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TheStreet Open House

Dex One Delivers Solid First Quarter Financial Results

Stocks in this article: DEXO

(See attached schedules and related footnotes)

DEX ONE CORPORATION Schedule 1

INDEX OF SCHEDULES

     
 
Schedule 1: Index of Schedules
 
Schedule 2: Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011
 
 
Schedule 3: Unaudited Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011
 
`
Schedule 4: Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011
 
 
Schedule 5: Reconciliation of Non-GAAP Measures
 
Schedule 6: Statistical Measures - Advertising Sales and Bookings
 
Schedule 7: Notes to Unaudited Condensed Consolidated Financial Statements
and Non-GAAP Measures
                       
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.  

DEX ONE CORPORATION    

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Schedule 2
 
Amounts in millions, except earnings per share
       
Three Months Ended
March 31,
  2012   2011
Net revenue (1) $ 344.4 $ 391.2
Expenses 196.0 217.2
Depreciation and amortization (2)   103.7       54.1  
Operating income 44.7 119.9
Gain on Debt Repurchases, net (3) 68.8 -
Gain on sale of assets, net (4) - 13.4
Interest expense, net   (57.1 )     (57.7 )
Income before income taxes 56.4 75.6
Tax (provision) benefit   1.2       (20.2 )
Net income $ 57.6     $ 55.4  
 
Earnings per share (EPS):
Basic $ 1.15 $ 1.11
Diluted $ 1.15 $ 1.11
Shares used in computing EPS:
Basic 50.3 50.0
Diluted   50.3       50.0  
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
 
         
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.    

DEX ONE CORPORATION   Schedule 3

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 
Amounts in millions    
March 31, 2012 December 31, 2011
Assets
Cash and cash equivalents $ 115.2 $ 257.9
Accounts receivable, net 549.1 605.7
Deferred directory costs 120.0 130.8
Short term deferred income taxes, net 68.9 67.8
Other current assets   43.5   51.4  
Total current assets 896.7 1,113.6
 
Fixed assets and computer software, net 140.3 151.5
Intangible assets, net (2) 2,094.7 2,182.1
Other non-current assets   15.0   13.0  
Total Assets $ 3,146.7 $ 3,460.2  
 
Liabilities and Shareholders' Equity (Deficit)
Accounts payable and accrued liabilities $ 89.9 $ 126.2
Accrued interest 26.1 29.2
Deferred directory revenue 588.3 644.1
Current portion of long-term debt (5)   223.3   326.3  
Total current liabilities 927.6 1,125.8
 
Long-term debt (5) 2,020.7 2,184.1
Deferred income taxes, net 73.9 75.5
Other non-current liabilities   75.6   84.7  
Total liabilities 3,097.8 3,470.1
 
Shareholders’ equity (deficit)   48.9   (9.9 )
 
Total Liabilities and Shareholders' Equity (Deficit) $ 3,146.7 $ 3,460.2  
     
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
       
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

DEX ONE CORPORATION      

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Schedule 4
 
 
Amounts in millions      
Three Months Ended
March 31,
    2012   2011
Net cash provided by operating activities $ 78.1 $ 109.5
 
Investment activities:
Additions to fixed assets and computer software (5.0 ) (4.9 )
Proceeds from sale of assets   -       15.4  
Net cash (used in) provided by investing activities (5.0 ) 10.5
 
Financing activities:
Credit facilities repayments (213.7 ) (94.9 )
Debt issuance costs and other financing items, net (2.0 ) 0.3
Decrease in checks not yet presented for payment (0.1 ) (16.7 )
     
Net cash used in financing activities (215.8 ) (111.3 )
 
Increase (decrease) in cash and cash equivalents (142.7 ) 8.7
Cash and cash equivalents, beginning of period   257.9       127.9  
Cash and cash equivalents, end of period $ 115.2     $ 136.6  
 
Non-cash financing activities:
Reduction of debt from Debt Repurchases (3) $ (72.6 ) $ -
         
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
           
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

DEX ONE CORPORATION  
RECONCILIATION OF NON-GAAP MEASURES Schedule 5a
 
(unaudited)
 
EBITDA and Adjusted EBITDA are not measurements of operating performance computed in accordance with GAAP and should not be considered as a substitute for net income prepared in conformity with GAAP. In addition, EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Management believes that these non-GAAP financial measures are important indicators of our operations because they exclude items that may not be indicative of, or related to, our core operating results, and provide a better baseline for analyzing our underlying business. Adjusted EBITDA for the three months ended March 31, 2012 is determined by adjusting EBITDA for (i) gain on Debt Repurchases, net and (ii) stock-based compensation expense and long-term incentive program. Adjusted EBITDA for the three months ended March 31, 2011 is determined by adjusting EBITDA for (i) gain on sale of assets, net and (ii) stock-based compensation expense and long-term incentive program.
 
Amounts in millions
     
Three Months Ended
March 31,
Reconciliation of net income - GAAP to EBITDA and Adjusted EBITDA 2012 2011
 
Net income - GAAP $ 57.6 $ 55.4
Plus (less): tax provision (benefit) (1.2 ) 20.2
Plus: interest expense, net 57.1 57.7
Plus: depreciation and amortization   103.7     54.1  
EBITDA $ 217.2   $ 187.4  
 
Less: Gain on Debt Repurchases, net (3) (68.8 ) -
 
Less: Gain on sale of assets, net (4) - (13.4 )
 
Plus: Stock-based compensation expense and long-term incentive program 1.4 1.4
   
Adjusted EBITDA $ 149.8   $ 175.4  
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
     
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

DEX ONE CORPORATION  
RECONCILIATION OF NON-GAAP MEASURES (cont'd) Schedule 5b
(unaudited)
 
Free cash flow is not a measurement of operating performance computed in accordance with GAAP and should not be considered as a substitute for cash flow from operations prepared in conformity with GAAP. In addition, Free cash flow may not be comparable to a similarly titled measure of other companies. Management believes that this cash flow measure provides investors and stockholders with a relevant measure of liquidity and a useful basis for assessing the Company's ability to fund its activities and obligations.
 
Amounts in millions
     
Three Months Ended

 

March 31,
Reconciliation of cash flow from operations - GAAP to free cash flow 2012 2011
 
Cash flow from operations - GAAP $ 78.1 $ 109.5
Less: Additions to fixed assets and computer software - GAAP   (5.0 )   (4.9 )
Free cash flow $ 73.1   $ 104.6  
 
     
Reconciliation of debt - GAAP to net debt and net debt - eliminating fair value discount (5) (6) March 31, 2012 December 31, 2011
Debt - GAAP $ 2,244.0 $ 2,510.4
Less: Cash and cash equivalents   (115.2 )   (257.9 )
Net debt 2,128.8 2,252.5
Fair value discount   53.7     63.2  
Net debt - eliminating fair value discount $ 2,182.5   $ 2,315.7  
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
 
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

DEX ONE CORPORATION  

RECONCILIATION OF NON-GAAP MEASURES (cont'd)

Schedule 5c
(unaudited)
 
Amounts in millions
     
Full Year 2012
Reconciliation of adjusted EBITDA outlook to operating income - GAAP outlook   Outlook
 
Adjusted EBITDA outlook $ 540
Less: depreciation and amortization   (410 )
Adjusted operating income outlook 130
Less: Stock-based compensation expense and long-term incentive program   (10 )
Operating income - GAAP outlook   $ 120  
 
     
Full Year 2012
Reconciliation of adjusted free cash flow outlook to cash flow from operations outlook - GAAP   Outlook
 
Adjusted free cash flow outlook $ 340
Plus: Additions to fixed assets and computer software   20  
Cash flow from operations outlook - GAAP   $ 360  

DEX ONE CORPORATION
STATISTICAL MEASURES

CALCULATION OF ADVERTISING SALES AND BOOKINGS PERCENTAGE CHANGE OVER PRIOR YEAR PERIODS

  Schedule 6
(unaudited)      
 
 
Amounts in millions, except percentages        
Three Months Ended Three Months Ended Three Months Ended Three Months Ended
Advertising Sales (7) March 31, 2012 December 31, 2011 September 30, 2011 June 30, 2011
 
Advertising Sales $ 296 387 269 369
       
Net advertising sales percentage change over prior year periods   (16 %)   (13 %)   (14 %)   (15 %)
         
Three Months Ended Three Months Ended Three Months Ended Three Months Ended
Bookings (7) March 31, 2012 December 31, 2011 September 30, 2011 June 30, 2011
 
Gross Bookings:
 
Gross print bookings $ 237 $ 253 $ 257 $ 271
 
Gross digital bookings   67     60     57     45  
 
Total Gross Bookings $ 304 $ 313 $ 314 $ 316
 
Gross bookings percentage change over prior year periods:
 
Gross print bookings percentage change (21 %) (18 %) (22 %) (21 %)
 
Gross digital bookings percentage change   32 %   34 %   29 %   7 %
 
Total gross bookings percentage change over prior year periods   (13 %)   (11 %)   (16 %)   (18 %)
 
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
 
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

DEX ONE CORPORATION Schedule 7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NON-GAAP MEASURES
 
(1)

Our advertising revenues are earned primarily from the sale of advertising in yellow pages directories we publish. Advertising revenues also include revenues from our Internet-based marketing solutions 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 marketing solutions, 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 marketing solutions that are sold with print advertising are recognized under the deferral and amortization method whereby revenues are initially deferred when a directory is published, net of sales claims and allowances, and recognized ratably over the directory’s life, which is typically 12 months. Revenues with respect to Internet-based marketing solutions that are sold standalone, such as DexNet, are recognized ratably over the life of the contract commencing when they are first delivered or fulfilled. Revenues with respect to our marketing solutions that are performance-based are recognized as the service is delivered or fulfilled.

 
(2) The Company evaluated the remaining useful lives of definite-lived intangible assets and other long-lived assets during the three months ended March 31, 2012. Based on our evaluation, we reduced the estimated useful lives of our directory services agreements, local and national customer relationships and tradenames and trademarks to a combined weighted average useful life of 9 years. As a result of reducing the estimated useful lives of these intangible assets, the Company expects an increase in amortization expense of $161.6 million and total amortization expense of $349.4 million for 2012.
 
(3) On March 23, 2012, we utilized cash on hand of $69.5 million to repurchase loans under our credit facilities of $142.1 million ("Debt Repurchases"). The Debt Repurchases have been accounted for as an extinguishment of debt resulting in a non-cash, pre-tax gain of $68.8 million during the three months ended March 31, 2012, consisting of the difference between the par value and purchase price of the credit facilities, offset by accelerated amortization of fair value adjustments to our credit facilities that were recognized in conjunction with our adoption of fresh start accounting of $2.0 million and fees associated with the Debt Repurchases of $1.8 million.
 
(4) On February 14, 2011, we completed the sale of substantially all net assets of Business.com. As a result, we recognized a gain on sale of these assets of $13.4 million during the three months ended March 31, 2011.
 
(5) In conjunction with our adoption of fresh start accounting, an adjustment was established to record our outstanding debt at fair value on the Fresh Start Reporting Date. The Company was required to record our credit facilities at a discount as a result of their fair value on the Fresh Start Reporting Date. Therefore, the carrying amount of these debt obligations is lower than the principal amount due at maturity. This fair value adjustment is amortized as an increase to interest expense over the remaining term of the respective debt agreements and does not impact future scheduled interest or principal payments. The unamortized fair value adjustment resulting from fresh start accounting was $53.7 million at March 31, 2012.
 
(6) Net debt represents total debt less cash and cash equivalents on the respective date. Net debt – eliminating fair value discount eliminates the fair value discount as a result of fresh start accounting described in Note 5 and represents principal amounts due at maturity.
 
(7) Advertising sales is a non-GAAP statistical measure and consists of sales of advertising in print directories distributed during the period and Internet-based marketing solutions with respect to which such advertising first appeared publicly during the period. In order to calculate a percentage change over prior periods, adjustments may have been made to the prior year’s advertising sales in an attempt to create a same store sales metric.
Bookings is also a non-GAAP statistical measure and represents sales activity associated with our print directories and Internet-based marketing solutions during the period. Bookings associated with our local customers represent signed contracts during the period. Bookings associated with our national customers represent what has been published or fulfilled during the period. It is important to distinguish advertising sales and bookings from net revenue, which is recognized under the deferral and amortization method.
     
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.




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