher spending to repurchase shares of our common stock under
both our systematic share repurchase plan and our open market share repurchase
plan. At June 30, 2001, we had available authorization to repurchase an
additional $46.3 million of common stock under our $100 million open market
share repurchase plan through April 2002, and to repurchase 2.2 million shares
under the systematic share repurchase plan to offset the dilutive impact on
earnings of the exercise of employee stock options.
MARKET RISK SENSITIVE INSTRUMENTS
We are exposed to interest rate risk on our variable rate debt. In order to
manage our exposure to fluctuations in interest rates, we 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
20
21
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. As of June 30, 2001
there was $125 million outstanding notional amount of interest rate swaps. On
June 18, 2001, an interest rate swap agreement with a notional value of $50
million expired and due to the Company's reduced level of indebtedness, the
interest rate swap agreement was not replaced.
The unrealized fair value of the swaps was a loss of $2.3 million at June 30,
2001. In accordance with FAS 133, "Accounting for Derivative Instruments and
Hedging Activities," which became effective for the Company on January 1, 2001,
this fair value loss was recognized on the balance sheet in other liabilities
with a corresponding charge to accumulated other comprehensive loss, a component
of shareholders' deficit.
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 "- Market Risk
Sensitive Instruments."
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the discussion of legal proceedings under Item 3 of Part I
in the Company's Annual Report on Form 10-K for the year ended December 31, 2000
("10-K"). Except as described in Footnote 7 to the Consolidated Financial
Statements set forth in Item 1 of this From 10-Q, there has been no material
change in the information with respect to legal proceedings from that set forth
in the 10-K.
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 Company held its Annual Meeting of Stockholders ("Meeting") in White Plains,
N.Y. on May 1, 2001. At the Meeting, the Company's stockholders elected the
three Class II Directors nominated for election by the Board of Directors to
serve three-year terms as follows:
Votes
Name Votes For Withheld
---- --------- --------
Kenneth G. Campbell 27,405,852 708,311
Carol J. Parry 27,063,255 1,050,908
Barry Lawson Williams 27,404,828 709,335
The other members of the Company's Board of Directors, Diane P. Baker, William
G. Jacobi, Robert Kamerschen, Peter J. McDonald and Frank R. Noonan, were not
subject to re-election by stockholders this year and continue in office.
At the Meeting, the Company's stockholders also approved the 2001 Stock Award
and Incentive Plan and ratified the appointment of PricewaterhouseCoopers LLP
("PwC") as the Company's independent accountants for 2001 as follows:
Votes For Votes Against Abstentions
--------- ------------- -----------
Approval of 2001 Stock Award and Incentive Plan 16,867,827 6,294,400 107,426
Ratification of the appointment of PwC 27,828,491 255,377 30,295
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO. DOCUMENT
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q
for the three months ended March 31, 1999, Commission File No.
001-07155)
3.2 By-laws of the Company (incorporated by reference to Exhibit
3.2 to the Quarterly Report on Form 10-Q for the three months
ended March 31, 1999, Commission File No. 001-07155)
3.3 Certificate of Incorporation of R.H. Donnelley Inc.
(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 R.H. Donnelley Inc. (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 R.H. Donnelley
Inc., as Issuer, the Company, as Guarantor, and the Bank of
New York, as Trustee, with respect to the 91/8% 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)
4.5 Amendment No. 1 to Rights Agreement dated as of February 26,
2001 by and among R.H. Donnelley Corporation, First Chicago
Trust Company of New York (as initial Rights Agent) and The
Bank of New York (as successor Rights Agent) (incorporated by
reference to Exhibit 4.5 to the Annual Report on Form 10-K for
the year ended December 31, 2000, Commission File No.
001-07155)
10.1 Form of Distribution Agreement between the Company (f/k/a The
Dun & Bradstreet Corporation) and The New Dun & Bradstreet
Corporation (incorporated by reference to Exhibit 99.2 to the
Form 8-K of the Company (f/k/a The Dun & Bradstreet
Corporation), filed on June 30, 1998, Commission File No.
001-07155)
10.2 Form of Tax Allocation Agreement between the Company (f/k/a
The Dun & Bradstreet Corporation) and The New Dun & Bradstreet
Corporation (incorporated by reference to Exhibit 99.3 to the
Form 8-K of the Company (f/k/a The Dun & Bradstreet
Corporation), filed on June 30, 1998, Commission File No.
001-07155)
10.3 Form of Employee Benefits Agreement between the Company (f/k/a
The Dun & Bradstreet Corporation) and The New Dun & Bradstreet
Corporation (incorporated by reference to Exhibit 99.4 to the
Form 8-K of the Company (f/k/a The Dun & Bradstreet
Corporation), filed on June 30, 1998, Commission File No.
001-07155)
23
24
10.4 Form of Intellectual Property Agreement between the Company
(f/k/a The Dun & Bradstreet Corporation) and The New Dun &
Bradstreet Corporation (incorporated by reference to Exhibit
99.5 to the Form 8-K of the Company (f/k/a The Dun &
Bradstreet Corporation), filed on June 30, 1998, Commission
File No. 001-07155)
10.5 Form of Amended and Restated Transition Services Agreement
between the Company (f/k/a The Dun & Bradstreet Corporation),
The New Dun & Bradstreet Corporation, Cognizant Corporation,
IMS Health Incorporated, ACNielsen Corporation and Gartner
Group, Inc. (incorporated by reference to Exhibit 99.9 to the
Form 8-K of the Company (f/k/a The Dun & Bradstreet
Corporation), filed on June 30, 1998, Commission File No.
001-07155)
10.6 Credit Agreement among the Company, R.H. Donnelley Inc., The
Chase Manhattan Bank, as Administrative Agent and the Lenders
party thereto (incorporated by reference to Exhibit 10.9 to
the Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on July 17, 1998,
Registration No. 333-59287)
10.7 First Amendment to Credit Agreement, dated as of March 4,
1999, among the Company, R.H. Donnelley Inc., The Chase
Manhattan Bank, as Administrative Agent, and the Lenders party
thereto (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the three months ended March
31, 1999, Commission File No. 001-07155)
10.8 DonTech II Partnership Agreement, effective August 19, 1997,
by and between R.H. Donnelley Inc. (f/k/a The Reuben H.
Donnelley Corporation) and Ameritech Publishing of Illinois,
Inc. (incorporated by reference to Exhibit 10.10 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)
10.9 Revenue Participation Agreement, dated as of August 19, 1997,
by and between APIL Partners Partnership and R.H. Donnelley
Inc. (f/k/a The Reuben H. Donnelley Corporation) (incorporated
by reference to Exhibit 10.11 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)
10.10 Master Agreement, executed August 19, 1997, by and among R.H.
Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation),
the Company (f/k/a The Dun & Bradstreet Corporation), The
Am-Don Partnership a/k/a DonTech, DonTech II, Ameritech
Publishing, Inc., Ameritech Publishing of Illinois, Inc.,
Ameritech Corporation, DonTech I Publishing Company LLC and
the APIL Partners Partnership (incorporated by reference to
Exhibit 10.12 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)
10.11 Exclusive Sales Agency Agreement, effective August 19, 1997,
between APIL Partners Partnership and DonTech II (incorporated
by reference to Exhibit 10.13 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)
10.12 Second Amended and Restated Partnership Agreement, effective
as of August 19, 1997, by and between R.H. Donnelley Inc.
(f/k/a The Reuben H. Donnelley Corporation) and Ameritech
Publishing of Illinois (incorporated by reference to Exhibit
10.14 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)
10.13/\ Key Employees' Performance Unit Plan, as amended and restated
(incorporated by reference to Exhibit 10.15 to Amendment No. 3
to the Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on September 28, 1998,
Registration No. 333-59287)
24
25
10.14/\ 1991 Key Employees' Stock Option Plan, as amended and restated
through April 25, 2000 (incorporated by reference to Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
three months ended September 30, 2000, Commission File No.
001-07155)
10.15/\ Amended and Restated 1998 Directors' Stock Plan (incorporated
by reference to Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999, Commission
File No. 001-07155)
10.16/\ Annual Incentive Plan, as amended and restated (incorporated
by reference to Exhibit 10.18 to Amendment No. 3 to the
Registration Statement on Form S-4, filed with the Securities
and Exchange Commission on September 28, 1998, Registration
No. 333-59287)
10.17/\ Supplemental Executive Benefit Plan (incorporated by reference
to Exhibit 10.19 to Amendment No. 3 to the Registration
Statement on Form S-4, filed with the Securities and Exchange
Commission on September 28, 1998, Registration No. 333-59287)
10.18/\ Deferred Compensation Plan (incorporated by reference to
Exhibit 4.01 to the Company's Registration Statement on Form
S-8, filed with the Securities and Exchange Commission on
November 24, 1999, Registration No. 333-91613)
10.19/\ Employment Agreement dated as of September 28, 1998 between
the Company and Frank R. Noonan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, Commission File No.
001-07155)
10.20/\ Employment Agreement dated as of September 28, 1998 between
the Company and Philip C. Danford (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, Commission File No.
001-07155)
10.21/\ Amendment No. 1 to Employment Agreement dated as of July 27,
2000 between the Company and Phillip C. Danford (incorporated
by reference to Exhibit 10.21 to the Annual Report on Form
10-K for the year ended December 31, 2000, Commission File
No. 001-07155)
10.22/\ Amendment No. 2 to Employment Agreement dated as of February
27, 2001 between the Company and Phillip C. Danford
(incorporated by reference to Exhibit 10.22 to the Annual
Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 001-07155)
10.23/\ Employment Agreement dated as of September 28, 1998 between
the Company and David C. Swanson (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, Commission File No.
001-07155)
10.24/\ Amendment No. 1 to Employment Agreement dated as of July 27,
2000 between the Company and David C. Swanson (incorporated by
reference to Exhibit 10.24 to the Annual Report on Form 10-K
for the year ended December 31, 2000, Commission File No.
001-07155)
10.25/\ Amendment No. 2 to Employment Agreement dated as of February
27, 2001 between the Company and David C. Swanson
(incorporated by reference to Exhibit 10.25 to the Annual
Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 001-07155)
10.26/\ Employment Agreement dated as of September 28, 1998 between
the Company and Judith A. Norton (incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, Commission File No.
001-07155)
10.27/\ Amendment No. 1 to Employment Agreement dated as of July 27,
2000 between the Company and Judith A. Norton (incorporated by
reference to Exhibit 10.27 to the Annual Report on Form 10-K
for the year ended December 31, 2000, Commission File No.
001-07155)
25
26
10.28/\ Amendment No. 2 to the Employment Agreement dated as of
February 27, 2001 between the Company and Judith A. Norton
(incorporated by reference to Exhibit 10.28 to the Annual
Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 001-07155)
10.29/\ Separation Agreement and Release dated as of March 15, 2001
between the Company and Judith A. Norton (incorporated by
reference to Exhibit 10.29 to the Annual Report on Form 10-K
for the year ended December 31, 2000, Commission File No.
001-07155)
10.30/\ Employment Agreement dated as of March 23, 2000 between Get
Digital Smart.com, Inc. and Thomas A. Daniel (incorporated by
reference to Exhibit 10.30 to the Annual Report on Form 10-K
for the year ended December 31, 2000, Commission File No.
001-07155)
10.31/\ Separation Agreement and Release dated as of February 28, 2001
between Get Digital Smart.com and Thomas A. Daniel
(incorporated by reference to Exhibit 10.31 to the Annual
Report on From 10-K for the year ended December 31, 2000,
Commission File No. 001-07155)
10.32/\ Employment Agreement dated as of September 28, 1998 between
the Company and Frank M. Colarusso (incorporated by reference
to Exhibit 10.32 to the Annual Report on Form 10-K for the
year ended December 31, 2000, Commission File No. 001-07155)
10.33/\ Amendment No. 1 to Employment Agreement dated as of July 27,
2000 between the Company and Frank M. Colarusso (incorporated
by reference to Exhibit 10.33 to the Annual Report on Form
10-K for the year ended December 31, 2000, Commission File No.
001-07155)
10.34/\ Amendment No. 2 to Employment Agreement dated as of February
27, 2001 between the Company and Frank M. Colarusso
(incorporated by reference to Exhibit 10.34 to the Annual
Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 001-07155)
10.35/\ Employment Agreement dated as of September 26, 2000 between
the Company and William C. Drexler (incorporated by reference
to Exhibit 10.35 to the Annual Report on Form 10-K for the
year ended December 31, 2000, Commission File No. 001-07155)
10.36/\ Amendment No. 1 to Employment Agreement dated as of February
27, 2001 between the Company and William C. Drexler
(incorporated by reference to Exhibit 10.36 to the Annual
Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 001-07155)
10.37/\ Employment Agreement dated as of January 1, 2001 between the
Company and Robert J. Bush (incorporated by reference to
Exhibit 10.37 to the Annual Report on Form 10-K for the year
ended December 31, 2000, Commission File No. 001-07155)
10.38/\ Amendment No. 1 to Employment Agreement dated as of February
27, 2001 between the Company and Robert J. Bush (incorporated
by reference to Exhibit 10.38 to the Annual Report on Form
10-K for the year ended December 31, 2000, Commission File No.
001-07155)
10.39/\ 2001 Partner Share Plan (incorporated by reference to Exhibit
99.1 to Registration Statement on Form S-8, filed with the
Securities and Exchange Commission on April 30, 2001,
Registration No. 333-59790)
10.40/\ 2001 Stock Award and Incentive Plan
10.41/\ Non-qualified Stock Option Agreement (incorporated by
reference to Exhibit 99.02 to the Company's Registration
Statement on Form S-8, filed with the Securities and Exchange
Commission on July 25, 2001, Registration No. 333-65822)
26
27
10.42/\ Form of Annual Incentive Program Award (incorporated by
reference to Exhibit 99.03 to the Company's Registration
Statement on Form S-8, filed with the Securities and Exchange
Commission on July 25, 2001, Registration No. 333-65822)
10.43/\ Form of Performance Unit Program Award (incorporated by
reference to Exhibit 99.04 to the Company's Registration
Statement on Form S-8, filed with the Securities and Exchange
Commission on July 25, 2001, Registration No. 333-65822)
- ----------------------
/\ Management contract or compensatory plan
(b) Reports on Form 8-K:
None
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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 10, 2001 By: /s/ Philip C. Danford
---------------------
Philip C. Danford
Senior Vice President and Chief
Financial Officer
Date: August 10, 2001 By: /s/ William C. Drexler
----------------------
William C. Drexler
Vice President and Controller
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 10, 2001 By: /s/ Philip C. Danford
---------------------
Philip C. Danford
Senior Vice President and Chief
Financial Officer
Date: August 10, 2001 By: /s/ William C. Drexler
----------------------
William C. Drexler
Vice President and Controller
28