R.H. Donnelley Generates Strong Cash Flow in Second Quarter; Updates 2006 Guidance1 August 2006
R.H. Donnelley Corporation (NYSE: RHD), one of the nation's leading Yellow Pages and online local commercial search companies, today reported second quarter free cash flow of $194.3 million based on cash flow from operations of $208.5 million and $14.2 million of capital expenditures in the period. Advertising sales during the second quarter were $724.7 million, down 3.5% from the prior year. Advertising sales represent the total billable value of advertising in directories that were published in the period. GAAP net revenue in the quarter was $432.3 million.
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"We are pleased with this quarter's strong cash flow, solid EBITDA and progress on the Dex integration. While advertising sales were lower than expected, they reflect the short-term impact of the transition and turnaround efforts that we are driving across our business," said David C. Swanson, chairman and CEO of R.H. Donnelley. "We expect these initiatives will generate sustainable top-line growth and will enable us to deliver even greater value to advertisers and consumers for the long-term."
Swanson continued, "At the halfway point in 2006, we now have greater visibility into full-year results and are revising our guidance accordingly. We are lowering 2006 advertising sales and net revenue outlook, but increasing expected EBITDA margin and cash flow due to higher than expected net synergies in the first year of Dex integration."
As of June 30, 2006, RHD's net debt outstanding, excluding the purchase accounting fair value adjustment, was $10,283.9 million. On a GAAP basis, net debt was $10,491.1 million.
See the attached schedules for operating results and a reconciliation of non-GAAP financial measures presented in this release to the most comparable GAAP measures. Please thoroughly review the Comparative Financial Results section, the schedules and the schedule footnotes below.
Outlook
R.H. Donnelley is updating guidance on a consolidated basis for 2006, which in each case, excludes the effects of purchase accounting and assumes the Dex transaction closed on January 1, as appropriate.
* Advertising sales are expected to be at least $2.64 billion in 2006.
* Net revenue is expected to be at least $2.68 billion for the year.
* EBITDA excluding FAS 123R expense is expected to be at least $1.46
billion, resulting in a margin of approximately 54.5%.
* Free cash flow is expected to be at least $725 million after
approximately $75 million of capital expenditures.
* Weighted average fully diluted shares outstanding during 2006 are
expected to be between 72.0 million and 72.5 million.
Details and related reconciliations of non-GAAP financial measures to the most comparable GAAP measures appear in Schedules 8d and 8e of this press release.
Second Quarter Conference Call
R.H. Donnelley will host a conference call to discuss the second quarter 2006 results on Tuesday, August 1, 2006 at 10:00 a.m. (ET). The call can be accessed by dialing 888-387-9606 (domestic) or 517-645-6055 (international). The pass code for the call is "RHD". Please dial in to the call by 9:50 a.m. (ET) to ensure a prompt start time. The call will also be available through a Web cast, which can be accessed by visiting our Web site at http://www.rhd.com, clicking on "Investor Relations" and following the instructions provided. Those unable to participate at the scheduled time may access a recorded replay by dialing 800-890-3519 (domestic) or 402-220-4870 (international). The recording will be available through August 16, 2006. There is no pass code for the replay. In addition, an archived version of the Web cast will be available on RHD's Web site for up to one year from the date of the call.
About R.H. Donnelley
R.H. Donnelley (RHD) is the nation's third largest Yellow Pages publisher with significant online local search capabilities. The company has more than 4,000 employees operating in 28 states across the United States. Every day, consumers rely on the company's more than 625 directories, online city guides and local search Web sites to find businesses that provide the products and services they need. RHD's directories, which have a circulation of approximately 80 million, are marketed under three of the industry's most recognized brands: AT&T Yellow Pages (formerly SBC Yellow Pages) in Illinois and northwest Indiana; Dex(R) Yellow Pages and EMBARQ Yellow Pages(TM) directories (formerly Sprint Yellow Pages(R)). R.H. Donnelley's expanding presence on the Internet now includes the Best Red Yellow Pages(R) brand at bestredyp.com(R) in its EMBARQ Yellow Pages markets, in RHD's AT&T Yellow Pages markets at CHICAGOLANDYP.com and local search services through Dex at DexOnline.com(R).
Comparative Financial Results
As a result of the AT&T and Dex Media transactions and the related financing and associated accounting, management believes that R.H. Donnelley's 2006 and 2005 results reported in accordance with GAAP are not comparable, nor do they reflect the underlying operational or financial performance of R.H. Donnelley. 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 in each period. Adjusted and pro forma adjusted 2006 results discussed in this press release and the attached schedules reflect the combination of RHD with Dex Media as if the transaction had been consummated at the beginning of 2006 and reflect certain other adjustments described below, including adjustments to exclude the effects of purchase accounting related to the Dex Media and AT&T transactions. Combined adjusted 2005 results included in the attached schedules reflect the sum of adjusted RHD results and Dex Media GAAP results during the period. While adjusted, pro forma adjusted and combined adjusted results each exclude the effects of purchase accounting (and certain other items) to better reflect operating results in the respective periods, because of differences between RHD, AT&T and Dex Media and their respective predecessor accounting policies, adjusted, pro forma adjusted and combined adjusted results are not strictly comparable and should not be treated as such. Management urges you to read the schedules and the footnotes carefully to better understand the limitations of using these figures for any analysis.
The primary adjustments related to the AT&T transaction and the Dex Media transaction 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. 2006 Pro forma adjusted year-to-date results for R.H. Donnelley also exclude professional fees related to the Dex Media merger and cost uplift to eliminate profit on sales contracts executed prior to the AT&T and Dex Media transactions 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. In addition, pro forma adjusted results include interest and depreciation and amortization expenses as if the Dex Media transaction occurred on January 1, 2006 and eliminates the interest benefit resulting from the amortization of the fair market value adjustment to Dex Media's debt.
R.H. Donnelley's year-to-date pro forma adjusted earnings per share assumes the Dex Media transaction occurred on January 1, 2006 plus conversion at the beginning of the year-to-date period of the preferred stock that was outstanding at December 31, 2005. 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 R.H. Donnelley results.
While purchase accounting related to the Dex Media merger will impact R.H. Donnelley's 2006 reported results, it did not affect 2005 results for either company nor, combined adjusted results for 2005.
Safe Harbor Provision
Certain statements contained in this press release regarding RHD'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," "planned," "estimated," "potential," "goal," "outlook" and similar expressions, as they relate to RHD or its management, have been used to identify such forward-looking statements. All forward- looking statements reflect only RHD's current beliefs and assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to RHD. Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause RHD's actual operating results, performance or business plans or prospects to differ materially from those expressed in, or implied by, these statements.
The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: (1) the risk that the legacy Dex and RHD businesses will not be integrated successfully; (2) the risk that the expected strategic advantages and cost savings from the Dex Media merger may not be fully realized or may take longer to realize than expected; (3) disruption from the Dex Media merger making it more difficult to maintain relationships with customers, employees or suppliers; and (4) general economic conditions and consumer sentiment in our markets. Additional factors that could cause RHD's results to differ materially from those described in the forward-looking statements are described in detail in the registration statement on Form S-4 that RHD filed with the Securities and Exchange Commission (the "SEC") (Registration No. 333-129539), which contains the joint proxy statement/prospectus relating to the transaction, RHD's Annual Report on Form 10-K for the fiscal year ended December 31, 2005 in Item 1A "Risk Factors," Dex Media's Annual Report on Form 10-K for the fiscal year ended December 31, 2005 in Item 1A "Risk Factors," as well as RHD's and Dex Media's other periodic filings with the SEC that are available on the SEC's website at http://www.sec.gov.
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 six months ended June 30, 2006 and 2005
Schedule 3: Unaudited Condensed Consolidated Adjusted and Combined
Adjusted Statements of Operations for the three months ended
June 30, 2006 and 2005 and Pro Forma Adjusted and Combined
Adjusted Statements of Operations for the six months ended
June 30, 2006 and 2005
Schedule 4: Unaudited Condensed Consolidated Balance Sheets at June 30,
2006 and December 31, 2005
Schedule 5: Unaudited Condensed Consolidated Statements of Cash Flows for
the three and six months ended June 30, 2006 and 2005
Schedule 6: Reconciliation of Reported to Unaudited Condensed
Consolidated Adjusted and Combined Adjusted Statements of
Operations for the three months ended June 30, 2006 and 2005
Schedule 7: Reconciliation of Reported to Unaudited Condensed
Consolidated Pro Forma Adjusted and Combined Adjusted
Statements of Operations for the six months ended June 30,
2006 and 2005
Schedule 8: Reconciliation of Non-GAAP Measures
Schedule 9: Notes to Unaudited Condensed Consolidated Financial
Statements 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
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Amounts in millions, except earnings per share
Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
Reported Reported Reported Reported
Net revenue (1) $432.3 $233.0 $752.8 $440.3
Expenses 273.4 121.3 493.1 236.8
Depreciation and amortization 85.5 20.6 148.2 42.3
Operating income 73.4 91.1 111.5 161.2
Interest expense, net (202.1) (58.3) (355.9) (115.7)
Pre-tax (loss) income (128.7) 32.8 (244.4) 45.5
Tax benefit (provision) 48.9 (12.8) 92.9 (17.8)
Net (loss) income (79.8) 20.0 (151.5) 27.7
(Gain) loss on repurchase of
Preferred Stock - - (29.2) 133.7
Preferred dividend - 2.9 - 6.2
(Loss) income available to common
shareholders $(79.8) $17.1 $(122.3) $(112.2)
(Loss) earnings per share
(EPS): (4)
Basic $(1.15) $0.46 $(1.95) $(3.55)
Diluted $(1.15) $0.44 $(1.95) $(3.55)
Shares used in computing EPS: (4)
Basic 69.7 31.7 62.7 31.6
Diluted 69.7 33.5 62.7 31.6
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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
UNAUDITED CONDENSED CONSOLIDATED ADJUSTED, PRO FORMA
ADJUSTED AND COMBINED ADJUSTED STATEMENTS OF OPERATIONS
Amounts in millions, except earnings per share
Three months ended Six months ended
June 30, June 30,
2005 2006 2005
2006 Combined Pro Forma Combined
Adjusted (2) Adjusted (2) Adjusted (2) Adjusted (2)
Net revenue (1) $676.7 $674.9 $1,353.1 $1,345.8
Expenses 300.8 292.0 618.1 576.8
Depreciation and
amortization 85.5 168.6
Operating income 290.4 566.4
Interest expense, net (211.2) (423.9)
Pre-tax income 79.2 142.5
Tax provision (30.0) (54.1)
Net income $49.2 $88.4
Earnings per share
(EPS): (5), (12)
Basic $0.71 $1.28
Diluted $0.69 $1.25
Shares used in computing
EPS: (5), (12)
Basic 69.7 69.0
Diluted 71.5 70.8
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements and Non-GAAP Measures - Schedule 9.
See Schedules 6 and 7 for a reconciliation of reported to adjusted, pro
forma adjusted and combined adjusted 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
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in millions
June 30, December 31,
2006 2005
Reported Reported (13)
Assets
Cash and cash equivalents $195.4 $7.8
Accounts receivable, net 1,110.1 451.6
Deferred directory costs 271.9 67.7
Other current assets 99.4 47.4
Total current assets 1,676.8 574.5
Fixed assets and computer
software, net 165.0 55.7
Intangible assets, net 11,626.8 2,833.2
Other non-current assets 159.4 91.5
Goodwill 2,872.8 319.0
Total Assets $16,500.8 $3,873.9
Liabilities, Redeemable Convertible
Preferred Stock and Shareholders'
Equity (Deficit)
Accounts payable and accrued
liabilities $124.5 $68.9
Accrued interest 172.4 20.6
Deferred directory revenue 1,118.0 457.7
Short-term deferred income taxes,
net 83.7 91.3
Current portion of long-term debt 403.7 100.2
Total current liabilities 1,902.3 738.7
Long-term debt 10,282.8 2,978.6
Deferred income taxes, net 2,179.9 59.6
Other non-current liabilities 183.7 54.3
Total liabilities 14,548.7 3,831.2
Redeemable convertible preferred stock - 334.1
Shareholders' equity (deficit) 1,952.1 (291.4)
Total Liabilities, Redeemable
Convertible Preferred Stock and
Shareholders' Equity (Deficit) $16,500.8 $3,873.9
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and six months ended June 30, 2006 and 2005
Amounts in millions
Reported Reported Reported Reported
Three Three Six Six
Months Months Months Months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
Operating activities:
Net (loss) income $(79.8) $20.0 $(151.5) $27.7
Depreciation and amortization 85.5 20.6 148.2 42.3
Deferred income tax (48.9) 15.5 (93.0) 37.3
Changes in working capital 224.1 1.0 441.1 76.8
Other 27.6 24.7 59.7 10.6
Net cash provided by operating
activities 208.5 81.8 404.5 194.7
Investment activities:
Additions to fixed assets and
computer software (14.2) (6.5) (24.6) (12.0)
Merger, net of cash received (0.5) - (1,889.2) -
Net cash used in investing
activities (14.7) (6.5) (1,913.8) (12.0)
Financing activities:
Increase (decrease) in checks not
yet presented for payment 4.8 (4.3) (1.2) (2.3)
Proceeds from issuance of debt, net
of costs (2.9) (0.2) 2,514.5 291.5
Repurchase of redeemable convertible
preferred stock and redemption of
purchase rights (0.7) - (336.8) (277.2)
Repayment of debt (157.9) (71.9) (576.8) (183.3)
Revolver repayments (309.9) (71.1) (354.6) (161.3)
Borrowings under the Revolver 263.8 68.1 432.5 140.1
Proceeds from option exercises 5.1 2.3 19.3 4.9
Net cash (used in) provided by
financing activities (197.7) (77.1) 1,696.9 (187.6)
(Decrease) increase in cash
and cash equivalents (3.9) (1.8) 187.6 (4.9)
Cash and cash equivalents,
beginning of period 199.3 7.6 7.8 10.7
Cash and cash equivalents, end
of period $195.4 $5.8 $195.4 $5.8
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Reconciliation of Reported to Unaudited Condensed Consolidated Adjusted
and Combined Adjusted Amounts
Amounts in millions, except earnings per share
Three Months Ended June 30, 2006
RHD
Reported Adjustments(2) Adjusted
Net revenue (1) $432.3 $244.4 (6) $676.7
Expenses 273.4 27.4 (6) 300.8
Depreciation and amortization 85.5 - 85.5
Total expenses 358.9 27.4 386.3
Operating income 73.4 217.0 290.4
Interest expense, net (202.1) (9.1) (7) (211.2)
Pre-tax (loss) income (128.7) 207.9 79.2
Tax benefit (provision) 48.9 (78.9) (8) (30.0)
Net (loss) income $(79.8) $129.0 $49.2
(Loss) earnings per share
(EPS): (4)
Basic $(1.15) $0.71
Diluted $(1.15) $0.69
Shares used in computing EPS: (4)
Basic 69.7 69.7
Diluted 69.7 1.8 (4) 71.5
Three Months Ended June 30, 2005
Dex Media
RHD RHD Reported Combined
Reported Adjustments(2) Adjusted (2),(13) Adjusted
Net revenue (1) $233.0 $27.6 (6) $260.6 $414.3 $674.9
Expenses 121.3 (13.8)(6) 107.5 184.5 292.0
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Reconciliation of Reported to Unaudited Condensed Consolidated Pro Forma
Adjusted and Combined Adjusted Amounts
Amounts in millions, except earnings per share
Six Months Ended June 30, 2006
RHD Pro Forma
Reported Adjustments(2) Adjusted
Net revenue (1) $752.8 $600.3 (6) $1,353.1
Expenses 493.1 125.0 (6) 618.1
Depreciation and amortization 148.2 20.4 (7) 168.6
Total expenses 641.3 145.4 786.7
Operating income 111.5 454.9 566.4
Interest expense, net (355.9) (68.0)(7) (423.9)
Pre-tax (loss) income (244.4) 386.9 142.5
Tax benefit (provision) 92.9 (147.0)(8) (54.1)
Net (loss) income (151.5) 239.9 88.4
Gain on repurchase of
Preferred Stock (29.2) 29.2 (3) -
Preferred dividend - - -
(Loss) income available to
common shareholders $(122.3) $210.7 $88.4
(Loss) earnings per share
(EPS): (3), (4), (5), (12)
Basic $(1.95) $1.28
Diluted $(1.95) $1.25
Shares used in computing
EPS:(3), (4), (5), (12)
Basic 62.7 6.3 69.0
Diluted 62.7 8.1 70.8
Six Months Ended June 30, 2005
Dex Media
RHD RHD Reported Combined
Reported Adjustments(2) Adjusted (2),(13) Adjusted
Net revenue (1) $440.3 $79.5 (6) $519.8 $826.0 $1,345.8
Expenses 236.8 (21.8)(6) 215.0 361.8 576.8
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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 and percentages
Three Months Six Months
Ended June 30, Ended June 30,
2006 2005 2006 2005
Reconciliation of advertising sales to
net revenue - GAAP, net revenue -
adjusted and pro forma adjusted
and net revenue combined adjusted (9)
RHD advertising sales disclosed in
June 30, 2005 Form 10-Q $253.2 $509.9
Dex Media implied advertising sales
for the three and six months ended
June 30, 2005, disclosed in
Dex Media's second quarter 2005
press release 457.1 909.3
Adjustments for changes in
publication dates and definition of
advertising sales 40.3 37.8
RHD pro forma advertising sales $724.7 750.6 1,431.6 1,457.0
Advertising sales percentage change
over prior year -3.5% -1.7%
Less (a) pre-acquisition Dex Media
advertising sales not recognized as
current period revenue and (b) total
current period advertising sales not
recognized as revenue due to the
deferral method of accounting, plus (c)
total net revenue reported in the
period for advertising sales from
prior periods. (300.7) (520.5) (692.7) (1,022.1)
Net directory advertising revenue 424.0 230.1 738.9 434.9
Other revenue 8.3 2.9 13.9 5.4
Net revenue - GAAP 432.3 233.0 752.8 440.3
Plus net revenue from Dex Media-
branded directories that published
prior to the acquisition that would
have been recognized during the
period absent purchase accounting
adjustments required under GAAP 244.4 27.6 600.3 79.5
Net revenue - adjusted and pro forma
adjusted $676.7 $1,353.1
Dex Media net revenue - GAAP from Dex
Media's Form 10-Q for the six months
ended June 30,2005 414.3 826.0
Net revenue - combined adjusted $674.9 $1,345.8
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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 Six Months
Ended June 30, Ended June 30,
2006 2006
Reconciliation of net loss - GAAP to
EBITDA and adjusted and pro forma
adjusted EBITDA
Net loss - GAAP $(79.8) $(151.5)
Plus tax benefit (48.9) (92.9)
Plus interest expense, net 202.1 355.9
Plus depreciation and amortization 85.5 148.2
EBITDA (10) 158.9 259.7
Plus net revenue from Dex Media-branded
directories that published prior to the
acquisition that would have been
recognized during the period absent
purchase accounting adjustments
required under GAAP 244.4 600.3
Less expenses on Dex Media-branded
directories that published prior to the
acquisition that would have been
recognized during the period absent
purchase accounting required under GAAP
and professional fees associated with
the Dex Media transaction paid for by
Dex Media, net of amortized deferred
cost uplift on Dex Media and AT&T
sales contracts as of their respective
acquisition dates. (27.4) (125.0)
Adjusted and Pro forma adjusted
EBITDA including FAS 123R(10) 375.9 735.0
Plus SFAS No. 123 R Expense 9.3 25.8
Adjusted and Pro forma adjusted
EBITDA (10) $385.2 $760.8
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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 Six Months
Ended Ended
June 30, 2006 June 30, 2006
Reconciliation of diluted loss per
share - GAAP to diluted earnings per
share - adjusted and pro forma adjusted
Diluted loss per share - GAAP $(1.15) $(1.95)
Effect of converting preferred stock
to common stock at the beginning of the
period - (0.19)
Impact of acquisitions, including
adjustments to eliminate purchase
accounting 1.84 3.39
Diluted earnings per share - adjusted
and pro forma adjusted $0.69 $1.25
See Schedules 6 and 7 for further
details.
Three Months Six Months
Ended Ended
June 30, 2006 June 30, 2006
Reconciliation of cash flow from
operations - GAAP to adjusted and
pro forma adjusted cash flow from
operations and adjusted and pro forma
adjusted free cash flow
Cash flow from operations - GAAP $208.5 $404.5
Add: Dex Media cash flow from
operations for January 2006 - GAAP - 39.7
Add: Professional fees related to the
Dex Media Merger paid for by Dex Media - 7.5
Adjusted and pro forma adjusted cash
flow from operations 208.5 451.7
Less: additions to fixed assets and
computer software - GAAP 14.2 24.6
Less: Dex Media additions to fixed
assets and computer software for
January 2006 - GAAP - 1.1
Adjusted and pro forma adjusted free
cash flow $194.3 $426.0
Reported
June 30, 2006
Reconciliation of debt - GAAP to net
debt - excluding fair market value
adjustment (11)
Debt - GAAP $10,686.5
Less: Cash and cash equivalents (195.4)
Net debt - GAAP 10,491.1
Less: Fair market value adjustment
due to purchase accounting (207.2)
Net debt - excluding fair market
value adjustment $10,283.9
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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)
$ in billions
Full Year 2006
Outlook
Reconciliation of advertising sales
outlook to net revenue - GAAP
outlook and net revenue - pro forma
adjusted outlook
Advertising sales outlook $2.64
Less pre-acquisition advertising
sales for Dex-branded directories
not recognized as revenue in current period
due to purchase accounting (0.14)
Less current period advertising sales
for directories not recognized as
revenue in current period due to the
deferral method of accounting (1.09)
Plus net revenue reported in the
period for advertising sales from
prior periods 0.48
Other revenue 0.01
Net revenue - GAAP outlook 1.90
Plus pro forma net revenue that would
have been recognized during the period
absent purchase accounting adjustments
required under GAAP assuming the Dex Media
transaction had occurred on January 1, 2006 0.78
Net revenue - Pro forma adjusted outlook $2.68
Full Year 2006
Outlook
Reconciliation of pro forma adjusted
EBITDA outlook to operating income -
GAAP outlook
Pro forma adjusted EBITDA outlook $1.46
Less pro forma depreciation and
amortization (0.34)
Pro forma adjusted operating income
outlook 1.12
Less revenue from Dex Media-branded
directories that published prior to
the acquisition that would have been
recognized during the period absent
purchase accounting adjustments required
under GAAP, excluding January 2006 (0.64)
Plus expenses from Dex Media-branded
directories that published prior to
the acquisition that would have been
recognized during the period absent
purchase accounting adjustments required
under GAAP, net of amortized deferred cost
uplift on Dex Media and AT&T sales contracts
as of their respective acquisition dates,
excluding January 2006 0.05
Less SFAS No. 123 R Expense (0.04)
Less Dex Media net operating income
impact for the month of January 2006 (0.02)
Operating income - GAAP outlook $0.47
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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)
$ in billions
Full Year 2006
Outlook
Calculation of pro forma adjusted
EBITDA margin outlook
Pro forma adjusted net revenue outlook $2.68
Pro forma adjusted EBITDA outlook 1.46
Pro forma adjusted EBITDA margin outlook 54.5%
See Schedule 8d for GAAP reconciliations of pro forma adjusted net revenue
outlook and pro forma adjusted EBITDA outlook.
Full Year 2006
Outlook
Reconciliation of cash flow from
operations outlook - GAAP to free
cash flow outlook GAAP and pro forma
adjusted free cash flow outlook
Cash flow from operations outlook - GAAP $0.76
Less: Additions to fixed assets and
computer software (0.08)
Free cash flow outlook 0.68
Add: Dex Media free cash flow for
January 2006 0.04
Add: Professional fees related to the
Dex Media Merger paid for by Dex Media 0.01
Pro forma adjusted free cash flow outlook $0.73
Full Year 2006
Outlook
(millions)
Reconciliation of expected diluted
shares outstanding - GAAP to
expected adjusted diluted shares
outstanding
Expected diluted shares outstanding - GAAP 70.0
Additional expected shares from
common stock equivalents 2.3
Expected adjusted diluted shares
outstanding 72.3
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND NON-GAAP MEASURES
(1) Advertising revenue is recognized using the deferral and amortization
method of accounting. Under this method, when a directory is
published, the advertising sales value is deferred and amortized into
the statement of operations ratably over the life of the directory,
which is typically 12 months.
(2) As a result of the Dex Media and AT&T (formerly known as SBC)
transactions and the related financing and associated accounting,
management believes that the 2006 and 2005 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 in each period. Management urges you to read the
schedules and the footnotes carefully to better understand the
limitations of using these figures for any analysis.
Adjusted and pro forma adjusted results for 2006 reflect the
combination of RHD with Dex Media as if the transaction had been
consummated at the beginning of 2006 and reflect certain other
adjustments described below, including adjustments to exclude the
effects of purchase accounting related to the Dex Media and AT&T
transactions and professional fees associated with the Dex Media
transaction incurred by Dex Media in January 2006. In addition, pro
forma adjusted results include interest and depreciation and
amortization expenses as if the Dex Media transaction occurred on
January 1, 2006 and eliminates the interest benefit resulting from
the amortization of the fair market value adjustment to Dex Media's
debt balance described in footnote 7. Pro forma adjusted results do
not necessarily reflect what the underlying operational or financial
performance of RHD would have been had the Dex Media transaction been
consummated at the beginning of 2006.
Combined adjusted 2005 results reflect the sum of adjusted RHD
results, which exclude the impact of purchase accounting related to
the AT&T transaction and certain other adjustments described below,
and Dex reported GAAP results for the period.
The adjusted, pro forma adjusted and combined adjusted results assume
that the appropriate pro rata portion of the revenues and direct
costs of directories acquired from Dex Media and AT&T, respectively,
that published prior to the transactions 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. Additionally, the cost
uplift reported under GAAP to eliminate profit on sales contracts
completed before the transaction date for Dex Media and AT&T
directories not yet published at the transaction date has also been
excluded from adjusted, pro forma adjusted and combined adjusted
results. See Schedules 6 and 7 for details of all adjustments to the
reported GAAP results.
(3) Pro forma adjusted results for the six months ended June 30, 2006
assume the remaining Preferred Stock was completely converted to
Common Stock at the beginning of the period and therefore the gain on
the repurchase of Preferred Stock is excluded.
(4) On a reported basis, for the periods when preferred stock was
outstanding, basic EPS is calculated under the "two-class" method
that requires earnings (loss) available to common shareholders, after
deducting preferred dividends, the accretion of Preferred Stock to
fair value and the loss (gain) on repurchase of Preferred Stock, to
be allocated between the common and preferred shareholders based on
the respective rights to receive dividends. Basic EPS is then
calculated by dividing income (loss) allocable to common shareholders
by the weighted average number of shares outstanding. Diluted EPS is
calculated by dividing income (loss) 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.
(5) On a pro forma adjusted basis in 2006, basic and diluted EPS are
calculated as net income divided by the weighted average basic and
diluted shares outstanding for the period assuming the Dex Media
transaction was consummated on January 1, 2006. See footnote 12 for
further discussion of shares used in computing EPS.
(6) Adjustments for the three and six months ended June 30, 2006 and
2005 include revenue and expenses for directories acquired as a
result of the Dex Media and AT&T transactions, respectively, that
published prior to each transaction date and 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 each
transaction date for directories not yet published at the transaction
date has also been removed from both periods presented. Adjustments
to reported GAAP expenses in 2006 also exclude professional fees
associated with the Dex Media transaction incurred by Dex Media in
January 2006.
(7) Interest expense is presented on a pro forma adjusted basis
reflecting the incremental debt RHD incurred as if the Dex Media
transaction occurred on January 1, 2006. 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 market value. Adjusted
and pro forma adjusted interest expense eliminates the interest
benefit resulting from the amortization of the fair market value
adjustment to Dex Media's debt. Adjusted and pro forma adjusted
depreciation and amortization reflects the amortization of intangible
assets acquired as if the Dex Media transaction occurred on January
1, 2006.
(8) Represents the tax effect of adjustments.
(9) Advertising sales represent the total billable value of print and
online products in the period when billing commences.
(10) EBITDA represents earnings before interest, taxes, depreciation and
amortization. Adjusted and pro forma adjusted EBITDA represents
adjusted and pro forma adjusted earnings before interest, taxes,
depreciation and amortization. EBITDA, adjusted EBITDA and pro forma
adjusted 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. EBITDA for the three and six
months ended June 30, 2006 includes a charge of $9.3 million and
$25.8 million, respectively, for stock-based compensation in
accordance with Statement of Financial Accounting Standards No.
123 (R), Share-Based Payment.
(11) Net debt - GAAP represents total debt less cash and cash equivalents
for the respective period. Net debt -- excluding fair market value
adjustments represents net debt -- GAAP adjusted to remove the fair
value purchase accounting adjustment of Dex Media's debt noted in
footnote 7.
(12) Pursuant to the Dex Media Merger Agreement, each issued and
outstanding share of Dex Media common stock as of January 31, 2006
was converted into the right to receive $12.30 in cash and 0.24154 of
a share of RHD common stock. As of January 31, 2006, 151,309,850
shares of Dex Media common stock were issued and outstanding, which
resulted in the issuance of 36,547,381 shares of RHD common stock.
Pro forma adjusted weighted average common shares outstanding for
2006 assumes the Dex Media transaction occurred on January 1, 2006.
Pro forma adjusted basic and diluted EPS for 2006 does not
necessarily reflect what the underlying operational or financial
performance of RHD would have been had the Dex Media transaction been
consummated at the beginning of 2006.
(13) Certain prior period reported amounts have been reclassified to
conform with the current period presentation.
Note: These schedules are preliminary and subject to change pending the
Company's filing of its Form 10-Q.
R.H. Donnelley Corporation Contacts:
Investors: Jenny L. Apker
(800) 497-6329
Media: Tyler D. Gronbach
(919) 297-1541
Source: prnewswire
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