Idearc Announces 2007 Results

Idearc Inc. (NYSE:IAR) today announced financial results for the fourth quarter and year ended December 31, 2007. 2007 Company Highlights: Achieved Internet revenue growth of approximately 24 percent. Maintained strong OIBITDA margins. Increased net income and earnings per share on an adjusted pro forma basis. Kathy Harless, the Company’s president and CEO, said, "Our 2007 performance was in line with our expectations. As we begin the new year, we remain steadfast in the long-term view of the business and in our ability to maximize stockholder value through our multi-product strategy. I look forward to today’s conference call and updating you on our progress and on our view for 2008.” Dividend Announcement On February 6, 2008, the Idearc board of directors declared a quarterly dividend of 34.25 cents per outstanding share. The dividend will be paid on or about March 13, 2008, to stockholders of record at the close of business on February 21, 2008. Strong and stable cash flows underlie the Company’s ability to maintain its dividend to stockholders. Financial Summary On an adjusted pro forma basis, Idearc had multi-product revenues of $3,189 million for 2007, a decrease of 0.8 percent compared to 2006. On a GAAP basis, the Company reported multi-product revenues of the same $3,189 million for 2007, a decrease of one percent compared to 2006. The Company reported Internet revenue of $285 million for 2007, an approximate 24 percent increase compared to 2006. Idearc reported multi-product revenues of $787 million for the fourth quarter 2007, a decrease of 1.7 percent compared to the same period in 2006. The Company reported Internet revenue of $75 million in the fourth quarter 2007, a 19 percent increase over the same period in 2006. Idearc reported operating income, net income and earnings per share on an adjusted pro forma basis as well as on a GAAP basis. The adjusted pro forma basis measures are described below and are reconciled to the corresponding GAAP measures in the accompanying financial schedules. The Company adopted a change in accounting methodology associated with sales commissions in the second quarter of 2007. Prior to that time, sales commissions were recognized as incurred. Idearc is presently deferring sales commissions and recognizing these costs over the life of the product. This methodology is consistent with those of other directory publishers and is aligned with the Company’s revenue recognition policy. Prior period financial information has been restated to reflect this change. On an adjusted pro forma basis, 2007 OIBITDA was $1,518 million, a decrease of 2.8 percent compared to the prior year. Adjusted pro forma OIBITDA margins were 47.6 percent for 2007 as compared to 48.6 percent for 2006. Excluding the effect of the accounting change, 2007 OIBITDA, on an adjusted pro forma basis, would have been the same $1,518 million, or a 1.2 percent decrease over 2006. Excluding the effect of the accounting change, 2007 adjusted pro forma OIBITDA margins reflected slight margin contraction at 47.6 percent compared to 47.8 percent in 2006. After reflecting the impact of transition costs as described in the accompanying financial schedules, the Company reported 2007 OIBITDA of $1,431 million, a decrease of 0.3 percent compared to 2006. Fourth-quarter 2007 OIBITDA, on an adjusted pro forma basis, was $350 million, a 6.9 percent decrease compared to the same period in 2006. Adjusted pro forma OIBITDA margins were 44.5 percent in the fourth quarter 2007, compared to 46.9 percent in the same period in 2006. After reflecting the impact of transition costs as described in the accompanying financial schedules, the Company reported OIBITDA of $333 million for the fourth quarter 2007, a 11.7 percent increase compared to the same period in 2006. On an adjusted pro forma basis, 2007 net income was $484 million, or $3.32 per diluted share, an increase of $4 million or 3 cents per diluted share over 2006. The Company reported net income of $429 million, or $2.94 per diluted share for 2007. Fourth-quarter 2007 net income, on an adjusted pro forma basis, was $110 million, or 75 cents per diluted share, an increase of $5 million or 3 cents per diluted share over the same period in 2006. The Company reported net income of $100 million, or 68 cents per diluted share, for the fourth quarter 2007. Free cash flow for 2007 was $323 million based on cash from operating activities of $369 million less capital expenditures of $46 million. For 2007, multi-product advertising sales declined 2.2 percent compared to 2006. For the fourth quarter 2007, multi-product advertising sales declined 4.9 percent compared to the same period in 2006. 2008 Business View "While we are certainly facing some economic headwinds in the current marketplace, we firmly believe the right strategy and assets are in place to maximize the long-term value of our business,” said Ms. Harless. "Throughout 2007, we implemented a host of multi-product initiatives that are transforming our business, and we expect to see benefits from those initiatives in the future.” "Expectations for 2008 fully support our balanced capital allocation program, which includes servicing debt, maintaining our strong dividend program and continuing to invest in growth opportunities for the business.” From a financial perspective, Idearc expects slightly lower amortized multi-product revenues, primarily due to economic softness in the second half of 2007 continuing into the first half of 2008. The Company also expects some operating margin contraction, due to the continued transformation of the business and associated changes in the revenue mix. "We are aggressively moving toward a more multi-product focus and a less print-centric future. Our transformation will not be instantaneous. It is a strategic, well-managed process that balances all aspects of our business – sales, marketing, operations and employees,” Ms. Harless concluded. Webcast Information Idearc welcomes investors, media and other interested parties to join Kathy Harless, Idearc president and CEO, and Samuel D. (Dee) Jones, acting chief financial officer, in a discussion via a webcast and teleconference beginning today at 10:00 a.m. (Eastern). Individuals within the United States can access the earnings call by dialing 888-603-6873. International participants should dial 973-582-2706. The pass code for the call is: 28722854. In order to ensure a prompt start time, please dial in to the call by 9:50 a.m. (Eastern). A replay of the teleconference will be available at 800-642-1687. International callers can access the replay by calling 706-645-9291. The replay pass code is 28722854. The replay will be available through Feb. 21. In addition, a live webcast will be available on Idearc's Web site at www.idearc.com, under the Investor Relations tab. Note: This press release includes non-GAAP financial measures. See the financial schedules accompanying this press release and http://ir.idearc.com/ for reconciliations of these non-GAAP financial measures to generally accepted accounting principles (GAAP). Certain statements included in this press release and the hyperlinked materials constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Idearc’s current views with respect to its financial performance and future events with respect to its business and industry in general. Statements that include the words "believe,” "forecast,” "expect” and similar expressions identify forward-looking statements. Idearc cautions you not to place undue reliance on these forward-looking statements. The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: (i) risks related to our substantial indebtedness; (ii) changes in our competitive position due to competition from other yellow pages publishers and search engines and/or our ability to anticipate or respond to changes in technology and user preferences; (iii) access to capital markets and changes in credit ratings; (iv) changes in the availability and cost of printing raw materials and third-party printers and distributors; (v) increased credit risk associated with our reliance on small- and medium-sized businesses; (vi) changes in operating performance; (vii) increased demands on our management team as a result of operating as an independent company; (viii) changes in U.S. labor, business, political and/or economic conditions; (ix) changes in governmental regulations and policies and actions of regulatory bodies; (x) risks inherent in our spin-off from Verizon Communications Inc., including increased costs and reduced profitability associated with operating as an independent company; and (xi) risks associated with our dependence on key agreements entered into with Verizon in connection with our spin-off. For a discussion of these and other risks and uncertainties, see Idearc Inc.’s periodic filings with the Securities and Exchange Commission, which you may view at www.sec.gov, and in particular, Idearc Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006. IDEARC INC.Consolidated Statements of IncomeReported (GAAP)Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 (dollars in millions, except per share amounts)           Unaudited Year Ended12/31/07 Year Ended12/31/06 % Change Operating Revenue Print products $ 2,900 $ 2,978 (2.6 ) Internet 285 230 23.9 Other   4   13 (69.2 ) Total Operating Revenue   3,189   3,221 (1.0 )   Operating Expense Selling 733 708 3.5 Cost of sales (exclusive of depreciation and amortization) 617 629 (1.9 ) General and administrative 408 448 (8.9 ) Depreciation and amortization   88   89 (1.1 ) Total Operating Expense 1,846 1,874 (1.5 )   Operating Income 1,343 1,347 (0.3 ) Interest expense, net   676   60 nm   Income Before Provision for Income Taxes   667 1,287 (48.2 ) Provision for income taxes   238   500 (52.4 ) Net Income $ 429 $ 787 (45.5 )   Basic and Diluted Earnings per Common Share (1) $ 2.94 $ 5.40 (45.6 ) Basic and diluted weighted-average common shares outstanding (in millions)   146 146   Dividends Declared per Common Share $ 1.37 $ -   Note:   (1)   The number of shares issued in the spin-off on November 17, 2006 was approximately 146 million. For basic and diluted earnings per share calculations for 2006, it was assumed that approximately 146 million shares were outstanding for the entire period. Restricted stock awards granted in 2007 had no material impact on the calculation of diluted earnings per common share.   IDEARC INC.Consolidated Statements of IncomeReported (GAAP)Three Months Ended December 31, 2007 Compared to Three Months Ended December 31, 2006 (dollars in millions, except per share amounts)           Unaudited 3 Mos. Ended12/31/07 3 Mos. Ended12/31/06 % Change Operating Revenue Print products $ 711 $ 737 (3.5 ) Internet 75 63 19.0 Other   1   1 - Total Operating Revenue   787   801 (1.7 )   Operating Expense Selling 187 186 0.5 Cost of sales (exclusive of depreciation and amortization) 153 155 (1.3 ) General and administrative 114 162 (29.6 ) Depreciation and amortization   22   22 - Total Operating Expense 476 525 (9.3 )   Operating Income 311 276 12.7 Interest expense, net   171   81 nm Income Before Provision for Income Taxes 140 195 (28.2 ) Provision for income taxes   40   88 (54.5 ) Net Income $ 100 $ 107 (6.5 )   Basic and Diluted Earnings per Common Share (1) $ .68 $ .73 (6.8 ) Basic and diluted weighted-average common shares outstanding (in millions)   146 146   Dividends Declared per Common Share $ .3425 $ -   Note:   (1)   The number of shares issued in the spin-off on November 17, 2006 was approximately 146 million. For basic and diluted earnings per share calculations for 2006, it was assumed that approximately 146 million shares were outstanding for the entire period. Restricted stock awards granted in 2007 had no material impact on the calculation of diluted earnings per common share.   IDEARC INC.Consolidated Statements of IncomeAdjusted Pro Forma (Non-GAAP)(1)Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 (dollars in millions, except per share amounts)           Unaudited Year Ended12/31/07 Year Ended12/31/06 % Change Operating Revenue Print products $ 2,900 $ 2,978 (2.6 ) Internet 285 230 23.9 Other   4   6 (33.3 ) Total Operating Revenue   3,189   3,214 (0.8 )   Operating Expense Selling 733 682 7.5 Cost of sales (exclusive of depreciation and amortization) 617 593 4.0 General and administrative 321 378 (15.1 ) Depreciation and amortization   88   89 (1.1 ) Total Operating Expense 1,759 1,742 1.0   Operating Income 1,430 1,472 (2.9 ) Interest expense, net   676   702 (3.7 ) Income Before Provision for Income Taxes   754 770 (2.1 ) Provision for income taxes   270   290 (6.9 ) Net Income $ 484 $ 480 0.8   Basic and Diluted Earnings per Common Share (2) $ 3.32 $ 3.29 0.9 Basic and diluted weighted-average common shares outstanding (in millions) 146 146   Notes:   (1)   These consolidated statements of income provide a comparison of the year ended December 31, 2007 adjusted pro forma results to the year ended December 31, 2006 adjusted pro forma results. The following schedules provide reconciliations from our reported GAAP results to adjusted pro forma non-GAAP results for the periods shown above.   (2) The number of shares issued in the spin-off on November 17, 2006 was approximately 146 million. For basic and diluted earnings per share calculations for 2006, it was assumed that approximately 146 million shares were outstanding for the entire period. Restricted stock awards granted in 2007 had no material impact on the calculation of diluted earnings per common share.   IDEARC INC.Consolidated Statements of IncomeAdjusted Pro Forma (Non-GAAP)(1)Three Months Ended December 31, 2007 Compared to Three Months Ended December 31, 2006 (dollars in millions, except per share amounts)           Unaudited 3 Mos. Ended12/31/07 3 Mos. Ended12/31/06 % Change Operating Revenue Print products $ 711 $ 737 (3.5 ) Internet 75 63 19.0 Other   1   1 - Total Operating Revenue   787   801 (1.7 )   Operating Expense Selling 187 181 3.3 Cost of sales (exclusive of depreciation and amortization) 153 151 1.3 General and administrative 97 93 4.3 Depreciation and amortization   22   22 - Total Operating Expense 459 447 2.7   Operating Income 328 354 (7.3 ) Interest expense, net   171   176 (2.8 ) Income Before Provision for Income Taxes   157 178 (11.8 ) Provision for income taxes   47   73 (35.6 ) Net Income $ 110 $ 105 4.8   Basic and Diluted Earnings per Common Share (2) $ .75 $ .72 4.2 Basic and diluted weighted-average common shares outstanding (in millions)   146 146   Notes:   (1)   These consolidated statements of income provide a comparison of the three months ended December 31, 2007 adjusted pro forma results to the three months ended December 31, 2006 adjusted pro forma results. The following schedules provide reconciliations from our reported GAAP results to adjusted pro forma non-GAAP results for the periods shown above.   (2) The number of shares issued in the spin-off on November 17, 2006 was approximately 146 million. For basic and diluted earnings per share calculations for 2006, it was assumed that approximately 146 million shares were outstanding for the entire period. Restricted stock awards granted in 2007 had no material impact on the calculation of diluted earnings per common share.   IDEARC INC.Consolidated Statements of IncomeReported (GAAP)Three Months Ended December 31, 2007 Compared to Three Months Ended September 30, 2007 (dollars in millions, except per share amounts)           Unaudited 3 Mos. Ended12/31/07 3 Mos. Ended9/30/07 % Change Operating Revenue Print products $ 711 $ 721 (1.4 ) Internet 75 69 8.7 Other   1   1 - Total Operating Revenue   787   791 (0.5 )   Operating Expense Selling 187 164 14.0 Cost of sales (exclusive of depreciation and amortization) 153 143 7.0 General and administrative 114 104 9.6 Depreciation and amortization   22   22 - Total Operating Expense 476 433 9.9   Operating Income 311 358 (13.1 ) Interest expense, net   171   168 1.8 Income Before Provision for Income Taxes 140 190 (26.3 ) Provision for income taxes   40   73 (45.2 ) Net Income $ 100 $ 117 (14.5 )   Basic and Diluted Earnings per Common Share (1) $ .68 $ .80 (15.0 ) Basic and diluted weighted-average common shares outstanding (in millions)   146 146   Note:   (1)   Restricted stock awards granted in 2007 had no material impact on the calculation of diluted earnings per common share.   IDEARC INC.Consolidated Statements of IncomeAdjusted Pro Forma (Non-GAAP)(1)Three Months Ended December 31, 2007 Compared to Three Months Ended September 30, 2007 (dollars in millions, except per share amounts)           Unaudited 3 Mos. Ended12/31/07 3 Mos. Ended9/30/07 % Change Operating Revenue Print products $ 711 $ 721 (1.4 ) Internet 75 69 8.7 Other   1   1 - Total Operating Revenue   787   791 (0.5 )   Operating Expense Selling 187 164 14.0 Cost of sales (exclusive of depreciation and amortization) 153 143 7.0 General and administrative 97 86 12.8 Depreciation and amortization   22   22 - Total Operating Expense 459 415 10.6   Operating Income 328 376 (12.8 ) Interest expense, net   171   168 1.8 Income Before Provision for Income Taxes   157 208 (24.5 ) Provision for income taxes   47   80 (41.3 ) Net Income $ 110 $ 128 (14.1 )   Basic and Diluted Earnings per Common Share (2) $ .75 $ .88 (14.8 ) Basic and diluted weighted-average common shares outstanding (in millions)   146 146   Note:   (1)   These consolidated statements of income provide a comparison of the three months ended December 31, 2007 adjusted pro forma results to the three months ended September 30, 2007 adjusted pro forma results. The following schedules provide reconciliations from our reported GAAP results to adjusted pro forma non-GAAP results for the periods shown above.   (2) Restricted stock awards granted in 2007 had no material impact on the calculation of diluted earnings per common share.   IDEARC INC.Consolidated Statements of IncomeReconciliation from Reported (GAAP) to Adjusted Pro Forma (Non-GAAP)Year Ended December 31, 2007 (dollars in millions, except per share amounts)           Transition Costs Year Ended12/31/07     Year Ended12/31/07 Unaudited   Reported (GAAP) Stock-BasedCompensation(2) SeparationCosts (3) Adjusted Pro Forma (Non-GAAP) Operating Revenue Print products $ 2,900 $ - $ - $ 2,900 Internet 285 - - 285 Other   4     -     -     4   Total Operating Revenue   3,189     -     -     3,189     Operating Expense Selling 733 - - 733 Cost of sales (exclusive of depreciation and amortization) 617 - - 617 General and administrative 408 (19 ) (68 ) 321 Depreciation and amortization   88     -     -     88   Total Operating Expense   1,846     (19 )   (68 )   1,759     Operating Income 1,343 19 68 1,430 Interest expense, net   676     -     -     676   Income Before Provision for Income Taxes 667 19 68 754 Provision for income taxes   238     7     25     270   Net Income $ 429   $ 12   $ 43   $ 484       Basic and Diluted Earnings per Common Share $ 2.94 $ .08 $ .29 $ 3.32     Operating income $ 1,343 $ 19 $ 68 $ 1,430 Depreciation and amortization   88     -     -     88   OIBITDA (non-GAAP) (1) $ 1,431   $ 19   $ 68   $ 1,518     OIBITDA margin (non-GAAP) (1) 44.9 % 47.6 %   Notes:   (1)   OIBITDA is a non-GAAP measure that represents operating income before interest, taxes, depreciation, and amortization. OIBITDA margin is a non-GAAP measure calculated by dividing OIBITDA by total operating revenue.   (2) The stock-based compensation reflects a one-time incentive compensation award granted to most of the Company's employees in January 2007.   (3) Separation costs are costs associated with becoming a stand-alone entity as a result of the spin-off from Verizon.   IDEARC INC.Consolidated Statements of IncomeReconciliation from Reported (GAAP) to Adjusted Pro Forma (Non-GAAP)Three Months Ended December 31, 2007 (dollars in millions, except per share amounts)           Transition Costs 3 Mos. Ended12/31/07     3 Mos. Ended12/31/07 Unaudited Reported(GAAP) Stock-BasedCompensation(2) SeparationCosts (3) AdjustedPro Forma(Non-GAAP) Operating Revenue Print products $ 711 $ - $ - $ 711 Internet 75 - - 75 Other   1     -     -     1   Total Operating Revenue   787     -     -     787     Operating Expense Selling 187 - - 187 Cost of sales (exclusive of depreciation and amortization) 153 - - 153 General and administrative 114 2 (19 ) 97 Depreciation and amortization   22     -     -     22   Total Operating Expense   476     2     (19 )   459     Operating Income 311 (2 ) 19 328 Interest expense, net   171     -     -     171   Income Before Provision for Income Taxes 140 (2 ) 19 157 Provision for income taxes   40     (1 )   8     47   Net Income $ 100   $ (1 ) $ 11   $ 110       Basic and Diluted Earnings per Common Share (1) $ .68 $ (.01 ) $ .08 $ .75     Operating income $ 311 $ (2 ) $ 19 $ 328 Depreciation and amortization   22     -     -     22   OIBITDA (non-GAAP) (1) $ 333   $ (2 ) $ 19   $ 350     OIBITDA margin (non-GAAP) (1) 42.3 % 44.5 %   Notes:   (1)     OIBITDA is a non-GAAP measure that represents operating income before interest, taxes, depreciation, and amortization. OIBITDA margin is a non-GAAP measure calculated by dividing OIBITDA by total operating revenue.   (2) The stock-based compensation reflects a one-time incentive compensation award granted to most of the Company's employees in January 2007.   (3) Separation costs are costs associated with becoming a stand-alone entity as a result of the spin-off from Verizon.   IDEARC INC.Consolidated Statements of IncomeReconciliation from Reported (GAAP) to Adjusted Pro Forma (Non-GAAP)Three Months Ended September 30, 2007 (dollars in millions, except per share amounts)           Transition Costs 3 Mos. Ended9/30/07     3 Mos. Ended9/30/07 Unaudited Reported(GAAP) Stock-BasedCompensation(2) SeparationCosts (3) AdjustedPro Forma(Non-GAAP) Operating Revenue Print products $ 721 $ - $ - $ 721 Internet 69 - - 69 Other   1     -     -     1   Total Operating Revenue   791     -     -     791     Operating Expense Selling 164 - - 164 Cost of sales (exclusive of depreciation and amortization) 143 - - 143 General and administrative 104 (4 ) (14 ) 86 Depreciation and amortization   22     -     -     22   Total Operating Expense   433     (4 )   (14 )   415     Operating Income 358 4 14 376 Interest expense, net   168     -     -     168   Income Before Provision for Income Taxes 190 4 14 208 Provision for income taxes   73     2     5     80   Net Income $ 117   $ 2   $ 9   $ 128       Basic and Diluted Earnings per Common Share $ .80 $ .01 $ .06 $ .88     Operating income $ 358 $ 4 $ 14 $ 376 Depreciation and amortization   22     -     -     22   OIBITDA (non-GAAP) (1) $ 380   $ 4   $ 14   $ 398     OIBITDA margin (non-GAAP) (1) 48.0 % 50.3 %   Notes:   (1)   OIBITDA is a non-GAAP measure that represents operating income before interest, taxes, depreciation, and amortization. OIBITDA margin is a non-GAAP measure calculated by dividing OIBITDA by total operating revenue.   (2) The stock-based compensation reflects a one-time incentive compensation award granted to most of the Company's employees in January 2007.   (3) Separation costs are costs associated with becoming a stand-alone entity as a result of the spin-off from Verizon.   IDEARC INC.Consolidated Statements of IncomeReconciliation from Reported (GAAP) to Adjusted Pro Forma (Non-GAAP)Year Ended December 31, 2006 (dollars in millions, except per share amounts)                   Transition Costs Pro Forma Items Year Ended12/31/06     Year Ended12/31/06       Year Ended12/31/06 Unaudited Reported(GAAP) Stock-BasedCompensationCharge (3) SeparationCosts (4) Adjusted(Non-GAAP) PensionOPEBReduction (5) PrintingContract (6) Debt (7) AdjustedPro Forma(Non-GAAP) Operating Revenue Print products $ 2,978 $ - $ - $ 2,978 $ - $ - $ - $ 2,978 Internet 230 - - 230 - - - 230 Other   13     -     -     13     -     (7 )   -     6   Total Operating Revenue   3,221     -     -     3,221     -     (7 )   -     3,214     Operating Expense Selling 708 - - 708 (26 ) - - 682 Cost of sales (exclusive of depreciation and amortization) 629 - - 629 (8 ) (28 ) - 593 General and administrative 448 (39 ) (30 ) 379 (1 ) - - 378 Depreciation and amortization   89     -     -     89     -     -     -     89   Total Operating Expense   1,874     (39 )   (30 )   1,805     (35 )   (28 )   -     1,742     Operating Income 1,347 39 30 1,416 35 21 - 1,472 Interest expense, net   60     -     -     60     -     -     642     702   Income Before Provision for Income Taxes 1,287 39 30 1,356 35 21 (642 ) 770 Provision for income taxes   500     15     4     519     13     8     (250 )   290   Net Income $ 787   $ 24   $ 26   $ 837   $ 22   $ 13   $ (392 ) $ 480       Basic and Diluted Earnings per Common Share (1) $ 5.40 $ .17 $ .18 $ 5.74 $ .15 $ .09 $ (2.69 ) $ 3.29     Operating income $ 1,347 $ 39 $ 30 $ 1,416 $ 35 $ 21 $ - $ 1,472 Depreciation and amortization   89     -     -     89     -     -     -     89   OIBITDA (non-GAAP) (2) $ 1,436   $ 39   $ 30   $ 1,505   $ 35   $ 21   $ -   $ 1,561     OIBITDA margin (non-GAAP) (2) 44.6 % 46.7 % 48.6 %   Notes:   (1)   The number of shares issued in the spin-off on November 17, 2006 was approximately 146 million. For basic and diluted earnings per share calculations,it was assumed that approximately 146 million shares were outstanding for the entire period. No additional shares were issued through December 31, 2006.   (2) OIBITDA is a non-GAAP measure that represents operating income before interest, taxes, depreciation, and amortization. OIBITDA margin is a non-GAAP measure calculated by dividing OIBITDA by total operating revenue.   (3) The stock-based compensation charge reflects a one-time adjustment to record stock compensation expense of $39 million associated with Verizon stock-based compensation and other stock-based awards that vested at the time of spin.   (4) Separation costs are costs associated with becoming a stand-alone entity as a result of the spin-off from Verizon.   (5) On-going pension costs are expected to be reduced, primarily as a result of the Internal Revenue Code 414(l) pension asset transfer from the Verizon pension plan as the result of the Idearc spin-off from Verizon. This reduction is partially offset by anticipated higher other post employment benefit costs. This pro forma adjustment reflects the expected on-going pension and other post employment benefit cost levels for this historical period.   (6) Reflects the impact of entering into a new printing contract which resulted in exiting the commercial printing business ($7 million in revenue and $4 million in costs) and a reduction in printing cost rates.   (7) In connection with the spin-off on November 17, 2006, Idearc issued $9.1 billion of debt and will incur interest expense that it did not incur in the past. This pro forma adjustment is to reflect the ongoing interest expense levels during this historical period.   IDEARC INC.Consolidated Statements of IncomeReconciliation from Reported (GAAP) to Adjusted Pro Forma (Non-GAAP)Three Months Ended December 31, 2006 (dollars in millions, except per share amounts)                   Transition Costs Pro Forma Items 3 Mos. Ended12/31/06     3 Mos. Ended12/31/06       3 Mos. Ended12/31/06 Unaudited Reported(GAAP) Stock-BasedCompensationCharge (3) SeparationCosts (4) Adjusted(Non-GAAP) PensionOPEBReduction (5) PrintingContract (6) Debt (7) AdjustedPro Forma(Non-GAAP) Operating Revenue Print products $ 737 $ - $ - $ 737 $ - $ - $ - $ 737 Internet 63 - - 63 - - - 63 Other   1     -     -     1     -     -     -     1   Total Operating Revenue   801     -     -     801     -     -     -     801     Operating Expense Selling 186 - - 186 (5 ) - - 181 Cost of sales (exclusive of depreciation and amortization) 155 - - 155 (1 ) (3 ) - 151 General and administrative 162 (39 ) (28 ) 95 (2 ) - - 93 Depreciation and amortization   22     -     -     22     -     -     -     22   Total Operating Expense   525     (39 )   (28 )   458     (8 )   (3 )   -     447     Operating Income 276 39 28 343 8 3 - 354 Interest expense, net   81     -     -     81     -     -     95     176   Income Before Provision for Income Taxes 195 39 28 262 8 3 (95 ) 178 Provision for income taxes   88     15     3     106     3     1     (37 )   73   Net Income $ 107   $ 24   $ 25   $ 156   $ 5   $ 2   $ (58 ) $ 105       Basic and Diluted Earnings per Common Share (1) $ .73 $ .17 $ .17 $ 1.07 $ .03 $ .01 $ (.40 ) $ .72     Operating income $ 276 $ 39 $ 28 $ 343 $ 8 $ 3 $ - $ 354 Depreciation and amortization   22     -     -     22     -     -     -     22   OIBITDA (non-GAAP) (2) $ 298   $ 39   $ 28   $ 365   $ 8   $ 3   $ -   $ 376     OIBITDA margin (non-GAAP) (2) 37.2 % 45.6 % 46.9 %   Notes:   (1)   The number of shares issued in the spin-off on November 17, 2006 was approximately 146 million. For basic and diluted earnings per share calculations, it was assumed that approximately 146 million shares were outstanding for the entire period. No additional shares were issued through December 31, 2006.   (2) OIBITDA is a non-GAAP measure that represents operating income before interest, taxes, depreciation, and amortization. OIBITDA margin is a non-GAAP measure calculated by dividing OIBITDA by total operating revenue.   (3) The stock-based compensation charge reflects a one-time adjustment to record stock compensation expense of $39 million associated with Verizon stock-based compensation and other stock-based awards that vested at the time of spin.   (4) Separation costs are costs associated with becoming a stand-alone entity as a result of the spin-off from Verizon.   (5) On-going pension costs are expected to be reduced, primarily as a result of the Internal Revenue Code 414(l) pension asset transfer from the Verizon pension plan as the result of the Idearc spin-off from Verizon. This reduction is partially offset by anticipated higher other post employment benefit costs. This pro forma adjustment reflects the expected on-going pension and other post employment benefit cost levels for this historical period.   (6) Reflects the impact of entry into a new printing contract which resulted in a reduction in printing cost rates.   (7) In connection with the spin-off on November 17, 2006, Idearc issued $9.1 billion of debt and will incur interest expense that it did not incur in the past. This pro forma adjustment is to reflect the ongoing interest expense levels during this historical period.   IDEARC INC.Reconciliation of OIBITDA (non-GAAP) to OIBITDA Before Accounting Change (non-GAAP)Three Months and Year Ended December 31, 2007 compared to Three Months and Year Ended December 31, 2006 (dollars in millions)             Reported Adjusted Pro Forma (1) 3 Mos. Ended 3 Mos. Ended 3 Mos. Ended 3 Mos. Ended Unaudited 12/31/07 12/31/06 % Change 12/31/07 12/31/06 % Change   Operating Income $ 311 $ 276 12.7% $ 328 $ 354 (7.3%) Depreciation and Amortization 22 22 - 22 22 - OIBITDA (non-GAAP) 333 298 11.7% 350 376 (6.9%)   less: Accounting Change Impact 6 13 (53.8%) 6 13 (53.8%)         OIBITDA before accounting change (non-GAAP) $ 327 $ 285 14.7% $ 344 $ 363 (5.2%)       Year Ended Year Ended Year Ended Year Ended Unaudited 12/31/07 12/31/06 % Change 12/31/07 12/31/06 % Change   Operating Income $ 1,343 $ 1,347 (0.3%) $ 1,430 $ 1,472 (2.9%) Depreciation and Amortization 88 89 (1.1%) 88 89 (1.1%) OIBITDA (non-GAAP) 1,431 1,436 (0.3%) 1,518 1,561 (2.8%)   less: Accounting Change Impact - 24 (100.0%) - 24 (100.0%)         OIBITDA before accounting change (non-GAAP) $ 1,431 $ 1,412 1.3% $ 1,518 $ 1,537 (1.2%)   Note:   (1)   Previous schedules provide reconciliations of reported (GAAP) results to adjusted pro forma (non-GAAP) results for the periods shown above.   IDEARC INC.Consolidated Balance SheetsReported (GAAP)As of December 31, 2007 and December 31, 2006 (dollars in millions)           Unaudited 12/31/2007 12/31/2006 $ Change   Assets Current assets: Cash and cash equivalents $ 48 $ 172 $ (124 ) Accounts receivable, net of allowances of $77 and $76 423 325 98 Deferred directory costs 312 294 18 Prepaid expenses and other   10     13     (3 ) Total current assets   793     804     (11 ) Property, plant and equipment 471 474 (3 ) Less: accumulated depreciation   356     331     25     115     143     (28 ) Goodwill 73 73 - Other intangible assets, net 303 103 200 Pension assets 171 174 (3 ) Non-current deferred tax assets 124 21 103 Debt issuance costs 86 97 (11 ) Other noncurrent assets   2     -     2   Total Assets $ 1,667   $ 1,415   $ 252       Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable and accrued liabilities $ 272 $ 412 $ (140 ) Deferred revenue 209 190 19 Current maturities of long-term debt 48 48 - Current deferred taxes 28 5 23 Other   31     42     (11 ) Total current liabilities   588     697     (109 ) Long-term debt 9,020 9,067 (47 ) Employee benefit obligations 327 401 (74 ) Unrecognized tax benefits 109 - 109 Other liabilities 223 4 219   Stockholders' equity (deficit): Common stock ($.01 par value; 225 million shares authorized, 146,795,971 and 145,851,862 shares issued and outstanding in 2007 and 2006, respectively) 1 1 - Additional paid-in capital (deficit) (8,776 ) (8,786 ) 10 Retained earnings 361 99 262 Accumulated other comprehensive loss   (186 )   (68 )   (118 ) Total stockholders' equity (deficit)   (8,600 )   (8,754 )   154   Total Liabilities and Stockholders' Equity (Deficit) $ 1,667   $ 1,415   $ 252     IDEARC INC.Consolidated Statements of Cash FlowsReported (GAAP)Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 (dollars in millions)           Unaudited Year Ended12/31/07 Year Ended12/31/06 $ Change   Cash Flows from Operating Activities Net income $ 429 $ 787 $ (358 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 88 89 (1 ) Employee retirement benefits (5 ) 50 (55 ) Deferred income taxes (21 ) (46 ) 25 Provision for uncollectible accounts 159 140 19 Stock-based compensation expense 27 56 (29 )   Changes in current assets and liabilities Accounts receivable (253 ) (96 ) (157 ) Deferred directory costs (18 ) (3 ) (15 ) Other current assets (2 ) (6 ) 4 Accounts payable and accrued liabilities (8 ) 33 (41 ) Other, net   (27 )   (11 )   (16 ) Net cash provided by operating activities   369     993     (624 )   Cash Flows from Investing Activities Capital expenditures (including capitalized software) (46 ) (64 ) 18 Acquisitions (230 ) (16 ) (214 ) Proceeds from sale of assets 26 20 6 Other, net   4     19     (15 ) Net cash used in investing activities   (246 )   (41 )   (205 )   Cash Flows from Financing Activities Proceeds from issuance of long-term debt - 1,953 (1,953 ) Repayment of long-term debt (47 ) - (47 ) Change in note receivable due from former parent - 348 (348 ) Dividends paid to Idearc stockholders (200 ) - (200 ) Dividends / returns of capital paid to former parent - (652 ) 652 Final distribution to former parent   -     (2,429 )   2,429   Net cash used in financing activities   (247 )   (780 )   533   Increase (decrease) in cash and cash equivalents (124 ) 172 (296 ) Cash and cash equivalents, beginning of year   172     -     172   Cash and cash equivalents, end of period $ 48   $ 172   $ (124 )   IDEARC INC.Mutli-Product Advertising Sales (dollars in millions)               3 Mos. Ended 3 Mos. Ended 3 Mos. Ended Year Ended Year Ended Year Ended Unaudited 12/31/07 12/31/06 12/31/05 12/31/07 12/31/06 12/31/05     Net Print Products Revenue(1) $ 799 $ 856 $ 868 $ 2,815 $ 2,939 $ 3,032 % Change year-over-year (6.7 %) (1.4 %) (4.2 %) (3.1 %)   Net Internet Revenue(2) 75 63 50 285 230 197 % Change year-over-year 19.0 % 26.0 % 23.9 % 16.8 %               Net Multi-Product Advertising Sales(3) $ 874 $ 919 $ 918 $ 3,100 $ 3,169 $ 3,229 % Change year-over-year (4.9 %) 0.1 % (2.2 %) (1.9 %)               Notes:   (1) Net print products revenue represents the total revenue value (less a provision for sales allowances) of directories published that will be amortized over the life of the directories, which is typically 12 months. Directories from preceding periods have been aligned to match the publication schedule of 2007 publications, allowing for a meaningful comparison of current publications to previous publications.   (2) Net Internet revenue represents total revenue for our fixed-fee and performance-based advertising products less a provision for sales allowances. Fixed-fee advertising includes advertisement placement on our Superpages.com website, and website development and hosting for our advertisers. Revenue from fixed-fee advertisers is recognized monthly over the life of the advertising service. Performance-based advertising revenue is earned when consumers connect with our Superpages.com advertisers by a "click" on their Internet advertising or a phone call to their business. Revenue from performance-based advertising is recognized when there is evidence that qualifying transactions have occurred.   (3) Net multi-product advertising sales is a statistical measure. It is important to distinguish net mult-product advertising sales from total operating revenue, which on our financial statements is recognized under the deferral and amortization method.   About Idearc Inc. Idearc Inc. (NYSE: IAR) delivers products on multiple platforms to help consumers find the information they want, wherever they are. Idearc’s multi-platform of advertising solutions includes Superpages.com®, Superpages MobileSM, Superpages MobileSM for BlackBerry®, Switchboard.com®, LocalSearch.com, Verizon® Yellow Pages, Verizon® White Pages, smaller-sized portable Verizon® Yellow Pages Companion Directories, Solutions At Hand™ magazine, Solutions at Home™ magazine, and Solutions on the Move™ and Solutions Direct™ direct mail packages. For more information, visit www.idearc.com. IAR-G