Idearc Results Are Predictably Grim; Bankruptcy an Option

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One day after R.H. Donnelley released its 2008 results showing a sharp drop in ad sales, Idearc followed suit today with annual results that also reflect a very tough Yellow Pages environment in the United States. The big news in the release is the acknowledgment of the possibility that Idearc may seek bankruptcy protection. From the earnings release:

Idearc has evaluated various options for restructuring its capitalization and debt service obligations to alleviate these covenant issues and to create a capital structure that will permit the Company to remain a going concern. Idearc and its advisors have considered various alternatives to strengthen its balance sheet and financial risk profile. Among these alternatives, the Company is currently considering a restructuring through a “pre-packaged,” “pre-negotiated,” or similar plan of reorganization under federal bankruptcy laws. Idearc and its advisors continue to work with representatives of holders of both the senior secured facilities and the senior unsecured notes in this regard. If the Company is unable to achieve a “pre-packaged,” “pre-negotiated,” or similar plan of reorganization, it would likely be necessary that the Company file for reorganization under federal bankruptcy laws in any event.

Yesterday, RHD revealed it has retained Lazard to help it explore ways to improve its capital structure. There was no specific mention of bankruptcy in RHD’s announcement or on its earnings call. RHD executives did not take questions during the call. Idearc did not conduct an earnings call or webcast.

Idearc generated GAAP revenues of US$2.97 billion in 2008, a decline of 6.8 percent for the year. This translates into a 7.9 percent print decline to US$2.67 billion, and a modest 5.3 percent increase in online revenue to US$300 million.

As with RHD, the picture is more stark when looking at ad sales, which reflect the value of all revenues sold during the year, some of which may not be booked until the following year due to the amortization accounting method. Ad sales showed an overall decline of 9.8 percent to US$2.74 billion, with print dropping 11.4 percent to US$2.44 billion. Online sales were the same US$300 million based on this method.

“Idearc’s fourth quarter financial results are disappointing as we expected,” said Idearc CEO Scott W. Klein in the earnings release. “We are making progress on our transformational and cost-cutting initiatives. However, the unprecedented economic challenges this nation is facing are creating never-before-seen obstacles for our clients and, as a result, for us as well.” 

Despite the results, Idearc is continuing to invest in advertising and promotion. Earlier this week, TM Advertising won the account to develop ad campaigns for two Idearc brands — Superpages and Verizon Yellow Pages. AdWeek estimates the budget for the campaigns at between US$30 million and US$35 million.

The news this week from Idearc and RHD has led to more predictably tough coverage of the industry in the financial press, like this write-up in Barron’s.

The Kelsey Report will release its detailed Global Directional Media forecast to its clients next week, which will give our take on how print and online directory revenues will fare over the coming five years.

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