-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UWpm39pZiEv09ZS1OY5WnJEgU8SHxM3iRzHG//MK1nGYdSLrw1s6EOaovuz1RanC ZzimcjHdUZsIiTZ2FcQaxw== /in/edgar/work/0000950123-00-010402/0000950123-00-010402.txt : 20001114 0000950123-00-010402.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950123-00-010402 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R H DONNELLEY CORP CENTRAL INDEX KEY: 0000030419 STANDARD INDUSTRIAL CLASSIFICATION: [7310 ] IRS NUMBER: 132740040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07155 FILM NUMBER: 760367 BUSINESS ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336800 MAIL ADDRESS: STREET 1: 1 DIAMOND HILL RD CITY: MURRAY HILL STATE: NJ ZIP: 07974 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET COMPANIES INC DATE OF NAME CHANGE: 19790429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNELLEY R H INC CENTRAL INDEX KEY: 0001065310 STANDARD INDUSTRIAL CLASSIFICATION: [2741 ] IRS NUMBER: 362467635 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-59287 FILM NUMBER: 760368 BUSINESS ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336400 MAIL ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 10-Q 1 y42438e10-q.txt R.H. DONNELLEY CORPORATION/R.H. DONNELLEY INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark one) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _______________________ Commission file number 001-07155 R.H. DONNELLEY CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-2740040 - ---------------------------------------- ---------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) One Manhattanville Road, Purchase N.Y. 10577 - ---------------------------------------- ---------------------------------------- (Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Title of Class Shares Outstanding at October 31, 2000 -------------- -------------------------------------- Common Stock, par value $1 per share 31,739,752
Commission file number 333-59287 R.H. DONNELLEY INC. * (Exact name of registrant as specified in its charter) Delaware 36-2467635 - ---------------------------------------- ---------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) One Manhattanville Road, Purchase N.Y. 10577 - ---------------------------------------- ---------------------------------------- (Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (914) 933-6400 * R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley Corporation. R.H. Donnelley Inc. became subject to the filing requirements of Section 15(d) on October 1, 1998 in connection with the public offer and sale of its 9 1/8% Senior Subordinated Notes. As of October 31, 2000, there were 100 shares of R.H. Donnelley Inc. common stock, no par value, outstanding. 2 R.H. DONNELLEY CORPORATION INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE - ------------------------------- ---- Item 1. Financial Statements Consolidated Statements of Operations for the three and nine months ended September 30, 2000 and 1999 ...................................................................... 3 Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 .......................... 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 ...................................................................... 5 Notes to Consolidated Financial Statements ....................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk .......................................... 19 PART II. OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings .................................................................................. 20 Item 6. Exhibits and Reports on Form 8-K ................................................................... 21 SIGNATURES ................................................................................................... 25
2 3 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------- (amounts in thousands, except per share data) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- Gross revenues................................................... $ 23,202 $ 58,541 $ 130,903 $ 140,750 Less: sales allowances........................................... (424) -- (6,576) (2,005) -------- -------- --------- --------- Net revenues..................................................... 22,778 58,541 124,327 138,745 Expenses: Operating expenses............................................ 13,490 44,301 82,336 102,642 General and administrative expenses........................... 4,888 8,520 19,776 23,534 Provision for bad debts....................................... 1,056 2,112 3,700 3,637 Depreciation and amortization................................. 3,281 4,392 12,054 13,817 -------- -------- --------- --------- Total expenses........................................... 22,715 59,325 117,866 143,630 Income from partnerships and related fees........................ 45,578 47,940 116,962 113,394 -------- -------- --------- --------- Operating income......................................... 45,641 47,156 123,423 108,509 Interest income.................................................. 2,164 122 2,605 277 Interest expense................................................. (8,591) (9,184) (27,411) (28,205) Gain on disposition of businesses................................ -- -- 89,435 -- -------- -------- --------- --------- Income before income taxes and extraordinary loss............................... 39,214 38,094 188,052 80,581 Provision for income taxes....................................... 15,097 15,736 72,400 32,875 -------- -------- --------- --------- Income before extraordinary loss......................... 24,117 22,358 115,652 47,706 Extraordinary loss (net of taxes of $440) 704 -- 704 -- -------- -------- --------- --------- Net income............................................... $ 23,413 $ 22,358 $ 114,948 $ 47,706 ======== ======== ========= ========= Earnings per share before extraordinary loss: Basic.................................................... $ 0.76 $ 0.66 $ 3.60 $ 1.41 Diluted.................................................. $ 0.74 $ 0.65 $ 3.53 $ 1.39 Earnings per share after extraordinary loss: Basic.................................................... $ 0.74 $ 0.66 $ 3.58 $ 1.41 Diluted.................................................. $ 0.72 $ 0.65 $ 3.51 $ 1.39 Shares used in computing earnings per share: Basic.................................................... 31,743 33,632 32,134 33,806 Diluted.................................................. 32,547 34,201 32,749 34,276
The accompanying notes are an integral part of the consolidated financial statements. 3 4 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, December 31, (amounts in thousands, except share and per share data) 2000 1999 - ------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents................................................. $ 91,129 $ 2,390 Accounts receivable Billed................................................................. 830 8,478 Unbilled............................................................... 48,916 68,213 Other.................................................................. 8,765 10,011 Allowance for doubtful accounts........................................ (6,287) (7,992) --------- --------- Total accounts receivable, net.................................... 52,224 78,710 Deferred contract costs................................................... 520 9,728 Income tax refund......................................................... -- 6,000 Other current assets...................................................... 4,997 5,448 --------- --------- Total current assets.............................................. 148,870 102,276 Property and equipment, net............................................... 11,212 17,626 Computer software, net.................................................... 12,665 24,225 Partnership investments and related receivables........................... 204,305 230,205 Investment in ChinaBig.com Limited........................................ 13,432 -- Other non-current assets.................................................. 25,345 21,074 --------- --------- TOTAL ASSETS...................................................... $ 415,829 $ 395,406 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable and accrued liabilities.................................. $ 74,508 $ 45,582 Accrued interest payable.................................................. 11,461 9,253 Investment obligation to ChinaBig.com Limited............................. 2,550 3,978 Current portion of long-term debt......................................... -- 9,750 --------- --------- Total current liabilities......................................... 88,519 68,563 Long-term debt............................................................ 351,750 435,000 Deferred income taxes..................................................... 61,479 63,024 Postretirement and postemployment benefits................................ 8,283 9,380 Other liabilities ........................................................ 9,700 12,250 Commitments and contingencies............................................. SHAREHOLDERS' DEFICIT Preferred stock, par value $1 per share, authorized - 10,000,000 shares, outstanding - none.................................. -- -- Common stock, par value $1 per share, authorized - 400,000,000 Shares; issued - 51,621,894 shares for 2000 and 1999................... 51,622 51,622 Additional paid in capital................................................ 12,143 5,172 Unearned compensation..................................................... (105) (86) Retained deficit.......................................................... (88,495) (203,443) Treasury stock, at cost, 19,888,906 shares for 2000 and 18,578,996 shares for 1999............................................. (79,067) (46,076) --------- --------- Total shareholders' deficit....................................... (103,902) (192,811) --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT....................... $ 415,829 $ 395,406 --======= =========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- (amounts in thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 114,948 $ 47,706 Reconciliation of net income to net cash provided by operating activities: Gain on disposition of businesses (net of taxes of $34,433)................... (55,002) -- Extraordinary loss (net of taxes of $440)..................................... 704 -- Depreciation and amortization................................................. 12,054 13,817 Deferred income taxes......................................................... (1,545) (1,507) Other noncash charges......................................................... 1,628 1,021 Provision for bad debts....................................................... 3,700 3,637 Cash received in excess of (less than) income from partnerships and related receivables....................................... 11,782 (12,286) Decrease (increase) in accounts receivable.................................... 19,977 (9,990) Decrease in deferred contract costs........................................... 1,033 1,361 Decrease (increase) in other assets........................................... 5,509 (749) (Decrease) increase in accounts payable, accrued and other current liabilities.................................................. (18,441) 8,978 Increase (decrease) in other liabilities...................................... 1,337 (1,081) ---------- --------- Net cash provided by operating activities.............................. 97,684 50,907 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposition of businesses............................................ 122,009 -- Additions to property and equipment................................................ (3,684) (1,571) Additions to computer software..................................................... (2,630) (2,479) Investment in ChinaBig.com Limited................................................. (3,938) (8,000) ---------- --------- Net cash provided by (used in) investing activities.................... 111,757 (12,050) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt ................................................................. (93,000) (22,375) Purchase of treasury stock......................................................... (32,953) (19,319) Proceeds from exercise of stock options............................................ 5,251 4,050 ---------- --------- Net cash used in financing activities.................................. (120,702) (37,644) Increase in cash and cash equivalents.............................................. 88,739 1,213 Cash and cash equivalents, beginning of year....................................... 2,390 2,302 ---------- --------- Cash and cash equivalents, end of period........................................... $ 91,129 $ 3,515 ========== ========= Supplemental cash flow information: Interest paid...................................................................... $ 20,639 $ 28,587 ========== ========= Income taxes paid.................................................................. $ 47,249 $ 28,240 ========== =========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (amounts in thousands) 1. BACKGROUND AND BASIS OF PRESENTATION Prior to July 1, 1998, R.H. Donnelley Corporation (the "Company") operated as part of The Dun & Bradstreet Corporation (in the context of specifically describing the Distribution, referred to as "Old D&B," otherwise "D&B"). In December 1997, the Board of Directors of Old D&B approved in principle a plan to separate into two publicly traded companies - the Company and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") was the method by which Old D&B distributed to its shareholders shares of New D&B common stock. On July 1, 1998, as part of the Distribution, Old D&B distributed to its shareholders shares of New D&B stock and Old D&B changed its name to R.H. Donnelley Corporation. The interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the financial statements and related notes included in the Company's Form 10-K for the year ended December 31, 1999. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Certain 1999 amounts have been restated to conform to the 2000 presentation. 2. DISPOSITION OF BUSINESSES AND CORPORATE REORGANIZATION On June 30, 2000, R.H. Donnelley Inc. ("Donnelley"), a wholly-owned subsidiary of the Company, entered into an agreement ("Agreement") with an affiliate of Bell Atlantic Corporation ("Bell Atlantic") for the early termination of the directory services agreements between Donnelley and Bell Atlantic dated September 5, 1985 and May 5, 1998, as amended (the "Agency Agreements"). Pursuant to the Agency Agreements, Donnelley had served as exclusive advertising sales agent for Bell Atlantic directories covering substantially all of New York State. The Agency Agreements had been scheduled to expire in 2005 and 2003, respectively. The transactions contemplated by the Agreement were also consummated on June 30, 2000. Under the terms of the Agreement, Donnelley received cash proceeds of $114,009, less approximately $3,000 of operational liabilities assumed by Bell Atlantic related to the pre-closing period. These net proceeds were subject to post-closing adjustment under certain circumstances, but the adjustment period has lapsed and no adjustments were made. Donnelley also received estimated commissions for sales which occurred prior to the closing, but which were not yet payable under the terms of the Agency Agreements. These commissions totaled approximately $42,000, net of certain adjustments, and were subject to post-closing adjustments under certain circumstances, but the adjustment period has lapsed and no adjustments were made. The Company also received commissions of approximately $15,000 in connection with its sales for certain directories that published in the pre-closing period. On April 27, 2000, the Company sold its Cincinnati proprietary directory business to Yellow Book USA, Inc. for $8,000. In connection with the above actions, the Company also implemented cost-cutting measures, including headcount reductions, at its Raleigh, NC facility and corporate headquarters consistent with its new streamlined operating structure. The Company recognized a pretax gain from the above transactions of $89,435 ($55,002 after taxes). 6 7 3. RECONCILIATION OF SHARES USED IN COMPUTING EARNINGS PER SHARE The table below provides a reconciliation of basic weighted average shares outstanding to diluted weighted average shares outstanding for each period presented. The conversion of dilutive shares has no impact on operating results.
Three months ended Nine months ended September 30, September 30, ------------------------------------------ 2000 1999 2000 1999 ------ ------ ------ ------ Weighted average shares outstanding - basic................ 31,743 33,632 32,134 33,806 Potentially dilutive shares................................ 804 569 615 470 ------ ------ ------ ------ Weighted average shares outstanding - diluted.............. 32,547 34,201 32,749 34,276 ====== ====== ====== ======
4. LONG-TERM DEBT Long-term debt at September 30, 2000 and December 31, 1999 consisted of the following:
2000 1999 ---- ---- Senior Subordinated 9.125% Notes................................. $ 150,000 $ 150,000 Senior Secured Term Facilities................................... 201,750 294,750 Senior Revolving Credit Facility................................. -- -- --------- --------- Total..................................................... 351,750 444,750 Less current portion............................................. -- 9,750 --------- --------- Net long-term debt........................................ $ 351,750 $ 435,000 ========= =========
The Senior Subordinated Notes (the "Notes") pay interest semi-annually and mature in June 2008. The Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur certain additional debt and liens and engage in mergers, consolidations and asset sales. The Notes are callable at the option of the Company at any time on or after June 1, 2003. The Company's committed bank facilities consist of an aggregate $300,000 Senior Secured Term Facilities ("Term Facilities") and a $100,000 Senior Revolving Credit Facility (the "Revolver," and together with the Term Facilities, the "Credit Agreement"). The Term Facilities require quarterly principal repayments and mature between June 2004 and December 2006. The Revolver matures in June 2004. These facilities bear interest at a floating rate based on a spread over London interbank offered rate (LIBOR) or the greater of either the Prime rate or the Fed Funds rate plus 50 basis points, at the election of the Company. The Company's obligations under the Credit Agreement are secured by security interests granted to the lenders in substantially all of the Company's assets, including capital stock of its existing and newly formed subsidiaries. The Credit Agreement contains covenants that, among other things, require the Company to maintain certain financial ratios and restrict the ability of the Company and its subsidiaries to engage in mergers, consolidations and asset sales, incur additional indebtedness or create liens. In the quarter, the Company repaid $90,000 of Term Facilities prior to the scheduled maturity date. In connection with the prepayment of debt, the Company recorded an after-tax extraordinary loss of $704 relating to the write-off of a portion of the associated deferred financing costs. 5. TREASURY STOCK ACTIVITY During the nine months ended September 30, 2000, the Company repurchased 1,845 shares at a cost of $32,953. 6. LITIGATION In April 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages initiated a lawsuit against Donnelley and Bell Atlantic Corporation ("Bell Atlantic") in the United States District Court of the Southern District of New York. The Rockland Yellow Pages is a proprietary directory that competes against a Bell Atlantic directory 7 8 in the same region, for which Donnelley served as Bell Atlantic's sales agent through June 30, 2000. The complaint alleged that the defendants disseminated false information concerning the Rockland Yellow Pages, which has resulted in damages to the Rockland Yellow Pages. The plaintiffs alleged a variety of claims including RICO violations, antitrust violations and Lanham Act violations. They sought damages in excess of $30,000, which amount plaintiffs sought to have trebled under the antitrust laws. In addition, the plaintiffs also sought punitive damages in an unspecified amount. In February 2000, Yellow Book USA, Inc., one of the Company's primary competitors, acquired Dellwood Publishing, Inc., but this matter was not part of the assets acquired by Yellow Book. In June 1999, the defendants filed a motion to dismiss this complaint. In September 1999, the plaintiffs filed papers in opposition to defendants' motion to dismiss and in November 1999, the defendants answered these opposition papers and again moved to dismiss the complaint. On September 29, 2000, the Court dismissed the complaint in its entirety, but gave plaintiffs 30 days leave to amend the complaint to replead any claims, other than the RICO claims. On October 25, 2000, plaintiffs filed an amended complaint alleging substantially the same facts, claims and damages as set forth in the original complaint, other than the RICO claims. The Company is still in the process of analyzing the amended complaint along with its counsel and counsel for Bell Atlantic (now Verizon), but while at this preliminary stage in the proceedings management is unable to predict the outcome of this matter, it presently believes that the resolution of the action will not have a material adverse effect on the Company's financial position or results of operations. In July 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants the Company (as successor of Old D&B), ACNielsen Company and IMS International Inc., each former subsidiaries of D&B ("IRI Action"). The complaint alleges, among other things, various violations of the antitrust laws and seeks damages in excess of $350,000, which IRI is seeking to have trebled under the antitrust laws. IRI also seeks punitive damages of an unspecified amount. Under the definitive agreement entered into in connection with the Distribution (the "Distribution Agreement"), New D&B has assumed the defense and will indemnify the Company against any payments to be made by the Company or Donnelley in respect of the IRI Action, under the Indemnity and Joint Defense Agreement entered into in connection with the Distribution or otherwise, including any ongoing legal fees and expenses related thereto. Management presently believes that New D&B has sufficient financial resources and/or borrowing capacity to satisfy all such liabilities and to reimburse the Company for all costs and expenses incurred. Management does not believe that the recent separation of Moody's from New D&B will have a material adverse impact on these indemnity rights of the Company because, as required by the Distribution Agreement, Moody's has agreed to be jointly and severally liable with New D&B for those indemnity obligations to the Company. Certain tax planning strategies entered into by Old D&B are currently subject to review by tax authorities. Pursuant to a series of agreements, IMS Health Incorporated ("IMS") and Nielsen Media Research, Inc. ("NMR") (both of which are former subsidiaries of D&B) are each jointly and severally liable to pay 50%, and Old D&B is liable for the remaining 50% of any payments for taxes and accrued interest arising from this matter and certain other potential tax liabilities after Old D&B pays the first $137,000 of tax liability. As explained above, as a result of the form of the Distribution, the Company is the corporate successor of, and the taxpayer referred to herein as, Old D&B. However, pursuant to the terms of the Distribution Agreement and the Tax Allocation Agreement executed in connection with the Distribution, New D&B has assumed the defense and will indemnify the Company and Donnelley against any payments to be made by the Company or Donnelley in respect of any tax liability that may be assessed and any costs and expenses relating thereto, including any ongoing legal fees and expenses related thereto. On May 9, 2000, the Internal Revenue Service (the "IRS") issued a summary report with respect to these tax-planning strategies. In connection with the summary report, New D&B filed an amended tax return for 1989 and 1990, which reflected $561,600 of tax and interest due. On May 12, 2000, New D&B paid the IRS approximately $349,300 of this amount and IMS paid approximately $212,300. These payments were funded with short-term borrowings and the Company understands were paid under dispute in order to stop additional interest from accruing. Management presently believes that New D&B, IMS and NMR have sufficient financial resources and/or borrowing capacity to satisfy all such liabilities and to reimburse the Company for all costs and expenses relating thereto. Management does not believe that the recent separation of Moody's from New D&B will have a material adverse impact on these indemnity rights of the Company because, as required by the Distribution Agreement, Moody's has agreed to be jointly and severally liable with New D&B for those indemnity obligations to the Company. Other than the matters described above, the Company and Donnelley are involved in legal proceedings, claims and 8 9 litigation arising in the ordinary conduct of its business. Although there can be no assurances, management presently believes that the outcome of such legal proceedings will not have a material adverse affect on the Company's financial position, results of operations or cash flows. 7. PARTNERSHIP AND JOINT VENTURE INVESTMENTS DONTECH The Company has a 50/50 partnership ("DonTech") with an operating unit of SBC Communications Inc. ("SBC"), which acts as the exclusive sales agent for yellow pages directories published by SBC in Illinois and northwest Indiana. In addition to its 50% interest in the profits of DonTech, the Company also receives revenue participation income, which is tied to advertising sales, from an operating unit of SBC. The following is summarized financial information of the DonTech Partnership (revenue participation income is not shown in the table below):
Three months ended Nine months ended September 30, September 30, ----------------------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net revenue................................. $ 32,660 $ 33,019 $ 83,054 $ 83,577 Income from operations...................... 15,455 17,592 33,653 37,732 Net income.................................. 15,474 17,834 34,317 38,761 Total assets................................ 136,962 171,423 136,962 171,423
Income and related fees from DonTech was $39,057 and $41,082 for the three months ended September 30, 2000 and 1999, respectively, and $96,492 and $98,569 for the nine months ended September 30, 2000 and 1999, respectively. These amounts include revenue participation income of $31,320 and $31,776 for the three months ended September 30, 2000 and 1999, respectively, and $79,334 and $79,413 for the nine months ended September 30, 2000 and 1999, respectively. CENDON The Company had been the exclusive sales agent for the CenDon partnership, a 50/50 partnership between the Company and Centel Directory Company ("Centel"), a subsidiary of Sprint that was formed to publish directories in Florida, Nevada, Virginia and North Carolina. Effective for directories that published from and after July 1, 2000, the Company and Centel entered into a series of agreements that effectively restructured the partnership as a limited liability company ("LLC") and extended the sales agency arrangement through 2010. Both the partnership agreement and sales agency agreement were set to expire in 2004. The new arrangement focuses the Company's responsibilities on sales and certain pre-press publishing services (the latter through 2003) and establishes the Company as the exclusive sales agent for Centel's print and electronic / Internet directory products in the markets previously covered by the partnership agreement. Centel has assumed responsibility for the publishing and delivery of print directories and related support services such as marketing, customer service and collections. The Company receives sales commissions on all advertising sold and also receives a priority distribution on its membership interest in the LLC based on the value of advertising sold. Sales commissions are recognized as revenue and the priority distribution on its membership interest is recognized as partnership income and related fees. As a result of this modified arrangement, revenue and related cost are recognized at the time of sale, rather than at the time of directory publication as has historically been the case for CenDon. The year-to-date results include a one-time operating income benefit of $15,771 relating to advertising sales made and related costs incurred prior to the effective date of the agreement for directories that published subsequent to the effective date of the agreement. This one-time operating income benefit is comprised of sales commission revenue of $20,956 (from calendar advertising sales of $95,818), priority distributions of $13,268, less related expenses of $10,607 and a charge of $7,846 for the Company's share of the write-off of deferred costs by the partnership resulting from the change in the CenDon relationship. The net amount of the priority distribution and write-off of partnership deferred costs was $5,422 and is recorded as income from partnerships and related fees in the income statement. Income and related fees from CenDon were $6,521 and $21,548 for the three and nine months ended September 30, 2000 and $7,259 and $15,476 for the three and nine months ended September 30, 1999. 9 10 CHINABIG.COM LIMITED The Company holds an equity interest (18.75% through June 15, 2000 and 18% thereafter) in ChinaBig.com Limited (previously named Unicom Media Limited, "ChinaBig") which publishes yellow pages directories and offers Internet directory services in the People's Republic of China. Through June 15, 2000, the Company was a joint venture partner actively involved in the daily operations of ChinaBig and accordingly, accounted for its investment under the equity method. During the second quarter, ChinaBig decided to focus more of its time and resources on the Internet aspect of its business plan, known as ChinaBiG.com, and to seek additional investors to build ChinaBiG.com into a well-known portal for the Chinese community around the world. In that regard, on June 15, 2000, ChinaBig received its first minority investment from an independent third party investor. Concurrently, in order to facilitate the raising of additional capital and provide greater flexibility, ChinaBig and each existing investor (including the Company), restructured the existing joint venture agreement of ChinaBig to, among other things, significantly reduce the Company's ability to influence the daily operations of ChinaBig. Under the restructured agreement, the Company is now a passive investor and accounts for this investment under the cost method. Accordingly, the Company no longer recognizes its share of the operating income or losses of ChinaBig subsequent to June 15, 2000. The Company recorded a loss of $1,078 from the ChinaBig investment through June 15, 2000. The three and nine month periods ended September 30, 1999 include a loss from the ChinaBig investment of $250. On September 28, 2000, an affiliate of Pacific Century Cyber Works Limited ("PCCW"), a global telecommunications and Internet company listed on the Hong Kong Stock Exchange entered into an agreement with three of the investors in ChinaBig to acquire approximately 40% of the outstanding equity of ChinaBig. In connection with that acquisition, the parties have negotiated new shareholders and registration rights agreements that will be entered into if and when the PCCW acquisition is completed. The Company's rights under the newly negotiated agreements are not materially different than that under the existing, restructured agreements. The Company presently expects that the PCCW acquisition will be completed on November 14, 2000. 8. BUSINESS SEGMENTS The Company's reportable operating segments are DonTech Partnership ("DonTech"), Directory Advertising Services ("DAS") and Get Digital Smart(SM) ("GDS"). Despite the similarities in services provided by DAS, DonTech is viewed as a separate reportable operating segment since, among other factors, the employees of DonTech, including officers and managers, are not employees of the Company. GDS is the Company's Internet initiative designed to deliver a comprehensive package of Internet marketing and e-commerce capabilities to small and medium-sized businesses. The Company evaluates the performance of its operating segments and allocates resources to them based on operating income and other factors. Expenses for purposes of computing operating income for the reportable segments (except DonTech) include those costs directly incurred by each business unit plus an allocation of certain shared operating and general and administrative expenses based on estimated business usage. Other represents expenses and assets not allocated to the operating segments. Interest expense, income tax expense and non-operating income and expenses are not allocated to the operating segments. Effective June 30, 2000, as a result of the transactions discussed in Note 2 - Disposition of Businesses and Corporate Reorganization, management restructured its reportable operating segments to better reflect the Company's new streamlined operating structure and the way management views the businesses. DAS now includes the Company's pre-press publishing operations formerly reported separately as Directory Publishing Services and all information technology costs, a portion of which were previously allocated to and included under Other. DAS also includes results from Bell Atlantic up to the early termination of the Agency Agreements, the Company's proprietary operations in Cincinnati up to the date of sale and the Company's investment in ChinaBig up until it was restructured. All prior period amounts have been restated to be comparable to the new presentation. Selected financial results for the three and nine months ended September 30, 2000 and 1999 and total assets at September 30, 2000 and 1999 are presented in the tables below. As discussed in Note 6 - Partnership and Joint Venture Investments, DAS calendar sales, net revenues, income from partnerships and related fees and operating income amounts for the nine months ended September 30, 2000 include one-time benefits from the restructuring of the CenDon relationship. 10 11
Directory DonTech Advertising Get Digital Consolidated Partnership Services Smart Other Totals ----------- --------- ----- ----- ------ THREE MONTHS ENDED SEPTEMBER 30, 2000 Advertising sales (1) Calendar cycle......................... $ 128,895 $ 62,256 -- -- $ 191,151 Publication cycle...................... 64,393 53,553 -- -- 117,946 Net revenues............................. -- 22,714 $ 64 -- 22,778 Income from partnerships and related fees........................ 39,057 6,521 -- -- 45,578 EBITDA (2)............................... 39,057 14,647 (2,170) $ (2,612) 48,922 Depreciation and amortization............ -- 2,906 18 357 3,281 Operating income (loss).................. 39,057 11,741 (2,188) (2,969) 45,641 Total assets............................. 202,862 73,188 273 139,506 415,829 THREE MONTHS ENDED SEPTEMBER 30, 1999 Advertising sales (1) Calendar cycle......................... $ 130,491 $ 188,539 -- -- $ 319,030 Publication cycle...................... 64,394 121,717 -- -- 186,111 Net revenues............................. -- 58,541 -- -- 58,541 Income from partnerships and related fees........................ 41,082 6,858 -- -- 47,940 EBITDA (2)............................... 41,082 15,002 $ (312) $ (4,224) 51,548 Depreciation and amortization............ -- 3,956 -- 436 4,392 Operating income (loss).................. 41,082 11,046 (312) (4,660) 47,156 Total assets............................. 202,677 167,287 -- 37,631 407,595 NINE MONTHS ENDED SEPTEMBER 30, 2000 Advertising sales (1) Calendar cycle......................... $ 328,210 $ 430,620 -- -- $ 758,830 Publication cycle...................... 283,443 366,724 -- -- 650,167 Net revenues............................. -- 124,239 $ 88 -- 124,327 Income from partnerships and related fees........................ 96,492 20,470 -- -- 116,962 EBITDA (2)............................... 96,492 55,959 (6,536) $ (10,438) 135,477 Depreciation and amortization............ -- 10,831 42 1,181 12,054 Operating income (loss).................. 96,492 45,128 (6,578) (11,619) 123,423 NINE MONTHS ENDED SEPTEMBER 30, 1999 Advertising sales (1) Calendar cycle......................... $ 328,878 $ 471,910 -- -- $ 800,788 Publication cycle...................... 284,911 435,160 -- -- 720,071 Net revenues............................. -- 138,745 -- -- 138,745 Income from partnerships and related fees........................ 98,569 14,825 -- -- 113,394 EBITDA (2)............................... 98,569 36,565 $ (312) $ (12,496) 122,326 Depreciation and amortization............ -- 12,038 -- 1,779 13,817 Operating income (loss).................. 98,569 24,527 (312) (14,275) 108,509
(1) Advertising sales represent the billing value of advertisements sold for an annual directory by the Company and DonTech. Management reviews the performance of the operating segments on, among other things, the advertising sales generated on a calendar cycle and a publication cycle basis. Calendar cycle advertising sales represent the billing value of advertisements sold for an annual directory stated on the same basis for which revenue is recognized in the consolidated financial statements (that is, when a sales contract is signed where the Company or DonTech acts as a sales agent and when a directory was published where the Company acted as the publisher). Management believes that an additional useful measurement of sales performance is the publication cycle basis. This method measures sales based on the value of an annual directory according to its publication date regardless of the Company's role and the recognition of revenue in the consolidated financial statements. If a directory publication date changes from one year to the next, the prior year publication date is adjusted to conform to the present year to maintain comparability. In order to conform the prior year publication cycle sales to the 2000 publication dates, DonTech sales for the third quarter 1999 have been decreased by $3,546 for an annual directory that published in the second quarter of 2000 versus the third quarter of 1999. (2) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income or net income prepared in conformity with generally accepted accounting principles. In addition, EBITDA may not be comparable to similarly titled measures of other companies. 11 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The matters discussed in this Form 10-Q of R.H. Donnelley Corporation and its subsidiaries (the "Company") contain forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words "believe," "expect," "anticipate," "should," "planned," "estimated," "potential," "goal," "outlook," and similar expressions, as they relate to the Company or its management, have been used to identify such forward-looking statements. Regardless of any identifying phrases, these statements and all other forward-looking statements reflect only the Company's current beliefs and specific assumptions with respect to future business decisions and results, and are based on information currently available to the Company. Accordingly, the statements are subject to significant risks, uncertainties and contingencies that could cause the Company's actual operating results, performance or business prospects to differ from those expressed in, or implied by, these statements. Such risks, uncertainties and contingencies include the following: (1) loss of market share through competition; (2) uncertainties caused by the consolidation of the telecommunications industry; (3) introduction of competing products or technologies by other companies, including those similar to the Internet services offered by Get Digital Smart; (4) complexity and uncertainty regarding the development and/or deployment of new high technology products, including the Internet services offered by Get Digital Smart; (5) difficulty or inability to successfully integrate the variety of products, technologies and services contemplated for Get Digital Smart into one comprehensive offering, and uncertainty regarding the acceptance rate of such an offering by the small business community; (6) pricing pressures from competitors and/or customers; (7) changes in the yellow pages industries and markets; (8) a sustained economic downturn in the United States; and (9) the amount and timing of stock repurchases will be subject to market conditions and compliance with the company's debt covenants. THE COMPANY Except where otherwise indicated, the terms "Company," "we" and "our" refer to R.H. Donnelley Corporation and its wholly owned subsidiaries. Effective June 30, 2000, as a result of the transactions described below under " - - Recent Developments", we restructured our reportable operating segments to better reflect the Company's new streamlined operating structure and the way we view the businesses. Directory Advertising Services now includes our pre-press publishing operations formerly reported separately as Directory Publishing Services and all information technology costs, a portion of which were previously allocated to and included under Other. All prior period amounts have been restated to be comparable to the new presentation. The business is organized into three operating segments: DonTech Partnership ("DonTech"), Directory Advertising Services ("DAS") and Get Digital Smart ("GDS"). DonTech is a 50/50 partnership with an operating unit of SBC Communications Inc. ("SBC"), which acts as the exclusive sales agent for yellow pages directories published by SBC in Illinois and northwest Indiana. In addition to our 50% interest in the profits of DonTech, we receive direct fees ("Revenue Participation") from an operating unit of SBC, which are tied to advertising sales. While DonTech provides advertising sales of yellow pages and other directory products similar to our DAS segment, the partnership is considered a separate operating segment since, among other things, the employees of DonTech, including officers and managers, are not our employees. Within our DAS segment, we provide advertising sales and marketing services for yellow pages and other directory products and pre-press publishing services for yellow pages directories. On an on-going basis, we are the exclusive sales agent in Florida for an operating unit of Sprint Corporation ("Sprint") and the exclusive sales agent in Nevada, Virginia and North Carolina for CenDon LLC ("CenDon"), a joint venture with Centel Directory Company ("Centel"), a subsidiary of Sprint originally formed to publish directories in Florida, Nevada, Virginia and North Carolina. DAS also includes all information technology costs and pre-press publishing services for yellow pages directories provided to publishers for whom we serve as sales agent as well as for an otherwise unaffiliated yellow pages publisher under separately negotiated contracts. For the nine months ended September 30, 2000, the results of our DAS segment also include the operating results of our Bell Atlantic (through June 30, 2000) and Cincinnati (through April 27, 2000) businesses, which were divested during the second quarter, and our investment in ChinaBig.com Limited (previously named Unicom Media Limited, "ChinaBig") (through June 15, 2000). The ChinaBig investment was restructured during the second quarter (see "- Recent Developments" below). 12 13 Where we are a sales agent (Sprint, Bell Atlantic (through June 30, 2000), CenDon (for directories that publish after June 30, 2000)), sales commission revenue is recognized when an advertising contract is signed with a customer. Where we were the publisher (Cincinnati (through April 27, 2000) and CenDon (for directories that published before June 30, 2000)), revenue was recognized when a directory was published. Revenue from our pre-press publishing services is recognized on a straight-line basis throughout the year as the services are performed. In the GDS segment, we offer a variety of products and services designed to deliver a comprehensive package of Internet marketing and e-commerce capabilities to small and medium-sized local businesses. Through a number of agreements with leading providers of Internet technology and services, GDS offers Web-site design and hosting, e-commerce capabilities, and other products and services that help our clients use the Internet to reach and influence potential customers and drive traffic and exposure to their Web-sites. This business is initially being marketed in the Miami/Fort Lauderdale, Florida area. RECENT DEVELOPMENTS DISPOSITION OF BUSINESSES On June 30, 2000, we entered into an agreement ("Agreement") with an affiliate of Bell Atlantic Corporation ("Bell Atlantic") for the early termination of the directory services agreements between Donnelley and Bell Atlantic dated September 5, 1985 and May 5, 1998, as amended (the "Agency Agreements"). Pursuant to the Agency Agreements, Donnelley had served as exclusive sales agent for Bell Atlantic directories covering substantially all of New York State. The Agency Agreements had been scheduled to expire in 2005 and 2003, respectively. The transactions contemplated by the Agreement were also consummated on June 30, 2000. Bell Atlantic accounted for approximately 54% of consolidated revenue and approximately 10% of consolidated operating income for the full year 1999. Under the terms of the Agreement, we received cash proceeds of $114 million, less approximately $3 million of operational liabilities assumed by Bell Atlantic related to the pre-closing period. These net proceeds were subject to post-closing adjustment under certain circumstances, but the adjustment period has lapsed and no adjustments were made. We also received estimated commissions for sales which occurred prior to the closing, but which were not yet payable under the terms of the Agency Agreements. These commissions totaled approximately $42 million, net of certain adjustments, and subject to post-closing adjustments under certain circumstances, but the adjustment period has lapsed and no adjustments were made. The Company also received commissions of approximately $15 million in connection with its sales for certain directories that published in the pre-closing period. On April 27, 2000, we sold our Cincinnati proprietary directory business to Yellow Book USA, Inc. for $8 million. In connection with the above actions, we also implemented cost-cutting measures, including headcount reductions, at our Raleigh, NC facility and corporate headquarters consistent with our new streamlined operating structure. A pretax gain from the above transactions of approximately $89 million ($55 million after taxes) was recognized. CENDON PARTNERSHIP RESTRUCTURING Effective for directories that published from and after July 1, 2000, the Company and Centel entered into a series of agreements that effectively restructured the existing CenDon partnership as a limited liability company ("LLC") and extended the sales agency arrangement through 2010. Both the partnership agreement and sales agency agreement were set to expire in 2004. The new arrangement focuses our responsibilities on sales and certain pre-press publishing services (the latter through 2003) and establishes us as the exclusive sales agent for Centel's print and electronic / Internet directory products in the markets previously covered by the partnership agreement. Centel assumed responsibility for the publishing and delivery of print directories and related support services such as marketing, customer service and collections. We receive sales commissions on all advertising sold and receive a priority distribution on our membership interest in the LLC based on the value of advertising sold. Sales commissions are recorded as revenue and the priority distribution is recorded as partnership income and related fees. As a result of this modified arrangement, revenue and related cost are recognized at the time of sale, rather than at the time of directory publication as has historically been the case for CenDon. Accordingly, the year-to-date results include a one-time operating income benefit of $15.8 million relating to advertising sales made and related costs incurred prior to the effective date of the agreement for directories that published subsequent to the effective date of the agreement. 13 14 CHINABIG INVESTMENT ChinaBig publishes yellow pages directories and offers Internet directory services in the People's Republic of China. During the second quarter, ChinaBig made a decision to focus more of its time and resources on the Internet aspect of its business plan, known as ChinaBiG.com, and to seek additional investors to build ChinaBiG.com into a well-known portal for the Chinese community around the world. In that regard, on June 15, 2000, ChinaBig received its first minority investment from an independent third party investor. Concurrently, in order to facilitate the raising of additional capital and provide greater flexibility, ChinaBig and each existing investor (including the Company), restructured the existing joint venture agreement of ChinaBig to, among other things, significantly reduce our ability to influence the daily operations of ChinaBig. As a result of this additional equity investor and the restructured agreement, we are a passive investor and account for this investment under the cost method. Accordingly, we no longer recognize our share of the operating income or loss of ChinaBig. On September 28, 2000, an affiliate of Pacific Century Cyber Works Limited ("PCCW"), a global telecommunications and Internet company listed on the Hong Kong Stock Exchange entered into an agreement with three of the investors in ChinaBig to acquire approximately 40% of the outstanding equity of ChinaBig. In connection with that acquisition, the parties have negotiated new shareholders and registration rights agreements that will be entered into if and when the PCCW acquisition is completed. The Company's rights under the newly negotiated agreements are not materially different than that under the existing, restructured agreements. The Company presently expects that the PCCW acquisition will be completed on November 14, 2000. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 ADVERTISING SALES Calendar Cycle Basis Calendar cycle advertising sales represent the billing value of advertisements sold for an annual directory by the Company and DonTech in a given calendar year. These sales are recognized on the same basis on which revenues are recognized (that is, when a sales contract is signed where we are a sales agent or when the directory was published where we were the publisher of the directory). The selling of advertising for a specific directory is managed as a sales campaign. The typical sales campaign begins approximately six to eight months prior to the scheduled publication date. As a result, the amount of calendar sales can fluctuate from the prior year due to various factors, including changes in the actual commencement date of the sales campaign and the timing of sales during the sales campaign. Calendar cycle advertising sales in the third quarter of 2000 were $191.2 million compared to $319.0 million in the third quarter of 1999. DonTech calendar sales were $128.9 million in the third quarter of 2000 compared to $130.5 million in the third quarter of 1999. The decrease of $1.6 million, or 1.2% is due to the residual adverse impact of the previously disclosed systems problems related to the administration of the billing and collection functions that resulted in a loss of customers who were significantly delinquent. DAS calendar cycle advertising sales were $62.3 million in the third quarter of 2000 compared to $188.5 million for the third quarter of 1999. However, sales for the third quarter of 1999 included calendar cycle sales for Bell Atlantic and Cincinnati of $124.9 million. As previously mentioned, these businesses were divested in the second quarter of 2000, and therefore, no sales activity occurred in the third quarter of 2000. Excluding the 1999 sales for Bell Atlantic and Cincinnati, DAS calendar cycle sales were $63.6 million for the third quarter of 1999. The decrease of $1.3 million, or 2.0% in third quarter 2000 DAS calendar cycle advertising sales is mainly attributable to timing. Calendar cycle advertising sales for the nine months ended September 30, 2000 were $758.8 million compared to $800.8 million for the nine months ended September 30, 1999. DonTech calendar sales for the nine months ended September 30, 2000 of $328.2 million where essentially unchanged from sales of $328.9 million for the nine months ended September 30, 1999. The absence of growth is due to the residual adverse effects of the systems problems related to the administration of the billing and collection functions that resulted in a loss of customers (and a 3.0% sales decline in the Chicago directory, which published in February). While we are still experiencing some residual effects from these problems, some DonTech directories that published later in the year experienced mid-single digit 14 15 growth and we expect the DonTech business as a whole should return to normal growth rates in 2001. DAS sales for the nine months ended September 30, 2000 were $430.6 million compared to $471.9 million for the nine months ended September 30, 1999. DAS sales for 2000 include a one-time sales benefit of $95.8 million from the restructuring of the CenDon relationship and $182.0 million from the Bell Atlantic and Cincinnati businesses and sales for 1999 included calendar sales from Bell Atlantic and Cincinnati of $322.3 million. Adjusting for these items, DAS calendar sales for the nine months ended September 30, 2000 were $152.8 million compared to $149.6 million for the nine months ended September 30, 1999. The increase of $3.2 million, or 2.1% is attributable to growth in the Sprint markets, especially Las Vegas and Central Florida. Publication Cycle Basis Management also measures sales performance based on the publication cycle basis. This method measures sales based on the value of an annual directory according to its publication date regardless of when the advertising for that directory was sold. If a directory publication date changes from one year to the next, the prior year publication date is adjusted to conform to the present year to maintain comparability. DonTech sales for the third quarter 1999 have been reduced by $3.5 million (and second quarter 1999 sales were previously increased) for a directory that published in May 2000 versus July 1999. Publication cycle advertising sales in the third quarter of 2000 were $117.9 million compared to $186.1 million in the third quarter 1999. DonTech publication cycle sales were $64.4 million for the third quarter 2000 and 1999. The absence of growth is affected by the previously discussed factors. DAS publication cycle advertising sales were $53.6 million in the third quarter of 2000 compared to $121.7 million for the third quarter of 1999. Excluding the 1999 sales for Bell Atlantic and Cincinnati of $72.0 million, publication cycle sales were $49.7 million for the third quarter of 1999. The increase of $3.9 million, or 7.8% is primarily due to growth in Sprint's Las Vegas directory, which published in July 2000. Publication cycle advertising sales for the nine months ended September 30, 2000 were $650.2 million compared to $720.1 million for the nine months ended September 30, 1999. DonTech publication cycle sales were $283.4 million through September 30, 2000 compared to $284.9 million through September 30, 1999. The slight decrease is primarily due to the sales decline in the Chicago directory compared to last year due to the factors previously discussed, partially offset by mid-single digit growth in other large directories. DAS sales for the nine months ended September 30, 2000 were $366.7 million compared to $435.2 million for the nine months ended September 30, 1999. These amounts include sales for Bell Atlantic and Cincinnati in 2000 and 1999 of $238.1 million and $313.7 million, respectively. Excluding these Bell Atlantic and Cincinnati sales, DAS publication cycle sales were $128.6 million through September 30, 2000 compared to $121.5 million through September 30, 1999. The increase of $7.1 million, or 5.8% is due to growth in Sprint directories. REVENUES Net revenues were $22.8 million for the third quarter 2000 compared to $58.5 million for the third quarter 1999. Revenues for the third quarter 1999 included revenues from Bell Atlantic and Cincinnati of $34.7 million. Excluding these revenues from divested businesses, net revenues for the third quarter 1999 were $23.8 million. The decrease of $1.0 million, or 4.2% in the third quarter of 2000 is due to lower revenues from Sprint of $0.4 million due to the restructuring of the CenDon relationship which resulted in a change in the timing of revenue recognition. Revenues from our YPTV business were lower by $0.6 million due to a reduction in the number of SBC markets in which we offered the product from seven in 1999 to four in 2000. Revenues from GDS in the quarter were $0.1 million. For the nine months ended September 30, 2000, net revenues were $124.3 million compared to $138.7 million for the nine months ended September 30, 1999. Revenues for 2000 include a one-time benefit of $21.0 million from the restructuring of the CenDon relationship and revenues of $42.9 million from Bell Atlantic and Cincinnati and 1999 revenues included revenues from Bell Atlantic and Cincinnati of $78.6 million. Adjusting for these items, revenues through September 30, 2000 were $60.4 million compared to $60.1 million through September 30, 1999. Revenues from Sprint increased $1.1 million due to sales growth and the change in the timing of revenue recognition due to the restructuring of the CenDon relationship and pre-press publishing services revenue increased $0.6 million. These increases were partially offset by lower revenues from our YPTV operations of $1.4 million due to the reduction in 15 16 the number of SBC markets where we offered the product. EXPENSES Operating expenses for the third quarter 2000 were $13.5 million compared to $44.3 million in the prior year third quarter. Operating expenses for the third quarter 1999 included expenses directly related to the Bell Atlantic and Cincinnati businesses of approximately $26.1 million. Excluding these expenses, operating expenses for the third quarter 1999 were $18.2 million. The decrease of $4.7 million, or 25.8% is primarily due to cost savings of approximately $1.8 million in our pre-press publishing operations due to cost saving initiatives implemented last year and reduced spending for information technology which resulted in cost savings of approximately $2.0 million. Costs also decreased $2.0 million due to the new streamlined operating structure, primarily due to reductions in marketing, training and other support costs. Sprint operating expenses were $1.0 million lower primarily due to the transition of marketing and other support services to the publisher and a change in the timing of expense recognition, each as a result of the restructuring of the CenDon relationship. Partially offsetting these decreases was spending on GDS for the quarter of $2.2 million. GDS incurred only start-up costs in the prior period. Operating expenses for the nine months ended September 30, 2000 were $82.3 million compared to $102.6 million. Operating expenses for 2000 include one-time expenses of $9.4 million resulting from the restructuring of the CenDon relationship and expenses directly related to Bell Atlantic and Cincinnati of $26.4 million and operating expenses for 1999 included $52.4 million of expenses directly related to Bell Atlantic and Cincinnati. Adjusting for these amounts, operating expenses were $46.5 million through September 30, 2000 compared to $50.2 million through September 30, 1999. The decrease of $3.7 million, or 7.4% is due to reduced costs in our pre-press publishing operations of approximately $2.7 million and savings in information technology spending of approximately $2.8 million. Costs also decreased $3.0 million due to the new streamlined operating structure, primarily due to reductions in marketing, training and other support costs. Sprint operating expenses were $1.5 million lower primarily due to the transition of marketing and other support services to the publisher and a change in the timing of expense recognition, each as a result of the restructuring of the CenDon relationship. Partially offsetting these cost reductions was spending on GDS of $6.6 million through September 30, 2000. GDS incurred only start-up costs in the prior period. General and administrative expenses for the third quarter were $4.9 million compared to $8.5 million in the third quarter of 1999. For the nine months ended September 30, 2000, general and administrative expenses were $19.8 million compared to $23.5 million for the nine months ended September 30, 1999. The decrease in the quarter and nine-month periods is primarily due to lower human resources, finance, corporate development, employee benefits and occupancy costs as a result of cost saving initiatives implemented last year and the new streamlined operating structure. Provision for bad debts for the third quarter 2000 was $1.1 million, below the prior year third quarter amount of $2.1 million. The decrease of $1.0 million is due to the absence of provision expense for Bell Atlantic and Cincinnati, which was $1.1 million in the third quarter 1999. Provision for bad debts for the nine months ended September 30, 2000 was $3.7 million compared to $3.6 million for the nine months ended September 30, 1999. The 2000 amount includes a one-time expense of $1.2 million relating to the restructuring of the CenDon relationship (for the additional one-time sales recognized) and the 1999 amount included $1.2 million relating to the Bell Atlantic and Cincinnati businesses. Adjusting for these amounts, provision expense was $2.5 million for the nine months ended September 30, 2000 and $2.4 million for the comparable 1999 period. Depreciation and amortization expense for the third quarter 2000 was $3.3 million compared to $4.4 million for the third quarter 1999 and $12.1 million for the nine months ended September 30, 2000 compared to $13.8 million for the nine months ended September 30, 1999. The decrease in the 2000 amounts is mainly due to the sale and write-off of assets related to the Bell Atlantic and Cincinnati businesses and write-off of assets in connection with the streamlining of corporate headquarters staffing and operations. PARTNERSHIP INCOME Income from partnerships and related fees for the third quarter of 2000 was $45.6 million compared to $47.9 million in the third quarter of 1999. Income from DonTech was $39.1 million in the third quarter of 2000 compared to $41.1 million in the third quarter of 1999. The decrease of $2.0 million is mainly due to lower sales as a result of the factors described above. 16 17 Income from partnerships and related fees for the nine months ended September 30, 2000 was $117.0 million compared to $113.4 million for the nine months ended September 30, 1999. The 2000 amount includes a net one-time benefit of $5.4 million from the restructuring of the CenDon relationship and a loss of $1.1 million related to ChinaBig and the 1999 amount included a loss of $0.7 million related to ChinaBig. Excluding these amounts, partnership income and related fees through September 30, 2000 was $112.7 million compared to $114.1 million through September 30, 1999. The decrease of $1.4 million is due to lower DonTech income of $2.1 million for the reasons stated above partially offset by higher income from CenDon of $0.7 million due to growth in the Sprint markets, especially Las Vegas. OPERATING INCOME Operating income for the reportable segments (except DonTech) includes those costs directly incurred by each business unit (including depreciation and amortization) plus an allocation of certain shared operating and general and administrative expenses based on estimated business usage. Total operating income for the third quarter of 2000 was $45.6 million compared to $47.2 million in the third quarter of 1999 and $123.4 million for the nine months ended September 30, 2000 compared to $108.5 million for the comparable 1999 period. Operating income from DonTech was $39.1 million in the third quarter of 2000 compared to $41.1 million in the third quarter of 1999 and $96.5 million for the nine months ended September 30, 2000 compared to $98.6 million for the comparable 1999 period. See Partnership Income above for a discussion of the decrease in DonTech operating income. The systems problems that have adversely impacted DonTech results over the past several quarters have taken longer to correct than we originally anticipated; however, based on actions taken by SBC to correct the problems, we believe that the DonTech business should return to mid-single digit operating income growth in 2001. Operating income for DAS in the third quarter 2000 was $11.7 million compared to $11.0 million in the third quarter of 1999. Excluding operating income in the third quarter of 1999 from divested businesses and ChinaBig of $1.4 million, operating income increased $2.1 million primarily due to cost savings in our pre-press publishing operations. Operating income for DAS for the nine month period ended September 30, 2000 was $45.1 million compared to $24.5 million for the nine months ended September 30, 1999. Operating income for the nine months ended September 30, 2000 includes a one-time benefit of $15.8 million from the restructuring of the CenDon relationship and $4.6 million from divested businesses and ChinaBig and operating income through September 30, 1999 includes $6.1 million from divested businesses and ChinaBig. Excluding these amounts, operating income was $24.7 million for the nine months ended September 30, 2000 compared to $18.4 million for the nine months ended September 30, 1999. The increase of $6.3 million, or 34.2% is due to an increase of $3.5 million in Sprint operating income due to sales growth and the change in the timing of revenue and expense recognition and an increase in income from our pre-press publishing operations of $3.9 million. Operating loss for GDS was $2.2 million for the quarter ended September 30, 2000 compared to $0.3 million for the quarter ended September 30, 1999 and $6.6 million for the nine months ended September 30, 2000 compared to $0.3 million for the comparable 1999 period. GDS incurred only early start-up expenses in the 1999 periods. Other operating loss represents general and corporate overhead costs that are not allocated to the business segments. Other operating loss was $3.0 million for the third quarter 2000 compared to $4.7 million for the third quarter 1999. For the nine months ended September 30, 2000, Other operating loss was $11.6 million compared to $14.3 million for the comparable 1999 period. The improvement in the quarter and nine-month periods is primarily due to lower human resources, finance, corporate development, employee benefits, occupancy and other corporate support costs as a result of cost saving initiatives implemented last year and the new streamlined operating structure. INTEREST AND TAXES Interest income for the third quarter 2000 was $2.2 million compared to $0.1 million for the third quarter 1999 and $2.6 million for the first nine months of 2000 compared to $0.3 million for the comparable 1999 period. The substantial increase is mainly due to interest income earned on the proceeds from the Bell Atlantic and Cincinnati transactions. Interest expense for the third quarter 2000 was $8.6 million compared to $9.2 million for the third quarter 1999 and $27.4 million for the first nine months of 2000 compared to $28.2 million for the comparable 1999 period. The decrease is due to lower outstanding borrowings due to the prepayment of $90 million of long-term debt 17 18 during the third quarter of 2000. The effective tax rate for the quarter and year-to-date periods ended September 30, 2000 decreased to 38.5% compared to 41.3% in the third quarter of 1999 and 40.8% in the first nine months of 1999. The decrease in the effective tax rate is due to various actions taken during the second quarter of 2000. EXTRAORDINARY LOSS During the quarter, we recognized an extraordinary loss of $0.7 million (after taxes of $0.4 million) relating to the prepayment of debt and the write-off of related deferred financing costs. The extraordinary loss had the effect of reducing diluted earnings per share by $0.02. NET INCOME AND EARNINGS PER SHARE Net income and earnings per share (after extraordinary loss) for the third quarter 2000 was $23.4 million, or $0.72 per diluted share compared to $22.4 million, or $0.65 per diluted share in the third quarter 1999. Net income and earnings per share (after extraordinary loss) for the nine months ended September 30, 2000 was $114.9 million, or $3.51 per diluted share compared to $47.7 million, or $1.39 per diluted share in the nine months ended September 30, 1999. Net income and earnings per share for the nine months ended September 30, 2000 includes a gain from the Bell Atlantic and Cincinnati transactions ($55.0 million after-tax) and the one-time benefit from the restructuring of the CenDon relationship ($9.7 million after-tax). Excluding these one-time items, net income and earnings per share for the nine months ended September 30, 2000 was $50.2 million, or $1.53 per diluted share. LIQUIDITY AND CAPITAL RESOURCES In June 1998, we borrowed $300 million under our Senior Secured Term Facilities ("Term Facilities") and issued $150 million of Senior Subordinated Notes (the "Notes"). We also borrowed $50 million against our $100 million Senior Revolving Credit Facility (the "Revolver," and together with the Term Facilities, the "Credit Agreement"). Our obligations under the Credit Agreement are secured by security interests granted to the lenders in substantially all of our assets, including capital stock in our existing and newly formed subsidiaries. The Term Facilities mature between June 2004 and December 2006, and require quarterly principal repayments through 2006. The Revolver matures in June 2004. The Notes pay interest semi-annually at the annual rate of 9.125%, and are due in June 2008. The Credit Agreement and the Indenture governing the Notes each contain various financial and other restrictive covenants, including restrictions on mergers, asset dispositions and similar transactions, indebtedness, capital expenditures and commitments. Net cash provided by operations was $97.7 million through September 30, 2000 compared to $50.9 million through September 30, 1999. Collections of accounts receivable were higher than last year primarily due to the receipt from Bell Atlantic of $57 million in payment of commissions in connection with the early termination of the Agency Agreements as described above. Also contributing to the increase was higher cash distributions from our partnerships, mainly due to the restructuring of the CenDon relationship and receipt of priority distributions from CenDon LLC, and the receipt of an income tax refund of $6.0 million. Partially offsetting these increases were payments of accrued and other liabilities as a result of the sale of the Bell Atlantic and Cincinnati businesses. We believe that cash from operations and available debt capacity under the Revolver will be sufficient to fund our operations and meet our anticipated investment, capital expenditures and debt service requirements for the foreseeable future. Net cash provided by investing activities through September 30, 2000 was $111.8 million and included proceeds of $122.0 million from the early termination of the Agency Agreements with Bell Atlantic ($114 million) and the sale of our Cincinnati business ($8 million). We also spent $6.3 million for capital expenditures, primarily computer equipment and software. During the first nine months of 2000, capitalized computer software decreased $11.6 million as amortization of $7.7 million and the write-off of approximately $6.5 million related to the Bell Atlantic and Cincinnati transactions offset additions of $2.6 million. We made additional investments in ChinaBig of $3.9 million in accordance with the terms of the joint venture agreement and have agreed to make our final investment of $2.5 million by year-end. Also, with respect to GDS, we anticipate that we will invest approximately $8.5 to $9.0 million for the full year 2000. Other than the additional investment to be made in ChinaBig and the anticipated funding of GDS for the remainder of 2000, we currently have no material commitments for investment spending or 18 19 capital expenditures. Net cash used in financing activities of $120.7 million was primarily for the repayment of debt and the repurchase of company stock. We prepaid $90 million of borrowings under the Term Facilities with the proceeds received from the early termination of the Agency Agreements. The debt was repaid at par and there was no penalty for early repayment. In connection with the repayment, approximately $1.1 million of deferred financing costs were written-off and an extraordinary loss of $0.7 million (after taxes of $0.4 million) was recognized. Through September 30, 2000, we spent $33.0 million to repurchase 1,845,200 shares of common stock under both our Systematic Share Repurchase Plan and our Open Market Share Repurchase Plan (collectively, "Share Repurchase Plans"), which represented 5.6% of the outstanding shares at the beginning of the year. At September 30, 2000, total cash on hand was $91.1 million and we had available borrowing capacity of $100 million under the Revolver. The large amount of cash on hand is due to the remaining proceeds from the Bell Atlantic and Cincinnati transactions. While the proceeds from these transactions were received in the second quarter, most of the associated costs will be paid in future periods. We anticipate making income tax payments of approximately $22 million, severance and other related payments of approximately $4 million and payments for other transaction related costs of approximately $9 million during the fourth quarter and first half of 2001. MARKET RISK SENSITIVE INSTRUMENTS We are exposed to interest rate risk through our Credit Agreement where we borrow at prevailing short-term variable rates. In order to manage our exposure to fluctuations in interest rates, we have entered into interest rate swap agreements which allow us to raise funds at floating rates and effectively swap them into fixed rates that are lower than those available if fixed rate borrowings were made directly. These derivative financial instruments are viewed as risk management tools and are entered into for hedging purposes only. We do not use derivative financial instruments for trading or speculative purposes. There has been no change in the $175 million outstanding notional amount of interest rate swaps since December 31, 1999. The unrealized fair value of the swaps was a gain of $2.5 million at September 30, 2000. We are exposed to foreign exchange risk through our investment in ChinaBig. Our remaining required investment of $2.5 million is subject to adjustment if the exchange rate of the People's Republic of China currency (RMB) on the date of payment is more than 10% higher or lower than the specified exchange rate of RMB8.2778. There has been no material change in our foreign exchange risk from year-end. Item 3. Quantitative and Qualitative Disclosure About Market Risk The requirements of this Item are discussed in Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. 19 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the discussion of legal proceedings in Footnote 6 under Item 1 of Part I in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2000 ("Second Quarter 10-Q"). Except as described below, there has been no material change in the information with respect to legal proceedings from that set forth in the Second Quarter 10-Q. See also Footnote 6 under Item 1 of Part I in this Form 10-Q. Dellwood Publishing Matter On September 29, 2000, the Court dismissed the complaint in its entirety, but gave plaintiffs 30 days leave to amend the complaint to replead any claims, other than the RICO claims. On October 25, 2000, plaintiffs filed an amended complaint alleging substantially the same facts, claims and damages as set forth in the original complaint, other than the RICO claims. The Company is still in the process of analyzing the amended complaint along with its counsel and counsel for Bell Atlantic (now Verizon), but while at this preliminary stage in the proceedings management is unable to predict the outcome of this matter, it presently believes that the resolution of the action will not have a material adverse effect on the Company's financial position or results of operations. IRI Litigation and D&B Tax Matters On September 30, 2000, Moody's Corporation separated from New D&B and each became independent, publicly traded companies. Management does not believe that the recent separation of Moody's from New D&B will have a material adverse impact on the indemnity rights of the Company because, as required by the Distribution Agreement, Moody's has agreed to be jointly and severally liable with New D&B for those indemnity obligations to the Company. The Company is also involved in certain legal proceedings incidental to the normal conduct of its business. Although there can be no assurances, management believes that the outcome of such legal proceedings will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 20 21 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Document 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.3 Certificate of Incorporation of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 3.4 By-laws of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.1 Indenture dated as of June 5, 1998 between R.H. Donnelley Inc., as Issuer, the Company, as Guarantor, and the Bank of New York, as Trustee, with respect to the 91/8% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.2 Form of the 91/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1) 4.3 Company Guarantee (included in Exhibit 4.1) 4.4 Exchange and Registration Rights Agreement dated as of June 5, 1998, among the Company, R.H. Donnelley Inc., and Goldman, Sachs & Co. and Chase Securities Inc., as Initial Purchasers (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.5 Rights Agreement, dated as of October 27, 1998 between R.H. Donnelley Corporation and First Chicago Trust Company (incorporated by reference to Exhibit 4 to the Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on November 5, 1998, Registration No. 001-07155) 10.1 Form of Distribution Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.2 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998) 10.2 Form of Tax Allocation Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.3 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998) 10.3 Form of Employee Benefits Agreement between the Company (f/k/a The Dun & 21 22 Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.4 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998) 10.4 Form of Intellectual Property Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.5 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998) 10.5 Form of Shared Transaction Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.6 to the Form 8-K of the Company (f/k/a/ The Dun & Bradstreet Corporation), filed on June 30, 1998) 10.6 Form of Data Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.7 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998) 10.7 Form of Transition Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.8 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998) 10.8 Form of Amended and Restated Transition Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation), The New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and Gartner Group, Inc. (incorporated by reference to Exhibit 99.9 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998) 10.9 Credit Agreement among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent and the Lenders party thereto (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 10.10 First Amendment to Credit Agreement, dated as of March 4, 1999, among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 10.11 DonTech II Partnership Agreement, effective August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois, Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.12 Revenue Participation Agreement, dated as of August 19, 1997, by and between APIL Partners Partnership and R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 22 23 10.13 Master Agreement, executed August 19, 1997, by and among R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation), the Company (f/k/a The Dun & Bradstreet Corporation), The Am-Don Partnership a/k/a DonTech, DonTech II, Ameritech Publishing, Inc., Ameritech Publishing of Illinois, Inc., Ameritech Corporation, DonTech I Publishing Company LLC and the APIL Partners Partnership (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.14 Exclusive Sales Agency Agreement, effective August 19, 1997, between APIL Partners Partnership and DonTech II (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.15 Second Amended and Restated Partnership Agreement, effective as of August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois, Inc. (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.16 1991 Key Employees' Performance Unit Plan, as amended and restated (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.17(*) Amended and Restated 1991 Key Employees' Stock Option Plan (effective as of April 25, 2000) 10.18 Amended and Restated 1998 Directors' Stock Plan (effective as of September 21, 1999) (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) 10.19 Annual Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.18 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.20 Supplemental Executive Benefit Plan (incorporated by reference to Exhibit 10.19 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.21(*) Amendment No. 1 to Supplemental Executive Benefit Plan effective as of September 26, 2000 10.22 Deferred Compensation Plan (incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on November 24, 1999, Registration No. 333-91613) 10.23 Employment Agreement dated as of September 28, 1998 between the Company and Frank R. Noonan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998) 10.24 Employment Agreement dated as of September 28, 1998 between the Company and 23 24 Philip C. Danford (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998) 10.25 Employment Agreement dated as of September 28, 1998 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998) 10.26 Employment Agreement dated as of September 28, 1998 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) 10.27 Employment Agreement dated as of September 28, 1998 between the Company and Stephen B. Wiznitzer (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999) 27.1(*) Financial Data Schedule of the Company 27.2(*) Financial Data Schedule of R.H. Donnelley Inc. - ---------- (*) Filed herewith (b) Reports on Form 8-K: None 24 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R.H. DONNELLEY CORPORATION Date: November 13, 2000 By: /s/ Philip C. Danford --------------------------------------- Philip C. Danford Senior Vice President and Chief Financial Officer Date: November 13, 2000 By: /s/ William C. Drexler --------------------------------------- William C. Drexler Vice President and Controller 25 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R.H. DONNELLEY CORPORATION Date: November 13, 2000 By: /s/ Philip C. Danford --------------------------------------- Philip C. Danford Senior Vice President and Chief Financial Officer Date: November 13, 2000 By: /s/ William C. Drexler --------------------------------------- William C. Drexler Vice President and Controller 26 EX-10.17 2 y42438ex10-17.txt A/R '91 KEY EMPLOYEES' STOCK OPTION PLAN 1 R. H. DONNELLEY CORPORATION - -------------------------------------------------------------------------------- 1991 KEY EMPLOYEES' STOCK OPTION PLAN, AS AMENDED AND RESTATED (APRIL 25, 2000) - -------------------------------------------------------------------------------- 2 R. H. DONNELLEY CORPORATION - -------------------------------------------------------------------------------- 1991 KEY EMPLOYEES' STOCK OPTION PLAN, AS AMENDED AND RESTATED - --------------------------------------------------------------------------------
Page ---- 1. Purpose of the Plan................................................. 1 2. Stock Subject to the Plan........................................... 1 3. Administration...................................................... 1 4. Eligibility ........................................................ 2 5. Termination Date for Grants......................................... 2 6. Terms and Conditions of Stock Options............................... 2 7. Terms and Conditions of Stock Appreciation Rights................... 6 8. Transfers and Leaves of Absence..................................... 6 9 Adjustments Upon Changes in Capitalization or Other Events.......... 7 10. Use of Proceeds..................................................... 9 11. Amendments ........................................................ 9 12. Effectiveness of the Plan and Amendments............................ 9
3 R. H. DONNELLEY CORPORATION - -------------------------------------------------------------------------------- 1991 KEY EMPLOYEES' STOCK OPTION PLAN, AS AMENDED AND RESTATED - -------------------------------------------------------------------------------- 1. PURPOSE OF THE PLAN The purpose of the Plan is to aid R.H. Donnelley Corporation (herein called the "Company") and its subsidiaries in securing and retaining key employees of outstanding ability and to motivate such employees to exert their best efforts on behalf of the Company and its subsidiaries by providing incentive through the award of stock options and stock appreciation rights. The Company expects that it will benefit from the added interest which such key employees will have in the welfare of the Company as a result of their proprietary interest in the Company's success. 2. STOCK SUBJECT TO THE PLAN The total number of shares of Common Stock of the Company which may be issued under the Plan from and after July 1, 1998 shall be 29,800,000, subject to adjustment as provided in Section 9. The maximum number of shares for which stock options may be granted from the 1995 Annual Meeting during the remaining term of the Plan to any individual optionee shall be 7,000,000, subject to adjustment as provided in Section 9. The shares may consist, in whole or in part, of unissued shares or treasury shares. Issuance of shares of Common Stock upon exercise of a stock option or reduction of the number of shares of Common Stock subject to a stock option upon exercise of a stock appreciation right shall reduce the total number of shares of Common Stock available under the Plan. Shares which are subject to unexercised stock options which terminate or lapse may be optioned again under the Plan. 3. ADMINISTRATION The Board of Directors of the Company shall appoint a Compensation and Benefits Committee (herein called the "Committee") consisting of at least three members of the Board of Directors who shall administer the Plan and serve at the pleasure of the Board. Each member of the Committee shall not be eligible to participate in the Plan. The Committee shall have the authority, consistent with the Plan, to determine the provisions of the stock options and stock appreciation rights to be granted, to interpret the Plan and the stock options and the stock appreciation rights granted under the Plan, to adopt, amend and rescind rules and regulations for the administration of the Plan, the stock options and the stock appreciation rights and generally to conduct and administer the Plan and to make all determinations in connection therewith which may be necessary or advisable, and all such actions of the Committee shall be binding upon all participants. The Committee shall require payment of any amount the Company may determine to be necessary to withhold for federal, state or local taxes as a result of the exercise of a stock option or a stock appreciation right. 4 4. ELIGIBILITY Key employees (but not members of the Committee and any person who serves only as a Director) of the Company, its subsidiaries (within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code")) and its Participating Affiliates (as defined below), who are from time to time responsible for the management, growth and protection of the business of the Company, its subsidiaries and Participating Affiliates, are eligible to be granted stock options or stock appreciation rights under the Plan. Participating Affiliates shall refer to those entities in which the Company or its subsidiaries has a significant equity interest, as such shall be determined, from time to time, in the sole discretion of the Committee. The participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of shares to be covered by the stock options or stock appreciation rights or both granted to each participant. An employee may not be granted a stock option, however, if at the time such option is to be granted, such employee owns stock of the Company or any of its subsidiaries possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any such subsidiary. For purposes of the preceding sentence, the attribution rules of stock ownership set forth in Section 424(d) of the Code shall apply. The granting of a stock option or stock appreciation right under the Plan shall impose no obligation on the Company, any subsidiary or Participating Affiliate to continue the employment of an optionee and shall not lessen or affect the right to terminate the employment of an optionee. 5. TERMINATION DATE FOR GRANTS No stock option or stock appreciation right may be granted under the Plan after February 19, 2001, but stock options or stock appreciation rights theretofore granted may extend beyond that date. 6. TERMS AND CONDITIONS OF STOCK OPTIONS Stock options granted under the Plan shall be, as determined by the Committee, non-qualified, incentive or other stock options for federal income tax purposes, as evidenced by stock option grants, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: (a) Option Price. The option price per share shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Common Stock on the date a stock option is granted. For purposes of the Plan, unless otherwise determined by the Committee, "Fair Market Value" of Common Stock means, as of a given date, the average of the high and low sales prices per share of Common Stock reported on a consolidated basis for securities listed on the principal stock exchange or market on which Stock is traded on the date immediately preceding the date as of which such value is being determined or, if there is no sale on that date, then on the last previous day on which a sale was reported. (b) Exercisability. Stock options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no -2- 5 event shall a stock option be exercisable more than ten years after the date it is granted. The Committee may accelerate the date any previously granted Option will become exercisable. (c) First Year Non-Exercisability. Except as provided in elsewhere in this Paragraph 6 and in Paragraph 9 of the Plan, no stock option shall be exercisable during the year ending on the first anniversary date of the granting of the stock option. (d) Exercise of Stock Options. Except as otherwise provided in the Plan or the stock option, a stock option may be exercised for all, or from time to time any part, of the shares for which it is then exercisable. The option price for the shares as to which a stock option is exercised shall be paid to the Company in full, or adequate provision for such payment made, at the time of exercise at the election of the optionee (i) in cash, (ii) in shares of Common Stock of the Company having a Fair Market Value equal to the option price for the shares being purchased and satisfying such other requirements as may be imposed by the Committee or (iii) partly in cash and partly in such shares of Common Stock of the Company. The Committee may permit the optionee to elect, subject to such terms and conditions as the Committee shall determine, to have the number of shares deliverable to the optionee as a result of the exercise reduced by a number sufficient to pay the amount the Company determines to be necessary to withhold for federal, state or local taxes as a result of the exercise of the stock option. No optionee shall have any rights to dividends or other rights of a shareholder with respect to shares subject to a stock option until the optionee has given written notice of exercise of the stock option, paid in full for such shares or made adequate provision therefor and, if requested, given the representation described in Paragraph 6(h) of the Plan. (e) Exercisability Upon Termination of Employment by Death. If an optionee's employment by the Company or a subsidiary terminates by reason of death, the stock option thereafter may be exercised for three years after the date of death or the remaining stated period of the stock option, whichever period is shorter, to the full extent of the stock option regardless of the extent to which it was exercisable at the time of death (including death less than one year after the date of grant). (f) Exercisability Upon Termination of Employment by Disability or Retirement. If an optionee's employment by the Company or a subsidiary terminates by reason of disability or retirement, the stock option thereafter may be exercised as follows: (i) Pre-July 14, 1998 Options: In the case of a stock option granted before July 14, 1998, during the five years after the date of such termination of employment or the remaining stated period of the stock option, whichever period is shorter, to the full extent of the stock option regardless of the extent to which it was exercisable at the time of termination of employment (including termination less than one year after the date of grant); provided, however, that if the optionee dies within a period of five years after such termination of employment, any unexercised stock option may be exercised thereafter, during either (1) the period ending on the later of (i) five years after such termination of employment and (ii) one year after the date of death or (2) the period remaining in the stated term of the stock option, whichever period is shorter. -3- 6 (ii) Post-July 13, 1998 Options: In the case of a stock option granted on or after July 14, 1998, during the remaining stated period of the stock option, to the full extent of the stock option regardless of the extent to which it was exercisable at the time of termination of employment (including termination less than one year after the date of grant). For purposes of this Paragraph 6, "retirement" shall mean voluntary termination of employment with the Company or a subsidiary after the optionee has attained age 55 with the approval of the Committee; or after the optionee has attained age 65. An optionee shall not be considered disabled for purposes of this Paragraph 6, unless he or she furnishes such medical or other evidence of the existence of the disability as the Committee, in its sole discretion, may require. (g) Effect of Other Termination of Employment. If a participant's employment terminates for any reason, other than disability, death or retirement, each stock option and stock appreciation right held by such participant shall be subject to the following: (i) Pre-July 14, 1998 Options: In the case of a stock option granted before July 14, 1998, the stock option shall be exercisable during (1) the period of 30 days after such termination or (2) the period remaining in the stated term of the stock option, whichever period is shorter, but only to the extent to which the stock option was exercisable at the time of termination of employment; and if such termination is for Cause, the stock option shall terminate upon such termination of employment. (ii) Post-July 13, 1998 Options: In the case of a stock option granted on or after July 14, 1998, unless otherwise determined by the Committee, if such termination is for reasons other than for Cause the stock option shall be exercisable during (1) the period of 90 days after such termination or (2) the period remaining in the stated term of the stock option, whichever period is shorter, but only to the extent to which the stock option was exercisable at the time of termination of employment; and if such termination is for Cause the stock option shall terminate upon such termination of employment. For purposes of this Plan, the term "Cause" shall have the meaning defined in any employment agreement between the participant and the Company or a subsidiary then in effect or, if no such employment agreement is then in effect, "Cause" shall mean: (i) The participant's willful and continued failure substantially to perform the duties of his or her position after notice and opportunity to cure; (ii) Any willful act or omission by the participant constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates; or (iii) A felony conviction in a court of law under the laws of the United States or any state thereof or any other jurisdiction in which the Company or a subsidiary conducts business which materially impairs the value of the participant's services to the Company or any of its subsidiaries; -4- 7 provided, however, that, for purposes of this definition, no act or failure to act shall be deemed "willful" unless effected by the participant not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the Company's best interests, and no act or failure to act shall be deemed "willful" if it results from any incapacity of the participant due to physical or mental illness. (h) Termination of Employment After Change in Control Negotiations Have Commenced. For purposes of this Section 6, a termination of employment of a participant by the Company without Cause after the commencement of negotiations with a potential acquirer or business combination partner will be deemed to be a termination of employment immediately after a Change in Control if such negotiations result in a transaction constituting a Change in Control. (i) Additional Agreements of Optionee and Restrictions on Transfer. The Committee may require each person purchasing shares pursuant to exercise of a stock option to represent to and agree with the Company in writing that the shares are being acquired without a view to distribution thereof. The certificates for shares so purchased may include any legend which the Committee deems appropriate to reflect any restrictions on transfers. The Committee also may impose, in its discretion, as a condition of any option, any restrictions on the transferability of shares acquired through the exercise of such option as it may deem fit. Without limiting the generality of the foregoing, the Committee may impose conditions restricting absolutely the transferability of shares acquired through the exercise of options for such periods as the Committee may determine and, further, in the event the optionee's employment by the Company or a subsidiary terminates during the period in which such shares are nontransferable, the optionee may be required, if required by the related option agreement, to sell such shares back to the Company at such price and on such other terms as the Committee may have specified in the stock option agreement. (j) Nontransferability of Stock Options. Except as otherwise provided in this Paragraph 6(i), a stock option shall not be transferable by the optionee otherwise than by will or by the laws of descent and distribution and during the lifetime of an optionee a stock option shall be exercisable only by the optionee. A stock option exercisable after the death of an optionee or a transferee pursuant to the following sentence may be exercised by the legatees, personal representatives or distributees of the optionee or such transferee. The Committee may, in its discretion, authorize all or a portion of the stock options previously granted or to be granted to an optionee to be on terms which permit irrevocable transfer for no consideration by such optionee to (i) any or all of the spouse, children or grandchildren of the optionee ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of the optionee and/or any or all of such Immediate Family Members, or (iii) a partnership in which the optionee and/or any or all of such Immediate Family Members are the only partners, provided that subsequent transfers of transferred options shall be prohibited except those in accordance with the first sentence of this Paragraph 6(i). Following transfer, any such options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. The events of termination of employment of Paragraphs 6(e), 6(f), and 6(g) hereof shall continue to be applied with respect to the original optionee, following which the stock options shall be exercisable by the transferee only to the extent, and for the periods specified, in Paragraphs 6(e), 6(f) and 6(g). The Committee may delegate to an administrative committee the authority to authorize transfers, -5- 8 establish terms and conditions upon which transfers may be made and establish classes of optionees eligible to transfer options, as well as to make other determinations with respect to option transfers. -6- 9 7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS (a) Grants. The Committee also may grant stock appreciation rights in connection with stock options granted under the Plan, either at the time of grant of options or subsequently. Stock appreciation rights shall cover the same shares covered by a stock option (or such lesser number of shares of Common Stock as the Committee may determine) and shall be subject to the same terms and conditions as the stock option (including limitations on transferability) except for such additional limitations as are contemplated by this Paragraph 7 (or as may be included in a stock appreciation right granted hereunder). (b) Terms. Each stock appreciation right shall entitle an optionee to surrender to the Company an unexercised option, or any portion thereof, and to receive from the Company in exchange therefor an amount equal to the excess of the Fair Market Value on the exercise date of one share of Common Stock over the option price per share times the number of shares covered by the stock option, or portion thereof, which is surrendered. The date a notice of exercise is received by the Company shall be the exercise date. Payment shall be made in shares of Common Stock or in cash, or partly in shares and partly in cash, valued at such Fair Market Value, all as shall be determined by the Committee. Stock appreciation rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of shares of Common Stock subject to an exercisable option with respect to which the stock appreciation right is being exercised. No fractional shares of Common Stock will be issued in payment for stock appreciation rights, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of shares will be rounded downward to the next whole share. (c) Limitations on Exercisability. The Committee shall impose such conditions upon the exercisability of stock appreciation rights as will result, except upon the occurrence of an event contemplated by limited stock appreciation rights granted pursuant to Paragraph 7(d) or contemplated by the provisions of Paragraph 9, in the amount to be charged against the Company's consolidated income by reason of stock appreciation rights not to exceed, in any one calendar year, two percent of the Company's prior calendar year's consolidated income before income taxes. The Committee also may impose, in its discretion, such other conditions upon the exercisability of stock appreciation rights as it may deem fit. (d) Limited Stock Appreciation Rights. The Committee may grant limited stock appreciation rights which are exercisable upon the occurrence of specified contingent events. Such stock appreciation rights may provide for a different method of determining appreciation, may specify that payment will be made only in cash and may provide that related stock options or stock appreciation rights or both are not exercisable while such limited stock appreciation rights are exercisable. Unless the context otherwise requires, whenever the term "stock appreciation right" is used in the Plan, such term shall include limited stock appreciation rights. 8. TRANSFERS AND LEAVES OF ABSENCE For purposes of the Plan: (a) a transfer of an employee from the Company to a 50% or more owned subsidiary, partnership, venture or other affiliate (whether or not incorporated) or vice versa, or from one such subsidiary, partnership, venture or other affiliate to another, (b) a -7- 10 leave of absence, duly authorized in writing by the Company, for military service or sickness or for any other purpose approved by the Company if the period of such leave does not exceed 90 days, or (c) a leave of absence in excess of 90 days, duly authorized in writing by the Company, provided the employee's right to re-employment is guaranteed either by statute or by contract, shall not be deemed a termination of employment under the Plan. 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR OTHER EVENTS Upon changes in the Common Stock of the Company by reason of a stock dividend, stock split, reverse split, recapitalization, merger, consolidation, combination or exchange of shares, separation, reorganization or liquidation, the number and class of shares available under the Plan as to which stock options or stock appreciation rights may be granted (both in the aggregate and to any one optionee), the number and class of shares under each option and the option price per share, and the terms of stock appreciation rights, shall be correspondingly adjusted by the Committee, such adjustments to be made in the case of outstanding options without change in the total price applicable to such options. In the event of a merger, consolidation, combination, reorganization or other transaction in which the Company will not be the surviving corporation, an optionee shall be entitled to options on that number of shares of stock in the new corporation which the optionee would have received had the optionee exercised all of the unexercised options available to the optionee under the Plan, whether or not then exercisable, at the instant immediately prior to the effective date of such transaction, and if such unexercised options had related stock appreciation rights the optionee also will receive new stock appreciation rights related to the new options. Thereafter, adjustments as provided above shall relate to the stock options or stock appreciation rights of the new corporation. Except as otherwise specifically provided in the stock option or stock appreciation right, in the event of a Change in Control, merger, consolidation, combination, reorganization or other transaction in which the shareholders of the Company will receive cash or securities (other than common stock) or in the event that an offer is made to the holders of Common Stock of the Company to sell or exchange such Common Stock for cash, securities or stock of another corporation and such offer, if accepted, would result in the offeror becoming the owner of (a) at least 50% of the outstanding Common Stock of the Company or (b) such lesser percentage of the outstanding Common Stock which the Committee in its sole discretion determines will materially adversely affect the market value of the Common Stock after the tender or exchange offer, the Committee shall, prior to the shareholders' vote on such transaction or prior to the expiration date (without extensions) of the tender or exchange offer, (i) accelerate the time of exercise so that all stock options and stock appreciation rights which are outstanding shall become immediately exercisable in full without regard to any limitations of time or amount otherwise contained in the Plan or the stock options or stock appreciation rights and/or (ii) determine that the stock options and stock appreciation rights shall be adjusted and make such adjustments by substituting for Common Stock of the Company subject to options and stock appreciation rights, common stock of the surviving corporation or offeror if such stock of such corporation is publicly traded or, if such stock is not publicly traded, by substituting common stock of a parent of the surviving corporation or offeror if the stock of such parent is publicly traded, in which event the aggregate option price shall remain the same and the number of shares subject to option shall be the number of shares which could have been purchased on the closing day of such transaction or the expiration date of the offer with the proceeds which would -8- 11 have been received by the optionee if the stock option had been exercised in full prior to such transaction or expiration date and the optionee had exchanged all of such shares in the transaction or sold or exchanged all of such shares pursuant to the tender or exchange offer, and if any such option has related stock appreciation rights, the stock appreciation rights shall likewise be adjusted; provided, however, that, in the event of a Change in Control, the acceleration of the exercisability of options and stock appreciation rights under clause (i) of this paragraph shall occur automatically and without the requirement of action by the Committee. For purposes of this Plan, "Change in Control" means the occurrence of any of the following events after the effective date of the amendment and restatement of the Plan: (i) Any "person," as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. -9- 12 10. USE OF PROCEEDS Proceeds from the sale of shares of Common Stock pursuant to exercise of options granted under the Plan shall constitute general funds of the Company. 11. AMENDMENTS The Board of Directors may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would materially impair the rights of any optionee under any option theretofore granted, without the optionee's consent, or which, without the approval of the shareholders of the Company, would: (a) Except as is provided in Paragraph 9 of the Plan, increase the total number of shares reserved for the purposes of the Plan or change the maximum number of shares for which options may be granted to any optionee. (b) Decrease the option price to less than 100% of Fair Market Value on the date of grant of a stock option. (c) Change the employees (or class of employees) eligible to receive options under the Plan. (d) Materially increase the benefits accruing to employees participating under the Plan. 12. EFFECTIVENESS OF THE PLAN AND AMENDMENTS The Plan became effective upon approval by the shareholders at the 1991 Annual Meeting. The Amendments proposed in 1995 became effective upon approval by the shareholders at the 1995 Annual Meeting. Paragraph 6(f) as amended became applicable to all options outstanding at the date of the 1995 Annual Meeting and thereafter. Paragraph 6(i) as amended became effective upon approval by the Board of Directors at its July 16, 1997 meeting. The amendment and restatement of the Plan in connection with the reorganization of the Company and the change of the name of the Company to R.H. Donnelley Corporation became effective as of July 14, 1998. -10- EX-10.21 3 y42438ex10-21.txt AMENDMENT #1 TO SUPPLEMENTAL EXECUTIVE BENEFIT PLN 1 AMENDMENT NO. 1 TO R.H. DONNELLEY CORPORATION SUPPLEMENTAL EXECUTIVE BENEFIT PLAN Whereas, at the time of the spin-off of The Dun & Bradstreet Corporation ("D&B") from R.H. Donnelley Corporation effective July 1, 1998, R.H. Donnelley, as the surviving corporation ("RHD"), adopted the Supplemental Executive Benefit Plan ("Plan") for the benefit of certain executive officers who had participated under the Plan as employees of D&B; Whereas, the Compensation and Benefits Committee of the Board of Directors of RHD, who administers all executive compensation and benefit plans of RHD, has approved the following amendment to the Plan; The Supplemental Executive Benefit Plan is hereby amended as follows: Section 4.5 is amended by changing the existing second paragraph to be paragraph (b), the existing paragraph (b) to be paragraph (c), the existing paragraph (c) to be paragraph (d), by changing the two references in paragraph (d) (formerly paragraph (c)) to Section 4.5 (b)(i) to be references to Section 4.5 (a)(i) and by adding at the end thereof a new paragraph (e) to read as follows: (e) Notwithstanding the preceding provisions of this Section 4.5, a Participant may elect, in accordance with rules prescribed by the Committee, that upon his termination of employment an amount equal to the lump sum value of his Retirement Benefit, determined as of such date of termination of employment in the same manner as provided under Section 4.5(a), shall be transferred as an obligation of the Corporation to such Participant's record keeping account under the Corporation's Deferred Compensation Plan. 2 In witness whereof, this Amendment No. 1 has been executed by the Company effective as of the 26th day of September, 2000. R.H. Donnelley Corporation /c/ Frank R. Noonan Frank R. Noonan Chairman and Chief Executive Officer EX-27.1 4 y42438ex27-1.txt FINANCIAL DATA SCHEDULE
5 R.H. DONNELLEY CORP. 0000030419 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 91,129 0 58,511 6,287 0 148,870 53,383 42,171 415,829 88,519 351,750 0 0 51,622 (155,524) 415,829 0 124,327 0 82,336 0 3,700 27,411 188,052 72,400 115,652 0 704 0 114,948 3.58 3.51
EX-27.2 5 y42438ex27-2.txt FINANCIAL DATA SCHEDULE
5 R.H. DONNELLEY INC. 0001065310 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 91,129 0 58,511 6,287 0 148,870 53,383 42,171 415,829 88,519 351,750 0 0 12,002 (115,904) 415,829 0 124,327 0 82,336 0 3,700 27,411 188,052 72,400 115,652 0 704 0 114,948 3.58 3.51
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