##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from 
to
 Commission file number 001-07155
 R.H. DONNELLEY CORPORATION
  Delaware
    
    13-2740040(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 1001 Winstead Drive, Cary, N.C.
    
    27513(Address of principal executive offices)
    
    (Zip Code)
 (919) 297-1600
 
 þ o
 þ o o
 o þ
  Title of class
    
    Shares Outstanding at July 16, 2007Common Stock, par value $1 per share
    
    
    71,076,240




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##### Table of Contents



R.H. DONNELLEY CORPORATION
 INDEX TO FORM 10-Q
  PAGEPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2007 and December 31,
2006
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income
(Loss) for the three and six months ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    37PART II.
    
    OTHER INFORMATIONItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    38Item 6.
    
    Exhibits
    
    
    39SIGNATURES
    
    
    
    
    40Exhibit 31.1Exhibit 31.2Exhibit 32.1
 2




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
  
 R.H. Donnelley Corporation and Subsidiaries  Condensed Consolidated Balance Sheets (Unaudited)
 June 30,
    
    
    December 31,(in thousands, except share and per share data)
    
    2007
    
    
    2006AssetsCurrent AssetsCash and cash equivalents
    
    $
    65,006
    
    
    $
    156,249Accounts receivableBilled
    
    
    246,298
    
    
    
    248,334Unbilled
    
    
    956,996
    
    
    
    842,869Allowance for doubtful accounts and sales claims
    
    
    (40,094
    )
    
    
    (42,952
    )Net accounts receivable
    
    
    1,163,200
    
    
    
    1,048,251Deferred directory costs
    
    
    225,490
    
    
    
    211,822Short-term deferred income taxes, net
    
    
    6,668
    
    
    
    Prepaid expenses and other current assets
    
    
    89,191
    
    
    
    115,903Total current assets
    
    
    1,549,555
    
    
    
    1,532,225Fixed assets and computer software, net
    
    
    171,041
    
    
    
    159,362Other non-current assets
    
    
    129,607
    
    
    
    141,619Intangible assets, net
    
    
    11,290,909
    
    
    
    11,477,996Goodwill
    
    
    2,837,883
    
    
    
    2,836,266Total Assets
    
    $
    15,978,995
    
    
    $
    16,147,468Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    159,769
    
    
    $
    169,490Accrued interest
    
    
    174,548
    
    
    
    179,419Deferred directory revenue
    
    
    1,299,325
    
    
    
    1,197,796Short-term deferred income taxes, net
    
    
    
    
    
    
    79,882Current portion of long-term debt
    
    
    353,460
    
    
    
    382,631Total current liabilities
    
    
    1,987,102
    
    
    
    2,009,218Long-term debt
    
    
    9,691,920
    
    
    
    10,020,521Deferred income taxes, net
    
    
    2,211,114
    
    
    
    2,099,102Other non-current liabilities
    
    
    188,481
    
    
    
    197,871Total liabilities
    
    
    14,078,617
    
    
    
    14,326,712Commitments and contingenciesShareholders EquityCommon stock, par value $1 per share, 400,000,000 shares authorized, 88,169,275
shares issued
    
    
    88,169
    
    
    
    88,169Additional paid-in capital
    
    
    2,373,696
    
    
    
    2,341,009Accumulated deficit
    
    
    (391,528
    )
    
    
    (437,496
    )Treasury stock, at cost, 17,095,613 shares at June 30, 2007 and 17,704,558
shares at December 31, 2006
    
    
    (160,861
    )
    
    
    (161,470
    )Accumulated other comprehensive loss
    
    
    (9,098
    )
    
    
    (9,456
    )Total shareholders equity
    
    
    1,900,378
    
    
    
    1,820,756Total Liabilities and Shareholders Equity
    
    $
    15,978,995
    
    
    $
    16,147,468
  3




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R.H. Donnelley Corporation and Subsidiaries  Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
 Three months ended
    
    Six months endedJune 30,
    
    June 30,(in thousands, except per share data)
    
    2007
    
    2006
    
    2007
    
    2006Net revenue
    
    $
    666,590
    
    
    $
    432,350
    
    
    $
    1,329,393
    
    
    $
    752,829ExpensesCost of revenue (exclusive of depreciation and
amortization shown separately below)
    
    
    283,472
    
    
    
    232,642
    
    
    
    578,036
    
    
    
    413,189General and administrative expenses
    
    
    34,806
    
    
    
    40,840
    
    
    
    72,040
    
    
    
    80,013Depreciation and amortization
    
    
    109,149
    
    
    
    85,473
    
    
    
    212,179
    
    
    
    148,165Total expenses
    
    
    427,427
    
    
    
    358,955
    
    
    
    862,255
    
    
    
    641,367Operating income
    
    
    239,163
    
    
    
    73,395
    
    
    
    467,138
    
    
    
    111,462Interest expense, net
    
    
    (199,023
    )
    
    
    (202,148
    )
    
    
    (400,637
    )
    
    
    (355,889
    )Income (loss) before income taxes
    
    
    40,140
    
    
    
    (128,753
    )
    
    
    66,501
    
    
    
    (244,427
    )(Provision) benefit for income taxes
    
    
    (15,217
    )
    
    
    48,926
    
    
    
    (25,629
    )
    
    
    92,882Net income (loss)
    
    
    24,923
    
    
    
    (79,827
    )
    
    
    40,872
    
    
    
    (151,545
    )Preferred dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,974
    )Gain on repurchase of redeemable convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,195Income (loss) available to common shareholders
    
    $
    24,923
    
    
    $
    (79,827
    )
    
    $
    40,872
    
    
    $
    (122,324
    )Earnings (loss) per share:Basic
    
    $
    0.35
    
    
    $
    (1.15
    )
    
    $
    0.58
    
    
    $
    (1.95
    )Diluted
    
    $
    0.34
    
    
    $
    (1.15
    )
    
    $
    0.57
    
    
    $
    (1.95
    )Shares used in computing earnings (loss) per share:Basic
    
    
    71,034
    
    
    
    69,698
    
    
    
    70,656
    
    
    
    62,692Diluted
    
    
    72,511
    
    
    
    69,698
    
    
    
    72,021
    
    
    
    62,692Comprehensive Income (Loss)Net income (loss)
    
    $
    24,923
    
    
    $
    (79,827
    )
    
    $
    40,872
    
    
    $
    (151,545
    )Unrealized gain (loss) on interest rate swaps, net of tax
    
    
    5,249
    
    
    
    6,325
    
    
    
    (380
    )
    
    
    12,491Benefit plans adjustment, net of tax
    
    
    424
    
    
    
    
    
    
    
    738
    
    
    
    Comprehensive income (loss)
    
    $
    30,596
    
    
    $
    (73,502
    )
    
    $
    41,230
    
    
    $
    (139,054
    )
  4




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R.H. Donnelley Corporation and Subsidiaries  Condensed Consolidated Statements of Cash Flows (Unaudited)
 Six months endedJune 30,(in thousands)
    
    2007
    
    2006Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    40,872
    
    
    $
    (151,545
    )Reconciliation of net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    212,179
    
    
    
    148,165Deferred income tax provision (benefit)
    
    
    25,273
    
    
    
    (92,972
    )Provision for bad debts
    
    
    41,244
    
    
    
    28,483Stock based compensation expense
    
    
    21,463
    
    
    
    25,738Other non-cash charges
    
    
    31,961
    
    
    
    34,036Changes in assets and liabilities, net of effects from acquisitions:(Increase) in accounts receivable
    
    
    (156,536
    )
    
    
    (107,590
    )Decrease (increase) in other assets
    
    
    8,622
    
    
    
    (77,041
    )(Decrease) increase in accounts payable and accrued liabilities
    
    
    (20,345
    )
    
    
    25,205Increase in deferred directory revenue
    
    
    101,529
    
    
    
    555,778Increase in other non-current liabilities
    
    
    8,080
    
    
    
    16,259Net cash provided by operating activities
    
    
    314,342
    
    
    
    404,516Cash Flows from Investing ActivitiesAdditions to fixed assets and computer software
    
    
    (37,395
    )
    
    
    (24,625
    )Acquisitions, net of cash received
    
    
    
    
    
    
    (1,889,228
    )Equity investment
    
    
    (2,500
    )
    
    
    Net cash used in investing activities
    
    
    (39,895
    )
    
    
    (1,913,853
    )Cash Flows from Financing ActivitiesProceeds from the issuance of debt, net of costs
    
    
    
    
    
    
    2,514,535Revolver borrowings
    
    
    361,650
    
    
    
    432,500Revolver repayments
    
    
    (390,550
    )
    
    
    (354,600
    )Repurchase of redeemable convertible preferred stock and
redemption of preferred stock purchase rights
    
    
    
    
    
    
    (336,819
    )Credit facilities repayments and note repurchases
    
    
    (347,053
    )
    
    
    (576,766
    )Decrease in checks not yet presented for payment
    
    
    (1,568
    )
    
    
    (1,171
    )Proceeds from employee stock option exercises
    
    
    11,831
    
    
    
    19,269Net cash (used in) provided by financing activities
    
    
    (365,690
    )
    
    
    1,696,948(Decrease) increase in cash and cash equivalents
    
    
    (91,243
    )
    
    
    187,611Cash and cash equivalents, beginning of year
    
    
    156,249
    
    
    
    7,793Cash and cash equivalents, end of period
    
    $
    65,006
    
    
    $
    195,404Supplemental Information:Cash paid:Interest
    
    $
    373,629
    
    
    $
    279,659Income taxes, net
    
    $
    398
    
    
    $
    321
  5




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R.H. Donnelley Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)  (tabular amounts in thousands, except share and per share data)
 1. Business and Basis of Presentation
   2. Summary of Significant Accounting Policies
 Intangible Assets and Goodwill
 Business Combinations Goodwill and Other Intangible Assets
 Interest Expense and Deferred Financing Costs
  6




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Advertising Expense
  Concentration of Credit Risk
   Earnings (Loss) Per Share
 Earnings Per Share . Participating
Securities and the Two-Class Method under FASB Statement 128
  7




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Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Basic EPSIncome (loss) available to common shareholders
    
    $
    24,923
    
    
    $
    (79,827
    )
    
    $
    40,872
    
    
    $
    (122,324
    )Amount allocable to common shareholders (1)
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Income (loss) allocable to common shareholders
    
    
    24,923
    
    
    
    (79,827
    )
    
    
    40,872
    
    
    
    (122,324
    )Weighted average common shares outstanding
    
    
    71,034
    
    
    
    69,698
    
    
    
    70,656
    
    
    
    62,692Basic earnings (loss) per share
    
    $
    0.35
    
    
    $
    (1.15
    )
    
    $
    0.58
    
    
    $
    (1.95
    )Diluted EPSIncome (loss) available to common shareholders
    
    $
    24,923
    
    
    $
    (79,827
    )
    
    $
    40,872
    
    
    $
    (122,324
    )Amount allocable to common shareholders (1)
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Income (loss) allocable to common shareholders
    
    
    24,923
    
    
    
    (79,827
    )
    
    
    40,872
    
    
    
    (122,324
    )Weighted average common shares outstanding
    
    
    71,034
    
    
    
    69,698
    
    
    
    70,656
    
    
    
    62,692Dilutive effect of stock awards and
warrants (2)
    
    
    1,477
    
    
    
    
    
    
    
    1,365
    
    
    
    Dilutive effect of Preferred Stock assuming
conversion(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average diluted shares outstanding
    
    
    72,511
    
    
    
    69,698
    
    
    
    72,021
    
    
    
    62,692Diluted earnings (loss) per share
    
    $
    0.34
    
    
    $
    (1.15
    )
    
    $
    0.57
    
    
    $
    (1.95
    )
 (1)
    
    In computing EPS using the two-class method, we have not allocated the net loss reported for
the six months ended June 30, 2006 between common and preferred shareholders since preferred
shareholders had no contractual obligation to share in the net loss.(2)
    
    Due to the loss allocable to common shareholders reported for the three and six months ended
June 30, 2006, the effect of all stock-based awards, warrants and the assumed conversion of
the Preferred Stock were anti-dilutive and therefore are not included in the calculation of
diluted EPS. For the three months ended June 30, 2007 and 2006, less than 0.1 million and 2.4
million shares, respectively, of stock-based awards had exercise prices that exceeded the
average market price of the Companys common stock for the respective period. For the six
months ended June 30, 2007 and 2006, 1.1 million and 2.3 million shares, respectively, of
stock-based awards had exercise prices that exceeded the average market price of the Companys
common stock for the respective period. For the six months ended June 30, 2006, the assumed
conversion of the Preferred Stock into 0.8 million shares of common stock was anti-dilutive
and therefore not included in the calculation of diluted EPS. Stock-Based Awards
 Share-Based Payment
  8




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Estimates
  New Accounting Pronouncements
  3. Acquisitions
 Determination of the
Measurement Date for the Market Price of Securities Issued in a Purchase Business Combination
   9




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Six Months EndedJune 30, 2006Net revenue
    
    $
    892.7Operating income
    
    
    139.0Net loss
    
    
    (189.8
    )Diluted loss per share
    
    $
    (2.68
    )
  4. Redeemable Preferred Stock and Warrants
      10




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5. Restructuring Charges
  2003
    
    2005
    
    2006Restructuring
    
    Restructuring
    
    RestructuringThree months ended June 30, 2007
    
    Actions
    
    Actions
    
    Actions
    
    TotalBalance at March 31, 2007
    
    $
    960
    
    
    $
    1,891
    
    
    $
    6,336
    
    
    $
    9,187Payments
    
    
    (83
    )
    
    
    (54
    )
    
    
    (1,232
    )
    
    
    (1,369
    )Balance at June 30, 2007
    
    $
    877
    
    
    $
    1,837
    
    
    $
    5,104
    
    
    $
    7,818
 2003
    
    2005
    
    2006Restructuring
    
    Restructuring
    
    RestructuringSix months ended June 30, 2007
    
    Actions
    
    Actions
    
    Actions
    
    TotalBalance at December 31, 2006
    
    $
    971
    
    
    $
    1,943
    
    
    $
    7,615
    
    
    $
    10,529Additions to reserve charged to goodwill
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    96Payments
    
    
    (94
    )
    
    
    (106
    )
    
    
    (2,607
    )
    
    
    (2,807
    )Balance at June 30, 2007
    
    $
    877
    
    
    $
    1,837
    
    
    $
    5,104
    
    
    $
    7,818
  6. Income Taxes
 Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109
 11




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7. Benefit Plans
 Employers Disclosures About Pensions and Other Postretirement
Benefits (Revised 2003),
 12




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Pension BenefitsThree Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    4,009
    
    
    $
    3,585
    
    
    $
    7,291
    
    
    $
    6,329Interest cost
    
    
    4,326
    
    
    
    4,474
    
    
    
    8,859
    
    
    
    7,886Expected return on plan assets
    
    
    (4,720
    )
    
    
    (5,180
    )
    
    
    (9,660
    )
    
    
    (9,387
    )Amortization of prior service cost
    
    
    433
    
    
    
    33
    
    
    
    466
    
    
    
    83Amortization of net loss
    
    
    49
    
    
    
    451
    
    
    
    321
    
    
    
    919Net periodic benefit cost
    
    $
    4,097
    
    
    $
    3,363
    
    
    $
    7,277
    
    
    $
    5,830
 Postretirement BenefitsThree Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    347
    
    
    $
    755
    
    
    $
    984
    
    
    $
    1,270Interest cost
    
    
    1,285
    
    
    
    1,265
    
    
    
    2,662
    
    
    
    2,169Amortization of prior service cost
    
    
    (27
    )
    
    
    202
    
    
    
    403
    
    
    
    444Amortization of net loss
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    91Net periodic benefit cost
    
    $
    1,605
    
    
    $
    2,248
    
    
    $
    4,049
    
    
    $
    3,974
  8. Business Segments
  9. Legal Proceedings
   13




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10. Guarantees
    14




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R.H. Donnelley Corporation
Condensed Consolidating Balance Sheet
June 30, 2007
 R.H. Donnelley
    
    R.H.
    
    
    
    
    
    Non-
    
    
    
    
    
    ConsolidatedCorporation
    
    Donnelley Inc.
    
    Guarantor
    
    Guarantor
    
    
    
    
    
    R.H. Donnelley(Parent)
    
    (Issuer)
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    CorporationAssetsCash and cash equivalents
    
    $
    54,524
    
    
    $
    187
    
    
    $
    2,781
    
    
    $
    7,514
    
    
    $
    
    
    
    $
    65,006Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    468,936
    
    
    
    694,264
    
    
    
    
    
    
    
    1,163,200Deferred directory costs
    
    
    
    
    
    
    
    
    
    
    82,721
    
    
    
    142,769
    
    
    
    
    
    
    
    225,490Short-term deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    39,636
    
    
    
    27,835
    
    
    
    (60,803
    )
    
    
    6,668Prepaid expenses and other current
assets
    
    
    4,335
    
    
    
    18,472
    
    
    
    23,010
    
    
    
    43,374
    
    
    
    
    
    
    
    89,191Total current assets
    
    
    58,859
    
    
    
    18,659
    
    
    
    617,084
    
    
    
    915,756
    
    
    
    (60,803
    )
    
    
    1,549,555Investment in subsidiaries
    
    
    4,586,734
    
    
    
    1,666,958
    
    
    
    
    
    
    
    
    
    
    
    (6,253,692
    )
    
    
    Fixed assets and computer software,
net
    
    
    10,670
    
    
    
    92,429
    
    
    
    8,334
    
    
    
    59,608
    
    
    
    
    
    
    
    171,041Other non-current assets
    
    
    168,714
    
    
    
    105,576
    
    
    
    41,734
    
    
    
    18,233
    
    
    
    (204,650
    )
    
    
    129,607Intercompany notes receivable
    
    
    
    
    
    
    1,621,676
    
    
    
    (1,621,676
    )
    
    
    
    
    
    
    
    
    
    
    Intangible assets, net
    
    
    
    
    
    
    
    
    
    
    2,715,754
    
    
    
    8,575,155
    
    
    
    
    
    
    
    11,290,909Goodwill
    
    
    
    
    
    
    
    
    
    
    315,560
    
    
    
    2,522,323
    
    
    
    
    
    
    
    2,837,883Total Assets
    
    $
    4,824,977
    
    
    $
    3,505,298
    
    
    $
    2,076,790
    
    
    $
    12,091,075
    
    
    $
    (6,519,145
    )
    
    $
    15,978,995Liabilities and Shareholders
EquityAccounts payable and accrued
liabilities
    
    $
    4,201
    
    
    $
    147,337
    
    
    $
    30,029
    
    
    $
    81,298
    
    
    $
    (103,096
    )
    
    $
    159,769Accrued interest
    
    
    90,971
    
    
    
    11,083
    
    
    
    
    
    
    
    72,494
    
    
    
    
    
    
    
    174,548Deferred directory revenue
    
    
    
    
    
    
    
    
    
    
    469,182
    
    
    
    830,143
    
    
    
    
    
    
    
    1,299,325Short-term deferred income taxes, net
    
    
    2,810
    
    
    
    57,993
    
    
    
    
    
    
    
    
    
    
    
    (60,803
    )
    
    
    Current portion of long-term debt
    
    
    
    
    
    
    61,959
    
    
    
    
    
    
    
    291,501
    
    
    
    
    
    
    
    353,460Total current liabilities
    
    
    97,982
    
    
    
    278,372
    
    
    
    499,211
    
    
    
    1,275,436
    
    
    
    (163,899
    )
    
    
    1,987,102Intercompany, net
    
    
    354,615
    
    
    
    (36,149
    )
    
    
    (463,592
    )
    
    
    49,631
    
    
    
    95,495
    
    
    
    Long-term debt
    
    
    2,457,223
    
    
    
    2,403,671
    
    
    
    
    
    
    
    4,831,026
    
    
    
    
    
    
    
    9,691,920Deferred income taxes, net
    
    
    3,001
    
    
    
    
    
    
    
    355,504
    
    
    
    2,034,692
    
    
    
    (182,083
    )
    
    
    2,211,114Other long-term liabilities
    
    
    11,778
    
    
    
    48,032
    
    
    
    18,709
    
    
    
    124,928
    
    
    
    (14,966
    )
    
    
    188,481Shareholders equity
    
    
    1,900,378
    
    
    
    811,372
    
    
    
    1,666,958
    
    
    
    3,775,362
    
    
    
    (6,253,692
    )
    
    
    1,900,378Total Liabilities and Shareholders
Equity
    
    $
    4,824,977
    
    
    $
    3,505,298
    
    
    $
    2,076,790
    
    
    $
    12,091,075
    
    
    $
    (6,519,145
    )
    
    $
    15,978,995
 15




---



##### Table of Contents



R.H. Donnelley Corporation
Condensed Consolidating Balance Sheet
December 31, 2006
 R.H. Donnelley
    
    R.H.
    
    
    
    
    
    Non-
    
    
    
    
    
    ConsolidatedCorporation
    
    Donnelley Inc.
    
    Guarantor
    
    Guarantor
    
    
    
    
    
    R.H. Donnelley(Parent)
    
    (Issuer)
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    CorporationAssetsCash and cash equivalents
    
    $
    122,565
    
    
    $
    1,606
    
    
    $
    3,299
    
    
    $
    28,779
    
    
    $
    
    
    
    $
    156,249Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    441,962
    
    
    
    606,289
    
    
    
    
    
    
    
    1,048,251Deferred directory costs
    
    
    
    
    
    
    
    
    
    
    67,204
    
    
    
    144,618
    
    
    
    
    
    
    
    211,822Prepaid expenses and other
current assets
    
    
    9,485
    
    
    
    22,908
    
    
    
    27,109
    
    
    
    76,159
    
    
    
    (19,758
    )
    
    
    115,903Total current assets
    
    
    132,050
    
    
    
    24,514
    
    
    
    539,574
    
    
    
    855,845
    
    
    
    (19,758
    )
    
    
    1,532,225Investment in subsidiaries
    
    
    4,507,776
    
    
    
    1,620,213
    
    
    
    
    
    
    
    
    
    
    
    (6,127,989
    )
    
    
    Fixed assets and computer
software, net
    
    
    7,258
    
    
    
    80,949
    
    
    
    7,127
    
    
    
    64,028
    
    
    
    
    
    
    
    159,362Other non-current assets
    
    
    148,066
    
    
    
    74,485
    
    
    
    2,212
    
    
    
    19,705
    
    
    
    (102,849
    )
    
    
    141,619Intercompany notes receivable
    
    
    
    
    
    
    2,102,997
    
    
    
    (2,102,997
    )
    
    
    
    
    
    
    
    
    
    
    Intangible assets, net
    
    
    
    
    
    
    
    
    
    
    2,755,624
    
    
    
    8,722,372
    
    
    
    
    
    
    
    11,477,996Goodwill
    
    
    
    
    
    
    
    
    
    
    315,560
    
    
    
    2,520,706
    
    
    
    
    
    
    
    2,836,266Total Assets
    
    $
    4,795,150
    
    
    $
    3,903,158
    
    
    $
    1,517,100
    
    
    $
    12,182,656
    
    
    $
    (6,250,596
    )
    
    $
    16,147,468Liabilities and Shareholders
EquityAccounts payable and accrued
liabilities
    
    $
    8,483
    
    
    $
    35,668
    
    
    $
    36,942
    
    
    $
    88,397
    
    
    $
    
    
    
    $
    169,490Accrued interest
    
    
    90,971
    
    
    
    11,950
    
    
    
    
    
    
    
    76,498
    
    
    
    
    
    
    
    179,419Deferred directory revenue
    
    
    
    
    
    
    
    
    
    
    439,100
    
    
    
    758,696
    
    
    
    
    
    
    
    1,197,796Short-term deferred income
taxes, net
    
    
    
    
    
    
    52,036
    
    
    
    48,907
    
    
    
    
    
    
    
    (21,061
    )
    
    
    79,882Current portion of long-term debt
    
    
    
    
    
    
    112,200
    
    
    
    
    
    
    
    270,431
    
    
    
    
    
    
    
    382,631Total current liabilities
    
    
    99,454
    
    
    
    211,854
    
    
    
    524,949
    
    
    
    1,194,022
    
    
    
    (21,061
    )
    
    
    2,009,218Intercompany, net
    
    
    413,098
    
    
    
    421,302
    
    
    
    (858,320
    )
    
    
    10,986
    
    
    
    12,934
    
    
    
    Long-term debt
    
    
    2,451,873
    
    
    
    2,442,269
    
    
    
    
    
    
    
    5,126,379
    
    
    
    
    
    
    
    10,020,521Deferred income taxes, net
    
    
    
    
    
    
    113
    
    
    
    204,320
    
    
    
    1,994,636
    
    
    
    (99,967
    )
    
    
    2,099,102Other long-term liabilities
    
    
    9,969
    
    
    
    52,366
    
    
    
    25,938
    
    
    
    124,111
    
    
    
    (14,513
    )
    
    
    197,871Shareholders equity
    
    
    1,820,756
    
    
    
    775,254
    
    
    
    1,620,213
    
    
    
    3,732,522
    
    
    
    (6,127,989
    )
    
    
    1,820,756Total Liabilities and
Shareholders Equity
    
    $
    4,795,150
    
    
    $
    3,903,158
    
    
    $
    1,517,100
    
    
    $
    12,182,656
    
    
    $
    (6,250,596
    )
    
    $
    16,147,468
 16




---



##### Table of Contents



R.H. Donnelley Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 2007
 R.H. Donnelley
    
    R.H.
    
    
    
    
    
    Non-
    
    
    
    
    
    ConsolidatedCorporation
    
    Donnelley Inc.
    
    Guarantor
    
    Guarantor
    
    
    
    
    
    R.H. Donnelley(Parent)
    
    (Issuer)
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    CorporationNet revenue
    
    $
    
    
    
    $
    
    
    
    $
    258,041
    
    
    $
    410,322
    
    
    $
    (1,773
    )
    
    $
    666,590Expenses
    
    
    3,782
    
    
    
    18,383
    
    
    
    135,881
    
    
    
    270,996
    
    
    
    (1,615
    )
    
    
    427,427Partnership and equity income
    
    
    58,575
    
    
    
    49,801
    
    
    
    
    
    
    
    
    
    
    
    (108,376
    )
    
    
    Operating income
    
    
    54,793
    
    
    
    31,418
    
    
    
    122,160
    
    
    
    139,326
    
    
    
    (108,534
    )
    
    
    239,163Interest expense, net
    
    
    (53,570
    )
    
    
    (5,973
    )
    
    
    (42,052
    )
    
    
    (97,428
    )
    
    
    
    
    
    
    (199,023
    )Other (loss)
    
    
    
    
    
    
    
    
    
    
    (247
    )
    
    
    
    
    
    
    247
    
    
    
    Income before income taxes
    
    
    1,223
    
    
    
    25,445
    
    
    
    79,861
    
    
    
    41,898
    
    
    
    (108,287
    )
    
    
    40,140(Provision) benefit for
income taxes
    
    
    23,700
    
    
    
    9,112
    
    
    
    (30,060
    )
    
    
    (17,880
    )
    
    
    (89
    )
    
    
    (15,217
    )Net income
    
    $
    24,923
    
    
    $
    34,557
    
    
    $
    49,801
    
    
    $
    24,018
    
    
    $
    (108,376
    )
    
    $
    24,923
 R.H. Donnelley Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 2006
 R.H. Donnelley
    
    R.H.
    
    
    
    
    
    Non-
    
    
    
    
    
    ConsolidatedCorporation
    
    Donnelley Inc.
    
    Guarantor
    
    Guarantor
    
    
    
    
    
    R.H. Donnelley(Parent)
    
    (Issuer)
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    CorporationNet revenue
    
    $
    
    
    
    $
    
    
    
    $
    258,471
    
    
    $
    173,879
    
    
    $
    
    
    
    $
    432,350Expenses
    
    
    2,388
    
    
    
    11,560
    
    
    
    123,657
    
    
    
    222,296
    
    
    
    (946
    )
    
    
    358,955Partnership and equity income
    
    
    (45,581
    )
    
    
    61,204
    
    
    
    
    
    
    
    
    
    
    
    (15,623
    )
    
    
    Operating (loss) income
    
    
    (47,969
    )
    
    
    49,644
    
    
    
    134,814
    
    
    
    (48,417
    )
    
    
    (14,677
    )
    
    
    73,395Interest expense, net
    
    
    (52,455
    )
    
    
    (11,988
    )
    
    
    (35,442
    )
    
    
    (102,263
    )
    
    
    
    
    
    
    (202,148
    )Other income (loss)
    
    
    14
    
    
    
    
    
    
    
    (286
    )
    
    
    
    
    
    
    272
    
    
    
    (Loss) income before income
taxes
    
    
    (100,410
    )
    
    
    37,656
    
    
    
    99,086
    
    
    
    (150,680
    )
    
    
    (14,405
    )
    
    
    (128,753
    )Benefit (provision) for
income taxes
    
    
    20,583
    
    
    
    8,825
    
    
    
    (37,882
    )
    
    
    58,615
    
    
    
    (1,215
    )
    
    
    48,926Net (loss) income
    
    $
    (79,827
    )
    
    $
    46,481
    
    
    $
    61,204
    
    
    $
    (92,065
    )
    
    $
    (15,620
    )
    
    $
    (79,827
    )
 R.H. Donnelley Corporation
Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2007
 R.H. Donnelley
    
    R.H.
    
    
    
    
    
    Non-
    
    
    
    
    
    ConsolidatedCorporation
    
    Donnelley Inc.
    
    Guarantor
    
    Guarantor
    
    
    
    
    
    R.H. Donnelley(Parent)
    
    (Issuer)
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    CorporationNet revenue
    
    $
    
    
    
    $
    
    
    
    $
    515,976
    
    
    $
    816,450
    
    
    $
    (3,033
    )
    
    $
    1,329,393Expenses
    
    
    6,809
    
    
    
    36,313
    
    
    
    272,320
    
    
    
    549,483
    
    
    
    (2,670
    )
    
    
    862,255Partnership and equity income
    
    
    110,052
    
    
    
    99,828
    
    
    
    
    
    
    
    
    
    
    
    (209,880
    )
    
    
    Operating income
    
    
    103,243
    
    
    
    63,515
    
    
    
    243,656
    
    
    
    266,967
    
    
    
    (210,243
    )
    
    
    467,138Interest expense, net
    
    
    (106,534
    )
    
    
    (13,357
    )
    
    
    (82,860
    )
    
    
    (197,886
    )
    
    
    
    
    
    
    (400,637
    )Other (loss)
    
    
    
    
    
    
    
    
    
    
    (452
    )
    
    
    
    
    
    
    452
    
    
    
    Income (loss) before income
taxes
    
    
    (3,291
    )
    
    
    50,158
    
    
    
    160,344
    
    
    
    69,081
    
    
    
    (209,791
    )
    
    
    66,501(Provision) benefit for
income taxes
    
    
    44,163
    
    
    
    18,871
    
    
    
    (60,516
    )
    
    
    (28,058
    )
    
    
    (89
    )
    
    
    (25,629
    )Net income
    
    $
    40,872
    
    
    $
    69,029
    
    
    $
    99,828
    
    
    $
    41,023
    
    
    $
    (209,880
    )
    
    $
    40,872
 17




---



##### Table of Contents



R.H. Donnelley Corporation
Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2006
 R.H. Donnelley
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedCorporation
    
    R.H. Donnelley Inc.
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    R.H. Donnelley(Parent)
    
    (Issuer)
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    CorporationNet revenue
    
    $
    
    
    
    $
    
    
    
    $
    519,840
    
    
    $
    232,989
    
    
    $
    
    
    
    $
    752,829Expenses
    
    
    3,230
    
    
    
    41,356
    
    
    
    246,009
    
    
    
    352,535
    
    
    
    (1,763
    )
    
    
    641,367Partnership and equity income
    
    
    (91,608
    )
    
    
    130,136
    
    
    
    
    
    
    
    
    
    
    
    (38,528
    )
    
    
    Operating (loss) income
    
    
    (94,838
    )
    
    
    88,780
    
    
    
    273,831
    
    
    
    (119,546
    )
    
    
    (36,765
    )
    
    
    111,462Interest expense, net
    
    
    (90,994
    )
    
    
    (29,460
    )
    
    
    (67,903
    )
    
    
    (167,532
    )
    
    
    
    
    
    
    (355,889
    )Other income
    
    
    
    
    
    
    
    
    
    
    (650
    )
    
    
    
    
    
    
    650
    
    
    
    (Loss) income before income
taxes
    
    
    (185,832
    )
    
    
    59,320
    
    
    
    205,278
    
    
    
    (287,078
    )
    
    
    (36,115
    )
    
    
    (244,427
    )Benefit (provision) for
income taxes
    
    
    34,287
    
    
    
    24,473
    
    
    
    (75,142
    )
    
    
    111,674
    
    
    
    (2,410
    )
    
    
    92,882Net (loss) income
    
    
    (151,545
    )
    
    
    83,793
    
    
    
    130,136
    
    
    
    (175,404
    )
    
    
    (38,525
    )
    
    
    (151,545
    )Preferred dividend
    
    
    (1,974
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,974
    )Gain on repurchase of
preferred stock
    
    
    31,195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,195(Loss) income available to
common shareholders
    
    $
    (122,324
    )
    
    $
    83,793
    
    
    $
    130,136
    
    
    $
    (175,404
    )
    
    $
    (38,525
    )
    
    $
    (122,324
    )
 R.H. Donnelley Corporation
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2007
 R.H. Donnelley
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedCorporation
    
    R.H. Donnelley Inc.
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    R.H. Donnelley(Parent)
    
    (Issuer)
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    CorporationCash flow from operating activities
    
    $
    (113,956
    )
    
    $
    87,380
    
    
    $
    60,967
    
    
    $
    276,843
    
    
    $
    3,108
    
    
    $
    314,342Cash flow from investing activities:Additions to fixed assets and
computer software
    
    
    (2,794
    )
    
    
    (22,606
    )
    
    
    (2,092
    )
    
    
    (9,903
    )
    
    
    
    
    
    
    (37,395
    )Equity investment
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Net cash flow used in investing
activities
    
    
    (5,294
    )
    
    
    (22,606
    )
    
    
    (2,092
    )
    
    
    (9,903
    )
    
    
    
    
    
    
    (39,895
    )Cash flow from financing activities:Revolver borrowings
    
    
    
    
    
    
    171,850
    
    
    
    
    
    
    
    189,800
    
    
    
    
    
    
    
    361,650Revolver repayments
    
    
    
    
    
    
    (218,250
    )
    
    
    
    
    
    
    (172,300
    )
    
    
    
    
    
    
    (390,550
    )Credit facilities repayments
    
    
    
    
    
    
    (42,440
    )
    
    
    
    
    
    
    (304,613
    )
    
    
    
    
    
    
    (347,053
    )(Decrease) increase in checks
not yet presented for payment
    
    
    (318
    )
    
    
    2,283
    
    
    
    (2,441
    )
    
    
    (1,092
    )
    
    
    
    
    
    
    (1,568
    )Proceeds from employee stock
option exercises
    
    
    11,831
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,831Excess tax benefit from employee
stock option exercises
    
    
    
    
    
    
    3,108
    
    
    
    
    
    
    
    
    
    
    
    (3,108)
    
    
    
    Intercompany debt
    
    
    
    
    
    
    6,952
    
    
    
    (6,952
    )
    
    
    
    
    
    
    
    
    
    
    Dividends to Parent
    
    
    39,696
    
    
    
    10,304
    
    
    
    (50,000
    )
    
    
    
    
    
    
    
    
    
    
    Net cash flow (used in) provided by
financing activities
    
    
    51,209
    
    
    
    (66,193
    )
    
    
    (59,393
    )
    
    
    (288,205
    )
    
    
    (3,108
    )
    
    
    (365,690
    )Change in cash
    
    
    (68,041
    )
    
    
    (1,419
    )
    
    
    (518
    )
    
    
    (21,265
    )
    
    
    
    
    
    
    (91,243
    )Cash at beginning of year
    
    
    122,565
    
    
    
    1,606
    
    
    
    3,299
    
    
    
    28,779
    
    
    
    
    
    
    
    156,249Cash at end of period
    
    $
    54,524
    
    
    $
    187
    
    
    $
    2,781
    
    
    $
    7,514
    
    
    $
    
    
    
    $
    65,006
 18




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##### Table of Contents



R.H. Donnelley Corporation
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2006
 R.H. Donnelley
    
    
    
    
    
    
    
    
    
    Non-
    
    
    
    
    
    ConsolidatedCorporation
    
    R.H. Donnelley Inc.
    
    Guarantor
    
    Guarantor
    
    
    
    
    
    R.H. Donnelley(Parent)
    
    (Issuer)
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    CorporationCash flow from operations
    
    $
    46,093
    
    
    $
    134,693
    
    
    $
    32,470
    
    
    $
    162,850
    
    
    $
    28,410
    
    
    $
    404,516Cash flow from investing activities:Additions to fixed assets and
computer software
    
    
    (71
    )
    
    
    (13,687
    )
    
    
    (807
    )
    
    
    (10,060
    )
    
    
    
    
    
    
    (24,625
    )Acquisitions, net of cash received
    
    
    (1,756,051
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (133,177
    )
    
    
    (1,889,228
    )Net cash flow used in investing
activities
    
    
    (1,756,122
    )
    
    
    (13,687
    )
    
    
    (807
    )
    
    
    (10,060
    )
    
    
    (133,177
    )
    
    
    (1,913,853
    )Cash flow from financing activitiesProceeds from issuance of debt,
net of costs
    
    
    2,079,159
    
    
    
    (1,397
    )
    
    
    
    
    
    
    443,180
    
    
    
    (6,407
    )
    
    
    2,514,535Revolver borrowings
    
    
    
    
    
    
    98,200
    
    
    
    
    
    
    
    334,300
    
    
    
    
    
    
    
    432,500Revolver repayments
    
    
    
    
    
    
    (77,400
    )
    
    
    
    
    
    
    (277,200
    )
    
    
    
    
    
    
    (354,600
    )Repurchase of redeemable
convertible preferred stock
    
    
    (336,819
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (336,819
    )Credit facilities repayments and
note repurchases
    
    
    
    
    
    
    (173,459
    )
    
    
    
    
    
    
    (406,221
    )
    
    
    2,914
    
    
    
    (576,766
    )(Decrease) increase in checks not
yet presented for payment
    
    
    
    
    
    
    642
    
    
    
    (1,551
    )
    
    
    (262
    )
    
    
    
    
    
    
    (1,171
    )Proceeds from employee stock option
exercises
    
    
    19,269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,269Dividends to Parent
    
    
    137,745
    
    
    
    30,000
    
    
    
    (30,000
    )
    
    
    (265,745
    )
    
    
    128,000
    
    
    
    Net cash flow provided by (used
in) financing activities
    
    
    1,899,354
    
    
    
    (123,414
    )
    
    
    (31,551
    )
    
    
    (171,948
    )
    
    
    124,507
    
    
    
    1,696,948Change in cash
    
    
    189,325
    
    
    
    (2,408
    )
    
    
    112
    
    
    
    (19,158
    )
    
    
    19,740
    
    
    
    187,611Cash at beginning of year
    
    
    830
    
    
    
    2,703
    
    
    
    4,260
    
    
    
    19,740
    
    
    
    (19,740
    )
    
    
    7,793Cash at end of period
    
    $
    190,155
    
    
    $
    295
    
    
    $
    4,372
    
    
    $
    582
    
    
    $
    
    
    
    $
    195,404
 11. Subsequent Events
   19




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Information
  Corporate Overview
  ®
 Segment Reporting
  New Accounting Pronouncements
  20




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##### Table of Contents



RESULTS OF OPERATIONS
Three and six months ended June 30, 2007 and 2006
 Factors Affecting Comparability
 Acquisitions
  GAAP Reported Results
 Net Revenue
  Three Months Ended June 30,
    
    Six Months Ended June 30,(amounts in millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeGross directory advertising
revenue
    
    $
    670.8
    
    
    $
    431.3
    
    
    $
    239.5
    
    
    $
    1,339.4
    
    
    $
    754.2
    
    
    $
    585.2Sales claims and allowances
    
    
    (14.7
    )
    
    
    (7.3
    )
    
    
    (7.4
    )
    
    
    (31.4
    )
    
    
    (15.3
    )
    
    
    (16.1
    )Net directory advertising revenue
    
    
    656.1
    
    
    
    424.0
    
    
    
    232.1
    
    
    
    1,308.0
    
    
    
    738.9
    
    
    
    569.1Other revenue
    
    
    10.5
    
    
    
    8.3
    
    
    
    2.2
    
    
    
    21.4
    
    
    
    13.9
    
    
    
    7.5Total
    
    $
    666.6
    
    
    $
    432.3
    
    
    $
    234.3
    
    
    $
    1,329.4
    
    
    $
    752.8
    
    
    $
    576.6
  21




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##### Table of Contents



22




---



##### Table of Contents



Expenses
  Three Months Ended June 30,
    
    Six Months Ended June 30,(amounts in millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeCost of revenue
    
    $
    283.5
    
    
    $
    232.6
    
    
    $
    50.9
    
    
    $
    578.0
    
    
    $
    413.1
    
    
    $
    164.9General and administrative expenses
    
    
    34.8
    
    
    
    40.8
    
    
    
    (6.0
    )
    
    
    72.0
    
    
    
    80.0
    
    
    
    (8.0
    )Depreciation and amortization
    
    
    109.1
    
    
    
    85.5
    
    
    
    23.6
    
    
    
    212.2
    
    
    
    148.2
    
    
    
    64.0Total
    
    $
    427.4
    
    
    $
    358.9
    
    
    $
    68.5
    
    
    $
    862.2
    
    
    $
    641.3
    
    
    $
    220.9
  Cost of Revenue
  Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007(amounts in millions)
    
    $ Change
    
    $ ChangeExpenses related to the Dex Media business excluded
from the three and six months ended June 30, 2006 due to
purchase accounting from the Dex Media Merger
    
    $
    61.3
    
    
    $
    170.3Increased internet production and distribution costs
    
    
    5.7
    
    
    
    13.2Increased information technology (IT) expenses
    
    
    5.2
    
    
    
    13.1Decreased cost uplift expense
    
    
    (26.5
    )
    
    
    (22.9
    )All other
    
    
    5.2
    
    
    
    (8.8
    )Total increase in cost of
revenue for the three and
six months ended June 30,
2007
    
    $
    50.9
    
    
    $
    164.9
  23




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##### Table of Contents



General and Administrative Expenses
  Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007(amounts in millions)
    
    $ Change
    
    $ ChangeDecreased general corporate expenses
    
    $
    (1.7
    )
    
    $
    (4.8
    )All other
    
    
    (4.3
    )
    
    
    (3.2
    )Total decrease in
G&A expenses for the
three and six months
ended June 30, 2007
    
    $
    (6.0
    )
    
    $
    (8.0
    )
 24




---



##### Table of Contents



Depreciation and Amortization
  Operating Income
  Three Months Ended June 30,
    
    Six Months Ended June 30,(amounts in millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeTotal
    
    $
    239.2
    
    
    $
    73.4
    
    
    $
    165.8
    
    
    $
    467.1
    
    
    $
    111.5
    
    
    $
    355.6
   Interest Expense, Net
  25




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##### Table of Contents









Income Taxes




Net Income (Loss), Loss Available to Common Shareholders and Earnings (Loss) Per Share








Earnings Per Share . Participating Securities and the Two-Class Method under FASB Statement 128 26




---



##### Table of Contents











Adjusted and Adjusted Pro Forma Amounts and Other Non-GAAP Measures




2007 Reported GAAP Operating Income Compared to 2006 Adjusted and Adjusted Pro Forma Operating
Income




Three Months EndedJune 30, 2007Reported(amounts in millions)
    
    GAAPNet revenue
    
    $
    666.6Expenses, other than D&A
    
    
    318.3D&A
    
    
    109.1Operating income
    
    $
    239.2


27



---



##### Table of Contents



Three Months Ended June 30, 2006Reported(amounts in millions)
    
    GAAP
    
    Adjustments
    
    AdjustedNet revenue
    
    $
    432.3
    
    
    $
    244.4
    (1)
    
    $
    676.7Expenses, other than D&A
    
    
    273.4
    
    
    
    27.4
    (2)
    
    
    300.8D&A
    
    
    85.5
    
    
    
    
    
    
    
    85.5Operating income
    
    $
    73.4
    
    
    $
    217.0
    
    
    $
    290.4
 Six Months EndedJune 30, 2007Reported(amounts in millions)
    
    GAAPNet revenue
    
    $
    1,329.4Expenses, other than D&A
    
    
    650.1D&A
    
    
    212.2Operating income
    
    $
    467.1
 Six Months Ended June 30, 2006Reported
    
    
    
    Adjusted(amounts in millions)
    
    GAAP
    
    Adjustments
    
    Pro FormaNet revenue
    
    $
    752.8
    
    
    $
    600.3
    (1)
    
    $
    1,353.1Expenses, other than D&A
    
    
    493.1
    
    
    
    125.0
    (2)
    
    
    618.1D&A
    
    
    148.2
    
    
    
    20.4
    (3)
    
    
    168.6Operating income
    
    $
    111.5
    
    
    $
    454.9
    
    
    $
    566.4
 
 (1)
    
    Represents all deferred revenue for directories that published prior to the Dex Media Merger,
which would have been recognized during the period absent purchase accounting required under
GAAP. Adjustments for the six months ended June 30, 2006 also include GAAP revenue for January
2006 as reported by Dex Media.(2)
    
    Represents (a) certain deferred expenses for directories that published prior to the Dex
Media Merger, which would have been recognized during the period absent purchase accounting
required under GAAP, (b) for the six months ended June 30, 2006, GAAP expenses for January
2006 as reported by Dex Media, (c) for the six months ended June 30, 2006, exclusion of
transaction expenses reported by Dex Media in January 2006 directly related to the Dex Media
Merger and (d) the exclusion of cost uplift recorded under purchase accounting associated with
the Dex Media Merger and the AT&T Directory Acquisition for the three and six months ended
June 30, 2006.(3)
    
    Represents the additional amortization expense related to the identifiable intangible assets
acquired in the Dex Media Merger over their estimated useful lives, assuming the Dex Media
Merger was consummated on January 1, 2006. 28




---



##### Table of Contents



2007 Reported GAAP Net Revenue Compared to 2006 Adjusted and Adjusted Pro Forma Net Revenue
  Three Months EndedJune 30, 2007Reported(amounts in millions)
    
    GAAPGross directory advertising revenue
    
    $
    670.8Sales claims and allowances
    
    
    (14.7
    )Net directory advertising revenue
    
    
    656.1Other revenue
    
    
    10.5Net revenue
    
    $
    666.6
 Three Months Ended June 30, 2006Reported(amounts in millions)
    
    GAAP
    
    Adjustments
    
    AdjustedGross directory advertising revenue
    
    $
    431.3
    
    
    $
    248.0
    (1)
    
    $
    679.3Sales claims and allowances
    
    
    (7.3
    )
    
    
    (7.6
    )(1)
    
    
    (14.9
    )Net directory advertising revenue
    
    
    424.0
    
    
    
    240.4
    
    
    
    664.4Other revenue
    
    
    8.3
    
    
    
    4.0
    (2)
    
    
    12.3Net revenue
    
    $
    432.3
    
    
    $
    244.4
    
    
    $
    676.7
 Six Months EndedJune 30, 2007Reported(amounts in millions)
    
    GAAPGross directory advertising revenue
    
    $
    1,339.4Sales claims and allowances
    
    
    (31.4
    )Net directory advertising revenue
    
    
    1,308.0Other revenue
    
    
    21.4Net revenue
    
    $
    1,329.4
 29




---



##### Table of Contents



Six Months Ended June 30, 2006Reported
    
    
    
    
    
    Adjusted(amounts in millions)
    
    GAAP
    
    Adjustments
    
    Pro FormaGross directory advertising revenue
    
    $
    754.2
    
    
    $
    604.3
    (1)
    
    $
    1,358.5Sales claims and allowances
    
    
    (15.3
    )
    
    
    (14.4
    )(1)
    
    
    (29.7
    )Net directory advertising revenue
    
    
    738.9
    
    
    
    589.9
    
    
    
    1,328.8Other revenue
    
    
    13.9
    
    
    
    10.4
    (2)
    
    
    24.3Net revenue
    
    $
    752.8
    
    
    $
    600.3
    
    
    $
    1,353.1
 (1)
    
    Represents gross directory advertising revenue and sales claims and allowances for
directories that published prior to the Dex Media Merger, which would have been recognized
during the period absent purchase accounting required under GAAP. Adjustments for the six
months ended June 30, 2006 also include GAAP results for January 2006 as reported by Dex
Media.(2)
    
    Other revenue includes barter revenue, late fees paid on outstanding customer balances,
commissions earned on sales contracts with respect to advertising placed into other
publishers directories, sales of directories and certain other print and internet
products.  2007 Reported GAAP Expenses Compared to 2006 Adjusted and Adjusted Pro Forma Expenses
  Three Months
    
    Six MonthsEnded
    
    EndedJune 30, 2007
    
    June 30, 2007(amounts in millions)
    
    $ Change
    
    $ ChangeIncreased cost uplift expense
    
    $
    7.6
    
    
    $
    24.6Increased internet production and distribution costs
    
    
    5.7
    
    
    
    9.8Increased information technology (IT) expenses
    
    
    5.2
    
    
    
    8.3Decreased general corporate expenses
    
    
    (1.4
    )
    
    
    (8.6
    )All other
    
    
    0.4
    
    
    
    (2.1
    )Total increase in 2007 reported GAAP cost of
revenue and G&A expenses compared to 2006 adjusted
and adjusted pro forma cost of revenue and G&A
expenses
    
    $
    17.5
    
    
    $
    32.0
 30




---



##### Table of Contents



2007 Reported GAAP Operating Income Compared to 2006 Adjusted and Adjusted Pro Forma Operating
Income
   31




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  June 30, 2007
    
    December 31, 2006RHD6.875% Senior Notes due 2013
    
    $
    300,000
    
    
    $
    300,0006.875% Series A-1 Senior Discount Notes due 2013
    
    
    337,306
    
    
    
    335,4016.875% Series A-2 Senior Discount Notes due 2013
    
    
    609,917
    
    
    
    606,4728.875% Series A-3 Senior Notes due 2016
    
    
    1,210,000
    
    
    
    1,210,000R.H. Donnelley Inc. (RHDI)Credit Facility
    
    
    1,857,696
    
    
    
    1,946,5358.875% Senior Notes due 2010
    
    
    7,934
    
    
    
    7,93410.875% Senior Subordinated Notes due 2012
    
    
    600,000
    
    
    
    600,000Dex Media, Inc.8% Senior Notes due 2013
    
    
    512,894
    
    
    
    513,6639% Senior Discount Notes due 2013
    
    
    690,567
    
    
    
    663,153Dex Media EastCredit Facility
    
    
    581,782
    
    
    
    656,5719.875% Senior Notes due 2009
    
    
    472,465
    
    
    
    476,67712.125% Senior Subordinated Notes due 2012
    
    
    387,098
    
    
    
    390,314Dex Media WestCredit Facility
    
    
    1,238,593
    
    
    
    1,450,9178.5% Senior Notes due 2010
    
    
    401,037
    
    
    
    403,2605.875% Senior Notes due 2011
    
    
    8,780
    
    
    
    8,7869.875% Senior Subordinated Notes due 2013
    
    
    829,311
    
    
    
    833,469Total RHD Consolidated
    
    
    10,045,380
    
    
    
    10,403,152Less current portion
    
    
    353,460
    
    
    
    382,631Long-term debt
    
    $
    9,691,920
    
    
    $
    10,020,521
 Business Combinations
 Initial Fair Value
    
    Unamortized FairBook Value at
    
    Fair Value at
    
    Adjustment at
    
    Value Adjustment at(amounts in millions)
    
    January 31, 2006
    
    January 31, 2006
    
    January 31, 2006
    
    June 30, 2007Dex Media Credit Facilities
    
    $
    1,950.1
    
    
    $
    1,950.1
    
    
    $
    
    
    
    $
    Dex Media, Inc. 8% Senior Notes
    
    
    500.0
    
    
    
    515.0
    
    
    
    15.0
    
    
    
    12.9Dex Media, Inc. 9% Senior Discount Notes
    
    
    598.8
    
    
    
    616.0
    
    
    
    17.2
    
    
    
    15.4Dex Media East 9.875% Senior Notes
    
    
    450.0
    
    
    
    484.3
    
    
    
    34.3
    
    
    
    22.8Dex Media East 12.125% Senior Subordinated Notes
    
    
    341.3
    
    
    
    395.9
    
    
    
    54.6
    
    
    
    45.8Dex Media West 8.5% Senior Notes
    
    
    385.0
    
    
    
    407.1
    
    
    
    22.1
    
    
    
    16.0Dex Media West 5.875% Senior Notes
    
    
    300.0
    
    
    
    300.1
    
    
    
    0.1
    
    
    
    0.1Dex Media West 9.875% Senior Subordinated Notes
    
    
    761.8
    
    
    
    840.8
    
    
    
    79.0
    
    
    
    67.7Total Dex Media Outstanding Debt at January 31, 2006
    
    $
    5,287.0
    
    
    $
    5,509.3
    
    
    $
    222.3
    
    
    $
    180.7
 32




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##### Table of Contents




    
    $40.9 million in net income.
    
    $332.1 million of net non-cash charges primarily consisting of $212.2 million of
depreciation and amortization, $41.2 million in bad debt provision, $21.5 million of
stock-based compensation expense, $31.9 million in other non-cash charges, primarily
related to the amortization of deferred financing costs and amortization of the fair
value adjustments required by GAAP as a result of the Dex Media Merger, and $25.3
million in deferred income taxes.
    
    $55.0 million net use of cash from an increase in accounts receivable of $156.5
million, offset by an increase in deferred directory revenue of $101.5 million. The
change in deferred revenue 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 revenue and
billed to customers.
 33




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##### Table of Contents




    
    $8.6 million net source of cash from a decrease in other assets, consisting of a $22.6
million decrease in prepaid expenses, offset by a $14.0 million increase 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 Companys interest rate swap
agreements.
    
    $20.3 million net use of cash from a decrease in accounts payable and accrued
liabilities, primarily reflecting a $17.9 million decrease in accrued liabilities,
including accrued salaries and related bonuses, and a $4.9 million decrease in accrued
interest payable on outstanding debt, offset by a $2.5 million increase in trade
accounts payable.
    
    $8.0 million increase in other non-current liabilities, including pension and
postretirement long-term liabilities.
  
    
    $37.4 million used to purchase fixed assets, primarily computer equipment, software
and leasehold improvements.
    
    $2.5 million used to fund an equity investment.
  
    
    $737.6 million in principal payments on debt borrowed under each of the credit
facilities. Of this amount, $143.0 million represents scheduled principal payments,
$204.0 million represents principal payments made on an accelerated basis, at our
option, from available cash flow generated from operations and $390.6 million represents
principal payments on the revolvers.
    
    $361.6 million source in borrowings under the revolvers.
    
    $11.8 million in proceeds from the exercise of employee stock options.
    
    $1.5 million used in the decreased balance of checks not yet presented for payment.
  
    
    $151.5 million in net loss.
    
    $143.4 million of net non-cash charges primarily consisting of $148.2 million of
depreciation and amortization, $28.5 million in bad debt provision, $25.7 million of
stock-based compensation expense and $34.0 million in other non-cash charges, offset by
$93.0 million in deferred taxes.
    
    $448.2 million net source of cash from a $555.8 million increase in deferred
directory revenue, offset by an increase in accounts receivable of $107.6 million. The
change in deferred revenue 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, a proportionate share of the billable value (typically one twelfth) is
recognized as revenue and billed to customers. Additionally, under purchase accounting
rules, deferred revenue was not recorded on directories that were published prior to the
Dex Media Merger, however we retained all of the rights associated with the collection
of amounts due under the advertising contracts executed prior to the Dex Media Merger.
    
    $77.0 million net use of cash from an increase in other assets, consisting of a $37.9
million increase in prepaid expenses, primarily related to deferred directory costs
associated with directories not yet published, a $35.3 million increase in deferred
directory costs and a $3.8 million increase in other current and non-current assets.
 34




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##### Table of Contents




    
    $25.2 million net source of cash from a increase in accounts payable and accrued
liabilities, primarily reflecting a $62.2 million increase in accrued interest payable on
outstanding debt, a $4.2 million increase in trade accounts payable and a $3.3 increase
in other current liabilities, offset by a $44.5 million decrease in accrued liabilities,
including accrued salaries and related accrued bonuses.
    
    $16.2 million increase in other non-current liabilities, including pension and
postretirement long-term liabilities.
  
    
    $24.6 million used to purchase fixed assets, primarily computer equipment, software
and leasehold improvements.
    
    $1,889.2 million in cash payments in connection with the Dex Media Merger, including
merger fees net of cash received from Dex Media.
  
    
    $2,514.5 million in net borrowings, consisting of $2,142.5 million related to the
Series A-2 Senior Discount Notes and Series A-3 Senior Notes, which were used to fund
the cash portion of the Dex Media Merger, and Series A-1 Senior Discount Notes, which
were used to fund the GS Repurchase. Net borrowings also consist of $444.2 million of
the Dex Media West tranche B-1 term loan, $150.0 million of which was used to fund the
cash portion of the Dex Media Merger and $294.2 million of which was used to fund the
purchase of the 5.875% Dex Media West Senior Notes, 9.875% Dex Media West Senior
Subordinated Notes and 9% Dex Media, Inc. Senior Discount Notes in conjunction with
change of control offers. These borrowings were net of financing costs of $72.2 million.
    
    $931.4 million in principal payments on debt borrowed under each of the credit
facilities. Of this amount, $149.9 million represents scheduled principal payments,
$135.0 million represents principal payments made on an accelerated basis, at our
option, from excess cash flow generated from operations, $291.9 represents Dex Media
senior notes put back to the Company for repurchase and $354.6 million represents
principal payments on each of the revolvers.
    
    $336.8 million used to repurchase the remaining 100,301 shares of our Preferred Stock
in January 2006 and to redeem preferred stock purchase rights under our stockholder
rights plan in May 2006.
    
    $432.5 million source in borrowings under the revolvers.
    
    $19.3 million in proceeds from the exercise of employee stock options.
    
    $1.2 million in the decreased balance of checks not yet presented for payment.
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##### Table of Contents



Contractual Obligations
 Accounting
for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109
  
 Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk and Risk Management
       36




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Market Risk Sensitive Instruments
 Accounting for Derivative
Instruments and Hedging Activities , Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FAS 133 Amendment of Statement 133 on Derivative Instruments and Hedging Activities
  
 Controls and Procedures
 (a)
    
    Evaluation of Disclosure Controls and Procedures.Based on
their evaluation, as of the end of the period covered by
this Quarterly Report on Form 10-Q, of the effectiveness of
the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) the principal executive
officer and principal financial officer of the Company have
each 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 Exchange Act of 1934
is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange
Commissions rules and forms.(b)
    
    Changes in Internal Control Over Financial Reporting.There
have not been any changes in the Companys internal control
over financial reporting that occurred during the Companys
most recent fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
 37




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##### Table of Contents



PART II. OTHER INFORMATION
 
   VotesName
    
    Votes For
    
    Withheld/Against
    
    AbstentionsEdwina D. Woodbury
    
    
    61,332,754
    
    
    
    104,295
    
    
    
    40,725Alan F. Schultz
    
    
    61,326,401
    
    
    
    116,059
    
    
    
    35,314Barry Lawson Williams
    
    
    61,210,379
    
    
    
    236,077
    
    
    
    31,318
   Votes Withheld/Votes For
    
    Against
    
    AbstentionsRatification of the appointment of KPMG
    
    
    61,386,961
    
    
    
    55,371
    
    
    
    35,442
  Votes Withheld/Votes For
    
    Against
    
    AbstentionsStockholder
proposal regarding
classified board
structure
    
    
    46,167,393
    
    
    
    12,171,981
    
    
    
    36,441
  38




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##### Table of Contents



Exhibits
 Exhibit No.
    
    Document31.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 by David C. Swanson, Chairman and Chief
Executive Officer of R.H. Donnelley Corporation under Section
302 of the Sarbanes-Oxley Act31.2*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 by Steven M. Blondy, Executive Vice
President and Chief Financial Officer of R.H. Donnelley
Corporation under Section 302 of the Sarbanes-Oxley Act32.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 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 R.H. Donnelley Corporation
 
 *
    
    Filed herewith. 39




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##### Table of Contents



SIGNATURES
  R.H. DONNELLEY CORPORATIONDate: July 27, 2007
    By:
    /s/ Steven M. BlondySteven M. BlondyExecutive Vice President and Chief Financial Officer
(Principal Financial Officer) /s/ Karen E. PalczukKaren E. PalczukInterim Controller and Assistant Vice President -
Process and Performance Management
(Interim Principal Accounting Officer) 40




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Document31.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 by David C. Swanson, Chairman and Chief
Executive Officer of R.H. Donnelley Corporation under Section
302 of the Sarbanes-Oxley Act31.2*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 by Steven M. Blondy, Executive Vice
President and Chief Financial Officer of R.H. Donnelley
Corporation under Section 302 of the Sarbanes-Oxley Act32.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 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 R.H. Donnelley Corporation
 
 *
    
    Filed herewith. 41