EX-99.1 3 l96387aexv99w1.txt ANNOUNCMENT Exhibit 99.1 [R.H. Donnelley Logo] CREATING THE LEADING PUBLIC STAND-ALONE U.S. DIRECTORY COMPANY [graphic of yellow pages] September 2002 FORWARD-LOOKING STATEMENT Certain statements contained in this presentation 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," "will," "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 R.H. Donnelley's current beliefs and assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to R.H. Donnelley. Accordingly, the statements are subject to significant risks, uncertainties and contingencies which could cause R.H. Donnelley's actual operating results, performance or business plans or prospects to differ from those expressed in, or implied by, these statements. Such risks, uncertainties and contingencies are described in detail in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, as well as the Company's other periodic filings with the Securities and Exchange Commission, and in summary and without limitation include the following: (1) dependence on a limited number of relationships and on our business partners; (2) uncertainties caused by the consolidation of the telecommunications industry and/or changes in the yellow pages industries; (3) introduction of competing products or technologies by other companies and/or pricing pressures from competitors and/or customers; (4) reversal or slowdown of the modest economic recovery presently being experienced in the United States, especially with respect to the markets in which we operate and/or residual economic effects of, and uncertainties regarding (i) the terrorist attacks that occurred on September 11, 2001, (ii) the general possibility or express threat of similar terrorist or other related disruptive events, and (iii) future occurrence of similar terrorist or other related disruptive events, especially with respect to the major markets in which we operate that depend so heavily upon travel and tourism; (5) risks related to the varying opportunities for the Company's use of its cash flow; and (6) any share repurchases would be subject to market conditions and compliance with legal restrictions and the Company's debt covenants. Additional risks that would cause forward-looking statements to differ materially from such statements include, without limitation, the failure to consummate the acquisition and related financing, the inability of R.H. Donnelley to achieve synergies in connection with the acquisition, the incurrence of unexpected costs in connection with the acquisition and other contingencies and risks relating to the integration of Sprint's directory publishing operations and business. 2 [R.H. Donnelley Logo] DAVID SWANSON PRESIDENT & CEO 3 STRATEGIC RATIONALE o Transforms RHD into an owner / operator from sales agent o Creates platform for growth o Sprint directories are an attractive asset and represent a unique opportunity for RHD o Highly desirable major and mid-sized markets o Strong, stable and predictable cash flows o Enhances value of RHD's existing business o One-third of business already managed by RHD o Capitalizes on RHD management's core competencies o Deep and experienced management o RHD has run all aspects of yellow pages publishing o Creates nation's largest public stand-alone publisher of yellow pages directories o Well-positioned for future industry consolidation DELIVERS ENHANCED VALUE TO SHAREHOLDERS 4 TRANSACTION SUMMARY Purchase Price: $2.23 billion cash Financing: Committed debt financing provided by Bear Stearns, Deutsche Bank and Salomon Smith Barney Equity Investment of $200 million by Goldman Sachs Capital Partners through purchase of convertible preferred stock Structure: Stock purchase with 338(h)(10) tax election, allowing for significant benefits Expected Closing: First Quarter 2003, subject to customary closing conditions Accretion: Substantially accretive to Cash EPS in 2003 Advisors: Bear Stearns and Morgan Stanley 5 SPRINT DIRECTORY BUSINESS [graphic of cover page of Las Vegas Directory] o Sprint Yellow Pages is the sixth largest directory publisher in the U.S. o Expected to generate approximately $540 million in revenue and approximately $260 million in EBITDA in 2002 o 260 directories with an annual circulation of 18 million o Major markets: Las Vegas / Orlando / Ft. Myers o Leading usage and market share o Customer Base: 156,000 local advertisers, 4,700 national advertisers o 1,000 Employees, includes 550 sales and sales management professionals 6 CURRENT PROFILE OF RHD Sales agent and pre-press vendor for yellow pages advertising for 2 LECs: o Sprint Relationship (began in 1980) o Covers 41 directories in four states under contracts through 2004 & 2010 o Pre-press publishing services under a separate contract through 2003 o SBC Relationship (began in 1908) o 50% interest in DonTech, a perpetual partnership with SBC, to sell yellow pages advertising for 129 directories in Illinois and NW Indiana o Pre-press publishing services under a separate contract through 2008 o Major markets of Las Vegas, Orlando and Chicago o 2002 Estimated EBITDA of $147 million o 600 employees, including 160 sales and sales management professionals 7 THE NEW R.H. DONNELLEY o Nation's largest public stand-alone publisher of yellow pages directories with attractive demographics and growth opportunities o Pro forma 2002 Estimated EBITDA of $400 million o Publisher of 260 Sprint directories in 18 states o Sells yellow pages advertising for 129 SBC directories through DonTech o Serves approximately 156,000 local and 4,700 national advertisers in Sprint markets and 120,500 local advertisers through DonTech 8 THE NEW R.H. DONNELLEY [GRAPHIC: MAP OF U.S. DEPICTING STATES WITH EXISTING RHD-SOLD MARKETS FOR SPRINT AND STATES WHERE EACH OF SPRINT AND DONTECH OPERATE; ALSO DEPICTS HEADQUARTERS OF RHD IN PURCHASE, NY AND HEADQUARTERS OF SPRINT DIRECTORIES BUSINESS IN OVERLAND PARK, KS] SPRINT MARKETS o Broad Footprint o 5 million households o 37 of the top 150 MSAs o 260 directories in 18 states o Attractive Demographics o Projected growth rates in top 10 markets - 1.4% p.a. higher than national average o Strong Customer Base o Sales renewal rates in excess of 90% DONTECH MARKETS o Footprint o 3 million households o 129 directories in Illinois, including Chicago and NW Indiana o Attractive Demographics o Chicago area rated as #1 market in U.S. for consumer spending o Strong Customer Base o Sales renewal rates in excess of 90% 9 RHD MANAGEMENT TEAM
YELLOW PAGES & ADVERTISING NAME POSITION EXPERIENCE ---- -------- ------------- David C. Swanson President & CEO 23 Steven M. Blondy SVP & CFO 8 Peter J. McDonald SVP - RHD & President - Donnelley Media 29 Bruce C. Disbrow President - DonTech 23 George F. Bednarz VP & GM, Publishing & IT 7
TOP 5 EXECUTIVES HAVE 90 YEARS OF COMBINED EXPERIENCE IN THE YELLOW PAGES AND ADVERTISING INDUSTRIES 10 [R.H. Donnelley Logo] STEVEN BLONDY SVP & CHIEF FINANCIAL OFFICER 11 COMPARES FAVORABLY TO RECENT TRANSACTIONS
Sprint QwestDex Bell ActiMedia ------ -------- -------------- PURCHASE PRICE $2.23Bn $7.05Bn C$3.00Bn 2002 EST. EBITDA $260MM $950MM(2) C$345MM MULTIPLE 8.6x / <8.0x (1) 7.4x 8.7x LICENSE / NON-COMPETE 50 yrs. / 50 yrs. 50 yrs./ 40 yrs. na / 30 yrs. LEVERAGE 5.9x >6.0x 6.1x COMMENTS o Attractive mix of o 2-stage closing with o Canadian markets uncertainty of presence only consummation of 2nd step o One-third of business o Unionized workforce o Limited margin already serviced by RHD upside o Ability to leverage o Qwest-specific issues o Limited synergy RHD infrastructure/ opportunities management o Strategic o Limited margin upside repositioning of RHD o Limited synergy opportunities
(1) After expected operating efficiencies and synergies (2) Source: Morgan Stanley Fixed Income Research 8/28/02 12 PROJECTED PRO FORMA COMBINED 2002 INCOME STATEMENT
$ millions Old RHD New RHD ------- ------- Advertising Sales $ 605 $970 Revenue 73 567 EBITDA 147 400 EPS $ 2.42(1) $ 1.46 Cash EPS (2)(3) $ 2.42 $ 3.79
EPS DILUTION FROM AMORTIZATION OF INTANGIBLES CASH EPS SUBSTANTIALLY ACCRETIVE (1) Management guidance (2) Cash EPS equals EPS plus estimated amortization of intangibles and permanent difference in book versus cash taxes due to tax benefit from deductible amortization of purchase price (3) Amortization of intangibles is based on preliminary purchase price allocation 13 SYNERGY OPPORTUNITIES o Long historical relationship - deep insight into business o Readily achievable cost synergies o Eliminate redundant publishing/sales systems and pre-press facility o Reduce IT costs related to consolidation of systems o Eliminate redundant general and administrative functions o Combined company in better position to realize revenue opportunities ANNUALIZED OPERATING EFFICIENCIES AND COST SAVINGS OF $30 - $35 MILLION BY 2004 14 338(H)(10) TAX BENEFITS
$ millions o Transaction treated as an asset purchase for tax purposes o Purchase Price $2,230 Less: Existing tax basis in assets acquired 200 ----- "Asset Step-Up" $2,030 o Tax Life - 15 years
ANNUAL TAX BENEFIT OF APPROXIMATELY $50 MILLION 15 SOURCES AND USES
$ millions Sources: Debt $ 2,365 Convertible Preferred Stock 200 ----- Total Sources $ 2,565 Uses: Purchase Price $ 2,230 Refinance Existing Debt & Other 335 ----- Total Uses $ 2,565
16 PRO FORMA CAPITALIZATION
$ millions Total Debt $ 2,365(1) Market Capitalization & Preferred Stock 900(2) Enterprise Value $ 3,265 Debt / 2002 Estimated EBITDA 5.9x
(1) Second quarter 2002 10-Q adjusted to give effect to the transaction (2) Based on 9/20/02 closing price of $23.59 17 STRONG FREE CASH FLOW GENERATION o Strong recurring revenues drive stable and predictable cash flows o Minimal capex and working capital requirements o Tax benefit from 338(h)(10) election [graphic: arrow] EXPECT FREE CASH FLOW AVAILABLE TO AMORTIZE DEBT OF AT LEAST $150 MILLION IN 2003 18 INTERMEDIATE-TERM FINANCIAL GOALS
2003 Thereafter ---- ---------- o Revenue Growth 1 - 2% 3 - 4% o EBITDA Growth 1 - 2% 4 - 6% o Total Debt / Estimated 2002 EBITDA - 5.9x, with meaningful de-levering over time
19 [R.H. DONNELLEY LOGO] DAVID SWANSON PRESIDENT & CEO 20 A UNIQUE OPPORTUNITY FOR RHD o Transforms RHD into an owner / operator from sales agent o Sprint directories are an attractive asset and represent a unique opportunity for RHD o Capitalizes on RHD management's core competencies o Creates nation's largest public stand-alone publisher of yellow pages directories DELIVERS ENHANCED VALUE TO SHAREHOLDERS 21 [R.H. DONNELLEY LOGO] CREATING THE LEADING PUBLIC STAND-ALONE U.S. DIRECTORY COMPANY [GRAPHIC OF YELLOW PAGES DIRECTORY] September 2002 22