R.H. Donnelley (ticker: RHD, exchange: New York Stock Exchange) News Release - Tuesday, February 23, 1999
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R. H. Donnelley Posts 11 Percent Growth in 1998 Adjusted Earnings Per Share to $1.39
PURCHASE, N.Y.--(BUSINESS WIRE)--Feb. 23, 1999-- Strategy to Focus On Leveraging Sales Expertise to Drive
Growth in Existing Businesses, New Markets and New Media
R. H. Donnelley Corporation, the nation's largest independent marketer of yellow pages advertising, today reported as-adjusted earnings per diluted share of $1.39, up 11.2 percent from as-adjusted earnings per diluted share of $1.25 a year ago.
Frank R. Noonan, chairman and chief executive officer, said, ''Donnelley has made excellent progress since the company separated from Dun & Bradstreet on July 1, 1998. We achieved 11 percent growth in full-year 1998 adjusted earnings, surpassing the goal we set in the middle of last year. Moreover, we are continuing to implement strategic actions to position Donnelley for sustained growth in the future.''
Noonan said that 1998 was highlighted by good sales growth in the DonTech and Sprint businesses, by the winning of the Bell Atlantic contract for the Buffalo, N.Y., market, and by the company's new joint venture with China United Telecommunications Corporation to provide print and electronic yellow pages services in China. In addition, R. H. Donnelley significantly expanded in 1998 the number of markets where it offers Internet Web sites and yellow pages cable television advertising (YPTV).
''We also created greater financial flexibility for the company and more tax-efficient returns to our shareholders by eliminating the common stock dividend and initiating a stock repurchase plan'', said Noonan. ''This will enable us to direct our substantial free cash flow to growth investments, share repurchase and debt reduction, all of which will drive earnings growth and shareholder value.''
R. H. Donnelley became an independent public company after separating from The Dun & Bradstreet Corporation on July 1, 1998. R. H. Donnelley's results have been adjusted to exclude the results of its Proprietary-East operations, which were divested in 1997, and to include estimated corporate overhead, interest expense and income taxes as if RHD had been an independent company prior to July 1, 1998.
1998 Full-Year Adjusted Results
R. H. Donnelley's full-year advertising sales increased by 2.2 percent to $983.5 million from $962.4 million a year ago, excluding 1998 sales from the company's independent directory start-up in Cincinnati and 1997 sales related to the company's expired contract with Cincinnati Bell.
DonTech posted solid 1998 sales results in line with expectations, up 4.6 percent to $403.1 million from $385.5 million a year ago. During the year, DonTech successfully completed the final phase of a two-year initiative to rebalance its directory publication schedule. The publication dates of the DonTech directories are now more evenly distributed throughout the year, enabling DonTech to achieve higher levels of sales productivity and enhanced customer satisfaction.
Advertising sales in the Directory Advertising Services segment were essentially flat at $580.4 million in 1998, compared with sales of $576.9 million in 1997, excluding 1998 and 1997 results from Cincinnati. The company's business segments are described below. Strong year-over-year growth at Sprint, led by the Las Vegas directories, was offset partially by lower sales at Bell Atlantic, primarily in the New York City directories. R. H. Donnelley began selling Web sites in Bell Atlantic and Cincinnati in 1998, and introduced a Web site offering to Sprint's Las Vegas market early this year. YPTV was expanded to five new Bell Atlantic markets and to Sprint's Tallahassee market.
Adjusted 1998 operating income increased by 5.3 percent to $121.3 million from $115.2 million in 1997. Growth for the year included good performance at DonTech, where RHD's share of the partnership's income increased by 3.4 percent to $120.1 million from $116.2 million a year ago. DonTech's 1998 operating results were held down by billing issues associated with the prior DonTech partnership, which was restructured in 1997.
The Directory Advertising Services segment posted operating income of $32.6 million in 1998, up 8.3 percent from $30.1 million in 1997. Results for the year included strong growth at Sprint, which was offset partially by weaker performance in the Bell Atlantic business. The Directory Publishing Services segment improved by $1.6 million to an operating loss of $3.0 million in 1998, due to lower expenses. General and corporate expenses in 1998 were $28.4 million, or $1.9 million higher than a year ago, partially as a result of expenses associated with the company's joint venture with China United Telecommunications to publish yellow pages in China.
Adjusted net income grew by 12.2 percent and earnings per diluted share increased by 11.2 percent, due in part to a modest decline in 1998 interest expense, compared with 1997 full-year pro forma expense, as well as a slightly lower tax rate.
Fourth-Quarter 1998 Adjusted Results
R. H. Donnelley's fourth-quarter advertising sales increased by 3.2 percent to $352.9 million from $342.1 million a year ago. DonTech's advertising sales rose by 3.5 percent to $137.7 million from $133.1 million a year ago.
The Directory Advertising Services segment posted fourth-quarter sales of $215.2 million, up 3.0 percent from $209.0 million a year ago. Good growth at Sprint was partially offset by lower sales at Bell Atlantic.
Operating income for the quarter was $23.3 million, versus adjusted operating income of $71.5 million a year ago. The reduction was due entirely to timing factors. Operating income for the quarter included the impact of the rebalancing of the directory publication schedule at DonTech, and the timing of general and administrative expenses, particularly technology expenditures.
Outlook for R. H. Donnelley
Donnelley's goal is to deliver low-double-digit growth in earnings per share over the long term. The company expects its performance to be driven primarily by the strength of its core businesses, which will be enhanced by continued improvements in sales productivity and efficiency and the further market penetration of multiple-media product offerings. Based on these initiatives, the company's goal is to grow advertising sales for both print and electronic yellow pages at one-to-two percentage points above the projected average for the yellow pages industry.
Donnelley expects to generate additional growth by (1) adding new clients, either traditional telephone company or competitive local exchange carriers; (2) expanding into new markets with either new clients or by acquiring independent yellow page companies; and (3) forming a new sales channel that will link Internet service providers and local advertisers.
In addition, the company expects to apply a portion of its free cash flow to a combination of investments in growth initiatives and share repurchase, adding further to earnings growth.
Financial Position
At December 31, 1998, total assets were $391.1 million and total debt was $468.6 million. Capital expenditures and capitalized software spending for calendar 1998 were $12.7 million.
Reporting Business Segments
The company noted that for the first time it is reporting results for three business segments. This approach is representative of how the company is managed and consistent with new FASB requirements. The business segments are:
-- Directory Advertising Services, which includes (1) RHD's relationship with Bell Atlantic, (2) the company's relationship with Sprint, including the CenDon partnership, and (3) the company's independent directory business in Cincinnati.
-- DonTech Partnership, which includes results from RHD's perpetual joint-venture partnership with Ameritech that sells yellow pages advertising in Illinois and northwest Indiana, and related fees from Ameritech.
-- Directory Publishing Services, which is comprised of the company's pre-press directory compilation and graphic arts design businesses.
General and corporate expense includes general and administrative expenses, which were not allocated to the operating segments. The company noted that it has allocated to the business segments a portion of expenses that were previously reported as general and corporate expenses.
Reported Results
R. H. Donnelley's reported results include the company's performance as a unit of The Dun & Bradstreet Corporation up to the separation of the company from D&B on July 1, 1998, and the company's actual results since the separation. Reported results include RHD's Proprietary East operations, which were divested in 1997. For the period prior to the separation, reported results include both actual overhead and financing costs, which were lower compared with the post-separation period. Reported results include a stand-alone tax rate for RHD for the period prior to the separation.
For the full year, RHD posted reported net income of $61.6 million, or $1.78 per diluted share, compared with net income of $84.9 million, or $2.48 per diluted share a year ago. For the fourth quarter, reported net income was $8.1 million, or 24 cents per diluted share, compared with net income of $52.3 million, or $1.53 per diluted share a year ago.
R. H. Donnelley, headquartered in Purchase, N.Y., is the largest independent marketer of yellow pages advertising in the U.S. RHD sells approximately $1 billion in yellow pages advertising a year, and is the publisher or sales agent for nearly 300 directories with a total circulation of more than 36 million copies. More information about R. H. Donnelley can be found on its Internet site at www.rhdonnelley.com.
Safe Harbor Provision
The statements contained in this press release regarding R. H. Donnelley's future operating results and performance and business prospects 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,'' ''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 regarding earnings per share growth and advertising sales growth are forward looking statements set forth under the caption ''RH Donnelley Outlook''. These statements and all other forward looking statements reflect R. H. Donnelley's current beliefs and specific assumptions with respect to future business decisions 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 prospects to differ from those expressed in, or implied by, these statements. Such risks, uncertainties and contingencies include the following: (1) loss of market share through competition; (2) uncertainties caused by the consolidation of the telecommunications industry; (3) introduction of competing products or technologies by other companies; (4) complexity and uncertainty regarding the development of new high technology products; (5) pricing pressures from competitors and/or customers; (6) changes in the yellow pages industries and markets; (7) the company's inability to complete the implementation of its Year 2000 plans on a timely basis; (8) a sustained economic downturn in the United States.
R.H. DONNELLEY CORPORATION
CONSOLIDATED ADJUSTED STATEMENT OF INCOME
(Unaudited)
Amounts in millions,
except earnings per share
As As
Adjusted Adjusted Variance
1998 1997 $ %
Advertising sales (1)
Directory Advertising Services $ 590.8 $ 627.0 $ (36.2) -5.8%
DonTech Partnership 403.1 385.5 17.6 4.6%
Total advertising sales $ 993.9 $ 1,012.5 $ (18.6) -1.8%
Revenue (2) $ 170.0 $ 163.6 6.4 3.9%
Operating income: (3)
Directory Advertising Services $ 32.6 $ 30.1 $ 2.5 8.3%
DonTech Partnership 120.1 116.2 3.9 3.4%
Directory Publishing Services (3.0) (4.6) 1.6 34.8%
General & corporate (4) (28.4) (26.5) (1.9) -7.2%
Total operating income $ 121.3 $ 115.2 $ 6.1 5.3%
Interest & other expense -
net (5) (41.5) (42.7) 1.2 2.8%
Pre-tax income $ 79.8 $ 72.5 $ 7.3 10.1%
Tax (6) (31.9) (29.8) (2.1) -7.0%
Net income $ 47.9 $ 42.7 $ 5.2 12.2%
Earnings per share (EPS):
Basic $ 1.40 $ 1.25 $ 0.15 12.0%
Diluted $ 1.39 $ 1.25 $ 0.14 11.2%
Shares used in computing EPS:
Basic 34.2 34.2
Diluted 34.5 34.2
Depreciation & Amortization $ 20.3 $ 21.0 $ (0.7) -3.3%
EBITDA $ 141.6 $ 136.2 $ 5.4 4.0%
See notes attached.
R.H. DONNELLEY CORPORATION
CONSOLIDATED ADJUSTED STATEMENT OF INCOME
(Unaudited)
Amounts in millions,
except earnings per share
Three Months Ended December 31
As As
Adjusted Adjusted Variance
1998 1997 $ %
Advertising sales (1)
Directory Advertising Services $ 215.2 $ 209.0 $ 6.2 3.0%
DonTech Partnership 137.7 133.1 4.6 3.5%
Total advertising sales $ 352.9 $ 342.1 $ 10.8 3.2%
Revenue (2) $ 54.3 $ 57.9 (3.6) -6.2%
Operating income: (3)
Directory Advertising Services $ 8.3 $ 8.6 $ (0.3) -3.5%
DonTech Partnership 25.7 66.5 (40.8) -61.4%
Directory Publishing Services (1.8) (1.7) (0.1) -5.9%
General & corporate (4) (8.9) (1.9) (7.0) -368.4%
Total operating income $ 23.3 $ 71.5 $ (48.2) -67.4%
Interest & other expense -
net (5) (9.8) (10.6) 0.8 7.5%
Pre-tax income $ 13.5 $ 60.9 $ (47.4) -77.8%
Tax (6) (5.4) (25.0) 19.6 78.4%
Net income $ 8.1 $ 35.9 $ (27.8) -77.4%
Earnings per share (EPS):
Basic $ 0.24 $ 1.05 $ (0.81) -77.1%
Diluted $ 0.24 $ 1.05 $ (0.81) -77.1%
Shares used in computing EPS:
Basic 34.2 34.2
Diluted 34.4 34.2
Depreciation & Amortization $ 5.2 $ 5.2 $ - 0.0%
EBITDA $ 28.5 $ 76.7 $ (48.2) -62.8%
See notes attached.
R.H. DONNELLEY CORPORATION NOTES FOR CONSOLIDATED ADJUSTED STATEMENT OF INCOME
Notes:
(1) Advertising sales is the billing value of total advertising sold for directories published in the period, including RHD's sales agency relationships and partnerships.
(2) Revenue includes sales commissions received from Bell Atlantic and Sprint related to sales agency activity performed by RHD, as well as revenue generated by Cincinnati and Directory Publishing Services operations.
(3) Operating income has three components. First, results from operations for Bell Atlantic, Sprint, including the CenDon partnership, and Cincinnati are shown as Directory Advertising Services. Second, results from DonTech, RHD's perpetual joint-venture partnership with Ameritech, and related fees from Ameritech. Third, results from Directory Publishing Services which is comprised of RHD's pre-press directory compilation and graphic arts design businesses.
(4) General and corporate expenses include corporate general & administrative, depreciation & amortization and an estimate for stand-alone corporate overhead expenses as if RHD was a separate public company for the period prior to the separation from D&B on July 1, 1998 and actual expenses thereafter.
(5) Interest and other expenses related to the $500 million of company debt, prior to the separation from D&B on July 1, 1998, and actual debt and related interest expenses thereafter. Assumes debt was outstanding for the entire period prior to July 1, 1998.
(6) Taxes include the estimated stand-alone company rate.
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Contact:
R. H. Donnelley
Frank M. Colarusso, 914/933-3178 (Analyst Contact)
or
The Dilenschneider Group
Reid H. Gearhart, 212/922-0900 (Media Contact)
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