Exhibit 99.1
[RHDonnelley Logo]
NEWSrelease
CONTACT: CONTACT:
Jenny L. Apker James M. Gruskin
800/497-6329 800/497-6329
R.H. DONNELLEY REPORTS SECOND QUARTER 2004 RESULTS
COMPLETES CORPORATE RELOCATION; REPAYS $60.9 MILLION OF DEBT
CARY, N.C., July 28, 2004 -- R.H. Donnelley Corporation (NYSE: RHD), a leading
yellow pages publisher and directional media company, today reported second
quarter 2004 income available to common shareholders of $27.7 million, or $0.65
per diluted share. RHD's second quarter 2004 net income before preferred
dividends was $33.1 million, resulting in adjusted diluted earnings per share of
$0.79. In the second quarter, RHD repaid $60.9 million of debt after bond
interest payments of $47.0 million. See the attached schedules for a
reconciliation of non-GAAP measures presented in this release to the most
comparable GAAP measures.
David C. Swanson, Chairman and Chief Executive Officer, said, "During
the second quarter, we again delivered solid results consistent with our plan.
We continued to see the benefits of the process improvements that we have been
implementing in our larger markets following the Sprint transaction, as they
were primarily the ones that drove our publication sales and revenue growth in
the quarter. As a result, we continue to expect that our Sprint markets will
achieve our publication sales and revenue guidance for the year. In the second
quarter we also completed the relocation to our new corporate headquarters in
Cary, North Carolina. Now that we are under one roof, we believe we are better
positioned to efficiently manage the demands of our growing company. "
SECOND QUARTER RESULTS - INCLUDING ADJUSTMENTS AND NON-GAAP MEASURES
Publication sales for RHD's Sprint-branded directories during the
second quarter of 2004 were $137.8 million, up 2.2% from adjusted publication
sales of $134.9 million in the prior year. Publication sales represent the total
billable value of advertising in directories that were published in the period.
Most of the Company's publications performed better compared to last year,
driven by improving advertiser renewal rates and an increase in new advertisers.
Net revenue in the quarter was $144.6 million, up 0.7% from adjusted
net revenue of $143.6 million in the second quarter of 2003. Operating expenses
excluding depreciation and amortization were $72.4 million compared to $66.4
million on an as adjusted basis for the same
period in 2003. The increase in operating expenses in second quarter 2004 was
primarily driven by costs associated with the corporate relocation and increased
sales and marketing expenses, partially offset by lower bad debt expense as well
as synergies related to the SPA integration. Operating income for the second
quarter of 2004 was $92.1 million, compared to adjusted operating income for the
second quarter of 2003 of $96.1 million as a result of higher operating expenses
as well as lower partnership income from DonTech. EBITDA for the quarter was
$107.0 million, compared to adjusted EBITDA of $112.5 million in the prior year.
For the six months ended June 30, 2004, operating income was $178.9
million compared to $178.6 million on an as adjusted basis for the same period
in 2003. EBITDA for the six months ended June 30, 2004 was $208.2 million,
compared to adjusted EBITDA of $211.1 million in the prior year. EBITDA and
operating income for the first half of 2004 reflects costs of over $10 million
associated with the corporate headquarters relocation and purchase accounting
adjustments for the SPA acquisition.
Partnership income from DonTech for the second quarter of 2004 was
$34.8 million, down 1.5% from $35.3 million in the prior year. (DonTech
operating results are described below.)
Net interest expense for the second quarter of 2004 was $37.5 million,
compared to net interest expense for the second quarter of 2003 of $43.3
million, reflecting lower interest rates and lower average debt outstanding. See
the attached schedules for reconciliations of non-GAAP measures to the most
comparable GAAP measures.
SECOND QUARTER - REPORTED GAAP RESULTS
Second quarter net revenue was $144.6 million compared to $38.6 million
in the prior year. Operating expenses including depreciation and amortization
were $87.3 million compared to $63.4 million in the prior year. Partnership
income was $34.8 million for the quarter versus $35.3 million in the prior year.
Operating income in the quarter was $92.1 million versus $10.5 million in the
prior year. Net interest expense in the quarter was $37.5 million compared to
$43.3 million in the second quarter of 2003. Net income available to common
shareholders for the quarter was $27.7 million or $0.65 per diluted share
compared to a loss of $24.9 million or $0.81 per diluted share in the second
quarter of 2003. For the six months ended June 30, 2004, operating income was
$178.9 million versus a loss of $11.5 million in the prior year.
DONTECH OPERATING RESULTS
Publication sales at DonTech were $89.4 million for the quarter, down
1.5% compared to $90.8 million in the second quarter of 2003 and resulted from
the decline in calendar sales previously disclosed in the fourth quarter of 2003
and the first quarter of 2004.
Second quarter calendar sales for DonTech, which represent the value of
actual sales contracts signed in the period, were $119.5 million, down 0.5%
compared to $120.1 million last year. The decrease in calendar sales is largely
driven by a decline in sales related to directories published late in the second
quarter and early in the third quarter of this year. Partnership income from
DonTech in the second quarter of 2004 was $34.8 million, down 1.5% from $35.3
million last year, primarily reflecting the decrease in calendar sales in the
second quarter of 2004.
DonTech is accounted for under the equity method. As such, the Company
does not consolidate DonTech's revenue and expenses in its consolidated results,
rather it reports the Company's share of DonTech's net income and revenue
participation income from SBC Communications Inc. (NYSE: SBC), which are both
based on DonTech's calendar sales and reported collectively as partnership
income. DonTech is a perpetual partnership between RHD and SBC Communications to
sell yellow pages advertising in Illinois and Northwest Indiana. On July 28,
2004, RHD announced it has signed a definitive agreement to acquire SBC's
directory publishing business in Illinois and Northwest Indiana, including SBC's
interest in DonTech, for $1.45 billion in cash. For additional detail, please
refer to the press release issued today, which can be accessed by visiting RHD's
website at www.rhd.com under "Investor Relations".
CASH FLOW AND DEBT
The Company generated cash flow from operations of $52.8 million in the
quarter. Free cash flow (cash flow from operations less capital expenditures and
software investment) for the quarter was $46.8 million. Cash flow used in the
quarter for capital expenditures and software investment totaled $6.0 million,
debt repayment totaled $60.9 million, proceeds from stock option exercises
totaled $1.7 million.
As of June 30, 2004, total debt outstanding totaled $1,942.7 million.
As of June 30, 2004, the ratio of total debt to 2004 forecasted EBITDA of
approximately $415 million is approximately 4.7 to 1.0.
OUTLOOK
As a result of a net operating loss carryback, the Company expects to
receive a net federal tax refund of approximately $40 million in the third
quarter, and accordingly is increasing 2004 full year guidance for cash flow
from operations to $312 million from $272 million and for
free cash flow to $297 million from $257 million. In addition, RHD is revising
guidance for the year-over-year change in DonTech publication sales to a decline
of 3.0% from original guidance of a decline of 2.2% as a result of the trends
discussed above.
ADJUSTMENTS TO RESULTS
In 2004, adjusted earnings per share assumes conversion of the
preferred stock at the beginning of the period in order to be consistent with
the 2003 presentation.
As a result of the SPA acquisition, the related financing and
associated accounting, certain adjustments were made to the 2003 GAAP results in
order to enhance comparability with prior and future periods. The primary 2003
adjustments were recognition of pre-acquisition deferred revenue and deferred
expenses that are not reportable under GAAP due to purchase accounting
requirements, but that absent purchase accounting would have been recognized
during the periods presented.
See the Company's Current Report on Form 8-K filed with the SEC on May
2, 2003 for further details regarding the adjustments and non-GAAP financial
measures. All non-GAAP financial measures are reconciled to the most comparable
GAAP reported results within the attached schedules.
SECOND QUARTER CONFERENCE CALL
R.H. Donnelley's second quarter conference call will be held on July
29, 2004 at 9:00 a.m. EST and can be accessed by dialing 888-387-9606 (domestic)
or 484-630-7198. Please note the change from the previously announced time in
order to accommodate the announcement of the SBC transaction. The passcode for
the call is "RHD". Please dial in to the call by 8:50 a.m. The call will also be
available through a Webcast, which can be accessed by visiting our Web site at
www.rhd.com, clicking on "Investor Information" and following the instructions
provided. Those unable to participate at the scheduled time may access a
recording by dialing 866-441-8821 (domestic) or 203-369-1062 (international).
The recording will be available through August 10, 2004. There is no passcode
for the replay.
ABOUT R.H. DONNELLEY
R.H. Donnelley is a leading yellow pages publisher and directional
media company. Directional media is where consumers go to find who sells the
goods and services they are ready to purchase. R.H. Donnelley publishes
approximately 260 directories under the Sprint Yellow Pages(R) brand in 18
states, with major markets including Las Vegas, Orlando, and Lee County,
Florida. The Company also offers online city guides and search web sites in
these major markets under the Best
Red Yellow Pages brand at www.bestredyp.com. In addition, R.H. Donnelley serves
as the exclusive sales agent for 129 SBC directories under the SBC Yellow
Pages(R) brand in Illinois and northwest Indiana through DonTech, its perpetual
partnership with SBC. Including DonTech, R.H. Donnelley serves more than 260,000
local and national advertisers. For more information, please visit R.H.
Donnelley at www.rhd.com.
Safe Harbor Provision
- ---------------------
Certain statements contained in this press release 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," "will", "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. Without
limiting the generality of the foregoing, the statements under the caption
"Outlook" are forward-looking statements. Regardless of any identifying phrases,
these statements and all other forward-looking statements reflect only R.H.
Donnelley's current beliefs and 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 materially from those expressed in, or implied by, these statements.
Such risks, uncertainties and contingencies are described in detail in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, as well as the Company's other periodic filings with the
Securities and Exchange Commission, and in summary and without limitation
include the following: (1) our ability to meet our substantial debt service
obligations; (2) restrictive covenants under the terms our debt and convertible
preferred stock agreements; (3) usage of print yellow pages directories and
changes in technology; (4) competition in the yellow pages industry and other
competitive media; (5) SBC's or DonTech's actions, which could adversely impact
our results of operations and financial condition; (6) failure to consummate the
acquisition of SBC's directory publishing business in Illinois and Northwest
Indiana; (7) reliance on and extension of credit to small- and medium-sized
businesses; (8) dependence on third party providers of printing, distribution
and delivery services and the sale of advertising to national accounts; (9)
general economic conditions and consumer sentiment in our markets; and (10)
fluctuations in the price and availability of paper.
R.H. DONNELLEY CORPORATION SCHEDULE 1
INDEX OF SCHEDULES
Schedule 1: Index of Schedules
Schedule 2: Unaudited Consolidated Statements of Income
For the three and six months ended June 30, 2004 and 2003
Schedule 3: Unaudited As Adjusted Consolidated Statements
of Income for the three months ended June 30, 2004 and 2003
Schedule 4: Unaudited As Adjusted Consolidated Statements
of Income for the six months ended June 30, 2004 and 2003
Schedule 5: Unaudited Consolidated Balance Sheets at June 30, 2004,
March 31, 2004 and December 31, 2003
Schedule 6: Unaudited Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2004
Schedule 7: Reconciliation of Reported to As Adjusted Unaudited
Consolidated Statements of Income For the three months
ended June 30, 2004 and 2003, respectively
Schedule 8: Reconciliation of Reported to As Adjusted
Unaudited Consolidated Statements of Income
For the six months ended June 30, 2004 and 2003, respectively
Schedule 9: Reconciliation of Non-GAAP Measures
Schedule 10: Notes to Unaudited Consolidated Statements of Income and
Non-GAAP Measures
R.H. DONNELLEY CORPORATION SCHEDULE 2
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
AMOUNTS IN MILLIONS, EXCEPT EARNINGS PER SHARE
- ---------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------
2004 2003 2004 2003
REPORTED REPORTED REPORTED REPORTED
- ---------------------------------------------------------------------------------------------------------
Net revenue (1) $ 144.6 $ 38.6 $ 288.4 $ 51.0
Expenses 72.4 47.0 138.9 89.0
Depreciation and amortization 14.9 16.4 29.3 32.5
Partnership income 34.8 35.3 58.7 59.0
--------------------------------------------------------------
OPERATING INCOME (LOSS) 92.1 10.5 178.9 (11.5)
Interest expense, net (37.5) (43.3) (77.8) (91.9)
Other income, net -- 0.7 -- 1.5
--------------------------------------------------------------
PRE-TAX INCOME (LOSS) 54.6 (32.1) 101.1 (101.9)
Tax (provision) benefit (21.5) 13.2 (39.9) 41.8
--------------------------------------------------------------
NET INCOME (LOSS) 33.1 (18.9) 61.2 (60.1)
Preferred dividend 5.4 6.0 10.7 48.1
--------------------------------------------------------------
INCOME (LOSS) AVAILABLE TO COMMON $ 27.7 $ (24.9) $ 50.5 $ (108.2)
==============================================================
EARNINGS PER SHARE (EPS): (4)
Basic $ 0.68 $ (0.81) $ 1.25 $ (3.56)
Diluted $ 0.65 $ (0.81) $ 1.20 $ (3.56)
SHARES USED IN COMPUTING EPS:
Basic 31.2 30.6 31.1 30.4
Diluted 32.5 30.6 32.4 30.4
- ---------------------------------------------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of Income and
Non-GAAP Measures - Schedule 10.
R.H. DONNELLEY CORPORATION SCHEDULE 3
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
AMOUNTS IN MILLIONS, EXCEPT EARNINGS PER SHARE
- -------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
---------------------------------
2004 2003 VARIANCE
AS ADJUSTED (2) AS ADJUSTED (2) $ %
- -------------------------------------------------------------------------------------------------------
Net revenue (1) $ 144.6 $ 143.6 $ 1.0 0.7%
Expenses 72.4 66.4 (6.0) (9.0%)
Depreciation and amortization 14.9 16.4 1.5 9.1%
Partnership income 34.8 35.3 (0.5) (1.4%)
------------------------------------------------------------
OPERATING INCOME 92.1 96.1 (4.0) (4.2%)
Interest expense, net (37.5) (43.3) 5.8 13.4%
------------------------------------------------------------
PRE-TAX INCOME 54.6 52.8 1.8 3.4%
Tax provision (21.5) (20.3) (1.2) (5.9%)
------------------------------------------------------------
NET INCOME 33.1 32.5 (32.5) (100.0%)
Preferred dividend (3) -- -- -- 0.0%
------------------------------------------------------------
INCOME AVAILABLE TO COMMON $ 33.1 $ 32.5 (32.5) (100.0%)
============================================================
EARNINGS PER SHARE (EPS): (5)
Basic $ 0.81 $ 0.83 $ (0.02) (2.4%)
Diluted $ 0.79 $ 0.81 $ (0.02) (2.5%)
SHARES USED IN COMPUTING EPS: (5)
Basic 40.6 39.3
Diluted 41.9 40.2
- -------------------------------------------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of Income and
Non-GAAP Measures - Schedule 10.
See Schedule 7 for a reconciliation of reported to as adjusted amounts.
R.H. DONNELLEY CORPORATION SCHEDULE 4
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
AMOUNTS IN MILLIONS, EXCEPT EARNINGS PER SHARE
- ------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
---------------------------------
2004 2003 VARIANCE
AS ADJUSTED (2) AS ADJUSTED (2) $ %
- ------------------------------------------------------------------------------------------------------
Net revenue (1) $ 288.4 $ 287.1 $ 1.3 0.5%
Expenses 138.9 135.0 (3.9) (2.9%)
Depreciation and amortization 29.3 32.5 3.2 9.8%
Partnership income 58.7 59.0 (0.3) (0.5%)
-----------------------------------------------------------
OPERATING INCOME 178.9 178.6 0.3 0.2%
Interest expense, net (77.8) (89.5) 11.7 13.1%
-----------------------------------------------------------
PRE-TAX INCOME 101.1 89.1 12.0 13.5%
Tax provision (39.9) (34.3) (5.6) (16.3%)
-----------------------------------------------------------
NET INCOME 61.2 54.8 6.4 11.7%
Preferred dividend (3) -- -- -- 0.0%
-----------------------------------------------------------
INCOME AVAILABLE TO COMMON $ 61.2 $ 54.8 6.4 11.7%
===========================================================
EARNINGS PER SHARE (EPS): (5)
Basic $ 1.51 $ 1.40 $ 0.11 7.9%
Diluted $ 1.46 $ 1.37 $ 0.09 6.6%
SHARES USED IN COMPUTING EPS: (5)
Basic 40.5 39.1
Diluted 41.8 39.9
- ------------------------------------------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of Income and
Non-GAAP Measures - Schedule 10.
See Schedule 8 for a reconciliation of reported to as adjusted amounts.
R.H. DONNELLEY CORPORATION SCHEDULE 5
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AMOUNTS IN MILLIONS
- ---------------------------------------------------------------- --------- --------- -----------
June 30, March 31, December 31,
2004 2004 2003
- ---------------------------------------------------------------- --------- --------- -----------
Assets
Cash and cash equivalents $ 10.6 $ 9.3 $ 7.7
Accounts receivable, net 223.5 221.9 211.0
Deferred directory costs 35.2 37.5 (1) 33.0 (1)
Prepaid expenses and other 85.8 23.3 (1) 32.9 (1)
--------- --------- ---------
TOTAL CURRENT ASSETS 355.1 292.0 284.6
Partnership investment 174.2 167.6 175.7
Fixed assets and computer software, net 28.0 21.6 20.6
Intangible assets, net 1,840.3 1,852.7 1,865.2
Other non-current assets 91.0 91.5 95.6
Goodwill 97.0 97.0 97.0
--------- --------- ---------
TOTAL ASSETS $ 2,585.6 $ 2,522.4 $ 2,538.7
========= ========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable and accrued liabilities $ 50.0 $ 54.7 $ 33.5
Deferred directory revenue 227.8 230.0 216.5
Current portion of long-term debt 28.9 39.1 49.6
--------- --------- ---------
TOTAL CURRENT LIABILITIES 306.7 323.8 299.6
Long-term debt 1,913.8 1,964.4 2,042.5
Deferred income taxes, net 125.5 36.5 33.6
Other non-current liabilities 27.0 26.1 21.0
--------- --------- ---------
TOTAL LIABILITIES 2,373.0 2,350.8 2,396.7
Redeemable convertible preferred stock 207.0 202.6 198.2
Shareholders' Equity (deficit) 5.6 (31.0) (56.2)
---------- --------- ---------
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) $ 2,585.6 $ 2,522.4 $ 2,538.7
========= ========= =========
- ---------------------------------------------------------------- --------- --------- -----------
(1) Reflects reclassification of $4.2 million and $4.9 million from deferred
directory costs to prepaid expenses at March 31, 2004 and December 31,
2003, respectively, for deferred sales commissions paid prior to the
directory publication.
R.H. DONNELLEY CORPORATION SCHEDULE 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
AMOUNTS IN MILLIONS
- ----------------------------------------------------- ------------------ ----------------
REPORTED REPORTED
THREE MONTHS ENDED SIX MONTHS ENDED
Operating activities: JUNE 30, 2004 JUNE 30, 2004
------------------ ----------------
Net income $ 33.1 $ 61.2
Depreciation and amortization 14.9 29.3
Deferred income tax 21.6 39.9
Cash (less than) in excess of partnership income (6.6) 1.7
Changes in working capital (26.1) (5.1)
Other 15.9 20.5
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 52.8 147.5
INVESTMENT ACTIVITIES:
Additions to fixed assets and computer software (6.0) (8.9)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (6.0) (8.9)
FINANCING ACTIVITIES:
Increase in checks not yet presented for payment 13.7 9.5
Repayment of debt (60.9) (149.5)
Proceeds from option exercises 1.7 4.3
------- --------
NET CASH USED IN FINANCING ACTIVITIES (45.5) (135.7)
Increase in cash and cash equivalents 1.3 2.9
Cash and cash equivalents, beginning of period 9.3 7.7
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10.6 $ 10.6
======= ========
- ----------------------------------------------------- ------- --------
R.H. DONNELLEY CORPORATION SCHEDULE 7
CONSOLIDATED STATEMENTS OF INCOME
RECONCILIATION OF REPORTED TO AS ADJUSTED
(UNAUDITED)
AMOUNTS IN MILLIONS, EXCEPT EARNINGS PER SHARE
- ------------------------------------- ------------------------------------ ------------------------------------
THREE MONTHS ENDED JUNE 30, 2004 THREE MONTHS ENDED JUNE 30, 2003
------------------------------------ ------------------------------------
REPORTED ADJUSTMENTS AS ADJUSTED REPORTED ADJUSTMENTS AS ADJUSTED
- ------------------------------------- ------------------------------------ ------------------------------------
Net revenue (1) $144.6 $144.6 $ 38.6 $105.0 (6) $143.6
Expenses 72.4 72.4 47.0 19.4 (6) 66.4
Depreciation and amortization 14.9 14.9 16.4 - 16.4
----------------------------------- -----------------------------------
Total expenses 87.3 - 87.3 63.4 19.4 82.8
Partnership income 34.8 34.8 35.3 - 35.3
----------------------------------- -----------------------------------
OPERATING INCOME 92.1 - 92.1 10.5 85.6 96.1
Interest expense, net (37.5) (37.5) (43.3) - (43.3)
Other income, net - - 0.7 (0.7) (12) -
----------------------------------- -----------------------------------
PRE-TAX INCOME (LOSS) 54.6 - 54.6 (32.1) 84.9 52.8
Tax (provision) benefit (21.5) (21.5) 13.2 (33.5) (7) (20.3)
----------------------------------- -----------------------------------
NET INCOME (LOSS) 33.1 - 33.1 (18.9) 51.4 32.5
Preferred dividend 5.4 (5.4) (3) - 6.0 (6.0) (3) -
----------------------------------- -----------------------------------
INCOME (LOSS) AVAILABLE TO COMMON $ 27.7 $ 5.4 $ 33.1 $(24.9) $ 57.4 $ 32.5
=================================== ===================================
EARNINGS PER SHARE (EPS): (4), (5)
Basic $ 0.68 $ 0.13 $ 0.81 $(0.81) $ 1.64 $ 0.83
Diluted $ 0.65 $ 0.14 $ 0.79 $(0.81) $ 1.62 $ 0.81
SHARES USED IN COMPUTING EPS: (4), (5)
Basic 31.2 9.4 40.6 30.6 8.7 39.3
Diluted 32.5 9.4 41.9 30.6 9.6 40.2
- -------------------------------------- ----------------------------------- -----------------------------------
See accompanying Notes to Unaudited Consolidated Statements of Income and
Non-GAAP Measures - Schedule 10.
R.H. DONNELLEY CORPORATION SCHEDULE 8
CONSOLIDATED STATEMENTS OF INCOME
RECONCILIATION OF REPORTED TO AS ADJUSTED AND ADJUSTED PRO FORMA AMOUNTS
(UNAUDITED)
AMOUNTS IN MILLIONS, EXCEPT EARNINGS PER SHARE
- --------------------------------------- ---------------------------------------- ------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004 SIX MONTHS ENDED JUNE 30, 2003
---------------------------------------- ------------------------------------------
AS ADJUSTED
REPORTED ADJUSTMENTS ADJUSTED (1) REPORTED ADJUSTMENTS PRO FORMA (2)
- --------------------------------------- ---------------------------------------- -----------------------------------------
Net revenue $ 288.4 $ 288.4 $ 51.0 $ 236.1 (6) $ 287.1
Expenses 138.9 138.9 89.0 46.0 (6) 135.0
Depreciation and amortization 29.3 - 29.3 32.5 - 32.5
---------------------------------------- -----------------------------------------
Total expenses 168.3 - 168.3 121.5 46.0 167.5
Partnership income 58.7 - 58.7 59.0 - 59.0
---------------------------------------- -----------------------------------------
TOTAL OPERATING (LOSS) INCOME 178.9 - 178.9 (11.5) 190.1 178.6
Interest expense, net (77.8) (77.8) (91.9) 2.4 (11) (89.5)
Other income - - 1.5 (1.5) (12) -
---------------------------------------- -----------------------------------------
PRE-TAX (LOSS) INCOME 101.1 - 101.1 (101.9) 191.0 89.1
Tax (provision) benefit (39.9) - (39.9) 41.8 (76.1) (7) (34.3)
---------------------------------------- -----------------------------------------
Net (loss) income 61.2 - 61.2 (60.1) 114.9 54.8
Preferred dividend 10.7 (10.7) - 48.1 (48.1) (3) -
---------------------------------------- -----------------------------------------
NET (LOSS) INCOME AVAILABLE TO COMMON $ 50.5 $ 10.7 $ 61.2 $ (108.2) $ 163.0 $ 54.8
======================================== =========================================
TWO CLASS CALCULATION
EARNINGS PER SHARE (EPS): (4), (5)
Basic $ 1.25 $ 0.26 $ 1.51 $ (3.56) $ 4.96 $ 1.40
Diluted 1.20 $ 0.26 $ 1.46 $ (3.56) $ 4.93 $ 1.37
SHARES USED IN COMPUTING EPS: (4), (5)
Basic 31.1 9.4 40.5 30.4 8.7 39.1
Diluted 32.4 9.4 41.8 30.4 9.5 39.9
- --------------------------------------- ---------------------------------------- ------------------------------------------
See accompanying Notes to Consolidated Statements of Income and Non-GAAP
Measures - Schedule 10.
R.H. DONNELLEY CORPORATION SCHEDULE 9
RECONCILIATION TO NON-GAAP MEASURES
(UNAUDITED)
AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
- ------------------------------------------------------------------------------------------------------ ---------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------ ---------------------
RECONCILIATION OF PUBLICATION SALES FOR SPRINT-BRANDED DIRECTORIES TO
NET REVENUE AND ADJUSTED NET REVENUE
Publication sales - Sprint-branded directories $ 137.8 $ 134.9 $ 289.1 $ 282.4
Less: adjustment for changes in directory publication date(s) (8) (2.0) (4.4)
-------- --------
Publication sales disclosed in second quarter 2003 earnings release 132.9 278.0
Less publication sales for January 2003 directories that will not be
recognized as revenue due to purchase accounting -- (102.4)
Less current period publication sales not recognized as
revenue in current period (115.9) (111.9) (176.4) (149.3)
Plus: net revenue reported in the period for 2003 publication sales,
excluding publication sales for January 2003 116.9 10.5 163.3 10.5
-------------------- ---------------------
Net directory advertising revenue on above publication sales 138.8 31.5 276.0 36.8
Pre-press publishing revenue 4.2 6.0 9.0 12.1
Other revenue 1.6 1.1 3.4 2.1
-------------------- ---------------------
Net revenue - GAAP 144.6 38.6 288.4 51.0
Plus: Net revenue that would have been reported for publication
sales made prior to acquisition plus all January 2003
published directories absent purchase accounting 105.0 236.1
-------------------- ---------------------
Net revenue - Adjusted $ 144.6 $ 143.6 $ 288.4 $ 287.1
==================== =====================
- ------------------------------------------------------------------------------------------------------ ---------------------
See accompanying Notes to Consolidated Statements of Income and Non-GAAP
Measures - Schedule 10.
R.H. DONNELLEY CORPORATION SCHEDULE 9
RECONCILIATION TO NON-GAAP MEASURES (con't)
(UNAUDITED)
AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
- ----------------------------------------------------------------------------------------------- -----------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- -----------------------
2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------- -----------------------
RECONCILIATION OF PUBLICATION SALES AND CALENDAR SALES FOR SBC
DIRECTORIES WHICH DONTECH SELLS ADVERTISING TO PARTNERSHIP
INCOME - GAAP
Publication sales (8) $ 89.4 $ 90.8 $ 173.5 $ 179.4
Less the value of contracts executed and reported as calendar
sales in prior periods (83.1) (86.8) (164.9) (173.1)
Plus the value of contracts executed during the period to be
reported as publication sales in future periods 113.2 116.1 197.3 199.1
---------------------- -----------------------
Calendar sales (9) $ 119.5 $ 120.1 $ 205.9 $ 205.4
====================== =======================
Commission revenue from above calendar sales $ 30.2 $ 30.3 $ 52.0 $ 51.9
Partnership net expenses (17.7) (16.8) (33.3) (32.0)
---------------------- -----------------------
Partnership profit $ 12.5 $ 13.5 $ 18.7 $ 19.9
====================== =======================
Company's 50% share of partnership profits $ 6.3 $ 6.8 $ 9.5 $ 10.0
Revenue participation income from above calendar sales 28.5 28.5 49.2 49.0
---------------------- -----------------------
Partnership income - GAAP $ 34.8 $ 35.3 $ 58.7 $ 59.0
====================== =======================
- ----------------------------------------------------------------------------------------------- -----------------------
- ----------------------------------------------------------------------------------------------- -----------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- -----------------------
2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------- -----------------------
RECONCILIATION OF NET INCOME (LOSS) - GAAP TO EBITDA AND
ADJUSTED EBITDA
Net income (loss) - GAAP $ 33.1 $ (18.9) $ 61.2 $ (60.1)
Plus tax provision (benefit) 21.5 (13.2) 39.9 (41.8)
Plus interest expense, net 37.5 43.3 77.8 91.9
Plus depreciation and amortization 14.9 16.4 29.3 32.5
---------------------- -----------------------
EBITDA 107.0 27.6 208.2 22.5
Less other income (net) from gain on hedging activity
recognized in the first quarter of 2003. This gain is
considered non-operational and is excluded from the as
adjusted results. (0.7) (1.5)
Plus revenue from directories that published prior to the
acquisition plus all January 2003 published directories
that would have been recognized during the period absent
purchase accounting adjustments required under GAAP 105.0 236.1
Less expenses from directories that published prior to the
acquisition that would have been recognized during the period
absent purchase accounting adjustments required under GAAP (19.4) (46.0)
---------------------- -----------------------
Adjusted EBITDA (10) $ 107.0 $ 112.5 $ 208.2 $ 211.1
====================== =======================
- ----------------------------------------------------------------------------------------------- -----------------------
See accompanying Notes to Consolidated Statements of Income and Non-GAAP
Measures - Schedule 10.
R.H. DONNELLEY CORPORATION SCHEDULE 9
RECONCILIATION TO NON-GAAP MEASURES (con't)
(UNAUDITED)
AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
- ----------------------------------------------------------------------------------------------- -----------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- -----------------------
2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------- -----------------------
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW
Cash flow from operations - GAAP $ 52.8 $ 42.7 $ 147.5 $ 131.5
Less: additions to fixed assets and computer software (6.0) (3.0) (8.9) (5.5)
---------------------- -----------------------
Free cash flow $ 46.8 $ 39.7 $ 138.6 $ 126.0
====================== =======================
- ----------------------------------------------------------------------------------------------- -----------------------
- ----------------------------------------------------------------------------------------------- -----------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- -----------------------
2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------- -----------------------
RECONCILIATION OF DILUTED SHARES OUTSTANDING - GAAP TO DILUTED
SHARES OUTSTANDING - AS ADJUSTED
Diluted shares outstanding - GAAP 32.5 30.6 32.4 30.4
Additional diluted shares outstanding assuming the preferred stock
is converted to common stock at the beginning of the period 9.4 9.6 9.4 9.5
---------------------- -----------------------
Diluted shares outstanding - as adjusted 41.9 40.2 41.8 39.9
====================== =======================
- ----------------------------------------------------------------------------------------------- -----------------------
- ----------------------------------------------------------------------------------------------- -----------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- -----------------------
2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------- -----------------------
RECONCILIATION OF DILUTED EARNINGS PER SHARE - GAAP TO DILUTED
EARNINGS PER SHARE - AS ADJUSTED
Diluted earnings per share - GAAP $ 0.65 $ (0.81) $ 1.20 $ (3.56)
Anti-dilutive effect of converting preferred stock to common
stock at the beginning of the period 0.14 1.62 0.26 4.93
---------------------- -----------------------
Diluted earnings per share - as adjusted $ 0.79 $ 0.81 $ 1.46 $ 1.37
====================== =======================
- ----------------------------------------------------------------------------------------------- -----------------------
See accompanying Notes to Consolidated Statements of Income and Non-GAAP
Measures - Schedule 10.
R.H. DONNELLEY CORPORATION SCHEDULE 9
RECONCILIATION OF NON-GAAP MEASURES (con't)
(UNAUDITED)
AMOUNTS IN MILLIONS
- --------------------------------------------------------------------------------------------------
FULL YEAR 2004
OUTLOOK
- --------------------------------------------------------------------------------------------------
RECONCILIATION OF PUBLICATION SALES OUTLOOK AND CALENDAR SALES OUTLOOK FOR SBC
DIRECTORIES WHICH DONTECH SELLS ADVERTISING TO PARTNERSHIP INCOME - GAAP
OUTLOOK
DonTech publication sales outlook (8) $ 390.3
Less the value of contracts executed and reported as calendar
sales in prior periods (133.8)
Plus the value of contracts executed during the period to be
reported as publication sales in future periods 133.3
-------
DonTech Calendar sales outlook (9) $ 389.9
=======
Commission revenue outlook from above calendar sales $ 97.5
Partnership net expenses outlook (66.5)
-------
Partnership profit outlook $ 31.0
=======
Donnelley's 50% share of partnership profits outlook 15.5
Revenue participation income from above calendar sales outlook 95.5
-------
Partnership income - GAAP outlook $ 111.0
=======
Reconciliation of net income outlook to EBITDA outlook
NET INCOME OUTLOOK - GAAP $ 116.0
Plus expected tax provision 76.0
Plus expected interest expense, net 164.0
Plus expected depreciation and amortization 59.0
-------
EBITDA outlook (10) $ 415.0
=======
RECONCILIATION OF CASH FLOW FROM OPERATIONS OUTLOOK TO
FREE CASH FLOW OUTLOOK
CASH FLOW FROM OPERATIONS OUTLOOK - GAAP $ 312.0
Less expected fixed asset and computer software additions (15.0)
-------
Free cash flow outlook $ 297.0
=======
- ---------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
FULL YEAR 2004
OUTLOOK
- ------------------------------------------------------------------------------------------------
DEBT / EBITDA OUTLOOK
Debt at June 30, 2004 $ 1,942.7
EBITDA outlook $ 415.0
Debt / EBITDA outlook 4.7
- ------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Statements of Income and Non-GAAP
Measures - Schedule 10.
R.H. DONNELLEY CORPORATION SCHEDULE 10
NOTES TO UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
AND NON-GAAP MEASURES
(1) Revenue is recognized using the deferral and amortization method of
accounting. Under this method, when a directory is published, the
publication sales value is deferred and amortized into the income statement
ratably over the life of the directory, which is typically 12 months.
(2) The 2004 as adjusted results assume the conversion of the preferred shares
to common shares. The 2003 as adjusted results assume that the appropriate
pro rata portion of the revenue and direct costs of directories that
published prior to the acquisition plus all January, 2003 directories were
recognized during the period pursuant to the deferral and amortization
method. As a result of purchase accounting, these pre-acquisition revenues
and expenses are not included in reported GAAP results. See Schedules 7 and
8 for a detail of all adjustments to the reported GAAP results.
(3) As adjusted results for both 2003 and 2004 exclude the entire preferred
dividend because the as adjusted results assume the preferred shares were
completely converted to common shares at the beginning of the period and
therefore no dividends would have been payable.
(4) On a reported basis, basic EPS are calculated under the "two-class" method
which requires earnings available to common shareholders, after deducting
preferred stock dividends, to be allocated between the common and preferred
shareholders based on the respective rights to receive dividends. Basic EPS
is then calculated by dividing income allocable to common shareholders by
the weighted average number of shares outstanding. Diluted EPS are
calculated by dividing income allocable to common shareholders by the
weighted average common shares outstanding plus dilutive potential common
stock.
(5) On an adjusted basis, basic and diluted EPS are calculated as net income
(loss) divided by the weighted average basic and diluted shares outstanding
for the period assuming the preferred stock was converted to common stock
at the beginning of the period. Assuming the preferred stock was converted
at the beginning of the period, basic and diluted shares would have been
9.4 million shares higher for 2004 and 8.7 million shares higher for 2003.
(6) Represents the revenue and direct costs for directories that published
prior to the acquisition plus all January 2003 directories that would have
been recognized during the period had it not been for purchase accounting
adjustments required under GAAP and includes the effect of differences
between SPA and RHD historical and current accounting policies.
(7) Represents the tax effect of adjustments.
(8) Publication sales represent the billable value of advertising sales in
directories that published during the period. If events occur during the
current period that affect the comparability of sales to the prior year
period, such as changes in directory publication dates, then prior year
sales are adjusted to conform to the current period presentation and
maintain comparability.
(9) Calendar sales represent the value of actual sales contracts executed
during the period. Calendar sales are a relevant metric for DonTech as our
share of DonTech profits and revenue participation income are based on
DonTech calendar sales.
(10) Adjusted EBITDA represents adjusted earnings before interest, taxes,
depreciation and amortization. EBITDA and Adjusted EBITDA are not
measurements of operating performance computed in accordance with GAAP and
should not be considered as a substitute for operating income or net income
prepared in conformity with GAAP. In addition, EBITDA may not be comparable
to similarly titled measures of other companies. This schedule reconciles
Net Income (loss) -GAAP to EBITDA and adjusted EBITDA.
R.H. DONNELLEY CORPORATION SCHEDULE 10
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF INCOME
AND NON-GAAP MEASURES (CON'T)
(11) Represents the write-off of deferred financing costs on pre-acquisition
debt that was refinanced at the closing of the acquisition. This write-off
is considered non-operational and is excluded from the as adjusted results.
(12) Represents the gain on hedging activity recognized in the first quarter of
2003. This gain is considered non-operational and is excluded from the as
adjusted results.