UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-07155
Dex One Corporation
(Exact name of registrant as
specified in its charter)
Successor Registrant to R.H.
DONNELLEY CORPORATION
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Delaware
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13-2740040
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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1001 Winstead Drive, Cary, N.C.
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27513
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone
number, including area code
(919) 297-1600
Securities registered pursuant
to Section 12(b) of the Act:
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Title of Class
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Name of Exchange on Which Registered
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Common Stock, par value $.001 per
share
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New York Stock Exchange
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Securities registered pursuant
to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities
Act. Yes o No þ
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Sections 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(Section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
On June 30, 2009, the last day of the most recently
completed second quarter, the aggregate market value of R.H.
Donnelley Corporations (Predecessor
Registrant) common stock (based upon the closing price per
share of $0.06 of such stock traded
over-the-counter
on the Pink Sheets on such date) held by non-affiliates of the
Predecessor Registrant was approximately $4,110,165. At
June 30, 2009, there were 68,923,948 outstanding shares of
the Predecessor Registrants common stock. For purposes of
this calculation, only those shares held by directors and
executive officers of the Predecessor Registrant have been
excluded as held by affiliates. Such exclusion should not be
deemed a determination or an admission by the Predecessor
Registrant or any such person that such individuals or entities
are or were, in fact, affiliates of the Predecessor Registrant.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes þ No o
On January 29, 2010, all of the issued and outstanding
shares of the Predecessor Registrants common stock and any
other outstanding equity securities including all stock options,
stock appreciation rights and restricted stock, were cancelled
and the Registrant issued an aggregate amount of
50,000,001 shares of new common stock, par value $.001 per
share. At March 1, 2010, there were 50,015,691 outstanding
shares of the Registrants common stock.
PART I
General
Dex One Corporation (Dex One, Successor
Registrant, or Company, we,
us and our subsequent to the Effective
Date, which is defined below) became the successor registrant to
R.H. Donnelley Corporation upon emergence from Chapter 11
relief under Title 11 of the United States Code (the
Bankruptcy Code) on January 29, 2010 (the
Effective Date) and pursuant to
Rule 12g-3
under the Securities Exchange Act of 1934. Our executive offices
are located at 1001 Winstead Drive, Cary, North Carolina 27513
and our telephone number is
(919) 297-1600.
Our corporate Internet website address is www.DexOne.com.
For more information on the products and services that Dex One
offers, please visit our website at
www.DexKnows.com®.
We make available free of charge on our website our annual,
quarterly and current reports, including amendments to such
reports, as soon as practicable after we electronically file
such material with, or furnish such material to, the United
States Securities and Exchange Commission (SEC). Our
filings can also be obtained from the SEC website at
www.sec.gov. However, the information found on our
website and the SEC website is not part of this Annual Report.
References to Dex One or Successor Registrant in this Annual
Report pertain to periods subsequent to the Effective Date.
Except where otherwise indicated or as the context may otherwise
indicate, the terms Company, RHD,
we, us and our refer to R.H.
Donnelley Corporation and its direct and indirect wholly-owned
subsidiaries prior to the Effective Date. As of
December 31, 2009, R.H. Donnelley Inc. (RHDI or
RHD Inc.), Dex Media, Inc. (Dex Media),
Business.com, Inc. (Business.com) and RHD Service
LLC (RHD Service) were our only direct wholly-owned
subsidiaries. The financial information set forth in this Annual
Report, unless otherwise indicated or as the context may
otherwise indicate, reflects the consolidated results of
operations and financial position of RHD as of and for the year
ended December 31, 2009.
On the Effective Date and in connection with our emergence from
Chapter 11, RHD was renamed Dex One Corporation. The
Company was formed on February 6, 1973 as a Delaware
corporation. In November 1996, the Company then known as The
Dun & Bradstreet Corporation separated through a
spin-off into three separate public companies: The Dun and
Bradstreet Corporation, ACNielsen Corporation, and Cognizant
Corporation. In June 1998, The Dun & Bradstreet
Corporation separated through a spin-off into two separate
public companies: R.H. Donnelley Corporation (formerly The
Dun & Bradstreet Corporation) and a new company that
changed its name to The Dun & Bradstreet Corporation
(D&B).
Corporate
Overview
We are a leading marketing services company that helps local
businesses reach, win and keep
ready-to-buy
consumers. Our highly skilled, locally based marketing
consultants offer a wide range of marketing products and
services that help businesses get found by actively shopping
consumers. We offer local businesses personalized marketing
consulting services and exposure across a broad network of local
marketing products, including our print, online and mobile
yellow pages and search solutions, as well as major search
engines.
Marketing
Products
To help our clients grow their businesses, we provide marketing
products that help them get found by
ready-to-buy
consumers. We provide the
Dex®
Advantage, an integrated offering that ensures our local
clients business information is published and marketed
through a single profile and distributed via a variety of both
owned and operated products and through other local search
products. This expands the distribution of our clients
content and messages to wherever, whenever and however consumers
choose to search, helping them get found.
The Dex Advantage spans multiple media platforms for local
advertisers including print with our Dex published directories,
which we co-brand with other recognizable brands in the industry
such as Qwest, CenturyLink (formerly Embarq) and AT&T,
online and mobile devices with DexKnows.com
®
and voice-
1
activated directory search at
1-800-Call-Dextm.
Our digital affiliate provided solutions are powered by
DexNettm,
which leverages network partners including the premier search
engines, such as
Google®
and Yahoo!
®
and other leading online sites. We believe our Dex Advantage
offers a highly effective set of marketing tools to local
businesses that operate in the markets we serve.
Marketing
Services
Where our marketing products help local businesses get found by
ready-to-buy
consumers, our marketing services are designed to help these
businesses get chosen over their competitors. Our growing list
of marketing services include local business and market
analysis, message and image creation, target market
identification, advertising and digital profile creation,
keyword and search engine optimization strategies and programs,
distribution strategies, social strategies, and tracking and
reporting.
Competitive
Position
We believe our ability to effectively compete in our industry is
supported by a number of advantages:
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Our owned printed and digital products: We can
deliver a large segment of the active buying market to local
businesses.
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Our marketing consultants: With our
locally-based marketing consultants, we have a direct
relationship with local businesses, serving as their trusted
advisors. Our marketing consultants work closely with clients to
first discover their business goals and marketing needs, assess
their unique situations, and then recommend a customized,
cost-effective set of marketing products and services to help
their businesses grow.
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Publishing agreements with incumbent local exchange
carriers: Our co-branding relationships with
incumbent local exchange carriers in our markets adds
credibility and allows us to serve as the official
directory provider.
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Exclusive partnership agreements: In addition
to our proprietary products, we have partnerships that enable
our clients to expand the distribution of their information,
from the major search engines to leading online and mobile local
search solutions.
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Content: We have unique local business
information. Through our locally based marketing consultants and
their relationships with local businesses, we are able to
collect and update this content.
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Filing of
Voluntary Petitions in Chapter 11
On May 28, 2009 (the Petition Date), the
Company and its subsidiaries listed below (collectively with the
Company, the Debtors) filed voluntary petitions for
Chapter 11 relief under the Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court).
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RHDI
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DonTech Holdings, LLC
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DonTech II Partnership
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R.H. Donnelley Publishing & Advertising of Illinois
Holdings, LLC
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R.H. Donnelley Publishing & Advertising of Illinois
Partnership
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R.H. Donnelley Publishing & Advertising, Inc.
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Get Digital Smart.com, Inc.
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R.H. Donnelley APIL, Inc.
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RHD Service LLC
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Dex Media, Inc.
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Dex Media East, Inc.
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Dex Media East LLC (Dex Media East)
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Dex Media East Finance Co.
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Dex Media West, Inc.
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Dex Media West LLC (Dex Media West)
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Dex Media West Finance Co.
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Dex Media Service LLC
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Business.com, Inc.
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Work.com, Inc.
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Confirmed
Plan of Reorganization and Emergence from the Chapter 11
Proceedings
On January 12, 2010, the Bankruptcy Court entered the
Findings of Fact, Conclusions of Law, and Order Confirming the
Joint Plan of Reorganization for the Company and its
subsidiaries (the Confirmation Order). On the
Effective Date, the Joint Plan of Reorganization for the Company
and its subsidiaries (the Plan) became effective in
accordance with its terms.
From the Petition Date until the Effective Date, the Debtors
operated their businesses as
debtors-in-possession
in accordance with the Bankruptcy Code. The Chapter 11
cases of the Debtors (collectively, the Chapter 11
Cases) were jointly administered under the caption In
re R.H. Donnelley Corporation, Case
No. 09-11833
(KG) (Bankr. D. Del. 2009).
Restructuring
As part of a restructuring that was conducted in connection with
the Debtors emergence from bankruptcy, the Debtors merged,
consolidated, dissolved, or terminated, shortly after the
Effective Date, certain of their wholly-owned subsidiaries, as
set forth below:
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DonTech Holdings, LLC and R.H. Donnelley Publishing &
Advertising of Illinois Holdings, LLC were merged into their
sole member, RHDI;
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The DonTech II Partnership and R.H. Donnelley
Publishing & Advertising of Illinois Partnership
technically terminated their respective partnership agreements
due to the loss of a second partner;
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Dex Media East Finance Co. was merged into Dex Media East;
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Dex Media West Finance Co. was merged into Dex Media West;
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Work.com, Inc. was merged into Business.com, Inc.;
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GetDigitalSmart.com, Inc. was merged into RHDI;
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Dex Media East was merged into Dex Media East, Inc. (DME
Inc.);
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Dex Media West was merged into Dex Media West, Inc. (DMW
Inc.); and
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R.H. Donnelley Publishing & Advertising, Inc. was
merged into RHDI.
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After effectuating the restructuring transactions, Dex One
became the ultimate parent company of each of the following
surviving subsidiaries: (i) RHDI, (ii) Dex Media,
Inc., (iii) DME Inc., (iv) DMW Inc., (v) Dex
Media Service LLC, (vi) Dex One Service LLC (which was
subsequently converted into a Delaware corporation under the
name Dex One Service, Inc. effective March 1, 2010,
(vii) Business.com, Inc. and (viii) R.H. Donnelley
APIL, Inc.
3
Consummation
of the Plan
Distributions
Pursuant to the Plan
Since the Effective Date, the Company has substantially
consummated the various transactions contemplated under the
confirmed Plan. In particular, as of March 1, 2010, the
Company has made substantially all of the distributions of cash,
stock, and securities that were required to be made under the
Plan by such date to creditors and other parties with allowed
claims, including, but not limited to, the following Plan
distributions:
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On the Effective Date, in accordance with the Plan, the Company
issued the following number of shares of Dex One common stock
(i) approximately 10.5 million shares, representing
21.0% of total outstanding common stock, to all holders of notes
issued by RHD; (ii) approximately 11.65 million
shares, representing 23.3% of total outstanding common stock, to
all holders of notes issued by Dex Media, Inc.;
(iii) approximately 12.9 million shares, representing
25.8% of total outstanding common stock, to all holders of notes
issued by RHDI; (iv) approximately 6.5 million shares,
representing 13.0% of total outstanding common stock, to all
holders of senior notes issued by Dex Media West; and
(v) approximately 8.45 million shares, representing
16.9% of total outstanding common stock, to all holders of
senior subordinated notes issued by Dex Media West.
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On the Effective Date, in accordance with the terms of the Plan,
holders of the Dex Media West 8.5% Senior Notes due 2010
and 5.875% Senior Notes due 2011 also received their pro
rata share of Dex Ones $300.0 million aggregate
principal amount of 12%/14% Senior Subordinated Notes due
2017 (Dex One Senior Subordinated Notes).
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As of March 1, 2010, pursuant to the Plan, the Company made
distributions in cash on account of all, or substantially all,
of the allowed claims of general unsecured creditors. Allowed
claims of general unsecured creditors that have not been paid as
of March 1, 2010 will be paid during 2010.
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Pursuant to the terms of the Plan, the Company is also obligated
to make certain additional payments to certain creditors,
including certain distributions that may become due and owing
subsequent to the initial distribution date and certain payments
to holders of administrative expense priority claims and fees
earned by professional advisors during the Chapter 11 Cases.
Discharge,
Releases, and Injunctions Pursuant to the Plan and the
Confirmation Order
The Plan and Confirmation Order also contain various discharges,
injunctive provisions, and releases that became operative upon
the Effective Date. These provisions are summarized in
Sections M through O of the Confirmation Order and more
fully described in Article X of the Plan.
Impact on
Long-Term Debt Upon Emergence from the Chapter 11
Proceedings
On the Effective Date and in accordance with the Plan,
$6.1 billion of our senior notes, senior discount notes and
senior subordinated notes (collectively the notes in
default) were exchanged for (a) 100% of the
reorganized Dex One equity and (b) we issued
$300.0 million of the Dex One Senior Subordinated Notes to
the holders of the Dex Media West 8.5% Senior Notes due
2010 and 5.875% Senior Notes due 2011 on a pro rata basis
in addition to their share of the reorganized Dex One equity. As
of the Effective Date, aggregate outstanding debt was
$3.4 billion, comprised of $3.1 billion outstanding
under our amended and restated credit facilities and the
$300.0 million Dex One Senior Subordinated Notes. See
Item 8, Financial Statements and Supplementary
Data Note 5, Long-Term Debt, Credit
Facilities and Notes for further details of our long-term
debt. As a result of our emergence from the Chapter 11
proceedings, the Company expects to reduce interest expense on
its long-term debt for the year ended December 31, 2010 by
more than $500.0 million as compared to what was
contractually owed by the Company during the year ended
December 31, 2009.
4
Segment
Reporting
Management reviews and analyzes its business of providing
marketing products and marketing services as one operating
segment. See Item 8, Financial Statements and
Supplementary Data Note 12,
Business Segments for additional information.
Business
Overview
Our business model of helping clients grow their business is
fulfilled by providing marketing products that help them get
found by
ready-to-buy
consumers and marketing services that help them get chosen over
their competitors.
Our marketing products generate strong returns for our clients
by providing comprehensive local information to consumers,
enabling them to efficiently search for and find products and
services our clients offer. Our marketing products and services
help businesses get found more than 1.5 billion times each
year by actively shopping consumers. These references result in
a high conversion of advertising impressions to actual
transactions for our clients. According to CRM Associates, print
yellow pages and Internet yellow pages generate a weighted
average sales return on investment of $48 and $77, respectively,
for every dollar invested by an advertiser. These returns are
significantly higher than those for other forms of local media,
such as magazines, newspapers, radio and television. Unlike many
other forms of local media that focus on creative advertising,
one of the primary drivers of higher relative return on
investment for our clients is our focus on targeting consumers
that are closer to making a purchase decision and thus are able
to offer our clients a more effective return on investment. Our
clients enjoy this demonstrated value as they receive a large
volume of calls and clicks from
ready-to-buy
consumers. Consumers also value our marketing products because
they are easy to use and deliver the information that they are
actively searching for.
Marketing
Products
The following marketing products, which we provide with our
branded local search solutions, are complemented by our
partnerships with some of the best known search engine
companies, such as Google and Yahoo!, to promote businesses on
the rest of the Internet via our proprietary search network,
DexNet.
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Dex published yellow pages;
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Dex published white pages;
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DexKnows.com;
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1-800-Call-Dex; and
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Business.com and Work.com.
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Marketing
Services
Since many of our clients are locally-owned businesses with
limited time and marketing expertise, our marketing services are
an integral part of the solution suite we provide. With these
services, we are able to optimize a clients marketing
program to help them attract the right kind of customer and have
their business get chosen over their competitors. Marketing
services we provide include:
Marketing
consultation
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Assessment of marketing programs and advertisements;
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Message and image creation; and
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Recommendations for advertising placement.
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Research
and data
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Industry-specific research and information;
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Market-specific research and information; and
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In-depth understanding of how consumers search for businesses
and what influences them to buy from one business versus another.
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Tactical
execution
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Search engine optimization strategies;
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Keyword implementation;
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Social strategies; and
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Tracking and reporting.
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The
Dex Advantage
Our marketing products are integral to our Dex Advantage, which
allows our clients to provide their business information one
time and have their message delivered where
ready-to-buy
consumers are actively searching. The Dex Advantage includes
access to our suite of print, online, voice and mobile products
that are offered through a single point of contact. Our online
product suite includes DexKnows.com, an online search website,
and DexNet, which helps businesses promote themselves on other
widely used search engines and search sites. These
geographically-relevant and geographically-targeted options
provide an integrated and easy-to-use solution that helps drive
more highly relevant leads to our clients. Our Dex published
print products, which include yellow pages, white pages and Dex
Plus directories, are convenient and efficient sources of
information for consumers. These print solutions feature a
comprehensive list of businesses in our local markets,
conveniently organized categorically, alphabetically, or
functionally based on the advertising purchased.
Our clients connect with consumers and businesses through our
Dex-branded advertising platforms. Our online, voice, and
mobile-friendly products allow users to select the geography of
their search from national, regional, metro, and community
areas. Our print products have a variety of coverage areas,
scoped and designed to meet the advertising needs of local and
national businesses and the informational needs of local
consumers. Combined, this integrated product mix allows buyers
to effectively choose businesses in their relevant shopping area
in whatever manner and timeframe is most convenient to them.
Print
Products and Services
We offer three primary types of printed yellow pages
directories: core directories, community directories and Plus
companion directories. Core directories generally cover large
population or regional areas, whereas community directories
typically focus on a
sub-section
of the areas addressed by corresponding core directories. The
Plus companion directory is a small format directory used in
addition to the core and community directories. It is
complementary to the core directory with replicated advertising
from the core directory. Our print directory advertising
products can be broken down into three basic categories: Yellow
Pages, White Pages and Specialty/Awareness Products.
Whenever practicable, we combine the white pages section and the
yellow pages section of our print directory products into a
single directory. In large markets where it is impractical to
combine the two sections into one volume, separate stand-alone
white and yellow pages print directories are normally published
at about the same time. We are committed to environmental
stewardship and offer a variety of recycling programs in many of
the markets we serve. Consumers also have the ability to choose
the print directories that they wish to receive or may elect to
receive none at all via the Select Your
Dextm
program.
Our directories are designed to meet the advertising needs of
local and national businesses and the informational needs of
local consumers. The diversity of advertising options available
enables us to create customized marketing programs that are
responsive to specific client needs and financial resources. The
yellow pages and white pages print directories are also
efficient sources of information for consumers, featuring a
6
comprehensive list of businesses in the local market that are
conveniently organized under thousands of directory headings.
Yellow
Pages
We offer businesses a basic listing at no charge in the relevant
edition of our yellow pages directories. This listing includes
the name, address and telephone number of the business and is
included in alphabetical order in the relevant industry
classification.
A range of paid advertising options is available in our yellow
pages directories, as set forth below:
Listing options Clients may enhance their
complimentary listing in several ways. They may pay to have a
listing highlighted or set in a bolder typeface, both of which
increase the visibility of the listing. Clients may also
purchase extra lines of text to convey information, such as
hours of operation, a more detailed description of their
business, or a website address.
In-column advertising options For greater
prominence on a page, a client may expand a basic alphabetical
listing by purchasing advertising space in the column in which
the listing appears. The cost of in-column advertising depends
on the size and type of the advertisement purchased. In-column
advertisements may include such features as bolding, special
fonts, color, trademarks and graphics.
Display advertising options A display
advertisement allows businesses to include a wide range of
information, illustrations, photographs and logos. The cost of
display advertisements depends on the size and type of the
advertisement purchased and the market. Display advertisements
are placed usually at the front of a classification (ahead of
listings), and are ordered first by size and then by client
seniority. This process of ordering provides a strong incentive
for clients to renew their advertising purchases from year to
year and to increase the size of their advertisements to ensure
that their advertisements continue to receive priority
placement. Display advertisements range in size from a quarter
column to as large as two pages, referred to as a double
truck advertisement. Display advertisers are offered
various levels of color including spot-four color, enhanced
color, process photo and high-impact.
White
Pages
State public utilities commissions require the telephone local
exchange carrier (LECs) affiliated with us, Qwest,
CenturyLink and AT&T, to produce white pages directories to
serve their local service areas. Through the publishing
agreements held by us separately with Qwest, CenturyLink and
AT&T, the LECs have contracted with us to publish these
directories for decades to come. Our publishing agreements with
Qwest and CenturyLink each run through 2052 and our publishing
agreement with AT&T runs through 2054. By virtue of these
agreements, we provide a white pages listing to every residence
and business in a given area that sets forth the name, address
and phone number of each residence or business unless they have
requested not to be listed.
Advertising options in white pages include bolding and
highlighting for added visibility, extra lines for the inclusion
of supplemental information and in-column and display
advertisements. In certain cases, the relevant LEC can sell
various forms of enhanced white pages listings into our
directories.
Specialty/Awareness
Products
In addition to these primary products, we offer awareness
products that allow businesses to advertise in a variety
of high-visibility locations on or inside a directory. Each
directory has a limited inventory of awareness products, which
provide additional value to clients and are priced at a premium
to in-column and display advertisements. Awareness products
include placement of our clients advertisements on the
inside and outside of the front and back cover, on tabs within
the directory, on the edges of the directory, on delivery bags
and on card stock inserted in the directory and in delivery bags.
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Online
Products and Services
DexKnows.com
Our listing and clients content is also placed on the
DexKnows.com platform through basic text listings and searchable
business profiles and through Internet products including
DexKnows Enhanced Packs and DexKnows Starter Packs. In many
cases, print clients content is largely replicated to
DexKnows.com, which provides consumers a content rich online
search experience.
We purchase information from other national databases to enhance
in-region listings and supply
out-of-region
listings (although these
out-of-region
listings are not as comprehensive as our in-region information).
DexKnows.com includes approximately 13.1 million business
listings and more than 175 million residential listings
from across the United States.
Consumers can access information on DexKnows.com from their
computer or mobile phone. DexKnows.com allows the user to search
based on a category, business name or set of keyword terms
within a geographic region. In addition, DexKnows.com provides
users with the ability to refine their searches using a
navigable, flexible digital category structure that includes
such things as specific product and brand names, hours of
operation, payment options and locations.
In February 2009, we launched a new DexKnows.com site and
content management platform, which delivers clients
messages to consumers through highly relevant local search
results. The site is built on a contemporary architecture using
Business.com technology that balances focus on consumer
usability and client utility. In addition, a newly developed
content management tool empowers clients to directly manage
their DexKnows.com advertising content. The new DexKnows site
includes new features such as search results for metro, city and
neighborhood, unique treatment for service-based businesses, a
digital profile with ability to upload videos and a street view
interactive map feature.
We have content agreements and distribution agreements with
various search engines, portals and local community destination
websites. These agreements provide us with access to important
channels to enhance our distribution network on behalf of our
clients. This enhanced distribution typically leads to increased
usage among consumers and greater value and return on investment
for our clients.
One such distribution agreement is with Yahoo!. Qwest region
clients benefit from inclusion within the following Yahoo! Local
and Yahoo! Yellow Pages advertising products:
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Yahoo! Local Featured Listings sponsored
listings with guaranteed placement on the first or second
results pages for broader exposure in a specific geography or
category.
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Yahoo! Local Enhanced Listings sponsored
listings that offer the ability to add a detailed description of
their business, photos, a tagline and coupons to create greater
online visibility for businesses and enhance their appearance
within organic results.
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Yahoo! Maps Business Listings sponsored
listings within the context of a map-based view. The term of
this product offering ends on March 31, 2010.
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Yahoo! Yellow Pages DexKnows.com clients are
given a presence in the search results for Yahoo! Yellow Pages
search. The term of this product offering ends on March 31,
2010.
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We have a YellowPages.com (YPC) Reseller Agreement,
which allows us to be the exclusive provider of YPC Internet
yellow pages advertising in our Illinois and Northwest Indiana
markets.
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Basic Listings We have the rights to
distribute an unlimited number of clients to the YPC Internet
yellow pages website.
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Premium Listings We have the rights to sell
enhanced YPC advertising products, for example, guaranteed
placement
and/or
inclusion on the YPC Internet yellow pages website, to our
Illinois and Northwest Indiana clients.
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DexNet
DexNet drives leads to our clients through placement of their
business listings in prime locations on DexKnows.com and
distributes it to other major search engines. Products and
services offered by DexNet provide new, innovative solutions to
enhance our local directional marketing capabilities.
DexNet provides a comprehensive approach to serving the Internet
marketing needs of local businesses through four major product
and service elements:
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Client Profile constructs a simple but
content rich presence on the web for the client and is designed
to maximize the opportunity to appear on major search engines.
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Distribution provides the clients
information and business information to multiple local search
platforms including YellowPages.com, Google Maps, Local.com, and
Business.com Local.
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Paid Search develops, deploys and manages
effective search marketing campaigns across major search
platforms, such as Google and Yahoo!, on behalf of the client.
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Reporting provides transparent, real-time
results, such as phone calls,
e-mails,
listing views, website visits, driving directions, and the total
number of times the profile is sent to mobile. Reporting is
accessible 24 hours a day, 7 days a week and combines
results received from DexKnows.com and leading local search
sites.
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Business.com
Dex Ones
business-to-business
platforms enable our clients to find what they need to manage
and grow their businesses and reach
ready-to-buy
consumers across the Internet. Our Business.com website provides
how-to guides covering business challenges, the ability to ask
for and receive business advice through our online question and
answer forum, Business.com Answers, and the ability to find the
right products, services and vendors through our
Business-to-Business
(B2B) online directory. Our Work.com website
primarily operates as an online publishing platform, enabling
experts to create useful how-to guides on a wide range of
business topics, the best of which will be made available by
Business.com.
By aggregating content, Business.com provides B2B advertisers an
opportunity to connect with active business buyers through
multiple advertising products including
pay-per-click
(PPC) featured listings, cost per thousand banner
advertising and annual directory inclusion listings. For B2B
advertisers seeking targeted distribution beyond the visitors to
the Business.com website, the Business.com Advertising Network
makes the PPC listings for Business.com advertisers available
across other websites.
Business.com has developed a fully integrated technology
platform that includes the Companys performance based
advertising (PBA) platform. The PBA platform allows
PPC advertisers to provision advertisements and bid for priority
placement within Business.com search results. Other key
components of the Business.com technology platform include
content publishing systems, business product/service taxonomy,
relevancy scoring and yield optimization systems, vertical
search technology, content and advertising syndication systems,
traffic quality measurement systems, Internet marketing engines
and data analytics. Business.com has achieved click measurement
accreditation from the Media Ratings Council, which certifies
adherence to the Interactive Advertising Bureaus Click
Measurement Guidelines.
Business
Cycle Overview
Our sales, marketing, operations and production teams work
together to foster the efficiency and effectiveness of our
end-to-end
process from advertising purchase to product distribution or
service fulfillment and billing. We work with vendor partners to
print and distribute our proprietary print and online products,
including DexKnows.com and Dex published yellow pages print
directories, while facilitating the fulfillment of DexNet
purchases on the sites of our online distribution partners.
Our print directories usually have a
12-month
directory cycle period. A publication process generally takes 15
to 20 months from the beginning of the sales cycle to the
end of a directorys life and the sales stage
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closes approximately 70 days prior to publication.
Consistent with our print directories, our online products and
services usually have a
12-month
billing cycle, although our DexKnows.com platform provides an
opportunity for clients to update aspects of their advertising
content online at any time before the next sales cycle.
Sales
Our local marketing consultant team is comprised of
approximately 1,400 members.
We assign our clients among premise local marketing consultants
and telephone local marketing consultants based on a careful
assessment of a clients expected advertising expenditures.
This practice allows us to deploy our local marketing
consultants in an effective manner. Our local marketing
consultants are assigned to local service areas. Management
believes that our local marketing consultants facilitate the
establishment of personal, long-term relationships with local
print and online clients that are necessary to maintain a high
rate of client renewal.
Our local sales channel is divided into three sales
sub-channels:
premise sales, telephone sales and locally centralized sales.
Premise local marketing consultants conduct
sales meetings face to face at clients business locations
and typically handle higher dollar and more complex accounts.
Telephone local marketing consultants handle
lower dollar value accounts and conduct sales over the phone.
Locally centralized sales includes multiple
types of sales efforts, including centralized local marketing
consultants, prospector local marketing consultants and a letter
renewal effort. These sales mechanisms are used to contact
non-advertisers or very low dollar value clients that in many
cases have renewed their account for the same product for
several years. Some of these centralized efforts are also
focused on initiatives to recover former clients.
Management believes that formal training is important to
maintaining a highly productive sales force. Our local marketing
consultants are formally trained on relationship selling skills.
This process is a highly client-centric consultative selling
model that emphasizes diagnosis of needs before developing
customized solutions. We believe this process increases
effectiveness for retaining and growing existing clients along
with the ability to acquire new clients and successfully sell
multiple products. New marketing consultants receive extensive
initial training including relationship selling skills, product
portfolio, client care and administration, standards and ethics.
All sales managers have been trained also on new active
management processes to provide daily management and coaching to
the local marketing consultants on relationship selling skills,
maximizing productivity, and managing leading indicators of the
business. This relationship sales process, combined with the
daily management activities, provides clients a level of
high-quality service centered on their individual needs.
National
Sales
In addition to our locally based marketing consultants, we
utilize a separate sales channel to serve our national clients.
In 2009, national clients accounted for about 15% of our
revenue. National clients are typically national or large
regional chains such as rental car companies, insurance
companies and pizza businesses that purchase advertisements in
many yellow pages directories in multiple geographic regions. In
order to sell to national clients, we contract with third party
Certified Marketing Representatives (CMR). CMRs
design and create advertisements for national companies and
place those advertisements in relevant yellow pages directories
nationwide and in online products and services. Some CMRs are
departments of general advertising agencies, while others are
specialized agencies that focus solely on directory advertising.
The national client pays the CMR, which then pays us after
deducting its commission.
We accept orders from approximately 165 CMRs and employ 28
associates to manage our selling efforts to national clients and
our CMR relationships.
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Marketing
Our marketing team works to enhance the quality, value and
usability of our products for both consumers and clients. We
continue to develop and produce products that are easy and
effective for consumers to use, with advertising products that
consistently produce a strong return on investment for our
clients. Our marketing team supports all of our advertising
platforms in an integrated fashion.
Our marketing process includes the functions of market
management, product development and management, market research
and analysis, pricing, advertising and public relations. The
market management function is decentralized and coordinates with
local sales management to develop market plans and products that
address the needs of individual local markets. The other
marketing functions are centralized and provide support to all
markets as needed. Dex One actively promotes its value through
advertising campaigns that are targeted to both clients and
consumers. Our advertising is managed by specific market and
includes television, radio, internet, newspaper and outdoor
advertising placements.
Publishing
and Information Services
Pre-press publishing activities include sales canvass and
assignment preparation, sales order processing, graphics and ad
composition, contract processing, white and yellow pages
processing, database management and pagination. We provide
comprehensive tools and information to effectively conduct sales
and marketing planning, sales management, sales compensation and
client service activities. Once an individual sales campaign is
complete and final advertisements have been produced, white and
yellow pages are paginated, proofed and prepared for printing.
Most of these functions are accomplished through an integrated
Amdocs®
(Amdocs) publishing system, which is considered to
be the standard in our industry.
Printing
and Distribution
Our directories are printed through our long-standing
relationship with printing vendor R.R. Donnelley &
Sons Company (R.R. Donnelley), as well as with World
Color (USA) Corp. (Worldcolor) (formerly Quebecor,
Inc.). In general, R.R. Donnelley prints all AT&T and
CenturyLink directories and larger, higher-circulation Qwest
directories, whereas Worldcolor prints Qwest directories that
are smaller and have a more limited circulation. Our agreements
with R.R. Donnelley and Worldcolor for the printing of all of
our directories extend through 2014 and 2015, respectively.
The physical delivery of directories is facilitated through
several outsourcing relationships. Delivery methods utilized to
distribute directories to consumers are selected based on
factors such as cost, quality, geography and market need.
Primary delivery methods include U.S. Postal Service and
hand delivery. We have contracts with two companies for the
distribution of our directories. These contracts are scheduled
to expire at various times from May 2010 through May 2012.
Occasionally, we use United Parcel Service or other types of
expedited delivery methods. Frequently, a combination of these
methods is required to meet the needs of the marketplace.
Printing, paper and distribution costs represented approximately
10% of our net revenue for the year ended December 31, 2009.
Online
Production and Distribution
Online products are provisioned on our proprietary Internet
directory sites, DexKnows.com, Business.com and Work.com, as
well as distributed to third party Internet search engines and
directories such as Google, Yahoo!, YellowPages.com and our B2B
pay-per-click
advertising network comprised of over one hundred business
website partners. Delivery to end users is determined based on
factors such as demographics, cost, quality, geography and
marketing intent.
The provisioning of online directories and search engine
marketing products is facilitated through a combination of
internal technology as well as several outsourcing
relationships. In 2009, the production of our consumer-oriented
Internet advertising site, DexKnows.com, was facilitated through
various technology outsourcing relationships while our
business-to-business
sites, Business.com and Work.com, and the fulfillment
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of search engine marketing products, utilize our proprietary
technology. In early 2009, the Company completed the migration
of all of its principal consumer Internet directories onto
internally-developed technology platforms and substantially all
outsourcing contracts were terminated.
Credit,
Collections and Bad Debt Expense
Since most of our products and services have
12-month
cycles and most advertising clients are billed over the course
of that
12-month
period, we extend credit to our clients. Many of these clients
are local businesses with default rates that usually exceed
those of larger companies. Our policies toward the extension of
credit and collection activities are market specific and
designed to manage the expected level of bad debt while
accommodating reasonable sales growth.
Local advertising clients spending above identified levels as
determined appropriate by management for a particular market may
be subject to a credit review that includes, among other
criteria, evaluation of credit or payment history with us, third
party credit scoring, credit checks with other vendors along
with consideration of credit risks associated with particular
headings. Where appropriate, advance payments (in whole or in
part) and/or
personal guarantees from business owners may be required. Beyond
efforts to assess credit risk prior to extending credit to
advertising clients, we employ well-developed collection
strategies utilizing an integrated system of internal, external
and automated means to engage clients concerning payment
obligations. The Company may choose to renew contracts with
clients who have accounts receivable balances with us in arrears
if the client agrees to prepay in full for new advertising.
Fees for national clients are generally billed upon publication
of each issue of the directory in which the advertising is
placed by CMRs. Because we do not usually enter into contracts
with national clients directly, we are subject to the credit
risk of CMRs on sales to those clients, to the extent we do not
receive fees in advance. We historically have had favorable
credit experience with CMRs.
During 2009, we continued to experience adverse bad debt trends
attributable to economic challenges in our markets. Our bad debt
expense represented approximately 7% of our net revenue for the
year ended December 31, 2009, as compared to approximately
5% for the year ended December 31, 2008. We expect that
these economic challenges will continue in our markets, and, as
such, our bad debt experience and operating results will
continue to be adversely impacted in the foreseeable future.
Competition
The local search industry in which we operate is highly
competitive and fragmented. We compete with other print and
online yellow pages directory publishers, as well as other types
of media including television, newspaper, radio, direct mail,
search engines, local search sites, advertising networks, and
emerging technologies. Looking ahead, new content delivery
technologies continue to evolve in the media environment. We
regularly monitor developing trends and technologies to assess
opportunities for enhancing our own capabilities through new
product development, partnerships or acquisitions, and identify
competitive threats where a specific response may be warranted.
In nearly all of our markets, we compete with one or more
traditional print yellow pages directory publishers, including
independent publishers such as Yellowbook, White Directory
Publishing, Inc. and Phone Directories Company. In some markets,
we compete with other incumbent publishers such as SuperMedia
(formerly Idearc) and AT&T. We compete with these
publishers based on cost, quality, features, usage leadership
and distribution.
Most of the major yellow pages directory publishers offer print
and online directories as well as online search products.
Virtually all independent publishers, including Yellowbook, a
competitor in the majority of our markets, compete aggressively
and use pricing and discounting as a primary competitive tool to
try to increase their market share. Due to the recent economic
environment and trends in our industry and an increase in
competition and more fragmentation in the local business search
space, we have experienced a significant decline in advertising
sales during 2009 and we currently expect this trend to continue
throughout 2010. We believe these same trends are also impacting
our competitors.
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Online competition has intensified as technologies have improved
and broadband penetration has increased, offering a diverse set
of advertising alternatives for small businesses. We consider
our primary online competition to be the major search engines,
such as Google, Yahoo!, BING and others, in addition to the
online directory properties of the largest yellow pages
directory publishers, such as Superpages.com, provided by
SuperMedia, and YellowPages.com, provided by AT&T.
Additionally, we compete with a growing number of local
shopping-related competitors including industry specific online
verticals, such as FindLaw.com and ServiceMagic.com,
user-generated content sites such as Yelp and Kudzu, and search
engine intermediaries such as ReachLocal and Yodle. We also
compete with a number of well known online map websites such as
MapQuest®
Rand
McNally®
Google Maps. Most of these companies operate on a national
scale, competing for consumer and business users across our
entire region and actively soliciting clients in many of our
markets. We may not be able to compete effectively with these
other companies, some of which may have greater resources than
we do, for advertising sales or acquisitions in the future. Our
Internet strategy and our business may be adversely affected if
major search engines build local sales forces or otherwise begin
to more effectively reach small local businesses for local
commercial search services.
Our Dex Advantage, as well as our enhanced distribution
arrangements, have involved, and will likely continue to
involve, cooperating with other local media companies with whom
we also compete, particularly with respect to online local
search. As a result, particularly as usage continues to migrate
from print to online, we bear some risk that such cooperation
arrangements may presently, or come to constitute, a significant
component of the aggregate distribution of the advertising
message that we offer to certain of our clients. Some of these
local media companies with whom we cooperate and compete have
greater financial resources than we do. Should our relationships
with such companies be discontinued for any reason, it may be
detrimental to our clients and thereby may result in lower rates
of renewal of our contractual relationships with our clients.
Our reliance on these cooperation arrangements may also provide
an unintended competitive advantage to some of our competitors
by (a) promoting the products and services of those
competitors and (b) establishing, building and reinforcing
an indirect relationship between our clients and those
competitors, which could facilitate those competitors entering
into direct relationships with our clients without our
involvement. Material loss of clients would have a material
adverse effect on our business, financial condition and results
of operations.
Raw
Materials
Our principal raw material is paper and we use only recycled
material. It is one of our largest cost items, representing
approximately 4% of our net revenue for the year ended
December 31, 2009. Paper used is supplied by three paper
companies: CellMark Paper, Inc. (CellMark), Nippon
Paper Industries USA, Co., Ltd. (Nippon) and
Catalyst Paper (USA) Inc. (Catalyst). Our agreements
with CellMark, Nippon and Catalyst expired on December 31,
2009. We have entered into new three year agreements with
CellMark and Nippon that commenced in January 2010. The paper
formerly supplied by Catalyst will now be supplied by CellMark
and Nippon. Furthermore, we purchase paper used for the covers
of our directories from Tembec Paper Group (Tembec).
Our agreement with Tembec expired on December 31, 2009 and
was not re-negotiated. The paper formerly supplied by Tembec
will now be supplied by Unisource Worldwide, Inc.
(Unisource) with whom we have a three year agreement
that expires on December 31, 2012. Paper for tabs is also
purchased from Unisource. This agreement with Unisource expires
in July 2010.
Intellectual
Property
We own and control confidential information as well as a number
of trade secrets, trademarks, service marks, trade names,
copyrights, patents and other intellectual property rights that,
in the aggregate, are of material importance to our business. We
believe that Dex
One®,
R.H.
Donnelley®,
Dex®,
Qwest®,
CenturyLink®,
AT&T Real Yellow
Pages®,
Business.com®,
Work.comtm,
DexKnows.com®.
DexKnows®
and
DexNettm
and related names, marks and logos are, in the aggregate,
material to our business. We are licensed to use certain
technology and other intellectual property rights owned and
controlled by others, and, similarly, other companies are
licensed to use certain technology and other intellectual
property rights owned and controlled by us.
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We recently filed a U.S. Utility Patent Application for: A
System and Method for Data Warehousing and Analytics on a
Distributed File System. This technology enables users to query
and analyze large-scale log files, critical to understanding and
improving site experience, without the cost and complexity of
maintaining large relational database management system
clusters. This technology, offered under the name
Cloudbasetm,
was released as a free open-source application on
October 24, 2008. We recently launched DexNet, a new
distribution platform that delivers the local web to local
businesses in a predictable and budgeted manner. In connection
with this, we recently filed a U.S. Patent Application
directed to providing business owners with predictable client
lead volume and price transparency of the effective
cost-per-lead
and managing the consistent delivery of leads throughout the
duration of an advertising campaign.
We are the exclusive official directory publisher of listings
and classified advertisements for Qwest (and its successors)
telephone customers in the states Dex Media East and Dex Media
West operate our directory business (Qwest States)
and in which Qwest provided local telephone service as of
November 8, 2002 (subject to limited extensions). We also
have the exclusive right to use certain Qwest branding on
directories in these markets. In addition, Qwest assigned
and/or
licensed to us certain intellectual property used in the Qwest
directory business prior to November 8, 2002. These rights
generally expire in 2052.
We have an exclusive license to produce, publish and distribute
directories for CenturyLink (and its successors) in the markets
where Sprint provided local telephone service as of
September 21, 2002 (subject to limited extensions), as well
as the exclusive license to use CenturyLinks name and logo
on directories in those markets. These rights generally expire
in 2052.
We have an exclusive license to provide yellow pages directory
services for AT&T (and its successors) and to produce,
publish and distribute white pages directories on behalf of
AT&T in Illinois and Northwest Indiana, as well as the
exclusive right to use the AT&T brand and logo on print
directories in those markets. These rights generally expire in
2054.
The acquisition of Business.com provided us with a
business-to-business
online property supplemented with the Work.com expert- and
user-generated content site. In connection with our re-launch of
DexKnows.com during 2009, we have integrated certain elements of
Business.coms technology with DexKnows.com to:
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improve the consumer experience on DexKnows.com;
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implement PBA on DexKnows.com; and
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implement an advertising network for DexKnows.com.
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We believe that leveraging Business.coms existing
technology platform has allowed us to accelerate our time to
market for these three areas by 12 to 15 months.
Under license agreements for subscriber listings and directory
delivery lists, each of Qwest, CenturyLink and AT&T have
granted to us a non-exclusive, non-transferable restricted
license of listing and delivery information for persons and
businesses that order
and/or
receive local exchange telephone services in the relevant
service areas at the prices set forth in the respective
agreements. Generally, we may use the listing information solely
for publishing directories (in any format) and the delivery
information solely for delivering directories, although in the
case of Qwest, we may also resell the information to third
parties solely for direct marketing activities, database
marketing, telemarketing, market analysis purposes and internal
marketing purposes, and use it ourselves in direct marketing
activities undertaken on behalf of third parties. The term of
these license agreements is generally consistent with the term
of the respective publishing agreements described above.
Although we do not consider any individual trademark or other
intellectual property to be material to our operations, we
believe that, taken as a whole, the licenses, marks and other
intellectual property rights that we acquired in conjunction
with prior acquisitions are material to our business. We
consider our trademarks, service marks, databases, software and
other intellectual property to be proprietary, and we rely on a
combination of copyright, trademark, trade secret,
non-disclosure and contract safeguards for protection. We also
benefit from the use of the phrase yellow pages and
the walking fingers logo, both of which we believe to be in the
public domain in the United States.
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Employees
As of March 1, 2010, Dex One has approximately
3,500 employees of which approximately 1,100 are
represented by labor unions covered by two collective bargaining
agreements with Dex Media in the Qwest States. The unionized
employees are represented by either the International
Brotherhood of Electrical Workers of America (IBEW),
which represents approximately 400 of the unionized workforce,
or the Communication Workers of America (CWA), which
represents approximately 700 of the unionized workforce. Dex
Medias collective bargaining agreement with the IBEW
expires in May 2012 and Dex Medias collective bargaining
agreement with the CWA expires in September 2012. Dex One
considers our relationships with our employees and both unions
to be good.
Forward-Looking
Information
Certain statements contained in this Annual Report on
Form 10-K
regarding Dex Ones future operating results, performance,
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, words such as believe, expect,
anticipate, should, will,
would, planned, estimated,
potential, goal, outlook,
may, predicts, could, or the
negative of those words and other comparable expressions, are
used to identify such forward-looking statements. All
forward-looking statements reflect only our current beliefs and
assumptions with respect to our future results, business plans
and prospects, based on information currently available to us
and are subject to significant risks and uncertainties. Although
we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity or performance. In evaluating
forward-looking statements included in this annual report, you
should specifically consider various factors, including the
risks and uncertainties discussed below. These factors may cause
our actual results to differ materially from those expressed in,
or implied by, our forward-looking statements. All
forward-looking statements attributable to us or a person
speaking on our behalf are expressly qualified in their entirety
by this cautionary statement. These forward-looking statements
are made as of the date of this annual report and, except as
required under the federal securities laws and the rules and
regulations of the SEC, we assume no obligation to update or
revise them or to provide reasons why actual results may differ.
Risks, trends, uncertainties and contingencies that could
negatively impact our future operating results, performance,
business plans or prospects include:
Risks
Related to Our Financial Condition and Capital
Structure
1) Our
ability to meet substantial debt service
obligations
We have a substantial amount of debt and significant debt
service obligations due in large part to the financings related
to prior acquisitions. As of December 31, 2009, we had
total outstanding debt of $9.6 billion, of which
$6.1 billion pertains to our notes in default and is
identified as liabilities subject to compromise and
$3.5 billion pertains to our existing credit facilities and
is excluded from liabilities subject to compromise on the
consolidated balance sheet at December 31, 2009. As of the
Effective Date, aggregate outstanding debt was
$3.4 billion, comprised of $3.1 billion outstanding
under our amended and restated credit facilities and
$300.0 million aggregate principal amount of
12%/14% Senior Subordinated Notes due 2017 (Dex One
Senior Subordinated Notes).
On the Effective Date, R.H. Donnelley Inc. (RHDI)
amended and restated its existing credit facility (the
RHDI credit facility) by entering into an amended
and restated credit agreement (the RHDI Amended and
Restated Credit Agreement) with the lenders parties to the
RHDI credit facility and Deutsche Bank Trust Company
Americas, as administrative agent and as collateral agent, and
related loan and security documentation (together with the RHDI
Amended and Restated Credit Agreement, the RHDI Amended
and Restated Credit Facility). The RHDI Amended and
Restated Credit Facility converted all
Tranche D-1
Term Loans, all
Tranche D-2
Term Loans, all Revolving Loans and the net termination payments
outstanding under
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swap agreements entered into by RHDI and certain lenders (or
their affiliates) under the RHDI credit facility into a new
tranche of term loans and provides for an initial prepayment of
such loans. As of the Effective Date, the aggregate outstanding
principal balance of the term loans under the RHDI Amended and
Restated Credit Facility totaled $1,224.9 million. The
maturity date of the RHDI Amended and Restated Credit Facility
is October 24, 2014.
The RHDI Amended and Restated Credit Agreement includes an
uncommitted revolving credit facility available for borrowings
up to $40.0 million. The availability of such uncommitted
revolving credit facility is subject to certain conditions
including the prepayment of the term loans under the RHDI
Amended and Restated Credit Facility in an amount equal to such
revolving credit facility.
On the Effective Date, Dex Media East LLC (Dex Media
East) amended and restated its existing credit facility
(the Dex Media East credit facility) by entering
into an amended and restated credit agreement (the Dex
Media East Amended and Restated Credit Agreement) with the
lenders parties to the Dex Media East credit facility and
JPMorgan Chase Bank, N.A., as administrative agent and as
collateral agent, and related loan and security documentation
(together with the Dex Media East Amended and Restated Credit
Agreement, the Dex Media East Amended and Restated Credit
Facility). Pursuant to the Plan, on February 1, 2010,
Dex Media East merged with and into Dex Media East, Inc.
(DME Inc.), and DME Inc. became the borrower under
the Dex Media East Amended and Restated Credit Agreement. The
Dex Media East Amended and Restated Credit Facility converts all
Tranche A Term Loans, all Tranche B Term Loans, all
Revolving Loans and the net termination payments outstanding
under swap agreements entered into by Dex Media East and certain
lenders (or their affiliates) under the Dex Media East credit
facility into a new tranche of term loans and provides for an
initial prepayment of such loans. As of the Effective Date, the
aggregate outstanding principal balance of the term loans under
the Dex Media East Amended and Restated Credit Facility totaled
$956.2 million. The maturity date of the Dex Media East
Amended and Restated Credit Agreement is October 24, 2014.
The Dex Media East Amended and Restated Credit Agreement
includes an uncommitted revolving credit facility available for
borrowings up to $40.0 million. The availability of such
uncommitted revolving credit facility is subject to certain
conditions including the prepayment of the term loans under the
Dex Media East Amended and Restated Credit Facility in an amount
equal to such revolving credit facility.
On the Effective Date, Dex Media West LLC (Dex Media
West) amended and restated its existing credit facility
(the Dex Media West credit facility) by entering
into an amended and restated credit agreement (the Dex
Media West Amended and Restated Credit Agreement) with the
lenders parties to the Dex Media West credit facility and
JPMorgan Chase Bank, N.A., as administrative agent and as
collateral agent, and related loan and security documentation
(together with the Dex Media West Amended and Restated Credit
Agreement, the Dex Media West Amended and Restated Credit
Facility). Pursuant to the Plan, on February 1, 2010,
Dex Media West merged with and into Dex Media West, Inc.
(DMW Inc.), and DMW Inc. became the borrower under
the Dex Media West Amended and Restated Credit Agreement. The
Dex Media West Amended and Restated Credit Facility converts all
Tranche A Term Loans, all Tranche B Term Loans, all
Revolving Loans and the net termination payments outstanding
under swap agreements entered into by Dex Media West and certain
lenders (or their affiliates) under the Dex Media West credit
facility into a new tranche of term loans and provides for an
initial prepayment of such loans. As of the Effective Date, the
aggregate outstanding principal balance of the term loans under
the Dex Media West Amended and Restated Credit Facility totaled
$903.7 million. The maturity date of the Dex Media West
Amended and Restated Credit Agreement is October 24, 2014.
The Dex Media West Amended and Restated Credit Agreement
includes an uncommitted revolving credit facility available for
borrowings up to $40.0 million. The availability of such
uncommitted revolving credit facility is subject to certain
conditions including the prepayment of the term loans under the
Dex Media West Amended and Restated Credit Facility in an amount
equal to such revolving credit facility.
On the Effective Date, we issued the $300.0 million Dex One
Senior Subordinated Notes. Interest on the Dex One Senior
Subordinated Notes is payable semi-annually on
March 31st and September 30th of each year, commencing
on March 31, 2010 through January 2017. The Dex One Senior
Subordinated Notes accrue
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interest at an annual rate of 12% for cash interest payments and
14% if the Company elects
paid-in-kind
(PIK) interest payments. The Company may elect,
prior to the start of each interest payment period, whether to
make each interest payment on the Dex One Senior Subordinated
Notes (i) entirely in cash or (ii) 50% in cash and 50%
in PIK interest, which is capitalized as incremental or
additional senior secured notes. The interest rate on the Dex
One Senior Subordinated Notes may be subject to adjustment in
the event the Company incurs certain specified debt with a
higher effective yield to maturity than the yield to maturity of
the Dex One Senior Subordinated Notes. The Dex One Senior
Subordinated Notes are unsecured obligations of the Company,
effectively subordinated in right of payment to all of the
Companys existing and future secured debt, including Dex
Ones guarantee of borrowings under each of the amended and
restated credit facilities and are structurally subordinated to
any existing or future liabilities (including trade payables) of
our direct and indirect subsidiaries.
As a result of our significant amount of debt and debt service
obligations, we face increased risks regarding, among other
things, the following:
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our ability to obtain additional financing on satisfactory terms
or at all to fund working capital requirements, capital
expenditures, acquisitions, investments, debt service
requirements, stock and debt repurchases, dividends and other
general corporate requirements is limited;
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our ability to borrow additional funds or refinance existing
indebtedness may be limited;
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we are more vulnerable to general economic downturns,
competition and industry conditions, which could place us at a
competitive disadvantage compared to our competitors that may be
less leveraged;
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we face increased exposure to rising interest rates as a portion
of our debt is at variable interest rates;
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we have reduced availability of cash flow to fund working
capital requirements, capital expenditures, acquisitions or
other strategic initiatives, investments and other general
corporate requirements because a substantial portion of our cash
flow is needed to service our debt obligations;
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we have limited flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate;
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the agreements governing our debt substantially limit our
ability to access the cash flow and value of our subsidiaries
and, therefore, to make payments on our notes; and
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we could be subject to increased market and industry speculation
as to our financial condition and the effect of our debt level
and debt service obligations on our operations, which
speculation could be disruptive to our relationships with
clients, suppliers, employees, creditors and other third parties.
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Based on current financial projections, we expect to be able to
generate cash flows from operations in amounts sufficient to
fund our operations, satisfy our interest and principal payment
obligations on our secured indebtedness and pay administrative
expenses. We can make no assurances that our business will
generate sufficient cash flows from operations to enable us to
fund our operations, satisfy our interest and principal payment
obligations on our secured indebtedness or for other purposes.
2) Restrictive
covenants under our debt agreements
The agreements governing our subsidiaries credit
facilities contain usual and customary representations and
warranties as well as affirmative and negative covenants. These
covenants could adversely affect us by limiting our ability to
obtain funds from our subsidiaries, to plan for or react to
market conditions or to otherwise meet our capital needs. These
covenants, subject to exceptions, limit or restrict RHDIs,
DME Inc.s, DMW Inc.s and their respective
subsidiaries:
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incurrence of liens;
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investments (including acquisitions);
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sales of assets;
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indebtedness;
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payment of dividends;
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distributions and payments of certain indebtedness;
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sale and leaseback transactions;
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swap transactions;
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affiliate transactions;
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capital expenditures and mergers;
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liquidations; and
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consolidations.
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The credit agreements and related documents also contain certain
covenants that, subject to exceptions, limit or restrict the
Companys incurrence of liens, indebtedness, ownership of
assets, sales of assets, payment of dividends or distributions
or modifications of the Companys $300.0 million
aggregate principal amount of 12%/14% Senior Subordinated
Notes due 2017 (Dex One Senior Subordinated Notes).
RHDI, DME Inc. and DMW Inc. are required to maintain compliance
with a consolidated leverage ratio covenant. RHDI and DMW Inc.
are also required to maintain compliance with consolidated
interest coverage ratio covenant. DMW Inc. is also required to
maintain compliance with a consolidated senior secured leverage
ratio covenant.
Pursuant to the Plan, on the Effective Date, RHD and The Bank of
New York Mellon entered into an Indenture (the
Indenture) in connection with the issuance of the
Dex One Senior Subordinated Notes to the holders of (i) Dex
Media West LLCs 8.5% Senior Notes due 2010 and
(ii) Dex Media West LLCs 5.875% Senior Notes,
due 2011. The Indenture contains certain covenants that, subject
to certain exceptions, among other things, limit or restrict the
Companys (and, in certain cases, the Companys
restricted subsidiaries) incurrence of indebtedness,
making of certain restricted payments, incurrence of liens,
entry into transactions with affiliates, conduct of its business
and its merger, consolidation or sale of all or substantially
all of its property.
Our ability to maintain compliance with these financial
covenants during 2010 is dependent on various factors, certain
of which are outside of our control. Such factors include our
ability to generate sufficient revenues and cash flows from
operations, our ability to achieve reductions in our outstanding
indebtedness, changes in interest rates and the impact on
earnings, investments and liabilities.
The filing of the Chapter 11 petitions constituted an event
of default under the indentures governing the Companys
senior notes, senior discount notes and senior subordinated
notes (collectively the notes in default) and the
debt obligations under those instruments became automatically
and immediately due and payable, although any actions to enforce
such payment obligations were automatically stayed under the
applicable bankruptcy law. Based on the bankruptcy petitions,
the notes in default are included in liabilities subject to
compromise on the consolidated balance sheet at
December 31, 2009.
The filing of the Chapter 11 petitions also constituted an
event of default under the Companys credit facilities.
However, based upon the Plan, these secured lenders received
100% principal recovery and scheduled amortization and interest
subsequent to the filing of the Chapter 11 petitions. In
addition, substantially all of RHDIs and its
subsidiaries assets, including the capital stock of RHDI
and its subsidiaries, are pledged to secure the obligations
under the RHDI credit facility and substantially all of the
assets of Dex Media East and Dex Media West and their respective
subsidiaries, including their equity interests, are pledged to
secure the obligations under their respective credit facilities.
Lastly, the Company is a guarantor of the obligations of RHDI
under the RHDI credit facility. The Company has determined that
the fair value of the collateral securing these credit
facilities exceeds the book value of such credit facilities,
including accrued interest and interest rate swap liabilities
associated with the credit facilities, and therefore, the credit
facilities are excluded from liabilities subject to compromise
on the consolidated balance sheet at December 31, 2009.
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3) Variable
rate indebtedness subjects us to interest rate
risk
At December 31, 2009, $3.6 billion, or approximately
37%, of our outstanding indebtedness bore interest at variable
rates. An increase in interest rates could cause our debt
service obligations to increase significantly. The Company had
entered into fixed interest rate swap agreements to manage
fluctuations in cash flows resulting from changes in interest
rates on variable rate debt.
The RHDI Amended and Restated Credit Agreement, Dex Media West
Amended and Restated Credit Agreement and Dex Media East Amended
and Restated Credit Agreement provide that the loans under the
respective credit facilities, at the option of the borrower and
depending on the type of borrowing selected and the
borrowers consolidated leverage ratio, at variable rates
based on the prime rate, the federal funds effective rate or
LIBOR, as applicable. See Note 5, Long-Term Debt,
Credit Facilities and Notes to the consolidated financial
statements for a more detailed discussion of the interest rates
applicable to borrowings under the RHDI Amended and Restated
Credit Agreement, Dex Media West Amended and Restated Credit
Agreement and Dex Media East Amended and Restated Credit
Agreement.
Although we may enter into additional interest rate swaps
involving the exchange of floating rate for fixed rate interest
payments in order to reduce interest rate volatility, we cannot
provide assurances that we will be able to do so, that such
swaps will be effective or that interest expense will not
include non-cash charges related to ineffectiveness.
4) Ongoing
global credit and liquidity crisis and general economic
factors.
As a result of the ongoing credit and liquidity crisis in the
United States and throughout the global financial system,
substantial volatility in world capital markets and the banking
industry has occurred. This volatility and other events have had
a significant negative impact on financial markets, as well as
the overall economy. From an operational perspective, we have
continued to experience lower advertising sales primarily as a
result of declines in new and recurring business, including both
renewal and incremental sales to existing clients, mainly driven
by (1) declines in overall advertising spending by
businesses, (2) the significant impact of the weaker
economy on smaller businesses in the markets in which we do
business and (3) an increase in competition and more
fragmentation in the local business search market. From a
financing perspective, we rely on a number of financial
institutions and the credit and financial markets to meet our
financial commitments and short-term liquidity needs if internal
funds are not available, and to execute transactions. Continuing
instability or disruptions of these markets could prohibit or
make it more difficult for us to access new capital,
significantly increase the cost of capital or limit our ability
to refinance existing indebtedness on satisfactory terms or at
all.
A continuation or deepening of the national or regional economic
recession could continue to have a material adverse effect on
our business, operating results or financial condition. In
addition, any residual economic effects of, and uncertainties
regarding the following, could adversely affect our business:
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the general possibility, express threat or future occurrence of
terrorist or other related disruptive events; or
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the United States continuing or expanded involvement in
war, especially with respect to the major markets in which we
operate that depend heavily upon travel, tourism or the military.
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Risks
Related to Our Business
1) Competition
The local search industry in which we operate is highly
competitive and fragmented. We compete with other print and
online yellow pages directory publishers, as well as other types
of media including television, newspaper, radio, direct mail,
search engines, local search sites, advertising networks, and
emerging technologies. Looking ahead, new content delivery
technologies continue to evolve in the media environment. We
regularly monitor developing trends and technologies to assess
opportunities for enhancing our own
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capabilities through new product development, partnerships or
acquisitions, and identify competitive threats where a specific
response may be warranted.
In nearly all of our markets, we compete with one or more
traditional print yellow pages directory publishers, including
independent publishers such as Yellowbook, White Directory
Publishing, Inc., and Phone Directories Company, and in some
markets, we compete with other incumbent publishers such as
SuperMedia (formerly Idearc) and AT&T. We compete with
these publishers based on cost per reference, quality, features,
usage leadership and distribution.
Most major yellow pages directory publishers offer print and
online directories as well as online search products. Virtually
all independent publishers, including Yellowbook, a competitor
in the majority of our markets, compete aggressively and use
pricing and discounting as a primary competitive tool to try to
increase their market share. Our competitors approaches to
pricing and discounting may affect our pricing strategies and
our future revenues. Due to the recent economic environment and
trends in our industry, we have experienced a significant
decline in advertising sales during 2009 and we currently expect
this trend to continue throughout 2010.
Some of the incumbent publishers with which we compete are
larger than we are and have greater financial resources than we
have. Though we have limited market overlap with incumbent
publishers relative to the size of our overall footprint, we may
not be able to compete effectively with these publishers for
advertising sales in these limited markets. In addition,
independent publishers may commit more resources to certain
markets than we are able to commit, thus limiting our ability to
compete effectively with these publishers in these areas for
advertising sales.
In addition, the market position of telephone utilities,
including those with which we have relationships, may be
adversely impacted by the Telecommunications Act of 1996,
referred to as the Telecommunications Act, which effectively
opened local telephone markets to increased competition. In
addition, Federal Communication Commission rules regarding local
number portability, advances in communications technology (such
as wireless devices and voice over Internet protocol) and
demographic factors (such as potential shifts in younger
generations away from wire line telephone communications towards
wireless or other communications technologies) may further erode
the market position of telephone utilities, including Qwest,
CenturyLink and AT&T. As a result, it is possible that
Qwest, CenturyLink and AT&T, or their successors, will not
remain the primary local telephone service provider in their
local service areas. If Qwest, CenturyLink or AT&T, or
their successors, were no longer the primary local telephone
service provider in any particular local service area, our
license to be the exclusive publisher in that market and to use
the LEC brand name on our directories in that market may not be
as valuable as we presently anticipate, and we may not be able
to realize some of the existing benefits under our commercial
arrangements with Qwest, CenturyLink or AT&T.
Online competition has intensified as technologies have improved
and broadband penetration has increased, offering a diverse set
of advertising alternatives for small businesses. We consider
our primary online competition to be the major search engines,
such as Google, Yahoo!, BING and others, in addition to the
online directory properties of the largest yellow pages
directory publishers, such as Superpages.com, provided by
SuperMedia, and YellowPages.com, provided by AT&T.
Additionally, we compete with a growing number of local
shopping-related competitors including industry specific online
verticals, such as FindLaw.com and ServiceMagic.com,
user-generated content sites such as Yelp and Kudzu, and search
engine intermediaries such as ReachLocal and Yodle. We also
compete with a number of well known online map websites such as
MapQuest®
Rand
McNally®
Google Maps. Most of these companies operate on a national
scale, competing for consumer and business users across our
entire region and actively solicit clients in many of our
markets. We may not be able to compete effectively with these
other companies, some of which may have greater resources than
we do, for advertising sales or acquisitions in the future. Our
Internet strategy and our business may be adversely affected if
major search engines build local sales forces or otherwise begin
to more effectively reach small local businesses for local
commercial search services.
Our Dex Advantage, as well as our enhanced distribution
arrangements, have involved, and will likely continue to
involve, cooperating with other local media companies with whom
we also compete, particularly with respect to online local
search. As a result, particularly as usage continues to migrate
from print to online,
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we bear some risk that such cooperation arrangements may
presently or come to constitute a significant component of the
aggregate distribution of their advertising message that we
offer to certain of our clients. Some of these local media
companies with whom we cooperate and compete have greater
financial resources than we do. Should our relationships with
such companies be discontinued for any reason, it may be
detrimental to our clients and thereby may result in lower rates
of renewal of our contractual relationships with our clients.
Our reliance on these cooperation arrangements may also provide
an unintended competitive advantage to some of our competitors
by (a) promoting the products and services of those
competitors and (b) establishing, building and reinforcing
an indirect relationship between our clients and those
competitors, which could facilitate those competitors entering
into direct relationships with our clients without our
involvement. Material loss of clients would have a material
adverse effect on our business, financial condition and results
of operations.
2) The
termination or modification of one or more material Internet
search engine, local search or portal agreements
Our ability to provide Internet marketing solutions to our
clients is dependent upon relationships with major Internet
search companies. Loss of key relationships or changes in the
level of service provided by these search companies could impact
performance of our Internet marketing solutions. Many of these
Internet search companies are larger than we are and have
greater financial resources than we have. We may not be able to
compete effectively with these companies for advertising sales
or acquisitions in the future. In addition, Internet marketing
services are provided by many other competitors within the
markets we serve and our clients could choose to work with
other, sometimes larger providers of these services, or with
search engines directly.
3) Usage
of proprietary and partner search solutions.
Over the past several years, overall references to print yellow
pages directories in the United States have continued to
decline. We believe this decline has been influenced by
increasing consumer usage of a variety of digital information
services, including search engines, online directories, social
networks, industry-specific websites, and mobile applications.
We believe this decline was also a result of demographic shifts
among consumers, particularly the increase of households in
which English was not the primary language spoken. We believe
that over the next several years, references to print yellow
pages directories will continue to decline as users increasingly
turn to digital and interactive media delivery devices for local
commercial search information. Recently, the usage of
Internet-based directory products has increased rapidly. These
trends have, in part, resulted in advertising sales declining in
recent years, and we expect these trends to continue in 2010.
Any decline in usage could:
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impair our ability to maintain or increase our advertising
prices;
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cause businesses that purchase advertising in our yellow pages
directories to reduce or discontinue those
purchases; and
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discourage businesses that do not presently purchase advertising
in our yellow pages directories from doing so in the future.
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Although we believe that any decline in the usage of our printed
directories will be offset in part by an increase in usage of
our Internet-based directories and distribution partnerships, we
cannot assure you that such usage will result in additional
revenue or profits. Any of the factors that may contribute to a
decline in usage of our print directories, or a combination of
them, could impair our revenues and have a material adverse
effect on our business.
The directory advertising industry is subject to changes arising
from developments in technology, including information
distribution methods and users technological preferences.
The use of the Internet and wireless devices by consumers as a
means to transact commerce may result in new technologies being
developed and services being provided that could compete with
our products and services. National search companies such as
Google and Yahoo! are focusing and placing a high priority on
local commercial search initiatives. As a result of these
factors, our growth and future financial performance may depend
on our ability
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to develop and market new products and services, to negotiate
satisfactory strategic arrangements with these national search
companies and utilize new distribution channels, while enhancing
existing products, services and distribution channels, to
incorporate the latest technological advances and accommodate
changing user preferences, including the use of the Internet and
wireless devices. We may not be able to provide services over
the Internet successfully or compete successfully with other
Internet-based directory and local search services. In addition,
if we fail to anticipate or respond adequately to changes in
technology and user preferences or are unable to finance the
capital expenditures necessary to respond to such changes, our
results of operations or financial condition could be materially
adversely affected.
4) Recognition
of impairment charges for our intangible assets or
goodwill
At December 31, 2009, the net carrying value of our
intangible assets totaled approximately $2.2 billion. We
review the carrying value of our intangible assets and other
long-lived assets for impairment whenever events or
circumstances indicate that their carrying amount may not be
recoverable. Significant negative industry or economic trends,
including the market price of our common stock or the fair
market value of our debt, disruptions to our business,
unexpected significant changes or planned changes in the use of
the intangible assets and other long-lived assets, and mergers
and acquisitions could result in an impairment charge for any of
our intangible assets or other long-lived assets.
As a result of filing the Chapter 11 petitions, the Company
performed impairment tests of its definite-lived intangible
assets and other long-lived assets during the year ended
December 31, 2009. During the fourth quarter of 2009 and in
conjunction with the filing of our amended Plan and amended
Disclosure Statement, the Company finalized an extensive
analysis associated with our emergence from Chapter 11. The
Company utilized the following information and assumptions
obtained from this analysis to complete its impairment
evaluation:
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Historical financial information, including revenue, profit
margins, customer attrition data and price premiums enjoyed
relative to competing independent publishers;
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Long-term financial projections, including, but not limited to,
revenue trends and profit margin trends; and
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Intangible asset carrying values.
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As a result of these impairment tests, the Company recognized an
impairment charge of $7.3 billion during the fourth quarter
of 2009 associated with directory services agreements,
advertiser relationships, third party contracts and network
platforms acquired in prior acquisitions. The fair values of
these intangible assets were derived from a discounted cash flow
analysis using a discount rate that is indicative of the risk
that a market participant would be willing to accept. This
analysis included a review of relevant financial metrics of
peers within our industry.
The Company evaluates the remaining useful lives of its
intangible assets whenever events or circumstances indicate that
a revision to the remaining period of amortization is warranted.
If the estimated remaining useful lives change, the remaining
carrying amount of the intangible asset would be amortized
prospectively over that revised remaining useful life. In
connection with our impairment testing during 2009, the Company
also evaluated the remaining useful lives of its definite-lived
intangible assets and other long-lived assets by considering,
among other things, the effects of obsolescence, demand,
competition, which takes into consideration the price premium
benefit the Company has over competing independent publishers in
its markets as a result of directory services agreements
acquired in prior acquisitions, and other economic factors,
including the stability of the industry in which we operate,
known technological advances, legislative actions that result in
an uncertain or changing regulatory environment, and expected
changes in distribution channels. At December 31, 2009, the
Company determined that due to the compression of our price
premium benefit over competing independent publishers in our
markets as well as a decline in market share during the year
ended December 31, 2009, the remaining useful lives of the
directory services agreements acquired in prior acquisitions
will each be reduced from 33 years to weighted average
remaining useful lives of 25 years for Dex Media East,
26 years for Dex Media West, 29 years for AT&T
and 28 years for CenturyLink, effective
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January 1, 2010. Based on an assessment of future estimated
cash flows, increased attrition rates and the impact on our
long-term financial projections, the remaining useful lives of
third party contracts, advertiser relationships and network
platforms acquired in a prior acquisition will be reduced to 1,
5 and 9 years, respectively, effective January 1,
2010. The reduction to the remaining useful lives was necessary
in order to better reflect the period these intangible assets
are expected to contribute to our future cash flow.
The Company anticipates a decrease in amortization expense
during 2010 of $329.9 million resulting from the
significantly reduced book values of our directory services
agreements subsequent to the impairment charges during the
fourth quarter of 2009, partially offset by increased
amortization expense resulting from the reduction of the
remaining useful lives associated with our directory services
agreements.
As a result of the decline in the trading value of our debt and
equity securities during 2008 and continuing negative industry
and economic trends that directly affected our business, we
performed impairment tests of our goodwill, definite-lived
intangible assets and other long-lived assets. We used estimates
and assumptions in our impairment evaluations, including, but
not limited to, projected future cash flows, revenue growth and
customer attrition rates. Based upon the impairment test of our
goodwill, we recognized 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 goodwill impairment charges of
$3.1 billion during the year ended December 31, 2008.
As a result of these impairment charges, we had no recorded
goodwill at December 31, 2008. In addition, as a result of
these tests, the Company recognized an impairment charge of
$744.0 million during the fourth quarter of 2008 associated
with the local and national customer relationships acquired in
prior acquisitions. Lastly, in connection with the launch of the
next version of DexKnows.com, the tradenames and technology
acquired in a prior acquisition were discontinued, which
resulted in an impairment charge of $2.2 million during the
fourth quarter of 2008. Total impairment charges related to our
intangible assets, excluding goodwill, were $746.2 million
during the year ended December 31, 2008.
In connection with the impairment testing of our definite-lived
intangible assets and other long-lived assets at
December 31, 2008, we evaluated the remaining useful lives
of our intangible assets by evaluating the relevant factors
noted above. Based on this evaluation, the Company recognized a
reduction in the remaining useful lives of all directory
services agreements associated with prior acquisitions due to
compression of our price premium benefit over competing
independent publishers in our markets as well as a decline in
market share during the year ended December 31, 2008. As a
result, the remaining useful lives of our directory services
agreements were reduced to 33 years effective
January 1, 2009 in order to better reflect the period these
intangible assets are expected to contribute to our future cash
flow. The increase in amortization expense for the year ended
December 31, 2009 is a direct result of reducing the
remaining useful lives associated with our directory services
agreements, partially offset by a reduction in amortization
expense associated with a revision to the carrying values of our
local and national customer relationships subsequent to
impairment charges recorded during the fourth quarter of 2008.
During the year ended December 31, 2007, we recorded an
intangible asset impairment charge of $20.0 million
associated with the tradenames acquired in a prior acquisition.
This impairment charge resulted from a change in our branding
strategy to utilize a new Dex market brand for all of our print
and online products across our entire footprint and discontinued
use of the tradenames acquired in a prior acquisition.
These impairment charges had no impact on current or future
operating cash flow, compliance with debt covenants or tax
attributes. See Item 8, Financial Statements and
Supplementary Data Note 2, Summary
of Significant Accounting Policies Identifiable
Intangible Assets and Goodwill for additional information
regarding our intangible assets and goodwill and the impairment
charges recorded during the years ended December 31, 2009,
2008 and 2007, respectively.
If industry and economic conditions in our markets continue to
deteriorate, resulting in further declines in advertising sales
and operating results, and if the trading value of our debt and
equity securities decline further, we will be required to again
assess the recoverability and useful lives of our long-lived
assets and other intangible assets. This could result in
additional impairment charges, a reduction of remaining useful
lives and acceleration of amortization expense.
23
5) Information
technology modernization effort and related IT
matters
We may incur additional capital expenditures in connection with
the post implementation effort of modernizing our Amdocs process
management infrastructure, which could be relatively higher than
our historical levels of capital expenditures, and which
represent funds that would otherwise have been available to
repay debt or for other strategic or general corporate purposes.
Most of our business activities rely to a significant degree on
the efficient and uninterrupted operation of our computer and
communications systems and those of third parties. Any failure
of current or, in the future, new systems could impair our
collection, processing or storage of data and the
day-to-day
management of our business. This could have a material adverse
effect on our business, financial condition and results of
operations. Our computer and communications systems are
vulnerable to damage or interruption from a variety of sources
and our disaster recovery systems may be deemed ineffective.
Despite precautions taken by us, a natural disaster or other
unanticipated problems that lead to the corruption or loss of
data at our facilities could have a material adverse effect on
our business, financial condition and results of operations.
6) Impact
of bankruptcy proceedings against Qwest, CenturyLink or
AT&T during the term of the respective commercial
arrangements
Qwest is currently highly leveraged and has a significant amount
of debt service obligations over the near term and thereafter.
In addition, Qwest has faced and may continue to face
significant liquidity issues as well as issues relating to its
compliance with certain covenants contained in the agreements
governing its indebtedness. Based on Qwests public filings
and announcements, Qwest has taken measures to improve its
near-term liquidity and covenant compliance. However, Qwest
still has a substantial amount of indebtedness outstanding and
substantial debt service requirements. Consequently, it may be
unable to meet its debt service obligations without obtaining
additional financing or improving operating cash flow.
CenturyLink is a relatively new public company with a
significant amount of debt that could suffer some of these same
liquidity and debt service issues. In addition, AT&T could
suffer similar financial issues as Qwest or CenturyLink during
the term of our agreements with them.
Accordingly, we cannot assure you that any of our
telecommunications partners will not ultimately seek protection
under U.S. bankruptcy laws. In any such proceeding, our
agreements with Qwest, CenturyLink and AT&T, and our
respective rights and the respective ability to provide the
services under those agreements, could be materially adversely
impacted.
For example:
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Any of them, or a trustee acting on their behalf, could seek to
reject our agreements with them as executory
contracts under U.S. bankruptcy law, thus allowing them to
avoid their obligations under such contracts. Loss of
substantial rights under these agreements could effectively
require us to operate our business as an independent directory
business, which could have a material adverse effect on us.
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Any of them, or a trustee acting on their behalf, could seek to
sell certain of their assets, including the assets relating to
their local telephone business, to third parties pursuant to the
approval of the bankruptcy court. In such case, the purchaser of
any such assets might be able to avoid, among other things, our
rights under the respective directory service license and
publishing agreements, trademark license agreements and
non-competition agreements with our telecommunications partners.
|
If one or more of these agreements were rejected, the applicable
agreement might not be specifically enforceable, in which case
we would have only an unsecured claim for damages against Qwest,
CenturyLink or AT&T, as the case may be, for the breach of
contract resulting from the rejection. If the applicable
directory services license or publishing agreement were
rejected, we would, among other things, no longer be entitled to
be the exclusive official publisher of telephone directories in
the affected markets. We could lose our right to use the
applicable telephone companys name and logo or the value
to us of using their name and logo could decline. We could also
lose our right to enforce the provisions of the applicable
agreements under which we have the right to license trademarks
of successor local exchange carriers in our local markets. If
the applicable non-competition agreement were rejected and
specific enforcement were not available, Qwest, CenturyLink or
24
AT&T, as the case may be, would, among other things, no
longer be precluded from publishing print telephone directories
or selling certain advertising in the affected markets. The loss
of any rights under any of these arrangements with Qwest,
CenturyLink or AT&T may have a material adverse effect on
our financial condition or results of operations.
7) The
inability to enforce any of our key agreements with Sprint,
CenturyLink, AT&T or Qwest
In connection with our acquisitions, we entered into
non-competition agreements with each of Sprint, CenturyLink and
AT&T, and in connection with the Dex Media Merger, we
assumed a non-competition agreement from Qwest. The Qwest
non-competition agreement prohibits Qwest from selling directory
products consisting principally of listings and classified
advertisements for subscribers in the geographic areas in the
Qwest States in which Qwest provided local telephone service as
of November 8, 2002 that are directed primarily at clients
in those geographic areas. The Sprint non-competition agreement
prohibits Sprint from selling local directory advertising or
producing, publishing and distributing print directories, with
certain limited exceptions, in the markets where Sprint provided
local telephone service at the time of our acquisition of
CenturyLink. This non-compete agreement survived Sprints
spin-off of the CenturyLink business. The CenturyLink
non-competition agreement prohibits CenturyLink from selling
local directory advertising or producing, publishing and
distributing print directories, with certain limited exceptions,
in the markets where Sprint provided local telephone service at
the time of our acquisition of CenturyLink. The AT&T
non-competition agreement prohibits AT&T from producing,
publishing and distributing print directories in Illinois and
Northwest Indiana, from selling local or national directory
advertising in such directories and from selling local Internet
yellow pages advertising for certain Internet yellow pages
directories (or from licensing certain AT&T marks to a
third party for that purpose), subject to limited exceptions.
However, a covenant not to compete is generally only enforceable:
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to the extent it is necessary to protect a legitimate business
interest of the party seeking enforcement;
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if it does not unreasonably restrain the party against whom
enforcement is sought; and
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if it is not contrary to the public interest.
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Enforceability of a non-competition covenant is determined by a
court based on all of the facts and circumstances of the
specific case at the time enforcement is sought. For this
reason, it is not possible for us to predict whether, or to what
extent, a court would enforce either the Qwest, Sprint,
CenturyLink or AT&T covenants not to compete against us
during the term of the respective non-competition agreement. If
a court were to determine that the non-competition agreement is
unenforceable, Qwest, Sprint, CenturyLink or AT&T, as the
case may be, could compete directly against us in the previously
restricted markets. Our inability to enforce the non-competition
agreements with Qwest, Sprint, CenturyLink or AT&T could
have a material adverse effect on our financial condition or
results of operations.
Our commercial arrangements with each of Qwest, CenturyLink and
AT&T have an initial term of 50 years, subject to
specified automatic renewal and early termination provisions.
These commercial arrangements may be terminated by our
counterparty prior to their stated term under certain specified
circumstances, some of which at times may be beyond our
reasonable control
and/or which
may require extraordinary efforts or the incurrence of material
excess costs on our part in order to avoid breach of the
applicable agreement. It is possible that these arrangements
will not remain in place for their full stated term or that we
may be unable to avoid all potential breaches of or defaults
under these commercial arrangements. Further, any remedy
exercised by Qwest, CenturyLink or AT&T, as the case may
be, under any of these arrangements could have a material
adverse effect on our financial condition or results of
operations.
8) Future
changes in directory publishing obligations in Qwest and
AT&T markets and other regulatory matters
Pursuant to our publishing agreement with Qwest, we are required
to discharge Qwests regulatory obligation to publish White
Pages directories covering each service territory in the 14
Qwest states where it provided local telephone service as the
incumbent service provider as of November 8, 2002. If the
staff of a
25
state public utility commission in a Qwest state were to impose
additional or changed legal requirements in any of Qwests
service territories with respect to this obligation, we would be
obligated to comply with these requirements on behalf of Qwest,
even if such compliance were to increase our publishing costs.
Pursuant to the publishing agreement, Qwest was only obligated
to reimburse us for one half of any material net increase in our
costs of publishing directories that satisfy Qwests
publishing obligations (less the amount of any previous
reimbursements) resulting from new governmental legal
requirements, and this obligation expired on November 7,
2009. Given that we are no longer entitled to partial
reimbursement by Qwest of our compliance costs, our results of
operations relative to competing directory publishers could be
adversely affected if we are not able to increase our revenues
to cover any such compliance costs.
Pursuant to the directory services license agreement with
AT&T, we are required to discharge AT&Ts
regulatory obligation to publish White Pages directories
covering each service territory in the Illinois and Northwest
Indiana markets for which we acquired the AT&T Directory
Business. If the staff of a state public utility commission in
Illinois or Indiana were to impose additional or changed legal
requirements in any of these service territories with respect to
this obligation, we would be obligated to comply with these
requirements on behalf of AT&T, even if such compliance
were to increase our publishing costs. Pursuant to the directory
services agreement, AT&T will generally not be obligated to
reimburse us for any increase in our costs of publishing
directories that satisfy AT&Ts publishing
obligations. Our results of operations relative to competing
directory publishers could be adversely affected if we are not
able to increase our revenues to cover any such compliance costs.
Our directory services license agreement with CenturyLink
generally provides that CenturyLink will reimburse us for
material increases in our costs relating to our complying with
CenturyLinks directory publishing obligations in our
CenturyLink markets.
As the local search directories industry develops, specific laws
relating to the provision of Internet services and the use of
Internet and Internet-related applications may become relevant.
Regulation of the Internet and Internet-related services is
itself still developing both formally by, for instance,
statutory regulation, and also less formally by, for instance,
industry self regulation. If our regulatory environment becomes
more restrictive, including by increased Internet regulation,
our profitability could decrease.
Our operations, as well as the properties owned and leased for
our business, are subject to stringent laws and regulations
relating to environmental protection. The failure to comply with
applicable environmental laws, regulations or permit
requirements, or the imposition of liability related to waste
disposal or other matters arising under these laws, could result
in civil or criminal fines, penalties or enforcement actions,
third-party claims for property damage and personal injury or
requirements to clean up property or other remedial actions.
Some of these laws provide for strict liability,
which can render a party liable for environmental or natural
resource damage without regard to negligence or fault on the
part of the party.
In addition, new laws and regulations (including, for example,
limiting distribution of print directories), new interpretations
of existing laws and regulations, increased governmental
enforcement or other developments could require us to make
additional unforeseen expenditures or could lead to us suffering
declines in revenues. For example, opt out and
opt in legislation has been proposed in certain
states where we operate that would either (i) allow
consumers to opt out of the delivery of print yellow pages or
(ii) prevent us from delivery until consumers who preferred
delivery of print yellow pages affirmatively elected to receive
the print directory. Although to date, this proposed legislation
has not been signed into law in any of the states where we
operate, we cannot assure you that similar legislation will not
be passed in the future. If such legislation were to become
effective, it could have a material adverse effect on the usage
of our products and, ultimately, our revenues. If different
forms of this type of legislation are adopted in multiple
jurisdictions, it could also materially increase our operating
costs in order to comply. We are adopting voluntary measures to
permit consumers to share with us their preferences with respect
to the delivery of our various print and digital products. If a
large number of consumers advise us that they do not desire
delivery of our products, the usage of our products and,
ultimately our revenues, could materially decline, which may
have an adverse effect on our financial condition and results of
operations.
Many of these laws and regulations are becoming increasingly
stringent, and the cost of compliance with these requirements
can be expected to increase over time. To the extent that the
costs associated with meeting
26
any of these requirements are substantial and not adequately
provided for, there could be a material adverse effect on our
businesses, financial condition and results of operations.
9) Reliance
on, and extension of credit to, local businesses
Approximately 85% of our directory advertising revenue is
derived from local businesses. In the ordinary course of our
yellow pages publishing business, we extend credit to these
clients for advertising purchases. Local businesses, however,
tend to have fewer financial resources and higher failure rates
than large businesses, especially during a downturn in the
general economy. The proliferation of very large retail stores
may continue to harm local businesses. We believe these
limitations are significant contributing factors to having
clients in any given year not renew their advertising in the
following year. If clients fail to pay within specified credit
terms, we may cancel their advertising in future directories,
which could further impact our ability to collect past due
amounts as well as adversely impact our advertising sales and
revenue trends. In addition, full or partial collection of
delinquent accounts can take an extended period of time.
Consequently, we could be adversely affected by our dependence
on and our extension of credit to local businesses.
As a result of the ongoing global credit and liquidity crisis
and the significant negative impact on financial markets, as
well as the overall economy and the continued decline in our
operating results, which has negatively impacted local
businesses, as well as larger businesses, we have experienced an
increase in our bad debt expense. For the years ended
December 31, 2009 and 2008, our bad debt expense
represented approximately 7% and 5%, respectively, of our net
revenue. We expect that these economic challenges will continue
in our markets, and, as such, our bad debt experience will
continue to be adversely impacted in the foreseeable future.
10) Dependence
on third-party providers of printing, distribution, delivery and
IT services
We depend on third parties for the printing and distribution of
our respective directories. We also rely on the services of
Amdocs contractors for information technology (IT)
development and support services related to our directory
publishing business. We must rely on the systems of our
third-party service providers, their ability to perform key
operations on our behalf in a timely manner and in accordance
with agreed levels of service and their ability to attract and
retain sufficient qualified personnel to perform our work. A
failure in the systems of one of our third-party service
providers, or their inability to perform in accordance with the
terms of our contracts or to retain sufficient qualified
personnel, could have a material adverse effect on our business,
results of operations and financial condition.
Our directories are printed through our long-standing
relationship with printing vendor R.R. Donnelley, as well as
with Worldcolor. In general, R.R. Donnelley prints all AT&T
and CenturyLink directories and larger, higher-circulation Qwest
directories, whereas Worldcolor prints Qwest directories that
are smaller and have a more limited circulation. Our agreements
with R. R. Donnelley and Worldcolor for the printing of all of
our directories extend through 2014 and 2015, respectively.
Because of the large print volume and specialized binding of
directories, only a limited number of companies are capable of
servicing our printing needs. Accordingly, the inability or
unwillingness of R.R. Donnelley or Worldcolor, as the case may
be, to provide printing services on acceptable terms or at all
or any deterioration in our relationships with them could have a
material adverse effect on our business.
We have contracts with two companies for the distribution of our
directories. Although these contracts are scheduled to expire at
various times from May 2010 through May 2012, any of these
vendors may terminate its contract with us upon
120 days written notice. Only a limited number of
companies are capable of servicing our delivery needs.
Accordingly, the inability or unwillingness of our current
vendors to provide delivery services on acceptable terms, or at
all, could have a material adverse effect on our business.
If we were to lose the services of Amdocs contractors, we
would be required either to hire sufficient staff to perform
these IT development and support services in-house or to find an
alternative service provider. In the event we were required to
perform any of the services that we currently outsource, it is
possible that we would not be able to perform them on a
cost-effective basis. There are a limited number of alternative
third-party service providers, if any.
27
11) Fluctuations
in the price and availability of paper
Our principal raw material is paper and we use only recycled
material. It is one of our largest cost items, representing
approximately 4% of our net revenue for the year ended
December 31, 2009. Paper used is supplied by three paper
companies: CellMark, Nippon and Catalyst. Our agreements with
CellMark, Nippon and Catalyst expired on December 31, 2009.
We have entered into new three year agreements with CellMark and
Nippon that commenced in January 2010. The paper formerly
supplied by Catalyst will now be supplied by CellMark and
Nippon. Furthermore, we purchase paper used for the covers of
our directories from Tembec Paper Group (Tembec).
Our agreement with Tembec expired on December 31, 2009 and
was not re-negotiated. The paper formerly supplied by Tembec
will now be supplied by Unisource Worldwide, Inc.
(Unisource) with whom we have a three year agreement
that expires on December 31, 2012. Paper for tabs is also
purchased from Unisource. This agreement with Unisource expires
in July 2010.
Changes in the supply of, or demand for, paper could affect
market prices or delivery times. We do not engage in hedging
activities to limit our exposure to increases in paper prices.
In the future, the price of paper may fluctuate significantly
due to changes in supply and demand. We cannot assure you that
we will have access to paper in the necessary amounts or at
reasonable prices or that any increases in paper costs would not
have a material adverse effect on our business, results of
operations or financial condition.
12) The
sale of advertising to national accounts is coordinated by third
parties that we do not control
Approximately 15% of our revenue is derived from the sale of
advertising to national or large regional companies, such as
rental car companies, automobile repair shops and pizza delivery
businesses, that purchase advertising in several of our
directories. Substantially all of the revenue derived from
national accounts is serviced through CMRs from which we accept
orders. CMRs are independent third parties that act as agents
for national companies and design their advertisements, arrange
for the placement of those advertisements in directories and
provide billing services. As a result, our relationship with
these national clients depends significantly on the performance
of these third party CMRs that we do not control.
Although we believe that our respective relationships with these
CMRs have been mutually beneficial, if some or all of the CMRs
with which we have established relationships were unable or
unwilling to do business with us on acceptable terms or at all,
such inability or unwillingness could have a material adverse
effect on our business. In addition, any decline in the
performance of CMRs with which we do business could harm our
ability to generate revenue from our national accounts and could
materially adversely affect our business. We also act as a CMR
directly placing certain national advertising in competition
with these CMRs. It is possible that our status as a competitor
of CMRs could adversely impact our relationships with CMRs or
expose us to possible legal claims from CMRs. In light of the
overall downturn in the economy, we may be adversely impacted by
credit risk with CMRs from which we accept orders and credit
risk that CMRs face with their clients. While historically
we have not been adversely impacted by this credit risk, we
cannot assure you that this credit risk will not have a
significant impact on our financial condition or results of
operations in the future.
13) Work
stoppages or increased unionization among our work
force
Approximately 1,100 of our Dex Media employees are represented
by labor unions covered by two collective bargaining agreements
with Dex Media. In addition, some of our key suppliers
employees are represented by unions. On November 6, 2009,
Dex Media agreed on a new three year collective bargaining
agreement with the Communications Workers of America
(CWA), which covers approximately 700 of Dex
Medias unionized workforce. The collective bargaining
agreement with the CWA expires in September 2012. On
June 12, 2009, Dex Media agreed on a new three year
collective bargaining agreement with the International
Brotherhood of Electrical Workers of America (IBEW),
which covers approximately 400 of Dex Medias unionized
workforce. The collective bargaining agreement with the IBEW
expires in May 2012.
If our unionized workers, or those of our key suppliers, were to
engage in a strike, work stoppage or other slowdown in the
future, our business could experience a significant disruption
of operations and an increase in operating costs, which could
have a material adverse effect on our business. In addition,
proposed federal legislation the Employee Free
Choice Act would significantly relax existing union
organizing
28
laws thereby increasing the risk that a greater portion of our
workforce could become unionized in the near future. Although to
date this proposed legislation has not been signed into law, we
cannot assure you that it will not be passed in some form in the
future. If a greater percentage of our workforce becomes
unionized, this could have a material adverse effect on our
business.
14) Turnover
among our sales force or key management
The success of our business is dependent on the leadership of
our key personnel. The loss of a significant number of
experienced local marketing consultants
and/or sales
managers could adversely affect our results of operations,
financial condition and liquidity, as well as our ability to
service our debt. Our success also depends on our ability to
identify, hire, train and retain qualified sales personnel in
each of the regions in which we operate. We currently expend
significant resources and management time in identifying and
training our local marketing consultants and sales managers. Our
ability to attract and retain qualified sales personnel will
depend, however, on numerous factors, including factors outside
our control, such as conditions in the local employment markets
in which we operate.
Furthermore, our success depends on the continued services of
key personnel, including our experienced senior management team
as well as our regional sales management personnel. If we fail
to retain the necessary key personnel, our results of
operations, financial conditions and liquidity, as well as our
ability to service our debt could be adversely affected.
15) The
loss of important intellectual property rights
Some trademarks and related names, marks and logos such as
Dex
One®,
R.H.
Donnelley®,
Dex®,
Qwest®,
CenturyLink®,
AT&T Real Yellow
Pages®,
Business.com®,
Work.comtm,
DexKnows.com®.
DexKnows®
and
DexNettm
and other intellectual property rights are important to our
business. We rely upon a combination of copyright and trademark
laws as well as contractual arrangements, including licensing
agreements, particularly with respect to Qwest, CenturyLink and
AT&T markets, to establish and protect our intellectual
property rights. We are required from time to time to bring
lawsuits against third parties to protect our intellectual
property rights. Similarly, from time to time, we are party to
proceedings whereby third parties challenge our rights. We
cannot be sure that any lawsuits or other actions brought by us
will be successful or that we will not be found to infringe the
intellectual property rights of third parties. As the Internet
grows, it may prove more onerous to protect our trade names,
including DexKnows.com, Business.com and Work.com from domain
name infringement or to prevent others from using Internet
domain names that associate their business with ours. Although
we are not aware of any material infringements of any trademark
rights that are significant to our business, any lawsuits,
regardless of their outcome, could result in substantial costs
and diversion of resources and could have a material adverse
effect on our business, financial condition or results of
operations. Furthermore, the loss of important intellectual
property rights could have a material adverse effect upon our
business, financial condition and results of operations.
16) Legal
Proceedings
From time to time, we are parties to litigation and regulatory
and other proceedings with governmental authorities and
administrative agencies. Adverse outcomes in lawsuits or
investigations could result in significant monetary damages or
injunctive relief that could adversely affect our operating
results or financial condition as well as our ability to conduct
our businesses as they are presently being conducted.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
29
The following table details the location and general character
of the material properties used by the Company to conduct its
business as of March 1, 2010:
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Property Location
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Approximate Square Footage
|
|
|
Purpose
|
|
Lease Expiration
|
|
|
Lone Tree,
CO(1)
|
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143,000
|
|
|
Sales and Administration
|
|
|
2012
|
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Cary, NC
|
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105,000
|
|
|
Corporate Headquarters
|
|
|
2015
|
|
Englewood,
CO(1)
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66,000
|
|
|
Sales and Operations
|
|
|
2014
|
|
Morrisville, NC
(1)(2)
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56,000
|
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|
Pre-Press Publishing
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2011
|
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Maple Grove,
MN(1)
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42,000
|
|
|
Sales and Operations
|
|
|
2014
|
|
Bellevue,
WA(1)
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38,000
|
|
|
Sales and Operations
|
|
|
2012
|
|
Overland Park, KS
(1)(2)
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35,000
|
|
|
Sales and Operations
|
|
|
2012
|
|
Chicago,
IL(2)
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34,000
|
|
|
Sales and Operations
|
|
|
2013
|
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Santa Monica,
CA(3)
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29,000
|
|
|
Digital Sales and Operations
|
|
|
2011
|
|
Beaverton,
OR(1)
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27,000
|
|
|
Sales and Operations
|
|
|
2013
|
|
Phoenix,
AZ(1)
|
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26,000
|
|
|
Sales and Operations
|
|
|
2013
|
|
Bristol,
TN(2)
|
|
|
25,000
|
|
|
Graphics Operations
|
|
|
Owned
|
|
Murray,
UT(1)
|
|
|
25,000
|
|
|
Sales and Operations
|
|
|
2011
|
|
Tinley Park,
IL(2)
|
|
|
21,000
|
|
|
Sales and Operations
|
|
|
2014
|
|
Dunmore,
PA(2)
|
|
|
20,000
|
|
|
Graphics Operations
|
|
|
2010
|
|
Lombard,
IL(2)
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20,000
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|
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Sales and Operations
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2012
|
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(1) |
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Represents facilities utilized by Dex Media, Inc., our direct
wholly-owned subsidiary, and its direct and indirect
subsidiaries, to conduct their operations. |
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(2) |
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Represents facilities utilized by R.H. Donnelley Inc., our
direct wholly-owned subsidiary, and its direct subsidiaries, to
conduct their operations. |
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(3) |
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Represents facilities utilized by Business.com, Inc., our direct
wholly-owned subsidiary, to conduct its operations. |
We also lease space for additional operations, administrative
and sales offices.
The Company believes that these facilities are adequate for
current and future operations.
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ITEM 3.
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LEGAL
PROCEEDINGS
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Emergence
from Chapter 11 Proceedings
On May 28, 2009 (the Petition Date), the
Company and its subsidiaries listed below (collectively with the
Company, the Debtors) filed voluntary petitions for
Chapter 11 relief under Title 11 of the United States
Code (the Bankruptcy Code) in the United States
Bankruptcy Court for the District of Delaware (the
Bankruptcy Court):
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R.H. Donnelley Inc. (RHDI)
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DonTech Holdings, LLC
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DonTech II Partnership
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R.H. Donnelley Publishing & Advertising of Illinois
Holdings, LLC
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R.H. Donnelley Publishing & Advertising of Illinois
Partnership
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R.H. Donnelley Publishing & Advertising, Inc.
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Get Digital Smart.com, Inc.
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R.H. Donnelley APIL, Inc.
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RHD Service LLC
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Dex Media, Inc.
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Dex Media East, Inc.
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Dex Media East LLC (Dex Media East)
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Dex Media East Finance Co.
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|
|
Dex Media West, Inc.
|
|
|
|
Dex Media West LLC (Dex Media West)
|
|
|
|
Dex Media West Finance Co.
|
|
|
|
Dex Media Service LLC
|
|
|
|
Business.com, Inc.
|
|
|
|
Work.com, Inc.
|
From the Petition Date until January 29, 2010, the date the
Joint Plan of Reorganization for the Company and its
subsidiaries (the Plan) became effective in
accordance with its terms (the Effective Date), the
Debtors operated their businesses as
debtors-in-possession
in accordance with the Bankruptcy Code. The Chapter 11
cases of the Debtors (collectively, the Chapter 11
Cases) were jointly administered under the caption In
re R.H. Donnelley Corporation, Case
No. 09-11833
(KG) (Bankr. D. Del. 2009).
On January 12, 2010, the Bankruptcy Court entered the
Findings of Fact, Conclusions of Law, and Order Confirming the
Plan for the Company and its subsidiaries (the
Confirmation Order). Pursuant to the terms of the
confirmed Plan and the Confirmation Order, the Plan became
effective in accordance with its terms on the Effective Date.
Shortly after the Effective Date, the Company and its
subsidiaries substantially consummated the various distributions
and transactions contemplated by the confirmed Plan.
Other
We are involved in various legal proceedings arising in the
ordinary course of our business, as well as certain litigation
and tax matters. In many of these matters, plaintiffs allege
that they have suffered damages from errors or omissions in
their advertising or improper listings, in each case, contained
in directories published by us.
Beginning on October 23, 2009, a series of putative
securities class action lawsuits were commenced in the United
States District Court for the District of Delaware on behalf of
all persons who purchased or otherwise acquired the
Companys publicly traded securities between July 26,
2007 and the time the Company filed for bankruptcy on
May 28, 2009, alleging that certain Company officers issued
false and misleading statements regarding the Companys
business and financial condition and seeking damages and
equitable relief. On December 7, 2009, a putative ERISA
class action lawsuit was commenced in the United States District
Court for the Northern District of Illinois on behalf of certain
participants in or beneficiaries of the R.H. Donnelley 401(k)
Savings Plan at any time between July 26, 2007 and the time
the lawsuit was filed and whose plan accounts included
investments in R.H. Donnelley common stock. The putative ERISA
class action complaint contains allegations against certain
current and former Company directors, officers and employees
similar to those set forth in the putative securities class
action lawsuit as well as allegations of breaches of fiduciary
duties under ERISA and seeks damages and equitable relief. On
December 18, 2009, a lawsuit was filed in California state
court by certain former shareholders of the Company alleging
that certain Company officers issued false and misleading
statements regarding the Companys business and financial
condition and seeking damages and equitable relief. That case
was removed to the United States District Court for the Central
District of California on February 4, 2010. The Company
believes the allegations set forth in all of
31
these lawsuits are without merit and intends to vigorously
defend any and all such actions pursued against the Company
and/or its
current and former officers, employees and directors.
We are also exposed to potential defamation and breach of
privacy claims arising from our publication of directories and
our methods of collecting, processing and using advertiser and
telephone subscriber data. If such data were determined to be
inaccurate or if data stored by us were improperly accessed and
disseminated by us or by unauthorized persons, the subjects of
our data and users of the data we collect and publish could
submit claims against the Company. Although to date we have not
experienced any material claims relating to defamation or breach
of privacy, we may be party to such proceedings in the future
that could have a material adverse effect on our business.
We periodically assess our liabilities and contingencies in
connection with these matters based upon the latest information
available to us. For those matters where it is probable that we
have incurred a loss and the loss or range of loss can be
reasonably estimated, we record a liability in our consolidated
financial statements. In other instances, we are unable to make
a reasonable estimate of any liability because of the
uncertainties related to both the probable outcome and amount or
range of loss. As additional information becomes available, we
adjust our assessment and estimates of such liabilities
accordingly.
Based on our review of the latest information available, we
believe our ultimate liability in connection with pending or
threatened legal proceedings will not have a material effect on
our results of operations, cash flows or financial position. No
material amounts have been accrued in our consolidated financial
statements with respect to any of such matters.
32
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
for Registrants Common Equity and Related Stockholder
Matters
Upon emergence from Chapter 11 and pursuant to the Plan,
all of the issued and outstanding shares of RHD common stock and
any other outstanding equity securities of RHD including all
stock options, stock appreciation rights and restricted stock,
were cancelled. On the Effective Date, Dex One issued an
aggregate amount of 50,000,001 shares of new common stock,
par value $.001 per share. As of March 1, 2010, Dex
Ones common stock is traded on New York Stock Exchange
(NYSE) under the symbol DEXO.
On December 31, 2008, the NYSE notified the Company that
trading in our common stock would be suspended because the
Company did not maintain a market capitalization of at least
$25 million over a consecutive 30-trading day period as
required by the NYSEs continued listing standards. As a
result of the suspension of the NYSE listing, our common stock
was traded
over-the-counter
on the Pink Sheets under the symbol RHDC from
January 2, 2009 through October 21, 2009. From
October 22, 2009 through the Effective Date, the
Companys common stock was traded
over-the-counter
on the Pink Sheets under the symbol RHDCQ. Prior to
January 2, 2009, the Companys common stock traded on
the NYSE under the symbol RHD. The table below
indicates the high and low sales price of the Companys
common stock for each quarter of the last two years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1st Quarter
|
|
$
|
0.37
|
|
|
$
|
0.07
|
|
|
$
|
36.92
|
|
|
$
|
4.27
|
|
2nd Quarter
|
|
$
|
0.31
|
|
|
$
|
0.04
|
|
|
$
|
8.59
|
|
|
$
|
2.66
|
|
3rd Quarter
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
$
|
4.12
|
|
|
$
|
1.40
|
|
4th Quarter
|
|
$
|
0.05
|
|
|
$
|
0.01
|
|
|
$
|
2.16
|
|
|
$
|
0.18
|
|
On March 1, 2010, there was one holder of record of Dex
Ones common stock. On March 1, 2010, the closing bid
or ask market price of Dex Ones common stock was $29.60.
No shares of RHD common stock were repurchased during the years
ended December 31, 2009 and 2008. We did not pay any common
stock dividends during the years ended December 31, 2009
and 2008.
Our various debt instruments contain financial restrictions that
place limitations on our ability to pay dividends in the future.
See Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources for additional information
regarding these instruments and agreements and relevant
limitations thereunder.
33
Equity
Compensation Plan Information
The following table sets forth securities outstanding under
existing equity compensation plans, as well as securities
remaining available for future issuance under those plans, in
each case as of December 31, 2009. As noted above, upon
emergence from Chapter 11 and pursuant to the Plan, all
outstanding equity securities of RHD including all stock
options, SARs and restricted stock, were cancelled. See
Item 8, Financial Statements and Supplementary
Data Note 16, Subsequent
Events for information regarding Dex Ones new Equity
Incentive Plan (EIP).
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
for Future Issuance
|
|
|
|
|
|
|
Securities to Be
|
|
|
|
|
|
Under Equity
|
|
|
|
|
|
|
Issued Upon
|
|
|
(b)
|
|
|
Compensation Plans
|
|
|
|
|
|
|
Exercise of
|
|
|
Weighted-Average
|
|
|
(Excluding
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercise Price of
|
|
|
Securities
|
|
|
|
|
|
|
Options, Warrants
|
|
|
Outstanding Options,
|
|
|
Reflected in Column
|
|
|
|
|
Plan Category
|
|
and Rights
|
|
|
Warrants and Rights
|
|
|
(a))
|
|
|
|
|
|
Equity compensation plans approved by security
holders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Plan
|
|
|
3,313,599
|
|
|
$
|
8.02
|
|
|
|
3,971,320
|
|
|
|
|
|
2001 Plan
|
|
|
103,574
|
|
|
|
42.05
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1991 Key Employees Stock Option
Plan(2)
|
|
|
600
|
|
|
|
24.75
|
|
|
|
|
|
|
|
|
|
1998 Directors Stock
Plan(3)
|
|
|
5,000
|
|
|
|
19.41
|
|
|
|
|
|
|
|
|
|
2001 Partner Share
Plan(4)
|
|
|
3,735
|
|
|
|
26.45
|
|
|
|
|
|
|
|
|
|
Equity compensation plans acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dex Media, Inc. Incentive Award
Plans(5)
|
|
|
183,242
|
|
|
|
39.58
|
|
|
|
490,755
|
|
|
|
|
|
Business.com Incentive Award
Plans(6)
|
|
|
144,964
|
|
|
|
8.30
|
|
|
|
93,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,754,714
|
|
|
$
|
10.55
|
|
|
|
4,556,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This reflects securities covered by our 2005 Stock Award and
Incentive Plan (2005 Plan) and our 2001 Stock Award
and Incentive Plan (2001 Plan). The 2005 Plan and
the 2001 Plan were adopted and approved by our shareholders at
our 2005 and 2001 annual meeting of stockholders, respectively.
The 2005 Plan replaced the 2001 Plan and all shares available
for grant under the 2001 Plan became available for grant under
the 2005 Plan upon its approval by stockholders; provided,
however, all shares and options then outstanding remained
subject to the terms and conditions of the 2001 Plan. |
|
(2) |
|
This reflects outstanding options under our 1991 Key
Employees Stock Option Plan (1991 Plan). The
1991 plan was originally a Dun & Bradstreet
Corporation (D&B) plan that was assumed at the
time of our spin-off from D&B. The 2001 Plan replaced the
1991 Plan and all shares available for grant under the 1991 Plan
became available for grant under the 2001 Plan upon its approval
by stockholders; provided, however, all options then outstanding
remained subject to the terms and conditions of the 1991 Plan. |
|
(3) |
|
This reflects shares and options still outstanding under our
1998 Directors Stock Plan (1998 Director
Plan). The 2001 Plan replaced the 1998 Director Plan
and all shares available for grant under the 1998 Director
Plan became available for grant under the 2001 Plan upon its
approval by stockholders; provided, however, all shares and
options then outstanding remained subject to the terms and
conditions of the 1998 Director Plan. |
34
|
|
|
(4) |
|
This reflects options still outstanding under our 2001 Partner
Share Plan (2001 PS Plan), which was a broad-based
plan covering lower level employees whose grants were made prior
to shareholder approval of the 2001 Plan. The 2001 PS Plan
authorized 124,750 shares for grant at its inception and
only 3,735 shares remain outstanding. The 2001 Plan
replaced the 2001 PS Plan and all shares available for grant
under the 2001 PS Plan became available for grant under the 2001
Plan upon its approval by stockholders; provided, however, all
shares and options then outstanding remained subject to the
terms and conditions of the 2001 PS Plan. |
|
(5) |
|
This reflects equity awards still outstanding under the acquired
Dex Media, Inc. Incentive Award Plans, which were previously
adopted and approved by the shareholders of Dex Media. At
January 31, 2006, equity awards outstanding under the
existing Dex Media, Inc. Incentive Award Plans totaled
4.0 million and had a weighted average exercise price of
$5.48. As a result of the Dex Media Merger, all outstanding Dex
Media equity awards were converted to RHD equity awards on
February 1, 2006. Upon conversion to RHD equity awards, the
number of securities to be issued upon exercise of outstanding
awards totaled 1.7 million shares of RHD and had a weighted
average exercise price of $12.73 per share. The Company also
acquired the securities remaining available for future issuance
under the provisions of the Dex Media, Inc. Incentive Award
Plans under the same conversion ratio. While these plans were
approved by the stockholders of Dex Media prior to the Dex Media
Merger, they have not been approved by our stockholders. |
|
(6) |
|
This reflects equity awards still outstanding under the acquired
Business.com Incentive Award Plans. At August 23, 2007,
equity awards outstanding under the existing Business.com
Incentive Award Plans totaled 4.2 million and had a
weighted average exercise price of $0.47. As a result of the
Business.com Acquisition, all outstanding Business.com equity
awards were converted to RHD equity awards on August 23,
2007. Upon conversion to RHD equity awards, the number of
securities to be issued upon exercise of outstanding awards
totaled 0.2 million shares of RHD and had a weighted
average exercise price of $10.00 per share. The Company also
acquired the securities remaining available for future issuance
under the provisions of the Business.com Incentive Award Plans
under the same conversion ratio. While these plans were approved
by the stockholders of Business.com prior to the Business.com
Acquisition, they have not been approved by our stockholders. |
35
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data is derived from our
audited consolidated financial statements. The information set
forth below should be read in conjunction with the audited
consolidated financial statements and related notes in
Item 8, with Managements Discussion and
Analysis of Financial Condition and Results of Operations
in Item 7 and our Risk Factors in Item 1A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007(4)
|
|
|
2006(5)
|
|
|
2005(6)
|
|
|
|
|
|
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
2,202,447
|
|
|
$
|
2,616,811
|
|
|
$
|
2,680,299
|
|
|
$
|
1,899,297
|
|
|
$
|
956,631
|
|
Impairment
charges(1)
|
|
|
(7,337,775
|
)
|
|
|
(3,870,409
|
)
|
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(6,797,503
|
)
|
|
|
(3,005,717
|
)
|
|
|
904,966
|
|
|
|
442,826
|
|
|
|
375,241
|
|
Gain (loss) on debt transactions,
net(2)
|
|
|
|
|
|
|
265,166
|
|
|
|
(26,321
|
)
|
|
|
|
|
|
|
|
|
Reorganization items,
net(3)
|
|
|
(94,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(6,453,293
|
)
|
|
|
(2,298,327
|
)
|
|
|
46,859
|
|
|
|
(237,704
|
)
|
|
|
67,533
|
|
Preferred dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,974
|
|
|
|
11,708
|
|
(Gain) loss on repurchase of preferred
stock(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,195
|
)
|
|
|
133,681
|
|
Accretion of preferred stock to redemption
value(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common shareholders
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
|
$
|
(208,483
|
)
|
|
$
|
(288,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(93.67
|
)
|
|
$
|
(33.41
|
)
|
|
$
|
0.66
|
|
|
$
|
(3.14
|
)
|
|
$
|
(9.10
|
)
|
Diluted
|
|
$
|
(93.67
|
)
|
|
$
|
(33.41
|
)
|
|
$
|
0.65
|
|
|
$
|
(3.14
|
)
|
|
$
|
(9.10
|
)
|
Shares Used in Computing Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
70,932
|
|
|
|
66,448
|
|
|
|
31,731
|
|
Diluted
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
71,963
|
|
|
|
66,448
|
|
|
|
31,731
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets(8)
|
|
$
|
4,498,794
|
|
|
$
|
11,880,709
|
|
|
$
|
16,089,093
|
|
|
$
|
16,147,468
|
|
|
$
|
3,873,918
|
|
Long-term debt, including current
maturities(8)
|
|
|
3,554,776
|
|
|
|
9,622,256
|
|
|
|
10,175,649
|
|
|
|
10,403,152
|
|
|
|
3,078,849
|
|
Liabilities subject to
compromise(8)
|
|
|
6,352,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334,149
|
|
Shareholders equity
(deficit)(8)
|
|
|
(6,919,048
|
)
|
|
|
(493,375
|
)
|
|
|
1,822,736
|
|
|
|
1,820,756
|
|
|
|
(291,415
|
)
|
|
|
|
(1) |
|
As a result of filing the Chapter 11 petitions and
finalizing an extensive analysis associated with our emergence
from Chapter 11, we recognized an impairment charge of
$7.3 billion during the fourth quarter of 2009 associated
with directory services agreements, advertiser relationships,
third party contracts and network platforms acquired in prior
acquisitions. |
|
|
|
As a result of the decline in the trading value of our debt and
equity securities and the decline in our operating results, we
recognized goodwill impairment charges of $2.5 billion and
$660.2 million during the first and second quarters of
2008, respectively, together totaling $3.1 billion for the
year ended December 31, 2008. As a result of these
impairment charges, we had no recorded goodwill at
December 31, 2008. |
|
|
|
The Company recognized an impairment charge of
$744.0 million during the fourth quarter of 2008 associated
with the local and national customer relationships acquired in
prior acquisitions. In addition, as a result of the
Companys decision to discontinue the use of tradenames and
technology acquired in a prior acquisition, we recognized an
impairment charge of $2.2 million during the fourth quarter
of 2008. Total impairment charges related to our intangible
assets, excluding goodwill, were $746.2 million during the
year ended December 31, 2008. |
|
|
|
During the year ended December 31, 2007, we recorded an
intangible asset impairment charge of $20.0 million
associated with the tradenames acquired in a prior acquisition.
This impairment charge resulted |
36
|
|
|
|
|
from a change in our branding strategy to utilize a new Dex
market brand for all of our print and online products across our
entire footprint and discontinued use of the tradenames acquired
in a prior acquisition. |
|
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|
See Item 7 Managements Discussion and Analysis
of Financial Condition and Results of Operations
Impairment Charges for further discussion. |
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(2) |
|
As a result of financing activities conducted during 2008, we
reduced our outstanding debt by $410.0 million and recorded
a gain of $265.2 million during the year ended
December 31, 2008. See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations Gain on Debt Transactions, Net for
further discussion. |
|
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|
During the year ended December 31, 2007, we recorded a loss
on debt transactions of $26.3 million resulting from tender
and redemption premium payments of $71.7 million and the
write-off of unamortized deferred financing costs of
$16.8 million associated with the refinancing transactions
conducted during the fourth quarter of 2007, offset by the
accelerated amortization of the fair value adjustment directly
attributable to the redemption of Dex Media Easts
outstanding 9.875% senior notes and 12.125% senior
subordinated notes on November 26, 2007 of
$62.2 million, which has been accounted for as an
extinguishment of debt. |
|
(3) |
|
For the year ended December 31, 2009, the Company has
recorded $94.8 million of net reorganization items, which
represent charges that are directly associated with the process
of reorganizing the business under Chapter 11 of the
Bankruptcy Code. See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations Reorganization Items, Net for
further discussion. |
|
(4) |
|
Financial data for the year ended December 31, 2007
includes the results of Business.com commencing August 23,
2007. |
|
(5) |
|
Financial data for the year ended December 31, 2006
includes the results of Dex Media commencing February 1,
2006. Net revenue, operating income, net loss and loss available
to common shareholders reflect purchase accounting adjustments
that precluded the recognition of revenue and certain expenses
associated with directories published by Dex Media prior to and
in the month of the Dex Media Merger. |
|
(6) |
|
For the year ended December 31, 2005, net revenue,
operating income, net income and loss available to common
shareholders reflect purchase accounting adjustments that
precluded the recognition of revenue and certain expenses
associated with directories published by the acquired AT&T
Directory Business prior to and in the month of the acquisition. |
|
(7) |
|
On January 14, 2005, we repurchased 100,303 shares of
our outstanding preferred stock from the The Goldman Sachs
Group, Inc. (the GS Funds) for $277.2 million
in cash. In connection with the preferred stock repurchase, we
recorded an increase to loss available to common shareholders on
the consolidated statement of operations of $133.7 million
to reflect the loss on the repurchase of these shares for the
year ended December 31, 2005. On January 27, 2006, we
completed the GS Repurchase whereby we repurchased the remaining
100,301 shares of our outstanding preferred stock from the
GS Funds for $336.1 million in cash, including accrued cash
dividends and interest. Based on the terms of the stock purchase
agreement, the GS Repurchase became a probable event on
October 3, 2005, requiring the recorded value of the
preferred stock to be accreted to its redemption value of
$334.1 million at December 31, 2005 and
$336.1 million at January 27, 2006. The accretion to
redemption value of $211.0 million and $2.0 million
(which represented accrued dividends and interest) for the years
ended December 31, 2005 and 2006, respectively, has been
recorded as an increase to loss available to common shareholders
on the consolidated statements of operations. In conjunction
with the GS Repurchase, we also reversed the previously recorded
beneficial conversion feature (BCF) related to these
shares and recorded a decrease to loss available to common
shareholders on the consolidated statement of operations of
$31.2 million for the year ended December 31, 2006. |
|
(8) |
|
The significant decline in total assets and shareholders
deficit as of December 31, 2009 and 2008 is a direct result
of the impairment charges noted above. The significant decline
in long-term debt, including current maturities, at
December 31, 2009 is a direct result of our notes in
default, which have been reclassed to liabilities subject to
compromise on the consolidated balance sheet at
December 31, 2009. See Item 8, Financial
Statements and Supplementary Data Note 3,
Reorganization Items, Net and Liabilities Subject to
Compromise for additional information as well as items
included in liabilities subject to compromise on the
consolidated balance sheet at December 31, 2009. |
37
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ITEM 7.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This Item should be read in conjunction with the audited
consolidated financial statements and notes thereto that are
included in Item 8. Unless otherwise indicated or as the
context may otherwise indicate, the terms Company,
RHD, we, us and
our refer to R.H. Donnelley Corporation and its
direct and indirect wholly-owned subsidiaries prior to the
Effective Date, which is defined below. The financial
information set forth in this Annual Report, unless otherwise
indicated or as the context may otherwise indicate, reflects the
consolidated results of operations and financial position of RHD
as of and for the year ended December 31, 2009.
Dex One Corporation (Dex One, Successor
Registrant, or Company, we,
us and our subsequent to the Effective
Date) became the successor registrant to RHD upon emergence from
Chapter 11 relief under Title 11 of the United States
Code (the Bankruptcy Code) on January 29, 2010,
(the Effective Date) References to Dex One or
Successor Registrant in this Annual Report pertain to periods
subsequent to the Effective Date.
Corporate
Overview
We are a leading marketing services company that helps local
businesses reach, win and keep
ready-to-buy
consumers. Our highly skilled, locally based marketing
consultants offer a wide range of marketing products and
services that help businesses get found by actively shopping
consumers. We offer local businesses personalized marketing
consulting services and exposure across a broad network of local
marketing products, including our print, online and mobile
yellow pages and search solutions, as well as major search
engines.
Marketing
Products
To help our clients grow their businesses, we provide marketing
products that help them get found by
ready-to-buy
consumers. We provide the
Dex®
Advantage, an integrated offering that ensures our local
clients business information is published and marketed
through a single profile and distributed via a variety of both
owned and operated products and through other local search
products. This expands the distribution of our clients
content and messages to wherever, whenever and however consumers
choose to search, helping them get found.
The Dex Advantage spans multiple media platforms for local
advertisers including print with our Dex published directories,
which we co-brand with other recognizable brands in the industry
such as Qwest, CenturyLink (formerly Embarq) and AT&T,
online and mobile devices with DexKnows.com
®
and voice-activated directory search at
1-800-Call-Dextm.
Our digital affiliate provided solutions are powered by
DexNettm,
which leverages network partners including the premier search
engines, such as
Google®
and Yahoo!
®
and other leading online sites. We believe our Dex Advantage
offers a highly effective set of marketing tools to local
businesses that operate in the markets we serve.
Marketing
Services
Where our marketing products help local businesses get found by
ready-to-buy
consumers, our marketing services are designed to help these
businesses get chosen over their competitors. Our growing list
of marketing services include local business and market
analysis, message and image creation, target market
identification, advertising and digital profile creation,
keyword and search engine optimization strategies and programs,
distribution strategies, social strategies, and tracking and
reporting.
Competitive
Position
We believe our ability to effectively compete in our industry is
supported by a number of advantages:
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Our owned printed and digital products: We can
deliver a large segment of the active buying market to local
businesses.
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38
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Our marketing consultants: With our
locally-based marketing consultants, we have a direct
relationship with local businesses, serving as their trusted
advisors. Our marketing consultants work closely with clients to
first discover their business goals and marketing needs, assess
their unique situations, and then recommend a customized,
cost-effective set of marketing products and services to help
their businesses grow.
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Publishing agreements with incumbent local exchange carriers:
Our co-branding relationships with incumbent local exchange
carriers in our markets adds credibility and allows us to serve
as the official directory provider.
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Exclusive partnership agreements: In addition
to our proprietary products, we have partnerships that enable
our clients to expand the distribution of their information,
from the major search engines to leading online and mobile local
search solutions.
|
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Content: We have unique local business
information. Through our locally based marketing consultants and
their relationships with local businesses, we are able to
collect and update this content.
|
Filing of
Voluntary Petitions in Chapter 11
On May 28, 2009 (the Petition Date), the
Company and its subsidiaries listed below (collectively with the
Company, the Debtors) filed voluntary petitions for
Chapter 11 relief under the Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court).
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R.H. Donnelley Inc. (RHDI)
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DonTech Holdings, LLC
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DonTech II Partnership
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R.H. Donnelley Publishing & Advertising of Illinois
Holdings, LLC
|
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R.H. Donnelley Publishing & Advertising of Illinois
Partnership
|
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|
R.H. Donnelley Publishing & Advertising, Inc.
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Get Digital Smart.com, Inc.
|
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R.H. Donnelley APIL, Inc.
|
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RHD Service LLC
|
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Dex Media, Inc.
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Dex Media East, Inc.
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Dex Media East LLC (Dex Media East)
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Dex Media East Finance Co.
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Dex Media West, Inc.
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Dex Media West LLC (Dex Media West)
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Dex Media West Finance Co.
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Dex Media Service LLC
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Business.com, Inc.
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Work.com, Inc.
|
Confirmed
Plan of Reorganization and Emergence from the Chapter 11
Proceedings
On January 12, 2010, the Bankruptcy Court entered the
Findings of Fact, Conclusions of Law, and Order Confirming the
Joint Plan of Reorganization for the Company and its
subsidiaries (the Confirmation Order).
39
On the Effective Date, the Joint Plan of Reorganization for the
Company and its subsidiaries (the Plan) became
effective in accordance with its terms.
From the Petition Date until the Effective Date, the Debtors
operated their businesses as
debtors-in-possession
in accordance with the Bankruptcy Code. The Chapter 11
cases of the Debtors (collectively, the Chapter 11
Cases) were jointly administered under the caption In
re R.H. Donnelley Corporation, Case
No. 09-11833
(KG) (Bankr. D. Del. 2009).
Restructuring
As part of a restructuring that was conducted in connection with
the Debtors emergence from bankruptcy, the Debtors merged,
consolidated, dissolved, or terminated, shortly after the
Effective Date, certain of their wholly-owned subsidiaries, as
set forth below:
|
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|
|
DonTech Holdings, LLC and R.H. Donnelley Publishing &
Advertising of Illinois Holdings, LLC were merged into their
sole member, RHDI;
|
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|
The DonTech II Partnership and R.H. Donnelley
Publishing & Advertising of Illinois Partnership
technically terminated their respective partnership agreements
due to the loss of a second partner;
|
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|
Dex Media East Finance Co. was merged into Dex Media East;
|
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|
Dex Media West Finance Co. was merged into Dex Media West;
|
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|
Work.com, Inc. was merged into Business.com, Inc.;
|
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|
GetDigitalSmart.com, Inc. was merged into RHDI;
|
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|
Dex Media East was merged into Dex Media East, Inc. (DME
Inc.);
|
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|
Dex Media West was merged into Dex Media West, Inc. (DMW
Inc.); and
|
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|
R.H. Donnelley Publishing & Advertising, Inc. was
merged into RHDI.
|
After effectuating the restructuring transactions, Dex One
became the ultimate parent company of each of the following
surviving subsidiaries: (i) RHDI, (ii) Dex Media,
Inc., (iii) DME Inc., (iv) DMW Inc., (v) Dex
Media Service LLC, (vi) Dex One Service LLC (which was
subsequently converted into a Delaware corporation under the
name Dex One Service, Inc. effective March 1, 2010,
(vii) Business.com, Inc. and (viii) R.H. Donnelley
APIL, Inc.
Consummation
of the Plan
Distributions
Pursuant to the Plan
Since the Effective Date, the Company has substantially
consummated the various transactions contemplated under the
confirmed Plan. In particular, as of March 1, 2010, the
Company has made substantially all of the distributions of cash,
stock, and securities that were required to be made under the
Plan by such date to creditors and other parties with allowed
claims, including, but not limited to, the following Plan
distributions:
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|
On the Effective Date, in accordance with the Plan, the Company
issued the following number of shares of Dex One common stock
(i) approximately 10.5 million shares, representing
21.0% of total outstanding common stock, to all holders of notes
issued by RHD; (ii) approximately 11.65 million
shares, representing 23.3% of total outstanding common stock, to
all holders of notes issued by Dex Media, Inc.;
(iii) approximately 12.9 million shares, representing
25.8% of total outstanding common stock, to all holders of notes
issued by RHDI; (iv) approximately 6.5 million shares,
representing 13.0% of total outstanding common stock, to all
holders of senior notes issued by Dex Media West; and
(v) approximately 8.45 million shares, representing
16.9% of total outstanding common stock, to all holders of
senior subordinated notes issued by Dex Media West.
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|
On the Effective Date, in accordance with the terms of the Plan,
holders of the Dex Media West 8.5% Senior Notes due 2010
and 5.875% Senior Notes due 2011 also received their pro
rata share of
|
40
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|
Dex Ones $300.0 million aggregate principal amount of
12%/14% Senior Subordinated Notes due 2017 (Dex One
Senior Subordinated Notes).
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|
As of March 1, 2010, pursuant to the Plan, the Company made
distributions in cash on account of all, or substantially all,
of the allowed claims of general unsecured creditors. Allowed
claims of general unsecured creditors that have not been paid as
of March 1, 2010 will be paid during 2010.
|
Pursuant to the terms of the Plan, the Company is also obligated
to make certain additional payments to certain creditors,
including certain distributions that may become due and owing
subsequent to the initial distribution date and certain payments
to holders of administrative expense priority claims and fees
earned by professional advisors during the Chapter 11 Cases.
Discharge,
Releases, and Injunctions Pursuant to the Plan and the
Confirmation Order
The Plan and Confirmation Order also contain various discharges,
injunctive provisions, and releases that became operative upon
the Effective Date. These provisions are summarized in
Sections M through O of the Confirmation Order and more
fully described in Article X of the Plan.
Impact on
Long-Term Debt Upon Emergence from the Chapter 11
Proceedings
On the Effective Date and in accordance with the Plan,
$6.1 billion of our senior notes, senior discount notes and
senior subordinated notes (collectively the notes in
default) were exchanged for (a) 100% of the
reorganized Dex One equity and (b) we issued
$300.0 million of the Dex One Senior Subordinated Notes to
the holders of the Dex Media West 8.5% Senior Notes due
2010 and 5.875% Senior Notes due 2011 on a pro rata basis
in addition to their share of the reorganized Dex One equity. As
of the Effective Date, aggregate outstanding debt was
$3.4 billion, comprised of $3.1 billion outstanding
under our amended and restated credit facilities and the
$300.0 million Dex One Senior Subordinated Notes. See
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources, for further details of
our long-term debt. As a result of our emergence from the
Chapter 11 proceedings, the Company expects to reduce
interest expense on its long-term debt for the year ended
December 31, 2010 by more than $500.0 million as
compared to what was contractually owed by the Company during
the year ended December 31, 2009.
Recent
Trends Related to Our Business
We have been experiencing lower advertising sales primarily as a
result of declines in new and recurring business, including both
renewal and incremental sales to existing advertisers, mainly
driven by (1) declines in overall advertising spending by
businesses, (2) the significant impact of the weaker
economy on smaller businesses in the markets in which we do
business and (3) an increase in competition and more
fragmentation in the local business search market. These
factors, along with filing the Chapter 11 petitions, were
the primary drivers of our impairment charges in 2009 and
assisted in calculating our discounted expected future cash
flows used to determine those impairment charges. In addition,
these factors, along with the significant decline in the trading
value of our debt and equity securities during 2008 were the
primary drivers of our impairment charges in 2008 and assisted
in calculating our discounted expected future cash flows used to
determine those impairment charges.
The Company currently projects its future operating results,
cash flow and liquidity will be negatively impacted by the
aforementioned conditions. During the year ended
December 31, 2009, RHD experienced a $414.4 million,
or 15.8%, decline in total net revenues from the prior
corresponding period. During the year ended December 31,
2009, excluding the effects of filing the Chapter 11
petitions, RHD also experienced a decrease in operating cash
flow from the prior corresponding period. In addition, RHD has
been experiencing adverse bad debt trends attributable to many
of these same economic challenges in our markets. The Company
expects that these economic challenges will continue in its
markets, and, as such, our advertising sales, bad debt
experience and operating results will continue to be adversely
impacted for the foreseeable future. As a result, the
Companys historical operating results will not be
indicative of future operating performance,
41
although our long-term financial forecast currently anticipates
a gradual improvement in the economy commencing in the second
half of 2010.
As more fully described below in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations Net
Revenues, our method of recognizing revenue under the
deferral and amortization method results in a delayed
recognition of declining advertising sales whereby recognized
revenues reflect the amortization of advertising sales
consummated in prior periods as well as advertising sales
consummated in the current period. Accordingly, the
Companys projected decline in advertising sales will
result in a decline in revenue recognized in future periods. The
Company expects these negative trends to continue into the
foreseeable future.
In response to these economic challenges, we continue to
actively manage expenses and are considering and acting upon a
host of initiatives to streamline operations and contain costs.
At the same time, we are improving the value we deliver to our
clients by expanding the number of platforms and media through
which we deliver their message to consumers. We are also
committing our sales force to focus on selling the value
provided to local businesses through these expanded platforms,
including our Dex published directories, online and mobile
devices, voice-activated directory search as well as our network
of owned and operated and partner online search sites. In
addition, the Company continues to invest in its future through
initiatives such as its overall digital product and service
offerings, sales force automation, a client self service system
and portal, new mobile and voice search platforms and associated
employee training. As economic conditions recover in our
markets, we believe these investments will drive future revenue
growth.
Climate
Change
There is a growing concern about global climate change and the
contribution of emissions of greenhouse gases including, most
significantly, carbon dioxide. This concern has led to increased
interest in legislative
and/or
regulatory actions, as well as litigation relating to greenhouse
gas emissions. While we cannot predict the impact of any
legislation until final, we do not believe the proposed
regulations
and/or
current litigation related to global climate change is
reasonably likely to have a material impact on our business,
future financial position, results of operations and cash flow.
Our current financial projections do not include any impact of
proposed regulations
and/or
current litigation related to global climate change.
Labor
Unions
On November 6, 2009, Dex Media agreed on a new three year
collective bargaining agreement with the Communications Workers
of America (CWA). The collective bargaining
agreement with the CWA expires in September 2012. On
June 12, 2009, Dex Media agreed on a new three year
collective bargaining agreement with the International
Brotherhood of Electrical Workers of America (IBEW).
The collective bargaining agreement with the IBEW expires in May
2012.
Accounting
Matters Resulting from the Chapter 11 Proceedings
The filing of the Chapter 11 petitions constituted an event
of default under the indentures governing the Companys
notes in default and the debt obligations under those
instruments became automatically and immediately due and
payable, although any actions to enforce such payment
obligations were automatically stayed under the applicable
bankruptcy law. Based on the bankruptcy petitions, the notes in
default are included in liabilities subject to compromise on the
consolidated balance sheet at December 31, 2009. See
Item 8, Financial Statements and Supplementary
Data Note 1, Business and
Presentation Accounting Matters for additional
information regarding the notes in default and other accounting
matters.
Going
Concern
As of December 31, 2009, we had total outstanding
debt of $9.6 billion, of which $6.1 billion pertains
to our notes in default and is identified as liabilities subject
to compromise and $3.5 billion pertains to our existing
credit facilities and is excluded from liabilities subject to
compromise on the consolidated balance sheet at
December 31, 2009.
42
On the Effective Date and in accordance with the Plan, the notes
in default were exchanged for 100% of the reorganized Dex One
equity and $300 million of the Dex One Senior Subordinated
Notes. In addition, the terms and conditions of the existing
credit facilities were amended and restated. See Liquidity
and Capital Resources for further detail regarding our
debt obligations.
As a result of our emergence from the Chapter 11
proceedings and the restructuring of our outstanding debt, we
believe that the Company will generate sufficient cash flow from
operations to satisfy all of its debt obligations according to
applicable terms and conditions for a reasonable period of time.
See Item 8, Financial Statements and Supplementary
Data Note 16, Subsequent
Events for information and analysis on our emergence from
the Chapter 11 proceedings and the pro forma impact on our
financial position.
Fresh
Start Accounting
The Company will adopt fresh start accounting and reporting
effective February 1, 2010 (Fresh Start Reporting
Date) in accordance with Financial Accounting Standards
Board (FASB) Accounting Standards Codification
(ASC) 852, Reorganizations (FASB ASC
852), as the holders of existing voting shares immediately
before confirmation of the Plan received less than 50% of the
emerging entity and the reorganization value of the
Companys assets was less than its post-petition
liabilities and allowed claims. The consolidated financial
statements included herein, as applicable, do not include the
effect of any changes in RHDs capital structure or changes
in the fair value of assets and liabilities as a result of fresh
start accounting. See Item 8, Financial Statements
and Supplementary Data Note 16,
Subsequent Events for an unaudited pro-forma
presentation of the impact of emergence from reorganization and
fresh start accounting on our financial position.
Other
Significant Financing Developments
On May 28, 2009 and in conjunction with the Plan, the
Company repaid an aggregate of $200.0 million in principal
on outstanding balances owed under its credit facilities as
follows:
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Description
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Amount
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RHDI
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Term Loan D-1
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$
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13,797
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Term Loan D-2
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54,912
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Revolver
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8,938
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Dex Media West
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Term Loan A
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6,971
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Term Loan B
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50,941
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Revolver
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4,826
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Dex Media East
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Term Loan A
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34,176
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Term Loan B
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20,454
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Revolver
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4,985
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Total repayment
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$
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200,000
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43
On May 14, 2009, the Company exercised a
30-day grace
period on $78.3 million in interest payments due on the
following senior notes and senior discount notes:
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Description
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Amount
|
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RHDI
|
|
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11.75% Senior Notes due 2015
|
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$
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24,256
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Dex Media, Inc.
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8% Senior Notes due 2013
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20,000
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9% Senior Discount Notes due 2013
|
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33,744
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Dex Media West
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|
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5.875% Senior Notes due 2011
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256
|
|
|
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Total interest payments
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$
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78,256
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On April 15, 2009, the Company exercised a
30-day grace
period on $54.6 million in interest payments due on its
8.875%
Series A-4
Senior Notes due 2017
(Series A-4
Senior Notes). On May 14, 2009, the Company entered
into forbearance agreements with certain of its noteholders and
bank lenders (Forbearance Agreements) with respect
to the consequences of the expiration of the
30-day grace
period for the
Series A-4
Senior Notes. The Forbearance Agreements expired on May 28,
2009 and the Company did not make these interest payments prior
to filing the Chapter 11 petitions.
Exercising the grace period did not constitute an event of
default under the bond indentures or any of the Companys
or its subsidiaries other debt agreements. The Company did
not make these interest payments prior to filing the
Chapter 11 petitions.
As a result of exercising the
30-day grace
period with respect to the
Series A-4
Senior Notes on April 15, 2009, certain existing interest
rate swaps associated with the Dex Media East credit facility
having a notional amount of $350.0 million were required to
be settled on May 28, 2009. Cash settlement payments of
$26.4 million were made during the second quarter of 2009
associated with these interest rate swaps.
As a result of the decline in certain of our credit ratings, an
existing interest rate swap associated with the Dex Media West
credit facility having a notional amount of $50.0 million
was required to be settled on April 23, 2009. A cash
settlement payment of $0.5 million was made during the
second quarter of 2009 associated with this interest rate swap.
On February 13, 2009, the Company borrowed the unused
portions under the RHDI revolving credit facility
(RHDI Revolver), Dex Media East revolving
credit facility (Dex Media East Revolver) and
Dex Media West revolving credit facility (Dex Media
West Revolver) totaling $174.0 million,
$97.0 million and $90.0 million, respectively. The
Company made the borrowings under the various revolving credit
facilities to preserve its financial flexibility in light of the
continuing uncertainty in the global credit markets.
Employee
Retirement Savings, Pension, Retiree Health Care and Life
Insurance Plans
Based on ratification of the new collective bargaining
agreements with the CWA on November 6, 2009 and with the
IBEW on June 12, 2009 and in conjunction with the
comprehensive redesign of the Companys employee retirement
savings and pension plans approved by the
Compensation & Benefits Committee of the
Companys Board of Directors on October 21, 2008, the
following plan changes have been approved for CWA and IBEW
represented employees:
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Effective as of December 31, 2009, the Company froze the
Dex Media, Inc. Pension Plan covering CWA and IBEW represented
employees. In connection with the freeze, all pension plan
benefit accruals for CWA and IBEW plan participants will cease
as of December 31, 2009, however, all plan balances remain
intact and interest credits on participant account balances
under an account balance formula, as well as service credits for
vesting and retirement eligibility, continue in accordance with
the terms of the plan. In addition, supplemental transition
credits have been provided to certain plan participants
|
44
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|
|
nearing retirement who would otherwise lose a portion of their
anticipated pension benefit at age 65 as a result of freezing
the current plan.
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|
The elimination of all access to retiree health care and life
insurance benefits for IBEW represented employees retiring after
May 8, 2009 and for CWA represented employees retiring
after October 2, 2009.
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The elimination of retiree life insurance benefits effective
January 1, 2010.
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|
The phase out of subsidized retiree health care benefits over a
two-year period beginning January 1, 2010.
|
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The elimination of retiree health care benefits for all retirees
effective January 1, 2012.
|
As a result of implementing the freeze on the Dex Media, Inc.
Pension Plan covering CWA and IBEW represented employees, we
have recognized a one-time net curtailment gain of
$4.2 million during the year ended December 31, 2009,
which has been entirely offset by losses incurred on plan assets
and previously unrecognized prior service costs that had been
charged to accumulated other comprehensive loss. As a result of
eliminating retiree health care and life insurance benefits for
CWA and IBEW represented employees, we have recognized a
one-time curtailment gain of $52.0 million, which is
included in general and administrative expenses on the
consolidated statement of operations for the year ended
December 31, 2009. As a result of these actions, we will no
longer incur funding expenses and administrative costs
associated with the retiree health care and life insurance plans
for CWA and IBEW represented employees.
Segment
Reporting
Management reviews and analyzes its business of providing
marketing products and marketing services as one operating
segment.
Critical
Accounting Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles (GAAP)
requires management to estimate the effect of various matters
that are inherently uncertain as of the date of the financial
statements. Each of these estimates varies in regard to the
level of judgment involved and its potential impact on the
Companys reported financial results. Estimates are deemed
critical when a different estimate could have reasonably been
used or when changes in the estimate are reasonably likely to
occur from period to period, and could materially impact the
Companys financial condition, changes in financial
condition or results of operations. The Companys
significant accounting polices as of December 31, 2009 are
discussed in Note 2, Summary of Significant
Accounting Policies, of the notes to our consolidated
financial statements included in Item 8 of this Annual
Report. The critical estimates inherent in these accounting
polices as of December 31, 2009 are discussed below.
Management believes the current assumptions and other
considerations used to estimate these amounts in the
Companys consolidated financial statements are appropriate.
Intangible
Assets and Goodwill Valuation and Amortization
Our intangible assets consist of (a) directory services
agreements between the Company and Qwest, AT&T and
CenturyLink, respectively, (b) established customer
relationships resulting from prior acquisitions, (c) a
non-competition agreement between the Company and Sprint,
(d) trademarks and trade names and an advertising
commitment resulting from a prior acquisition and (e) a
third party contract, trademarks and tradenames and technology
and network platforms resulting from a prior acquisition. The
intangible assets are being amortized over their estimated
useful lives in a manner that best reflects the economic benefit
derived from such assets. The excess purchase price resulting
from each of these acquisitions over the net tangible and
identifiable intangible assets acquired was recorded as
goodwill, all of which was impaired in 2008 as noted below.
Prior to the goodwill impairment charges, goodwill was not
amortized but was subject to impairment testing on an annual
basis or more frequently if we believed indicators of impairment
existed.
45
The Company reviews the carrying value of its intangible assets
for impairment whenever events or circumstances indicate that
their carrying amount may not be recoverable. Significant
negative industry or economic trends, including the market price
of our common stock or the fair market value of our debt,
disruptions to our business, unexpected significant changes or
planned changes in the use of the intangible assets and other
long-lived assets, and mergers and acquisitions could result in
an impairment charge for any of our intangible assets or other
long-lived assets. The impairment test for the intangible assets
is performed by comparing the carrying amount of the intangible
assets to the sum of the undiscounted expected future cash flows
relating to these assets. Impairment exists if the sum of the
undiscounted expected future cash flows is less than the
carrying amount of the intangible asset, or its related group of
assets and other long-lived assets. If impairment exists, an
impairment charge is recognized equal to the amount that the
carrying value of the intangible asset, or its related group of
assets, and other long-lived assets exceeds its fair value based
upon discounted expected future cash flows.
At December 31, 2009, the net carrying value of our
intangible assets totaled approximately $2.2 billion.
Amortization expense related to our intangible assets for the
years ended December 31, 2009, 2008 and 2007 was
$514.6 million, $415.9 million and
$388.3 million, respectively.
As a result of filing the Chapter 11 petitions, the Company
performed impairment tests of its definite-lived intangible
assets and other long-lived assets during the year ended
December 31, 2009. During the fourth quarter of 2009 and in
conjunction with the filing of our amended Plan and amended
Disclosure Statement, the Company finalized an extensive
analysis associated with our emergence from Chapter 11. The
Company utilized the following information and assumptions
obtained from this analysis to complete its impairment
evaluation:
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|
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|
|
Historical financial information, including revenue, profit
margins, customer attrition data and price premiums enjoyed
relative to competing independent publishers;
|
|
|
|
Long-term financial projections, including, but not limited to,
revenue trends and profit margin trends; and
|
|
|
|
Intangible asset carrying values.
|
As a result of these impairment tests, the Company recognized an
impairment charge of $7.3 billion during the fourth quarter
of 2009 associated with directory services agreements,
advertiser relationships, third party contracts and network
platforms acquired prior acquisitions. The fair values of these
intangible assets were derived from a discounted cash flow
analysis using a discount rate that is indicative of the risk
that a market participant would be willing to accept. This
analysis included a review of relevant financial metrics of
peers within our industry.
Had the aggregate net book value of the intangible assets at
December 31, 2009 been impaired by an incremental 1%, net
loss in 2009 would have been adversely impacted by approximately
$18.9 million.
The Company evaluates the remaining useful lives of its
intangible assets whenever events or circumstances indicate that
a revision to the remaining period of amortization is warranted.
If the estimated remaining useful lives change, the remaining
carrying amount of the intangible asset would be amortized
prospectively over that revised remaining useful life. In
connection with our impairment testing during 2009, the Company
also evaluated the remaining useful lives of its definite-lived
intangible assets and other long-lived assets by considering,
among other things, the effects of obsolescence, demand,
competition, which takes into consideration the price premium
benefit the Company has over competing independent publishers in
its markets as a result of directory services agreements
acquired in prior acquisitions, and other economic factors,
including the stability of the industry in which we operate,
known technological advances, legislative actions that result in
an uncertain or changing regulatory environment, and expected
changes in distribution channels. At December 31, 2009, the
Company determined that due to the compression of our price
premium benefit over competing independent publishers in our
markets as well as a decline in market share during the year
ended December 31, 2009, the remaining useful lives of the
directory services agreements acquired in prior acquisitions
will each be reduced from 33 years to weighted average
remaining useful lives of 25 years for Dex Media East,
26 years for Dex Media West, 29 years for AT&T
and 28 years for CenturyLink, effective
46
January 1, 2010. Based on an assessment of future estimated
cash flows, increased attrition rates and the impact on our
long-term financial projections, the remaining useful lives of
third party contracts, advertiser relationships and network
platforms acquired in a prior acquisition will be reduced to 1,
5 and 9 years, respectively, effective January 1,
2010. The reduction to the remaining useful lives was necessary
in order to better reflect the period these intangible assets
are expected to contribute to our future cash flow.
Had the remaining useful lives of the intangible assets been
shortened by 10%, net loss in 2009 would have been adversely
impacted by approximately $34.4 million.
The Company anticipates a decrease in amortization expense
during 2010 of $329.9 million resulting from the
significantly reduced book values of our directory services
agreements subsequent to the impairment charges during the
fourth quarter of 2009, partially offset by increased
amortization expense resulting from the reduction of the
remaining useful lives associated with our directory services
agreements.
As a result of the decline in the trading value of our debt and
equity securities during 2008 and continuing negative industry
and economic trends that directly affected our business, we
performed impairment tests of our goodwill, definite-lived
intangible assets and other long-lived assets. We used estimates
and assumptions in our impairment evaluations, including, but
not limited to, projected future cash flows, revenue growth and
customer attrition rates. Based upon the impairment test of our
goodwill, we recognized 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 goodwill impairment charges of
$3.1 billion during the year ended December 31, 2008.
As a result of these impairment charges, we had no recorded
goodwill at December 31, 2008. In addition, as a result of
these tests, the Company recognized an impairment charge of
$744.0 million during the fourth quarter of 2008 associated
with the local and national customer relationships acquired in
prior acquisitions. Lastly, in connection with the launch of the
next version of DexKnows.com, the tradenames and technology
acquired in a prior acquisition were discontinued, which
resulted in an impairment charge of $2.2 million during the
fourth quarter of 2008. Total impairment charges related to our
intangible assets, excluding goodwill, were $746.2 million
during the year ended December 31, 2008.
In connection with the impairment testing of our definite-lived
intangible assets and other long-lived assets at
December 31, 2008, we evaluated the remaining useful lives
of our intangible assets by evaluating the relevant factors
noted above. Based on this evaluation, the Company recognized a
reduction in the remaining useful lives of all directory
services agreements associated with prior acquisitions due to
compression of our price premium benefit over competing
independent publishers in our markets as well as a decline in
market share during the year ended December 31, 2008. As a
result, the remaining useful lives of our directory services
agreements were reduced to 33 years effective
January 1, 2009 in order to better reflect the period these
intangible assets are expected to contribute to our future cash
flow. The increase in amortization expense for the year ended
December 31, 2009 is a direct result of reducing the
remaining useful lives associated with our directory services
agreements, partially offset by a reduction in amortization
expense associated with a revision to the carrying values of our
local and national customer relationships subsequent to
impairment charges recorded during the fourth quarter of 2008.
During the year ended December 31, 2007, we recorded an
intangible asset impairment charge of $20.0 million
associated with the tradenames acquired in a prior acquisition.
This impairment charge resulted from a change in our branding
strategy to utilize a new Dex market brand for all of our print
and online products across our entire footprint and discontinued
use of the tradenames acquired in a prior acquisition.
These impairment charges had no impact on current or future
operating cash flow, compliance with debt covenants or tax
attributes. See Item 8, Financial Statements and
Supplementary Data Note 2, Summary
of Significant Accounting Policies Identifiable
Intangible Assets and Goodwill for additional information
regarding our intangible assets and goodwill and the impairment
charges recorded during the years ended December 31, 2009,
2008 and 2007, respectively.
If industry and economic conditions in our markets continue to
deteriorate, resulting in further declines in advertising sales
and operating results, and if the trading value of our debt and
equity securities decline further, we will be required to again
assess the recoverability and useful lives of our long-lived
assets and
47
other intangible assets. This could result in additional
impairment charges, a reduction of remaining useful lives and
acceleration of amortization expense.
Liabilities
Subject to Compromise
Liabilities subject to compromise generally refer to
pre-petition obligations, secured or unsecured, that may be
impaired by a plan of reorganization. FASB ASC 852 requires such
liabilities, including those that became known after filing the
Chapter 11 petitions, be reported at the amounts expected
to be allowed, even if they may be settled for lesser amounts.
These liabilities represent the estimated amount expected to be
resolved on known or potential claims through the
Chapter 11 process, and remain subject to future
adjustments from negotiated settlements, actions of the
Bankruptcy Court and non-acceptance of certain executory
contracts and unexpired leases. Liabilities subject to
compromise also includes items that may be assumed under the
plan of reorganization, and may be subsequently reclassified to
liabilities not subject to compromise. The Company has
classified all of its notes in default as liabilities subject to
compromise. Liabilities subject to compromise also include
certain pre-petition liabilities including accrued interest,
accounts payable and accrued liabilities, tax related
liabilities and lease related liabilities. During the bankruptcy
process, the likelihood of settlement and potential settlement
outcomes was considered in evaluating whether potential
obligations were probable and estimable as of the end of each
reporting period.
Pre-petition obligations were evaluated to determine whether a
potential liability is probable. If probable, an assessment,
based on all information then available, was made of whether the
potential liability was estimable. A liability was recorded when
it was both probable and estimable. The estimates used to
determine amounts reported as liabilities subject to compromise
reflect our best estimates, but they involve uncertainties based
on certain conditions generally outside the control of the
Company, and in most instances, in the control of the Bankruptcy
Court. As a result, if other estimates had been used, material
amounts presented as liabilities subject to compromise on our
consolidated balance sheet at December 31, 2009 may
have been presented as liabilities not subject to compromise.
The reclass of these amounts could also have impacted amounts
reported as reorganization items, net on the consolidated
statement of operations for the year ended December 31,
2009.
In connection with our emergence from Chapter 11,
substantially all claims relating to pre-petition matters will
be satisfied and discharged under the Plan through payment in
cash or through the issuance of Dex Ones common stock in
satisfaction of such claims.
See Item 8, Financial Statements and Supplementary
Data Note 3, Reorganization Items,
Net and Liabilities Subject to Compromise for additional
information as well as items included in liabilities subject to
compromise on the consolidated balance sheet at
December 31, 2009.
Income
Taxes
We account for income taxes under the asset and liability method
in accordance with FASB ASC 740, Income Taxes (FASB
ASC 740). Deferred income tax liabilities and assets
reflect temporary differences between amounts of assets and
liabilities for financial and tax reporting. Such amounts are
adjusted, as appropriate, to reflect changes in tax rates
expected to be in effect when the temporary differences reverse.
A valuation allowance is established to offset any deferred
income tax assets if, based upon the available evidence, it is
more likely than not that some or all of the deferred income tax
assets will not be realized.
FASB ASC 740 also prescribes a recognition threshold and
measurement principles for the financial statement recognition
and measurement of tax positions taken or expected to be taken
on a tax return. Under FASB ASC 740, the impact of an uncertain
income tax position on an income tax return must be recognized
at the largest amount that is more likely than not to be
sustained upon audit by the relevant taxing authority. An
uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained. Additionally,
FASB ASC 740 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods,
disclosures and transition requirements.
48
See Item 8, Financial Statements and Supplementary
Data Note 7, Income Taxes,
for more information regarding our (provision) benefit for
income taxes.
In the ordinary course of business, there may be many
transactions and calculations where the ultimate tax outcome is
uncertain. The calculation of tax liabilities involves dealing
with uncertainties in the application of complex tax laws. We
recognize potential liabilities for anticipated tax audit issues
based on an estimate of the ultimate resolution of whether, and
the extent to which, additional taxes will be due. Although we
believe the estimates are reasonable, no assurance can be given
that the final outcome of these matters will not be different
than what is reflected in the historical income tax provisions
and accruals.
As part of our financial reporting process, we must assess the
likelihood that our deferred income tax assets can be recovered.
Unless recovery is more likely than not, the provision for taxes
must be increased by recording a reserve in the form of a
valuation allowance for the deferred income tax assets that are
estimated not to be ultimately recoverable. In this process,
certain relevant criteria are evaluated including the existence
of deferred income tax liabilities that can be used to absorb
deferred income tax assets and taxable income in future years.
Our judgment regarding future taxable income may change due to
future market conditions, changes in U.S. tax laws and
other factors. These changes, if any, may require material
adjustments to these deferred income tax assets and an
accompanying reduction or increase in net income (loss) in the
period when such determinations are made.
In addition, we operate within multiple taxing jurisdictions and
we are subject to audit in these jurisdictions. These audits can
involve complex issues, which may require an extended period of
time to resolve. We maintain a liability for the estimate of
potential income tax exposure and in our opinion adequate
provision for income taxes has been made for all years.
Allowance
for Doubtful Accounts and Sales Claims
We record our revenue net of an allowance for sales claims. In
addition, we record a provision for bad debts. The provision for
bad debts and allowance for sales claims are estimated based on
historical experience. We also evaluate the current condition of
our client balances, bankruptcy filings, any change in credit
policy, historical charge-off patterns, recovery rates and other
data when determining our allowance for doubtful accounts
reserve. We review these estimates periodically to assess
whether additional adjustment is needed based on economic events
or other circumstances, including actual experience at the end
of the billing and collection cycle. We believe that the
allowance for doubtful accounts and sales claims is adequate to
cover anticipated losses under current conditions; however,
significant deterioration in any of the factors noted above or
in the overall economy could materially change these
expectations. The provisions for sales claims and doubtful
accounts are estimated based on a percentage of revenue.
Accordingly, an additional 1% change in either of these
allowance percentages would have impacted 2009 net loss by
approximately $19.6 million.
Pension
Benefits
Our pension plan obligations and related assets of the defined
benefit pension plans are presented in Note 9 to our
consolidated financial statements. Plan assets consist primarily
of marketable equity and debt instruments and are valued using
market quotations. The determination of plan obligations and
annual pension expense requires management to make a number of
assumptions. Key assumptions in measuring the plan obligations
include the discount rate, the rate of future salary increases
and the long-term expected return on plan assets. During 2009,
we utilized the Mercer Pension Discount Yield Curve to determine
the appropriate discount rate for our defined benefit pension
plans. The Company changed to the Mercer Pension Discount Yield
Curve during 2009 to better reflect the specific cash flows of
these plans in determining the discount rate. During 2008 and
2007, we utilized the Citigroup Pension Liability Index as the
appropriate discount rate for our defined benefit pension plans.
Salary increase assumptions are based upon historical experience
and anticipated future management actions. Asset returns are
based upon the long-term anticipated average rate of earnings
expected on invested funds of the plan.
49
At December 31, 2009, the weighted-average actuarial
assumptions were:
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|
|
|
|
|
|
|
|
Discount Rate
|
|
|
January 1, 2009
|
|
June 1, 2009
|
|
|
May 31, 2009
|
|
December 31, 2009
|
|
RHD Pension Plan
|
|
|
5.87
|
%
|
|
|
5.87
|
%
|
Dex Media Pension Plan
|
|
|
5.87
|
%
|
|
|
6.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Rate of
|
|
Rate of Increase in Future
|
|
|
Return on Plan Assets
|
|
Compensation
|
|
RHD Pension Plan
|
|
|
8.00
|
%
|
|
|
|
|
Dex Media Pension Plan
|
|
|
8.00
|
%
|
|
|
3.66
|
%
|
At December 31, 2008, the weighted-average actuarial
assumptions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
January 1, 2008
|
|
July 1, 2008
|
|
November 1, 2008
|
|
|
June 30, 2008
|
|
October 31, 2008
|
|
December 31, 2008
|
|
RHD Pension Plan
|
|
|
6.48
|
%
|
|
|
6.48
|
%
|
|
|
8.01
|
%
|
Dex Media Pension Plan
|
|
|
6.48
|
%
|
|
|
6.82
|
%
|
|
|
8.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Rate of
|
|
Rate of Increase in Future
|
|
|
Return on Plan Assets
|
|
Compensation
|
|
RHD Pension Plan
|
|
|
8.50
|
%
|
|
|
3.66
|
%
|
Dex Media Pension Plan
|
|
|
8.50
|
%
|
|
|
3.66
|
%
|
Net periodic pension costs recognized in 2009 were
$7.8 million. A 1% increase (decrease) in the discount rate
would affect 2009 net loss by approximately $0.1million and
a 1% increase (decrease) in the long-term rate of return on plan
assets would affect 2009 net loss by approximately
$2.1 million.
Based on ratification of the new collective bargaining
agreements with the CWA on November 6, 2009 and with the
IBEW on June 12, 2009 and in conjunction with the
comprehensive redesign of the Companys employee retirement
savings and pension plans approved by the
Compensation & Benefits Committee of the
Companys Board of Directors on October 21, 2008, the
Company froze all current defined benefit plans covering CWA and
IBEW represented employees and curtailed the retiree health care
and life insurance benefits covering CWA and IBEW represented
employees. During October 2008, the Company froze all current
defined benefit plans covering all non-union employees and
curtailed the non-union retiree health care and life insurance
benefits. See Item 8, Financial Statements and
Supplementary Data Note 9, Benefit
Plans, for further information regarding our benefit plans.
Stock-Based
Compensation
The fair value of our stock-based awards is calculated using the
Black-Scholes model at the time the stock-based awards are
granted. The use of the Black-Scholes model requires significant
judgment and the use of estimates, particularly for assumptions
such as expected volatility, risk-free interest rates and
expected lives to value stock-based awards as well as forfeiture
rates to recognize stock-based compensation expense. The Company
did not grant any stock-based awards during the year ended
December 31, 2009. In April 2009, the Company increased its
estimated forfeiture rate in determining stock-based
compensation expense from 8% to 10.2%. This adjustment was based
on a review of historical forfeiture information and resulted in
a reduction to compensation expense of $0.4 million during
the year ended December 31, 2009. The following
50
assumptions were used in valuing stock-based awards and for
recognition of stock-based compensation expense for the years
ended December 31, 2008 and 2007:
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|
|
|
|
|
|
|
|
December 31, 2008
|
|
December 31, 2007
|
|
|
|
Expected volatility
|
|
58.8%
|
|
23.5%
|
|
|
Risk-free interest rate
|
|
2.8%
|
|
4.5%
|
|
|
Expected life
|
|
5 Years
|
|
5 Years
|
|
|
Forfeiture rate
|
|
8.0%
|
|
5.0%
|
|
|
Dividend yield
|
|
0%
|
|
0%
|
|
|
We estimate expected volatility based on the historical
volatility of the price of our common stock over the expected
life of our stock-based awards. The expected life represents the
period of time that stock-based awards granted are expected to
be outstanding. We estimate the expected life by using the
simplified method permitted by Staff Accounting
Bulletin No. 110, Use of a Simplified Method in
Developing Expected Term of Share Options, as our
stock-based awards satisfy the plain vanilla
criteria. The simplified method calculates the expected life as
the average of the vesting and contractual terms of the award.
The risk-free interest rate is based on applicable
U.S. Treasury yields that approximate the expected life of
stock-based awards granted. We also use historical data to
estimate a forfeiture rate. Estimated forfeitures are adjusted
to the extent actual forfeitures differ, or are expected to
materially differ, from such estimates.
These assumptions reflect our best estimates, but they involve
inherent uncertainties based on certain conditions generally
outside the control of the Company. As a result, if other
assumptions had been used, total stock-based compensation
expense could have been materially impacted. Furthermore, if we
use different assumptions for future grants, stock-based
compensation expense could be materially impacted in future
periods.
Upon emergence from Chapter 11 and pursuant to the Plan,
all outstanding equity securities of the Company including all
stock options, SARs and restricted stock, were cancelled. See
Item 8, Financial Statements and Supplementary
Data Note 16, Subsequent
Events for information regarding Dex Ones new Equity
Incentive Plan (EIP).
Fair
Value of Financial Instruments
At December 31, 2009 and 2008, the fair value of cash and
cash equivalents, accounts receivable, and accounts payable and
accrued liabilities approximated their carrying value based on
the short-term nature of these instruments. As a result of
filing the Chapter 11 petitions and the Plan, we do not
believe that it is meaningful to present the fair market value
of our long-term debt at December 31, 2009 in Item 8,
Financial Statements and Supplementary
Data Note 5, Long-Term Debt, Credit
Facilities and Notes.
FASB ASC 820, Fair Value Measurements and Disclosures
(FASB ASC 820) defines fair value, establishes a
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value and expands disclosures
about fair value measurements. FASB ASC 820 defines fair value
as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value hierarchy,
which gives the highest priority to quoted prices in active
markets, is comprised of the following three levels:
Level 1 Unadjusted quoted market prices in
active markets for identical assets and liabilities.
Level 2 Observable inputs, other than
Level 1 inputs. Level 2 inputs would typically include
quoted prices in markets that are not active or financial
instruments for which all significant inputs are observable,
either directly or indirectly.
Level 3 Prices or valuations that require
inputs that are both significant to the measurement and
unobservable.
51
The following tables represent our assets and liabilities that
were measured at fair value on a recurring basis at
December 31, 2009 and the level within the fair value
hierarchy in which the fair value measurements were included.
Interest
Rate Swaps
At December 31, 2009, the Company has interest rate swaps
with a notional amount of $200.0 million that continue to
be measured at fair value on a recurring basis.
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|
|
|
|
|
Fair Value Measurements at
|
|
|
December 31, 2009
|
|
|
Using Significant Other
|
Description
|
|
Observable Inputs (Level 2)
|
|
Derivatives Liabilities
|
|
$
|
(6,695
|
)
|
In conjunction with the classification of our credit facilities,
these interest rate swap liabilities are excluded from
liabilities subject to compromise on the consolidated balance
sheet at December 31, 2009, as both our credit facilities
and interest rate swaps are fully collateralized and the fair
value of such collateral exceeded the carrying value of the
credit facilities and interest rate swaps.
Valuation
Techniques Interest Rate Swaps
Fair value is a market-based measure considered from the
perspective of a market participant who holds the asset or owes
the liability rather than an entity-specific measure. Therefore,
even when market assumptions are not readily available, the
Companys own assumptions are set to reflect those that
market participants would use in pricing the asset or liability
at the measurement date. The Company uses prices and inputs that
are current as of the measurement date.
Fair value for our derivative instruments was derived using
pricing models. Pricing models take into account relevant
observable market inputs that market participants would use in
pricing the asset or liability. The pricing models used to
determine fair value incorporate contract terms (including
maturity) as well as other inputs including, but not limited to,
interest rate yield curves and the creditworthiness of the
counterparty. The impact of our own credit rating is also
considered when measuring the fair value of liabilities. Our
credit rating could have a material impact on the fair value of
our derivative instruments, our results of operations or
financial condition in a particular reporting period. For the
year ended December 31, 2009, the impact of applying our
credit rating in determining the fair value of our derivative
instruments was a reduction to our interest rate swap liability
of $0.5 million.
Many pricing models do not entail material subjectivity because
the methodologies employed do not necessitate significant
judgment and the pricing inputs are observed from actively
quoted markets, as is the case for our derivative instruments.
The pricing models used by the Company are widely accepted by
the financial services industry. As such and as noted above, our
derivative instruments are categorized within Level 2 of
the fair value hierarchy.
Fair
Value Control Processes Interest Rate
Swaps
The Company employs control processes to validate the fair value
of its derivative instruments derived from the pricing models.
These control processes are designed to assure that the values
used for financial reporting are based on observable inputs
wherever possible. In the event that observable inputs are not
available, the control processes are designed to assure that the
valuation approach utilized is appropriate and consistently
applied and that the assumptions are reasonable.
52
Benefit
Plan Assets
Effective January 1, 2009, the Dex Media Pension Plan began
to participate in the RHD Retirement Account Master Trust
(Master Trust), which was previously established for
the investment of assets for the RHD Retirement Plan. The fair
value of the assets held in the Master Trust at
December 31, 2009, by asset category, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Using
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Cash
|
|
$
|
1,860
|
|
|
$
|
1,860
|
|
|
$
|
|
|
U.S. Government
securities(a)
|
|
|
14,755
|
|
|
|
|
|
|
|
14,755
|
|
Common/collective
trusts(b)
|
|
|
80,062
|
|
|
|
|
|
|
|
80,062
|
|
Corporate
debt(c)
|
|
|
20,879
|
|
|
|
|
|
|
|
20,879
|
|
Corporate
stock(d)
|
|
|
22,051
|
|
|
|
22,051
|
|
|
|
|
|
Registered investment
companies(e)
|
|
|
34,036
|
|
|
|
34,036
|
|
|
|
|
|
Real estate investment
trust(f)
|
|
|
198
|
|
|
|
198
|
|
|
|
|
|
Credit default swaps and
futures(g)
|
|
|
394
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
174,235
|
|
|
$
|
58,145
|
|
|
$
|
116,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This category includes investments in U.S. Government bonds,
government mortgage-backed securities, index-linked government
bonds, guaranteed commercial paper, short-term treasury bills
and notes. Fair value for these assets is determined using a bid
evaluation process of observable, market based inputs effective
as of the last business day of the plan year. |
|
(b) |
|
This category includes investments in two common/collective
funds of which 79% is invested in stocks comprising the Russell
1000 equity index and the remaining 21% is comprised of
short-term investments. Fair value for these assets is
determined based on the contract value, which is based on the
provisions of the underlying guaranteed investment contracts. |
|
(c) |
|
This category includes investments in corporate bonds,
commercial mortgage-backed and asset-backed securities,
collateralized mortgage obligations and commercial paper. Fair
value for these assets is determined using a bid evaluation
process of observable, market based inputs effective as of the
last business day of the plan year. |
|
(d) |
|
This category includes investments in small cap stocks of U. S.
issuers across diverse industries. Fair value for these assets
is determined using quoted market prices on a recognized
securities exchange at the last reported trading price on the
last business day of the plan year. |
|
(e) |
|
This category is comprised of two mutual funds, one that invests
in value-oriented international stocks across diverse industries
and one that invests in intermediate term fixed income
instruments such as treasuries and high grade corporate bonds.
Fair value for these assets is determined using quoted market
prices on a recognized securities exchange at the last reported
trading price on the last business day of the plan year. |
|
(f) |
|
This category is comprised of a healthcare real estate
investment trust. Fair value for these assets is determined
based on traded market prices. |
|
(g) |
|
This category includes investments in a combination of 5, 10 and
30 year U.S. Treasury bond futures and credit default
swaps. Fair value for these assets is determined based on either
settlement prices, prices on a recognized securities exchange or
a mid/bid evaluation process using observable, market based
inputs. |
53
The Asset Management Committee (AMC) as appointed by
the Compensation and Benefits Committee of the Companys
Board of Directors is a named fiduciary of the plan in matters
relating to plan investments and asset management. The AMC has
the authority to appoint, retain, monitor and remove any
custodian or investment manager and is responsible for
establishing and maintaining a funding and investment policy for
the Master Trust.
See Item 8, Financial Statements and Supplementary
Data Note 9, Benefit Plans,
for further information regarding our benefit plans.
Effective January 1, 2009, the Company adopted the
provisions of FASB ASC 820 associated with our non-financial
assets and liabilities initially measured at fair value in prior
business combinations, including intangible assets and goodwill.
Fresh
Start Accounting
The Company will adopt fresh start accounting and reporting on
the Fresh Start Reporting Date, February 1, 2010, in
accordance with FASB ASC 852, as the holders of existing voting
shares immediately before confirmation of the Plan received less
than 50% of the emerging entity and the reorganization value of
the Companys assets was less than its post-petition
liabilities and allowed claims. Under FASB ASC 852, the
reorganization value represents the fair value of the entity
before considering liabilities and approximates the amount a
willing buyer would pay for the assets of the Company
immediately after restructuring. The reorganization value is
allocated to the respective fair value of assets. The excess
reorganization value over the fair value of identified tangible
and intangible assets is recorded as goodwill. Liabilities,
other than deferred taxes, are stated at present values of
amounts expected to be paid.
Fair values of assets and liabilities represent our best
estimates based on independent appraisals and valuations. Where
the foregoing are not available, industry data and trends or
references to relevant market rates and transactions are used.
These estimates and assumptions are subject to significant
uncertainties beyond our reasonable control. In addition, the
market value of our common stock may differ materially from the
fresh start equity valuation.
See Item 8, Financial Statements and Supplementary
Data Note 16, Subsequent
Events for an unaudited pro-forma presentation of the
impact of emergence from reorganization and fresh start
accounting on our financial position.
New
Accounting Pronouncements
In September 2009, the Emerging Issues Task Force
(EITF) reached final consensus on EITF Issue
No. 08-1,
Revenue Arrangements with Multiple Deliverables
(EITF 08-1).
EITF 08-1
has not yet been incorporated into the FASBs Codification,
however it is currently identified as Accounting Standards
Update
No. 2009-13,
Revenue Recognition.
EITF 08-1
updates the current guidance pertaining to multiple-element
revenue arrangements included in FASB ASC
605-25,
which originated from
EITF 00-21,
Revenue Arrangements with Multiple Deliverables.
EITF 08-1
addresses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting
and how the arrangement consideration should be allocated among
the separate units of accounting.
EITF 08-1
will be effective for the Company in the annual reporting period
beginning January 1, 2011.
EITF 08-1
may be applied retrospectively or prospectively and early
adoption is permitted. The Company does not expect the adoption
of
EITF 08-1
to have an impact on its financial position, results of
operations, cash flows, and disclosures.
In June 2009, the FASB issued FASB ASC
105-10,
Generally Accepted Accounting Principles (FASB ASC
105). FASB ASC 105 establishes a single source of
authoritative non-governmental GAAP, superseding existing FASB,
American Institute of Certified Public Accountants
(AICPA), EITF and related accounting literature.
FASB ASC 105 does not amend or replace rules and interpretive
releases of the Securities and Exchange Commission
(SEC), which are sources of authoritative GAAP for
SEC registrants. FASB ASC 105 is effective for interim and
annual periods ending after September 15, 2009 and, as
such, the Company has adopted FASB ASC 105 as of
September 30, 2009.
54
In May 2009, the FASB issued FASB ASC 855, Subsequent Events
(FASB ASC 855), the objective of which is to
establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
In particular, FASB ASC 855 sets forth (1) the period after
the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
(2) the circumstances under which an entity should
recognize events or transactions occurring after the balance
sheet date in its financial statements and (3) the
disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. FASB
ASC 855 is effective for interim or annual financial periods
ending after June 15, 2009 and as such, we adopted FASB ASC
855 as of June 30, 2009.
We have reviewed other accounting pronouncements that were
issued as of December 31, 2009, which the Company has not
yet adopted, and do not believe that these pronouncements will
have a material impact on our financial position or operating
results.
55
RESULTS
OF OPERATIONS
Year
Ended December 31, 2009 compared to Year Ended
December 31, 2008
Net
Revenues
The components of our net revenues for the years ended
December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Amounts in millions)
|
|
|
Gross advertising revenues
|
|
$
|
2,216.1
|
|
|
$
|
2,624.1
|
|
|
$
|
(408.0
|
)
|
|
|
(15.5
|
)%
|
Sales claims and allowances
|
|
|
(43.8
|
)
|
|
|
(45.3
|
)
|
|
|
1.5
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net advertising revenues
|
|
|
2,172.3
|
|
|
|
2,578.8
|
|
|
|
(406.5
|
)
|
|
|
(15.8
|
)
|
Other revenues
|
|
|
30.1
|
|
|
|
38.0
|
|
|
|
(7.9
|
)
|
|
|
(20.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,202.4
|
|
|
$
|
2,616.8
|
|
|
$
|
(414.4
|
)
|
|
|
(15.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our advertising revenues are earned primarily from the sale of
advertising in yellow pages directories we publish, net of sales
claims and allowances. Advertising revenues also include
revenues for Internet-based advertising products including
online directories, such as DexKnows.com and DexNet. Advertising
revenues are affected by several factors, including changes in
the quantity and size of advertisements, acquisition of new
clients, renewal rates of existing clients, premium
advertisements sold, changes in advertisement pricing, the
introduction of new products, an increase in competition and
more fragmentation in the local business search market and
general economic factors. Revenues with respect to print
advertising and Internet-based advertising products that are
sold with print advertising are recognized under the deferral
and amortization method. Revenues related to our print
advertising are initially deferred when a directory is published
and recognized ratably over the directorys life, which is
typically 12 months. 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, such as DexNet, are
recognized as delivered or fulfilled.
As a result of the deferral and amortization method of revenue
recognition, recognized gross advertising revenues reflect the
amortization of advertising sales consummated in prior periods
as well as advertising sales consummated in the current period.
As noted further below, advertising sales have continued to
deteriorate due to the overall economic instability as well as
an increase in competition and more fragmentation in the local
business search market, which will result in lower recognized
advertising revenues in future periods because, as noted, such
revenues are recognized ratably over the directorys life.
Gross advertising revenues for the year ended December 31,
2009 decreased $408.0 million, or 15.5%, from the year
ended December 31, 2008. The decline in gross advertising
revenues for the year ended December 31, 2009 is primarily
due to declines in advertising sales over the past twelve
months, primarily as a result of declines in new and recurring
business, mainly driven by (1) declines in overall
advertising spending by businesses, (2) the significant
impact of the weaker economy on smaller businesses in the
markets in which we do business and (3) an increase in
competition and more fragmentation in the local business search
market.
Other revenues for the year ended December 31, 2009
decreased $7.9 million, or 20.8%, from the year ended
December 31, 2008. Other revenues include late fees
received on outstanding client balances, barter revenues,
commissions earned on sales contracts with respect to
advertising placed into other publishers directories, and
sales of directories and certain other advertising-related
products.
Advertising sales is a non-GAAP 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 revenues, which under GAAP are recognized under the deferral
and amortization method. Advertising sales for the year ended
December 31, 2009 were $2,028.6 million, compared to
$2,547.6 million for the year ended
56
December 31, 2008. The $519.0 million, or 20.4%,
decrease in advertising sales for the year ended
December 31, 2009, is a result of declines in new and
recurring business, mainly driven by (1) declines in
overall advertising spending by businesses, (2) the
significant impact of the weaker economy on smaller businesses
in the markets in which we do business and (3) an increase
in competition and more fragmentation in the local business
search market. Advertising sales in current periods will be
recognized as gross advertising revenues in future periods as a
result of the deferral and amortization method of revenue
recognition.
Expenses
The components of our total expenses for the years ended
December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Amounts in millions)
|
|
|
Production and distribution expenses
|
|
$
|
350.7
|
|
|
$
|
418.2
|
|
|
$
|
(67.5
|
)
|
|
|
(16.1
|
)%
|
Selling and support expenses
|
|
|
663.6
|
|
|
|
729.7
|
|
|
|
(66.1
|
)
|
|
|
(9.1
|
)
|
General and administrative expenses
|
|
|
69.0
|
|
|
|
120.9
|
|
|
|
(51.9
|
)
|
|
|
(42.9
|
)
|
Depreciation and amortization
|
|
|
578.8
|
|
|
|
483.3
|
|
|
|
95.5
|
|
|
|
19.8
|
|
Impairment charges
|
|
|
7,337.8
|
|
|
|
3,870.4
|
|
|
|
3,467.4
|
|
|
|
89.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,999.9
|
|
|
$
|
5,622.5
|
|
|
$
|
3,377.4
|
|
|
|
60.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain costs directly related to the selling and production of
directories are initially deferred and recognized ratably over
the life of the directory under the deferral and amortization
method of accounting to match revenue recognized relating to
such directories, with cost recognition commencing in the month
directory distribution is substantially complete. These costs
are specifically identifiable to a particular directory and
include sales commissions and print, paper and initial
distribution costs. Sales commissions include amounts paid to
employees for sales to local clients and to certified marketing
representatives (CMRs), which act as our channel to
national clients. All other expenses, such as sales person
salaries, sales manager compensation, sales office occupancy,
publishing and information technology services, are not
specifically identifiable to a particular directory and are
recognized as incurred. Our costs recognized in a reporting
period consist of: (i) costs incurred in that period and
fully recognized in that period; (ii) costs incurred in a
prior period, a portion of which is amortized and recognized in
the current period; and (iii) costs incurred in the current
period, a portion of which is amortized and recognized in the
current period and the balance of which is deferred until future
periods. Consequently, there will be a difference between costs
recognized in any given period and costs incurred in the given
period, which may be significant.
Production
and Distribution Expenses
Total production and distribution expenses for the year ended
December 31, 2009 were $350.7 million, compared to
$418.2 million for the year ended December 31, 2008.
The primary components of the $67.5 million, or 16.1%,
decrease in production and distribution expenses for the year
ended December 31, 2009, were as follows:
|
|
|
|
|
|
|
$ Change
|
|
|
|
(Amounts
|
|
|
|
in millions)
|
|
|
Decreased print, paper and distribution costs
|
|
$
|
(28.4
|
)
|
Decreased internet production and distribution costs
|
|
|
(24.3
|
)
|
Decreased information technology (IT) expenses
|
|
|
(7.5
|
)
|
All other, net
|
|
|
(7.3
|
)
|
|
|
|
|
|
Total decrease in production and distribution expenses for the
year ended December 31, 2009
|
|
$
|
(67.5
|
)
|
|
|
|
|
|
57
During the year ended December 31, 2009, print, paper and
distribution costs declined $28.4 million, compared to the
year ended December 31, 2008. This decline is primarily due
to lower page volumes associated with declines in print
advertisements, negotiated price reductions in our print and
paper expenses and refinement of our distribution scope across
all of our markets.
During the year ended December 31, 2009, internet
production and distribution costs declined $24.3 million,
compared to the year ended December 31, 2008, primarily due
to a reduction in headcount and outside contractor services.
During the year ended December 31, 2009, production and
distribution related IT expenses declined $7.5 million,
compared to the year ended December 31, 2008. This decline
is primarily due to higher spending associated with our IT
infrastructure to support our products and services and
enhancements and technical support of multiple production
systems during the year ended December 31, 2008, as
compared to the year ended December 31, 2009.
Selling
and Support Expenses
Total selling and support expenses for the year ended
December 31, 2009 were $663.6 million, compared to
$729.7 million for the year ended December 31, 2008.
The primary components of the $66.1 million, or 9.1%,
decrease in selling and support expenses for the year ended
December 31, 2009, were as follows:
|
|
|
|
|
|
|
$ Change
|
|
|
|
(Amounts
|
|
|
|
in millions)
|
|
|
Decreased commissions and salesperson costs
|
|
$
|
(53.7
|
)
|
Decreased directory publishing costs
|
|
|
(11.7
|
)
|
Decreased incentive compensation expense
|
|
|
(6.6
|
)
|
Decreased billing, credit and collection expenses
|
|
|
(5.5
|
)
|
Decreased occupancy costs
|
|
|
(4.0
|
)
|
Increased advertising expenses
|
|
|
11.0
|
|
Increased bad debt expense
|
|
|
8.2
|
|
All other, net
|
|
|
(3.8
|
)
|
|
|
|
|
|
Total decrease in selling and support expenses for the year
ended December 31, 2009
|
|
$
|
(66.1
|
)
|
|
|
|
|
|
During the year ended December 31, 2009, commissions and
salesperson costs decreased $53.7 million, compared to the
year ended December 31, 2008, primarily due to lower
advertising sales and its effect on variable-based commissions
as well as headcount reductions and consolidation of
responsibilities.
During the year ended December 31, 2009, directory
publishing costs decreased $11.7 million, compared to the
year ended December 31, 2008, primarily due to lower page
volumes associated with declines in print advertisements as well
as a reduction in headcount and related expenses resulting from
the consolidation of our publishing and graphics operations.
During the year ended December 31, 2009, selling and
support related incentive compensation expense declined
$6.6 million, compared to the year ended December 31,
2008, primarily due to the fact that the Company did not grant
any stock-based awards during the year ended December 31,
2009, partially offset by compensation expense associated with
the Companys 2009 Long-Term Incentive Program (the
2009 LTIP).
During the year ended December 31, 2009, billing, credit
and collection expenses decreased $5.5 million, compared to
the year ended December 31, 2008, primarily due to lower
costs resulting from a change in vendors during the later part
of 2008, lower billing volumes associated with declines in
advertisers and print advertisements, as well as headcount
reductions and consolidation of responsibilities.
58
During the year ended December 31, 2009, occupancy costs
decreased $4.0 million, compared to the year ended
December 31, 2008, primarily due to lease re-negotiations
associated with filing the Chapter 11 petitions.
During the year ended December 31, 2009, advertising
expenses increased $11.0 million, compared to the year
ended December 31, 2008, primarily due to increased costs
associated with traffic purchased and distributed to multiple
advertiser landing pages.
During the year ended December 31, 2009, bad debt expense
increased $8.2 million, or 5.9%, as compared to the year
ended December 31, 2008, primarily due to deterioration in
accounts receivable aging categories and increased write-offs,
resulting from the adverse impact on our clients from the
instability of the overall economy and tightening of the credit
markets. During the year ended December 31, 2009, our bad
debt expense represented 6.7% of our net revenue, as compared to
5.3% for the year ended December 31, 2008. If clients fail
to pay within specified credit terms, we may cancel their
advertising in future directories, which could further impact
our ability to collect past due amounts as well as adversely
impact our advertising sales and revenue trends. We expect that
these economic challenges will continue in our markets, and, as
such, our bad debt experience will continue to be adversely
impacted for the foreseeable future.
General
and Administrative Expenses
General and administrative (G&A) expenses for
the year ended December 31, 2009 were $69.0 million,
compared to $120.9 million for the year ended
December 31, 2008. The primary components of the
$51.9 million, or 42.9%, decrease in G&A expenses for
the year ended December 31, 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
$ Change
|
|
|
|
|
|
|
(Amounts
|
|
|
|
|
|
|
in millions)
|
|
|
|
|
|
Decrease in restructuring expenses
|
|
$
|
(21.5
|
)
|
|
|
|
|
Increase in curtailment gains, net
|
|
|
(14.0
|
)
|
|
|
|
|
Decrease in general corporate expenses
|
|
|
(11.3
|
)
|
|
|
|
|
Decreased incentive compensation expense
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total decrease in G&A expenses for the year ended
December 31, 2009
|
|
$
|
(51.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, restructuring
expenses decreased $21.5 million, compared to the year
ended December 31, 2008, primarily due to lower costs
associated with outside consultants, headcount reductions,
consolidation of responsibilities and vacated leased facilities
as well as a reclassification of certain previously recognized
expenses associated with filing the Chapter 11 petitions to
reorganization items on the consolidated statement of operations
during the year ended December 31, 2009.
During the year ended December 31, 2009, the Company
recognized one-time net curtailment gains of $52.0 million
associated with the elimination of certain retiree health care
and life insurance benefits for its union employees. During the
year ended December 31, 2008, we recognized one-time net
curtailment gains of $38.0 million associated with the
elimination of certain retiree health care and life insurance
benefits for its non-union employees. The net increase in
curtailment gains of $14.0 million for the year ended
December 31, 2009 is presented in the table above.
During the year ended December 31, 2009, general corporate
expenses declined $11.3 million, compared to the year ended
December 31, 2008, primarily due to declines in legal fees
not associated with filing the Chapter 11 petitions,
declines in benefit-related expenses and fees associated with
outside contractor services.
During the year ended December 31, 2009, G&A related
incentive compensation expense declined $5.1 million,
compared to the year ended December 31, 2008, primarily due
to the fact that the Company did not grant any stock-based
awards during the year ended December 31, 2009, partially
offset by compensation expense associated with the
Companys 2009 LTIP.
59
Depreciation
and Amortization
Depreciation and amortization expense for the year ended
December 31, 2009 was $578.8 million, compared to
$483.3 million for the year ended December 31, 2008.
Amortization of intangible assets was $514.6 million for
the year ended December 31, 2009, compared to
$415.9 million for the year ended December 31, 2008.
The increase in amortization expense for the year ended
December 31, 2009 is a direct result of reducing the
remaining useful lives associated with our directory services
agreements acquired in prior acquisitions to 33 years
effective January 1, 2009, partially offset by a reduction
in amortization expense associated with a revision to the
carrying values of our local and national customer relationships
subsequent to impairment charges recorded during the fourth
quarter of 2008.
Depreciation of fixed assets and amortization of computer
software was $64.3 million for the year ended
December 31, 2009, compared to $67.4 million for the
year ended December 31, 2008. The decrease in depreciation
expense for the year ended December 31, 2009 was primarily
due to accelerated amortization during the year ended
December 31, 2008 associated with software projects that
were retired prior to their initial estimated service life.
Impairment
Charges
As a result of filing the Chapter 11 petitions, the Company
performed impairment tests of its definite-lived intangible
assets and other long-lived assets during the year ended
December 31, 2009. During the fourth quarter of 2009 and in
conjunction with the filing of our amended Plan and amended
Disclosure Statement, the Company finalized an extensive
analysis associated with our emergence from Chapter 11. The
Company utilized the following information and assumptions
obtained from this analysis to complete its impairment
evaluation:
|
|
|
|
|
Historical financial information, including revenue, profit
margins, customer attrition data and price premiums enjoyed
relative to competing independent publishers;
|
|
|
|
Long-term financial projections, including, but not limited to,
revenue trends and profit margin trends; and
|
|
|
|
Intangible asset carrying values.
|
As a result of these impairment tests, the Company recognized an
impairment charge of $7.3 billion during the fourth quarter
of 2009 associated with directory services agreements,
advertiser relationships, third party contracts and network
platforms acquired in prior acquisitions. The fair values of
these intangible assets were derived from a discounted cash flow
analysis using a discount rate that is indicative of the risk
that a market participant would be willing to accept. This
analysis included a review of relevant financial metrics of
peers within our industry.
In connection with our impairment testing during 2009, the
Company also evaluated the remaining useful lives of its
definite-lived intangible assets and other long-lived assets by
considering, among other things, the effects of obsolescence,
demand, competition, which takes into consideration the price
premium benefit the Company has over competing independent
publishers in its markets as a result of directory services
agreements acquired in prior acquisitions, and other economic
factors, including the stability of the industry in which we
operate, known technological advances, legislative actions that
result in an uncertain or changing regulatory environment, and
expected changes in distribution channels. At December 31,
2009, the Company determined that due to the compression of our
price premium benefit over competing independent publishers in
our markets as well as a decline in market share during the year
ended December 31, 2009, the remaining useful lives of the
directory services agreements acquired in prior acquisitions
will each be reduced from 33 years to weighted average
remaining useful lives of 25 years for Dex Media East,
26 years for Dex Media West, 29 years for AT&T
and 28 years for CenturyLink, effective January 1,
2010. Based on an assessment of future estimated cash flows,
increased attrition rates and the impact on our long-term
financial projections, the remaining useful lives of third party
contracts, advertiser relationships and network platforms
acquired in a prior acquisition will be reduced to 1, 5 and
9 years, respectively, effective January 1, 2010. The
reduction to
60
the remaining useful lives was necessary in order to better
reflect the period these intangible assets are expected to
contribute to our future cash flow.
The Company anticipates a decrease in amortization expense
during 2010 of $329.9 million resulting from the
significantly reduced book values of our directory services
agreements subsequent to the impairment charges during the
fourth quarter of 2009, partially offset by increased
amortization expense resulting from the reduction of the
remaining useful lives associated with our directory services
agreements.
As a result of the decline in the trading value of our debt and
equity securities during 2008 and continuing negative industry
and economic trends that directly affected our business, we
performed impairment tests of our goodwill, definite-lived
intangible assets and other long-lived assets. We used estimates
and assumptions in our impairment evaluations, including, but
not limited to, projected future cash flows, revenue growth and
customer attrition rates. Based upon the impairment test of our
goodwill, we recognized 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 goodwill impairment charges of
$3.1 billion during the year ended December 31, 2008.
As a result of these impairment charges, we had no recorded
goodwill at December 31, 2008. In addition, as a result of
these tests, the Company recognized an impairment charge of
$744.0 million during the fourth quarter of 2008 associated
with the local and national customer relationships acquired in
prior acquisitions. Lastly, in connection with the launch of the
next version of DexKnows.com, the tradenames and technology
acquired in a prior acquisition were discontinued, which
resulted in an impairment charge of $2.2 million during the
fourth quarter of 2008. Total impairment charges related to our
intangible assets, excluding goodwill, were $746.2 million
during the year ended December 31, 2008.
If industry and economic conditions in our markets continue to
deteriorate, resulting in further declines in advertising sales
and operating results, and if the trading value of our debt and
equity securities decline further, we will be required to again
assess the recoverability and useful lives of our long-lived
assets and other intangible assets. This could result in
additional impairment charges, a reduction of remaining useful
lives and acceleration of amortization expense.
Operating
Loss
Operating loss for the years ended December 31, 2009 and
2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
|
|
(Amounts in millions)
|
|
Total
|
|
$
|
(6,797.5
|
)
|
|
$
|
(3,005.7
|
)
|
|
$
|
(3,791.8
|
)
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(N/M:
Not Meaningful)
Operating loss for the year ended December 31, 2009 of
$6.8 billion, compares to operating loss of
$3.0 billion for the year ended December 31, 2008. The
change in operating loss for the year ended December 31,
2009 from operating loss for the year ended December 31,
2008 is primarily due to the significant 2009 intangible asset
impairment charges noted above, as well as the revenue and
expense trends described above, partially offset by the 2008
impairment charges.
Interest
Expense, Net
Contractual interest expense that would have appeared on the
consolidated statement of operations if not for the filing of
the Chapter 11 petitions was $802.4 million for the
year ended December 31, 2009. Net interest expense for the
year ended December 31, 2009 was $489.5 million and
includes $27.5 million of non-cash amortization of deferred
financing costs. Net interest expense for the year ended
December 31, 2008 was $835.5 million and includes
$29.0 million of non-cash amortization of deferred
financing costs.
Interest expense for the year ended December 31, 2009
includes a non-cash charge of $5.6 million associated with
the change in fair value of the Dex Media East interest rate
swaps no longer deemed financial instruments as a result of
filing the Chapter 11 petitions. Interest expense for the
year ended December 31,
61
2009 also includes a non-cash charge of $9.6 million
resulting from amounts previously charged to accumulated other
comprehensive loss related to these interest rate swaps. The
amounts previously charged to accumulated other comprehensive
loss related to the Dex Media East interest rate swaps will be
amortized to interest expense over the remaining life of the
interest rate swaps based on future interest payments, as it is
not probable that those forecasted transactions will not occur.
In accordance with fresh start accounting and reporting,
unamortized amounts previously charged to accumulated other
comprehensive loss will be eliminated on the Fresh Start
Reporting Date.
As a result of the change in fair value of our interest rate
swaps associated with the amendment of the RHDI credit facility
and the refinancing of the former Dex Media West credit facility
on June 6, 2008 and settlement and termination of certain
of these interest rate swaps during the second quarter of 2009,
interest expense includes a reduction of $10.7 million for
the year ended December 31, 2009, compared to a non-cash
charge of $3.7 million for the year ended December 31,
2008. Interest expense for the year ended December 31, 2008
also includes a non-cash charge of $21.0 million resulting
from amounts previously charged to accumulated other
comprehensive loss related to these interest rate swaps.
In conjunction with our acquisition of Dex Media on
January 31, 2006 (the Dex Media Merger) and as
a result of purchase accounting required under GAAP, we recorded
Dex Medias debt at its fair value on January 31,
2006. We recognized an offset to interest expense in each period
subsequent to the Dex Media Merger through May 28, 2009 for
the amortization of the corresponding fair value adjustment. The
offset to interest expense was $7.7 million for the year
ended December 31, 2009, compared to $17.6 million for
the year ended December 31, 2008. The offset to interest
expense was to be recognized over the life of the respective
debt, however due to filing the Chapter 11 petitions,
unamortized fair value adjustments at May 28, 2009 of
$78.5 million were written-off and recognized as a
reorganization item on the consolidated statement of operations
for the year ended December 31, 2009.
The decrease in net interest expense of $346.0 million, or
41.4%, for the year ended December 31, 2009, is primarily
due to (1) ceasing interest expense on our notes in default
as a result of filing the Chapter 11 petitions,
(2) the non-cash charge of $21.0 million during the
year ended December 31, 2008 resulting from amounts
previously charged to accumulated other comprehensive loss noted
above and (3) a reduction in outstanding debt from the
prior corresponding period due to the financing transactions
conducted during the later half of 2008. The decrease in net
interest expense for the year ended December 31, 2009 is
offset by (1) the non-cash charges associated with the
change in fair value of the Dex Media East interest rate swaps
and amounts previously charged to accumulated other
comprehensive loss related to the Dex Media East interest rate
swaps noted above, (2) a reduction in interest income
associated with our interest rate swaps due to a decline in
interest rates, (3) additional interest expense associated
with borrowing the unused portions of our revolving credit
facilities on February 13, 2009 and (4) a decline in
the offset to interest expense associated with the fair value
adjustment of Dex Medias debt noted above.
Gain
on Debt Transactions, Net
As a result of voluntary prepayments made under the RHDI credit
facility during the fourth quarter of 2008, we recognized a gain
of $20.0 million during the year ended December 31,
2008, consisting of the difference between the face amount of
the Term Loans repaid and the voluntary prepayments made, offset
by the write-off of unamortized deferred financing costs.
As a result of the debt repurchases in October 2008, we recorded
a gain of $13.6 million during the year ended
December 31, 2008, consisting of the difference between the
par value and purchase price of our senior notes, offset by the
write-off of unamortized deferred financing costs.
As a result of the debt repurchases in September 2008, we
recorded a gain of $72.4 million during the year ended
December 31, 2008, representing the difference between the
accreted value or par value, as applicable, and purchase price
of our senior notes and senior discount notes, offset by the
write-off of unamortized deferred financing costs.
62
As a result of the exchange of our senior notes and senior
discount notes (RHD Notes) for RHDIs
11.75% Senior Notes due May 15, 2015 (RHDI
Senior Notes) on June 25, 2008, we recorded a gain of
$161.3 million during the year ended December 31,
2008, representing the difference between the accreted value or
par value, as applicable, of the extinguished RHD Notes and the
RHDI Senior Notes, offset by the write-off of unamortized
deferred financing costs related to the extinguished RHD Notes,
which has been accounted for as an extinguishment of debt.
During the year ended December 31, 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, which have been accounted for as
extinguishments of debt.
As a result of these debt transactions, we recorded a net
non-cash gain of $265.2 million during the year ended
December 31, 2008. See Item 8, Financial
Statements and Supplementary Data Note 2,
Summary of Significant Accounting Policies
Gain (Loss) on Debt Transactions, Net for additional
information.
Reorganization
Items, Net
For the year ended December 31, 2009, the Company has
recorded $94.8 million of reorganization items on a
separate line item on the 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. The following table
displays the details of reorganization items for the year ended
December 31, 2009:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
|
(Amounts in thousands)
|
|
|
Professional fees
|
|
$
|
77,375
|
|
Write-off of unamortized deferred financing costs
|
|
|
64,475
|
|
Write-off of unamortized net premiums / discounts on long-term
debt
|
|
|
34,886
|
|
Write-off of debt related unamortized fair value adjustments
|
|
|
(78,511
|
)
|
Lease rejections, abandoned property and other
|
|
|
(3,457
|
)
|
|
|
|
|
|
Total reorganization items
|
|
$
|
94,768
|
|
|
|
|
|
|
The Company has incurred professional fees associated with
filing the Chapter 11 petitions of $77.4 million
during the year ended December 31, 2009, of which
$67.6 million have been paid in cash. Professional fees
include financial, legal and valuation services directly
associated with the reorganization process.
The write-off of unamortized deferred financing costs of
$64.5 million, unamortized net
premiums / discounts of $34.9 million and
unamortized fair value adjustments required by GAAP as a result
of the Dex Media Merger of $78.5 million at May 28,
2009, relate to long-term debt classified as liabilities subject
to compromise at December 31, 2009.
The Company has recognized $3.5 million during the year
ended December 31, 2009 associated with rejected leases,
abandoned property and other, which have been approved by the
Bankruptcy Court through December 31, 2009 as part of the
Chapter 11 Cases.
As of December 31, 2009, the Company has not received any
operating cash receipts resulting from the filing of the
Chapter 11 petitions.
Benefit
for Income Taxes
The effective tax rate on loss before income taxes of 12.6% for
the year ended December 31, 2009 compares to an effective
tax rate of 35.7% on loss before income taxes for the year ended
December 31, 2008. The significant change in the effective
tax rate for the year ended December 31, 2009 as compared
to the year ended December 31, 2008 is primarily due to the
valuation allowance recorded at December 31, 2009 noted
below as well as the tax consequences of the Section 382
limitation recorded during the year ended
63
December 31, 2009, partially offset by the impairment
charges recorded during the year ended December 31, 2008.
The change in the effective tax rate for the year ended
December 31, 2009 is also attributable to estimates of
non-deductible reorganization costs and changes in estimates of
state tax apportionment factors that impact our effective state
tax rates.
The 2009 income tax benefit of $928.5 million is comprised
of a federal tax benefit of $783.5 million and a state tax
benefit of $145.0 million. The 2009 federal tax benefit is
comprised of a current tax benefit of $2.9 million,
primarily related to a decrease in the federal tax accrual due
to our amended return filings and a deferred tax benefit of
$780.7 million, primarily related to non-cash intangible
asset impairment charges during 2009, offset in part by a
valuation allowance as discussed below. The 2009 state tax
benefit of $145.0 million is comprised of a current tax
benefit of $11.8 million, which relates to the favorable
settlement of prior year state tax audits in 2009 and reversal
of the associated state liabilities, and a deferred tax benefit
of $133.2 million, primarily related to non-cash intangible
asset impairment charges during 2009, offset in part by a
valuation allowance as discussed below.
At December 31, 2009, the Company had federal and state net
operating loss carryforwards of approximately
$1,315.4 million (net of carryback) and
$1,685.9 million, respectively, which will begin to expire
in 2020 and 2010, respectively. These amounts include
consideration of net operating losses expected to expire unused
due to the Internal Revenue Code Section 382
(Section 382) limitation for changes in
ownership, which the Company believes occurred on March 6,
2009. Under Section 382, potential limitations are
triggered when there has been an ownership change, which is
generally defined as a greater than 50% change in stock
ownership (by value) over a three-year period. Such change in
ownership will restrict the Companys ability to use
certain net operating losses and other corporate tax attributes
in the future, however, the ownership change does not constitute
a change in control under any of the Companys debt
agreements or other contracts.
We have provided full valuation allowances for state and federal
net operating loss and tax credit carryforwards to the extent it
is more likely than not the deferred tax benefits will not be
realized. At December 31, 2009, in accordance with FASB ASC
740 and upon evaluation of the future reversals of existing
taxable differences, taxable income in net operating loss
carryback years and liabilities required under ASC 740, we
recorded a valuation allowance of $1,531.9 million for
deferred tax assets.
In December 2009, we effectively settled all issues under
consideration with the Department of Finance for New York State
for its audit of tax years 2000 through 2006 and the Department
of Revenue for North Carolina for its audit of tax years
2003 through 2008. As a result of these settlements, the
unrecognized tax benefit associated with our uncertain state tax
positions decreased by $7.6 million for New York State and
by $9.7 million for North Carolina during the year ended
December 31, 2009. The decrease in the unrecognized tax
benefits has decreased our effective tax rate for the year ended
December 31, 2009. The unrecognized tax benefits impacted
by the New York State and North Carolina audits primarily
related to apportionment and allocation of income among our
legal entities.
During 2009, the Company increased its liability for
unrecognized tax benefits by $276.4 million reflecting the
uncertainty as to whether the ownership change under
Section 382, as discussed above, occurred prior to the date
on which it elected to modify the tax classification for two of
its subsidiaries. The date of the change in ownership is in
question because as of the balance sheet date the Company is not
able to confirm the actual date of the ownership change until
all SEC
Forms 13-G
are filed. Stockholders have until forty five days following the
end of the calendar year to file these forms with the SEC. Based
on this due date, the actual ownership change date will not be
confirmed until February 15, 2010. In addition, we
increased the liability for unrecognized tax benefits by
$1.5 million relating to the uncertainty surrounding the
deductibility of certain other accrued expenses.
It is reasonably possible that the amount of unrecognized tax
benefits could decrease within the next twelve months. As
previously mentioned, we increased our liability for
unrecognized tax benefits by $276.4 million for
Section 382 limitations. If the actual date of ownership
change under IRC Section 382 is resolved within the next
twelve months, the total amount of unrecognized tax benefits
could decrease by $276.4 million.
64
The 2008 income tax benefit of $1,277.7 million is
comprised of a federal tax benefit of $1,128.7 million and
a state tax benefit of $149.0 million. The 2008 federal tax
benefit is comprised of a current tax provision of
$23.9 million, primarily related to an increase to our
FIN No. 48 liability, offset by a deferred income tax
benefit of $1,152.6 million, primarily related to the
goodwill impairment charges during 2008. The 2008 state tax
benefit of $149.0 million is comprised of a current tax
provision of $10.3 million, which relates to taxes due in
states where subsidiaries of the Company file separate tax
returns, as well as an increase in our FIN No. 48
liability, offset by a deferred income tax benefit of
$159.3 million, primarily related to the goodwill
impairment charges during 2008. During 2008, the Company
utilized federal net operating losses for income tax purposes of
$4.1 million primarily resulting from taxable gains
associated with certain financing activities conducted during
2008.
The 2008 income tax benefit includes an income tax benefit of
$20.3 million from correcting overstated income tax expense
in fiscal years 2004 through 2007. We have evaluated the
materiality of this correction and concluded it was not material
to current or prior year financial statements. Accordingly we
recorded this correction during the fourth quarter of 2008.
In September 2008, we effectively settled all issues under
consideration with the Department of Finance for New York City
related to its audit for taxable year 2000. As a result of the
settlement, the unrecognized tax benefits associated with our
uncertain state tax positions decreased by $0.9 million
during the year ended December 31, 2008. The decrease in
the unrecognized tax benefits has decreased our effective tax
rate for the year ended December 31, 2008. The unrecognized
tax benefits impacted by the New York City audit primarily
related to allocation of income among our legal entities.
Net
Loss and Loss Per Share
Net loss for the year ended December 31, 2009 of
$(6.5) billion, compares to net loss of $(2.3) billion
for the year ended December 31, 2008. The change in net
loss for the year ended December 31, 2009, as compared to
the year ended December 31, 2008, is primarily due to the
impairment charges noted above as well as the revenue and
expense trends described above, partially offset by the impact
of the reorganization items during the year ended
December 31, 2009.
The calculation of basic and diluted earnings (loss) per share
(EPS) is presented below.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands
|
|
|
|
except per share amounts)
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
Weighted average common shares outstanding
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(93.67
|
)
|
|
$
|
(33.41
|
)
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
Weighted average common shares outstanding
|
|
|
68,896
|
|
|
|
68,793
|
|
Dilutive effect of stock
awards(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(93.67
|
)
|
|
$
|
(33.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Due to the net loss reported for the years ended
December 31, 2009 and 2008, the effect of all stock-based
awards was anti-dilutive and therefore is not included in the
calculation of diluted EPS. For the years ended
December 31, 2009 and 2008, 4.6 million shares and
4.1 million shares, respectively, of stock-based awards had
exercise prices that exceeded the average market price of the
Companys common stock for the respective periods. |
65
Year
Ended December 31, 2008 compared to Year Ended
December 31, 2007
Factors
Affecting Comparability
Acquisitions
On August 23, 2007, we acquired Business.com, a leading
business search engine and directory and performance based
advertising network. The results of Business.com have been
included in our consolidated results commencing August 23,
2007. Therefore, our consolidated results for the year ended
December 31, 2008 include a full period of results from
Business.com, compared with only four months of results from
Business.com for the year ended December 31, 2007.
Impact of
Purchase Accounting
As a result of the Dex Media Merger and associated purchase
accounting required by GAAP, we recorded deferred directory
costs, such as print, paper, delivery and commissions, related
to directories that were scheduled to publish subsequent to the
Dex Media Merger at their fair value, determined as (a) the
estimated billable value of the published directory less
(b) the expected costs to complete the directories, plus
(c) a normal profit margin. We refer to this purchase
accounting entry as cost uplift. Cost uplift
associated with print, paper and delivery costs was amortized
over the terms of the applicable directories to production,
publication and distribution expenses, whereas cost uplift
associated with commissions was amortized over the terms of the
applicable directories to selling and support expenses. Cost
uplift amortized to production, publication and distribution
expenses and selling and support expenses totaled
$15.3 million and $13.6 million, respectively, for the
year ended December 31, 2007, with no comparable expense
for the year ended December 31, 2008.
Reclassifications
During the year ended December 31, 2007, we recorded a net
loss on debt transactions of $26.3 million, which was
included in interest expense on the consolidated statements of
operations in our 2007 Annual Report on
Form 10-K
(2007
10-K).
In order to conform to the current periods presentation,
this net loss has been reclassified to gain (loss) on debt
transactions, net on the consolidated statements of operations.
See Item 8, Financial Statements and Supplementary
Data - Note 2, Summary of Significant
Accounting Policies Gain (Loss) on Debt
Transactions, Net and Note 5, Long-Term Debt,
Credit Facilities and Notes for additional information.
During the year ended December 31, 2007, we recorded an
intangible asset impairment charge of $20.0 million, which
was included in depreciation and amortization on the
consolidated statements of operations in our 2007
10-K. In
order to conform to the current periods presentation, this
amount has been reclassified to impairment charges on the
consolidated statements of operations. See Item 8,
Financial Statements and Supplementary
Data Note 2, Summary of Significant
Accounting Policies Identifiable Intangible Assets
and Goodwill for additional information.
Net
Revenue
The components of our net revenues for the years ended
December 31, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Amounts in millions)
|
|
|
Gross directory advertising revenues
|
|
$
|
2,624.1
|
|
|
$
|
2,697.3
|
|
|
$
|
(73.2
|
)
|
|
|
(2.7
|
)%
|
Sales claims and allowances
|
|
|
(45.3
|
)
|
|
|
(54.8
|
)
|
|
|
9.5
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net directory advertising revenues
|
|
|
2,578.8
|
|
|
|
2,642.5
|
|
|
|
(63.7
|
)
|
|
|
(2.4
|
)
|
Other revenues
|
|
|
38.0
|
|
|
|
37.8
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,616.8
|
|
|
$
|
2,680.3
|
|
|
$
|
(63.5
|
)
|
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
Our directory advertising revenues are earned primarily from the
sale of advertising in yellow pages directories we publish, net
of sales claims and allowances. Directory advertising revenues
also include revenues for Internet-based advertising products
including online directories, such as DexKnows.com, and our Dex
Search Network. Directory advertising revenues are affected by
several factors, including changes in the quantity and size of
advertisements, acquisition of new clients, renewal rates of
existing clients, premium advertisements sold, changes in
advertisement pricing, the introduction of new products, an
increase in competition and more fragmentation in the local
business search space and general economic factors. Revenues
with respect to print advertising and Internet-based advertising
products that are sold with print advertising are recognized
under the deferral and amortization method. Revenues related to
our print advertising are initially deferred when a directory is
published and recognized ratably over the directorys life,
which is typically 12 months. 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, such as our Dex Search
Network, are recognized as delivered or fulfilled.
As a result of the deferral and amortization method of revenue
recognition, recognized gross directory advertising revenues
reflect the amortization of advertising sales consummated in
prior periods as well as advertising sales consummated in the
current period. As noted further below, advertising sales have
continued to deteriorate due to the overall economic instability
and will result in lower recognized advertising revenues in
future periods because, as noted, such revenues are recognized
ratably over the directorys life.
Gross directory advertising revenues for the year ended
December 31, 2008 decreased $73.2 million, or 2.7%,
from the year ended December 31, 2007. The decline in gross
directory advertising revenues for the year ended
December 31, 2008 is primarily due to declines in
advertising sales over the past twelve months, primarily as a
result of declines in recurring business, mainly driven by
reduced consumer confidence and more cautious client spending in
our markets given our clients perception of the economic
health of their respective markets, as well as an increase in
competition and more fragmentation in the local business search
space. These declines are partially offset by a full year of
revenues during 2008 from Business.com, compared with only four
months of revenues during 2007.
Sales claims and allowances for the year ended December 31,
2008 decreased $9.5 million, or 17.3%, from the year ended
December 31, 2007. The decrease in sales claims and
allowances for the year ended December 31, 2008 is
primarily due to improved quality and lower claims experience
due to process improvements in our Qwest markets of
$8.7 million.
Other revenues for the year ended December 31, 2008
increased $0.2 million, or 0.5%, from the year ended
December 31, 2007. Other revenues include late fees
received on outstanding client balances, barter revenues,
commissions earned on sales contracts with respect to
advertising placed into other publishers directories, and
sales of directories and certain other advertising-related
products.
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 revenues, which under GAAP are recognized under the deferral
and amortization method. Advertising sales for the year ended
December 31, 2008 were $2,518.3 million, compared to
$2,745.7 million for the year ended December 31, 2007.
Advertising sales for the year ended December 31, 2007
include $27.5 million of advertising sales assuming the
Business.com Acquisition occurred on January 1, 2007. The
$227.4 million, or 8.3%, decrease in advertising sales for
the year ended December 31, 2008, is a result of declines
in new and recurring business, mainly driven by weaker economic
trends, reduced consumer confidence and more cautious client
spending in our markets. Advertising sales have also been
impacted by an increase in competition and more fragmentation in
the local business search space. These declines are partially
offset by increases in Business.com advertising sales.
Advertising sales in current periods will be recognized as gross
directory advertising revenues in future periods as a result of
the deferral and amortization method of revenue recognition.
67
Expenses
The components of our total expenses for the years ended
December 31, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Amounts in millions)
|
|
|
Production, publication and distribution expenses
|
|
$
|
418.2
|
|
|
$
|
450.3
|
|
|
$
|
(32.1
|
)
|
|
|
(7.1
|
)%
|
Selling and support expenses
|
|
|
729.7
|
|
|
|
716.3
|
|
|
|
13.4
|
|
|
|
1.9
|
|
General and administrative expenses
|
|
|
120.9
|
|
|
|
145.6
|
|
|
|
(24.7
|
)
|
|
|
(17.0
|
)
|
Depreciation and amortization
|
|
|
483.3
|
|
|
|
443.1
|
|
|
|
40.2
|
|
|
|
9.1
|
|
Impairment charges
|
|
|
3,870.4
|
|
|
|
20.0
|
|
|
|
3,850.4
|
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,622.5
|
|
|
$
|
1,775.3
|
|
|
$
|
3,847.2
|
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(N/M:
Not Meaningful)
Our expenses during the years ended December 31, 2008 and
2007 include costs associated with our Triple Play strategy,
with focus on our online products and services across all of our
markets. These costs relate to the continued launch of our Dex
market brand and our uniform resource locator (URL),
DexKnows.com, across our entire footprint, costs associated with
traffic purchased and distributed to multiple advertiser landing
pages, the continued introduction of plus companion directories
in our CenturyLink and AT&T markets, as well as associated
marketing and advertising campaigns and employee training
associated with the modernization and consolidation of our IT
platform. We expect that these expenses will drive future
advertising sales and revenue improvements when economic
conditions improve in our markets.
Certain costs directly related to the selling and production of
directories are initially deferred and recognized ratably over
the life of the directory under the deferral and amortization
method of accounting, with cost recognition commencing in the
month directory distribution is substantially complete. These
costs are specifically identifiable to a particular directory
and include sales commissions and print, paper and initial
distribution costs. Sales commissions include amounts paid to
employees for sales to local clients and to certified marketing
representatives (CMRs), which act as our channel to
national clients. All other expenses, such as sales person
salaries, sales manager compensation, sales office occupancy,
publishing and information technology services, are not
specifically identifiable to a particular directory and are
recognized as incurred. Our costs recognized in a reporting
period consist of: (i) costs incurred in that period and
fully recognized in that period; (ii) costs incurred in a
prior period, a portion of which is amortized and recognized in
the current period; and (iii) costs incurred in the current
period, a portion of which is amortized and recognized in the
current period and the balance of which is deferred until future
periods. Consequently, there will be a difference between costs
recognized in any given period and costs incurred in the given
period, which may be significant.
Production,
Publication and Distribution Expenses
Total production, publication and distribution expenses for the
year ended December 31, 2008 were $418.2 million,
compared to $450.3 million for the year ended
December 31, 2007. The primary components of the
$32.1 million, or 7.1%, decrease in production, publication
and distribution expenses for the year ended December 31,
2008 were as follows:
|
|
|
|
|
|
|
$ Change
|
|
|
|
(Amounts
|
|
|
|
in millions)
|
|
|
Decreased print, paper and distribution costs
|
|
$
|
(25.3
|
)
|
Decreased cost uplift expense
|
|
|
(15.3
|
)
|
Decrease in information technology (IT) expenses
|
|
|
(10.6
|
)
|
Increased internet production and distribution costs
|
|
|
15.9
|
|
All other, net
|
|
|
3.2
|
|
|
|
|
|
|
Total decrease in production, publication and distribution
expenses for the year ended December 31, 2008
|
|
$
|
(32.1
|
)
|
|
|
|
|
|
68
During the year ended December 31, 2008, print, paper and
distribution costs declined $25.3 million, compared to the
year ended December 31, 2007. This decline is primarily due
to improved efficiencies in the display of client content in our
print products, the refinement of our distribution scope across
all of our markets and negotiated price reductions in our print
expenses.
Amortization of cost uplift during the year ended
December 31, 2007 totaled $15.3 million, with no
comparable expense for the year ended December 31, 2008.
During the year ended December 31, 2008, production,
publication and distribution related IT expenses declined
$10.6 million compared to the year ended December 31,
2007, primarily due to a full period of cost savings resulting
from lower rates associated with a new IT contract that became
effective in July 2007. This decline is partially offset by
additional spending associated with our IT infrastructure to
support our Triple Play products and services, and enhancements
and technical support of multiple production systems as we
integrated to a consolidated IT platform.
During the year ended December 31, 2008, we incurred
$15.9 million of additional expenses related to internet
production and distribution costs due to a full period of
expenses from Business.com, compared with only four months of
expenses for the year ended December 31, 2007, and
increased operations and distribution costs and traffic
purchased to generate usage for our clients business
associated with increased revenues from our online products and
services.
Selling
and Support Expenses
Total selling and support expenses for the year ended
December 31, 2008 were $729.7 million, compared to
$716.3 million reported for the year ended
December 31, 2007. The primary components of the
$13.4 million, or 1.9%, increase in selling and support
expenses for the year ended December 31, 2008, were as
follows:
|
|
|
|
|
|
|
$ Change
|
|
|
|
(Amounts
|
|
|
|
in millions)
|
|
|
Increased bad debt expense
|
|
$
|
57.5
|
|
Increase in advertising and branding expenses
|
|
|
17.2
|
|
Decreased commissions and salesperson costs
|
|
|
(27.7
|
)
|
Decreased cost uplift expense
|
|
|
(13.6
|
)
|
Decreased directory publishing support costs
|
|
|
(8.0
|
)
|
Decrease in marketing expenses
|
|
|
(4.8
|
)
|
Decrease in billing, credit and collection expenses
|
|
|
(3.2
|
)
|
Decreased incentive compensation expense
|
|
|
(2.8
|
)
|
All other, net
|
|
|
(1.2
|
)
|
|
|
|
|
|
Total increase in selling and support expenses for the year
ended December 31, 2008
|
|
$
|
13.4
|
|
|
|
|
|
|
During the year ended December 31, 2008, bad debt expense
increased $57.5 million, or 71.1%, compared to the year
ended December 31, 2007, primarily due to higher bad debt
provision rates, deterioration in accounts receivable aging
categories and increased write-offs, resulting from the adverse
impact on our clients from the instability of the overall
economy and tightening of the credit markets. During the year
ended December 31, 2008, our bad debt expense represented
5.3% of our net revenue, as compared to 3.0% for the year ended
December 31, 2007. If clients fail to pay within specified
credit terms, we may cancel their advertising in future
directories, which could further impact our ability to collect
past due amounts as well as adversely impact our advertising
sales and revenue growth trends. We expect that these economic
challenges will continue in our markets, and, as such, our bad
debt experience will continue to be adversely impacted in the
foreseeable future.
Advertising expense for the year ended December 31, 2008
includes $39.8 million of costs associated with traffic
purchased and distributed to multiple advertiser landing pages,
as compared to $7.8 million for the
69
year ended December 31, 2007, which included only four
months of costs associated with Business.com. This increase for
the year ended December 31, 2008 is also due to adopting
Business.coms performance based advertising
(PBA) platform during 2008. Exclusive of the costs
associated with purchased traffic, during the year ended
December 31, 2008, advertising and branding expenses
declined $14.8 million, as compared to the year ended
December 31, 2007. This decrease is primarily due to
additional advertising and branding costs incurred in 2007 to
promote the Dex brand name for all our print and online products
across our entire footprint as well as the use of DexKnows.com
as our new URL across our entire footprint.
During the year ended December 31, 2008, commissions and
salesperson costs decreased $27.7 million, compared to the
year ended December 31, 2007, primarily due to lower
advertising sales as well as headcount reductions and
consolidation of responsibilities.
Amortization of cost uplift during the year ended
December 31, 2007 totaled $13.6 million, with no
comparable expense for the year ended December 31, 2008.
During the year ended December 31, 2008, directory
publishing support costs decreased $8.0 million, compared
to the year ended December 31, 2007, primarily due to a
reduction in headcount and related expenses resulting from the
consolidation of our publishing and graphics operations.
During the year ended December 31, 2008, marketing expenses
decreased $4.8 million, compared to the year ended
December 31, 2007, primarily due to headcount reductions
and consolidation of responsibilities.
During the year ended December 31, 2008, billing, credit
and collection expenses decreased $3.2 million, compared to
the year ended December 31, 2007, primarily due to lower
costs resulting from a change in vendors as well as headcount
reductions and consolidation of responsibilities.
During the year ended December 31, 2008, selling and
support related incentive compensation expense declined
$2.8 million, compared to the year ended December 31,
2007, primarily due to additional expense related to vesting of
awards granted to retirement or early retirement eligible
employees during the year ended December 31, 2007. In
addition, incentive compensation expense declined during the
year ended December 31, 2008 due to an increase in our
forfeiture rate estimate.
General
and Administrative Expenses
General and administrative (G&A) expenses for
the year ended December 31, 2008 were $120.9 million,
compared to $145.6 million for the year ended
December 31, 2007. The primary components of the
$24.7 million, or 17.0%, decrease in G&A expenses for
the year ended December 31, 2008, were as follows:
|
|
|
|
|
|
|
$ Change
|
|
|
|
(Amounts
|
|
|
|
in millions)
|
|
|
Curtailment gains, net
|
|
$
|
(38.0
|
)
|
Decrease in incentive compensation expense
|
|
|
(10.9
|
)
|
Decrease in IT expenses
|
|
|
(7.6
|
)
|
Increase in restructuring expenses
|
|
|
30.6
|
|
All other, net
|
|
|
1.2
|
|
|
|
|
|
|
Total decrease in G&A expenses for the year ended
December 31, 2008
|
|
$
|
(24.7
|
)
|
|
|
|
|
|
During the year ended December 31, 2008, we recognized
one-time net curtailment gains of $38.0 million associated
with the freeze on the Companys defined benefit plans and
the elimination of the non-union retiree health care and life
insurance benefits noted above.
During the year ended December 31, 2008, G&A related
incentive compensation expense declined $10.9 million,
compared to the year ended December 31, 2007, primarily due
to additional expense related to vesting of awards granted to
retirement or early retirement eligible employees during the
year ended December 31, 2007. In addition, incentive
compensation expense declined during the year ended
December 31, 2008 due to an increase in our forfeiture rate
estimate.
70
During the year ended December 31, 2008, G&A related
IT expenses declined $7.6 million, compared to the year
ended December 31, 2007, primarily due to a full period of
cost savings resulting from lower rates associated with an IT
contract that became effective in July 2007. This decline is
partially offset by additional spending associated with our IT
infrastructure to support our Triple Play products and services.
During the year ended December 31, 2008, restructuring
expenses increased $30.6 million primarily due to outside
consulting fees, headcount reductions, consolidation of
responsibilities and vacated leased facilities.
Depreciation
and Amortization
Depreciation and amortization expense for the year ended
December 31, 2008 was $483.3 million, compared to
$443.1 million for the year ended December 31, 2007.
Amortization of intangible assets was $415.9 million for
the year ended December 31, 2008, compared to
$388.3 million for the year ended December 31, 2007.
The increase in amortization expense for the year ended
December 31, 2008 is primarily due to recognizing an
additional $13.0 million of amortization expense for
intangible assets acquired in the Business.com Acquisition, as
compared to four months of amortization expense for the year
ended December 31, 2007, and is also due to recognizing a
full period of amortization expense related to the local
customer relationships intangible asset acquired in the Dex
Media Merger of $7.5 million, which commenced in February
2007.
Depreciation of fixed assets and amortization of computer
software was $67.4 million for the year ended
December 31, 2008 compared to $54.8 million for the
year ended December 31, 2007. The increase in depreciation
expense for the year ended December 31, 2008 was primarily
due to recognizing depreciation expense related to capital
projects placed in service during 2007.
Impairment
Charges
As a result of the decline in the trading value of our debt and
equity securities and continuing negative industry and economic
trends that directly affected our business, we recognized
goodwill impairment charges of $2.5 billion and
$660.2 million during the first and second quarters of
2008, respectively, together totaling $3.1 billion for the
year ended December 31, 2008. As a result of these
impairment charges, we had no recorded goodwill at
December 31, 2008. No impairment losses were recorded
related to our goodwill during the year ended December 31,
2007.
Given the ongoing global credit and liquidity crisis and the
significant negative impact on financial markets, the overall
economy and the continued decline in our advertising sales and
other operating results and downward revisions to our forecasted
results, the recent downgrade of certain of our credit ratings,
the continued decline in the trading value of our debt and
equity securities and the recent suspension of trading of our
common stock on the NYSE, we performed impairment tests of our
definite-lived intangible assets and other long-lived assets as
of December 31, 2008. As a result of these tests, the
Company recognized an impairment charge of $744.0 million
during the fourth quarter of 2008 associated with the local and
national customer relationships acquired in prior acquisitions.
In addition, in connection with the launch of the next version
of our proprietary online search site, DexKnows.com, the
tradenames and technology acquired in a prior acquisition will
be discontinued, which resulted in an impairment charge of
$2.2 million during the fourth quarter of 2008. Total
impairment charges related to our intangible assets, excluding
goodwill, were $746.2 million during the year ended
December 31, 2008.
See Critical Accounting Estimates Intangible
Assets and Goodwill Valuation and Amortization for
additional information regarding the impairment testing analysis
and results related to our goodwill and definite-lived
intangible assets and other long-lived assets.
During the year ended December 31, 2008, we retired certain
computer software fixed assets, which resulted in an impairment
charge of $0.4 million.
During the year ended December 31, 2007, we recorded an
intangible asset impairment charge of $20.0 million
associated with the tradenames acquired in a prior acquisition.
This impairment charge resulted from a change in our branding
strategy to utilize a new Dex market brand for all of our print
and online
71
products across our entire footprint and discontinued use of the
tradenames acquired in a prior acquisition. This impairment
charge was determined using the relief from royalty valuation
method. Other than this impairment charge, no impairment losses
were recorded related to our definite-lived intangible assets
and other long-lived assets during the year ended
December 31, 2007.
If industry and economic conditions in our markets continue to
deteriorate and if the trading value of our debt and equity
securities decline further, we will be required to once again
assess the recoverability and useful lives of our long-lived
assets and other intangible assets, which could result in
additional impairment charges, a reduction of remaining useful
lives and acceleration of amortization expense.
Operating
Income (Loss)
Operating income (loss) for the years ended December 31,
2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
% Change
|
|
|
(Amounts in millions)
|
|
Total
|
|
$
|
(3,005.7
|
)
|
|
$
|
905.0
|
|
|
$
|
(3,910.7
|
)
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) for the year ended December 31,
2008 of $(3.0) billion, compares to operating income of
$905.0 million for the year ended December 31, 2007.
The change to operating loss for the year ended
December 31, 2008 from operating income for the year ended
December 31, 2007 is primarily due to the impairment
charges noted above, as well as the revenue and expense trends
described above.
Non-operating
Income
During the year ended December 31, 2007, we recognized a
non-operating gain on the sale of an investment of
$1.8 million.
Interest
Expense, Net
Net interest expense for the year ended December 31, 2008
was $835.5 million and includes $29.0 million of
non-cash amortization of deferred financing costs. Net interest
expense for the year ended December 31, 2007 was
$804.6 million and includes $23.2 million of non-cash
amortization of deferred financing costs. As a result of the
amendment of the RHDI credit facility and the refinancing of the
former Dex Media West credit facility, the interest rate swaps
associated with these credit facilities were deemed ineffective
on June 6, 2008. Interest expense for the year ended
December 31, 2008 includes a non-cash charge of
$21.0 million resulting from amounts charged to accumulated
other comprehensive loss related to these interest rate swaps
prior to June 6, 2008. Interest expense for the year ended
December 31, 2008 also includes a non-cash charge of
$3.7 million resulting from the change in the fair value of
these interest rate swaps between June 6, 2008 and
December 31, 2008.
The increase in net interest expense of $30.9 million, or
3.8%, for the year ended December 31, 2008 is primarily due
to additional interest expense associated with the ineffective
interest rate swaps noted above. This increase is partially
offset by lower interest rates associated with the
Companys refinancing transactions conducted during the
fourth quarter of 2007, lower interest rates on our variable
rate debt during the period as compared to the corresponding
prior period and lower outstanding debt resulting from debt
repaid and debt repurchases. See Liquidity and Capital
Resources for further detail regarding our debt
obligations.
In conjunction with the Dex Media Merger and as a result of
purchase accounting required under GAAP, we recorded Dex
Medias debt at its fair market value on January 31,
2006. We recognize an offset to interest expense each period for
the amortization of the corresponding fair value adjustment over
the life of the respective debt. The offset to interest expense
was $17.6 million for the year ended December 31,
2008, compared to $29.9 million for the year ended
December 31, 2007. As a result of redeeming Dex Media
Easts outstanding 9.875% senior notes and
12.125% senior subordinated notes on November 26,
2007, no fair value adjustment related to these notes remained
unamortized at December 31, 2007, therefore contributing to
the decline in the offset to interest expense during the year
ended December 31, 2008.
72
Gain
(Loss) on Debt Transactions, Net
As a result of voluntary prepayments made under the RHDI credit
facility during the fourth quarter of 2008, we recognized a gain
of $20.0 million during the year ended December 31,
2008, consisting of the difference between the face amount of
the Term Loans repaid and the voluntary prepayments made, offset
by the write-off of unamortized deferred financing costs.
As a result of the debt repurchases in October 2008, we recorded
a gain of $13.6 million during the year ended
December 31, 2008, consisting of the difference between the
par value and purchase price of our senior notes, offset by the
write-off of unamortized deferred financing costs.
As a result of the debt repurchases in September 2008, we
recorded a gain of $72.4 million during the year ended
December 31, 2008, representing the difference between the
accreted value or par value, as applicable, and purchase price
of our senior notes and senior discount notes, offset by the
write-off of unamortized deferred financing costs.
As a result of the exchange of our senior notes and senior
discount notes (RHD Notes) for RHDIs
11.75% Senior Notes due May 15, 2015 (RHDI
Senior Notes) on June 25, 2008, we recorded a gain of
$161.3 million during the year ended December 31,
2008, representing the difference between the accreted value or
par value, as applicable, of the extinguished RHD Notes and the
RHDI Senior Notes, offset by the write-off of unamortized
deferred financing costs related to the extinguished RHD Notes,
which has been accounted for as an extinguishment of debt.
During the year ended December 31, 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, which have been accounted for as
extinguishments of debt.
As a result of the financing activities noted above, we recorded
a gain of $265.2 million during the year ended
December 31, 2008.
During the year ended December 31, 2007, we recorded a loss
on debt transactions of $26.3 million resulting from tender
and redemption premium payments of $71.7 million and the
write-off of unamortized deferred financing costs of
$16.8 million associated with the refinancing transactions
conducted during the fourth quarter of 2007, offset by the
accelerated amortization of the fair value adjustment directly
attributable to the redemption of Dex Media Easts
outstanding 9.875% senior notes and 12.125% senior
subordinated notes on November 26, 2007 of
$62.2 million, which has been accounted for as an
extinguishment of debt.
See Item 8, Financial Statements and Supplementary
Data Note 2, Summary of Significant
Accounting Policies Gain (Loss) on Debt
Transactions, Net for additional information.
Benefit
(Provision) for Income Taxes
The effective tax rate on income (loss) before income taxes of
35.7% for the year ended December 31, 2008, compares to an
effective tax rate of 38.3% on income before income taxes for
the year ended December 31, 2007. As a result of the
goodwill impairment charge of $3.1 billion recorded during
the year ended December 31, 2008, we recognized a decrease
in our deferred income tax liability of $1.1 billion, which
directly impacted our deferred income tax benefit. The change in
the effective tax rate for the year ended December 31, 2008
is primarily due to the tax consequences of the goodwill
impairment charges. The change in the effective tax rate for the
year ended December 31, 2008 is also attributable to
changes in estimates of state tax apportionment factors that
impact our effective state tax rates.
The 2008 income tax benefit of $1,277.7 million is
comprised of a federal tax benefit of $1,128.7 million and
a state tax benefit of $149.0 million. The 2008 federal tax
benefit is comprised of a current tax provision of
$23.9 million, primarily related to an increase to our
FIN No. 48 liability, offset by a deferred income tax
benefit of $1,152.6 million, primarily related to the
goodwill impairment charges during 2008. The 2008 state tax
benefit of $149.0 million is comprised of a current tax
provision of $10.3 million, which relates to taxes due in
states where subsidiaries of the Company file separate tax
returns, as well as an increase in our
73
FIN No. 48 liability, offset by a deferred income tax
benefit of $159.3 million, primarily related to the
goodwill impairment charges during 2008. During 2008, the
Company utilized federal net operating losses for income tax
purposes of $4.1 million primarily resulting from taxable
gains associated with certain financing activities conducted
during 2008.
The 2008 income tax benefit includes an income tax benefit of
$20.3 million from correcting overstated income tax expense
in fiscal years 2004 through 2007. We have evaluated the
materiality of this correction and concluded it was not material
to current or prior year financial statements. Accordingly we
recorded this correction during the fourth quarter of 2008.
At December 31, 2008, the Company had federal and state net
operating loss carryforwards of approximately
$622.8 million (net of carryback) and $567.6 million,
respectively, which will begin to expire in 2026 and 2009,
respectively. These amounts include consideration of net
operating losses expected to expire unused due to the Internal
Revenue Code Section 382 limitation for ownership changes
related to Business.com that occurred prior to the Business.com
Acquisition.
In September 2008, we effectively settled all issues under
consideration with the Department of Finance for New York City
related to its audit for taxable year 2000. As a result of the
settlement, the unrecognized tax benefits associated with our
uncertain state tax positions decreased by $0.9 million
during the year ended December 31, 2008. The decrease in
the unrecognized tax benefits has decreased our effective tax
rate for the year ended December 31, 2008. The unrecognized
tax benefits impacted by the New York City audit primarily
related to allocation of income among our legal entities.
The 2007 provision for income taxes of $29.0 million is
comprised of a federal tax provision of $27.5 million,
resulting from a current tax provision of $11.8 million
relating to an Internal Revenue Service (IRS)
settlement and a deferred income tax provision of
$15.7 million resulting from a current year taxable loss.
The 2007 state tax provision of $1.5 million results
from a current tax provision of $8.5 million relating to
taxes due in states where subsidiaries of the Company file
separate company returns, offset by a deferred state tax benefit
of $7.0 million relating to the apportioned taxable income
or loss among various states. A federal net operating loss for
income tax purposes of approximately $303.3 million was
generated in 2007 primarily as a result of tax amortization
expense recorded with respect to the intangible assets acquired
in prior acquisitions.
In July 2007, we effectively settled all issues under
consideration with the IRS related to its audit for taxable
years 2003 and 2004. Therefore, tax years 2005 through 2007 are
still subject to examination by the IRS. Certain state tax
returns are under examination by various regulatory authorities.
We continuously review issues raised in connection with ongoing
examinations and open tax years to evaluate the adequacy of our
reserves. We believe that our accrued tax liabilities under
FIN No. 48 are adequate to cover uncertain tax
positions related to U.S. federal and state income taxes.
74
Net
Income (Loss) and Earnings (Loss) Per Share
Net income (loss) for the year ended December 31, 2008 of
$(2.3) billion, compares to net income of
$46.9 million for the year ended December 31, 2007.
The change to net loss for the year ended December 31, 2008
from net income for the year ended December 31, 2007 is
primarily due to the impairment charges noted above, as well as
the revenue and expense trends described above, offset by the
gain recognized on the financing activities during 2008 noted
above.
The calculation of basic and diluted earnings (loss) per share
(EPS) is presented below.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands except per share amounts)
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
Weighted average common shares outstanding
|
|
|
68,793
|
|
|
|
70,932
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(33.41
|
)
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
Weighted average common shares outstanding
|
|
|
68,793
|
|
|
|
70,932
|
|
Dilutive effect of stock
awards(1)
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
68,793
|
|
|
|
71,963
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(33.41
|
)
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Due to the net loss reported for the year ended
December 31, 2008, the effect of all stock-based awards was
anti-dilutive and therefore is not included in the calculation
of diluted EPS. For the years ended December 31, 2008 and
2007, 4.1 million shares and 2.6 million shares,
respectively, of stock-based awards had exercise prices that
exceeded the average market price of the Companys common
stock for the respective periods. |
LIQUIDITY
AND CAPITAL RESOURCES
Impact
on Long-Term Debt Upon Emergence from the Chapter 11
Proceedings
On the Effective Date and in accordance with the Plan,
$6.1 billion of our notes in default, which are presented
as long-term debt subject to compromise in the table below, were
exchanged for (a) 100% of the reorganized Dex One equity
and (b) we issued $300.0 million of the Dex One Senior
Subordinated Notes to the holders of the Dex Media West
8.5% Senior Notes due 2010 and 5.875% Senior Notes due
2011 on a pro rata basis in addition to their share of the
reorganized Dex One equity. In accordance with the Plan, the
Companys existing credit facilities were amended and
restated on the Effective Date. The terms and conditions of the
amended and restated credit facilities are noted below. As of
the Effective Date, aggregate outstanding debt was
$3.4 billion, comprised of $3.1 billion outstanding
under our amended and restated credit facilities and the
$300.0 million Dex One Senior Subordinated Notes.
The following table presents the carrying value of our long-term
debt at December 31, 2009 and 2008. As a result of filing
the Chapter 11 petitions, unamortized fair value
adjustments required by GAAP as a result of the Dex Media Merger
of $78.5 million and unamortized net
premiums / discounts of $34.9 million at
May 28, 2009 were written-off and recognized as
reorganization items on the consolidated statement of operations
for the year ended December 31, 2009. Therefore the
carrying value of our long-term debt at December 31, 2009
represents par value. The carrying value of our long-term debt
at December 31, 2008 includes $86.2 million of
unamortized fair value adjustments. As a result of filing the
Chapter 11 petitions and
75
the Plan, we do not believe that it is meaningful to present the
fair market value of our long-term debt at December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Notes in
|
|
|
Credit
|
|
|
|
|
|
|
Default
|
|
|
Facilities
|
|
|
December 31, 2008
|
|
|
RHD
|
|
|
|
|
|
|
|
|
|
|
|
|
6.875% Senior Notes due 2013
|
|
$
|
206,791
|
|
|
$
|
|
|
|
$
|
206,791
|
|
6.875%
Series A-1
Senior Discount Notes due 2013
|
|
|
320,903
|
|
|
|
|
|
|
|
301,862
|
|
6.875%
Series A-2
Senior Discount Notes due 2013
|
|
|
483,365
|
|
|
|
|
|
|
|
455,204
|
|
8.875%
Series A-3
Senior Notes due 2016
|
|
|
1,012,839
|
|
|
|
|
|
|
|
1,012,839
|
|
8.875%
Series A-4
Senior Notes due 2017
|
|
|
1,229,760
|
|
|
|
|
|
|
|
1,229,760
|
|
R.H. Donnelley Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
|
|
|
|
1,424,048
|
|
|
|
1,341,098
|
|
11.75% Senior Notes due 2015
|
|
|
412,871
|
|
|
|
|
|
|
|
412,871
|
|
Dex Media, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
8% Senior Notes due 2013
|
|
|
500,000
|
|
|
|
|
|
|
|
510,408
|
|
9% Senior Discount Notes due 2013
|
|
|
749,857
|
|
|
|
|
|
|
|
771,488
|
|
Dex Media East
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
|
|
|
|
1,039,436
|
|
|
|
1,081,500
|
|
Dex Media West
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
|
|
|
|
1,091,292
|
|
|
|
1,080,000
|
|
8.5% Senior Notes due 2010
|
|
|
385,000
|
|
|
|
|
|
|
|
393,883
|
|
5.875% Senior Notes due 2011
|
|
|
8,720
|
|
|
|
|
|
|
|
8,761
|
|
9.875% Senior Subordinated Notes due 2013
|
|
|
761,650
|
|
|
|
|
|
|
|
815,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RHD consolidated
|
|
|
6,071,756
|
|
|
|
3,554,776
|
|
|
|
9,622,256
|
|
Less current portion not subject to compromise
|
|
|
|
|
|
|
993,528
|
|
|
|
113,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt subject to compromise
|
|
$
|
6,071,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt not subject to compromise
|
|
|
|
|
|
$
|
2,561,248
|
|
|
$
|
9,508,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facilities
On May 28, 2009 and in conjunction with the Plan, the
Company repaid an aggregate of $200.0 million in principal
on outstanding balances owed under the RHDI, Dex Media East and
Dex Media West credit facilities, comprised of
$77.7 million, $59.6 million and $62.7 million,
respectively.
On February 13, 2009, the Company borrowed the unused
portions under the RHDI Revolver, Dex Media East Revolver and
Dex Media West Revolver totaling $174.0 million,
$97.0 million and $90.0 million, respectively. The
Company made the borrowings under the various revolving credit
facilities to preserve its financial flexibility in light of the
continuing uncertainty in the global credit markets.
RHDI
As of December 31, 2009, outstanding balances under the
RHDI credit facility totaled $1,424.0 million, comprised of
$252.8 million under Term Loan D-1, $1,006.2 million
under Term Loan D-2 and $165.0 million under the RHDI
Revolver. The RHDI credit facility provided for an uncommitted
Term Loan C for potential borrowings up to $400.0 million.
The weighted average interest rate of outstanding debt under the
RHDI credit facility was 6.72% and 6.77% at December 31,
2009 and 2008, respectively.
As of December 31, 2009, prior to amendment and
restatement, the terms and conditions of the RHDI credit
facility consisted of the following:
|
|
|
|
|
All Term Loans required quarterly principal and interest
payments;
|
76
|
|
|
|
|
Interest payments were made at our option at either:
|
|
|
|
|
|
The highest of (i) a base rate as determined by the
Administrative Agent, Deutsche Bank Trust Company Americas,
(ii) the Federal Funds Effective Rate (as defined) plus
0.50%, and (iii) 4.0%, in each case, plus a 2.50% margin on
the RHDI Revolver and a 2.75% margin on Term Loan D-1 and Term
Loan D-2; or
|
|
|
|
The higher of (i) LIBOR rate and (ii) 3.0%, in each
case, plus a 3.50% margin on the new RHDI Revolver and a 3.75%
margin on Term Loan D-1 and Term Loan D-2. We may elect interest
periods of 1, 2, 3 or 6 months (or 9 or 12 months if,
at the time of the borrowing, all lenders agree to make such
term available), for LIBOR borrowings.
|
|
|
|
|
|
Term Loans D-1 and D-2 required accelerated amortization
beginning in 2010 through final maturity in June 2011; and
|
|
|
|
$75.0 million of the RHDI Revolver matured in December
2009, while $100.0 million of the RHDI Revolver would have
matured in June 2011.
|
The terms and conditions of the amended and restated RHDI credit
facility (RHDI Amended and Restated Credit Facility)
consist of the following:
|
|
|
|
|
The balances under the existing Term Loan D-1, Term Loan D-2 and
RHDI Revolver, as well as $13.6 million associated with
unsettled and outstanding interest rate swap liabilities, have
been converted into a new tranche of term loans and provides for
an initial prepayment of such loans. As of the Effective Date,
the aggregate outstanding balance of the term loans under the
RHDI Amended and Restated Credit Facility was
$1,224.9 million;
|
|
|
|
The RHDI Amended and Restated Credit Facility requires quarterly
principal and interest payments and matures on October 24,
2014;
|
|
|
|
Interest payments are made at our option at either:
|
|
|
|
|
|
The highest (subject to a floor of 4.00%) of (i) the Prime
Rate, (ii) the Federal Funds Effective Rate plus 0.50%, and
(z) one month LIBOR plus 1.00% in each case, plus an
interest rate margin for base rate loans. The interest rate
margin for base rate loans is initially 5.25% per annum, and
such interest rate margin adjusts pursuant to a pricing grid
that provides for a margin equal to 5.25% per annum if
RHDIs consolidated leverage ratio is greater than or equal
to 4.25 to 1.00, and equal to 5.00% per annum if RHDIs
consolidated leverage ratio is less than 4.25 to 1.00; or
|
|
|
|
The higher of (i) LIBOR rate and (ii) 3.00%, in each
case, plus an interest rate margin for LIBOR loans. The interest
rate margin for LIBOR loans is initially 6.25% per annum, and
such interest rate margin adjusts pursuant to a pricing grid
that provides for a margin equal to 6.25% per annum if
RHDIs consolidated leverage ratio is greater than or equal
to 4.25 to 1.00, and equal to 6.00% per annum if RHDIs
consolidated leverage ratio is less than 4.25 to 1.00. RHDI may
elect interest periods of 1, 2, 3 or 6 months for LIBOR
borrowings.
|
Dex
Media East
As of December 31, 2009, outstanding balances under the Dex
Media East credit facility totaled $1,039.4 million,
comprised of $572.7 million under Term Loan A,
$374.7 million under Term Loan B and $92.0 million
under the Dex Media East Revolver, exclusive of
$2.6 million utilized under three standby letters of
credit. The Dex Media East credit facility also consisted of a
$200.0 million aggregate principal amount uncommitted
incremental facility, in which Dex Media East would have the
right, subject to obtaining commitments for such incremental
loans, on one or more occasions to increase the Term Loan A,
Term Loan B or the Dex Media East Revolver by such amount. The
weighted average interest rate of outstanding debt under the Dex
Media East credit facility was 2.08% and 3.83% at
December 31, 2009 and 2008, respectively.
77
As of December 31, 2009, prior to amendment and
restatement, the terms and conditions of the Dex Media East
credit facility consisted of the following:
|
|
|
|
|
All Term Loans required quarterly principal and interest
payments;
|
|
|
|
Interest payments were made at our option at either:
|
|
|
|
|
|
The higher of (i) the base rate determined by the
Administrative Agent, JP Morgan Chase Bank, N.A. and
(ii) the Federal Funds Effective Rate (as defined) plus
0.50%, and in each case, plus a 0.75% (or 0.50% if leverage
ratio is less than 2 to 1) margin on the Dex Media East
Revolver and Term Loan A and a 1.00% margin on Term Loan
B; or
|
|
|
|
The LIBOR rate plus a 1.75% (or 1.50% if leverage ratio is less
than 2 to 1) margin on the Dex Media East Revolver and Term
Loan A and a 2.00% margin on Term Loan B. We may elect interest
periods of 1, 2, 3, or 6 months (or 9 or 12 months if,
at the time of the borrowing, all lenders agree to make such
term available), for LIBOR borrowings.
|
|
|
|
|
|
The Dex Media East Revolver and Term Loan A would have matured
in October 2013, and the Term Loan B would have matured in
October 2014.
|
The terms and conditions of the amended and restated Dex Media
East credit facility (Dex Media East Amended and Restated
Credit Facility) consist of the following:
|
|
|
|
|
The balances under the existing Term Loan A, Term Loan B and Dex
Media East Revolver, as well as $26.7 million associated
with unsettled and outstanding interest rate swap liabilities,
have been converted into a new tranche of term loans and
provides for an initial prepayment of such loans. As of the
Effective Date, the aggregate outstanding balance of the term
loans under the Dex Media East Amended and Restated Credit
Facility was $956.2 million;
|
|
|
|
The Dex Media East Amended and Restated Credit Facility requires
quarterly principal and interest payments and matures on
October 24, 2014;
|
|
|
|
Interest payments are made at our option at either:
|
|
|
|
|
|
The highest of (i) the Prime Rate, (ii) the Federal
Funds Effective Rate plus 0.50%, and (z) one month LIBOR
plus 1.00% in each case, plus an interest rate margin for base
rate loans. The interest rate margin for base rate loans is
initially 1.50% per annum, and such interest rate margin adjusts
pursuant to a pricing grid that provides for a margin equal to
1.50% per annum if DME Inc.s consolidated leverage ratio
is greater than or equal to 2.75 to 1.00, equal to 1.25% per
annum if DME Inc.s consolidated leverage ratio is greater
than or equal to 2.50 to 1.00 but less than 2.75 to 1.00 and
equal to 1.00% per annum if DME Inc.s consolidated
leverage ratio is less than 2.50 to 1.00; or
|
|
|
|
The LIBOR rate plus an interest rate margin for LIBOR loans. The
interest rate margin for LIBOR loans is initially 2.50% per
annum, and such interest rate margin adjusts pursuant to a
pricing grid that provides for a margin equal to 2.50% per annum
if DME Inc.s consolidated leverage ratio is greater than
or equal to 2.75 to 1.00, equal to 2.25% per annum if DME
Inc.s consolidated leverage ratio is greater than or equal
to 2.50 to 1.00 but less than 2.75 to 1.00 and equal to 2.00%
per annum if DME Inc.s consolidated leverage ratio is less
than 2.50 to 1.00. DME Inc. may elect interest periods of 1, 2,
3 or 6 months for LIBOR borrowings.
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Dex
Media West
As of December 31, 2009, outstanding balances under the Dex
Media West credit facility totaled $1,091.3 million,
comprised of $113.8 million under Term Loan A,
$892.3 million under Term Loan B and $85.2 million
under the Dex Media West Revolver. In the event that more than
$25.0 million of Dex Media Wests 9.875% Senior
Subordinated Notes due 2013 (or any refinancing or replacement
thereof) was outstanding, the Dex Media West Revolver, Term Loan
A and Term Loan B would have matured on the date that is three
months prior to the final maturity of such notes. The Dex Media
West credit facility included an
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up to $400.0 million uncommitted incremental facility
(Incremental Facility) that could have been incurred
as additional revolving loans or additional term loans, subject
to obtaining commitments for such loans. The Incremental
Facility was fully available if used to refinance the Dex Media
West 8.5% Senior Notes due 2010, however was limited to
$200.0 million if used for any other purpose. The weighted
average interest rate of outstanding debt under the Dex Media
West credit facility was 6.95% and 7.10% at December 31,
2009 and 2008, respectively.
As of December 31, 2009, prior to amendment and
restatement, the terms and conditions of the Dex Media West
credit facility consisted of the following:
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All Term Loans required quarterly principal and interest
payments;
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Interest payments were made at our option at either:
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The highest of (i) the base rate determined by the
Administrative Agent, JP Morgan Chase Bank, N.A., (ii) the
Federal Funds Effective Rate (as defined) plus 0.50%, and
(iii) 4.0%, in each case, plus a 2.75% (or 2.50% if the
leverage ratio is less than 3.00 to 1.00) margin on the Dex
Media West Revolver and Term Loan A and a 3.0% margin on Term
Loan B; or
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The higher of (i) LIBOR rate and (ii) 3.0% plus a
3.75% (or 3.50% if the leverage ratio is less than 3.00 to 1.00)
margin on the Dex Media West Revolver and Term Loan A and a 4.0%
margin on Term Loan B. We may elect interest periods of 1, 2, 3,
or 6 months (or 9 or 12 months if, at the time of the
borrowing, all lenders agree to make such term available), for
LIBOR borrowings.
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The Dex Media West Revolver and Term Loan A would have matured
in October 2013 and the Term Loan B would have matured in
October 2014.
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The terms and conditions of the amended and restated Dex Media
West credit facility (Dex Media West Amended and Restated
Credit Facility) consist of the following:
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The balances under the existing Term Loan A, Term Loan B and Dex
Media West Revolver, as well as $1.0 million associated
with unsettled and outstanding interest rate swap liabilities,
have been converted into a new tranche of term loans and
provides for an initial prepayment of such loans. As of the
Effective Date, the aggregate outstanding balance of the term
loans under the Dex Media West Amended and Restated Credit
Facility was $903.7 million;
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The Dex Media West Amended and Restated Credit Facility requires
quarterly principal and interest payments and matures on
October 24, 2014;
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Interest payments are made at our option at either:
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The highest (subject to a floor of 4.00%) of (i) the Prime
Rate, (ii) the Federal Funds Effective Rate plus 0.50%, and
(z) one month LIBOR plus 1.00% in each case, plus an
interest rate margin for base rate loans. The interest rate
margin for base rate loans is initially 3.50% per annum, and
such interest rate margin adjusts pursuant to a pricing grid
that provides for a margin equal to 3.50% per annum if DMW
Inc.s consolidated leverage ratio is greater than or equal
to 2.75 to 1.00, equal to 3.25% per annum if DMW Inc.s
consolidated leverage ratio is greater than or equal to 2.50 to
1.00 but less than 2.75 to 1.00 and equal to 3.00% per annum if
DMW Inc.s consolidated leverage ratio is less than 2.50 to
1.00; or
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The higher of (i) LIBOR rate and (ii) 3.00%, in each
case, plus an interest rate margin for LIBOR loans. The interest
rate margin for LIBOR loans is initially 4.50% per annum, and
such interest rate margin adjusts pursuant to a pricing grid
that provides for a margin equal to 4.50% per annum if DMW
Inc.s consolidated leverage ratio is greater than or equal
to 2.75 to 1.00, equal to 4.25% per annum if DMW Inc.s
consolidated leverage ratio is greater than or equal to 2.50 to
1.00 but less than 2.75 to 1.00 and equal to 4.00% per annum if
DMW Inc.s consolidated leverage ratio is less than 2.50 to
1.00. DMW Inc. may elect interest periods of 1, 2, 3 or
6 months for LIBOR borrowings.
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Each of the Companys amended and restated credit
facilitates includes an uncommitted revolving credit facility
available for borrowings up to $40.0 million. The
availability of such uncommitted revolving credit facility is
subject to certain conditions including the prepayment of the
term loans under each of the amended and restated credit
facilities in an amount equal to such revolving credit facility.
The amended and restated credit facilities contain provisions
for prepayment from net proceeds of asset dispositions, equity
issuances and debt issuances subject to certain exceptions, from
a ratable portion of the net proceeds received by the Company
from asset dispositions by the Company, subject to certain
exceptions, and from a portion of excess cash flow.
Each of the Companys amended and restated credit
facilities contain certain covenants that, subject to
exceptions, limit or restrict each borrower and its
subsidiaries incurrence of liens, investments (including
acquisitions), sales of assets, indebtedness, payment of
dividends, distributions and payments of certain indebtedness,
sale and leaseback transactions, swap transactions, affiliate
transactions, capital expenditures and mergers, liquidations and
consolidations. Each amended and restated credit facility also
contains certain covenants that, subject to exceptions, limit or
restrict each borrowers incurrence of liens, indebtedness,
ownership of assets, sales of assets, payment of dividends or
distributions or modifications of the Dex One Senior
Subordinated Notes. Each borrower is required to maintain
compliance with a consolidated leverage ratio covenant. RHDI and
DMW Inc. is also required to maintain compliance with
consolidated interest coverage ratio covenant. DMW Inc. is also
required to maintain compliance with a consolidated senior
secured leverage ratio covenant. The Dex Media West Amended and
Restated Credit Agreement includes an option for additional
covenant relief under the senior secured leverage covenant
through the fourth quarter of 2011, subject to increased
amortization of the loans through the first quarter of 2012, an
increase in the excess cash flow sweep for 2010 and 2011 and
payment of a 25 basis point fee ratably to the lenders
under the Dex Media West Amended and Restated Credit Agreement.
The obligations under each of the amended and restated credit
facilitates are guaranteed by the subsidiaries of the borrower
and are secured by a lien on substantially all of the
borrowers and its subsidiaries tangible and
intangible assets, including a pledge of the stock of their
respective subsidiaries, as well as a mortgage on certain real
property, if any.
Pursuant to a shared guaranty and collateral agreement and
subject to an intercreditor agreement among the administrative
agents under each of the amended and restated credit
facilitates, the Company and, subject to certain exceptions,
certain subsidiaries of the Company, guaranty the obligations
under each of the amended and restated credit facilitates and
the obligations are secured by a lien on substantially all of
such guarantors tangible and intangible assets, including
a pledge of the stock of their respective subsidiaries, as well
as a mortgage on certain real property, if any.
Notes
Issued Upon Emergence from the Chapter 11
Proceedings
On the Effective Date, in accordance with the Plan, all of our
notes in default were exchanged for (a) 100% of the
reorganized Dex One equity and (b) we issued
$300.0 million of the Dex One Senior Subordinated Notes to
the holders of the Dex Media West 8.5% Senior Notes due
2010 and 5.875% Senior Notes due 2011 on a pro rata basis
in addition to their share of the reorganized Dex One equity.
Dex
One
On the Effective Date, we issued the $300.0 million Dex One
Senior Subordinated Notes. Interest on the Dex One Senior
Subordinated Notes is payable semi-annually on
March 31st and September 30th of each year, commencing
on March 31, 2010 through January 2017. The Dex One Senior
Subordinated Notes accrue interest at an annual rate of 12% for
cash interest payments and 14% if the Company elects
paid-in-kind
(PIK) interest payments. The Company may elect,
prior to the start of each interest payment period, whether to
make each interest payment on the Dex One Senior Subordinated
Notes (i) entirely in cash or (ii) 50% in cash and 50%
in PIK interest, which is capitalized as incremental or
additional senior secured notes. The interest rate on the Dex
One Senior Subordinated Notes may be subject to adjustment in
the event the Company incurs certain specified debt with a
higher effective yield to maturity than the yield to maturity of
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the Dex One Senior Subordinated Notes. The Dex One Senior
Subordinated Notes are unsecured obligations of the Company,
effectively subordinated in right of payment to all of the
Companys existing and future secured debt, including Dex
Ones guarantee of borrowings under each of the amended and
restated credit facilities and are structurally subordinated to
any existing or future liabilities (including trade payables) of
our direct and indirect subsidiaries.
The Dex One Senior Subordinated Notes contain certain covenants
that, subject to certain exceptions, among other things, limit
or restrict the Companys (and, in certain cases, the
Companys restricted subsidiaries) incurrence of
indebtedness, making of certain restricted payments, incurrence
of liens, entry into transactions with affiliates, conduct of
its business and its merger, consolidation or sale of all or
substantially all of its property. The Dex One Senior
Subordinated Notes also require the Company to offer to
repurchase the Dex One Senior Subordinated Notes at par after
certain changes of control involving the Company or the sale of
substantially all of the assets of the Company. Holders of the
Dex One Senior Subordinated Notes also may cause the Company to
repurchase the Dex One Senior Subordinated Notes at a price of
101% of the principal amount upon the incurrence by the Company
of certain acquisition indebtedness.
As of December 31, 2009, we had total outstanding notes of
$6,071.8 million, comprised of $3,253.6 million
outstanding RHD notes, $412.9 million outstanding RHDI
notes, $1,249.9 million outstanding Dex Media, Inc. notes
and $1,155.4 million outstanding Dex Media West notes.
Notes
in Default Eliminated Upon Emergence from the Chapter 11
Proceedings
RHD
As of December 31, 2009, RHD had total outstanding notes of
$3,253.6 million, comprised of $206.8 million
6.875% Senior Notes, $320.9 million 6.875%
Series A-1
Senior Discount Notes, $483.3 million 6.875%
Series A-2
Senior Discount Notes, $1,012.8 million 8.875%
Series A-3
Senior Notes and $1,229.8 million 8.875%
Series A-4
Senior Notes.
As of December 31, 2009, we had issued $1.5 billion
aggregate principal amount of 8.875%
Series A-4
Senior Notes due 2017. Interest on the
Series A-4
Notes was payable semi-annually on April 15th and October 15th
of each year, commencing on April 15, 2008. The
Series A-4
Notes were senior unsecured obligations of RHD, senior in right
of payment to all of RHDs existing and future senior
subordinated debt and future subordinated obligations and ranked
equally with any of RHDs existing and future senior
unsecured debt. The
Series A-4
Notes were effectively subordinated to RHDs secured debt,
including RHDs guarantee of borrowings under the RHDI
credit facility and were structurally subordinated to any
existing or future liabilities (including trade payables) of our
direct and indirect subsidiaries.
As of December 31, 2009, we had issued $300.0 million
of 6.875% Senior Notes due January 15, 2013
(Holdco Notes). Interest was payable on the Holdco
Notes semi-annually in arrears on January 15th and July 15th of
each year, commencing July 15, 2005.
As of December 31, 2009, we had issued $660.0 million
aggregate principal amount at maturity ($600.5 million
gross proceeds) of 6.875%
Series A-2
Senior Discount Notes due January 15, 2013 and
$1.21 billion principal amount of 8.875%
Series A-3
Senior Notes due January 15, 2016. Interest was payable
semi-annually on January 15th and July 15th of each year for the
Series A-2
Senior Discount Notes and the
Series A-3
Senior Notes, commencing July 15, 2006. As of
December 31, 2009, we also had issued $365.0 million
aggregate principal amount at maturity ($332.1 million
gross proceeds) of 6.875%
Series A-1
Senior Discount Notes due January 15, 2013. Interest was
payable semi-annually on January 15th and July 15th of each
year, commencing July 15, 2006. All of these notes were
unsecured obligations of RHD, senior in right of payment to all
future senior subordinated and subordinated indebtedness of RHD
and structurally subordinated to all indebtedness of our
subsidiaries.
RHDI
On June 25, 2008, RHDI exchanged $594.2 million
($585.7 million accreted value, as applicable) of certain
RHD senior notes and senior discount notes (collectively
referred to as the RHD Notes) for
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$412.9 million aggregate principal amount of RHDI
11.75% Senior Notes due May 15, 2015 (RHDI
Senior Notes). Interest on the RHDI Senior Notes was
payable semi-annually on May 15th and November 15th of each
year, commencing November 15, 2008. The RHDI Senior Notes
were senior unsecured obligations of RHDI and ranked equally
with all of RHDIs other senior unsecured indebtedness. The
RHDI Senior Notes were fully and unconditionally guaranteed by
RHD and RHDIs subsidiaries that guarantee the obligations
under the RHDI credit facility on a general, senior unsecured
basis. The RHDI Senior Notes were effectively subordinated in
right of payment to all of RHDIs existing and future
secured debt to the extent of the value of the assets securing
such debt. The RHDI Senior Notes were also structurally
subordinated to all existing and future liabilities (including
trade payables) of RHDIs existing and future subsidiaries
that do not guarantee the RHDI Senior Notes. The RHD guarantee
with respect to the RHDI Senior Notes was structurally
subordinated to the liabilities of RHDs subsidiaries,
other than RHDI and its subsidiaries that guarantee obligations
under the RHDI Senior Notes. Claims with respect to the RHDI
Senior Notes were structurally senior to claims with respect to
any outstanding RHD notes.
Dex
Media, Inc.
As of December 31, 2009, Dex Media, Inc. had total
outstanding notes of $1,249.9 million, comprised of
$500.0 million 8% Senior Notes and $749.9 million
9% Senior Discount Notes.
As of December 31, 2009, Dex Media, Inc. had issued
$500.0 million aggregate principal amount of 8% Senior
Notes due 2013. These Senior Notes were unsecured obligations of
Dex Media, Inc. and interest was payable on May 15th and
November 15th of each year. As of December 31, 2009,
$500.0 million aggregate principal amount was outstanding.
As of December 31, 2009, Dex Media, Inc. had issued
$750 million aggregate principal amount of 9% Senior
Discount Notes due 2013, under two indentures. Under the first
indenture totaling $389.0 million aggregate principal
amount, the 9% Senior Discount Notes were issued at an
original issue discount with interest accruing at 9%, per annum,
compounded semi-annually. These Senior Discount Notes were
unsecured obligations of Dex Media, Inc. and interest accrued in
the form of increased accreted value until November 15,
2008 (Full Accretion Date), at which time the
accreted value was equal to the full principal amount at
maturity. Under the second indenture totaling
$361.0 million aggregate principal amount, interest accrued
at 8.37% per annum, compounded semi-annually, which created a
premium at the Full Accretion Date that would have been
amortized over the remainder of the term. After
November 15, 2008, the 9% Senior Discount Notes bore
cash interest at 9% per annum, payable semi-annually on May 15th
and November 15th of each year. These Senior Discount Notes were
unsecured obligations of Dex Media, Inc. and no cash interest
accrued on the discount notes prior to the Full Accretion Date.
As of December 31, 2009, $750 million aggregate
principal amount was outstanding.
Dex
Media West
As of December 31, 2009, Dex Media West had total
outstanding notes of $1,155.4 million, comprised of
$385.0 million 8.5% Senior Notes, $8.7 million
5.875% Senior Notes and $761.7 million Senior
Subordinated Notes.
As of December 31, 2009, Dex Media West had issued
$385.0 million aggregate principal amount of
8.5% Senior Notes due 2010. These Senior Notes were
unsecured obligations of Dex Media West and interest was payable
on February 15th and August 15th of each year. As of
December 31, 2009, $385.0 million aggregate principal
amount was outstanding.
As of December 31, 2009, Dex Media West had issued
$300.0 million aggregate principal amount of
5.875% Senior Notes due 2011. These Senior Notes were
unsecured obligations of Dex Media West and interest was payable
on May 15th and November 15th of each year. As of
December 31, 2009, $8.7 million aggregate principal
amount was outstanding.
As of December 31, 2009, Dex Media West had issued
$780 million aggregate principal amount of
9.875% Senior Subordinated Notes due 2013. These Senior
Subordinated Notes were unsecured obligations of
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Dex Media West and interest is payable on February 15th and
August 15th of each year. As of December 31, 2009,
$761.7 million aggregate principal amount was outstanding.
Impact
of Dex Media Merger
As a result of the Dex Media Merger, an adjustment was
established to record the acquired debt at fair value on
January 31, 2006. This fair value adjustment was amortized
as a reduction of interest expense using the effective interest
method through May 28, 2009 and did not impact future
scheduled interest or principal payments. Amortization of the
fair value adjustment included as a reduction of interest
expense or loss on debt transactions, as applicable, was
$7.7 million, $17.6 million and $92.1 million
(including $62.2 million related to the redemption of Dex
Media Easts Senior Notes and Senior Subordinated Notes
during 2007, which was recorded as a loss on debt transactions)
for the years ended December 31, 2009, 2008 and 2007,
respectively. The offset to interest expense was to be
recognized over the life of the respective debt, however due to
filing the Chapter 11 petitions, unamortized fair value
adjustments of $78.5 million at May 28, 2009 were
written-off and recognized as a reorganization item on the
consolidated statement of operations for the year ended
December 31, 2009.
Liquidity
and Cash Flows
Subsequent to the Effective Date, the Companys primary
sources of liquidity will be existing cash on hand and cash
flows generated from operations. The Companys primary
liquidity requirements will be to fund operations and service
its indebtedness.
Dex Ones ability to meet its debt service requirements
will be dependent on its ability to generate sufficient cash
flows from operations. The primary sources of cash flows will
consist mainly of cash receipts from the sale of our marketing
products and marketing services and can be impacted by, among
other factors, general economic conditions, an increase in
competition and more fragmentation in the local business search
market, consumer confidence and the level of demand for our
advertising products and services.
Based on current financial projections, the Company expects to
be able to continue to generate cash flows from operations in
amounts sufficient to fund operations and capital expenditures,
as well as meet debt service requirements and satisfy interest
and principal payment obligations. However, no assurances can be
made that our business will generate sufficient cash flows from
operations to enable us to fund these prospective cash
requirements.
See Item 1A, Risk Factors for additional
information regarding risks and uncertainties associated with
our business. See Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations Recent Trends Related to Our
Business for additional information related to trends and
uncertainties with respect to our business.
During the year ended December 31, 2009, we made principal
payments of $290.1 million under our credit facilities.
During the year ended December 31, 2009, we made revolver
borrowings of $361.0 million, offset by revolver payments
of $18.7 million, resulting in a net increase of
$342.3 million of the revolver portions under our credit
facilities.
For the year ended December 31, 2009, we made aggregate net
cash interest payments of $388.1 million. At
December 31, 2009, we had $665.9 million of cash and
cash equivalents before checks not yet presented for payment of
$10.8 million.
Cash
Flow Activities
Cash provided by operating activities was $515.8 million
for the year ended December 31, 2009. Key contributors to
operating cash flow include the following:
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$(6,453.3) million in net loss, which includes the impact
of the intangible asset impairment charges.
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$6,423.9 million of net non-cash items consisting of the
intangible asset impairment charges of $7,337.8 million,
offset by $(913.9) million in deferred income taxes, which
includes the tax impact of the intangible asset impairment
charges.
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$789.9 million of other net non-cash items primarily
consisting of $578.8 million of depreciation and
amortization, $146.5 million in bad debt provision,
$25.1 million in other non-cash items, primarily related to
the amortization of deferred financing costs, $17.6 million
associated with net reorganization items, $11.4 million of
stock-based compensation expense and an increase in interest
expense of $10.5 million associated with the change in fair
value of our interest rate swaps.
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$171.6 million net use of cash from a decrease in deferred
directory revenues of $226.3 million, primarily due to
lower advertising sales, offset by a net decrease in accounts
receivable of $54.7 million, which is comprised of a
decrease in accounts receivable of $201.2 million, offset
by the provision for bad debts of $146.5 million. During
2009, the Company has experienced deterioration in its accounts
receivable aging categories, which has been driven by weaker
economic conditions. The change in deferred revenues and
accounts receivable are analyzed together given the fact that
when a directory is published, the annual billable value of that
directory is initially deferred and unbilled accounts receivable
are established. Each month thereafter, typically one twelfth of
the billing value is recognized as revenues and billed to
clients.
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$39.2 million net source of cash from a decrease in other
assets, consisting of a $41.2 million decrease in other
current and non-current assets, primarily relating to deferred
commissions, print, paper and delivery costs and changes in the
fair value of the Companys interest rate swap agreements,
offset by a $2.0 million increase in prepaid directory
costs resulting from publication seasonality.
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$10.2 million net source of cash from an increase in
accounts payable and accrued liabilities, primarily resulting
from an increase in accrued interest payable of
$65.1 million and a $15.0 million increase in other
accrued liabilities, offset by a $69.9 million decrease in trade
accounts payable. These changes comprise items included in
liabilities subject to compromise on the consolidated balance
sheet at December 31, 2009. The source of cash from an
increase in accounts payable and accrued liabilities is a direct
result of filing the Chapter 11 petitions, whereby payment
of pre-petition obligations has been delayed.
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$122.5 million decrease in other non-current liabilities
primarily resulting from deferred taxes, the change in pension
and postretirement long-term liabilities and the change in fair
value of our interest rate swaps.
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Cash used in investing activities for the year ended
December 31, 2009 was $33.4 million and includes the
following:
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$33.4 million used to purchase fixed assets, primarily
computer equipment, software and leasehold improvements.
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Cash provided by financing activities for the year ended
December 31, 2009 was $52.3 million and includes the
following:
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$290.1 million in principal payments on term loans under
our secured credit facilities.
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$361.0 million in borrowings under our revolvers. The
Company made the borrowings under the various revolving credit
facilities to preserve its financial flexibility in light of the
continuing uncertainty in the global credit markets.
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$18.7 million in principal payments on our revolvers.
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Cash provided by operating activities was $548.7 million
for the year ended December 31, 2008. Key contributors to
operating cash flow include the following:
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$(2,298.3) million in net loss, which includes the impact
of the goodwill impairment charges.
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$2,558.5 million of net non-cash items consisting of the
impairment charges of $3,870.4 million, offset by
$(1,311.9) million in deferred income taxes, which includes
the tax impact of the goodwill impairment charges.
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$(265.2) million net gain on the debt transactions.
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$680.9 million of other net non-cash items primarily
consisting of $483.3 million of depreciation and
amortization, $138.4 million in bad debt provision, of
which $36.4 million relates to the change in net accounts
receivable, $29.5 million of stock-based compensation
expense, $24.7 million of net additional interest expense
associated with ineffective interest rate swaps and
$5.0 million in other non-cash items, primarily consisting
of $65.1 million related to the accretion of our discounted
debt, $29.0 million related to the amortization of deferred
financing costs, offset by $32.5 million associated with
the change in fair value of our interest rate swaps,
$38.0 million associated with the freeze on the
Companys defined benefit plans and the elimination of the
retiree health care and life insurance benefits and
$17.6 million associated with the amortization of the fair
value adjustments required by GAAP as a result of the Dex Media
Merger, which reduced interest expense.
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$197.7 million net use of cash from a decrease in deferred
directory revenues of $95.8 million due to lower
advertising sales and an increase in accounts receivable of
$101.9 million, representing the increase in accounts
receivable net of the provision for bad debts of
$138.3 million, due to an increase in days outstanding of
client balances and deterioration in accounts receivable aging
categories, which has been driven by the extension of the
write-off policy in our Qwest markets to conform to the legacy
RHD markets, weaker economic conditions and the transition to
in-house billing and collection services for certain local
clients in our Qwest markets that were previously performed by
Qwest on our behalf. The change in deferred revenues and
accounts receivable are analyzed together given the fact that
when a directory is published, the annual billable value of that
directory is initially deferred and unbilled accounts receivable
are established. Each month thereafter, typically one twelfth of
the billing value is recognized as revenues and billed to
clients.
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$45.0 million net source of cash from a decrease in other
assets, consisting of a $28.7 million decrease in prepaid
directory costs resulting from publication seasonality as well
as a $16.3 million decrease in other current and
non-current assets, primarily relating to deferred commissions,
print, paper and delivery costs and changes in the fair value of
the Companys interest rate swap agreements.
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$25.4 million net use of cash from a decrease in accounts
payable and accrued liabilities, primarily reflecting a
$39.5 million decrease in trade accounts payable resulting
from timing of invoice processing versus payment thereon and a
$17.7 million decrease in accrued interest payable on
outstanding debt, offset by a $31.8 million increase in
other accrued liabilities.
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$50.9 million increase in other non-current liabilities,
including pension and postretirement long-term liabilities.
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Cash used in investing activities for the year ended
December 31, 2008 was $66.3 million and includes the
following:
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$70.6 million used to purchase fixed assets, primarily
computer equipment, software and leasehold improvements.
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$4.3 million in cash proceeds from the disposition of an
equity investment in the fourth quarter of 2007, which were
received in January 2008.
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Cash used in financing activities for the year ended
December 31, 2008 was $397.2 million and includes the
following:
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$1,017.2 million in proceeds, net of costs, from borrowings
under our new Dex Media West credit facility, which was used to
refinance the former Dex Media West credit facility and pay
related fees and expenses.
|
|
|
|
$1,281.7 million in principal payments on term loans under
our credit facilities and notes. With regard to our credit
facilities, $60.7 million represents scheduled principal
payments and $1,221.0 million
|
85
|
|
|
|
|
represents principal payments made on an accelerated basis, at
our option, from proceeds received with the new Dex Media West
credit facility and from available cash flow generated from
operations.
|
|
|
|
|
|
$398.1 million in borrowings under our revolvers, used
primarily to fund temporary working capital requirements.
|
|
|
|
$422.1 million in principal payments on our revolvers.
|
|
|
|
$92.1 million associated with the October 2008 Debt
Repurchases and September 2008 Debt Repurchases.
|
|
|
|
$10.5 million in fees associated with the issuance of the
RHDI Senior Notes and voluntary prepayments made under the RHDI
credit facility, which have been accounted for as non-cash
financing activities.
|
|
|
|
$6.1 million used to repurchase our common stock. This use
of cash pertains to common stock repurchases made during 2007
that settled in January 2008.
|
|
|
|
$0.1 million in the decreased balance of checks not yet
presented for payment.
|
|
|
|
$0.1 million in proceeds from the exercise of employee
stock options.
|
Off-Balance
Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Contractual
Obligations
The contractual obligations table presented below sets forth Dex
Ones annual commitments for principal and interest
payments on its debt as of the Effective Date, as well as other
cash obligations for the next five years and thereafter as of
December 31, 2009. The debt repayments as presented in this
table include only the scheduled principal payments under the
current debt agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than 5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(Amounts in millions)
|
|
|
Principal Payments on Long-Term
Debt(1)
|
|
$
|
3,384.8
|
|
|
$
|
165.9
|
|
|
$
|
387.5
|
|
|
$
|
2,531.4
|
|
|
$
|
300.0
|
|
Interest on Long-Term
Debt(2)
|
|
|
1,257.8
|
|
|
|
232.8
|
|
|
|
483.4
|
|
|
|
457.8
|
|
|
|
83.8
|
|
Operating
Leases(3)
|
|
|
69.1
|
|
|
|
22.1
|
|
|
|
30.9
|
|
|
|
13.6
|
|
|
|
2.5
|
|
Unconditional Purchase
Obligations(4)
|
|
|
107.5
|
|
|
|
35.4
|
|
|
|
69.4
|
|
|
|
2.7
|
|
|
|
|
|
Other Long-Term
Liabilities(5)
|
|
|
241.6
|
|
|
|
30.0
|
|
|
|
44.4
|
|
|
|
54.5
|
|
|
|
112.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
5,060.8
|
|
|
$
|
486.2
|
|
|
$
|
1,015.6
|
|
|
$
|
3,060.0
|
|
|
$
|
499.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in long-term debt are principal amounts owed under the
amended and restated credit facilities and the Dex One Senior
Subordinated Notes, including the current portion of long-term
debt, as of the Effective Date. As a result of our emergence
from Chapter 11 on the Effective Date, we do not believe
that it is meaningful to present the contractual amounts of our
long-term debt as of December 31, 2009. |
|
(2) |
|
Interest on debt represents cash interest payment obligations
assuming all indebtedness as of the Effective Date will be paid
in accordance with its contractual maturity and assumes interest
rates on variable interest debt at the Effective Date will
remain unchanged in future periods. Please refer to
Liquidity and Capital Resources for interest rates
on the amended and restated credit facilities and the Dex One
Senior Subordinated Notes. |
|
(3) |
|
We enter into operating leases in the normal course of business.
Substantially all lease agreements have fixed payment terms.
Some lease agreements provide us with renewal or early
termination options. Our future operating lease obligations
would change if we exercised these renewal or early termination
options |
86
|
|
|
|
|
and if we entered into additional operating lease agreements.
The amounts in the table assume we do not exercise any such
renewal or early termination options. |
|
(4) |
|
In connection with our software system modernization and
on-going support services related to the Amdocs software system,
we are obligated to pay Amdocs approximately $68.3 million
over the years 2010 through 2012. Effective January 1,
2010, we amended and restated an Internet Yellow Pages reseller
agreement whereby we are obligated to pay to AT&T
$31.8 million over the years 2010 through 2012. We have
entered into a Directory Advertisement agreement with a CMR to
cover advertising placed with the Company by the CMR on behalf
of Qwest. Under this agreement, we are obligated to pay the CMR
approximately $6.5 million for commissions over the years
2010 through 2014. |
|
(5) |
|
We have defined benefit plans covering substantially all
employees. Our funding policy is to contribute an amount at
least equal to the minimum legal funding requirement. Based on
past performance and the uncertainty of the dollar amounts to be
paid, if any, we have excluded such amounts from the above
table. See Item 8, Financial Statements and
Supplementary Data Note 9, Benefit
Plans for changes made to our defined benefit plans
effective January 1, 2010. Those expected future benefit
payments, including administrative expenses, net of employee
contributions, are included in the table above. Dex One expects
to make contributions of approximately $3.6 million and
$2.9 million to our pension plans and postretirement plan,
respectively, in 2010. |
Subsequent
Events
See Item 8, Financial Statements and Supplementary
Data Note 16, Subsequent
Events for an unaudited pro-forma presentation of the
impact of emergence from reorganization and fresh start
accounting on our financial position.
Issuance
of New Common Stock
Upon emergence from Chapter 11 and pursuant to the Plan,
all of the issued and outstanding shares of RHD common stock and
any other outstanding equity securities of RHD including all
stock options, stock appreciation rights and restricted stock,
were cancelled. On the Effective Date, Dex One issued an
aggregate amount of 50,000,001 shares of new common stock,
par value $.001 per share.
Registration
Rights Agreement
On the Effective Date and pursuant to the Plan, the Company
entered into a Registration Rights Agreement (the
Agreement), requiring the Company to register with
the SEC certain shares of its common stock
and/or the
Dex One Senior Subordinated Notes upon the request of one or
more Eligible Holders (as defined in the Agreement), in
accordance with the terms and conditions set forth therein. The
Company is also required, pursuant to the Agreement, to file a
shelf registration statement covering the resale of Registerable
Securities, as defined, within 30 days of the
Companys filing of its Annual Report on
Form 10-K
for the year ended December 31, 2009 and use its
commercially reasonable efforts to cause such shelf registration
statement to become effective within 75 days after its
filing. The Agreement also provides to Eligible Holders certain
piggyback registration rights in connection with the
registration of other securities by the Company.
87
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
Interest
Rate Risk and Risk Management as of December 31,
2009
The RHDI credit facility and the Dex Media West and Dex Media
East credit facilities each bear interest at variable rates and,
accordingly, our earnings and cash flow are affected by changes
in interest rates. The Dex Media West and Dex Media East credit
facilities require that we maintain hedge agreements to provide
a fixed rate on at least 33% of their respective indebtedness,
including the indebtedness of Dex Media.
The Company has entered into the following interest rate swaps
that effectively convert approximately $200.0 million, or
6%, of the Companys variable rate debt to fixed rate debt
as of December 31, 2009. At December 31, 2009,
approximately 37% of our total debt outstanding consists of
variable rate debt, excluding the effect of our interest rate
swaps. Including the effect of our interest rate swaps, total
fixed rate debt comprised approximately 65% of our total debt
portfolio as of December 31, 2009. Under the terms of the
agreements, the Company receives variable interest based on
three-month LIBOR and pays a fixed rate of interest.
|
|
|
|
|
|
|
|
|
Effective Dates
|
|
Notional Amount
|
|
|
Pay Rates
|
|
Maturity Dates
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
February 28, 2008
|
|
$
|
100
|
(1)
|
|
3.212%
|
|
February 28, 2011
|
March 31, 2008
|
|
|
100
|
(1)
|
|
3.50%
|
|
March 29, 2013
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of one swap. |
We use derivative financial instruments for hedging purposes
only and not for trading or speculative purposes. By using
derivative financial instruments to hedge exposures to changes
in interest rates, the Company exposes itself to credit risk and
market risk. Credit risk is the possible failure of the
counterparty to perform under the terms of the derivative
contract. When the fair value of a derivative contract is
positive, the counterparty owes the Company, which creates
credit risk for the Company. When the fair value of a derivative
contract is negative, the Company owes the counterparty and,
therefore, it is not subject to credit risk. The Company
minimizes the credit risk in derivative financial instruments by
entering into transactions with major financial institutions
with credit ratings of AA- or higher.
Market risk is the adverse effect on the value of a financial
instrument that results from a change in interest rates. The
market risk associated with interest-rate contracts is managed
by establishing and monitoring parameters that limit the types
and degree of market risk that may be undertaken.
As a result of filing the Chapter 11 petitions, the Company
does not have any interest rate swaps designated as cash flow
hedges as of December 31, 2009.
Under the terms of the interest rate swap agreements, the
Company receives variable interest based on three-month LIBOR
and pays a weighted average fixed rate of 3.4%. The weighted
average variable rate received on our interest rate swaps was
0.25% at December 31, 2009. These periodic payments and
receipts are recorded as interest expense.
The notional amount of our interest rate swaps is used to
measure interest to be paid or received and does not represent
the amount of exposure to credit loss. Assuming a 0.125%
increase in the interest rate associated with the floating rate
borrowings under our credit facilities (after giving effect to
the interest rate swaps), interest expense would increase
$4.2 million on an annual basis.
See Note 2, Summary of Significant Accounting
Policies - Derivative Financial Instruments and Hedging
Activities and Note 6, Derivative Financial
Instruments, included in Item 8 of this Annual
Report, for additional information regarding our derivative
financial instruments and hedging activities.
88
Market
Risk Sensitive Instruments
Our variable-rate debt exposes the Company to variability in
interest payments due to changes in interest rates. Management
believes that it is prudent to mitigate the interest rate risk
on a portion of its variable-rate borrowings. To satisfy this
objective, the Company has entered into fixed interest rate swap
agreements to manage fluctuations in cash flows resulting from
changes in interest rates on variable-rate debt.
All derivative financial instruments are recognized as either
assets or liabilities on the consolidated balance sheets with
measurement at fair value. On a quarterly basis, the fair values
of the interest rate swaps are determined based on quoted market
prices and, to the extent the swaps provided an effective hedge,
the differences between the fair value and the book value of the
swaps are recognized in accumulated other comprehensive loss, a
component of shareholders deficit. For derivative
financial instruments that are not designated or do not qualify
as hedged transactions, the initial fair value, if any, and any
subsequent gains or losses on the change in the fair value are
reported in earnings as a component of interest expense.
As a result of exercising the
30-day grace
period with respect to the
Series A-4
Senior Notes on April 15, 2009, certain existing interest
rate swaps associated with the Dex Media East credit facility
having a notional amount of $350.0 million were required to
be settled on May 28, 2009. Cash settlement payments of
$26.4 million were made during the second quarter of 2009
associated with these interest rate swaps.
As a result of the recent decline in certain of our credit
ratings, an existing interest rate swap associated with the Dex
Media West credit facility having a notional amount of
$50.0 million was required to be settled on April 23,
2009. A cash settlement payment of $0.5 million was made
during the second quarter of 2009 associated with this interest
rate swap.
As a result of filing the Chapter 11 petitions, certain
interest rate swaps with a notional amount of
$850.0 million were terminated by the respective
counterparties and, as such, are no longer deemed financial
instruments to be measured at fair value. As of
December 31, 2009, these interest rate swaps were not
settled and, as such, a liability of $29.9 million, net of
accrued interest, is recognized in accounts payable and accrued
liabilities on the consolidated balance sheet at
December 31, 2009. In conjunction with the amendment and
restatement of the Companys credit facilities on the
Effective Date, these interest rate swaps were converted into a
new tranche of term loans under each of the related credit
facilities.
In addition, as a result of filing the Chapter 11
petitions, Dex Media East interest rate swaps with a notional
amount of $100.0 million at December 31, 2009 are no
longer highly effective in offsetting changes in cash flows.
Accordingly, cash flow hedge accounting treatment is no longer
permitted. Interest expense for the year ended December 31,
2009 includes a non-cash charge of $5.6 million associated
with the change in fair value of the Dex Media East interest
rate swaps no longer deemed financial instruments as a result of
filing the Chapter 11 petitions. Interest expense for the
year ended December 31, 2009 also includes a non-cash
charge of $9.6 million resulting from amounts previously
charged to accumulated other comprehensive loss related to these
interest rate swaps. The amounts previously charged to
accumulated other comprehensive loss related to the Dex Media
East interest rate swaps will be amortized to interest expense
over the remaining life of the interest rate swaps based on
future interest payments, as it is not probable that those
forecasted transactions will not occur. In accordance with fresh
start accounting and reporting, unamortized amounts previously
charged to accumulated other comprehensive loss will be
eliminated on the Fresh Start Reporting Date.
As a result of the change in fair value of our interest rate
swaps associated with the amendment of the RHDI credit facility
and the refinancing of the former Dex Media West credit facility
on June 6, 2008 and settlement and termination of certain
of these interest rate swaps during the second quarter of 2009,
interest expense includes a reduction of $10.7 million for
the year ended December 31, 2009, compared to a non-cash
charge of $3.7 million for the year ended December 31,
2008. Interest expense for the year ended December 31, 2008
also includes a non-cash charge of $21.0 million resulting
from amounts charged to accumulated other comprehensive loss
related to these interest rate swaps prior to June 6, 2008.
Certain interest rate swaps acquired as a result of the Dex
Media Merger were not designated as cash flow hedges. All of
these interest rate swaps were eventually settled by
December 31, 2007. For the year ended December 31,
2007, the Company recorded additional interest expense of
$3.4 million as a result of the change in fair value of the
acquired undesignated interest rate swaps.
89
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
R.H. DONNELLEY CORPORATION
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
F-1
Managements
Report on Internal Control Over Financial Reporting
The management of Dex One Corporation (formerly R.H. Donnelley
Corporation) is responsible for establishing and maintaining
adequate internal control over the Companys financial
reporting within the meaning of
Rule 13a-15(f)
promulgated under the Securities Exchange Act of 1934. Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements in the
financial statements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
Management assessed the effectiveness of R.H. Donnelley
Corporations internal control over financial reporting as
of December 31, 2009. In undertaking this assessment,
management used the criteria established by the Committee of
Sponsoring Organizations (COSO) of the Treadway Commission
contained in the Internal Control Integrated
Framework.
Based on its assessment, management has concluded that as of
December 31, 2009, the Companys internal control over
financial reporting is effective based on the COSO criteria.
The Companys internal control over financial reporting as
of December 31, 2009 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in
their report that appears in
page F-4.
KPMG LLP has also audited the Companys Consolidated
Financial Statements of R. H. Donnelley and subsidiaries as of
and for the year ending December 31, 2009, included in this
Annual Report on
Form 10-K,
as stated in their report that appears on
page F-3.
F-2
Report of
Independent Registered Public Accounting Firm
The Board of
Directors and Shareholders
Dex One Corporation:
We have audited the accompanying consolidated balance sheets of
R.H. Donnelley Corporation and subsidiaries as of
December 31, 2009 and 2008, and the related consolidated
statements of operations and comprehensive income (loss), cash
flows and changes in shareholders equity (deficit) for
each of the years in the three-year period ended
December 31, 2009. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of R.H. Donnelley Corporation and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), R.H.
Donnelley Corporations internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated March 12, 2010 expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
/s/ KPMG LLP
Raleigh, North Carolina
March 12, 2010
F-3
Report of
Independent Registered Public Accounting Firm
The Board of
Directors and Shareholders
Dex One Corporation:
We have audited R.H. Donnelley Corporations internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
R.H. Donnelley Corporations management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, R.H. Donnelley Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of R.H. Donnelley Corporation and
subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations and comprehensive
income (loss), cash flows and changes in shareholders
equity (deficit) for each of the years in the three-year period
ended December 31, 2009, and our report dated
March 12, 2010 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Raleigh, North Carolina
March 12, 2010
F-4
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
665,940
|
|
|
$
|
131,199
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
Billed
|
|
|
244,048
|
|
|
|
303,338
|
|
Unbilled
|
|
|
639,577
|
|
|
|
777,684
|
|
Allowance for doubtful accounts and sales claims
|
|
|
(57,839
|
)
|
|
|
(53,995
|
)
|
|
|
|
|
|
|
|
|
|
Net accounts receivable
|
|
|
825,786
|
|
|
|
1,027,027
|
|
Deferred directory costs
|
|
|
138,061
|
|
|
|
164,248
|
|
Short-term deferred income taxes, net
|
|
|
|
|
|
|
97,973
|
|
Prepaid expenses and other current assets
|
|
|
90,928
|
|
|
|
95,084
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,720,715
|
|
|
|
1,515,531
|
|
Fixed assets and computer software, net
|
|
|
157,272
|
|
|
|
188,695
|
|
Deferred income taxes, net
|
|
|
399,885
|
|
|
|
|
|
Other non-current assets
|
|
|
62,699
|
|
|
|
167,222
|
|
Intangible assets, net
|
|
|
2,158,223
|
|
|
|
10,009,261
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,498,794
|
|
|
$
|
11,880,709
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS DEFICIT
|
Current Liabilities Not Subject to Compromise
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
168,488
|
|
|
$
|
216,093
|
|
Short-term deferred income taxes, net
|
|
|
108,184
|
|
|
|
|
|
Accrued interest
|
|
|
4,643
|
|
|
|
181,102
|
|
Deferred directory revenues
|
|
|
848,775
|
|
|
|
1,076,271
|
|
Current portion of long-term debt
|
|
|
993,528
|
|
|
|
113,566
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities not subject to compromise
|
|
|
2,123,618
|
|
|
|
1,587,032
|
|
Long-term debt
|
|
|
2,561,248
|
|
|
|
9,508,690
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
998,071
|
|
Other non-current liabilities
|
|
|
380,163
|
|
|
|
280,291
|
|
|
|
|
|
|
|
|
|
|
Total liabilities not subject to compromise
|
|
|
5,065,029
|
|
|
|
12,374,084
|
|
Liabilities subject to compromise
|
|
|
6,352,813
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders Deficit
|
|
|
|
|
|
|
|
|
Common stock, par value $1 per share, authorized
400,000,000 shares; issued 88,169,275 shares at
December 31, 2009 and 2008; outstanding
68,955,674 shares and 68,807,446 shares at
December 31, 2009 and December 31, 2008, respectively
|
|
|
88,169
|
|
|
|
88,169
|
|
Additional paid-in capital
|
|
|
2,442,549
|
|
|
|
2,431,411
|
|
Accumulated deficit
|
|
|
(9,137,160
|
)
|
|
|
(2,683,867
|
)
|
Treasury stock, at cost, 19,213,601 shares at
December 31, 2009 and 19,361,829 shares at
December 31, 2008
|
|
|
(256,114
|
)
|
|
|
(256,277
|
)
|
Accumulated other comprehensive loss
|
|
|
(56,492
|
)
|
|
|
(72,811
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders deficit
|
|
|
(6,919,048
|
)
|
|
|
(493,375
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Deficit
|
|
$
|
4,498,794
|
|
|
$
|
11,880,709
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
Consolidated
Statements of Operations and Comprehensive Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenues
|
|
$
|
2,202,447
|
|
|
$
|
2,616,811
|
|
|
$
|
2,680,299
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and distribution expenses (exclusive of depreciation
and amortization shown separately below)
|
|
|
350,729
|
|
|
|
418,258
|
|
|
|
450,254
|
|
Selling and support expenses
|
|
|
663,638
|
|
|
|
729,663
|
|
|
|
716,333
|
|
General and administrative expenses
|
|
|
68,968
|
|
|
|
120,930
|
|
|
|
145,640
|
|
Depreciation and amortization
|
|
|
578,840
|
|
|
|
483,268
|
|
|
|
443,106
|
|
Impairment charges
|
|
|
7,337,775
|
|
|
|
3,870,409
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
8,999,950
|
|
|
|
5,622,528
|
|
|
|
1,775,333
|
|
Operating income (loss)
|
|
|
(6,797,503
|
)
|
|
|
(3,005,717
|
)
|
|
|
904,966
|
|
Non-operating income
|
|
|
|
|
|
|
|
|
|
|
1,818
|
|
Interest expense, net
|
|
|
(489,542
|
)
|
|
|
(835,472
|
)
|
|
|
(804,571
|
)
|
Gain (loss) on debt transactions, net
|
|
|
|
|
|
|
265,166
|
|
|
|
(26,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before reorganization items, net and income taxes
|
|
|
(7,287,045
|
)
|
|
|
(3,576,023
|
)
|
|
|
75,892
|
|
Reorganization items, net
|
|
|
(94,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(7,381,813
|
)
|
|
|
(3,576,023
|
)
|
|
|
75,892
|
|
(Provision) benefit for income taxes
|
|
|
928,520
|
|
|
|
1,277,696
|
|
|
|
(29,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(93.67
|
)
|
|
$
|
(33.41
|
)
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(93.67
|
)
|
|
$
|
(33.41
|
)
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
70,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
71,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
Unrealized gain (loss) on interest rate swaps, net of tax
benefit of $ , $(4,385) and $(15,468) for the years
ended December 31, 2009, 2008 and 2007, respectively
|
|
|
5,606
|
|
|
|
(5,724
|
)
|
|
|
(25,270
|
)
|
Benefit plans adjustment, net of tax provision (benefit) of
$ , $(24,902) and $5,446 for the years ended
December 31, 2009, 2008 and 2007, respectively
|
|
|
10,713
|
|
|
|
(41,347
|
)
|
|
|
8,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(6,436,974
|
)
|
|
$
|
(2,345,398
|
)
|
|
$
|
30,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
Reconciliation of net income (loss) to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
|
|
7,337,775
|
|
|
|
3,870,409
|
|
|
|
20,000
|
|
(Gain) loss on debt transactions, net
|
|
|
|
|
|
|
(265,166
|
)
|
|
|
26,321
|
|
Depreciation and amortization
|
|
|
578,840
|
|
|
|
483,268
|
|
|
|
443,106
|
|
Deferred income tax provision (benefit)
|
|
|
(913,872
|
)
|
|
|
(1,311,892
|
)
|
|
|
8,668
|
|
Provision for bad debts
|
|
|
146,553
|
|
|
|
138,353
|
|
|
|
80,850
|
|
Stock-based compensation expense
|
|
|
11,393
|
|
|
|
29,509
|
|
|
|
39,017
|
|
Change in fair value of interest rate swaps
|
|
|
10,480
|
|
|
|
24,683
|
|
|
|
3,358
|
|
Other non-cash items, net
|
|
|
25,071
|
|
|
|
4,973
|
|
|
|
44,771
|
|
Non-cash reorganization items, net
|
|
|
17,576
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
54,688
|
|
|
|
(101,911
|
)
|
|
|
(95,787
|
)
|
Decrease (increase) in other assets
|
|
|
39,150
|
|
|
|
45,020
|
|
|
|
(5,966
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
10,239
|
|
|
|
(25,403
|
)
|
|
|
66,142
|
|
Decrease in deferred directory revenue
|
|
|
(226,307
|
)
|
|
|
(95,764
|
)
|
|
|
(26,455
|
)
|
(Decrease) increase in other non-current liabilities
|
|
|
(122,471
|
)
|
|
|
50,942
|
|
|
|
40,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
515,822
|
|
|
|
548,694
|
|
|
|
691,809
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to fixed assets and computer software
|
|
|
(33,385
|
)
|
|
|
(70,642
|
)
|
|
|
(77,470
|
)
|
Acquisitions, net of cash received
|
|
|
|
|
|
|
|
|
|
|
(329,102
|
)
|
Equity investment disposition (investment)
|
|
|
|
|
|
|
4,318
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(33,385
|
)
|
|
|
(66,324
|
)
|
|
|
(409,072
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of debt, net of costs
|
|
|
|
|
|
|
|
|
|
|
1,468,648
|
|
Additional borrowings under the credit facilities, net of costs
|
|
|
|
|
|
|
1,017,202
|
|
|
|
1,416,822
|
|
Credit facilities repayments
|
|
|
(290,071
|
)
|
|
|
(1,281,701
|
)
|
|
|
(1,674,095
|
)
|
Note repurchases and related costs
|
|
|
|
|
|
|
(92,130
|
)
|
|
|
(1,398,892
|
)
|
Revolver borrowings
|
|
|
361,000
|
|
|
|
398,100
|
|
|
|
722,550
|
|
Revolver repayments
|
|
|
(18,749
|
)
|
|
|
(422,150
|
)
|
|
|
(781,400
|
)
|
Tender, redemption and call premium payments
|
|
|
|
|
|
|
|
|
|
|
(71,656
|
)
|
Debt issuance costs in connection with debt transactions
|
|
|
|
|
|
|
(10,467
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(6,112
|
)
|
|
|
(89,578
|
)
|
Proceeds from employee stock option exercises
|
|
|
|
|
|
|
95
|
|
|
|
13,412
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
Increase (decrease) in checks not yet presented for payment
|
|
|
124
|
|
|
|
(84
|
)
|
|
|
(7,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
52,304
|
|
|
|
(397,247
|
)
|
|
|
(392,910
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
534,741
|
|
|
|
85,123
|
|
|
|
(110,173
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
131,199
|
|
|
|
46,076
|
|
|
|
156,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
665,940
|
|
|
$
|
131,199
|
|
|
$
|
46,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
$
|
388,112
|
|
|
$
|
746,529
|
|
|
$
|
721,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net
|
|
$
|
7,873
|
|
|
$
|
1,587
|
|
|
$
|
10,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of debt from Debt Exchanges
|
|
$
|
|
|
|
$
|
(172,804
|
)
|
|
$
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
Consolidated
Statements of Changes in Shareholders Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Shareholders
|
|
|
|
Common
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Equity
|
|
|
|
Stock
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Loss
|
|
|
(Deficit)
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2006
|
|
$
|
88,169
|
|
|
$
|
2,341,009
|
|
|
$
|
(437,496
|
)
|
|
$
|
(161,470
|
)
|
|
$
|
(9,456
|
)
|
|
$
|
1,820,756
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
46,859
|
|
|
|
|
|
|
|
|
|
|
|
46,859
|
|
Employee stock option exercises
|
|
|
|
|
|
|
12,734
|
|
|
|
|
|
|
|
678
|
|
|
|
|
|
|
|
13,412
|
|
Issuance of common stock Business.com Acquisition
|
|
|
|
|
|
|
8,852
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
9,000
|
|
Cumulative effect of FASB ASC 740 adoption
|
|
|
|
|
|
|
|
|
|
|
5,097
|
|
|
|
|
|
|
|
|
|
|
|
5,097
|
|
Other adjustments related to compensatory stock awards
|
|
|
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569
|
|
Unrealized loss on interest rate swaps, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,270
|
)
|
|
|
(25,270
|
)
|
Benefit plans adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,986
|
|
|
|
8,986
|
|
Compensatory stock awards
|
|
|
|
|
|
|
39,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,017
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,690
|
)
|
|
|
|
|
|
|
(95,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
88,169
|
|
|
|
2,402,181
|
|
|
|
(385,540
|
)
|
|
|
(256,334
|
)
|
|
|
(25,740
|
)
|
|
|
1,822,736
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(2,298,327
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,298,327
|
)
|
Employee stock option exercises
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
95
|
|
Other adjustments related to compensatory stock awards
|
|
|
|
|
|
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(317
|
)
|
Unrealized loss on interest rate swaps, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,724
|
)
|
|
|
(5,724
|
)
|
Benefit plans adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,347
|
)
|
|
|
(41,347
|
)
|
Compensatory stock awards
|
|
|
|
|
|
|
29,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
88,169
|
|
|
|
2,431,411
|
|
|
|
(2,683,867
|
)
|
|
|
(256,277
|
)
|
|
|
(72,811
|
)
|
|
|
(493,375
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(6,453,293
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,453,293
|
)
|
Other adjustments related to compensatory stock awards
|
|
|
|
|
|
|
(255
|
)
|
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
(92
|
)
|
Unrealized gain on interest rate swaps, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,606
|
|
|
|
5,606
|
|
Benefit plans adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,713
|
|
|
|
10,713
|
|
Compensatory stock awards
|
|
|
|
|
|
|
11,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
88,169
|
|
|
$
|
2,442,549
|
|
|
$
|
(9,137,160
|
)
|
|
$
|
(256,114
|
)
|
|
$
|
(56,492
|
)
|
|
$
|
(6,919,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
|
|
1.
|
Business
and Presentation
|
The consolidated financial statements include the accounts of
R.H. Donnelley Corporation and its direct and indirect
wholly-owned subsidiaries (the Company,
RHD, we, us and
our). As of December 31, 2009, R.H. Donnelley
Inc. (RHDI or RHD Inc.), Dex Media, Inc.
(Dex Media), Business.com, Inc.
(Business.com) and RHD Service LLC (RHD
Service) were our only direct wholly-owned subsidiaries.
The financial information set forth in this Annual Report,
unless otherwise indicated or as the context may otherwise
indicate, reflects the consolidated results of operations and
financial position of RHD as of and for year ended
December 31, 2009. All intercompany transactions and
balances have been eliminated.
Dex One Corporation (Dex One, Successor
Registrant, or Company, we,
us and our subsequent to the Effective
Date) became the successor registrant to RHD upon emergence from
Chapter 11 relief under Title 11 of the United States
Code (the Bankruptcy Code) on January 29, 2010,
(the Effective Date). References to Dex One or
Successor Registrant in this Annual Report pertain to periods
subsequent to the Effective Date.
Corporate
Overview
We are a marketing services company that helps our clients grow
their business by providing marketing products that help them
get found by
ready-to-buy
consumers and marketing services that help them get chosen over
their competitors. Through our
Dex®
Advantage, clients business information is published and
marketed through a single profile and distributed via a variety
of both owned and operated products and through other local
search products. Dex Advantage spans multiple media platforms
for local advertisers including print with our Dex published
directories, which we co-brand with other brands in the industry
such as Qwest, CenturyLink (formerly Embarq) and AT&T,
online and mobile devices with
DexKnows.com®
and voice-activated directory search at
1-800-Call-Dextm.
Our digital affiliate provided solutions are powered by
DexNettm,
which leverages network partners including the premier search
engines, such as
Google®
and
Yahoo!®
and other leading online sites. Our growing list of marketing
services include local business and market analysis, message and
image creation, target market identification, advertising and
digital profile creation, keyword and search engine optimization
strategies and programs, distribution strategies, social
strategies, and tracking and reporting.
Filing
of Voluntary Petitions in Chapter 11
On May 28, 2009 (the Petition Date), the
Company and its subsidiaries listed below (collectively with the
Company, the Debtors) filed voluntary petitions for
Chapter 11 relief under the Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court).
|
|
|
|
|
RHDI
|
|
|
|
DonTech Holdings, LLC
|
|
|
|
DonTech II Partnership
|
|
|
|
R.H. Donnelley Publishing & Advertising of Illinois
Holdings, LLC
|
|
|
|
R.H. Donnelley Publishing & Advertising of Illinois
Partnership
|
|
|
|
R.H. Donnelley Publishing & Advertising, Inc.
|
|
|
|
Get Digital Smart.com, Inc.
|
|
|
|
R.H. Donnelley APIL, Inc.
|
F-9
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
RHD Service LLC
|
|
|
|
Dex Media, Inc.
|
|
|
|
Dex Media East, Inc.
|
|
|
|
Dex Media East LLC (Dex Media East)
|
|
|
|
Dex Media East Finance Co.
|
|
|
|
Dex Media West, Inc.
|
|
|
|
Dex Media West LLC (Dex Media West)
|
|
|
|
Dex Media West Finance Co.
|
|
|
|
Dex Media Service LLC
|
|
|
|
Business.com, Inc.
|
|
|
|
Work.com, Inc.
|
Confirmed
Plan of Reorganization and Emergence from the Chapter 11
Proceedings
On January 12, 2010, the Bankruptcy Court entered the
Findings of Fact, Conclusions of Law, and Order Confirming the
Joint Plan of Reorganization for the Company and its
subsidiaries (the Confirmation Order). On the
Effective Date, the Joint Plan of Reorganization for the Company
and its subsidiaries (the Plan) became effective in
accordance with its terms.
From the Petition Date until the Effective Date, the Debtors
operated their businesses as
debtors-in-possession
in accordance with the Bankruptcy Code. The Chapter 11
cases of the Debtors (collectively, the Chapter 11
Cases) were jointly administered under the caption In
re R.H. Donnelley Corporation, Case
No. 09-11833
(KG) (Bankr. D. Del. 2009).
Restructuring
As part of a restructuring that was conducted in connection with
the Debtors emergence from bankruptcy, the Debtors merged,
consolidated, dissolved, or terminated, shortly after the
Effective Date, certain of their wholly-owned subsidiaries, as
set forth below:
|
|
|
|
|
DonTech Holdings, LLC and R.H. Donnelley Publishing &
Advertising of Illinois Holdings, LLC were merged into their
sole member, RHDI;
|
|
|
|
The DonTech II Partnership and R.H. Donnelley
Publishing & Advertising of Illinois Partnership
technically terminated their respective partnership agreements
due to the loss of a second partner;
|
|
|
|
Dex Media East Finance Co. was merged into Dex Media East;
|
|
|
|
Dex Media West Finance Co. was merged into Dex Media West;
|
|
|
|
Work.com, Inc. was merged into Business.com, Inc.;
|
|
|
|
GetDigitalSmart.com, Inc. was merged into RHDI;
|
|
|
|
Dex Media East was merged into Dex Media East, Inc. (DME
Inc.);
|
|
|
|
Dex Media West was merged into Dex Media West, Inc. (DMW
Inc.); and
|
|
|
|
R.H. Donnelley Publishing & Advertising, Inc. was
merged into RHDI.
|
F-10
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
After effectuating the restructuring transactions, Dex One
became the ultimate parent company of each of the following
surviving subsidiaries: (i) RHDI, (ii) Dex Media,
Inc., (iii) DME Inc., (iv) DMW Inc., (v) Dex
Media Service LLC, (vi) Dex One Service LLC (which was
subsequently converted into a Delaware corporation under the
name Dex One Service, Inc. effective March 1, 2010,
(vii) Business.com, Inc. and (viii) R.H. Donnelley
APIL, Inc.
Consummation
of the Plan
Distributions
Pursuant to the Plan
Since the Effective Date, the Company has substantially
consummated the various transactions contemplated under the
confirmed Plan. In particular, as of March 1, 2010, the
Company has made substantially all of the distributions of cash,
stock, and securities that were required to be made under the
Plan by such date to creditors and other parties with allowed
claims, including, but not limited to, the following Plan
distributions:
|
|
|
|
|
On the Effective Date, in accordance with the Plan, the Company
issued the following number of shares of Dex One common stock
(i) approximately 10.5 million shares, representing
21.0% of total outstanding common stock, to all holders of notes
issued by RHD; (ii) approximately 11.65 million
shares, representing 23.3% of total outstanding common stock, to
all holders of notes issued by Dex Media, Inc.;
(iii) approximately 12.9 million shares, representing
25.8% of total outstanding common stock, to all holders of notes
issued by RHDI; (iv) approximately 6.5 million shares,
representing 13.0% of total outstanding common stock, to all
holders of senior notes issued by Dex Media West; and
(v) approximately 8.45 million shares, representing
16.9% of total outstanding common stock, to all holders of
senior subordinated notes issued by Dex Media West.
|
|
|
|
On the Effective Date, in accordance with the terms of the Plan,
holders of the Dex Media West 8.5% Senior Notes due 2010
and 5.875% Senior Notes due 2011 also received their pro
rata share of Dex Ones $300.0 million aggregate
principal amount of 12%/14% Senior Subordinated Notes due
2017 (Dex One Senior Subordinated Notes).
|
|
|
|
As of March 1, 2010, pursuant to the Plan, the Company made
distributions in cash on account of all, or substantially all,
of the allowed claims of general unsecured creditors. Allowed
claims of general unsecured creditors that have not been paid as
of March 1, 2010 will be paid during 2010.
|
Pursuant to the terms of the Plan, the Company is also obligated
to make certain additional payments to certain creditors,
including certain distributions that may become due and owing
subsequent to the initial distribution date and certain payments
to holders of administrative expense priority claims and fees
earned by professional advisors during the Chapter 11 Cases.
Discharge,
Releases, and Injunctions Pursuant to the Plan and the
Confirmation Order
The Plan and Confirmation Order also contain various discharges,
injunctive provisions, and releases that became operative upon
the Effective Date. These provisions are summarized in
Sections M through O of the Confirmation Order and more
fully described in Article X of the Plan.
Impact
on Long-Term Debt Upon Emergence from the Chapter 11
Proceedings
On the Effective Date and in accordance with the Plan,
$6.1 billion of our senior notes, senior discount notes and
senior subordinated notes (collectively the notes in
default) were exchanged for (a) 100% of the
reorganized Dex One equity and (b) we issued
$300.0 million of the Dex One Senior Subordinated Notes to
the holders of the Dex Media West 8.5% Senior Notes due
2010 and 5.875% Senior Notes due 2011 on a pro rata basis
in addition to their share of the reorganized Dex One equity. As
of the Effective Date, aggregate
F-11
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding debt was $3.4 billion, comprised of
$3.1 billion outstanding under our amended and restated
credit facilities and the $300.0 million Dex One Senior
Subordinated Notes. See Note 5, Long-Term Debt,
Credit Facilities and Notes for further details of our
long-term debt.
Accounting
Matters Resulting from the Chapter 11
Proceedings
The filing of the Chapter 11 petitions constituted an event
of default under the indentures governing the Companys
notes in default and the debt obligations under those
instruments became automatically and immediately due and
payable, although any actions to enforce such payment
obligations were automatically stayed under the applicable
bankruptcy law. Based on the bankruptcy petitions, the notes in
default are included in liabilities subject to compromise on the
consolidated balance sheet at December 31, 2009.
The filing of the Chapter 11 petitions also constituted an
event of default under the Companys credit facilities.
However, based upon the Plan, these secured lenders would
receive 100% principal recovery and scheduled amortization and
interest subsequent to the filing of the Chapter 11
petitions. The Company has determined that the fair value of the
collateral securing each of its credit facilities exceeded the
book value of such credit facilities, including accrued interest
and interest rate swap liabilities associated with each of the
credit facilities, and therefore, the credit facilities are
excluded from liabilities subject to compromise on the
consolidated balance sheet at December 31, 2009.
As a result of filing the Chapter 11 petitions, certain
interest rate swaps with a notional amount of
$850.0 million were terminated by the respective
counterparties and, as such, are no longer deemed financial
instruments to be measured at fair value. As of
December 31, 2009, these interest rate swaps were not
settled and, as such, a liability of $29.9 million, net of
accrued interest, is recognized in accounts payable and accrued
liabilities on the consolidated balance sheet at
December 31, 2009. In conjunction with the amendment and
restatement of the Companys credit facilities on the
Effective Date, these interest rate swaps were converted into a
new tranche of term loans under each of the related credit
facilities. See Note 5, Long-Term Debt, Credit
Facilities and Notes for additional information. In
addition, as a result of filing the Chapter 11 petitions,
Dex Media East interest rate swaps with a notional amount of
$100.0 million at December 31, 2009 are no longer
highly effective in offsetting changes in cash flows.
Accordingly, cash flow hedge accounting treatment is no longer
permitted.
For periods subsequent to the Chapter 11 bankruptcy filing,
Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 852,
Reorganizations (FASB ASC 852), has been
applied in preparing the consolidated financial statements. FASB
ASC 852 requires that the financial statements distinguish
transactions and events that are directly associated with the
reorganization from the ongoing operations of the business.
Accordingly, certain expenses including professional fees,
realized gains and losses and provisions for losses that are
realized from the reorganization and restructuring process will
be classified as reorganization items on the consolidated
statement of operations. Additionally, on the consolidated
balance sheet, liabilities are segregated between liabilities
not subject to compromise and liabilities subject to compromise.
Liabilities subject to compromise are reported at their
pre-petition amounts or current unimpaired values, even if they
may be settled for lesser amounts.
The accompanying consolidated financial statements do not
purport to reflect or provide for the consequences of the
Chapter 11 bankruptcy proceeding. In particular, the
financial statements do not purport to show (i) as to
assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (ii) as to
pre-petition liabilities, the amounts that may be allowed for
claims or contingencies, or the status and priority thereof;
(iii) as to shareholders deficit accounts, the
effects of any changes that may be made in the Companys
capitalization; or (iv) as to operations, the effects of
any changes that may be made to the Companys business.
F-12
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Going
Concern
As of December 31, 2009, we had total outstanding
debt of $9.6 billion, of which $6.1 billion pertains
to our notes in default and is identified as liabilities subject
to compromise and $3.5 billion pertains to our existing
credit facilities and is excluded from liabilities subject to
compromise on the consolidated balance sheet at
December 31, 2009.
On the Effective Date and in accordance with the Plan, the notes
in default were exchanged for 100% of the reorganized Dex One
equity and $300 million of the Dex One Senior Subordinated
Notes. In addition, the terms and conditions of the existing
credit facilities were amended and restated. See Note 5,
Long-Term Debt, Credit Facilities and Notes for
additional information.
As a result of our emergence from the Chapter 11
proceedings and the restructuring of our outstanding debt, we
believe that the Company will generate sufficient cash flow from
operations to satisfy all of its debt obligations according to
applicable terms and conditions for a reasonable period of time.
See Note 16, Subsequent Events for information
and analysis on our emergence from the Chapter 11
proceedings and the pro forma impact on our financial position.
Fresh
Start Accounting
The Company will adopt fresh start accounting and reporting
effective February 1, 2010 (Fresh Start Reporting
Date) in accordance with FASB ASC 852, as the holders of
existing voting shares immediately before confirmation of the
Plan received less than 50% of the emerging entity and the
reorganization value of the Companys assets was less than
its post-petition liabilities and allowed claims. The
consolidated financial statements included herein, as
applicable, do not include the effect of any changes in our
capital structure or changes in the fair value of assets and
liabilities as a result of fresh start accounting. See
Note 16, Subsequent Events for an unaudited
pro-forma presentation of the impact of emergence from
reorganization and fresh start accounting on our financial
position.
Other
Significant Financing Developments
On May 28, 2009 and in conjunction with the Plan, the
Company repaid an aggregate of $200.0 million in principal
on outstanding balances owed under its credit facilities as
follows:
|
|
|
|
|
Description
|
|
Amount
|
|
|
RHDI
|
|
|
|
|
Term Loan D-1
|
|
$
|
13,797
|
|
Term Loan D-2
|
|
|
54,912
|
|
Revolver
|
|
|
8,938
|
|
|
|
|
|
|
Dex Media West
|
|
|
|
|
Term Loan A
|
|
|
6,971
|
|
Term Loan B
|
|
|
50,941
|
|
Revolver
|
|
|
4,826
|
|
|
|
|
|
|
Dex Media East
|
|
|
|
|
Term Loan A
|
|
|
34,176
|
|
Term Loan B
|
|
|
20,454
|
|
Revolver
|
|
|
4,985
|
|
|
|
|
|
|
Total repayment
|
|
$
|
200,000
|
|
|
|
|
|
|
F-13
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On May 14, 2009, the Company exercised a
30-day grace
period on $78.3 million in interest payments due on the
following senior notes and senior discount notes:
|
|
|
|
|
Description
|
|
Amount
|
|
|
RHDI
|
|
|
|
|
11.75% Senior Notes due 2015
|
|
$
|
24,256
|
|
Dex Media, Inc.
|
|
|
|
|
8% Senior Notes due 2013
|
|
|
20,000
|
|
9% Senior Discount Notes due 2013
|
|
|
33,744
|
|
Dex Media West
|
|
|
|
|
5.875% Senior Notes due 2011
|
|
|
256
|
|
|
|
|
|
|
Total interest payments
|
|
$
|
78,256
|
|
|
|
|
|
|
On April 15, 2009, the Company exercised a
30-day grace
period on $54.6 million in interest payments due on its
8.875%
Series A-4
Senior Notes due 2017
(Series A-4
Senior Notes). On May 14, 2009, the Company entered
into forbearance agreements with certain of its noteholders and
bank lenders (Forbearance Agreements) with respect
to the consequences of the expiration of the
30-day grace
period for the
Series A-4
Senior Notes. The Forbearance Agreements expired on May 28,
2009 and the Company did not make these interest payments prior
to filing the Chapter 11 petitions.
Exercising the grace period did not constitute an event of
default under the bond indentures or any of the Companys
or its subsidiaries other debt agreements. The Company did
not make these interest payments prior to filing the
Chapter 11 petitions.
As a result of exercising the
30-day grace
period with respect to the
Series A-4
Senior Notes on April 15, 2009, certain existing interest
rate swaps associated with the Dex Media East credit facility
having a notional amount of $350.0 million were required to
be settled on May 28, 2009. Cash settlement payments of
$26.4 million were made during the second quarter of 2009
associated with these interest rate swaps.
As a result of the decline in certain of our credit ratings, an
existing interest rate swap associated with the Dex Media West
credit facility having a notional amount of $50.0 million
was required to be settled on April 23, 2009. A cash
settlement payment of $0.5 million was made during the
second quarter of 2009 associated with this interest rate swap.
On February 13, 2009, the Company borrowed the unused
portions under the RHDI revolving credit facility (RHDI
Revolver), Dex Media East revolving credit facility
(Dex Media East Revolver) and Dex Media West
revolving credit facility (Dex Media West Revolver)
totaling $174.0 million, $97.0 million and
$90.0 million, respectively. The Company made the
borrowings under the various revolving credit facilities to
preserve its financial flexibility in light of the continuing
uncertainty in the global credit markets.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Revenue
Recognition
Our advertising revenues are earned primarily from the sale of
advertising in yellow pages directories 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
(the deferral and amortization method). Advertising
revenues also include revenues for Internet-based advertising
products, including online directories such as DexKnows.com and
DexNet. Advertising revenues are affected by several factors,
including changes in the quantity and size of advertisements,
acquisition of new clients, renewal rates
F-14
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of existing clients, premium advertisements sold, changes in
advertisement pricing, the introduction of new products, an
increase in competition and more fragmentation in the local
business search market and general economic factors. 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, such as DexNet, are recognized as delivered or
fulfilled.
Revenue and deferred revenue from the sale of advertising is
recorded net of an allowance for sales claims, estimated based
primarily on historical experience. We increase or decrease this
estimate as information or circumstances indicate that the
estimate may no longer represent the amount of claims we may
incur in the future. The Company recorded sales claims
allowances of $43.8 million, $45.3 million and
$54.8 million for the years ended December 31, 2009,
2008 and 2007, respectively.
In certain cases, the Company enters into agreements with
clients that involve the delivery of more than one product or
service. Revenue for such arrangements is allocated to the
separate units of accounting using the relative fair value
method in accordance with FASB ASC
605-25,
Revenue Recognition Multiple-Element
Arrangements.
Deferred
Directory Costs
Costs directly related to the selling and production of our
directories are initially deferred when incurred and recognized
ratably over the life of a directory, which is typically
12 months. These costs are specifically identifiable to a
particular directory and include sales commissions and print,
paper and initial distribution costs. Such costs that are paid
prior to directory publication are classified as other current
assets until publication, when they are then reclassified as
deferred directory costs.
Cash and
Cash Equivalents
Cash equivalents include liquid investments with a maturity of
less than three months at their time of purchase. At times, such
investments may be in excess of federally insured limits.
Accounts
Receivable
Accounts receivable consist of balances owed to us by our
advertising clients. Our clients typically enter into a
twelve-month contract for their advertising. Most local clients
are billed a pro rata amount of their contract value on a
monthly basis. On behalf of our national clients, Certified
Marketing Representatives (CMRs) pay to the Company
the total contract value of their advertising, net of their
commission, within 60 days after the publication month.
Billed receivables represent the amount that has been billed to
our clients. Billed receivables are recorded net of an allowance
for doubtful accounts and sales claims, estimated based on
historical experience. We increase or decrease this estimate as
information or circumstances indicate that the estimate no
longer appropriately represents the amount of bad debts and
sales claims that are probable to be incurred. Unbilled
receivables represent contractually owed amounts, net of an
allowance for sales claims, for published directories that have
yet to be billed to our clients. We do not record an allowance
for doubtful accounts until receivables are billed.
Identifiable
Intangible Assets and Goodwill
As a result of prior acquisitions, certain long-term intangible
assets were identified and recorded at their estimated fair
values. The fair values of the identifiable intangible assets
are being amortized over their estimated useful lives in a
manner that best reflects the economic benefit derived from such
assets. The excess purchase price resulting from each of these
acquisitions over the net tangible and identifiable intangible
assets
F-15
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
acquired was recorded as goodwill, all of which was impaired in
2008 as noted below. Prior to the goodwill impairment charges,
goodwill was not amortized but was subject to impairment testing
on an annual basis or more frequently if we believed indicators
of impairment existed.
Amortization expense related to our intangible assets for the
years ended December 31, 2009, 2008 and 2007 was
$514.6 million, $415.9 million and
$388.3 million, respectively. Amortization expense for
these intangible assets for the five succeeding years is
estimated to be approximately $184.7 million,
$156.9 million, $152.1 million, $153.0 million
and $142.7 million, respectively. These estimates are based
on the significantly reduced book values of our directory
services agreements as a result of the impairment charges during
the fourth quarter of 2009, partially offset by increased
amortization expense resulting from the reduction of the
remaining useful lives associated with our directory services
agreements, which is noted below. Annual amortization of
intangible assets for tax purposes is approximately
$615.9 million.
The acquired long-term intangible assets and their respective
book values at December 31, 2009 have been adjusted for the
impairment charges during the fourth quarter of 2009 noted below
and are shown in the following table. The adjusted book values
of these intangible assets represent their new cost basis.
Accumulated amortization prior to the impairment charges has
been eliminated and the new cost basis will be amortized over
the remaining useful lives of the intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
|
|
|
|
Directory
|
|
|
Local
|
|
|
National
|
|
|
|
|
|
|
|
|
|
|
|
Network
|
|
|
|
|
|
|
Services
|
|
|
Customer
|
|
|
CMR
|
|
|
Third-Party
|
|
|
Trade
|
|
|
Advertising
|
|
|
Platforms
|
|
|
|
|
|
|
Agreements
|
|
|
Relationships
|
|
|
Relationships
|
|
|
Contract
|
|
|
Names
|
|
|
Commitment
|
|
|
& Other
|
|
|
Total
|
|
|
Fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qwest
|
|
$
|
989,738
|
|
|
$
|
229,807
|
|
|
$
|
50,044
|
|
|
$
|
|
|
|
$
|
490,000
|
|
|
$
|
25,000
|
|
|
$
|
|
|
|
$
|
1,784,589
|
|
AT&T
|
|
|
151,964
|
|
|
|
90,000
|
|
|
|
10,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,967
|
|
CenturyLink
|
|
|
289,734
|
|
|
|
40,433
|
|
|
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,667
|
|
Business.com
|
|
|
|
|
|
|
1,184
|
|
|
|
|
|
|
|
4,699
|
|
|
|
18,500
|
|
|
|
|
|
|
|
17,467
|
|
|
|
41,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,431,436
|
|
|
|
361,424
|
|
|
|
69,547
|
|
|
|
4,699
|
|
|
|
508,500
|
|
|
|
25,000
|
|
|
|
17,467
|
|
|
|
2,418,073
|
|
Accumulated amortization
|
|
|
|
|
|
|
(99,666
|
)
|
|
|
(11,267
|
)
|
|
|
|
|
|
|
(130,418
|
)
|
|
|
(8,167
|
)
|
|
|
(10,332
|
)
|
|
|
(259,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net intangible assets
|
|
$
|
1,431,436
|
|
|
$
|
261,758
|
|
|
$
|
58,280
|
|
|
$
|
4,699
|
|
|
$
|
378,082
|
|
|
$
|
16,833
|
|
|
$
|
7,135
|
|
|
$
|
2,158,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of filing the Chapter 11 petitions, the Company
performed impairment tests of its definite-lived intangible
assets and other long-lived assets during the year ended
December 31, 2009. During the fourth quarter of 2009 and in
conjunction with the filing of our amended Plan and amended
Disclosure Statement, the Company finalized an extensive
analysis associated with our emergence from Chapter 11. The
Company utilized the following information and assumptions
obtained from this analysis to complete its impairment
evaluation:
|
|
|
|
|
Historical financial information, including revenue, profit
margins, customer attrition data and price premiums enjoyed
relative to competing independent publishers;
|
|
|
|
Long-term financial projections, including, but not limited to,
revenue trends and profit margin trends; and
|
|
|
|
Intangible asset carrying values.
|
The impairment test of our definite-lived intangible assets and
other long-lived assets was performed by comparing the carrying
amount of our intangible assets and other long-lived assets to
the sum of their undiscounted expected future cash flows.
Impairment exists if the sum of the undiscounted expected future
cash flows is less than the carrying amount of the intangible
asset, or its related group of assets, and other
F-16
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
long-lived assets. If impairment exists, an impairment charge is
recognized equal to the amount that the carrying value of the
intangible asset, or its related group of assets, and other
long-lived assets exceeds its fair value based upon discounted
expected future cash flows.
As a result of these impairment tests, the Company recognized an
impairment charge of $7.3 billion during the fourth quarter
of 2009 associated with directory services agreements,
advertiser relationships, third party contracts and network
platforms acquired in prior acquisitions. Components of the
$7.3 billion impairment charge are shown in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directory
|
|
|
Local
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Customer
|
|
|
Network
|
|
|
Third Party
|
|
|
|
|
|
|
Agreements
|
|
|
Relationships
|
|
|
Platforms
|
|
|
Contracts
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Qwest
|
|
$
|
5,543.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,543.0
|
|
AT&T
|
|
|
682.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
682.0
|
|
CenturyLink
|
|
|
1,084.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,084.0
|
|
Business.com
|
|
|
|
|
|
|
16.3
|
|
|
|
1.6
|
|
|
|
10.5
|
|
|
|
28.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charge
|
|
$
|
7,309.0
|
|
|
$
|
16.3
|
|
|
$
|
1.6
|
|
|
$
|
10.5
|
|
|
$
|
7,337.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of these intangible assets were derived from a
discounted cash flow analysis using a discount rate that is
indicative of the risk that a market participant would be
willing to accept. This analysis included a review of relevant
financial metrics of peers within our industry.
The Company evaluates the remaining useful lives of its
intangible assets whenever events or circumstances indicate that
a revision to the remaining period of amortization is warranted.
If the estimated remaining useful lives change, the remaining
carrying amount of the intangible asset would be amortized
prospectively over that revised remaining useful life. In
connection with our impairment testing during 2009, the Company
also evaluated the remaining useful lives of its definite-lived
intangible assets and other long-lived assets by considering,
among other things, the effects of obsolescence, demand,
competition, which takes into consideration the price premium
benefit the Company has over competing independent publishers in
its markets as a result of directory services agreements
acquired in prior acquisitions, and other economic factors,
including the stability of the industry in which we operate,
known technological advances, legislative actions that result in
an uncertain or changing regulatory environment, and expected
changes in distribution channels. At December 31, 2009, the
Company determined that due to the compression of our price
premium benefit over competing independent publishers in our
markets as well as a decline in market share during the year
ended December 31, 2009, the remaining useful lives of the
directory services agreements acquired in prior acquisitions
will each be reduced from 33 years to weighted average
remaining useful lives of 25 years for Dex Media East,
26 years for Dex Media West, 29 years for AT&T
and 28 years for CenturyLink, effective January 1,
2010. Based on an assessment of future estimated cash flows,
increased attrition rates and the impact on our long-term
financial projections, the remaining useful lives of third party
contracts, advertiser relationships and network platforms
acquired in a prior acquisition will be reduced to 1, 5 and
9 years, respectively, effective January 1, 2010. The
reduction to the remaining useful lives was necessary in order
to better reflect the period these intangible assets are
expected to contribute to our future cash flow.
The Company anticipates a decrease in amortization expense
during 2010 of $329.9 million resulting from the
significantly reduced book values of our directory services
agreements subsequent to the impairment charges during the
fourth quarter of 2009, partially offset by increased
amortization expense resulting from the reduction of the
remaining useful lives associated with our directory services
agreements.
F-17
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The acquired long-term intangible assets and their respective
book values, as adjusted for the impairment charges noted below,
at December 31, 2008 are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
|
|
|
|
Directory
|
|
|
Local
|
|
|
National
|
|
|
|
|
|
|
|
|
|
|
|
Network
|
|
|
|
|
|
|
Services
|
|
|
Customer
|
|
|
CMR
|
|
|
Third-Party
|
|
|
Trade
|
|
|
Advertising
|
|
|
Platforms
|
|
|
|
|
|
|
Agreements
|
|
|
Relationships
|
|
|
Relationships
|
|
|
Contract
|
|
|
Names
|
|
|
Commitment
|
|
|
& Other
|
|
|
Total
|
|
|
Fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qwest
|
|
$
|
7,320,000
|
|
|
$
|
229,807
|
|
|
$
|
50,044
|
|
|
$
|
|
|
|
$
|
490,000
|
|
|
$
|
25,000
|
|
|
$
|
|
|
|
$
|
8,114,851
|
|
AT&T
|
|
|
952,500
|
|
|
|
90,000
|
|
|
|
10,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,052,503
|
|
CenturyLink
|
|
|
1,625,000
|
|
|
|
40,433
|
|
|
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,674,933
|
|
Business.com
|
|
|
|
|
|
|
16,100
|
|
|
|
|
|
|
|
49,000
|
|
|
|
18,500
|
|
|
|
|
|
|
|
19,600
|
|
|
|
103,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,897,500
|
|
|
|
376,340
|
|
|
|
69,547
|
|
|
|
49,000
|
|
|
|
508,500
|
|
|
|
25,000
|
|
|
|
19,600
|
|
|
|
10,945,487
|
|
Accumulated amortization
|
|
|
(787,833
|
)
|
|
|
(24,181
|
)
|
|
|
|
|
|
|
(14,879
|
)
|
|
|
(97,780
|
)
|
|
|
(6,076
|
)
|
|
|
(5,477
|
)
|
|
|
(936,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net intangible assets
|
|
$
|
9,109,667
|
|
|
$
|
352,159
|
|
|
$
|
69,547
|
|
|
$
|
34,121
|
|
|
$
|
410,720
|
|
|
$
|
18,924
|
|
|
$
|
14,123
|
|
|
$
|
10,009,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the decline in the trading value of our debt and
equity securities during 2008 and continuing negative industry
and economic trends that directly affected our business, we
performed impairment tests of our goodwill, definite-lived
intangible assets and other long-lived assets. We used estimates
and assumptions in our impairment evaluations, including, but
not limited to, projected future cash flows, revenue growth and
customer attrition rates. The impairment test for our goodwill
involved a two step process. The first step involved comparing
the fair value of the Company with the carrying amount of its
assets and liabilities, including goodwill. The fair value of
the Company was determined using a market based approach, which
reflects the market value of its debt and equity securities. As
a result of our testing, we determined that the Companys
fair value was less than the carrying amount of its assets and
liabilities, requiring us to proceed with the second step of the
goodwill impairment test. In the second step of the testing
process, the impairment loss was determined by comparing the
implied fair value of our goodwill to the recorded amount of
goodwill. The implied fair value of goodwill was derived from a
discounted cash flow analysis for the Company using a discount
rate that results in the present value of assets and liabilities
equal to the then current fair value of the Companys debt
and equity securities. Based upon the impairment test of our
goodwill, we recognized 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 goodwill impairment charges of
$3.1 billion during the year ended December 31, 2008.
As a result of these impairment charges, we had no recorded
goodwill at December 31, 2008. In addition to the goodwill
impairment charges, we recognized a change in goodwill of
$0.5 million related to a prior acquisition during the year
ended December 31, 2008.
No impairment losses were recorded related to our goodwill
during the year ended December 31, 2007.
In addition, as a result of these tests, the Company recognized
an impairment charge of $744.0 million during the fourth
quarter of 2008 associated with the local and national customer
relationships acquired in prior acquisitions. The fair values of
these intangible assets were derived from a discounted cash flow
analysis using a discount rate that results in the present value
of assets and liabilities equal to the then current fair value
of the Companys debt and equity securities. Lastly, in
connection with the launch of the next version of DexKnows.com,
the tradenames and technology acquired in a prior acquisition
were discontinued, which resulted in an impairment charge of
$2.2 million during the fourth quarter of 2008. Total
impairment charges
F-18
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related to our intangible assets, excluding goodwill, were
$746.2 million during the year ended December 31,
2008, as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Customer
|
|
|
National CMR
|
|
|
Technology and
|
|
|
|
|
|
|
Relationships
|
|
|
Relationships
|
|
|
Trade Names
|
|
|
Total
|
|
|
Qwest
|
|
$
|
473,000
|
|
|
$
|
130,000
|
|
|
$
|
|
|
|
$
|
603,000
|
|
AT&T
|
|
|
|
|
|
|
33,000
|
|
|
|
|
|
|
|
33,000
|
|
CenturyLink
|
|
|
73,000
|
|
|
|
35,000
|
|
|
|
|
|
|
|
108,000
|
|
Local Launch
|
|
|
|
|
|
|
|
|
|
|
2,190
|
|
|
|
2,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charges
|
|
$
|
546,000
|
|
|
$
|
198,000
|
|
|
$
|
2,190
|
|
|
$
|
746,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the impairment testing of our definite-lived
intangible assets and other long-lived assets at
December 31, 2008, we evaluated the remaining useful lives
of our intangible assets by evaluating the relevant factors
noted above. Based on this evaluation, the Company recognized a
reduction in the remaining useful lives of all directory
services agreements associated with prior acquisitions due to
compression of our price premium benefit over competing
independent publishers in our markets as well as a decline in
market share during the year ended December 31, 2008. As a
result, the remaining useful lives of our directory services
agreements were reduced to 33 years effective
January 1, 2009 in order to better reflect the period these
intangible assets are expected to contribute to our future cash
flow.
During the year ended December 31, 2007, we recorded an
intangible asset impairment charge of $20.0 million
associated with the tradenames acquired in a prior acquisition.
This impairment charge resulted from a change in our branding
strategy to utilize a new Dex market brand for all of our print
and online products across our entire footprint and discontinued
use of the tradenames acquired in a prior acquisition. This
impairment charge was determined using the relief from royalty
valuation method.
These impairment charges had no impact on current or future
operating cash flow, compliance with debt covenants or tax
attributes.
In connection with our acquisition of Dex Media on
January 31, 2006, (the Dex Media Merger), we
acquired directory services agreements (collectively, the
Dex Directory Services Agreements) which Dex Media
had entered into with Qwest (defined in Note 3,
Acquisitions) including, (1) a publishing
agreement with a term of 50 years commencing
November 8, 2002 (subject to automatic renewal for
additional one-year terms), which grants us the right to be the
exclusive official directory publisher of listings and
classified advertisements of Qwests telephone customers in
the geographic areas in the states Dex Media East and Dex Media
West operate our directory business (Qwest States)
in which Qwest (and its successors) provided local telephone
services as of November 8, 2002, as well as having the
exclusive right to use certain Qwest branding on directories in
those markets and (2) a non-competition agreement with a
term of 40 years commencing November 8, 2002, pursuant
to which Qwest (on behalf of itself and its affiliates and
successors) has agreed not to sell directory products consisting
principally of listings and classified advertisements for
subscribers in the geographic areas in the Qwest States in which
Qwest provided local telephone service as of November 8,
2002 that are directed primarily at consumers in those
geographic areas. The initial fair value assigned to the Dex
Directory Services Agreements of $7.3 billion was amortized
under the income forecast method and was based on the
multi-period excess earnings method using a discounted cash flow
model whereby the projected cash flows of the intangible asset
are computed indirectly, which means that future cash flows are
projected with deductions made to recognize returns on
appropriate contributory assets, leaving the excess, or residual
net cash flow, as indicative of the intangible asset fair value.
The income forecast method assumes the value derived from the
directory services agreements is greater in the earlier years
and steadily declines over time.
F-19
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of the Dex Media Merger, we also acquired
(1) an advertising commitment agreement whereby Qwest has
agreed to purchase an aggregate of $20 million of
advertising per year through 2017 from us at pricing on terms at
least as favorable as those offered to similar large clients and
(2) an intellectual property contribution agreement
pursuant to which Qwest assigned and or licensed to us the Qwest
intellectual property previously used in the Qwest directory
services business along with (3) a trademark license
agreement pursuant to which Qwest granted to us the right until
November 2007 to use the Qwest Dex and Qwest Dex Advantage marks
in connection with directory products and related marketing
material in the Qwest States and the right to use these marks in
connection with DexKnows.com (the intangible assets in
(2) and (3) collectively, Trade Names).
The fair value assigned to the Dex Media advertising commitment
was based on the multi-period excess earnings method and is
being amortized under the straight-line method over
12 years.
Directory services agreements between AT&T and the Company
include a directory services license agreement, a
non-competition agreement, an Internet Yellow Pages reseller
agreement and a directory publishing listing agreement
(collectively, AT&T Directory Services
Agreements) with certain affiliates of AT&T. The
directory services license agreement designates us as the
official and exclusive provider of yellow pages directory
services for AT&T (and its successors) in Illinois and
Northwest Indiana (the Territory), grants us the
exclusive license (and obligation as specified in the agreement)
to produce, publish and distribute white pages directories in
the Territory as AT&Ts agent and grants us the
exclusive license (and obligation as specified in the agreement)
to use the AT&T brand and logo on print directories in the
Territory. The non-competition agreement prohibits AT&T
(and its affiliates and successors), with certain limited
exceptions, from (1) producing, publishing and distributing
yellow and white pages print directories in the Territory,
(2) soliciting or selling local or national yellow or white
pages advertising for inclusion in such directories, and
(3) soliciting or selling local Internet yellow pages
advertising for certain Internet yellow pages directories in the
Territory or licensing AT&T marks to any third party for
that purpose. The Internet Yellow Pages reseller agreement
grants us the (a) exclusive right to sell to local
advertisers within the Territory Internet yellow pages
advertising focused upon products and services to be offered
within that territory, and (b) non-exclusive right to sell
to local (excluding National advertisers) advertisers within the
Territory Internet yellow pages advertising focused upon
products and services to be offered outside of the Territory, in
each case, onto the YellowPages.com platform. The directory
publishing listing agreement gives us the right to purchase and
use basic AT&T subscriber listing information and updates
for the purpose of publishing directories. The AT&T
Directory Services Agreements (other than the Internet Yellow
Pages reseller agreement) have initial terms of 50 years,
commencing in September 2004, subject to automatic renewal and
early termination under specified circumstances. The Internet
Yellow Pages reseller agreement has a term of 5 years,
commencing in September 2004 and was assigned a fair value of
$2.5 million, which was amortized under the straight line
method and is now fully amortized as of December 31, 2009.
The initial fair value assigned to the AT&T Directory
Services Agreements of $950.0 million was amortized under
the income forecast method and was determined based on the
present value of estimated future cash flows at the time of the
AT&T Directory Acquisition.
Directory services agreements between CenturyLink and the
Company, which were executed in May 2006 in conjunction with
Sprints spin-off of its local telephone business, include
a directory services license agreement, a trademark license
agreement and a non-competition agreement with certain
affiliates of CenturyLink, as well as a non-competition
agreement with Sprint entered into in January 2003 (collectively
CenturyLink Directory Services Agreements). The
CenturyLink Directory Services Agreements replaced the
previously existing analogous agreements with Sprint, except
that Sprint remained bound by its non-competition agreement. The
directory services license agreement grants us the exclusive
license (and obligation as specified in the agreement) to
produce, publish and distribute yellow and white pages
directories for CenturyLink (and its successors) in
18 states where CenturyLink provided local telephone
service at the time of the agreement. The trademark license
agreement grants us the exclusive license (and obligation as
specified in the agreement) to use certain specified CenturyLink
trademarks in those markets, and the non-
F-20
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
competition agreements prohibit CenturyLink and Sprint (and
their respective affiliates and successors) in those markets
from selling local directory advertising, with certain limited
exceptions, or producing, publishing and distributing print
directories. The CenturyLink Directory Services Agreements have
initial terms of 50 years, commencing in January 2003,
subject to automatic renewal and early termination under
specified circumstances. The initial fair value of the
CenturyLink Directory Services Agreements of $1.6 billion
was amortized under the income forecast method and was
determined based on the present value of estimated future cash
flows at the time of our acquisition of CenturyLink.
The fair values of local and national customer relationships
obtained as a result of prior acquisitions were determined based
on the present value of estimated future cash flows. These
intangible assets are being amortized under the income forecast
method, which assumes the value derived from customer
relationships is greater in the earlier years and steadily
declines over time. The weighted average useful life of these
relationships, subsequent to the impairment charges noted above,
is approximately 20 years.
The fair value of acquired trade names obtained as a result of
the Dex Media Merger was determined based on the relief
from royalty method, which values the trade names based on
the estimated amount that a company would have to pay in an arms
length transaction to use these trade names. The Qwest
tradenames are being amortized under the straight-line method
over 15 years.
In connection with a prior acquisition, we identified and
recorded certain intangible assets at their estimated fair
value, including (1) advertiser relationships,
(2) third party contracts, (3) technology and network
platforms and (4) trade names and trademarks. During 2009,
these intangible assets were amortized over remaining useful
lives ranging from 3 to 10 years under the straight-line
method, with the exception of the advertiser relationships and
network platform intangible assets, which are amortized under
the income forecast method. As noted above, the Company will
reduce the remaining useful lives associated with the advertiser
relationships, third party contracts and network platforms
effective January 1, 2010.
In connection with a prior acquisition, we identified and
recorded certain intangible assets at their estimated fair
value, including (1) local customer relationships,
(2) non-compete agreements, (3) technology and
(4) tradenames. These intangible assets are being amortized
under the straight-line method over remaining useful lives
ranging from 3 to 7 years. As noted above, the Company
decided to discontinue the use of tradenames and technology
acquired in a prior acquisition and as a result, we recognized
an impairment charge of $2.2 million during the fourth
quarter of 2008.
If industry and economic conditions in our markets continue to
deteriorate, resulting in further declines in advertising sales
and operating results, and if the trading value of our debt and
equity securities decline further, we will be required to again
assess the recoverability and useful lives of our long-lived
assets and other intangible assets. This could result in
additional impairment charges, a reduction of remaining useful
lives and acceleration of amortization expense.
Fixed
Assets and Computer Software
Fixed assets and computer software are recorded at cost.
Depreciation and amortization are provided over the estimated
useful lives of the assets using the straight-line method.
Estimated useful lives are thirty years for buildings, five
years for machinery and equipment, ten years for furniture and
fixtures and three to five years for computer equipment and
computer software. Leasehold improvements are amortized on a
straight-
F-21
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
line basis over the shorter of the term of the lease or the
estimated useful life of the improvement. Fixed assets and
computer software at December 31, 2009 and 2008 consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Computer software
|
|
$
|
208,058
|
|
|
$
|
258,091
|
|
Computer equipment
|
|
|
51,370
|
|
|
|
50,388
|
|
Machinery and equipment
|
|
|
9,725
|
|
|
|
8,883
|
|
Furniture and fixtures
|
|
|
18,297
|
|
|
|
20,360
|
|
Leasehold improvements
|
|
|
37,497
|
|
|
|
35,921
|
|
Buildings
|
|
|
1,956
|
|
|
|
1,863
|
|
Construction in Process Computer software and
equipment
|
|
|
7,461
|
|
|
|
3,684
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
334,364
|
|
|
|
379,190
|
|
Less accumulated depreciation and amortization
|
|
|
(177,092
|
)
|
|
|
(190,495
|
)
|
|
|
|
|
|
|
|
|
|
Net fixed assets and computer software
|
|
$
|
157,272
|
|
|
$
|
188,695
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense on fixed assets and
computer software for the years ended December 31, 2009,
2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Depreciation of fixed assets
|
|
$
|
16,789
|
|
|
$
|
17,841
|
|
|
$
|
16,649
|
|
Amortization of computer software
|
|
|
47,481
|
|
|
|
49,503
|
|
|
|
38,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization on fixed assets and computer
software
|
|
$
|
64,270
|
|
|
$
|
67,344
|
|
|
$
|
54,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, we identified
certain fixed assets no longer in service, which resulted in an
acceleration of depreciation expense of $8.7 million.
During the years ended December 31, 2009 and 2008, we
retired certain computer software fixed assets, which resulted
in an impairment charge of $0.4 million and
$0.4 million, respectively.
Interest
Expense and Deferred Financing Costs
Contractual interest expense that would have appeared on the
consolidated statement of operations if not for the filing of
the Chapter 11 petitions was $802.4 million for the
year ended December 31, 2009.
Interest expense recognized for the years ended
December 31, 2009, 2008 and 2007 was $489.8 million,
$836.7 million and $808.2 million, respectively.
Certain costs associated with the issuance of debt instruments
are capitalized and included in other non-current assets on the
consolidated balance sheets. These costs are amortized to
interest expense over the terms of the related debt agreements.
The bond outstanding method is used to amortize deferred
financing costs relating to debt instruments with respect to
which we make accelerated principal payments. Other deferred
financing costs are amortized using the effective interest
method. Amortization of deferred financing costs included in
interest expense was $27.5 million, $29.0 million and
$23.2 million in 2009, 2008 and 2007, respectively.
Interest expense for the year ended December 31, 2009
includes a non-cash charge of $5.6 million associated with
the change in fair value of the Dex Media East interest rate
swaps no longer deemed financial instruments as a result of
filing the Chapter 11 petitions. Interest expense for the
year ended December 31, 2009 also includes a non-cash
charge of $9.6 million resulting from amounts previously
charged to
F-22
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accumulated other comprehensive loss related to these interest
rate swaps. The amounts previously charged to accumulated other
comprehensive loss related to the Dex Media East interest rate
swaps will be amortized to interest expense over the remaining
life of the interest rate swaps based on future interest
payments, as it is not probable that those forecasted
transactions will not occur. In accordance with fresh start
accounting and reporting, unamortized amounts previously charged
to accumulated other comprehensive loss will be eliminated on
the Fresh Start Reporting Date.
As a result of the change in fair value of our interest rate
swaps associated with the amendment of the RHDI credit facility
and the refinancing of the former Dex Media West credit facility
on June 6, 2008 and settlement and termination of certain
of these interest rate swaps during the second quarter of 2009,
interest expense includes a reduction of $10.7 million for
the year ended December 31, 2009, compared to a non-cash
charge of $3.7 million for the year ended December 31,
2008. Interest expense for the year ended December 31, 2008
also includes a non-cash charge of $21.0 million resulting
from amounts previously charged to accumulated other
comprehensive loss related to these interest rate swaps.
In conjunction with the Dex Media Merger and as a result of
purchase accounting required under GAAP, we recorded Dex
Medias debt at its fair value on January 31, 2006. We
recognized an offset to interest expense in each period
subsequent to the Dex Media Merger through May 28, 2009 for
the amortization of the corresponding fair value adjustment. The
offset to interest expense was $7.7 million,
$17.6 million and $29.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively. The offset
to interest expense was to be recognized over the life of the
respective debt, however due to filing the Chapter 11
petitions, unamortized fair value adjustments at May 28,
2009 of $78.5 million were written-off and recognized as a
reorganization item on the consolidated statement of operations
for the year ended December 31, 2009.
Certain interest rate swaps acquired as a result of the Dex
Media Merger were not designated as cash flow hedges. All of
these interest rate swaps were eventually settled by
December 31, 2007. For the year ended December, 31, 2007,
the Company recorded additional interest expense of
$3.4 million as a result of the change in fair value of the
acquired undesignated interest rate swaps.
Gain
(Loss) on Debt Transactions, Net
Effective October 21, 2008, we obtained a waiver under the
RHDI credit facility to permit RHDI to make voluntary
prepayments of the Term Loan D-1 and Term Loan D-2 at a discount
to par provided that such discount is acceptable to those
lenders who choose to participate. RHDI was not obligated to
make any such prepayments. As a result of the voluntary
prepayments made during the year ended December 31, 2008,
we recognized a gain of $20.0 million consisting of the
difference between the face amount of the Term Loans repaid and
the voluntary prepayments made, offset by the write-off of
unamortized deferred financing costs of $0.2 million. The
following table presents the face amount of the Term Loans
repaid, total voluntary prepayments made and net gain recognized
during the year ended December 31, 2008.
|
|
|
|
|
Term Loan Voluntary Prepayments Fourth Quarter 2008
|
|
Par Value
|
|
|
Term Loan D-1
|
|
$
|
9,795
|
|
Term Loan D-2
|
|
|
45,933
|
|
|
|
|
|
|
Total Term Loans Repaid
|
|
|
55,728
|
|
Total Voluntary Prepayments, including fees
|
|
|
(35,497
|
)
|
Write-off of unamortized deferred financing costs
|
|
|
(206
|
)
|
|
|
|
|
|
Net gain on Voluntary Prepayments
|
|
$
|
20,025
|
|
|
|
|
|
|
F-23
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In October 2008, we repurchased $21.5 million of our senior
notes (collectively with the senior notes and senior discount
notes repurchased in September 2008 noted below, referred to as
the Notes) for a purchase price of $7.4 million
(the October 2008 Debt Repurchases). As a result of
the October 2008 Debt Repurchases, we recognized a gain of
$13.6 million during the year ended December 31, 2008,
consisting of the difference between the par value and purchase
price of the Notes, offset by the write-off of unamortized
deferred financing costs of $0.5 million, as noted in the
following table:
|
|
|
|
|
Notes Repurchased Fourth Quarter 2008
|
|
Par Value
|
|
|
8.875%
Series A-3
Senior Notes due 2016
|
|
$
|
16,000
|
|
8.875%
Series A-4
Senior Notes due 2017
|
|
|
5,500
|
|
|
|
|
|
|
Total Notes Repurchased
|
|
|
21,500
|
|
Total Purchase Price, including fees
|
|
|
(7,448
|
)
|
Write-off of unamortized deferred financing costs
|
|
|
(450
|
)
|
|
|
|
|
|
Net gain on October 2008 Debt Repurchases
|
|
$
|
13,602
|
|
|
|
|
|
|
In September 2008, we repurchased $165.5 million
($159.9 million accreted value, as applicable) of our Notes
for a purchase price of $84.7 million (the September
2008 Debt Repurchases). As a result of the September 2008
Debt Repurchases, we recognized a gain of $72.4 million
during the year ended December 31, 2008, consisting of the
difference between the accreted value (in the case of the senior
discount notes) or par value, as applicable, and the purchase
price of the Notes, offset by the write-off of unamortized
deferred financing costs of $2.9 million, as noted in the
following table:
|
|
|
|
|
|
|
Accreted or
|
|
Notes Repurchased Third Quarter 2008
|
|
Par Value
|
|
|
6.875% Senior Notes due 2013
|
|
$
|
45,529
|
|
6.875%
Series A-1
Senior Discount Notes due 2013
|
|
|
12,194
|
|
6.875%
Series A-2
Senior Discount Notes due 2013
|
|
|
72,195
|
|
8.875%
Series A-3
Senior Notes due 2016
|
|
|
30,000
|
|
|
|
|
|
|
Total Notes Repurchased
|
|
|
159,918
|
|
Total Purchase Price, including fees
|
|
|
(84,682
|
)
|
Write-off of unamortized deferred financing costs
|
|
|
(2,856
|
)
|
|
|
|
|
|
Net gain on September 2008 Debt Repurchases
|
|
$
|
72,380
|
|
|
|
|
|
|
On June 25, 2008, RHDI exchanged $594.2 million
($585.7 million accreted value, as applicable) of
RHDs senior notes and senior discount notes (collectively
referred to as the RHD Notes) for
$412.9 million aggregate principal amount of RHDIs
newly issued 11.75% Senior Notes due May 15, 2015
(RHDI Senior Notes), referred to as Debt
Exchanges. The following table presents the accreted value
(in the case of the
F-24
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
senior discount notes) or par value, as applicable, of the RHD
Notes that have been exchanged as well as the gain recognized on
the Debt Exchanges.
|
|
|
|
|
|
|
Accreted or
|
|
|
|
Par Value
|
|
|
RHD Notes Exchanged Second Quarter 2008
|
|
|
|
|
6.875% Senior Notes due 2013
|
|
$
|
47,663
|
|
6.875%
Series A-1
Senior Discount Notes due 2013
|
|
|
29,185
|
|
6.875%
Series A-2
Senior Discount Notes due 2013
|
|
|
93,031
|
|
8.875%
Series A-3
Senior Notes due 2016
|
|
|
151,119
|
|
8.875%
Series A-4
Senior Notes due 2017
|
|
|
264,677
|
|
|
|
|
|
|
Total RHD Notes exchanged
|
|
|
585,675
|
|
RHDI Notes Issued Second Quarter 2008
|
|
|
|
|
11.75% Senior Notes due 2015
|
|
|
412,871
|
|
|
|
|
|
|
Reduction of debt from Debt Exchanges
|
|
|
172,804
|
|
Write-off of unamortized deferred financing costs
|
|
|
(11,489
|
)
|
|
|
|
|
|
Net gain on Debt Exchanges
|
|
$
|
161,315
|
|
|
|
|
|
|
On June 6, 2008 and in conjunction with the Debt Exchanges,
we amended the RHDI credit facility in order to, among other
things, permit the Debt Exchanges and provide additional
covenant flexibility. In addition, on June 6, 2008, we
refinanced the Dex Media West credit facility. During the year
ended December 31, 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, which have been accounted for as
extinguishments of debt.
As a result of the financing activities noted above, we recorded
a net gain of $265.2 million during the year ended
December 31, 2008.
During the year ended December 31, 2007, we recorded a net
loss on debt transactions of $26.3 million resulting from
tender and redemption premium payments of $71.7 million and
the write-off of unamortized deferred financing costs of
$16.8 million associated with refinancing transactions
conducted during the fourth quarter of 2007, offset by the
accelerated amortization of the fair value adjustment directly
attributable to the redemption of Dex Media Easts
outstanding 9.875% senior notes and 12.125% senior
subordinated notes on November 26, 2007 of
$62.2 million, which has been accounted for as an
extinguishment of debt.
Advertising
Expense
We recognize advertising expenses as incurred. These expenses
include media, public relations, promotional and sponsorship
costs and on-line advertising. Total advertising expense was
$83.5 million, $72.4 million and $55.2 million in
2009, 2008 and 2007, respectively. Total advertising expense in
2009, 2008 and 2007 includes $52.2 million,
$39.8 million and $7.8 million, respectively, of costs
associated with traffic purchased and distributed to multiple
advertiser landing pages on our proprietary local search site.
Concentration
of Credit Risk
Approximately 85% of our directory advertising revenue is
derived from the sale of advertising to local businesses. These
clients typically enter into
12-month
advertising sales contracts and make monthly payments over the
term of the contract. Some clients prepay the full amount or a
portion of the contract value. Most new clients and clients
desiring to expand their advertising programs are subject to a
credit review. If the clients qualify, we may extend credit to
them for their advertising purchase. Local businesses tend to
have
F-25
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fewer financial resources and higher failure rates than large
businesses. In addition, full collection of delinquent accounts
can take an extended period of time and involve significant
costs. We do not require collateral from our clients, although
we do charge interest to clients that do not pay by specified
due dates.
The remaining approximately 15% of our directory advertising
revenue is derived from the sale of advertising to national or
large regional chains, such as rental car companies, automobile
repair shops and pizza delivery businesses. Substantially all of
the revenue derived through national accounts is serviced
through CMRs from which we accept orders. CMRs are independent
third parties that act as agents for national clients. The CMRs
are responsible for billing the national clients for their
advertising. We receive payment for the value of advertising
placed in our directory, net of the CMRs commission,
directly from the CMR. While we are still exposed to credit
risk, the amount of losses from these accounts has been
historically less than the local accounts as the clients, and in
some cases the CMRs, tend to be larger companies with greater
financial resources than local clients.
We continue to experience adverse bad debt trends attributable
to economic challenges in our markets. During the years ended
December 31, 2009 and 2008, our bad debt expense
represented 6.7% and 5.3% of our net revenue, respectively, as
compared to 3.0% for the year ended December 31, 2007.
At December 31, 2009, we had interest rate swap agreements
with major financial institutions with a notional amount of
$200.0 million. We are exposed to credit risk in the event
that one or more of the counterparties to the agreements does
not, or cannot, meet their obligation. The notional amount is
used to measure interest to be paid or received and does not
represent the amount of exposure to credit loss. Any loss would
be limited to the amount that would have been received over the
remaining life of the swap agreement. The counterparties to the
swap agreements are major financial institutions with credit
ratings of AA- or higher.
Labor
Unions
We have approximately 3,500 employees of which
approximately 1,100, or approximately 31%, are represented by
labor unions covered by two collective bargaining agreements
with Dex Media in the Qwest States. The unionized employees are
represented by either the International Brotherhood of
Electrical Workers of America (IBEW), which
represents approximately 400 of the unionized workforce, or the
Communication Workers of America (CWA), which
represents approximately 700 of the unionized workforce. Dex
Medias collective bargaining agreement with the IBEW
expires in May 2012 and Dex Medias collective bargaining
agreement with the CWA expires in September 2012.
Derivative
Financial Instruments and Hedging Activities
In March 2008, the FASB issued FASB ASC
815-10-65,
Derivatives and Hedging (FASB ASC 815). FASB
ASC 815 requires enhanced disclosures of derivative instruments
and hedging activities such as the fair value of derivative
instruments and presentation of gains or losses in tabular
format, as well as disclosures regarding credit risks and
strategies and objectives for using derivative instruments. FASB
ASC 815 is effective for fiscal years and interim periods
beginning after November 15, 2008 and, as such, the Company
adopted the provisions of this standard on January 1, 2009.
Although FASB ASC 815 requires enhanced disclosures, its
adoption did not impact the Companys results of operations
or financial condition.
The Company does not use derivative financial instruments for
trading or speculative purposes and our derivative financial
instruments are limited to interest rate swap agreements. As a
result of filing the Chapter 11 petitions, the Company does
not have any interest rate swaps designated as cash flow hedges
as of December 31, 2009. Our variable rate debt exposes the
Company to variability in interest payments due to changes in
interest rates. Management believes that it is prudent to
mitigate the interest rate risk on a portion of its variable
rate borrowings. The Dex Media West and Dex Media East credit
facilities require that we
F-26
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
maintain hedge agreements to provide a fixed rate on at least
33% of their respective indebtedness, including the indebtedness
of Dex Media. To satisfy our objectives and requirements, the
Company has entered into fixed interest rate swap agreements to
manage fluctuations in cash flows resulting from changes in
interest rates on variable rate debt. The Companys
interest rate swap agreements effectively convert
$200.0 million, or approximately 6%, of our variable rate
debt to fixed rate debt, mitigating our exposure to increases in
interest rates. At December 31, 2009, approximately 37% of
our total debt outstanding consists of variable rate debt,
excluding the effect of our interest rate swaps. Including the
effect of our interest rate swaps, total fixed rate debt
comprised approximately 65% of our total debt portfolio as of
December 31, 2009.
On the day a derivative contract is executed, the Company may
designate the derivative instrument as a hedge of the
variability of cash flows to be received or paid (cash flow
hedge). For all hedging relationships, the Company formally
documents the hedging relationship and its risk-management
objective and strategy for undertaking the hedge, the hedging
instrument, the item, the nature of the risk being hedged, how
the hedging instruments effectiveness in offsetting the
hedged risk will be assessed, and a description of the method of
measuring ineffectiveness. The Company also formally assesses,
both at the hedges inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows of
hedged items.
All derivative financial instruments are recognized as either
assets or liabilities on the consolidated balance sheets with
measurement at fair value. On a quarterly basis, the fair values
of the interest rate swaps are determined based on quoted market
prices and, to the extent the swaps provide an effective hedge,
the differences between the fair value and the book value of the
swaps are recognized in accumulated other comprehensive loss, a
component of shareholders deficit. For derivative
financial instruments that are not designated or do not qualify
as hedged transactions, the initial fair value, if any, and any
subsequent gains or losses on the change in the fair value are
reported in earnings as a component of interest expense. Any
gains or losses related to the quarterly fair value adjustments
are presented as a non-cash operating activity on the
consolidated statements of cash flows.
The Company discontinues hedge accounting prospectively when it
is determined that the derivative is no longer highly effective
in offsetting changes in the cash flows of the hedged item, the
derivative or hedged item is expired, sold, terminated,
exercised, or management determines that designation of the
derivative as a hedging instrument is no longer appropriate. In
situations in which hedge accounting is discontinued, the
Company continues to carry the derivative at its fair value on
the consolidated balance sheet and recognizes any subsequent
changes in its fair value in earnings as a component of interest
expense. Any amounts previously recorded to accumulated other
comprehensive loss will be amortized to interest expense in the
same period(s) in which the interest expense of the underlying
debt impacts earnings.
By using derivative financial instruments to hedge exposures to
changes in interest rates, the Company exposes itself to credit
risk and market risk. Credit risk is the possible failure of the
counterparty to perform under the terms of the derivative
contract. When the fair value of a derivative contract is
positive, the counterparty owes the Company, which creates
credit risk for the Company. When the fair value of a derivative
contract is negative, the Company owes the counterparty and,
therefore, it is not subject to credit risk. The Company
minimizes the credit risk in derivative financial instruments by
entering into transactions with major financial institutions
with credit ratings of AA- or higher.
Market risk is the adverse effect on the value of a financial
instrument that results from a change in interest rates. The
market risk associated with interest-rate contracts is managed
by establishing and monitoring parameters that limit the types
and degree of market risk that may be undertaken.
See Note 6, Derivative Financial Instruments
for additional information regarding our derivative financial
instruments and hedging activities.
F-27
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pension
and Postretirement Benefits
Pension and other postretirement benefits represent estimated
amounts to be paid to employees in the future. The accounting
for benefits reflects the recognition of these benefit costs
over the employees approximate service period based on the
terms of the plan and the investment and funding decisions made.
The determination of the benefit obligation and the net periodic
pension and other postretirement benefit costs requires
management to make assumptions regarding the discount rate,
return on retirement plan assets, increase in future
compensation and healthcare cost trends. Changes in these
assumptions can have a significant impact on the projected
benefit obligation, funding requirement and net periodic benefit
cost. The assumed discount rate is the rate at which the pension
benefits could be settled. During 2009, we utilized the Mercer
Pension Discount Yield Curve to determine the appropriate
discount rate for our defined benefit pension plans. The Company
changed to the Mercer Pension Discount Yield Curve during 2009
to better reflect the specific cash flows of these plans in
determining the discount rate. During 2008 and 2007, we utilized
the Citigroup Pension Liability Index as the appropriate
discount rate for our defined benefit pension plans. The
expected long-term rate of return on plan assets is based on the
mix of assets held by the plan and the expected long-term rates
of return within each asset class. The anticipated trend of
future healthcare costs is based on historical experience and
external factors.
Based upon the ratification of the new collective bargaining
agreements with the CWA on November 6, 2009 and with the
IBEW on June 12, 2009 and in conjunction with the
comprehensive redesign of the Companys employee retirement
savings and pension plans on October 21, 2008, the Company
froze all current defined benefit plans covering CWA and IBEW
represented employees and curtailed the retiree health care and
life insurance benefits covering such employees. During October
2008, the Company froze all current defined benefit plans
covering all non-union employees and curtailed the non-union
retiree health care and life insurance benefits. See
Note 9, Benefit Plans, for further information
regarding our benefit plans.
Income
Taxes
We account for income taxes under the asset and liability method
in accordance with FASB ASC 740, Income Taxes (FASB
ASC 740). Deferred income tax liabilities and assets
reflect temporary differences between amounts of assets and
liabilities for financial and tax reporting. Such amounts are
adjusted, as appropriate, to reflect changes in tax rates
expected to be in effect when the temporary differences reverse.
A valuation allowance is established to offset any deferred
income tax assets if, based upon the available evidence, it is
more likely than not that some or all of the deferred income tax
assets will not be realized.
FASB ASC 740 also prescribes a recognition threshold and
measurement principles for the financial statement recognition
and measurement of tax positions taken or expected to be taken
on a tax return. Under FASB ASC 740, the impact of an uncertain
income tax position on an income tax return must be recognized
at the largest amount that is more likely than not to be
sustained upon audit by the relevant taxing authority. An
uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained. Additionally,
FASB ASC 740 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods,
disclosures and transition requirements.
The Companys policy is to recognize interest and penalties
related to unrecognized tax benefits in income tax expense. See
Note 7, Income Taxes, for additional
information regarding our (provision) benefit for income taxes.
F-28
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings
(Loss) Per Share
The calculation of basic and diluted earnings (loss) per share
(EPS) for the years ended December 31, 2009,
2008 and 2007, respectively, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
Weighted average common shares outstanding
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
70,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
(93.67
|
)
|
|
$
|
(33.41
|
)
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
Weighted average common shares outstanding
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
70,932
|
|
Dilutive effect of stock awards
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
68,896
|
|
|
|
68,793
|
|
|
|
71,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(93.67
|
)
|
|
$
|
(33.41
|
)
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS is calculated by dividing net income (loss) by the
weighted average common shares outstanding plus dilutive
potential common stock. Potential common stock includes stock
options, stock appreciation rights (SARs) and
restricted stock, the dilutive effect of which is calculated
using the treasury stock method.
Due to the net loss reported for the years ended
December 31, 2009 and 2008, the effect of all stock-based
awards were anti-dilutive and therefore are not included in the
calculation of diluted EPS. For the years ended
December 31, 2009, 2008 and 2007, 4,560 shares,
4,060 shares and 2,593 shares, respectively, of
stock-based awards had exercise prices that exceeded the average
market price of the Companys common stock for the
respective periods.
Stock-Based
Awards
As of December 31, 2009 and through the Effective Date, we
maintain a shareholder approved stock incentive plan, the 2005
Stock Award and Incentive Plan (2005 Plan), whereby
certain employees and non-employee directors are eligible to
receive stock options, SARs, limited stock appreciation rights
in tandem with stock options and restricted stock. Prior to
adoption of the 2005 Plan, we maintained a shareholder approved
stock incentive plan, the 2001 Stock Award and Incentive Plan
(2001 Plan). Under the 2005 Plan and 2001 Plan,
5 million and 4 million shares, respectively, were
originally authorized for grant. Stock awards are typically
granted at the market value of our common stock at the date of
the grant, become exercisable in ratable installments or
otherwise, over a period of one to five years from the date of
grant, and may be exercised up to a maximum of ten years from
the date of grant. The Companys Compensation &
Benefits Committee (the Committee) determines
termination, vesting and other relevant provisions at the date
of the grant. We have implemented a policy of issuing treasury
shares held by the Company to satisfy stock issuances associated
with stock-based award exercises.
As of December 31, 2009 and through the Effective Date,
non-employee directors receive options to purchase
1,500 shares and an award of 1,500 shares of
restricted stock upon election to the Board. Non-employee
directors also receive, on an annual basis, options to purchase
1,500 shares and an award of
F-29
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1,500 shares of restricted stock. Non-employee directors
may also elect to receive additional equity awards in lieu of
all or a portion of their cash fees.
The Company records stock-based compensation expense in the
consolidated statements of operations for all employee
stock-based awards based on their grant date fair values. The
Company estimates forfeitures over the requisite service period
when recognizing compensation expense. Estimated forfeitures are
adjusted to the extent actual forfeitures differ, or are
expected to materially differ, from such estimates. For the
years ended December 31, 2009, 2008 and 2007, the Company
utilized a forfeiture rate of 10.2%, 8%, and 5%, respectively,
in determining compensation expense.
Stock-based awards information and activity prior to emergence
from Chapter 11 is discussed above and in Note 8,
Stock Incentive Plans.
Upon emergence from Chapter 11 and pursuant to the Plan,
all outstanding equity securities of the Company including all
stock options, SARs and restricted stock, were cancelled. See
Note 16, Subsequent Events for additional
information.
In conjunction with the Bankruptcy Courts approval of the
Plan, the Dex One Corporation Equity Incentive Plan
(EIP) was also approved by the Bankruptcy Court and
ratified by the Companys Board of Directors on the
Effective Date. Under the EIP, certain employees and
non-employee directors of Dex One are eligible to receive stock
options, SARs, limited stock appreciation rights in tandem with
stock options, restricted stock and restricted stock units.
Under the EIP, 5.6 million shares of Dex One common stock
were authorized for grant. See Note 16, Subsequent
Events for additional information regarding the EIP.
Long-Term
Incentive
On March 9, 2009, the Committee approved the 2009 Long-Term
Incentive Program (the 2009 LTIP) for the Company.
The 2009 LTIP is a cash-based plan designed to provide long-term
incentive compensation to participants based on the achievement
of performance goals designated by the Committee pursuant to the
Companys 2005 Stock Award and Incentive Plan. The
Committee administers the 2009 LTIP in its sole discretion and
may, subject to certain exceptions, delegate some or all of its
power and authority under the 2009 LTIP to the Chief Executive
Officer or other executive officer of the Company. Participants
in the 2009 LTIP consist of (i) such executive officers of
the Company and its affiliates as the Committee in its sole
discretion may select from time to time and (ii) such other
employees of the Company and its subsidiaries and affiliates as
the Chief Executive Officer in his sole discretion may select
from time to time. The amount of each award under the 2009 LTIP
will be paid in cash and is dependent upon the attainment of
certain performance measures related to the amount of the
Companys cumulative free cash flow for the 2009, 2010 and
2011 fiscal years (the Performance Period).
Participants who are executive officers of the Company, and
certain other participants designated by the Chief Executive
Officer, are also eligible to receive a payment upon the
achievement of a restructuring, reorganization
and/or
recapitalization relating to the Companys outstanding
indebtedness and liabilities (the Specified Actions)
during the Performance Period. Payments will be made following
the end of the Performance Period or the date of a Specified
Action, as the case may be. Awards granted to executive officers
under the 2009 LTIP (and to certain other participants
designated by the Chief Executive Officer) will continue to be
paid, subject to the applicable performance conditions, in the
event the participants employment is terminated by the
participant with Good Reason (as such term is defined in the
2009 LTIP), by the Company without Cause (as such term is
defined in the 2009 LTIP) or as a result of the
participants death or disability. Such payment will be
made as if the participant had remained employed with the
Company through the applicable payment date under the 2009 LTIP,
subject to the achievement of the applicable performance
conditions. If any participants employment with the
Company is terminated under any other circumstances, any unpaid
amount under the 2009 LTIP will be forfeited. These cash-based
awards
F-30
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
were granted to participants in April 2009. As a result, the
Company recognized compensation expense related to the 2009 LTIP
of $5.0 million during the year ended December 31,
2009.
Treasury
Stock
In November 2007, the Companys Board of Directors
authorized a $100.0 million stock repurchase plan
(Repurchase Plan). This authorization permitted the
Company to purchase its shares of common stock in the open
market pursuant to
Rule 10b-18
of the Securities Exchange Act of 1934 or through block trades
or otherwise over the following twelve months, based on market
conditions and other factors, which purchases may be made or
suspended at any time. Purchases of common stock are accounted
for using the cost method whereby the total cost of the shares
reacquired is charged to treasury stock, a contra equity
account. When treasury stock is reissued, the cost of the shares
reissued (determined based on the
first-in,
first-out cost flow assumption) is charged against treasury
stock and the excess of the reissuance price over cost is
credited to additional paid-in capital. In accordance with the
Repurchase Plan, the Company repurchased a total of
2.5 million shares at a cost of $95.7 million during
December 2007, of which $6.1 million was funded in January
2008. No shares of our common stock were repurchased during the
years ended December 31, 2009 and 2008 and the Repurchase
Plan is now expired.
Fair
Value of Financial Instruments
At December 31, 2009 and 2008, the fair value of cash and
cash equivalents, accounts receivable, and accounts payable and
accrued liabilities approximated their carrying value based on
the short-term nature of these instruments. As a result of
filing the Chapter 11 petitions and the Plan, we do not
believe that it is meaningful to present the fair market value
of our long-term debt at December 31, 2009 in Note 5,
Long-Term Debt, Credit Facilities and Notes.
FASB ASC 820, Fair Value Measurements and Disclosures
(FASB ASC 820) defines fair value, establishes a
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value and expands disclosures
about fair value measurements. FASB ASC 820 defines fair value
as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value hierarchy,
which gives the highest priority to quoted prices in active
markets, is comprised of the following three levels:
Level 1 Unadjusted quoted market prices in
active markets for identical assets and liabilities.
Level 2 Observable inputs, other than
Level 1 inputs. Level 2 inputs would typically include
quoted prices in markets that are not active or financial
instruments for which all significant inputs are observable,
either directly or indirectly.
Level 3 Prices or valuations that require
inputs that are both significant to the measurement and
unobservable.
F-31
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables represent our assets and liabilities that
were measured at fair value on a recurring basis at
December 31, 2009 and the level within the fair value
hierarchy in which the fair value measurements were included.
Interest
Rate Swaps
At December 31, 2009, the Company has interest rate swaps
with a notional amount of $200.0 million that continue to
be measured at fair value on a recurring basis.
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
December 31, 2009
|
|
|
Using Significant Other
|
Description
|
|
Observable Inputs (Level 2)
|
|
Derivatives-Liabilities
|
|
$
|
(6,695
|
)
|
In conjunction with the classification of our credit facilities,
these interest rate swap liabilities are excluded from
liabilities subject to compromise on the consolidated balance
sheet at December 31, 2009, as both our credit facilities
and interest rate swaps are fully collateralized and the fair
value of such collateral exceeded the carrying value of the
credit facilities and interest rate swaps.
Valuation
Techniques Interest Rate Swaps
Fair value is a market-based measure considered from the
perspective of a market participant who holds the asset or owes
the liability rather than an entity-specific measure. Therefore,
even when market assumptions are not readily available, the
Companys own assumptions are set to reflect those that
market participants would use in pricing the asset or liability
at the measurement date. The Company uses prices and inputs that
are current as of the measurement date.
Fair value for our derivative instruments was derived using
pricing models. Pricing models take into account relevant
observable market inputs that market participants would use in
pricing the asset or liability. The pricing models used to
determine fair value incorporate contract terms (including
maturity) as well as other inputs including, but not limited to,
interest rate yield curves and the creditworthiness of the
counterparty. The impact of our own credit rating is also
considered when measuring the fair value of liabilities. Our
credit rating could have a material impact on the fair value of
our derivative instruments, our results of operations or
financial condition in a particular reporting period. At
December 31, 2009, the impact of applying our credit rating
in determining the fair value of our derivative instruments was
a reduction to our interest rate swap liability of
$0.5 million.
Many pricing models do not entail material subjectivity because
the methodologies employed do not necessitate significant
judgment, and the pricing inputs are observed from actively
quoted markets, as is the case for our derivative instruments.
The pricing models used by the Company are widely accepted by
the financial services industry. As such and as noted above, our
derivative instruments are categorized within Level 2 of
the fair value hierarchy.
Fair Value
Control Processes Interest Rate Swaps
The Company employs control processes to validate the fair value
of its derivative instruments derived from the pricing models.
These control processes are designed to assure that the values
used for financial reporting are based on observable inputs
wherever possible. In the event that observable inputs are not
available, the control processes are designed to assure that the
valuation approach utilized is appropriate and consistently
applied and that the assumptions are reasonable.
F-32
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Benefit Plan
Assets
The fair values of the Companys benefit plan assets and
the disclosures required by FASB ASC
715-20,
Compensation Retirement Benefits are
presented in Note 9, Benefit Plans.
Effective January 1, 2009, the Company adopted the
provisions of FASB ASC 820 associated with our non-financial
assets and liabilities initially measured at fair value in prior
business combinations, including intangible assets and goodwill.
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
certain expenses and the disclosure of contingent assets and
liabilities. Actual results could differ materially from those
estimates and assumptions. Estimates and assumptions are used in
the determination of recoverability of long-lived assets, sales
allowances, allowances for doubtful accounts, depreciation and
amortization, employee benefit plans expense, restructuring
reserves, deferred income taxes, certain estimates pertaining to
liabilities under FASB ASC 740, certain assumptions pertaining
to our stock-based awards and certain estimates associated with
liabilities classified as liabilities subject to compromise,
among others.
New
Accounting Pronouncements
In September 2009, the Emerging Issues Task Force
(EITF) reached final consensus on EITF Issue
No. 08-1,
Revenue Arrangements with Multiple Deliverables
(EITF 08-1).
EITF 08-1
has not yet been incorporated into the FASBs Codification,
however it is currently identified as Accounting Standards
Update
No. 2009-13,
Revenue Recognition.
EITF 08-1
updates the current guidance pertaining to multiple-element
revenue arrangements included in FASB ASC
605-25,
which originated from
EITF 00-21,
Revenue Arrangements with Multiple Deliverables.
EITF 08-1
addresses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting
and how the arrangement consideration should be allocated among
the separate units of accounting.
EITF 08-1
will be effective for the Company in the annual reporting period
beginning January 1, 2011.
EITF 08-1
may be applied retrospectively or prospectively and early
adoption is permitted. The Company does not expect the adoption
of
EITF 08-1
to have an impact on its financial position, results of
operations, cash flows, and disclosures.
In June 2009, the FASB issued FASB ASC
105-10,
Generally Accepted Accounting Principles (FASB ASC
105). FASB ASC 105 establishes a single source of
authoritative non-governmental GAAP, superseding existing FASB,
American Institute of Certified Public Accountants
(AICPA), EITF and related accounting literature.
FASB ASC 105 does not amend or replace rules and interpretive
releases of the Securities and Exchange Commission
(SEC), which are sources of authoritative GAAP for
SEC registrants. FASB ASC 105 is effective for interim and
annual periods ending after September 15, 2009 and, as
such, the Company has adopted FASB ASC 105 as of
September 30, 2009.
In May 2009, the FASB issued FASB ASC 855, Subsequent Events
(FASB ASC 855), the objective of which is to
establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
In particular, FASB ASC 855 sets forth (1) the period after
the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
(2) the circumstances under which an entity should
recognize events or transactions occurring after the balance
sheet date in its financial statements and (3) the
disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. FASB
ASC 855 is effective for interim or
F-33
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
annual financial periods ending after June 15, 2009 and as
such, we adopted FASB ASC 855 as of June 30, 2009.
We have reviewed other accounting pronouncements that were
issued as of December 31, 2009, which the Company has not
yet adopted, and do not believe that these pronouncements will
have a material impact on our financial position or operating
results.
|
|
3.
|
Reorganization
Items, Net and Liabilities Subject to Compromise
|
Reorganization
Items, Net
For the year ended December 31, 2009, the Company has
recorded $94.8 million of reorganization items on a
separate line item on the 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. The following table
displays the details of reorganization items for the year ended
December 31, 2009:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Professional fees
|
|
$
|
77,375
|
|
Write-off of unamortized deferred financing costs
|
|
|
64,475
|
|
Write-off of unamortized net premiums / discounts on long-term
debt
|
|
|
34,886
|
|
Write-off of debt related unamortized fair value adjustments
|
|
|
(78,511
|
)
|
Lease rejections, abandoned property and other
|
|
|
(3,457
|
)
|
|
|
|
|
|
Total reorganization items
|
|
$
|
94,768
|
|
|
|
|
|
|
The Company has incurred professional fees associated with
filing the Chapter 11 petitions of $77.4 million
during the year ended December 31, 2009, of which
$67.6 million have been paid in cash. Professional fees
include financial, legal and valuation services directly
associated with the reorganization process.
The write-off of unamortized deferred financing costs of
$64.5 million, unamortized net
premiums / discounts of $34.9 million and
unamortized fair value adjustments required by GAAP as a result
of the Dex Media Merger of $78.5 million at May 28,
2009, relate to long-term debt classified as liabilities subject
to compromise at December 31, 2009.
The Company has recognized $3.5 million during the year
ended December 31, 2009 associated with rejected leases,
abandoned property and other, which have been approved by the
Bankruptcy Court through December 31, 2009 as part of the
Chapter 11 Cases.
As of December 31, 2009, the Company has not received any
operating cash receipts resulting from the filing of the
Chapter 11 petitions.
Liabilities
Subject to Compromise
Liabilities subject to compromise generally refer to
pre-petition obligations, secured or unsecured, that may be
impaired by a plan of reorganization. FASB ASC 852 requires such
liabilities, including those that became known after filing the
Chapter 11 petitions, be reported at the amounts expected
to be allowed, even if they may be settled for lesser amounts.
These liabilities represent the estimated amount expected to be
resolved on known or potential claims through the
Chapter 11 process, and remain subject to future
adjustments from negotiated settlements, actions of the
Bankruptcy Court and non-acceptance of certain
F-34
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
executory contracts and unexpired leases. Liabilities subject to
compromise also includes items that may be assumed under the
plan of reorganization, and may be subsequently reclassified to
liabilities not subject to compromise. The Company has
classified all of its notes in default as liabilities subject to
compromise. Liabilities subject to compromise also include
certain pre-petition liabilities including accrued interest,
accounts payable and accrued liabilities, tax related
liabilities and lease related liabilities. The Companys
cash flow from operations was favorably impacted by the stay of
payment related to accrued interest.
The table below identifies the principal categories of
liabilities subject to compromise at December 31, 2009:
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Notes in default
|
|
$
|
6,071,756
|
|
Accrued interest
|
|
|
241,585
|
|
Tax related liabilities
|
|
|
28,845
|
|
Accounts payable and accrued liabilities
|
|
|
10,627
|
|
|
|
|
|
|
Total liabilities subject to compromise
|
|
$
|
6,352,813
|
|
|
|
|
|
|
Certain of the claims included in liabilities subject to
compromise at December 31, 2009 were resolved and satisfied
on or before the Effective Date, while others have been or will
be resolved subsequent to the Effective Date. Although the
allowed amount of certain unresolved claims has not been
determined, our liabilities subject to compromise associated
with these unresolved claims have been discharged upon our
emergence in exchange for the treatment outlined in the Plan.
The Company believes that the entire amount of liabilities
subject to compromise at December 31, 2009 was effectively
resolved at the Effective Date as disclosed in the unaudited pro
forma adjustments in Note 16, Subsequent Events.
During 2009, we initiated a restructuring plan that included
vacating leased facilities and headcount reductions (2009
Actions). During the year ended December 31, 2009, we
recognized a restructuring charge to earnings associated with
the 2009 Actions of $5.4 million and made payments of
$2.4 million.
During the first quarter of 2009, we initiated a restructuring
plan that included outside consulting services to assist with
the evaluation of our capital structure, including various
balance sheet restructuring alternatives. Professional fees of
$2.3 million, which were previously recognized as
restructuring charges under the 2009 Actions during the first
quarter of 2009, have been reclassed to reorganization items,
net on the consolidated statement of operations for the year
ended December 31, 2009.
During the second quarter of 2008, we initiated a restructuring
plan that included headcount reductions, consolidation of
responsibilities and vacating leased facilities (2008
Actions) that occurred during 2008 and continued into
2009. During the years ended December 31, 2009 and 2008, we
recognized a restructuring charge to earnings associated with
the 2008 Actions of $9.3 million and $38.6 million,
respectively. Payments of $17.5 million and
$28.4 million were made with respect to outside consulting
services, severance, and vacated leased facilities during the
years ended December 31, 2009 and 2008, respectively.
During the year ended December 31, 2007, we recognized a
restructuring charge to earnings of $5.5 million associated
with headcount reductions and consolidation of responsibilities
to be effectuated during 2008 (2007 Actions). During
the year ended December 31, 2008, we finalized our estimate
of costs associated with headcount reductions and reversed a
portion of the reserve by $1.9 million, with a
corresponding credit to earnings. During the years ended
December 31, 2009 and 2008, we made payments of
F-35
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$0.4 million and $3.3 million, respectively, primarily
related to severance. No payments were made associated with the
2007 Actions during the year ended December 31, 2007.
As a result of the Dex Media Merger, we completed a
restructuring relating to the integration of the Dex Media
Business and vacated certain of our leased Dex Media facilities.
There were no payments made with respect to severance and
relocation during the year ended December 31, 2009.
Payments made with respect to severance and relocation during
the years ended December 31, 2008 and 2007 totaled
$0.4 million and $1.6 million, respectively. Payments
of $0.1 million, $1.7 million and $2.2 million
were made during the years ended December 31, 2009, 2008
and 2007, respectively, with respect to the vacated leased Dex
Media facilities. The remaining lease payments for these
facilities will be made through 2014.
Restructuring charges that are charged (credited) to earnings
are included in general and administrative expenses on the
consolidated statements of operations.
|
|
5.
|
Long-Term
Debt, Credit Facilities and Notes
|
On the Effective Date and in accordance with the Plan,
$6.1 billion of our notes in default, which are presented
as long-term debt subject to compromise in the table below, were
exchanged for (a) 100% of the reorganized Dex One equity
and (b) we issued $300.0 million of the Dex One Senior
Subordinated Notes to the holders of the Dex Media West
8.5% Senior Notes due 2010 and 5.875% Senior Notes due
2011 on a pro rata basis in addition to their share of the
reorganized Dex One equity. In accordance with the Plan, the
Companys existing credit facilities were amended and
restated on the Effective Date. The terms and conditions of the
amended and restated credit facilities and the Dex One Senior
Subordinated Notes are presented in Note 16,
Subsequent Events. As of the Effective Date,
aggregate outstanding debt was $3.4 billion, comprised of
$3.1 billion outstanding under our amended and restated
credit facilities and the $300.0 million Dex One Senior
Subordinated Notes.
F-36
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the carrying value of our long-term
debt at December 31, 2009 and 2008. As a result of filing
the Chapter 11 petitions, unamortized fair value
adjustments required by GAAP as a result of the Dex Media Merger
of $78.5 million and unamortized net
premiums / discounts of $34.9 million at
May 28, 2009 were written-off and recognized as
reorganization items on the consolidated statement of operations
for the year ended December 31, 2009. Therefore the
carrying value of our long-term debt at December 31, 2009
represents par value. The carrying value of our long-term debt
at December 31, 2008 includes $86.2 million of
unamortized fair value adjustments. As a result of filing the
Chapter 11 petitions and the Plan, we do not believe that
it is meaningful to present the fair market value of our
long-term debt at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Notes in
|
|
|
Credit
|
|
|
|
|
|
|
Default
|
|
|
Facilities
|
|
|
December 31, 2008
|
|
|
RHD
|
|
|
|
|
|
|
|
|
|
|
|
|
6.875% Senior Notes due 2013
|
|
$
|
206,791
|
|
|
$
|
|
|
|
$
|
206,791
|
|
6.875%
Series A-1
Senior Discount Notes due 2013
|
|
|
320,903
|
|
|
|
|
|
|
|
301,862
|
|
6.875%
Series A-2
Senior Discount Notes due 2013
|
|
|
483,365
|
|
|
|
|
|
|
|
455,204
|
|
8.875%
Series A-3
Senior Notes due 2016
|
|
|
1,012,839
|
|
|
|
|
|
|
|
1,012,839
|
|
8.875%
Series A-4
Senior Notes due 2017
|
|
|
1,229,760
|
|
|
|
|
|
|
|
1,229,760
|
|
R.H. Donnelley Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
|
|
|
|
1,424,048
|
|
|
|
1,341,098
|
|
11.75% Senior Notes due 2015
|
|
|
412,871
|
|
|
|
|
|
|
|
412,871
|
|
Dex Media, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
8% Senior Notes due 2013
|
|
|
500,000
|
|
|
|
|
|
|
|
510,408
|
|
9% Senior Discount Notes due 2013
|
|
|
749,857
|
|
|
|
|
|
|
|
771,488
|
|
Dex Media East
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
|
|
|
|
1,039,436
|
|
|
|
1,081,500
|
|
Dex Media West
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
|
|
|
|
1,091,292
|
|
|
|
1,080,000
|
|
8.5% Senior Notes due 2010
|
|
|
385,000
|
|
|
|
|
|
|
|
393,883
|
|
5.875% Senior Notes due 2011
|
|
|
8,720
|
|
|
|
|
|
|
|
8,761
|
|
9.875% Senior Subordinated Notes due 2013
|
|
|
761,650
|
|
|
|
|
|
|
|
815,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RHD consolidated
|
|
|
6,071,756
|
|
|
|
3,554,776
|
|
|
|
9,622,256
|
|
Less current portion not subject to compromise
|
|
|
|
|
|
|
993,528
|
|
|
|
113,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt subject to compromise
|
|
$
|
6,071,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt not subject to compromise
|
|
|
|
|
|
$
|
2,561,248
|
|
|
$
|
9,508,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facilities
On May 28, 2009 and in conjunction with the Plan, the
Company repaid an aggregate of $200.0 million in principal
on outstanding balances owed under the RHDI, Dex Media East and
Dex Media West credit facilities, comprised of
$77.7 million, $59.6 million and $62.7 million,
respectively.
On February 13, 2009, the Company borrowed the unused
portions under the RHDI Revolver, Dex Media East Revolver and
Dex Media West Revolver totaling $174.0 million,
$97.0 million and $90.0 million,
F-37
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
respectively. The Company made the borrowings under the various
revolving credit facilities to preserve its financial
flexibility in light of the continuing uncertainty in the global
credit markets.
RHDI
As of December 31, 2009, outstanding balances under the
RHDI credit facility totaled $1,424.0 million, comprised of
$252.8 million under Term Loan D-1, $1,006.2 million
under Term Loan D-2 and $165.0 million under the RHDI
Revolver. The RHDI credit facility provided for an uncommitted
Term Loan C for potential borrowings up to $400.0 million.
The weighted average interest rate of outstanding debt under the
RHDI credit facility was 6.72% and 6.77% at December 31,
2009 and 2008, respectively.
As of December 31, 2009, prior to amendment and
restatement, the terms and conditions of the RHDI credit
facility consisted of the following:
|
|
|
|
|
All Term Loans required quarterly principal and interest
payments;
|
|
|
|
Interest payments were made at our option at either:
|
|
|
|
|
|
The highest of (i) a base rate as determined by the
Administrative Agent, Deutsche Bank Trust Company Americas,
(ii) the Federal Funds Effective Rate (as defined) plus
0.50%, and (iii) 4.0%, in each case, plus a 2.50% margin on
the RHDI Revolver and a 2.75% margin on Term Loan D-1 and Term
Loan D-2; or
|
|
|
|
The higher of (i) LIBOR rate and (ii) 3.0%, in each
case, plus a 3.50% margin on the new RHDI Revolver and a 3.75%
margin on Term Loan D-1 and Term Loan D-2. We may elect interest
periods of 1, 2, 3 or 6 months (or 9 or 12 months if,
at the time of the borrowing, all lenders agree to make such
term available), for LIBOR borrowings.
|
|
|
|
|
|
Term Loans D-1 and D-2 required accelerated amortization
beginning in 2010 through final maturity in June 2011; and
|
|
|
|
$75.0 million of the RHDI Revolver matured in December
2009, while $100.0 million of the RHDI Revolver would have
matured in June 2011.
|
Dex Media
East
As of December 31, 2009, outstanding balances under the Dex
Media East credit facility totaled $1,039.4 million,
comprised of $572.7 million under Term Loan A,
$374.7 million under Term Loan B and $92.0 million
under the Dex Media East Revolver, exclusive of
$2.6 million utilized under three standby letters of
credit. The Dex Media East credit facility also consisted of a
$200.0 million aggregate principal amount uncommitted
incremental facility, in which Dex Media East would have the
right, subject to obtaining commitments for such incremental
loans, on one or more occasions to increase the Term Loan A,
Term Loan B or the Dex Media East Revolver by such amount. The
weighted average interest rate of outstanding debt under the Dex
Media East credit facility was 2.08% and 3.83% at
December 31, 2009 and 2008, respectively.
As of December 31, 2009, prior to amendment and
restatement, the terms and conditions of the Dex Media East
credit facility consisted of the following:
|
|
|
|
|
All Term Loans required quarterly principal and interest
payments;
|
|
|
|
Interest payments were made at our option at either:
|
|
|
|
|
|
The higher of (i) the base rate determined by the
Administrative Agent, JP Morgan Chase Bank, N.A. and
(ii) the Federal Funds Effective Rate (as defined) plus
0.50%, and in each case, plus a
|
F-38
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
0.75% (or 0.50% if leverage ratio is less than 2 to
1) margin on the Dex Media East Revolver and Term Loan A
and a 1.00% margin on Term Loan B; or
|
|
|
|
|
|
The LIBOR rate plus a 1.75% (or 1.50% if leverage ratio is less
than 2 to 1) margin on the Dex Media East Revolver and Term
Loan A and a 2.00% margin on Term Loan B. We may elect interest
periods of 1, 2, 3, or 6 months (or 9 or 12 months if,
at the time of the borrowing, all lenders agree to make such
term available), for LIBOR borrowings.
|
|
|
|
|
|
The Dex Media East Revolver and Term Loan A would have matured
in October 2013, and the Term Loan B would have matured in
October 2014.
|
Dex Media
West
As of December 31, 2009, outstanding balances under the Dex
Media West credit facility totaled $1,091.3 million,
comprised of $113.8 million under Term Loan A,
$892.3 million under Term Loan B and $85.2 million
under the Dex Media West Revolver. In the event that more than
$25.0 million of Dex Media Wests 9.875% Senior
Subordinated Notes due 2013 (or any refinancing or replacement
thereof) was outstanding, the Dex Media West Revolver, Term Loan
A and Term Loan B would have matured on the date that is three
months prior to the final maturity of such notes. The Dex Media
West credit facility included an up to $400.0 million
uncommitted incremental facility (Incremental
Facility) that could have been incurred as additional
revolving loans or additional term loans, subject to obtaining
commitments for such loans. The Incremental Facility was fully
available if used to refinance the Dex Media West
8.5% Senior Notes due 2010, however was limited to
$200.0 million if used for any other purpose. The weighted
average interest rate of outstanding debt under the Dex Media
West credit facility was 6.95% and 7.10% at December 31,
2009 and 2008, respectively.
As of December 31, 2009, prior to amendment and
restatement, the terms and conditions of the Dex Media West
credit facility consisted of the following:
|
|
|
|
|
All Term Loans required quarterly principal and interest
payments;
|
|
|
|
Interest payments were made at our option at either:
|
|
|
|
|
|
The highest of (i) the base rate determined by the
Administrative Agent, JP Morgan Chase Bank, N.A., (ii) the
Federal Funds Effective Rate (as defined) plus 0.50%, and
(iii) 4.0%, in each case, plus a 2.75% (or 2.50% if the
leverage ratio is less than 3.00 to 1.00) margin on the Dex
Media West Revolver and Term Loan A and a 3.0% margin on Term
Loan B; or
|
|
|
|
The higher of (i) LIBOR rate and (ii) 3.0% plus a
3.75% (or 3.50% if the leverage ratio is less than 3.00 to 1.00)
margin on the Dex Media West Revolver and Term Loan A and a 4.0%
margin on Term Loan B. We may elect interest periods of 1, 2, 3,
or 6 months (or 9 or 12 months if, at the time of the
borrowing, all lenders agree to make such term available), for
LIBOR borrowings.
|
|
|
|
|
|
The Dex Media West Revolver and Term Loan A would have matured
in October 2013 and the Term Loan B would have matured in
October 2014.
|
Notes
in Default Eliminated Upon Emergence from the Chapter 11
Proceedings
As of December 31, 2009, we had total outstanding notes of
$6,071.8 million, comprised of $3,253.6 million
outstanding RHD notes, $412.9 million outstanding RHDI
notes, $1,249.9 million outstanding Dex Media, Inc. notes
and $1,155.4 million outstanding Dex Media West notes.
F-39
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
RHD
As of December 31, 2009, RHD had total outstanding notes of
$3,253.6 million, comprised of $206.8 million
6.875% Senior Notes, $320.9 million 6.875%
Series A-1
Senior Discount Notes, $483.3 million 6.875%
Series A-2
Senior Discount Notes, $1,012.8 million 8.875%
Series A-3
Senior Notes and $1,229.8 million 8.875%
Series A-4
Senior Notes.
As of December 31, 2009, we had issued $1.5 billion
aggregate principal amount of 8.875%
Series A-4
Senior Notes due 2017. Interest on the
Series A-4
Notes was payable semi-annually on April 15th and October 15th
of each year, commencing on April 15, 2008. The
Series A-4
Notes were senior unsecured obligations of RHD, senior in right
of payment to all of RHDs existing and future senior
subordinated debt and future subordinated obligations and ranked
equally with any of RHDs existing and future senior
unsecured debt. The
Series A-4
Notes were effectively subordinated to RHDs secured debt,
including RHDs guarantee of borrowings under the RHDI
credit facility and were structurally subordinated to any
existing or future liabilities (including trade payables) of our
direct and indirect subsidiaries.
The 8.875%
Series A-4
Notes with a remaining face value of $1,229.8 million were
redeemable at our option beginning in 2012 at the following
prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2012
|
|
|
104.438
|
%
|
2013
|
|
|
102.958
|
%
|
2014
|
|
|
101.479
|
%
|
2015 and thereafter
|
|
|
100.000
|
%
|
As of December 31, 2009, we had issued $300.0 million
of 6.875% Senior Notes due January 15, 2013
(Holdco Notes). Interest was payable on the Holdco
Notes semi-annually in arrears on January 15th and July 15th of
each year, commencing July 15, 2005.
The 6.875% Holdco Notes with a remaining face value of
$206.8 million were redeemable at our option at the
following prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2009
|
|
|
103.438
|
%
|
2010
|
|
|
101.719
|
%
|
2011 and thereafter
|
|
|
100.000
|
%
|
As of December 31, 2009, we had issued $660.0 million
aggregate principal amount at maturity ($600.5 million
gross proceeds) of 6.875%
Series A-2
Senior Discount Notes due January 15, 2013 and
$1.21 billion principal amount of 8.875%
Series A-3
Senior Notes due January 15, 2016. Interest was payable
semi-annually on January 15th and July 15th of each year for the
Series A-2
Senior Discount Notes and the
Series A-3
Senior Notes, commencing July 15, 2006. As of
December 31, 2009, we also had issued $365.0 million
aggregate principal amount at maturity ($332.1 million
gross proceeds) of 6.875%
Series A-1
Senior Discount Notes due January 15, 2013. Interest was
payable semi-annually on January 15th and July 15th of each
year, commencing July 15, 2006. All of these notes were
unsecured obligations of RHD, senior in right of payment to all
future senior subordinated and subordinated indebtedness of RHD
and structurally subordinated to all indebtedness of our
subsidiaries.
F-40
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The 6.875%
Series A-1
Senior Discount Notes with a remaining face value of
$320.9 million and
Series A-2
Senior Discount Notes with a remaining face value of
$483.3 million were redeemable at our option at the
following prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2009
|
|
|
103.438
|
%
|
2010
|
|
|
101.719
|
%
|
2011 and thereafter
|
|
|
100.000
|
%
|
The 8.875%
Series A-3
Senior Notes with a remaining face value of
$1,012.8 million were redeemable at our option beginning in
2011 at the following prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2011
|
|
|
104.438
|
%
|
2012
|
|
|
102.958
|
%
|
2013
|
|
|
101.479
|
%
|
2014 and thereafter
|
|
|
100.000
|
%
|
RHDI
On June 25, 2008, RHDI exchanged $594.2 million
($585.7 million accreted value, as applicable) of certain
RHD senior notes and senior discount notes (collectively
referred to as the RHD Notes) for
$412.9 million aggregate principal amount of RHDI
11.75% Senior Notes due May 15, 2015 (RHDI
Senior Notes). Interest on the RHDI Senior Notes was
payable semi-annually on May 15th and November 15th of each
year, commencing November 15, 2008. The RHDI Senior Notes
were senior unsecured obligations of RHDI and ranked equally
with all of RHDIs other senior unsecured indebtedness. The
RHDI Senior Notes were fully and unconditionally guaranteed by
RHD and RHDIs subsidiaries that guarantee the obligations
under the RHDI credit facility on a general, senior unsecured
basis. The RHDI Senior Notes were effectively subordinated in
right of payment to all of RHDIs existing and future
secured debt to the extent of the value of the assets securing
such debt. The RHDI Senior Notes were also structurally
subordinated to all existing and future liabilities (including
trade payables) of RHDIs existing and future subsidiaries
that do not guarantee the RHDI Senior Notes. The RHD guarantee
with respect to the RHDI Senior Notes was structurally
subordinated to the liabilities of RHDs subsidiaries,
other than RHDI and its subsidiaries that guarantee obligations
under the RHDI Senior Notes. Claims with respect to the RHDI
Senior Notes were structurally senior to claims with respect to
any outstanding RHD notes.
The RHDI Senior Notes with a remaining face value of
$412.9 million were redeemable at our option beginning in
2012 at the following prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2012
|
|
|
105.875
|
%
|
2013
|
|
|
102.938
|
%
|
2014 and thereafter
|
|
|
100.000
|
%
|
Dex
Media, Inc.
As of December 31, 2009, Dex Media, Inc. had total
outstanding notes of $1,249.9 million, comprised of
$500.0 million 8% Senior Notes and $749.9 million
9% Senior Discount Notes.
As of December 31, 2009, Dex Media, Inc. had issued
$500.0 million aggregate principal amount of 8% Senior
Notes due 2013. These Senior Notes were unsecured obligations of
Dex Media, Inc. and interest
F-41
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
was payable on May 15th and November 15th of each year. As of
December 31, 2009, $500.0 million aggregate principal
amount was outstanding.
The 8% Senior Notes with a remaining face value of
$500.0 million were redeemable at our option at the
following prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2009
|
|
|
102.667
|
%
|
2010
|
|
|
101.333
|
%
|
2011 and thereafter
|
|
|
100.000
|
%
|
As of December 31, 2009, Dex Media, Inc. had issued
$750 million aggregate principal amount of 9% Senior
Discount Notes due 2013, under two indentures. Under the first
indenture totaling $389.0 million aggregate principal
amount, the 9% Senior Discount Notes were issued at an
original issue discount with interest accruing at 9%, per annum,
compounded semi-annually. These Senior Discount Notes were
unsecured obligations of Dex Media, Inc. and interest accrued in
the form of increased accreted value until November 15,
2008 (Full Accretion Date), at which time the
accreted value was equal to the full principal amount at
maturity. Under the second indenture totaling
$361.0 million aggregate principal amount, interest accrued
at 8.37% per annum, compounded semi-annually, which created a
premium at the Full Accretion Date that would have been
amortized over the remainder of the term. After
November 15, 2008, the 9% Senior Discount Notes bore
cash interest at 9% per annum, payable semi-annually on May 15th
and November 15th of each year. These Senior Discount Notes were
unsecured obligations of Dex Media, Inc. and no cash interest
accrued on the discount notes prior to the Full Accretion Date.
As of December 31, 2009, $750 million aggregate
principal amount was outstanding.
The 9% Senior Discount Notes with a remaining face value of
$749.9 million were redeemable at our option at the
following prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2009
|
|
|
103.000
|
%
|
2010
|
|
|
101.500
|
%
|
2011 and thereafter
|
|
|
100.000
|
%
|
Dex Media
West
As of December 31, 2009, Dex Media West had total
outstanding notes of $1,155.4 million, comprised of
$385.0 million 8.5% Senior Notes, $8.7 million
5.875% Senior Notes and $761.7 million Senior
Subordinated Notes.
As of December 31, 2009, Dex Media West had issued
$385.0 million aggregate principal amount of
8.5% Senior Notes due 2010. These Senior Notes were
unsecured obligations of Dex Media West and interest was payable
on February 15th and August 15th of each year. As of
December 31, 2009, $385.0 million aggregate principal
amount was outstanding.
The 8.5% Senior Notes with a remaining face value of
$385.0 million were redeemable at our option at the
following prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2009 and thereafter
|
|
|
100.000
|
%
|
As of December 31, 2009, Dex Media West had issued
$300.0 million aggregate principal amount of
5.875% Senior Notes due 2011. These Senior Notes were
unsecured obligations of Dex Media West and
F-42
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest was payable on May 15th and November 15th of each year.
As of December 31, 2009, $8.7 million aggregate
principal amount was outstanding.
The 5.875% Senior Notes with a remaining face value of
$8.7 million were redeemable at our option at the following
prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2009
|
|
|
101.469
|
%
|
2010 and thereafter
|
|
|
100.000
|
%
|
As of December 31, 2009, Dex Media West had issued
$780 million aggregate principal amount of
9.875% Senior Subordinated Notes due 2013. These Senior
Subordinated Notes were unsecured obligations of Dex Media West
and interest is payable on February 15th and August 15th of each
year. As of December 31, 2009, $761.7 million
aggregate principal amount was outstanding.
The 9.875% Senior Subordinated Notes with a remaining face
value of $761.7 million were redeemable at our option at
the following prices (as a percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2009
|
|
|
103.292
|
%
|
2010
|
|
|
101.646
|
%
|
2011 and thereafter
|
|
|
100.000
|
%
|
As a result of our emergence from Chapter 11 on the
Effective Date, we do not believe that it is meaningful to
present the aggregate maturities of our long-term debt as of
December 31, 2009. As such, the following table presents
aggregate maturities of our amended and restated credit
facilities and the Dex One Senior Subordinated Notes, including
the current portion, as of the Effective Date:
|
|
|
|
|
2010
|
|
$
|
165,949
|
|
2011
|
|
|
175,344
|
|
2012
|
|
|
212,131
|
|
2013
|
|
|
222,078
|
|
2014
|
|
|
2,309,323
|
|
Thereafter
|
|
|
300,000
|
|
|
|
|
|
|
Total
|
|
$
|
3,384,825
|
|
|
|
|
|
|
Impact of
Dex Media Merger
As a result of the Dex Media Merger, an adjustment was
established to record the acquired debt at fair value on
January 31, 2006. This fair value adjustment was amortized
as a reduction of interest expense using the effective interest
method through May 28, 2009 and did not impact future
scheduled interest or principal payments. Amortization of the
fair value adjustment included as a reduction of interest
expense or loss on debt transactions, as applicable, was
$7.7 million, $17.6 million and $92.1 million
(including $62.2 million related to the redemption of Dex
Media Easts Senior Notes and Senior Subordinated Notes
during 2007, which was recorded as a loss on debt transactions)
for the years ended December 31, 2009, 2008 and 2007,
respectively. The offset to interest expense was to be
recognized over the life of the respective debt, however due to
filing the Chapter 11 petitions, unamortized fair value
adjustments of $78.5 million at May 28, 2009 were
written-off and recognized as a reorganization item on the
consolidated statement of operations for the year ended
December 31, 2009.
F-43
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Derivative
Financial Instruments
|
The RHDI credit facility and the Dex Media West and Dex Media
East credit facilities each bear interest at variable rates and,
accordingly, our earnings and cash flow are affected by changes
in interest rates. The Company has entered into the following
interest rate swaps that effectively convert approximately
$200.0 million of the Companys variable rate debt to
fixed rate debt as of December 31, 2009.
|
|
|
|
|
|
|
|
|
Effective Dates
|
|
Notional Amount
|
|
|
Pay Rates
|
|
Maturity Dates
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
February 28, 2008
|
|
$
|
100
|
(1)
|
|
3.212%
|
|
February 28, 2011
|
March 31, 2008
|
|
|
100
|
(1)
|
|
3.50%
|
|
March 29, 2013
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of one swap. |
As a result of filing the Chapter 11 petitions, the Company
does not have any interest rate swaps designated as cash flow
hedges as of December 31, 2009.
Under the terms of the interest rate swap agreements, we receive
variable interest based on the three-month LIBOR and pay a
weighted average fixed rate of 3.4%. The weighted average rate
received on our interest rate swaps was 0.25% at
December 31, 2009. These periodic payments and receipts are
recorded as interest expense.
The following table presents the fair value of our interest rate
swaps at December 31, 2009. The fair value of our interest
rate swaps is presented in accounts payable and accrued
liabilities and other non-current liabilities on the
consolidated balance sheet at December 31, 2009. The
following table also presents the (gain) loss recognized in
interest expense from the change in fair value of our interest
rate swaps and (gain) loss recognized in accumulated other
comprehensive loss from effective interest rate swaps for the
year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
(Gain) Loss Recognized in
|
|
|
(Gain) Loss Recognized
|
|
|
|
|
|
|
Interest Expense From the
|
|
|
in Accumulated Other
|
|
|
|
Fair Value Measurements
|
|
|
Change in Fair Value of
|
|
|
Comprehensive Loss From
|
|
|
|
at December 31, 2009
|
|
|
Interest Rate Swaps
|
|
|
Effective Interest Rate Swaps
|
|
|
Accounts Payable and Accrued Liabilities
|
|
$
|
(5,043
|
)
|
|
$
|
16,798
|
|
|
$
|
4,480
|
|
Other Non-Current Liabilities
|
|
|
(1,652
|
)
|
|
|
(12,260
|
)
|
|
|
(8,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(6,695
|
)
|
|
$
|
4,538
|
|
|
$
|
(3,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2009, 2008 and 2007,
the Company reclassified $41.0 million and
$57.1 million of hedging losses and $15.2 million of
hedging gains into earnings, respectively, related to our
interest rate swaps. As of December 31, 2009,
$23.2 million of deferred losses, net of tax, on derivative
instruments recorded in accumulated other comprehensive loss are
expected to be reclassified into earnings as the hedged
transactions occur. In accordance with fresh start accounting
and reporting, unamortized amounts previously charged to
accumulated other comprehensive loss will be eliminated on the
Fresh Start Reporting Date.
Deferred income tax assets and liabilities are determined based
on the estimated future tax effects of temporary differences
between the financial statement and tax basis of assets and
liabilities, as measured by
F-44
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
tax rates at which temporary differences are expected to
reverse. Deferred income tax benefit (provision) is the result
of changes in the deferred income tax assets and liabilities.
Benefit (provision) for income taxes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current benefit (provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
2,875
|
|
|
$
|
(23,900
|
)
|
|
$
|
(11,839
|
)
|
State and local
|
|
|
11,773
|
|
|
|
(10,295
|
)
|
|
|
(8,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current benefit (provision)
|
|
|
14,648
|
|
|
|
(34,195
|
)
|
|
|
(20,365
|
)
|
Deferred benefit (provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
780,678
|
|
|
|
1,152,636
|
|
|
|
(15,712
|
)
|
State and local
|
|
|
133,194
|
|
|
|
159,255
|
|
|
|
7,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred benefit (provision)
|
|
|
913,872
|
|
|
|
1,311,891
|
|
|
|
(8,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes
|
|
$
|
928,520
|
|
|
$
|
1,277,696
|
|
|
$
|
(29,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the significant differences
between the U.S. Federal statutory tax rate and our
effective tax rate, which has been applied to the Companys
income (loss) before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income (loss) before income taxes
|
|
$
|
(7,381,813
|
)
|
|
$
|
(3,576,023
|
)
|
|
$
|
75,892
|
|
Statutory U.S. Federal tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local taxes, net of U.S. Federal tax benefit
|
|
|
3.3
|
|
|
|
2.9
|
|
|
|
(9.1
|
)
|
Non-deductible goodwill impairment charge
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
Non-deductible expense
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
0.9
|
|
Change in valuation allowance
|
|
|
(20.7
|
)
|
|
|
0.1
|
|
|
|
10.2
|
|
Section 382 limitation
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.3
|
)
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
12.6
|
%
|
|
|
35.7
|
%
|
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income tax assets and liabilities consisted of the
following at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
22,303
|
|
|
$
|
20,879
|
|
Deferred and other compensation
|
|
|
33,364
|
|
|
|
49,241
|
|
Deferred directory revenue and costs
|
|
|
23,598
|
|
|
|
58,571
|
|
Deferred financing costs
|
|
|
45,411
|
|
|
|
13,366
|
|
Capital investments
|
|
|
6,220
|
|
|
|
6,152
|
|
Debt and other interest
|
|
|
12,098
|
|
|
|
56,257
|
|
Pension and other retirement benefits
|
|
|
29,915
|
|
|
|
63,383
|
|
Restructuring reserves
|
|
|
|
|
|
|
4,904
|
|
Net operating loss and credit carryforwards
|
|
|
532,222
|
|
|
|
242,495
|
|
Goodwill and intangible assets
|
|
|
1,246,106
|
|
|
|
|
|
Other
|
|
|
37,760
|
|
|
|
12,001
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
1,988,997
|
|
|
|
527,249
|
|
Valuation allowance
|
|
|
(1,531,905
|
)
|
|
|
(9,252
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
457,092
|
|
|
$
|
517,997
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
Fixed assets and capitalized software
|
|
$
|
28,321
|
|
|
$
|
34,276
|
|
Purchased goodwill and intangible assets
|
|
|
|
|
|
|
1,383,635
|
|
Debt and other interest
|
|
|
135,610
|
|
|
|
|
|
Restructuring reserves
|
|
|
967
|
|
|
|
|
|
Other
|
|
|
493
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
165,391
|
|
|
|
1,418,095
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
291,701
|
|
|
$
|
(900,098
|
)
|
|
|
|
|
|
|
|
|
|
As a result of filing the Chapter 11 petitions, the Company
has reclassified certain income tax liabilities relating to tax
periods prior to the Petition Date of $28.8 million to
liabilities subject to compromise on the consolidated balance
sheet at December 31, 2009. See Note 3,
Reorganization Items, Net and Liabilities Subject to
Compromise for additional information.
The 2009 income tax benefit of $928.5 million is comprised
of a federal tax benefit of $783.5 million and a state tax
benefit of $145.0 million. The 2009 federal tax benefit is
comprised of a current tax benefit of $2.9 million,
primarily related to a decrease in the federal tax accrual due
to our amended return filings and a deferred tax benefit of
$780.7 million, primarily related to non-cash intangible
asset impairment charges during 2009, offset in part by a
valuation allowance as discussed below. The 2009 state tax
benefit of $145.0 million is comprised of a current tax
benefit of $11.8 million, which relates to the favorable
settlement of prior year state tax audits in 2009 and reversal
of the associated state liabilities, and a deferred tax benefit
of $133.2 million, primarily related to non-cash intangible
asset impairment charges during 2009, offset in part by a
valuation allowance as discussed below.
At December 31, 2009, the Company had federal and state net
operating loss carryforwards of approximately
$1,315.4 million (net of carryback) and
$1,685.9 million, respectively, which will begin to expire
in 2020 and 2010, respectively. These amounts include
consideration of net operating losses expected to
F-46
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expire unused due to the Internal Revenue Code Section 382
(Section 382) limitation for changes in
ownership, which the Company believes occurred on March 6,
2009. Under Section 382, potential limitations are
triggered when there has been an ownership change, which is
generally defined as a greater than 50% change in stock
ownership (by value) over a three-year period. Such change in
ownership will restrict the Companys ability to use
certain net operating losses and other corporate tax attributes
in the future, however, the ownership change does not constitute
a change in control under any of the Companys debt
agreements or other contracts. A portion of the benefits from
the net operating loss carryforwards will be reflected in
additional paid-in capital as a portion of these net operating
loss carryforwards are generated by deductions related to the
exercise of stock awards. The 2009 and 2008 deduction for stock
awards was less than $0.1 million and $0.6 million,
respectively. In addition, the Company has alternative minimum
tax credit carryforwards of approximately $0.7 million,
which are available to reduce future federal income taxes over
an indefinite period.
Total deferred tax assets before the valuation allowance are
$1,989.0 million and total deferred tax liabilities are
$165.4 million. Deferred tax assets of
$1,246.1 million represent tax deductible Internal Revenue
Code Section 197 intangible assets amortizing over a
15 year period, of which approximately 8 to 15 years
remain. In assessing the amount of deferred tax assets that are
more likely than not to be realized, financial reporting
standards allow us to consider four possible sources of taxable
income: future reversals of existing taxable differences,
projected future taxable income, taxable income in net operating
loss carryback years, and tax planning strategies. After
analyzing these factors, the Company has concluded there is not
sufficient positive evidence of future sources of taxable income
to realize the full benefit of our deferred tax assets. As a
result, the Company has established a valuation allowance
against its deferred tax assets to the extent they are not
supported by future reversals of existing taxable temporary
differences, taxable income in net operating loss carryback
years and certain liabilities required under ASC 740.
We have provided full valuation allowances for state and federal
net operating loss and tax credit carryforwards to the extent it
is more likely than not the deferred tax benefits will not be
realized. At December 31, 2009, in accordance with FASB ASC
740 and upon evaluation of the future reversals of existing
taxable differences, taxable income in net operating loss
carryback years and liabilities required under ASC 740, we
recorded a valuation allowance of $1,531.9 million for
deferred tax assets.
The 2008 income tax benefit of $1,277.7 million is
comprised of a federal tax benefit of $1,128.7 million and
a state tax benefit of $149.0 million. The 2008 federal tax
benefit is comprised of a current tax provision of
$23.9 million, primarily related to an increase to our FASB
ASC 740 liability, offset by a deferred income tax benefit of
$1,152.6 million, primarily related to the goodwill
impairment charges during 2008. The 2008 state tax benefit
of $149.0 million is comprised of a current tax provision
of $10.3 million, which relates to taxes due in states
where subsidiaries of the Company file separate tax returns, as
well as an increase in our FASB ASC 740 liability, offset by a
deferred income tax benefit of $159.3 million, primarily
related to the goodwill impairment charges during 2008. During
2008, the Company utilized federal net operating losses for
income tax purposes of $4.1 million primarily resulting
from taxable gains associated with certain financing activities
conducted during 2008.
The 2008 income tax benefit includes an income tax benefit of
$20.3 million from correcting overstated income tax expense
in fiscal years 2004 through 2007. We have evaluated the
materiality of this correction and concluded it was not material
to 2008 or earlier financial statements. Accordingly we recorded
this correction during the fourth quarter of 2008.
The 2007 provision for income taxes of $29.0 million is
comprised of a federal tax provision of $27.5 million,
resulting from a current tax provision of $11.8 million
relating to an Internal Revenue Service (IRS)
settlement and a deferred income tax provision of
$15.7 million resulting from a current year taxable loss.
The 2007 state tax provision of $1.5 million results
from a current tax provision of $8.5 million relating
F-47
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to taxes due in states where subsidiaries of the Company file
separate company returns, offset by a deferred state tax benefit
of $7.0 million relating to the apportioned taxable income
or loss among various states. A federal net operating loss for
income tax purposes of approximately $303.3 million was
generated in 2007 primarily as a result of tax amortization
expense recorded with respect to the intangible assets acquired
in prior acquisitions. The acquired intangible assets resulted
in a deferred income tax liability of $2.6 billion at
December 31, 2007.
As noted in further detail below, in July 2007, we effectively
settled all issues under consideration with the IRS related to
its audit for taxable years 2003 and 2004. Therefore, tax years
2006, 2007 and 2008 are still subject to examination by the IRS.
Certain state tax returns are under examination by various
regulatory authorities. We continuously review issues raised in
connection with ongoing examinations and open tax years to
evaluate the adequacy of our reserves. We believe that our
accrued tax liabilities under FASB ASC 740 are adequate to cover
uncertain tax positions related to U.S. federal and state
income taxes.
A reconciliation of the beginning and ending amount of gross
unrecognized tax benefits is as follows:
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
32,637
|
|
Gross additions for tax positions related to the current year
|
|
|
277,740
|
|
Gross reductions for tax positions related to the current year
|
|
|
(9,929
|
)
|
Settlements
|
|
|
(2,447
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
298,001
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
December 31, 2009 and 2008 are $288.9 million and
$34.6 million, respectively, of tax benefits that, if
recognized, would favorably affect the effective tax rate.
Our policy is to recognize interest and penalties related to
unrecognized tax benefits in income tax expense. During the
years ended December 31, 2009, 2008 and 2007, the Company
recognized approximately $(3.3) million, $4.4 million
and $1.5 million, respectively, in interest and penalties
due to unrecognized tax benefits. As of December 31, 2009
and 2008, we have accrued $7.5 million and
$11.8 million, respectively, related to interest. No
amounts were accrued for tax penalties as of December 31,
2009 and $1.4 million was accrued for tax penalties as of
December 31, 2008.
In December 2009, we effectively settled all issues under
consideration with the Department of Finance for New York State
for its audit of tax years 2000 through 2006 and the Department
of Revenue for North Carolina for its audit of tax years 2003
through 2008. As a result of these settlements, the unrecognized
tax benefit associated with our uncertain state tax positions
decreased by $7.6 million for New York State and by
$9.7 million for North Carolina during the year ended
December 31, 2009. The decrease in the unrecognized tax
benefits has decreased our effective tax rate for the year ended
December 31, 2009. The unrecognized tax benefits impacted
by the New York State and North Carolina audits primarily
related to apportionment and allocation of income among our
legal entities.
During 2009, the Company increased its liability for
unrecognized tax benefits by $276.4 million reflecting the
uncertainty as to whether the ownership change under
Section 382, as discussed above, occurred prior to the date
on which it elected to modify the tax classification for two of
its subsidiaries. The date of the change in ownership is in
question because as of the balance sheet date the Company is not
able to confirm the actual date of the ownership change until
all SEC
Forms 13-G
are filed. Stockholders have until forty five days following the
end of the calendar year to file these forms with the SEC. Based
on this due date, the actual ownership change date will not be
confirmed until February 15, 2010. In addition, we
increased the liability for unrecognized tax benefits by
$1.5 million relating to the uncertainty surrounding the
deductibility of certain other accrued expenses.
F-48
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
It is reasonably possible that the amount of unrecognized tax
benefits could decrease within the next twelve months. As
previously mentioned, we increased our liability for
unrecognized tax benefits by $276.4 million for
Section 382 limitations. If the actual date of ownership
change under IRC Section 382 is resolved within the next
twelve months, the total amount of unrecognized tax benefits
could decrease by $276.4 million.
In September 2008, we effectively settled all issues under
consideration with the Department of Finance for New York City
related to its audit for taxable year 2000. As a result of the
settlement, the unrecognized tax benefits associated with our
uncertain state tax positions decreased by $0.9 million
during the year ended December 31, 2008. The decrease in
the unrecognized tax benefits has decreased our effective tax
rate for the year ended December 31, 2008. The unrecognized
tax benefits impacted by the New York City audit primarily
related to allocation of income among our legal entities.
In July 2007, we effectively settled all issues under
consideration with the IRS related to its audit for taxable
years 2003 and 2004. As a result of the settlement, the
unrecognized tax benefits associated with our uncertain Federal
tax positions decreased by $167.0 million during the year
ended December 31, 2007. As a result of the IRS settlement,
we recognized additional interest expense of $1.6 million
and $1.2 million related to the taxable years 2004 and
2005, respectively. The recognition of this interest expense
within our tax provision (net of tax benefit) has increased our
effective tax rate for the year ended December 31, 2007.
The unrecognized tax benefits impacted by the IRS audit
primarily related to items for which the ultimate deductibility
was highly certain but for which there was uncertainty regarding
the timing of such deductibility.
In addition, certain state tax returns are under examination by
various regulatory authorities. Our state tax return years are
open to examination for an average of three years. However,
certain jurisdictions remain open to examination longer than
three years due to the existence of net operating loss
carryforwards and statutory waivers.
For the years ended December 31, 2009, 2008 and 2007, the
Company recognized $11.4 million, $29.5 million and
$39.0 million, respectively, of stock-based compensation
expense related to stock-based awards granted under our various
employee and non-employee stock incentive plans. Upon emergence
from Chapter 11 and pursuant to the Plan, all outstanding
equity securities of the Company including all stock options,
SARs and restricted stock, were cancelled. See Note 16,
Subsequent Events for additional information.
During the years ended December 31, 2009, 2008 and 2007,
the Company was not able to utilize the tax benefit resulting
from stock-based award exercises due to net operating loss
carryforwards. As such, neither operating nor financing cash
flows were affected by the tax impact of stock-based award
exercises for the years ended December 31, 2009, 2008 or
2007.
The fair value of our stock options and SARs is calculated using
the Black-Scholes model at the time these stock-based awards are
granted. The amount, net of estimated forfeitures, is then
amortized over the vesting period of the stock-based award. The
Company did not grant any stock-based awards during the year
ended December 31, 2009. The weighted average fair value
per share of stock options and SARs granted during the years
ended December 31, 2008 and 2007 was $2.49 and $22.47,
respectively. The following
F-49
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assumptions were used in valuing these stock-based awards for
the years ended December 31, 2008 and 2007, respectively:
|
|
|
|
|
|
|
December 31, 2008
|
|
December 31, 2007
|
|
Expected volatility
|
|
58.8%
|
|
23.5%
|
Risk-free interest rate
|
|
2.8%
|
|
4.5%
|
Expected life
|
|
5 Years
|
|
5 Years
|
Dividend yield
|
|
0%
|
|
0%
|
We estimate expected volatility based on the historical
volatility of the price of our common stock over the expected
life of our stock-based awards. The expected life represents the
period of time that stock-based awards granted are expected to
be outstanding. We estimate the expected life by using the
simplified method permitted by Staff Accounting
Bulletin No. 110, Use of a Simplified Method in
Developing Expected Term of Share Options, as our
stock-based awards satisfy the plain vanilla
criteria. The simplified method calculates the expected life as
the average of the vesting and contractual terms of the award.
The risk-free interest rate is based on applicable
U.S. Treasury yields that approximate the expected life of
stock-based awards granted.
The Company grants restricted stock to certain of its employees,
including executive officers, and non-employee directors in
accordance with the 2005 Plan. Compensation expense related to
these awards is measured at fair value on the date of grant
based on the number of shares granted and the quoted market
price of the Companys common stock at such time.
The following table presents a summary of the Companys
stock options and SARs activity and related information for the
year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise/Grant
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price per Share
|
|
|
Value
|
|
|
Awards outstanding, January 1, 2009
|
|
|
4,931,261
|
|
|
$
|
15.70
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(1,176,547
|
)
|
|
|
32.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding, December 31, 2009
|
|
|
3,754,714
|
|
|
$
|
10.55
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for future grants at December 31,
2009(1)
|
|
|
4,556,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares available for future grants at December 31, 2009
were cancelled upon emergence from Chapter 11 and pursuant
to the Plan. See Note 16, Subsequent Events for
information regarding Dex Ones new EIP. |
There is no intrinsic value of stock-based awards vested as of
December 31, 2009. The total intrinsic value of stock-based
awards vested as of December 31, 2008 was less than
$0.1million. The total fair value of stock-based awards vested
as of December 31, 2009 and 2008 was $4.0 million and
$16.6 million, respectively.
F-50
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock-based
awards outstanding and exercisable at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards Outstanding
|
|
|
|
Stock Awards Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Range of
|
|
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted Average
|
|
Exercise/Grant
|
|
|
|
|
Contractual Life
|
|
|
Exercise/Grant
|
|
|
|
|
|
|
Contractual Life
|
|
|
Exercise/Grant
|
|
Prices
|
|
Shares
|
|
|
(In Years)
|
|
|
Price Per Share
|
|
|
|
Shares
|
|
|
(In Years)
|
|
|
Price Per Share
|
|
$0.22 $7.11
|
|
|
3,233,445
|
|
|
|
5.36
|
|
|
$
|
4.79
|
|
|
|
|
1,130,500
|
|
|
|
5.40
|
|
|
$
|
4.69
|
|
$10.78 $14.75
|
|
|
91,277
|
|
|
|
3.30
|
|
|
|
10.78
|
|
|
|
|
91,277
|
|
|
|
3.30
|
|
|
|
10.78
|
|
$15.22 $19.41
|
|
|
57,210
|
|
|
|
6.69
|
|
|
|
18.32
|
|
|
|
|
39,420
|
|
|
|
6.42
|
|
|
|
18.37
|
|
$24.75 $29.59
|
|
|
18,835
|
|
|
|
0.73
|
|
|
|
28.39
|
|
|
|
|
18,835
|
|
|
|
0.73
|
|
|
|
28.39
|
|
$30.11 $39.21
|
|
|
18,373
|
|
|
|
3.64
|
|
|
|
34.05
|
|
|
|
|
10,573
|
|
|
|
2.63
|
|
|
|
32.27
|
|
$41.10 $43.85
|
|
|
56,387
|
|
|
|
1.34
|
|
|
|
41.33
|
|
|
|
|
56,387
|
|
|
|
1.34
|
|
|
|
41.33
|
|
$46.06 $55.25
|
|
|
18,375
|
|
|
|
2.25
|
|
|
|
50.78
|
|
|
|
|
18,375
|
|
|
|
2.25
|
|
|
|
50.78
|
|
$56.03 $66.23
|
|
|
156,676
|
|
|
|
2.93
|
|
|
|
63.06
|
|
|
|
|
150,157
|
|
|
|
2.85
|
|
|
|
63.37
|
|
$70.44 $80.68
|
|
|
104,136
|
|
|
|
4.21
|
|
|
|
74.72
|
|
|
|
|
64,908
|
|
|
|
4.17
|
|
|
|
74.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,754,714
|
|
|
|
5.09
|
|
|
$
|
10.55
|
|
|
|
|
1,580,432
|
|
|
|
4.75
|
|
|
$
|
16.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There is no aggregate intrinsic value of exercisable stock-based
awards as of December 31, 2009.
The following table summarizes the status of our non-vested
stock awards as of December 31, 2009 and changes during the
year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Non-vested
|
|
|
Grant Date
|
|
|
Non-Vested
|
|
|
Weighted Average
|
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Restricted
|
|
|
Grant Date Fair
|
|
|
|
and SARs
|
|
|
per Award
|
|
|
Stock
|
|
|
Value per Award
|
|
|
Non-vested at January 1, 2009
|
|
|
3,416,837
|
|
|
$
|
7.45
|
|
|
|
709,529
|
|
|
$
|
10.81
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(786,915
|
)
|
|
|
6.04
|
|
|
|
(177,725
|
)
|
|
|
28.06
|
|
Forfeitures
|
|
|
(455,640
|
)
|
|
|
15.23
|
|
|
|
(10,589
|
)
|
|
|
30.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2009
|
|
|
2,174,282
|
|
|
$
|
6.48
|
|
|
|
521,215
|
|
|
$
|
4.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, there was $2.7 million of
total unrecognized compensation cost related to non-vested
stock-based awards. As a result of our emergence from
Chapter 11, all stock options, SARs and restricted stock
immediately vested. As such, the Company will recognize
$2.5 million of remaining unrecognized compensation cost in
January 2010. There is no intrinsic value of the non-vested
stock-based awards expected to vest as of December 31, 2009
and the corresponding weighted average grant date exercise price
is $6.48 per share.
In April 2009, the Company increased its estimated forfeiture
rate in determining compensation expense from 8% to 10.2%. This
adjustment was based on a review of historical forfeiture
information and resulted in a reduction to compensation expense
of $0.4 million during the year ended December 31,
2009.
On March 4, 2008, the Company granted 2.2 million SARs
to certain employees, including executive officers, in
conjunction with its annual grant of stock incentive awards.
These SARs, which are settled in our common stock, were granted
at a grant price of $7.11 per share, which was equal to the
market value of the Companys common stock on the grant
date, and vest ratably over three years. We recognized
compensation
F-51
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expense related to these SARs of $2.2 million and
$4.3 million for the years ended December 31, 2009 and
2008, respectively.
On February 27, 2007, the Company granted 1.1 million
SARs to certain employees, including executive officers, in
conjunction with its annual grant of stock incentive awards.
These SARs, which are settled in our common stock, were granted
at a grant price of $74.31 per share, which was equal to the
market value of the Companys common stock on the grant
date, and vest ratably over three years. We recognized
compensation expense related to these SARs of $5.2 million,
$5.5 million and $11.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
As a result of the Business.com Acquisition, 4.2 million
outstanding Business.com equity awards were converted into
0.2 million RHD equity awards on August 23, 2007. For
the years ended December 31, 2009, 2008 and 2007, we
recognized compensation expense related to these converted
equity awards of $0.3 million, $3.7 million and
$4.0 million, respectively.
On December 13, 2006, the Company granted 0.1 million
shares of restricted stock to certain executive officers. These
restricted shares, which are settled in our common stock, were
granted at a grant price of $60.64 per share, which was equal to
the market value of the Companys common stock on the date
of grant. The vesting of these restricted shares is contingent
upon our common stock equaling or exceeding $65.00 per share for
20 consecutive trading days and continued employment with the
Company through the third anniversary of the date of grant. We
recognized compensation expense related to these restricted
shares of $0.7 million, $0.7 million and
$2.4 million for the years ended December 31, 2009,
2008 and 2007, respectively.
On February 21, 2006, the Company granted 0.1 million
shares of restricted stock to certain employees, including
executive officers. These restricted shares, which are settled
in our common stock, were granted at a grant price of $64.26 per
share, which was equal to the market value of the Companys
common stock on the date of grant, and vest ratably over three
years. We recognized compensation expense related to these
restricted shares of $0.3 million, $1.6 million and
$1.7 million for the years ended December 31, 2009,
2008 and 2007, respectively.
On February 21, 2006, the Company granted 0.6 million
SARs to certain employees, not including executive officers, in
conjunction with its annual grant of stock incentive awards.
These SARs, which are settled in our common stock, were granted
at a grant price of $64.26 per share, which was equal to the
market value of the Companys common stock on the grant
date, and vest ratably over three years. We recognized
compensation expense related to this and other smaller SAR
grants of $0.6 million, $3.6 million and
$7.2 million for the years ended December 31, 2009,
2008 and 2007, respectively.
In connection with the Dex Media Merger, the Company granted on
October 3, 2005, 1.1 million SARs to certain
employees, including executive officers. These SARs were granted
at an exercise price of $65.00 (above the then prevailing market
price of our common stock) and vest ratably over three years.
The award of these SARs was contingent upon the successful
completion of the Dex Media Merger and therefore were not
identified as awards outstanding as of December 31, 2005.
These SARs became fully vested during 2008 and as such, no
compensation expense was recognized for the year ended
December 31, 2009. We recognized compensation expense
related to these SARs of $5.4 million and $7.0 million
for the years ended December 31, 2008 and 2007,
respectively.
At January 31, 2006, stock-based awards outstanding under
the existing Dex Media equity compensation plans totaled
4.0 million Dex Media option shares and had a weighted
average exercise price of $5.48 per option share. As a result of
the Dex Media Merger, all outstanding Dex Media equity awards
were converted to RHD equity awards on February 1, 2006.
Upon conversion to RHD equity awards, the number of securities
to be issued upon exercise of outstanding awards totaled
1.7 million shares of RHD and had a weighted
F-52
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
average exercise price of $12.73 per share. At December 31,
2009, the number of RHD shares remaining available for future
issuance totaled 0.5 million under the Dex Media, Inc. 2004
Incentive Award Plan. The Company did not recognize compensation
expense related to these converted awards for the year ended
December 31, 2009. For the years ended December 31,
2008 and 2007, compensation expense related to these converted
awards totaled $1.8 million and $2.6 million,
respectively.
The Dex Media Merger triggered a change in control under the
Companys stock incentive plans. Accordingly, all awards
granted to employees through January 31, 2006, with the
exception of stock-based awards held by executive officers and
members of the Board of Directors (who waived the change of
control provisions of such awards), became fully vested. The
Company did not recognize compensation expense related to these
modifications for the year ended December 31, 2009. For the
years ended December 31, 2008 and 2007, $0.2 million
and $2.3 million, respectively, of compensation expense,
which is included in the total compensation expense amounts
noted above, was recognized as a result of these modifications.
Stock-based compensation expense relating to existing stock
options held by executive officers and members of the Board of
Directors as of January 1, 2006, which were not modified as
a result of the Dex Media Merger, as well as stock-based
compensation expense from smaller grants issued subsequent to
the Dex Media Merger not mentioned above, totaled
$2.1 million, $2.8 million and $2.9 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
Based on ratification of the new collective bargaining
agreements with the CWA on November 6, 2009 and with the
IBEW on June 12, 2009 and in conjunction with the
comprehensive redesign of the Companys employee retirement
savings and pension plans approved by the
Compensation & Benefits Committee of the
Companys Board of Directors on October 21, 2008, the
following plan changes have been approved for CWA and IBEW
represented employees:
|
|
|
|
|
Effective as of December 31, 2009, the Company froze the
Dex Media, Inc. Pension Plan covering CWA and IBEW represented
employees. In connection with the freeze, all pension plan
benefit accruals for CWA and IBEW plan participants will cease
as of December 31, 2009, however, all plan balances remain
intact and interest credits on participant account balances
under an account balance formula, as well as service credits for
vesting and retirement eligibility, continue in accordance with
the terms of the plan. In addition, supplemental transition
credits have been provided to certain plan participants nearing
retirement who would otherwise lose a portion of their
anticipated pension benefit at age 65 as a result of freezing
the current plan.
|
|
|
|
The elimination of all access to retiree health care and life
insurance benefits for IBEW represented employees retiring after
May 8, 2009 and for CWA represented employees retiring
after October 2, 2009.
|
|
|
|
The elimination of retiree life insurance benefits effective
January 1, 2010.
|
|
|
|
The phase out of subsidized retiree health care benefits over a
two-year period beginning January 1, 2010.
|
|
|
|
The elimination of retiree health care benefits for all retirees
effective January 1, 2012.
|
As a result of implementing the freeze on the Dex Media, Inc.
Pension Plan covering CWA and IBEW represented employees, we
have recognized a one-time net curtailment gain of
$4.2 million during the year ended December 31, 2009,
which has been entirely offset by losses incurred on plan assets
and previously unrecognized prior service costs that had been
charged to accumulated other comprehensive loss. As a result of
eliminating retiree health care and life insurance benefits for
CWA and IBEW represented employees, we
F-53
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
have recognized a one-time curtailment gain of
$52.0 million, which is included in general and
administrative expenses on the consolidated statement of
operations for the year ended December 31, 2009. As a
result of these actions, we will no longer incur funding
expenses and administrative costs associated with the retiree
health care and life insurance plans for CWA and IBEW
represented employees.
Effective January 1, 2009 and in conjunction with the
comprehensive redesign of the Companys employee retirement
savings and pension plans on October 21, 2008, except as
described below, the sole retirement benefit available to all
non-union employees of the Company, other than those employed by
Business.com, is provided through a single defined contribution
plan. This unified 401(k) plan replaced the pre-existing R.H.
Donnelley and Dex Media 401(k) savings plans for non-union
employees only. Under the new unified 401(k) plan, we contribute
100% for each dollar contributed by a participating employee, up
to a maximum of 6% of each participating employees salary,
including bonus and commissions, and contributions made by the
Company are fully vested for participants who have completed one
year of service with the Company. Business.com employees
continue to be eligible to participate in the Business.com
401(k) plan until such time as the Company is able to
efficiently transition them to the new unified 401(k) plan. The
Company continues to maintain the R.H. Donnelley 401(k)
Restoration Plan for those employees with compensation in excess
of the IRS annual limits.
In conjunction with establishing the unified non-union defined
contribution plan, the Company froze all of the current defined
benefit plans covering all non-union employees the
R.H. Donnelley Corporation Retirement Account, the Dex Media,
Inc. Pension Plan and the R.H. Donnelley Pension Benefit
Equalization Plan in each case, effective as of
December 31, 2008. In connection with the freeze, all
pension plan benefit accruals for non-union plan participants
ceased as of December 31, 2008, however, all plan balances
remained intact and interest credits on participant account
balances under an account balance formula, as well as service
credits for vesting and retirement eligibility, continue in
accordance with the terms of the respective plans. In addition,
supplemental transition credits into the defined contribution
plan will be provided to certain plan participants nearing
retirement who would otherwise lose a portion of their
anticipated pension benefit at age 65 as a result of
freezing the current plans. Similar supplemental transition
credits will be provided to certain plan participants who were
grandfathered under a final average pay formula when the defined
benefit plans were previously converted from traditional pension
plans to cash balance plans.
Additionally, on October 21, 2008, the
Compensation & Benefits Committee of the
Companys Board of Directors approved for non-union
employees (i) the elimination of all non-subsidized access
to retiree health care and life insurance benefits effective
January 1, 2009, (ii) the elimination of subsidized
retiree health care benefits for any Medicare-eligible retirees
effective January 1, 2009 and (iii) the phase out of
subsidized retiree health care benefits over a three-year period
beginning January 1, 2009 (with non-union retiree health
care benefits terminating December 31, 2011, except for
continued non-subsidized access to retiree benefits for retirees
enrolled as of December 31, 2008). With respect to the
phase out of subsidized retiree health care benefits, if an
eligible retiree becomes Medicare-eligible at any point in time
during the phase out process noted above, such retiree will no
longer be eligible for retiree health care coverage.
As a result of implementing the freeze on the Companys
defined benefit plans covering non-union employees, we have
recognized a one-time, net curtailment loss of $1.6 million
during the year ended December 31, 2008, consisting of a
curtailment gain of $13.6 million, entirely offset by
losses incurred on plan assets and recognition of previously
unrecognized prior service costs that had been charged to
accumulated other comprehensive loss. As a result of eliminating
retiree health care and life insurance benefits for non-union
employees, we have recognized a one-time, curtailment gain of
$39.6 million, which is included in general and
administrative expenses on the consolidated statement of
operations for the year ended December 31, 2008. As a
result of these actions, we will no longer incur funding
expenses and administrative costs associated with the retiree
health care and life insurance plans for non-union employees.
F-54
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Prior to the redesign of the Companys employee retirement
savings and pension plans in October 2008, we had two defined
benefit pension plans (the RHD Retirement Plan and the Dex Media
Pension Plan, defined below), three defined contribution plans
(the RHD 401(k) Savings Plan, the Dex Media Employee Savings
Plan and the Business.com, Inc. 401(k) Plan) and two
postretirement plans (the RHD Group Benefit Plan and the Dex
Media Group Benefit Plan, which became effective on
January 1, 2008). A summary of each of these plans prior to
the redesign is provided below, as the redesign was not
effective until January 1, 2009.
RHD Pension Plan. The RHD cash balance defined
benefit pension plan (RHD Retirement Plan) covers
substantially all legacy RHD employees with at least one year of
service. The benefits to be paid to employees are based on age,
years of service and a percentage of total annual compensation.
The percentage of compensation allocated to a retirement account
ranges from 3.0% to 12.5% depending on age and years of service
(cash balance benefit). Benefits for certain
employees who were participants in the predecessor The
Dun & Bradstreet Corporation (D&B)
defined benefit pension plan are also determined based on the
participants average compensation and years of service
(final average pay benefit) and benefits to be paid
will equal the greater of the final average pay benefit or the
cash balance benefit. Annual pension costs are determined using
the projected unit credit actuarial cost method. Our funding
policy is to contribute an amount at least equal to the minimum
legal funding requirement. We were required to make
contributions of $10.2 million, $5.7 million and
$3.6 million to the RHD Retirement Plan during 2009, 2008
and 2007, respectively. The underlying pension plan assets are
invested in diversified portfolios consisting primarily of
equity and debt securities. A measurement date of December 31 is
used for all of our plan assets.
We also have an unfunded non-qualified defined benefit pension
plan, the Pension Benefit Equalization Plan (PBEP),
which covers senior executives and certain key employees.
Benefits are based on years of service and compensation
(including compensation not permitted to be taken into account
under the previously mentioned defined benefit pension plan).
Dex Media Pension Plan. We have a
noncontributory defined benefit pension plan covering
substantially all non-union and union employees within Dex Media
(Dex Media Pension Plan). Annual pension costs are
determined using the projected unit credit actuarial cost
method. Our funding policy is to contribute an amount at least
equal to the minimum legal funding requirement. We made
contributions of $39.8 million, $9.5 million and
$12.8 million to the Dex Media Pension Plan during 2009,
2008 and 2007, respectively. The underlying pension plan assets
are invested in diversified portfolios consisting primarily of
equity and debt securities. A measurement date of December 31 is
used for all of our plan assets.
RHD, Dex Media and Business.com Savings
Plans. Effective January 1, 2009, under the
unified 401(k) plan covering all non-union employees, we
contribute 100% for each dollar contributed by participating
employees, up to a maximum of 6% of each participating
employees salary, including bonus and commissions.
Previously, under the RHD plan we contributed 50% for each
dollar contributed by a participating employee, up to a maximum
of 6% of each participating employees salary, including
bonus and commissions. Contributions under this plan were
$8.8 million, $2.7 million and $2.5 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Effective January 1, 2009, participation and
assets relating to the non-union employees under the Dex Media
plan were transferred to the unified 401(k) plan. Prior to
January 1, 2009, for non-union employees under the Dex
Media plan, we contributed 100% of the first 4% of each
participating employees salary and 50% of the next 2%. For
non-union employees, the match was limited to 5% of each
participating employees eligible earnings. For union
employees under the Dex Media plan, we contributed 81% of the
first 6% of each participating employees salary not to
exceed 4.86% of eligible earnings for any one pay period.
Matching contributions were limited to $4,860 per union employee
annually. Contributions under the Dex Media plan were
$2.3 million, $5.1 million and $5.7 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Effective January 1, 2010, under the unified
401(k) plan covering all union employees, we will contribute
100% for each dollar contributed by participating
F-55
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
employees, up to a maximum of 6% of each participating
employees salary, including bonus and commissions.
Effective January 1, 2009, under the Business.com plan, we
contribute 100% for each dollar contributed by a participating
employee, up to a maximum of 3% of each participating
employees salary. Previously, matching contributions were
made at the discretion of the Board of Directors. Contributions
under the Business.com plan were $0.5 million for the year
ended December 31, 2009. No contributions were made to the
Business.com plan during 2008 or subsequent to the Business.com
Acquisition in 2007.
Benefit
Obligation and Funded Status
A summary of the funded status of the benefit plans at
December 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
278,290
|
|
|
$
|
300,692
|
|
|
$
|
55,282
|
|
|
$
|
95,899
|
|
Transfer of Supplemental Executive Retirement Plan liability
|
|
|
6,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
4,394
|
|
|
|
12,736
|
|
|
|
647
|
|
|
|
1,621
|
|
Interest cost
|
|
|
14,481
|
|
|
|
18,416
|
|
|
|
2,608
|
|
|
|
5,632
|
|
Plan participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325
|
|
Amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
432
|
|
Actuarial loss (gain)
|
|
|
2,203
|
|
|
|
10,049
|
|
|
|
(4,253
|
)
|
|
|
(6,825
|
)
|
Curtailment gain
|
|
|
(4,162
|
)
|
|
|
(13,615
|
)
|
|
|
(46,704
|
)
|
|
|
(36,907
|
)
|
Benefits paid
|
|
|
(9,559
|
)
|
|
|
(8,746
|
)
|
|
|
(4,122
|
)
|
|
|
(4,895
|
)
|
Plan settlements
|
|
|
(42,271
|
)
|
|
|
(41,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
249,604
|
|
|
$
|
278,290
|
|
|
$
|
3,458
|
|
|
$
|
55,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
148,115
|
|
|
$
|
242,897
|
|
|
$
|
|
|
|
$
|
|
|
Return on plan assets
|
|
|
27,362
|
|
|
|
(60,127
|
)
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
49,984
|
|
|
|
15,333
|
|
|
|
4,122
|
|
|
|
4,570
|
|
Plan participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325
|
|
Benefits paid
|
|
|
(8,955
|
)
|
|
|
(8,746
|
)
|
|
|
(4,122
|
)
|
|
|
(4,895
|
)
|
Plan settlements
|
|
|
(42,271
|
)
|
|
|
(41,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
174,235
|
|
|
$
|
148,115
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(75,369
|
)
|
|
$
|
(130,175
|
)
|
|
$
|
(3,458
|
)
|
|
$
|
(55,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized in the consolidated balance sheets at
December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Current liabilities
|
|
$
|
(275
|
)
|
|
$
|
(461
|
)
|
|
$
|
(2,848
|
)
|
|
$
|
(6,143
|
)
|
Non-current liabilities
|
|
|
(75,094
|
)
|
|
|
(129,714
|
)
|
|
|
(610
|
)
|
|
|
(49,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(75,369
|
)
|
|
$
|
(130,175
|
)
|
|
$
|
(3,458
|
)
|
|
$
|
(55,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The accumulated benefit obligation for all qualified defined
benefit pension plans was $249.6 million and
$272.9 million at December 31, 2009 and 2008,
respectively.
The projected benefit obligation and accumulated benefit
obligation for the unfunded PBEP at December 31, 2009 and
2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Projected benefit obligation
|
|
$
|
4,988
|
|
|
$
|
4,685
|
|
Accumulated benefit obligation
|
|
$
|
4,988
|
|
|
$
|
4,685
|
|
Components
of Net Periodic Benefit Expense
The net periodic benefit expense of the pension plans for the
years ended December 31, 2009, 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
$
|
4,394
|
|
|
$
|
12,736
|
|
|
$
|
14,209
|
|
Interest cost
|
|
|
14,481
|
|
|
|
18,416
|
|
|
|
17,741
|
|
Expected return on plan assets
|
|
|
(17, 899
|
)
|
|
|
(19,719
|
)
|
|
|
(19,314
|
)
|
Amortization of unrecognized prior service cost
|
|
|
975
|
|
|
|
163
|
|
|
|
152
|
|
Settlement loss (gain)
|
|
|
6,083
|
|
|
|
3,504
|
|
|
|
(1,543
|
)
|
Other adjustment
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Curtailment loss
|
|
|
|
|
|
|
1,590
|
|
|
|
|
|
Amortization of unrecognized net (gain) loss
|
|
|
(190
|
)
|
|
|
373
|
|
|
|
1,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit expense
|
|
$
|
7,844
|
|
|
$
|
17,063
|
|
|
$
|
12,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net periodic benefit expense of the postretirement plans for
the years ended December 31, 2009, 2008 and 2007 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
$
|
647
|
|
|
$
|
1,621
|
|
|
$
|
2,005
|
|
Interest cost
|
|
|
2,608
|
|
|
|
5,632
|
|
|
|
5,325
|
|
Other adjustment
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Amortization of unrecognized prior service (credit) cost
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
856
|
|
Curtailment gain
|
|
|
(52,019
|
)
|
|
|
(39,588
|
)
|
|
|
|
|
Amortization of unrecognized net (gain) loss
|
|
|
(608
|
)
|
|
|
524
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) expense
|
|
$
|
(49,378
|
)
|
|
$
|
(31,817
|
)
|
|
$
|
8,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amount of previously
unrecognized actuarial gains and losses and prior service cost
(credit), both currently in accumulated other comprehensive
loss, expected to be recognized as net periodic benefit expense
in 2010:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
Plans
|
|
Postretirement Plans
|
|
Previously unrecognized actuarial (gain) loss expected to be
recognized in 2010
|
|
$
|
1,457
|
|
|
$
|
(255
|
)
|
Previously unrecognized prior service cost expected to be
recognized in 2010
|
|
$
|
975
|
|
|
|
|
|
F-57
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with fresh start accounting and reporting,
unamortized amounts previously charged to accumulated other
comprehensive loss will be eliminated on the Fresh Start
Reporting Date.
Amounts recognized in accumulated other comprehensive loss at
December 31, 2009 and 2008 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Plans
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net actuarial (gain) loss
|
|
$
|
(11,422
|
)
|
|
$
|
83,311
|
|
|
$
|
(5,885
|
)
|
|
$
|
(1,886
|
)
|
Prior service (credit)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(45
|
)
|
|
$
|
(45
|
)
|
Assumptions
The following assumptions were used in determining the benefit
obligations for the pension plans and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Weighted average discount rate
|
|
|
5.72
|
%
|
|
|
5.87
|
%
|
Rate of increase in future compensation
|
|
|
|
|
|
|
3.66
|
%
|
The discount rate reflects the current rate at which the pension
and postretirement obligations could effectively be settled at
the end of the year. During 2009, we utilized the Mercer Pension
Discount Yield Curve to determine the appropriate discount rate
for our defined benefit pension plans. The Company changed to
the Mercer Pension Discount Yield Curve during 2009 to better
reflect the specific cash flows of these plans in determining
the discount rate. During 2008 and 2007, we utilized the
Citigroup Pension Liability Index as the appropriate discount
rate for our defined benefit pension plans. Since the pension
plans have been frozen, no rate of increase in future
compensation was utilized to calculate the benefit obligations
at December 31, 2009.
The ratification of the freeze on the Companys defined
benefit plans on November 6, 2009 and June 12, 2009
(Ratification Dates) and October 21, 2008
(Notification Date), resulted in curtailments. These
curtailments required re-measurement of the plans
liabilities and net periodic benefit expense at
December 31, 2009, July 1, 2009 and November 1,
2008.
On May 31, 2009, settlement of RHDs PBEP occurred. At
that time, lump sum payments to participants exceeded the sum of
the service cost plus interest cost components of the net
periodic benefit expense for the year. This settlement resulted
in recognition of an actuarial gain of less than
$0.1 million for the year ended December 31, 2009.
Pension expense for RHDs PBEP was recomputed based on
assumptions as of June 1, 2009 and December 31, 2009,
resulting in an increase in the discount rate from 5.87% to
6.87%.
On December 31, 2009, June 1, 2009, April 1,
2009, December 31, 2008, October 31, 2008,
July 1, 2008 and December 1, 2007 and thereafter,
settlements of Dex Medias pension plan occurred. At that
time, lump sum payments to participants exceeded the sum of the
service cost plus interest cost components of the net periodic
benefit expense for the year. These settlements resulted in the
recognition of an actuarial loss of $6.1 million and
$3.5 million for the years ended December 31, 2009 and
2008, respectively, and actuarial gains of $1.5 million for
the year ended December 31, 2007. Pension expense in 2009
was recomputed based on assumptions as of June 1, 2009 and
December 31, 2009, resulting in an increase in the discount
rate from 5.87% to 6.87%. Pension expense in 2008 was recomputed
based on assumptions as of the July 1, 2008 and
November 1, 2008 settlement dates, resulting in an increase
in the discount rate from 6.48% to 6.82% and finally to 8.01%.
F-58
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following assumptions were used in determining the net
periodic benefit expense for the RHD pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
January 1, 2008
|
|
|
|
|
|
|
through
|
|
through
|
|
|
|
|
|
|
December 31,
|
|
October 31,
|
|
|
|
|
2009
|
|
2008
|
|
2008
|
|
2007
|
|
Weighted average discount rate
|
|
|
5.87
|
%
|
|
|
8.01
|
%
|
|
|
6.48
|
%
|
|
|
5.90
|
%
|
Rate of increase in future compensation
|
|
|
|
|
|
|
3.66
|
%
|
|
|
3.66
|
%
|
|
|
3.66
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.25
|
%
|
The following assumptions were used in determining the net
periodic benefit expense for the Dex Media pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2009
|
|
|
January 1, 2009
|
|
|
November 1,
|
|
|
July 1,
|
|
|
January 1,
|
|
|
|
|
|
|
through
|
|
|
through
|
|
|
2008 through
|
|
|
2008 through
|
|
|
2008 through
|
|
|
|
|
|
|
December 31,
|
|
|
May 31,
|
|
|
December 31,
|
|
|
October 31,
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average discount rate
|
|
|
6.87
|
%
|
|
|
5.87
|
%
|
|
|
8.01
|
%
|
|
|
6.82
|
%
|
|
|
6.48
|
%
|
|
|
5.90
|
%
|
Rate of increase in future compensation
|
|
|
3.66
|
%
|
|
|
3.66
|
%
|
|
|
3.66
|
%
|
|
|
3.66
|
%
|
|
|
3.66
|
%
|
|
|
3.66
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
The elimination of the retiree health care and life insurance
benefits on the Ratification Dates and the Notification Date
resulted in curtailments. These curtailments required
re-measurement of the plans liabilities and net periodic
benefit expense at June 1, 2009, December 31, 2009 and
November 1, 2008. The weighted average discount rate used
to determine the net periodic benefit expense for the RHD
postretirement plan was 5.87% for 2009, 8.01% for the period of
November 1, 2008 through December 31, 2008, 6.48% from
January 1, 2008 through October 31, 2008 and 5.90% for
2007, respectively. The weighted average discount rate used to
determine the net periodic benefit expense for the Dex Media
postretirement plan was 6.87% for the period of June 1,
2009 through December 31, 2009, 5.87% for the period of
January 1, 2009 through May 31, 2009, 8.01% for the
period of November 1, 2008 through December 31, 2008,
6.82% from July 1, 2008 through October 31, 2008,
6.48% from January 1, 2008 through June 30, 2008 and
5.90% for 2007, respectively.
The following table reflects assumed healthcare cost trend rates
used in determining the net periodic benefit expense for our
postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Healthcare cost trend rate assumed for next year
|
|
|
|
|
|
|
|
|
Under 65
|
|
|
9.4
|
%
|
|
|
10.0%-10.4%
|
|
65 and older
|
|
|
9.4
|
%
|
|
|
11.4%-12.0%
|
|
Rate to which the cost trend rate is assumed to decline
|
|
|
|
|
|
|
|
|
Under 65
|
|
|
5.0
|
%
|
|
|
5.0%
|
|
65 and older
|
|
|
5.0
|
%
|
|
|
5.0%
|
|
Year ultimate trend rate is reached
|
|
|
2015
|
|
|
|
2014-2015
|
|
F-59
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table reflects assumed healthcare cost trend rates
used in determining the benefit obligations for our
postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Healthcare cost trend rate assumed for next year
|
|
|
|
|
|
|
|
|
Under 65
|
|
|
9.4
|
%
|
|
|
9.4%-10.0%
|
|
65 and older
|
|
|
9.4
|
%
|
|
|
10.4%-12.0%
|
|
Rate to which the cost trend rate is assumed to decline
|
|
|
|
|
|
|
|
|
Under 65
|
|
|
5.0
|
%
|
|
|
5.0%
|
|
65 and older
|
|
|
5.0
|
%
|
|
|
5.0%
|
|
Year ultimate trend rate is reached
|
|
|
2015
|
|
|
|
2014-2015
|
|
Plan
Assets
Effective January 1, 2009, the Dex Media Pension Plan began
to participate in the RHD Retirement Account Master Trust
(Master Trust), which was previously established for
the investment of assets for the RHD Retirement Plan. The fair
value of the assets held in the Master Trust at
December 31, 2009, by asset category, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Using
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Cash
|
|
$
|
1,860
|
|
|
$
|
1,860
|
|
|
$
|
|
|
U.S. Government
securities(a)
|
|
|
14,755
|
|
|
|
|
|
|
|
14,755
|
|
Common/collective
trusts(b)
|
|
|
80,062
|
|
|
|
|
|
|
|
80,062
|
|
Corporate
debt(c)
|
|
|
20,879
|
|
|
|
|
|
|
|
20,879
|
|
Corporate
stock(d)
|
|
|
22,051
|
|
|
|
22,051
|
|
|
|
|
|
Registered investment
companies(e)
|
|
|
34,036
|
|
|
|
34,036
|
|
|
|
|
|
Real estate investment
trust(f)
|
|
|
198
|
|
|
|
198
|
|
|
|
|
|
Credit default swaps and
futures(g)
|
|
|
394
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
174,235
|
|
|
$
|
58,145
|
|
|
$
|
116,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This category includes investments in U.S. Government bonds,
government mortgage-backed securities, index-linked government
bonds, guaranteed commercial paper, short-term treasury bills
and notes. Fair value for these assets is determined using a bid
evaluation process of observable, market based inputs effective
as of the last business day of the plan year. |
|
(b) |
|
This category includes investments in two common/collective
funds of which 79% is invested in stocks comprising the Russell
1000 equity index and the remaining 21% is comprised of
short-term investments. Fair value for these assets is
determined based on the contract value, which is based on the
provisions of the underlying guaranteed investment contracts. |
|
(c) |
|
This category includes investments in corporate bonds,
commercial mortgage-backed and asset-backed securities,
collateralized mortgage obligations and commercial paper. Fair
value for these assets is determined using a bid evaluation
process of observable, market based inputs effective as of the
last business day of the plan year. |
F-60
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(d) |
|
This category includes investments in small cap stocks of U. S.
issuers across diverse industries. Fair value for these assets
is determined using quoted market prices on a recognized
securities exchange at the last reported trading price on the
last business day of the plan year. |
|
(e) |
|
This category is comprised of two mutual funds, one that invests
in value-oriented international stocks across diverse industries
and one that invests in intermediate term fixed income
instruments such as treasuries and high grade corporate bonds.
Fair value for these assets is determined using quoted market
prices on a recognized securities exchange at the last reported
trading price on the last business day of the plan year. |
|
(f) |
|
This category is comprised of a healthcare real estate
investment trust. Fair value for these assets is determined
based on traded market prices. |
|
(g) |
|
This category includes investments in a combination of 5, 10 and
30 year U.S. Treasury bond futures and credit default
swaps. Fair value for these assets is determined based on either
settlement prices, prices on a recognized securities exchange or
a mid/bid evaluation process using observable, market based
inputs. |
The pension plan weighted-average asset allocation at
December 31, 2009, by asset category on a weighted average
basis, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Master Trust
|
|
|
|
Plan Assets at
|
|
|
Asset
|
|
|
|
December 31,
|
|
|
Allocation
|
|
|
|
2009
|
|
|
Target
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
65
|
%
|
Debt securities
|
|
|
40
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The pension plan weighted-average asset allocation at
December 31, 2008, by asset category on a weighted average
basis, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RHD Plan
|
|
|
Dex Media Plan
|
|
|
|
Plan Assets at
|
|
|
Asset
|
|
|
Plan Assets at
|
|
|
Asset
|
|
|
|
December 31,
|
|
|
Allocation
|
|
|
December 31,
|
|
|
Allocation
|
|
|
|
2008
|
|
|
Target
|
|
|
2008
|
|
|
Target
|
|
|
Equity securities
|
|
|
55
|
%
|
|
|
65
|
%
|
|
|
58
|
%
|
|
|
65
|
%
|
Debt securities
|
|
|
45
|
%
|
|
|
35
|
%
|
|
|
42
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Asset Management Committee (AMC) as appointed by
the Compensation and Benefits Committee of the Companys
Board of Directors is a named fiduciary of the plan in matters
relating to plan investments and asset management. The AMC has
the authority to appoint, retain, monitor and remove any
custodian or investment manager and is responsible for
establishing and maintaining a funding and investment policy for
the Master Trust.
The plans assets are invested in accordance with
investment practices that emphasize long-term investment
fundamentals. The plans investment objective is to achieve
a positive rate of return over the long term from capital
appreciation and a growing stream of current income that would
significantly contribute to meeting the plans current and
future obligations. These objectives can be obtained through a
well-diversified portfolio structure in a manner consistent with
each plans investment policy statement.
The plans assets are invested in marketable equity and
fixed income securities managed by professional investment
managers. Plan assets are invested using a combination of active
and passive (indexed) investment
F-61
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
strategies. The plans assets are to be broadly diversified
by asset class, investment style, number of issues, issue type
and other factors consistent with the investment objectives
outlined in each plans investment policy statement. The
plans assets are to be invested with prudent levels of
risk and with the expectation that long-term returns will
maintain and contribute to increasing purchasing power of the
plans assets, net of all disbursements, over the long term.
The plans assets in separately managed accounts may not be
used for the following purposes: short sales, purchases of
letter stock, private placements, leveraged transactions,
commodities transactions, option strategies, investments in some
limited partnerships, investments by the managers in their own
securities, their affiliates or subsidiaries, investment in
futures, use of margin or investments in any derivative not
explicitly permitted in each plans investment policy
statement.
The plans fixed income manager uses derivative financial
instruments in the normal course of its investing activities to
hedge against adverse changes in the fixed income market and to
achieve overall investment portfolio objectives. These financial
instruments include U.S. Treasury futures contracts and
credit default swaps. The futures held are a combination of 5,
10 and 30 year futures and are being used to manage the
duration exposure of the portfolio. The credit default swaps are
held as a hedge against declines in certain bond markets and as
a vehicle to take advantage of opportunities in certain segments
of the fixed income market. The plans investment policy
statements do not allow the use of derivatives to leverage the
portfolio or for speculative purposes. The use of derivatives is
not believed to materially increase the credit or market risk of
the plans investments.
For 2009, 2008 and 2007, we used a rate of 8.00%, 8.50% and
8.25%, respectively, as the expected long-term rate of return
assumption on the plan assets for the RHD pension plans. The
basis used for determining this rate was the long-term capital
market return forecasts for an asset mix similar to the
plans asset allocation target of 65% equity securities and
35% debt securities at the beginning of each such year. The
decrease in the rate for 2009 was a result of a study based on
relevant market information. The increase in the rate for 2008
was a result of adding active management to the assets, which is
expected to add value over the long term. For 2009, 2008 and
2007, we used a rate of 8.00%, 8.50% and 8.50%, respectively, as
the expected long-term rate of return assumption on the plan
assets for the Dex Media pension plan. The basis used for
determining these rates also included an opportunity for active
management of the assets to add value over the long term. The
active management expectation was supported by calculating
historical returns for the seven investment managers who
actively managed the Dex Media plans assets. The decrease
in the rate for 2009 was a result of a study based on relevant
market information.
Although we review our expected long-term rate of return
assumption annually, our performance in any one particular year
does not, by itself, significantly influence our evaluation. Our
assumption is generally not revised unless there is a
fundamental change in one of the factors upon which it is based,
such as the target asset allocation or long-term capital market
return forecasts.
F-62
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimated
Future Benefit Payments
The pension plans benefits and postretirement plans benefits
expected to be paid in each of the next five fiscal years and in
the aggregate for the five fiscal years thereafter are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
|
Plans
|
|
Plans
|
|
2010
|
|
$
|
27,167
|
|
|
$
|
2,856
|
|
2011
|
|
|
21,535
|
|
|
|
1,220
|
|
2012
|
|
|
21,606
|
|
|
|
|
|
2013
|
|
|
21,835
|
|
|
|
|
|
2014
|
|
|
32,685
|
|
|
|
|
|
Years
2015-2019
|
|
|
112,728
|
|
|
|
|
|
We expect to make contributions of approximately
$3.6 million and $2.9 million to our pension plans and
postretirement plans, respectively, in 2010.
We lease office facilities and equipment under operating leases
with non-cancelable lease terms expiring at various dates
through 2016. Rent and lease expense for 2009, 2008 and 2007 was
$27.7 million, $26.8 million and $26.4 million,
respectively. The future non-cancelable minimum rental payments
applicable to operating leases at December 31, 2009 are:
|
|
|
|
|
2010
|
|
$
|
22,130
|
|
2011
|
|
|
17,707
|
|
2012
|
|
|
13,144
|
|
2013
|
|
|
6,982
|
|
2014
|
|
|
6,607
|
|
Thereafter
|
|
|
2,556
|
|
|
|
|
|
|
Total
|
|
$
|
69,126
|
|
|
|
|
|
|
In connection with our software system modernization and
on-going support services related to the Amdocs software system,
we are obligated to pay Amdocs approximately $68.3 million
over the years 2010 through 2012. Effective January 1,
2010, we amended and restated an Internet Yellow Pages reseller
agreement whereby we are obligated to pay to AT&T
$31.8 million over the years 2010 through 2012. We have
entered into a Directory Advertisement agreement with a CMR to
cover advertising placed with the Company by the CMR on behalf
of Qwest. Under this agreement, we are obligated to pay the CMR
approximately $6.5 million for commissions over the years
2010 through 2014.
We are involved in various legal proceedings arising in the
ordinary course of our business, as well as certain litigation
and tax matters. In many of these matters, plaintiffs allege
that they have suffered damages from errors or omissions in
their advertising or improper listings, in each case, contained
in directories published by us.
Beginning on October 23, 2009, a series of putative
securities class action lawsuits were commenced in the United
States District Court for the District of Delaware on behalf of
all persons who purchased or otherwise acquired the
Companys publicly traded securities between July 26,
2007 and the time the Company
F-63
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
filed for bankruptcy on May 28, 2009, alleging that certain
Company officers issued false and misleading statements
regarding the Companys business and financial condition
and seeking damages and equitable relief. On December 7,
2009, a putative ERISA class action lawsuit was commenced in the
United States District Court for the Northern District of
Illinois on behalf of certain participants in or beneficiaries
of the R.H. Donnelley 401(k) Savings Plan at any time between
July 26, 2007 and the time the lawsuit was filed and whose
plan accounts included investments in R.H. Donnelley common
stock. The putative ERISA class action complaint contains
allegations against certain current and former Company
directors, officers and employees similar to those set forth in
the putative securities class action lawsuit as well as
allegations of breaches of fiduciary duties under ERISA and
seeks damages and equitable relief. On December 18, 2009, a
lawsuit was filed in California state court by certain former
shareholders of the Company alleging that certain Company
officers issued false and misleading statements regarding the
Companys business and financial condition and seeking
damages and equitable relief. That case was removed to the
United States District Court for the Central District of
California on February 4, 2010. The Company believes the
allegations set forth in all of these lawsuits are without merit
and intends to vigorously defend any and all such actions
pursued against the Company
and/or its
current and former officers, employees and directors.
We are also exposed to potential defamation and breach of
privacy claims arising from our publication of directories and
our methods of collecting, processing and using advertiser and
telephone subscriber data. If such data were determined to be
inaccurate or if data stored by us were improperly accessed and
disseminated by us or by unauthorized persons, the subjects of
our data and users of the data we collect and publish could
submit claims against the Company. Although to date we have not
experienced any material claims relating to defamation or breach
of privacy, we may be party to such proceedings in the future
that could have a material adverse effect on our business.
We periodically assess our liabilities and contingencies in
connection with these matters based upon the latest information
available to us. For those matters where it is probable that we
have incurred a loss and the loss or range of loss can be
reasonably estimated, we record a liability in our consolidated
financial statements. In other instances, we are unable to make
a reasonable estimate of any liability because of the
uncertainties related to both the probable outcome and amount or
range of loss. As additional information becomes available, we
adjust our assessment and estimates of such liabilities
accordingly.
Based on our review of the latest information available, we
believe our ultimate liability in connection with pending or
threatened legal proceedings will not have a material effect on
our results of operations, cash flows or financial position. No
material amounts have been accrued in our consolidated financial
statements with respect to any of such matters.
Management reviews and analyzes its business of providing
marketing products and marketing services as one operating
segment.
|
|
13.
|
R.H.
Donnelley Corporation (Parent Company) Financial
Statements
|
The following condensed Parent Company financial statements
should be read in conjunction with the consolidated financial
statements of RHD.
In general, substantially all of the net assets of the Company
and its subsidiaries are restricted from being paid as dividends
to any third party, and our subsidiaries are restricted from
paying dividends, loans or advances to us with very limited
exceptions, under the terms of our credit facilities. See
Note 5, Long-Term Debt, Credit Facilities and
Notes, for a further description of our debt instruments.
F-64
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
R.H.
Donnelley Corporation
Condensed
Parent Company Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,007
|
|
|
$
|
948
|
|
Intercompany, net
|
|
|
109,102
|
|
|
|
350,490
|
|
Intercompany loan receivable
|
|
|
5,000
|
|
|
|
|
|
Prepaid and other current assets
|
|
|
8,055
|
|
|
|
6,964
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
127,164
|
|
|
|
358,402
|
|
Investment in subsidiaries
|
|
|
|
|
|
|
2,098,154
|
|
Fixed assets and computer software, net
|
|
|
5,990
|
|
|
|
7,844
|
|
Deferred income taxes, net
|
|
|
71,878
|
|
|
|
|
|
Other non-current assets
|
|
|
|
|
|
|
65,651
|
|
Intercompany note receivable
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
505,032
|
|
|
$
|
2,830,051
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Deficit
|
|
|
|
|
|
|
|
|
Accounts payable, accrued liabilities and other
|
|
$
|
80,061
|
|
|
$
|
7,978
|
|
Accrued interest
|
|
|
|
|
|
|
97,025
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities not subject to compromise
|
|
|
80,061
|
|
|
|
105,003
|
|
Long-term debt
|
|
|
|
|
|
|
3,206,456
|
|
Deficit in subsidiaries
|
|
|
3,950,031
|
|
|
|
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
2,928
|
|
Other non-current liabilities
|
|
|
8,232
|
|
|
|
9,039
|
|
|
|
|
|
|
|
|
|
|
Total liabilities not subject to compromise
|
|
|
4,038,324
|
|
|
|
3,323,426
|
|
Liabilities subject to compromise
|
|
|
3,385,756
|
|
|
|
|
|
Shareholders deficit
|
|
|
(6,919,048
|
)
|
|
|
(493,375
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit
|
|
$
|
505,032
|
|
|
$
|
2,830,051
|
|
|
|
|
|
|
|
|
|
|
F-65
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
R.H.
Donnelley Corporation
Condensed
Parent Company Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expenses
|
|
$
|
21,631
|
|
|
$
|
18,490
|
|
|
$
|
19,678
|
|
Partnership and equity income (loss)
|
|
|
(7,155,397
|
)
|
|
|
(3,521,790
|
)
|
|
|
338,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(7,177,028
|
)
|
|
|
(3,540,280
|
)
|
|
|
318,928
|
|
Interest expense, net
|
|
|
(106,034
|
)
|
|
|
(297,119
|
)
|
|
|
(244,854
|
)
|
Gain on debt transactions, net
|
|
|
|
|
|
|
247,297
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
1,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before reorganization items, net and income taxes
|
|
|
(7,283,062
|
)
|
|
|
(3,590,102
|
)
|
|
|
75,892
|
|
Reorganization items, net
|
|
|
(98,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(7,381,813
|
)
|
|
|
(3,590,102
|
)
|
|
|
75,892
|
|
(Provision) benefit for income taxes
|
|
|
928,520
|
|
|
|
1,291,775
|
|
|
|
(29,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,453,293
|
)
|
|
$
|
(2,298,327
|
)
|
|
$
|
46,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
R.H.
Donnelley Corporation
Condensed
Parent Company Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flow from operating activities
|
|
$
|
(118,814
|
)
|
|
$
|
(306,471
|
)
|
|
$
|
(220,262
|
)
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to fixed assets and computer software
|
|
|
(1,705
|
)
|
|
|
(1,391
|
)
|
|
|
(4,095
|
)
|
Intercompany loan
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash received
|
|
|
|
|
|
|
|
|
|
|
(336,925
|
)
|
Equity investment disposition
|
|
|
|
|
|
|
4,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(6,705
|
)
|
|
|
2,927
|
|
|
|
(341,020
|
)
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt, net of costs
|
|
|
|
|
|
|
|
|
|
|
1,468,648
|
|
Borrowings under credit facility
|
|
|
|
|
|
|
|
|
|
|
328,000
|
|
Credit facility repayments
|
|
|
|
|
|
|
|
|
|
|
(328,000
|
)
|
Note repurchases and related costs
|
|
|
|
|
|
|
(92,130
|
)
|
|
|
|
|
Increase (decrease) in checks not yet presented for payment
|
|
|
(22
|
)
|
|
|
1,131
|
|
|
|
(408
|
)
|
Proceeds from employee stock option exercises
|
|
|
|
|
|
|
95
|
|
|
|
13,412
|
|
Debt issuance costs in connection with debt transactions
|
|
|
|
|
|
|
(433
|
)
|
|
|
|
|
Proceeds from the issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(6,112
|
)
|
|
|
(89,578
|
)
|
Excess tax benefits from the exercise of stock options
|
|
|
|
|
|
|
(1,059
|
)
|
|
|
|
|
Intercompany investments
|
|
|
|
|
|
|
|
|
|
|
(907,735
|
)
|
Intercompany debt
|
|
|
|
|
|
|
|
|
|
|
(300,000
|
)
|
Dividends from subsidiaries
|
|
|
129,600
|
|
|
|
384,100
|
|
|
|
264,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
129,578
|
|
|
|
285,592
|
|
|
|
457,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash
|
|
|
4,059
|
|
|
|
(17,952
|
)
|
|
|
(103,665
|
)
|
Cash at beginning of year
|
|
|
948
|
|
|
|
18,900
|
|
|
|
122,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
5,007
|
|
|
$
|
948
|
|
|
$
|
18,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-67
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Valuation
and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Addition
|
|
|
|
|
|
|
|
|
|
|
to Allowances
|
|
Net Additions
|
|
|
|
|
|
|
Balance at
|
|
from
|
|
Charged To
|
|
Write-offs
|
|
Balance at
|
|
|
Beginning of
|
|
Business.com
|
|
Revenue
|
|
and Other
|
|
End of
|
|
|
Period
|
|
Acquisition
|
|
and Expense
|
|
Deductions
|
|
Period
|
|
Allowance for Doubtful Accounts and Sales Claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009
|
|
$
|
53,995
|
|
|
|
|
|
|
|
190,314
|
|
|
|
(186,470
|
)
|
|
$
|
57,839
|
|
For the year ended December 31, 2008
|
|
$
|
42,817
|
|
|
|
|
|
|
|
183,658
|
|
|
|
(172,480
|
)
|
|
$
|
53,995
|
|
For the year ended December 31, 2007
|
|
$
|
42,952
|
|
|
|
449
|
|
|
|
135,726
|
|
|
|
(136,310
|
)
|
|
$
|
42,817
|
|
Deferred Income Tax Asset Valuation Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009
|
|
$
|
9,252
|
|
|
|
|
|
|
|
1,522,653
|
|
|
|
|
|
|
$
|
1,531,905
|
|
For the year ended December 31, 2008
|
|
$
|
13,726
|
|
|
|
|
|
|
|
|
|
|
|
(4,474
|
)
|
|
$
|
9,252
|
|
For the year ended December 31, 2007
|
|
$
|
5,978
|
|
|
|
|
|
|
|
7,748
|
|
|
|
|
|
|
$
|
13,726
|
|
|
|
15.
|
Quarterly
Information (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
601,986
|
|
|
$
|
565,628
|
|
|
$
|
533,990
|
|
|
$
|
500,843
|
|
Impairment
charges(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,337,775
|
)
|
Operating income (loss)
|
|
|
163,644
|
|
|
|
143,858
|
|
|
|
116,506
|
|
|
|
(7,221,511
|
)
|
Reorganization items,
net(2)
|
|
|
|
|
|
|
(70,781
|
)
|
|
|
(7,107
|
)
|
|
|
(16,880
|
)
|
(Provision) benefit for income taxes
|
|
|
(366,019
|
)
|
|
|
12,910
|
|
|
|
(21,925
|
)
|
|
|
1,303,554
|
|
Net income (loss)
|
|
$
|
(401,210
|
)
|
|
$
|
(75,482
|
)
|
|
$
|
23,930
|
|
|
$
|
(6,000,531
|
)
|
Basic and diluted earnings (loss) per share
|
|
$
|
(5.83
|
)
|
|
$
|
(1.10
|
)
|
|
$
|
0.35
|
|
|
$
|
(87.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
674,654
|
|
|
$
|
663,750
|
|
|
$
|
647,984
|
|
|
$
|
630,423
|
|
Impairment
charges(1)
|
|
|
(2,463,615
|
)
|
|
|
(660,239
|
)
|
|
|
|
|
|
|
(746,555
|
)
|
Operating income (loss)
|
|
|
(2,237,606
|
)
|
|
|
(425,186
|
)
|
|
|
185,901
|
|
|
|
(528,826
|
)
|
Gain on debt transactions,
net(3)
|
|
|
|
|
|
|
161,315
|
|
|
|
70,224
|
|
|
|
33,627
|
|
(Provision) benefit for income
taxes(4)
|
|
|
810,369
|
|
|
|
161,352
|
|
|
|
(31,949
|
)
|
|
|
337,924
|
|
Net income (loss)
|
|
$
|
(1,623,111
|
)
|
|
$
|
(338,904
|
)
|
|
$
|
26,083
|
|
|
$
|
(362,395
|
)
|
Basic earnings (loss) per share
|
|
$
|
(23.60
|
)
|
|
$
|
(4.93
|
)
|
|
$
|
0.38
|
|
|
$
|
(5.27
|
)
|
Diluted earnings (loss) per share
|
|
$
|
(23.60
|
)
|
|
$
|
(4.93
|
)
|
|
$
|
0.38
|
|
|
$
|
(5.27
|
)
|
|
|
|
(1) |
|
We recognized an impairment charge of $7.3 billion during
the fourth quarter of 2009 associated with directory services
agreements, advertiser relationships, third party contracts and
network platforms acquired in prior acquisitions. We recognized
goodwill impairment charges of $2.5 billion and
$660.2 million during the first and second quarters of
2008, respectively. During the fourth quarter of 2008, we
recognized an impairment charge of $746.2 million
associated with certain local and national customer |
F-68
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
relationships and tradenames and technology acquired in prior
acquisitions. During the fourth quarter of 2008, we also retired
certain computer software fixed assets, which resulted in an
impairment charge of $0.4 million. See Note 2,
Summary of Significant Accounting Policies
Identifiable Intangible Assets and Goodwill for further
discussion. |
|
(2) |
|
Reorganization items, net represent charges that are directly
associated with the process of reorganizing the business under
Chapter 11 of the Bankruptcy Code. See Note 3,
Reorganization Items, Net and Liabilities Subject to
Compromise for further discussion. |
|
(3) |
|
See Note 2, Summary of Significant Accounting
Policies Gain (Loss) on Debt Transactions, Net
for details regarding these debt transactions and the related
accounting treatment. |
|
(4) |
|
The fourth quarter 2008 income tax benefit includes an income
tax benefit of $20.3 million from correcting overstated
income tax expense in fiscal years 2004 through 2007. We have
evaluated the materiality of this correction and concluded it
was not material to current or prior year financial statements.
Accordingly we recorded this correction during the fourth
quarter of 2008. |
Reorganization
and Fresh Start Accounting Pro Forma Adjustments
(Unaudited)
Fresh start accounting and reporting provisions are to be
applied pursuant to FASB ASC 852 once the Plan is confirmed by
the Bankruptcy Court and there are no remaining contingencies
material to completing the implementation of the Plan. All
conditions required for the adoption of fresh start accounting
and reporting were satisfied by the Company on the Effective
Date. The Company was required to adopt fresh start accounting
and reporting as of the Effective Date, however, in light of the
proximity of that date to our accounting period close
immediately after the Effective Date, which was January 31,
2010, as well as the results of a materiality assessment
discussed below, we elected to adopt fresh start accounting and
reporting on February 1, 2010. The financial statements as
of the Fresh Start Reporting Date and for subsequent periods
will report the results of Dex One with no beginning retained
earnings or accumulated deficit. Any presentation of Dex One
represents the financial position and results of operations of a
new reporting entity and is not comparable to prior periods
presented by RHD.
RHD and Dex One performed a quantitative and qualitative
materiality assessment in accordance with Staff Accounting
Bulletin No. 99, Materiality, in order to
determine the appropriateness of choosing the Fresh Start
Reporting Date for accounting and reporting purposes instead of
the Effective Date. RHD and Dex One concluded that the
quantitative assessment will not have a material impact on RHD
for the one month ended January 31, 2010 and Dex One for
the two months ended March 31, 2010 and that there were no
qualitative factors that would preclude the use of the Fresh
Start Reporting Date for accounting and reporting purposes. In
accordance with FASB ASC 852, the results of operations of RHD
prior to the Fresh Start Reporting Date will include (i) a
pre-emergence gain of approximately $4.6 billion resulting
from the discharge of liabilities under the Plan;
(ii) pre-emergence charges to earnings to be recorded as
reorganization items resulting from certain costs and expenses
relating to the Plan becoming effective; and (iii) a
pre-emergence increase in earnings of $2.3 billion
resulting from the aggregate changes to the net carrying value
of our pre-emergence assets and liabilities to reflect their
fair values under fresh start accounting.
FASB ASC 852 provides for, among other things, a determination
of the value to be assigned to the assets of the reorganized Dex
One as of a date selected for financial reporting purposes. For
purposes of the following pro-forma condensed consolidated
balance sheet as of December 31, 2009, Dex One has
estimated its reorganization value to be $5.7 billion.
Under fresh start accounting, the reorganization value was
allocated to Dex Ones assets based on their respective
fair values in conformity with the purchase method of accounting
for business combinations included in FASB ASC 805, Business
Combinations. The valuations required to determine the fair
value of certain of Dex Ones assets presented below
represent the preliminary results of the
F-69
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valuation procedures performed. These preliminary results are
subject to further revisions and adjustments, which could have a
material impact on the financial information presented below.
The reorganization value represents the amount of resources
available, or that become available, for the satisfaction of
post-petition liabilities and allowed claims, as negotiated
between the Company and its creditors (the Interested
Parties). This value, along with other terms of the Plan,
was determined only after extensive arms-length negotiations
between the Interested Parties. Each Interested Party developed
its view of what the value should be based upon expected future
cash flows of the business after emergence from Chapter 11,
discounted at rates reflecting perceived business and financial
risks. This value is viewed as the fair value of the entity
before considering liabilities and is intended to approximate
the amount a willing buyer would pay for the assets of Dex One
immediately after restructuring. Based on current and
anticipated economic conditions and the direct impact these
conditions have on our business, the estimated reorganization
value presented below was below the midpoint of the valuation
ranges provided by the valuation specialists.
The adjustments presented below are presented on an unaudited
pro-forma basis as of December 31, 2009, which differs from
our Fresh Start Reporting Date. Accordingly, these estimates are
preliminary and subject to further revisions and adjustments,
based on any updated valuations, actual amounts, applicable
economic conditions as of the Fresh Start Reporting Date and
results of operations through the Fresh Start Reporting Date.
Dex Ones actual fresh start accounting adjustments may
vary materially from those presented below. The audited balance
sheet and the unaudited pro forma adjustments presented below
summarize the impact of the Plan and the adoption of fresh start
accounting as if the date of emergence had occurred on
December 31, 2009.
F-70
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
R.H.
Donnelley Corporation
Pro Forma Reorganized Condensed Consolidated Balance Sheet
As of December 31, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Predecessor
|
|
|
Reorganization
|
|
|
Fresh Start
|
|
|
Pro Forma
|
|
|
|
Company
|
|
|
Adjustments(1)
|
|
|
Adjustments(2)
|
|
|
Reorganized
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
665,940
|
|
|
$
|
(540,940
|
)(3)
|
|
$
|
|
|
|
$
|
125,000
|
|
Net accounts receivable
|
|
|
825,786
|
|
|
|
|
|
|
|
(50,446
|
)(2)
|
|
|
775,340
|
|
Deferred directory costs
|
|
|
138,061
|
|
|
|
|
|
|
|
(121,994
|
)(2)
|
|
|
16,067
|
|
Prepaid expenses and other current assets
|
|
|
90,928
|
|
|
|
(1,230
|
)(8)
|
|
|
(5,100
|
)(2)
|
|
|
84,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,720,715
|
|
|
|
(542,170
|
)
|
|
|
(177,540
|
)
|
|
|
1,001,005
|
|
Fixed assets and computer software, net
|
|
|
157,272
|
|
|
|
|
|
|
|
31,859
|
(2)
|
|
|
189,131
|
|
Other non-current assets
|
|
|
62,699
|
|
|
|
|
|
|
|
(59,287
|
)(9)
|
|
|
3,412
|
|
Deferred income taxes, net
|
|
|
399,885
|
|
|
|
|
|
|
|
(399,885
|
)(2)
|
|
|
|
|
Intangible assets, net
|
|
|
2,158,223
|
|
|
|
|
|
|
|
425,777
|
(2)
|
|
|
2,584,000
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,908,468
|
(2)
|
|
|
1,908,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,498,794
|
|
|
$
|
(542,170
|
)
|
|
$
|
1,729,392
|
|
|
$
|
5,686,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders (Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
168,488
|
|
|
$
|
(16,762
|
)(3)
|
|
$
|
(5,864
|
)(3)
|
|
$
|
145,862
|
|
Short-term deferred income taxes, net
|
|
|
108,184
|
|
|
|
|
|
|
|
153,326
|
(2)
|
|
|
261,510
|
|
Accrued interest
|
|
|
4,643
|
|
|
|
(4,643
|
)(3)
|
|
|
|
|
|
|
|
|
Deferred directory revenues
|
|
|
848,775
|
|
|
|
|
|
|
|
(826,830
|
)(2)
|
|
|
21,945
|
|
Current portion of long-term debt
|
|
|
993,528
|
|
|
|
(827,579
|
)(3)(4)
|
|
|
(24,879
|
)(7)
|
|
|
141,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,123,618
|
|
|
|
(848,984
|
)
|
|
|
(704,247
|
)
|
|
|
570,387
|
|
Long-term debt
|
|
|
2,561,248
|
|
|
|
656,271
|
(3)(4)
|
|
|
(95,368
|
)(7)
|
|
|
3,122,151
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
232,161
|
(2)
|
|
|
232,161
|
|
Other non-current liabilities
|
|
|
380,163
|
|
|
|
23,050
|
(8)
|
|
|
(18,144
|
)(2)
|
|
|
385,069
|
|
Liabilities subject to compromise
|
|
|
6,352,813
|
|
|
|
(6,352,813
|
)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
11,417,842
|
|
|
|
(6,522,476
|
)
|
|
|
(585,598
|
)
|
|
|
4,309,768
|
|
Shareholders (Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock Predecessor
|
|
|
88,169
|
|
|
|
(88,169
|
)(6)
|
|
|
|
|
|
|
|
|
Additional paid-in capital Predecessor
|
|
|
2,442,549
|
|
|
|
(2,442,549
|
)(6)
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(9,137,160
|
)
|
|
|
7,134,776
|
(6)
|
|
|
2,002,384
|
(2)
|
|
|
|
|
Treasury Stock Predecessor
|
|
|
(256,114
|
)
|
|
|
|
|
|
|
256,114
|
(2)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(56,492
|
)
|
|
|
|
|
|
|
56,492
|
(2)
|
|
|
|
|
Common stock Successor
|
|
|
|
|
|
|
5,000
|
(6)
|
|
|
|
|
|
|
5,000
|
|
Additional paid-in capital Successor
|
|
|
|
|
|
|
1,371,248
|
(1)
|
|
|
|
|
|
|
1,371,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders (deficit) equity
|
|
|
(6,919,048
|
)
|
|
|
5,980,306
|
|
|
|
2,314,990
|
|
|
|
1,376,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders (Deficit) Equity
|
|
$
|
4,498,794
|
|
|
$
|
(542,170
|
)
|
|
$
|
1,729,392
|
|
|
$
|
5,686,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts to be recorded on the Fresh Start Reporting
Date for the implementation of the Plan, including the
settlement of liabilities subject to compromise and related
payments, distributions of cash |
F-71
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
and new shares of Dex One common stock to pre-petition creditors
and the cancellation of RHD common stock. The reorganization
adjustments also include the establishment of Dex One additional
paid-in capital resulting from the reorganization adjustments. |
|
(2) |
|
Represents the adjustments for fresh start accounting primarily
related to recording intangible assets, accounts receivable and
fixed assets and computer software at fair value and related
deferred income taxes in accordance with ASC 805. Additionally,
such fresh start adjustments reflect the elimination of
substantially all of our deferred directory costs and related
deferred directory revenue based on the minimal obligations we
have subsequent to the Fresh Start Reporting Date for
directories that published prior to the Fresh Start Reporting
Date. Such estimates of fair value are preliminary and are
subject to change. The fresh start adjustments also include the
elimination of RHDs accumulated deficit, treasury stock,
accumulated other comprehensive loss and deferred rent. |
|
|
|
The excess of our reorganization value over the fair value of
our assets is estimated to be $1.9 billion and is recorded
as goodwill. |
|
(3) |
|
Reflects the cash payments for such items as debt repayments and
professional fees. There are additional payments that will be
made post emergence of approximately $75.0 million that are
reflected in accounts payable and accrued liabilities. Once such
payments are made, the expected cash balance will approximate
$125.0 million before changes in working capital and other
adjustments after the Fresh Start Reporting Date. All accrued
interest associated with our credit facilities and interest rate
swaps at December 31, 2009 has been either paid or
converted into a new tranche of term loans under the amended and
restated credit facilities. |
|
(4) |
|
Reflects the amendment and restatement of our credit facilities
as well as the issuance of the $300.0 million Dex One
Senior Subordinated Notes on the Effective Date. |
|
(5) |
|
Reflects the discharge of the RHDs pre-petition
liabilities in accordance with the Plan. |
|
(6) |
|
Reflects the issuance of new Dex One common stock to
pre-petition creditors, the cancellation of RHD common stock,
elimination of RHD additional paid-in capital and the gain on
the discharge of liabilities subject to compromise. |
|
(7) |
|
Represents the adjustment to record our long-term debt at fair
value as of the Fresh Start Reporting Date. |
|
(8) |
|
Represents interest rate swap liabilities and related interest
receivables that have been converted into a new tranche of term
loans under the amended and restated credit facilities as well
as the reclass of certain liabilities from liabilities subject
to compromise. |
|
(9) |
|
Represents elimination of deferred financing costs associated
with our existing credit facilities. |
Amended
and Restated Credit Facilities Upon Emergence from the
Chapter 11 Proceedings
In accordance with the Plan, the Companys exiting credit
facilities were amended and restated on the Effective Date. The
terms and conditions of the amended and restated RHDI credit
facility (RHDI Amended and Restated Credit Facility)
consist of the following:
|
|
|
|
|
The balances under the existing Term Loan D-1, Term Loan D-2 and
RHDI Revolver, as well as $13.6 million associated with
unsettled and outstanding interest rate swap liabilities, have
been converted into a new tranche of term loans and provides for
an initial prepayment of such loans. As of the Effective Date,
the aggregate outstanding balance of the term loans under the
RHDI Amended and Restated Credit Facility was
$1,224.9 million;
|
|
|
|
The RHDI Amended and Restated Credit Facility requires quarterly
principal and interest payments and matures on October 24,
2014;
|
F-72
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Interest payments are made at our option at either:
|
|
|
|
|
|
The highest (subject to a floor of 4.00%) of (i) the Prime
Rate, (ii) the Federal Funds Effective Rate plus 0.50%, and
(z) one month LIBOR plus 1.00% in each case, plus an
interest rate margin for base rate loans. The interest rate
margin for base rate loans is initially 5.25% per annum, and
such interest rate margin adjusts pursuant to a pricing grid
that provides for a margin equal to 5.25% per annum if
RHDIs consolidated leverage ratio is greater than or equal
to 4.25 to 1.00, and equal to 5.00% per annum if RHDIs
consolidated leverage ratio is less than 4.25 to 1.00; or
|
|
|
|
The higher of (i) LIBOR rate and (ii) 3.00%, in each
case, plus an interest rate margin for LIBOR loans. The interest
rate margin for LIBOR loans is initially 6.25% per annum, and
such interest rate margin adjusts pursuant to a pricing grid
that provides for a margin equal to 6.25% per annum if
RHDIs consolidated leverage ratio is greater than or equal
to 4.25 to 1.00, and equal to 6.00% per annum if RHDIs
consolidated leverage ratio is less than 4.25 to 1.00. RHDI may
elect interest periods of 1, 2, 3 or 6 months for LIBOR
borrowings.
|
The terms and conditions of the amended and restated Dex Media
East credit facility (Dex Media East Amended and Restated
Credit Facility) consist of the following:
|
|
|
|
|
The balances under the existing Term Loan A, Term Loan B and Dex
Media East Revolver, as well as $26.7 million associated
with unsettled and outstanding interest rate swap liabilities,
have been converted into a new tranche of term loans and
provides for an initial prepayment of such loans. As of the
Effective Date, the aggregate outstanding balance of the term
loans under the Dex Media East Amended and Restated Credit
Facility was $956.2 million;
|
|
|
|
The Dex Media East Amended and Restated Credit Facility requires
quarterly principal and interest payments and matures on
October 24, 2014;
|
|
|
|
Interest payments are made at our option at either:
|
|
|
|
|
|
The highest of (i) the Prime Rate, (ii) the Federal
Funds Effective Rate plus 0.50%, and (z) one month LIBOR
plus 1.00% in each case, plus an interest rate margin for base
rate loans. The interest rate margin for base rate loans is
initially 1.50% per annum, and such interest rate margin adjusts
pursuant to a pricing grid that provides for a margin equal to
1.50% per annum if DME Inc.s consolidated leverage ratio
is greater than or equal to 2.75 to 1.00, equal to 1.25% per
annum if DME Inc.s consolidated leverage ratio is greater
than or equal to 2.50 to 1.00 but less than 2.75 to 1.00 and
equal to 1.00% per annum if DME Inc.s consolidated
leverage ratio is less than 2.50 to 1.00; or
|
|
|
|
The LIBOR rate plus an interest rate margin for LIBOR loans. The
interest rate margin for LIBOR loans is initially 2.50% per
annum, and such interest rate margin adjusts pursuant to a
pricing grid that provides for a margin equal to 2.50% per annum
if DME Inc.s consolidated leverage ratio is greater than
or equal to 2.75 to 1.00, equal to 2.25% per annum if DME
Inc.s consolidated leverage ratio is greater than or equal
to 2.50 to 1.00 but less than 2.75 to 1.00 and equal to 2.00%
per annum if DME Inc.s consolidated leverage ratio is less
than 2.50 to 1.00. DME Inc. may elect interest periods of 1, 2,
3 or 6 months for LIBOR borrowings.
|
The terms and conditions of the amended and restated Dex Media
West credit facility (Dex Media West Amended and Restated
Credit Facility) consist of the following:
|
|
|
|
|
The balances under the existing Term Loan A, Term Loan B and Dex
Media West Revolver, as well as $1.0 million associated
with unsettled and outstanding interest rate swap liabilities,
have been converted into a new tranche of term loans and
provides for an initial prepayment of such loans. As of the
|
F-73
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Effective Date, the aggregate outstanding balance of the term
loans under the Dex Media West Amended and Restated Credit
Facility was $903.7 million;
|
|
|
|
|
|
The Dex Media West Amended and Restated Credit Facility requires
quarterly principal and interest payments and matures on
October 24, 2014;
|
|
|
|
Interest payments are made at our option at either:
|
|
|
|
|
|
The highest (subject to a floor of 4.00%) of (i) the Prime
Rate, (ii) the Federal Funds Effective Rate plus 0.50%, and
(z) one month LIBOR plus 1.00% in each case, plus an
interest rate margin for base rate loans. The interest rate
margin for base rate loans is initially 3.50% per annum, and
such interest rate margin adjusts pursuant to a pricing grid
that provides for a margin equal to 3.50% per annum if DMW
Inc.s consolidated leverage ratio is greater than or equal
to 2.75 to 1.00, equal to 3.25% per annum if DMW Inc.s
consolidated leverage ratio is greater than or equal to 2.50 to
1.00 but less than 2.75 to 1.00 and equal to 3.00% per annum if
DMW Inc.s consolidated leverage ratio is less than 2.50 to
1.00; or
|
|
|
|
The higher of (i) LIBOR rate and (ii) 3.00%, in each
case, plus an interest rate margin for LIBOR loans. The interest
rate margin for LIBOR loans is initially 4.50% per annum, and
such interest rate margin adjusts pursuant to a pricing grid
that provides for a margin equal to 4.50% per annum if DMW
Inc.s consolidated leverage ratio is greater than or equal
to 2.75 to 1.00, equal to 4.25% per annum if DMW Inc.s
consolidated leverage ratio is greater than or equal to 2.50 to
1.00 but less than 2.75 to 1.00 and equal to 4.00% per annum if
DMW Inc.s consolidated leverage ratio is less than 2.50 to
1.00. DMW Inc. may elect interest periods of 1, 2, 3 or
6 months for LIBOR borrowings.
|
Each of the Companys amended and restated credit
facilitates includes an uncommitted revolving credit facility
available for borrowings up to $40.0 million. The
availability of such uncommitted revolving credit facility is
subject to certain conditions including the prepayment of the
term loans under each of the amended and restated credit
facilities in an amount equal to such revolving credit facility.
The amended and restated credit facilities contain provisions
for prepayment from net proceeds of asset dispositions, equity
issuances and debt issuances subject to certain exceptions, from
a ratable portion of the net proceeds received by the Company
from asset dispositions by the Company, subject to certain
exceptions, and from a portion of excess cash flow.
Each of the Companys amended and restated credit
facilities contain certain covenants that, subject to
exceptions, limit or restrict each borrower and its
subsidiaries incurrence of liens, investments (including
acquisitions), sales of assets, indebtedness, payment of
dividends, distributions and payments of certain indebtedness,
sale and leaseback transactions, swap transactions, affiliate
transactions, capital expenditures and mergers, liquidations and
consolidations. Each amended and restated credit facility also
contains certain covenants that, subject to exceptions, limit or
restrict each borrowers incurrence of liens, indebtedness,
ownership of assets, sales of assets, payment of dividends or
distributions or modifications of the Dex One Senior
Subordinated Notes. Each borrower is required to maintain
compliance with a consolidated leverage ratio covenant. RHDI and
DMW Inc. is also required to maintain compliance with
consolidated interest coverage ratio covenant. DMW Inc. is also
required to maintain compliance with a consolidated senior
secured leverage ratio covenant. The Dex Media West Amended and
Restated Credit Agreement includes an option for additional
covenant relief under the senor secured leverage covenant
through the fourth quarter of 2011, subject to increased
amortization of the loans through the first quarter of 2012, an
increase in the excess cash flow sweep for 2010 and 2011 and
payment of a 25 basis point fee ratably to the lenders
under the Dex Media West Amended and Restated Credit Agreement.
F-74
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The obligations under each of the amended and restated credit
facilitates are guaranteed by the subsidiaries of the borrower
and are secured by a lien on substantially all of the
borrowers and its subsidiaries tangible and
intangible assets, including a pledge of the stock of their
respective subsidiaries, as well as a mortgage on certain real
property, if any.
Pursuant to a shared guaranty and collateral agreement and
subject to an intercreditor agreement among the administrative
agents under each of the amended and restated credit
facilitates, the Company and, subject to certain exceptions,
certain subsidiaries of the Company, guaranty the obligations
under each of the amended and restated credit facilitates and
the obligations are secured by a lien on substantially all of
such guarantors tangible and intangible assets, including
a pledge of the stock of their respective subsidiaries, as well
as a mortgage on certain real property, if any.
Notes
Issued Upon Emergence from the Chapter 11
Proceedings
On the Effective Date, we issued the $300.0 million Dex One
Senior Subordinated Notes in exchange for the Dex Media West
8.5% Senior Notes due 2010 and 5.875% Senior Notes due
2011. Interest on the Dex One Senior Subordinated Notes is
payable semi-annually on March 31st and September 30th
of each year, commencing on March 31, 2010 through January
2017. The Dex One Senior Subordinated Notes accrue interest at
an annual rate of 12% for cash interest payments and 14% if the
Company elects
paid-in-kind
(PIK) interest payments. The Company may elect,
prior to the start of each interest payment period, whether to
make each interest payment on the Dex One Senior Subordinated
Notes (i) entirely in cash or (ii) 50% in cash and 50%
in PIK interest, which is capitalized as incremental or
additional senior secured notes. The interest rate on the Dex
One Senior Subordinated Notes may be subject to adjustment in
the event the Company incurs certain specified debt with a
higher effective yield to maturity than the yield to maturity of
the Dex One Senior Subordinated Notes. The Dex One Senior
Subordinated Notes are unsecured obligations of the Company,
effectively subordinated in right of payment to all of the
Companys existing and future secured debt, including Dex
Ones guarantee of borrowings under each of the amended and
restated credit facilities and are structurally subordinated to
any existing or future liabilities (including trade payables) of
our direct and indirect subsidiaries.
The Dex One Senior Subordinated Notes contain certain covenants
that, subject to certain exceptions, among other things, limit
or restrict the Companys (and, in certain cases, the
Companys restricted subsidiaries) incurrence of
indebtedness, making of certain restricted payments, incurrence
of liens, entry into transactions with affiliates, conduct of
its business and its merger, consolidation or sale of all or
substantially all of its property. The Dex One Senior
Subordinated Notes also require the Company to offer to
repurchase the Dex One Senior Subordinated Notes at par after
certain changes of control involving the Company or the sale of
substantially all of the assets of the Company. Holders of the
Dex One Senior Subordinated Notes also may cause the Company to
repurchase the Dex One Senior Subordinated Notes at a price of
101% of the principal amount upon the incurrence by the Company
of certain acquisition indebtedness.
The Dex One Senior Subordinated Notes are redeemable at our
option beginning in 2011 at the following prices (as a
percentage of face value):
|
|
|
|
|
Redemption Year
|
|
Price
|
|
2011
|
|
|
106.000
|
%
|
2012
|
|
|
102.000
|
%
|
2013
|
|
|
101.000
|
%
|
2014 and thereafter
|
|
|
100.000
|
%
|
F-75
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest
Rate Swaps and Caps
Subsequent to the amendment and restatement of the
Companys credit facilities, we entered into the following
interest rate swap and interest rate cap agreements, which have
not been designated as cash flow hedges, to manage fluctuations
in cash flows resulting from changes in interest rates on the
Dex Media East Amended and Restated Credit Facility and RHDI
Amended and Restated Credit Facility, respectively.
Interest Rate Swaps Dex Media East
|
|
|
|
|
|
|
|
|
|
|
Effective Dates
|
|
Notional Amount
|
|
|
Pay Rates
|
|
Maturity Dates
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
February 26, 2010
|
|
$
|
300
|
(2)
|
|
1.20% - 1.796%
|
|
|
February 29, 2012 - February 28, 2013
|
|
March 5, 2010
|
|
|
100
|
(1)
|
|
1.668%
|
|
|
January 31, 2013
|
|
March 10, 2010
|
|
|
100
|
(1)
|
|
1.75%
|
|
|
January 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Caps RHDI
|
|
|
|
|
|
|
|
|
|
|
Effective Dates
|
|
Notional Amount
|
|
|
Cap Rates
|
|
Maturity Dates
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
February 26, 2010
|
|
$
|
200
|
(3)
|
|
3.0% - 3.5%
|
|
|
February 28, 2012 - February 28, 2013
|
|
March 8, 2010
|
|
|
100
|
(4)
|
|
3.5%
|
|
|
January 31, 2013
|
|
March 10, 2010
|
|
|
100
|
(4)
|
|
3.0%
|
|
|
April 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of one swap |
|
(2) |
|
Consists of three swaps |
|
(3) |
|
Consists of two caps |
|
(4) |
|
Consists of one cap |
Issuance
of New Common Stock
Upon emergence from Chapter 11 and pursuant to the Plan,
all of the issued and outstanding shares of RHD common stock and
any other outstanding equity securities of RHD including all
stock options, stock appreciation rights and restricted stock,
were cancelled. On the Effective Date, Dex One issued an
aggregate amount of 50,000,001 shares of new common stock,
par value $.001 per share.
Registration
Rights Agreement
On the Effective Date and pursuant to the Plan, the Company
entered into a Registration Rights Agreement (the
Agreement), requiring the Company to register with
the SEC certain shares of its common stock
and/or the
Dex One Senior Subordinated Notes upon the request of one or
more Eligible Holders (as defined in the Agreement), in
accordance with the terms and conditions set forth therein. The
Company is also required, pursuant to the Agreement, to file a
shelf registration statement covering the resale of Registerable
Securities, as defined, within 30 days of the
Companys filing of its Annual Report on
Form 10-K
for the year ended December 31, 2009 and use its
commercially reasonable efforts to cause such shelf registration
statement to become effective within 75 days after its
filing. The Agreement also provides to Eligible Holders certain
piggyback registration rights in connection with the
registration of other securities by the Company.
F-76
R.H.
DONNELLEY CORPORATION
DEBTOR AND
DEBTOR-IN-POSSESSION
AS OF MAY 28, 2009
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Dex One
Equity Incentive Plan
On the Effective Date, the Companys Board of Directors
ratified the EIP. Under the EIP, certain employees and
non-employee directors of Dex One are eligible to receive stock
options, SARs, limited stock appreciation rights in tandem with
stock options, restricted stock and restricted stock units.
Under the EIP, 5.6 million shares of Dex One common stock
were authorized for grant. To the extent that shares of Dex One
common stock are not issued or delivered by reason of
(i) the expiration, termination, cancellation or forfeiture
of such award, with certain exceptions, or (ii) the
settlement of such award in cash, then such shares of Dex One
common stock shall again be available under the EIP. Stock
awards will typically be granted at the market value of Dex
Ones common stock at the date of the grant, become
exercisable in ratable installments or otherwise, over a period
of one to five years from the date of grant, and may be
exercised up to a maximum of ten years from the date of grant.
Dex Ones Compensation & Benefits Committee will
determine termination, vesting and other relevant provisions at
the date of the grant. Dex One will implement a policy of
issuing treasury shares held to satisfy stock issuances
associated with stock-based award exercises.
On March 1, 2010, the Company granted 1.3 million SARs
to certain employees, including executive officers, as intended
in the Plan and in conjunction with the EIP. These SARs, which
are settled in Dex One common stock, were granted at a grant
price of $28.68 per share, which was equal to the market value
of Dex Ones common stock on the grant date, and vest
ratably over three years.
Income
Taxes
Based upon the closing of the SEC filing period for
Forms 13-G
and review of these forms filed through February 15, 2010,
the Company has determined that it became
more-likely-than not that the check the box election
is effective prior to the actual date of ownership change under
Section 382. As a result, the Company will record a tax
benefit for the reversal of the liability for unrecognized tax
benefit of $276.4 million in the Dex One statements of
financial condition and results of operations for the period
ended March 31, 2010.
F-77
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
There have been no disagreements with the Companys
principal independent registered public accounting firm for the
two-year period ended December 31, 2009.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES.
|
(a) Evaluation of Disclosure Controls and
Procedures Management conducted an evaluation,
under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Office, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of
December 31, 2009. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that
such disclosure controls and procedures are effective and
sufficient to ensure that information required to be disclosed
by the Company in reports that it files or submits under the
Securities Act of 1934 is recorded, processed, summarized and
reported within the time periods specific in the Securities and
Exchanges Commissions rules and forms.
(b) Managements Annual Report on Internal Control
Over Financial Reporting Managements Report
on Internal Control over Financial Reporting and the independent
registered public accounting firms attestation report on
the Companys internal control over financial reporting
required under Item 308 of
Regulation S-K
have been included in Item 8 immediately preceding the
Companys consolidated financial statements.
(c) Changes in Internal Controls Other
than the changes discussed below, there have not been any other
changes in the Companys internal controls over financial
reporting during the Companys most recent fiscal quarter
that materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.
As of December 31, 2008, processes, procedures and controls
related to financial reporting were not effective to ensure that
amounts related to deferred income tax assets and liabilities
and the resulting current and deferred income tax expense and
related footnote disclosures were accurate. The Company did not
maintain effective controls over the review and analysis of
calculations and related supporting documentation underlying the
deferred tax provision to ensure a complete, comprehensive and
timely review of deferred income tax accounts and related
footnote disclosures.
During the fourth quarter of 2009, the Company completed its
implementation of controls designed to remediate the material
weakness noted above, including:
|
|
|
|
|
The Company implemented controls to formalize its reconciliation
process and evaluation of deferred income tax balances including
a comprehensive analysis of differences between income tax
balances determined on a basis in conformity with generally
accepted accounting principles for financial reporting purposes
and those determined for tax reporting purposes;
|
|
|
|
The timing of certain tax review activities, including
apportionment and allocation for income tax reporting purposes,
during the financial statement closing process, were accelerated
to provide comprehensive reviews;
|
|
|
|
The Company improved documentation and instituted formalized
reviews of tax positions taken, with senior management and
external experts, to ensure proper evaluation and accounting
treatment of complex tax issues;
|
|
|
|
External consultants were engaged to supplement internal
resources while certain compliance related activities were fully
outsourced;
|
90
|
|
|
|
|
Reduction in the number of subsidiary audits, thereby reducing
the amount and complexity of tax accounting and reporting
requirements; and
|
|
|
|
Simplification of our legal entity reporting structure
eliminated a number of the Companys legal entities, which
will reduce the overall complexity of the tax accounting and
compliance processes in the future.
|
|
|
ITEM 9B.
|
OTHER
INFORMATION.
|
Not applicable.
91
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
Board of
Directors
Pursuant to the terms of the Plan of Reorganization, the initial
board of directors of the Company consists of seven
(7) directors including (i) the Chief Executive
officer of the Company, (ii) three (3) directors
selected by Franklin Advisers, Inc. and (iii) three
(3) directors selected by the group of noteholders holding
in excess of a majority of the principal amount of pre-petition
unsecured note debt who signed support agreements in favor of
the pre-arranged restructuring plan that served as the basis for
the Plan (the Consenting Noteholders).
Messrs. Davis, Bulkeley and Liddell were selected to serve
as directors by the Consenting Noteholders and
Messrs. Kuersteiner, McEachen and Schultz were selected to
serve as directors by Franklin Advisers, Inc.
The following descriptions of the business and public company
director experience of our directors include the principal
positions held by them since March 2005 and their current public
company board representations and their past public company
board representations since March 2005.
Jonathan B. Bulkeley, 49, has served as Chief Executive
officer of Scanbuy Inc., a global leader in visual navigation
for the wireless industry, since March 2006. Prior to that,
Mr. Bulkeley was Managing Partner of Achilles Partners,
LLC, an investment, advisory and research firm.
Mr. Bulkeley also owns and operates the Blue Square Small
Cap Value Fund, a hedge fund investing in global small and micro
cap equities. Mr. Bulkeley also previously has served as
Chief Executive Officer of barnesandnoble.com, and Chairman and
Chief Executive Officer of Lifeminders, an online direct
marketing company. Mr. Bulkeley has served as a Company
director since January 2010 and currently serves on the board of
Spark Networks, Inc. During the past five years,
Mr. Bulkeley has also been a director of The Readers
Digest Association, Inc. and Excelsior LaSalle Property Fund,
Inc. Mr. Bulkeley brings to the Board management and
operational experience with companies in all phases of business
development.
Eugene I. Davis, 54, has served as Chairman and Chief
Executive Officer of Pirinate Consulting Group, L.L.C., a
privately-held consulting firm specializing in crisis and
turn-around management and strategic advisory services for
public and private business entities, since 1999. Prior to
joining Pirinate Consulting, Mr. Davis was Chief Operating
Officer of Total-Tel USA Communications, Inc., and President of
Emerson Radio Corp. Mr. Davis has served as director for
numerous public and private companies across various industries.
Mr. Davis has served as a Company director since January
2010 and currently serves on the boards of Atlas Air Worldwide
Holdings, Inc., American Commercial Lines Inc., Foamex
International Inc., Knology, Inc., Rural/Metro Corporation,
SeraCare Life Sciences, Inc., Solutia Inc., Spectrum Brands,
Inc. and TerreStar Corporation. During the past five years,
Mr. Davis has also been a director of Ambassadors
International, Inc., Atari, Inc., Delta Airlines, Exide
Technologies, Footstar, Inc., Granite Broadcasting Corporation,
Ion Media Networks, Inc., iPCS, Inc., Media General, Inc.,
Ogelbay Norton Company, PRG-Schultz International Inc., Silicon
Graphics International, Tipperary Corporation and Viskase, Inc.
Mr. Davis brings to the Board experience with companies
emerging from chapter 11 restructuring processes and also
has significant experience as a director of public companies.
Richard L. Kuersteiner, 70, has served in various
capacities at Franklin Resources, Inc., a global investment
management organization known as Franklin Templeton Investments,
since 1990, including Director of Restructuring, Managing
Corporate Counsel and Associate General Counsel. He has served
as an officer of virtually all of the Franklin Templeton funds.
Mr. Kuersteiner has served as a Company director since
January 2010. Mr. Kuersteiner brings to the Board
experience in complex restructuring transactions and the
perspective of large institutional investors.
W. Kirk Liddell, 60, has served as President, Chief
Executive Officer and Director of Irex Corporation, the parent
corporation of a specialty contracting network serving
commercial, industrial, marine and residential customers, since
1984. Prior to joining Irex Corporation, Mr. Liddell was an
associate at Covington & Burling in
Washington, D.C., where he practiced corporate law with a
focus on bank regulation, securities and
92
antitrust. Mr. Liddell has served as the Companys
lead director since January 2010. Mr. Liddell brings to the
Board operational experience as the chief executive of a company
directly interfacing with local businesses and consumers.
Mark A. McEachen, 52, has served as Chief Financial
Officer of Freedom Communications, Inc., a media company with
broadcast television and print publishing business segments,
since May 2009. Freedom Communications, Inc. filed for voluntary
reorganization under Chapter 11 of the U.S. Bankruptcy
Code on September 1, 2009 and is expected to emerge from
bankruptcy protection under a plan of reorganization later this
month. From February 2008 to May 2009 Mr. McEachen served
as Chief Financial Officer of Fabrik, Inc., a designer,
manufacturer and marketer of online services solutions. Prior to
that, Mr. McEachen served as interim Chief Executive
Officer and Chief Operating and Financial Officer of BridgeCo
Inc., a digital entertainment networking company.
Mr. McEachen has served as a Company director since January
2010. Mr. McEachen brings to the Board experience as the
chief financial officer of a diversified media company facing
many of the same economic and marketplace challenges as the
Company. Mr. McEachen also has financial and operating
experience with digital businesses.
Alan F. Schultz, 51, has served as Chairman, President
and Chief Executive Officer of Valassis Communications, Inc., a
marketing services company, since 1998. Mr. Schultz has
served as a Company director since May 2005 and currently serves
on the board of Valassis Communications, Inc. Mr. Schultz
brings to the Board experience as the chief executive officer of
a marketing services company servicing both national and local
businesses. A director since 2005, Mr. Schultz also has a
familiarity with the Companys business and industry.
David C. Swanson, 55, has served as Chief Executive
Officer of the Company since May 2002. He first became Chairman
of the Board in December 2002, surrendered that position in
January 2006 in connection with the Dex Media merger, and was
re-appointed Chairman in April 2006. He served as President and
Chief Operating Officer of the Company from December 2000 until
May 2002. Mr. Swanson has served as a Company director
since 2001. Mr. Swanson is the Companys chief
executive and, with more than 23 years with the Company,
brings to the Board a wealth of experience with all aspects of
the Companys operations. Further, he brings the
perspective of the Companys management to the Boards
deliberations. As the Companys longest serving director,
he also provides continuity to the Board.
Executive
Officers
The following table sets forth information concerning the
individuals who serve as executive officers of the Company as of
March 1, 2010.
|
|
|
|
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|
|
Name
|
|
Age
|
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Position(s)
|
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David C. Swanson
|
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55
|
|
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Chairman of the Board and Chief Executive Officer
|
George F. Bednarz
|
|
|
56
|
|
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Executive Vice President Enterprise Sales and
Operations
|
Steven M. Blondy
|
|
|
50
|
|
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Executive Vice President and Chief Financial Officer
|
Sean W. Greene
|
|
|
39
|
|
|
Senior Vice President, Corporate Strategy and Business
Development
|
Tyler D. Gronbach
|
|
|
41
|
|
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Senior Vice President of Corporate Communications and
Administration
|
Mark W. Hianik
|
|
|
49
|
|
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Senior Vice President, General Counsel and Corporate Secretary
|
Margaret LeBeau
|
|
|
51
|
|
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Senior Vice President and Chief Marketing Officer
|
Gretchen Zech
|
|
|
40
|
|
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Senior Vice President Human Resources
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Jenny L. Apker
|
|
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52
|
|
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Vice President and Treasurer
|
Sylvester J. Johnson
|
|
|
49
|
|
|
Vice President Controller and Chief Accounting
Officer
|
The executive officers serve at the pleasure of the Board of
Directors. The following descriptions of the business experience
of our executive officers include the principal positions held
by them since April 2004.
93
David C. Swanson has served as Chief Executive Officer
since May 2002. Mr. Swanson had served as Chairman of the
Board from December 2002 through January 2006 and was re-elected
as Chairman of the Board in May 2006.
George F. Bednarz has served as Executive Vice
President Enterprise Sales and Operations since June
2008. Prior to that, Mr. Bednarz served as Senior Vice
President Operations since January 2008. Prior to
that, Mr. Bednarz served as Senior Vice
President RHD Interactive since January 2007. Prior
to that, Mr. Bednarz served as Senior Vice
President Integration, Corporate Planning,
Administration and Communications since January 2006. Prior to
that, Mr. Bednarz served as Vice President
Corporate Planning and Information Technology since October
2004. Prior to that, Mr. Bednarz served as Vice President,
Publishing, Information Technology and Corporate Planning.
Steven M. Blondy has served as Executive Vice President
and Chief Financial Officer since January 2006. Prior to that,
Mr. Blondy served as Senior Vice President and Chief
Financial Officer.
Sean W. Greene has served as Senior Vice
President Interactive since July 2009. Prior to
that, Mr. Greene served as Corporate Strategy and Business
Development since October 2008. Prior to that, Mr. Greene
served as Vice President & General Manager of Dex
Search Marketing since December 2007. Prior to that,
Mr. Greene served as Vice President of Interactive
Strategy, Product Management and Business Development from
September 2006 to December 2007. Prior to that, Mr. Greene
served as Assistant Vice President of Competitive Strategy and
Business Development.
Tyler D. Gronbach has served as Senior Vice President of
Corporate Communications and Administration since January 2007.
Prior to that, Mr. Gronbach served as Vice President of
Corporate Communications since October 2005. Prior to joining
the Company, Mr. Gronbach served as Vice President of
Corporate Communications with Qwest Communications International
Inc., a national network services provider.
Mark W. Hianik has served as Senior Vice President,
General Counsel and Corporate Secretary since April 2008. Prior
to joining the Company, Mr. Hianik served as Vice President
and Assistant General Counsel for Tribune Company, a diversified
media company.
Margaret LeBeau has served as Senior Vice President and
Chief Marketing Officer since January 2006. Prior to the Dex
Media merger, Ms. LeBeau served as Senior Vice President of
Marketing for Dex Media, Inc., the exclusive white and yellow
pages publisher for Qwest Communications.
Gretchen Zech has served as Senior Vice
President Human Resources since June 2006. Prior to
joining the Company, Ms. Zech served as Group Vice
President Human Resources at Gartner, Inc., a
technology research and consulting firm.
Jenny L. Apker has served as Vice President and Treasurer
since May 2003.
Sylvester J. Johnson has served as Vice
President Controller and Chief Accounting Officer
since April 2009. Prior to joining the Company, Mr. Johnson
was Vice President and Controller of 7-Eleven, Inc., a
convenience retailing company, from January 2002 to November
2007.
We have been advised that there are no family relationships
among any of our executive officers or directors and that there
is no arrangement or understanding among any of our executive
officers and any other persons pursuant to which they were
appointed, respectively, as an executive officer. Pursuant to
the terms of the Plan, the initial board of directors of the
Company was to consist of seven (7) directors including
(i) the Chief Executive officer of the Company,
(ii) three (3) directors selected by Franklin
Advisers, Inc. and (iii) three (3) directors selected
by the group of noteholders holding in excess of a majority of
the principal amount of pre-petition unsecured note debt who
signed support agreements in favor of the pre-arranged
restructuring plan that served as the basis for the Plan (the
Consenting Noteholders). Messrs. Davis,
Bulkeley and Liddell were selected to serve as directors by the
Consenting Noteholders and Messrs. Kuersteiner, McEachen
and Schultz were selected to serve as directors by Franklin
Advisers, Inc.
94
Code of
Conduct
In January 2010, the Board approved a revised code of conduct
applicable to the Board, senior management including the
principal executive officer, principal financial officer and
principal accounting officer, and all other employees. The code
of conduct is available on our website at www.dexone.com. Any
waiver of any provision of the code of conduct made with respect
to any director or executive officer of the Company will be
promptly posted on our web site at the same link as the code of
conduct itself and will be disclosed in the next periodic report
required to be filed with the SEC. In addition, the Company will
provide a copy of its Corporate Governance Guidelines and any
Committee Charter referenced herein upon request at no charge.
Any such request should be mailed to the Companys
principal executive offices, 1001 Winstead Drive, Cary, North
Carolina 27513, Attention: Investor Relations. Requests from
beneficial stockholders must set forth a good faith
representation as to such ownership on that date.
Section 16(a)
Beneficial Ownership Reporting Compliance
Based upon a review of filings with the Securities and Exchange
Commission and written representations that no other filings
were required to be made, we believe that all of our directors
and executive officers complied during the 2009 fiscal year with
the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934.
Audit
Committee Matters
The Board of Directors has unanimously determined that Jonathan
B. Bulkeley, Eugene I. Davis and W. Kirk Liddell, each a present
member of the Audit and Finance Committee, qualify as
audit committee financial experts and possess
accounting or related financial management expertise
within the meaning of all applicable laws and regulations. In
addition, the Board has unanimously determined that all present
members of the Audit and Finance Committee are financially
literate and, as stated below, independent as that term is used
in Item 407(a) of
regulation S-K.
Mr. Davis presently serves on three or more public company
audit committees. The Board of Directors has reviewed the
abilities, education and experience of Mr. Davis, has
considered Mr. Daviss simultaneous service on the
audit committees of other public companies and has unanimously
determined that Mr. Daviss simultaneous service on
the audit committees of more than three public companies will
not impair his ability to effectively serve on the
Companys Audit and Finance Committee.
|
|
ITEM 11.
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EXECUTIVE
COMPENSATION.
|
Compensation
Discussion and Analysis
This discussion and analysis of our compensation program for
named executive officers should be read in conjunction with the
accompanying tables and text disclosing the compensation awarded
to, earned by or paid to the named executive officers.
Compensation of the named executive officers is determined under
the Companys compensation program for senior executives.
This program is governed by the Compensation and Benefits
Committee of the Board of Directors, referred to herein as the
Committee. Currently, the Committee determines the compensation
of all of the Companys executive officers. This discussion
and analysis focuses on the named executive officers, referred
to herein as the NEOs, listed in the Summary Compensation Table
and other compensation tables in this
Form 10-K.
Upon the Companys emergence from bankruptcy on
January 29, 2010 (discussed more fully below), the Board of
Directors was substantially reconstituted with five new
independent directors joining legacy directors David C. Swanson
and Alan F. Schultz to comprise the new seven member Board. The
Committee was also reconstituted with new independent directors
Richard L. Kuersteiner and Mark A. McEachen joining
Mr. Schultz as the new Committee members. Throughout this
Item references to the Prior Committee shall be to
the former Compensation and Benefits Committee that was serving
throughout 2009 and until January 28,
95
2010 and references to the Committee shall be to the
current Compensation and Benefits Committee consisting of
Messrs. Schultz, as chair, Kuersteiner and McEachen.
Context
and Perspective
During 2008, the Company took significant initiatives to address
the challenging selling environment and advance its strategic
priorities. The Company improved efficiency and eliminated
non-essential operating costs, reducing headcount by
20 percent and achieving $100 million of cost savings.
At the same time, the Company broadened and improved its Dex
branded interactive local search solutions; completed a major,
company-wide systems integration and upgrade project; and
reduced net debt. Yet, despite these efforts, in the second half
of 2008, management felt the impact of the wide-spread economic
crisis. Advertising sales declined throughout the year primarily
due to the impact the recession had on small and medium sized
businesses, including lower consumer spending, reduced liquidity
and higher business failure rates.
The challenging economy and declining advertising sales
continued into and throughout 2009. In response to these
economic challenges, the Company continued to actively manage
expenses and enacted a number of initiatives to streamline
operations and contain costs. At the same time, the Company
continued to improve the value delivered to its advertisers by,
among other things, adding mobile and voice platforms to its
distribution network. In late 2008 through early 2009 the
Company also took steps to proactively address its significant
debt load and near-term debt maturities and amortization
payments. After several months of negotiations, the Company
agreed to a pre-arranged restructuring plan with its secured
lenders and a majority of its unsecured noteholders. Following
the Companys voluntary bankruptcy filing on May 28,
2009, management continued to execute on the restructuring plan
throughout the balance of 2009. The Companys Plan of
Reorganization was confirmed by the bankruptcy court on
January 12, 2010 and the Company successfully emerged from
bankruptcy protection on January 29, 2010.
In late 2008 through early 2009, with the continuing effects of
a challenging economy on the Companys business and a
proposed balance sheet restructuring under consideration, the
Prior Committee reassessed and restructured the executive
compensation program, resulting in the following: no increases
in base salary, annual incentive targets or total direct
remuneration targets for any NEO for 2009; elimination of equity
awards at all levels of the organization in favor of a
cash-based long-term incentive plan; freezing of the defined
benefit plans for the non-union workforce; establishment of a
single, unified, defined contribution plan; and termination of
the deferred compensation plan. As 2009 progressed, as a result
of collective bargaining, the Company successfully froze the
defined benefit plans of its unionized workforce as well. More
detail regarding the various changes to the Companys
executive compensation program is provided in the appropriate
sections that follow.
These changes, which were necessitated by the economic
difficulties at that time, served to motivate the strategic
executive action necessary to move the Company through another
difficult year and its balance sheet restructuring.
Objectives
of the Compensation Program for Named Executive
Officers
The Prior Committee intended that the Companys executive
compensation program support a growth-oriented business strategy
by motivating and rewarding management activities that create
sustainable shareholder value over time. The executive
compensation objectives are to:
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|
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|
|
Enable the Company to attract and retain the key leadership
talent required to successfully execute its business strategy;
|
|
|
|
Align executive pay with performance, both annual and long-term;
|
|
|
|
Ensure internal equity, both as compared to other executives
based upon position and contributions, and to the broader
employee population;
|
|
|
|
Strongly link the interests of executives to those of the
Companys shareholders and other key constituencies;
|
96
|
|
|
|
|
Keep the executive compensation practices transparent, in line
with best practices in corporate governance; and
|
|
|
|
Administer executive compensation on a cost-effective and
tax-efficient basis.
|
Elements
of the Compensation Program for Named Executive
Officers
The Prior Committee structured the major portion of executive
compensation as total direct remuneration, encompassing salary,
annual incentive awards and long-term incentive awards.
Additional elements supplement total direct remuneration. The
table below lists the various elements of the Companys
2009 compensation program for the NEOs, and briefly explains the
purpose of each element.
|
|
|
|
|
Element of Compensation Program
|
|
Description
|
|
How this Element Promotes Company Objectives
|
|
Annual Compensation:
|
|
|
|
|
Salary
|
|
Fixed annual compensation.
|
|
Intended to be competitive with marketplace in order to aid in
recruitment and retention and reflect relative internal value of
position.
|
Annual Incentive
|
|
Opportunity to earn performance-based compensation for achieving
pre-set annual goals.
|
|
Motivate and reward achievement of short-term operating
corporate objectives that enhance long-term
|
|
|
|
|
shareholder value.
|
Long-term Compensation (LTIP):
|
|
|
|
|
For 2009, a cash-based
long-term
incentive based on a three-year performance cycle upon the
achievement of stated cash flow targets
|
|
Opportunity to earn long-term performance-based compensation for
achieving pre-set annual cash flow targets.
|
|
With nominal value in the equity pre-restructuring, equity was
not considered to be an effective incentive. Therefore, in 2009,
the Company introduced a cash-based LTIP.
|
Other Compensation Elements:
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|
|
|
|
Retirement Income
|
|
Qualified and non-qualified defined benefit, defined
contribution and supplemental plans intended to provide pensions
or lump sum payments upon retirement.
|
|
Designed to provide basic benefits to aid in recruitment and
retention; the defined benefit plans were frozen for non-union
employees (including the NEOs) effective as of January 1,
2009.
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Severance Payments
|
|
Payments and benefits upon termination of an executives
employment in specified circumstances.
|
|
Intended to provide financial security at competitive levels to
attract lateral hires and to retain executives.
|
Benefits
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Health and welfare benefits.
|
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Customary programs to facilitate recruitment and retention.
|
Perquisites
|
|
Personal benefits, such as limited personal use of company
aircraft, financial planning services and executive health
services.
|
|
Intended to recognize and provide additional compensation to
executives at a relatively low cost to Dex One generally;
Company provides a gross up on the taxes for the perquisites.
|
The Prior Committee reviewed and took into account all elements
of executive compensation in setting policies and determining
compensation amounts. In the process, the Prior Committee
reviewed ongoing reports and special analyses of compensation
for all executive officers, including the Chief Executive
Officer, in consultation with its independent executive
compensation consultant. These reports and analyses included
such information as the value to the executive and cost to the
Company of total remuneration at various
97
performance levels during employment and in the event of
termination, as well as compensation programs, structures and
practices, remuneration and benefits levels, and trends among
peer group companies and in the general marketplace.
Total
Direct Remuneration
Peer Group Companies. The Prior Committee
intended that the levels of compensation available to executive
officers be competitive with the compensation offered by other
similar publicly held companies, particularly in these
challenging times. In establishing the peer group, the Prior
Committee considered the following factors:
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The Company has only one direct competitor that is also a
stand-alone public company;
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|
Other companies in the yellow pages and local commercial search
industries have very different business models and financial
characteristics, thereby making peer comparisons difficult; and
|
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|
|
The Companys leveraged financial structure and
transformational growth model significantly differentiated Dex
One from potential peer companies.
|
The peer companies, as a group, are comparable to the
Companys business in terms of revenues, EBITDA and total
enterprise value, defined as the sum of market capitalization
and total debt.
The Prior Committee identified the following as the
Companys peer group companies for reference in setting
compensation for 2009. This is the same group of companies that
the Prior Committee used for 2008.
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|
Peer Group Companies
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Belo Corporation
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Meredith Corporation
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The Dun & Bradstreet Corporation
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Moodys Corporation
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E.W. Scripps Company
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New York Times Company
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Equifax Inc.
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Scholastic Corporation
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Fiserv Inc.
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SuperMedia, Inc.
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McClatchy Company
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Symantec Corporation
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McGraw-Hill Cos, Inc.
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VeriSign, Inc.
|
Total Direct Remuneration Target Marketplace
Positioning. The Prior Committees stated
objective was to position an executives total direct
remuneration opportunity over time for target performance
between the 60th and 75th percentile of the
marketplace for the executives position, based upon peer
group data and the other information considered by the Prior
Committee described above (see the paragraph following the table
describing the elements of compensation.) This positioning also
reflects the Companys high at-risk variable pay structure
and challenging performance objectives as described below.
In light of the continuing challenging economic environment
facing the Company and the entire economy, the Prior Committee
awarded no increases in base salary, annual incentive target or
total direct remuneration target to any NEO for 2009 (other than
a market increase in Mr. Greenes base salary, based
upon his promotion and assuming additional responsibilities in
2009).
A major portion of target total direct remuneration, ranging
from 64% to 83% for the NEOs in 2009 as reflected by the
Compensation at Target Performance Level table
below, is placed at risk by requiring achievement of performance
goals as a condition to earning annual and long-term cash
incentives. The at-risk portion of total direct remuneration
ensures direct correlation and alignment of executive pay levels
with corporate performance and shareholder value creation.
Compensation Objectives and Strategy. As noted
above in the discussion of peer group companies, a number of
factors distinguish Dex One from the peer group. Although the
Committee uses peer group data for context and a frame of
reference for decision-making, the Prior Committee did not rely
exclusively upon peer group data in setting the terms of the
2009 compensation programs. Likewise, the Prior Committee did
not set
98
total direct remuneration or its component parts at levels
designed to achieve a mathematically precise market position.
Subject to the considerations discussed above with respect to
continued adjustments necessary to achieve targeted marketplace
positioning objectives, the Prior Committee endeavored to set
components of total direct remuneration as follows:
|
|
|
|
|
Base Salary: Base salary was to be positioned
near (i.e., +/- 10%) the peer group median
(50th percentile) for comparable responsibilities, with
individual performance considered by the Prior Committee.
|
|
|
|
Variable Compensation: Annual and long-term
incentive compensation was to be positioned near (i.e., +/- 10%)
the 75th percentile of the peer group, so that total direct
remuneration will be in the 60th to 75th percentile
range when the Companys financial and operating
performance attain targeted objectives. In setting performance
objectives, the Prior Committee reviewed prior period objectives
and prior period results to ensure that objectives were not
routinely exceeded so that the performance objectives can be
fairly characterized as stretch goals under the
business conditions in which the Company operates. In years
impacted by material transactions, the Prior Committee utilized
the projections presented to the Board by management in seeking
Board approval of that transaction to help guide performance
objective setting.
|
This emphasis on variable, at risk incentive compensation
delivers highly competitive pay when challenging performance
objectives are met and below average market compensation when
performance objectives are not met. Actual total direct
remuneration levels will vary from year to year below and above
target and those of the peer group based on our performance
relative to the Companys objectives, as well as
performance of peer companies relative to their respective
goals. The Prior Committee set the amounts of variable
compensation earnable for above-target performance with a view
to providing meaningful incentives to executives.
In terms of variable compensation, long-term compensation is
emphasized. For 2009, the target annual award opportunity for
the named executive officers ranged from 60% of base salary up
to 125% of base salary for the Chief Executive Officer while the
value of long-term award opportunity ranged from 115% to 365% of
base salary for the NEOs.
The following table shows the relative percentages of the
components of target total direct remuneration and how target
total direct remuneration, which we refer to as TDR, rank
against the peer group median (based on 2008 compensation
information as reported in 2009) as of early in 2009.
Compensation
at Target Performance Level
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TDR as a
|
|
|
|
|
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|
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Total
|
|
Percent of
|
|
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|
|
Annual
|
|
Long-Term
|
|
Direct
|
|
Peer Group
|
Name
|
|
Salary
|
|
Incentive
|
|
Incentive
|
|
Remun.
|
|
Median(1)
|
|
David Swanson
|
|
$
|
955,000
|
|
|
$
|
1,193,750
|
|
|
$
|
3,485,750
|
|
|
$
|
5,634,500
|
|
|
|
96
|
%
|
Steven Blondy
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|
$
|
500,000
|
|
|
$
|
375,000
|
|
|
$
|
1,375,000
|
|
|
$
|
2,250,000
|
|
|
|
109
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%
|
George Bednarz
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|
$
|
400,000
|
|
|
$
|
300,000
|
|
|
$
|
1,000,000
|
|
|
$
|
1,700,000
|
|
|
|
89
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%
|
Mark Hianik
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|
$
|
400,000
|
|
|
$
|
240,000
|
|
|
$
|
460,000
|
|
|
$
|
1,100,000
|
|
|
|
105
|
%
|
Sean Greene
|
|
$
|
275,000
|
|
|
$
|
165,000
|
|
|
$
|
412,500
|
|
|
$
|
852,500
|
|
|
|
*
|
%
|
|
|
|
(1) |
|
Mr. Greene was promoted to his current position after this
analysis was completed. |
Total direct remuneration for NEOs varies as a percent of median
reflecting greater or lesser responsibilities and experience or
tenure and also reflects that the Prior Committee in 2009
elected to make no changes to salary, annual incentive or
long-term incentive levels to adjust target total direct
remuneration closer to the desired
60th to
75th
percentile positioning.
99
Annual Incentives for 2009. Annual Incentive
Plan awards in 2009 were based on the level of achievement with
respect to three performance measures, which were determined by
the Prior Committee in December 2008 to be the key criteria by
which management plans and monitors the business:
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Advertising sales;
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EBITDA; and
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Free cash flow.
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In December 2008, the Prior Committee determined that the
weighting of these performance measures in determining the
annual incentive earned by each NEO would be 30% based on an
advertising sales component (encompassing the Committees
discretion to consider absolute advertising sales performance,
Dex One revenue performance against its industry peers, Dex One
print usage share and organic and search engine optimization
traffic to Dexknows.com), 50% based on EBITDA, and 20% based on
free cash flow. EBITDA was accorded the most weight given the
need to control costs as advertising sales continued to decline.
Upon establishing these performance measures and weightings, the
Committee specified that EBITDA be adjusted to exclude the
impact of (i) equity grant expensing under Financial Accounting
Standards Board Accounting Standards Codification Topic 718,
Compensation Stock Compensation (FASB ASC
Topic 718) (formerly Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment) and (ii) the
impact of the 2009 long-term incentive program.
In accordance with its standing written policy, both the
Committee and the Prior Committee also subsequently determined
that these performance measures should be adjusted (for both
favorable and unfavorable items) for any impact (in each case,
which was not contemplated or reasonably estimable at the time
the Prior Committee set performance goals in December
2008) from strategic transactions and other investments in
sustainable long-term growth made during the course of the year,
in each case, based upon the forecasted impacts approved by the
Board at the time of approving the transaction or other
investment. Consistent with this policy, the both the Committee
and the Prior Committee subsequently determined it appropriate
to exclude the impact of restructuring charges taken in 2009.
Finally, the Committee excluded the impact of the gain realized
in connection with the phased elimination of retiree medical
benefits for the unionized work force under Financial Accounting
Standards Board Accounting Codification Topic 715
Compensation Retirement Benefits (formerly Statement
of Financial Accounting Standards No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions).
The following table shows the performance objectives reflecting
the aforementioned adjustments subsequently approved by the
Committee that were applicable for 2009. It also indicates the
percentage of an NEOs target annual incentive payable at
various levels of performance.
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Annual Incentive Payout as Percentage
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of Target Payout Based on Performance
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Performance Measure
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25% of Target
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100% of Target
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200% of Target
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Advertising sales (30)%
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(1)
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(1)
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(1)
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EBITDA (50)%
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$
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1,000.0 Million
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$
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1,075.0 Million
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$
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1,150.0 Million
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Free cash flow (20)%
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$
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140.0 Million
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$
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207.5 Million
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$
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275.0 Million
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(1) |
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Discretionary component encompassing the Committees
discretion to consider absolute advertising sales performance,
Dex One revenue performance against its industry peers,
Dex One print usage share and organic and search engine
optimization traffic to Dexknows.com. |
Achievement between specified performance levels would result in
a payout based on straight-line interpolation. There is no
payout with respect to any performance measure for which actual
performance does not meet the 25%, or threshold, level. If the
level of performance under any measure were to exceed the 200%
level, the corresponding payout also would exceed 200% based on
straight-line interpolation, but the maximum payout under the
Annual Incentive Plan for all performance measures combined may
not exceed 200% of the NEOs target annual incentive. The
target, minimum and maximum awards under the Annual Incentive
Plan for 2009 appear in the Grants of Plan-Based Awards table
below.
100
Pay-for-Performance
Analysis. In March 2010, the Committee determined
that (a) there should be a 25% payout based on the
discretionary advertising sales component of target performance;
(b) EBITDA of $1,083.9 million represented 111.9% of
target performance of $1,075.0 million; and (c) free
cash flow of $171.3 million represented 59.8% of target
performance of $207.5 million.
EBITDA and free cash flow as used in the annual plan for 2009
were derived as follows:
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EBITDA represents earnings before interest, taxes, depreciation
and amortization. EBITDA has also been adjusted for items such
as (i) impairment charges, (ii) reorganization costs,
(iii) stock-based compensation and the 2009 long-term
incentive program, (iv) restricted stock unit expense
related to the Business.com acquisition and
(v) restructuring costs.
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Free cash flow is calculated as cash flow from operations, less
capital expenditures GAAP, adjusted for
(i) cash restricted stock unit payments related to the
Business.com acquisition, (ii) cash restructuring payments,
(iii) cash interest benefit due to restructuring and
(iv) timing of cash interest payments.
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Weighting these performance/payout levels as described above,
the Committee determined that the final overall payout level
under the Annual Incentive Plan for each NEO would be 75.4% of
that NEOs individual target annual incentive. These
payouts will be made entirely in cash in early March 2010. While
our advertising sales performance for 2009 was below our
expectations, our EBITDA margin leads the industry and we
generated strong cash flow during 2009. The Committee is mindful
of the fact that all equity interests in the Company that
existed at the time the Company filed for bankruptcy in May 2009
were eliminated as part of the Plan, but it believes that the
Companys operational and financial performance during 2009
warrants these annual incentive payouts.
Long-Term Incentives for 2009. The 2009 LTIP
is a cash-based plan designed to provide long-term incentive
compensation to participants based on the achievement of
performance goals designated by the Prior Committee pursuant to
the Companys 2005 Stock Award and Incentive Plan. The
Committee administers the 2009 LTIP in its sole discretion and
may, subject to certain exceptions, delegate some or all of its
power and authority under the 2009 LTIP to the Chief Executive
Officer or other executive officer of the Company.
Participants in the 2009 LTIP consisted of (i) such
executive officers of the Company and its subsidiaries as the
Prior Committee in its sole discretion selected and
(ii) such other employees of the Company and its
subsidiaries as the Chief Executive Officer in his sole
discretion selected. The amount of each award under the 2009
LTIP will be paid in cash and is dependent upon the attainment
of certain performance measures related to the amount of the
Companys cumulative free cash flow for the 2009, 2010 and
2011 fiscal years (the Performance Period).
Participants who are executive officers of the Company, and
certain other participants designated by the Chief Executive
Officer, were also eligible to receive a payment upon the
achievement of a restructuring, reorganization
and/or
recapitalization relating to the Companys outstanding
indebtedness and liabilities (the Specified Actions)
during the Performance Period.
Payments will be made following the end of the Performance
Period or the date of a Specified Action, as the case may be.
Awards granted to executive officers under the 2009 LTIP (and to
certain other participants designated by the Chief Executive
Officer) will continue to be paid, subject to the applicable
performance conditions, in the event the participants
employment is terminated by the participant with Good Reason (as
such term is defined in the 2009 LTIP), by the Company without
Cause (as such term is defined in the 2009 LTIP) or as a result
of the participants death or disability. Such payment will
be made as if the participant had remained employed with the
Company through the applicable payment date under the 2009 LTIP,
subject to the achievement of the applicable performance
conditions. If any participants employment with the
Company is terminated under any other circumstances, any unpaid
amount under the 2009 LTIP will be forfeited.
In February 2010, following the effective date of our Plan of
Reorganization, certain of the executive officers (including the
NEOs) and certain other participants designated by the Chief
Executive Officer each received a cash payment equal to one-half
of the participants maximum Long-Term Incentive Award
payable under the 2009 LTIP.
101
Historically the level of the long-term incentive component of
an executives total direct remuneration for a given year
has not been adjusted in light of the value of retirement
benefits or severance benefits and, conversely, the level of
retirement benefits or severance payments has not been adjusted
based on the value of an executives Dex One stock
holdings, stock options, SARs, other equity awards or other
long-term compensation. The Committee believes that retirement
and severance programs serve a function different from that of
long-term incentive awards, the amount of which the Committee
calibrates its benchmarking process in setting total direct
remuneration levels.
Retirement
Programs
Defined benefit plans. In 2008, all of the
NEOs participated in a tax-qualified defined benefit pension
plan for RHD employees and in a nonqualified benefit restoration
plan, which provide the benefits that would be provided under
the tax-qualified plan but for the limits on compensation and
benefits imposed on tax-qualified plans by federal tax rules.
See Executive Compensation Pension
Benefits below.
In October 2008, the Prior Committee approved a retirement plan
redesign whereby all non-union employees would no longer accrue
benefits under defined benefit plans. Effective January 1,
2009, except as described below, the sole retirement benefit
available to all of the Companys non-union employees
(including the NEOs) was provided through a defined contribution
plan.
In conjunction with establishing the new defined contribution
plan, the Prior Committee froze the current defined benefit
plans covering all non-union employees, effective as of
December 31, 2008. In connection with the freeze, all
pension plan benefit accruals for non-union plan participants
ceased as of December 31, 2008, however, all plan balances
will remain intact and interest credits on participant account
balances, as well as service credits for vesting and retirement
eligibility, will continue in accordance with the terms of the
respective plan. In addition, supplemental transition credits
are being provided to certain plan participants nearing
retirement who would otherwise have lost a portion of their
anticipated pension benefit at age 65 as a result of
freezing the current plans. Similar supplemental transition
credits are also being provided to certain plan participants who
were grandfathered under a final average pay formula when the
defined benefit plans were converted from traditional pension
plans to cash balance plans. Messrs. Swanson and Bednarz
qualified for supplemental transitions credits in the amount of
4% and 6%, respectively.
In December 2008, the Company and Mr. Swanson entered into
a Supplemental Executive Retirement Agreement (the
Supplemental Agreement) as part of the Retention
Program authorized by the Board in July 2008. Additional
information regarding the Retention Program and the Supplemental
Agreement can be found under the heading CEO
Retention Program.
401(k) plans. Through December 31, 2008,
the NEOs participated in the R.H. Donnelley 401(k) Savings Plan
and were eligible to defer additional compensation under
non-qualified deferred compensation plans. As noted above,
effective January 1, 2009, the named executive officers
became eligible to participate in the new defined contribution
plan.
As was the former 401(k) Savings Plan, the new 401(k) plan is a
tax-qualified retirement savings plan available to substantially
all Dex One employees. Participating employees may contribute up
to 75% of eligible compensation on a pre-tax or after-tax basis,
provided that pre-tax contributions in a year may not exceed the
limit imposed by federal tax rules. Under the new 401(k) plan,
Dex One makes a matching contribution each pay period equal to
100% (50% under the former 401(k) Savings Plan) of the
employees contributions (excluding employee contributions
above 6% of eligible compensation). The NEOs are eligible to
participate and receive this company matching contribution where
applicable.
The Company also maintains an unfunded, non-qualified 401(k)
Restoration Plan (the Restoration Plan) for those
employees (including the NEOs) whose matching or transition
credits under the Companys 401(k) plan are limited by
Sections 415 or 401(a)(17) of the Internal Revenue Code.
Matching and transition credits are credited to participant
accounts no later than the last day of each calendar year.
Separate bookkeeping accounts are maintained for each
participant in the Restoration Plan. Amounts credited to a
Restoration Plan participants account shall be deemed to
be invested at the direction of the Restoration Plan participant
in one
102
or more hypothetical investments as may be authorized from time
to time by the Restoration Plan administrator. Presently, these
hypothetical investment alternatives are the same as the
investment alternatives under the Companys 401(k) plan.
CEO
Retention Program
In July 2008 the Board approved a retention program for
Mr. Swanson, the Companys CEO. The retention program,
which was entered into for the purpose of providing
Mr. Swanson with additional incentives to remain employed
as CEO, had two components. The first component was a grant of
300,000 restricted stock units, 50% of which vested upon
Mr. Swansons attaining age 55 and the remainder
of which vest ratably over the three years following
Mr. Swansons 55th birthday. This restricted
stock grant was cancelled in connection with the confirmation of
our Plan of Reorganization. The second component was a
Supplemental Executive Retirement Agreement (the
Supplemental Agreement), which was entered into in
December 2008. The Supplemental Agreement was to provide
Mr. Swanson with a benefit that was limited to the smallest
amount necessary to cause his annual retirement benefit from all
Company plans to yield a total single life annuity of $500,000
per year if he were to retire at age 60, subject to
acceleration in specified termination situations. In April 2009
the Company and Mr. Swanson entered into an amendment to
the Supplemental Agreement which increased this amount to
$1,000,000 and also provided that the acceleration of benefit
that would otherwise occur in the event of an involuntary
termination following a
change-in-control
would not occur if such
change-in-control
occurs in the context of a restructuring. Additional information
regarding the Supplemental Agreement can be found below under
the heading Executive Compensation Pension
Benefits Supplemental Executive Retirement
Agreement.
Benefit
Programs and Perquisites
Benefits are part of the overall competitive compensation
program designed to attract and retain employees, including
executives. The NEOs participate in the same benefit programs as
the general employee population, with certain additional
benefits made available to them described in the table above
under Perquisites and in footnote 4 to the
Summary Compensation Table below. The perquisites and other
personal benefits provided by the Company to the NEOs are
consistent with the Companys philosophy of attracting and
retaining exemplary executive talent and, in some cases, such as
the participation in the Duke Executive Health Program, the
Company provides perquisites and other personal benefits because
it is in the best interests of the Company and its shareholders.
The Committee periodically reviews the levels of perquisites and
other personal benefits provided to the NEOs.
Business
Protection Terms
The named executives are subject to significant contractual
restrictions intended to prevent them from taking actions that
could potentially harm the business, particularly after
termination of employment. These business protections include
obligations not to compete, not to hire away employees, not to
interfere with relationships with suppliers and customers, not
to disparage Dex One, not to reveal confidential information,
and to cooperate with the Company in litigation. Business
protection provisions are included in the Companys code of
conduct, employment agreements, standard form non-competition
agreements that are executed upon hire and standard form
releases that are required to be executed before the Company
makes severance payments to any employee, including executives.
Severance
Policies
Severance protection is provided to two executives under the
terms of their employment agreements and to other executives
under the Companys executive severance policy. This
protection fosters a long term perspective and permits
executives to focus upon executing the Companys strategy
and enhancing sustainable shareholder value without undue
concern or distraction. This protection is also designed to be
fair and competitive to aid in attracting and retaining
experienced executives. When recruited from another company, the
executive generally will seek to be protected in the event he or
she is terminated without cause or if the Company takes actions
giving him or her good reason to terminate his or her employment
with us. The
103
Company believes that the protection it provides
including the level of severance payments and post-termination
benefits is appropriate in terms of fostering long
term value enhancing performance, and within the range of
competitive practice, thereby facilitating recruitment and
retention of key talent. The level of severance is examined
versus the practices of the Companys peer group to ensure
that the severance provided is in line with competitive practice.
In line with competitive practices, severance payments and
benefits are increased should the executive be terminated
without cause or were to terminate for good reason within two
years after a change in control. This protection, while
potentially costly, provides a number of important benefits to
the Company. First, it permits an executive to evaluate a
potential change in control transaction while relatively free of
concern for his or her own situation, and ameliorates any
conflict between his or her own interests and those of the
Companys shareholders. Second, change in control
transactions take time to unfold, and a stable management team
can help to preserve our operations in order to enhance the
value delivered to the Companys shareholders from a
transaction or, if no transaction is consummated, to ensure that
the Companys business will continue without undue
disruption afterwards. The Company believes that the potential
cost of executive change in control severance payments and
benefits, as a percentage of the potential transaction price,
would be well within the range of reasonable industry practice,
and represents an appropriate cost relative to the benefits to
the Company and its shareholders.
Tax
Deductibility
Internal Revenue Code Section 162(m) limits the tax
deductions that a public company can claim for compensation to
some of its named executive officers. The Company generally
seeks to preserve such corporate tax deductibility for
compensation to the extent practicable, although the Committee
retains flexibility to approve, when appropriate, compensation
arrangements which promote the objectives of the Companys
compensation program but which do not qualify for full tax
deductibility. The Prior Committee intended that
performance-based compensation authorized and earned under the
annual incentive program and under the 2009 long-term incentive
program qualify as performance-based compensation and therefore
was or will be fully tax-deductible by the Company without
limitation under Code Section 162(m). In connection with
permitting personal use of the corporate aircraft by named
executive officers, a portion of the Companys related
expense is non-deductible under U.S. federal income tax
law. The Company treats such personal use as compensation, as
reported in the All Other Compensation column of the
Summary Compensation Table. The value of the disallowed tax
deductions for 2009, based on the Companys estimated
marginal federal income tax rate, was $97,358 in the aggregate.
2010
Compensation Program for Named Executives
In February 2010, the Committee affirmed the Prior
Committees determination of base salaries and annual
incentive payment targets for senior executives for 2010. In
general, the 2010 total cash compensation program is the same as
the 2009 program with no increases in base salary or annual
incentive target for any NEO in 2010.
Following the Companys restructuring and relisting of its
common stock on the New York Stock Exchange, the Committee
reinstituted the use of equity awards as long-term incentive
compensation. In reinstituting an equity-based long-term
incentive plan, the Committee, in consultation with its
independent executive compensation consultants, determined that
an equity-based long-term incentive plan provides the necessary
incentives for our executives and other key employees.
Post-emergence grants of stock appreciation rights were made to
approximately 205 employees on March 1, 2010, including the
NEOs.
Decision-Making
Responsibility
Governance of the Companys compensation program is the
responsibility of the Committee, which consists solely of
independent directors. The Committee works with management, in
particular the Chief Executive Officer and the Senior Vice
President Human Resources, in making decisions
regarding the Companys compensation program. While
management is invited to participate in the process and to
express
104
their opinions and views, the Committee is the ultimate arbiter
of all matters involving executive compensation. The Committee
has also historically retained a nationally-known compensation
consulting firm to assist in gathering and analyzing market
data, advising the Committee on compensation standards and
trends, advising the Committee with respect to executive
compensation proposals by management and assisting in the
implementation of policies and programs. Throughout 2009 Semler
Brossy Consulting Group served as the Prior Committees
compensation consulting firm. Semler Brossy Consulting Group is
retained by and serves at the pleasure and direction of the
Committee, reports directly to the Committee (although they may
discuss pertinent matters directly with management from time to
time), with the Company paying all related fees of such
consultants as directed by the Committee. In addition, the
Company retained Mercer in 2009 to design an equity compensation
plan for the Company upon its emergence from bankruptcy. In
connection with this representation, Mercer presented
benchmarking information to, gathered input from, and presented
its proposed plan design to, the Committee. The Committee may
retain the services of other consultants from time to time, as
deemed necessary or appropriate based on the need for
specialized expertise or the desire for additional perspective
on particularly complex issues.
Compensation
and Benefits Committee Report
The Compensation and Benefits Committee has reviewed and
discussed with management the Compensation Discussion and
Analysis included in this
Form 10-K
and, based on such review and discussions, has recommended to
the Board (and the Board has accepted such recommendation) that
the Compensation Discussion and Analysis be included in this
Form 10-K.
This Compensation and Benefits Committee Report shall not be
deemed to be filed with the SEC or subject to
Section 18 of the Securities Exchange Act of 1934.
Compensation
and Benefits Committee
Alan F. Schultz, Chair
Richard L. Kuersteiner
Mark A. McEachen
105
Executive
Compensation
The following tables and accompanying narrative should be
read in conjunction with Compensation Discussion and
Analysis above.
Summary
of Officer Compensation During 2009
The following table summarizes the total compensation of our
NEOs for 2009. The NEOs for fiscal year 2009 were our Chairman
and Chief Executive Officer, our Executive Vice President and
Chief Financial Officer and our three other most highly
compensated executive officers serving as such at
December 31, 2009.
Summary
Compensation Table Fiscal 2009
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Change in
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Pension
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Value and
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Nonqualified
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Non-Equity
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Deferred
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Stock
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Option/SAR
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Incentive Plan
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Compensation
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All Other
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Salary
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Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(1)
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($)(1)
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($)(2)
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($)(3)
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($)(4)
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($)
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David Swanson
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2009
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957,624
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0
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0
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900,088
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5,721,281
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316,864
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7,895,857
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Chairman and Chief
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2008
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960,247
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2,770,950
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2,891,976
|
|
|
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432,138
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|
|
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2,583,469
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|
|
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216,789
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|
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8,895,322
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Executive Officer
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2007
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931,662
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0
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4,297,704
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1,233,144
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230,966
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160,520
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6,853,996
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Steven Blondy
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2009
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501,374
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0
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0
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282,750
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59,918
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76,566
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920,608
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Executive Vice President and
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2008
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502,747
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248,675
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1,153,995
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135,750
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13,251
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42,899
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2,097,317
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Chief Financial Officer
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2007
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489,011
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1,695,294
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387,375
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42,598
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41,989
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2,656,267
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George Bednarz
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2009
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401,099
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0
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0
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226,200
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115,712
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104,505
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847,516
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Executive Vice President
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2008
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366,552
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206,945
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930,268
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90,440
|
|
|
|
32,122
|
|
|
|
46,275
|
|
|
|
1,672,602
|
|
Enterprise Sales & Ops
|
|
|
2007
|
|
|
|
307,349
|
|
|
|
0
|
|
|
|
520,914
|
|
|
|
201,435
|
|
|
|
63,876
|
|
|
|
28,629
|
|
|
|
1,122,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Hianik
|
|
|
2009
|
|
|
|
401,099
|
|
|
|
0
|
|
|
|
0
|
|
|
|
180,960
|
|
|
|
0
|
|
|
|
53,005
|
|
|
|
635,064
|
|
Senior Vice President &
General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sean Greene
|
|
|
2009
|
|
|
|
249,382
|
|
|
|
0
|
|
|
|
0
|
|
|
|
111,795
|
|
|
|
21,895
|
|
|
|
229,922
|
|
|
|
612,994
|
|
Senior Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interactive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The compensation amounts reported in the Stock
Awards and Option/SAR Awards columns reflect
the aggregate grant date fair value computed in accordance with
FASB ASC Topic 718. The fair value of a stock award is equal to
the average of the high and low trading prices of our stock on
the grant date. The fair value of a SAR award is determined
using the Black-Scholes option pricing model. Our Black-Scholes
assumptions for financial statement purposes are described in
Note 8 to our audited consolidated financial statements
included in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009. |
|
(2) |
|
Amounts reported in this column represent the cash annual
incentive award paid for annual performance under our Annual
Incentive Plan. The amounts for 2009 performance were paid in
March 2010, the amounts for 2008 performance were paid in early
March 2009, and the amounts for 2007 performance were paid in
March 2008. See Grants of Plan-Based Awards
Fiscal 2009 below and Compensation Discussion and
Analysis Total Direct Remuneration
Annual Incentives for 2009 above for a further explanation
of our annual incentive awards. |
|
(3) |
|
Amounts listed as Change in Pension Value and Nonqualified
Deferred Compensation Earnings reflect solely the change
during the year in the actuarial present value of each
NEOs pension benefits under the RHD Retirement Account and
RHD PBEP for all NEOs and, in the case of Mr. Swanson, the
Supplemental Agreement. See Pension Benefits below. |
106
|
|
|
(4) |
|
The All Other Compensation column for 2009 includes
the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
|
|
|
Tax Gross Up
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
Travel
|
|
|
DC Plan
|
|
|
Benefit on
|
|
|
|
|
|
|
|
|
|
Planning
|
|
|
Expenses(a)
|
|
|
Contribution(b)
|
|
|
Perquisites(c)
|
|
|
Other(d)
|
|
|
Total
|
|
|
David Swanson
|
|
|
14,714
|
|
|
|
88,633
|
|
|
|
14,700
|
|
|
|
362
|
|
|
|
198,455
|
|
|
|
316,864
|
|
Steven Blondy
|
|
|
14,751
|
|
|
|
0
|
|
|
|
14,700
|
|
|
|
248
|
|
|
|
46,867
|
|
|
|
76,566
|
|
George Bednarz
|
|
|
14,340
|
|
|
|
11,523
|
|
|
|
14,700
|
|
|
|
5,746
|
|
|
|
58,196
|
|
|
|
104,505
|
|
Mark Hianik
|
|
|
18,040
|
|
|
|
0
|
|
|
|
14,700
|
|
|
|
990
|
|
|
|
19,275
|
|
|
|
53,005
|
|
Sean Greene
|
|
|
14,312
|
|
|
|
0
|
|
|
|
10,673
|
|
|
|
65,258
|
|
|
|
139,679
|
|
|
|
229,922
|
|
|
|
|
(a) |
|
Travel expenses for Mr. Swanson includes the incremental
cost of $88,633 for use of company aircraft. Travel expenses for
Mr. Bednarz includes the incremental cost of $11,523 for
family attendance at company-related events. The incremental
cost associated with personal use of company aircraft is
tabulated based on the direct and direct variable costs of each
personal use flight. Some of these costs include, but are not
limited to, landing and parking fees, flight planning services,
aircraft fuel and oil, and crew travel expenses. |
|
(b) |
|
DC Plan Contributions reflect the Company
contributions under our 401(k) Plan, as reported by our
plan record keepers prior to audit and any adjustments. The
401(k) plan is a tax-qualified defined contribution plan. |
|
(c) |
|
Company provides a gross up for tax purposes on the value of
perquisites. Included in Mr. Greenes tax gross-up is
$65,048 in benefits associated with Mr. Greenes relocation
assistance. |
|
(d) |
|
Other compensation for Mr. Swanson includes
$8,340 for club dues, $1,585 for participation in the
Companys executive health program, $4,670 in imputed
income of life insurance premiums, a $59,846 payment, which we
refer to as 401(k) equalization plan payment, equal to the
amount we would have contributed as a matching contribution to
the 401(k) Plan in 2008 but for the contribution limitations
under federal tax laws, $114,214 in matching credits under the
Restoration Plan, equal to the amount we would have contributed
as a matching contribution to the 401(k) plan in 2009 but for
the contribution limitations under federal tax laws, and $9,800
in transition contributions under the Restoration Plan.
Other compensation for Mr. Blondy represents
$2,089 for participation in the Companys executive health
program, $1,242 in imputed income of life insurance premiums,
$20,091in 401(k) equalization plan payments, and $23,445 in
matching credits under the Restoration Plan. Other
compensation for Mr. Bednarz represents $1,806 in imputed
income of life insurance premiums, $10,206 in 401(k)
equalization plan payments, $37,143 in matching credits under
the Restoration Plan and $9,041 in transition credits under the
Restoration Plan. Other compensation for
Mr. Hianik includes $13,021 in matching credits under the
Restoration Plan, $2,765 for participation in the Companys
executive health program, $1,434 in 401(k) equalization plan
payments, $1,425 in Relocation assistance, and $630 in imputed
income of life insurance premiums. Other
compensation for Mr. Greene includes $2,365 in 401(k)
equalization plan payments, $137,133 in Relocation assistance,
and $181 in imputed income of life insurance premiums. Pursuant
to Mr. Greenes promotion in July 2009, he relocated to
California. Expenses for which he was reimbursed include, but
are not limited to, home sale assistance, cost of living
allowances, specific expenses associated with searching for a
new residence, movement of personal goods and home purchase
assistance. All expenses reimbursed are qualified expenses
allowable under the Dex One Homeowner Relocation Program for
executives. |
107
Grants
of Plan-Based Awards During 2009
The following table provides information regarding non-equity
plan-based awards granted to each NEO for the year ended
December 31, 2009 under the Annual Incentive Plan and the
2009 Long-Term Incentive Program for Executive Officers.
Grants of
Plan-Based Awards Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards
|
|
|
|
|
Plan
|
|
Threshold
|
|
Target
|
|
Maximum
|
Name
|
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
David Swanson
|
|
|
AIP(1
|
)
|
|
|
298,438
|
|
|
|
1,193,750
|
|
|
|
2,387,500
|
|
|
|
|
LTIP(2
|
)
|
|
|
1,742,875
|
|
|
|
3,485,750
|
|
|
|
6,971,500
|
|
Steven Blondy
|
|
|
AIP(1
|
)
|
|
|
93,750
|
|
|
|
375,000
|
|
|
|
750,000
|
|
|
|
|
LTIP(2
|
)
|
|
|
687,500
|
|
|
|
1,375,000
|
|
|
|
2,750,000
|
|
George Bednarz
|
|
|
AIP(1
|
)
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
LTIP(2
|
)
|
|
|
500,000
|
|
|
|
1,000,000
|
|
|
|
2,000,000
|
|
Mark Hianik
|
|
|
AIP(1
|
)
|
|
|
60,000
|
|
|
|
240,000
|
|
|
|
480,000
|
|
|
|
|
LTIP(2
|
)
|
|
|
230,000
|
|
|
|
460,000
|
|
|
|
920,000
|
|
Sean Greene
|
|
|
AIP(1
|
)
|
|
|
37,067
|
|
|
|
148,269
|
|
|
|
296,538
|
|
|
|
|
LTIP(2
|
)
|
|
|
168,750
|
|
|
|
337,500
|
|
|
|
675,000
|
|
|
|
|
(1) |
|
Amounts shown reflect threshold, target and maximum payout
levels under our Annual Incentive Plan for 2009 performance. In
December 2008, the Prior Committee established certain
performance measures, performance objectives and relative
weightings under our Annual Incentive Plan. See
Additional Information Relating to Summary
Compensation Table and Grants of Plan-Based Awards Table
below and Compensation Discussion and
Analysis Total Direct Remuneration
Annual Incentives for 2009 above for a detailed
explanation of these measures, and the performance objectives
and relative weightings with respect to each measure. In March
2010, the Committee assessed actual performance for 2009 against
these performance objectives and determined final payout amounts
that were paid during March 2010. See
Additional Information Relating to Summary
Compensation Table and Grants of Plan-Based Awards Table
below and Compensation Discussion and
Analysis Total Direct Remuneration
Annual Incentives for 2009 and
Pay-For-Performance
Analysis for a detailed explanation of actual performance
against these performance objectives and the resultant payouts. |
|
(2) |
|
Amounts shown reflect threshold, target and maximum payout
levels under the R.H. Donnelley Corporation 2009 Long-Term
Incentive Program for Executive Officers (the 2009
LTIP). In March 2009, the Prior Committee established
certain performance targets under the 2009 LTIP. See
Additional Information Relating to Summary
Compensation Table and Grants of Plan-Based Awards Table
below and Compensation Discussion and
Analysis Total Direct Remuneration
Long-Term Incentives for 2009 above for a detailed
explanation of these performance targets. In February 2010,
following the effective date of our Plan of Reorganization,
certain of the executive officers (including the NEOs) and
certain other participants designated by the Chief Executive
Officer each received a cash payment equal to one-half of the
participants Maximum Long-Term Incentive Award payable
under the 2009 LTIP. See Additional
Information Relating to Summary Compensation Table and Grants of
Plan-Based Awards Table below and
Compensation Discussion and
Analysis Total Direct Remuneration
Long-Term Incentives for 2009 for an explanation of these
payouts. |
Additional
Information Relating to Summary Compensation Table and Grants of
Plan-Based Awards Table
The following narrative regarding employment agreements and
other compensation arrangements provides certain background
information to provide the reader with a better understanding of
the compensation amounts
108
shown in the Summary Compensation Table and Grants of Plan-Based
Awards Table above. It should be read in conjunction with the
footnotes to those tables and Compensation Discussion and
Analysis above.
Employment Agreements and Other Compensation
Arrangements. The compensation of the NEOs employed as of
December 31, 2009 as provided by their respective
employment agreements or other compensation arrangements was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guideline
|
|
Annual
|
|
|
|
|
|
|
|
|
Annual
|
|
Stock
|
|
|
|
|
|
|
|
|
Incentive
|
|
Award
|
|
|
|
|
|
|
|
|
Opportunity
|
|
Opportunity
|
|
|
|
Severance
|
|
|
|
|
(% of
|
|
(% of
|
|
|
|
in Change
|
Name
|
|
Base Salary
|
|
Base Salary)
|
|
Base Salary)
|
|
Severance(1)
|
|
in
Control(1)
|
|
David Swanson
|
|
$
|
955,000
|
|
|
|
125
|
%
|
|
|
365
|
%
|
|
|
2 times
|
|
|
|
3 times
|
|
Steven Blondy
|
|
$
|
500,000
|
|
|
|
75
|
%
|
|
|
275
|
%
|
|
|
2 times
|
|
|
|
3 times
|
|
George Bednarz
|
|
$
|
400,000
|
|
|
|
75
|
%
|
|
|
250
|
%
|
|
|
1.5 times
|
|
|
|
2 times
|
|
Mark Hianik
|
|
$
|
400,000
|
|
|
|
60
|
%
|
|
|
115
|
%
|
|
|
1.5 times
|
|
|
|
2 times
|
|
Sean Greene
|
|
$
|
275,000
|
|
|
|
60
|
%
|
|
|
115
|
%
|
|
|
1.5 times
|
|
|
|
2 times
|
|
|
|
|
(1) |
|
Severance payments are equal to the specified multiple of base
salary plus guideline annual incentive. See
Payments Upon Termination or
Change-in-Control
below for a discussion of the circumstances under which
severance payments may be triggered and more detailed
information about the amounts payable for each NEO. |
For 2009, the Prior Committee awarded no increases in base
salary, annual incentive target or total direct remuneration
target to any NEO, and made no changes to the foregoing
severance benefits for any NEO, except for a market based salary
increase for Mr. Greene in connection with his promotion to
Senior Vice President Interactive.
The remaining principal terms of the employment agreements or
other arrangements with our current NEOs are as follows:
|
|
|
Term
|
|
The employment agreements for Messrs. Swanson and Blondy
are subject to automatic one-year renewals, unless notice has
been given 90 days prior to the scheduled termination date
for the agreement. Any non-renewal of the employment agreement
by us would be considered a termination without Cause. The other
NEOs are terminable at will.
|
Additional Compensation
|
|
Each NEO is eligible to participate in all bonuses, long-term
incentive compensation, stock options and other equity
participation arrangements made available to other senior
executives.
|
Benefits
|
|
Messrs. Swanson and Blondy are each eligible to participate
in all employee benefit programs (including perquisites, fringe
benefits, vacation, pension and 401(k) Plan participation and
life, health, accident and disability insurance) no less
favorable than in effect on December 31, 2008. Each of the
remaining NEOs are eligible to participate in all employee
benefit programs (including perquisites, fringe benefits,
vacation, pension and 401(k) Plan participation and life,
health, accident and disability insurance) to the same extent as
other similarly situated executive officers.
|
109
|
|
|
Termination without Cause or for Good Reason not arising from
or within two years after a Change in Control
|
|
Messrs. Swanson and Blondy each receive a cash lump sum
payment equal to two times base salary plus guideline annual
incentive. Each of the remaining NEOs receives a cash lump sum
payment equal to
one-and-one-half
times base salary plus guideline annual incentive. Each of
Messrs. Swanson and Blondy also receives continuation of
benefits for two years
(one-and-one
half years for the remaining NEOs. Terminated NEOs are also
eligible to receive a cash payment of a pro rata portion of the
annual incentive payable for the year of termination.
|
Termination without Cause or for Good Reason arising from,
and within two years after, a Change in Control
|
|
Messrs. Swanson and Blondy each receive a cash lump sum
payment equal to three times the sum of base salary plus
guideline annual incentive and continuation of benefits for
three years. Each of the remaining NEOs receives a cash lump sum
payment equal to two times the sum of base salary plus guideline
annual incentive and continuation of benefits for two years. In
addition, under the Dex One Corporation Equity Incentive Plan
and the Dex One Corporation 2009 Long-Term Incentive Program for
Executive Officers, upon a Change in Control, certain awards may
vest and become fully payable as provided in the relevant Plan
and/or grant documents. If negotiations commence prior to a
termination of employment but eventually result in a Change in
Control within two years, then the NEO shall be treated as
having been terminated within two years following a Change in
Control and, therefore, shall be entitled to the benefits
described above. Terminated NEOs are also eligible to receive a
cash payment of a pro rata portion of the annual incentive
payable for the year of termination.
|
Death/Disability/Retirement
|
|
Each NEO (or beneficiary) receives salary through date of
termination and a pro rata portion of the annual incentive. Each
NEO also receives continuation of benefits to age 65 in
event of Disability. Outstanding equity awards are subject to
accelerated vesting in the event of Death, Disability or
Retirement or a Change in Control, and such equity awards may be
exercised until the earlier to occur of one year after the date
of such termination or the established expiration date of such
award.
|
Excise Tax
|
|
The compensation of each NEO will be grossed up for
any excise tax imposed under Section 4999 of the U.S.
Internal Revenue Code relating to any payments made on account
of a change in control or a termination of the NEOs employment.
However, if total payments associated with such change in
control are less than 360% of the executives base
amount under applicable tax rules, the total payment will
be reduced to the level at which no excise tax would apply, and
therefore no gross up will be paid.
|
110
|
|
|
Restrictive Covenants
|
|
Non-compete during employment and 12 months
following termination, the NEO shall not directly or indirectly
engage in any business which is in competition with any line of
business conducted by the Company or its affiliates.
|
|
|
Non-solicitation during employment and
12 months following termination, the NEO shall not solicit
or otherwise interfere with the Companys relationship with
its employees, customers and suppliers.
|
|
|
Confidentiality during employment and at all times
thereafter the NEO shall not disclose to any third party the
Companys confidential and/or proprietary information.
|
Capitalized terms used under this caption Employment
Agreements and Other Compensation Arrangements have the
meanings as defined in the relevant employment and other
compensation agreements, which are incorporated by reference as
exhibits to this
Form 10-K.
Outstanding
Equity Awards at Fiscal Year-End Fiscal
2009
The following table provides information regarding all
outstanding SARs, stock options and other equity awards held by
the NEOs at year-end 2009. As noted above in this
Form 10-K,
pursuant to our Plan of Reorganization, all outstanding equity
securities of R.H. Donnelley Corporation, including all stock
options, SARs and restricted stock units, were cancelled on
January 29, 2010 when the Plan of Reorganization became
effective.
Outstanding
Equity Awards At Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable(1)
|
|
|
($)
|
|
|
Date
|
|
|
(#)(2)(3)
|
|
|
($)(4)
|
|
|
David Swanson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,000
|
|
|
|
0
|
|
|
|
|
266,666
|
|
|
|
533,334
|
|
|
|
7.105
|
|
|
|
03/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
123,521
|
|
|
|
247,046
|
|
|
|
1.690
|
|
|
|
07/14/15
|
|
|
|
|
|
|
|
|
|
Steven Blondy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,334
|
|
|
|
0
|
|
|
|
|
106,666
|
|
|
|
213,334
|
|
|
|
7.105
|
|
|
|
03/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
47,203
|
|
|
|
94,411
|
|
|
|
1.690
|
|
|
|
07/14/15
|
|
|
|
|
|
|
|
|
|
George Bednarz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,334
|
|
|
|
0
|
|
|
|
|
56,666
|
|
|
|
113,334
|
|
|
|
7.105
|
|
|
|
03/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
|
3.895
|
|
|
|
06/23/15
|
|
|
|
|
|
|
|
|
|
|
|
|
21,778
|
|
|
|
43,561
|
|
|
|
1.690
|
|
|
|
07/14/15
|
|
|
|
|
|
|
|
|
|
Mark Hianik
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,667
|
|
|
|
0
|
|
|
|
|
23,333
|
|
|
|
46,667
|
|
|
|
4.995
|
|
|
|
05/01/15
|
|
|
|
|
|
|
|
|
|
Sean Greene
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,334
|
|
|
|
0
|
|
|
|
|
6,666
|
|
|
|
13,334
|
|
|
|
7.105
|
|
|
|
03/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
3,137
|
|
|
|
6,283
|
|
|
|
1.690
|
|
|
|
07/14/15
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
20,000
|
|
|
|
0.810
|
|
|
|
10/21/15
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All unexercised options were to vest ratably over 3 years
and have a
7-year term
from date of grant. |
|
(2) |
|
The amount in this column for Mr. Swanson includes 60,000
RSUs as part of his 2008 annual grant and 150,000 RSUs as part
of his retention grant. The amount in this column for
Mr. Blondy consists of 23,334 RSUs as part of his 2008
annual grant. The amount in this column for Mr. Bednarz
includes 14,667 RSUs |
111
|
|
|
|
|
as part of his 2008 annual grant and 8,667 RSUs granted pursuant
to his appointment to Executive Vice President of Enterprise
Sales and Operations in July 2008. The amount shown in this
column for Mr. Hianik is part of his 2008 grant. The amount
shown in this column for Mr. Greene is part of his 2008
grant. |
|
(3) |
|
All RSUs were to vest ratably over 3 years except for
Mr. Swansons retention grant of 300,000 RSUs of which
150,000 vested on his 55th birthday and 50,000 were to vest on
each of his 56th, 57th, and 58th birthdays. |
|
(4) |
|
The market value in this column is based on the average of the
high and low price of RHD common stock on December 31,
2009, which was $0.00. |
Option/SAR
Exercises and Stock Vested During 2009
The following table provides information regarding the exercise
of stock options, SARs and similar equity awards by the NEOs,
and the vesting and distribution of restricted stock units to
the NEOs, during 2009. As noted above in this
Form 10-K,
pursuant to our Plan of Reorganization, all outstanding equity
securities of R.H. Donnelley Corporation, including all stock
options, SARs and restricted stock units, were cancelled on
January 29, 2010 when the Plan of Reorganization became
effective.
Option
Exercises and Stock Vested Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Awards
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
Stock Awards
|
|
|
Acquired on
|
|
Value Realized on
|
|
Number of Shares
|
|
Value Realized on
|
|
|
Exercise
|
|
Exercise
|
|
Acquired on Vesting
|
|
Vesting
|
Name
|
|
(#)
|
|
($)
|
|
(#)(1)
|
|
($)
|
|
David Swanson
|
|
|
0
|
|
|
|
0
|
|
|
|
206,388
|
|
|
|
6,414
|
|
Steven Blondy
|
|
|
0
|
|
|
|
0
|
|
|
|
22,799
|
|
|
|
1,628
|
|
George Bednarz
|
|
|
0
|
|
|
|
0
|
|
|
|
11,666
|
|
|
|
1,213
|
|
Mark Hianik
|
|
|
0
|
|
|
|
0
|
|
|
|
8,333
|
|
|
|
1,167
|
|
Sean Greene
|
|
|
0
|
|
|
|
0
|
|
|
|
666
|
|
|
|
87
|
|
|
|
|
(1) |
|
Amounts in this column reflect restricted stock units granted
March 4, 2008 under the 2007 Annual Incentive Program (2007
AIP) for Mr. Swanson, Mr. Blondy, Mr. Bednarz,
and Mr. Greene. Upon completion of the respective
performance period of January 1, 2007 to December 31,
2007 for the 2007 AIP, a dollar amount was determined for each
NEO based on our actual financial performance against
pre-established performance objectives. The dollar amount was
then converted into a number of restricted stock units by
dividing the dollar amount of the award by our stock price
(calculated as the average of the high and low prices of the
Companys common stock on the 10 trading days subsequent to
delivery of the Companys respective audited financial
statements to the Compensation and Benefits Committee). The 2007
AIP grants were to vest 33% on each of the first three
anniversaries of the grant date. The amount in this column for
Mr Swanson also includes 26,388 RSUs granted on
December 13, 2006 as part of his Senior Leadership
Performance Award. This award was earned when RHD stock reached
$65 per share, based on the average of the high and low stock
price over 20 consecutive days. The Award vested 100% on
12/13/2009. Also in Mr. Swansons amount are 150,000
RSUs granted on July 22, 2008 as part of a retention grant,
which vested 150,000 shares on his 55th birthday and 50,000
which were to vest on each of his 56th, 57th, and 58th
birthdays. The amount in this column for Mr Blondy also includes
11,133 RSUs granted on December 13, 2006 as part of his
Senior Leadership Performance Award. This award was earned when
RHD stock reached $65 per share, based on the average of the
high and low stock price over 20 consecutive days. The amount in
this column for Mr Bednarz also includes 4,333 RSUs granted on
June 23, 2008 pursuant to his appointment to Executive Vice
President of Enterprise Sales and Operations. The amount in this
column for Mr Hianik reflects RSUs granted May 1, 2008
pursuant to his employment arrangement. |
112
Pension
Benefits
Pension
Benefits Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Years
|
|
Present Value of
|
|
Payments During
|
Name
|
|
Plan Name
|
|
of Credited Service
|
|
Accumulated
Benefit(1)
|
|
Last Fiscal Year
|
|
David Swanson
|
|
RHD Retirement Account
|
|
|
22.500
|
|
|
$
|
303,431
|
|
|
$
|
0
|
|
|
|
RHD PBEP
|
|
|
22.500
|
|
|
$
|
1,134,813
|
|
|
$
|
0
|
|
|
|
SERP
|
|
|
22.500
|
|
|
$
|
7,923,091
|
|
|
$
|
0
|
|
Steven Blondy
|
|
RHD Retirement Account
|
|
|
5.833
|
|
|
$
|
63,537
|
|
|
$
|
0
|
|
|
|
RHD PBEP
|
|
|
5.833
|
|
|
$
|
168,221
|
|
|
$
|
0
|
|
George Bednarz
|
|
RHD Retirement Account
|
|
|
32.000
|
|
|
$
|
423,426
|
|
|
$
|
0
|
|
|
|
RHD PBEP
|
|
|
32.000
|
|
|
$
|
238,597
|
|
|
$
|
0
|
|
Mark Hianik
|
|
RHD Retirement Account
|
|
|
0.000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
RHD PBEP
|
|
|
0.000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Sean Greene
|
|
RHD Retirement Account
|
|
|
11.000
|
|
|
$
|
51,393
|
|
|
$
|
0
|
|
|
|
RHD PBEP
|
|
|
11.000
|
|
|
$
|
6,600
|
|
|
$
|
0
|
|
|
|
|
(1) |
|
On October 21, 2008, the Compensation and Benefits
Committee of the Board of Directors authorized the freeze of the
R.H. Donnelley Retirement Account and the Companys Pension
Benefit Equalization Plan effective as of December 31,
2008. In connection with the freeze, all benefit accruals under
these plans ceased as of December 31, 2008, however, all
plan balances will remain intact and interest credits on
participant account balances, as well as service credits for
vesting and retirement eligibility, will continue in accordance
with the terms of the plans. |
Present Value of Accumulated Pension
Benefits. For each of the pension plans
referenced in the above table, the present values of accumulated
benefits are provided as of December 31, 2009, and are
based on a discount rate of 5.72% and a retirement age of 65.
Assumptions regarding pre-retirement mortality have been
disregarded. The actuarial assumptions used in calculating
present values are the same as those used in the actuarial
valuation of the Companys pension obligations at
December 31, 2009, as set forth in Note 9 to our
audited consolidated financial statements included in our 2009
Annual Report on
Form 10-K.
R.H. Donnelley Retirement Account. The R.H.
Donnelley Corporation Retirement Account, which we refer to as
the RHD Retirement Account, is a funded and tax-qualified
defined benefit pension plan that provides benefits under a
cash balance formula. Under this formula, pension
benefits were based on the participants notional account
balance.
As of December 31, 2009, the RHD Retirement Account covered
all employees of R.H. Donnelley, Inc. who were participants in
the RHD Retirement Account as of December 31, 2008 and who
had attained age 21 and completed at least one year of
service as of such date. Employees of Dex Media and Business.com
were not eligible to participate. Participants become fully
vested in their accrued retirement benefit upon completion of
five years of service or upon attaining age 65 while
actively employed. At any time following termination of
employment, a vested participant may elect to receive a lump sum
payment equal to his or her notional account balance, or monthly
payments under an immediate or deferred annuity that is
actuarially equivalent to the notional account balance.
R.H. Donnelley PBEP. The Pension Benefit
Equalization Plan of R.H. Donnelley, which we refer to as the
RHD PBEP, is an unfunded, non-qualified plan that covers
participants in the RHD Retirement Account whose benefits under
the RHD Retirement Account are limited by the qualified plan
rules. RHD PBEP benefits were based on the participants
notional account balance. The participants notional
account balance under the RHD PBEP is equal to the excess of
(1) the participants uncapped notional
account balance determined in accordance with the RHD Retirement
Account disregarding the Internal Revenue Code Section 415
limit on benefits and Section 401(a)(17) limit on
compensation, over (2) the participants notional
113
account balance under the RHD Retirement Account. We will pay
the benefits from our general assets in the form of a lump sum
that is equivalent to the RHD PBEP notional account balance.
As noted above under Compensation Discussion and
Analysis Retirement Programs Defined
benefit plans, the RHD Retirement Account and the RHD PBEP
were frozen as part of the new retirement plan design effective
as of January 1, 2009.
Supplemental Executive Retirement
Agreement. The Supplemental Executive Retirement
Agreement (the Supplemental Agreement) is an
unfunded, nonqualified pension plan. As originally entered into
in December 2008, the amount of the additional benefit under the
Supplemental Agreement was limited to the amount necessary to
cause Mr. Swansons annual retirement benefit from all
Company plans, including the RHD Retirement Account and the RHD
PBEP, to yield a total single life annuity of $500,000 per year
if the Executive were to retire at age 60. In April 2009
the Supplemental Agreement was amended to increase the amount of
the targeted annuity to $1,000,000 per year.
Fifty percent of Mr. Swansons right to this
additional benefit vested in November 2009 upon his attaining
age 55 and the remaining fifty percent will vest at the
rate of 16.66%, 16.66% and 16.67% per year over each of the
three following years, so that the right will be 100% vested
upon his attaining age 58, in all cases subject to his
continued employment with the Company. Notwithstanding this
vesting schedule, his right to the additional retirement benefit
will be forfeited in its entirety if he resigns or retires prior
to attaining age 60, or is terminated for Cause or violates
the restrictive covenants of his employment agreement before the
additional benefit has become payable.
Mr. Swanson will vest in full in this additional benefit in
the event of a termination as the result of death or disability
or if Mr. Swanson is involuntarily terminated or terminates
for good reason within two years of a change in control. As part
of the April 2009 amendment to the Supplemental Agreement,
Mr. Swanson agreed to amend the Supplemental Agreement such
that no acceleration of benefit will occur in the event of an
involuntary termination following a
change-in-control
in the context of a restructuring.
The vested additional retirement benefit shall be paid in the
form of a lump sum commencing on the later of (i) the date
Mr. Swanson attains age 60 or (ii) the date that
is six months after his separation from service, except that
payment shall occur immediately in the event of his separation
from service due to death and shall occur six months after his
separation from service due to disability, termination without
cause or for good reason as such terms are defined in
Mr. Swansons employment agreement (or other
applicable agreement) or in the event of a Change in Control (as
defined in the Supplemental Agreement). Following a Change in
Control, the unvested portion of the additional retirement
benefit will continue to vest, subject to continued employment.
Nonqualified
Deferred Compensation
Deferred Compensation Plan. Prior to 2009 the
NEOs and a select group of other officers and key employees were
able to defer cash compensation under our Deferred Compensation
Plan, which we refer to as DCP. The DCP was an unfunded,
non-qualified plan. Each participating officer could defer
receipt of a specified portion of his or her salary, bonus or
commission income and have the amount deferred credited to a
notional account under the DCP. Amounts deferred were deemed
invested in one or more investment vehicles specified by the
participant. Earnings were calculated by reference to the actual
investment performance of these investment vehicles.
Participants could change their investment allocations monthly.
In December 2008, the Prior Committee authorized the termination
of the DCP and the distribution of all DCP participant account
balances in full. In January 2009, we paid out in full all DCP
participant account balances as of December 31, 2008.
401(k) Restoration Plan. The Company maintains
an unfunded, non-qualified 401(k) Restoration Plan (the
Restoration Plan) for those employees (including the
NEOs) whose matching or transition credits under the
Companys 401(k) plan are limited by Sections 415 or
401(a)(17) of the Internal Revenue Code. Matching and transition
credits are credited to participant accounts no later than the
last day of each calendar year. Separate bookkeeping accounts
are maintained for each participant in the Restoration Plan.
Amounts credited
114
to a Restoration Plan participants account shall be deemed
to be invested at the direction of the Restoration Plan
participant in one or more hypothetical investments as may be
authorized from time to time by the Restoration Plan
administrator. Presently, these hypothetical investment
alternatives are the same as the investment alternatives under
the Companys 401(k) plan.
Nonqualified
Deferred
Compensation-Fiscal
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registrant
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Executive
|
|
|
Contributions in
|
|
|
Aggregate
|
|
|
Withdrawals/
|
|
|
Aggregate
|
|
|
|
Contributions in
|
|
|
Last FY
|
|
|
Earnings in
|
|
|
Distributions
|
|
|
Balance at
|
|
Name
|
|
Last FY
|
|
|
(1)
|
|
|
Last FY
|
|
|
(2)
|
|
|
Last FYE
|
|
|
David Swanson
|
|
$
|
0
|
|
|
$
|
124,014
|
|
|
$
|
0
|
|
|
$
|
538,230
|
|
|
$
|
124,014
|
|
Steven Blondy
|
|
$
|
0
|
|
|
$
|
23,445
|
|
|
$
|
0
|
|
|
$
|
965,399
|
|
|
$
|
23,445
|
|
George Bednarz
|
|
$
|
0
|
|
|
$
|
46,184
|
|
|
$
|
0
|
|
|
$
|
2,592
|
|
|
$
|
46,184
|
|
Mark Hianik
|
|
$
|
0
|
|
|
$
|
13,021
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
13,021
|
|
Sean Greene
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
(1) |
|
Amounts shown in this column represent (i) matching
credits made effective as of December 31, 2009
pursuant to the Restoration Plan for each of the NEOs and (ii)
transition credits made effective as of
December 31, 2009 pursuant to the Restoration Plan for each
of Messrs. Swanson and Bednarz. |
|
(2) |
|
Amounts in this column represent DCP account balances as of
December 31, 2008 which were distributed in January, 2009
in connection with the DCP termination. |
Payments
upon Termination or
Change-in-Control
Severance protection is provided to our NEOs with employment
agreements under those agreements and to other executives under
our executive severance policy. We believe this protection
fosters a long term perspective and permits executives to focus
upon executing our strategy without undue concern or
distraction. This protection is also designed to be fair and
competitive to aid in attracting and retaining experienced
executives. We believe that the protection we
provide including the level of severance payments
and post-termination benefits is appropriate in
terms of fostering long term performance, and within the range
of competitive practice, thereby facilitating recruiting and
retention of key talent.
In line with competitive practices, severance payments and
benefits are increased should the executive be terminated
without cause or voluntarily resign for good reason within two
years after a change in control. This protection, while
potentially costly, provides a number of important benefits to
the Company. First, it permits an executive to evaluate a
potential change in control transaction while relatively free of
concern for his or her own situation, and ameliorates any
conflict between his or her own interests and those of our
shareholders. Second, change in control transactions take time
to unfold, and a stable management team can help to preserve our
operations in order to enhance the value delivered to our
shareholders from a transaction or, if no transaction is
consummated, to ensure that our business will continue without
undue disruption afterwards. We believe that the potential cost
of executive change in control severance payments and benefits,
as a percentage of the potential transaction price, would be
well within the range of reasonable industry practice, and
represents an appropriate cost relative to these benefits to the
Company and its shareholders. It should be noted that, although
our change in control benefits provide for the immediate vesting
of certain previously awarded equity grants upon a change in
control, our continuing NEOs voluntarily waived such rights in
our last three strategic acquisitions in consideration of the
fact that they would continue to constitute the management team
of the applicable combined company. Moreover, as part of the
Plan of Reorganization, the employment agreements and the
executive severance policy were amended to provide that the
implementation of the restructuring of the Company and its
subsidiaries pursuant to the Plan shall not alone constitute
Good Reason for purposes of triggering the payment of severance
payments and benefits under those agreements and policy.
The following table shows the potential value of payments and
benefits to each NEO who was serving at December 31, 2009
pursuant to their respective employment agreements and other
applicable arrangements
115
and plans under various employment termination and change in
control scenarios assuming such events occurred as of
December 31, 2009. See Additional Information
Relating to Summary Compensation Table and Grants of Plan-Based
Awards Table Employment Agreements and Other
Compensation Arrangements above for other important terms
and conditions of employment for our NEOs. Capitalized terms
used without definition in this section have the meanings as
defined in the relevant employment and other compensation
agreements, which are incorporated by reference as exhibits to
this
Form 10-K.
Incremental
Value of Payments and Benefits Upon
Change-in-Control
(CIC) and Various Types of Terminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Scenario (12/31/09)
|
|
Mr. Swanson
|
|
|
Mr. Blondy
|
|
|
Mr. Bednarz
|
|
|
Mr. Hianik
|
|
|
Mr. Greene
|
|
|
Voluntary Resignation or For Cause
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Without Cause or for Good Reason
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Not within two years of CIC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro rata Incentive pay
|
|
$
|
1,193,750
|
|
|
$
|
375,000
|
|
|
$
|
300,000
|
|
|
$
|
240,000
|
|
|
$
|
165,000
|
|
Severance pay
|
|
|
4,297,500
|
|
|
|
1,750,000
|
|
|
|
1,050,000
|
|
|
|
960,000
|
|
|
|
660,000
|
|
Health benefits continuation
|
|
|
13,616
|
|
|
|
20,425
|
|
|
|
15,318
|
|
|
|
15,303
|
|
|
|
10,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,504,866
|
|
|
$
|
2,145,425
|
|
|
$
|
1,365,318
|
|
|
$
|
1,215,303
|
|
|
$
|
835,212
|
|
Within Two Years of CIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Without cause or for good reason)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro rata Incentive pay
|
|
$
|
1,193,750
|
|
|
$
|
375,000
|
|
|
$
|
300,000
|
|
|
$
|
240,000
|
|
|
$
|
165,000
|
|
Severance pay
|
|
|
6,446,250
|
|
|
|
2,625,000
|
|
|
|
1,400,000
|
|
|
|
1,280,000
|
|
|
|
880,000
|
|
Health benefits continuation
|
|
|
20,425
|
|
|
|
30,637
|
|
|
|
20,425
|
|
|
|
20,404
|
|
|
|
21,822
|
|
Supplemental Executive Retirement
Agreement(3)
|
|
|
7,923,091
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Unvested
SARs/Options(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Unvested
RSUs(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Perquisites(2)
|
|
|
75,819
|
|
|
|
52,609
|
|
|
|
29,793
|
|
|
|
23,264
|
|
|
|
29,251
|
|
Outplacement
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
280G/4999 Tax Gross
Up(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,684,335
|
|
|
$
|
3,108,246
|
|
|
$
|
1,775,218
|
|
|
$
|
1,588,669
|
|
|
$
|
1,121,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIC Assuming no termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
SARs/Options(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Unvested
RSUs(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Death or Disability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro rata Incentive pay
|
|
$
|
1,193,750
|
|
|
$
|
375,000
|
|
|
$
|
300,000
|
|
|
$
|
240,000
|
|
|
$
|
165,000
|
|
Supplemental Executive Retirement
Agreement(3)
|
|
|
7,923,091
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Severance pay
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Unvested
SARs/Options(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Unvested RSUs pro
rata(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability- Present Value of Health Benefits through age 65
|
|
|
61,797
|
|
|
|
118,922
|
|
|
|
86,591
|
|
|
|
118,804
|
|
|
|
162,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,178,638
|
|
|
$
|
30,148
|
|
|
$
|
386,591
|
|
|
$
|
358,804
|
|
|
$
|
327,458
|
|
Retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
SARs/Options(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Unvested RSUs
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
(1) |
|
This amount represents the aggregate
in-the-money
value of the options, SARs, restricted stock units, and other
equity awards which would become vested as a direct result of
the termination event or Change in Control, as the case may be,
before the applicable stated vesting date, plus the aggregate
value of any performance-based award that would be deemed earned
and vested solely as a direct result of the termination event or
Change in Control, as the case may be, before the stated earning
or vesting date. The stated earning or vesting date is the date
at which an award would have been earned or vested absent such |
116
|
|
|
|
|
termination event or Change in Control, as the case may be. This
calculation of value does not attribute any additional value to
awards based on their remaining term and does not discount the
value of awards based on the portion of the vesting period
elapsed at the date of the termination event or Change in
Control. Represents the
in-the-money
value of SARs. |
|
(2) |
|
Perquisites include financial planning services, company paid
life insurance and participation in the executive health
program, as well as, in the case of Mr. Swanson, club
membership fees. |
|
(3) |
|
In April, 2009, the Company and Mr. Swanson entered into an
amendment to the Supplemental Executive Retirement Agreement.
Additional information regarding this agreement can be found
above under the heading Pension Benefits
Supplemental Retirement Agreement. |
In addition to the incremental value of payments and benefits
under the various termination and Change in Control scenarios
described above, the NEOs would be eligible for certain
additional benefits as follows:
2009 LTIP. Under the 2009 LTIP, if an
NEOs employment is terminated by the NEO for good reason,
by the Company without cause or as a result of the NEOs
death or disability, then the long-term incentive award will be
paid, to the extent earned, to the NEO or the NEOs
beneficiary, as the case may be, as if the NEO had remained
employed with the Company through the applicable payment date.
If an NEO terminates for any other reason, then the long-term
incentive award will be forfeited. As described in the
Compensation Discussion and Analysis above, the
amount of each award under the 2009 LTIP is dependent upon the
attainment of certain performance measures related to the
Companys cumulative free cash flow for the 2009, 2010 and
2011 fiscal years. Because the amount of the long-term incentive
award is not determinable as of December 31, 2009, no
amounts are reported in the preceding table with respect to the
2009 LTIP.
Pension benefits. The Pension Benefits table
above describes the general terms of the RHD PBEP, along with
the years of credited service and the present value of each
NEOs accumulated benefits under such plans as of
December 31, 2009. The table below shows the lump sum
pension benefits payable under the RHD PBEP for each NEO in
office at December 31, 2009 if the NEO had died or
terminated employment as of December 31, 2009.
In addition to the accumulated benefit for Mr. Swanson that
is noted below, he and the Company have also entered into a
Supplemental Agreement which provides for a supplemental
retirement benefit, subject to vesting requirements, in an
amount necessary to cause Mr. Swansons annual
retirement benefit from this benefit and all other company
defined benefit plans to yield a total single life annuity of
$1,000,000 per year if he were to retire at age sixty and all
benefits under all Other Company Plans were paid in a single
life annuity commencing at age sixty. Additional information
regarding the Supplemental Agreement can be found above under
the heading Pension Benefits
Supplemental Executive Retirement Agreement.
|
|
|
|
|
|
|
Accumulated Benefit
|
|
|
at 12/31/2009
|
|
|
Payable to Executive
|
|
|
upon Termination,
|
|
|
Disability or Death
|
|
David Swanson
|
|
$
|
1,612,133
|
|
Steven Blondy
|
|
$
|
275,035
|
|
George Bednarz
|
|
$
|
734,211
|
|
Mark Hianik
|
|
$
|
0
|
|
Sean Greene
|
|
$
|
78,118
|
|
Post-Emergence SAR Grants. As noted in the
Compensation Discussion and Analysis, in connection
with the Companys emergence from bankruptcy, stock
appreciation rights were granted to approximately
205 employees on March 1, 2010, including the NEOs.
The stock appreciation rights vest over a three-year period.
Pursuant to the stock appreciation right agreements, if the
NEOs employment with the company terminates by reason of
death, disability, retirement or the Companys termination
of the NEOs employment other than for cause or the
NEOs resignation from employment for good reason, then the
vesting of the stock appreciation right will be prorated.
Because these awards were granted subsequent to
December 31, 2009, the
117
value of these awards are not reflected in the Incremental
Value of Payments and Benefits Upon
Change-in-Control
(CIC) and Various Types of Terminations table
as of December 31, 2009.
Compensation
Committee Interlocks and Insider Participation
Michael P. Connors (until his resignation as a director in April
2009), Thomas J. Reddin (from his appointment to the
Compensation and Benefits Committee in April 2009), Alan F.
Schultz and Barry Lawson Williams served as members of the
Compensation and Benefits Committee during 2009. No such member
of that Committee is or has been an officer or employee of the
Company and none had interlocking relationships with any other
entities of the type that would be required to be disclosed in
this
Form 10-K.
Director
Compensation
The Compensation and Benefits Committee periodically reviews the
level and balance of our non-employee director compensation with
the input and assistance of its independent compensation
consultant. In the first quarter of 2009, the Prior Committee
conducted a review of the director compensation program with its
independent consultant. As a result of this assessment,
beginning in April, 2009, the prior Board determined to pay each
non-employee director the following compensation:
|
|
|
|
|
Annual cash retainer of $75,000; elimination of both Board and
committee meeting fees.
|
|
|
|
Additional cash retainer of $75,000 to the Lead Director,
$25,000 to the Chair of the Audit and Finance Committee and
$15,000 to each of the Chairs of the Compensation and Benefits
and Corporate Governance Committees.
|
|
|
|
Additional cash retainer of $20,000 to members of the Audit and
Finance Committee and $15,000 to members of the Compensation and
Benefits and Corporate Governance Committees.
|
|
|
|
Additional compensation of $90,000 payable at the end of the
year in stock or cash, at the election of the Board.
|
|
|
|
Reimbursement for reasonable costs and expenses associated with
attendance at Board and Board Committee meetings and other
Company business.
|
As part of the restructuring, the Committee and the new Board of
Directors reviewed the director compensation program and
implemented the following revised non-employee director
compensation program which took effect in February 2010:
|
|
|
|
|
Annual cash retainer of $125,000, payable $50,000 in cash and
$75,000 in Company common stock.
|
|
|
|
Additional cash retainer of $75,000 to the Lead Director,
$25,000 to the Chair of the Audit and Finance Committee and
$15,000 to each of the Chairs of the Compensation and Benefits
and Corporate Governance Committees.
|
|
|
|
Cash meeting fees of $2,000 for each Board and Board Committee
meeting attended.
|
|
|
|
Reimbursement for reasonable costs and expenses associated with
attendance at Board and Board Committee meetings and other
Company business.
|
118
Director
Compensation During 2009
The following table sets forth certain information regarding the
compensation earned by or awarded to each non-employee director
who served on our Board of Directors in 2009. Mr. Swanson,
an employee of ours, is not compensated for his Board service.
Director
Compensation Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
Option/SARS
|
|
|
|
|
Paid in Cash
|
|
Stock Awards
|
|
Awards
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Michael P.
Connors(1)
|
|
|
12,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12,000
|
|
Nancy E.
Cooper(1)
|
|
|
13,400
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13,400
|
|
Robert Kamerschen
|
|
|
248,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
248,000
|
|
Thomas J. Reddin
|
|
|
170,900
|
|
|
|
0
|
|
|
|
0
|
|
|
|
170,900
|
|
Alan F. Schultz
|
|
|
184,650
|
|
|
|
0
|
|
|
|
0
|
|
|
|
184,650
|
|
David M. Veit
|
|
|
174,650
|
|
|
|
0
|
|
|
|
0
|
|
|
|
174,650
|
|
Barry Lawson Williams
|
|
|
181,650
|
|
|
|
0
|
|
|
|
0
|
|
|
|
181,650
|
|
Edwina Woodbury
|
|
|
221,400
|
|
|
|
0
|
|
|
|
0
|
|
|
|
221,400
|
|
Thayer Bigelow
|
|
|
185,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
185,250
|
|
Ron Rittenmeyer
|
|
|
185,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
185,250
|
|
|
|
|
(1) |
|
Ms. Cooper and Mr. Connors retired from Board service in
April 2009. |
There were no grants of deferred shares or stock options to our
non-employee directors in 2009. The following table shows the
aggregate number of stock awards and aggregate number of stock
options outstanding and held by those directors serving as such
at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Held at December 31, 2009
|
|
|
Deferred Stock
|
|
Deferred Stock
|
|
Stock Options
|
|
Stock Options
|
|
|
(unvested)
|
|
(vested)
|
|
(unvested)
|
|
(vested)
|
Name
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
Michael P. Connors
|
|
|
0
|
|
|
|
71,782
|
|
|
|
0
|
|
|
|
0
|
|
Nancy E. Cooper
|
|
|
0
|
|
|
|
7,500
|
|
|
|
0
|
|
|
|
0
|
|
Robert Kamerschen
|
|
|
1,500
|
|
|
|
68,712
|
|
|
|
1,500
|
|
|
|
13,862
|
|
Thomas J. Reddin
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
1,500
|
|
Alan F. Schultz
|
|
|
1,500
|
|
|
|
4,500
|
|
|
|
1,500
|
|
|
|
4,500
|
|
David M. Veit
|
|
|
1,500
|
|
|
|
9,000
|
|
|
|
1,500
|
|
|
|
9,000
|
|
Barry Lawson Williams
|
|
|
1,500
|
|
|
|
15,737
|
|
|
|
1,500
|
|
|
|
21,102
|
|
Edwina Woodbury
|
|
|
1,500
|
|
|
|
6,000
|
|
|
|
1,500
|
|
|
|
6,000
|
|
Thayer Bigelow
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Ron Rittenmeyer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
|
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of the
Companys common stock beneficially owned as of
March 1, 2010 by (i) each of the current NEOs,
(ii) each of the Companys current directors,
(iii) all current directors and executive officers of the
Company as a group and (iv) owners of more than 5% of the
outstanding shares of the Companys common stock. Except as
indicated in the footnotes to the table, the Company believes
that the persons named in the table have sole voting and
investment power with respect to
119
all shares owned beneficially by them. The mailing address for
each of the Companys current directors and NEOs listed
below is 1001 Winstead Drive, Cary, North Carolina 27513.
|
|
|
|
|
|
|
|
|
|
|
Shares of the Companys
|
|
|
|
Common Stock
|
|
|
|
Amount Beneficially
|
|
|
Percentage
|
|
Beneficial Owners
|
|
Owned(1)
|
|
|
of
Class(1)
|
|
|
David C. Swanson
|
|
|
|
|
|
|
|
|
Steven M. Blondy
|
|
|
|
|
|
|
|
|
George F. Bednarz
|
|
|
|
|
|
|
|
|
Jonathan B. Bulkeley
|
|
|
2,615
|
|
|
|
*
|
|
Eugene I. Davis
|
|
|
2,615
|
|
|
|
*
|
|
Sean W. Greene
|
|
|
|
|
|
|
|
|
Mark W. Hianik
|
|
|
|
|
|
|
|
|
Richard L. Kuersteiner
|
|
|
2,615
|
|
|
|
*
|
|
W. Kirk Liddell
|
|
|
2,615
|
|
|
|
*
|
|
Mark A. McEachen
|
|
|
2,615
|
|
|
|
*
|
|
Alan F. Schultz
|
|
|
2,615
|
|
|
|
*
|
|
All Current Directors and Executive Officers as a Group
(16 persons)
|
|
|
15,690
|
|
|
|
*
|
|
Franklin Resources, Inc.
|
|
|
15,264,757
|
(2)
|
|
|
30.5
|
%
|
One Franklin Parkway
San Mateo, CA
94403-1906
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents ownership of less than 1%. |
|
(1) |
|
The amounts and percentage of the Companys common stock
beneficially owned are reported on the basis of rules and
regulations of the SEC governing the determination of beneficial
ownership of securities. Under such rules and regulations, a
person is deemed to be a beneficial owner of a
security if that person has or shares voting power,
which includes the power to vote or to direct the voting of such
security, or investment power, which includes the
power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of
any securities which that person has a right to acquire
beneficial ownership of within 60 days. Under these rules
and regulations, more than one person may be deemed a beneficial
owner of the same securities and a person may be deemed to be a
beneficial owner of securities in which he has no economic
interest. As of March 1, 2010, the Company had
50,015,691 shares of common stock outstanding. |
|
(2) |
|
Franklin Resources, Inc. (FRI) filed a
Schedule 13D with the SEC on February 8, 2010
reporting that one or more open- or closed-end investment
companies or other managed accounts that are clients of
investment managers that are direct and indirect subsidiaries
(collectively, the Investment Management
Subsidiaries) of FRI beneficially owned
15,264,757 shares of the Companys common stock as of
January 29, 2010. The number of shares of the
Companys common stock as to which each reporting person on
this Schedule 13D and other Investment Management
Subsidiaries has sole power to vote or to direct the vote of the
Companys common stock is as follows: Franklin Resources,
Inc: 0; Charles B. Johnson: 0; Rupert H. Johnson, Jr.: 0;
Franklin Advisers, Inc.: 15,110,290; Franklin Templeton
Investments Australia Limited: 2,219; Franklin Templeton
Investments Corp.: 3,255; Franklin Templeton Investment
Management Limited: 6,144; and Templeton Global Advisors
Limited: 20,282. The number of shares of the Companys
common stock as to which each reporting person on this
Schedule 13D and other Investment Management Subsidiaries
has sole power to dispose or to direct the disposition of the
Companys common stock is as follows: Franklin Resources,
Inc: 0; Charles B. Johnson: 0; Rupert H. Johnson, Jr.: 0;
Franklin Advisers, Inc.: 15,232,857; Franklin Templeton
Investments Australia Limited: 2,219; Franklin Templeton
Investments Corp.: 3,255; Franklin Templeton Investment
Management Limited: 6,144; and Templeton Global Advisors
Limited: 20,282 |
120
Additional information in response to this Item is incorporated
herein by reference to Part II, Item 5 of this Annual
Report under the heading Equity Compensation Plan
Information.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
|
Review,
Approval or Ratification of Transactions with Related
Persons
We or one of our subsidiaries may occasionally enter into
transactions with certain related persons. Related
persons include our executive officers, directors, nominees for
directors, 5% or more beneficial owners of our common stock and
immediate family members of these persons. We refer to
transactions involving amounts in excess of $120,000 and in
which the related person has a direct or indirect material
interest as related person transactions. Each
related person transaction must be approved or ratified in
accordance with the Companys written Related Person
Transactions Policy by either the Audit and Finance Committee or
the Corporate Governance Committee of the Board of Directors.
The reviewing committee considers all relevant factors when
determining whether to approve a related person transaction
including, without limitation, the following:
|
|
|
|
|
the size of the transaction and the amount payable to a related
person;
|
|
|
|
the nature of the interest of the related person in the
transaction;
|
|
|
|
whether the transaction was undertaken in the ordinary course of
business; and
|
|
|
|
whether the transaction involves the provision of goods or
services to the Company that are available from unrelated third
parties and, if so, whether the transaction is on terms and made
under circumstances that are at least as favorable to the
Company as would be available in comparable transactions with or
involving unrelated third parties.
|
The Companys Related Person Transactions Policy is
available through the Investor Relations, Corporate
Governance portion of the Companys website,
www.dexone.com.
Director
Independence
The Board of Directors has unanimously determined that Jonathan
B. Bulkeley, Eugene I. Davis, Richard L. Kuersteiner, W. Kirk
Liddell, Mark A. McEachen and Alan F. Schultz neither are
affiliated persons of the Company nor do they have any material
relationship with the Company, and therefore qualify as
independent directors within the meaning of all applicable laws
and regulations, including the independence standards of the New
York Stock Exchange. As a result, independent directors
constitute a majority of the Companys Board of Directors.
In addition, all members of all Committees qualify as
independent within the meaning of all applicable laws and
regulations, including the independence standards of the New
York Stock Exchange.
In making these independence determinations, the Board
considered all of the automatic bars to independence specified
in the respective independence standards of the SEC and the New
York Stock Exchange and definitively determined that none of
those conditions existed. In addition, the Board considered
whether any material relationship beyond the automatic bars
existed between the Company
and/or its
management
and/or any
of their respective affiliates or family members, on the one
hand, and each director or any family member of such director or
any entity with which such director or family member of such
director was employed or otherwise affiliated, on the other
hand. For those directors for whom the Board determined there
was a relationship, the Board then considered whether or not the
relationship was material or did in fact, or could reasonably be
expected to, compromise such directors independence from
management. The Board definitively determined for those
directors identified as independent above that either no such
relationship existed at all or that any relationship that
existed was not material
and/or did
not so compromise such directors independence from
management.
121
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
Generally, the Audit and Finance Committee approves each year
the specific types and estimated amounts of all audit and
non-audit services that are contemplated to be performed by any
independent registered public accounting firm during that
calendar year, before any such work commences. The Chairman of
the Audit and Finance Committee may approve other services not
prohibited by applicable law or regulation and not previously
approved by the Audit and Finance Committee up to $250,000 at
any one time. The Chairman may also approve services previously
approved by the Audit and Finance Committee at amounts up to
$250,000 higher than previously approved by the Audit and
Finance Committee. In either case, the Chairman will report
their approval of such additional services
and/or
amounts to the Audit and Finance Committee at its next scheduled
meeting or at a special meeting which may be called in the
absolute discretion of the Chairman, and such amounts are
subject to Committee ratification. The Chairman may also defer
to the Audit and Finance Committee with respect to any such
additional services or amounts. The Chairman
and/or the
Audit and Finance Committee is authorized to approve such
additional non-audit services without limit after they determine
that such services will not impair the independence of the
independent registered public accounting firm.
Aggregate fees for professional services rendered to the Company
by KPMG for the years ended December 31, 2009 and 2008 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Audit Fees
|
|
$
|
2,329,725
|
|
|
$
|
3,349,883
|
|
Audit-Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
882,108
|
|
|
|
|
|
All Other Fees
|
|
|
156,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,368,279
|
|
|
$
|
3,349,883
|
|
|
|
|
|
|
|
|
|
|
Audit Fees. Audit fees for the years ended
December 31, 2009 and 2008 were for professional services
rendered by KPMG for the audits of the consolidated financial
statements of the Company, including the audit of internal
control over financial reporting under Section 404 of the
Sarbanes-Oxley Act, reviews of the financial statements included
in the Companys Quarterly Reports on
Form 10-Q,
comfort letters, consents and review of other documents filed
with the SEC.
Audit-Related Fees. There were no
audit-related fees billed by KPMG for the years ended
December 31, 2009 and 2008.
Tax Fees. Tax fees billed for the year ended
December 31, 2009 were for services rendered by KPMG in
connection with general tax compliance, tax planning and tax
advice. There were no tax fees billed by KPMG for the year ended
December 31, 2008.
All Other Fees. Other fees for the year ended
December 31, 2009 were for services rendered by KPMG
associated with the Companys process improvement
initiatives, fresh start accounting and administrative fees.
There were no fees billed by KPMG for the year ended
December 31, 2008 for any other products and services
offered by KPMG.
Substantially all of the tax and other services (and in most
cases, the related fees) disclosed above were approved by the
Committee prior to material substantive work having been
performed.
The Audit and Finance Committee engaged the services of Anton
Collin Mitchell (ACM) for audits of the
Companys employee benefit plans in 2009 and 2008. Fees
paid to ACM for the Companys employee benefit plan audits
totaled $127,000 in 2009 and $167,000 in 2008.
122
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES.
|
(a)(1)
and (2) List of financial statements and financial
statement schedules
The following consolidated financial statements of the Company
are included under Item 8:
|
|
|
|
|
Managements Report on Internal Control Over Financial
Reporting
|
|
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
|
|
Consolidated Balance Sheets at December 31, 2009 and 2008
|
|
|
|
|
Consolidated Statements of Operations and Comprehensive Income
(Loss) for each of the years in the three year period ended
December 31, 2009
|
|
|
|
|
Consolidated Statements of Cash Flows for each of the years in
the three year period ended December 31, 2009
|
|
|
|
|
Consolidated Statements of Changes in Shareholders Equity
(Deficit) for each of the years in the three year period ended
December 31, 2009
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
|
|
Financial statement schedules for the Company have not been
prepared because the required information has been included in
the Companys consolidated financial statements included in
Item 8 of this Annual Report.
123
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
2
|
.1
|
|
Joint Plan of Reorganization, as confirmed by the Bankruptcy
Court on January 12, 2010. (incorporated by reference to
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
January 15, 2010, Commission File
No. 001-07155).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
3
|
.2
|
|
Sixth Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3.2 to the Companys Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
4
|
.1
|
|
Indenture, dated as of January 29, 2010, between the
Company and The Bank of New York Mellon, as Trustee, with
respect to the Companys 12%/14% Senior Subordinated
Notes due 2017 (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
4
|
.2
|
|
Form of 12%/14% Senior Subordinated Notes due 2017
(attached as Exhibit A to Exhibit 4.1).
|
|
4
|
.3
|
|
Registration Rights Agreement, dated as of January 29,
2010, among the Company and Franklin Advisers, Inc. and certain
of its affiliates (incorporated by reference to Exhibit 4.3
to the Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
10
|
.1
|
|
Non-Competition Agreement, dated as of January 3, 2003, by
and among the Company, R.H. Donnelley Publishing &
Advertising, Inc. (f/k/a Sprint Publishing &
Advertising, Inc.), CenDon, L.L.C., R.H. Donnelley Directory
Company (f/k/a Centel Directory Company), Sprint Corporation and
the Sprint Local Telecommunications Division (incorporated by
reference to Exhibit 10.4 to the Companys Current
Report on
Form 8-K,
filed with the Securities and Exchange Commission on
January 17, 2003, Commission File
No. 001-07155).
|
|
10
|
.2
|
|
Letter from Sprint Nextel Corporation, dated as of May 16,
2006, acknowledging certain matters with respect to the
Non-Competition Agreement described above as Exhibit 10.1
(incorporated by reference to Exhibit 10.12 to the
Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
May 19, 2006, Commission File
No. 001-07155).
|
|
10
|
.3
|
|
Directory Services License Agreement, dated as of May 16,
2006, by and among R.H. Donnelley Publishing &
Advertising, Inc., CenDon, L.L.C., R.H. Donnelley Directory
Company, Embarq Corporation, Embarq Directory Trademark Company,
LLC and certain subsidiaries of Embarq Corporation formerly
constituting Sprint Local Telecommunications Division
(incorporated by reference to Exhibit 10.6 to the
Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
May 19, 2006).
|
|
10
|
.4
|
|
Trademark License Agreement, dated as of May 16, 2006, by
and among R.H. Donnelley Publishing & Advertising,
Inc., R.H. Donnelley Directory Company and Embarq Directory
Trademark Company, LLC (incorporated by reference to
Exhibit 10.7 to the Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
May 19, 2006).
|
|
10
|
.5
|
|
Publisher Trademark License Agreement, dated as of May 16,
2006, by and among R.H. Donnelley Publishing &
Advertising, Inc., CenDon, L.L.C., R.H. Donnelley Directory
Company and Embarq Corporation (incorporated by reference to
Exhibit 10.8 to the Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
May 19, 2006).
|
|
10
|
.6
|
|
Non-Competition Agreement, dated as of May 16, 2006, by and
among the Company, R.H. Donnelley Publishing &
Advertising, Inc., CenDon, L.L.C., R.H. Donnelley Directory
Company, Embarq Corporation and certain subsidiaries of Embarq
Corporation formerly constituting Sprint Local
Telecommunications Division (incorporated by reference to
Exhibit 10.9 to the Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
May 19, 2006).
|
|
10
|
.7
|
|
Subscriber Listings Agreement, dated as of May 16, 2006, by
and among R.H. Donnelley Publishing & Advertising,
Inc., CenDon, L.L.C., R.H. Donnelley Directory Company, Embarq
Corporation and certain subsidiaries of Embarq Corporation
formerly constituting Sprint Local Telecommunications Division
(incorporated by reference to Exhibit 10.10 to the
Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
May 19, 2006).
|
124
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.8
|
|
Standstill Agreement, dated as of May 16, 2006, by and
between R.H. Donnelley Publishing & Advertising, Inc.
and Embarq Corporation (incorporated by reference to
Exhibit 10.11 to the Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
May 19, 2006).
|
|
10
|
.9
|
|
Directory Services License Agreement, dated as of
September 1, 2004, among the Company, R.H. Donnelley
Publishing & Advertising of Illinois Partnership
(f/k/a The APIL Partners Partnership), DonTech II
Partnership, Ameritech Corporation, SBC Directory Operations,
Inc. and SBC Knowledge Ventures, L.P. (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
September 3, 2004, Commission File
No. 001-07155).
|
|
10
|
.10
|
|
Non-Competition Agreement, dated as of September 1, 2004,
by and between the Company and SBC Communications Inc.
(incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
September 3, 2004, Commission File
No. 001-07155).
|
|
10
|
.11
|
|
Ameritech Directory Publishing Listing License Agreement, dated
as of September 1, 2004, among R.H. Donnelley
Publishing & Advertising of Illinois Partnership
(f/k/a The APIL Partners Partnership), DonTech II
Partnership and Ameritech Services Inc. (incorporated by
reference to Exhibit 10.4 to the Companys Current
Report on
Form 8-K,
filed with the Securities and Exchange Commission on
September 3, 2004, Commission File
No. 001-07155).
|
|
10
|
.12
|
|
Publishing Agreement, dated November 8, 2002, as amended,
by and among Dex Holding LLC., Dex Media East LLC (f/k/a SGN
LLC), Dex Media West LLC (f/k/a/GPP LLC) and Qwest
Corporation (incorporated by reference to Exhibit 10.19 to
Dex Media, Inc.s Registration Statement on
Form S-4,
filed with the Securities and Exchange Commission on
April 14, 2004, Commission File
No. 333-114472).
|
|
10
|
.13
|
|
Amended and Restated Agreement for the Provision of Billing and
Collection Services for Directory Publishing Services, dated
September 1, 2003, by and between Qwest Corporation and Dex
Media East LLC (f/k/a SGN LLC) (incorporated by reference to
Exhibit 10.8 to Dex Media, Inc.s Registration
Statement on
Form S-4,
filed with the Securities and Exchange Commission on
April 14, 2004, Commission File
No. 333-114472).
This Agreement is no longer in effect.
|
|
10
|
.14
|
|
Agreement for the Provision of Billing and Collection Services
for Directory Publishing Services, dated as of September 1,
2003, by and between Qwest Corporation and Dex Media West LLC
(f/k/a GPP LLC) (incorporated by reference to Exhibit 10.9
to Dex Media, Inc.s Registration Statement on
Form S-4,
filed with the Securities and Exchange Commission on
April 14, 2004, Commission File
No. 333-114472).
This Agreement is no longer in effect.
|
|
10
|
.15
|
|
Non-Competition and Non-Solicitation Agreement, dated
November 8, 2002, by and between Dex Media East LLC (f/k/a
SGN LLC), Dex Media West LLC (f/k/a GPP LLC), Dex Holdings LLC
and Qwest Corporation, Qwest Communications International Inc.
and Qwest Dex, Inc. (incorporated by reference to
Exhibit 10.10 to Dex Media, Inc.s Registration
Statement on
Form S-4,
filed with the Securities and Exchange Commission on
April 14, 2004, Commission File
No. 333-114472).
|
|
10
|
.16
|
|
Third Amended and Restated Credit Agreement, dated as of
January 29, 2010, by and among the Company, R.H. Donnelley
Inc., as borrower, the lenders parties thereto and Deutsche Bank
Trust Company Americas, as administrative agent and as
collateral agent (incorporated by reference to Exhibit 10.1
to the Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
10
|
.17
|
|
Credit Agreement, dated as of June 6, 2008, as amended and
restated as of January 29, 2010, by and among the Company,
Dex Media, Inc., Dex Media West, Inc., Dex Media West LLC, as
borrower, the lenders parties thereto and JPMorgan Chase Bank,
N.A., as administrative agent and as collateral agent
(incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
125
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.18
|
|
Credit Agreement, dated as of October 24, 2007, as amended
and restated as of January 29, 2010, by and among the
Company, Dex Media, Inc., Dex Media East, Inc., Dex Media East
LLC, as borrower, the lenders parties thereto and JPMorgan Chase
Bank, N.A., as administrative agent and as collateral agent
(incorporated by reference to Exhibit 10.3 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
10
|
.19ˆ*
|
|
Board of Director Compensation Program (as approved on
February 22, 2010).
|
|
10
|
.20ˆ
|
|
Pension Benefit Equalization Plan (incorporated by reference to
Exhibit 99.1 to the Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
October 29, 2007, Commission File
No. 001-07155).
|
|
10
|
.21ˆ
|
|
Dex One Corporation Restoration Plan, effective as of
January 1, 2009 (incorporated by reference to
Exhibit 10.40 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008 filed with the
Securities and Exchange Commission on March 27, 2009,
Commission File
No. 001-07155).
|
|
10
|
.22ˆ
|
|
R.H. Donnelley Corporation 2005 Stock Award and Incentive Plan
As Amended and Restated as of December 31, 2008
(incorporated by reference to Exhibit 10.3 to the
Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
January 7, 2009, Commission File
No. 001-07155).
|
|
10
|
.23ˆ
|
|
Dex One Corporation 2009 Long-Term Incentive Program for
Executive Officers (as adopted and effective as of March 9,
2009 (incorporated by reference to Exhibit 10.3 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
January 7, 2009, Commission File
No. 001-07155).
|
|
10
|
.24ˆ
|
|
Dex One Corporation Equity Incentive Plan adopted and effective
as of January 29, 2010 (incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
10
|
.25ˆ*
|
|
Form of Stock Appreciation Rights Agreement for Executive
Officers who are Senior Vice Presidents and Above for the March
2010 SAR Awards.
|
|
10
|
.26ˆ*
|
|
Form of Stock Appreciation Right Agreement for Employees other
than Executive Officers who are Senior Vice Presidents and Above
for the March 2010 SAR Awards.
|
|
10
|
.27ˆ
|
|
Amended and Restated Employment Agreement, dated as of
December 31, 2008, by and between the Company and David C.
Swanson (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
January 7, 2009, Commission File
No. 001-07155).
|
|
10
|
.28ˆ
|
|
Amendment No. 1 to Employment Agreement, dated as of
March 9, 2009, between the Company and David C. Swanson
(incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009 filed with the
Securities and Exchange Commission on May 5, 2009,
Commission File
No. 001-07155).
|
|
10
|
.29ˆ
|
|
Amendment, dated as of January 29, 2010 to Amended and
Restated Employment Agreement, effective as of December 31,
2008, between the Company and David C. Swanson (incorporated by
reference to Exhibit 10.5 to the Companys Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
10
|
.30ˆ
|
|
Amended and Restated Employment Agreement, dated as of
December 31, 2008, by and between the Company and Steven M.
Blondy (incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
January 7, 2009, Commission File
No. 001-07155).
|
|
10
|
.31ˆ
|
|
Amendment No. 1 to Employment Agreement, dated as of
March 9, 2009, between the Company and Steven M. Blondy
(incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009 filed with the
Securities and Exchange Commission on May 5, 2009,
Commission File
No. 001-07155).
|
126
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.32ˆ
|
|
Amendment, dated as of January 29, 2010 to Amended and
Restated Employment Agreement, effective as of December 31,
2008, between the Company and Steven M. Blondy (incorporated by
reference to Exhibit 10.6 to the Companys Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
10
|
.33ˆ
|
|
Employment Agreement, dated as of November 8, 2002 by and
between Maggie Le Beau and Dex Media, Inc. (incorporated by
reference to Exhibit 10.23 to Dex Media, Inc.s
Registration Statement on
Form S-4
filed with the Securities and Exchange Commission on
April 14, 2004, Commission File
No. 333-114472).
|
|
10
|
.34ˆ
|
|
Amendment, dated as of January 29, 2010 to Employment
Agreement, effective as of November 8, 2002, between the
Company and Margaret Le Beau (incorporated by reference to
Exhibit 10.7 to the Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
10
|
.35ˆ
|
|
R.H. Donnelley Corporation Severance Plan Senior
Vice President, effective as amended March 9, 2009
(incorporated by reference to Exhibit 10.41 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2008 filed with the
Securities and Exchange Commission on March 27, 2009,
Commission File
No. 001-07155).
|
|
10
|
.36ˆ
|
|
Amendment, dated as of January 29, 2010, to the
Companys Severance Plan Senior Vice President
(incorporated by reference to Exhibit 10.8 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
10
|
.37ˆ
|
|
Supplemental Executive Retirement Agreement, effective as of
December 31, 2008, by and between the Company and David C.
Swanson (incorporated by reference to Exhibit 10.6 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
January 7, 2009, Commission File
No. 001-07155).
|
|
10
|
.38ˆ
|
|
Amendment, dated as of April 21, 2009, to the Supplemental
Executive Retirement Agreement between the Company and David C.
Swanson, effective as of December 31, 2008 (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2009 filed with the
Securities and Exchange Commission on August 4, 2009,
Commission File
No. 001-07155).
|
|
10
|
.39ˆ
|
|
Form of Indemnification Agreement for Directors of the Company
(incorporated by reference to Exhibit 10.9 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 4, 2010, Commission File
No. 001-07155).
|
|
21
|
.1*
|
|
Subsidiaries of the Registrant.
|
|
31
|
.1*
|
|
Certification of Annual Report on
Form 10-K
for the period ended December 31, 2009 by David C. Swanson,
Chairman and Chief Executive Officer of the Company under
Section 302 of the Sarbanes-Oxley Act.
|
|
31
|
.2*
|
|
Certification of Annual Report on
Form 10-K
for the period ended December 31, 2009 by Steven M. Blondy,
Executive Vice President and Chief Financial Officer of the
Company under Section 302 of the Sarbanes-Oxley Act.
|
|
32
|
.1*
|
|
Certification of Annual Report on
Form 10-K
for the period ended December 31, 2009 under
Section 906 of the Sarbanes-Oxley Act by David C. Swanson,
Chairman and Chief Executive Officer, and Steven M. Blondy,
Executive Vice President and Chief Financial Officer, for the
Company.
|
|
99
|
.1
|
|
Order Confirming Joint Plan of Reorganization, as entered by the
Bankruptcy Court on January 12, 2010 (incorporated by
reference to Exhibit 99.1 to the Companys Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
January 15, 2010, Commission File
No. 001-07155).
|
|
|
|
* |
|
Filed herewith. |
|
|
|
Management contract or compensatory plan. |
127
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report on
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 12th day of March 2010.
Dex One Corporation
David C. Swanson,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been duly signed by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ David
C. Swanson
(David C. Swanson)
|
|
Chairman of the Board and Chief Executive Officer (Principal
Executive Officer)
|
|
March 12, 2010
|
|
|
|
|
|
/s/ Steven
M. Blondy
(Steven
M. Blondy)
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
March 12, 2010
|
|
|
|
|
|
/s/ Sylvester
J. Johnson
(Sylvester
J. Johnson)
|
|
Vice President Corporate Controller
and Chief Accounting Officer (Principal Accounting Officer)
|
|
March 12, 2010
|
|
|
|
|
|
/s/ Jonathan
B. Bulkeley
Jonathan
B. Bulkeley
|
|
Director
|
|
March 12, 2010
|
|
|
|
|
|
/s/ Eugene
I. Davis
(Eugene
I. Davis)
|
|
Director
|
|
March 12, 2010
|
|
|
|
|
|
/s/ W.
Kirk Liddell
W.
Kirk Liddell
|
|
Director
|
|
March 12, 2010
|
|
|
|
|
|
/s/ Richard
L. Kuersteiner
Richard
L. Kuersteiner
|
|
Director
|
|
March 12, 2010
|
|
|
|
|
|
/s/ Mark
A. McEachen
Mark
A. McEachen
|
|
Director
|
|
March 12, 2010
|
|
|
|
|
|
/s/ Alan
F. Schultz
Alan
F. Schultz
|
|
Director
|
|
March 12, 2010
|
128
Exhibit Index
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.19ˆ*
|
|
Board of Director Compensation Program (as approved on
February 22, 2010).
|
|
10
|
.25ˆ*
|
|
Form of Stock Appreciation Rights Agreement for Executive
Officers who are Senior Vice Presidents and Above for the March
2010 SAR Awards.
|
|
10
|
.26ˆ*
|
|
Form of Stock Appreciation Right Agreement for Employees other
than Executive Officers who are Senior Vice Presidents and Above
for the March 2010 SAR Awards.
|
|
21
|
.1*
|
|
Subsidiaries of the Registrant
|
|
31
|
.1*
|
|
Certification of Annual Report on
Form 10-K
for the period ended December 31, 2009 by David C. Swanson,
Chairman and Chief Executive Officer of Dex One Corporation
under Section 302 of the Sarbanes-Oxley Act
|
|
31
|
.2*
|
|
Certification of Annual Report on
Form 10-K
for the period ended December 31, 2009 by Steven M. Blondy,
Executive Vice President and Chief Financial Officer of Dex One
Corporation under Section 302 of the Sarbanes-Oxley Act
|
|
32
|
.1*
|
|
Certification of Annual Report on
Form 10-K
for the period ended December 31, 2009 under
Section 906 of the Sarbanes-Oxley Act by David C. Swanson,
Chairman and Chief Executive Officer, and Steven M. Blondy,
Executive Vice President and Chief Financial Officer, for Dex
One Corporation
|
|
|
|
* |
|
Filed herewith |
|
ˆ |
|
Management contract or compensatory plan. |
129