-----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, KAUVvFltcui6KoR4MESl/LBlWgAvD0qR98mC3+Qjdj9yelKiUBLxc+vqIz5SwgXg DAoR9GfNGvIceqwL44h3VQ== 0001157523-05-003900.txt : 20050427 0001157523-05-003900.hdr.sgml : 20050427 20050427161431 ACCESSION NUMBER: 0001157523-05-003900 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050427 ITEM INFORMATION: Results of Operations and Financial Condition FILED AS OF DATE: 20050427 DATE AS OF CHANGE: 20050427 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07155 FILM NUMBER: 05776616 BUSINESS ADDRESS: STREET 1: 1001 WINSTEAD DRIVE CITY: CARY STATE: NC ZIP: 27513 BUSINESS PHONE: 9198046000 MAIL ADDRESS: STREET 1: 1001 WINSTEAD DRIVE CITY: CARY STATE: NC ZIP: 27513 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET COMPANIES INC DATE OF NAME CHANGE: 19790429 8-K 1 a4874385.txt R.H. DONNELLEY 8-K UNITED STATES 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): April 27, 2005 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.) 1001 Winstead Drive, Cary, North Carolina 27513 - -------------------------------------------------------------------------------- (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.) 1001 Winstead Drive, Cary, North Carolina 27513 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrants' telephone number, including area code: (919) 297-1600 Not Applicable (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communication pursuant to Rule 14d-2 (b) under the Exchange Act (17 CFR 240.14d-2 (b)) [ ] Pre-commencement communications pursuant to Rule 13e-4 (C) under the Exchange Act (17 CFR 240.13e-4 (c)) *R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley Corporation. R.H. Donnelly 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, which Notes were redeemed in full on February 6, 2004. In addition, R.H. Donnelly Inc is the obligor of 8 7/8% senior notes due 2010 and 10 7/8% senior subordinated notes due 2012 and is now subject to the filing requirements of Section 15 (d) as a result of such notes. As of April 27, 2005, 100 shares of R. H. Donnelley Inc. common stock, no par value, were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 2.02 Results of Operations and Financial Condition. On April 27, 2005, R.H. Donnelley Corporation (the "Company") issued a press release containing certain financial results of the Company for the three months ended March 31, 2005. None of the contents of this Form 8-K are incorporated by reference into any registration statement or report of the Company. A copy of this press release has been filed as Exhibit 99.1 to this Form 8-K. - -------------------------------------------------------------------------------- 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: April 27, 2005 R.H. DONNELLEY INC By: /s/ ROBERT J. BUSH ------------------------------------- Name: Robert J. Bush Title: Vice President and General Counsel Date: April 27, 2005 - -------------------------------------------------------------------------------- EXHIBIT INDEX Exhibit Number Description - ------- ----------- 99.1 Press Release issued April 27, 2005 EX-99.1 2 a4874385ex991.txt R.H. DONNELLEY EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 R.H. Donnelley Raises 2005 Guidance; Strong Sprint Performance in First Quarter 2005; SBC Integration on Track; Repays $112.8 Million of Debt from Cash Flow CARY, N.C.--(BUSINESS WIRE)--April 27, 2005--R.H. Donnelley Corporation (NYSE: RHD), a leading yellow pages publisher and directional media company, today reported first quarter 2005 cash flow from operations of $112.8 million, compared to $94.6 million in first quarter 2004 which included $11.9 million of tax refunds. During the first quarter of 2005, the Company also repurchased half of its outstanding preferred stock, which was convertible into 4.9 million common shares. David C. Swanson, Chairman and Chief Executive Officer, said, "This was a very solid quarter for us on all fronts. First, we delivered the strongest performance in our Sprint markets since acquiring the business in January 2003. Second, we completed the conversion of all billing, collection and customer service functions from SBC to RHD for the Illinois business; a very important milestone in the Illinois integration plan. Third, we were ahead of schedule in achieving our goal to get robust online search products up and running in every one of our markets. As a result of the strong performance for the quarter, we are raising guidance for full year 2005." First Quarter - Reported GAAP Results First quarter net revenue was $207.3 million compared to $143.8 million in the prior year. Operating expenses, including depreciation and amortization, were $137.1 million compared to $81.0 million in the prior year. The Company did not generate partnership income in the first quarter of 2005 due to the SBC transaction, which was completed in September 2004. Operating income in the quarter was $70.2 million versus $86.7 million in the prior year. Net interest expense in the quarter was $57.5 million compared to $40.3 million in the first quarter of 2004. Net loss available to common shareholders for the quarter was $129.3 million or $4.10 per diluted share compared to income available to common shareholders of $22.8 million or $0.54 per diluted share for the first quarter of 2004. First Quarter Results - Including Adjustments and Non-GAAP Measures Publication sales for RHD's Sprint-branded directories during the first quarter of 2005 were $158.3 million, up 4.8 percent from publication sales of $151.1 million in the prior year. Publication sales in RHD's SBC-branded directories during the first quarter of 2005 were $98.3 million, down 2.7 percent from publication sales of $101.0 million in the prior year. Publication sales represent the total billable value of advertising in directories that were published in the period. Adjusted net revenue in the quarter was $259.2 million, compared to adjusted pro forma net revenue of $256.9 million in the first quarter of 2004. Adjusted operating expenses including depreciation and amortization were $129.1 million compared to adjusted pro forma operating expenses of $121.4 million for the same period in 2004. Adjusted operating income for the first quarter of 2005 was $130.1 million, compared to adjusted pro forma operating income for the first quarter of 2004 of $135.5 million. Adjusted EBITDA for the quarter was $151.8 million, compared to adjusted pro forma EBITDA of $157.1 million in the prior year. First quarter 2005 net income, excluding preferred dividends and adjusted to remove the effect of purchase accounting and the loss recognized in connection with the repurchase of convertible preferred stock, was $44.3 million, compared to adjusted pro forma net income of $49.4 million for the first quarter of 2004. Adjusted net income per diluted share in the first quarter of 2005 was $1.16, compared to adjusted pro forma net income per diluted share of $1.19 in the prior year. See the attached schedules for a reconciliation of non-GAAP financial measures presented in this release to the most comparable GAAP measures. Cash Flow and Debt The Company generated cash flow from operations of $112.8 million in the quarter. Free cash flow (cash flow from operations less $5.5 million of capital expenditures and software investment) for the quarter was $107.3 million. During the first quarter, the Company used cash flow to repay $112.8 million of debt. In aggregate, the Company repaid a total of $129.6 million of debt during the first quarter, $16.8 million of which was generated from new debt issuance (see below). As of March 31, 2005, total debt outstanding was $3,297.6 million. On January 14, 2005, the Company repurchased approximately 50 percent of its outstanding preferred stock held by investment partnerships affiliated with Goldman Sachs for approximately $277 million. The repurchased preferred shares were convertible into approximately 4.9 million common shares. To finance the transaction, the Company issued $300 million of 8-year 6.875% senior unsecured notes. Outlook The Company is increasing guidance for full year 2005. All guidance for full year 2005, and related reconciliations of non-GAAP financial measures appear in the schedules to this press release. Updated 2005 guidance appears in Schedule 6 and reconciliations of non-GAAP financial measures appear in Schedules 7 and 8 at the end of this press release. Comparative Financial Results As a result of the SBC and Sprint transactions, and the related financing and associated accounting, 2005 and 2004 results reported in accordance with GAAP are not comparable, nor do they reflect the Company's underlying operational or financial performance. Accordingly management is presenting certain non-GAAP financial measures in addition to results reported in accordance with GAAP in order to better communicate underlying operational and financial performance and to facilitate comparison of adjusted 2005 and adjusted pro forma 2004 results. Adjusted pro forma results discussed in this press release and the attached schedules reflect the combination of RHD with the SBC directory business in Illinois and Northwest Indiana as if the transaction had been consummated at the beginning of 2004, as well as certain other adjustments. While management believes that the adjusted pro forma results reasonably resemble operational performance as if the SBC transaction had been consummated at the beginning of the year presented, because of differences between RHD and predecessor accounting policies, management does not believe these pro forma results are strictly comparable. The primary adjustments related to the SBC transaction in 2004 are recognition of pre-acquisition deferred revenue and deferred expenses that are not reportable under GAAP due to purchase accounting requirements, but that absent purchase accounting would have been recognized during the periods presented. Adjusted results also exclude deferred directory costs related to sales contracts executed prior to the acquisition for directories that were scheduled to publish subsequent to the acquisition, determined based on the estimated billable value of the published directories less the expected costs to complete the directories plus a normal margin. Similar adjustments related to the Sprint transaction were made in 2004. Adjusted pro forma earnings per share in both periods assumes conversion of the preferred stock at the beginning of each period presented that was outstanding as of March 31. The attached Schedules include a reconciliation of all non-GAAP financial measures to the most comparable GAAP measures and a further description of the related adjustments. For the period ending August 31, 2004, the Company's investment in DonTech was accounted for under the equity method. The Company did not consolidate DonTech's revenue and expenses in its consolidated results. Rather it reported the Company's share of DonTech's net income and revenue participation income from SBC, both based on DonTech's calendar sales, collectively as partnership income. On September 1, 2004, RHD acquired SBC's directory business in Illinois and Northwest Indiana, including SBC's interest in the DonTech partnership. As a result, the Company did not generate partnership income after August 31, 2004. The Company's Current Report on Form 8-K furnished to the SEC on October 28, 2004 provides additional details regarding the adjustments and non-GAAP financial measures related to the SBC transaction. First Quarter Conference Call R.H. Donnelley's first quarter conference call will be held on April 28, 2005 at 10:00 a.m. EST and can be accessed by dialing 888-387-9606 (domestic) or 484-630-7198 (international). The passcode for the call is "RHD". Please dial in to the call by 9:50 a.m. The call will also be available through a Webcast, which can be accessed by visiting our Web site at www.rhd.com, clicking on "Investor Information" and following the instructions provided. Those unable to participate at the scheduled time may access a recording by dialing 866-388-5360 (domestic) or 203-369-0415 (international). The recording will be available through May 13, 2005. There is no passcode for the replay. About R.H. Donnelley R.H. Donnelley is a leading Yellow Pages and directional media company. RHD publishes directories with total distribution of approximately 28 million serving approximately 260,000 local and national advertisers in 19 states. RHD publishes directories under the Sprint Yellow Pages(R) brand in 18 states with total distribution of approximately 18 million serving approximately 160,000 local and national advertisers, with major markets including Las Vegas, Nevada, and Orlando and Ft. Myers, Florida. In addition, RHD publishes directories under the SBC(R) Yellow Pages brand in Illinois and Northwest Indiana with total distribution of approximately 10 million serving approximately 100,000 local and national advertisers. RHD also offers online city guides and search websites in its Sprint markets under the Best Red Yellow Pages(R) brand at www.bestredyp.com and in the Chicago area at www.chicagolandyp.com. RHD also sells local advertising in Illinois and Northwest Indiana onto SBC's www.SMARTpages.com. For more information, please visit R.H. Donnelley at www.rhd.com. Safe Harbor Provision Certain statements contained in this press release regarding R.H. Donnelley's future operating results or performance or business plans or prospects and any other statements not constituting historical fact are "forward-looking statements" subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words "believe," "expect," "anticipate," "should," "will," "planned," "estimated," "potential," "goal," "outlook," and similar expressions, as they relate to R.H. Donnelley or its management, have been used to identify such forward-looking statements. Without limiting the generality of the foregoing, the statements under the caption "Outlook" and in Schedule 6 are forward-looking statements. Regardless of any identifying phrases, these statements and all other forward-looking statements reflect only R.H. Donnelley's current beliefs and assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to R.H. Donnelley. Accordingly, the statements are subject to significant risks, uncertainties and contingencies which could cause R.H. Donnelley's actual operating results, performance or business plans or prospects to differ materially from those expressed in, or implied by, these statements. Such risks, uncertainties and contingencies are described in detail in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2004, as well as the Company's other periodic filings with the Securities and Exchange Commission, and in summary and without limitation include the following: (1) our ability to meet our substantial debt service obligations; (2) restrictive covenants under the terms of our debt and convertible preferred stock agreements; (3) usage of print yellow pages directories and changes in technology; (4) competition in the yellow pages industry and other competitive media; (5) our ability to continue to successfully integrate the business acquired from SBC; (6) reliance on and extension of credit to small- and medium-sized businesses; (7) dependence on third party providers of printing, distribution and delivery services and the sale of advertising to national accounts; (8) general economic conditions and consumer sentiment in our markets; and (9) fluctuations in the price and availability of paper. (See attached tables) R.H. DONNELLEY CORPORATION Schedule 1 INDEX OF SCHEDULES - ------------------ Schedule 1: Index of Schedules Schedule 2: Unaudited Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 Schedule 3: Unaudited Adjusted Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 Schedule 4: Unaudited Consolidated Balance Sheets at March 31, 2005 and December 31, 2004 Schedule 5: Unaudited Consolidated Statement of Cash Flows for the three months ended March 31, 2005 Schedule 6: Updated 2005 Guidance Schedule 7: Reconciliation of Reported to Adjusted Unaudited Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 Schedule 8: Reconciliation of Non-GAAP Measures Schedule 9: Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 2 CONSOLIDATED STATEMENTS OF OPERATIONS - ---------------------------------------- (unaudited) Amounts in millions, except earnings per share - ---------------------------------------- ----------------- ----------- Three months ended March 31, ----------------------------- 2005 2004 Reported Reported - ---------------------------------------- ----------------- ----------- Net revenue (1) $207.3 $143.8 Expenses 115.4 66.6 Depreciation and amortization 21.7 14.4 Partnership income - 23.9 ----------------- ----------- Operating income 70.2 86.7 Interest expense, net (57.5) (40.3) ----------------- ----------- Pre-tax income 12.7 46.4 Tax provision (5.0) (18.3) ----------------- ----------- Net income 7.7 28.1 Loss on repurchase of Preferred stock 133.7 - Preferred dividend 3.3 5.3 ----------------- ----------- (Loss) income available to common shareholders $(129.3) $22.8 ================= =========== Earnings per share (EPS): (5) Basic $(4.10) $0.57 Diluted $(4.10) $0.54 Shares used in computing EPS: (5) Basic 31.5 31.1 Diluted 31.5 32.3 - ---------------------------------------------------------------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 3 CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------- (unaudited) Amounts in millions, except earnings per share - ----------------------- ------------------------------ --------------- Three months ended March 31, ------------------------------ 2004 Variance 2005 Adjusted Adjusted (2) Pro Forma (2)(3) $ % - ----------------------- ------------- ---------------- ------- ------- Net revenue (1) $259.2 $256.9 $2.3 0.9% Expenses 107.4 100.0 (7.4) (7.4%) Depreciation and amortization 21.7 21.4 (0.3) (1.4%) ------------- ---------------- ------- ------- Operating income 130.1 135.5 (5.4) (4.0%) Interest expense, net (57.5) (53.9) (3.6) (6.7%) ------------- ---------------- ------- ------- Pre-tax income 72.6 81.6 (9.0) (11.0%) Tax provision (28.3) (32.2) 3.9 12.1% ------------- ---------------- ------- ------- Net income 44.3 49.4 (5.1) (10.3%) Loss on repurchase of Preferred stock (4) - - - 0.0% Preferred dividend (4) - - - 0.0% ------------- ---------------- ------- ------- Income available to common shareholders $44.3 $49.4 (5.1) (10.3%) ============= ================ ======= ======= Earnings per share (EPS): (6) Basic $1.21 $1.23 $(0.02) (1.6%) Diluted $1.16 $1.19 $(0.03) (2.5%) Shares used in computing EPS: (6) Basic 36.5 40.3 Diluted 38.3 41.5 - ---------------------------------------------------------------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. See Schedule 7 for a reconciliation of reported to adjusted and adjusted pro forma amounts. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 4 CONSOLIDATED BALANCE SHEETS - --------------------------- (unaudited) Amounts in millions - ------------------------------------------- ----------- -------------- March 31, December 31, 2005 2004 Reported Reported - ------------------------------------------- ----------- -------------- Assets Cash and cash equivalents $4.1 $10.8 Accounts receivable, net 454.1 455.4 Deferred directory costs 116.2 116.5 Other current assets 32.0 40.6 ----------- -------------- Total current assets 606.4 623.3 Fixed assets and computer software, net 39.8 37.7 Intangible assets, net 2,887.2 2,905.3 Other non-current assets 117.7 102.6 Goodwill 319.0 310.0 ----------- -------------- Total Assets $3,970.1 $3,978.9 =========== ============== Liabilities, Redeemable Convertible Preferred Stock and Shareholders' Deficit Accounts payable and accrued liabilities $92.9 $80.4 Deferred directory revenue 432.2 381.4 Current portion of long-term debt 137.4 162.0 ----------- -------------- Total current liabilities 662.5 623.8 Long-term debt 3,160.2 2,965.3 Deferred income taxes, net 120.9 118.8 Other non-current liabilities 42.9 36.9 ----------- -------------- Total liabilities 3,986.5 3,744.8 Redeemable convertible preferred stock 110.4 216.1 Shareholders' deficit (126.8) 18.0 ----------- -------------- Total Liabilities, Redeemable Convertible Preferred Stock and Shareholders' Deficit $3,970.1 $3,978.9 =========== ============== - ------------------------------------------- ----------- -------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 5 CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------- For the three months ended March 31, 2005 (unaudited) Amounts in millions - ----------------------------------------------- ------------------- Reported Three months ended March 31, 2005 Operating activities: ------------------- Net income $7.7 Depreciation and amortization 21.7 Deferred income tax 20.3 Changes in working capital 55.6 Other 7.5 ------------------- Net cash provided by operating activities 112.8 Investment activities: Additions to fixed assets and computer software (5.5) ------------------- Net cash used in investing activities (5.5) Financing activities: Decrease in checks not yet presented for payment (1.6) Proceeds from issuance of debt, net of costs 291.7 Repurchase of Preferred shares (4) (277.2) Repayment of debt (201.6) Borrowings under the Revolver 72.0 Proceeds from option exercises 2.7 ------------------- Net cash used in financing activities (114.0) Decrease in cash and cash equivalents (6.7) Cash and cash equivalents, beginning of period 10.8 ------------------- Cash and cash equivalents, end of period $4.1 =================== - ----------------------------------------------- ------------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 6 Full Year 2005 Guidance Amounts in millions, except per share amounts - -------------------------------------------- ----------- ------------- As provided on Changes in Revised as of 1/10/05 (1) Guidance 4/27/05 (1) -------------- ----------- ------------- Publication sales - ----------------- Sprint Up 2.5% Up 1.0% Up 3.5% SBC Down 1.0% Down 1.0% Adjusted Net Revenue $1,035 $5 $1,040 Adjusted EBITDA 575 5 580 Depreciation and Amortization 90 90 Adjusted Operating Income 485 5 490 Interest Expense 237 237 Income Tax Expense 98 1 99 Adjusted Net Income (2) 150 4 154 Adjusted Wtd. Avg. Diluted Shares (3) 38.7 38.7 Adjusted EPS $3.88 $0.11 $3.99 - ----------------------------- -------------- ----------- ------------- Cash Flow From Operations $370 $5 $375 Less: Capital Expenditures (35) (35) ------------- ----------- ------------- Free Cash Flow $335 $5 $340 - ----------------------------- -------------- ----------- ------------- (1) Pro forma for preferred stock repurchase and related financing as if the transaction had occurred on 1/1/05. (2) Excludes preferred dividends and adjusted to remove the effect of purchase accounting and the loss recognized in connection with the repurchase of convertible preferred stock. (3) Assumes conversion of preferred at the beginning of the period See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 7 CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------- Reconciliation of Reported to Adjusted Pro Forma Amounts (unaudited) Amounts in millions, except earnings per share - ------------------- -------------------------------------------------- Three Months Ended March 31, 2005 -------------------------------------------------- Sprint SBC Reported Adjustments(3) Adjustments(2) Adjusted - ------------------- ---------- ----------- ----------- ---------- Net revenue (1) $207.3 $51.9 (7) $259.2 Expenses 115.4 (8.0) (7) 107.4 Depreciation and amortization 21.7 21.7 ---------- ----------- ----------- ---------- Total expenses 137.1 - (8.0) 129.1 Partnership income - - ---------- ----------- ----------- ---------- Operating income 70.2 - 59.9 130.1 Interest expense, net (57.5) (57.5) ---------- ----------- ----------- ---------- Pre-tax income 12.7 - 59.9 72.6 Tax provision (5.0) (23.3)(11) (28.3) ---------- ----------- ----------- ---------- Net income 7.7 - 36.6 44.3 Loss on repurchase of Preferred stock (4) 133.7 (133.7) (4) - - Preferred dividend 3.3 (3.3) (4) - - ---------- ----------- ----------- ---------- (Loss) income available to common shareholders $(129.3) $137.0 $36.6 $44.3 ========== =========== =========== ========== Earnings per share (EPS): (4),(5),(6) Basic $(4.10) $1.21 Diluted $(4.10) $1.16 Shares used in computing EPS: (4),(5),(6) Basic 31.5 5.0 36.5 Diluted 31.5 6.8 38.3 - ------------------- -------------------------------------------------- - ------------------- -------------------------------------------------- Three Months Ended March 31, 2004 -------------------------------------------------- Sprint SBC Adjusted Reported Adjustments(3) Adjustments(2) Pro Forma - ------------------- ---------- ----------- ----------- ---------- Net revenue (1) $143.8 $1.1 (7) $112.0 (7) $256.9 Expenses 66.6 (2.7)(7) 36.1 (7) 100.0 Depreciation and amortization 14.4 7.0 (8) 21.4 ---------- ----------- ----------- ---------- Total expenses 81.0 (2.7) 43.1 121.4 Partnership income 23.9 (23.9) (9) - ---------- ----------- ----------- ---------- Operating income 86.7 3.8 45.0 135.5 Interest expense, net (40.3) (13.6)(10) (53.9) ---------- ----------- ----------- ---------- Pre-tax income 46.4 3.8 31.4 81.6 Tax provision (18.3) (1.5)(11) (12.4)(11) (32.2) ---------- ----------- ----------- ---------- Net income 28.1 2.3 19.0 49.4 Loss on repurchase of Preferred stock (4) - - Preferred dividend 5.3 (5.3) (4) - ---------- ----------- ----------- ---------- (Loss) income available to common shareholders $22.8 $7.6 $19.0 $49.4 ========== =========== =========== ========== Earnings per share (EPS): (4),(5),(6) Basic $0.57 $1.23 Diluted $0.54 $1.19 Shares used in computing EPS: (4),(5),(6) Basic 31.1 9.2 40.3 Diluted 32.3 9.2 41.5 - ------------------- -------------------------------------------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 8a RECONCILIATION OF NON-GAAP MEASURES - ----------------------------------- (unaudited) Amounts in millions, except per share amounts - --------------------------------------- ------------------ ----------- Three Months ended March 31, ------------------------------ 2005 2004 - --------------------------------------- ------------------ ----------- Reconciliation of publication sales for Sprint-branded and SBC-branded directories to net revenue -GAAP and net revenue -adjusted and net revenue -adjusted pro forma Publication sales - Sprint-branded directories (12) $158.3 $151.1 Publication sales - Sprint-branded directories - percentage change over prior year 4.8% Adjustments for changes in directory publication date(s) (12) 0.2 ----------- Publication sales disclosed in first quarter 2004 earnings release 151.3 Publication sales - SBC-branded directories (12) 98.3 101.0 Publication sales - SBC-branded directories - percentage change over prior year -2.7% Less pre-acquisition publication sales for SBC-branded directories not recognized as revenue in current period due to purchase accounting (101.0) Less current period publication sales for Sprint-branded directories not recognized as revenue in current period due to the deferral method of accounting (113.9) (109.8) Less current period publication sales for SBC-branded directories not recognized as revenue in current period due to the deferral method of accounting (81.4) Plus net revenue reported in the period for publication sales from prior periods for Sprint-branded directories 99.4 97.3 Plus net revenue reported in the period for publication sales from prior periods, excluding January through September 2004 publication sales for all SBC-branded directories 46.1 ------------------ ----------- Net directory advertising revenue 206.8 138.8 Pre-press publishing revenue - 4.8 Other revenue 0.5 0.2 ------------------ ----------- Net revenue - GAAP 207.3 143.8 Plus net revenue from Sprint-branded directories for all January 2003 Sprint-branded directories that would have been recognized during the period absent purchase accounting adjustments required under GAAP 1.1 Plus net revenue from SBC-branded directories that published prior to the acquisition that would have been recognized during the period absent purchase accounting adjustments required under GAAP had the transaction occurred on January 1, 2003 51.9 116.8 Less pre-press publishing revenue that would not have been recorded had the SBC transaction occurred on January 1, 2003 - (4.8) ------------------ Net revenue - Adjusted $259.2 ================== ----------- Net revenue - Adjusted pro forma $256.9 =========== - ---------------------------------------------------------------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 8b RECONCILIATION OF NON-GAAP MEASURES(cont'd) - ------------------------------------------ (unaudited) Amounts in millions, except per share amounts - ----------------------------------------- ---------------------------- Three Months ended March 31, ---------------------------- 2005 2004 - ----------------------------------------- -------------- ------------- Reconciliation of net income - GAAP to EBITDA, adjusted EBITDA and adjusted pro forma EBITDA Net income - GAAP $7.7 $28.1 Plus tax provision 5.0 18.3 Plus interest expense, net 57.5 40.3 Plus depreciation and amortization 21.7 14.4 -------------- ------------- EBITDA (13) 91.9 101.1 Plus other income 0.2 Plus net revenue from Sprint-branded directories for all January 2003 Sprint-branded directories that would have been recognized during the period absent purchase accounting adjustments required under GAAP - 1.1 Less pre-press publishing revenue that would not have been recorded had the SBC transaction occurred on January 1, 2003 - (4.8) Plus net revenue from SBC-branded directories that published prior to the acquisition that would have been recognized during the period absent purchase accounting adjustments required under GAAP had the transaction occurred on January 1, 2003 51.9 116.8 Plus amortized deferred cost uplift on SBC sales contracts as of the date of the acquisition, net of expenses on SBC-branded directories that published prior to the acquisition that would not have been recognized during the period absent purchase accounting required under GAAP 8.0 (36.1) Plus amortized deferred cost uplift on Sprint sales contracts as of the date of the acquisition, net of expenses on Sprint-branded directories that published prior to the acquistion including all January 2003 published directories that would not have been recognized during the period absent purchase accounting adjustments required under GAAP - 2.7 Less partnership income that would not have been recognized during the period assuming the SBC transaction occurred on January 1, 2003 - (23.9) -------------- ------------- Net effect of adjustments to GAAP results $59.9 $56.0 -------------- Adjusted EBITDA (13) $151.8 ============== ------------- Adjusted pro forma EBITDA (13) $157.1 ============== ============= - ---------------------------------------------------------------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 8c RECONCILIATION OF NON-GAAP MEASURES (cont'd) - -------------------------------------------- (unaudited) Amounts in millions, except per share amounts - ----------------------------------------- ---------------------------- Three months ended March 31, ---------------------------- 2005 2004 - ----------------------------------------- ---------------- ----------- Reconciliation of cash flow from operations to Free Cash Flow Cash flow from operations - GAAP $112.8 $94.6 Less: additions to fixed assets and computer software (5.5) (2.8) ---------------- ----------- Free cash flow $107.3 $91.8 ================ =========== - ---------------------------------------------------------------------- - ----------------------------------------- ---------------------------- Three Months ended March 31, ---------------------------- 2005 2004 - ----------------------------------------- ---------------- ----------- Reconciliation of diluted shares outstanding - GAAP to diluted shares outstanding - adjusted Diluted shares outstanding - GAAP 31.5 32.3 Additional diluted shares outstanding assuming the preferred stock is converted to common stock at the beginning of the period plus common stock equivalents 6.8 9.2 ---------------- ----------- Diluted shares outstanding - adjusted 38.3 41.5 ================ =========== - ---------------------------------------------------------------------- - ----------------------------------------- ---------------------------- Three Months ended March 31, ---------------------------- 2005 2004 - ----------------------------------------- ---------------- ----------- Reconciliation of diluted earnings per share - GAAP to diluted earnings per share - adjusted and diluted earnings per share - adjusted pro forma Diluted earnings per share - GAAP $(4.10) $0.54 Effect of converting preferred stock to common stock at the beginning of the period 4.30 0.01 Impact of Sprint transaction, including adjustments to eliminate purchase accounting - 0.18 Pro forma impact of SBC transaction, including adjustments to eliminate purchase accounting - 0.46 Impact of SBC transaction, including adjustments to eliminate purchase accounting 0.96 ---------------- Diluted earnings per share - adjusted $1.16 ================ ----------- Diluted earnings per share - adjusted pro forma $1.19 =========== - ---------------------------------------------------------------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 8d RECONCILIATION OF NON-GAAP MEASURES (cont'd) - ------------------------------------------- (unaudited) Amounts in millions - ----------------------------- -------------- ---------- -------------- Original Revised Full Year 2005 Changes in Full Year 2005 Outlook Guidance Outlook - ----------------------------- -------------- ---------- -------------- Reconciliation of publication sales outlook to net revenue -GAAP outlook and net revenue -adjusted outlook Publication sales outlook Publication sales Sprint-branded directories $581.2 $5.9 $587.1 Publication sales Sprint-branded directories -percentage gain over 2004 2.5% 1.0% 3.5% Publication sales SBC-branded directories 457.4 - 457.4 Publication sales Sprint-branded directories -percentage gain over 2004 (1.0%) 0.0% (1.0%) -------------- ---------- -------------- Total publication sales outlook $1,038.6 $5.9 $1,044.5 Publication sales -percentage gain over 2004 1.0% 0.5% 1.5% Less current period publication sales for Sprint-branded directories not recognized as revenue in current period (222.1) (2.9) (225.0) Plus net revenue reported in the period for Sprint-branded publication sales from prior periods 215.3 2.0 217.3 Less current period pre-acquisition publication sales for SBC-branded directories not recognized as revenue in current period (239.0) - (239.0) Plus net revenue reported in the period for SBC-branded publication sales from prior periods 156.5 - 156.5 -------------- ---------- -------------- Net revenue -GAAP outlook $949.3 $5.0 $954.3 Plus pro forma net revenue that would have been reported assuming the SBC transaction had occurred on January 1, 2003 85.7 - 85.7 -------------- ---------- -------------- Net revenue - Adjusted outlook $1,035.0 $5.0 $1,040.0 ============== ========== ============== - ---------------------------------------------------------------------- - ----------------------------- -------------- ---------- -------------- Original Revised Full Year 2005 Changes in Full Year 2005 Outlook Guidance Outlook - ----------------------------- -------------- ---------- -------------- Reconciliation of adjusted operating income outlook to operating income - GAAP outlook Adjusted operating income outlook $485.0 $5.0 $490.0 Less revenue from SBC-branded directories that published prior to the acquisition plus all September 2004 SBC-branded directories that would have been recognized during the period absent purchase accounting adjustments required under GAAP (86.0) - (86.0) Plus expenses from SBC-branded directories that would have been recognized during the period absent purchase accounting adjustments (51.0) - (51.0) -------------- ---------- -------------- Operating income - GAAP outlook $348.0 $5.0 $353.0 ============== ========== ============== - ----------------------------- -------------- ---------- -------------- See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 8e RECONCILIATION OF NON-GAAP MEASURES (cont'd) - ------------------------------------------- (unaudited) Amounts in millions - ------------------------- -------------- ---------- ------------------ Original Revised Full Year 2005 Changes in Full Year 2005 Outlook Guidance Outlook - ------------------------- -------------- ---------- ------------------ Reconciliation of adjusted EBITDA outlook and adjusted operating income outlook to adjusted net income outlook and net income - GAAP outlook Adjusted EBITDA outlook $575.0 $5.0 $580.0 Less expected depreciation and amortization (90.0) - (90.0) -------------- ---------- ------------------ Adjusted operating income outlook $485.0 $5.0 $490.0 Less expected tax provision (98.0) (1.0) (99.0) Less expected interest expense, net (237.0) - (237.0) -------------- ---------- ------------------ Adjusted net income outlook $150.0 $4.0 $154.0 Less revenue from SBC-branded directories that published prior to the acquisition plus all September 2004 SBC-branded directories that would have been recognized during the period absent purchase accounting adjustments required under GAAP (86.0) - (86.0) Plus expenses from SBC-branded directories that would have been recognized during the period absent purchase accounting adjustments (51.0) - (51.0) Plus net tax reduction resulting from the exclusion of the SBC revenue and expenses due to purchase accounting 54.1 (0.7) 53.4 -------------- ---------- ------------------ Net income - GAAP outlook $67.1 $3.3 $70.4 ============== ========== ================== - ---------------------------------------------------------------------- - ------------------------- -------------- ---------- ------------------ Original Revised Full Year 2005 Changes in Full Year 2005 Outlook Guidance Outlook - ------------------------- -------------- ---------- ------------------ Reconciliation of cash flow from operations outlook - GAAP to free cash flow outlook Cash flow from operations outlook - GAAP $370.0 $5.0 $375.0 Less: additions to fixed assets and computer software (35.0) - (35.0) -------------- ---------- ------------------ Free cash flow outlook $335.0 $5.0 $340.0 ============== ========== ================== - ---------------------------------------------------------------------- - ------------------------- -------------- ---------- ------------------ Original Revised Full Year 2005 Changes in Full Year 2005 Outlook Guidance Outlook - ------------------------- -------------- ---------- ------------------ Reconciliation of expected diluted shares outstanding - GAAP to expected adjusted diluted shares outstanding Expected diluted shares outstanding - GAAP 33.7 - 33.7 Additional diluted shares outstanding assuming the preferred stock is converted to common stock at the beginning of the period 5.0 - 5.0 -------------- ---------- ------------------ Expected adjusted diluted shares outstanding 38.7 - 38.7 ============== ========== ================== - ---------------------------------------------------------------------- - ------------------------- -------------- ---------- ------------------ Original Revised Full Year 2005 Changes in Full Year Outlook Guidance 2005 Outlook(14) - ------------------------- -------------- ---------- ------------------ Reconciliation of diluted earnings per share - GAAP outlook to diluted earnings per share - adjusted outlook Diluted earnings per share - GAAP outlook $1.99 $(4.35) $(2.36) Effect of converting preferred stock to common stock at the beginning of the period (0.25) 4.46 4.21 Impact of SBC transaction, including adjustments to eliminate purchase accounting 2.14 - 2.14 -------------- ---------- ------------------ Diluted earnings per share - adjusted outlook $3.88 $0.11 $3.99 ============== ========== ================== - ------------------------- -------------- ---------- ------------------ See accompanying Notes to Unaudited Consolidated Statements of Operations and Non-GAAP Measures - Schedule 9. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 9 NOTES TO UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------- AND NON-GAAP MEASURES --------------------- (1) Publishing revenue is recognized using the deferral and amortization method of accounting. Under this method, when a directory is published, the publication sales value is deferred and amortized into the income statement ratably over the life of the directory, which is typically 12 months. (2) As a result of the SBC transaction and the related financing and associated accounting, 2005 and 2004 results reported in accordance with GAAP are not comparable, nor do they reflect the Company's underlying operational or financial performance. Accordingly, management is presenting certain non-GAAP financial measures in addition to results reported in accordance with GAAP in order to better communicate underlying operational and financial performance and to facilitate comparison of adjusted 2005 performance with adjusted pro forma 2004 results. Adjusted results for 2005 exclude the impact of purchase accounting as well as certain other adjustments. Adjusted pro forma results for 2004 also reflect the combination of RHD with the SBC directory business in Illinois and Northwest Indiana as if the transaction had been consummated at the beginning of the year presented and certain other adjustments. While management believes that the adjusted pro forma results reasonably resemble operational performances as if the SBC transaction had been consummated at the beginning of the period presented, because of differences between RHD and predecessor accounting policies, management does not believe these pro forma results are strictly comparable. The adjusted and adjusted pro forma results assume that the appropriate pro rata portion of the revenues and direct costs of directories acquired from SBC that published prior to the acquisition plus, in the case of 2004 adjusted pro forma results, all September 2004 directories were recognized during the period pursuant to the deferral and amortization method. As a result of purchase accounting, these pre-acquisition revenues and expenses are not included in reported GAAP results. For the periods prior to the actual acquisition date of September 1, 2004, adjusted pro forma interest expense assumes the transaction occurred at the beginning of the periods presented and is based on the incremental debt actually incurred at the time of the acquisition and the interest rate in effect at the time of the acquisition with no assumption for additional debt repayments. See Schedule 7 for details of all adjustments to the reported GAAP results. Additionally, the cost uplift reported under GAAP to eliminate profit on sales contracts completed before the acquisition date for directories not yet published at the acquisition date has also been excluded from adjusted and adjusted pro forma results. (3) As a result of the Sprint transaction and the related financing and associated accounting, 2005 and 2004 results reported in accordance with GAAP are not comparable, nor do they reflect the Company's underlying operational or financial performance. Accordingly, management is presenting certain non-GAAP financial measures in addition to results reported in accordance with GAAP in order to better communicate underlying operational and financial performance and to facilitate comparison of adjusted 2005 performance with adjusted 2004 results. Adjusted results reflect the elimination of purchase accounting and certain other adjustments. The 2005 and 2004 adjusted results assume that the appropriate pro rata portion of the revenue and direct costs of directories acquired from Sprint that published prior to the acquisition plus all January 2003 Sprint directories were recognized during the period pursuant to the deferral and amortization method. As a result of purchase accounting, these pre-acquisition revenues and expenses are not included in reported GAAP results. See Schedule 7 for details of all adjustments to the reported GAAP results. Additionally, the cost uplift reported under GAAP to eliminate profit on sales contracts completed before the acquisition date for directories not yet published at the acquisition date has also been removed. (4) The preferred dividend and the repurchase of Preferred shares is excluded because the adjusted results for the three months ended March 31, 2005 and the adjusted pro forma results for the three months ended March 31, 2004 assuming the preferred shares were completely converted to common shares at the beginning of the period and therefore no dividends would have been payable and no loss on the repurchase would have been recorded. (5) On a reported basis, basic EPS are calculated under the "two-class" method that requires earnings available to common shareholders, after deducting preferred dividends, to be allocated between the common and preferred shareholders based on the respective rights to receive dividends. Basic EPS are then calculated by dividing income allocable to common shareholders by the weighted average number of shares outstanding. Diluted EPS are calculated by dividing income allocable to common shareholders by the weighted average common shares outstanding plus potentially dilutive common stock equivalents. In periods that result in a net loss, the net loss is not allocated between common and preferred shareholders since the preferred shareholders do not have a contractual obligation to share in any loss. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. R.H. DONNELLEY CORPORATION Schedule 9 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS - ------------------------------------------------------------------ AND NON-GAAP MEASURES (con't) ----------------------------- (6)On an adjusted and adjusted pro forma basis, basic and diluted EPS are calculated as net income (loss) divided by the weighted average basic and diluted shares outstanding for the period assuming the preferred stock was converted to common stock at the beginning of the period. (7)Adjustments for the three months ended March 31, 2005 include revenue and expenses for directories acquired from SBC that published prior to the acquisition that would have been recognized during the period absent purchase accounting adjustments required under GAAP. Pro forma adjustments for the three months ended March 31, 2004 include (a) the revenue and expenses for directories acquired from SBC that published prior to the acquisition that would have been recognized during the period absent purchase accounting adjustments required under GAAP, (b) DonTech's selling and operational expenses prior to the acquisition (c) certain differences between historical and current accounting policies of RHD and the acquired entities, and (d) the revenue and expenses for directories acquired from Sprint in 2003 that published prior to the acquisition, plus all January 2003 directories that would have been recognized during the period absent purchase accounting adjustments required under GAAP. Additionally, the cost uplift reported under GAAP to eliminate profit on sales contracts completed before the acquisition date for directories not yet published at the acquisition date has also been removed from both periods presented. (8)Represents the additional depreciation and amortization expense related to the tangible and identifiable intangible assets acquired from SBC over their estimated useful lives. (9)Represents the elimination of equity accounting used to account for RHD's 50% ownership interest in DonTech prior to the SBC transaction. (10)Represents the additional interest expense from the incremental borrowings used to finance the SBC transaction. For the periods prior to the actual acquisition date of September 1, 2004, pro forma interest expense is based on the incremental debt actually incurred at the time of the acquisition and the interest rate in effect at the time of the acquisition with no assumption for additional debt repayments. For periods after the acquisition date, interest expense is determined in accordance with GAAP results. (11)Represents the tax effect of adjustments. (12)Publication sales represent the billable value of advertising sales in directories that published during the period. If events occur during the current period that affect the comparability of sales to the prior year period, such as changes in directory publication dates, then prior year sales are adjusted to conform to the current period presentation and to maintain comparability. (13)EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA and adjusted pro forma EBITDA represent adjusted earnings and adjusted pro forma earnings before interest, taxes, depreciation and amortization. EBITDA, adjusted EBTIDA and adjusted pro forma EBITDA are not measurements of operating performance computed in accordance with GAAP and should not be considered as a substitute for operating income or net income prepared in conformity with GAAP. In addition, EBITDA may not be comparable to similarly titled measures of other companies. Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q. CONTACT: R.H. Donnelley Corporation James M. Gruskin, 800-497-6329 -----END PRIVACY-ENHANCED MESSAGE-----