R.H. Donnelley 1998 Annual Report
Notes to Consolidated Financial Statements
1. Description of Business and Basis of Presentation
(in thousands, except share and per share data, unless otherwise indicated)R.H. Donnelley Corporation ("the Company") provides advertising sales and marketing services for yellow pages and other directory products under long-term sales agency agreements and joint venture partnerships with operating units of major telephone companies as well as through its own independent operations. The Company is a sales agent in New York State for an operating unit of Bell Atlantic and in Florida for an operating unit of Sprint. It also serves as a sales agent for the CenDon partnership ("CenDon"), a 50/50 partnership between the Company and an operating unit of Sprint that was formed to publish directories in Florida, Nevada, Virginia and North Carolina. The Company also has a 50/50 partnership ("DonTech") with an operating unit of Ameritech Corporation which acts as the exclusive sales agent for yellow pages directories published by Ameritech in Illinois and northwest Indiana. The Company's independent operations are located in Cincinnati, Ohio. The Company also provides pre-press publishing services for yellow pages directories, including advertisement creation, sales contract management, listing database management, sales reporting and commissions, pagination, billing services and imaging to other yellow pages publishers and its existing customers under separately negotiated contracts.
Prior to July 1, 1998, the Company operated as part of The Dun & Bradstreet Corporation ("Old D&B"). On December 17, 1997, the Board of Directors of Old D&B approved in principle a plan to separate into two publicly traded companies - R.H. Donnelley Corporation and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") was the method by which Old D&B distributed to its shareholders shares of New D&B common stock. On July 1, 1998, as part of the Distribution, Old D&B distributed to its shareholders shares of New D&B stock. In connection with the Distribution, Old D&B changed its name to R.H. Donnelley Corporation. After the Distribution, the Company's only operating subsidiary is R.H. Donnelley Inc. ("Donnelley"). Therefore, on a consolidated basis, the financial statements of the Company and Donnelley are substantially identical.
The financial statements reflect the financial position, results of operations, and cash flows of the Company as if it were a separate entity for all periods presented. Old D&B provided certain centralized services to the Company, the cost of which was allocated to the Company. Management believes these allocations were reasonable; however, the costs of these services are not necessarily indicative of the costs that would have been incurred if the Company had performed or provided these services as a separate entity. These allocations were $11,570 for the six months ended June 30, 1998, $21,531 and $18,626 for the years ended 1997 and 1996, respectively, and are included in operating expenses and general and administrative expenses in the Consolidated Statements of Operations.
The Company retained all the assets and liabilities related to the yellow pages and other directory product sales, marketing and publishing service businesses after the Distribution as well as an allocation of certain Old D&B corporate headquarters assets and liabilities relating to the Company's businesses. Management believes these allocations were reasonable. The financial information included herein may not necessarily reflect the results of operations, financial position, changes in shareholders' equity and cash flows of the Company in the future or what they would have been had the Company been a separate, stand-alone entity during the periods presented.
In connection with the Distribution, Donnelley entered into a credit agreement with the Chase Manhattan Bank, and the Lenders party thereto. Under the terms of the agreement, Donnelley obtained a Senior Revolving Credit Facility of $100,000 and Senior Secured Term Facilities in the aggregate amount of $300,000 of which Donnelley initially borrowed $350,000. In addition, Donnelley issued $150,000 of Senior Subordinated Notes. The aggregate $500,000 was dividended to Old D&B, but repayment of such indebtedness remains an obligation of Donnelley, as guaranteed by the Company. Net distributions to Old D&B include net cash transfers, third party liabilities paid on behalf of the Company by Old D&B and amounts due to/from Old D&B for services and other charges. No interest was charged on these intercompany transactions.
For purposes of governing certain of the ongoing relationships between the Company and New D&B after the Distribution and to provide for orderly transition, the Company and New D&B entered into various agreements including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement, Shared Transaction Services Agreement, Intellectual Property Agreement, Data Services Agreement, and Transition Services Agreement.
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