8-K 1 a4439127.txt R.H. DONNELLEY 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): July 23, 2003 R.H. DONNELLEY CORPORATION (Exact Name of Registrant as Specified in Charter) Delaware 1-07155 13-2740040 -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) One Manhattanville Road, Purchase, New York 10577 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) R.H. DONNELLEY INC.* (Exact Name of Registrant as Specified in Charter) Delaware 333-59287 36-2467635 -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) One Manhattanville Road, Purchase, New York 10577 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrants' telephone number, including area code: (914) 933-6400 Not Applicable (Former Name or Former Address, if Changed Since Last Report) *R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley Corporation, which became subject to the filing requirements of Section 15(d) on October 1, 1998 in connection with the public offering of its 9 1/8% senor subordinated notes due 2008. R.H. Donnelley Inc. is also the obligor of 8 7/8% senior notes due 2010 and 10 7/8% senior subordinated notes due 2012. As of July 1, 2003, 100 shares of R.H. Donnelley Inc. common stock, no par value, were outstanding. Item 9. Regulation FD Disclosure (Information is being furnished under Item 12) This Current Report on Form 8-K ("Form 8-K") is being furnished by R.H. Donnelley Corporation (the "Company" or "Donnelley") to disclose quarterly publication cycle advertising sales ("publication sales") and adjusted pro forma financial results ("adjusted pro forma results") for each of the quarters ended March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 that give effect to the Company's acquisition of Sprint Publishing & Advertising ("SPA"), the directory publishing business previously owned by Sprint Corporation assuming that the acquisition occurred on January 1, 2002. Each of these is a non-GAAP (as defined below) financial measure. See the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on May 2, 2003 (the "Initial 8-K") for a detailed discussion of these measures, the most comparable GAAP financial measures, why management believes these non-GAAP financial measures provide useful information to investors regarding the Company's financial condition and results of operations, and other purposes for which management uses these non-GAAP financial measures. Because of the SPA acquisition, related financing and associated accounting, the Company's 2003 results prepared in accordance with generally accepted accounting principles ("GAAP") are not comparable to the Company's 2002 GAAP results previously reported. Therefore, in order to facilitate meaningful period-over-period comparisons of financial results, each quarter during 2003, the Company presently intends to publicly disclose, in addition to 2003 and 2002 GAAP results, adjusted and as adjusted pro forma results for the 2003 and 2002 quarterly periods (and year-to-date, as applicable), respectively. The 2002 adjusted pro forma results are reflected on the adjusted pro forma statements included as Schedule 1 and a reconciliation between 2002 GAAP results and 2002 adjusted pro forma results is provided for each respective period on Schedules 2 through 5. The quarterly 2002 adjusted pro forma statements included in this Form 8-K reflect the significant increase in interest expense due to the highly leveraged nature of the Company after the acquisition, the amortization of acquired identifiable intangible assets, the fair value adjustment for deferred directory costs, the elimination of transactions between the Company and SPA that would have been intercompany transactions and the dividend on the Preferred Stock issued in connection with the financing of the acquisition, including the beneficial conversion feature ("BCF"). Each of these items is described in further detail in the Initial 8-K and the footnotes to the adjusted pro forma statements included herein. These quarterly 2002 adjusted pro forma statements were prepared in accordance with Article 11 of Regulation S-X, with the exception of the exclusion of a BCF of $62.4 million in the first quarter of 2002 and SPA other income of $0.4 million for the first quarter 2002, $0.2 million for the second quarter 2002, $0.4 million for the third quarter 2002 and $0.5 million for the fourth quarter 2002. SPA other income represents interest earned on advances from Sprint Corporation and are being excluded from the adjusted pro forma results as similar transactions will not occur subsequent to the acquisition. The calculation of adjusted pro forma EPS is calculated as net income before the dividend on the Preferred Stock divided by the weighted average shares outstanding, assuming the Preferred Stock was converted to common stock at the beginning of the period. While the adjusted pro forma statements reasonably represent results as if the two businesses had been combined for the full year 2002, because of differences between current and historical accounting policies, management does not believe these statements are strictly comparable to 2003 on a quarterly basis. The adjusted pro forma statements are provided for informational purposes only and do not purport to represent what the combined financial position or results of operations actually would have been had the SPA acquisition and related financing and other pro forma adjustments occurred on the dates indicated. Additionally, the adjusted pro forma statements are not necessarily indicative of the future financial condition or results of operations of Donnelley. The adjusted pro forma statements for the three months ended March 31, 2002, June 30, 2002 and September 30, 2002 have been derived from, and should be read in conjunction with, the GAAP financial statements included in Donnelley's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002, June 30, 2002 and September 30, 2002, respectively. The adjusted pro forma statement for the three months ended December 31, 2002 has been derived from, and should be read in conjunction with, the GAAP financial statements included in Donnelley's 1 Annual Report on Form 10-K for the year ended December 31, 2002 (as well as the preceding Quarterly Reports on Form 10-Q). In addition, the adjusted pro forma statements should be read in conjunction with the audited financial statements of SPA and the pro forma financial information included in Donnelley's Amendment No. 1 to Current Report on Form 8-K/A filed with the SEC on March 19, 2003. As indicated in the Initial 8-K, the Company will publicly disclose publication sales as its primary sales performance metric because management believes that a comparison of publication sales for the same directories from one period to another gives the best indication of underlying sales trends. Publication sales represent the billable value of advertising sales in directories that published in the period. Because of the deferral and amortization basis of revenue recognition, revenue does not provide a useful indication of underlying sales trends. Publication sales for the quarters ended March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 were $143.1 million, $132.5 million, $156.8 million and $109.3 million, respectively. A reconciliation of publication sales to the most comparable GAAP financial measure, net revenue, is provided on Schedule 6. 2
Schedule 1 DONNELLEY PRO FORMA COMBINED INCOME STATEMENT (Unaudited) Adjusted Pro Forma Financial Results For the Quarter Ended ---------------------------------------------------------------- March June September December 2002 Full Year 2002 (in thousands, except per share 2002 (a) 2002 (b) 2002 (c) (d) data) -------------- ----------------- --------------- --------------- ---------------- Net revenues $ 144,587 $ 142,460 $ 142,318 $ 141,917 $ 571,282 Expenses Operating expenses 63,893 67,254 57,190 52,277 240,614 General & administrative expenses 10,624 8,174 9,796 11,980 40,574 Depreciation and amortization 16,239 16,181 16,189 16,077 64,686 Restructuring benefit -- 218 145 (6,588) (6,225) Investment impairment charge -- -- -- 2,000 2,000 -------------- ----------------- --------------- --------------- ---------------- Total expenses 90,756 91,827 83,320 75,746 341,649 Partnership and joint venture income 21,905 36,627 34,430 24,184 117,146 -------------- ----------------- --------------- --------------- ---------------- Operating income 75,736 87,260 93,428 90,355 346,779 Interest expense, net 45,959 46,294 46,242 46,670 185,165 Other expense, net -- -- -- 451 451 -------------- ----------------- --------------- --------------- ---------------- Income before taxes 29,777 40,966 47,186 43,234 161,163 Provision for income taxes 11,136 15,277 17,658 17,809 61,880 -------------- ----------------- --------------- --------------- ---------------- Net income 18,641 25,689 29,528 25,425 99,283 Preferred Stock dividend 4,000 4,080 4,162 4,244 16,486 -------------- ----------------- --------------- --------------- ---------------- Net income available to common shareholders $ 14,641 $ 21,609 $ 25,366 $ 21,181 $ 82,797 -------------- ----------------- --------------- --------------- ---------------- Earnings per share (EPS) Basic $ 0.49 $ 0.67 $ 0.77 $ 0.66 $ 2.57 Diluted 0.48 0.65 0.76 0.64 2.52 Weighted average shares outstanding Basic 37,935 38,344 38,532 38,718 38,645 Diluted 38,795 39,229 39,094 39,463 39,379 (a) See Schedule 2 for the reconciliation of GAAP Reported results to Adjusted Pro Forma results. (b) See Schedule 3 for the reconciliation of GAAP Reported results to Adjusted Pro Forma results. (c) See Schedule 4 for the reconciliation of GAAP Reported results to Adjusted Pro Forma results. (d) See Schedule 5 for the reconciliation of GAAP Reported results to Adjusted Pro Forma results.
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Schedule 2 DONNELLEY PRO FORMA COMBINED INCOME STATEMENT (Unaudited) For the Quarter Ended March 31, 2002 Donnelley Adjusted (in thousands, except per share data) Historical Adjustments Pro Forma ---------- ----------- --------- Net revenues $ 18,828 $ 125,759 (1) $ 144,587 Expenses Operating expenses 11,666 52,227 (2) 63,893 General & administrative expenses 5,045 5,579 (3) 10,624 Depreciation and amortization 1,608 14,631 (4) 16,239 ---------------- -------------------- ------------------- Total expenses 18,319 72,437 90,756 Partnership and joint venture income 27,148 (5,243)(6) 21,905 ---------------- -------------------- ------------------- Operating income 27,657 48,079 75,736 Interest expense, net 6,222 39,737 (7) 45,959 ---------------- -------------------- ------------------- Income before taxes 21,435 8,342 29,777 Provision for income taxes 8,253 2,883 (8) 11,136 ---------------- -------------------- ------------------- Net income 13,182 5,459 18,641 Preferred Stock dividend -- 4,000 (9) 4,000 ---------------- -------------------- ------------------- Net income available to common shareholders $ 13,182 $ 1,459 $ 14,641 ---------------- -------------------- ------------------- Earnings per share (EPS) Basic $ 0.45 $ 0.04 $ 0.49(12) Diluted 0.44 0.04 0.48(12) Weighted average shares outstanding Basic 29,453 8,482(11) 37,935 Diluted 30,173 8,622(11) 38,795
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Schedule 3 DONNELLEY PRO FORMA COMBINED INCOME STATEMENT (Unaudited) For the Quarter Ended June 30, 2002 Donnelley Adjusted (in thousands, except per share data) Historical Adjustments Pro Forma ---------- ----------- --------- Net revenues $ 19,894 $ 122,566 (1) $ 142,460 Expenses Operating expenses 14,088 53,166 (2) 67,254 General & administrative expenses 4,502 3,672 (3) 8,174 Depreciation and amortization 1,557 14,624 (4) 16,181 Restructuring and special charge 218 -- 218 ---------------- -------------------- ------------------- Total expenses 20,365 71,462 91,827 Partnership and joint venture income 40,864 (4,237)(6) 36,627 ---------------- -------------------- ------------------- Operating income 40,393 46,867 87,260 Interest expense, net 5,973 40,321 (7) 46,294 ---------------- -------------------- ------------------- Income before taxes 34,420 6,546 40,966 Provision for income taxes 13,251 2,026 (8) 15,277 ---------------- -------------------- ------------------- Net income 21,169 4,520 25,689 Preferred Stock dividend -- 4,080 (9) 4,080 ---------------- -------------------- ------------------- Net income available to common shareholders $ 21,169 $ 440 $ 21,609 ---------------- -------------------- ------------------- Earnings per share (EPS) Basic $ 0.71 $ (0.04) $ 0.67(12) Diluted 0.70 (0.05) 0.65(12) Weighted average shares outstanding Basic 29,692 8,652(11) 38,344 Diluted 30,415 8,814(11) 39,229
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Schedule 4 DONNELLEY PRO FORMA COMBINED INCOME STATEMENT (Unaudited) For the Quarter Ended September 30, 2002 Donnelley Adjusted (in thousands, except per share data) Historical Adjustments Pro Forma ---------- ----------- --------- Net revenues $ 21,376 $ 120,942 (1) $ 142,318 Expenses Operating expenses 11,912 45,278 (2) 57,190 General & administrative expenses 2,725 7,071 (3) 9,796 Depreciation and amortization 1,553 14,636 (4) 16,189 Restructuring and special charge -- 145 (5) 145 ---------------- -------------------- ------------------- Total expenses 16,190 67,130 83,320 Partnership and joint venture income 40,806 (6,376)(6) 34,430 ---------------- -------------------- ------------------- Operating income 45,992 47,436 93,428 Interest expense, net 5,247 40,995 (7) 46,242 ---------------- -------------------- ------------------- Income before taxes 40,745 6,441 47,186 Provision for income taxes 15,686 1,972 (8) 17,658 ---------------- -------------------- ------------------- Net income 25,059 4,469 29,528 Preferred Stock dividend -- 4,162 (9) 4,162 ---------------- -------------------- ------------------- Net income available to common shareholders $ 25,059 $ 307 $ 25,366 ---------------- -------------------- ------------------- Earnings per share (EPS) Basic $ 0.84 $ (0.07) $ 0.77(12) Diluted 0.83 (0.07) 0.76(12) Weighted average shares outstanding Basic 29,707 8,825(11) 38,532 Diluted 30,269 8,825(11) 39,094
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Schedule 5 DONNELLEY PRO FORMA COMBINED INCOME STATEMENT (Unaudited) For the Quarter Ended December 31, 2002 Donnelley Adjusted (in thousands, except per share data) Historical Adjustments Pro Forma ---------- ----------- --------- Net revenues $ 15,328 $ 126,589 (1) $ 141,917 Expenses Operating expenses 10,375 41,902 (2) 52,277 General & administrative expenses 4,159 7,821 (3) 11,980 Depreciation and amortization 1,531 14,546 (4) 16,077 Restructuring benefit (6,623) 35 (5) (6,588) Investment impairment charge 2,000 -- 2,000 ---------------- -------------------- ------------------- Total expenses 11,442 64,304 75,746 Partnership and joint venture income 28,055 (3,871)(6) 24,184 ---------------- -------------------- ------------------- Operating income 31,941 58,414 90,355 Interest expense, net 16,107 30,563 (7) 46,670 Other expense, net 451 -- 451 ---------------- -------------------- ------------------- Income before taxes 15,383 27,851 43,234 Provision for income taxes 7,614 10,195 (8) 17,809 ---------------- -------------------- ------------------- Net income 7,769 17,656 25,425 Preferred Stock dividend 24,702 (20,458)(10) 4,244 ---------------- -------------------- ------------------- Net income available to common shareholders $ (16,933) $ 38,114 $ 21,181 ---------------- -------------------- ------------------- Earnings per share (EPS) Basic $ (0.57) $ 1.23 $ 0.66(12) Diluted (0.57) 1.21 0.64(12) Weighted average shares outstanding Basic 29,716 9,002(11) 38,718 Diluted 30,399 9,064(11) 39,463
7 (1) Represents revenue recognized by SPA during the period less Donnelley commission revenue and pre-press publishing revenue from SPA included in the reported GAAP amounts. The Donnelley commission revenue and pre-press publishing revenue would have been eliminated as intercompany revenues had the acquisition occurred on January 1, 2002. The components of the net adjustment for each quarter is as follows:
Less: Donnelley revenue from services provided to SPA SPA revenue Net adjustment -------------------- ------------------ ----------------- 1Q $ 137,214 $(11,455) $ 125,759 2Q 136,459 (13,893) 122,566 3Q 135,579 (14,637) 120,942 4Q 136,351 (9,762) 126,589
(2) Represents operating expenses recognized by SPA during the period, less SPA commission and pre-press publishing expenses for services provided by Donnelley plus expense related to the amortization of a required purchase accounting adjustment to increase deferred directory costs acquired to fair value. The SPA commission and pre-press publishing expenses for services provided by Donnelley would have been eliminated as intercompany expenses had the acquisition occurred on January 1, 2002. The components of the net adjustment for each quarter is as follows:
Plus: amortization Less: SPA of adjustment operating to increase expenses for deferred services directory SPA operating provided by costs to fair expenses Donnelley value Net adjustment -------------------- ----------------- ---------------- ----------------- 1Q $ 59,127 $ (11,382) $ 4,482 $ 52,227 2Q 61,557 (11,379) 2,988 53,166 3Q 55,828 (11,297) 747 45,278 4Q 52,489 (10,670) 83 41,902
(3) Represents general and administrative expenses recognized by SPA during the period. (4) Represents depreciation and amortization expense recognized by SPA during the period plus amortization expense of $12,458 per quarter for intangible assets acquired in the acquisition assuming it occurred on January 1, 2002. (5) Represents restructuring charges recognized by SPA during the period. (6) Represents income from CenDon, LLC recognized by Donnelley and included in reported GAAP amounts, which would have been eliminated as intercompany income had the acquisition occurred on January 1, 2002. (7) Represents the additional interest expense that would have been incurred assuming the financing obtained to acquire SPA was outstanding as of January 1, 2002. (8) Represents the tax effect of the above adjustments. 8 (9) Represents the stated 8% annual dividend that would have accrued on the $200,000 of Preferred Stock assuming the Preferred Stock was issued on January 1, 2002. The preferred dividend for the first quarter 2002 excludes a pro forma deemed dividend of $62,374 for a beneficial conversion feature that would have been recognized had the $200,000 of Preferred Stock been issued on January 1, 2002. (10) In the fourth quarter 2002, Donnelley recorded a preferred dividend of $24,702 related to $70,000 of Preferred Stock that was issued in November 2002. The $70,000 was a portion of the $200,000 that was ultimately issued and the preferred dividend amount included $24,158 of the total BCF of $62,374 referred to in (9) above. Assuming the total $200,000 of Preferred Stock was issued on January 1, 2002, the entire BCF would have been recognized in the first quarter 2002 and the fourth quarter dividend would have been $4,244. (11) Represents the effect on the weighted average basic and diluted shares outstanding assuming the preferred stock was converted to common stock at the beginning of the period. The weighted average diluted shares outstanding also include the dilutive effect, if any, of the warrants issued with the Preferred Stock. There was no dilutive effect of the warrants in the third quarter as the average price of Donnelley common stock during the period was less than the exercise price of the warrants. (12) On an adjusted pro forma basis, basic and diluted earnings per share (EPS) are calculated as net income before preferred dividend divided by the adjusted weighted average basic and diluted shares as described in (11) above. EPS calculated in accordance with Article 11 or Regulation S-X was as follows:
Basic Diluted ------------- ------------- 1Q $ (1.62) $ (1.62) 2Q 0.57 0.57 3Q 0.66 0.66 4Q 0.56 0.56 Full Year 0.55 0.55
Note: The full year EPS will not equal the sum of the quarters due to the net loss in the first quarter and rounding. 9
Schedule 6 Reconciliation of Publication sales for Sprint-branded directories to net revenue (unaudited) (in thousands) Quarter Ended ----------------------------------------------------------------- March June September 2002 December 2002 2002 2002 --------------- ---------------- ---------------- --------------- Publication sales - Sprint-branded directories $ 143,054 $132,501 $ 156,799 $ 109,349 Less publication sales for Sprint-branded directories not sold by Donnelley (95,686) (104,736) (106,444) (50,086) --------------- ---------------- ---------------- --------------- Publication sales reported by Donnelley 47,368 27,765 50,355 59,263 Less sales contracts executed in prior periods and reported as publication sales in current period (23,184) (22,664) (49,712) (58,358) Plus sales contracts executed in current period that will be reported as publication sales in future periods 18,493 47,869 56,037 33,570 --------------- ---------------- ---------------- --------------- Value of sales contracts executed in the period on which Donnelley earns commission revenue $ 42,677 $ 52,970 $ 56,680 $ 34,475 --------------- ---------------- ---------------- --------------- Net commission revenue on the value of sales contracts executed in the period $ 9,752 $ 12,190 $ 12,934 $ 7,860 Pre-press publishing revenue 8,638 7,266 8,004 7,163 Other revenue 438 438 438 305 --------------- ---------------- ---------------- --------------- Net revenue - GAAP $ 18,828 $ 19,894 $ 21,376 $ 15,328 --------------- ---------------- ---------------- ---------------
10 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 hereunto duly authorized. R.H. DONNELLEY CORPORATION By: /s/ ROBERT J. BUSH ------------------- Name: Robert J. Bush Title: Vice President and General Counsel Date: July 23, 2003 R.H. DONNELLEY INC. By: /s/ ROBERT J. BUSH ------------------ Name: Robert J. Bush Title: Vice President and General Counsel Date: July 23, 2003 11