Exhibit 99.1
R.H. Donnelley Reports Third Quarter 2004 Results;
Performance in Sprint Markets Continues to Improve;
Lowers Year End Debt Target
CARY, N.C.--(BUSINESS WIRE)--October 27, 2004--
Completes Acquisition of SBC Directory Business in Illinois and
Northwest Indiana
R.H. Donnelley Corporation (NYSE: RHD), a leading yellow pages publisher
and directional media company, today reported third quarter 2004 income
available to common shareholders of $13.0 million, or $0.31 per diluted share.
On September 1, RHD completed the acquisition of SBC Communications Inc.'s
(NYSE: SBC) directory business in Illinois and Northwest Indiana for $1.41
billion in cash after working capital adjustments and settlement of a $30
million liquidation preference related to the DonTech partnership. See the
attached schedules for a reconciliation of non-GAAP measures presented in this
release to the most comparable GAAP measures. For additional detail regarding
the SBC transaction, please refer to the press release issued July 28, 2004,
which can be accessed by visiting RHD's website at www.rhd.com under "Investor
Relations".
Excluding the effect of purchase accounting adjustments related to the SBC
transaction and other items described within the attached Schedules, RHD's
adjusted pro forma third quarter 2004 net income available to common
shareholders was $51.8 million or $1.22 per diluted share. Adjusted pro forma
EBITDA for the quarter was $159.8 million.
David C. Swanson, Chairman and Chief Executive Officer, said, "We continued
to transform and grow RHD during the third quarter of 2004. While we were busy
completing the acquisition of SBC's directory business in Illinois and Northwest
Indiana, we again delivered solid results consistent with our plan. Publication
sales growth in our Sprint markets, at 3.2 percent, was the best we've had since
we acquired the business in January 2003, driven by a strong Las Vegas market
and the cumulative effect of our business process implementation. This also
represents our seventh consecutive quarter of improved year-over-year
publication sales growth."
Swanson continued, "With the visibility we currently have into the fourth
quarter, we expect to deliver full year 2004 publication sales growth of
approximately 2.5 percent in our Sprint markets and a decline of approximately
2.5 percent in our SBC markets. We look forward to implementing our proven
business processes in Illinois and Northwest Indiana to improve performance in
this attractive advertising market."
Third Quarter - Reported GAAP Results
Third quarter net revenue was $144.4 million compared to $89.3 million in
the prior year. Operating expenses including depreciation and amortization were
$90.0 million compared to $71.1 million in the prior year. Partnership income
was $19.3 million for the quarter versus $32.6 million in the prior year.
Operating income in the quarter was $73.7 million versus $50.8 million in the
prior year. Net interest expense in the quarter was $43.2 million compared to
$45.5 million in the third quarter of 2003, as a result of lower interest rates,
partially offset by additional borrowing related to the SBC transaction. Net
income available to common shareholders for the quarter was $13.0 million or
$0.31 per diluted share compared to a loss of $1.2 million or $0.04 per diluted
share in the third quarter of 2003. For the nine months ended September 30,
2004, operating income was $252.6 million versus $39.4 million in the prior year
and net income available to common shareholders was $63.4 million or $1.51 per
diluted share as compared to a loss of $109.4 million or $3.58 per diluted share
in the prior year.
For the periods ending August 31, 2004 and September 30, 2003, the
Company's investment in DonTech was accounted for under the equity method. As
such, the Company did not consolidate DonTech's revenue and expenses in its
consolidated results, rather it reported the Company's share of DonTech's net
income and revenue participation income from SBC Communications Inc., both based
on DonTech's calendar sales, collectively as partnership income. On September 1,
2004, RHD acquired SBC's directory business in Illinois and Northwest Indiana,
including SBC's interest in the DonTech partnership. As a result, the Company
did not generate partnership income after August 31.
Comparative Financial Results
As a result of the SBC and Sprint transactions and the related financing
and associated accounting, 2004 and 2003 results reported in accordance with
GAAP are not comparable, nor do they reflect the Company's underlying
operational or financial performance. Accordingly, management is presenting
certain non-GAAP financial measures in addition to results reported in
accordance with GAAP in order to better communicate underlying operational and
financial performance and to facilitate comparison of adjusted pro forma 2004
performance with adjusted pro forma 2003 results. Adjusted pro forma results
discussed in this press release and the attached schedules reflect the
combination of RHD with the SBC directory business in Illinois and Northwest
Indiana as if the transaction had been consummated at the beginning of the
periods presented and certain other adjustments. While management believes that
the adjusted pro forma results reasonably resemble operational performance as if
the SBC transaction had been consummated at the beginning of each period
presented, because of differences between RHD and predecessor accounting
policies, management does not believe these pro forma results are strictly
comparable.
The primary adjustments related to the SBC transaction in 2004 and 2003
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. Similar adjustments related to the Sprint transaction were made in
2004 and 2003. Adjusted pro forma earnings per share in both periods assumes
conversion of the preferred stock at the beginning of each period presented. The
attached Schedules include a reconciliation of all non-GAAP financial measures
to the most comparable GAAP measures and a further description of the related
adjustments.
The Company's Current Report on Form 8-K furnished to the SEC on October
27, 2004 provides additional details regarding the adjustments and non-GAAP
financial measures related to the SBC transaction.
Third Quarter Results - Including Adjustments and Non-GAAP Measures
Publication sales for RHD's Sprint-branded directories during the third
quarter of 2004 were $153.4 million, up 3.2 percent from adjusted publication
sales of $148.6 million in the prior year. Publication sales in RHD's
SBC-branded directories during the third quarter of 2004 were $72.0 million,
down 0.8 percent from publication sales of $72.5 million in the prior year.
Publication sales represent the total billable value of advertising in
directories that were published in the period.
Adjusted pro forma net revenue in the quarter was $259.8 million, up 0.7
percent from adjusted pro forma net revenue of $258.0 million in the third
quarter of 2003. Adjusted pro forma operating expenses excluding depreciation
and amortization were $100.0 million compared to $100.5 million for the same
period in 2003. Adjusted pro forma operating income for the third quarter of
2004 was $138.1 million, up from adjusted pro forma operating income for the
third quarter of 2003 of $134.0 million, primarily as a result of higher
revenues in the Company's Sprint markets, as well as a decrease in depreciation
and amortization expense. Adjusted pro forma EBITDA for the quarter was $159.8
million, compared to adjusted pro forma EBITDA of $157.5 million in the prior
year. Adjusted pro forma net income before preferred dividends for the third
quarter of 2004 was $51.8 million, compared to adjusted pro forma net income
before preferred dividends of $47.4 million for the third quarter of 2003.
Adjusted pro forma net revenue for the nine months ended September 30, 2004
was $774.8 million compared to $772.7 million for the same period in 2003. For
the nine months ended September 30, 2004, adjusted pro forma operating income
was $406.3 million compared to $395.2 million for the same period in 2003.
Adjusted pro forma EBITDA for the nine months ended September 30, 2004 was
$471.4 million, compared to adjusted pro forma EBITDA of $465.2 million in the
prior year. Adjusted pro forma EBITDA and operating income for the first nine
months of 2004 include costs of approximately $8 million associated with the
corporate headquarters relocation. Adjusted pro forma net income before
preferred dividends for the first nine months of 2004 was $150.8 million
compared to adjusted pro forma net income before preferred dividends of $133.6
million for the same period in 2003.
Cash Flow and Debt
The Company generated cash flow from operations of $170.2 million in the
quarter, which included a federal income tax refund of $58.9 million. The net
federal income tax refund was higher than the Company's original estimate of $40
million due to the immediate tax benefits resulting from the SBC transaction.
Free cash flow (cash flow from operations less capital expenditures and software
investment) for the quarter was $164.2 million. Cash flow used in the quarter
for capital expenditures and software investment totaled $6.0 million. Excluding
the federal income tax refund of $58.9 million received during the quarter, free
cash flow was $105.3 million. During the third quarter, the Company repaid
approximately $82.2 million of debt.
In connection with the completion of the SBC transaction on September 1,
2004, the Company paid cash consideration of approximately $1,425 million,
including fees and expenses. Sources of funds consisted of approximately $1,332
million of incremental debt and approximately $93 million of cash on hand. As of
September 30, 2004, net debt outstanding totaled $3,189.9 million.
Outlook
The Company expects to deliver full year 2004 publication sales growth of
approximately 2.5 percent in its Sprint markets and a decline of approximately
2.5 percent in its SBC markets. This will translate to full year 2004 adjusted
pro forma net revenue of $1,033 million, up slightly from full year 2003 and in
line with the guidance provided on July 28 following the announcement of the SBC
transaction. The items mentioned above and the following replace the Company's
previous guidance. The Company expects to deliver adjusted pro forma full year
2004 EBITDA of approximately $610 million, as compared to the $586 million
guidance provided on July 28. The differences consist of true ups for bad debt
and claims expense totaling approximately $12 million related to the SBC markets
and approximately $12 million of other items, consisting primarily of operating
expenses not allocated to the carved out entity acquired from SBC. Projected
full year 2004 adjusted pro forma EBITDA excluding these non-recurring items is
still in line with our previous guidance. The Company's revised estimate for
debt outstanding at the end of 2004 is $3,150 million, down from the $3,236
million previously provided, primarily as a result of the federal income tax
refund received in the third quarter and the timing of expected cash receipts.
See Schedule 9, "Reconciliation to Non-GAAP Measures" for additional detail
regarding the Company's outlook for 2004.
Third Quarter Conference Call
R.H. Donnelley's third quarter conference call will be held on October 28,
2004 at 10:00 a.m. EST and can be accessed by dialing 888-387-9606 (domestic) or
484-630-7198. The passcode for the call is "RHD". Please dial in to the call by
9:50 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 888-335-7290
(domestic) or 402-998-1265 (international). The recording will be available
through November 11, 2004. There is no passcode for the replay.
About R.H. Donnelley
RHD publishes 389 directories, with total distribution of approximately 28
million serving approximately 260,000 local and national advertisers in 19
states. RHD publishes 260 directories under the Sprint Yellow Pages(R) brand in
18 states with total distribution of approximately 18 million serving
approximately 160,000 local and national advertisers, with major markets
including Las Vegas, Nevada, and Orlando and Ft. Myers, Florida. In addition,
RHD publishes 129 directories under the SBC(R) Yellow Pages brand in Illinois
and Northwest Indiana with total distribution of approximately 10 million
serving approximately 100,000 local and national advertisers. RHD also offers
online city guides and search websites in its major Sprint markets under the
Best Red Yellow Pages(R) brand at www.bestredyp.com and in the Chicago area at
www.chicagolandyp.com. RHD also sells local advertising in Illinois and
Northwest Indiana onto SBC's www.SMARTpages.com. 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) our ability to successfully integrate the business
recently acquired from SBC; (6) reliance on and extension of credit to small-
and medium-sized businesses; (7) dependence on third party providers of
printing, distribution and delivery services and the sale of advertising to
national accounts; (8) general economic conditions and consumer sentiment in our
markets; and (9) fluctuations in the price and availability of paper.
(See attached tables)
R.H. DONNELLEY CORPORATION Schedule 1
- ----------------------------
Schedule 1: Index of Schedules
Schedule 2: Unaudited Consolidated Statements of Income For the
three and nine months ended September 30, 2004 and 2003
Schedule 3: Unaudited Adjusted Pro Forma Consolidated Statements
of Income for the three months ended September 30, 2004
and 2003
Schedule 4: Unaudited Adjusted Pro Forma Consolidated Statements
of Income for the nine months ended September 30, 2004
and 2003
Schedule 5: Unaudited Consolidated Balance Sheets at September 30,
2004, June 30, 2004 and December 31, 2003
Schedule 6: Unaudited Consolidated Statements of Cash Flows For
the three and nine months ended September 30, 2004
Schedule 7: Reconciliation of Reported to Adjusted Pro Forma
Unaudited Consolidated Statements of Income For the three
months ended September 30, 2004 and 2003
Schedule 8: Reconciliation of Reported to Adjusted Pro Forma
Unaudited Consolidated Statements of Income For the nine
months ended September 30, 2004 and 2003
Schedule 9: Reconciliation of Non-GAAP Measures
Schedule 10: Notes to Unaudited Consolidated Statements of Income
and Non-GAAP Measures
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 2
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------
(unaudited)
Amounts in millions, except earnings per share
- --------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------
2004 2003 2004 2003
Reported Reported Reported Reported
- --------------------------------------------------------------------
Net revenue (1) $144.4 $89.3 $432.9 $140.4
Expenses 73.0 54.5 212.0 143.5
Depreciation and
amortization 17.0 16.6 46.3 49.1
Partnership income 19.3 32.6 78.0 91.6
------------------------------------------
Operating income 73.7 50.8 252.6 39.4
Interest expense, net (43.2) (45.5) (121.0) (137.5)
Other income, net - - - 1.5
------------------------------------------
Pre-tax income (loss) 30.5 5.3 131.6 (96.6)
Tax (provision) benefit (12.0) (1.4) (52.0) 40.4
------------------------------------------
Net income (loss) 18.5 3.9 79.6 (56.2)
Preferred dividend 5.5 5.1 16.2 53.2
------------------------------------------
Income (loss) available to
common $13.0 $(1.2) $63.4 $(109.4)
==========================================
Earnings per share (EPS):(5)
Basic $0.32 $(0.04) $1.57 $(3.58)
Diluted $0.31 $(0.04) $1.51 $(3.58)
Shares used in computing EPS:
Basic 31.3 30.9 31.2 30.6
Diluted 32.7 30.9 32.5 30.6
- --------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Income and Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 3
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------
(unaudited)
Amounts in millions, except earnings per share
- ----------------------------------------------------------------------
Three months ended September 30,
-----------------------------------------
2003
2004 Adjusted
Adjusted Pro Forma Variance
Pro Forma (2) (2)(3) $ %
- ----------------------------------------------------------------------
Net revenue (1) $259.8 $258.0 $1.8 0.7%
Expenses 100.0 100.5 0.5 0.5%
Depreciation and amortization 21.7 23.5 1.8 7.7%
-----------------------------------------
Operating income 138.1 134.0 4.1 3.1%
Interest expense, net (52.3) (59.1) 6.8 11.5%
-----------------------------------------
Pre-tax income 85.8 74.9 10.9 14.6%
Tax provision (34.0) (27.5) (6.5) (23.6%)
-----------------------------------------
Net income 51.8 47.4 4.4 9.3%
Preferred dividend (4) - - - 0.0%
-----------------------------------------
Income available to common $51.8 $47.4 4.4 9.3%
=========================================
Earnings per share (EPS): (6)
Basic $1.27 $1.19 $0.08 6.7%
Diluted $1.22 $1.16 $0.06 5.2%
Shares used in computing EPS:(6)
Basic 40.9 39.7
Diluted 42.3 40.8
- ----------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Income and Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
See Schedule 7 for a reconciliation of reported to adjusted pro
forma amounts.
R.H. DONNELLEY CORPORATION Schedule 4
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------
(unaudited)
Amounts in millions, except earnings per share
- ---------------------------------------------------------------------
Nine months ended September 30,
---------------------------------------
2003
2004 Adjusted
Adjusted Pro Forma Variance
Pro Forma (2) (2)(3) $ %
- ---------------------------------------------------------------------
Net revenue (1) $774.8 $772.7 $2.1 0.3%
Expenses 303.4 307.5 4.1 1.3%
Depreciation and amortization 65.1 70.0 4.9 7.0%
---------------------------------------
Operating income 406.3 395.2 11.1 2.8%
Interest expense, net (157.4) (176.0) 18.6 10.6%
Other income - 1.3 (1.3)(100.0%)
---------------------------------------
Pre-tax income 248.9 220.5 28.4 12.9%
Tax provision (98.1) (86.9) (11.2) (12.9%)
---------------------------------------
Net income 150.8 133.6 17.2 12.9%
Preferred dividend (4) - - - 0.0%
---------------------------------------
Income available to common $150.8 $133.6 17.2 12.9%
=======================================
Earnings per share (EPS): (6)
Basic $3.70 $4.37 $(0.67) (15.3%)
Diluted $3.58 $3.33 $0.25 7.5%
Shares used in computing EPS:(6)
Basic 40.8 30.6
Diluted 42.1 40.1
- ---------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Income and Non-GAAP Measures - Schedule 10.
See Schedule 8 for a reconciliation of reported to adjusted pro
forma amounts.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 5
CONSOLIDATED BALANCE SHEETS
- ------------------------------------
(unaudited)
Amounts in millions
- ------------------------------------ --------- --------- ---------
Sept. 30, June 30, Dec. 31,
2004 2004 2003
Reported Reported Reported
- ------------------------------------ --------- --------- ---------
Assets
Cash and cash equivalents $2.9 $10.6 $7.7
Accounts receivable, net 409.1 223.5 211.0
Deferred directory costs 115.4 35.2 33.0 (18)
Prepaid expenses and other 29.5 82.2 32.9 (18)
--------- --------- ---------
Total current assets 556.9 351.5 284.6
Partnership investment - 174.2 175.7
Fixed assets and computer software,
net 34.9 28.0 20.6
Intangible assets, net 2,923.1 1,840.3 1,865.2
Other non-current assets 104.9 91.0 95.6
Goodwill 301.8 97.0 97.0
--------- --------- ---------
Total Assets $3,921.6 $2,582.0 $2,538.7
========= ========= =========
Liabilities, Redeemable Convertible Preferred
Stock and
Shareholders' Equity (Deficit)
Accounts payable and accrued
liabilities $100.0 $50.0 $33.5
Deferred directory revenue 240.0 227.8 216.5
Current portion of long-term debt 126.2 28.9 49.6
--------- --------- ---------
Total current liabilities 466.2 306.7 299.6
Long-term debt 3,066.6 1,913.8 2,042.5
Deferred income taxes, net 130.3 121.9 33.6
Other non-current liabilities 28.3 27.0 21.0
--------- --------- ---------
Total liabilities 3,691.4 2,369.4 2,396.7
Redeemable convertible preferred
stock 211.5 207.0 198.2
Shareholders' Equity (deficit) 18.7 5.6 (56.2)
--------- --------- ---------
Total Liabilities, Redeemable Convertible
Preferred
Stock and Shareholders' Equity
(Deficit) $3,921.6 $2,582.0 $2,538.7
========= ========= =========
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------
For the three months and nine months ended September 30, 2004
(unaudited)
Amounts in millions
- ------------------------------------------- ------------ ------------
Reported Reported
Three months Nine months
ended ended
Operating activities: Sept. 30, Sept. 30
2004 2004
--------------------------
Net income $18.5 $79.6
Depreciation and amortization 17.0 46.3
Deferred income tax 12.0 52.0
Cash (less than) in excess of partnership
income (0.1) 1.5
Changes in working capital 127.9 122.9
Other (5.1) 15.4
------------ ------------
Net cash provided by operating activities 170.2 317.7
Investment activities:
Additions to fixed assets and computer
software (6.0) (14.9)
Acquisition of SBC Directories (1,418.1) (1,418.1)
------------ ------------
Net cash used in investing activities (1,424.1) (1,433.0)
Financing activities:
(Decrease) increase in checks not yet
presented for payment (5.8) 3.6
Proceeds from issuance of debt 1,332.3 1,332.3
Repayment of debt (82.2) (231.6)
Proceeds from option exercises 1.9 6.2
------------ ------------
Net cash used in financing activities 1,246.2 1,110.5
Decrease in cash and cash equivalents (7.7) (4.8)
Cash and cash equivalents, beginning of
period 10.6 7.7
------------ ------------
Cash and cash equivalents, end of period $2.9 $2.9
============ ============
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME Schedule 7
- ------------------------------
Reconciliation of Reported to Adjusted Pro
Forma Amounts
(unaudited)
Amounts in millions, except earnings per share
- ------------------- --------------------------------------------------
Three Months Ended September 30, 2004
-------------------------------------------------
Sprint SBC Adjusted
Reported Adjustments (3)Adjustments (2)Pro Forma
- ------------------- -------------------------------------------------
Net revenue (1) $144.4 $115.4 (7) $259.8
Expenses 73.0 (0.1)(12) 27.1 (7) 100.0
Depreciation and
amortization 17.0 4.7 (8) 21.7
-------------------------------------------------
Total expenses 90.0 (0.1) 31.8 121.7
Partnership income 19.3 - (19.3) (9) 0.0
-------------------------------------------------
Operating income 73.7 0.1 64.3 138.1
Interest expense,
net (43.2) (9.1)(10) (52.3)
-------------------------------------------------
Pre-tax income 30.5 0.1 55.2 85.8
Tax provision (12.0) - (11) (22.0)(11) (34.0)
-------------------------------------------------
Net income 18.5 0.1 33.2 51.8
Preferred dividend 5.5 (5.5)(4) -
-------------------------------------------------
Income (loss)
available to common $13.0 $5.6 $33.2 $51.8
==================================================
Earnings per share
(EPS): (4), (5), (6)
Basic $0.32 $1.27
Diluted $0.31 $1.22
Shares used in computing EPS:
(4), (5), (6)
Basic 31.3 40.9
Diluted 32.7 42.3
- ------------------- --------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Income and Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
Schedule 7
R.H. DONNELLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- -------------------
Reconciliation of Reported to
Adjusted Pro Forma Amounts
(unaudited)
Amounts in millions, except earnings per share
- ------------------- --------------------------------------------------
Three Months Ended September 30, 2003
--------------------------------------------------
Sprint SBC Adjusted
Reported Adjustments Adjustments Pro
(3) (2) Forma
- ------------------- --------------------------------------------------
Net revenue (1) $89.3 $53.2 (12) $115.5 (7) $258.0
Expenses 54.5 12.7 (12) 33.3 (7) 100.5
Depreciation and
amortization 16.6 - 6.9 (8) 23.5
--------------------------------------------------
Total expenses 71.1 12.7 40.2 124.0
Partnership income 32.6 - (32.6) (9) -
--------------------------------------------------
Operating income 50.8 40.5 42.7 134.0
Interest expense,
net (45.5) - (13.6)(10) (59.1)
--------------------------------------------------
Pre-tax income 5.3 40.5 29.1 74.9
Tax provision (1.4) (15.4)(11) (10.7)(11) (27.5)
--------------------------------------------------
Net income 3.9 25.1 18.4 47.4
Preferred dividend 5.1 (5.1)(4) -
--------------------------------------------------
Income (loss)
available to
common $(1.2) $30.2 $18.4 $47.4
==================================================
Earnings per share
(EPS): (4), (5), (6)
Basic $(0.04) $1.19
Diluted $(0.04) $1.16
Shares used in
computing EPS: (4), (5), (6)
Basic 30.9 39.7
Diluted 30.9 40.8
- ------------------- --------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Income and Non- GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 8
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------
Reconciliation of Reported to Adjusted Pro
Forma Amounts
(unaudited)
Amounts in millions, except earnings per share
- ------------------ --------------------------------------------------
Nine Months Ended September 30, 2004
--------------------------------------------------
Adjusted
Sprint SBC Pro
Reported Adjustments(3) Adjustments(2) Forma
- ------------------ --------------------------------------------------
Net revenue (1) $432.9 $1.4 (12) $340.5 (7) $774.8
Expenses 212.0 (3.6)(12) 95.0 (7) 303.4
Depreciation and
amortization 46.3 18.8 (8) 65.1
-------------------------------------------------
Total expenses 258.3 (3.6) 113.8 368.5
Partnership income 78.0 (78.0) (9) 0.0
--------------------------------------------------
Operating income 252.6 5.0 148.7 406.3
Interest expense,
net (121.0) (36.4)(10) (157.4)
Other income - - -
--------------------------------------------------
Pre-tax income
(loss) 131.6 5.0 112.3 248.9
Tax (provision)
benefit (52.0) (2.0) (44.1)(11) (98.1)
--------------------------------------------------
Net income (loss) 79.6 3.0 68.2 150.8
Preferred dividend 16.2 (16.2)(4) -
--------------------------------------------------
Income (loss)
available to common $63.4 $19.2 $68.2 $150.8
==================================================
Earnings per share
(EPS): (4), (5), (6)
Basic $1.57 $3.70
Diluted $1.51 $3.58
Shares used in computing EPS:
(4), (5), (6)
Basic 31.2 40.8
Diluted 32.5 42.1
- ------------------ --------------------------------------------------
See accompanying Notes to Consolidated Statements of Income and Non-
GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 8
CONSOLIDATED STATEMENTS OF INCOME
- --------------------
Reconciliation of Reported to
Adjusted Pro Forma Amounts
(unaudited)
Amounts in millions, except earnings per share
- ----------------------------------------------------------------------
Nine Months Ended September 30, 2003
----------------------------------------------------
Adjusted
Sprint SBC Pro
Reported Adjustments(3) Adjustments(2) Forma
- ----------------------------------------------------------------------
Net revenue (1) $140.4 $289.2 (12) $343.1 (7) $772.7
Expenses 143.5 58.7 (12) 105.3 (7) 307.5
Depreciation and
amortization 49.1 - 20.9 (8) 70.0
-------------------------------------------------
Total expenses 192.6 58.7 126.2 377.5
Partnership income 91.6 - (91.6) (9) -
----------------------------------------------------
Operating income 39.4 230.5 125.3 395.2
Interest expense,
net (137.5) 2.4 (13) (40.9)(10) (176.0)
Other income 1.5 (1.5)(14) 1.3 (17) 1.3
----------------------------------------------------
Pre-tax income
(loss) (96.6) 231.4 85.7 220.5
Tax (provision)
benefit 40.4 (91.5)(11) (35.8)(11) (86.9)
----------------------------------------------------
Net income (loss) (56.2) 139.9 49.9 133.6
Preferred dividend 53.2 (53.2)(4) -
----------------------------------------------------
Income (loss)
available to common $(109.4) $193.1 $49.9 $133.6
====================================================
Earnings per share
(EPS): (4), (5), (6)
Basic $(3.58) $4.37
Diluted $(3.58) $3.33
Shares used in
computing EPS: (4), (5), (6)
Basic 30.6 30.6
Diluted 30.6 40.1
- ----------------------------------------------------------------------
See accompanying Notes to Consolidated Statements of Income and
Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 9
RECONCILIATION TO NON-GAAP MEASURES
- ----------------------------------------
(unaudited)
Amounts in millions, except per share amounts
- ------------------------------------------------------ ---------------
Three Months Nine Months
ended ended
September 30, September 30,
------------------------------
2004 2003 2004 2003
- ------------------------------------------------------ ---------------
Reconciliation of publication sales for
Sprint-branded and SBC-branded directories
to net revenue and adjusted pro forma net revenue
Publication sales - Sprint-branded
directories $153.4 $148.6 $442.5 $431.0
Adjustments for changes in directory
publication date(s) (15) 11.7 7.3
------- --------
Publication sales disclosed in third
quarter 2003 earnings release 160.3 438.3
Publication sales - SBC-branded
directories (2) 72.0 72.5 277.4 283.7
Less publication sales for all
January 2003 Sprint-branded directories
that were not recognized as revenue
due to purchase accounting -- (102.4)
Less publication sales for all
September 2004 SBC-branded directories
not recognized as revenue in current
period due to purchase accounting (0.1) (0.1)
Less pre-acquisition publication sales
for SBC-branded directories not
recognized as revenue in current
period (71.9) (72.5) (277.3) (283.7)
Less current period publication sales
for Sprint-branded directories not
recognized as revenue in current
period due to the deferral method of
accounting (112.7)(121.8) (228.0) (271.1)
Plus net revenue reported in the period
for publication sales from prior periods,
excluding publication sales for all
January 2003 Sprint-branded
directories 100.5 45.5 204.4 55.9
-------------- ---------------
Net directory advertising revenue on
above publication sales 141.2 84.0 418.9 120.7
Pre-press publishing revenue 2.8 4.6 11.8 17.6
Other revenue 0.4 0.7 2.2 2.1
-------------- ---------------
Net revenue - GAAP 144.4 89.3 432.9 140.4
Plus net revenue that would have been
reported absent purchase accounting for
Sprint-branded publication sales
made prior to acquisition plus
all January 2003 Sprint-branded
directories 53.2 1.4 289.2
Plus: Pro forma net revenue that would have
been reported assuming the SBC
transaction had occurred on
January 1, 2003 115.4 115.5 340.5 343.1
-------------- ---------------
Net revenue - Adjusted pro forma $259.8 $258.0 $774.8 $772.7
============== ===============
- ------------------------------------------------------ ---------------
See accompanying Notes to Consolidated Statements of Income and
Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 9
RECONCILIATION TO NON-GAAP MEASURES
(cont'd)
- --------------------------------------
(unaudited)
Amounts in millions, except per share amounts
- ----------------------------------------------------- ----------------
Three Months Nine Months
ended Sept. 30, ended Sept 30,
--------------------------------
2004 2003 2004 2003
- ----------------------------------------------------- ----------------
Reconciliation of net income (loss) -
GAAP to EBITDA and
adjusted pro forma EBITDA
Net income (loss) - GAAP $18.5 $3.9 $79.6 $(56.2)
Plus tax provision (benefit) 12.0 1.4 52.0 (40.4)
Plus interest expense, net 43.2 45.5 121.0 137.5
Plus depreciation and amortization 17.0 16.6 46.3 49.1
------- ------- ------- --------
EBITDA 90.7 67.4 298.9 90.0
Plus revenue from Sprint-branded
directories that published prior
to the acquisition plus all January
2003 Sprint-branded directories
that would have been recognized
during the period absent purchase
accounting adjustments required
under GAAP - 53.2 1.4 289.2
Less expenses from Sprint-branded
directories that published prior to the
acquisition and less expenses for all
January 2003 published directories that
would have been recognized during the
period absent purchase accounting
adjustments required under GAAP - (12.7) 3.6 (60.2)
Plus revenue from SBC-branded directories
that published prior to the
acquisition plus all September 2004 SBC-
branded directories that would have
been recognized during the period
absent purchase accounting
adjustments required under GAAP
transaction had occurred on
January 1, 2003 115.4 115.5 340.5 343.1
Less pro forma expenses from
SBC-branded directories would
have been reported assuming the
SBC transaction had occurred on
January 1, 2003 (26.9) (33.3) (95.0) (105.3)
Less partnership income that would not
have been recognized during the
period assuming the SBC transaction
occurred on January 1, 2003 (19.3) (32.6) (78.0) (91.6)
--------------- ----------------
Adjusted pro forma EBITDA (16) $159.8 $157.5 $471.4 $465.2
=============== ================
- ----------------------------------------------------- ----------------
See accompanying Notes to Consolidated Statements of Income and
Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 9
RECONCILIATION TO NON-GAAP MEASURES (con't)
- ----------------------------------------------
(unaudited)
Amounts in millions, except per share amounts
- ----------------------------------------------------- ---------------
Three months Nine months
ended ended
September 30, September 30,
-------------------------------
2004 2003 2004 2003
- ----------------------------------------------------- ---------------
Reconciliation of cash flow from operations to
Free Cash Flow
Cash flow from operations - GAAP $170.2 $94.6 $317.7 $226.1
Less: additions to fixed assets and
computer software (6.0) (2.4) (14.9) (7.9)
-------------- ---------------
Free cash flow $164.2 $92.2 $302.8 $218.2
============== ===============
- ----------------------------------------------------- ---------------
- ----------------------------------------------------- ---------------
Three Months Nine Months
ended ended
September 30, September 30,
-------------------------------
2004 2003 2004 2003
- ----------------------------------------------------- ---------------
Reconciliation of diluted shares outstanding -
GAAP to diluted shares outstanding - adjusted pro
forma
Diluted shares outstanding - GAAP 32.7 30.9 32.5 30.6
Additional diluted shares outstanding
assuming the preferred stock
is converted to common stock at the
beginning of the period plus common
stock equivalents 9.6 9.9 9.6 9.5
-------------- ---------------
Diluted shares outstanding - adjusted
proforma 42.3 40.8 42.1 40.1
============== ===============
- ----------------------------------------------------- ---------------
- ----------------------------------------------------- ---------------
Three Months Nine Months
ended ended
September 30, September 30,
-------------------------------
2004 2003 2004 2003
- ----------------------------------------------------- ---------------
Reconciliation of diluted earnings per share -
GAAP to diluted earnings per share - adjusted pro
forma
Diluted earnings per share - GAAP $0.31 $(0.04) $1.51 $(3.58)
Anti-dilutive effect of converting
preferred stock to common
stock at the beginning of the
period, including impact of Sprint
transaction 0.13 0.75 0.45 5.66
Pro forma impact of SBC transaction,
including adjustments to eliminate
purchase accounting 0.78 0.45 1.62 1.25
-------------- ---------------
Diluted earnings per share - adjusted
proforma $1.22 $1.16 $3.58 $3.33
============== ===============
- ----------------------------------------------------- ---------------
See accompanying Notes to Consolidated Statements of Income and
Non- GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
R.H. DONNELLEY CORPORATION Schedule 9
RECONCILIATION OF NON-GAAP MEASURES (cont'd)
- -----------------------------------------------------
(unaudited)
Amounts in millions
- ---------------------------------------------------------------------
Full Year 2004
Outlook
- ---------------------------------------------------------------------
Reconciliation of publication sales outlook to net
revenue outlook and adjusted pro forma net
revenue outlook
Publication sales outlook
Publication sales -Sprint-branded directories $567.0
Publication sales -Sprint-branded directories
-percentage gain over 2003 2.5%
Publication sales -SBC-branded directories 462.0
Publication sales -Sprint-branded directories
-percentage gain over 2003 (2.5%)
Less current period publication sales for Sprint-branded
directories not recognized as revenue in current period (215.3)
Less current period pre-acquisition publication sales for
SBC-branded directories not recognized as revenue in
current period (437.0)
Plus net revenue reported in the period for publication
sales from prior periods, excluding publication
sales for all January 2003 Sprint-branded directories 204.3
---------------
Net directory advertising revenue on above
publication sales $581.0
Pre-press publishing revenue 13.0
Other revenue 9.7
---------------
Net revenue -GAAP outlook $603.7
Plus net revenue that would have been reported absent purchase
accounting for Sprint-branded publication sales made
prior to acquisition plus all January
2003 Sprint-branded directories 1.4
Plus pro forma net revenue that would have been reported
assuming the SBC transaction had occurred on
January 1, 2003 427.9
---------------
Net revenue - Adjusted pro forma $1,033.0
===============
Reconciliation of net income outlook to EBITDA outlook and adjusted
pro forma EBITDA outlook
Net income -GAAP outlook $75.8
Plus expected tax provision 49.5
Plus expected interest expense, net 176.1
Plus expected depreciation and amortization 67.8
---------------
EBITDA outlook $369.2
Plus net revenue that would have been reported absent purchase
accounting for Sprint-branded publication sales made prior
to acquisition plus all January 2003 Sprint-branded
directories 1.4
Plus pro forma net revenue that would have been reported assuming
the SBC transaction had occurred on January 1, 2003 427.9
Plus expenses from directories that published prior to the
Sprint acquisition that would not have been recognized
during the period absent purchase accounting
adjustments required under GAAP 3.6
Less pro forma expenses that would have been reported
assuming the SBC transaction had occurred on
January 1, 2003 (114.1)
Less partnership income that would not have been recognized
during the period assuming the transaction occurred on
January 1, 2003 (78.0)
---------------
Adjusted pro forma EBITDA outlook $610.0
===============
Note: These schedules are preliminary and subject to change
pending the Company's filing of its Form 10-Q.
- ---------------------------------------------------------------------
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)Publishing 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) As a result of the SBC transaction and the related financing
and associated accounting, 2004 and 2003 results reported in
accordance with GAAP are not comparable, nor do they reflect
the Company's underlying operational or financial performance.
Accordingly, management is presenting certain non-GAAP
financial measures in addition to results reported in
accordance with GAAP in order to better communicate underlying
operational and financial performance and to facilitate
comparison of adjusted pro forma 2004 performance with
adjusted pro forma 2003 results. Adjusted pro forma results
reflect the combination of RHD with the SBC directory business
in Illinois and Northwest Indiana as if the transaction had
been consummated at the beginning of the periods presented and
certain other adjustments. While management believes that the
adjusted pro forma results reasonably resemble operational
performances as if the SBC transaction had been consummated at
the beginning of each period presented, because of differences
results are strictly comparable. The pro forma results assume
that the appropriate pro rata portion of the revenues and
direct costs of directories acquired from SBC that published
prior to the acquisition plus, in the case of 2004 adjusted
pro forma results, all September 2004 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. For the periods prior to the actual
acquisition date of September 1, 2004, pro forma interest
expense is based on the incremental debt actually incurred at
the time of the acquisition and the interest rate in effect at
the time of the acquisition with no assumption for additional
debt repayments. See Schedules 7 and 8 for details of all of
all adjustments to the reported GAAP results.
(3)As a result of the Sprint transaction and the related financing
and associated accounting, 2004 and 2003 results reported in
accordance with GAAP are not comparable, nor do they reflect
the Company's underlying operational or financial performance.
Accordingly, management is presenting certain non-GAAP
financial measures in addition to results reported in
accordance with GAAP in order to better communicate underlying
operational and financial performance and to facilitate
comparison of adjusted pro forma 2004 performance with
adjusted pro forma 2003 results. Adjusted results reflect the
elimination of purchase accounting and certain other
adjustments. While management believes that the adjusted pro
forma results reasonably resemble operational performances as
if the Sprint transaction had been consummated on January 1,
2003, because of differences between RHD and predecessor
accounting policies, management does not believe these pro
forma results are strictly comparable. The 2004 and 2003
adjusted pro forma results assume that the appropriate pro
rata portion of the revenue and direct costs of directories
acquired from Sprint that published prior to the acquisition
plus all January 2003 Sprint 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 details of
all adjustments to the reported GAAP results. Additionally,
the cost step-up reported under GAAP to eliminate profit on
sales contracts completed before the acquisition date for
directories not yet published at the acquisition date has also
been removed.
(4)Adjusted pro forma results for 2003 and 2004 exclude the entire
preferred dividend because the adjusted pro forma 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.
(5)On a reported basis, basic EPS are calculated under the
"two-class" method that 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 are
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 potentially dilutive common
stock equivalents.
(6) On an adjusted pro forma 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.
(7) Includes (a) the revenue and costs for directories acquired
from SBC that published prior to the acquisition plus, in the
case of 2004 adjusted pro forma results, all September 2004
directories that would have been recognized during the period
had it not been for purchase accounting adjustments required
under GAAP, (b) DonTech's selling and operational expenses,
and (c) certain differences between historical and current
accounting policies of RHD and the acquired entities.
(8)Represents the additional depreciation and amortization expense
related to the tangible and identifiable intangible assets
acquired from SBC over their estimated useful lives.
(9)Represents the elimination of equity accounting used to account
for RHD's 50% ownership interest in DonTech prior to the SBC
transaction.
(10) Represents the additional interest expense from the
incremental borrowings used to finance the acquisition of
the Illinois and northwest Indiana directory business from
SBC, including SBC's interest in DonTech. For the periods
prior to the actual acquisition date of September 1, 2004,
pro forma interest expense is based on the incremental
debt actually incurred at the time of the acquisition and
the interest rate in effect at the time of the acquisition
with no assumption for additional debt repayments.
(11)Represents the tax effect of adjustments.
(12)Includes the revenue and direct costs for directories acquired
from Sprint in 2003 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
the effect of certain differences between Sprint and RHD
historical and current accounting policies. Additionally,
the cost step-up reported under GAAP to eliminate profit
on sales contracts completed before the acquisition date
for directories not yet published at the acquisition date
has also been removed.
(13)Represents the write-off of deferred financing costs on
pre-acquisition debt that was refinanced at the closing of the
Sprint acquisition. This write-off is considered
non-operational and is excluded from the adjusted pro forma
results.
(14)Represents the gain on hedging activity recognized in the
first quarter of 2003. This gain is considered non-operational
and is excluded from the adjusted pro forma results.
(15) 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
to maintain comparability.
(16)EBITDA represents earnings before interest, taxes,
depreciation and amortization. Adjusted pro forma EBITDA
represents adjusted pro forma earnings before interest, taxes,
depreciation and amortization. EBITDA and Adjusted pro forma
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.
(17)Represents other income earned by DonTech.
(18)Reflects reclassification of $4.9 million from deferred
directory costs to prepaid expenses at December 31, 2003 for
deferred sales commissions paid prior to the respective
directory publication.
CONTACT: R.H. Donnelley Corporation
James M. Gruskin, 800-497-6329