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 R.H. Donnelley Reports Third Quarter 2009 ResultsNovember 3, 2009 - Adjusted Free Cash Flow of $227 MillionCARY, N.C., Nov. 3 /PRNewswire-FirstCall/ -- R.H. Donnelley Corporation, one of the nation's leading consumer and business-to-business local commercial search companies, today reported third quarter 2009 net revenue of $534 million, representing an 18 percent decline from third quarter 2008. Adjusted EBITDA(1) in the quarter was $265 million, down 21 percent from third quarter 2008. Adjusted free cash flow in the quarter was $227 million - based on cash flow from operations of $232 million, capital expenditures of $8 million and $3 million related to reorganization and restructuring costs - up from $108 million in third quarter 2008, primarily due to the termination of bond interest payments during bankruptcy. Third quarter advertising sales were $420 million, down 21 percent from advertising sales in the third quarter 2008. Net income was $24 million in the quarter compared to net income of $26 million in third quarter 2008. (Logo: http://www.newscom.com/cgi-bin/prnh/20060731/NYM044LOGO) "While there are preliminary signs of stabilization, the local ad sales environment remained difficult in the third quarter," said David C. Swanson, Chairman and CEO of R.H. Donnelley. "Nevertheless, we aggressively managed the aspects of the business that we can control. For example, operating costs in the third quarter were down $45 million year-over-year; we are increasing our customer focus throughout the organization; and we continue to enhance our online and mobile solutions to help local businesses in our markets reach active consumers wherever they are searching. We expect that these efforts, in addition to implementing a more sustainable capital structure, will help us emerge from Chapter 11 as a stronger company in early 2010." Important information regarding operating results and related reconciliations of non-GAAP financial measures to the most comparable GAAP measures can be found in the schedules and related footnotes of this press release, which should be thoroughly reviewed. In addition, the forthcoming quarterly reports on Form 10-Q for the period ended September 30, 2009 for R.H. Donnelley and its subsidiaries that are SEC registrants should be carefully examined as they will contain important information, including the financial impact of filing voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Advertising sales is a statistical measure and consists of sales of advertising in print directories distributed during the period and Internet-based products and services with respect to which such advertising first appeared publicly during the period. It is important to distinguish advertising sales from net revenue, which is recognized under the deferral and amortization method. Helping Local Small- and Medium-Sized Businesses Reach More Customers R.H. Donnelley's integrated Dex® product solutions extend the marketing reach of local businesses. Through its unique Dex® Advantage, customers' business information is leveraged and marketed through a single profile, and efficiently distributed via a variety of local search products. Dex ensures advertisers' business content and messages are found wherever, whenever and however consumers choose to search. The Dex Advantage spans multiple media platforms for local advertisers including print with the Dex® directories; online and mobile devices with DexKnows.com; voice-activated directory search at 1-800-Call-Dex; and leading search engines and other online sites via Dex Net. About R.H. Donnelley R.H. Donnelley Corporation (OTC: RHDCQ) is one of the nation's leading consumer and business-to-business local commercial search companies. The company delivers relevant search results for consumers and leads to small- and medium-sized businesses through its Dex-branded print yellow and white pages directories, Internet yellow pages site, mobile and voice search platforms as well as one of the largest pay-per-click ad networks in the U.S. It also operates the nation's leading business search engine and online directory through its Business.com subsidiary. For more information, visit www.rhd.com and www.dexknows.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," "intend," "should," "will," "would," "planned," "estimated," "potential," "goal," "outlook," "may," "predicts," "could," or the negative of such terms, or other comparable expressions, as they relate to R.H. Donnelley or its management, have been used to identify such forward-looking statements. All 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. Factors that could cause actual results to differ materially from current expectations include risks and other factors described in R.H. Donnelley's publicly available reports filed with the SEC, which contain a discussion of various factors that may affect R.H. Donnelley's business or financial results. Such risks and other factors, which in some instances are beyond R.H. Donnelley's control, include: the impact of our bankruptcy filings and the related Chapter 11 bankruptcy process on our business, financial condition or results of operations; changes in directory advertising spend and consumer usage; regulatory and judicial rulings; competition and other economic conditions; changes in the Company's and the Company's subsidiaries credit ratings; changes in accounting standards; adverse results from litigation, governmental investigations or tax related proceedings or audits; the effect of labor strikes, lock-outs and negotiations; successful integration and realization of the expected benefits of acquisitions; the continued enforceability of the commercial agreements with Qwest, Embarq and AT&T; our reliance on third-party vendors for various services; and other events beyond our control that may result in unexpected adverse operating results. R.H. Donnelley is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet service providers. This press release is being furnished to the SEC through a Form 8-K. (1) Before the following expenses: (a) reorganization, (b) stock-based compensation and long-term incentive program and (c) restructuring.
(See attached tables)
R.H. DONNELLEY CORPORATION Schedule 1
INDEX OF SCHEDULES
Schedule 1: Index of Schedules
Schedule 2: Unaudited Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 2009 and
2008
Schedule 3: Unaudited Condensed Consolidated Balance Sheets at
September 30, 2009 and December 31, 2008
Schedule 4: Unaudited Condensed Consolidated Statements of Cash Flows
for the three and nine months ended September 30, 2009 and
2008
Schedule 5: Reconciliation of Non-GAAP Measures
Schedule 6: Statistical Measure - Advertising Sales
Schedule 7: Notes to Unaudited Condensed Consolidated Financial
Statements and Non-GAAP Measures
R.H. DONNELLEY CORPORATION Schedule 2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Amounts in millions, except earnings (loss) per share
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- -----------------
2009 2008 2009 2008
-------------- ---- ---- ---- ----
Net revenue (1) $534.0 $648.0 $1,701.6 $1,986.4
Expenses 274.9 336.7 849.9 976.0
Depreciation and amortization 142.6 125.4 427.7 363.3
Impairment charges (2) - - - 3,123.9
--- --- --- -------
Operating income (loss) 116.5 185.9 424.0 (2,476.8)
Interest expense, net (63.5) (200.3) (423.8) (630.4)
Gain on debt transactions, net
(3) - 72.4 - 231.5
--- ---- --- -----
Pre-tax income (loss) before
reorganization items, net and
income taxes 53.0 58.0 0.2 (2,875.7)
Reorganization items, net (4) (7.1) - (77.9) -
---- --- ----- ---
Income (loss) before income taxes 45.9 58.0 (77.7) (2,875.7)
Tax (provision) benefit (22.0) (31.9) (375.1) 939.8
----- ----- ------ -----
Net income (loss) $23.9 $26.1 $(452.8) $(1,935.9)
===== ===== ======= =========
Earnings (loss) per share (EPS):
Basic $0.35 $0.38 $(6.57) $(28.15)
Diluted $0.35 $0.38 $(6.57) $(28.15)
Shares used in computing EPS:
Basic 68.9 68.8 68.9 68.8
Diluted 69.0 68.9 68.9 68.8
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements and Non-GAAP Measures - Schedule 7.
R.H. DONNELLEY CORPORATION Schedule 3
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
-----------------------------------------------
Amounts in millions
September 30, December 31,
2009 2008
---- ----
Assets
Cash and cash equivalents $606.5 $131.2
Accounts receivable, net 846.1 1,027.0
Deferred directory costs 144.6 164.3
Other current assets 82.3 193.0
---- -----
Total current assets 1,679.5 1,515.5
Fixed assets and computer software, net 164.8 188.7
Intangible assets, net 9,624.2 10,009.3
Other non-current assets 68.4 167.2
---- -----
Total Assets $11,536.9 $11,880.7
========= =========
Liabilities and Shareholders' Deficit
Accounts payable and accrued liabilities $161.8 $216.1
Accrued interest 4.7 181.1
Deferred directory revenue 872.6 1,076.3
Current portion of long-term debt 796.9 113.6
----- -----
Total current liabilities not subject to
compromise 1,836.0 1,587.1
Long-term debt (4) 2,792.3 9,508.7
Deferred income taxes, net 1,052.8 998.1
Other non-current liabilities 366.2 280.2
----- -----
Total liabilities not subject to compromise 6,047.3 12,374.1
Liabilities subject to compromise (4) 6,409.5 -
Shareholders' deficit (919.9) (493.4)
------ ------
Total Liabilities and Shareholders' Deficit $11,536.9 $11,880.7
========= =========
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements and Non-GAAP Measures - Schedule 7.
R.H. DONNELLEY CORPORATION Schedule 4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------
Amounts in millions
Three Nine
Months Ended Months Ended
September 30, September 30,
------------- ------------------
Operating activities: 2009 2008 2009 2008
---- ---- ---- ----
Net income (loss) $23.9 $26.1 $(452.8) $(1,935.9)
Impairment charges (2) - - - 3,123.9
Gain on debt transactions, net (3) - (72.4) - (231.5)
Depreciation and amortization 142.6 125.4 427.7 363.3
Deferred income taxes 20.0 31.6 372.7 (943.0)
Non-cash reorganization items,
net (4) (1.6) - 18.7 -
Changes in working capital 35.5 (17.1) 5.3 (88.1)
Other 11.6 16.8 37.0 97.9
---- ---- ---- ----
Net cash provided by operating
activities 232.0 110.4 408.6 386.6
Investment activities:
Additions to fixed assets and
computer software (8.3) (17.0) (18.2) (47.3)
Equity investment disposition - - - 4.3
--- --- --- ---
Net cash used in investing
activities (8.3) (17.0) (18.2) (43.0)
Financing activities:
Credit facilities borrowings,
net of costs - - - 1,018.2
Credit facilities repayments (26.2) (33.6) (255.6) (1,224.7)
Note repurchases and related
costs - (84.7) - (84.7)
Borrowings under the Revolver - 25.0 361.0 398.1
Revolver repayments - (26.0) (18.7) (422.1)
Debt issuance costs - (1.5) - (9.6)
Repurchase of common stock - - - (6.1)
Increase (decrease) in checks
not yet presented for payment 2.1 6.2 (1.8) 1.9
Proceeds from employee stock
option exercises - - - 0.1
----- ------ ---- ------
Net cash (used in) provided by
financing activities (24.1) (114.6) 84.9 (328.9)
Increase (decrease) in cash and
cash equivalents 199.6 (21.2) 475.3 14.7
Cash and cash equivalents,
beginning of period 406.9 82.0 131.2 46.1
------ ----- ------ -----
Cash and cash equivalents, end
of period $606.5 $60.8 $606.5 $60.8
====== ===== ====== =====
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements and Non-GAAP Measures - Schedule 7.
R.H. DONNELLEY CORPORATION Schedule 5a
RECONCILIATION OF NON-GAAP MEASURES
------------------------------------
(unaudited)
Amounts in millions
Three Nine
Months Ended Months Ended
September 30, September 30,
-------------- -----------------
2009 2008 2009 2008
---- ---- ---- ----
Reconciliation of net income (loss) -
GAAP to EBITDA and Adjusted EBITDA (5)
Net income (loss) - GAAP $23.9 $26.1 $(452.8) $(1,935.9)
Plus (less) tax provision (benefit) 22.0 31.9 375.1 (939.8)
Plus interest expense, net 63.5 200.3 423.8 630.4
Plus depreciation and amortization 142.6 125.4 427.7 363.3
----- ----- ----- -----
EBITDA $252.0 $383.7 $773.8 $(1,882.0)
------ ------ ------ ---------
Impairment charges (2) - - - 3,123.9
Gain on debt transactions, net (3) - (72.4) - (231.5)
Stock-based compensation expense and
long-term incentive program 3.8 7.1 12.4 23.4
Restricted stock unit expense related
to the Business.com acquisition - 1.0 0.4 4.2
Restructuring costs 1.8 14.3 12.9 18.9
Reorganization items, net (4) 7.1 - 77.9 -
------ ------ ------ --------
Adjusted EBITDA $264.7 $333.7 $877.4 $1,056.9
====== ====== ====== ========
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements and Non-GAAP Measures - Schedule 7.
R.H. DONNELLEY CORPORATION Schedule 5b
RECONCILIATION OF NON-GAAP MEASURES (cont'd)
--------------------------------------------
(unaudited)
Amounts in millions
Three Months Nine Months
Months Ended Months Ended
September 30, September 30,
2009 2008 2009 2008
---- ---- ---- ----
Reconciliation of cash flow
from operations - GAAP to
adjusted free
cash flow
Cash flow from
operations -
GAAP $232.0 $110.4 $408.6 $386.6
Add: Cash
reorganization
payments 1.4 - 48.4 -
Add: Cash
restructuring
payments 1.4 14.0 19.1 15.5
Add: Cash
restricted
stock unit
payments
related to the
Business.com
acquisition - 1.0 0.4 4.5
--- --- --- ---
Adjusted cash
flow from
operations 234.8 125.4 476.5 406.6
Less: Additions
to fixed assets
and computer
software - GAAP 8.3 17.0 18.2 47.3
--- ---- ---- ----
Adjusted free
cash flow $226.5 $108.4 $458.3 $359.3
====== ====== ====== ======
Three Months Nine Months
Months Ended Months Ended
September 30, September 30,
2009 2008 2009 2008
---- ---- ---- ----
Reconciliation of interest
expense - GAAP to adjusted
interest expense (6)
Interest
expense - GAAP $63.5 $200.3 $423.8 $630.4
Plus:
Amortization of
fair value
adjustment due
to purchase
accounting - 4.5 7.7 13.1
Less: One-time
expense related
to ineffective
interest rate
swaps as a
result of the
refinancings
completed
during the
second quarter
of 2008 - - - (42.9)
--- --- --- -----
Adjusted
interest
expense $63.5 $204.8 $431.5 $600.6
===== ====== ====== ======
As of As of
----- -----
September 30, December 31,
2009 2008
---- ----
Reconciliation of
debt - GAAP to net
debt and net debt -
excluding fair
value adjustment (6) (7)
Debt - GAAP $3,589.2 $9,622.3
Less: Cash and
cash
equivalents (606.5) (131.2)
------ ------
Net debt 2,982.7 9,491.1
Less: Fair
value
adjustment due
to purchase
accounting - (86.2)
--- -----
Net debt -
excluding fair
value
adjustment $2,982.7 $9,404.9
======== ========
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements and Non-GAAP Measures - Schedule 7.
R.H. DONNELLEY CORPORATION Schedule 6
STATISTICAL MEASURE
CALCULATION OF ADVERTISING SALES PERCENTAGE CHANGE OVER PRIOR YEAR PERIODS
--------------------------------------------------------------------------
(unaudited)
Amounts in millions, except percentages
---------------------------------------
Nine Months Ended Three Months Ended
----------------- ------------------
September 30,
2009 September 30 June 30 March 31 December 31
------------- ------------ ------- -------- -----------
2009
Advertising
sales (8) $1,540.9 $419.9 $522.8 $598.2
2008
Advertising
sales
disclosed
in 2008
Form 10-K
and Forms
10-Q 1,899.5 503.6 678.3 717.6 $618.4
2007
Advertising
sales
disclosed
in 2007
Form 10-K
and Forms
10-Q - - - - 700.3
Adjustments
primarily
related to
changes in
publication
dates 23.5 25.0 (2.5) 1.0 0.1
---- ---- ---- --- ---
2008 Pro
forma
advertising
sales $1,923.0 $528.6 $675.8 $718.6
2007 Pro forma
advertising sales $700.4
Pro forma
advertising
sales
percentage
change over
prior year
periods (19.9%) (20.6%) (22.6%) (16.8%) (11.7%)
===== ===== ===== ===== =====
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements and Non-GAAP Measures - Schedule 7.
R.H. DONNELLEY CORPORATION Schedule 7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND NON-GAAP MEASURES
(1) Our advertising revenues are earned primarily from the sale of
advertising in yellow pages directories that we publish. Revenue
from the sale of such advertising is deferred when a directory is
published, net of estimated sales claims, and recognized ratably
over the life of a directory, which is typically 12 months.
Advertising revenues also include revenues for Internet-based
advertising products, including our proprietary local search site,
dexknows.com and DexNet. Revenues with respect to our Internet-
based advertising products that are sold with print advertising
are initially deferred until the service is delivered or fulfilled
and recognized ratably over the life of the contract. Revenues with
respect to Internet-based services that are not sold with print
advertising are recognized as delivered or fulfilled.
(2) As a result of the decline in the trading value of our debt and
equity securities during the first and second quarters of 2008
and the continued negative industry and economic trends that have
directly affected our business, we performed impairment tests of
our goodwill, definite-lived intangible assets and other long-
lived assets. Based upon this analysis, we recognized non-cash
goodwill impairment charges of $2.5 billion and $660.2 million
during the three months ended March 31, 2008 and June 30, 2008,
respectively, for total non-cash goodwill impairment charges of
$3.1 billion during the nine months ended September 30, 2008.
As a result of these impairment charges, we have no recorded
goodwill at December 31, 2008 or September 30, 2009.
(3) During the three months ended September 30, 2008, RHD repurchased
certain of its senior notes and senior discount notes (the
"September 2008 Debt Repurchases"). As a result of the September
2008 Debt Repurchases, we recognized a gain of $72.4 million
during the three months ended September 30, 2008. On June 25,
2008, RHD completed an exchange of its senior notes and senior
discount notes for new senior notes ("Debt Exchanges"). The Debt
Exchanges resulting in a gain of approximately $161.3 million
during the nine months ended September 30, 2008. During the nine
months ended September 30, 2008, we recognized a charge of $2.2
million for the write-off of unamortized deferred financing costs
associated with the refinancing of the former Dex Media West
credit facility and portions of the amended RHDI Credit Facility.
These debt transactions resulted in a gain of $231.5 million for
the nine months ended September 30, 2008.
(4) For the three and nine months ended September 30, 2009, the
Company recorded reorganization items on a separate line item
on the condensed consolidated statement of operations.
Reorganization items represent charges that are directly
associated with the process of reorganizing the business under
Chapter 11 of the bankruptcy code and include certain expenses
such as professional fees, the write-off of unamortized deferred
financing costs, net premiums / discounts and fair value
adjustments due to purchase accounting associated with long-term
debt classified as liabilities subject to compromise (see Note 7
below), and rejected leases. Additionally, liabilities are
segregated between liabilities not subject to compromise and
liabilities subject to compromise on the condensed consolidated
balance sheet. The Company's senior notes, senior discount notes
and senior subordinated notes have been classified as liabilities
subject to compromise at September 30, 2009 and the Company's
credit facilities have been excluded from liabilities subject to
compromise at September 30, 2009.
(5) EBITDA and Adjusted EBITDA are not measurements of operating
performance computed in accordance with GAAP and should not be
considered as a substitute for net income (loss) prepared in
conformity with GAAP. In addition, EBITDA may not be comparable
to similarly titled measures of other companies. Adjusted EBITDA
is determined by adjusting EBITDA for items such as (i)
impairment charges, (ii) gain on debt transactions, net,
(iii) stock-based compensation, (iv) restricted stock unit expense
related to the Business.com Acquisition, (v) restructuring costs,
and (vi) reorganization items, net.
(6) As a result of purchase accounting, RHD was required to adjust the
carrying value of Dex Media's debt at January 31, 2006 to its fair
value. Adjusted interest expense eliminates the interest benefit
resulting from the amortization of the fair value adjustment to Dex
Media's debt. Due to filing the Chapter 11 petitions, the remaining
unamortized fair value adjustments due to purchase accounting at
May 28, 2009 were written-off and recognized as a reorganization
item on the condensed consolidated statement of operations for
the nine months ended September 30, 2009.
(7) Net debt represents total debt less cash and cash equivalents on
the respective date. Net debt - excluding fair value adjustments
represents net debt adjusted to remove the remaining fair value
purchase accounting adjustment of Dex Media's debt noted in
footnote 6 above. The Company has reclassified $6.1 billion of
our senior notes, senior discount notes and senior subordinated
notes to liabilities subject to compromise on the unaudited
condensed consolidated balance sheet at September 30, 2009.
(8) Advertising sales is a statistical measure and consists of sales
of advertising in print directories distributed during the period
and Internet-based products and services with respect to which
such advertising first appeared publicly during the period.
It is important to distinguish advertising sales from net
revenue, which is recognized under the deferral and
amortization method.
SOURCE R.H. Donnelley Come And Visit
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