-----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, IOWodM0P5erSa+t5uHNw9orscV19A/YiuUA2cZctQ8e4SaJbAhukBp1UkZi6WmEd b0oHOyjpoMAsuGNEZtMtsA== 0000950123-01-505328.txt : 20010813 0000950123-01-505328.hdr.sgml : 20010813 ACCESSION NUMBER: 0000950123-01-505328 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R H DONNELLEY CORP CENTRAL INDEX KEY: 0000030419 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 132740040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07155 FILM NUMBER: 1703916 BUSINESS ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336800 MAIL ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET COMPANIES INC DATE OF NAME CHANGE: 19790429 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET CORP DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNELLEY R H INC CENTRAL INDEX KEY: 0001065310 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 362467635 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-59287 FILM NUMBER: 1703917 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 y52339e10-q.txt QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) 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 June 30, 2001 ------------- 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 August 1, 2001 -------------- ------------------------------------ Common Stock, par value $1 per share 30,108,078
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 August 1, 2001, 100 shares of R.H. Donnelley Inc. common stock, no par value, were 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 six months ended June 30, 2001 and 2000.............................. 3 Consolidated Balance Sheets at June 30, 2001 and December 31, 2000............................................................. 4 Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000........................................... 5 Notes to Consolidated Financial Statements....................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk............ 21 PART II. OTHER INFORMATION - ---------------------------- Item 1. Legal Proceedings.................................................... 22 Item 4. Submission of Matters to a Vote of Security Holders.................. 22 Item 6. Exhibits and Reports on Form 8-K..................................... 23 SIGNATURES....................................................................... 28
2 3 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------------------------- (amounts in thousands, except per share data) 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------- Gross revenue.................................. $ 20,342 $ 62,405 $ 39,532 $ 107,701 Less: sales allowances......................... (308) (2,245) (659) (6,152) --------- -------- -------- --------- Net revenue................................ 20,034 60,160 38,873 101,549 Expenses Operating expenses.......................... 13,286 38,613 23,838 69,347 General and administrative expenses......... 5,013 6,297 9,160 14,385 Provision for doubtful accounts............. 983 1,995 1,599 2,644 Depreciation and amortization............... 2,755 4,249 5,640 8,773 --------- -------- -------- --------- Total expenses............................. 22,037 51,154 40,237 95,149 Income from partnerships and related fees...... 41,211 43,204 68,235 71,383 --------- -------- -------- --------- Operating income........................... 39,208 52,210 66,871 77,783 Interest income................................ 270 306 1,546 442 Interest expense............................... (6,498) (9,472) (14,300) (18,822) Gain on disposition of businesses.............. -- 89,435 -- 89,435 --------- -------- -------- --------- Income before taxes and extraordinary loss. 32,980 132,479 54,117 148,838 Provision for income taxes..................... 12,368 50,628 20,294 57,302 --------- -------- -------- --------- Income before extraordinary loss........... 20,612 81,851 33,823 91,536 Extraordinary loss (net of taxes of $208)...... -- -- 348 -- --------- -------- -------- --------- Net income................................. $ 20,612 $ 81,851 $ 33,475 $ 91,536 ========= ======== ======== ========= Earnings per share before extraordinary loss Basic...................................... $ 0.68 $ 2.56 $ 1.10 $ 2.83 Diluted.................................... $ 0.66 $ 2.50 $ 1.07 $ 2.78 Earnings per share after extraordinary loss Basic...................................... $ 0.68 $ 2.56 $ 1.09 $ 2.83 Diluted.................................... $ 0.66 $ 2.50 $ 1.06 $ 2.78 Shares used in computing earnings per share Basic...................................... 30,519 31,989 30,696 32,303 Diluted.................................... 31,465 32,727 31,580 32,887
The accompanying notes are an integral part of the consolidated financial statements. 3 4 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, December 31, (amounts in thousands, except share and per share data) 2001 2000 - -------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents ................................ $ 7,655 $ 55,437 Accounts receivable ...................................... 37,919 37,646 Less: sales allowance and allowance for doubtful accounts (7,684) (7,355) ------------- ------------- Net accounts receivable .............................. 30,235 30,291 Other current assets ..................................... 10,232 13,321 ------------- ------------- Total current assets ................................. 48,122 99,049 Fixed assets and computer software, net .................. 17,181 21,633 Partnership investments and related receivables .......... 211,027 213,834 Investment in ChinaBig.com ............................... 13,432 13,432 Prepaid pension .......................................... 20,195 19,457 Other non-current assets ................................. 6,091 6,379 ------------- ------------- TOTAL ASSETS ......................................... $ 316,048 $ 373,784 ============= ============= LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable and accrued liabilities ................. $ 27,522 $ 44,648 Accrued interest payable ................................. 5,466 6,490 Current portion of long-term debt ........................ -- 4,224 ------------- ------------- Total current liabilities ............................ 32,988 55,362 Long-term debt ........................................... 301,750 347,526 Deferred income taxes .................................... 58,871 60,913 Postretirement and postemployment benefits ............... 10,070 8,598 Other liabilities ........................................ 15,776 9,895 Commitments and contingencies SHAREHOLDERS' DEFICIT Preferred stock, par value $1 per share, authorized - 10,000,000 shares, outstanding - none ................. -- -- Common stock, par value $1 per share, authorized - 400,000,000 shares; issued - 51,621,894 shares for 2001 and 2000 ......................................... 51,622 51,622 Additional paid-in capital ............................... 24,937 18,373 Unamortized restricted stock ............................. (439) (232) Equity options outstanding ............................... 315 242 Retained deficit ......................................... (45,210) (78,685) Accumulated other comprehensive loss ..................... (2,291) -- Treasury stock, at cost, 21,497,770 shares for 2001 and 20,682,293 shares for 2000 ............................ (132,341) (99,830) ------------- ------------- Total shareholders' deficit .......................... (103,407) (108,510) ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT .......... $ 316,048 $ 373,784 ============= =============
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)
SIX MONTHS ENDED JUNE 30, ---------------------- (amounts in thousands) 2001 2000 - ------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ..................................................... $ 33,475 $ 91,536 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization ............................. 5,640 8,773 Provision for doubtful accounts ........................... 1,599 2,644 Deferred income taxes ..................................... (500) 776 Other noncash charges ..................................... 662 1,254 Extraordinary loss (net of taxes of $208) ................. 348 -- Gain on disposition of businesses (net of taxes of $34,433) -- (55,002) Cash received in excess of income from partnerships ....... 9,148 8,392 (Increase) decrease in accounts receivable ................ (1,543) 29,338 Decrease in other assets .................................. 1,599 3,235 (Decrease) increase in accounts payable and accrued liabilities ............................................ (17,204) 10,568 Increase in other liabilities ............................. 1,472 689 --------- --------- Net cash provided by operating activities ................ 34,696 102,203 CASH FLOWS FROM INVESTING ACTIVITIES Additions to fixed assets and computer software ................ (1,952) (5,511) Investment in ChinaBig.com ..................................... (1,550) (3,938) Proceeds from disposition of businesses ........................ -- 122,009 --------- --------- Net cash (used in) provided by investing activities ...... (3,502) 112,560 CASH FLOWS FROM FINANCING ACTIVITIES Repayment of debt .............................................. (50,000) (3,000) Purchase of treasury stock ..................................... (32,538) (25,531) Proceeds from exercise of stock options ........................ 3,562 2,416 --------- --------- Net cash used in financing activities .................... (78,976) (26,115) (Decrease) increase in cash and cash equivalents ............... (47,782) 188,648 Cash and cash equivalents, beginning of year ................... 55,437 2,390 --------- --------- Cash and cash equivalents, end of period ....................... $ 7,655 $ 191,038 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Interest paid .................................................. $ 12,292 $ 17,327 ========= ========= Income taxes paid .............................................. $ 21,867 $ 13,750 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 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"). The Board of Directors of Old D&B approved a plan to separate into two publicly traded companies - the Company and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") was the method by which Old D&B distributed to its shareholders shares of New D&B common stock. On July 1, 1998, as part of the Distribution, Old D&B distributed to its shareholders shares of New D&B stock and Old D&B changed its name to R.H. Donnelley Corporation. The interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the financial statements and related notes included in the Company's Form 10-K for the year ended December 31, 2000. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Certain 2000 amounts have been reclassified to conform to the 2001 presentation. 2. DISPOSITION OF BUSINESSES AND RELATED COST CUTTING ACTIONS On April 27, 2000, the Company sold its Cincinnati proprietary directory business to Yellow Book USA, Inc. for $8,000. On June 30, 2000, the Company entered into an agreement ("Agreement") with an affiliate of Bell Atlantic Corporation ("Bell Atlantic") for the early termination of the directory services agreements between the Company and Bell Atlantic dated September 5, 1985 and May 5, 1998, as amended (the "Agency Agreements"). Pursuant to the Agency Agreements, the Company had served as exclusive advertising sales agent for Bell Atlantic directories covering substantially all of New York State. The Agency Agreements had been scheduled to expire in 2005 and 2003, respectively. The transactions contemplated by the Agreement were also consummated on June 30, 2000. Under the terms of the Agreement, the Company received cash proceeds of $114,009. The Company also received commissions of approximately $42,000 for sales which occurred prior to the closing, but which were not yet payable under the terms of the Agency Agreements and approximately $15,000 in connection with its sales for certain directories that published in the pre-closing period. In connection with the above actions, the Company also implemented cost-cutting measures, including headcount reductions, at its Raleigh, NC facility and corporate headquarters consistent with its new streamlined operating structure. The Company recognized a pretax gain from the above transactions of $89,435 ($55,002 after taxes), net of approximately $39,800 of costs incurred for severance and other related costs associated with work-force reductions, asset write-offs, including internal software, and other transaction related costs, partially offset by pension related gains of $7,200. 6 7 3. EARNINGS PER SHARE The table below provides a reconciliation of basic weighted average shares outstanding to diluted weighted average shares outstanding for each period presented.
Three months ended Six months ended June 30, June 30, ---------------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Weighted average shares outstanding - basic........ 30,519 31,989 30,696 32,303 Potentially dilutive shares........................ 946 738 884 584 ------ ------ ------ ------ Weighted average shares outstanding - diluted...... 31,465 32,727 31,580 32,887 ====== ====== ====== ======
4. LONG-TERM DEBT Long-term debt consisted of the following:
June 30, Dec. 31, 2001 2000 --------------------- Senior Subordinated 9.125% Notes............................... $150,000 $150,000 Senior Secured Term Facilities................................. 151,750 201,750 ------- ------- Total...................................................... 301,750 351,750 Less current portion........................................... -- 4,224 ------- ------- Net long-term debt......................................... $301,750 $347,526 ======= =======
In March 2001, the Company prepaid $50,000 of Senior Secured Term Facilities, and in connection with the prepayment, recorded an after-tax extraordinary loss of $348 relating to the write-off of related deferred financing costs. 5. PARTNERSHIP INVESTMENTS The Company has a 50/50 perpetual partnership ("DonTech") with an operating unit of SBC Communications Inc. ("SBC"). DonTech acts as the exclusive sales agent for yellow pages directories published in Illinois and northwest Indiana by Ameritech Corporation ("Ameritech"), a wholly owned subsidiary of SBC. The Company has a 50% interest in the profits of DonTech and also receives revenue participation income from SBC, which is tied to advertising sales. The table below shows summarized financial information of DonTech. Revenue participation income is not shown in the table.
Three months ended Six months ended June 30, June 30, ------------------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net revenue.................................... $ 31,673 $ 30,489 $ 52,778 $ 50,394 Operating income............................... 14,093 13,981 17,654 18,198 Net income..................................... 14,185 14,062 17,838 18,843 Total assets................................... 133,566 131,064 133,566 131,064
Income and related fees ("partnership income") from DonTech were as follows:
Three months ended Six months ended June 30, June 30, ------------------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- 50% share of DonTech profits................... $ 7,093 $ 7,030 $ 8,919 $ 9,422 Revenue participation income................... 29,992 28,973 50,165 48,013 ------ ------ ------ ------ Total partnership income....................... $37,085 $36,003 $59,084 $57,435 ====== ====== ====== ======
The Company also has a joint venture, CenDon LLC ("CenDon"), with Centel Directory Company ("Centel"), a 7 8 subsidiary of Sprint Corporation ("Sprint"). Partnership income from CenDon consists of a priority distribution on the Company's membership interest in CenDon, which is tied to advertising sales. Through June 30, 2000, the Company had a 50/50 partnership with Centel, the CenDon Partnership, formed to publish directories in Nevada, Florida, Virginia and North Carolina. Partnership income for the quarter and six months ended June 30, 2000 consisted of the Company's share of the profits of the CenDon Partnership. Effective for directories that published after June 30, 2000, the Company and Centel entered into a series of agreements that effectively restructured the CenDon Partnership as a limited liability company - CenDon LLC. Under the modified arrangement, Centel assumed responsibility for the marketing, printing and delivery of directories and related support services such as customer support and collections and the Company continued to be the exclusive sales agent in Nevada, Florida, Virginia and North Carolina and to provide certain pre-press publishing services. As a result of the modified arrangement, revenue and related cost are now recognized at the time of sale, rather than at the time of directory publication as had historically been the case for the CenDon Partnership. Accordingly, the Company recognized a one-time operating income benefit of $15,771, which included a one-time partnership income benefit of $5,422, for the quarter and six months ended June 30, 2000. The CenDon sales agency agreement extends through 2010. Partnership income from CenDon was as follows:
Three months ended Six months ended June 30, June 30, ------------------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Total partnership income....................... $4,126 $7,746 $9,151 $15,026 ===== ===== ===== ======
CHINABIG.COM The Company has an 18% interest in ChinaBig.com Limited (previously known as Unicom Media Limited, "ChinaBig"), which publishes yellow pages directories and offers Internet directory services in the People's Republic of China. In connection with an equity investment by an unaffiliated third party and in order to facilitate the raising of additional capital and provide greater flexibility, ChinaBig and each existing investor (including the Company), restructured the existing joint venture agreement of ChinaBig to, among other things, significantly reduce the Company's influence on the daily operations of ChinaBig. As a result of the restructured agreement, effective June 15, 2000, the Company became a passive investor in ChinaBig and now accounts for this investment under the cost method. Prior to June 15, 2000, the Company accounted for this investment under the equity method and recognized its share of the losses of $545 for the quarter ended June 30, 2000 and $1,078 for the six months ended June 30, 2000. Subsequent to June 15, 2000, the Company no longer recognizes its share of the losses of ChinaBig. 6. COMPREHENSIVE INCOME The provisions of FAS 133, "Accounting for Derivative Instruments and Hedging Activities," ("FAS 133") became effective for the Company on January 1, 2001. FAS 133 requires the Company to recognize the fair value of its derivative instruments on the balance sheet. Subsequent changes in the fair value would be recognized either in earnings or shareholders' deficit, depending on the purpose of the derivative instrument. At June 30, 2001, the fair value of the Company's interest rate swaps was a loss of $2,291. The fair value of the interest rate swaps was recognized as other liabilities on the balance sheet with a corresponding charge to accumulated other comprehensive loss, a component of shareholders' deficit. Comprehensive income for the quarter and six months ended June 30, 2001 and 2000 was as follows:
Three months ended Six months ended June 30, June 30, ------------------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net income..................................... $ 20,612 $ 81,851 $ 33,475 $ 91,536 Change in fair value of interest rate swaps.... 152 -- (2,291) -- -------- -------- -------- -------- Comprehensive income........................... $ 20,764 $ 81,851 $ 31,184 $ 91,536 ======== ======== ======== ========
8 9 7. LITIGATION In 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages initiated a lawsuit against the Company and Bell Atlantic Corporation (now known as Verizon Communications, "Bell Atlantic") in the United States District Court for the Southern District of New York. The Rockland Yellow Pages is a proprietary directory that competes against a Bell Atlantic directory in the same region, for which the Company served as Bell Atlantic's advertising sales agent through June 30, 2000. The complaint alleged that the defendants disseminated false information concerning the Rockland Yellow Pages, which resulted in damages to the Rockland Yellow Pages. The complaint alleged damages in excess of $30,000, which amount plaintiffs sought to have trebled under the antitrust laws. In addition, the plaintiffs also sought punitive damages in an unspecified amount. In May 2001, the Court dismissed substantially all of plaintiff's claims, including the antitrust claims; only a false advertising claim under the Lanham Act and a state law tort claim with respect to only one advertiser survive. The Court ordered limited discovery through July 9, 2001 on jurisdictional issues with respect to the Lanham Act claim. Under the Lanham Act claim, plaintiff sought an injunction and disgorgement of profits in an unspecified sum. A Court conference is scheduled for August 17, 2001. While at this stage in the proceedings management is unable to predict the outcome of this matter, management intends to continue to vigorously defend this action, and it presently believes that the resolution of the action will not have a material adverse effect on the Company's financial position or results of operations. In 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants the Company (as successor of Old D&B), ACNielsen Company and IMS International Inc., each former subsidiaries of D&B ("IRI Action"). The complaint alleges, among other things, various violations of the antitrust laws and seeks damages in excess of $350,000, which IRI is seeking to have trebled under the antitrust laws. IRI also seeks punitive damages of an unspecified amount. Under the definitive agreement entered into in connection with the Distribution (the "Distribution Agreement"), New D&B has assumed the defense and will indemnify the Company against any payments to be made by the Company in respect of the IRI Action, including any related legal fees and expenses. As required by the Distribution Agreement, Moody's Corporation, which recently separated from New D&B, has agreed to be jointly and severally liable with New D&B for the indemnity obligation to the Company. Management presently believes that New D&B and Moody's have sufficient financial resources and/or borrowing capacity to satisfy all such liabilities and to reimburse the Company for all costs and expenses incurred. Certain tax planning strategies entered into by Old D&B are currently subject to review by tax authorities. Pursuant to a series of agreements, IMS Health Incorporated ("IMS") and Nielsen Media Research, Inc. ("NMR") (both of which are former subsidiaries of D&B) are each jointly and severally liable to pay 50%, and Old D&B is liable for the remaining 50% of any payments for taxes and accrued interest arising from this matter and certain other potential tax liabilities after Old D&B pays the first $137,000 of tax liability. As a result of the form of the Distribution, the Company is the corporate successor of, and the taxpayer referred to herein as, Old D&B. However, pursuant to the terms of the Distribution Agreement and the Tax Allocation Agreement, New D&B assumed the defense and agreed to indemnify the Company against any payments to be made by the Company in respect of any tax liability that may be assessed and any related costs and expenses. In 2000, New D&B filed an amended tax return for 1989 and 1990, which reflected $561,600 of tax and interest due and paid the IRS approximately $349,300, while IMS paid approximately $212,300. The Company understands that these payments were paid under dispute in order to stop additional interest from accruing. As required by the Distribution Agreement, Moody's Corporation has agreed to be jointly and severally liable with New D&B for the indemnity obligation to the Company. Management presently believes that New D&B, Moody's, IMS and NMR have sufficient financial resources and/or borrowing capacity to satisfy all such liabilities and to reimburse the Company for all related costs and expenses. In May 2001, Image One filed a complaint against certain Sprint Corporation affiliates and the Company in the Untied States District Court for the Middle District of Florida. In the complaint, Image One alleges that it creates and licenses original text, graphics, images and other artwork specifically for yellow pages advertising and that the defendants engaged in copyright infringement and false designation of origin. Image One is seeking actual damages of approximately $95,000 and statutory damages in excess of $330,000. While at this preliminary stage in the proceedings management is unable to predict the outcome of this matter, management intends to vigorously 9 10 defend this action and it presently believes that the resolution of the action will not have a material adverse effect on the Company's financial position or results of operations. Other than the matters described above, the Company is involved in legal proceedings, claims and litigation arising in the ordinary conduct of its business. Although there can be no assurances, management presently believes that the outcome of such legal proceedings will not have a material adverse affect on the Company's financial position, results of operations or cash flows. 8. BUSINESS SEGMENTS The Company's reportable operating segments are DonTech and Directory Advertising Services ("DAS"). The Company evaluates the performance of its operating segments and allocates resources to them primarily based on operating income contribution. Interest expense, interest income, income tax expense and non-operating income and expenses are not allocated to the operating segments. The DonTech segment includes the Company's 50% interest in the profits of DonTech and revenue participation income, but does not include an allocation of certain operating and general and administrative expenses incurred to support this business. Although DonTech provides advertising sales of yellow pages and other directory products similar to DAS, the partnership is considered a separate operating segment since, among other things, the partnership has its own Board of Directors and the employees of DonTech, including officers and managers, are not employees of the Company. Within the DAS segment, the Company sells advertising for yellow pages and other directory products for affiliated entities of Sprint and performs pre-press publishing services for yellow pages directories for DonTech, Sprint and another third party. DAS also includes all information technology costs and an allocation of certain shared general and administrative expenses based on estimated business usage. Get Digital Smart ("GDS") included the results of the Company's Internet business. The Company ceased operations of this business in December 2000 and accordingly, GDS is not reported as an operating segment in 2001. General & Corporate (previously referred to as Other) represents expenses not allocated to the operating segments. Selected financial results for the three and six month periods ended June 30, 2001 and 2000 are as follows:
Directory Get DonTech Advertising Digital General & Consolidated Partnership Services (1) Smart Corporate Totals ----------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, 2001 Advertising sales (2) Calendar cycle ............... $ 125,248 $ 53,308 -- -- $ 178,556 Publication cycle ............ 89,547 28,855 -- -- 118,402 Net revenue .................... -- 20,034 -- -- 20,034 Operating income (loss) ........ 37,085 6,069 -- $ (3,946) 39,208 Depreciation and amortization .. -- 2,592 -- 163 2,755 EBITDA (3) ..................... 37,085 8,661 -- (3,783) 41,963 Total assets ................... 194,790 42,940 -- 78,318 316,048 THREE MONTHS ENDED JUNE 30, 2000 Advertising sales (2) Calendar cycle ............... $ 120,628 $ 229,329 -- -- $ 349,957 Publication cycle ............ 87,456 218,526 -- -- 305,982 Net revenue .................... -- 60,136 $ 24 -- 60,160 Operating income (loss) ........ 36,003 22,064 (2,250) $ (3,607) 52,210 Depreciation and amortization .. -- 3,821 24 404 4,249 EBITDA (3) ..................... 36,003 25,885 (2,226) (3,203) 56,459 Total assets ................... 164,179 95,961 222 255,554 515,916
10 11
Directory Get DonTech Advertising Digital General & Consolidated Partnership Services (1) Smart Corporate Totals ------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2001 Advertising sales (2) Calendar cycle ............. $208,647 $ 98,243 -- -- $306,890 Publication cycle .......... 223,171 80,451 -- -- 303,622 Net revenue .................. -- 38,873 -- -- 38,873 Operating income (loss) ...... 59,084 15,536 -- $ (7,749) 66,871 Depreciation and amortization -- 5,246 -- 394 5,640 EBITDA (3) ................... 59,084 20,782 -- (7,355) 72,511 SIX MONTHS ENDED JUNE 30, 2000 Advertising sales (2) Calendar cycle ............. $199,315 $368,133 -- -- $567,448 Publication cycle .......... 219,050 314,843 -- -- 533,893 Net revenue .................. -- 101,525 $ 24 -- 101,549 Operating income (loss) ...... 57,435 33,387 (4,390) $ (8,649) 77,783 Depreciation and amortization -- 7,925 24 824 8,773 EBITDA (3) ................... 57,435 41,312 (4,366) (7,825) 86,556
(1) For the quarter and six months ended June 30, 2000, DAS includes the following results of the Bell Atlantic and Cincinnati businesses, which were disposed of in 2000 and one-time operating items related to the CenDon restructuring (see Notes 2 and 5). Accordingly, no financial results for these businesses are included for the 2001 periods.
Three Six Months Ended Months Ended June 30, 2000 June 30, 2000 ------------------------------ Advertising sales (2) Calendar cycle............ $ 189,231 $ 277,768 Publication cycle......... 190,323 238,131 Net revenue................. 41,816 63,831 Operating income............ 18,615 22,105 Depreciation and amortization 1,303 2,703 EBITDA (3).................. 19,918 24,808 Total assets................ -- --
(2) Advertising sales represent the billing value of advertisements sold for an annual directory by the Company and DonTech. Calendar cycle advertising sales represent the billing value of advertisements sold for an annual directory stated on the same basis as revenue is recognized (that is, when a sales contract is signed where the Company acts as a sales agent and when a directory was published where the Company acted as the publisher). Publication cycle sales represent sales for directories that published in the current period regardless of when the advertising for that directory was sold. These sales are compared against sales for the same directories published in the prior year period. If events occur during the current year that effect the comparability of publication sales to the prior year, such as changes in directory publication dates or other contractual changes, then prior year publication sales are adjusted to conform to the current year presentation and maintain comparability. Accordingly, for comparative purposes, DAS publication sales for the six months ended June 30, 2000 have been increased by $1,671. (3) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income or net income prepared in conformity with generally accepted accounting principles. In addition, EBITDA may not be comparable to similarly titled measures of other companies. 9. ACCOUNTING PRONOUNCEMENTS During the second quarter of 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141") and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS 142 will be effective for fiscal years beginning after December 15, 2001. However, early adoption of SFAS 142 is permitted for companies with a fiscal year beginning after March 15, 2001, provided their first quarter financial statements have not been previously issued. The Company has determined that SFAS 141 and SFAS 142 will not have any impact on its historical consolidated financial statements. 11 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain statements contained in this Form 10-Q regarding R.H. Donnelley's future operating results or performance or business plans or prospects and any other statements not constituting historical fact are "forward-looking statements" subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words "believe," "expect," "anticipate," "should," "planned," "estimated," "potential," "goal," "outlook," and similar expressions, as they relate to R.H. Donnelley or its management, have been used to identify such forward-looking statements. Regardless of any identifying phrases, these statements and all other forward-looking statements reflect only management's current beliefs and specific assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to R.H. Donnelley. Accordingly, the statements are subject to significant risks, uncertainties and contingencies which could cause R.H. Donnelley's actual operating results, performance or business plans or prospects to differ from those expressed in, or implied by, these statements. Such risks, uncertainties and contingencies include, without limitation, the following: (1) loss of market share through competition; (2) uncertainties caused by the consolidation of the telecommunications industry; (3) introduction of competing products or technologies by other companies; (4) complexity and uncertainty regarding the development and/or deployment of new high technology products, and uncertainty regarding the acceptance rate of such products; (5) pricing pressures from competitors and/or customers; (6) changes in the yellow pages industries and markets; (7) an economic downturn in the United States; and (8) the fact that the repurchase of the Company's common stock is subject to market conditions and compliance with legal restrictions and the Company's debt covenants. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update any forward-looking statements. THE COMPANY R.H. Donnelley Corporation is a leading marketer of yellow pages advertising tailored for small and medium-sized businesses. Unless otherwise indicated, the terms "Company," "we," "us" and "our" refer to R.H. Donnelley Corporation and its direct and indirect wholly owned subsidiaries. Unless otherwise specified, all tabular amounts are presented in millions of dollars. The Company is organized into two reportable operating segments as of January 1, 2001 - the DonTech Partnership ("DonTech") and Directory Advertising Services ("DAS"). DonTech is a 50/50 perpetual partnership with an operating unit of SBC Communications Inc. ("SBC"), which acts as the exclusive sales agent for yellow pages directories published by Ameritech Corporation ("Ameritech"), a wholly owned subsidiary of SBC, in Illinois and northwest Indiana. In addition to our 50% interest in the profits of DonTech, we receive revenue participation income from our partner, which is tied to advertising sales. Although DonTech provides advertising sales of yellow pages and other directory products similar to DAS, the partnership is considered a separate operating segment since, among other things, the partnership has its own Board of Directors and the employees of DonTech, including its officers and managers, are not our employees. Within our DAS segment, we sell advertising for yellow pages and other directory products for affiliated entities of Sprint Corporation ("Sprint") and perform pre-press publishing services for yellow pages directories. We are the exclusive sales agent in Central Florida for an operating unit of Sprint and the exclusive sales agent in Nevada, Florida, Virginia and North Carolina for CenDon LLC, a joint venture with Centel Directory Company ("Centel"), a subsidiary of Sprint. We receive sales commissions on all advertising sold and receive a priority distribution on our membership interest in CenDon LLC, which is tied to advertising sales. We also provide pre-press publishing services for yellow pages directories to publishers for whom we serve as sales agent as well as for an otherwise unaffiliated independent yellow pages publisher under separately negotiated contracts. DAS also includes all information technology costs. The results for DAS for the quarter and six month periods ended June 30, 2000 also include the operating results of the disposed Bell Atlantic and Cincinnati businesses, and our share of the losses in ChinaBig (see " - 2000 Strategic Actions" below). For the quarter and six-month periods ended June 30, 2000, we served as the exclusive sales agent to the CenDon Partnership, a 50/50 partnership between the Company and Centel formed to publish directories in Florida, 12 13 Nevada, Virginia and North Carolina. Effective for directories that published after June 30, 2000, the Company and Centel entered into a series of agreements that effectively restructured the CenDon Partnership as a limited liability company - CenDon LLC ("CenDon"). Under the modified arrangement, Centel assumed responsibility for marketing, printing and delivery of directories and related support services such as customer service and collections and we continued to be the exclusive sales agent in Nevada, Florida, Virginia and North Carolina and to provide certain pre-press publishing services. As a result of the modified arrangement, our commission revenue and related costs are now recognized at the time of sale, rather than at the time of directory publication as had historically been the case when we acted as sales agent for the CenDon Partnership. Accordingly, the recognition of revenue and expenses for the CenDon operations in the first half of 2001 has been accounted for differently than in the first half of 2000. The quarter and six-month periods ended June 30, 2000 also include the operating results of Get Digital Smart ("GDS"), the Company's Internet business, which was reported as a separate operating segment during 2000. GDS ceased operations in December 2000 and, accordingly, there were no financial results for the 2001 periods. As a sales agent, we recognize revenue from sales commissions at the time an advertising contract is executed with a customer. This includes sales commission revenue realized from Sprint, including CenDon (for directories that published after June 30, 2000), and Bell Atlantic (through June 30, 2000). Where we were the publisher, we recognized revenue when a directory was published. This included revenue realized from publication of directories by CenDon before June 30, 2000. There were no advertising sales or revenue recognized in 2000 from our Cincinnati proprietary operation as the business was sold prior to the scheduled directory publication date. We recognize revenue from our pre-press publishing services on a straight-line basis throughout the year as the services are performed. Income from partnerships and related fees ("partnership income") includes our share of the net income of DonTech, revenue participation income from SBC, priority distribution income on our membership interest in CenDon (for the 2001 periods only) and our share of the net income of the CenDon Partnership (for the 2000 periods only). Partnership income for the 2000 periods also includes our share of the losses of ChinaBig through June 15, 2000. 2000 STRATEGIC ACTIONS DISPOSITION OF BUSINESSES AND RELATED COST CUTTING ACTIONS On April 27, 2000, we sold our Cincinnati proprietary directory business to Yellow Book USA, Inc. for $8 million. On June 30, 2000, we entered into an agreement ("Agreement") with an affiliate of Bell Atlantic Corporation ("Bell Atlantic") for the early termination of the directory services agreements between the Company and Bell Atlantic dated September 5, 1985 and May 5, 1998, as amended (the "Agency Agreements"). Pursuant to the Agency Agreements, the Company had served as exclusive sales agent for Bell Atlantic directories covering substantially all of New York State. The Agency Agreements had been scheduled to expire in 2005 and 2003, respectively. The transactions contemplated by the Agreement were also consummated on June 30, 2000. Under the terms of the Agreement, we received cash proceeds of $114 million. We also received commissions of approximately $42 million for sales which occurred prior to the closing, but which were not yet payable under the terms of the Agency Agreements, and commissions of approximately $15 million for sales in directories that published in the pre-closing period. In connection with the above actions, we also implemented cost-cutting measures, including headcount reductions, at our Raleigh, NC facility and corporate headquarters consistent with our new streamlined operating structure. Through June 30, 2000, the Company recognized a pretax gain from the above transactions of approximately $89 million ($55 million after taxes), net of approximately $40 million of costs incurred for severance and other related costs associated with work-force reductions, asset write-offs, including internal software, and other transaction related costs, partially offset by pension related gains of $7 million. 13 14 In December 2000, we entered into an agreement pursuant to which Innuity Inc., a provider of e-commerce services to small and medium-sized businesses, assumed all of the rights and obligations under our GDS contracts. One-time costs of $2.9 million for severance and other related costs were recognized in December 2000. CENDON PARTNERSHIP RESTRUCTURING AND EXTENSION Effective for directories that published after June 30, 2000, the Company and Centel entered into a series of agreements which effectively restructured the existing CenDon Partnership as a limited liability company and extended the existing sales agency agreement through 2010. Both the partnership agreement and sales agency agreement were set to expire in 2004. The modified arrangement focused our responsibilities on sales and certain pre-press publishing services (the latter through 2003 only) and established us as the exclusive sales agent for Centel's print and electronic / Internet directory products in the markets previously covered by the partnership agreement. Centel assumed responsibility for the marketing, printing and delivery of directories and related support services such as customer service and collections. We receive sales commissions on all advertising sold and a priority distribution on our membership interest in CenDon based on the value of advertising sold. We recognize sales commissions as revenue and the priority distribution as partnership income. As a result of this modified arrangement, revenue and related cost are recognized at the time of sale, rather than at the time of directory publication as had historically been the case when we acted as sales agent for the CenDon Partnership. Accordingly, a one-time operating income benefit of $15.8 million was recognized for the quarter and six-month periods ended June 30, 2000. This one-time operating income benefit was comprised of sales commission revenue of $21.0 million based on calendar advertising sales of $95.8 million, less related expenses of $10.6 million and partnership income of $5.4 million. CHINABIG INVESTMENT We have an 18% interest in ChinaBig.com Limited (previously knows as Unicom Media Limited, "ChinaBig"), which publishes yellow pages directories and offers Internet directory services in the People's Republic of China. In connection with an equity investment by an unaffiliated third party and in order to facilitate the raising of additional capital and provide greater flexibility, on June 15, 2000, ChinaBig and each existing investor (including the Company), restructured the existing joint venture agreement of ChinaBig to, among other things, significantly reduce our influence on the daily operations of ChinaBig. As a result of the restructured agreement, we are a passive investor in ChinaBig and account for this investment under the cost method. Prior to June 15, 2000, we accounted for this investment under the equity method. Therefore, subsequent to June 15, 2000, our share of the losses of ChinaBig is no longer recognized in the consolidated statement of operations. FACTORS AFFECTING COMPARABILITY The three and six-month periods ended June 30, 2000 include the results of our Bell Atlantic, Cincinnati and GDS businesses (each of which was disposed during 2000) and certain one-time operating items from the restructuring of the CenDon relationship. Due to the inclusion of these amounts for the three and six-month periods ended June 30, 2000, we do not believe that a comparison of 2001 results to 2000 reported amounts would be meaningful. Accordingly, the information below for the three and six-month periods ended June 30, 2000 are presented on both a reported basis and an as adjusted basis. The "Results of Operations" discussion ignores as no longer relevant or material changes between the 2001 and 2000 periods related to the disposed operations or the effect of the one-time items. The as adjusted amounts assume these operations were disposed as of January 1, 2000 and are derived by excluding the relevant amounts for the Bell Atlantic, Cincinnati and GDS operations, as well as the one-time operating items from the restructuring of the CenDon relationship, from the reported 2000 amounts. The as adjusted amounts are presented for comparison purposes only and do not purport to represent what our actual results would have been for the three and six-month periods ended June 30, 2000 had the businesses been disposed as of January 1, 2000, nor do they project the financial condition or results of operations for any future period. For a discussion of the results of the disposed businesses during the three and six-month periods ended June 30, 2000 and a more detailed discussion of the one-time operating items, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Report on Form 10-Q for our second quarter of 2000 and in our Form 10-K for the year ended December 31, 2000. 14 15 RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 ADVERTISING SALES Calendar Cycle Basis Calendar cycle advertising sales represent the billing value of advertisements sold for an annual directory by the Company and DonTech in a given calendar year. These sales are recognized on the same basis on which revenues are recognized (that is, when a sales contract is signed where we are a sales agent or when the directory was published where we were the publisher of the directory). The selling of advertising for a specific directory is managed as a sales campaign. The typical sales campaign begins approximately six to eight months prior to the scheduled publication date. As a result, the amount of calendar sales can fluctuate from the prior year due to various factors, including changes in the commencement date of a sales campaign and the timing of sales during the sales campaign. Reported and as adjusted calendar cycle advertising sales by segment are presented below:
2001 Reported vs. Reported 2000 As adjusted ---------------------- As adjusted ----------------------- 2001 2000 2000 $ Change % Change --------- ---------- ----------- ----------- ----------- QUARTER ENDED JUNE 30, DonTech $ 125.2 $ 120.6 $ 120.6 $ 4.6 3.8% DAS 53.3 229.3 40.1 (a) 13.2 32.9 ------- ------- ------- ------- Total $ 178.5 $ 349.9 $ 160.7 $ 17.8 11.1% ======= ======= ======= ======= SIX MONTHS ENDED JUNE 30, DonTech $ 208.7 $ 199.3 $ 199.3 $ 9.4 4.7% DAS 98.2 368.1 90.3 (b) 7.9 8.7 ------- ------- ------- ------- Total $ 306.9 $ 567.4 $ 289.6 $ 17.3 6.0% ======= ======= ======= =======
(a) Excludes Bell Atlantic calendar sales of $93.4 million and one-time sales benefit of $95.8 million from the restructuring of the CenDon relationship for the quarter ended June 30, 2000. (b) Excludes Bell Atlantic calendar sales of $182.0 million and one-time sales benefit of $95.8 million from the restructuring of the CenDon relationship for the six months ended June 30, 2000. Calendar cycle sales for the quarter and six months ended June 30, 2001 were $178.5 million and $306.9 million, respectively, compared to as adjusted calendar sales of $160.7 million and $289.6 million for the quarter and six months ended June 30, 2000. DonTech sales in 2001 for the quarter and six months were higher than the comparable prior year periods due to sales growth in the DonTech markets, driven partially by improvements in the billing and collection processes implemented by SBC during 2001. The increase in DAS sales for the current year quarter compared to the prior year quarter was mainly due to the change in the timing of sales recognition resulting from the restructuring of the CenDon relationship in the second quarter of 2000. For the six-month period, the increase in 2001 compared to 2000 was driven partially by modest growth in the Sprint markets and partially by the timing of sales. Publication Cycle Basis We believe that an additional useful measure of sales performance is publication cycle sales. Publication cycle sales represent sales for directories that published in the current period regardless of when the advertising for that directory was sold. These sales are compared against sales for the same directories published in the prior year period. If events occur during the current year that effect the comparability of publication sales to the prior year, such as changes in directory publication dates or other contractual changes, then prior year publication sales are adjusted to conform to the current year presentation and maintain comparability. Accordingly, for comparative purposes, prior year DAS publication sales for the six months ended June 30, 2000 have been increased by $1.7 million. 15 16 Reported and as adjusted publication cycle advertising sales by segment are presented below:
2001 Reported vs. Reported As 2000 As adjusted ---------------------- adjusted ---------------------- 2001 2000 2000 $ Change % Change --------- ---------- ----------- ---------- ----------- QUARTER ENDED JUNE 30, DonTech $ 89.5 $ 87.5 $ 87.5 $ 2.0 2.3% DAS 28.9 218.6 28.3(a) 0.6 2.1 ------- ------- ------- ----- Total $ 118.4 $ 306.1 $ 115.8 $ 2.6 2.2% ======= ======= ======= ===== SIX MONTHS ENDED JUNE 30, DonTech $ 223.2 $ 219.1 $ 219.1 $ 4.1 1.9% DAS 80.5 314.9 76.8(b) 3.7 4.8 ------- ------- ------- ----- Total $ 303.7 $ 534.0 $ 295.9 $ 7.8 2.6% ======= ======= ======= =====
(a) Excludes Bell Atlantic sales of $190.3 million for the quarter ended June 30, 2000. (b) Excludes Bell Atlantic sales of $238.1 million for the six months ended June 30, 2000. Publication cycle sales for the quarter and six months ended June 30, 2001 were $118.4 million and $303.7 million, respectively, compared to as adjusted publication sales of $115.8 million and $295.9 million for the quarter and six months ended June 30, 2000. Publication sales at DonTech were up 2.3% in the quarter and 1.9% for the six months ended June 30, 2001 compared to the prior year periods due to growth in most markets, partially driven by improvements in the billing and collection processes implemented by SBC during 2001. Publication sales for DAS were also higher in 2001 compared to the 2000 periods due to modest growth in certain markets. However, growth in the DAS markets has been, and is projected to be for the remainder of 2001, below historical growth rates. A tightening of credit policies in light of the weakening economy has adversely impacted renewal rates and the weakening economy has also impacted the number of customers that increased their prior year advertising spending. NET REVENUE Net revenue consists principally of sales commissions earned on the value of advertising sold, less an estimate for potential claims and allowances, and fees for pre-press publishing services. Net revenues are derived entirely from our DAS segment. Reported and as adjusted net revenues were as follows:
2001 Reported vs. Reported 2000 As adjusted ---------------------- As adjusted ---------------------- 2001 2000 2000 $ Change % Change --------- ---------- ----------- ---------- ----------- QUARTER ENDED JUNE 30, $ 20.0 $ 60.2 $ 18.4(a) $ 1.6 8.7% ====== ======== ====== ===== SIX MONTHS ENDED JUNE 30, $ 38.9 $ 101.5 $ 37.7(b) $ 1.2 3.2% ====== ======== ====== =====
(a) Excludes Bell Atlantic revenue of $20.8 million and one-time revenue benefit from the CenDon restructuring of $21.0 million in the second quarter of 2000. (b) Excludes Bell Atlantic revenue of $42.8 million and one-time revenue benefit from the CenDon restructuring of $21.0 million for the six months ended June 30, 2000. Net revenue was $20.0 million and $38.9 million for the quarter and six months ended June 30, 2001, respectively, compared to as adjusted net revenue of $18.4 million and $37.7 million for the quarter and six months ended June 30, 2000. The $1.6 million, or 8.7% increase in the quarter was due to higher sales at DAS due to the change in revenue recognition associated with the restructuring of the CenDon relationship, slightly offset by lower pre-press publishing revenue due to timing factors. The $1.2 million, or 3.2% increase for the six-month period was due to the increase in DAS sales. 16 17 EXPENSES Reported and as adjusted expenses were as follows:
2001 Reported vs. Reported As 2000 As adjusted ---------------------- Adjusted ------------------------ 2001 2000 2000 $ Change % Change --------- ---------- ----------- ---------- ----------- QUARTER ENDED JUNE 30, Operating expenses $13.3 $38.6 $11.6(a) $ 1.7 14.7% G&A expenses 5.0 6.3 5.0(b) -- -- Provision for bad debts 1.0 2.0 0.8(c) 0.2 25.0 D&A expense 2.7 4.3 2.9(d) (0.2) (6.9) ----- ----- ----- ----- Total $22.0 $51.2 $20.3 $ 1.7 8.4% ===== ===== ===== ===== SIX MONTHS ENDED JUNE 30, Operating expenses $23.8 $69.3 $24.4(e) $(0.6) (2.5)% G&A expenses 9.2 14.4 11.7(f) (2.5) (21.4) Provision for bad debts 1.6 2.6 1.4(g) 0.2 14.3 D&A expense 5.6 8.8 6.1(h) (0.5) (8.2) ----- ----- ----- ----- Total $40.2 $95.1 $43.6 $(3.4) (7.8)% ===== ===== ===== =====
(a) Excludes Bell Atlantic operating expenses of $15.2 million, Cincinnati operating expenses of $0.1 million, GDS operating expenses of $2.3 million and one-time operating expenses of $9.4 from the CenDon restructuring for the second quarter of 2000. (b) Excludes general and administrative expenses for Bell Atlantic of $1.2 million and Cincinnati of $0.1 million for the second quarter of 2000. (c) Excludes one-time provision of $1.2 million from the CenDon restructuring. The provision for Bell Atlantic and Cincinnati for the second quarter of 2000 was minimal. (d) Excludes depreciation and amortization expense for Bell Atlantic of $1.3 million and Cincinnati of $0.1 million for the second quarter of 2000. (e) Excludes Bell Atlantic operating expenses of $30.4 million, Cincinnati operating expenses of $0.7 million, GDS operating expenses of $4.4 million and one-time operating expenses of $9.4 from the CenDon restructuring for the six months ended June 30, 2000. (f) Excludes general and administrative expenses for Bell Atlantic of $2.4 million and Cincinnati of $0.3 million for the six months ended June 30, 2000. (g) Excludes one-time provision of $1.2 million from the CenDon restructuring for the six months ended June 30, 2000. The provision for Bell Atlantic and Cincinnati for the six months ended June 30, 2000 was minimal. (h) Excludes depreciation and amortization expense for Bell Atlantic of $2.6 million and Cincinnati of $0.1 million for the six months ended June 30, 2000. Operating expenses were $13.3 million and $23.8 million for the quarter and six months ended June 30, 2001, respectively, compared to as adjusted operating expenses of $11.6 million and $24.4 million for the quarter and six months ended June 30, 2000. The increase of $1.7 million, or 14.7% in the quarter was primarily due to the timing of expenses associated with the restructuring of the CenDon relationship. The decrease of $0.6 million, or 2.5% for the six-month period was primarily due to lower publishing and information technology costs from improved operational efficiencies and headcount reductions, and lower expenses relating to our investment in ChinaBig due to the change in our role from an active investor to a passive investor. General and administrative expenses were $5.0 million and $9.2 million for the quarter and six months ended June 30, 2001, respectively, compared to as adjusted operating expenses of $5.0 million and $11.7 million for the quarter and six months ended June 30, 2000. For the quarter ended June 30, 2001, cost savings from the strategic actions taken in 2000 described above were offset by consulting costs incurred during the quarter. The decrease in the six-month period was due to cost cutting actions and headcount reductions. Provision for bad debts was $1.0 million and $1.6 million for the quarter and six months ended June 30, 2001, respectively, compared to as adjusted provision for bad debts of $0.8 million and $1.4 million for the quarter and six months ended June 30, 2000. The slight increase in the quarter and six-month periods is primarily due to the increase in sales. Depreciation and amortization expense was $2.7 million and $5.6 million for the quarter and six months ended 17 18 June 30, 2001, respectively, compared to as adjusted depreciation and amortization expense of $2.9 million and $6.1 million for the quarter and six months ended June 30, 2000. The decrease in the quarter and six-month periods is due to the write-off of assets associated with the strategic actions taken in 2000 as well as lower capital spending in 2001. PARTNERSHIP INCOME Partnership income by relationship was as follows:
2001 Reported vs. Reported As 2000 As adjusted ---------------------- Adjusted ---------------------- 2001 2000 2000 $ Change % Change --------- ---------- ----------- ---------- ----------- QUARTER ENDED JUNE 30, DonTech $ 37.1 $ 36.0 $ 36.0 $ 1.1 3.1% CenDon 4.1 7.7 2.3 (a) 1.8 78.3 ChinaBig -- (0.5) (0.5) 0.5 n/m ------ ------ ------ ----- Total $ 41.2 $ 43.2 $ 37.8 $ 3.4 9.0% ====== ====== ====== ===== SIX MONTHS ENDED JUNE 30, DonTech $ 59.1 $ 57.4 $ 57.4 $ 1.7 3.0% CenDon 9.1 15.0 9.6 (a) (0.5) (5.2) ChinaBig -- (1.0) (1.0) 1.0 n/m ------ ------ ------ ----- Total $ 68.2 $ 71.4 $ 66.0 $ 2.2 3.3% ====== ====== ====== =====
(a) Excludes one-time partnership income benefit of $5.4 million from the CenDon restructuring for the quarter and six-month periods ended June 30, 2000. Partnership income was $41.2 million and $68.2 million for the quarter and six months ended June 30, 2001, respectively, compared to as adjusted partnership income of $37.8 million and $66.0 million for the quarter and six months ended June 30, 2000. Partnership income from DonTech increased in the quarter and six-months ended June 30, 2001 primarily due to higher revenue participation income from the increase in sales. The year-to-date increase in DonTech partnership income was partially offset by lower equity income as the partnership incurred one-time employee benefit related expenses of $0.8 million in the first quarter of 2001 and recognized a one-time benefit of $0.4 million in the first quarter of 2000 from a favorable settlement of litigation. The increase in CenDon partnership income for the quarter and the decrease in the six-month period were primarily due to the restructuring of the CenDon relationship. As a result of the restructuring, the partnership income amounts for 2001 and 2000 as adjusted are not comparable. In 2001, we recognize a priority distribution on our interest in CenDon based on sales, while in 2000 we recognized our 50% share of the CenDon Partnership net income. We did not recognize any losses from ChinaBig in the 2001 periods due to the restructuring of this investment in 2000 and the corresponding change from equity method accounting to cost method accounting as previously discussed. OPERATING INCOME Operating income for DonTech includes our 50% interest in the profits of DonTech and revenue participation income from SBC, but does not include an allocation of certain operating and general and administrative expenses incurred to support this business. Operating income for DAS includes revenue and direct expenses incurred by each DAS business unit plus an allocation of certain shared operating and general and administrative expenses based on estimated business usage. DAS operating income also includes the priority distribution from Sprint on our membership interest in CenDon. General & Corporate represents overhead costs that are not allocated to the business segments. 18 19 Reported and as adjusted operating income by segment was as follows:
2001 Reported vs. Reported As 2000 As adjusted ---------------------- Adjusted ---------------------- 2001 2000 2000 $ Change % Change --------- ---------- ----------- ---------- ----------- QUARTER ENDED JUNE 30, DonTech $ 37.1 $ 36.0 $ 36.0 $ 1.1 3.1% DAS 6.0 22.1 3.5 (a) 2.5 71.4 GDS -- (2.3) -- (b) -- -- General & Corporate (3.9) (3.6) (3.6) (0.3) (8.3) ------ ------ ------ ----- Total $ 39.2 $ 52.2 $ 35.9 $ 3.3 9.2% ====== ====== ====== ===== SIX MONTHS ENDED JUNE 30, DonTech $ 59.1 $ 57.4 $ 57.4 $ 1.7 3.0% DAS 15.5 33.4 11.3 (c) 4.2 37.2 GDS -- (4.4) -- (b) -- -- General & Corporate (7.7) (8.6) (8.6) 0.9 10.5 ------ ------ ------ ----- Total $ 66.9 $ 77.8 $ 60.1 $ 6.8 11.3% ====== ====== ====== =====
(a) Excludes operating income from Bell Atlantic of $3.0 million, operating loss for Cincinnati of $0.2 million and a one-time operating income benefit of $15.8 million from the CenDon restructuring for the second quarter of 2000. (b) Excludes the operating loss for GDS for the quarter and six months ended June 30, 2000. (c) Excludes operating income from Bell Atlantic of $7.3 million, operating loss for Cincinnati of $1.0 million and a one-time operating income benefit of $15.8 million from the CenDon restructuring for the six months ended June 30, 2000. Reported operating income was $39.2 million and $66.9 million for the quarter and six months ended June 30, 2001, respectively, compared to as adjusted operating income of $35.9 million and $60.1 million for the quarter and six months ended June 30, 2000. See "- Partnership Income" above for an explanation of the increase in DonTech operating income for the quarter and six-month periods. The increase in DAS operating income for the quarter was due to the restructuring of the CenDon relationship and corresponding change in the timing of revenue and expense recognition, as well as sales growth and lower information technology costs. The year-to-date increase in DAS operating income was due to modest sales growth in Sprint and increased efficiencies and cost controls in information technology and publishing. In addition, there were costs and equity losses associated with ChinaBig in the quarter and six-month periods ended June 30, 2000, which are no longer being recognized in 2001. General & Corporate costs increased in the quarter primarily due to consulting costs, but were lower for the six month period due to continued cost controls. INTEREST AND TAXES Net interest expense was $6.2 million and $12.8 million for the quarter and six months ended June 30, 2001, respectively, compared to $9.2 million and $18.4 million for the quarter and six months ended June 30, 2000. The decrease in 2001 is primarily due to the prepayment of $90 million of debt in the third quarter of 2000 and an additional $50 million in the first quarter of 2001. The effective tax rate for the quarter and six months ended June 30, 2001 was 37.5% compared to 38.2% for the second quarter 2000 and 38.5% for the six months ended June 30, 2000. The decrease in the effective rate is due to various previously disclosed actions taken during 2000. EXTRAORDINARY LOSS In connection with the prepayment of debt in the first quarter of 2001, we recognized an extraordinary after-tax loss of $0.3 million from the write-off of related deferred financing costs. The extraordinary loss had the effect of reducing diluted earnings per share by $0.01 in the six-month period ended June 30, 2001. 19 20 NET INCOME AND EARNINGS PER SHARE Net income for the second quarter 2001 was $20.6 million, or $0.66 per diluted share compared to net income of $81.9 million, or $2.50 per diluted share for the second quarter 2000. For the six month period ended June 30, 2001, net income was $33.5 million, or $1.06 per diluted share compared to net income of $91.5 million, or $2.78 per diluted share for the six months ended June 30, 2000. However, as described above, the 2000 results include the gain from the Bell Atlantic and Cincinnati transactions ($55.0 million after-tax) and the one-time benefit from the restructuring of the CenDon relationship ($9.7 million after-tax). Excluding these items, net income for the second quarter 2000 was $17.1 million, or $0.52 per diluted share, and $26.8 million, or $0.82 per diluted share for the six months ended June 30, 2000. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2001, we had cash on hand of $7.7 million and borrowing capacity of $100 million under our $100 million Senior Revolving Credit Facility (the "Revolver"). Net cash provided by operations was $34.7 million for the first half of 2001 compared to $102.2 million in the first half of 2000. The decrease of $67.5 million was driven primarily by lower accounts receivable collections and higher accounts payable and accrued liability payments. Accounts receivable collections for the six month period ended June 30, 2000 included $57 million for Bell Atlantic directories that published during the period as well as payment for sales made prior to the sale of the Bell Atlantic operation for directories that had not yet published. Also affecting the cash flow from accounts receivable is the change in the timing of receivable recognition and receipt of commission payments resulting from the restructuring of the CenDon relationship. Under the modified arrangement, commissions receivable are recognized at the time of sale and payment is received in the month of directory publication whereas, under the prior partnership arrangement, commissions receivable were recognized in the month of directory publication and payment was received in the month following publication. The higher liability payments in the six months ended June 30, 2001 compared to June 30, 2000 was due to the payment of severance and other items relating to the sale of the Bell Atlantic, Cincinnati and GDS businesses, higher bonus payments made in 2001 versus 2000 resulting from the strong full-year 2000 financial performance, and higher estimated tax payments. We believe that cash from operations and available debt capacity under the Revolver will be sufficient to fund our operations and meet our anticipated investment, capital expenditures and debt service requirements for the foreseeable future. Net cash used in investing activities during the first half of 2001 was $3.5 million compared to net cash provided by investing activities of $112.6 million in the first half of 2000, which included proceeds of $122 million from the sale of our Bell Atlantic and Cincinnati operations. Expenditures for fixed assets and computer software during the first half of 2001 were $1.9 million, $3.6 million lower than the previous year period due to lower capital expenditure requirements as a result of the strategic actions taken in 2000. Finally, we made additional investments in ChinaBig of $1.6 million and $3.9 million during the first six months of 2001 and 2000, respectively. The $1.6 million investment made in 2001 represented our final required payment for this investment. We currently have no material commitments for investment spending or capital expenditures. Net cash used in financing activities was $79.0 million in the first half of 2001 compared to $26.1 million in the first half of 2000. The increase over the prior year is primarily due to the prepayment of $50 million of debt in the first quarter and higher spending to repurchase shares of our common stock under both our systematic share repurchase plan and our open market share repurchase plan. At June 30, 2001, we had available authorization to repurchase an additional $46.3 million of common stock under our $100 million open market share repurchase plan through April 2002, and to repurchase 2.2 million shares under the systematic share repurchase plan to offset the dilutive impact on earnings of the exercise of employee stock options. MARKET RISK SENSITIVE INSTRUMENTS We are exposed to interest rate risk on our variable rate debt. In order to manage our exposure to fluctuations in interest rates, we entered into interest rate swap agreements which allow us to raise funds at floating rates and effectively swap them into fixed rates that are lower than those available if fixed rate borrowings were made 20 21 directly. These derivative financial instruments are viewed as risk management tools and are entered into for hedging purposes only. We do not use derivative financial instruments for trading or speculative purposes. As of June 30, 2001 there was $125 million outstanding notional amount of interest rate swaps. On June 18, 2001, an interest rate swap agreement with a notional value of $50 million expired and due to the Company's reduced level of indebtedness, the interest rate swap agreement was not replaced. The unrealized fair value of the swaps was a loss of $2.3 million at June 30, 2001. In accordance with FAS 133, "Accounting for Derivative Instruments and Hedging Activities," which became effective for the Company on January 1, 2001, this fair value loss was recognized on the balance sheet in other liabilities with a corresponding charge to accumulated other comprehensive loss, a component of shareholders' deficit. Item 3. Quantitative and Qualitative Disclosure About Market Risk The requirements of this Item are discussed in Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations "- Market Risk Sensitive Instruments." 21 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the discussion of legal proceedings under Item 3 of Part I in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 ("10-K"). Except as described in Footnote 7 to the Consolidated Financial Statements set forth in Item 1 of this From 10-Q, there has been no material change in the information with respect to legal proceedings from that set forth in the 10-K. The Company is also involved in certain legal proceedings incidental to the normal conduct of its business. Although there can be no assurances, management believes that the outcome of such legal proceedings will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Stockholders ("Meeting") in White Plains, N.Y. on May 1, 2001. At the Meeting, the Company's stockholders elected the three Class II Directors nominated for election by the Board of Directors to serve three-year terms as follows:
Votes Name Votes For Withheld ---- --------- -------- Kenneth G. Campbell 27,405,852 708,311 Carol J. Parry 27,063,255 1,050,908 Barry Lawson Williams 27,404,828 709,335
The other members of the Company's Board of Directors, Diane P. Baker, William G. Jacobi, Robert Kamerschen, Peter J. McDonald and Frank R. Noonan, were not subject to re-election by stockholders this year and continue in office. At the Meeting, the Company's stockholders also approved the 2001 Stock Award and Incentive Plan and ratified the appointment of PricewaterhouseCoopers LLP ("PwC") as the Company's independent accountants for 2001 as follows:
Votes For Votes Against Abstentions --------- ------------- ----------- Approval of 2001 Stock Award and Incentive Plan 16,867,827 6,294,400 107,426 Ratification of the appointment of PwC 27,828,491 255,377 30,295
22 23 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits EXHIBIT NO. DOCUMENT 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.3 Certificate of Incorporation of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 3.4 By-laws of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.1 Indenture dated as of June 5, 1998 between R.H. Donnelley Inc., as Issuer, the Company, as Guarantor, and the Bank of New York, as Trustee, with respect to the 91/8% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1) 4.3 Company Guarantee (included in Exhibit 4.1) 4.4 Rights Agreement, dated as of October 27, 1998 between R.H. Donnelley Corporation and First Chicago Trust Company (incorporated by reference to Exhibit 4 to the Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on November 5, 1998, Registration No. 001-07155) 4.5 Amendment No. 1 to Rights Agreement dated as of February 26, 2001 by and among R.H. Donnelley Corporation, First Chicago Trust Company of New York (as initial Rights Agent) and The Bank of New York (as successor Rights Agent) (incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.1 Form of Distribution Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.2 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.2 Form of Tax Allocation Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.3 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.3 Form of Employee Benefits Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.4 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 23 24 10.4 Form of Intellectual Property Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.5 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.5 Form of Amended and Restated Transition Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation), The New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and Gartner Group, Inc. (incorporated by reference to Exhibit 99.9 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.6 Credit Agreement among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent and the Lenders party thereto (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 10.7 First Amendment to Credit Agreement, dated as of March 4, 1999, among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 10.8 DonTech II Partnership Agreement, effective August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois, Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.9 Revenue Participation Agreement, dated as of August 19, 1997, by and between APIL Partners Partnership and R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.10 Master Agreement, executed August 19, 1997, by and among R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation), the Company (f/k/a The Dun & Bradstreet Corporation), The Am-Don Partnership a/k/a DonTech, DonTech II, Ameritech Publishing, Inc., Ameritech Publishing of Illinois, Inc., Ameritech Corporation, DonTech I Publishing Company LLC and the APIL Partners Partnership (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.11 Exclusive Sales Agency Agreement, effective August 19, 1997, between APIL Partners Partnership and DonTech II (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.12 Second Amended and Restated Partnership Agreement, effective as of August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.13/\ Key Employees' Performance Unit Plan, as amended and restated (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 24 25 10.14/\ 1991 Key Employees' Stock Option Plan, as amended and restated through April 25, 2000 (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2000, Commission File No. 001-07155) 10.15/\ Amended and Restated 1998 Directors' Stock Plan (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 001-07155) 10.16/\ Annual Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.18 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.17/\ Supplemental Executive Benefit Plan (incorporated by reference to Exhibit 10.19 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.18/\ Deferred Compensation Plan (incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on November 24, 1999, Registration No. 333-91613) 10.19/\ Employment Agreement dated as of September 28, 1998 between the Company and Frank R. Noonan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.20/\ Employment Agreement dated as of September 28, 1998 between the Company and Philip C. Danford (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.21/\ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Phillip C. Danford (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.22/\ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and Phillip C. Danford (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.23/\ Employment Agreement dated as of September 28, 1998 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.24/\ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.25/\ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.26/\ Employment Agreement dated as of September 28, 1998 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 001-07155) 10.27/\ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 25 26 10.28/\ Amendment No. 2 to the Employment Agreement dated as of February 27, 2001 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.29/\ Separation Agreement and Release dated as of March 15, 2001 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.30/\ Employment Agreement dated as of March 23, 2000 between Get Digital Smart.com, Inc. and Thomas A. Daniel (incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.31/\ Separation Agreement and Release dated as of February 28, 2001 between Get Digital Smart.com and Thomas A. Daniel (incorporated by reference to Exhibit 10.31 to the Annual Report on From 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.32/\ Employment Agreement dated as of September 28, 1998 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.33/\ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.34/\ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.34 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.35/\ Employment Agreement dated as of September 26, 2000 between the Company and William C. Drexler (incorporated by reference to Exhibit 10.35 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.36/\ Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and William C. Drexler (incorporated by reference to Exhibit 10.36 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.37/\ Employment Agreement dated as of January 1, 2001 between the Company and Robert J. Bush (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.38/\ Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and Robert J. Bush (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.39/\ 2001 Partner Share Plan (incorporated by reference to Exhibit 99.1 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on April 30, 2001, Registration No. 333-59790) 10.40/\ 2001 Stock Award and Incentive Plan 10.41/\ Non-qualified Stock Option Agreement (incorporated by reference to Exhibit 99.02 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July 25, 2001, Registration No. 333-65822) 26 27 10.42/\ Form of Annual Incentive Program Award (incorporated by reference to Exhibit 99.03 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July 25, 2001, Registration No. 333-65822) 10.43/\ Form of Performance Unit Program Award (incorporated by reference to Exhibit 99.04 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July 25, 2001, Registration No. 333-65822) - ---------------------- /\ Management contract or compensatory plan (b) Reports on Form 8-K: None 27 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R.H. DONNELLEY CORPORATION Date: August 10, 2001 By: /s/ Philip C. Danford --------------------- Philip C. Danford Senior Vice President and Chief Financial Officer Date: August 10, 2001 By: /s/ William C. Drexler ---------------------- William C. Drexler Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R.H. DONNELLEY INC. Date: August 10, 2001 By: /s/ Philip C. Danford --------------------- Philip C. Danford Senior Vice President and Chief Financial Officer Date: August 10, 2001 By: /s/ William C. Drexler ---------------------- William C. Drexler Vice President and Controller 28 -----END PRIVACY-ENHANCED MESSAGE-----