Exhibit 99.1
R.H. Donnelley Reports Fourth Quarter and Full Year 2004 Results;
Sprint Markets Deliver Strongest Annual Sales Growth in Three Years
CARY, N.C.--(BUSINESS WIRE)--Feb. 24, 2005--
Cash Flow and Delevering Exceed Expectations
R.H. Donnelley Corporation (NYSE:RHD), a leading yellow pages
publisher and directional media company, today reported fourth quarter
2004 loss available to common shareholders of $14.9 million, or $0.28
per diluted share. For the full year ended December 31, 2004, RHD
reported net income available to common shareholders of $48.5 million,
or $1.16 per diluted share.
Excluding the effect of purchase accounting related to the SBC
transaction and other items described within the attached Schedules,
RHD's adjusted fourth quarter 2004 net income available to common
shareholders was $42.9 million or $1.00 per share. Adjusted EBITDA for
the quarter was $145.8 million. Adjusted pro forma full year 2004 net
income available to common shareholders was $193.3 million or $4.59
per share. Adjusted pro forma EBITDA for full year 2004 was $616.8
million.
See the attached schedules for a reconciliation of non-GAAP
measures presented in this release to the most comparable GAAP
measures. 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 acquisition
of SBC Communications Inc.'s (NYSE: SBC) directory business in
Illinois and Northwest Indiana.
David C. Swanson, Chairman and Chief Executive Officer, said, "I
am very proud of the results we delivered in 2004, particularly given
the amount of dedicated focus applied to acquiring and integrating
SBC's Illinois directory operations. Fourth quarter publication sales
growth of 2.6 percent in our Sprint markets represents our eighth
consecutive quarter of improved year-over-year publication sales
performance. Full year Sprint publication sales growth of 2.7 percent
exceeded our previous guidance."
Fourth Quarter - Reported GAAP Results
Fourth quarter net revenue was $170.3 million compared to $116.1
million in the prior year. Operating expenses, including depreciation
and amortization, were $131.1 million compared to $85.4 million in the
prior year. The Company did not generate partnership income in the
fourth quarter of 2004 due to the SBC transaction, but did report
$22.5 million of partnership income in the fourth quarter of 2003.
Operating income in the quarter was $39.2 million versus $53.2 million
in the prior year. Net interest expense in the quarter was $54.6
million compared to $42.6 million in the fourth quarter of 2003. Net
loss available to common shareholders for the quarter was $14.9
million or $0.28 per diluted share compared to income available to
common shareholders of $1.1 million or $0.03 per diluted share in the
fourth quarter of 2003.
Full Year - Reported GAAP Results
Full year 2004 net revenue was $603.1 million compared to $256.4
million in the prior year. Operating expenses including depreciation
and amortization were $389.4 million compared to $278.0 million in the
prior year. Full year 2004 partnership income prior to the completion
of the SBC transaction on September 1, 2004 was $78.0 million compared
to $114.1 million in 2003. Operating income for the full year was
$291.7 million compared to $92.5 million in the prior year. Net
interest expense for the full year 2004 was $175.5 million compared to
$180.0 million in 2003. Net income available to common shareholders
was $48.5 million or $1.16 per diluted share compared to a loss of
$108.3 million or $3.53 per diluted share in the prior year.
Fourth Quarter Results - Including Adjustments and Non-GAAP
Measures
Publication sales for RHD's Sprint-branded directories during the
fourth quarter of 2004 were $124.5 million, up 2.6 percent from
publication sales of $121.3 million in the prior year. Publication
sales in RHD's SBC-branded directories during the fourth quarter of
2004 were $185.6 million, down 1.9 percent from publication sales of
$189.2 million in the prior year. Publication sales represent the
total billable value of advertising in directories that were published
in the period.
Adjusted net revenue in the quarter was $259.3 million, compared
to adjusted pro forma net revenue of $260.2 million in the fourth
quarter of 2003. Adjusted operating expenses including depreciation
and amortization were $133.8 million compared to adjusted pro forma
operating expenses of $149.2 million for the same period in 2003.
Adjusted operating income for the fourth quarter of 2004 was $125.5
million, up from adjusted pro forma operating income for the fourth
quarter of 2003 of $111.0 million. Adjusted EBITDA for the quarter was
$145.8 million, compared to adjusted pro forma EBITDA of $135.1
million in the prior year. Adjusted net income for the fourth quarter
of 2004 was $42.9 million, compared to adjusted pro forma net income
of $32.5 million for the fourth quarter of 2003 as a result of higher
operating income, lower interest expense and a lower effective tax
rate in 2004. Adjusted net income per diluted share in the fourth
quarter of 2004 was $1.00, compared to adjusted pro forma net income
per diluted share of $0.79 in the prior year.
2004 Full Year Results - Including Adjustments and Non-GAAP
Measures
Publication sales for RHD's Sprint-branded directories for the
full year 2004 were $567.2 million, up 2.7 percent from the prior
year, and modestly ahead of guidance for the year. For the Company's
SBC-branded directories, publication sales for the full year 2004 were
$463.2 million, down 2.1 percent from the prior year, also better than
guidance. Adjusted pro forma net revenue for the full year 2004 was
$1,033.9 million compared to $1,032.8 million for 2003. Adjusted pro
forma operating expenses including depreciation and amortization were
$502.6 million for the full year 2004 compared to $528.0 million for
2003. Adjusted pro forma operating income was $531.3 million compared
to $504.8 million for 2003. Adjusted pro forma EBITDA was $616.8
million, compared to $600.2 million in the prior year. Full year 2004
normalized adjusted pro forma EBITDA was $600.0 million. See the
attached schedules for a description of normalizing adjustments.
Adjusted pro forma net income for the full year 2004 was $193.3
million compared to $159.2 million for 2003 as a result of higher
operating income, lower interest expense and a lower effective tax
rate in 2004. Adjusted pro forma net income per diluted share for the
full year 2004 was $4.59, compared to $3.94 in the prior year.
Cash Flow and Debt
The Company generated cash flow from operations of $82.6 million
in the quarter. Free cash flow (cash flow from operations less $5.9
million of capital expenditures and software investment) for the
quarter was $76.7 million. During the fourth quarter, the Company
repaid approximately $65.5 million of debt.
For the full year, the Company generated cash flow from operations
of $406.3 million, which included federal income tax refunds of $71.3
million. Free cash flow (cash flow from operations less $18.0 million
of capital expenditures and software investment) for the full year was
$388.3 million. Excluding the federal income tax refunds, free cash
flow was $317.0 million. These results include the acquired SBC
business from September 1, 2004. The Company repaid $297.1 million of
debt in 2004.
In connection with the SBC transaction, the Company paid cash
consideration of approximately $1,425 million, including fees and
expenses. Sources of funds consisted of approximately $1,332 million
from new borrowing and approximately $95 million of cash generated
from operations that otherwise would have been available to repay
debt. As of December 31, 2004, total debt outstanding was $3,127.3
million.
On January 14, 2005, the Company repurchased approximately 50
percent of its outstanding preferred stock held by investment
partnerships affiliated with Goldman Sachs for approximately $277
million. The repurchased preferred shares were convertible into
approximately 4.9 million common shares. To finance the transaction,
the Company issued $300 million of 8-year 6.875% senior unsecured
notes.
Outlook
The Company affirms all guidance for full year 2005 provided under
Item 7.01 in the Current Report on Form 8-K furnished to the SEC on
January 11, 2005. The Company also affirms 2005 revenue and
publication sales guidance provided under Item 7.01 in the Current
Report on Form 8-K furnished to the SEC on December 7, 2004.
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
and 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 years
presented, as well as 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 year 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 are 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. Adjusted results for each
period presented also exclude deferred directory costs related to
sales contracts executed prior to the acquisition date for directories
that were scheduled to publish subsequent to the acquisition date,
determined at the estimated billable value of the published
directories less the expected costs to complete the directories plus a
normal margin. 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.
For the periods ending August 31, 2004 and December 31, 2003, the
Company's investment in DonTech was accounted for under the equity
method. 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, 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, 2004.
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.
Full Year and Fourth Quarter Conference Call
R.H. Donnelley's fourth quarter conference call will be held on
February 25, 2005 at 10:00 a.m. EST and can be accessed by dialing
888-387-9606 (domestic) or 484-630-7198 (international). 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
866-491-2912 (domestic) or 203-369-1720 (international). The recording
will be available through March 11, 2005. 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" and in Schedule 9d 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
INDEX OF SCHEDULES
- ----------------------------
Schedule 1: Index of Schedules
Schedule 2: Unaudited Consolidated Statements of Operations for
the year ended December 31, 2004 and 2003 and
Unaudited Consolidated Statements of Income for the
three months ended December 31, 2004 and 2003
Schedule 3: Unaudited Adjusted Pro Forma Consolidated Statements
of Operations for the three months ended December
31, 2004 and 2003
Schedule 4: Unaudited Adjusted Pro Forma Consolidated Statements
of Income for the year ended December 31, 2004 and
2003
Schedule 5: Unaudited Consolidated Balance Sheets at
December 31, 2004 and 2003
Schedule 6: Unaudited Consolidated Statements of Cash Flows for
the year ended December 31, 2004 and the three
months ended December 31, 2004
Schedule 7: Reconciliation of Reported to Adjusted Pro Forma
Unaudited Consolidated Statements of Income
For the three months ended December 31, 2004 and
2003
Schedule 8: Reconciliation of Reported to Adjusted Pro Forma
Unaudited Consolidated Statements of Income
For the years ended December 31, 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-K.
R.H. DONNELLEY CORPORATION Schedule 2
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------
(unaudited)
Amounts in millions, except earnings per share
- --------------------------------------------------------------------
Three months ended Year ended
Dec. 31, Dec. 31,
-----------------------------------------
2004 2003 2004 2003
Reported Reported Reported Reported
- ----------------------------------------------------------------------
Net revenue (1) $170.3 $116.1 $ 603.1 $ 256.4
Expenses 110.8 68.7 322.8 212.2
Depreciation and amortization 20.3 16.7 66.6 65.8
Partnership income - 22.5 78.0 114.1
- ------- -------- -------- -------
Operating income 39.2 53.2 291.7 92.5
Interest expense, net (54.6) (42.6) (175.5) (180.0)
Other income, net - 1.5
--------------------- -------- -------
Pre-tax (loss) income (15.4) 10.6 116.2 (86.0)
Tax benefit (provision) 6.1 (4.3) (45.9) 36.1
- ------- -------- -------- -------
Net (loss) income (9.3) 6.3 70.3 (49.9)
Preferred dividend 5.6 5.2 21.8 58.4
------- -------- -------- -------
(Loss) income available to
common $(14.9) $ 1.1 $ 48.5 $(108.3)
======= ======== ======== =======
Earnings per share (EPS): (5)
Basic $(0.28) $ 0.03 $ 1.21 $ (3.53)
Diluted $(0.28) $ 0.03 $ 1.16 $ (3.53)
Shares used in computing EPS:
Basic 31.4 31.0 31.3 30.7
Diluted 33.1 32.2 32.6 30.7
- --------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Operations and Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change pending
the Company's filing of its Form 10-K.
R.H. DONNELLEY CORPORATION Schedule 3
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------
(unaudited)
Amounts in millions, except earnings per share
- ---------------------------------------------------------------------
Three months ended
Dec. 31,
--------------------------------------
2003
2004 Adjusted
Adjusted Pro Forma Variance
(2) (2)(3) $ %
- ------------------------------------------------------ ---------------
Net revenue (1) $ 259.3 $ 260.2 $ (0.9) (0.3%)
Expenses 113.5 125.1 11.6 9.3%
Depreciation and amortization 20.3 24.1 3.8 15.8%
----------- ---------- ---------------
Operating income 125.5 111.0 14.5 13.1%
Interest expense, net (54.6) (56.2) 1.6 2.8%
----------- ---------- ---------------
Pre-tax income 70.9 54.8 16.1 29.4%
Tax provision (28.0) (22.3) (5.7) (25.6%)
----------- ---------- ---------------
Net income 42.9 32.5 10.4 32.0%
Preferred dividend (4) - - - 0.0%
----------- ---------- ---------------
Income available to common $ 42.9 $ 32.5 10.4 32.0%
=========== ========== ===============
Earnings per share (EPS): (6)
Basic $ 1.04 $ 0.81 $ 0.23 28.4%
Diluted $ 1.00 $ 0.79 $ 0.21 26.6%
Shares used in computing EPS:(6)
Basic 41.2 40.0
Diluted 42.9 41.2
- --------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Operations and Non-GAAP Measures - Schedule 10.
See Schedule 7 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-K.
R.H. DONNELLEY CORPORATION Schedule 4
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------
(unaudited)
Amounts in millions, except earnings per share
- ---------------------------------------------------------------------
Year ended
Dec. 31,
------------------
2004 2003
Adjusted Adjusted
Pro Pro
Forma Forma Variance
(2) (2)(3) $ %
- ------------------------------------------------------- --------------
Net revenue (1) $1,033.9 $1,032.8 $ 1.1 0.1%
Expenses 417.2 432.6 15.4 3.6%
Depreciation and amortization 85.4 95.4 10.0 10.5%
-------- -------- --------------
Operating income 531.3 504.8 26.5 5.2%
Interest expense, net (211.9) (232.1) 20.2 8.7%
Other income 0.1 - 0.1 0.0%
-------- -------- --------------
Pre-tax income 319.5 272.7 46.8 17.2%
Tax provision (126.2) (113.5) (12.7) (11.2%)
-------- -------- --------------
Net income 193.3 159.2 34.1 21.4%
Preferred dividend (4) - - - 0.0%
-------- -------- --------------
Income available to common $ 193.3 $ 159.2 34.1 21.4%
======== ======== ==============
Earnings per share (EPS): (6)
Basic $ 4.74 $ 4.04 $ 0.70 17.3%
Diluted $ 4.59 $ 3.94 $ 0.65 16.5%
Shares used in computing EPS: (6)
Basic 40.8 39.4
Diluted 42.1 40.4
- ---------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Operations 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-K.
R.H. DONNELLEY CORPORATION Schedule 5
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------
(unaudited)
Amounts in millions
- ---------------------------------------------- --------- ---------
Dec. 31, Dec. 31,
2004 2003
Reported Reported
- ---------------------------------------------- --------- ---------
Assets
Cash and cash equivalents $ 10.8 $ 7.7
Accounts receivable, net 455.4 211.0
Deferred directory costs 116.5 33.0 (17)
Prepaid expenses and other 40.6 32.9 (17)
-------- --------
Total current assets 623.3 284.6
Partnership investment - 175.7
Fixed assets and computer software, net 37.7 20.6
Intangible assets, net 2,905.3 1,865.2
Other non-current assets 102.6 95.6
Goodwill 310.0 97.0
-------- --------
Total Assets $3,978.9 $2,538.7
======== ========
Liabilities, Redeemable Convertible Preferred
Stock and
Shareholders' Equity (Deficit)
Accounts payable and accrued liabilities $ 80.4 $ 33.5
Deferred directory revenue 381.4 216.5
Current portion of long-term debt 162.0 49.6
-------- --------
Total current liabilities 623.8 299.6
Long-term debt 2,965.3 2,042.5
Deferred income taxes, net 118.8 33.6
Other non-current liabilities 36.9 21.0
-------- --------
Total liabilities 3,744.8 2,396.7
Redeemable convertible preferred stock 216.1 198.2
Shareholders' Equity (deficit) 18.0 (56.2)
-------- --------
Total Liabilities, Redeemable Convertible
Preferred
Stock and Shareholders' Equity (Deficit) $3,978.9 $2,538.7
======== ========
Note: These schedules are preliminary and subject to change pending
the Company's filing of its Form 10-K.
R.H. DONNELLEY CORPORATION Schedule 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------
For the three months and twelve months ended December 31, 2004
(unaudited)
Amounts in millions
- ------------------------------------------------- -------- ---------
Reported
Three Reported
months Year
ended ended
Operating activities: Dec. 31, Dec. 31,
2004 2004
--------- ----------
Net (loss) income $ (9.3) $ 70.3
Depreciation and amortization 20.3 66.6
Deferred income tax (11.7) 40.3
Gain on disposal of Assets 0.1 0.1
Cash in excess of partnership income - 1.4
Changes in working capital 86.0 145.4
Other (2.8) 82.2
------- ---------
Net cash provided by operating activities 82.6 406.3
Investment activities:
Additions to fixed assets and computer software (5.9) (18.0)
Acquisition of SBC Directory operations - (1,413.6)
------- ---------
Net cash used in investing activities (5.9) (1,431.6)
Financing activities:
(Decrease) increase in checks not yet presented
for payment (4.5) (0.9)
Proceeds from issuance of debt - 1,318.9
Repayment of debt (174.4) (442.6)
Borrowings under the Revolver 108.9 145.5
Proceeds from option exercises 1.2 7.5
-------- ---------
Net cash used in financing activities (68.8) 1,028.4
Increase in cash and cash equivalents 7.9 3.1
Cash and cash equivalents, beginning of period 2.9 7.7
-------- ---------
Cash and cash equivalents, end of period $ 10.8 $ 10.8
======= =========
Note: These schedules are preliminary and subject to change pending
the Company's filing of its Form 10-K.
Schedule 7
R.H. DONNELLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------
Reconciliation of Reported to Adjusted Pro Forma Amounts
(unaudited)
Amounts in millions, except earnings per share
- ------------------ ------------------------------------------------ --
Three Months Ended December 31, 2004
-----------------------------------------------
Sprint SBC
Reported Adjustments(3)Adjustments (2)Adjusted
- -------------------- -----------------------------------------------
Net revenue (1) $170.3 $89.0 (7) $259.3
Expenses 110.8 2.7 (7) 113.5
Depreciation and
amortization 20.3 (8) 20.3
-------- ----------- ----------- --------
Total expenses 131.1 - 2.7 133.8
Partnership income - - (9) -
--------- ----------- ----------- --------
Operating income 39.2 - 86.3 125.5
Interest expense,
net (54.6) - (10) (54.6)
--------- ----------- ----------- --------
Pre-tax (loss)
income (15.4) - 86.3 70.9
Tax benefit
(provision) 6.1 (34.1)(11) (28.0)
--------- ----------- ----------- --------
Net (loss) income (9.3) - 52.2 42.9
Preferred dividend 5.6 (5.6)(4) -
-------- ----------- ----------- --------
(Loss) income
available to common $(14.9) $5.6 $52.2 $42.9
======== =========== =========== ========
Earnings per share (EPS):
(4),(5), (6)
Basic $(0.28) $1.04
Diluted $(0.28) $1.00
Shares used in computing EPS:
(4), (5), (6)
Basic 31.4 9.8 41.2
Diluted 33.1 9.8 42.9
- -------------------- ------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements of
Operations and Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change pending
the Company's filing of its Form 10-K.
Schedule 7
R.H. DONNELLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------
Reconciliation of Reported to Adjusted Pro Forma Amounts
(unaudited)
Amounts in millions, except earnings per share
- ------------------ ------------------------------------------------ --
Three Months Ended December 31, 2003
--------------------------------------------------
Adjusted
Sprint SBC Pro
Reported Adjustments (3) Adjustments(2) Forma
- ----------------------------------------------------------------------
Net revenue (1) $116.1 $26.6 (12) $117.5 (7) $260.2
Expenses 68.7 4.5 (12) 51.9 (7) 125.1
Depreciation and
amortization 16.7 7.4 (8) 24.1
-------- ----------- ------------ ---------
Total expenses 85.4 4.5 59.3 149.2
Partnership income 22.5 (22.5) (9) -
--------- ----------- ------------ ---------
Operating income 53.2 22.1 35.7 111.0
Interest expense,
net (42.6) - (13.6)(10) (56.2)
--------- ----------- ------------ ---------
Pre-tax (loss)
income 10.6 22.1 22.1 54.8
Tax benefit
(provision) (4.3) (9.0)(11) (9.0)(11) (22.3)
--------- ----------- ------------ ---------
Net (loss) income 6.3 13.1 13.1 32.5
Preferred dividend 5.2 (5.2) (4) -
-------- ----------- ------------ ---------
(Loss) income
available to
common $1.1 $18.3 $13.1 $32.5
======== =========== ============ =========
Earnings per share
(EPS): (4), (5), (6)
Basic $0.03 $0.81
Diluted $0.03 $0.79
Shares used in computing EPS:
(4), (5), (6)
Basic 31.0 9.0 40.0
Diluted 32.2 9.0 41.2
- ----------------------------------------------------------------------
See accompanying Notes to Unaudited Consolidated Statements
of Operations and Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to
change pending the Company's filing of its Form 10-K.
Schedule 8
R.H. DONNELLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------
Reconciliation of Reported to Adjusted Pro Forma Amounts
(unaudited)
Amounts in millions, except earnings per share
- ------------------- --------------------------------------------------
Year ended December 31, 2004
-------------------------------------------------
Adjusted
Sprint SBC Pro
Reported Adjustments(3) Adjustments (2) Forma
- ----------------------------------------------------------------------
Net revenue (1) $603.1 $1.1 (12) $429.7 (7)$1,033.9
Expenses 322.8 (3.6)(12) 98.0 (7) 417.2
Depreciation and
amortization 66.6 18.8 (8) 85.4
------------------- ------------ ---------
Total expenses 389.4 (3.6) 116.8 502.6
Partnership income 78.0 - (78.0) -
-------------------- ------------ ---------
Operating income 291.7 4.7 234.9 531.3
Interest expense, net (175.5) (36.4)(10) (211.9)
Other income - 0.1 0.1
-------------------- ------------ ---------
Pre-tax income (loss) 116.2 4.7 198.6 319.5
Tax (provision)
benefit (45.9) (1.9) (78.4)(11) (126.2)
-------------------- ------------ ---------
Net income (loss) 70.3 2.8 120.2 193.3
Preferred dividend 21.8 (21.8) (4) -
------------------- ------------ ---------
Income (loss)
available to common $48.5 $24.6 $120.2 $193.3
=================== ============ =========
Earnings per share (EPS):
(4), (5), (6)
Basic $1.21 $4.74
Diluted $1.16 $4.59
Shares used in computing EPS:
(4), (5), (6)
Basic 31.3 9.5 40.8
Diluted 32.6 9.5 42.1
- ----------------------------------------------------------------------
See accompanying Notes to Consolidated Statements of Operations and
Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change pending
the Company's filing of its Form 10-K.
Year ended December 31, 2003
-------------------------------------------------
Sprint SBC Adjusted
Reported Adjustments (3) Adjustments (2) Pro Forma
- ----------------------------------------------------------------------
Net revenue (1) $256.4 $315.9 (12) $460.5 (7)$1,032.8
Expenses 212.2 63.3 (12) 157.1 (7) 432.6
Depreciation and
amortization 65.8 29.6 (8) 95.4
-------- ----------- ------------ ---------
Total expenses 278.0 63.3 186.7 528.0
Partnership income 114.1 - (114.1) -
-------- ----------- ------------ ---------
Operating income 92.5 252.6 159.7 504.8
Interest expense,
net (180.0) 2.4 (13) (54.5)(10) (232.1)
Other income 1.5 (1.5)(14) -
-------- --------------------------- ---------
Pre-tax income
(loss) (86.0) 253.5 105.2 272.7
Tax (provision)
benefit 36.1 (105.7)(11) (43.9)(11) (113.5)
-------- ----------- ------------ ---------
Net income (loss) (49.9) 147.8 61.3 159.2
Preferred dividend 58.4 (58.4) (4) -
-------- ----------- ------------ ---------
Income (loss)
available to
common $(108.3) $206.2 $61.3 $159.2
======== =========== ============ =========
Earnings per share (EPS):
(4), (5), (6)
Basic $(3.53) $4.04
Diluted $(3.53) $3.94
Shares used in computing EPS:
(4), (5), (6)
Basic 30.7 8.7 39.4
Diluted 30.7 9.7 40.4
- ---------------------------------------------------------------------
See accompanying Notes to Consolidated Statements of
Operations and Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change pending
the Company's filing of its Form 10-K.
R.H. DONNELLEY CORPORATION Schedule 9a
RECONCILIATION OF NON-GAAP MEASURES
- -----------------------------------
(unaudited)
Amounts in millions, except per share amounts
- ------------------------------------------------ -------------------
Three Months ended Year Ended
Dec. 31, Dec. 31,
-------------------------------------
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 $ 124.5 $ 121.3 $ 567.2 $ 552.5
Publication sales - Sprint-
branded directories - percentage
change over prior year 2.6% 2.7%
Adjustments for changes in
directory publication date(s)
(15) (11.4) (4.3)
------- --------
Publication sales disclosed in
fourth quarter 2003 earnings
release 109.9 548.2
Publication sales - SBC-branded
directories (2) 185.6 189.2 463.2 473.1
Publication sales - SBC-branded
directories - percentage change
over prior year -1.9% -2.1%
Less publication sales for all
January 2003 Sprint-branded
directories that were not
recognized as revenue due to
purchase accounting -- (102.4)
Less pre-acquisition publication
sales for SBC-branded directories
not recognized as revenue in
current period due to purchase
accounting - (189.2) (277.3) (473.1)
Less current period publication
sales for Sprint-branded
directories not recognized as
revenue in current period due
to the deferral method of
accounting (104.3) (93.6) (221.0) (214.3)
Less current period publication
sales for SBC-branded directories
not recognized as revenue in
current period due to the
deferral method of accounting (159.1) (158.4)
Plus net revenue reported in the
period for publication sales
from prior periods, excluding
publication sales for all
January 2003 Sprint-branded
directories 122.2 94.5 215.8 -
-------- ------- --------- --------
Net directory advertising revenue
on above publication sales 168.9 110.8 589.5 231.5
Pre-press publishing revenue - 4.2 11.8 20.6
Other revenue 1.4 1.1 1.8 4.3
--------------- -------------------
Net revenue - GAAP 170.3 116.1 603.1 256.4
Plus net 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 26.6 1.1 315.9
Plus net revenue from SBC-branded
directories that published prior
to the acquisition that would have
been recognized during the period
absent purchase accounting
adjustments required under GAAP
had the transaction occurred on
January 1, 2003 89.0 121.7 441.5 481.1
Less pre-press publishing revenue
that would not have been recorded
had the SBC transaction occurred on
January 1, 2003 - (4.2) (11.8) (20.6)
---------------- -------------------
Net revenue - Adjusted pro forma $ 259.3 $ 260.2 $1,033.9 $1,032.8
======== ======= ========= ========
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-K.
R.H. DONNELLEY CORPORATION Schedule 9b
RECONCILIATION OF NON-GAAP MEASURES (cont'd)
- ---------------------------------------------
(unaudited)
Amounts in millions, except per share amounts
- ----------------------------------------------------- ----------------
Three Months Year ended
ended Dec. 31, Dec. 31,
--------------------------------
2004 2003 2004 2003
- ----------------------------------------------------- ----------------
Reconciliation of net income (loss) -
GAAP to EBITDA and adjusted
pro forma EBITDA
Net (loss) income - GAAP $(9.3) $6.3 $70.3 $(49.9)
Plus tax (benefit) provision (6.1) 4.3 45.9 (36.1)
Plus interest expense, net 54.6 42.6 175.5 180.0
Plus depreciation and amortization 20.3 16.7 66.6 65.8
------- ------- ------- --------
EBITDA 59.5 69.9 358.3 159.8
Less other expense (income) - - 0.1 (1.5)
Plus net 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 - 26.6 1.1 315.9
Plus amortized deferred cost uplift
on Sprint sales contracts as of the
date of the acquisition, net of
expenses on Sprint-branded directories
that published prior to the acquisition,
including all January 2003 published
directories, that would not have been
recognized during the period absent
purchasing accounting adjustments
required under GAAP - (4.5) 3.6 (63.3)
Less pre-press publishing revenue that
would not have been recorded had the SBC
transaction occurred on January 1, 2003 - (4.2) (11.8) (20.6)
Plus net revenue from SBC-branded
directories that published prior
to the acquisition that would have
been recognized during the period
absent purchase accounting
adjustments required under GAAP
had the transaction occurred on
January 1, 2003 89.0 121.7 441.5 481.1
Less expenses, including amortized
deferred cost uplift, from SBC-branded
directories that published prior to
the acquisition that would have been
recognized during the period absent
purchase accounting adjustments
required under GAAP had the
transaction occurred on
January 1, 2003 (2.7) (51.9) (98.0) (157.1)
Less partnership income that would
not have been recognized during the
period assuming the SBC transaction
occurred on January 1, 2003 - (22.5) (78.0) (114.1)
------- ------- ------- --------
Net effect of adjustments to GAAP
results $86.3 $65.2 $258.5 $440.4
--------------- ----------------
Adjusted pro forma EBITDA (16) $145.8 $135.1 $616.8 $600.2
=============== ================
- ----------------------------------------------------- ----------------
See accompanying Notes to Consolidated Statements of
Operations and Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change pending
the Company's filing of its Form 10-K.
R.H. DONNELLEY CORPORATION Schedule 9c
RECONCILIATION OF NON-GAAP MEASURES (con't)
- ---------------------------------------------
(unaudited)
Amounts in millions, except per share amounts
- ---------------------------------------------------- ----------------
Three months Year ended
ended Dec. 31, Dec. 31,
-------------------------------
2004 2003 2004 2003
- ---------------------------------------------------- ----------------
Reconciliation of cash flow from
operations to Free Cash Flow
Cash flow from operations - GAAP $82.6 $22.5 $406.3 $248.6
Less: additions to fixed assets and
computer software (5.9) (4.7) (18.0) (12.6)
-------------- ----------------
Free cash flow $76.7 $17.8 $388.3 $236.0
============== ================
- ---------------------------------------------------- ----------------
Three Months Year ended
ended Dec. 31, Dec. 31,
-------------------------------
2004 2003 2004 2003
- ---------------------------------------------------- ----------------
Reconciliation of diluted shares
outstanding - GAAP to diluted
shares outstanding - adjusted pro
forma
Diluted shares outstanding - GAAP 33.1 32.2 32.6 30.7
Additional diluted shares outstanding
assuming the preferred stock
is converted to common stock at the
beginning of the period
plus common stock equivalents 9.8 9.0 9.5 9.7
-------------- ----------------
Diluted shares outstanding - adjusted
proforma 42.9 41.2 42.1 40.4
============== ================
- ---------------------------------------------------- ----------------
Three Months Year ended
ended Dec. 31, Dec. 31,
-------------------------------
2004 2003 2004 2003
- ---------------------------------------------------- ----------------
Reconciliation of diluted earnings
per share- GAAP to diluted
earnings per share - adjusted pro
forma
Diluted earnings per share - GAAP $(0.28) $0.03 $1.16 $(3.53)
Anti-dilutive effect of converting
preferred stock to common
stock at the beginning of the period 0.06 0.12 0.50 2.29
Impact of Sprint transaction, including
adjustments to eliminate purchase
accounting - 0.32 0.07 3.66
Pro forma impact of SBC transaction,
including adjustments to eliminate
purchase accounting 0.32 2.86 1.52
Impact of SBC transaction, including
adjustments to eliminate purchase
accounting 1.22
-------------- ----------------
Diluted earnings per share - adjusted
proforma $1.00 $0.79 $4.59 $3.94
============== ================
- ---------------------------------------------------- ----------------
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-K.
R.H. DONNELLEY CORPORATION Schedule 9d
RECONCILIATION OF NON-GAAP MEASURES (cont'd)
- ---------------------------------------------------------
(unaudited)
Amounts in millions, except per share amounts
- ------------------------------------------------------------------
Reconciliation of adjusted pro forma EBITDA 2004 and normalized
adjusted pro forma EBITDA 2004 to net income - GAAP and of adjusted
EBITDA 2005 to net income -GAAP and of adjusted pro forma EBITDA
2004 to adjusted EBITDA 2005
Net income - GAAP, 2004 $70
Plus tax provision 46
Plus interest expense, net 175
Plus depreciation and amortization 67
--------
EBITDA 358
Net effect of adjustments to GAAP results from schedule 9b 259
--------
2004 Adjusted pro forma EBITDA (16) $617
Plus headquarters relocation expenses 7
Less favorable adjustments to bad debt and claims
expense on SBC-branded directories recorded prior
to acquisition (12)
Less incremental compensation expense that would have
been realized assuming the company adopts SFAS 123 on
January 1, 2005 (5)
Less other adjustments, including additional operating
expenses management believes would have been incurred
if RHD had operated the acquired business for the
full year. (7)
--------
Normalized 2004 adjusted pro forma EBITDA $600
Less expected 2005 impact of additional investments
in the business, including digital initiatives,
advertising and promotion in Illinois, absence of
favorable adjustments to bad debt and claims expense
in Sprint-branded directories and incremental
SFAS 123 related compensation expense in 2005
compared to 2004 (25)
--------
2005 adjusted EBITDA outlook $575
Less expected 2005 depreciation and amortization (90)
Less expected 2005 interest expense, net (237)
Less expected 2005 tax provision (98)
--------
2005 Adjusted net income outlook $150
Less revenue from SBC-branded directories that published
prior to the acquisition that would have been recognized
absent purchase accounting adjustments required under
GAAP (86)
Less cost uplift on SBC sales contracts as of the date of
the acquisition, net of expenses on SBC-branded directories
that published prior to acquisition that would have been
recognized during the period absent purchase
accounting required under GAAP (51)
Plus net tax reduction resulting from the exclusion of
the SBC revenue and expenses due to purchase accounting 54
--------
Expected 2005 net income -GAAP $67
========
- ------------------------------------------------------------------
See accompanying Notes to Consolidated Statements of Operations and
Non-GAAP Measures - Schedule 10.
Note: These schedules are preliminary and subject to change pending
the Company's filing of its Form 10-K.
Schedule 10
R.H. DONNELLEY CORPORATION
NOTES TO UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------
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 each year 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 between RHD and predecessor
accounting policies, management does not believe these pro forma
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 assumes the
transaction occurred at the beginning of the periods presented and 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. Additionally, the cost uplift 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.
(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 2004 performance
with adjusted 2003 results. Adjusted results reflect the elimination
of purchase accounting and certain other adjustments. The 2004 and
2003 adjusted 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 uplift 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. In periods that result in a net loss, the net loss
is not allocated between common and preferred shareholders since the
preferred shareholders do not have a contractual obligation to share
in any loss.
(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 expenses 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 prior to the acquisition, and (c)
certain differences between historical and current accounting policies
of RHD and the acquired entities. Additionally, the cost uplift
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.
(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 SBC transaction. 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. For periods after the acquisition date, interest expense
is determined by GAAP results.
(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
uplift 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
transaction. 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 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) 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