##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


For Annual and Transition Reports Pursuant


to Sections 13 or 15(d) of the Securities Exchange Act
of 1934


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2004                                                 
|          
|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


(Exact name of registrant as specified in its charter)


|                                                                           |  |                                  
|-------------------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                                   |  | 13-2740040                       
|(State of Incorporation)                                                   |  | (IRS Employer Identification No.)
|                                                                          
|1001 Winstead Drive,
    Cary, N.C(Address of Principal Executive Offices) |  | 27513(Zip Code)                  

Registrants telephone number, including area code


(919) 297-1600


Securities registered pursuant to Section 12(b) of the
Act:


|                                     |  |                                     
|------------------------------------ |  | ------------------------------------
|Title of Class                       |  | Name of Exchange on Which Registered
|                                     |  |                                     
|Common Stock, par value $1 per share |  | New York Stock Exchange             

Securities registered pursuant to Section 12(g) of the
Act:


None


þ o


o


þ o


(continued)










---



##### 





Commission file number 333-59287


R.H. DONNELLEY INC.*


(Exact name of registrant as specified in its charter)


|                                                                            |  |                                  
|--------------------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                                    |  | 36-2467635                       
|(State of Incorporation)                                                    |  | (IRS Employer Identification No.)
|1001 Winstead Drive,
    Cary, N.C.(Address of Principal Executive Offices) |  | 27513(Zip Code)                  

Registrants telephone number, including area code


(919) 297-1600




|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | R.H. Donnelley Inc. is a wholly owned subsidiary of R.H.
    Donnelley Corporation. R.H. Donnelley Inc. meets the conditions
    set forth in General Instructions I 1(a) and (b) of
    Form 10-K and is therefore filing this report with respect
    to R.H. Donnelley Inc. with the reduced disclosure format. R.H.
    Donnelley Inc. became subject to the filing requirements of
    Section 15(d) on October 1, 1998 in connection with
    the public offer and sale of its 9.125% Senior Subordinated
    Notes, which Notes were redeemed in full on February 6,
    2004. In addition, R.H. Donnelley Inc. is the obligor of
    8.875% Senior Notes due 2010 and 10.875% Senior
    Subordinated Notes due 2012 and is now subject to the filing
    requirements of Section 15(d) as a result of such notes. As
    of March 4, 2005, 100 shares of R.H. Donnelley Inc.
    common stock, no par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE


|         |  |                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                           
|-------- |  | -------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Part III |  |                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                           
|Item 10  |  | Directors and Executive Officers of the Registrant                                                 |  | Information responsive to this Item can be found under the
    captions Board of Directors and
    Section 16(a) Beneficial Ownership Reporting
    Compliance in the Companys Proxy Statement to be
    filed with the Commission prior to March 31, 2005.                                                                          
|Item 11  |  | Executive Compensation                                                                             |  | Information responsive to this Item can be found under the
    caption Director and Executive Compensation in the
    Companys Proxy Statement to be filed with the Commission
    prior to March 31, 2005.                                                                                                                            
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters |  | Information responsive to this Item can be found under the
    caption Security Ownership of Certain Beneficial Owners
    and Management in the Companys Proxy Statement to be
    filed with the Commission prior to March 31, 2005.                                                                                                 
|Item 13  |  | Certain Relationships and Related Transactions                                                     |  | Information responsive to this Item can be found under the
    caption Director and Executive Compensation 
    Compensation Committee Interlocks and Insider Participation;
    Certain Relationships and Related Party Transactions in
    the Companys Proxy Statement to be filed with the
    Commission prior to March 31, 2005.
|Item 14  |  | Principal Accountant Fees and Services                                                             |  | Information responsive to this Item can be found under the
    caption Board of Directors-Committees of the Board of
    Directors-Audit and Finance Committee and 
    Report of the Audit and Finance Committee-Fees in
    the Companys Proxy Statement to be filed with the
    Commission prior to March 31, 2005.             



---



##### 



PART I




|        |         
|------- | --------
|ITEM 1. | BUSINESS

www.rhd.com www.sec.gov


Corporate Overview


www.bestredyp.com www.chicagolandyp.com www.SMARTpages.com










1



---



##### 





Acquisitions


SBC Directory Acquisition






SPA Acquisition






2



---



##### 







Historical Overview of Donnelley






Products and Services




3



---



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Print Directory Products








|                                             |  |                                                                                                                                                         
|-------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|Type                                         |  | Description                                                                                                                                             
|                                            
|Stylized listings for white and yellow pages |  | Listings appearing in-column consist of name, address and
    telephone number and are available in a variety of type styles
    and limited color      
|Trade items                                  |  | Advertising space, designed to promote brand name of product or
    service, placed alphabetically within the column listings of the
    yellow pages   
|Space items                                  |  | Advertising space sold
    in1/2
    inch increments appearing alphabetically within the column
    listings of the yellow pages                        
|Display ads                                  |  | Advertising placed within a heading by size and then by
    seniority  our ad sizes range from a quarter column
    to a double full page              
|Color                                        |  | Various levels of color sophistication including spot-four
    color, enhanced color, process photo and hi-impact are available
    for display products
|White pages logos                            |  | Listings allowing space for illustrative art work                                                                                                       

4



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##### 







|                                                   |  |                                                                                                                                                                                                                            
|-------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Type                                               |  | Description                                                                                                                                                                                                                
|                                                  
|Cover products                                     |  | Advertising sold on the bottom of the front cover, the inside
    front cover, the inside back cover, the outside back cover and
    spine                                                                                 
|Tabs                                               |  | Full page advertising bound into the directory, offering front
    and back space printed on card stock with a tab protrusion or
    die-cut indented tab                                                                  
|Ride-alongs                                        |  | Advertising pieces placed outside the directory, either in the
    delivery bag during initial distribution of a new directory
    publication or shrink-wrapped to the directory when sending a
    book to a new resident
|Blow-in cards                                      |  | Loose postcard-like products inserted into directories                                                                                                                                                                     
|Guides (Golf, Menu, Local Attractions, Maps, etc.) |  | Sections in the directories on a specific interest area with
    feature information and banner advertising                                                                                                                

Online products








Business Cycle Overview




5



---



##### 





Marketing




Sales




Local Sales Organization




National Sales Organization




Pre-Press Publishing




Printing and Distribution




6



---



##### 







Billing, Credit and Collection




Customer Service




Competition


Print Yellow Pages Advertising Sales






7



---



##### 





Competition with Other Traditional Media






The Internet








8



---



##### 







Raw Materials




Intellectual Property








Employees




9



---



##### 



Executive Officers of the Registrant




|                   |  |     |    |  |             |                                                                   
|------------------ |  | --- | -- |  | ----------- | ------------------------------------------------------------------
|Name               |  | Age |    |  | Position(s)
|                  
|David C. Swanson   |  |     | 50 |  |             | Chairman of the Board and Chief Executive Officer                 
|Peter J. McDonald  |  |     | 54 |  |             | President and Chief Operating Officer                             
|Steven M. Blondy   |  |     | 45 |  |             | Senior Vice President and Chief Financial Officer                 
|George F. Bednarz  |  |     | 51 |  |             | Vice President  Corporate Planning and Information
    Technology
|Robert J. Bush     |  |     | 39 |  |             | Vice President, General Counsel and Corporate Secretary           
|William M. Hammack |  |     | 56 |  |             | Vice President  Strategy and Business Development                
|Debra M. Ryan      |  |     | 53 |  |             | Vice President  Human Resources                                  
|Michael R. Boyce   |  |     | 44 |  |             | Vice President  Chief Marketing Officer                          
|Jenny L. Apker     |  |     | 47 |  |             | Vice President and Treasurer                                      
|Robert A. Gross    |  |     | 45 |  |             | Vice President and Controller                                     
|John L. Mieske     |  |     | 49 |  |             | Vice President  Finance, Publishing and Operations               



David C. Swanson


Peter J. McDonald


Steven M. Blondy


George F. Bednarz


10



---



##### 





Michael R. Boyce


Robert J. Bush


William M. Hammack


Debra M. Ryan


Jenny L. Apker


Robert A. Gross


John L. Mieske


11



---



##### 





|        |           
|------- | ----------
|ITEM 2. | PROPERTIES



|                  |  |                    |         |  |         |  |                            |                  |  |  |       | 
|----------------- |  | ------------------ | ------- |  | ------- |  | -------------------------- | ---------------- |  |  | ----- | 
|                  |  | Approximate Square |         |  |         |  |                           
|Property Location |  | Footage            |         |  | Purpose |  |                            | Lease Expiration | 
|                  | 
|Cary, NC          |  |                    | 77,000  |  |         |  | Corporate Headquarters     |                  |  |  | 2015  | 
|Chicago, IL       |  |                    | 100,000 |  |         |  | Sales and Administration   |                  |  |  | 2012  | 
|Morrisville, NC   |  |                    | 55,000  |  |         |  | Pre-Press Publishing       |                  |  |  | 2006  | 
|Overland Park, KS |  |                    | 49,000  |  |         |  | Operations and Sales       |                  |  |  | 2009  | 
|Blountville, TN * |  |                    | 42,000  |  |         |  | Former Graphics Operations |                  |  |  | 2012  | 
|Purchase, NY *    |  |                    | 35,000  |  |         |  | Former Headquarters        |                  |  |  | 2006  | 
|Bristol, TN       |  |                    | 25,000  |  |         |  | Graphics Operations        |                  |  |  | Owned | 
|Dunmore, PA       |  |                    | 20,000  |  |         |  | Graphics Operations        |                  |  |  | 2009  | 
|Lombard, IL       |  |                    | 20,000  |  |         |  | Sales and Administration   |                  |  |  | 2012  | 






|  |                 
|- | ----------------
|* | Presently vacant







|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS









12



---



##### 





Information Resources, Inc.


















13



---



##### 











Tax Matters






14



---



##### 







Utilization of Capital Losses  1989 
1990








15



---



##### 



Royalty Expense Deductions  1993 
1997














16



---



##### 









| |   |                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | challenge our application of the Royalty Expense
    Indemnity & Defense Provisions of the Tax Sharing
    Agreements  specifically that NMR should reject our
    position that NMR must now lead the defense and that NMR and IMS
    jointly and severally indemnify us for any financial outcome
    that is less advantageous to us than the final settlement
    agreement); and
|
| |  | assert breaches of contract and to terminate the obligations of
    IMS and NMR the Tax Sharing Agreements generally.                                                                                                                                                                                                                                                                  









Amortization and Royalty Expense Deductions/Royalty
Income  1997  2004








17



---



##### 











Conclusion




Other Matters






|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



18



---



##### 



PART II




|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



|            |  |      |       |  |      |   |       |      |  |   |       |  |  |   |       | 
|----------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|            |  | 2004 |       |  | 2003 |  
|            |  |      |      
|            |  | High |       |  | Low  |   |       | High |  |   | Low   | 
|            |  |      |      
|1st Quarter |  | $    | 47.00 |  |      | $ | 39.40 |      |  | $ | 32.22 |  |  | $ | 28.72 | 
|2nd Quarter |  | $    | 48.75 |  |      | $ | 40.66 |      |  | $ | 38.60 |  |  | $ | 28.86 | 
|3rd Quarter |  | $    | 50.11 |  |      | $ | 40.38 |      |  | $ | 41.40 |  |  | $ | 35.60 | 
|4th Quarter |  | $    | 59.35 |  |      | $ | 48.66 |      |  | $ | 43.20 |  |  | $ | 37.56 | 



19



---



##### 







|                                                              |       |                   |           |           |                   |     |                      |                       |  |  |         |         | 
|------------------------------------------------------------- | ----- | ----------------- | --------- | --------- | ----------------- | --- | -------------------- | --------------------- |  |  | ------- | ------- | 
|                                                              |       |                   |           |           |                   | (c) |                     
|                                                              |       | (a)               |           |           |                   |     | Number of Securities |                      
|                                                              |       | Number of         |           |           |                   |     | Remaining Available  |                      
|                                                              |       | Securities to be  |           |           | (b)               |     |                      | for Future Issuance   | 
|                                                              |       | Issued Upon       |           |           | Weighted-Average  |     |                      | Under Equity          | 
|                                                              |       | Exercise of       |           |           | Exercise Price of |     |                      | Compensation Plans    | 
|                                                              |       | Outstanding       |           |           | Outstanding       |     |                      | (Excluding Securities | 
|                                                              |       | Options, Warrants |           |           | Options, Warrants |     |                      | Reflected in          | 
|Plan Category                                                 |       | and Rights        |           |           | and Rights        |     |                      | Column (a))           | 
|                                                              |      
|Equity compensation plans approved by security
    holders(1) |       |                   | 3,236,656 |           |                   | $   | 32.51                |                       |  |  | 453,825 |        
|Equity compensation plans not approved by security holders:   |       |                   |           |           |                   |     |                      |                       |  |  |         |        
|1991 Key Employees Stock Option
    Plan(2)                  |       |                   | 731,263   |           |                   |     | 17.12                |                       |  |  | 0       |        
|1998 Key Employees Performance Unit
    Plan(3)              |       |                   | 8,795     |           |                   |     | 39.46                |                       |  |  | 0       |        
|1998 Directors Stock
    Plan(4)                             |       |                   | 19,650    |           |                   |     | 17.32                |                       |  |  | 0       |        
|1998 Partner Share
    Plan(5)                                |       |                   | 13,225    |           |                   |     | 15.31                |                       |  |  | 0       |        
|2001 Partner Share
    Plan(6)                                |       |                   | 25,296    |           |                   |     | 26.45                |                       |  |  | 0       |        
|                                                              |       |                  
|                                                              | Total |                   |           | 4,034,885 |                   |     | $                    | 29.57                 |  |  |         | 453,825 | 
|                                                              |       |                  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This reflects securities covered by our 2001 Stock Award and
    Incentive Plan (2001 Plan), which was adopted and
    approved by our shareholders at our 2001 Annual Meeting of
    Stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | This reflects options still outstanding under our 1991 Key
    Employees Stock Option Plan (1991 Plan). This
    plan was originally a D&B plan that was carried over at the
    time of the spin-off from D&B. The 2001 Plan replaced the
    1991 Plan and all shares available for grant under the 1991 Plan
    became available for grant under the 2001 Plan upon its approval
    by stockholders; provided, however, all options then outstanding
    remained subject to the terms and conditions of the 1991 Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(3) | This reflects the performance shares (PERS) still
    outstanding under our 1998 Key Employees Performance Unit
    Plan (PUP Plan). Upon completion of the respective
    performance period, a dollar amount of the award was determined
    for each recipient based on the Companys actual financial
    performance against economic profit and earnings per share
    goals. The dollar amount was then converted into a number of
    PERS by dividing the dollar amount of the award by the
    Companys stock price (calculated as the average of the
    high and low prices of the Companys common stock on the
    ten trading days subsequent to delivery of the Companys
    respective audited consolidated financial statements to the
    Compensation and Benefits Committee of the Companys Board
    of Directors) at that time. The 2001 Plan replaced the PUP Plan
    and all shares available for grant under the PUP Plan became
    available for grant under the 2001 Plan upon its approval by
    stockholders; provided, however, all awards then outstanding
    remained subject to the terms and conditions of the PUP Plan.
|   
|(4) | This reflects shares and options still outstanding under our
    1998 Directors Stock Plan (1998 Director
    Plan). The 2001 Plan replaced the 1998 Director Plan
    and all shares available for grant under the 1998 Director
    Plan became available for grant under the 2001 Director
    Plan upon its approval by stockholders; provided, however, all
    shares and options then outstanding remained subject to the
    terms and conditions of the 1998 Director Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(5) | This reflects options still outstanding under our 1998 Partner
    Share Plan (1998 PS Plan), which was a broad-based
    plan covering lower level employees not eligible for grants
    under the 1991 Plan. The Plan authorized 262,000 shares for
    grant at its inception and only 13,225 shares remain
    outstanding. The 2001 Plan replaced the 1998 PS Plan and all
    shares available for grant under the 1998 PS Plan became
    available                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

20



---



##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | for grant under the 2001 Plan upon its approval by stockholders;
    provided, however, all shares and options then outstanding
    remained subject to the terms and conditions of the 1998 PS Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(6) | This reflects options still outstanding under our 2001 Partner
    Share Plan (2001 PS Plan), which was a broad-based
    plan covering lower level employees whose grants were made prior
    to shareholder approval of the 2001 Plan. The Plan authorized
    124,750 shares for grant at its inception and only 25,296
    remain outstanding. The 2001 Plan replaced this Plan and all
    shares available for grant under the 2001 PS Plan became
    available for grant under the 2001 Plan upon its approval by
    stockholders; provided, however, all shares and options then
    outstanding remained subject to the terms and conditions of the
    2001 PS Plan.

ITEM 6.     SELECTED FINANCIAL
DATA




|                                                   |  |                          |           |  |         |   |           |      |  |   |           |   |  |      |          |   |  |   |          |  
|-------------------------------------------------- |  | ------------------------ | --------- |  | ------- | - | --------- | ---- |  | - | --------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                   |  | Years Ended December 31, |          
|                                                   |  |                          |          
|(in thousands, except per share data)              |  | 2004(1)(2)               |           |  | 2003(2) |   |           | 2002 |  |   | 2001      |   |  | 2000 |         
|                                                   | 
|Statement of Operations Data                       |  |                          |           |  |         |   |           |      |  |   |           |   |  |      |          |   |  |   |          |  
|Net revenue                                        |  | $                        | 603,116   |  |         | $ | 256,445   |      |  | $ | 75,406    |   |  | $    | 80,253   |   |  | $ | 141,287  |  
|Partnership income                                 |  |                          | 77,967    |  |         |   | 114,052   |      |  |   | 136,873   |   |  |      | 139,964  |   |  |   | 147,693  |  
|Operating income                                   |  |                          | 291,748   |  |         |   | 92,526    |      |  |   | 145,982   |   |  |      | 111,472  |   |  |   | 147,375  |  
|Net income (loss)                                  |  |                          | 70,312    |  |         |   | (49,953   | )    |  |   | 67,177    |   |  |      | 49,815   |   |  |   | 124,758  |  
|Preferred dividend                                 |  |                          | 21,791    |  |         |   | 58,397    |      |  |   | 24,702    |   |  |      |         |   |  |   |         |  
|Income (loss) available to common shareholders     |  |                          | 48,521    |  |         |   | (108,350  | )    |  |   | 42,475    |   |  |      | 49,815   |   |  |   | 124,758  |  
|Earnings (Loss) Per Share(4)                       |  |                          |           |  |         |   |           |      |  |   |           |   |  |      |          |   |  |   |          |  
|Basic                                              |  | $                        | 1.19      |  |         | $ | (3.53     | )    |  | $ | 1.42      |   |  | $    | 1.65     |   |  | $ | 3.91     |  
|Diluted                                            |  | $                        | 1.15      |  |         | $ | (3.53     | )    |  | $ | 1.40      |   |  | $    | 1.61     |   |  | $ | 3.83     |  
|Shares Used in Computing Earnings (Loss) Per Share |  |                          |           |  |         |   |           |      |  |   |           |   |  |      |          |   |  |   |          |  
|Basic                                              |  |                          | 31,268    |  |         |   | 30,683    |      |  |   | 29,643    |   |  |      | 30,207   |   |  |   | 31,947   |  
|Diluted                                            |  |                          | 32,616    |  |         |   | 30,683    |      |  |   | 30,298    |   |  |      | 30,976   |   |  |   | 32,594   |  
|Balance Sheet
    Data(3)                          |  |                          |           |  |         |   |           |      |  |   |           |   |  |      |          |   |  |   |          |  
|Total assets                                       |  | $                        | 3,978,922 |  |         | $ | 2,538,734 |      |  | $ | 2,223,375 |   |  | $    | 295,981  |   |  | $ | 365,284  |  
|Long-term debt, including current maturities       |  |                          | 3,127,342 |  |         |   | 2,092,133 |      |  |   | 2,075,470 |   |  |      | 283,904  |   |  |   | 347,526  |  
|Redeemable convertible preferred stock             |  |                          | 216,111   |  |         |   | 198,223   |      |  |   | 63,459    |   |  |      |         |   |  |   |         |  
|Shareholders equity (deficit)                     |  |                          | 17,985    |  |         |   | (56,245   | )    |  |   | (30,600   | ) |  |      | (111,313 | ) |  |   | (108,510 | )






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Financial data for the year ended December 31, 2004 include
    the results of the SBC Directory Business from and after
    September 1, 2004. Net revenue, net income and income
    available to common shareholders reflect purchase accounting
    adjustments that precluded the recognition of revenue and
    certain expenses associated with directories published by the
    acquired SBC Directory Business prior to the acquisition,
    including all September 2004 published directories. See
    Item 7 Managements Discussion and Analysis of
    Financial Condition and Results of Operations for further
    discussion of these items.
|   
|(2) | Financial data for the years ended December 31, 2004 and
    2003 include the results of the SPA Directory Business from and
    after January 3, 2003. Net revenue, net income (loss) and
    income (loss) available to common shareholders reflect purchase
    accounting adjustments that precluded the recognition of revenue
    and                                                                                                                                                                                                                                                                                                                    

21



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##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | certain expenses associated with directories published by SPA
    prior to the acquisition, including all January 2003 published
    directories. See Item 7 Managements Discussion
    and Analysis of Financial Condition and Results of
    Operations for further discussion of these items.                                                                                             
|   
|(3) | In connection with the SBC Directory Acquisition on
    September 1, 2004 and the SPA Acquisition on
    January 3, 2003, we incurred a significant amount of debt.
    We issued Preferred Stock in November 2002 and borrowed funds
    under certain debt instruments in December 2002. Therefore, our
    cash and debt balances during these periods were higher than in
    prior periods.
|   
|(4) | These EPS amounts and the EPS for the three months ended
    December 31, 2004 differ from those reported in our Current
    Report on Form 8-K filed with the SEC on February 25,
    2005 resulting from an update to the two-class method used to
    compute earnings per share.                                                                                                            



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



Corporate Overview


www.bestredyp.com www.chicagolandyp.com www.SMARTpages.com








22



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##### 





Forward-Looking Information








|    |                                                         
|--- | --------------------------------------------------------
|(1) | Our ability to meet substantial debt service obligations





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to obtain additional financing in excess of the
    borrowing capacity under our $175 million revolving credit
    facility and/or under the $400 million of incremental
    borrowings potentially available under our term loans on
    satisfactory terms to fund working capital requirements, capital
    expenditures, acquisitions, investments, debt service
    requirements and other general corporate requirements is limited;
|
| |  | we are more vulnerable to general economic downturns,
    competition and industry conditions, which could place us at a
    competitive disadvantage compared to our competitors that may be
    less leveraged;                                                                                                                                                                                                                                     
|
| |  | we face increased exposure to rising interest rates as a portion
    of our debt is at variable interest rates;                                                                                                                                                                                                                                                                                                                                       

23



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we have reduced availability of cash flow to fund working
    capital requirements, capital expenditures, acquisitions or
    other strategic initiatives, investments and other general
    corporate requirements because a substantial portion of our cash
    flow is needed to service our debt obligations;
|
| |  | we have limited flexibility in planning for, or reacting to,
    changes in our business and the industry in which we operate;                                                                                                                                                                                   
|
| |  | the agreements governing our debt substantially limit our
    ability to access the cash flow and value of our subsidiaries
    and, therefore, to make payments on our debt; and                                                                                                                                
|
| |  | there could be a material adverse effect on our business and
    financial condition if we were unable to service our debt or
    obtain additional financing, as needed.                                                                                                                                        





|    |                                                                        
|--- | -----------------------------------------------------------------------
|(2) | Restrictive covenants under our debt and Preferred Stock
    agreements





| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | incur additional debt;                                                   
|
| |  | pay dividends on our equity interests or repurchase equity
    interests;
|
| |  | make certain investments;                                                
|
| |  | enter into certain types of transactions with affiliates;                
|
| |  | expand into unrelated businesses;                                        
|
| |  | use assets as security in other transactions; and                        
|
| |  | sell certain assets or merge with or into other companies.               



24



---



##### 







| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | incur additional debt;                                                                   
|
| |  | enter into major corporate transactions;                                                 
|
| |  | pay dividends on shares of our common stock or repurchase shares
    of our common stock;
|
| |  | enter into certain types of transactions with
    affiliates; and                        
|
| |  | sell or acquire certain assets.                                                          



(3)     Competition










25



---



##### 









(4)     Usage of printed yellow
pages directories and changes in technology.








| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | impair our ability to maintain or increase advertising prices;                                                              
|
| |  | cause businesses that purchase advertising in our yellow pages
    directories to reduce or discontinue those purchases; and
|
| |  | discourage businesses that do not purchase advertising in our
    yellow pages directories from doing so.                   





26



---



##### 





(5)     Integration of the SBC
Directory Business into our operations






| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulty integrating operations;                                                                                                                                                             
|
| |  | diversion of management attention;                                                                                                                                                             
|
| |  | potential disruption of ongoing business because of the unknown
    reactions to the combination of the acquired business and
    Donnelley by vendors, customers and other key constituencies;
|
| |  | difficulties in assimilating the employees, technologies,
    services and products of the acquired business;                                                                                  
|
| |  | inability to retain key personnel;                                                                                                                                                             
|
| |  | inability to successfully incorporate acquired business
    components with our existing infrastructure; and                                                                                   
|
| |  | inability to maintain uniform standards, controls, procedures
    and policies.                                                                                                                







|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(6) | Impact of bankruptcy proceedings against Sprint or SBC during
    the term of the respective commercial arrangements





27



---



##### 













|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(7) | Our inability to enforce the non-competition agreements with
    Sprint or SBC





| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | to the extent it is necessary to protect a legitimate business
    interest of the party seeking enforcement;
|
| |  | if it does not unreasonably restrain the party against whom
    enforcement is sought; and                   
|
| |  | if it is not contrary to the public interest.                                                                



28



---



##### 





|    |                                                                    
|--- | -------------------------------------------------------------------
|(8) | Early termination of commercial arrangements with Sprint or
    SBC





|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|(9) | Future changes in directory publishing obligations in
    Illinois and Northwest Indiana





|     |                                          
|---- | -----------------------------------------
|(10) | Transition services arrangements with SBC





29



---



##### 





|     |                                                                               
|---- | ------------------------------------------------------------------------------
|(11) | Reliance on, and extension of credit to, small and
    medium-sized businesses





|     |                                                                                        
|---- | ---------------------------------------------------------------------------------------
|(12) | Dependence on third-party providers of printing, distribution
    and delivery services







|     |                                                    
|---- | ---------------------------------------------------
|(13) | Fluctuations in the price and availability of paper





|     |                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------
|(14) | The sale of advertising to national accounts is coordinated
    by third parties that we do not control



30



---



##### 







|     |                         
|---- | ------------------------
|(15) | General economic factors







| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | the general possibility, express threat or future occurrence of
    terrorist or other related disruptive events; or
|
| |  | the United States continuing or expanded involvement in
    war,                                                   







|     |                                                 
|---- | ------------------------------------------------
|(16) | Turnover among our sales force or key management







|     |                                                   
|---- | --------------------------------------------------
|(17) | The loss of important intellectual property rights



31



---



##### 







|     |                                            
|---- | -------------------------------------------
|(18) | Information technology modernization effort



Acquisitions




| |                          
| | -------------------------
| | SBC Directory Acquisition





32



---



##### 







|                                         |                                                                                            |  |  |        |   |  |   |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------------ |  |  | ------ | - |  | - | ------- | 
|(amounts in millions)                    |                                                                                            |  |  |       
|Calculation of allocable purchase price: |                                                                                            |  |  |        |   |  |   |        
|                                         | Cash                                                                                       |  |  |        |   |  | $ | 1,406.1 | 
|                                         | Liquidation preference                                                                     |  |  |        |   |  |   | 29.9    | 
|                                         | Allocable transaction costs                                                                |  |  |        |   |  |   | 12.7    | 
|                                         |                                                                                            |  |  |        |   | 
|                                         | Total allocable purchase price                                                             |  |  |        |   |  | $ | 1,448.7 | 
|                                         |                                                                                            |  |  |        |   | 
|Allocation of purchase price:            |                                                                                            |  |  |        |   |  |   |        
|                                         | SBC Directory Services Agreements                                                          |  |  |        |   |  | $ | 952.5   | 
|                                         | Customer relationships                                                                     |  |  |        |   |  |   | 145.0   | 
|                                         | Net assets acquired                                                                        |  |  | 138.2  |   |  |   |         | 
|                                         | Fair value adjustments:                                                                    |  |  |        |   |  |   |         | 
|                                         | Reverse pre-acquisition deferred revenue                                                   |  |  | 41.9   |   |  |   |         | 
|                                         | Estimated profit on acquired sales contracts                                               |  |  | 49.3   |   |  |   |         | 
|                                         | Reverse deferred directory costs associated with directories
    published pre-acquisition |  |  | (175.8 | ) |  |   |         | 
|                                         | Eliminate historical income taxes                                                          |  |  | 55.5   |   |  |   |         | 
|                                         | Other                                                                                      |  |  | 16.5   |   |  |   |         | 
|                                         |                                                                                            |  |  |        |   | 
|                                         | Fair value of net assets acquired                                                          |  |  |        |   |  |   | 125.6   | 
|                                         | Goodwill                                                                                   |  |  |        |   |  |   | 212.9   | 
|                                         |                                                                                            |  |  |        |   | 
|                                         | Total cash purchase price                                                                  |  |  |        |   |  |   | 1,436.0 | 
|                                         | Allocable transaction costs                                                                |  |  |        |   |  |   | 12.7    | 
|                                         |                                                                                            |  |  |        |   | 
|                                         | Total allocable purchase price                                                             |  |  |        |   |  | $ | 1,448.7 | 
|                                         |                                                                                            |  |  |        |   | 

SPA Acquisition






33



---



##### 











|                                         |                                                                                                                  |  |  |       |   |  |   |         | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------- |  |  | ----- | - |  | - | ------- | 
|(amounts in millions)                    |                                                                                                                  |  |  |      
|Calculation of allocable purchase price: |                                                                                                                  |  |  |       |   |  |   |        
|                                         | Cash                                                                                                             |  |  |       |   |  | $ | 2,229.8 | 
|                                         | Allocable transaction costs                                                                                      |  |  |       |   |  |   | 17.6    | 
|                                         |                                                                                                                  |  |  |       |   | 
|                                         | Total allocable purchase price                                                                                   |  |  |       |   |  | $ | 2,247.4 | 
|                                         |                                                                                                                  |  |  |       |   | 
|Allocation of purchase price:            |                                                                                                                  |  |  |       |   |  |   |        
|                                         | SPA Directory Services Agreements                                                                                |  |  |       |   |  | $ | 1,625.0 | 
|                                         | Customer relationships                                                                                           |  |  |       |   |  |   | 260.0   | 
|                                         | Trade names                                                                                                      |  |  |       |   |  |   | 30.0    | 
|                                         | Net assets acquired                                                                                              |  |  | 81.5  |   |  |   |         | 
|                                         | Fair value adjustments:                                                                                          |  |  |       |   |  |   |         | 
|                                         | Reverse pre-acquisition deferred revenue                                                                         |  |  | 315.9 |   |  |   |         | 
|                                         | Reverse deferred allowance for doubtful accounts and sales
    claims included in SPAs opening deferred revenue |  |  | (22.8 | ) |  |   |         | 
|                                         | Reverse deferred directory costs associated with directories
    published pre-acquisition                       |  |  | (89.5 | ) |  |   |         | 
|                                         | Eliminate historical deferred tax and goodwill                                                                   |  |  | (43.5 | ) |  |   |         | 
|                                         | Other                                                                                                            |  |  | (23.8 | ) |  |   |         | 
|                                         |                                                                                                                  |  |  |       |   | 
|                                         | Fair value of net assets acquired                                                                                |  |  |       |   |  |   | 217.8   | 
|                                         | Goodwill                                                                                                         |  |  |       |   |  |   | 97.0    | 
|                                         |                                                                                                                  |  |  |       |   | 
|                                         | Total cash purchase price                                                                                        |  |  |       |   |  |   | 2,229.8 | 
|                                         | Allocable transaction costs                                                                                      |  |  |       |   |  |   | 17.6    | 
|                                         |                                                                                                                  |  |  |       |   | 
|                                         | Total allocable purchase price                                                                                   |  |  |       |   |  | $ | 2,247.4 | 
|                                         |                                                                                                                  |  |  |       |   | 

Segment Reporting




34



---



##### 







Critical Accounting Estimates




Allowance for Doubtful Accounts and Sales Claims




Pension Benefits




35



---



##### 





Intangible Assets and Goodwill Valuation and Amortization




Accounting for the Impairment or Disposal of
Long-lived Assets Goodwill and Other Intangible Assets






36



---



##### 





New Accounting Pronouncements.


Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003


RESULTS OF OPERATIONS


Year Ended December 31, 2004 compared to the Year Ended
December 31, 2003


Factors Affecting Comparability


Acquisitions






37



---



##### 





Relocation and Integration Charges






GAAP Reported Results


Net Revenue




|                                                  |       |                                  |       |       |      |   |       |          |  |   |       |       | 
|------------------------------------------------- | ----- | -------------------------------- | ----- | ----- | ---- | - | ----- | -------- |  | - | ----- | ----- | 
|                                                  |       | For the Years Ended December 31, |      
|                                                  |       |                                  |      
|(amounts in millions)                             |       | 2004                             |       |       | 2003 |   |       | $ Change | 
|                                                  |      
|Gross directory advertising revenue               |       | $                                | 589.5 |       |      | $ | 233.9 |          |  | $ | 355.6 |      
|Sales allowances                                  |       |                                  | (6.5  | )     |      |   | (2.3  | )        |  |   | (4.2  | )    
|                                                  |       |                                 
|Net directory advertising revenue                 |       | $                                | 583.0 |       |      | $ | 231.6 |          |  | $ | 351.4 |      
|Pre-press publishing and application service fees |       |                                  | 13.0  |       |      |   | 22.2  |          |  |   | (9.2  | )    
|Other revenue                                     |       |                                  | 7.1   |       |      |   | 2.6   |          |  |   | 4.5   |      
|                                                  |       |                                 
|                                                  | Total |                                  | $     | 603.1 |      |   | $     | 256.4    |  |   | $     | 346.7 | 
|                                                  |       |                                 





38



---



##### 







Expenses




|                      |       |                                  |       |       |      |   |       |          |  |   |       |       | 
|--------------------- | ----- | -------------------------------- | ----- | ----- | ---- | - | ----- | -------- |  | - | ----- | ----- | 
|                      |       | For the Years Ended December 31, |      
|                      |       |                                  |      
|(amounts in millions) |       | 2004                             |       |       | 2003 |   |       | $ Change | 
|                      |      
|Operating expenses    |       | $                                | 263.2 |       |      | $ | 159.2 |          |  | $ | 104.0 |      
|G&A expenses          |       |                                  | 59.5  |       |      |   | 53.0  |          |  |   | 6.5   |      
|D&A expense           |       |                                  | 66.6  |       |      |   | 65.8  |          |  |   | 0.8   |      
|                      |       |                                 
|                      | Total |                                  | $     | 389.3 |      |   | $     | 278.0    |  |   | $     | 111.3 | 
|                      |       |                                 



Operating Expenses




|                                                                                                            |                                                             |        |       |       | 
|----------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------ | ----- | ----- | 
|                                                                                                            |                                                             | Change |      
|(amounts in millions)                                                                                       |                                                             |        |      
|2003 expenses excluded from GAAP results due to SPA purchase
    accounting                                 |                                                             | $      | 74.5  |      
|Increased 2004 sales, manufacturing and other expenses related
    to the acquired SBC Directory Business   |                                                             |        | 24.2  |      
|Cost uplift in 2004 from the SBC transaction                                                                |                                                             |        | 14.2  |      
|Increased 2004 sales expenses due to improved SPA sales
    performance                                     |                                                             |        | 5.4   |      
|Increased marketing and advertising expenses                                                                |                                                             |        | 3.3   |      
|Decreased 2004 publishing and information technology costs due
    to SPA integration actions taken in 2003 |                                                             |        | (10.0 | )    
|Difference between cost uplift in 2004 compared to 2003 from the
    SPA transaction                        |                                                             |        | (7.6  | )    
|                                                                                                            |                                                             |        |      
|                                                                                                            | Total 2004 increase in operating expenses, compared to 2003 |        | $     | 104.0 | 
|                                                                                                            |                                                             |        |      



39



---



##### 















General and Administrative Expenses




|                                                                                                                                                                            |                                              |        |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------ | ---- | --- | 
|                                                                                                                                                                            |                                              | Change |     
|(amounts in millions)                                                                                                                                                       |                                              |        |     
|Increased billing, credit and collection expenses related to the
    acquired SBC Directory Business                                                                        |                                              | $      | 3.2  |    
|Other increased 2004 G&A expenses, primarily related to the
    acquired SBC Directory Business                                                                             |                                              |        | 4.0  |    
|Expenses related to Sarbanes-Oxley compliance in 2004                                                                                                                       |                                              |        | 1.9  |    
|All other net changes to G&A expenses                                                                                                                                       |                                              |        | 1.1  |    
|Decreased G&A expenses in 2004 for relocation, severance and
    integration expenses related to the SPA and SBC acquisitions and
    the corporate headquarters relocation |                                              |        | (3.7 | )  
|                                                                                                                                                                            |                                              |        |     
|                                                                                                                                                                            | Total 2004 increase in G&A, compared to 2003 |        | $    | 6.5 | 
|                                                                                                                                                                            |                                              |        |     

40



---



##### 







Depreciation and Amortization




Partnership Income




Operating Income






|                      |  |                     |       |  |      |   |      |          |  |   |       | 
|--------------------- |  | ------------------- | ----- |  | ---- | - | ---- | -------- |  | - | ----- | 
|                      |  | For the Years Ended |      
|                      |  | December 31,        |      
|                      |  |                     |      
|(amounts in millions) |  | 2004                |       |  | 2003 |   |      | $ Change | 
|                      | 
|Total                 |  | $                   | 291.7 |  |      | $ | 92.5 |          |  | $ | 199.2 | 
|                      |  |                    



41



---



##### 







Interest Expense, Net




Other Income (Expense), Net




Provision (Benefit) for Income Taxes




42



---



##### 





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






Participating Securities and the Two-Class Method under
FASB Statement 128




43



---



##### 





|                             |                                                                |                     |   |        |      |  |   |          |  
|---------------------------- | -------------------------------------------------------------- | ------------------- | - | ------ | ---- |  | - | -------- | -
|                             |                                                                | For the Years Ended |  
|                             |                                                                | December 31,        |  
|                             |                                                                |                     |  
|                             |                                                                | 2004                |   |        | 2003 | 
|                             |                                                               
|Basic EPS  Two-Class Method |                                                                |                     |   |        |      |  |   |         
|                             | Income (loss) available to common shareholders                 |                     | $ | 48,521 |      |  | $ | (108,350 | )
|                             | Amount allocable to common
    shareholders(1)                 |                     |   | 77     | %    |  |   | 100      | %
|                             |                                                                |                    
|                             | Income (loss) allocable to common shareholders                 |                     |   | 37,361 |      |  |   | (108,350 | )
|                             | Weighted average common shares outstanding                     |                     |   | 31,268 |      |  |   | 30,683   |  
|                             |                                                                |                    
|                             | Basic earnings (loss) per share  two-class
    method(3)      |                     | $ | 1.19   |      |  | $ | (3.53    | )
|                             |                                                                |                    
|Diluted EPS                  |                                                                |                     |   |        |      |  |   |         
|                             | Income (loss) available to common shareholders                 |                     | $ | 48,521 |      |  | $ | (108,350 | )
|                             | Amount allocable to common
    shares(1)                       |                     |   | 77     | %    |  |   | 100      | %
|                             |                                                                |                    
|                             | Income (loss) allocable to common shareholders                 |                     |   | 37,361 |      |  |   | (108,350 | )
|                             | Weighted average common shares outstanding                     |                     |   | 31,268 |      |  |   | 30,683   |  
|                             | Dilutive effect of stock
    options(2)                        |                     |   | 1,348  |      |  |   |         |  
|                             | Dilutive effect of Preferred Stock assuming conversion
    (2) |                     |   |       |      |  |   |         |  
|                             |                                                                |                    
|                             | Weighted average diluted shares outstanding                    |                     |   | 32,616 |      |  |   | 30,683   |  
|                             |                                                                |                    
|                             | Diluted earnings (loss) per
    share(3)                       |                     | $ | 1.15   |      |  | $ | (3.53    | )
|                             |                                                                |                    






|    |                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 31,268/ (31,268 + 9,483) for the year ended December 31,
    2004. In computing basic EPS using the two-class method, we have
    not allocated the loss available to common shareholders in the
    year ended December 31, 2003 between common and preferred
    shareholders since the preferred shareholders do not have a
    contractual obligation to share in the net loss.
|   
|(2) | 934 stock options in 2003 and the assumed conversion of the
    Preferred Stock into 9,767 and 9,023 shares of our common stock
    in 2004 and 2003, respectively, were anti-dilutive and therefore
    are not included in the calculation of diluted EPS.                                                                                                                       
|   
|(3) | These EPS amounts differ from those reported in our Current
    Report on Form 8-K filed with the SEC on February 25,
    2005 resulting from an update to the two-class method used to
    compute earnings per share.                                                                                                                                                            

Adjusted and Pro Forma Amounts and Other Non-GAAP Measures




44



---



##### 





|                                                   |  |                                       |       |             |               |   |       |                 |  |          |           |      |  |   |         | 
|-------------------------------------------------- |  | ------------------------------------- | ----- | ----------- | ------------- | - | ----- | --------------- |  | -------- | --------- | ---- |  | - | ------- | 
|                                                   |  | Twelve Months Ended December 31, 2004 |      
|                                                   |  |                                       |      
|                                                   |  |                                       |       | Adjustments |               |   |      
|                                                   |  |                                       |       |             |               |   |      
|                                                   |  | Reported                              |       |             | SBC Directory |   |       |                 |  | Adjusted |          
|(amounts in millions)                              |  | GAAP                                  |       |             | Acquisition   |   |       | SPA Acquisition |  |          | Pro Forma |     
|                                                   |  |                                       |      
|Net revenue                                        |  | $                                     | 603.1 |             |               | $ | 429.7 | (1)             |  | $        | 1.1       | (5)  |  | $ | 1,033.9 | 
|Expenses, other than depreciation and amortization |  |                                       | 322.8 |             |               |   | 98.0  | (2)             |  |          | (3.6      | )(6) |  |   | 417.2   | 
|Depreciation and amortization                      |  |                                       | 66.6  |             |               |   | 18.8  | (3)             |  |          |          |      |  |   | 85.4    | 
|Partnership income                                 |  |                                       | 78.0  |             |               |   | (78.0 | )(4)            |  |          |          |      |  |   |        | 
|                                                   |  |                                      
|Operating income                                   |  | $                                     | 291.7 |             |               | $ | 234.9 |                 |  | $        | 4.7       |      |  | $ | 531.3   | 
|                                                   |  |                                      

|                                                   |  |                                       |       |             |               |   |        |                 |  |          |           |     |  |   |         | 
|-------------------------------------------------- |  | ------------------------------------- | ----- | ----------- | ------------- | - | ------ | --------------- |  | -------- | --------- | --- |  | - | ------- | 
|                                                   |  | Twelve Months Ended December 31, 2003 |      
|                                                   |  |                                       |      
|                                                   |  |                                       |       | Adjustments |               |   |       
|                                                   |  |                                       |       |             |               |   |       
|                                                   |  | Reported                              |       |             | SBC Directory |   |        |                 |  | Adjusted |          
|(amount in millions)                               |  | GAAP                                  |       |             | Acquisition   |   |        | SPA Acquisition |  |          | Pro Forma |    
|                                                   |  |                                       |      
|Net revenue                                        |  | $                                     | 256.4 |             |               | $ | 460.5  | (1)             |  | $        | 315.9     | (5) |  | $ | 1,032.8 | 
|Expenses, other than depreciation and amortization |  |                                       | 212.2 |             |               |   | 157.1  | (2)             |  |          | 63.3      | (6) |  |   | 432.6   | 
|Depreciation and amortization                      |  |                                       | 65.8  |             |               |   | 29.6   | (3)             |  |          |          |     |  |   | 95.4    | 
|Partnership income                                 |  |                                       | 114.1 |             |               |   | (114.1 | )(4)            |  |          |          |     |  |   |        | 
|                                                   |  |                                      
|Operating income                                   |  | $                                     | 92.5  |             |               | $ | 159.7  |                 |  | $        | 252.6     |     |  | $ | 504.8   | 
|                                                   |  |                                      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents revenue for SBC-branded directories that published
    prior to the SBC Directory Acquisition, plus all September 2004
    published directories, which would have been recognized during
    the period had it not been for purchase accounting required
    under GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | Represents (a) expenses for SBC-branded directories that
    published prior to the SBC Directory Acquisition, plus all
    September 2004 published directories, which would have been
    recognized during the period had it not been for purchase
    accounting required under GAAP, (b) DonTechs selling
    and operational expenses prior to September 1, 2004, which
    were eliminated in consolidation upon the SBC Directory
    Acquisition, and (c) certain differences in the application
    of accounting policies and practices between RHD and the
    acquired entities. Additionally, as a result of purchase
    accounting, we recorded the deferred directory costs related to
    directories that were scheduled to publish subsequent to the SBC
    Directory Acquisition at their fair value. The impact of such
    costs has also been removed.
|   
|(3) | Represents the additional depreciation and amortization expense
    related to the tangible and identifiable intangible assets
    acquired in the SBC Directory Acquisition over their estimated
    useful lives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(4) | Represents the elimination of equity accounting used to account
    for RHDs 50% ownership in DonTech and the revenue
    participation income from SBC recognized prior to the SBC
    Directory Acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(5) | Represents revenue for Sprint-branded directories that published
    prior to the SPA Acquisition, plus all January 2003 published
    directories, which would have been recognized during the period
    had it not been for purchase accounting required under GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(6) | Represents expenses for Sprint-branded directories that
    published prior to the SPA Acquisition, plus all January 2003
    published directories, which would have been recognized during
    the period had it not been for purchase accounting required
    under GAAP. Also includes the effect of differences in the
    application of accounting policies and practices between legacy
    SPA and the Company. Additionally, as a result of                                                                                                                                                                                                                                                                                                                                                                                                                           

45



---



##### 



| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | purchase accounting, we recorded the deferred directory costs
    related to directories that were scheduled to publish subsequent
    to the SPA Acquisition at their fair value. The impact of such
    costs has also been removed.

2004 Adjusted Pro Forma Revenue Compared to 2003 Adjusted
Pro Forma Revenue




2004


|                                    |  |          |       |     |             |   |       |             |  |   |           |     |  |   |         |  
|----------------------------------- |  | -------- | ----- | --- | ----------- | - | ----- | ----------- |  | - | --------- | --- |  | - | ------- | -
|                                    |  |          |       | SBC |             |   |       |             | 
|                                    |  | Reported |       |     | Directory   |   |       | SPA         |  |   | Adjusted  |    
|                                    |  | GAAP     |       |     | Acquisition |   |       | Acquisition |  |   | Pro Forma |    
|                                    |  |          |      
|Gross directory advertising revenue |  | $        | 589.5 |     |             | $ | 437.6 | (1)         |  | $ | 1.1       | (4) |  | $ | 1,028.2 |  
|Sales claims and allowances         |  |          | (6.5  | )   |             |   | (1.1  | )(1)        |  |   |          |     |  |   | (7.6    | )
|                                    |  |         
|Net directory advertising revenue   |  |          | 583.0 |     |             |   | 436.5 |             |  |   | 1.1       |     |  |   | 1,020.6 |  
|Pre-press publishing fees           |  |          | 13.0  |     |             |   | (13.0 | )(2)        |  |   |          |     |  |   |        |  
|Other revenue                       |  |          | 7.1   |     |             |   | 6.2   | (3)         |  |   |           |     |  |   | 13.3    |  
|                                    |  |         
|Net revenue                         |  | $        | 603.1 |     |             | $ | 429.7 |             |  | $ | 1.1       |     |  | $ | 1,033.9 |  
|                                    |  |         

2003


|                                    |  |          |       |     |             |   |       |             |  |   |           |      |  |   |         |  
|----------------------------------- |  | -------- | ----- | --- | ----------- | - | ----- | ----------- |  | - | --------- | ---- |  | - | ------- | -
|                                    |  |          |       | SBC |             |   |       |             | 
|                                    |  | Reported |       |     | Directory   |   |       | SPA         |  |   | Adjusted  |     
|                                    |  | GAAP     |       |     | Acquisition |   |       | Acquisition |  |   | Pro Forma |     
|                                    |  |          |      
|Gross directory advertising revenue |  | $        | 233.9 |     |             | $ | 480.1 | (1)         |  | $ | 319.4     | (4)  |  | $ | 1,033.4 |  
|Sales claims and allowances         |  |          | (2.3  | )   |             |   | (4.2  | )(1)        |  |   | (3.5      | )(4) |  |   | (10.0   | )
|                                    |  |         
|Net directory advertising revenue   |  |          | 231.6 |     |             |   | 475.9 |             |  |   | 315.9     |      |  |   | 1,023.4 |  
|Pre-press publishing fees           |  |          | 22.2  |     |             |   | (22.2 | )(2)        |  |   |          |      |  |   |        |  
|Other revenue                       |  |          | 2.6   |     |             |   | 6.8   | (3)         |  |   |          |      |  |   | 9.4     |  
|                                    |  |         
|Net revenue                         |  | $        | 256.4 |     |             | $ | 460.5 |             |  | $ | 315.9     |      |  | $ | 1,032.8 |  
|                                    |  |         






|    |                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents gross revenue and sales claims and allowances for
    directories that published prior to the SBC-branded Directory
    Acquisition, plus all September 2004 published directories,
    which would have been recognized during the period had it not
    been for purchase accounting required under GAAP.
|   
|(2) | Represents the elimination of pre-press publishing fees reported
    prior to the SBC Directory Acquisition, which were eliminated in
    consolidation upon the SBC Directory Acquisition.                                                                                                                           
|   
|(3) | Represents other revenue, primarily consisting of commissions
    earned on sales contracts published into other publishers
    directories and other yellow pages Internet-based advertising
    and other product revenue recognized as earned.                                                                    
|   
|(4) | Represents gross revenue and sales claims and allowances for
    Sprint-branded directories that published prior to the SPA
    Acquisition, plus all January 2003 published directories, which
    would have been recognized during the period had it not been for
    purchase accounting required under GAAP.     



46



---



##### 





2004 Adjusted Pro Forma Expenses and Operating Income
Compared to 2003 Adjusted Pro Forma Expenses and Operating
Income




|                                                                                                                                                                                         |                                                                                                                   |        |       |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------ | ----- | ----- | -
|                                                                                                                                                                                         |                                                                                                                   | Change |      
|(amounts in millions)                                                                                                                                                                    |                                                                                                                   |        |      
|Favorable adjustments of 2004 bad debt expense for SBC-branded
    directories compared to 2003                                                                                          |                                                                                                                   | $      | (10.0 | )    
|Favorable adjustments of 2004 bad debt expense for
    Sprint-branded directories compared to 2003                                                                                       |                                                                                                                   |        | (2.1  | )    
|Decreased 2004 publishing and information technology costs due
    to SPA integration actions taken in 2003                                                                              |                                                                                                                   |        | (10.0 | )    
|Allocations of corporate expenses by SBC included in 2003
    adjusted pro forma expenses, but not included in 2004 adjusted
    pro forma expenses due to the SBC Directory Acquisition |                                                                                                                   |        | (8.4  | )    
|Decreased G&A expenses in 2004 for relocation, severance and
    integration expenses related to the SPA and SBC acquisitions and
    the corporate headquarters relocation              |                                                                                                                   |        | (3.7  | )    
|Decreased print and paper costs in 2004 for SBC-branded
    directories compared to 2003                                                                                                 |                                                                                                                   |        | (1.9  | )    
|Net impact on 2003 adjusted pro forma expenses of the
    elimination of sales agency expense                                                                                            |                                                                                                                   |        | 13.4  |      
|Increased 2004 adjusted pro forma sales expenses due to improved
    SPA sales performance                                                                                               |                                                                                                                   |        | 5.4   |      
|Increased expenses related to Sarbanes-Oxley compliance in 2004                                                                                                                          |                                                                                                                   |        | 1.9   |      
|                                                                                                                                                                                         |                                                                                                                   |        |      
|                                                                                                                                                                                         | Total 2004 decrease in adjusted pro forma expenses, compared to
    2003, excluding depreciation and amortization |        | $     | (15.4 | )
|                                                                                                                                                                                         |                                                                                                                   |        |      







47



---



##### 











Advertising Sales  Publication Sales






48



---



##### 





|                                                                                                                                                                  |  |                     |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                                                  |  | For the Years Ended |       
|                                                                                                                                                                  |  | December 31,        |       
|                                                                                                                                                                  |  |                     |       
|(Amount in millions)                                                                                                                                              |  | 2004                |        |   | 2003 |  
|                                                                                                                                                                  | 
|Publication sales  Sprint-branded directories                                                                                                                    |  | $                   | 567.2  |   |      | $ | 552.5  |  
|Publication sales  Sprint-branded
    directories  percentage change over prior year                                                                            |  |                     | 2.7    | % |      |   |        |  
|Adjustments for changes in directory publication date(s)                                                                                                          |  |                     |        |   |      |   | (4.3   | )
|                                                                                                                                                                  |  |                     |        |   |      |  
|Publication sales previously disclosed                                                                                                                            |  |                     |        |   |      |   | 548.2  |  
|Publication sales  SBC-branded directories                                                                                                                       |  |                     | 463.2  |   |      |   | 473.1  |  
|Publication sales  SBC-branded
    directories  percentage change over prior year                                                                               |  |                     | -2.1   | % |      |   |        |  
|Less pre-acquisition publication sales for Sprint-branded
    directories not recognized as revenue in the current period due
    to purchase accounting          |  |                     |        |   |      |   | (102.4 | )
|Less pre-acquisition publication sales for SBC-branded
    directories not recognized as revenue in current period due to
    purchase accounting                 |  |                     | (277.3 | ) |      |   | (473.1 | )
|Less current period publication sales for Sprint-branded
    directories not recognized as revenue in current period due to
    the deferral method of accounting |  |                     | (221.0 | ) |      |   | (214.2 | )
|Less current period publication sales for SBC-branded
    directories not recognized as revenue in current period due to
    the deferral method of accounting    |  |                     | (158.4 | ) |      |   |        |  
|Plus net revenue reported in the period for publication sales
    from prior periods                                                                              |  |                     | 209.3  |   |      |   |       |  
|                                                                                                                                                                  |  |                    
|Net directory advertising revenue on above publication sales                                                                                                      |  |                     | 583.0  |   |      |   | 231.6  |  
|Pre-press publishing revenue                                                                                                                                      |  |                     | 13.0   |   |      |   | 22.2   |  
|Other revenue                                                                                                                                                     |  |                     | 7.1    |   |      |   | 2.6    |  
|                                                                                                                                                                  |  |                    
|Net revenue  GAAP                                                                                                                                                |  | $                   | 603.1  |   |      | $ | 256.4  |  
|                                                                                                                                                                  |  |                    

Year Ended December 31, 2003 compared to the Year Ended
December 31, 2002


Factors Affecting Comparability


SPA Acquisition




Relocation and Integration Charges




49



---



##### 



Restructuring and Special Charge




Net Revenue




|                                     |       |                     |       |       |      |   |      |          |  |   |       |       | 
|------------------------------------ | ----- | ------------------- | ----- | ----- | ---- | - | ---- | -------- |  | - | ----- | ----- | 
|                                     |       | For the Years Ended |      
|                                     |       | December 31,        |      
|                                     |       |                     |      
|(amounts in millions)                |       | 2003                |       |       | 2002 |   |      | $ Change | 
|                                     |      
|Directory advertising revenue        |       | $                   | 233.9 |       |      |   |     |          |  | $ | 233.9 |      
|Advertising sales commission revenue |       |                     |      |       |      | $ | 43.1 |          |  |   | (43.1 | )    
|Sales allowances                     |       |                     | (2.3  | )     |      |   | (0.4 | )        |  |   | (1.9  | )    
|                                     |       |                    
|Net revenue                          |       |                     | 231.6 |       |      |   | 42.7 |          |  |   | 188.9 |      
|Pre-press publishing fees            |       |                     | 22.2  |       |      |   | 31.1 |          |  |   | (8.9  | )    
|Other revenue                        |       |                     | 2.6   |       |      |   | 1.6  |          |  |   | 1.0   |      
|                                     |       |                    
|                                     | Total |                     | $     | 256.4 |      |   | $    | 75.4     |  |   | $     | 181.0 | 
|                                     |       |                    





50



---



##### 



Expenses




|                      |       |                     |       |       |      |   |      |          |  |   |       |       | 
|--------------------- | ----- | ------------------- | ----- | ----- | ---- | - | ---- | -------- |  | - | ----- | ----- | 
|                      |       | For the Years Ended |      
|                      |       | December 31,        |      
|                      |       |                     |      
|(amounts in millions) |       | 2003                |       |       | 2002 |   |      | $ Change | 
|                      |      
|Operating expenses    |       | $                   | 159.2 |       |      | $ | 48.0 |          |  | $ | 111.2 |      
|G&A expenses          |       |                     | 53.0  |       |      |   | 12.0 |          |  |   | 41.0  |      
|D&A expense           |       |                     | 65.8  |       |      |   | 6.3  |          |  |   | 59.5  |      
|                      |       |                    
|                      | Total |                     | $     | 278.0 |      |   | $    | 66.3     |  |   | $     | 211.7 | 
|                      |       |                    



Operating Expenses




General and Administrative Expenses




Depreciation and Amortization




51



---



##### 





Partnership Income




Operating Income




|                      |       |                     |       |      |      |   |       |       | 
|--------------------- | ----- | ------------------- | ----- | ---- | ---- | - | ----- | ----- | 
|                      |       | For the Years Ended |      
|                      |       | December 31,        |      
|                      |       |                     |      
|(amounts in millions) |       | 2003                |       |      | 2002 |  
|                      |      
|Donnelley             |       | $                   | (21.6 | )    |      | $ | 28.9  |      
|DonTech               |       |                     | 114.1 |      |      |   | 117.1 |      
|                      |       |                     |       |      |      |  
|                      | Total |                     | $     | 92.5 |      |   | $     | 146.0 | 
|                      |       |                     |       |      |      |  





Interest Expense, Net




52



---



##### 







Other Income (Expense), Net




(Benefit) Provision for Income Taxes






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






53



---



##### 





Effect of
Participating Securities on the Computation of Basic Earnings
Per Share


|                                                                                     |  |                     |          |   |      |   |        |    
|------------------------------------------------------------------------------------ |  | ------------------- | -------- | - | ---- | - | ------ | ---
|                                                                                     |  | For the Years Ended |         
|                                                                                     |  | December 31,        |         
|                                                                                     |  |                     |         
|(In thousands, except per share data)                                                |  | 2003                |          |   | 2002 |  
|                                                                                     | 
|Basic EPS  If-Converted Method                                                      |  |                     |          |   |      |   |        |    
|(Loss) income available to common shareholders                                       |  | $                   | (108,350 | ) |      | $ | 42,475 |    
|Preferred Stock dividend                                                             |  |                     | 58,397   |   |      |   | 24,702 |    
|                                                                                     |  |                    
|Net (loss) income                                                                    |  | $                   | (49,953  | ) |      | $ | 67,177 |    
|                                                                                     |  |                    
|Weighted average common shares outstanding                                           |  |                     | 30,683   |   |      |   | 29,643 |    
|Weighted average common shares assuming conversion of Preferred
    Stock            |  |                     | 8,761    |   |      |   | 281    | (1)
|                                                                                     |  |                    
|Weighted average common equivalent shares assuming conversion of
    Preferred Stock |  |                     | 39,444   |   |      |   | 29,924 |    
|                                                                                     |  |                    
|Basic (loss) earnings per share  if-converted method                                |  | $                   | (1.27    | ) |      | $ | 2.24   |    
|                                                                                     |  |                    
|Basic EPS  Two-Class Method                                                         |  |                     |          |   |      |   |        |    
|(Loss) income available to common shareholders                                       |  | $                   | (108,350 | ) |      | $ | 42,475 |    
|Amount allocable to common
    shares(2)                                             |  |                     | 100      | % |      |   | 99     | %  
|                                                                                     |  |                    
|Rights to undistributed (loss) income                                                |  |                     | (108,350 | ) |      |   | 42,050 |    
|Weighted average common shares outstanding                                           |  |                     | 30,683   |   |      |   | 29,643 |    
|                                                                                     |  |                    
|Basic (loss) earnings per share  two-class
    method(3)                            |  | $                   | (3.53    | ) |      | $ | 1.42   |    
|                                                                                     |  |                    
|Diluted EPS                                                                          |  |                     |          |   |      |   |        |    
|(Loss) income available to common shareholders                                       |  | $                   | (108,350 | ) |      | $ | 42,475 |    
|                                                                                     |  |                    
|Weighted average common shares outstanding                                           |  |                     | 30,683   |   |      |   | 29,643 |    
|Dilutive effect of stock
    options(4)                                              |  |                     |         |   |      |   | 655    |    
|Dilutive effect of Preferred Stock assuming
    Conversion(4)                        |  |                     |         |   |      |   |       |    
|                                                                                     |  |                    
|Weighted average diluted shares outstanding                                          |  |                     | 30,683   |   |      |   | 30,298 |    
|                                                                                     |  |                    
|Diluted (loss) earnings per share                                                    |  | $                   | (3.53    | ) |      | $ | 1.40   |    
|                                                                                     |  |                    






|    |                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | At December 31, 2002, the Preferred Stock was convertible
    into 2,933,888 shares of common stock. However, since
    $70 million of the Preferred Stock was issued in November
    2002, the number of common share equivalents included in the EPS
    calculation has been weighted for the actual time the Preferred
    Stock was outstanding during the year.

54



---



##### 





|    |                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 29,643/(29,643 + 281) for the year ended December 31, 2002.                                                                                                                                                                                                                                                                                                                              
|   
|(3) | Basic EPS calculated under the two-class method was a loss of
    $2.75 for the year ended December 31, 2003. However, where
    there is a net loss in a period, the application of the
    two-class method is anti-dilutive. Accordingly, reported basic
    EPS are calculated as loss available to common shareholders
    divided by the weighted average basic shares outstanding.
|   
|(4) | 934 stock options in 2003 and the assumed conversion of the
    Preferred Stock in 2003 and 2002 into 9,023 and 2,939 shares of
    our common stock were anti-dilutive and therefore are not
    included in the calculation of diluted EPS.                                                                                                                                            

Adjusted and Pro Forma Amounts and Other Non-GAAP Measures




|                                                   |  |                    |       |  |             |   |       |          |  |   |       | 
|-------------------------------------------------- |  | ------------------ | ----- |  | ----------- | - | ----- | -------- |  | - | ----- | 
|                                                   |  | For the Year Ended |      
|                                                   |  | December 31, 2003  |      
|                                                   |  |                    |      
|                                                   |  | GAAP               |       |  |            
|(amounts in millions)                              |  | Reported           |       |  | Adjustments |   |       | Adjusted | 
|                                                   | 
|Net revenue                                        |  | $                  | 256.4 |  |             | $ | 315.9 | (1)      |  | $ | 572.3 | 
|Expenses, other than depreciation and amortization |  |                    | 212.2 |  |             |   | 63.3  | (2)      |  |   | 275.5 | 
|Depreciation and amortization                      |  |                    | 65.8  |  |             |   |      |          |  |   | 65.8  | 
|Partnership income                                 |  |                    | 114.1 |  |             |   |      |          |  |   | 114.1 | 
|                                                   |  |                   
|Operating income                                   |  | $                  | 92.5  |  |             | $ | 252.6 |          |  | $ | 345.1 | 
|                                                   |  |                   

|                                                   |  |                    |       |  |             |   |          |           |  |   |       | 
|-------------------------------------------------- |  | ------------------ | ----- |  | ----------- | - | -------- | --------- |  | - | ----- | 
|                                                   |  | For the Year Ended |      
|                                                   |  | December 31, 2002  |      
|                                                   |  |                    |      
|                                                   |  | GAAP               |       |  |             |   | Adjusted |          
|(amounts in millions)                              |  | Reported           |       |  | Adjustments |   |          | Pro Forma | 
|                                                   | 
|Net revenue                                        |  | $                  | 75.4  |  |             | $ | 495.9    | (3)       |  | $ | 571.3 | 
|Expenses, other than depreciation and amortization |  |                    | 60.0  |  |             |   | 221.3    | (4)       |  |   | 281.3 | 
|Depreciation and amortization                      |  |                    | 6.3   |  |             |   | 58.5     | (5)       |  |   | 64.8  | 
|Partnership income                                 |  |                    | 136.9 |  |             |   | (19.8    | )(6)      |  |   | 117.1 | 
|                                                   |  |                   
|Operating income                                   |  | $                  | 146.0 |  |             | $ | 196.3    |           |  | $ | 342.3 | 
|                                                   |  |                   






|    |                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents revenue for directories that published prior to the
    SPA Acquisition, including all January 2003 published
    directories, that would have been recognized during the period
    had it not been for purchase accounting adjustments required
    under GAAP.
|   
|(2) | Represents expenses for directories that published prior to the
    SPA Acquisition, including all January 2003 published
    directories, that would have been recognized during the period
    had it not been for purchase                                               

55



---



##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | accounting adjustments required under GAAP, and the effect of
    differences in the application of accounting policies between
    legacy SPA and Donnelley.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(3) | Represents revenue recognized by SPA in 2002
    ($545.7 million) less our commission revenue and pre-press
    publishing revenue from SPA included in our reported GAAP
    amounts ($49.8 million), which would have been eliminated
    as intercompany revenues had the SPA Acquisition occurred on
    January 1, 2002.                                                                                                                                                                                                                                                                                                            
|   
|(4) | Represents expenses recognized by SPA in 2002
    ($253.3 million) less commission and pre-press publishing
    expenses for services provided by us ($44.7 million), which
    would have been eliminated as intercompany expenses had the SPA
    Acquisition occurred on January 1, 2002, plus the
    additional expense ($8.3 million) related to a required
    purchase accounting adjustment recorded to increase acquired
    deferred directory costs to fair value. The adjusted pro forma
    amounts also exclude a $6.4 million restructuring reserve
    reversal and an investment impairment charge of
    $2.0 million.
|   
|(5) | Represents depreciation and amortization expense recognized by
    SPA in 2002 ($8.5 million) plus amortization expense for
    intangible assets acquired in the SPA Acquisition assuming it
    occurred on January 1, 2002 ($50.0 million).                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(6) | Represents income from CenDon recognized by Donnelley and
    included in reported GAAP amounts, which would have been
    eliminated as intercompany income had the SPA Acquisition
    occurred on January 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                    

2003 Adjusted Revenue and Expenses Compared to 2002
Adjusted Pro Forma Revenue and Expenses




|                                    |  |                                  |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|----------------------------------- |  | -------------------------------- | ----- | - | ---- | - | ----- | -------- |  | - | -------- | - |  |  | ----- | -
|                                    |  | For the Years Ended December 31, |      
|                                    |  |                                  |      
|(amounts in millions)               |  | 2003                             |       |   | 2002 |   |       | $ Change |  |   | % Change |  
|                                    | 
|Gross directory advertising revenue |  | $                                | 552.7 |   |      | $ | 547.6 |          |  | $ | 5.1      |   |  |  | 0.9   | %
|Sales claims and allowances         |  |                                  | (6.0  | ) |      |   | (6.9  | )        |  |   | 0.9      |   |  |  | 13.0  |  
|                                    |  |                                 
|Net directory advertising revenue   |  |                                  | 546.7 |   |      |   | 540.7 |          |  |   | 6.0      |   |  |  | 1.1   |  
|Pre-press publishing fees           |  |                                  | 20.6  |   |      |   | 24.1  |          |  |   | (3.5     | ) |  |  | (14.5 | )
|Other revenue                       |  |                                  | 5.0   |   |      |   | 6.5   |          |  |   | (1.5     | ) |  |  | (23.1 | )
|                                    |  |                                 
|Net revenue                         |  | $                                | 572.3 |   |      | $ | 571.3 |          |  | $ | 1.0      |   |  |  | 0.2   | %
|                                    |  |                                 





56



---



##### 









Donnelley Advertising Sales  Publication
Sales






|                                                                                                             |  |                     |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                             |  | For the Years Ended |       
|                                                                                                             |  | December 31,        |       
|                                                                                                             |  |                     |       
|(amounts in millions)                                                                                        |  | 2003                |        |   | 2002 |  
|                                                                                                             | 
|Publication sales  Donnelley segment                                                                        |  | $                   | 548.2  |   |      | $ | 541.7  |  
|Less publication sales for January 2003 directories not
    recognized as revenue due to purchase accounting |  |                     | (102.4 | ) |      |   |        |  
|Less current period publication sales deferred and not
    recognized as revenue in current period           |  |                     | (215.0 | ) |      |   |        |  
|                                                                                                             |  |                     |        |   |      |  
|Less publication sales for those SPA directories not sold by
    Donnelley                                   |  |                     |        |   |      |   | (357.0 | )
|                                                                                                             |  |                     |        |   |      |  

57



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##### 



|                                                                                                    |                    |                     |       |       |      |   |       |      | 
|--------------------------------------------------------------------------------------------------- | ------------------ | ------------------- | ----- | ----- | ---- | - | ----- | ---- | 
|                                                                                                    |                    | For the Years Ended |      
|                                                                                                    |                    | December 31,        |      
|                                                                                                    |                    |                     |      
|(amounts in millions)                                                                               |                    | 2003                |       |       | 2002 |  
|                                                                                                    |                   
|Publication sales reported by Donnelley in 2002                                                     |                    |                     |       |       |      |   | 184.7 |     
|Less sales contracts executed in prior periods and reported as
    calendar sales in prior periods  |                    |                     |       |       |      |   | (70.0 | )   
|Plus contracts executed during the period to be reported as
    publication sales in future periods |                    |                     |       |       |      |   | 72.1  |     
|                                                                                                    |                    |                     |       |       |      |  
|Calendar sales in 2002                                                                              |                    |                     |       |       |      | $ | 186.8 |     
|                                                                                                    |                    |                     |       |       |      |  
|Net directory advertising revenue on above advertising sales                                        |                    |                     | 230.8 |       |      |   |       |     
|Plus net commission revenue on 2002 calendar sales                                                  |                    |                     |       |       |      |   | 42.7  |     
|Plus pre-press publishing revenue                                                                   |                    |                     | 20.6  |       |      |   | 31.1  |     
|Plus other revenue                                                                                  |                    |                     | 5.0   |       |      |   | 1.6   |     
|                                                                                                    |                    |                    
|                                                                                                    | Net Revenue  GAAP |                     | $     | 256.4 |      |   | $     | 75.4 | 
|                                                                                                    |                    |                    

DonTech Advertising Sales  Calendar and
Publication Sales


Calendar Sales






|                                 |  |                     |       |  |      |   |       | 
|-------------------------------- |  | ------------------- | ----- |  | ---- | - | ----- | 
|                                 |  | For the Years Ended |      
|                                 |  | December 31,        |      
|                                 |  |                     |      
|(amounts in millions)            |  | 2003                |       |  | 2002 |  
|                                 | 
|50% share of DonTech net profits |  | $                   | 17.4  |  |      | $ | 18.5  | 
|Revenue participation income     |  |                     | 96.7  |  |      |   | 98.6  | 
|                                 |  |                    
|Total DonTech income             |  | $                   | 114.1 |  |      | $ | 117.1 | 
|                                 |  |                    



Publication Sales




58



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##### 







|                                                                                                                 |  |                     |        |   |      |   |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                 |  | For the Years Ended |       
|                                                                                                                 |  | December 31,        |       
|                                                                                                                 |  |                     |       
|(amounts in millions)                                                                                            |  | 2003                |        |   | 2002 |  
|                                                                                                                 | 
|DonTech publication sales                                                                                        |  | $                   | 402.4  |   |      | $ | 418.2  |  
|Less the value of contracts executed and reported as calendar
    sales in prior periods                         |  |                     | (142.2 | ) |      |   | (157.5 | )
|Plus the value of contracts executed during the period to be
    reported as publication sales in future periods |  |                     | 134.7  |   |      |   | 142.2  |  
|                                                                                                                 |  |                    
|DonTech calendar sales                                                                                           |  | $                   | 394.9  |   |      | $ | 402.9  |  
|                                                                                                                 |  |                    
|Commission revenue from above calendar sales                                                                     |  | $                   | 99.7   |   |      | $ | 101.8  |  
|Partnership net expenses                                                                                         |  |                     | (65.0  | ) |      |   | (64.8  | )
|                                                                                                                 |  |                    
|Partnership profit                                                                                               |  | $                   | 34.7   |   |      | $ | 37.0   |  
|                                                                                                                 |  |                    
|Donnelleys 50% share of partnership profits                                                                     |  | $                   | 17.4   |   |      | $ | 18.5   |  
|Revenue participation income on above calendar sales                                                             |  |                     | 96.7   |   |      |   | 98.6   |  
|                                                                                                                 |  |                    
|Total income from DonTech                                                                                        |  |                     | 114.1  |   |      |   | 117.1  |  
|Priority distribution income from CenDon                                                                         |  |                     |       |   |      |   | 19.8   |  
|                                                                                                                 |  |                    
|Partnership income  GAAP                                                                                        |  | $                   | 114.1  |   |      | $ | 136.9  |  
|                                                                                                                 |  |                    

59



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##### 



LIQUIDITY AND CAPITAL RESOURCES








|                                  |               |   |         |         | 
|--------------------------------- | ------------- | - | ------- | ------- | 
|(amounts in millions)             |               |  
|Sources:                          |               |  
|Proceeds from the Credit Facility |               | $ | 1,332.3 |        
|Available cash                    |               |   | 94.7    |        
|                                  |               |   |         |        
|                                  | Total sources |   | $       | 1,427.0 | 
|                                  |               |   |        
|Uses:                             |               |   |         |        
|Purchase price                    |               | $ | 1,406.1 |        
|Net direct acquisition costs      |               |   | 7.5     |        
|                                  |               |   |        
|                                  |               |   | 1,413.6 |        
|Financing costs                   |               |   | 13.4    |        
|                                  |               |   |        
|                                  | Total uses    |   | $       | 1,427.0 | 
|                                  |               |   |        





| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | obtain more favorable pricing on our variable rate debt;                                                 
|
| |  | adjust non-financial covenants to make them less restrictive for
    corporate operating flexibility; and
|
| |  | obtain consent to carve out designated additional debt from
    required mandatory prepayments.          







| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The higher of (i) a base rate as determined by the
    Administrative Agent, Deutsche Bank Trust Company Americas,
    plus a 1.00% margin on the Revolver and Term Loan A-2 and a
    0.75% margin on Term Loan A-3 and Term Loan D; and
    (ii) the Federal Funds Effective Rate (as defined) plus
    0.5%, plus a

60



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##### 



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 1.00% margin on the Revolver and Term Loan A-2 and a 0.75%
    margin on Term Loan A-3 and Term Loan D; or                                                                                                         
|
| |  | LIBOR rate plus a 2.00% margin on the Revolver and Term
    Loan A-2 and a 1.75% margin on Term Loan A-3 and Term
    Loan D. We may elect interest periods of 1, 2, 3,
    6, 9 or 12 months for LIBOR borrowings.













61



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##### 















| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $70.3 million in net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | $169.9 million of net non-cash charges primarily consisting
    of $66.6 million of depreciation and amortization,
    $14.9 million in bad debt provision, $16.9 million in
    other non-cash charges and $71.5 million in deferred taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | $113.1 million net source of cash from a
    $164.9 million increase in deferred directory revenue
    offset by an increase in accounts receivable of
    $51.8 million. We analyze the change in deferred revenue
    and accounts receivable together because when a directory is
    published, the annual billing 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.
    In connection with the SBC Directory Acquisition, while we did
    not record the unrecognized revenue for directories published
    prior to the acquisition and during September 2004 due to
    purchase accounting, we did acquire the associated unbilled
    receivables and the rights to bill and collect these
    receivables, which totaled approximately $207.3 million.
|
| |  | $49.9 million net use of cash from an increase in other
    assets reflecting an $83.4 million increase in deferred
    directory costs, offset by a decrease of $33.5 million in
    other current and non-current assets. Deferred directory costs
    represent cash payments for certain costs associated with the
    publication of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

62



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##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | directories. Since deferred directory costs are initially
    deferred when incurred, the cash payments are made prior to the
    expense being recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | $32.4 million net source of cash from an increase in
    accounts payable and accrued liabilities, reflecting a
    $2.3 million increase in accrued interest payable on
    outstanding debt and a decrease of $20.6 million for
    federal income tax refunds received. Additionally, accounts
    payable and accrued liabilities includes a $4.2 million
    advance from SBC under the transition services agreement
    relating to the accounts receivable billing and collection
    services, offset by the timing of invoices received as compared
    to invoices paid during the year ended December 31, 2004.
|
| |  | $73.2 million net source of cash from an increase in other
    non-current liabilities reflecting a $58.9 million tax
    refund that pertained to the Companys election to
    carryback a federal net operating loss in connection with the
    SPA Acquisition.                                                                                                                                                                                                                                                                                                                                                        







| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | $1,413.6 million in cash payments in connection with the
    SBC Directory Acquisition.                            
|
| |  | $18.0 million used to purchase fixed assets, primarily
    computer equipment, software and leasehold improvements.





| |   |                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $1,318.9 million in net borrowings under the Credit
    Facility consisting of $600.5 million and
    $731.8 million in borrowings under Terms Loans A-2 and
    B-2, respectively, net of transaction costs of
    $13.4 million. The funds received under the Credit Facility
    were used to finance the SBC Directory Acquisition.                                                     
|
| |  | $421.4 million in principal payments on debt borrowed under
    the Credit Facility. Of this amount, $67.1 million
    represents scheduled principal payments, $250.0 million
    represents principal payments made on an accelerated basis, at
    our option, from excess cash flow generated from operations, and
    $104.3 million represents principal payments on the
    Revolver.
|
| |  | $21.2 million in principal payments to redeem the remaining
    9.125% Senior Subordinated Notes due 2008.                                                                                                                                                                                                                                                                                  
|
| |  | $145.5 million in borrowings under the Revolver.                                                                                                                                                                                                                                                                                                                                            
|
| |  | $0.9 million in the decreased value of checks not yet
    presented for payment.                                                                                                                                                                                                                                                                                                            
|
| |  | $7.4 million in proceeds from the exercise of employee
    stock options.                                                                                                                                                                                                                                                                                                                   





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $293.9 million source of cash resulting from a decrease in
    accounts receivable and an increase in deferred directory
    revenue. We analyze the change in deferred revenue and accounts
    receivable together because when a directory is published, the
    annual billing value of that directory is initially deferred and
    unbilled accounts receivable are established. Each month
    thereafter, one-twelfth of the billing value is recognized as
    revenue and billed to customers. In connection with the SPA
    Acquisition, while we did not record the unrecognized revenue
    for directories published prior to the acquisition and during
    January 2003 due to purchase accounting, we did acquire the
    associated unbilled receivables and the rights to bill and
    collect these receivables, which totaled approximately
    $250 million. Other components adding

63



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##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | to cash provided by operating activities include lower bad debts
    and sales claims, as well as improvements in the collection of
    past due balances.                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | $10.2 million source of cash due to cash received from
    partnerships in excess of recorded partnership income.
    Partnership income and related cash received in 2003 consisted
    of our 50% interest in DonTechs net income and the revenue
    participation income from SBC. We received cash from DonTech and
    SBC subsequent to the time we record the associated partnership
    income; therefore, in periods of declining DonTech partnership
    income, cash received related to prior periods will exceed the
    income recognized from the current period.





| |   |                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $32.0 million increase in other assets, primarily comprised
    of deferred directory costs. Deferred directory costs represent
    cash payments for certain costs associated with the publication
    of directories. Since deferred directory costs are initially
    deferred when incurred, the cash payments are made prior to the
    expense being recognized.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $2,259.6 million in cash payments to acquire SPA and pay
    transaction costs.                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | $1,894.3 million decrease in restricted cash that was
    recorded at December 31, 2002. This amount is comprised of
    funds that we received in the last quarter of 2002 that were
    placed in escrow pending the SPA Acquisition. Of this amount,
    $900 million was raised from Term Loan B under the
    Credit Facility, $925 million was raised from the Notes and
    $69.3 million in net proceeds was raised from the issuance
    of our Preferred Stock to the GS Funds.
|
| |  | $12.6 million was used to purchase fixed assets, primarily
    computer equipment and computer software.                                                                                                                                                                                                                                                                                                                                                                                 





| |   |                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $461.3 million in net borrowings under the
    $500 million Term Loan A under the Credit Facility on
    January 3, 2003. The other funds raised under the Credit
    Facility to finance the SPA Acquisition and re-finance existing
    debt were received in December 2002 and held in escrow until
    January 3, 2003.                                  
|
| |  | $125.7 million in net proceeds from the issuance of our
    Preferred Stock with a stated value of $130 million and
    related warrants to the GS Funds on January 3, 2003. The GS
    Funds invested a total stated amount of $200 million in
    connection with the SPA Acquisition. The initial investment of
    $70 million was made in November 2002.
|
| |  | $243.0 million in principal payments on pre-acquisition
    debt. Proceeds from our Credit Facility, Notes and Preferred
    Stock were used in January 2003 to repay $114.2 million in
    variable rate bank debt and redeem $128.8 of 9.125% Senior
    Subordinated Notes pursuant to a tender offer.                                                    
|
| |  | $312.4 million in principal payments on debt borrowed under
    the Credit Facility. Of this amount, $49.4 million
    represents scheduled principal payments and $193.5 million
    represents principal payments made on an accelerated basis, at
    our option, from excess cash flow generated from operations.                                        
|
| |  | $69.6 million in borrowings under the Revolver.                                                                                                                                                                                                                                                                                                              
|
| |  | $21.4 million in proceeds from the exercise of employee
    stock options.                                                                                                                                                                                                                                                                                   



64



---



##### 





|                                          |  |                       |         |           |        |   |       |       |  |     |       |  |         |       |       |  |  |   |         | 
|----------------------------------------- |  | --------------------- | ------- | --------- | ------ | - | ----- | ----- |  | --- | ----- |  | ------- | ----- | ----- |  |  | - | ------- | 
|                                          |  | Payment Due By Period |        
|(amounts in millions)                     |  |                       |        
|                                          |  |                       |         | Less than |        |   | 1-3   |       |  | 4-5 |       |  | After 5 |      
|Contractual Obligations                   |  | Total                 |         |           | 1 Year |   |       | Years |  |     | Years |  |         | Years |      
|                                          | 
|Long-Term
    Debt(1)                     |  | $                     | 3,427.3 |           |        | $ | 162.0 |       |  | $   | 272.0 |  |         | $     | 399.6 |  |  | $ | 2,593.7 | 
|Operating
    Leases(2)                   |  |                       | 49.6    |           |        |   | 7.0   |       |  |     | 14.8  |  |         |       | 13.1  |  |  |   | 14.7    | 
|Unconditional Purchase
    Obligations(3) |  |                       | 61.9    |           |        |   | 28.7  |       |  |     | 26.0  |  |         |       | 7.2   |  |  |   |        | 
|Other Long-Term
    Liabilities(4)        |  |                       | 82.8    |           |        |   | 6.9   |       |  |     | 13.0  |  |         |       | 14.5  |  |  |   | 48.4    | 
|Transition
    Services(5)                |  |                       | 4.1     |           |        |   | 4.1   |       |  |     |      |  |         |       |      |  |  |   |        | 
|                                          |  |                      
|Total Contractual Obligations             |  | $                     | 3,625.7 |           |        | $ | 208.7 |       |  | $   | 325.8 |  |         | $     | 434.4 |  |  | $ | 2,656.8 | 
|                                          |  |                      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in long-term debt are amounts owed under our Credit
    Facility and the Notes. The weighted average interest rate under
    the Credit Facility was 4.32% at December 31, 2004. The
    Senior Notes and Senior Subordinated Notes bear interest at
    8.875% and 10.875%, respectively and the Holdco Notes bear
    interest at 6.875%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(2) | We enter into operating leases in the normal course of business.
    Substantially all lease agreements have fixed payment terms
    based on the passage of time. Some lease agreements provide us
    with renewal or early termination options. Our future operating
    lease obligations would change if we exercised these renewal or
    early termination options and if we entered into additional
    operating lease agreements. The amounts in the table assume we
    do not exercise any such renewal or early termination options.                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | We have unconditional purchase obligations with four vendors
    regarding the purchase of paper that expire at various times
    from December 31, 2005 through December 31, 2006. Our
    purchase obligations are based on annual minimum quantities at
    pre-established pricing. Amounts in the table above reflect such
    pricing and minimum quantities under this contract. Should the
    market price of the paper drop below the pre-established
    pricing, our vendor is obligated to negotiate with us a lower
    paper price. Any quantities used above the contractual minimums
    would increase our payment obligations. We have no contractual
    obligations beyond 2006. In connection with the SBC Directory
    Acquisition, we entered into a SMARTpages reseller agreement
    whereby we are obligated to pay to SBC $15.4 million over
    the 5-year term of the agreement.                               
|   
|(4) | We have a defined benefit plan covering substantially all
    employees. Our funding policy is to contribute an amount at
    least equal to the minimum legal funding requirement. No
    contributions were required in the three-year period ended
    December 31, 2004. Based on past performance and the
    uncertainty of the dollar amounts to be paid, if any, we have
    excluded such amounts from the above table. We have an unfunded
    postretirement plan that provides certain healthcare and life
    insurance benefits to those full-time employees who reach
    retirement age while working for the Company. Those expected
    future benefit payments, including administrative expenses, net
    of employee contributions, are included in the table above.
    Additionally, we expect to make contributions of approximately
    $1.0 million to our retirement and post-retirement benefit
    plans in 2005.
|   
|(5) | In connection with the SBC Directory Acquisition, we entered
    into a transition services agreement with SBC, whereby SBC would
    provide certain ongoing operational services, such as billing
    and collection services, on our behalf relating to the directory
    operations we acquired through the third quarter of 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

ITEM 7A.     QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK


Interest Rate Risk and Risk Management




65



---



##### 





|                      |                    |  |                  |   |       |           |  |  |                 |  |  |  |                                       | 
|--------------------- | ------------------ |  | ---------------- | - | ----- | --------- |  |  | --------------- |  |  |  | ------------------------------------- | 
|Effective Dates       |                    |  | Notional Amounts |   |       | Pay Rates |  |  | Maturity Dates  | 
|                      |                   
|(amounts in millions) |                   
|                      | April 1, 2003      |  |                  | $ | 255   | (1)       |  |  | 2.850%          |  |  |  | March 31, 2007                        | 
|                      | October 9, 2003    |  |                  | $ | 150   |           |  |  | 1.959%          |  |  |  | October 9, 2005                       | 
|                      | June 21, 2004      |  |                  | $ | 50    |           |  |  | 3.230%          |  |  |  | June 21, 2006                         | 
|                      | June 23, 2004      |  |                  | $ | 50    |           |  |  | 3.170%          |  |  |  | June 23, 2006                         | 
|                      | June 28, 2004      |  |                  | $ | 50    |           |  |  | 3.110%          |  |  |  | June 28, 2006                         | 
|                      | July 2, 2004       |  |                  | $ | 50    |           |  |  | 3.200%          |  |  |  | July 3, 2006                          | 
|                      | September 7, 2004  |  |                  | $ | 200   | (2)       |  |  | 3.490% - 3.750% |  |  |  | September 8, 2008-September 7, 2009   | 
|                      | September 15, 2004 |  |                  | $ | 250   | (3)       |  |  | 3.200% - 3.910% |  |  |  | September 15, 2007-September 15, 2009 | 
|                      | September 17, 2004 |  |                  | $ | 150   | (1)       |  |  | 3.210% - 3.740% |  |  |  | September 17, 2007-September 17, 2009 | 
|                      | September 23, 2004 |  |                  | $ | 150   | (1)       |  |  | 3.160% - 3.438% |  |  |  | September 24, 2007-September 24, 2008 | 
|                      |                    |  |                  |   |       |           |  |  |                 | 
|                      | Total              |  |                  | $ | 1,355 |           |  |  |                 |  |  |  |                                       | 






|    |                        
|--- | -----------------------
|(1) | consists of three swaps
|   
|(2) | consists of two swaps  
|   
|(3) | consists of four swaps 





Market Risk Sensitive Instruments


Accounting for Derivative Instruments and Hedging
Activities,


66



---



##### 



Managements Annual Report on Internal Control Over
Financial Reporting












67



---



##### 





|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS


|                                                                                                                                                              |  |      |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                                                              |  | Page |     
|                                                                                                                                                              |  |      |     
|R.H. DONNELLEY CORPORATION                                                                                                                                    |  |      |      | 
|                                                                                                                                                             
|Report of Independent Registered Public Accounting Firm                                                                                                       |  |      | F-3  | 
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                                                                     |  |      | F-5  | 
|Consolidated Statements of Operations for the three years ended
    December 31, 2004                                                                         |  |      | F-6  | 
|Consolidated Statements of Cash Flows for the three years ended
    December 31, 2004                                                                         |  |      | F-7  | 
|Consolidated Statements of Changes in Shareholders Equity
    (Deficit) for the three years ended December 31, 2004                                          |  |      | F-8  | 
|Notes to Consolidated Financial Statements                                                                                                                    |  |      | F-9  | 
|                                                                                                                                                             
|R.H. DONNELLEY PUBLISHING & ADVERTISING,
    INC.(1)                                                                                                          |  |      |      | 
|                                                                                                                                                             
|Report of Independent Registered Public Accounting Firm                                                                                                       |  |      | F-48 | 
|Balance Sheets at December 31, 2004 and 2003                                                                                                                  |  |      | F-49 | 
|Statements of Operations for the two years ended
    December 31, 2004                                                                                        |  |      | F-50 | 
|Statements of Cash Flows for the two years ended
    December 31, 2004                                                                                        |  |      | F-51 | 
|Statements of Changes in Shareholders Equity for the two
    years ended December 31, 2004                                                                   |  |      | F-52 | 
|Notes to Financial Statements                                                                                                                                 |  |      | F-53 | 
|                                                                                                                                                             
|Report of Independent Auditors                                                                                                                                |  |      | F-62 | 
|Balance Sheet at December 31, 2002                                                                                                                            |  |      | F-63 | 
|Statement of Operations for the year ended December 31, 2002                                                                                                  |  |      | F-64 | 
|Statement of Cash Flows for the year ended December 31, 2002                                                                                                  |  |      | F-65 | 
|Statement of Changes in Shareholders Equity for the year
    ended December 31, 2002                                                                         |  |      | F-66 | 
|Notes to Combined Consolidated Financial Statements                                                                                                           |  |      | F-67 | 
|                                                                                                                                                             
|R.H. DONNELLEY APIL,
    INC.(1)                                                                                                                              |  |      |      | 
|                                                                                                                                                             
|Report of Independent Registered Public Accounting Firm                                                                                                       |  |      | F-74 | 
|Balance Sheets at December 31, 2004 and 2003                                                                                                                  |  |      | F-75 | 
|Statements of Operations for the three years ended
    December 31, 2004                                                                                      |  |      | F-76 | 
|Statements of Cash Flows for the three years ended
    December 31, 2004                                                                                      |  |      | F-77 | 
|Statements of Changes in Shareholders Equity for the three
    years ended December 31, 2004                                                                 |  |      | F-78 | 
|Notes to Financial Statements                                                                                                                                 |  |      | F-79 | 
|                                                                                                                                                             
|DONTECH II
    PARTNERSHIP(1)                                                                                                                                 |  |      |      | 
|                                                                                                                                                             
|Report of Independent Registered Public Accounting Firm                                                                                                       |  |      | F-82 | 
|Report of Independent Registered Public Accounting Firm                                                                                                       |  |      | F-83 | 
|Balance Sheets at December 31, 2004 and 2003                                                                                                                  |  |      | F-84 | 
|Statements of Operations for the four months ended
    December 31, 2004, eight months ended August 31, 2004
    and two years ended December 31, 2003        |  |      | F-85 | 
|Statements of Cash Flows for the four months ended
    December 31, 2004, eight months ended August 31, 2004
    and two years ended December 31, 2003        |  |      | F-86 | 
|Statements of Partners Capital for the four months ended
    December 31, 2004, eight months ended August 31, 2004
    and two years ended December 31, 2003 |  |      | F-87 | 
|Notes to Financial Statements                                                                                                                                 |  |      | F-88 | 

F-1



---



##### 



|                                                                                                                                        |  |      |       | 
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                                                                                        |  | Page |      
|                                                                                                                                        |  |      |      
|R.H. DONNELLEY PUBLISHING &
    ADVERTISING OF ILLINOIS HOLDINGS, LLC(1)                                                                |  |      |       | 
|                                                                                                                                       
|Report of Independent Registered Public
    Accounting Firm                                                                             |  |      | F-99  | 
|Consolidated Balance Sheet at December 31,
    2004                                                                                     |  |      | F-100 | 
|Consolidated Statement of Operations for the four
    months ended December 31, 2004                                                    |  |      | F-101 | 
|Consolidated Statement of Cash Flows for the four
    months ended December 31, 2004                                                    |  |      | F-102 | 
|Consolidated Statement of Changes Partners
    Capital for the four months ended December 31, 2004                                     |  |      | F-103 | 
|Notes to Consolidated Financial Statements                                                                                              |  |      | F-104 | 
|                                                                                                                                       
|R.H. DONNELLEY PUBLISHING &
    ADVERTISING OF ILLINOIS PARTNERSHIP(1)                                                                  |  |      |       | 
|                                                                                                                                       
|Report of Independent Registered Public
    Accounting Firm                                                                             |  |      | F-111 | 
|Balance Sheets at December 31, 2004                                                                                                     |  |      | F-112 | 
|Statements of Operations for the four months
    ended December 31, 2004                                                                |  |      | F-113 | 
|Statements of Cash Flows for the four months
    ended December 31, 2004                                                                |  |      | F-114 | 
|Statements of Changes in Partners Capital
    for the four months ended December 31, 2004                                              |  |      | F-115 | 
|Notes to Financial Statements                                                                                                           |  |      | F-116 | 
|                                                                                                                                       
|Report of Independent Auditors                                                                                                          |  |      | F-122 | 
|Statements of Operations for the eight months
    ended August 31, 2004 and the two years ended
    December 31, 2003                   |  |      | F-123 | 
|Balance Sheets at August 31, 2004 and
    December 31, 2003                                                                             |  |      | F-124 | 
|Statements of Cash Flows for the eight months
    ended August 31, 2004 and the two years ended
    December 31, 2003                   |  |      | F-125 | 
|Statements of Changes in Partners Capital
    for the eight months ended August 31, 2004 and the two
    years ended December 31, 2003 |  |      | F-126 | 
|Notes to Combined Financial Statements                                                                                                  |  |      | F-127 | 



---



|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The audited financial statements of these subsidiaries have been
    included in our Annual Report on Form 10-K pursuant to
    Rule 3-16 of Regulation S-X because our Senior Notes
    became secured by the capital stock or equity interests of such
    subsidiaries in connection with the SBC Directory Acquisition.

F-2



---



##### 



Report of Independent Registered Public Accounting Firm








Consolidated financial statements




Internal control over financial reporting


Internal Control  Integrated Framework Internal Control 
Integrated Framework




F-3



---



##### 















F-4



---



##### 



R.H. DONNELLEY CORPORATION




CONSOLIDATED BALANCE SHEETS


|                                                                                                          |                                                                                                           |                                                  |                         |                                                                                                  |         |         |           |          |         |         |           |  
|--------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ----------------------- | ------------------------------------------------------------------------------------------------ | ------- | ------- | --------- | -------- | ------- | ------- | --------- | -
|                                                                                                          |                                                                                                           | December 31,                                     |                        
|                                                                                                          |                                                                                                           |                                                  |                        
|(in thousands, except share and per share data)                                                           |                                                                                                           | 2004                                             |                         |                                                                                                  | 2003    |        
|                                                                                                          |                                                                                                          
|Assets                                                                                                    |                                                                                                           |                                                  |                         |                                                                                                  |         |         |           |         
|Current Assets                                                                                            |                                                                                                           |                                                  |                         |                                                                                                  |         |         |           |         
|                                                                                                          | Cash and cash equivalents                                                                                 |                                                  | $                       | 10,755                                                                                           |         |         | $         | 7,722    |        
|                                                                                                          | Accounts receivable                                                                                       |                                                  |                         |                                                                                                  |         |         |           |          |        
|                                                                                                          |                                                                                                           | Billed                                           |                         |                                                                                                  | 112,107 |         |           |          | 49,203  |        
|                                                                                                          |                                                                                                           | Unbilled                                         |                         |                                                                                                  | 376,419 |         |           |          | 173,734 |        
|                                                                                                          |                                                                                                           | Allowance for doubtful accounts and sales claims |                         |                                                                                                  | (33,093 | )       |           |          | (11,956 | )      
|                                                                                                          |                                                                                                           |                                                 
|                                                                                                          |                                                                                                           |                                                  | Net accounts receivable |                                                                                                  |         | 455,433 |           |          |         | 210,981 |          
|                                                                                                          | Deferred directory costs                                                                                  |                                                  |                         | 116,517                                                                                          |         |         |           | 33,035   |        
|                                                                                                          | Other current assets                                                                                      |                                                  |                         | 40,604                                                                                           |         |         |           | 32,853   |        
|                                                                                                          |                                                                                                           |                                                 
|                                                                                                          |                                                                                                           |                                                  |                         | Total current assets                                                                             |         |         | 623,309   |          |         |         | 284,591   |  
|Fixed assets and computer software, net                                                                   |                                                                                                           |                                                  | 37,686                  |                                                                                                  |         |         | 20,624    |         
|Partnership investment                                                                                    |                                                                                                           |                                                  |                        |                                                                                                  |         |         | 175,729   |         
|Other non-current assets                                                                                  |                                                                                                           |                                                  | 102,628                 |                                                                                                  |         |         | 95,583    |         
|Intangible assets, net                                                                                    |                                                                                                           |                                                  | 2,905,330               |                                                                                                  |         |         | 1,865,167 |         
|Goodwill                                                                                                  |                                                                                                           |                                                  | 309,969                 |                                                                                                  |         |         | 97,040    |         
|                                                                                                          |                                                                                                           |                                                 
|                                                                                                          |                                                                                                           |                                                  |                         | Total Assets                                                                                     |         | $       | 3,978,922 |          |         | $       | 2,538,734 |  
|                                                                                                          |                                                                                                           |                                                 
|                                                                                                         
|Liabilities, Redeemable Convertible Preferred Stock and
    Shareholders Equity (Deficit)                |                                                                                                           |                                                  |                         |                                                                                                  |         |         |           |         
|Current Liabilities                                                                                       |                                                                                                           |                                                  |                         |                                                                                                  |         |         |           |         
|                                                                                                          | Accounts payable and accrued liabilities                                                                  |                                                  | $                       | 80,362                                                                                           |         |         | $         | 33,502   |        
|                                                                                                          | Deferred directory revenue                                                                                |                                                  |                         | 381,424                                                                                          |         |         |           | 216,525  |        
|                                                                                                          | Current portion of long-term debt                                                                         |                                                  |                         | 162,011                                                                                          |         |         |           | 49,586   |        
|                                                                                                          |                                                                                                           |                                                 
|                                                                                                          |                                                                                                           |                                                  |                         | Total current liabilities                                                                        |         |         | 623,797   |          |         |         | 299,613   |  
|Long-term debt                                                                                            |                                                                                                           |                                                  | 2,965,331               |                                                                                                  |         |         | 2,042,547 |         
|Deferred income taxes, net                                                                                |                                                                                                           |                                                  | 118,820                 |                                                                                                  |         |         | 33,629    |         
|Other non-current liabilities                                                                             |                                                                                                           |                                                  | 36,878                  |                                                                                                  |         |         | 20,967    |         
|                                                                                                          |                                                                                                           |                                                 
|                                                                                                          |                                                                                                           |                                                  |                         | Total liabilities                                                                                |         |         | 3,744,826 |          |         |         | 2,396,756 |  
|Commitments and contingencies                                                                             |                                                                                                           |                                                  |                         |                                                                                                  |         |         |           |         
|Redeemable convertible preferred stock (liquidation value of
    $234,886 for 2004 and $216,998 for 2003) |                                                                                                           |                                                  | 216,111                 |                                                                                                  |         |         | 198,223   |         
|Shareholders Equity (Deficit)                                                                            |                                                                                                           |                                                  |                         |                                                                                                  |         |         |           |         
|                                                                                                          | Common stock, par value $1 per share,
    authorized  400,000,000 shares;
    issued  51,621,894 shares |                                                  |                         | 51,622                                                                                           |         |         |           | 51,622   |        
|                                                                                                          | Additional paid-in capital                                                                                |                                                  |                         | 107,238                                                                                          |         |         |           | 92,610   |        
|                                                                                                          | Unamortized restricted stock                                                                              |                                                  |                         | (135                                                                                             | )       |         |           | (531     | )      
|                                                                                                          | Warrants outstanding                                                                                      |                                                  |                         | 13,758                                                                                           |         |         |           | 13,758   |        
|                                                                                                          | Retained earnings (accumulated deficit)                                                                   |                                                  |                         | 3,855                                                                                            |         |         |           | (49,954  | )      
|                                                                                                          | Treasury stock, at cost, 20,137,361 shares for 2004 and
    20,589,520 shares for 2003                    |                                                  |                         | (163,603                                                                                         | )       |         |           | (163,741 | )      
|                                                                                                          | Accumulated other comprehensive income (loss)                                                             |                                                  |                         | 5,250                                                                                            |         |         |           | (9       | )      
|                                                                                                          |                                                                                                           |                                                 
|                                                                                                          |                                                                                                           |                                                  |                         | Total shareholders equity (deficit)                                                             |         |         | 17,985    |          |         |         | (56,245   | )
|                                                                                                          |                                                                                                           |                                                 
|                                                                                                          |                                                                                                           |                                                  |                         | Total Liabilities, Redeemable Convertible Preferred Stock and
    Shareholders Equity (Deficit) |         | $       | 3,978,922 |          |         | $       | 2,538,734 |  
|                                                                                                          |                                                                                                           |                                                 



F-5



---



##### 



R.H. DONNELLEY CORPORATION




CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                   |                                     |                                                           |                             |         |         |        |          |         |          |         |         |        |         |        | 
|-------------------------------------------------- | ----------------------------------- | --------------------------------------------------------- | --------------------------- | ------- | ------- | ------ | -------- | ------- | -------- | ------- | ------- | ------ | ------- | ------ | 
|                                                   |                                     | Years Ended December 31,                                  |                            
|                                                   |                                     |                                                           |                            
|(in thousands, except per share data)              |                                     | 2004                                                      |                             |         | 2003    |        |          | 2002    |         
|                                                   |                                    
|Gross revenue                                      |                                     | $                                                         | 609,628                     |         |         | $      | 258,790  |         |          | $       | 75,809  |       
|Sales allowances                                   |                                     |                                                           | (6,512                      | )       |         |        | (2,345   | )       |          |         | (403    | )     
|                                                   |                                     |                                                          
|                                                   | Net revenue                         |                                                           |                             | 603,116 |         |        |          | 256,445 |          |         |         | 75,406 |        
|Expenses                                           |                                     |                                                           |                             |         |         |        |          |         |          |         |         |       
|                                                   | Operating expenses                  |                                                           |                             | 263,150 |         |        |          | 159,244 |          |         |         | 48,021 |        
|                                                   | General and administrative expenses |                                                           |                             | 59,537  |         |        |          | 52,948  |          |         |         | 12,027 |        
|                                                   | Depreciation and amortization       |                                                           |                             | 66,648  |         |        |          | 65,779  |          |         |         | 6,249  |        
|                                                   |                                     |                                                          
|                                                   |                                     | Total expenses                                            |                             |         | 389,335 |        |          |         | 277,971  |         |         |        | 66,297  |       
|Partnership income                                 |                                     |                                                           | 77,967                      |         |         |        | 114,052  |         |          |         | 136,873 |       
|                                                   |                                     |                                                          
|                                                   |                                     | Operating income                                          |                             |         | 291,748 |        |          |         | 92,526   |         |         |        | 145,982 |       
|Interest expense, net                              |                                     |                                                           | (175,530                    | )       |         |        | (180,020 | )       |          |         | (33,548 | )     
|Other income (expense), net                        |                                     |                                                           |                            |         |         |        | 1,523    |         |          |         | (451    | )     
|                                                   |                                     |                                                          
|                                                   |                                     | Income (loss) before income taxes                         |                             |         | 116,218 |        |          |         | (85,971  | )       |         |        | 111,983 |       
|Provision (benefit) for income taxes               |                                     |                                                           | 45,906                      |         |         |        | (36,018  | )       |          |         | 44,806  |       
|                                                   |                                     |                                                          
|                                                   |                                     | Net income (loss)                                         |                             |         | 70,312  |        |          |         | (49,953  | )       |         |        | 67,177  |       
|Preferred dividend                                 |                                     |                                                           | 21,791                      |         |         |        | 58,397   |         |          |         | 24,702  |       
|                                                   |                                     |                                                          
|                                                   |                                     | Income (loss) available to common shareholders            |                             | $       | 48,521  |        |          | $       | (108,350 | )       |         | $      | 42,475  |       
|                                                   |                                     |                                                          
|Earnings (loss) per share                          |                                     |                                                           |                             |         |         |        |          |         |          |         |         |       
|                                                   |                                     | Basic                                                     |                             | $       | 1.19    |        |          | $       | (3.53    | )       |         | $      | 1.42    |       
|                                                   |                                     |                                                          
|                                                   |                                     | Diluted                                                   |                             | $       | 1.15    |        |          | $       | (3.53    | )       |         | $      | 1.40    |       
|                                                   |                                     |                                                          
|Shares used in computing earnings (loss) per share |                                     |                                                           |                             |         |         |        |          |         |          |         |         |       
|                                                   |                                     | Basic                                                     |                             |         | 31,268  |        |          |         | 30,683   |         |         |        | 29,643  |       
|                                                   |                                     |                                                          
|                                                   |                                     | Diluted                                                   |                             |         | 32,616  |        |          |         | 30,683   |         |         |        | 30,298  |       
|                                                   |                                     |                                                          
|Comprehensive Income (Loss)                        |                                     |                                                           |                             |         |         |        |          |         |          |         |         |       
|                                                   |                                     | Net income (loss)                                         |                             | $       | 70,312  |        |          | $       | (49,953  | )       |         | $      | 67,177  |       
|                                                   |                                     | Unrealized gain (loss) on interest rate swaps, net of tax |                             |         | 5,774   |        |          |         | (9       | )       |         |        | 2,330   |       
|                                                   |                                     | Minimum pension liability adjustment                      |                             |         | (515    | )      |          |         |         |         |         |        |        |       
|                                                   |                                     |                                                          
|                                                   |                                     |                                                           | Comprehensive income (loss) |         | $       | 75,571 |          |         | $        | (49,962 | )       |        | $       | 69,507 | 
|                                                   |                                     |                                                          



F-6



---



##### 



R.H. DONNELLEY CORPORATION




CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                    |                                                                 |                                           |            |         |            |   |            |         |          |   |            |         |            |  
|--------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------- | ---------- | ------- | ---------- | - | ---------- | ------- | -------- | - | ---------- | ------- | ---------- | -
|                                                                                                    |                                                                 | Years Ended December 31,                  |           
|                                                                                                    |                                                                 |                                           |           
|(in thousands)                                                                                      |                                                                 | 2004                                      |            |         | 2003       |   |            | 2002    |         
|                                                                                                    |                                                                
|Cash Flows from Operating Activities                                                                |                                                                 |                                           |            |         |            |   |            |         |          |   |            |        
|Net income (loss)                                                                                   |                                                                 | $                                         | 70,312     |         |            | $ | (49,953    | )       |          | $ | 67,177     |        
|Reconciliation of net income (loss) to net cash provided by
    operating activities:               |                                                                 |                                           |            |         |            |   |            |         |          |   |            |        
|                                                                                                    | Depreciation and amortization                                   |                                           |            | 66,648  |            |   |            | 65,779  |          |   |            | 6,249   |           
|                                                                                                    | Deferred income tax                                             |                                           |            | 71,461  |            |   |            | (40,230 | )        |   |            | 8,151   |           
|                                                                                                    | Loss on disposal of assets                                      |                                           |            | 85      |            |   |            |        |          |   |            |        |           
|                                                                                                    | Provision for (benefit from) bad debts                          |                                           |            | 14,927  |            |   |            | (1,517  | )        |   |            | 2,897   |           
|                                                                                                    | Other non-cash charges                                          |                                           |            | 16,833  |            |   |            | 6,408   |          |   |            | 1,746   |           
|                                                                                                    | Restructuring and special benefit                               |                                           |            |        |            |   |            |        |          |   |            | (6,694  | )         
|                                                                                                    | Investment impairment charge                                    |                                           |            |        |            |   |            |        |          |   |            | 2,000   |           
|                                                                                                    | Gain on disposition of businesses, net of tax                   |                                           |            |        |            |   |            |        |          |   |            | (659    | )         
|                                                                                                    | (Gain) loss on hedging activities                               |                                           |            |        |            |   |            | (1,523  | )        |   |            | 1,523   |           
|Changes in assets and liabilities, net of effects from
    acquisitions:                            |                                                                 |                                           |            |         |            |   |            |         |          |   |            |        
|                                                                                                    | Cash in excess of partnership income                            |                                           |            | 1,426   |            |   |            | 10,240  |          |   |            | 6,754   |           
|                                                                                                    | (Increase) decrease in accounts receivable                      |                                           |            | (51,858 | )          |   |            | 77,381  |          |   |            | (5,052  | )         
|                                                                                                    | (Increase) decrease in other assets                             |                                           |            | (49,897 | )          |   |            | (31,950 | )        |   |            | (13,855 | )         
|                                                                                                    | Increase (decrease) in accounts payable and accrued liabilities |                                           |            | 28,219  |            |   |            | (11,868 | )        |   |            | (19,014 | )         
|                                                                                                    | Increase in deferred directory revenue                          |                                           |            | 164,899 |            |   |            | 216,525 |          |   |            |        |           
|                                                                                                    | Increase (decrease) in other non-current liabilities            |                                           |            | 73,248  |            |   |            | 9,305   |          |   |            | (1,268  | )         
|                                                                                                    |                                                                 |                                          
|                                                                                                    |                                                                 | Net cash provided by operating activities |            |         | 406,303    |   |            |         | 248,597  |   |            |         | 49,955     |  
|Cash Flows from Investing Activities                                                                |                                                                 |                                           |            |         |            |   |            |         |          |   |            |        
|Additions to fixed assets and computer software                                                     |                                                                 |                                           | (18,013    | )       |            |   | (12,581    | )       |          |   | (3,743     | )      
|Increase in restricted cash                                                                         |                                                                 |                                           |           |         |            |   |           |         |          |   | (1,928,700 | )      
|Decrease in restricted cash  release of funds from
    escrow, net of costs and other              |                                                                 |                                           |           |         |            |   | 1,894,300  |         |          |   |           |        
|Acquisitions, net of cash received                                                                  |                                                                 |                                           | (1,413,620 | )       |            |   | (2,259,633 | )       |          |   |            |        
|                                                                                                    |                                                                 |                                          
|                                                                                                    |                                                                 | Net cash used in investing activities     |            |         | (1,431,633 | ) |            |         | (377,914 | ) |            |         | (1,932,443 | )
|Cash Flows from Financing Activities                                                                |                                                                 |                                           |            |         |            |   |            |         |          |   |            |        
|Proceeds from the issuance of debt, net of costs                                                    |                                                                 |                                           | 1,318,947  |         |            |   | 461,307    |         |          |   | 1,865,000  |        
|Proceeds from the issuance of Redeemable Convertible Preferred
    Stock and warrants, net of costs |                                                                 |                                           |           |         |            |   | 125,683    |         |          |   | 69,300     |        
|Pre-acquisition debt refinanced with proceeds from new debt                                         |                                                                 |                                           | (21,245    | )       |            |   | (243,005   | )       |          |   |           |        
|(Decrease) increase in checks not yet presented for payment                                         |                                                                 |                                           | (917       | )       |            |   | 6,708      |         |          |   |           |        
|Additional borrowings under the Credit Facility                                                     |                                                                 |                                           | 145,500    |         |            |   | 69,569     |         |          |   |           |        
|Credit Facility debt repayments                                                                     |                                                                 |                                           | (421,379   | )       |            |   | (312,436   | )       |          |   | (62,500    | )      
|Proceeds from employee stock option exercises                                                       |                                                                 |                                           | 7,457      |         |            |   | 21,426     |         |          |   | 3,754      |        
|                                                                                                    |                                                                 |                                          
|                                                                                                    |                                                                 | Net cash provided by financing activities |            |         | 1,028,363  |   |            |         | 129,252  |   |            |         | 1,875,554  |  
|Increase (decrease) in cash and cash equivalents                                                    |                                                                 |                                           | 3,033      |         |            |   | (65        | )       |          |   | (6,934     | )      
|Cash and cash equivalents, beginning of year                                                        |                                                                 |                                           | 7,722      |         |            |   | 7,787      |         |          |   | 14,721     |        
|                                                                                                    |                                                                 |                                          
|Cash and cash equivalents, end of year                                                              |                                                                 | $                                         | 10,755     |         |            | $ | 7,722      |         |          | $ | 7,787      |        
|                                                                                                    |                                                                 |                                          
|Supplemental Information                                                                            |                                                                 |                                           |            |         |            |   |            |         |          |   |            |        
|Cash interest paid                                                                                  |                                                                 | $                                         | 160,730    |         |            | $ | 167,718    |         |          | $ | 27,627     |        
|Income tax refunds received, net of income tax payments                                             |                                                                 |                                           | (71,066    | )       |            |   |           |         |          |   | 38,940     |        



F-7



---



##### 



R.H. DONNELLEY CORPORATION


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY (DEFICIT)


|                                                               |  |                 |         |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   |          |  
|-------------------------------------------------------------- |  | --------------- | ------- | - | ----------- | - | ----------- | ---------- | ------------ | -------- | -------- | - |  | ----------- | ------- | - | ------------- | ------------- | -------- | --------- |  | - | ------ | - |  | - | -------- | -
|                                                               |  | Common Stock    |         |   |             |   |             |            | (Accumulated |          |          |   |  | Accumulated |         |   | Total         |              
|                                                               |  | and             |         |   |             |   | Unamortized |            |              | Deficit) |          |   |  |             | Other   |   |               | Shareholders |         
|                                                               |  | Additional      |         |   | Warrants    |   |             | Restricted |              |          | Retained |   |  | Treasury    |         |   | Comprehensive |               |          | (Deficit) | 
|(In thousands)                                                 |  | Paid-in Capital |         |   | Outstanding |   |             | Stock      |              |          | Earnings |   |  | Stock       |         |   | (Loss) Income |               |          | Equity    | 
|                                                               | 
|Balance, December 31, 2001                                     |  | $               | 83,665  |   |             |   |             |            |              | $        | (336     | ) |  | $           | (28,870 | ) |               | $             | (163,442 | )         |  | $ | (2,330 | ) |  | $ | (111,313 | )
|Net income                                                     |  |                 |         |   |             |   |             |            |              |          |          |   |  |             | 67,177  |   |               |               |          |           |  |   |        |   |  |   | 67,177   |  
|Preferred dividend                                             |  |                 |         |   |             |   |             |            |              |          |          |   |  |             | (24,702 | ) |               |               |          |           |  |   |        |   |  |   | (24,702  | )
|Employee stock option exercises, including tax benefit         |  |                 | 4,925   |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               | 260      |           |  |   |        |   |  |   | 5,185    |  
|Restricted stock issued                                        |  |                 | 216     |   |             |   |             |            |              |          | (221     | ) |  |             |         |   |               |               | 5        |           |  |   |        |   |  |   |         |  
|Stock issued for employee bonus plans                          |  |                 | 2,328   |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               | 106      |           |  |   |        |   |  |   | 2,434    |  
|Compensatory stock options                                     |  |                 | 243     |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 243      |  
|Restricted stock amortization                                  |  |                 |         |   |             |   |             |            |              |          | 230      |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 230      |  
|Stock acquired for treasury                                    |  |                 |         |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               | (1,672   | )         |  |   |        |   |  |   | (1,672   | )
|Beneficial conversion feature from issuance of Preferred Stock |  |                 | 24,158  |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 24,158   |  
|Issuance of warrants                                           |  |                 |         |   |             | $ | 5,330       |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 5,330    |  
|Unrealized gain on interest rate swaps, net of tax             |  |                 |         |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   | 2,330  |   |  |   | 2,330    |  
|                                                               |  |                
|Balance, December 31, 2002                                     |  |                 | 115,535 |   |             |   | 5,330       |            |              |          | (327     | ) |  |             | 13,605  |   |               |               | (164,743 | )         |  |   |       |   |  |   | (30,600  | )
|Net loss                                                       |  |                 |         |   |             |   |             |            |              |          |          |   |  |             | (49,953 | ) |               |               |          |           |  |   |        |   |  |   | (49,953  | )
|Preferred dividend                                             |  |                 | (44,791 | ) |             |   |             |            |              |          |          |   |  |             | (13,606 | ) |               |               |          |           |  |   |        |   |  |   | (58,397  | )
|Employee stock option exercises, including tax benefit         |  |                 | 27,947  |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               | 1,284    |           |  |   |        |   |  |   | 29,231   |  
|Restricted stock issued                                        |  |                 | 528     |   |             |   |             |            |              |          | (533     | ) |  |             |         |   |               |               | 5        |           |  |   |        |   |  |   |         |  
|Stock issued for employee bonus plans                          |  |                 | 1,083   |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               | 32       |           |  |   |        |   |  |   | 1,115    |  
|Compensatory stock options                                     |  |                 | 1,987   |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 1,987    |  
|Restricted stock amortization                                  |  |                 |         |   |             |   |             |            |              |          | 329      |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 329      |  
|Stock acquired for treasury                                    |  |                 |         |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               | (319     | )         |  |   |        |   |  |   | (319     | )
|Beneficial conversion feature from issuance of Preferred Stock |  |                 | 41,943  |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 41,943   |  
|Issuance of warrants                                           |  |                 |         |   |             |   | 8,428       |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 8,428    |  
|Unrealized loss on interest rate swaps, net of tax             |  |                 |         |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   | (9     | ) |  |   | (9       | )
|                                                               |  |                
|Balance, December 31, 2003                                     |  |                 | 144,232 |   |             |   | 13,758      |            |              |          | (531     | ) |  |             | (49,954 | ) |               |               | (163,741 | )         |  |   | (9     | ) |  |   | (56,245  | )
|Net income                                                     |  |                 |         |   |             |   |             |            |              |          |          |   |  |             | 70,312  |   |               |               |          |           |  |   |        |   |  |   | 70,312   |  
|Preferred dividend                                             |  |                 | (5,288  | ) |             |   |             |            |              |          |          |   |  |             | (16,503 | ) |               |               |          |           |  |   |        |   |  |   | (21,791  | )
|Employee stock option exercises, including tax benefit         |  |                 | 12,048  |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               | 523      |           |  |   |        |   |  |   | 12,571   |  
|Restricted stock issued                                        |  |                 | (8      | ) |             |   |             |            |              |          |          |   |  |             |         |   |               |               | 8        |           |  |   |        |   |  |   |         |  
|Stock issued for employee bonus plans                          |  |                 | 1,627   |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               | (393     | )         |  |   |        |   |  |   | 1,234    |  
|Compensatory stock awards                                      |  |                 | 2,346   |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 2,346    |  
|Restricted stock amortization                                  |  |                 |         |   |             |   |             |            |              |          | 396      |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 396      |  
|Beneficial conversion feature from issuance of Preferred Stock |  |                 | 3,903   |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   |        |   |  |   | 3,903    |  
|Unrealized gain on interest rate swaps, net of tax             |  |                 |         |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   | 5,774  |   |  |   | 5,774    |  
|Minimum pension liability adjustment                           |  |                 |         |   |             |   |             |            |              |          |          |   |  |             |         |   |               |               |          |           |  |   | (515   | ) |  |   | (515     | )
|                                                               |  |                
|Balance, December 31, 2004                                     |  | $               | 158,860 |   |             | $ | 13,758      |            |              | $        | (135     | ) |  | $           | 3,855   |   |               | $             | (163,603 | )         |  | $ | 5,250  |   |  | $ | 17,985   |  
|                                                               |  |                



F-8



---



##### 



R.H. DONNELLEY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(tabular amounts in thousands, except per share
data)




|   |                          
|-- | -------------------------
|1. | Business and Presentation



www.bestredyp.com www.chicagolandyp.com www.SMARTpages.com








F-9



---



##### 







|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies

Principles of Consolidation.


Reclassifications.


Revenue Recognition.




Deferred Directory Costs.


Equity Method Accounting.




F-10



---



##### 





Cash and Cash Equivalents.


Accounts Receivable.




Fixed Assets and Computer Software.


|                                               |                                        |      |         |        |      |   |          |         | 
|---------------------------------------------- | -------------------------------------- | ---- | ------- | ------ | ---- | - | -------- | ------- | 
|                                               |                                        | 2004 |         |        | 2003 |  
|                                               |                                       
|Computer software                              |                                        | $    | 39,072  |        |      | $ | 104,423  |        
|Computer equipment                             |                                        |      | 16,444  |        |      |   | 44,286   |        
|Machinery and equipment                        |                                        |      | 5,513   |        |      |   | 8,398    |        
|Furniture and fixtures                         |                                        |      | 12,819  |        |      |   | 9,560    |        
|Leasehold improvements                         |                                        |      | 8,973   |        |      |   | 4,406    |        
|Buildings                                      |                                        |      | 1,333   |        |      |   | 1,333    |        
|                                               |                                        |     
|                                               | Total cost                             |      |         | 84,154 |      |   |          | 172,406 | 
|Less accumulated depreciation and amortization |                                        |      | (46,468 | )      |      |   | (151,782 | )      
|                                               |                                        |     
|                                               | Net fixed assets and computer software |      | $       | 37,686 |      |   | $        | 20,624  | 
|                                               |                                        |     

F-11



---



##### 





|                                                                              |  |      |       |  |      |   |        |      |  |   |       | 
|----------------------------------------------------------------------------- |  | ---- | ----- |  | ---- | - | ------ | ---- |  | - | ----- | 
|                                                                              |  | 2004 |       |  | 2003 |   |        | 2002 | 
|                                                                              | 
|Depreciation of fixed assets                                                  |  | $    | 4,608 |  |      | $ | 3,285  |      |  | $ | 2,823 | 
|Amortization of computer software                                             |  |      | 4,703 |  |      |   | 12,661 |      |  |   | 3,426 | 
|                                                                              |  |     
|Total depreciation and amortization on fixed assets and computer
    software |  | $    | 9,311 |  |      | $ | 15,946 |      |  | $ | 6,249 | 
|                                                                              |  |     

Identifiable Intangible Assets and Goodwill.


|                         |        |                    |           |           |                |          |         |               |  |   |         |        |  |       |        |        |  |   |           |           |  |  | 
|------------------------ | ------ | ------------------ | --------- | --------- | -------------- | -------- | ------- | ------------- |  | - | ------- | ------ |  | ----- | ------ | ------ |  | - | --------- | --------- |  |  | 
|                         |        |                    |           |           |                | National |         |               |  |   |         |        | 
|                         |        | Directory Services |           |           | Local Customer |          |         | CMR           |  |   | Trade   |        |  |       |        |       
|                         |        | Agreements         |           |           | Relationships  |          |         | Relationships |  |   | Names   |        |  | Total |        |        | 
|                         |        |                    |          
|Initial fair value:      |        |                    |           |           |                |          |         |               |  |   |         |        |  |       |        |        |  |   |           |           |  | 
|                         | SBC    |                    | $         | 952,500   |                |          | $       | 90,000        |  |   | $       | 55,000 |  |       | $      |       |  |   | $         | 1,097,500 |  |  | 
|                         | Sprint |                    |           | 1,625,000 |                |          |         | 200,000       |  |   |         | 60,000 |  |       |        | 30,000 |  |   |           | 1,915,000 |  |  | 
|                         |        |                   
|Total                    |        |                    | 2,577,500 |           |                |          | 290,000 |               |  |   | 115,000 |        |  |       | 30,000 |        |  |   | 3,012,500 |           |  | 
|Accumulated amortization |        |                    | (71,500   | )         |                |          | (26,667 | )             |  |   | (5,003  | )      |  |       | (4,000 | )      |  |   | (107,170  | )         |  | 
|                         |        |                   
|Net intangible assets    |        | $                  | 2,506,000 |           |                | $        | 263,333 |               |  | $ | 109,997 |        |  | $     | 26,000 |        |  | $ | 2,905,330 |           |  | 
|                         |        |                   





F-12



---



##### 











Goodwill and Other Intangible
Assets,


Deferred Financing Costs.


Advertising Expense.


Concentration of Credit Risk.


F-13



---



##### 











Pension and Other Postretirement Benefits:




Derivative Financial Instruments.


F-14



---



##### 









Income Taxes. Accounting
for Income Taxes.


Earnings per Share. Participating Securities and the
Two  Class Method under FASB Statement 128


F-15



---



##### 





|                                                         |  |                                  |        |   |      |   |          |      |  |   |        |  
|-------------------------------------------------------- |  | -------------------------------- | ------ | - | ---- | - | -------- | ---- |  | - | ------ | -
|                                                         |  | For the Years Ended December 31, |       
|                                                         |  |                                  |       
|                                                         |  | 2004                             |        |   | 2003 |   |          | 2002 | 
|                                                         | 
|Basic EPS  Two  Class Method                           |  |                                  |        |   |      |   |          |      |  |   |        |  
|Income (loss) available to common shareholders           |  | $                                | 48,521 |   |      | $ | (108,350 | )    |  | $ | 42,475 |  
|Amount allocable to common
    shareholders(1)           |  |                                  | 77     | % |      |   | 100      | %    |  |   | 99     | %
|                                                         |  |                                 
|Income (loss) allocable to common shareholders           |  |                                  | 37,361 |   |      |   | (108,350 | )    |  |   | 42,050 |  
|Weighted average common shares outstanding               |  |                                  | 31,268 |   |      |   | 30,683   |      |  |   | 29,643 |  
|                                                         |  |                                 
|Basic earnings (loss) per share  two 
    class method |  | $                                | 1.19   |   |      | $ | (3.53    | )    |  | $ | 1.42   |  
|                                                         |  |                                 

|                                                               |  |                                  |        |   |      |   |          |      |  |   |        |  
|-------------------------------------------------------------- |  | -------------------------------- | ------ | - | ---- | - | -------- | ---- |  | - | ------ | -
|                                                               |  | For the Years Ended December 31, |       
|                                                               |  |                                  |       
|                                                               |  | 2004                             |        |   | 2003 |   |          | 2002 | 
|                                                               | 
|Diluted EPS                                                    |  |                                  |        |   |      |   |          |      |  |   |        |  
|Income (loss) available to common shareholders                 |  | $                                | 48,521 |   |      | $ | (108,350 | )    |  | $ | 42,475 |  
|Amount allocable to common
    shares(1)                       |  |                                  | 77     | % |      |   | 100      | %    |  |   | 99     | %
|                                                               |  |                                 
|Income (loss) allocable to common shareholders                 |  |                                  | 37,361 |   |      |   | (108,350 | )    |  |   | 42,050 |  
|Weighted average common shares outstanding                     |  |                                  | 31,268 |   |      |   | 30,683   |      |  |   | 29,643 |  
|Dilutive effect of stock
    options(2)                        |  |                                  | 1,348  |   |      |   |         |      |  |   | 655    |  
|Dilutive effect of Preferred Stock assuming conversion
    (2) |  |                                  |       |   |      |   |         |      |  |   |       |  
|                                                               |  |                                 
|Weighted average diluted shares outstanding                    |  |                                  | 32,616 |   |      |   | 30,683   |      |  |   | 30,298 |  
|                                                               |  |                                 
|Diluted earnings (loss) per share                              |  | $                                | 1.15   |   |      | $ | (3.53    | )    |  | $ | 1.40   |  
|                                                               |  |                                 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 31,268/ (31,268 + 9,483) for the year ended December 31,
    2004 and 29,643/ (29,643 + 281) for the year ended
    December 31, 2002. In computing basic EPS using the
    two-class method, we have not allocated the loss available to
    common shareholders in the year ended December 31, 2003
    between common and preferred shareholders since the preferred
    shareholders do not have a contractual obligation to share in
    the net loss.
|   
|(2) | 934 stock options in 2003 and the assumed conversion of the
    Preferred Stock into 9,767, 9,023, and 2,939 shares of common
    stock in 2004, 2003 and 2002, respectively, were anti-dilutive
    and therefore are not included in the calculation of diluted EPS.                                                                                                                                                                                     

Employee Stock Awards. Accounting for Stock Issued to
Employees


F-16



---



##### 



Accounting for Stock-Based
Compensation.


|                                                                                                                                                                                                               |             |                                  |        |      |      |   |          |       |   |   |        |      | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | -------------------------------- | ------ | ---- | ---- | - | -------- | ----- | - | - | ------ | ---- | 
|                                                                                                                                                                                                               |             | For the Years Ended December 31, |       
|                                                                                                                                                                                                               |             |                                  |       
|                                                                                                                                                                                                               |             | 2004                             |        |      | 2003 |   |          | 2002  |  
|                                                                                                                                                                                                               |            
|Net income (loss), as reported                                                                                                                                                                                 |             | $                                | 70,312 |      |      | $ | (49,953  | )     |   | $ | 67,177 |     
|Add: Stock based compensation expense included in reported net
    income (loss), net of related tax effects                                                                                                   |             |                                  | 1,403  |      |      |   | 1,162    |       |   |   | 144    |     
|Less: Stock based compensation expense that would have been
    included in the determination of net income (loss) if the fair
    value method had been applied to all awards, net of related tax
    effects |             |                                  | (4,579 | )    |      |   | (4,828   | )     |   |   | (2,688 | )   
|                                                                                                                                                                                                               |             |                                 
|Pro forma net income (loss)                                                                                                                                                                                    |             |                                  | 67,136 |      |      |   | (53,619  | )     |   |   | 64,633 |     
|Preferred dividend                                                                                                                                                                                             |             |                                  | 21,791 |      |      |   | 58,397   |       |   |   | 24,702 |     
|                                                                                                                                                                                                               |             |                                 
|Pro forma income (loss) available to common shareholders                                                                                                                                                       |             | $                                | 45,345 |      |      | $ | (112,016 | )     |   | $ | 39,931 |     
|                                                                                                                                                                                                               |             |                                 
|Basic earnings (loss) per share                                                                                                                                                                                |             |                                  |        |      |      |   |          |       |   |   |        |     
|                                                                                                                                                                                                               | As reported |                                  | $      | 1.19 |      |   | $        | (3.53 | ) |   | $      | 1.42 | 
|                                                                                                                                                                                                               | Pro forma   |                                  | $      | 1.12 |      |   | $        | (3.65 | ) |   | $      | 1.33 | 
|Diluted earnings (loss) per share                                                                                                                                                                              |             |                                  |        |      |      |   |          |       |   |   |        |     
|                                                                                                                                                                                                               | As reported |                                  | $      | 1.15 |      |   | $        | (3.53 | ) |   | $      | 1.40 | 
|                                                                                                                                                                                                               | Pro forma   |                                  | $      | 1.07 |      |   | $        | (3.65 | ) |   | $      | 1.32 | 



|                        |  |                                  |         |   |      |  |         |      |  |  |         |  
|----------------------- |  | -------------------------------- | ------- | - | ---- |  | ------- | ---- |  |  | ------- | -
|                        |  | For the Years Ended December 31, |        
|                        |  |                                  |        
|                        |  | 2004                             |         |   | 2003 |  |         | 2002 | 
|                        | 
|Dividend yield          |  |                                  | 0       | % |      |  | 0       | %    |  |  | 0       | %
|Expected volatility     |  |                                  | 30      | % |      |  | 35      | %    |  |  | 35      | %
|Risk-free interest rate |  |                                  | 3.5     | % |      |  | 2.6     | %    |  |  | 3.1     | %
|Expected holding period |  |                                  | 3 years |   |      |  | 4 years |      |  |  | 4 years |  

Estimates.


New Accounting Pronouncements.


Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,


F-17



---



##### 



Improvement and Modernization Act of 2003




|   |             
|-- | ------------
|3. | Acquisitions





Business
Combinations. Goodwill
and Other Intangible Assets,




F-18



---



##### 





|                        |                           |   |           |           |  
|----------------------- | ------------------------- | - | --------- | --------- | -
|Current assets          |                           | $ | 258,595   |          
|Non-current assets      |                           |   | 80,552    |          
|Intangible assets       |                           |   | 1,097,500 |          
|Goodwill                |                           |   | 212,929   |          
|                        |                           |   |          
|                        | Total assets acquired     |   |           | 1,649,576 |  
|Current liabilities     |                           |   | (200,006  | )        
|Non-current liabilities |                           |   | (918      | )        
|                        |                           |   |          
|                        | Total liabilities assumed |   |           | (200,924  | )
|                        |                           |   |          
|                        | Net assets acquired       |   | $         | 1,448,652 |  
|                        |                           |   |          



|                                               |  |                     |         |  |      |   |         |  
|---------------------------------------------- |  | ------------------- | ------- |  | ---- | - | ------- | -
|                                               |  | For the Years Ended |        
|                                               |  | December 31,        |        
|                                               |  |                     |        
|                                               |  | 2004                |         |  | 2003 |  
|                                               |  |                     |        
|Net revenue                                    |  | $                   | 904,579 |  |      | $ | 716,979 |  
|Operating income                               |  |                     | 409,970 |  |      |   | 258,315 |  
|Net income                                     |  |                     | 119,919 |  |      |   | 32,089  |  
|Preferred dividend                             |  |                     | 21,791  |  |      |   | 58,397  |  
|Income (loss) available to common shareholders |  |                     | 98,128  |  |      |   | (26,308 | )
|Diluted earnings (loss) per share              |  | $                   | 2.32    |  |      | $ | (0.86   | )



|                        |                           |   |           |           |  
|----------------------- | ------------------------- | - | --------- | --------- | -
|Current assets          |                           | $ | 263,007   |          
|Non-current assets      |                           |   | 8,300     |          
|Intangible assets       |                           |   | 1,915,000 |          
|Goodwill                |                           |   | 97,040    |          
|                        |                           |   |          
|                        | Total assets acquired     |   |           | 2,283,347 |  
|Current liabilities     |                           |   | (34,544   | )        
|Non-current liabilities |                           |   | (19,040   | )        
|                        |                           |   |          
|                        | Total liabilities assumed |   |           | (53,584   | )
|                        |                           |   |          
|                        | Net assets acquired       |   | $         | 2,229,763 |  
|                        |                           |   |          

F-19



---



##### 





|                                        |  |                    |         | 
|--------------------------------------- |  | ------------------ | ------- | 
|                                        |  | For the Year Ended |        
|                                        |  | December 31, 2002  |        
|                                        |  |                    |        
|Net revenue                             |  | $                  | 571,282 | 
|Operating income                        |  |                    | 346,779 | 
|Net income                              |  |                    | 99,283  | 
|Preferred dividend                      |  |                    | 78,860  | 
|Income available to common shareholders |  |                    | 20,423  | 
|Diluted earnings (loss) per share       |  |                    | 0.53    | 



|   |                                     
|-- | ------------------------------------
|4. | Restructuring and Impairment Charges





|                                         |  |               |         |   |               |   |        |       |  |   |         |   |  | 
|---------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------ | ----- |  | - | ------- | - |  | 
|                                         |  | 2001          |         |   | 2003          |   |        |       |  |  
|                                         |  | Restructuring |         |   | Restructuring |   |        |       |  |  
|                                         |  | Actions       |         |   | Actions       |   |        | Total |  |   |        
|                                         |  |               |         |   |              
|Balance at December 31, 2001             |  | $             | 21,291  |   |               |   |       |       |  | $ | 21,291  |   |  | 
|Payments applied against reserve         |  |               | (13,211 | ) |               |   |       |       |  |   | (13,211 | ) |  | 
|Payments charged to expense              |  |               | 289     |   |               |   |       |       |  |   | 289     |   |  | 
|Reserve reversal                         |  |               | (6,694  | ) |               |   |       |       |  |   | (6,694  | ) |  | 
|                                         |  |              
|Balance at December 31, 2002             |  |               | 1,675   |   |               |   |       |       |  |   | 1,675   |   |  | 
|Additions to reserve charged to goodwill |  |               |        |   |               | $ | 2,878  |       |  |   | 2,878   |   |  | 
|Additions to reserve charged to earnings |  |               |        |   |               |   | 9,531  |       |  |   | 9,531   |   |  | 
|Payments                                 |  |               | (1,162  | ) |               |   | (3,910 | )     |  |   | (5,072  | ) |  | 
|Reserve reversal                         |  |               | (513    | ) |               |   |       |       |  |   | (513    | ) |  | 
|                                         |  |              
|Balance at December 31, 2003             |  |               |        |   |               |   | 8,499  |       |  |   | 8,499   |   |  | 
|Additions to reserve charged to earnings |  |               |        |   |               |   | 2,657  |       |  |   | 2,657   |   |  | 
|Payments                                 |  |               |        |   |               |   | (7,695 | )     |  |   | (7,695  | ) |  | 
|                                         |  |              
|Balance at December 31, 2004             |  | $             |        |   |               | $ | 3,461  |       |  | $ | 3,461   |   |  | 
|                                         |  |              



F-20



---



##### 















|   |                                            
|-- | -------------------------------------------
|5. | Long-Term Debt, Credit Facilities and Notes



|                                           |                |      |           |           |      |   |           |           | 
|------------------------------------------ | -------------- | ---- | --------- | --------- | ---- | - | --------- | --------- | 
|                                           |                | 2004 |           |           | 2003 |  
|                                           |                |      |          
|Credit Facility                            |                | $    | 2,202,342 |           |      | $ | 1,145,888 |          
|8.875% Senior Notes due 2010               |                |      | 325,000   |           |      |   | 325,000   |          
|10.875% Senior Subordinated Notes due 2012 |                |      | 600,000   |           |      |   | 600,000   |          
|9.125% Senior Subordinated Notes due 2008  |                |      |          |           |      |   | 21,245    |          
|                                           |                |     
|                                           | Total          |      |           | 3,127,342 |      |   |           | 2,092,133 | 
|Less current portion                       |                |      | 162,011   |           |      |   | 49,586    |          
|                                           |                |     
|                                           | Long-term debt |      | $         | 2,965,331 |      |   | $         | 2,042,547 | 
|                                           |                |     





F-21



---



##### 





Credit Facility:






| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | obtain more favorable pricing on our variable rate debt;                                                                                                                                                                                            
|
| |  | adjust non-financial covenants to make them less restrictive for
    corporate operating flexibility;                                                                                                                                               
|
| |  | obtain the cash resources and the consent for us to redeem the
    remaining outstanding Pre-acquisition Notes; and                                                                                                                                 
|
| |  | obtain consent for a new Term Loan C for potential
    borrowings up to $400 million, such proceeds, if borrowed,
    to be used to fund acquisitions and retirement of existing Notes
    and redemption of equity, subject to certain limitations.









| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | obtain more favorable pricing on our variable rate debt;                                                 
|
| |  | adjust non-financial covenants to make them less restrictive for
    corporate operating flexibility; and
|
| |  | obtain consent to carve out designated additional debt from
    required mandatory prepayments.          







| |   |                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The higher of (i) a base rate as determined by the
    Administrative Agent, Deutsche Bank Trust Company Americas,
    plus a 1.00% margin on the Revolver and Term Loan A-2 and a
    0.75% margin on Term Loan A-3 and Term Loan D; and
    (ii) the Federal Funds Effective Rate (as defined) plus
    0.50%, plus a

F-22



---



##### 



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 1.00% margin on the Revolver and Term Loan A-2 and a 0.75%
    margin on Term Loan A-3 and Term Loan D; or                                                                                                         
|
| |  | LIBOR rate plus a 2.00% margin on the Revolver and Term
    Loan A-2 and a 1.75% margin on Term Loan A-3 and Term
    Loan D. We may elect interest periods of 1, 2, 3, 6, 9 or
    12 months for LIBOR borrowings.



Notes:






|                    |  |       |         |  
|------------------- |  | ----- | ------- | -
|Redemption Year     |  | Price |        
|                    | 
|2006                |  |       | 104.438 | %
|2007                |  |       | 102.219 | %
|2008 and thereafter |  |       | 100     | %



|                    |  |       |         |  
|------------------- |  | ----- | ------- | -
|Redemption Year     |  | Price |        
|                    | 
|2007                |  |       | 105.438 | %
|2008                |  |       | 103.625 | %
|2009                |  |       | 101.813 | %
|2010 and thereafter |  |       | 100     | %

F-23



---



##### 





|           |       |   |           |           | 
|---------- | ----- | - | --------- | --------- | 
|2005       |       | $ | 162,011   |          
|2006       |       |   | 136,008   |          
|2007       |       |   | 136,008   |          
|2008       |       |   | 151,203   |          
|2009       |       |   | 248,374   |          
|Thereafter |       |   | 2,293,738 |          
|           |       |   |          
|           | Total |   | $         | 3,127,342 | 
|           |       |   |          





|   |                                  
|-- | ---------------------------------
|6. | Partnership Income and Investment



|                                 |  |                  |        |  |                          |   |         |      |  |   |         | 
|-------------------------------- |  | ---------------- | ------ |  | ------------------------ | - | ------- | ---- |  | - | ------- | 
|                                 |  | Eight Months     |        |  |                         
|                                 |  | Ended August 31, |        |  | Years Ended December 31, |  
|                                 |  |                  |       
|                                 |  | 2004             |        |  | 2003                     |   |         | 2002 | 
|                                 |  |                  |       
|50% share of DonTech net profits |  | $                | 12,777 |  |                          | $ | 17,347  |      |  | $ | 18,480  | 
|Revenue participation income     |  |                  | 65,190 |  |                          |   | 96,705  |      |  |   | 98,666  | 
|                                 |  |                 
|Total DonTech income             |  | $                | 77,967 |  |                          | $ | 114,052 |      |  | $ | 117,146 | 
|                                 |  |                 



|                 |  |                  |        |  |              |   |        |      |  |   |         | 
|---------------- |  | ---------------- | ------ |  | ------------ | - | ------ | ---- |  | - | ------- | 
|                 |  | Eight Months     |        |  | Years Ended  |  
|                 |  | Ended August 31, |        |  | December 31, |  
|                 |  |                  |       
|                 |  | 2004             |        |  | 2003         |   |        | 2002 | 
|                 |  |                  |       
|Net revenues     |  | $                | 68,777 |  |              | $ | 99,711 |      |  | $ | 101,792 | 
|Operating income |  | $                | 25,428 |  |              | $ | 33,526 |      |  | $ | 35,230  | 
|Net income       |  | $                | 25,554 |  |              | $ | 34,694 |      |  | $ | 36,959  | 



CenDon.


F-24



---



##### 





|   |                                        
|-- | ---------------------------------------
|7. | Redeemable Preferred Stock and Warrants









|                        |  |  |          |  
|----------------------- |  |  | -------- | -
|Dividend yield          |  |  | 0        | %
|Expected volatility     |  |  | 35       | %
|Risk-free interest rate |  |  | 3.0      | %
|Expected holding period |  |  | 5  years |  







|   |                      
|-- | ---------------------
|8. | Stock Incentive Plans



F-25



---



##### 









|                                                 |                     |        |           |                |                 |   |       |       | 
|------------------------------------------------ | ------------------- | ------ | --------- | -------------- | --------------- | - | ----- | ----- | 
|                                                 |                     |        |           | Weighted       |                
|                                                 |                     |        |           | Average        |                
|                                                 |                     |        |           | Exercise/Grant |                
|                                                 |                     | Shares |           |                | Price Per Share |  
|                                                 |                    
|Awards outstanding, December 31, 2001            |                     |        | 2,629,354 |                |                 | $ | 16.70 |      
|                                                 | Granted             |        |           | 1,925,995      |                 |   |       | 26.01 | 
|                                                 | Exercised           |        |           | (255,386       | )               |   |       | 14.70 | 
|                                                 | Canceled or expired |        |           | (17,342        | )               |   |       | 24.82 | 
|                                                 |                     |       
|Awards outstanding, December 31, 2002            |                     |        | 4,282,621 |                |                 |   | 20.97 |      
|                                                 | Granted             |        |           | 484,676        |                 |   |       | 30.54 | 
|                                                 | Exercised           |        |           | (1,278,643     | )               |   |       | 16.76 | 
|                                                 | Canceled or expired |        |           | (144,242       | )               |   |       | 25.28 | 
|                                                 |                     |       
|Awards outstanding, December 31, 2003            |                     |        | 3,344,412 |                |                 |   | 23.78 |      
|                                                 | Granted             |        |           | 1,279,357      |                 |   |       | 41.55 | 
|                                                 | Exercised           |        |           | (374,152       | )               |   |       | 19.60 | 
|                                                 | Canceled or expired |        |           | (214,732       | )               |   |       | 28.54 | 
|                                                 |                     |       
|Awards outstanding, December 31, 2004            |                     |        | 4,034,885 |                |                 | $ | 29.57 |      
|                                                 |                     |       
|Available for future grants at December 31, 2004 |                     |        | 453,825   |                |                 |   |       |      
|                                                 |                     |        |           |                |                 |  



|                               |  |                          |           |                  |                          |  |                  |                 |  |   |        |                  |  |                 |           |  |  |   |       | 
|------------------------------ |  | ------------------------ | --------- | ---------------- | ------------------------ |  | ---------------- | --------------- |  | - | ------ | ---------------- |  | --------------- | --------- |  |  | - | ----- | 
|                               |  | Stock Awards Outstanding |           |                  |                         
|                               |  |                          |           |                  | Stock Awards Exercisable | 
|                               |  |                          |           | Weighted Average |                          |  |                  |                 |  |  
|                               |  |                          |           | Remaining        |                          |  | Weighted Average |                 |  |   |        | Weighted Average | 
|                               |  |                          |           | Contractual Life |                          |  | Exercise/Grant   |                 |  |   |        | Exercise/Grant   | 
|Range of Exercise/Grant Prices |  | Shares                   |           |                  | (In Years)               |  |                  | Price Per Share |  |   | Shares |                  |  | Price Per Share |          
|                               | 
|$11.10 - $14.75                |  |                          | 158,486   |                  |                          |  | 2.6              |                 |  | $ | 13.58  |                  |  |                 | 158,486   |  |  | $ | 13.58 | 
|$15.22 - $19.41                |  |                          | 452,724   |                  |                          |  | 4.1              |                 |  |   | 15.73  |                  |  |                 | 452,724   |  |  |   | 15.73 | 
|$24.75 - $29.59                |  |                          | 1,852,315 |                  |                          |  | 4.3              |                 |  |   | 25.96  |                  |  |                 | 1,036,893 |  |  |   | 25.93 | 
|$30.11 - $39.21                |  |                          | 315,553   |                  |                          |  | 5.1              |                 |  |   | 30.70  |                  |  |                 | 59,690    |  |  |   | 30.79 | 
|$41.10 - $43.85                |  |                          | 1,212,257 |                  |                          |  | 6.3              |                 |  |   | 41.31  |                  |  |                 |          |  |  |   |      | 
|$46.06 - $53.74                |  |                          | 43,550    |                  |                          |  | 6.5              |                 |  |   | 48.03  |                  |  |                 | 1,500     |  |  |   | 47.06 | 
|                               |  |                         
|                               |  |                          | 4,034,885 |                  |                          |  | 4.9              |                 |  | $ | 29.55  |                  |  |                 | 1,709,293 |  |  | $ | 22.98 | 
|                               |  |                         



F-26



---



##### 





Accounting for
Stock Appreciation Rights and Other Variable Stock Option or
Award Plans








|   |             
|-- | ------------
|9. | Income Taxes





|                                     |                 |      |         |         |      |   |         |         |   |   |        |        | 
|------------------------------------ | --------------- | ---- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------ | ------ | 
|                                     |                 | 2004 |         |         | 2003 |   |         | 2002    |  
|                                     |                
|Current provision (benefit)          |                 |      |         |         |      |   |         |         |   |   |        |       
|                                     | U.S. Federal    |      | $       | (25,348 | )    |   | $       | 4,768   |   |   | $      | 31,545 | 
|                                     | State and local |      |         | (207    | )    |   |         | (556    | ) |   |        | 5,110  | 
|                                     |                 |     
|Total current (benefit) provision    |                 |      | (25,555 | )       |      |   | 4,212   |         |   |   | 36,655 |       
|Deferred provision (benefit)         |                 |      |         |         |      |   |         |         |   |   |        |       
|                                     | U.S. Federal    |      |         | 66,230  |      |   |         | (31,722 | ) |   |        | 6,915  | 
|                                     | State and local |      |         | 5,231   |      |   |         | (8,508  | ) |   |        | 1,236  | 
|                                     |                 |     
|Total deferred provision (benefit)   |                 |      | 71,461  |         |      |   | (40,230 | )       |   |   | 8,151  |       
|                                     |                 |     
|Provision (benefit) for income taxes |                 | $    | 45,906  |         |      | $ | (36,018 | )       |   | $ | 44,806 |       
|                                     |                 |     

F-27



---



##### 





|                                                       |  |      |      |   |      |  |      |      |  |  |      |  
|------------------------------------------------------ |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                       |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                                                       | 
|Statutory U.S. Federal tax rate                        |  |      | 35.0 | % |      |  | 35.0 | %    |  |  | 35.0 | %
|State and local taxes, net of U.S. Federal tax benefit |  |      | 4.5  |   |      |  | 6.8  |      |  |  | 3.6  |  
|Non-deductible expense                                 |  |      |     |   |      |  |     |      |  |  | 1.4  |  
|                                                       |  |     
|Effective tax rate                                     |  |      | 39.5 | % |      |  | 41.8 | %    |  |  | 40.0 | %
|                                                       |  |     



|                           |                                        |      |         |         |      |   |        |         |  
|-------------------------- | -------------------------------------- | ---- | ------- | ------- | ---- | - | ------ | ------- | -
|                           |                                        | 2004 |         |         | 2003 |  
|                           |                                       
|Deferred tax assets        |                                        |      |         |         |      |   |        |        
|                           | Reorganization and restructuring costs |      | $       | 616     |      |   | $      | 3,245   |  
|                           | Bad debts                              |      |         | 1,313   |      |   |        | 3,869   |  
|                           | Postretirement benefits                |      |         | 3,493   |      |   |        | 2,267   |  
|                           | Capital loss carryforward              |      |         | 6,148   |      |   |        | 5,738   |  
|                           | Deferred stock compensation            |      |         | 2,366   |      |   |        | 2,208   |  
|                           | Deferred directory cost uplift         |      |         | 4,812   |      |   |        |        |  
|                           | Net operating loss carryforwards       |      |         | 71,630  |      |   |        | 71,101  |  
|                           | Other                                  |      |         | 12,004  |      |   |        | 7,075   |  
|                           |                                        |     
|                           | Total deferred tax assets              |      |         | 102,382 |      |   |        | 95,503  |  
|                           | Valuation allowance                    |      |         | (6,148  | )    |   |        | (5,738  | )
|                           |                                        |     
|                           | Net deferred tax assets                |      |         | 96,234  |      |   |        | 89,765  |  
|                           |                                        |     
|Deferred tax liabilities   |                                        |      |         |         |      |   |        |        
|                           | Equity investment                      |      |         | 58,741  |      |   |        | 52,399  |  
|                           | Pension                                |      |         | 8,804   |      |   |        | 7,652   |  
|                           | Depreciation and amortization          |      |         | 138,559 |      |   |        | 48,712  |  
|                           | Other                                  |      |         |        |      |   |        | 1,555   |  
|                           |                                        |     
|                           | Total deferred tax liabilities         |      |         | 206,104 |      |   |        | 110,318 |  
|                           |                                        |     
|Net deferred tax liability |                                        | $    | 109,870 |         |      | $ | 20,553 |        
|                           |                                        |     





F-28



---



##### 









|    |              
|--- | -------------
|10. | Benefit Plans

Retirement Plans.






Other Postretirement Benefits.


F-29



---



##### 





|                                                             |  |                  |         |   |                     |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------ |  | ---------------- | ------- | - | ------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                             |  | Retirement Plans |         |   | Postretirement Plan |  
|                                                             |  |                  |         |   |                     |  
|                                                             |  | 2004             |         |   | 2003                |   |        | 2004 |  |   | 2003    |  
|                                                             |  |                  |         |   |                     |  
|Change in benefit obligation                                 |  |                  |         |   |                     |   |        |      |  |   |         |   |  |   |         |  
|Benefit obligation, beginning of period (RHD)                |  | $                | 65,718  |   |                     | $ | 57,862 |      |  | $ | 11,290  |   |  | $ | 5,840   |  
|Benefit obligation, as of September 1, 2004 (DonTech)        |  |                  | 38,521  |   |                     |   |       |      |  |   | 6,492   |   |  |   |        |  
|Service cost                                                 |  |                  | 4,147   |   |                     |   | 3,246  |      |  |   | 548     |   |  |   | 480     |  
|Interest cost                                                |  |                  | 4,661   |   |                     |   | 3,671  |      |  |   | 870     |   |  |   | 490     |  
|Plan participant contributions                               |  |                  |        |   |                     |   |       |      |  |   | 231     |   |  |   | 120     |  
|Amendments                                                   |  |                  |        |   |                     |   | (14    | )    |  |   | 2,786   |   |  |   | 2,830   |  
|Actuarial loss                                               |  |                  | 3,861   |   |                     |   | 4,161  |      |  |   | 2,406   |   |  |   | 2,220   |  
|Benefits paid                                                |  |                  | (3,519  | ) |                     |   | (3,208 | )    |  |   | (886    | ) |  |   | (700    | )
|Impact of Medicare D                                         |  |                  |        |   |                     |   |       |      |  |   | (4,303  | ) |  |   |        |  
|Other                                                        |  |                  |        |   |                     |   |       |      |  |   |        |   |  |   | 10      |  
|                                                             |  |                  |         |  
|Benefit obligation, end of period                            |  | $                | 113,389 |   |                     | $ | 65,718 |      |  | $ | 19,434  |   |  | $ | 11,290  |  
|                                                             |  |                  |         |  
|Change in plan assets                                        |  |                  |         |   |                     |   |        |      |  |   |         |   |  |   |         |  
|Fair value of plan assets, beginning of period (RHD)         |  | $                | 64,798  |   |                     | $ | 56,108 |      |  | $ |        |   |  | $ |        |  
|Fair value of plan assets, as of September 1, 2004 (DonTech) |  |                  | 31,317  |   |                     |   |       |      |  |   |        |   |  |   |        |  
|Return on plan assets                                        |  |                  | 8,272   |   |                     |   | 11,895 |      |  |   |        |   |  |   |        |  
|Employer contributions                                       |  |                  | 139     |   |                     |   | 3      |      |  |   | 655     |   |  |   | 580     |  
|Plan participant contributions                               |  |                  |        |   |                     |   |       |      |  |   | 231     |   |  |   | 120     |  
|Benefits paid                                                |  |                  | (3,519  | ) |                     |   | (3,208 | )    |  |   | (886    | ) |  |   | (700    | )
|                                                             |  |                  |         |  
|Fair value of plan assets, end of period                     |  | $                | 101,007 |   |                     | $ | 64,798 |      |  | $ |        |   |  | $ |        |  
|                                                             |  |                  |         |  
|Reconciliation of Funded Status                              |  |                  |         |   |                     |   |        |      |  |   |         |   |  |   |         |  
|Funded status of plans                                       |  | $                | (12,382 | ) |                     | $ | (920   | )    |  | $ | (19,434 | ) |  | $ | (11,290 | )
|Unrecognized net loss                                        |  |                  | 28,601  |   |                     |   | 20,965 |      |  |   | 1,873   |   |  |   | 2,440   |  
|Unrecognized prior service costs                             |  |                  | 1,227   |   |                     |   | 1,069  |      |  |   | 4,588   |   |  |   | 2,600   |  
|                                                             |  |                  |         |  
|Net amount recognized                                        |  | $                | 17,446  |   |                     | $ | 21,114 |      |  | $ | (12,973 | ) |  | $ | (6,250  | )
|                                                             |  |                  |         |  



|                             |  |                  |        |   |                     |   |        |      |  |   |         |   |  |   |        |  
|---------------------------- |  | ---------------- | ------ | - | ------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                             |  | Retirement Plans |        |   | Postretirement Plan |  
|                             |  |                  |        |   |                     |  
|                             |  | 2004             |        |   | 2003                |   |        | 2004 |  |   | 2003    |  
|                             |  |                  |        |   |                     |  
|Prepaid benefit costs        |  | $                | 19,430 |   |                     | $ | 21,704 |      |  | $ |        |   |  | $ |       |  
|Accrued liabilities          |  |                  | (2,499 | ) |                     |   | (590   | )    |  |   | (12,973 | ) |  |   | (6,250 | )
|Accrued comprehensive income |  |                  | 515    |   |                     |   |       |      |  |   |        |   |  |   |       |  
|                             |  |                  |        |  
|Net amount recognized        |  | $                | 17,446 |   |                     | $ | 21,114 |      |  | $ | (12,973 | ) |  | $ | (6,250 | )
|                             |  |                  |        |  



F-30



---



##### 





|                               |  |      |       |  |      |   |     | 
|------------------------------ |  | ---- | ----- |  | ---- | - | --- | 
|                               |  | 2004 |       |  | 2003 |  
|                               |  |      |      
|Projected benefit obligation   |  | $    | 3,183 |  |      | $ | 678 | 
|Accumulated benefit obligation |  | $    | 2,316 |  |      | $ | 529 | 



|                                              |  |      |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                              |  | 2004 |        |   | 2003 |   |        | 2002 | 
|                                              |  |      |       
|Service cost                                  |  | $    | 4,147  |   |      | $ | 3,246  |      |  | $ | 1,414  |  
|Interest cost                                 |  |      | 4,661  |   |      |   | 3,671  |      |  |   | 3,726  |  
|Expected return on plan assets                |  |      | (6,680 | ) |      |   | (5,910 | )    |  |   | (6,952 | )
|Unrecognized prior service cost               |  |      | 116    |   |      |   | 108    |      |  |   | 145    |  
|Amortization of net loss from earlier periods |  |      | 733    |   |      |   |       |      |  |   |       |  
|                                              |  |     
|Net periodic benefit expense (income)         |  | $    | 2,977  |   |      | $ | 1,115  |      |  | $ | (1,667 | )
|                                              |  |     



|                                                                                 |  |                  |     |                     |      |   |      |  |      |   |   |  |  |   |   | 
|-------------------------------------------------------------------------------- |  | ---------------- | --- | ------------------- | ---- | - | ---- |  | ---- | - | - |  |  | - | - | 
|                                                                                 |  | Retirement Plans |     | Postretirement Plan
|                                                                                 |  |                  |     |                    
|                                                                                 |  | 2004             |     |                     | 2003 |   | 2004 |  | 2003
|                                                                                 |  |                  |     |                    
|Increase in minimum pension liability included in other
    comprehensive income |  | $                | 515 |                     |      | $ |     |  |      | $ |  |  |  | $ |  | 



|                                        |  |      |      |   |      |  |      |      |  |  |      |  
|--------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                        |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                                        |  |      |     
|Weighted average discount rate          |  |      | 5.75 | % |      |  | 6.00 | %    |  |  | 6.50 | %
|Rate of increase in future compensation |  |      | 3.66 | % |      |  | 3.66 | %    |  |  | 3.66 | %



|                                        |  |      |      |   |      |  |      |      |  |  |      |  
|--------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                        |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                                        |  |      |     
|Weighted average discount rate          |  |      | 6.00 | % |      |  | 6.50 | %    |  |  | 7.25 | %
|Rate of increase in future compensation |  |      | 3.66 | % |      |  | 3.66 | %    |  |  | 4.41 | %
|Expected return on plan assets          |  |      | 8.25 | % |      |  | 8.25 | %    |  |  | 9.75 | %





F-31



---



##### 





|                                                  |  |      |       |  |      |   |       |      |  |   |     |  
|------------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | --- | -
|                                                  |  | 2004 |       |  | 2003 |   |       | 2002 | 
|                                                  |  |      |      
|Service cost                                      |  | $    | 548   |  |      | $ | 490   |      |  | $ | 140 |  
|Interest cost                                     |  |      | 870   |  |      |   | 480   |      |  |   | 370 |  
|Amortization of unrecognized prior service credit |  |      | 172   |  |      |   | (70   | )    |  |   | (70 | )
|Amortization of unrecognized net loss             |  |      | 681   |  |      |   | 100   |      |  |   |    |  
|Other                                             |  |      |      |  |      |   | 10    |      |  |   |    |  
|                                                  |  |     
|Net periodic benefit expense                      |  | $    | 2,271 |  |      | $ | 1,010 |      |  | $ | 440 |  
|                                                  |  |     



|                                                               |              |      |     |      |      |  |     |     |  
|-------------------------------------------------------------- | ------------ | ---- | --- | ---- | ---- |  | --- | --- | -
|                                                               |              | 2004 |     |      | 2003 | 
|                                                               |              |      |    
|Healthcare cost trend rate assumed for next year               |              |      |     |      |      |  |     |    
|                                                               | Under 65     |      |     | 11.0 | %    |  |     | 9.5 | %
|                                                               | 65 and older |      |     | 13.0 | %    |  |     | 9.5 | %
|Rate to which the cost trend rate is assumed to decline        |              |      | 5.0 | %    |      |  | 5.0 | %  
|Number of years that it takes to reach the ultimate trend rate |              |      | 9   |      |      |  | 10  |    



|                                              |  |                 |       |  |                 |   |        |  
|--------------------------------------------- |  | --------------- | ----- |  | --------------- | - | ------ | -
|                                              |  | One Percentage- |       |  | One Percentage- |  
|                                              |  | Point Increase  |       |  | Point Decrease  |  
|                                              |  |                 |      
|Effect on total of service and interest costs |  | $               | 391   |  |                 | $ | (314   | )
|Effect on postretirement benefit obligation   |  |                 | 3,470 |  |                 |   | (2,817 | )



|                  |  |                |     |   |      |  |     |  
|----------------- |  | -------------- | --- | - | ---- |  | --- | -
|                  |  | Plan Assets at |    
|                  |  | December 31,   |    
|                  |  |                |    
|                  |  | 2004           |     |   | 2003 | 
|                  |  |                |    
|Equity securities |  |                | 68  | % |      |  | 67  | %
|Debt securities   |  |                | 32  | % |      |  | 33  | %
|                  |  |               
|Total             |  |                | 100 | % |      |  | 100 | %
|                  |  |               







F-32



---



##### 



Estimated Future Benefit Payments




|                |  |          |        |  |          |   |       | 
|--------------- |  | -------- | ------ |  | -------- | - | ----- | 
|                |  | Pension  |        |  | Other    |  
|                |  | Benefits |        |  | Benefits |  
|                | 
|2005            |  | $        | 5,065  |  |          | $ | 870   | 
|2006            |  |          | 5,338  |  |          |   | 900   | 
|2007            |  |          | 5,714  |  |          |   | 970   | 
|2008            |  |          | 5,972  |  |          |   | 970   | 
|2009            |  |          | 6,399  |  |          |   | 1,020 | 
|Years 2010-2014 |  |          | 41,163 |  |          |   | 6,150 | 



Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003




|    |            
|--- | -----------
|11. | Commitments



|           |       |   |          |          | 
|---------- | ----- | - | -------- | -------- | 
|2005       |       | $ | 7,021.0  |         
|2006       |       |   | 7,362.4  |         
|2007       |       |   | 7,399.8  |         
|2008       |       |   | 7,181.3  |         
|2009       |       |   | 5,904.4  |         
|Thereafter |       |   | 14,706.0 |         
|           |       |   |         
|           | Total |   | $        | 49,574.9 | 
|           |       |   |         





|    |                  
|--- | -----------------
|12. | Legal Proceedings



F-33



---



##### 











Information Resources, Inc.








F-34



---



##### 





















F-35



---



##### 





Tax Matters










Utilization of Capital Losses  1989 
1990






F-36



---



##### 







Royalty Expense Deductions  1993 
1997








F-37



---



##### 















| |   |                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | challenge our application of the Royalty Expense
    Indemnity & Defense Provisions of the Tax Sharing
    Agreements  specifically that NMR should reject our
    position that NMR must now lead the defense and that NMR and IMS
    jointly and severally indemnify us for any financial outcome
    that is less advantageous to us than the final settlement
    agreement); and
|
| |  | assert breaches of contract and to terminate the obligations of
    IMS and NMR under the Tax Sharing Agreements generally.                                                                                                                                                                                                                                                            





F-38



---



##### 









Amortization and Royalty Expense Deductions/Royalty
Income  1997  2004














F-39



---



##### 





Conclusion




Other Matters






|    |                  
|--- | -----------------
|13. | Business Segments





|    |           
|--- | ----------
|14. | Guarantees







F-40



---



##### 









R.H. Donnelley Corporation


Consolidating Condensed Balance Sheet


December 31, 2004


|                                                                    |                           |                |         |   |                |   |           |              |  |   |              |              |                |             |            |          |   |   |           |         | 
|------------------------------------------------------------------- | ------------------------- | -------------- | ------- | - | -------------- | - | --------- | ------------ |  | - | ------------ | ------------ | -------------- | ----------- | ---------- | -------- | - | - | --------- | ------- | 
|                                                                    |                           | R.H. Donnelley |         |   | R.H. Donnelley |   |           |              |  |   |              | Consolidated |               
|                                                                    |                           | Corp.          |         |   | Inc.           |   |           | Guarantor    |  |   |              |              | R.H. Donnelley |            
|                                                                    |                           | (Parent)       |         |   | (Issuer)       |   |           | Subsidiaries |  |   | Eliminations |              |                | Corporation |           
|                                                                    |                           |                |        
|Assets                                                              |                           |                |         |   |                |   |           |              |  |   |              |              |                |             |            |          |   |   |           |        
|Cash and cash equivalents                                           |                           | $              |        |   |                | $ | 6,008     |              |  | $ | 4,747        |              |                | $           |           |          |   | $ | 10,755    |        
|Accounts receivable, net                                            |                           |                |        |   |                |   |          |              |  |   | 455,433      |              |                |             |           |          |   |   | 455,433   |        
|Deferred directory costs                                            |                           |                |        |   |                |   |          |              |  |   | 155,959      |              |                |             | (39,442    | )        |   |   | 116,517   |        
|Other current assets                                                |                           |                |        |   |                |   | 18,456    |              |  |   | 693,933      |              |                |             | (671,785   | )        |   |   | 40,604    |        
|                                                                    |                           |               
|                                                                    | Total current assets      |                |         |  |                |   |           | 24,464       |  |   |              | 1,310,072    |                |             |            | (711,227 | ) |   |           | 623,309 | 
|Investment in subsidiaries                                          |                           |                | 234,096 |   |                |   | 1,895,478 |              |  |   |             |              |                |             | (2,129,574 | )        |   |   |          |        
|Fixed assets, net                                                   |                           |                |        |   |                |   | 31,125    |              |  |   | 6,562        |              |                |             | (1         | )        |   |   | 37,686    |        
|Other assets                                                        |                           |                |        |   |                |   | 101,061   |              |  |   | 1,567        |              |                |             |           |          |   |   | 102,628   |        
|Notes receivable                                                    |                           |                |        |   |                |   | 2,124,745 |              |  |   |             |              |                |             | (2,124,745 | )        |   |   |          |        
|Intangible assets, net                                              |                           |                |        |   |                |   |          |              |  |   | 2,905,026    |              |                |             | 304        |          |   |   | 2,905,330 |        
|Goodwill                                                            |                           |                |        |   |                |   |          |              |  |   | 309,969      |              |                |             |           |          |   |   | 309,969   |        
|                                                                    |                           |               
|Total assets                                                        |                           | $              | 234,096 |   |                | $ | 4,176,873 |              |  | $ | 4,533,196    |              |                | $           | (4,965,243 | )        |   | $ | 3,978,922 |        
|                                                                    |                           |               
|Liabilities, Preferred Stock and Shareholders Equity
    (Deficit) |                           |                |         |   |                |   |           |              |  |   |              |              |                |             |            |          |   |   |           |        
|Accounts payable and accrued liabilities                            |                           | $              |        |   |                | $ | 366,086   |              |  | $ | 45,091       |              |                | $           | (330,815   | )        |   | $ | 80,362    |        
|Deferred directory revenue                                          |                           |                |        |   |                |   |          |              |  |   | 381,424      |              |                |             |           |          |   |   | 381,424   |        
|Current portion LTD.                                                |                           |                |        |   |                |   | 162,011   |              |  |   | 111,840      |              |                |             | (111,840   | )        |   |   | 162,011   |        
|                                                                    |                           |               
|                                                                    | Total current liabilities |                |         |  |                |   |           | 528,097      |  |   |              | 538,355      |                |             |            | (442,655 | ) |   |           | 623,797 | 
|Long-term debt                                                      |                           |                |        |   |                |   | 3,314,522 |              |  |   | 2,012,905    |              |                |             | (2,362,096 | )        |   |   | 2,965,331 |        
|Deferred income taxes, net                                          |                           |                |        |   |                |   | 70,612    |              |  |   | 53,366       |              |                |             | (5,158     | )        |   |   | 118,820   |        
|Other long-term liabilities                                         |                           |                |        |   |                |   | 29,546    |              |  |   | 33,092       |              |                |             | (25,760    | )        |   |   | 36,878    |        
|Redeemable convertible preferred stock                              |                           |                | 216,111 |   |                |   |          |              |  |   |             |              |                |             |           |          |   |   | 216,111   |        
|Shareholders equity                                                |                           |                | 17,985  |   |                |   | 234,096   |              |  |   | 1,895,478    |              |                |             | (2,129,574 | )        |   |   | 17,985    |        
|                                                                    |                           |               
|Total liabilities, preferred stock and shareholders equity         |                           | $              | 234,096 |   |                | $ | 4,176,873 |              |  | $ | 4,533,196    |              |                | $           | (4,965,243 | )        |   | $ | 3,978,922 |        
|                                                                    |                           |               

F-41



---



##### 



R.H. Donnelley Corporation


Consolidating Condensed Balance Sheet


December 31, 2003


|                                                                          |                           |                |         |   |                |   |           |              |  |   |              |              |                |             |             |          |   |   |           |         | 
|------------------------------------------------------------------------- | ------------------------- | -------------- | ------- | - | -------------- | - | --------- | ------------ |  | - | ------------ | ------------ | -------------- | ----------- | ----------- | -------- | - | - | --------- | ------- | 
|                                                                          |                           | R.H. Donnelley |         |   | R.H. Donnelley |   |           |              |  |   |              | Consolidated |               
|                                                                          |                           | Corp.          |         |   | Inc.           |   |           | Guarantor    |  |   |              |              | R.H. Donnelley |            
|                                                                          |                           | (Parent)       |         |   | (Issuer)       |   |           | Subsidiaries |  |   | Eliminations |              |                | Corporation |            
|                                                                          |                           |                |        
|Assets                                                                    |                           |                |         |   |                |   |           |              |  |   |              |              |                |             |             |          |   |   |           |        
|Cash and cash equivalents                                                 |                           | $              |        |   |                | $ | 6,900     |              |  | $ | 822          |              |                | $           |            |          |   | $ | 7,722     |        
|Accounts receivable, net                                                  |                           |                |        |   |                |   |          |              |  |   | 210,981      |              |                |             |            |          |   |   | 210,981   |        
|Deferred directory costs                                                  |                           |                |        |   |                |   |          |              |  |   | 33,035       |              |                |             |            |          |   |   | 33,035    |        
|Other current assets                                                      |                           |                |        |   |                |   | 12,696    |              |  |   | 20,157       |              |                |             |            |          |   |   | 32,853    |        
|                                                                          |                           |               
|                                                                          | Total current assets      |                |         |  |                |   |           | 19,596       |  |   |              | 264,995      |                |             |             |         |   |   |           | 284,591 | 
|Investment in subsidiaries                                                |                           |                | 141,978 |   |                |   | 2,362,171 |              |  |   | 2,125,356    |              |                |             | (4,453,776  | )        |   |   | 175,729   |        
|Fixed assets, net                                                         |                           |                |        |   |                |   | 17,201    |              |  |   | 3,424        |              |                |             | (1          | )        |   |   | 20,624    |        
|Other assets                                                              |                           |                |        |   |                |   | 95,583    |              |  |   |             |              |                |             |            |          |   |   | 95,583    |        
|Intangible assets, net                                                    |                           |                |        |   |                |   |          |              |  |   | 1,865,167    |              |                |             |            |          |   |   | 1,865,167 |        
|Goodwill                                                                  |                           |                |        |   |                |   |          |              |  |   | 97,040       |              |                |             |            |          |   |   | 97,040    |        
|                                                                          |                           |               
|Total assets                                                              |                           | $              | 141,978 |   |                | $ | 2,494,551 |              |  | $ | 4,355,982    |              |                | $           | ( 4,453,777 | )        |   | $ | 2,538,734 |        
|                                                                          |                           |               
|Liabilities, Preferred Stock and Shareholders Equity
    (Deficit)       |                           |                |         |   |                |   |           |              |  |   |              |              |                |             |             |          |   |   |           |        
|Accounts payable and accrued liabilities                                  |                           | $              |        |   |                | $ | 119,155   |              |  | $ | 19,292       |              |                | $           | (104,945    | )        |   | $ | 33,502    |        
|Deferred directory revenue                                                |                           |                |        |   |                |   |          |              |  |   | 216,525      |              |                |             |            |          |   |   | 216,525   |        
|Current portion LTD.                                                      |                           |                |        |   |                |   | 49,586    |              |  |   |             |              |                |             |            |          |   |   | 49,586    |        
|                                                                          |                           |               
|                                                                          | Total current liabilities |                |         |  |                |   |           | 168,741      |  |   |              | 235,817      |                |             |             | (104,945 | ) |   |           | 299,613 | 
|Long-term debt                                                            |                           |                |        |   |                |   | 2,042,547 |              |  |   |             |              |                |             |            |          |   |   | 2,042,547 |        
|Deferred income taxes, net                                                |                           |                |        |   |                |   | (22,739   | )            |  |   | 56,368       |              |                |             |            |          |   |   | 33,629    |        
|Other long-term liabilities                                               |                           |                |        |   |                |   | 20,940    |              |  |   | 27           |              |                |             |            |          |   |   | 20,967    |        
|Redeemable convertible preferred stock                                    |                           |                | 198,223 |   |                |   |          |              |  |   |             |              |                |             |            |          |   |   | 198,223   |        
|Shareholders (deficit) equity                                            |                           |                | (56,245 | ) |                |   | 285,062   |              |  |   | 4,063,770    |              |                |             | (4,348,832  | )        |   |   | (56,245   | )      
|                                                                          |                           |               
|Total liabilities, preferred stock and shareholders equity
    (deficit) |                           | $              | 141,978 |   |                | $ | 2,494,551 |              |  | $ | 4,355,982    |              |                | $           | (4,453,777  | )        |   | $ | 2,538,734 |        
|                                                                          |                           |               

F-42



---



##### 



R.H. Donnelley Corporation


Consolidating Condensed Statement of Operations


For the Year Ended December 31, 2004


|                                               |  |                |        |  |                |   |        |              |  |   |              |              |                |             |          |   |  |   |          |  
|---------------------------------------------- |  | -------------- | ------ |  | -------------- | - | ------ | ------------ |  | - | ------------ | ------------ | -------------- | ----------- | -------- | - |  | - | -------- | -
|                                               |  | R.H. Donnelley |        |  | R.H. Donnelley |   |        |              |  |   |              | Consolidated |               
|                                               |  | Corp.          |        |  | Inc.           |   |        | Guarantor    |  |   |              |              | R.H. Donnelley |            
|                                               |  | (Parent)       |        |  | (Issuer)       |   |        | subsidiaries |  |   | Eliminations |              |                | Corporation |         
|                                               |  |                |       
|Net revenue                                    |  | $              |       |  |                | $ | 12,980 |              |  | $ | 638,361      |              |                | $           | (48,225  | ) |  | $ | 603,116  |  
|Expenses                                       |  |                |       |  |                |   | 44,282 |              |  |   | 393,279      |              |                |             | (48,226  | ) |  |   | 389,335  |  
|Partnership and equity income                  |  |                | 70,312 |  |                |   | 76,189 |              |  |   | 65,190       |              |                |             | (133,724 | ) |  |   | 77,967   |  
|                                               |  |               
|Operating (loss) income                        |  |                | 70,312 |  |                |   | 44,887 |              |  |   | 310,272      |              |                |             | (133,723 | ) |  |   | 291,748  |  
|Interest (expense) income                      |  |                |       |  |                |   | 17,841 |              |  |   | (193,371     | )            |                |             |         |   |  |   | (175,530 | )
|Other income                                   |  |                |       |  |                |   | 22     |              |  |   | (22          | )            |                |             |         |   |  |   |         |  
|                                               |  |               
|Pre-tax (loss) income                          |  |                | 70,312 |  |                |   | 62,750 |              |  |   | 116,879      |              |                |             | (133,723 | ) |  |   | 116,218  |  
|Income tax (expense) benefit                   |  |                |       |  |                |   | 7,562  |              |  |   | (53,468      | )            |                |             |         |   |  |   | (45,906  | )
|                                               |  |               
|Net (loss) income                              |  |                | 70,312 |  |                |   | 70,312 |              |  |   | 63,411       |              |                |             | (133,723 | ) |  |   | 70,312   |  
|Dividend on Preferred Stock                    |  |                | 21,791 |  |                |   |       |              |  |   |             |              |                |             |         |   |  |   | 21,791   |  
|                                               |  |               
|(Loss) income available to common shareholders |  | $              | 48,521 |  |                | $ | 70,312 |              |  | $ | 63,411       |              |                | $           | (133,723 | ) |  | $ | 48,521   |  
|                                               |  |               

R.H. Donnelley Corporation


Consolidated Condensed Statement of Operations


For the Year Ended December 31, 2003


|                                               |  |                |          |   |                |   |          |              |  |   |              |              |                |             |          |   |  |   |          |  
|---------------------------------------------- |  | -------------- | -------- | - | -------------- | - | -------- | ------------ |  | - | ------------ | ------------ | -------------- | ----------- | -------- | - |  | - | -------- | -
|                                               |  | R.H. Donnelley |          |   | R.H. Donnelley |   |          |              |  |   |              | Consolidated |               
|                                               |  | Corp.          |          |   | Inc.           |   |          | Guarantor    |  |   |              |              | R.H. Donnelley |            
|                                               |  | (Parent)       |          |   | (Issuer)       |   |          | subsidiaries |  |   | Eliminations |              |                | Corporation |         
|                                               |  |                |         
|Net revenue                                    |  | $              |         |   |                | $ | 22,198   |              |  | $ | 234,247      |              |                | $           |         |   |  | $ | 256,445  |  
|Expenses                                       |  |                |         |   |                |   | 72,294   |              |  |   | 205,677      |              |                |             |         |   |  |   | 277,971  |  
|Partnership and equity income                  |  |                | (49,953  | ) |                |   | 106,606  |              |  |   | 222,992      |              |                |             | (165,593 | ) |  |   | 114,052  |  
|                                               |  |               
|Operating (loss) income                        |  |                | (49,953  | ) |                |   | 56,510   |              |  |   | 251,562      |              |                |             | (165,593 | ) |  |   | 92,526   |  
|Interest (expense) income                      |  |                |         |   |                |   | (187,149 | )            |  |   | 7,129        |              |                |             |         |   |  |   | (180,020 | )
|Other income                                   |  |                |         |   |                |   | 1,523    |              |  |   |             |              |                |             |         |   |  |   | 1,523    |  
|                                               |  |               
|Pre-tax (loss) income                          |  |                | (49,953  | ) |                |   | (129,116 | )            |  |   | 258,691      |              |                |             | (165,593 | ) |  |   | (85,971  | )
|Income tax (expense) benefit                   |  |                |         |   |                |   | 79,163   |              |  |   | (43,145      | )            |                |             |         |   |  |   | 36,018   |  
|                                               |  |               
|Net (loss) income                              |  |                | (49,953  | ) |                |   | (49,953  | )            |  |   | 215,546      |              |                |             | (165,593 | ) |  |   | (49,953  | )
|Dividend on Preferred Stock                    |  |                | 58,397   |   |                |   |         |              |  |   |             |              |                |             |         |   |  |   | 58,397   |  
|                                               |  |               
|(Loss) income available to common shareholders |  | $              | (108,350 | ) |                | $ | (49,953  | )            |  | $ | 215,546      |              |                | $           | (165,593 | ) |  | $ | (108,350 | )
|                                               |  |               

F-43



---



##### 



R.H. Donnelley Corporation


Consolidated Condensed Statement of Operations


For the Year Ended December 31, 2002


|                                               |  |                |        |  |                |   |         |              |  |   |               |   |  |              |         |                |             |   |          |   |  |   |         |  
|---------------------------------------------- |  | -------------- | ------ |  | -------------- | - | ------- | ------------ |  | - | ------------- | - |  | ------------ | ------- | -------------- | ----------- | - | -------- | - |  | - | ------- | -
|                                               |  | R.H. Donnelley |        |  | R.H.           |   |         |              |  |   |               |   |  | Consolidated |        
|                                               |  | Corp.          |        |  | Donnelley Inc. |   |         | Guarantor    |  |   | Non-guarantor |   |  |              |         | R.H. Donnelley |            
|                                               |  | (Parent)       |        |  | (Issuer)       |   |         | Subsidiaries |  |   | Subsidiaries  |   |  | Eliminations |         |                | Corporation |  
|                                               |  |                |       
|Net revenue                                    |  | $              |       |  |                | $ | 75,406  |              |  | $ |              |   |  | $            |        |                |             | $ |         |   |  | $ | 75,406  |  
|Expenses                                       |  |                |       |  |                |   | 65,990  |              |  |   | 307           |   |  |              |        |                |             |   |         |   |  |   | 66,297  |  
|Partnership and equity income                  |  |                | 67,177 |  |                |   | 85,378  |              |  |   | 121,669       |   |  |              |        |                |             |   | (137,351 | ) |  |   | 136,873 |  
|                                               |  |               
|Operating income                               |  |                | 67,177 |  |                |   | 94,794  |              |  |   | 121,362       |   |  |              |        |                |             |   | (137,351 | ) |  |   | 145,982 |  
|Interest (expense) income                      |  |                |       |  |                |   | (29,521 | )            |  |   | 7,129         |   |  |              | (11,156 | )              |             |   |         |   |  |   | (33,548 | )
|Other expense                                  |  |                |       |  |                |   | (451    | )            |  |   |              |   |  |              |        |                |             |   |         |   |  |   | (451    | )
|                                               |  |               
|Pre-tax income (loss)                          |  |                | 67,177 |  |                |   | 64,822  |              |  |   | 128,491       |   |  |              | (11,156 | )              |             |   | (137,351 | ) |  |   | 111,983 |  
|Income tax benefit (expense)                   |  |                |       |  |                |   | 2,355   |              |  |   | (47,161       | ) |  |              |        |                |             |   |         |   |  |   | (44,806 | )
|                                               |  |               
|Net income (loss)                              |  |                | 67,177 |  |                |   | 67,177  |              |  |   | 81,330        |   |  |              | (11,156 | )              |             |   | (137,351 | ) |  |   | 67,177  |  
|Dividend on Preferred Stock                    |  |                | 24,702 |  |                |   |        |              |  |   |              |   |  |              |        |                |             |   |         |   |  |   | 24,702  |  
|                                               |  |               
|Income (loss) available to common shareholders |  | $              | 42,475 |  |                | $ | 67,177  |              |  | $ | 81,330        |   |  | $            | (11,156 | )              |             | $ | (137,351 | ) |  | $ | 42,475  |  
|                                               |  |               

R.H. Donnelley Corporation


Consolidating Condensed Statement of Cash Flows


For the Year Ended December 31, 2004


|                                        |                          |                |         |         |                |   |            |              |   |   |              |              |                |             |          |          |   |   |            |            |  
|--------------------------------------- | ------------------------ | -------------- | ------- | ------- | -------------- | - | ---------- | ------------ | - | - | ------------ | ------------ | -------------- | ----------- | -------- | -------- | - | - | ---------- | ---------- | -
|                                        |                          | R.H. Donnelley |         |         | R.H. Donnelley |   |            |              |   |   |              | Consolidated |               
|                                        |                          | Corp.          |         |         | Inc.           |   |            | Guarantor    |   |   |              |              | R.H. Donnelley |            
|                                        |                          | (Parent)       |         |         | (Issuer)       |   |            | Subsidiaries |   |   | Eliminations |              |                | Corporation |         
|                                        |                          |                |        
|Cash flow from operations               |                          | $              |        |         |                | $ | 302,414    |              |   | $ | 237,916      |              |                | $           | (134,027 | )        |   | $ | 406,303    |           
|Cash flow from investing activities     |                          |                |         |         |                |   |            |              |   |   |              |              |                |             |          |          |   |   |            |           
|                                        | Purchase of fixed assets |                |         |        |                |   |            | (14,919      | ) |   |              | (3,094       | )              |             |          |         |   |   |            | (18,013    | )
|                                        | Acquisitions             |                |         |        |                |   |            | (1,330,000   | ) |   |              | (83,620      | )              |             |          |         |   |   |            | (1,413,620 | )
|                                        | Other                    |                |         | (22,929 | )              |   |            | 111,840      |   |   |              | 22,929       |                |             |          | (111,840 | ) |   |            |           |  
|                                        |                          |               
|Net cash flow from investing activities |                          |                | (22,929 | )       |                |   | (1,233,079 | )            |   |   | (63,785      | )            |                |             | (111,840 | )        |   |   | (1,431,633 | )         
|                                        |                          |               
|Cash flow from financing activities     |                          |                |         |         |                |   |            |              |   |   |              |              |                |             |          |          |   |   |            |           
|                                        | Proceeds from Debt       |                |         |        |                |   |            | 1,384,400    |   |   |              | 80,047       |                |             |          |         |   |   |            | 1,464,447  |  
|                                        | Debt repayments          |                |         |        |                |   |            | (442,624     | ) |   |              | (111,840     | )              |             |          | 111,840  |   |   |            | (442,624   | )
|                                        | Other                    |                |         | 22,929  |                |   |            |             |   |   |              | (16,389      | )              |             |          |         |   |   |            | 6,540      |  
|                                        |                          |               
|Net cash flow from financing activities |                          |                | 22,929  |         |                |   | 941,776    |              |   |   | (48,182      | )            |                |             | 111,840  |          |   |   | 1,028,363  |           
|                                        |                          |               
|Change in cash                          |                          |                |        |         |                |   | 11,111     |              |   |   | 125,949      |              |                |             | (134,027 | )        |   |   | 3,033      |           
|Cash at beginning of year               |                          |                |        |         |                |   | 6,900      |              |   |   | 822          |              |                |             |         |          |   |   | 7,722      |           
|                                        |                          |               
|Cash at end of period                   |                          | $              |        |         |                | $ | 18,011     |              |   | $ | 126,771      |              |                | $           | (134,027 | )        |   | $ | 10,755     |           
|                                        |                          |               

R.H. Donnelley Corporation


Consolidated Condensed Statement of Cash Flows


For the Year Ended December 31, 2003


|                                    |  |                |          |   |                |   |          |              |  |              |                |   |  |   |          |  
|----------------------------------- |  | -------------- | -------- | - | -------------- | - | -------- | ------------ |  | ------------ | -------------- | - |  | - | -------- | -
|                                    |  | R.H. Donnelley |          |   | R.H. Donnelley |   |          |              |  | Consolidated |               
|                                    |  | Corp.          |          |   | Inc.           |   |          | Guarantor    |  |              | R.H. Donnelley |  
|                                    |  | (Parent)       |          |   | (Issuer)       |   |          | subsidiaries |  |              | Corporation    |  
|                                    |  |                |         
|Cash flow from operations           |  | $              |         |   |                | $ | (136,482 | )            |  | $            | 385,079        |   |  | $ | 248,597  |  
|Cash flow from investing activities |  |                | (125,683 | ) |                |   | (219,175 | )            |  |              | (33,056        | ) |  |   | (377,914 | )
|Cash flow from financing activities |  |                | 125,683  |   |                |   | 354,812  |              |  |              | (351,243       | ) |  |   | 129,252  |  
|                                    |  |               
|Change in cash                      |  |                |         |   |                |   | (845     | )            |  |              | 780            |   |  |   | (65      | )
|Cash at beginning of period         |  |                |         |   |                |   | 7,745    |              |  |              | 42             |   |  |   | 7,787    |  
|                                    |  |               
|Cash at end of period               |  | $              |         |   |                | $ | 6,900    |              |  | $            | 822            |   |  | $ | 7,722    |  
|                                    |  |               

F-44



---



##### 



R.H. Donnelley Corporation


Consolidated Condensed Statement of Cash Flows


For the Year Ended December 31, 2002


|                                    |  |           |         |   |           |   |          |              |  |      |              |   |  |              |              |                |             |   |         |   |  |   |            |  
|----------------------------------- |  | --------- | ------- | - | --------- | - | -------- | ------------ |  | ---- | ------------ | - |  | ------------ | ------------ | -------------- | ----------- | - | ------- | - |  | - | ---------- | -
|                                    |  | R.H.      |         |   | R.H.      |   |          |              |  |      |              |   |  |             
|                                    |  | Donnelley |         |   | Donnelley |   |          |              |  | Non- |              |   |  |              | Consolidated |               
|                                    |  | Corp.     |         |   | Inc.      |   |          | Guarantor    |  |      | Guarantor    |   |  |              |              | R.H. Donnelley |            
|                                    |  | (Parent)  |         |   | (Issuer)  |   |          | Subsidiaries |  |      | Subsidiaries |   |  | Eliminations |              |                | Corporation |  
|                                    |  |           |        
|Cash flow from operations           |  |           |         |   |           | $ | 14,342   |              |  | $    | 40,554       |   |  | $            | (4,941       | )              |             |   |        |   |  | $ | 49,955     |  
|Cash flow from investing activities |  | $         | (69,300 | ) |           |   | (107,443 | )            |  |      |             |   |  |              | (1,825,000   | )              |             | $ | 69,300  |   |  |   | (1,932,443 | )
|Cash flow from financing activities |  |           | 69,300  |   |           |   | 86,179   |              |  |      | (40,566      | ) |  |              | 1,829,941    |                |             |   | (69,300 | ) |  |   | 1,875,554  |  
|                                    |  |          
|Change in cash                      |  |           |        |   |           |   | (6,922   | )            |  |      | (12          | ) |  |              |             |                |             |   |        |   |  |   | (6,934     | )
|Cash at beginning of period         |  |           |         |   |           |   | 14,667   |              |  |      | 54           |   |  |              |              |                |             |   |         |   |  |   | 14,721     |  
|                                    |  |          
|Cash at end of period               |  | $         |        |   |           | $ | 7,745    |              |  | $    | 42           |   |  | $            |             |                |             | $ |        |   |  | $ | 7,787      |  
|                                    |  |          



|    |                                  
|--- | ---------------------------------
|15. | Valuation and Qualifying Accounts

|                                                 |  |            |        |              |              |  |               |             |  |  |            |   |  |            |         |   |  |   |        | 
|------------------------------------------------ |  | ---------- | ------ | ------------ | ------------ |  | ------------- | ----------- |  |  | ---------- | - |  | ---------- | ------- | - |  | - | ------ | 
|                                                 |  |            |        | Net Addition |              |  |               |             |  |  |           
|                                                 |  |            |        | to           |              |  |               |             |  |  |           
|                                                 |  |            |        | Allowances   |              |  |               |             |  |  |           
|                                                 |  |            |        | from SPA &   |              |  | Net Additions |             |  |  |            |  
|                                                 |  | Balance at |        |              | SBC          |  |               | Charged to  |  |  | Write-offs |   |  | Balance at |        
|                                                 |  | Beginning  |        |              | Directory    |  |               | Revenue and |  |  | and Other  |   |  | End of     |        
|                                                 |  | of Period  |        |              | Acquisitions |  |               | Expense     |  |  | Deductions |   |  | Period     |        
|                                                 |  |            |       
|Allowance for Doubtful Accounts and Sales Claims |  |            |        |              |              |  |               |             |  |  |            |   |  |            |         |   |  |   |        | 
|For the year ended December 31, 2004             |  | $          | 11,956 |              |              |  | 25,788        |             |  |  | 32,339     |   |  |            | (36,990 | ) |  | $ | 33,093 | 
|For the year ended December 31, 2003             |  | $          | 4,772  |              |              |  | 31,052        |             |  |  | 1,611      |   |  |            | (25,479 | ) |  | $ | 11,956 | 
|For the year ended December 31, 2002             |  | $          | 6,339  |              |              |  |              |             |  |  | 3,300      |   |  |            | (4,867  | ) |  | $ | 4,772  | 
|Deferred Tax Asset Valuation Allowance           |  |            |        |              |              |  |               |             |  |  |            |   |  |            |         |   |  |   |        | 
|For the year ended December 31, 2004             |  | $          | 5,738  |              |              |  |              |             |  |  | 410        |   |  |            |        |   |  | $ | 6,148  | 
|For the year ended December 31, 2003             |  | $          | 6,094  |              |              |  |              |             |  |  | (356       | ) |  |            |        |   |  | $ | 5,738  | 
|For the year ended December 31, 2002             |  | $          | 4,287  |              |              |  |              |             |  |  | 1,807      |   |  |            |        |   |  | $ | 6,094  | 



|    |                                  
|--- | ---------------------------------
|16. | Quarterly Information (unaudited)

|                                               |  |                    |         |           |         |   |          |    |  |   |         |  |  |           |         |   |  |   |         | 
|---------------------------------------------- |  | ------------------ | ------- | --------- | ------- | - | -------- | -- |  | - | ------- |  |  | --------- | ------- | - |  | - | ------- | 
|                                               |  | Three Months Ended |         |           |        
|                                               |  |                    |         |           |        
|                                               |  |                    |         | September |         |   | December |    |  |  
|                                               |  | March 31           |         |           | June 30 |   |          | 30 |  |   | 31      |  |  | Full Year |        
|                                               |  |                    |        
|2004                                           |  |                    |         |           |         |   |          |    |  |   |         |  |  |           |         |   |  |   |         | 
|Net
    revenue(1)                             |  | $                  | 143,807 |           |         | $ | 144,641  |    |  | $ | 144,405 |  |  | $         | 170,263 |   |  | $ | 603,116 | 
|Operating
    income(2)                        |  |                    | 86,738  |           |         |   | 92,136   |    |  |   | 73,686  |  |  |           | 39,188  |   |  |   | 291,748 | 
|Net income (loss)                              |  |                    | 28,095  |           |         |   | 33,057   |    |  |   | 18,474  |  |  |           | (9,314  | ) |  |   | 70,312  | 
|Preferred dividend                             |  |                    | 5,287   |           |         |   | 5,392    |    |  |   | 5,501   |  |  |           | 5,611   |   |  |   | 21,791  | 
|Income (loss) available to common shareholders |  |                    | 22,808  |           |         |   | 27,665   |    |  |   | 12,973  |  |  |           | (14,925 | ) |  |   | 48,521  | 
|Basic earnings (loss) earnings per share       |  | $                  | 0.57    |           |         | $ | 0.68     |    |  | $ | 0.32    |  |  | $         | (0.47   | ) |  | $ | 1.19    | 
|Diluted earnings (loss) per share              |  | $                  | 0.54    |           |         | $ | 0.65     |    |  | $ | 0.31    |  |  | $         | (0.47   | ) |  | $ | 1.15    | 

F-45



---



##### 



|                                               |  |                    |         |           |         |   |          |    |  |   |        |   |  |           |         |  |  |   |          |  
|---------------------------------------------- |  | ------------------ | ------- | --------- | ------- | - | -------- | -- |  | - | ------ | - |  | --------- | ------- |  |  | - | -------- | -
|                                               |  | Three Months Ended |         |           |        
|                                               |  |                    |         |           |        
|                                               |  |                    |         | September |         |   | December |    |  |  
|                                               |  | March 31           |         |           | June 30 |   |          | 30 |  |   | 31     |   |  | Full Year |        
|                                               |  |                    |        
|2003                                           |  |                    |         |           |         |   |          |    |  |   |        |   |  |           |         |  |  |   |          |  
|Net
    revenue(1)                             |  | $                  | 12,419  |           |         | $ | 38,634   |    |  | $ | 89,309 |   |  | $         | 116,083 |  |  | $ | 256,445  |  
|Operating (loss)
    income(3)                 |  |                    | (21,918 | )         |         |   | 10,464   |    |  |   | 50,840 |   |  |           | 53,140  |  |  |   | 92,526   |  
|Net (loss) income                              |  |                    | (41,187 | )         |         |   | (18,911  | )  |  |   | 3,903  |   |  |           | 6,242   |  |  |   | (49,953  | )
|Preferred dividend                             |  |                    | 42,154  |           |         |   | 5,978    |    |  |   | 5,082  |   |  |           | 5,183   |  |  |   | 58,397   |  
|(Loss) income available to common shareholders |  |                    | (83,341 | )         |         |   | (24,889  | )  |  |   | (1,179 | ) |  |           | 1,059   |  |  |   | (108,350 | )
|Basic (loss) earnings per share                |  | $                  | (2.76   | )         |         | $ | (0.81    | )  |  | $ | (0.04  | ) |  | $         | 0.03    |  |  | $ | (3.53    | )
|Diluted (loss) earnings per share              |  | $                  | (2.76   | )         |         | $ | (0.81    | )  |  | $ | (0.04  | ) |  | $         | 0.03    |  |  | $ | (3.53    | )





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Revenue from the sale of advertising is recognized under the
    deferral and amortization method, whereby revenue from
    advertising sales is initially deferred when a directory is
    published and recognized ratably over the life of the directory.
    Due to purchase accounting rules, we were not able to recognize
    any revenue from directories published by the SBC Directory
    Business or the SPA Directory Business prior to each acquisition
    or for any directories published in the months the acquisitions
    were completed.                                                                                                                                                         
|   
|(2) | Similar to the deferral and amortization method of revenue
    recognition, certain costs directly related to the selling and
    production of directories are initially deferred and recognized
    ratably over the life of the directory. Due to purchase
    accounting rules, we were not able to recognize any expenses
    from directories published by the SBC Directory Business or the
    SPA Directory Business prior to each acquisition or for any
    directories published in the months the acquisitions were
    completed. Additionally, as a result of the SBC Directory
    Acquisition, SBC ceased paying us revenue participation income
    and we consolidate all net profits from DonTech.
|   
|(3) | The second, third and fourth quarters of 2003 include
    restructuring charges of $3.1 million, $4.3 million
    and $2.1 million, respectively, for the closing of
    redundant facilities and the relocation of the Companys
    corporate offices to Cary, North Carolina.                                                                                                                                                                                                                                                                                                                                                                                                                                      



|    |                  
|--- | -----------------
|17. | Subsequent Events



F-46



---



##### 



Recognition of Liabilities in Connection with a Purchase
Business Combination.


F-47



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of R.H. Donnelley Corporation and
Board of Directors and Shareholder of R.H. Donnelley Publishing & Advertising, Inc.: In our opinion, the accompanying balance sheets and the related statements of operations, cash
flows and changes in shareholders equity (deficit) present fairly, in all material respects, the
financial position of R.H. Donnelley Publishing & Advertising, Inc. (the Company) at December 31,
2004 and 2003, and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Raleigh, North Carolina
March 16, 2005 F-48




---



##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING, INC.
BALANCE SHEETS December 31,(in thousands, except share and per share data)
    
    2004
    
    
    2003AssetsCurrent AssetsCash and cash equivalents
    
    $
    895
    
    
    $
    801Accounts receivableBilled
    
    
    48,139
    
    
    
    49,203Unbilled
    
    
    174,087
    
    
    
    173,734Allowance for doubtful accounts and sales claims
    
    
    (12,220
    )
    
    
    (11,956
    )Net accounts receivable
    
    
    210,006
    
    
    
    210,981Deferred directory costs
    
    
    32,103
    
    
    
    37,907Amount due from affiliates
    
    
    56,889
    
    
    
    Other current assets
    
    
    16,955
    
    
    
    2,114Total current assets
    
    
    316,848
    
    
    
    251,803Fixed assets and computer software, net
    
    
    1,192
    
    
    
    3,424Deferred income taxes
    
    
    
    
    
    
    75,038Intangible assets, net
    
    
    1,815,334
    
    
    
    1,865,167Goodwill
    
    
    97,040
    
    
    
    97,040Total Assets
    
    $
    2,230,414
    
    
    $
    2,292,472Liabilities and Shareholders DeficitCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    17,451
    
    
    $
    19,493Deferred directory revenue
    
    
    222,468
    
    
    
    216,525Amount due to affiliates
    
    
    
    
    
    
    48,067Current portion of long-term debt due to affiliate
    
    
    111,840
    
    
    
    111,840Total current liabilities
    
    
    351,759
    
    
    
    395,925Long-term debt due to affiliate
    
    
    1,901,276
    
    
    
    2,013,115Deferred income taxes, net
    
    
    33,753
    
    
    
    Other non-current liabilities
    
    
    2
    
    
    
    27Total liabilities
    
    
    2,286,790
    
    
    
    2,409,067Shareholders DeficitCommon stock, par value $1 per share, authorized, issued and
outstanding  1,000 shares
    
    
    1
    
    
    
    1Accumulated deficit
    
    
    (56,377
    )
    
    
    (116,596
    )Total shareholders deficit
    
    
    (56,376
    )
    
    
    (116,595
    )Total Liabilities and Shareholders Deficit
    
    $
    2,230,414
    
    
    $
    2,292,472
 The accompanying notes are an integral part of the financial statements. F-49




---



##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING, INC.
STATEMENTS OF OPERATIONS Years Ended December 31,(in thousands)
    
    2004
    
    
    2003Gross revenue
    
    $
    567,265
    
    
    $
    236,593Sales allowances
    
    
    (6,239
    )
    
    
    (2,345
    )Net revenue
    
    
    561,026
    
    
    
    234,248ExpensesOperating expenses
    
    
    199,604
    
    
    
    143,781General and administrative expenses
    
    
    18,942
    
    
    
    20,988Depreciation and amortization
    
    
    50,307
    
    
    
    59,656Total expenses
    
    
    268,853
    
    
    
    224,425Operating income
    
    
    292,173
    
    
    
    9,823Interest expense, net
    
    
    (193,370
    )
    
    
    (201,456
    )Income (loss) before income taxes
    
    
    98,803
    
    
    
    (191,633
    )Provision (benefit) for income taxes
    
    
    38,584
    
    
    
    (75,037
    )Net income (loss)
    
    $
    60,219
    
    
    $
    (116,596
    )
 The accompanying notes are an integral part of the financial statements. F-50




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##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING, INC.
STATEMENTS OF CASH FLOWS Years Ended December 31,(in thousands)
    
    2004
    
    
    2003Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    60,219
    
    
    $
    (116,596
    )Reconciliation of net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    50,307
    
    
    
    59,656Deferred income tax
    
    
    35,225
    
    
    
    (75,038
    )Provision
for (benefit from) bad debts
    
    
    13,585
    
    
    
    (1,517
    )Changes in assets and liabilities, net of effects from acquisition:(Increase) decrease in accounts receivable
    
    
    (12,610
    )
    
    
    74,775Decrease (increase) in deferred directory costs
    
    
    5,805
    
    
    
    (19,617
    )Increase in other current assets
    
    
    (2,611
    )
    
    
    (437
    )(Increase) decrease in accounts payable and accrued liabilities.
    
    
    1,313
    
    
    
    (61,322
    )Increase in deferred directory revenue
    
    
    5,943
    
    
    
    216,525Net cash provided by operating activities
    
    
    157,176
    
    
    
    76,429Cash Flows from Investing ActivitiesAdditions to fixed assets and computer software
    
    
    (1,836
    )
    
    
    (1,269
    )Acquisition of SPA, net of cash received
    
    
    
    
    
    
    (2,245,621
    )Net cash used in investing activities
    
    
    (1,836
    )
    
    
    (2,246,890
    )Cash Flows from Financing ActivitiesProceeds from long-term debt from affiliates
    
    
    
    
    
    
    2,227,475Debt repayment to affiliates
    
    
    (111,840
    )
    
    
    (111,840
    )(Decrease) increase in amounts due to affiliates
    
    
    (43,406
    )
    
    
    55,627Net cash (used in) provided by financing activities
    
    
    (155,246
    )
    
    
    2,171,262Increase in cash and cash equivalents
    
    
    94
    
    
    
    801Cash and cash equivalents, beginning of year
    
    
    801
    
    
    
    Cash and cash equivalents, end of year
    
    $
    895
    
    
    $
    801Supplemental InformationCash interest paid
    
    $
    193,370
    
    
    $
    201,456
 The accompanying notes are an integral part of the financial statements. F-51




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##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT) Accumulated
    
    
    Total Shareholders(in thousands)
    
    Common Stock
    
    
    Deficit
    
    
    Equity (Deficit)Predecessor Combined Consolidated Balance, December 31, 2002
    
    $
    177
    
    
    $
    85,425
    
    
    $
    85,602Effect of purchase accounting
    
    
    (177
    )
    
    
    (85,425
    )
    
    
    (85,602
    )Issuance of common stock
    
    
    1
    
    
    
    
    
    
    
    1Net loss
    
    
    
    
    
    
    (116,596
    )
    
    
    (116,596
    )Successor Balance, December 31, 2003
    
    
    1
    
    
    
    (116,596
    )
    
    
    (116,595
    )Net income
    
    
    
    
    
    
    60,219
    
    
    
    60,219Successor Balance, December 31, 2004
    
    $
    1
    
    
    $
    (56,377
    )
    
    $
    (56,376
    )
 The accompanying notes are an integral part of the financial statements. F-52




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##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING, INC.
NOTES TO FINANCIAL STATEMENTS(tabular amounts in thousands) 1. Business and Presentation R.H. Donnelley Publishing & Advertising, Inc. (the Company, Successor, we, us and our) is
a wholly owned subsidiary of R.H. Donnelley Inc. (RHD Inc.), a wholly owned subsidiary of R.H.
Donnelley Corporation (RHD). We are a leading yellow pages publisher and directional media company. Directional media is where
consumers search to find who sells the goods and services they are ready to purchase. We publish
Sprint-branded yellow pages directories in 18 states, with major markets including Las Vegas,
Nevada and Orlando and Lee County, Florida, with a total distribution of approximately 18 million
serving approximately 160,000 local and national advertisers. We also offer online city guides and
search Web sites in our major markets under the Best Red Yellow Pages® brand at
www.bestredyp.com. On January 3, 2003, RHD completed the acquisition of the directory business (the SPA Directory
Business) of Sprint Corporation (Sprint) by acquiring all the outstanding capital stock of the
various entities comprising Sprint Publishing & Advertising (SPA) (collectively, the SPA
Acquisition) for $2,227 million in cash. The acquisition was consummated pursuant to a Purchase
Agreement dated as of September 21, 2002 by and among RHD, the Company, Sprint and Centel
Directories LLC. The acquisition was accounted for as a purchase business combination and the
purchase price was allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values on the acquisition date. The results of
the SPA Directory Business are included in our results from and after January 3, 2003. See Note 3,
Acquisition of Sprint Publishing and Advertising for a further description of the acquisition. The financial statements presented herein include the accounts of the Company since January 3,
2003. No significant transactions occurred between January 1, 2003 and January 3, 2004. 2. Summary of Significant Accounting Policies Revenue Recognition.We earn revenue principally from the sale of advertising into our yellow
pages directories. Revenue from the sale of such advertising is deferred when a directory is
published and recognized ratably over the life of a directory, which is typically 12 months (the
deferral and amortization method). Revenue from the sale of advertising is recorded net of an
allowance for sales claims, estimated based on historical experience on a directory-by-directory
basis. We increase or decrease this estimate as information or circumstances indicate that the
estimate may no longer adequately represent the amount of claims we may incur for a directory in
the future. Deferred Directory Costs. Costs directly related to the selling and production of our directories
are initially deferred when incurred and recognized ratably over the life of a directory, which is
typically 12 months. These costs include sales commissions and print, paper and initial
distribution costs. Such costs that are paid prior to directory publication are classified as other
current assets. Cash and Cash Equivalents.Cash and cash equivalents include liquid investments with an original
maturity of three months or less, and the carrying amounts approximate fair value. Accounts Receivable.Accounts receivable consist of balances owed to us by our advertising
customers. Advertisers typically enter into a twelve-month contract for their advertising. Most
local advertisers are billed a pro rata amount of their contract value on a monthly basis. On
behalf of national advertisers, Certified Marketing Representatives (CMRs) pay to the Company the
total contract value of their advertising, net of their commission, within 60 days after the
publication month. Billed receivables represent the amount that has been billed to advertisers.
Unbilled receivables represent contractually owed amounts for published directories that have yet
to be billed to advertisers. Billed receivables are recorded net of an allowance for doubtful
accounts and sales claims, estimated based on historical experience on a directory-by-directory
basis. We increase or decrease this estimate as information or circumstances indicate that the
estimate may no longer adequately represent the amount of bad debts and sales claims we may incur. F-53




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##### 



Fixed Assets and Computer Software.Fixed assets and computer software are recorded at cost.
Depreciation and amortization is provided over the estimated useful lives of the assets using the
straight-line method. Estimated useful lives are 30 years for the building, five years for
machinery and equipment, ten years for furniture and fixtures, three to five years for computer
equipment and five years for computer software. Leasehold improvements are amortized on a
straight-line basis over the shorter of the term of the lease or the estimated useful life of the
improvement. During 2004, we wrote off fixed assets and computer software that had been fully
depreciated. Fixed assets and computer software at December 31, 2004 and 2003 consisted of the
following: 2004
    
    
    2003Computer software
    
    $
    4
    
    
    $
    9,038Computer equipment
    
    
    835
    
    
    
    938Machinery and equipment
    
    
    1,016
    
    
    
    540Furniture and fixtures
    
    
    2,046
    
    
    
    1,342Leasehold improvements
    
    
    200
    
    
    
    382Building
    
    
    
    
    
    
    1,007Total cost
    
    
    4,101
    
    
    
    13,247Less accumulated depreciation and amortization
    
    
    (2,909
    )
    
    
    (9,823
    )Net fixed assets and computer software
    
    $
    1,192
    
    
    $
    3,424
 Depreciation and amortization expense of fixed assets and computer software for the years ended
December 31, 2004 and 2003 was as follows: 2004
    
    
    2003Depreciation of fixed assets
    
    $
    463
    
    
    $
    822Amortization of computer software
    
    
    11
    
    
    
    9,001Total depreciation and amortization of fixed assets and computer
software
    
    $
    474
    
    
    $
    9,823
 Identifiable Intangible Assets and Goodwill.As a result of the SPA Acquisition, certain
long-term intangible assets were identified and recorded at their estimated fair values.
Amortization expense for each of the years ended December 31, 2004 and 2003 was $49.8 million.
Amortization expense for these intangible assets for each of the five succeeding years is estimated
to be approximately $50.0 million. Annual amortization of goodwill for tax purposes is
approximately $122.3 million. The acquired long-term intangible assets and their respective book
values at December 31, 2004 are shown in the table below. Directory Services
    
    
    Local customer
    
    
    National CMRAgreements
    
    
    relationships
    
    
    relationships
    
    
    Trade names
    
    
    TotalInitial fair value
    
    $
    1,625,000
    
    
    $
    200,000
    
    
    $
    60,000
    
    
    $
    30,000
    
    
    $
    1,915,000Accumulated amortization
    
    
    (65,000
    )
    
    
    (26,666
    )
    
    
    (4,000
    )
    
    
    (4,000
    )
    
    
    (99,666
    )Net intangible assets
    
    $
    1,560,000
    
    
    $
    173,334
    
    
    $
    56,000
    
    
    $
    26,000
    
    
    $
    1,815,334
 Directory services agreements between Sprint and the Company include a directory services license
agreement, a trademark license agreement and a non-competition agreement (collectively SPA
Directory Services Agreements) with certain affiliates of Sprint. The directory services license
agreement grants us the exclusive license (and obligation as specified in the agreement) to
produce, publish and distribute directories for Sprint (and its successors) in 18 states where
Sprint provided local telephone service at the time of the agreement. The trademark license
agreement grants us the exclusive license (and obligation as specified in the agreement) to use
certain specified Sprint trademarks, including the Sprint diamond logo, in those markets. The
non-competition agreement prohibits Sprint (and its affiliates and successors) in those markets
from selling local directory advertising, with certain limited exceptions, or producing, publishing
and distributing print directories. The SPA Directory Services F-54




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Agreements have initial terms of 50 years, subject to automatic renewal and early termination under
specified circumstances. The fair value of these agreements was determined based on the present
value of estimated future cash flows and is being amortized under the straight-line method over 50
years. The fair values of local and national customer relationships were determined based on the
present value of estimated future cash flows and are being amortized under the income forecast
method. The weighted average useful life of these relationships is 20 years. The fair value of acquired trade names was determined based on the relief from royalty method,
which values the trade names based on the estimated amount that a company would have to pay in an
arms length transaction to use these trade names. These assets are being amortized under the
straight-line method over 15 years. The excess purchase price for the SPA Acquisition over the net tangible and identifiable intangible
assets acquired of $97.0 million was recorded as goodwill. Our intercompany net receivables in
connection with the SPA Acquisition of $27.9 million was eliminated and included in goodwill. In
accordance with SFAS 142, Goodwill and Other Intangible Assets, goodwill is not amortized, but is
subject to periodic impairment testing. No impairment losses were recorded during 2003 or 2004. Advertising Expense.We recognize advertising expenses as incurred. These expenses include
public relations, media, on-line advertising and other promotional and sponsorship costs. Total
advertising expenses were $9.1 million in 2004 and $8.8 million in 2003. Concentration of Credit Risk. Approximately 85% of our directory advertising revenue is derived
from the sale of advertising to local small- and medium-sized businesses. These advertisers
typically enter into 12-month advertising sales contracts and make monthly payments over the term
of the contract. Some advertisers prepay the full amount or a portion of the contract value. Most
new advertisers and advertisers desiring to expand their advertising programs are subject to a
credit review. If the advertisers qualify, we may extend credit to them for their advertising
purchase. Small- and medium-sized businesses tend to have fewer financial resources and higher
failure rates than large businesses. In addition, full collection of delinquent accounts can take
an extended period of time and involve significant costs. While we do not believe that extending
credit to our local advertisers will have a material adverse effect on our results of operations or
financial condition, no assurances can be given. We do not require collateral from our
advertisers, although we do charge interest to advertisers that do not pay by specified due dates. The remaining approximately 15% of our directory advertising revenue is derived from the sale of
advertising to national or large regional chains, such as rental car companies, automobile repair
shops and pizza delivery businesses. Substantially all of the revenue derived through national
accounts is serviced through CMRs with which we contract. CMRs are independent third parties that
act as agents for national advertisers. The CMRs are responsible for billing the national
customers for their advertising. We receive payment for the value of advertising placed in our
directory, net of the CMRs commission, directly from the CMR. While we are still exposed to
credit risk, the amount of losses from these accounts has been historically less than the local
accounts as the advertisers, and in some cases the CMRs, tend to be larger companies with greater
financial resources than local advertisers. Pension and Other Postretirement Benefits.Our employees participate in multi-employer benefit
plans operated by RHD. The following information relates to these multi-employer plans. Pension and
other postretirement benefits represent estimated amounts to be paid to employees in the future.
The accounting for benefits reflects the recognition of these benefit costs over the employees
estimated service period based on the terms of the plan and the investment and funding decisions
made. The determination of the benefit obligation and the net periodic pension and other
postretirement benefit costs requires management to make assumptions regarding the discount rate,
return on retirement plan assets, increase in future compensation and healthcare cost trends.
Changes in these assumptions can have a significant impact on the projected benefit obligation,
funding requirement and net periodic benefit cost. The assumed discount rate is the rate at which
the pension benefits could be settled. We use the rates on Aa corporate bonds as a basis for
determining our discount rate assumption. The expected long-term rate of return on plan assets is
based on the mix of assets held by the plan and the expected long-term rates of return within each
asset class. The anticipated trend of future healthcare costs is based on historical experience
and external factors. Effective January 1, 2003, RHD reduced its rate of return on plan assets from 9.75% to 8.25%. As a
result of low investment returns over the last few years, as well as its outlook for the long term,
particularly for equity securities, RHD determined that the prior assumed rate of return of 9.75%
no longer reflected our best estimate of future long- F-55




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##### 



term returns. Based on the current investment environment and the pension plans asset allocation,
RHD determined that a long-term rate of return of 8.25% better reflected its expectations for
future long-term returns. Income Taxes.We account for income taxes under the liability method in accordance with SFAS
109, Accounting for Income Taxes. Deferred tax liabilities or assets reflect temporary differences
between amounts of assets and liabilities for financial and tax reporting. Such amounts are
adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the
temporary differences reverse. A valuation allowance is established to offset any deferred tax
assets if, based upon the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. Employee Stock Options.Certain of our employees are eligible and do participate in the stock
option plan sponsored by RHD. We follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees(APB 25), and related interpretations in accounting for the stock
option plan. Compensation expense related to the issuance of stock options to employees or
non-employee directors is only recognized if the exercise price of the stock option is less than
the fair market value of the underlying stock at the grant date. The following table reflects the pro forma net income (loss) assuming we applied the fair value
method of SFAS No. 123, Accounting for Stock-Based Compensation. The pro forma disclosures shown
are not necessarily representative of the effects on net income (loss) in future years. 2004
    
    
    2003Net income (loss), as reported
    
    $
    60,219
    
    
    $
    (116,596
    )Add: Stock based compensation expense included
in reported net income (loss), net of related
tax effects
    
    
    13
    
    
    
    9Less: Stock based compensation expense that
would have been included in the determination
of net income (loss) if the fair value method
had been applied to all awards, net of related
tax effects
    
    
    (420
    )
    
    
    (397
    )Pro forma net income (loss)
    
    $
    59,812
    
    
    $
    (116,984
    )
 The weighted average fair value of stock options ($13.64 in 2004 and $9.21 in 2003) was estimated
on the grant date using the Black-Scholes option-pricing model with the following assumptions: 2004
    
    
    2003Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    30
    %
    
    
    35
    %Risk-free interest rate
    
    
    3.5
    %
    
    
    2.6
    %Expected holding period
    
    3 years
    
    4 years
 Estimates.The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and certain expenses and the disclosure of
contingent assets and liabilities. Actual results could differ materially from those estimates and
assumptions. Estimates and assumptions are used in the determination of sales allowances,
allowances for doubtful accounts, depreciation and amortization, employee benefit plans and
restructuring reserves, among others. New Accounting Pronouncements.On December 16, 2004, the FASB issued FASB Statement No. 123
(revised 2004), Share-Based Payment (FAS 123(R)). FAS 123(R) requires companies to calculate
the fair value of stock options granted to employees, and amortize that amount over the vesting
period as an expense through the income statement. The accounting provisions of FAS 123(R) are
effective for interim periods beginning after June 15, 2005, but companies have a choice of
transition methods: modified prospective, modified retrospective, or early adoption. RHD is
presently evaluating the transition method and effective date for transition to FAS 123(R) during
2005 and what impact adoption of FAS 123(R) may have on the Company. F-56




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In May 2004, the Financial Accounting Standards Board issued Financial Staff Position (FSP) No.
FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, which provides guidance on accounting for the effects of
the Medicare Prescription Drug, Improvement and Modernization Act of 2003 for employers that
sponsor postretirement healthcare plans that provide drug benefits. The Act introduces
prescription drug care benefits under Medicare and also allows for certain sponsors of
postretirement benefit plans with a drug benefit to receive a non-taxable federal subsidy if
certain criteria are met. The FSP requires interim and annual period financial statements
beginning after June 15, 2004 to include the effect of the subsidy on the measurement of net
periodic postretirement benefit costs. RHD adopted the provision of the FSP in the fourth quarter
of 2004 and holds our accumulated post-retirement obligation. 3. Acquisition of Sprint Publishing & Advertising On January 3, 2003, RHD acquired SPA for $2.23 billion and renamed it R.H. Donnelley Publishing &
Advertising, Inc. Following the SPA Acquisition, we publish Sprint-branded yellow pages
directories in 18 states. The results of the SPA Directory Business are included in our operating
results from and after January 3, 2003. The primary purpose of this acquisition was to transform
RHD from a sales agent and pre-press vendor for yellow pages advertising to a leading publisher of
yellow pages directories. The acquisition was accounted for as a purchase business
combination in accordance with SFAS 141, Business Combinations. The purchase price was allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed based on their
respective estimated fair values on the acquisition date. The fair values of certain long-term
intangible assets were identified and recorded at their estimated fair values. Identifiable
intangible assets acquired included directory services agreements between Sprint and us, customer
relationships and acquired trade names. In accordance with SFAS 142, Goodwill and Other Intangible Assets, the fair values of the
identifiable intangible assets will be amortized over their estimated useful lives in a manner that
best reflects the economic benefits derived from such assets. Goodwill is not amortized but is
subject to impairment testing on an annual basis. Under purchase accounting rules, we did not assume the deferred revenue balance of SPA at January
3, 2003 of $315.9 million. This amount represented revenue that would have been recognized
subsequent to the acquisition under the deferral and amortization recognition method had the
acquisition not occurred. Accordingly, we did not record revenue associated with directories that
were published prior to the acquisition and during January 2003. Although the deferred revenue
balance was eliminated, we retained all the rights associated with the collection of amounts due
under and obligations under the advertising contracts executed prior to the SPA Acquisition. As a
result, SPAs billed and unbilled accounts receivable balances became our assets. Also under
purchase accounting rules, we did not assume or record the deferred directory costs related to
those directories that were published prior to the acquisition as well as directories that
published in the month each acquisition was completed, totaling $175.8 million. These costs
represented operating expenses that would have been recognized subsequent to the acquisition under
the deferral and amortization method in the absence of purchase accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed in the SPA Acquisition on January 3, 2003: Current assets
    
    $
    263,007Non-current assets
    
    
    8,300Intangible assets
    
    
    1,915,000Goodwill
    
    
    97,040Total assets acquired
    
    
    2,283,347Current liabilities
    
    
    (34,544
    )Non-current liabilities
    
    
    (19,040
    )Total liabilities assumed
    
    
    (53,584
    )Net assets acquired
    
    $
    2,229,763
 4. Restructuring and Special Charge As a result of the SPA Acquisition, $5.5 million was charged to earnings representing severance and
related costs associated with the consolidation of the publishing and technology operations and
sales offices. Payments of $3.6 F-57




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##### 



million were made during 2003 for severance and other related cost estimates. An additional
reserve of $1.3 million was recorded during 2004 related to additional severance and other related
cost estimates. During 2004, all restructuring reserves were completely settled. Balance at December 31, 2002
    
    
    Reserve charged to earnings
    
    
    5,549Payments
    
    
    (3,597
    )Balance at December 31, 2003
    
    
    1,952Additions to reserve charged to earnings
    
    
    1,254Payments
    
    
    (3,206
    )Balance at December 31, 2004
    
    $
    
 5. Long-Term Debt due to Affiliate In connection with the SPA Acquisition, R.H. Donnelley APIL Inc., a wholly owned subsidiary of RHD,
provided a long-term loan in the form of a promissory note to the Company. Total proceeds from the
loan were $2,227 million. The note matures in 2022 and provides for monthly principal payments of
$9.3 million, plus interest at an annual rate of 9.3%. Interest expense totaled $193.4 million and
$201.5 million for the years ended December 31, 2004 and 2003, respectively. Aggregate maturities of the long-term debt due to affiliate at December 31, 2004 were: 2005
    
    $
    111,8402006
    
    
    111,8402007
    
    
    111,8402008
    
    
    111,8402009
    
    
    111,840Thereafter.
    
    
    1,453,916Total
    
    $
    2,013,116
 6. Stock Option Plans RHD maintains a shareholder approved stock incentive plan (the Plan) whereby certain of our
employees and non-employee directors are eligible to receive stock options, stock appreciation
rights, limited stock appreciation rights in tandem with stock options and deferred shares.
Options are typically granted at the fair market value of RHDs common stock at the date of the
grant. RHD and it affiliates follow APB No. 25, and related interpretations in accounting for the
stock incentive plan, and, accordingly, we typically do not recognize compensation expense related
to the issuance of stock options. The options expire not more than ten years from the grant date
and the Board determines termination, vesting and other relevant provisions at the date of the
grant. For the years ended December 31, 2004 and 2003, respectively, 1,703,416 and 401,150 common stock
options were granted under the Plan. Of these amounts, 145,125 and 192,552 were granted to our
employees, respectively. On July 28, 2004, RHD
granted 0.2 million stock appreciation rights (SARs) to certain employees,
including senior management. The SARs were granted with a grant price equal to the fair market
value of the Companys common stock on the grant date. The maximum appreciation of each SAR is
100% of the initial grant price. In accordance with APB 25, we recognize non-cash compensation at
the end of each period in the amount by which the quoted market value of the underlying shares
covered by the grant exceeds the grant price over the vesting term. We recognized non-cash
compensation related to these SARs of $0.2 million during the year ended December 31, 2004. RHD granted 0.4 million options (Founders Grant) in 2002 to certain employees, including senior
management, in connection with the SPA Acquisition. These options were granted in October 2002
with an exercise price equal to the fair market value of RHDs common stock on the date of grant.
However, the award of these options was contingent upon the successful closing of the SPA
Acquisition. Therefore, these options were subject to forfeiture until January 3, 2003, by which
time the fair market value of RHDs common stock exceeded the exercise price. F-58




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##### 



Accordingly, these options were accounted for as compensatory options and resulted in compensation
expense of $0.3 million in 2004 and $0.5 million in 2003, respectively. 7. Income Taxes We are included in RHDs combined federal income tax return. Deferred tax assets and liabilities
are determined based on the estimated future tax effects of temporary differences between the
financial statements and tax basis of assets and liabilities, as measured by the current enacted
tax rates. Deferred tax expense (benefit) is the result of changes in the deferred tax asset and
liability. Provision (benefit) for income taxes consisted of: 2004
    
    
    2003Current provision (benefit)U.S. Federal
    
    $
    3,430
    
    
    $
    State and local
    
    
    (71
    )
    
    
    Total current provision
    
    
    3,359
    
    
    
    Deferred provisionU.S. Federal
    
    
    31,248
    
    
    
    (62,672
    )State and local
    
    
    3,977
    
    
    
    (12,366
    )Total deferred provision
    
    
    35,225
    
    
    
    (75,038
    )Provision (benefit) for income taxes
    
    $
    38,584
    
    
    $
    (75,038
    )
 The following table summarizes the significant differences between the U.S. Federal statutory tax
rate and our effective tax rate. 2004
    
    
    2003Statutory U.S. Federal tax rate
    
    
    35.0
    %
    
    
    35.0
    %State and local taxes, net of U.S. Federal tax benefit
    
    
    4.1
    
    
    
    4.2Effective tax rate
    
    
    39.1
    %
    
    
    39.2
    %
 Deferred tax assets and liabilities consisted of the following at December 31, 2004 and 2003: 2004
    
    
    2003Deferred tax assets
Reorganization and restructuring costs
    
    $
    
    
    
    $
    769Bad debts
    
    
    5,543
    
    
    
    5,059Net operating loss carryforwards
    
    
    54,984
    
    
    
    118,025Other
    
    
    5,880
    
    
    
    8,045Total deferred taxes
    
    
    66,407
    
    
    
    131,898Valuation allowance
    
    
    
    
    
    
    Net deferred tax assets
    
    
    66,407
    
    
    
    131,898Deferred tax liabilitiesDepreciation and amortization.
    
    
    98,789
    
    
    
    55,295Other
    
    
    1,371
    
    
    
    1,565Total deferred tax liabilities
    
    
    100,160
    
    
    
    56,860Net deferred tax asset (liability)
    
    $
    (33,753
    )
    
    $
    75,038
 The 2004 tax provision is
based on an effective tax rate of 39.1%. The tax benefit
generated in 2003 attributable to a net operating loss of approximately $176 million. The Federal
net operating loss carryforward will begin to expire in 2023, and the state net operating loss
carryforwards will begin to expire in 2008. RHD is considered the taxpayer and, as such, any current income tax liabilities or benefits are
reflected in amounts due to/from affiliates on the balance sheet. Accordingly, the deferred tax
assets and deferred tax liabilities will be settled through RHD. With regard to the deferred tax
assets, we believe that we will obtain the full benefit of such F-59




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##### 



assets based on an assessment of the Companys anticipated profitability during the years the
deferred tax assets are expected to become tax deductions. 8. Benefit Plans Retirement Plans.RHD has a defined benefit pension plan covering substantially all our employees
with at least one year of service. The benefits to be paid to employees are based on years of
service and a percentage of total annual compensation. The percentage of compensation allocated to
a retirement account ranges from 3.0% to 12.5% depending on age and years of service (cash balance
benefit). Pension costs are determined using the projected unit credit actuarial cost method.
RHDs funding policy is to contribute an amount at least equal to the minimum legal funding
requirement. No contributions were required to be made in 2004 or 2003. The underlying pension
plan assets are invested in diversified portfolios consisting primarily of equity and debt
securities. RHD uses a measurement date of December 31 for the majority of our plan assets.
Pension expense allocated to us by RHD under this plan was
$1.2 million and $0.7 million during 2004
and 2003, respectively RHD also has an unfunded non-qualified defined benefit pension plan, the Pension Benefit
Equalization Plan (PBEP), which covers senior executives and certain key employees. Benefits are
based on years of service and compensation (including compensation not permitted to be taken into
account under the previously mentioned defined benefit pension plan). Pension expense allocated to
us by RHD under this plan was $0.1 million in 2004. No expense was recognized under this plan in
2003. RHD offers a defined contribution savings plan to substantially all our employees and contributes
$0.50 for each dollar contributed by a participating employee, up to a maximum of 6% of each
participating employees salary (including bonus and commissions). Contributions under this plan
allocated to us by RHD were $0.7 million, and $0.9 million for the years ended December 31, 2004 and
2003, respectively. Other Postretirement Benefits.RHD has an unfunded postretirement benefit plan that provides
certain healthcare and life insurance benefits to our full-time employees who reach retirement age
while working for the Company. Total pension expense allocated to us by RHD for the defined
benefit pension plan and the PBEP during 2004 and 2003 was $1.0 million and $.7 million
respectively. 9. Commitments We lease office facilities and equipment under operating leases with non-cancelable lease terms
expiring at various dates through 2012. Rent and lease expense for 2004 and 2003 was $4.1 million
and $5.9 million, respectively. The future non-cancelable minimum rental payments applicable to
operating leases at December 31, 2004 are: 2005
    
    $
    1,8242006
    
    
    1,6912007
    
    
    1,5162008
    
    
    1,1582009
    
    
    774Thereafter.
    
    
    1,018Total
    
    $
    7,981
 We have entered into a long-term purchase agreement for paper used in the publishing of our
directories. The purchase commitment for the paper is with one supplier and is estimated, based on
minimum required quantities, to aggregate approximately $34.9 million through 2006. Minimum
purchases required under this agreement are $16.8 million in
2005 and $18.1 million in 2006. 10. Legal Proceedings We are involved in various legal proceedings arising in the ordinary course of our business. We
periodically assess our liabilities and contingencies in connection with these matters based upon
the latest information available to us. For those matters where it is probable that we have
incurred a loss and the loss or range of loss can be reasonably estimated, we record reserves in
our financial statements. In other instances, we are unable to make a reasonable estimate of any
liability because of the uncertainties related to both the probable outcome and amount or range of F-60




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##### 



loss. As additional information becomes available, we adjust our assessments and estimates of
these liabilities accordingly. Based on our review of the latest information available, we believe our ultimate liability in
connection with pending legal proceedings will not have a material adverse effect on our results of
operations, cash flows or financial position. 11. Pledge of Capital Stock In connection with RHDs acquisition of the directory publishing business of SBC Communications,
Inc. (SBC) in Illinois and Northwest Indiana on September 1, 2004 (the, SBC Directory
Acquisition), RHD Inc. amended and restated its Credit Facility (Credit Facility), which at that
time consisted of a $700 million Term Loan A-2, a $1,650 million Term Loan B-2 and a $175 million
revolver for an aggregate facility of $2,525 million. On December 6, 2004, RHD Inc. amended its
Credit Facility creating a new Term Loan A-3 and a new Term Loan D, both replacing the Term Loan
B-2. Term Loans A-2, A-3 and D require quarterly principal payments. As of December 31, 2004, the
outstanding balances of Term Loans A-2, A-3 and D were $526 million, $194 million and $1,441
million, respectively, and $41 million was outstanding under the Revolver. The Revolver, Term Loan
A-2 and Term Loan A-3 mature in December 2009, and Term Loan D matures in June 2011. RHD Inc. also
has issued $325 million of 8.875% Senior Notes (Senior Notes) and $600 million of 10.875% Senior
Subordinated Notes (Subordinated Notes, and, collectively with the Senior Notes, the Notes).
The Senior Notes became secured in connection with the amendment and restatement of the Credit
Facility for the SBC Directory Acquisition. Our capital stock, and thus indirectly all of our
assets and stockholders equity (if any), are pledged as collateral to secure RHD Inc.s
obligations under its Credit Facility and the Senior Notes. We also guarantee the Senior Notes and
the Notes. The total principal amount of the Senior Notes subject to the pledge of capital stock
as of December 31, 2004 was $325 million. RHDs Credit Facility and the indentures governing the Notes contain usual and customary negative
covenants that, among other things, place limitations on its and our ability to (i) incur
additional indebtedness, including capital leases and liens; (ii) pay dividends (except we may
freely pay dividends to our parent) and repurchase capital stock; (iii) enter into mergers,
consolidations, acquisitions, asset dispositions and sale-leaseback transactions; (iv) make capital
expenditures; (v) issue capital stock; and (vi) engage in transactions with affiliates. The Credit
Facility also contains financial covenants relating to maximum consolidated leverage, minimum
interest coverage and maximum senior secured leverage as defined therein. 12. Related Party Transactions and Allocations RHD and its affiliates provide us with operating and general and administrative services, which
include pre-press publishing, information technology, accounting, finance, and customer credit and
collection. Certain cost are directly assigned and indirect costs of RHD and its affiliates, where
appropriate, are allocated to us based on several factors, including relative equity, number of
employees, and a composite based on our proportionate share of certain direct and allocated
charges. Direct and indirect cost charges allocated to us during the years ended December 31, 2004
and 2003 were $44.5 million and $67.1 million, respectively. The decrease in these charges
resulted from a realignment and consolidation by RHD to achieve operating efficiencies. Financing activities are managed by RHD on a centralized basis. Under this centralized cash
management program, RHD and the Company advanced funds to each other. These intercompany net
advances were classified as a current asset or liability and were non-interest bearing. F-61




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##### 



REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders
of Sprint Corporation and R.H. Donnelley Corporation: We have audited the accompanying combined consolidated balance sheet as of December 31, 2002 of the
directory publishing operations of Sprint Corporation (Sprint Publishing & Advertising), as
described in Note 1, and the related combined consolidated statements of income, shareholders
equity, and cash flows for the year then ended. These financial statements are the responsibility
of Sprint Publishing & Advertisings management. Our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the combined consolidated financial position of Sprint Publishing & Advertising at
December 31, 2002, and the combined consolidated results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted in the United
States. /s/ ERNST & YOUNG LLP Kansas City, Missouri
January 31, 2003 F-62




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##### 



SPRINT PUBLISHING & ADVERTISING
COMBINED CONSOLIDATED BALANCE SHEET
December 31, 2002
(in thousands) Assets Current AssetsCash
    
    $
    1,691Accounts receivableBilled
    
    
    55,300Unbilled
    
    
    263,779Allowance for doubtful accounts and deferred revenue credits
    
    
    (35,073
    )Accounts receivable, net
    
    
    284,006Deferred directory costs
    
    
    97,190Advances to parent company
    
    
    4,538Deferred income taxes
    
    
    35,697Prepaid expenses and other
    
    
    3,899Total current assets
    
    
    427,021Property, plant and equipmentData processing
    
    
    30,669Other
    
    
    11,216Accumulated depreciation
    
    
    (29,906
    )Net property, plant and equipment
    
    
    11,979Deferred income taxes
    
    
    6,568Goodwill and other assets
    
    
    1,299Total
    
    $
    446,867Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable
    
    $
    8,555Accrued printing
    
    
    8,809Deferred revenue
    
    
    292,775Payroll and employee benefits
    
    
    5,341Affiliated payables
    
    
    4,603Other
    
    
    11,587Total current liabilities
    
    
    331,670Noncurrent LiabilitiesLong-term obligation
    
    
    16,110Post-retirement, pension, and other benefits obligations
    
    
    19,040Total noncurrent liabilities
    
    
    35,150Minority interest
    
    
    (5,555
    )Shareholders EquityCommon stockDirectoriesAmerica, Inc. par value $1 per share, 10,000 shares authorized, and
1,004 shares issued and outstanding
    
    
    1Centel Directory Company, no par value per share, 10 shares authorized, issued
and outstanding
    
    
    Capital in excess of par value
    
    
    176Combined retained earnings
    
    
    85,425Total shareholders equity
    
    
    85,602Total
    
    $
    446,867
 See accompanying Notes to Combined Consolidated Financial Statements. F-63




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##### 



SPRINT PUBLISHING & ADVERTISING
COMBINED CONSOLIDATED STATEMENT OF INCOME
Year ended December 31, 2002
(in thousands) Net operating revenues
    
    $
    545,604Operating ExpensesCost of services and products
    
    
    202,481Selling, general and administrative
    
    
    50,663Depreciation
    
    
    8,604Restructuring charge
    
    
    180Total operating expenses
    
    
    261,928Operating income
    
    
    283,676Interest expense
    
    
    1,875Minority interest in loss/(income)
    
    
    282Priority distributions
    
    
    17,703Other income, net
    
    
    1,523Income before income taxes
    
    
    265,903Income taxes
    
    
    103,763Net income
    
    $
    162,140
 See accompanying Notes to Combined Consolidated Financial Statements. F-64




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##### 



SPRINT PUBLISHING & ADVERTISING
COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 2002
(in thousands) Operating ActivitiesNet income
    
    $
    162,140Adjustments to reconcile net income to net cash provided by
operating activities:Provision for bad debts
    
    
    26,521Depreciation
    
    
    8,604Deferred income taxes
    
    
    (17,116
    )Minority
interest in earnings in CenDon, L.L.C.
    
    
    (282
    )Priority distributions to minority interest
    
    
    17,703Changes in assets and liabilities:Accounts receivable
    
    
    (17,412
    )Deferred directory costs
    
    
    4,531Other current assets
    
    
    (1,074
    )Accounts payable
    
    
    3,636Deferred revenue
    
    
    4,211Accrued expenses and other current liabilities
    
    
    (5,266
    )Affiliated receivables and payables, net
    
    
    1,044Noncurrent assets and liabilities
    
    
    111Other, net
    
    
    (650
    )Net cash provided by operating activities
    
    
    186,701Investing ActivitiesCapital expenditures
    
    
    (1,616
    )Changes in advances to parent company
    
    
    8,552Net cash provided by investing activities
    
    
    6,936Financing ActivitiesDistributions paid to minority interest, net
    
    
    (17,946
    )Dividends paid
    
    
    (174,000
    )Net cash used by financing activities
    
    
    (191,946
    )Increase in cash and equivalents
    
    
    1,691Cash and equivalents, beginning of year
    
    
    Cash and equivalents, end of year
    
    $
    1,691Supplemental InformationCash received for interest
    
    $
    967Cash paid for income taxes
    
    $
    117,813
 See accompanying Notes to Combined Consolidated Financial Statements. F-65




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##### 



SPRINT PUBLISHING & ADVERTISING
COMBINED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
Year ended December 31, 2002
(in thousands) Centel
    
    
    CombinedDirectory
    
    
    RetainedDirectoriesAmerica,Inc.
    
    
    Company
    
    
    Earnings
    
    
    TotalBeginning 2002 balance
    
    $
    166
    
    
    $
    11
    
    
    $
    97,285
    
    
    $
    97,462Common stock dividends
    
    
    
    
    
    
    
    
    
    
    (174,000
    )
    
    
    (174,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    162,140
    
    
    
    162,140Ending 2002 balance
    
    $
    166
    
    
    $
    11
    
    
    $
    85,425
    
    
    $
    85,602
 See accompanying Notes to Combined Consolidated Financial Statements. F-66




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##### 



SPRINT PUBLISHING & ADVERTISING
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS 1.     Summary of Significant Accounting Policies Basis of Combination and Presentation The combined consolidated financial statements include the accounts of DirectoriesAmerica, Inc.
with its wholly
owned subsidiary Sprint Publishing and Advertising, Inc. (SPA, Inc.) and Centel Directory Company
(CDC), collectively referred to as Sprint Publishing & Advertising. All significant intercompany
amounts have been eliminated. DirectoriesAmerica, Inc. and CDC are wholly owned by Sprint
Corporation (Sprint). On January 3, 2003, Sprint completed the sale of Sprint Publishing and
Advertising (See Note 10). The combined consolidated financial statements are prepared using accounting principles generally
accepted in the United States. These principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual
results could differ from those estimates. Sprint Corporation Sprint is a global communications company and a leader in integrating long-distance, local service,
and wireless communications. Sprints business is divided into three main lines of business: the
global markets division, the
local division and the PCS wireless telephony products and services business. The FON common stock
is intended to reflect the financial results and economic value of the global markets division, the
local telecommunications division and other businesses consisting primarily of wholesale
distribution and telecommunications products. Sprint Publishing & Advertising, effective in the
third quarter of 2002, was reported as discontinued operations of the FON Group. The PCS common
stock is intended to reflect the financial results and economic value of the PCS wireless telephony
products and services business. Operations Sprint Publishing & Advertising publishes and markets approximately 260 revenue producing white and
yellow pages directories primarily in territories served by Sprints local telecommunications
division. Material Agreements Sprint Publishing & Advertising entered into Sales Agency Agreements with R.H. Donnelley Inc. Under
the agreements, R.H. Donnelley Inc. provides sales management services and sales forces for certain
directories and receives a commission based on certain advertising revenues sold into those
directories. The agreement with CDC has an expiration date of January 1, 2009 (this agreement has
an automatic two-year extension through January 1, 2011) and the agreement with SPA, Inc. expires
on December 31, 2004. SPA, Inc. has entered into a Directory Manufacturing Agreement with R.R. Donnelley and Sons Company
for the printing of substantially all of its directories. This agreement has an expiration date for
print and binding services of December 31, 2007. CDC and SPA, Inc. have entered into Production Agreements with R.H. Donnelley Inc. for the
production of and pre-press graphic services for the CenDon, L.L.C. and Central Florida
directories, respectively. These agreements have an expiration date of December 31, 2003. In conjunction with the CenDon Partnership restructuring, CDC has agreed to priority distributions,
which accrue to R.H. Donnelley Inc. through 2004. These priority distributions approximate the
partnership distributions anticipated under the initial CenDon Partnership agreement. Sprint Publishing & Advertising and CenDon, L.L.C. have entered into a Directory Agreement with
Sprints local telecommunications companies. This agreement provides Sprint Publishing &
Advertising with access to the customer listings for the local territories and the right to use the
listings in the directories. The local telephone companies receive a fee based on the number of
listings in each directory. The initial term of this agreement expires on December 31, 2004 and
automatically renews for successive one-year terms, unless either party provides notice of
termination. F-67




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##### 



Pursuant to the Sales Agency Agreement, CDC is obligated to replace the Directory Agreements so
that CDCs right to publish the directories is extended through the term of the Sales Agency
Agreement. In the event CDC fails to
replace each Directory Agreement by January 1, 2004, then, at any time prior to April 30, 2004,
R.H. Donnelley Inc. may require CDC to purchase for cash R.H. Donnelley Inc.s rights under the
Sales Agency Agreement at fair market values determined in accordance with the Sales Agency
Agreement. The material agreements with R.H. Donnelley Inc. no longer apply effective January 3, 2003 as a
result of the change in control. (See Note 10) Income Taxes Sprint Publishing & Advertisings operations are included in the consolidated income tax return of
Sprint Corporation. Income tax is recognized by the entities that comprise Sprint Publishing &
Advertising on the basis of each entity filing separate returns. Sprint Publishing & Advertising records deferred income taxes based on temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and their
tax bases. Revenue Recognition and Deferred Directory Costs Revenues from the sale of advertising placed in each directory are deferred and amortized over the
life of the directory, generally one year. Expenditures directly related to sales, production,
printing and distribution of directories are deferred and amortized over the same period as the
related revenues. Advertising Expense Sprint Publishing & Advertising recognizes advertising expense as incurred. These expenses include
production, media and other promotional and sponsorship costs. Total advertising expense was
approximately $4,514,000 in 2002. Property, Plant and Equipment Property, plant and equipment are recorded at cost. The cost of property, plant and equipment is
depreciated on a straight-line basis over estimated economic useful lives. Repair and maintenance
costs are expensed as incurred. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets acquired
in business combinations accounted for as purchases. Prior to adoption of SFAS No. 142, goodwill
was amortized over five years using the straight-line method. Goodwill net of accumulated
amortization included in the combined consolidated balance sheet was $1,275,000 at December 31,
2001. Sprint Publishing & Advertising adopted SFAS No. 142, Goodwill and Other Intangible Assets on
January 1, 2002. This standard prescribes the accounting treatment for both identifiable
intangibles and goodwill after initial
recognition. Upon adoption of the standard, amortization of goodwill and indefinite life
intangibles ceased and accumulated amortization as of December 31, 2001 reduced the carrying value
of these assets. Periodic impairment testing of these assets is now required. Concurrent with
adoption, Sprint Publishing & Advertising evaluated for impairment its goodwill and indefinite life
intangibles in accordance with the standards guidance and determined these assets were not
impaired. Stock-based Compensation Sprint Publishing & Advertising accounts for their stock-based employee compensation plans under
the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Based on the additional disclosure requirements of SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, the following table illustrates the effect
on net income for the year ended December 31, 2002 if the company had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation. (See Note 9 for
additional information regarding SFAS No. 148)  F-68




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##### 



2002Net income, as reported
    
    $
    162,140Add: Stock-based employee compensation expense included in
reported
net income, net of related tax effects
    
    
    34Deduct: Total stock-based employee compensation expense
determined
under fair value based methods for all awards, net of related
tax effects
    
    
    (1,628
    )Pro forma net income
    
    $
    160,546
 2.     Related Party Transactions and Allocations Sprint directly assigns, where possible, certain general and administrative costs to Sprint
Publishing & Advertising based on its actual use of those services. Where direct assignment of
costs is not possible, or practical, Sprint
uses other indirect methods, including time studies, to estimate the allocation of costs to each
operating unit. Cost allocation methods other than time studies include factors (general, marketing
or headcount) derived from the operating units relative share of the predefined category
referenced (e.g. headcount). Costs for shared services allocated to Sprint Publishing & Advertising
totaled approximately $16,161,000 in 2002. The allocation of shared services may change at the
discretion of Sprints Board. Financing activities are managed by Sprint on a centralized basis. Debt has not been incurred by
Sprint on behalf of Sprint Publishing & Advertising and is therefore, not reflected in the
financial statements of Sprint Publishing &
Advertising. Under Sprints centralized cash management program, Sprint and Sprint Publishing & Advertising may
advance funds to each other. These net advances are classified as a current asset and bear an
interest rate that is substantially equal to the rate that Sprint, as a whole, obtains on a
short-term basis. The allocation of financing activities may change at the discretion of Sprints Board and does not
require shareholder approval. Sprint files a consolidated federal income tax return and certain state income tax returns, which
include Sprint Publishing & Advertising results. Tax payments due to or from divisions within the
FON Group are satisfied on the date Sprints related tax payment is due to or the refund is
received from the applicable tax authority. Sprint Publishing & Advertisings related party transactions with Sprint and its affiliates were as
follows (in thousands): Transaction Description
    
    2002ExpensesShared services
    
    $
    16,161Local and interexchange telephone service
    
    
    1,174Facility leases
    
    
    117Telecommunications equipment, materials and supplies purchased
    
    
    9RevenuesInterest income from Sprint, net
    
    $
    967Revenues from directories
    
    
    2,237
 3.     Restructuring Charge In the fourth quarter of 2001, Sprint announced plans to take steps to improve its competitive
position and reduce operating costs in the business units that comprise its FON Group. These
efforts included consolidation and streamlining of marketing and network operations, as well as
streamlining of corporate support functions. This decision resulted in the allocation in 2001 of a
one-time charge to Sprint Publishing & Advertising of $1,588,000, predominately associated with the
severance costs of work force reductions. F-69




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In 2002, Sprint performed an analysis to finalize the restructuring estimates recorded in the 2001
fourth quarter. This analysis resulted in an additional charge of $180,000. At December 31, 2002,
substantially all amounts have been paid. 4.     Employee Benefit Plans Defined Benefit Pension Plan Most Sprint Publishing & Advertising employees are covered by Sprints noncontributory defined
benefit pension plan. Pension benefits are based on years of service and the participants
compensation. Sprints policy is to make plan contributions equal to an actuarially determined amount consistent
with federal tax regulations. The funding objective is to accumulate funds at a relatively stable
rate over the participants working
lives so benefits are fully funded at retirement. Net pension costs or credits are determined for Sprint Publishing & Advertising based on a direct
calculation of service costs and interest on projected benefit obligations, and an appropriate
allocation of unrecognized prior service costs, amortization of unrecognized transition assets,
actuarial gains and losses, and expected return on plan assets. Amounts included for the plan in
the combined consolidated balance sheet include accrued pension expense of approximately
$11,639,000 at December 31, 2002. Sprint Publishing & Advertising recorded net pension expense of
approximately $1,512,000 in 2002. Defined Contribution Plans Sprint sponsors defined contribution employee savings plans covering most Sprint Publishing &
Advertising employees. Participants may contribute portions of their pay to the plans. For union
employees, Sprint matches contributions based on negotiated amounts. Sprint Publishing &
Advertising does not have any union employees. Sprint also matches contributions of non-union
employees in FON stock and PCS stock. The matching is equal to 50% of participants contributions
up to 6% of their pay. In addition, Sprint may, at the discretion of its Board of Directors,
provide additional matching contributions based on the performance of FON stock and PCS stock
compared to other telecommunications companies stock. At year-end 2002, the plans held 42 million
FON shares with a market value of $608 million and dividends reinvested into the plan of $20
million. At year-end 2002, the plans held 52 million PCS shares with a market value of $227
million. Amounts directly allocated to Sprint
Publishing & Advertising for matching contributions and expenses were approximately $905,000 in
2002. Postretirement Benefits Sprint provides postretirement benefits (mainly medical and life insurance) to most Sprint
Publishing & Advertising employees. Employees retiring before certain dates are eligible for
benefits at no cost, or at a reduced cost. Employees retiring after certain dates are eligible for
benefits on a shared-cost basis. Sprint funds the accrued costs as benefits are paid. The amount of accrued postretirement benefit costs included in the combined consolidated balance
sheet at December 31, 2002 was $6,629,000. Net postretirement benefits costs are determined for Sprint Publishing & Advertising based on
direct calculation of service costs and interest on accumulated postretirement benefit obligations
and an appropriate allocation of unrecognized prior service costs and actuarial gains. Sprint
Publishing & Advertising recorded a net periodic benefit credit of $491,000 in 2002. 5.     Income Taxes Income tax expense consisted of the following for the year ended December 31, 2002: 2002Current income tax expenseFederal
    
    $
    103,404State
    
    
    17,475Total current
    
    
    120,879
 F-70




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##### 



Deferred income tax expense (benefit)Federal
    
    
    (15,889
    )State
    
    
    (1,227
    )Total deferred
    
    
    (17,116
    )Total
    
    $
    103,763
 The differences that caused Sprint Publishing & Advertisings effective income tax rates to vary
from the 35% federal statutory rate for income taxes were as follows: 2002Income tax expense at the federal statutory rate
    
    $
    93,066Effect of:State income taxes, net of federal income tax effect
    
    
    10,561Other, net
    
    
    136Income tax expense
    
    $
    103,763Effective income tax rate
    
    
    39.0
    %
 Sprint Publishing & Advertising recognizes deferred income taxes for the temporary differences
between the carrying amounts of its assets and liabilities for financial statement purposes and
their tax bases. The sources of the differences that give rise to the deferred income tax assets
and liabilities at year-end 2002, along with the income tax effect, were as follows: Assets
    
    
    LiabilitiesProperty, plant and equipment
    
    $
    
    
    
    $
    2,638Intangibles
    
    
    1,859
    
    
    
    Deferred revenue
    
    
    23,424
    
    
    
    Postretirement and other benefits
    
    
    7,307
    
    
    
    Accrued expenses
    
    
    
    
    
    
    1,535Reserves and allowances
    
    
    13,808
    
    
    
    Other, net
    
    
    40
    
    
    
    Total
    
    $
    46,438
    
    
    $
    4,173
 Management believes it is more likely than not that these deferred income tax assets will be
realized based on current income tax laws and expectations of future taxable income stemming from
the reversal of existing deferred tax liabilities or ordinary operations. Uncertainties surrounding
income tax law changes, shifts in operations between state taxing jurisdictions and future
operating income levels may, however, affect the ultimate realization of all or
some of these deferred income tax assets. 6.     Long-Term Obligation In 1990, Sprint Publishing & Advertising entered into Directory Agreements with various Sprint
local telephone companies, which includes termination fees. Initial installments were paid in 1990.
The remaining installment payments are due quarterly in 2005 and total approximately $19,730,000.
At year-end 2002, the long-term obligation recorded in Sprint Publishing & Advertisings Combined
Consolidated Balance Sheet is approximately $16,110,000, which represents the present value of the
termination fees per the various Directory Agreements. Interest was accrued on this present value liability at 10% per annum. Interest expense on these
obligations totaled $1,238,000 in 2002. The estimated fair value of the long-term obligation was $18,078,000 at December 31, 2002. This
estimated fair value of the long-term obligation was based on quoted market prices for publicly
traded issues. See Note 10 for treatment subsequent to the change in control. F-71




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##### 



7.     Commitments and Contingencies Litigation, Claims and Assessments From time to time various lawsuits arise in the ordinary course of business against Sprint
Publishing & Advertising. Management cannot predict the final outcome of these actions but believes they will not be material
to Sprint Publishing & Advertisings combined consolidated financial statements. Operating Leases Sprint Publishing & Advertisings minimum rental commitments at year-end 2002 for all noncancelable
operating leases, consisting mainly of leases for data processing equipment, are as follows: 2003
    
    $
    2,5282004
    
    
    1,4682005
    
    
    7682006
    
    
    4302007
    
    
    430Thereafter
    
    
    1,791
 Sprint Publishing & Advertisings gross rental expense totaled $1,837,000 in 2002. Rental
commitments for subleases, contingent rentals and executory costs were not significant. 8.     Additional Financial Information Printing costs paid to one vendor represented approximately 17% of Sprint Publishing &
Advertisings net operating expenses in 2002. Sales agency and directory production services paid to one vendor represent approximately 21% of
Sprint Publishing & Advertisings net operating expenses in 2002. 9.     Recently Issued Accounting Pronouncements In April 2002, the FASB issued Statement No. 145, Recission of FASB Statements No. 4, 44, and 64,
Amendment to FASB Statement No. 13, and Technical Corrections. The provisions related to Statement
No. 4 are effective for fiscal years beginning after May 15, 2002. The provisions related to
Statement No. 13 are effective for transactions occurring after May 15, 2002. All other provisions
of this statement are effective for financial statements issued on or after May 15, 2002. The
recission of Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and
Statement No. 64, Extinguishment of Debt to Satisfy Sinking-Fund Requirements, requires that
gains and losses from the extinguishment of debt be reported in other income or expense. The gains
and losses would be reported as extraordinary items only if they are unusual in nature and occur
infrequently. The amendment to Statement No. 13, Accounting for Leases, requires that
modifications to capital leases that give rise to operating lease classification be treated as a
sale-leaseback. Sprint Publishing & Advertising will adopt this statement as the provisions become
effective. Sprint Publishing & Advertising has determined that there will be no material impact of
adopting this standard. In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. The
objective of this statement is to provide accounting guidance for legal obligations associated with
the retirement of long-lived assets by requiring the fair value of a liability for the asset
retirement obligation to be recognized in the period in which it is incurred. When the liability is
initially recognized, the asset retirement costs should also be capitalized by increasing the
carrying amount of the related long-lived asset. The liability is then accreted to its present
value each period and the capitalized costs are depreciated over the useful life of the associated
asset. Sprint Publishing & Advertising has assessed its legal obligations and, accordingly, has
determined that there will be no material impact of adopting this standard. This statement is
effective for fiscal years beginning after June 15, 2002. Sprint Publishing & Advertising intends
to adopt this standard on January 1, 2003. In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, which is effective for financial statements where exit or disposal activities
are initiated after December 31, 2002. This statement nullifies EITF Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, which
allowed recognition of a liability for exit and disposal activities upon managements intent to
exit or dispose of an activity. This statement requires that a liability F-72




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for costs associated with an exit or disposal activity be recognized when the liability is
incurred. Sprint Publishing & Advertising will adopt this statement for exit or disposal activities
initiated after December 31, 2002. In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure. This statement amends Statement No. 123, Accounting for Stock-Based
Compensation. The provisions of this statement are effective for interim and annual financial
statements for fiscal years ending after December 15, 2002. This statement provides alternative
methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. Also, this statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the effect of the method
used on reported results. Sprint Publishing & Advertising has not adopted the fair value
recognition method, but will adopt the disclosure requirements of this statement. 10.     Subsequent Events On January 3, 2003, Sprint completed the sale of its directory publishing business to R.H.
Donnelley Inc. for $2.23 billion in cash. As part of this stock sale agreement, the long-term
obligation will be settled with a $14 million payment from R.H. Donnelley Inc. and a payment from
SPA for the remainder of the future value of the obligation as part of settling intercompany
accounts. Concurrent with the sale transaction, the entities comprising SPA underwent a name change. Sprint
Publishing & Advertising, Inc., changed its name to R.H. Donnelley Publishing & Advertising, Inc.
and Centel Directory Company changed its name to R.H. Donnelley Directory Company. F-73




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of R.H. Donnelley Corporation and
R.H. Donnelley APIL Inc. In our opinion, the accompanying balance sheets and the related consolidated statements of
operations, cash flows and changes in shareholders equity present fairly, in all material
respects, the financial position of R.H. Donnelley APIL Inc. (the Company)
at December 31, 2004 and 2003, and the results of their operations and their cash flows for each
of the three years ended December 31, 2004 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Raleigh, North Carolina
March 16, 2005 F-74




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##### 



R.H. DONNELLEY APIL INC.
BALANCE SHEETS December 31,(in thousands except share and per share data)
    
    2004
    
    
    2003AssetsCurrent AssetsCash and cash equivalents
    
    $
    82
    
    
    $
    8Accounts
receivable  from affiliate in 2004
    
    
    84,552
    
    
    
    93,449Current portion of notes receivable from affiliates
    
    
    55,476
    
    
    
    Amounts due from affiliates
    
    
    5,934
    
    
    
    Total current assets
    
    
    146,044
    
    
    
    93,457Long-term notes receivable from affiliates
    
    
    1,058,777
    
    
    
    Total Assets
    
    $
    1,204,821
    
    
    $
    93,457Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    18
    
    
    $
    5Amounts due to affiliates
    
    
    
    
    
    
    30,078Total current liabilities
    
    
    18
    
    
    
    30,083Commitments and contingenciesShareholders EquityCommon stock, par value $.01 per share, 1,000 shares authorized,
issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1,201,974
    
    
    
    63,374Retained earnings
    
    
    2,829
    
    
    
    Total shareholders equity
    
    
    1,204,803
    
    
    
    63,374Total Liabilities and Shareholders Equity
    
    $
    1,204,821
    
    
    $
    93,457
 The accompanying notes are an integral part of the financial statements. F-75




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##### 



R.H. DONNELLEY APIL INC.
STATEMENTS OF OPERATIONS Years Ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002Gross revenue
    
    $
    88,644
    
    
    $
    96,706
    
    
    $
    96,982ExpensesOperating expenses
    
    
    71
    
    
    
    50
    
    
    
    194General and administrative expenses
    
    
    15
    
    
    
    570
    
    
    
    75Total expenses
    
    
    86
    
    
    
    620
    
    
    
    269Operating income
    
    
    88,558
    
    
    
    96,086
    
    
    
    96,713Interest income on notes receivable from affiliates
    
    
    15,625
    
    
    
    208,585
    
    
    
    7,129Income before income taxes
    
    
    104,183
    
    
    
    304,671
    
    
    
    103,842Provision for income taxes
    
    
    38,965
    
    
    
    110,988
    
    
    
    37,828Net income
    
    $
    65,218
    
    
    $
    193,683
    
    
    $
    66,014
 The accompanying notes are an integral part of the financial statements. F-76




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##### 



R.H. DONNELLEY APIL INC.
STATEMENTS OF CASH FLOWS Years Ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002Cash Flows from Operating ActivitiesNet income
    
    $
    65,218
    
    
    $
    193,683
    
    
    $
    66,014Reconciliation of net income to net cash provided by operating
activities:Depreciation
    
    
    
    
    
    
    2
    
    
    
    Changes in assets and liabilities:Decrease in accounts receivable
    
    
    8,897
    
    
    
    4,531
    
    
    
    5,780Increase (decrease) in accounts payable and accrued liabilities
    
    
    13
    
    
    
    4
    
    
    
    (18
    )Net cash provided by operating activities
    
    
    74,128
    
    
    
    198,220
    
    
    
    71,776Cash Flows from Investing ActivitiesInvestment
in affiliate
    
    
    
    
    
    
    (2,227,475
    )
    
    
    Note receivable issued to affiliates
    
    
    (1,138,600
    )
    
    
    
    
    
    
    Principal repayments on notes receivable from affiliates
    
    
    24,347
    
    
    
    111,840
    
    
    
    Net cash
used in investing activities
    
    
    (1,114,253
    )
    
    
    (2,115,635
    )
    
    
    Cash Flows from Financing ActivitiesCapital contributions from parent
    
    
    1,138,600
    
    
    
    2,227,475
    
    
    
    Change in amounts due from/to affiliates, net
    
    
    (36,012
    )
    
    
    87,970
    
    
    
    20,188Dividends paid
    
    
    (62,389
    )
    
    
    (398,038
    )
    
    
    (91,977
    )Net cash provided by (used in) financing activities
    
    
    1,040,199
    
    
    
    1,917,407
    
    
    
    (71,789
    )Increase (decrease) in cash and cash equivalents
    
    
    74
    
    
    
    (8
    )
    
    
    (13
    )Cash and cash equivalents, beginning of year
    
    
    8
    
    
    
    16
    
    
    
    29Cash and cash equivalents, end of year
    
    $
    82
    
    
    $
    8
    
    
    $
    16Supplemental InformationCash interest received
    
    $
    15,184
    
    
    $
    208,585
    
    
    $
    7,129
 The accompanying notes are an integral part of the financial statements. F-77




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##### 



R.H. DONNELLEY APIL INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY TotalCommon Stock
    
    
    Additional
    
    
    Retained
    
    
    Shareholders(in thousands except stock value data)
    
    Shares
    
    
    Paid-in-Capital
    
    
    Earnings
    
    
    EquityBalance, December 31, 2001
    
    
    1
    
    
    $
    91,855
    
    
    $
    15,398
    
    
    $
    107,253Net income
    
    
    
    
    
    
    
    
    
    
    66,014
    
    
    
    66,014Cash dividend
    
    
    
    
    
    
    (10,565
    )
    
    
    (81,412
    )
    
    
    (91,977
    )Balance, December 31, 2002
    
    
    1
    
    
    
    81,290
    
    
    
    
    
    
    
    81,290Net income
    
    
    
    
    
    
    
    
    
    
    193,683
    
    
    
    193,683Capital contribution from parent
    
    
    
    
    
    
    2,227,475
    
    
    
    
    
    
    
    2,227,475Cash dividend
    
    
    
    
    
    
    (342,125
    )
    
    
    (55,913
    )
    
    
    (398,038
    )Distribution of subsidiary to parent
    
    
    
    
    
    
    (1,903,266
    )
    
    
    (137,770
    )
    
    
    (2,041,036
    )Balance, December 31, 2003
    
    
    1
    
    
    
    63,374
    
    
    
    
    
    
    
    63,374Net income
    
    
    
    
    
    
    
    
    
    
    65,218
    
    
    
    65,218Cash dividend
    
    
    
    
    
    
    
    
    
    
    (62,389
    )
    
    
    (62,389
    )Capital contribution from parent
    
    
    
    
    
    
    1,138,600
    
    
    
    
    
    
    
    1,138,600Balance, December 31, 2004
    
    
    1
    
    
    $
    1,201,974
    
    
    $
    2,829
    
    
    $
    1,204,803
 The accompanying notes are an integral part of the financial statements. F-78




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R.H. DONNELLEY APIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(tabular amounts in thousands) 1. Business and Basis of Presentation The consolidated financial statements for the years ended December 31, 2003 and 2002 include the
accounts of R.H. Donnelley APIL Inc. (the Company, APIL, we, us and our) and its direct
wholly owned subsidiary R.H. Donnelley Acquisitions, Inc. (RHD Acquisitions). In December 2003,
the Company transferred the assets and liabilities of RHD Acquisitions to RH Donnelley, Inc. (RHD
Inc.). Commencing December 31, 2003 the accompanying financial statements represent solely those
of the Company. The Company is a wholly owned subsidiary of RHD Inc., a wholly owned subsidiary of
R.H. Donnelley Corporation (RHD). All intercompany transactions and balances have been
eliminated. On September 1, 2004, RHD completed the acquisition of the directory publishing business (SBC
Directory Business) of SBC Communications, Inc. (SBC) in Illinois and Northwest Indiana (the
Territory), including SBCs interests in The DonTech II Partnership (DonTech), a 50/50 general
partnership between RHD Inc. and an affiliate of SBC (collectively, the SBC Directory
Acquisition). DonTech is now a 50/50 general partnership between RHD Inc. and one of its wholly
owned subsidiaries, and the exclusive sales agent for SBC-branded yellow pages, white pages and
street address directories published in the Territory. APIL was incorporated on April 7, 2000 and
is principally engaged in the business of managing the Revenue Participation Agreement (RPI
Agreement) between RHD Inc. and R.H. Donnelley Publishing & Advertising of Illinois Partnership
(PAIL Partnership), formerly known as Ameritech Publishing of Illinois Partners Partnership
(APIL Partners). APIL Partners was an indirect wholly owned subsidiary of SBC prior to the SBC
Directory Acquisition on September 1, 2004. 2. Summary of Significant Accounting Policies Principles of Consolidation.The financial statements for the year ended December 31, 2004
include the accounts of APIL on a single company basis. For the years 2003 and 2002, the
consolidated financial statements include the accounts of the APIL and RHD Acquisitions, its wholly
owned subsidiary. All intercompany transactions and balances have been eliminated. Revenue Recognition.The Company earns revenue under the terms of the RPI Agreement, which is based
on DonTechs advertising sales and is recognized when a sales contract is executed with a customer.
Prior to the SBC Directory Acquisition, we earned RPI revenue from APIL Partners, an affiliate
of SBC. Subsequently, our RPI revenue is earned from PAIL Partnership, an affiliate of RHD, and
totaled $23.5 million during 2004. Cash and Cash Equivalents.Cash equivalents include liquid investments with an original maturity
of three months or less, and the carrying amounts approximate fair value. Accounts Receivable.At December 31, 2003 and through the date of the SBC Directory Acquisition,
accounts receivable consisted of the revenue participation receivable balances owed to us from SBC.
Upon completion of the SBC Directory Acquisition, amounts owed to us under the RPI Agreement are
also included in accounts receivable and represent amounts due from
PAIL Partnership, an affiliate of ours. Income Taxes.We are included in RHDs combined federal income tax return. We account for
income taxes under the liability method in accordance with SFAS 109, Accounting for Income Taxes.
Deferred tax liabilities or assets reflect temporary differences between amounts of assets and
liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect
changes in tax rates expected to be in effect when the temporary differences reverse. A valuation
allowance is established to offset any deferred tax assets if, based upon the available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized. See
Note 4 for more information regarding our provision for income taxes. Use of Estimates.The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 3. Notes Receivable from Affiliates and Related Interest Income In 2004, we issued two notes in connection with the SBC Directory Acquisition. One note was issued
to the newly formed R.H. Donnelley Publishing & Advertising of Illinois Holdings, LLC (PAIL
Holdings) and the other to the newly formed F-79




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DonTech Holdings, LLC (DTH), both entities are wholly owned direct subsidiaries of RHD Inc. The
notes are recorded at face value and the carrying amounts approximate fair values. Principal and
interest payments are due quarterly and mature in 2011. Interest accrues on all unpaid principal
at an annual rate equal to the composite interest rate applicable to borrowings under RHDs Credit
Facility (as defined in Note 5) and was approximately 4.2% during the four months ended December 1,
2004. Interest income from PAIL Holdings and DTH for 2004 was $13.8 million and $1.9 million,
respectively. The carrying amounts of our notes are summarized as follows at December 31, 2004: PAIL Holdings
    
    $
    981,161DTH
    
    
    133,092Total
    
    $
    1,114,253
 During 2003 and 2002, RHD Acquisitions received interest income of $7.1 million for each of the
years on a $99.9 million promissory note bearing interest at an annual rate of 7.1% due from RHD
Inc. Additionally, during 2003, RHD Acquisitions issued a $2,227 million note receivable bearing
an annual interest rate of 9.3% to R.H. Donnelley Publishing and Advertising, an affiliate, and
received related interest income on the note of $201.5 million.
The 2003 note was issued in
connection with the acquisition of the directory business of Sprint Corporation. 4. Income Taxes Provision for income taxes consisted of: 2004
    
    
    2003
    
    
    2002Current provisionU.S. Federal
    
    $
    35,120
    
    
    $
    106,634
    
    
    $
    36,344State and local
    
    
    3,845
    
    
    
    4,354
    
    
    
    1,484Total current provision
    
    
    38,965
    
    
    
    110,988
    
    
    
    37,828Provision for income taxes
    
    $
    38,965
    
    
    $
    110,988
    
    
    $
    37,828
 The following table summarizes the significant differences between the U.S. Federal statutory tax
rate and our effective tax rate. 2004
    
    
    2003
    
    
    2002Statutory U.S. Federal tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State and local taxes, net of U.S. Federal tax benefit
    
    
    2.4
    
    
    
    1.4
    
    
    
    1.4Effective tax rate
    
    
    37.4
    %
    
    
    36.4
    %
    
    
    36.4
    %
 The 2004 tax provision is based on an effective tax rate of 37.4%. RHD Inc. is considered the
taxpayer and, as such, any current income tax liabilities are reflected in amounts due to
affiliates on the balance sheet. 5. Pledge of Capital Stock In connection with the SBC Directory Acquisition, RHD Inc. amended and restated its Credit Facility
(Credit Facility), which at that time consisted of a $700 million Term Loan A-2, a $1,650 million
Term Loan B-2 and a $175 million revolver for an aggregate facility of $2,525 million. On December
6, 2004, RHD Inc. amended its Credit Facility creating a new Term Loan A-3 and a new Term Loan D,
both replacing the Term Loan B-2. Term Loans A-2, A-3 and D require quarterly principal payments.
As of December 31, 2004, the outstanding balances of Term Loans A-2, A-3 and D were $526 million,
$194 million and $1,441 million, respectively, and $41 million was outstanding under the Revolver.
The Revolver, Term Loan A-2 and Term Loan A-3 mature in December 2009, and Term Loan D matures in
June 2011. RHD Inc. also has issued $325 million of 8.875% Senior Notes (Senior Notes) and $600
million of 10.875% Senior Subordinated Notes (Subordinated Notes, and, collectively with the
Senior Notes, the Notes). The Senior Notes became secured in connection with the
amendment and restatement of the Credit Facility for the SBC
Directory Acquisition. Our capital stock, and thus indirectly all of
our assets and stockholders equity, is pledged as collateral
to secure RHD Inc.s obligations under its Credit Facility and the Senior Notes. We also guarantee
the Senior Notes and the Senior Subordinated Notes. The total principal amount of the Senior Notes
subject to the pledge of capital stock as at December 31, 2004 was $325 million. RHDs Credit Facility and the indentures governing the Notes contain usual and customary negative
covenants that, among other things, place limitations on its and our ability to (i) incur
additional indebtedness, including capital leases and liens; (ii) pay dividends (except we may
freely pay dividends to our parent) and repurchase capital stock; (iii) enter into mergers, F-80




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consolidations, acquisitions, asset dispositions and sale-leaseback transactions; (iv) make capital
expenditures; (v) issue capital stock; and (vi) engage in transactions with affiliates. The Credit Facility also contains
financial covenants relating to maximum consolidated leverage, minimum interest coverage and
maximum senior secured leverage as defined therein. 6. Related Party Transactions We have entered into various agreements and business transactions with RHD Inc. and its
subsidiaries during each of the years in the three-year period ended December 31, 2004. We entered into an annual lease agreement with RHD Inc. to rent office space in Las Vegas, Nevada.
Rent expense under this arrangement totaled $10,000 for each year ended December 31, 2003 and
2002, respectively. This agreement was terminated during 2003. In accordance with a continuing dividend resolution passed by our Board of Directors, each month we
distribute cash received from the RPI Agreement to RHD Inc. in the form of a dividend. Dividends
declared and paid by us to RHD Inc. for the years ended December 31, 2004, 2003, and 2002 were
$62.4 million, $398.0 million, and $92.0 million, respectively. In December 2003, the Company distributed its 100% ownership in the capital stock of RHD
Acquisitions to its parent company, RHD Inc. The distribution, which amounted to $2,041 million,
is reflected in the Statement of Shareholders Equity. No gain or loss was recognized on the
transaction. RHD Inc. made a capital contribution to the Company in the amount of $1,139 million in September
2004. F-81




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of R.H. Donnelley Corporation and
Board of Directors and Partners of DonTech II Partnership: In our opinion, the accompanying balance sheets and the related statements of operations, cash
flows and changes in partners capital present fairly, in all material respects, the financial
position of the DonTech II Partnership (DonTech) at December 31, 2003, and the results of its
operations and its cash flows for the eight months ended August 31, 2004, and years ended December
31, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of DonTechs management. Our
responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Raleigh, North Carolina
March 16, 2005 F-82




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of R.H. Donnelley Corporation and
Board of Directors and Partners of DonTech II Partnership: In our opinion, the accompanying balance sheets and the related statements of operations, cash
flows and changes in partners capital present fairly, in all material respects, the financial
position of the DonTech II Partnership (DonTech) at December 31, 2004, and the results of its
operations and its cash flows for the four months ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of DonTechs management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion. /s/ PRICEWATERHOUSECOOPERS LLP Raleigh, North Carolina
March 16, 2005 F-83




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##### 



DONTECH
BALANCE SHEETS Successor
    
    
    
    PredecessorDecember 31,(in thousands)
    
    2004
    
    
    
    2003AssetsCurrent AssetsCash and cash equivalents
    
    $
    4
    
    
    
    $
    4,775Commissions receivable from related party
    
    
    88,940
    
    
    
    
    97,730Amounts due from affiliates
    
    
    35,485
    
    
    
    
    Other current assets
    
    
    607
    
    
    
    
    560Total current assets
    
    
    125,036
    
    
    
    
    103,065Fixed assets and computer software, net
    
    
    5,371
    
    
    
    
    5,677Intangible assets, net
    
    
    104,096
    
    
    
    
    Goodwill
    
    
    32,066
    
    
    
    
    Pension asset
    
    
    
    
    
    
    
    7,199Other assets
    
    
    1,478
    
    
    
    
    1,565Total Assets
    
    $
    268,047
    
    
    
    $
    117,506Liabilities and Partners CapitalCurrent LiabilitiesAccounts payable
    
    $
    
    
    
    
    $
    1,752Accrued liabilities
    
    
    5,584
    
    
    
    
    5,280Total current liabilities
    
    
    5,584
    
    
    
    
    7,032Pension and post-retirement benefits other than pensions
    
    
    7,331
    
    
    
    
    4,624Deferred rent credits
    
    
    1,676
    
    
    
    
    1,435Total liabilities
    
    
    14,591
    
    
    
    
    13,091Commitments and contingenciesPartners capital
    
    
    253,615
    
    
    
    
    104,764Accumulated other comprehensive loss
    
    
    (159
    )
    
    
    
    (349
    )Total Liabilities and Partners Capital
    
    $
    268,047
    
    
    
    $
    117,506
 The accompanying notes are an integral part of the financial statements. F-84




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##### 



DONTECH
STATEMENTS OF OPERATIONS PredecessorSuccessor
    
    
    
    EightFour Months
    
    
    
    MonthsEnded
    
    
    
    Ended
    
    
    PredecessorDecember 31,
    
    
    
    August 31,
    
    
    Year Ended December 31,(in thousands)
    
    2004
    
    
    
    2004
    
    
    2003
    
    
    2002Sales commissions from related party, net
    
    $
    24,771
    
    
    
    $
    68,777
    
    
    $
    99,711
    
    
    $
    101,792ExpensesSelling
    
    
    17,178
    
    
    
    
    30,297
    
    
    
    46,773
    
    
    
    48,016Administrative
    
    
    1,893
    
    
    
    
    7,962
    
    
    
    11,832
    
    
    
    10,273Occupancy and depreciation
    
    
    1,898
    
    
    
    
    4,495
    
    
    
    6,720
    
    
    
    7,388Amortization of intangible assets and other
    
    
    1,994
    
    
    
    
    595
    
    
    
    860
    
    
    
    885Total operating expenses
    
    
    22,963
    
    
    
    
    43,349
    
    
    
    66,185
    
    
    
    66,562Operating income
    
    
    1,808
    
    
    
    
    25,428
    
    
    
    33,526
    
    
    
    35,230Other income, net
    
    
    
    
    
    
    
    126
    
    
    
    1,168
    
    
    
    1,729Net income
    
    $
    1,808
    
    
    
    $
    25,554
    
    
    $
    34,694
    
    
    $
    36,959Comprehensive IncomeNet income
    
    $
    1,808
    
    
    
    $
    25,554
    
    
    $
    34,694
    
    
    $
    36,959Minimum pension liability adjustment
    
    
    190
    
    
    
    
    
    
    
    
    (349
    )
    
    
    Comprehensive income
    
    $
    1,998
    
    
    
    $
    25,554
    
    
    $
    34,345
    
    
    $
    36,959
 The accompanying notes are an integral part of the financial statements. F-85




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##### 



DONTECH
STATEMENTS OF CASH FLOWS PredecessorSuccessor
    
    
    
    EightFour Months
    
    
    
    Months
    
    
    PredecessorEnded
    
    
    
    Ended
    
    
    Year Ended December 31,December 31,
    
    
    
    August 31,(in thousands)
    
    2004
    
    
    
    2004
    
    
    2003
    
    
    2002Cash Flows from Operating ActivitiesNet income
    
    $
    1,808
    
    
    
    $
    25,554
    
    
    $
    34,694
    
    
    $
    36,959Reconciliation of net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    1,230
    
    
    
    
    1,212
    
    
    
    1,603
    
    
    
    1,702Loss on disposal of fixed assets
    
    
    
    
    
    
    
    23
    
    
    
    205
    
    
    
    26Changes in assets and liabilities:Increase in commissions receivable
    
    
    8,563
    
    
    
    
    227
    
    
    
    4,628
    
    
    
    6,117(Increase) decrease in prepaid expenses
    
    
    (432
    )
    
    
    
    385
    
    
    
    94
    
    
    
    (743
    )Increase in receivable from landlord
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (450
    )(Increase) decrease in other assets
    
    
    (22
    )
    
    
    
    39
    
    
    
    2,086
    
    
    
    1,322(Decrease) increase in accounts payable
    
    
    (1,068
    )
    
    
    
    (684
    )
    
    
    150
    
    
    
    29Increase (decrease) in accrued liabilities
    
    
    164
    
    
    
    
    323
    
    
    
    (84
    )
    
    
    457Increase in pension and post-retirement benefits
    
    
    2,714
    
    
    
    
    
    
    
    
    
    
    
    
    (Decrease) increase in deferred rent credits
    
    
    (57
    )
    
    
    
    298
    
    
    
    (115
    )
    
    
    1,579Net cash provided by operating activities.
    
    
    12,900
    
    
    
    
    27,377
    
    
    
    43,261
    
    
    
    46,998Cash Flows from Investing ActivitiesAdditions to fixed assets and computer software
    
    
    (23
    )
    
    
    
    (1,235
    )
    
    
    (1,450
    )
    
    
    (678
    )Net cash used in investing activities
    
    
    (23
    )
    
    
    
    (1,235
    )
    
    
    (1,450
    )
    
    
    (678
    )Cash Flows from Financing ActivitiesDistribution to partners
    
    
    
    
    
    
    
    (26,500
    )
    
    
    (42,452
    )
    
    
    (44,850
    )Change in amounts due to affiliates
    
    
    (17,290
    )
    
    
    
    
    
    
    
    
    
    
    
    Increase (decrease) in distribution payable
    
    
    
    
    
    
    
    
    
    
    
    (3,600
    )
    
    
    3,600Net cash used in financing activities
    
    
    (17,290
    )
    
    
    
    (26,500
    )
    
    
    (46,052
    )
    
    
    (41,250
    )(Decrease) increase in cash and cash equivalents
    
    
    (4,413
    )
    
    
    
    (358
    )
    
    
    (4,241
    )
    
    
    5,070Cash and cash equivalents, beginning of period
    
    
    4,417
    
    
    
    
    4,775
    
    
    
    9,016
    
    
    
    3,946Cash and cash equivalents, end of period
    
    $
    4
    
    
    
    $
    4,417
    
    
    $
    4,775
    
    
    $
    9,016
 The accompanying notes are an integral part of the financial statements. F-86




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##### 



DONTECH
STATEMENTS OF CHANGES IN PARTNERS CAPITAL DonTech
    
    
    R.H.
    
    
    AmeritechHoldings,
    
    
    Donnelley,
    
    
    Publishing of(in thousands)
    
    LLC
    
    
    Inc.
    
    
    Illinois, Inc.
    
    
    TotalPredecessor Balance, January 1, 2002
    
    $
    
    
    
    $
    90,105
    
    
    $
    30,308
    
    
    $
    120,413Net income
    
    
    
    
    
    
    18,479
    
    
    
    18,480
    
    
    
    36,959Distributions to partners
    
    
    
    
    
    
    (22,425
    )
    
    
    (22,425
    )
    
    
    (44,850
    )Predecessor Balance, December 31, 2002
    
    
    
    
    
    
    86,159
    
    
    
    26,363
    
    
    
    112,522Net income
    
    
    
    
    
    
    17,347
    
    
    
    17,347
    
    
    
    34,694Distributions to partners
    
    
    
    
    
    
    (21,226
    )
    
    
    (21,226
    )
    
    
    (42,452
    )Predecessor Balance, December 31, 2003
    
    
    
    
    
    
    82,280
    
    
    
    22,484
    
    
    
    104,764Net income
    
    
    
    
    
    
    12,777
    
    
    
    12,777
    
    
    
    25,554Distributions to partners
    
    
    
    
    
    
    (13,250
    )
    
    
    (13,250
    )
    
    
    (26,500
    )Predecessor Balance, August 31, 2004
    
    
    
    
    
    
    81,807
    
    
    
    22,011
    
    
    
    103,818Contribution
    
    
    170,000
    
    
    
    
    
    
    
    
    
    
    
    170,000Liquidation of partnership interest
    
    
    
    
    
    
    
    
    
    
    (22,011
    )
    
    
    (22,011
    )Net income
    
    
    904
    
    
    
    904
    
    
    
    
    
    
    
    1,808Successor Balance, December 31, 2004
    
    $
    170,904
    
    
    $
    82,711
    
    
    $
    
    
    
    $
    253,615
 The accompanying notes are an integral part of the financial statements. F-87




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##### 



DONTECHNOTES TO FINANCIAL STATEMENTS(tabular amounts in thousands) 1. Form of Organization and Nature of Business The DonTech II Partnership (DonTech, we, us and our) is a 50/50 general partnership between
R. H. Donnelley Inc. (RHD Inc.) and DonTech Holdings, LLC (DTH). DTH is a limited liability
company wholly owned by RHD Inc., a wholly owned subsidiary of R.H. Donnelley Corporation (RHD).
On September 1, 2004, RHD completed the acquisition for $1.41 billion in cash of the directory
publishing business (the SBC Directory Business) of SBC Communications, Inc. (SBC) in Illinois
and Northwest Indiana, including SBCs interests in DonTech, which at that time, was a 50/50
general partnership between RHD Inc. and Ameritech Publishing of Illinois, Inc. (APIL), an
indirect wholly owned subsidiary of SBC (collectively, the SBC Directory Acquisition). On
September 1, 2004, DTH made an initial capital contribution of $170 million to DonTech. The SBC Directory Acquisition was accounted for as a purchase business combination by RHD and the
purchase price was allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values on September 1, 2004. In connection with
the purchase price allocation, $105 million of identifiable intangible assets and $32 million in
goodwill related to DonTech. See Identifiable Intangible Assets and Goodwill below for additional
information. The financial statements presented herein prior to September 1, 2004 are those of
DonTech as a 50/50 general partnership between RHD Inc. and APIL (the Predecessor). The financial
statements as of December 31, 2004 and for the four-month period then ended are those of DonTech
subsequent to the SBC Directory Acquisition as a 50/50 general partnership between RHD Inc. and
DTH (the Successor). See Note 3, Acquisition for a further description of the acquisition. DonTech is the exclusive sales agent for SBC-branded yellow pages, white pages and street address
directories published in Illinois and Northwest Indiana. The partnership receives a 27% commission
on sales, net of provisions. DonTechs cost structure includes principally sales, sales operations,
office services, finance, facilities and related overhead. DonTech profits were shared equally
between RHD Inc. and APIL for periods prior to the SBC Directory Acquisition. For periods after
August 31, 2004, DonTech profits or losses are shared equally between RHD Inc. and DTH. 2. Summary of Significant Accounting Policies Cash and Cash Equivalents.Cash and cash equivalents include liquid investments with an original
maturity of three months or less, and the carrying amounts approximate fair value. Revenue Recognition.Revenue is comprised of sales commissions reflected net of provisions and
is recognized based upon execution of contracts in the period the contract was executed for the
sale of advertising. Following the SBC Directory Acquisition, more than 99% of DonTechs revenue is
generated from DonTechs sales agency agreement with R.H. Donnelley Publishing & Advertising of
Illinois Partnership, an affiliate of RHD. Fixed Assets and Computer Software.Fixed assets and computer software are recorded at cost and
are depreciated on a straight-line basis over the estimated useful lives of the assets. Upon asset
retirement or other disposition, the cost and the related accumulated depreciation are removed from
the accounts, and any resulting gain or loss is included in the statement of operations. Amounts
incurred for repairs and maintenance is charged to operations. Identifiable Intangible Assets and Goodwill.As a result of the SBC Directory Acquisition,
certain identifiable intangible assets specific to DonTechs operations were recorded at their
estimated fair value. Amortization expense for the four months ended
December 31, 2004 was $0.9 million. Amortization expense for these intangible assets for each of the five succeeding years is
estimated to be approximately $2.7 million. The acquired identifiable intangible assets and their
respective book values at December 31, 2004 are shown in the table below. F-88




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##### 



Directory Services
    
    
    CustomerAgreements
    
    
    relationships
    
    
    TotalInitial fair value
    
    $
    90,000
    
    
    $
    15,000
    
    
    $
    105,000Accumulated amortization
    
    
    (600
    )
    
    
    (304
    )
    
    
    (904
    )Net intangible assets
    
    $
    89,400
    
    
    $
    14,696
    
    
    $
    104,096
 Directory services agreements between SBC and RHD (including DonTech and other subsidiaries of RHD)
include a directory services license agreement, a non-competition agreement, a SMARTpages reseller
agreement and a directory publishing listing agreement (collectively, SBC Directory Services
Agreements) with certain affiliates of SBC. The directory services license agreement designates us
as the official and exclusive provider of yellow pages directory services for SBC (and its
successors) in Illinois and Northwest Indiana (the Territory), grants us the exclusive license
(and obligation as specified in the agreement) to produce, publish and distribute white pages
directories in the Territory as SBCs agent and grants us the exclusive license (and obligation as
specified in the agreement) to use the SBC brand and logo on print directories in the Territory.
The non-competition agreement prohibits SBC (and its affiliates and successors), with certain
limited exceptions, from (1) producing, publishing and distributing yellow and white pages print
directories in the Territory, (2) soliciting or selling local or national yellow or white pages
advertising for inclusion in such directories, and (3) soliciting or selling local Internet yellow
pages advertising for certain Internet yellow pages directories in the Territory or licensing SBC
marks to any third party for that purpose. The SMARTpages reseller agreement gives us the exclusive
right to sell local Internet yellow pages advertising and the non-exclusive right to sell Internet
yellow pages advertising with respect to geographies outside the Territory to any advertiser
(excluding national advertisers) located inside the Territory onto SBCs SMARTpages.com platform
(and any successor product as specified in the agreement). The directory publishing listing license
agreement gives us the right to purchase and use basic SBC subscriber listing information and
updates for the purpose of publishing directories. The SBC Directory Services Agreements (other
than the SMARTpages reseller agreement) have initial terms of 50 years, subject to automatic
renewal and early termination under specified circumstances. The SMARTpages reseller agreement has
a term of 5 years. The fair value of these agreements was determined based on the present value of
estimated future cash flows and is being amortized under the straight-line method over the
indicated terms. The fair value of the SMARTpages reseller agreement was not allocated to DonTech. The fair value of customer relationships was determined based on the present value of estimated
future cash flows and is being amortized under the income forecast method. The weighted average
useful life of these relationships is approximately 20 years. The excess purchase price for the SBC Directory Acquisition over the net tangible and identifiable
intangible assets acquired of $212.9 million was recorded as
goodwill and of this amount, $32.0 million related to DonTech based on the fair value of DonTechs net assets acquired in the
acquisition. While we do not anticipate significant changes to the fair value of net assets acquired, additional
information could come to our attention that may require us to revise the purchase price allocation
in connection with the SBC Directory Acquisition. In accordance with SFAS 142, Goodwill and Other
Intangible Assets, goodwill is not amortized, but is subject to periodic impairment testing. No
impairment losses were recorded in 2004. Pension and Other Postretirement Benefits.Pension and other postretirement benefits represent
estimated amounts to be paid to employees in the future. The accounting for benefits reflects the
recognition of these benefit costs over the employees approximate service period based on the
terms of the plan and the investment and funding decisions made. The determination of the benefit
obligation and the net periodic pension and other postretirement benefit costs requires management
to make assumptions regarding the discount rate, return on retirement plan assets, increase in
future compensation and healthcare cost trends. Changes in these assumptions can have a
significant impact on the projected benefit obligation, funding requirement and net periodic
benefit cost. The assumed discount rate is the rate at which the pension benefits could be
settled. We use the rates on Aa corporate bonds as a basis for determining our discount rate
assumption. The expected long-term rate of return on plan assets is based on the mix of assets
held by the plan and the expected long-term rates of return within each asset class. The
anticipated trend of F-89




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##### 



future healthcare costs is based on historical experience and external factors. See Note 7 for
further information regarding our benefit plans. Effective January 1, 2003 we reduced our estimated rate of return on plan assets from 9.75% to
8.25%. As a result of low investment returns over the few preceding years, as well as our outlook
for the long term, particularly for equity securities, we determined that the prior assumed rate of
return of 9.75% no longer reflected our best estimate of future long-term returns. Based on the
then-current investment environment and the pension plans asset allocation, we determined that a
long-term rate of return of 8.25% better reflected our expectations for future long-term returns. Income taxes.No provision for income taxes is made as the proportional share of partnership
income is the responsibility of the individual partners. Concentration of Credit Risk.Financial instruments, which potentially subject DonTech to a
concentration of credit risk, consist principally of receivables from affiliates for sales
commissions. Prior to the SBC Directory Acquisition, these amounts were due from SBC.
Subsequently, sales commissions are due from an RHD affiliate, R.H. Donnelley Publishing &
Advertising of Illinois Partnership. DonTech does not require any of its affiliates to provide
collateral. Use of Estimates.The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates. Reclassifications.Certain prior year amounts have been reclassified to conform to the current
years presentation. These reclassifications had no impact on previously reported results of
operations or partners capital. New Accounting Pronouncements.On December 16, 2004, the FASB issued FASB Statement No. 123
(revised 2004), Share-Based Payment (FAS 123(R)).
FAS 123(R); requires companies to calculate the
fair value of stock options granted to employees, and amortize that amount over the vesting period
as an expense through the income statement. The accounting provisions
of FAS 123(R); are effective
for interim periods beginning after June 15, 2005, but companies have a choice of transition
methods: modified prospective, modified retrospective, or early adoption. Management is presently
evaluating the transition method and effective date for transition to
FAS 123(R); during 2005 and
what impact adoption of FAS 123(R); may have on DonTech. In May 2004, the Financial Accounting Standards Board issued Financial Staff Position (FSP) No.
FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, which provides guidance on accounting for the effects of
the Medicare Prescription Drug, Improvement and Modernization Act of 2003 for employers that
sponsor postretirement healthcare plans that provide drug benefits. The Act introduces
prescription drug care benefits under Medicare and also allows for certain sponsors of
postretirement benefit plans with a drug benefit to receive a non-taxable federal subsidy if
certain criteria are met. The FSP requires interim and annual period financial statements
beginning after June 15, 2004 to include the effect of the subsidy on the measurement of net
periodic postretirement benefit costs. DonTech adopted the provisions of the FSP in the fourth
quarter of 2004, which resulted in decrease to its accumulated postretirement benefit obligation of
approximately $1.8 million. 3. Acquisition On September 1, 2004, RHD completed the SBC Directory Acquisition for $1.41 billion in cash, after
working capital adjustments and the settlement of a $30 million liquidation preference owed to RHD
related to DonTech. In connection with the purchase price allocation, $105 million of identifiable
intangible assets and $32 million in goodwill related to DonTech. The primary purpose of this
acquisition was to complete RHDs transformation from a sales agent and pre-press vendor for yellow
pages advertising to a leading publisher of yellow pages directories with control of its business. The acquisition was accounted for as purchase business combination in accordance with SFAS 141,
Business Combinations. The purchase price was allocated to the related tangible and identifiable
intangible assets acquired and liabilities assumed based on their respective estimated fair values
on the acquisition date. Certain long-term F-90




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##### 



intangible assets were identified and recorded at their estimated fair value. Identifiable
intangible assets acquired include directory services agreements between the Company and SBC,
customer relationships and acquired trademarks and trade names. In accordance with SFAS 142,
Goodwill and Other Intangible Assets, the fair values of the identifiable intangible assets are
being amortized over their estimated useful lives in a manner that best reflects the economic
benefits derived from such assets. Goodwill is not amortized but is subject to impairment testing
on an annual basis. See Note 2, Summary of Significant Accounting Policies   Identifiable
Intangible Assets and Goodwill, for a further description of our intangible assets and goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed in the SBC Directory Acquisition on September 1, 2004 specific to DonTech: Current assets
    
    $
    51,616Non-current assets
    
    
    2,837Intangible assets
    
    
    105,000Goodwill
    
    
    32,066Total assets acquired
    
    
    191,519Current liabilities
    
    
    (9,232
    )Non-current liabilities
    
    
    (867
    )Total liabilities assumed
    
    
    (10,099
    )Net assets acquired
    
    $
    181,420
 4. Fixed Assets and Computer Software Fixed assets and computer software consisted of the following: Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,2004
    
    
    2003Furniture, fixtures, and equipment
    
    $
    2,860
    
    
    $
    7,109Computers and software
    
    
    1,521
    
    
    
    5,913Leasehold improvements
    
    
    1,316
    
    
    
    1,969Total cost
    
    
    5,697
    
    
    
    14,991Less accumulated depreciation and amortization
    
    
    (326
    )
    
    
    (9,314
    )Net fixed assets and computer software
    
    $
    5,371
    
    
    $
    5,677
 Depreciation and amortization expense for the four months ended December 31, 2004, the eight months
ended August 31, 2004, and the years ended December 31,
2003 and 2002 was $0.3 million, $1.2
million, $1.6 million and $1.7 million, respectively. During the eight months ended August 31, 2004, and the year ended December 31, 2003, DonTech
disposed of fixed assets with a cost of $0.4 million and $12.1 million respectively. These assets
disposed of had a net book value of $0.02 million and $0.2 million, respectively, with no significant
sales proceeds, resulting in losses on disposal, which are reflected in the statement of operations
as other income, net. F-91




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##### 



5. Accrued Liabilities Accrued liabilities consisted of the following: Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,Accrued bonuses, commissions and other employee expenses
    
    $
    5,561
    
    
    $
    5,081Other accrued liabilities
    
    
    23
    
    
    
    199$
    5,584
    
    
    $
    5,280
 6. Related Party Transactions RHD and its subsidiaries provide us with general and administrative services, which we record as
expenses. Where possible, certain costs are directly assigned to us. Indirect costs of RHD and its
subsidiaries, where appropriate, are allocated to us based on several factors, including relative
equity, number of employees and a composite based on our proportionate share of certain direct and
allocated charges. Direct and indirect costs charged to us from RHD and its subsidiaries during the
four months ended December 31, 2004 totaled $2.8 million. Financing activities are managed by RHD on a consolidated basis. Under this cash management
program, RHD and DonTech advanced funds to each other. These intercompany net advances were
classified as a current asset and were non-interest bearing. Prior to the SBC Directory Acquisition, DonTech purchased insurance services from RHD and general
ledger and purchasing services from SBC. Payments made to RHD for insurance services for the eight
months ended August 31, 2004, and the years ended
December 31, 2003 and 2002 were $0.6 million, $0.8
million and $0.5 million, respectively. Payments made to SBC for general ledger and purchasing
services prior to the SBC Directory Acquisition were not significant in each of the periods
presented in the statements of operations. Prior to the SBC Directory Acquisition, DonTech also provided facility space for certain employees
of SBC under an agreement entered into in 1998 (see Note 6). 7. Commitments and Contingencies DonTech leases certain office facilities under noncancelable lease arrangements. Rent expense under
these operating leases for the four months ended December 31, 2004, the eight months ended August
31, 2004, and the years ended December 31, 2003 and 2002 was $0.7 million, $1.5 million, $2.2
million, and $2.3 million, respectively. During 1998 DonTech entered into a sublease agreement with SBC whereby DonTech received sublease
rental income from SBC. For the eight months ended August 31, 2004, and the years ended December
31, 2003 and 2002, sublease rental income totaled $0.4 million,
$0.06 million, and $0.06 million,
respectively. This sublease agreement was terminated in connection with the SBC Directory
Acquisition. The future minimum lease payments required under noncancelable operating leases that have initial
or remaining lease terms in excess of one year as of December 31, 2004 are as follows: 2005
    
    $
    4,2352006
    
    
    4,2202007
    
    
    3,9302008
    
    
    3,9772009
    
    
    3,989Thereafter
    
    
    1,566Total
    
    $
    21,917
 During 2002, DonTech renegotiated the lease for its headquarters facility, which was originally
scheduled to terminate on January 31, 2010. The renegotiated lease extended the terms of the
agreement two additional years (through January 31, 2012) in exchange for certain cash concessions
totaling $1.6 million. Cash concessions received in connection with the amended lease have been
recorded as deferred rent credits in the balance sheet and F-92




---



##### 



are being recognized on a straight-line basis as a reduction to rent expense over the lease term.
At December 31, 2004, the long-term deferred credit related to these concessions was $1.6 million.
In connection with the renegotiation of the lease, DonTech incurred brokers fees of $0.7 million,
which have been reflected in the balance sheet as a non-current other asset. These fees are being
amortized to rent expense over the lease term and the unamortized balance is $0.6 million at
December 31, 2004. Additionally, DonTech received rent concessions on one of its new 2004 sales
office leases totaling $0.4 million. These concessions are also being amortized to rent expense
over the lease term and the unamortized balance is $0.4 million at December 31, 2004. In September 1998, DonTech entered into a maintenance service agreement with Ameritech Advertising
Services, a predecessor affiliate of SBC, to provide certain maintenance services pertaining to
telecommunications support, including parts, to DonTech. This agreement was set to expire in
September 2003. In September 2003, DonTech entered into a new agreement with SBC Global Services
for the provision of these maintenance services with monthly payments of approximately $0.01
million. The new agreement has a five-year term expiring in August 2008. Under these agreements,
DonTech recorded expenses totaling $0.04 million, $0.08 million, $0.12 million, and $0.12 million for
the four months ended December 31, 2004, the eight months ended August 31, 2004, and the years
ended December 31, 2003 and 2002, respectively. According to the terms of the agreement, DonTechs
remaining obligation as of December 31, 2004 is $0.5 million. 8. Employee Retirement and Profit Participation Plans DonTech sponsors a defined benefit pension plan covering substantially all of its employees (the
Principal Plan). The benefits to be paid to employees are based on years of service and a
percentage of total annual compensation. The percentage of compensation allocated to a retirement
account ranges from 3.0% to 12.5% depending on age and years of service. Pension costs are
determined using the projected unit credit actuarial cost method. DonTechs funding policy is to
contribute an amount at least equal to the minimum legal funding requirement. No contributions were
required to be made in 2004, 2003 or 2002. The Principal Plans assets are invested in equity and
debt securities. DonTech uses a measurement date of December 31 for the majority of its plan
assets. DonTech also has an unfunded non-qualified defined benefit pension plan, the Pension Benefit
Equalization Plan (PBEP), which covers certain former key employees of DonTech. Benefits are
based on years of service and compensation (including compensation not permitted to be taken into
account under the Principal Plan). The following provides a reconciliation of benefit obligations, plan assets, and the funded status
of the Principal Plan and PBEP (the Plans). Successor
    
    
    
    Predecessor
    
    
    PredecessorDecember 31,
    
    
    
    August 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003kChange in benefit obligationProjected benefit obligation, beginning of
period
    
    $
    38,521
    
    
    
    $
    35,082
    
    
    $
    29,230Service cost
    
    
    504
    
    
    
    
    965
    
    
    
    1,208Interest cost
    
    
    728
    
    
    
    
    1,399
    
    
    
    1,947Effect of plan amendments and assumption
changes
    
    
    
    
    
    
    
    
    
    
    
    37Actuarial loss
    
    
    82
    
    
    
    
    1,874
    
    
    
    3,929Benefits paid
    
    
    (431
    )
    
    
    
    (799
    )
    
    
    (1,269
    )Projected benefit obligation, end of period
    
    $
    39,404
    
    
    
    $
    38,521
    
    
    $
    35,082Change in plan assetsFair value of plan assets, beginning of period
    
    $
    31,317
    
    
    
    $
    31,785
    
    
    $
    26,899Return on plan assets
    
    
    2,508
    
    
    
    
    297
    
    
    
    5,965Plan participant contributions
    
    
    16
    
    
    
    
    34
    
    
    
    190Benefits paid
    
    
    (431
    )
    
    
    
    (799
    )
    
    
    (1,269
    )Fair value of plan assets, end of period
    
    $
    33,410
    
    
    
    $
    31,317
    
    
    $
    31,785Funded status of plans
    
    $
    (5,994
    )
    
    
    $
    (7,204
    )
    
    $
    (3,297
    )Unrecognized net loss
    
    
    4,456
    
    
    
    
    12,197
    
    
    
    9,239
 F-93




---



##### 



Unrecognized prior service costs
    
    
    259
    
    
    
    
    548
    
    
    
    619(Accrued) prepaid pension cost
    
    $
    (1,279
    )
    
    
    $
    5,541
    
    
    $
    6,561Prepaid benefit cost
    
    $
    
    
    
    
    $
    
    
    
    $
    7,199Intangible asset
    
    
    
    
    
    
    
    634
    
    
    
    Accrued liability
    
    
    (1,438
    )
    
    
    
    (2,340
    )
    
    
    (987
    )Accumulated other comprehensive income
    
    
    159
    
    
    
    
    7,247
    
    
    
    349Net amount recognized
    
    $
    (1,279
    )
    
    
    $
    5,541
    
    
    $
    6,561
 The accumulated benefit obligation for the Plans was $34.4 million, $33.7 million, and $30.6
million at December 31, 2004, August 31, 2004, and December 31, 2003, respectively. The net periodic benefit expense of the Plans for the years ended December 31, 2004, 2003 and 2002
was as follows: Successor
    
    
    
    Predecessor
    
    
    Predecessor
    
    
    Predecessor4 Months
    
    
    
    8 Months
    
    
    Year
    
    
    YearEnded
    
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    
    August 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002Service cost
    
    $
    504
    
    
    
    $
    965
    
    
    $
    1,208
    
    
    $
    1,262Interest cost
    
    
    728
    
    
    
    
    1,399
    
    
    
    1,947
    
    
    
    1,903Expected return on plan assets
    
    
    (847
    )
    
    
    
    (1,720
    )
    
    
    (2,180
    )
    
    
    (2,791
    )Amortization of net loss
    
    
    62
    
    
    
    
    340
    
    
    
    655
    
    
    
    263Amortization of unrecognized
prior service costs
    
    
    16
    
    
    
    
    71
    
    
    
    107
    
    
    
    291Adjustment
    
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    Curtailment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Net periodic benefit expense
    
    $
    463
    
    
    
    $
    1,055
    
    
    $
    1,829
    
    
    $
    986
 The following assumptions were used in determining the benefit obligations for the Plans: Successor
    
    
    
    Predecessor
    
    
    Predecessor
    
    
    Predecessor4 Months
    
    
    
    8 Months
    
    
    Year
    
    
    YearEnded
    
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    
    August 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002Weighted average discount rate
    
    
    5.75
    %
    
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.50
    %Rate of increase in future compensation
    
    
    3.66
    %
    
    
    
    3.66
    %
    
    
    3.66
    %
    
    
    3.91
    %Expected return on plan assets
    
    
    8.25
    %
    
    
    
    8.25
    %
    
    
    8.25
    %
    
    
    9.75
    %
 The following assumptions were used in determining the net periodic benefit expense (income) for
the Plans: Successor
    
    
    
    Predecessor
    
    
    Predecessor
    
    
    Predecessor4 Months
    
    
    
    8 Months
    
    
    Year
    
    
    YearEnded
    
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    
    August 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002Weighted average discount rate
    
    
    5.75
    %
    
    
    
    6.00
    %
    
    
    6.50
    %
    
    
    7.25
    %Rate of increase in future compensation
    
    
    3.66
    %
    
    
    
    3.66
    %
    
    
    3.66
    %
    
    
    3.91
    %Expected return on plan assets
    
    
    8.25
    %
    
    
    
    8.25
    %
    
    
    8.25
    %
    
    
    9.75
    %
 The benefits expected to be paid in each of the next five years and in the aggregate for the five
years thereafter as of December 31, 2004 are as follows: 2005
    
    $
    1,5302006
    
    
    1,631
 F-94




---



##### 



2007
    
    
    1,7342008
    
    
    1,8672009
    
    
    2,0342010 through 2014
    
    
    13,138Total
    
    $
    21,934
 The Principal Plan participates in a Master Trust along with RHD Inc., the assets of which are
administered by The Northern Trust Company. A total return investment approach is used to maximize
the long-term return on plan assets at a prudent level of risk. The Principal Plans target asset
allocation is 65% equity securities and 35% debt securities. The target allocation is controlled by
periodic re-balancing back to target. Principal Plan assets are invested using a combination of
active and passive (indexed) investment strategies. The Principal Plans equity securities are diversified across U.S. and non-U.S. stocks. The
Principal Plans debt securities are diversified principally among securities issued or guaranteed
by the U.S. government or its agencies, mortgage-backed securities, including collateralized
mortgage obligations, investment-grade corporate debt obligations and dollar-denominated
obligations issued in the U.S. and by non-U.S. banks and corporations. Investment risk is controlled through diversification among asset classes, managers and securities.
Risk is further controlled at the investment manager level by requiring active managers to follow
formal written investment guidelines. Investment results are measured and monitored on an ongoing
basis, and quarterly investment reviews are conducted. The Principal Plans U.S. investment manager
is prohibited from investing Principal Plan assets in equity or debt securities issued or
guaranteed by RHD. However, the Principal Plan may hold RHD stock if it is part of a total U.S.
equity market index fund in which the Principal Plan invests. The weighted-average asset allocation of the Principal Plans assets at December 31, 2004, August
31, 2004, and December 31, 2003, by asset category were as follows: December 31,
    
    
    August 31,
    
    
    December 31,2004
    
    
    2004
    
    
    2003Equity securities
    
    68%
    
    
    67%
    
    
    67%Debt securities
    
    32%
    
    
    33%
    
    
    33%
 DonTech does not expect to make significant contributions to the Principal Plan or the PBEP in
2005. For 2004 , DonTech used, and for 2005, DonTech will use a rate of 8.25% as the expected long-term
rate of return assumption on plan assets for the Plans. This assumption is based on the plans
target asset allocation of 65% equity securities and 35% debt securities. It reflects long-term
capital market return forecasts for the asset classes employed, assumed excess returns from active
management within each asset class, the portion of plan assets that are actively managed, and
periodic re-balancing back to target allocations. Current market factors such as inflation and
interest rates are evaluated before the long-term capital market assumptions are determined.
Although DonTech reviews its expected long-term rate of return assumption annually, DonTechs plan
performance in any one particular year does not, by itself, significantly influence its evaluation.
DonTechs assumption is generally not revised unless there is a fundamental change in one of the
factors upon which it is based, such as the target asset allocation or long-term capital market
return forecasts. Additionally, DonTech offers a defined contribution savings plan (the Profit Plan) to
substantially all employees and contributes fifty cents for each dollar contributed by a
participating employee, up to a maximum of 6% of the participants compensation including salary,
commission and short-term bonus. DonTech also makes contributions to the Profit Plan contingent
upon the attainment of financial goals set in advance as defined in the Profit Plan agreement.
There were no contributions made based upon the attainment of any financial goals for any of the
periods presented. The matching contributions made to the plan were $0.3 million, $0.6 million, $0.9
million, and $0.9 million for the four months ended December 31, 2004, the eight months ended August
31, 2004, and the years ended December 31, 2003 and 2002, respectively. 9. Postretirement Benefits Other than Pensions F-95




---



##### 



DonTech provides postretirement health care and life insurance benefits to certain retired
employees and their dependents. The following provides a reconciliation of benefit obligations, plan assets, and the funded status
of the post-retirement health and life insurance plans. Successor
    
    
    Predecessor
    
    PredecessorDecember 31,
    
    
    August 31,
    
    December 31,2004
    
    
    2004
    
    2003Change in benefit obligationProjected
benefit obligation, beginning of period
    
    $
    6,492
    
    
    
    $
    4,888
    
    
    $
    4,690Service cost
    
    
    154
    
    
    
    
    95
    
    
    
    134Interest cost
    
    
    194
    
    
    
    
    225
    
    
    
    299Plan participants contributions
    
    
    21
    
    
    
    
    46
    
    
    
    59Effect of plan amendments and assumption
changes
    
    
    3,161
    
    
    
    
    
    
    
    
    (264
    )Actuarial loss
    
    
    114
    
    
    
    
    1,705
    
    
    
    434Impact of Medicare Part D
    
    
    (1,842
    )
    
    
    
    
    
    
    
    Benefits paid
    
    
    (234
    )
    
    
    
    (476
    )
    
    
    (472
    )Other
    
    
    
    
    
    
    
    9
    
    
    
    8Projected benefit obligation, end of period
    
    $
    8,060
    
    
    
    $
    6,492
    
    
    $
    4,888Change in plan assetsFair value of plan assets, beginning of period
    
    $
    
    
    
    
    $
    
    
    
    $
    Employer contributions
    
    
    213
    
    
    
    
    430
    
    
    
    413Plan participant contributions
    
    
    21
    
    
    
    
    46
    
    
    
    59Benefits paid
    
    
    (234
    )
    
    
    
    (476
    )
    
    
    (472
    )Fair value of plan assets, end of period
    
    $
    
    
    
    
    $
    
    
    
    $
    Reconciliation of funded statusFunded status of plans
    
    $
    8,060
    
    
    
    $
    6,492
    
    
    $
    4,888Unrecognized actuarial (gain)/loss
    
    
    238
    
    
    
    
    (3,003
    )
    
    
    (1,404
    )Unrecognized prior service costs
    
    
    (2,909
    )
    
    
    
    235
    
    
    
    264Accrued cost
    
    $
    5,389
    
    
    
    $
    3,724
    
    
    $
    3,748
 The net periodic postretirement benefit costs included the following components: Successor
    
    
    
    Predecessor
    
    
    Predecessor
    
    
    Predecessor4 Months
    
    
    
    8 Months
    
    
    Year
    
    
    YearEnded
    
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    
    August 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002Service cost
    
    $
    154
    
    
    
    $
    95
    
    
    $
    134
    
    
    $
    157Interest cost
    
    
    194
    
    
    
    
    225
    
    
    
    299
    
    
    
    286Amortization
of prior service cost
    
    
    134
    
    
    
    
    (29
    )
    
    
    69
    
    
    
    97Amortization of unrecognized loss
    
    
    12
    
    
    
    
    106
    
    
    
    53
    
    
    
    23Other
    
    
    
    
    
    
    
    9
    
    
    
    8
    
    
    
    Net periodic benefit cost
    
    $
    494
    
    
    
    $
    406
    
    
    $
    563
    
    
    $
    563
 The discount rate used in determining the benefit obligation as of December 31, 2004 and August 31,
2004 was 5.75%. The discount rate used for December 31, 2003 and 2002 was 6.00% and 6.5%,
respectively. The assumed health care cost trend rate used in measuring the projected benefit
obligation as of December 31, 2004 and August 31, 2004 was 11% for pre-age 65 retirees and 13% for
post-age 65 retirees. The assumed health care cost trend rate used was 9.5% and 10% to measure the
projected benefit obligation as of December 31, 2003 and 2002, respectively. These trend rates are
assumed to decrease gradually to 5.0% for 2013 and remain at that level thereafter. F-96




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##### 



The post-retirement benefits other than pensions expected to be paid in each of the next five years
and in the aggregate for the five years thereafter as of December 31, 2004 are as follows: 2005
    
    $
    3402006
    
    
    3702007
    
    
    4202008
    
    
    4302009
    
    
    4902010 through 2014
    
    
    3,150Total
    
    $
    5,200
 Increasing or decreasing the health care cost trend rates by one percentage point would not have
had a material effect on the net periodic post-retirement expense for the 4 months ended December
31, 2004 and the 8 months ended August 31, 2004. A one-percentage point increase would have
increased the accumulated post-retirement benefit obligation at December 31, 2004 by $1.4 million.
A one-percentage point decrease would have decreased the accumulated post-retirement benefit
obligation at December 31, 2004 by $1.1 million. During the fourth quarter of 2004, we adopted the provisions of the Financial Accounting Standards
Board Financial Staff Position (FSP) No FAS 106-2, Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The FSP requires
interim and annual period financial statements beginning after June 15, 2004 to include the effect
of the subsidy on the measurement of net periodic postretirement benefit costs. The adoption of
this FSP resulted in a decrease to our accumulated postretirement benefit obligation of
approximately $1.8 million. The following benefit payments, which reflect expected future benefits, as appropriate, are
expected to be recognized: Medicare DSubsidyPayments2005
    
    $
    2006
    
    
    202007
    
    
    202008
    
    
    302009
    
    
    40Years 2010-2014
    
    
    370
 10. Legal Proceedings We are involved in various legal proceedings arising in the ordinary course of our business. We
periodically assess our liabilities and contingencies in connection with these matters based upon
the latest information available to us. For those matters where it is probable that we have
incurred a loss and the loss or range of loss can be reasonably estimated, we record reserves in
our financial statements. In other instances, we are unable to make a reasonable estimate of any
liability because of the uncertainties related to both the probable outcome and amount or range of
loss. As additional information becomes available, we adjust our assessment and estimates of such
liabilities accordingly. Based on our review of the latest information available, we believe our ultimate liability in
connection with pending legal proceedings will not have a material adverse effect on our results of
operations, cash flows or financial position. 11. Pledge of Equity Interest In connection with the SBC Directory Acquisition, RHD Inc. amended and restated its Credit Facility
(Credit Facility), which at that time consisted of a $700 million Term Loan A-2, a $1,650 million
Term Loan B-2 and a $175 million revolver for an aggregate facility of $2,525 million. On December
6, 2004, RHD amended its Credit Facility creating a new Term Loan A-3 and a new Term Loan D, both
replacing the Term Loan B-2. Term Loans A-2, A-3 and D require quarterly principal payments. As of
December 31, 2004, the outstanding balances of Term Loans F-97




---



##### 



A-2, A-3 and D were $526 million, $194 million and $1,441 million, respectively, and $41 million
was outstanding under the Revolver. The Revolver, Term Loan A-2 and Term Loan A-3 mature in
December 2009, and Term Loan D matures in June 2011. RHD Inc. also has issued $325 million of
8.875% Senior Notes (Senior Notes) and $600 million of 10.875% Senior Subordinated Notes
(Subordinated Notes, and, collectively with the Senior Notes, the Notes). The Senior Notes
became secured in connection with the amendment and restatement of the Credit Facility for the SBC
Directory Acquisition. Our equity interests, and thus indirectly all of our assets and partners
capital, are pledged as collateral to secure RHD Inc.s obligations under its Credit Facility and
the Senior Notes. We also guarantee the Senior Notes and the Senior Subordinated Notes. The total
principal amount of the Senior Notes subject to the pledge of equity interests as of December 31,
2004 was $325 million. RHDs Credit Facility and the indentures governing the Notes contain usual and customary negative
covenants that, among other things, place limitations on its and our ability to (i) incur
additional indebtedness, including capital leases and liens; (ii) pay dividends (except we may
freely pay dividends to our parent) and repurchase equity interests; (iii) enter into mergers,
consolidations, acquisitions, asset dispositions and sale-leaseback transactions; (iv) make capital
expenditures; (v) issue capital stock; and (vi) engage in transactions with affiliates. The Credit
Facility also contains financial covenants relating to maximum consolidated leverage, minimum
interest coverage and maximum senior secured leverage as defined therein. 12. Subsequent Event During the first quarter of 2005, we announced a restructuring plan relating to the SBC Directory
Business. A number of our employees will be terminated and others will be relocated to our
corporate headquarters in Cary, North Carolina. Additionally, we will be vacating a portion of our
leased facility in Chicago, Illinois. During the first quarter of 2005, we will record the costs
associated with this restructuring effort, some of which will be expensed and some of which will be
recorded as an adjustment to goodwill in accordance with EITF 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination. F-98




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of R.H. Donnelley Corporation and
Board of Directors and Members of R.H. Donnelley Publishing & Advertising of Illinois Holdings,
LLC: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements
of operations, of cash flows and of members capital present fairly, in all material respects, the
financial position of the R.H. Donnelley Publishing & Advertising of Illinois Holdings, LLC and its
subsidiary at December 31, 2004, and the results of their operations and their cash flows for the
four months ended December 31, 2004 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audit. We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Raleigh, North Carolina
March 16, 2005 F-99




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##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS HOLDINGS, LLC
CONSOLIDATED BALANCE SHEET
December 31, 2004(in thousands) AssetsCurrent AssetsCash and cash equivalents
    
    $
    3,765Accounts receivableBilled
    
    
    63,968Unbilled
    
    
    202,332Allowance for doubtful accounts and sales claims
    
    
    (20,873
    )Net accounts receivable
    
    
    245,427Amounts due from affiliates
    
    
    376Deferred directory costs
    
    
    123,855Other current assets
    
    
    2,619Total current assets
    
    
    376,042Intangible assets, net
    
    
    985,597Goodwill
    
    
    180,954Total Assets
    
    $
    1,542,593Liabilities and Members CapitalCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    15,531Deferred directory revenue
    
    
    158,957Amount due to affiliates
    
    
    145,814Current portion of long-term debt due to affiliate
    
    
    48,850Deferred income tax
    
    
    9,087Total current liabilities
    
    
    378,239Long-term debt due to affiliate
    
    
    932,311Commitments and contingenciesMinority interests
    
    
    12,361Members CapitalMember capital, 100 membership interests authorized and issued
    
    
    250,700Accumulated deficit
    
    
    (31,018
    )Total members capital
    
    
    219,682Total Liabilities and Members Capital
    
    $
    1,542,593
 The accompanying notes are an integral part of the consolidated financial statements. F-100




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##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS HOLDINGS, LLC
CONSOLIDATED STATEMENT OF OPERATIONS
Four Months Ended December 31, 2004(in thousands) Gross revenue
    
    $
    29,382Sales allowances
    
    
    (273
    )Net revenue
    
    
    29,109ExpensesOperating expenses
    
    
    52,158General and administrative expenses
    
    
    6,297Amortization
    
    
    6,903Total expenses
    
    
    65,358Operating loss
    
    
    (36,249
    )Interest expense
    
    
    (13,759
    )Minority interest in loss of partnership
    
    
    362Loss before income taxes
    
    
    (49,646
    )Benefit for income taxes
    
    
    18,628Net loss
    
    $
    (31,018
    )
 The accompanying notes are an integral part of the consolidated financial statements. F-101




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##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS HOLDINGS, LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
Four Months Ended December 31, 2004(in thousands) Cash Flows from Operating ActivitiesNet loss
    
    $
    (31,018
    )Reconciliation of net loss to net cash used in operating activities:Amortization
    
    
    6,903Provision for bad debts
    
    
    1,343Deferred income taxes
    
    
    9,087Minority Interest
    
    
    (362
    )Changes in assets and liabilities:Increase in accounts receivable
    
    
    (39,766
    )Increase in deferred directory costs
    
    
    (123,856
    )Increase in due to affiliates
    
    
    (27,717
    )Increase in other current assets
    
    
    (2,619
    )Increase in accounts payable and accrued
liabilities
    
    
    11,022Increase in deferred directory revenue
    
    
    158,957Net cash used in operating
activities
    
    
    (38,026
    )Cash Flows from Investing ActivitiesSBC Directory Acquisition, net of cash
received
    
    
    (1,269,887
    )Net cash used in investing activities
    
    
    (1,269,887
    )Cash Flows from Financing ActivitiesInitial contribution of capital by member
    
    
    250,700Increase in due to affiliates
    
    
    79,817Proceeds from issuance of long-term debt due to
affiliate
    
    
    1,002,600Principal payments on long-term debt due to
affiliate
    
    
    (21,439
    )Net cash provided by financing
activities
    
    
    1,311,678Increase in cash and cash equivalents
    
    
    3,765Cash and cash equivalents, beginning of
period
    
    
    Cash and cash equivalents, end of period
    
    $
    3,765Supplemental InformationCash interest paid
    
    $
    13,370
 The accompanying notes are an integral part of the consolidated financial statements. F-102




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##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS HOLDINGS, LLC
CONSOLIDATED STATEMENT OF MEMBERS CAPITAL Contributed
    
    
    Accumulated
    
    
    Total Member's(in thousands)
    
    Capital
    
    
    Deficit
    
    
    EquityInitial capital contributions from member
    
    $
    250,700
    
    
    $
    
    
    
    $
    250,700Net loss
    
    
    
    
    
    
    (31,018
    )
    
    
    (31,018
    )Balance, December 31, 2004
    
    $
    250,700
    
    
    $
    (31,018
    )
    
    $
    219,682
 The accompanying notes are an integral part of the consolidated financial statements. F-103




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##### 



R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(tabular amounts in thousands)  1.
    Business and Basis of Presentation R.H. Donnelley Publishing & Advertising of Illinois Holdings, LLC (PAIL Holdings, the Company,
we, us and our) was founded on August 17, 2004 for the purpose of holding a 99% ownership
interest in R.H. Donnelley Publishing & Advertising of Illinois Partnership (PAIL Partnership or
the Partnership). PAIL Partnership is the successor to Ameritech Publishing of Illinois Partners
Partnership (APIL Partners), a general partnership between Ameritech Publishing of Illinois, Inc.
(APIL) and Ameritech Publishing, Inc. (API), which are indirect wholly owned subsidiaries of
SBC Communications, Inc. (SBC). APIL Partners provided yellow and white Pages telephone
directory advertising primarily in the state of Illinois and Northwest Indiana. On September 1, 2004, R.H. Donnelley Corporation (RHD), our ultimate parent company, completed
the acquisition of the directory publishing business (SBC Directory Business) of SBC
Communications, Inc. (SBC) in Illinois and Northwest Indiana, including SBCs interests in The
DonTech II Partnership (DonTech), a 50/50 general partnership between RHD and SBC (collectively,
the SBC Directory Acquisition) for $1.41 billion in cash. As a part of the SBC Directory
Acquisition, $1.3 billion of the total purchase price was paid to SBC to acquire the SBC
Directory Business, exclusive of the local sales operations of DonTech (SBC Directory
Operations). The results of the SBC Directory Operations are included in our consolidated results
from and after September 1, 2004. See Note 3, Acquisition for a further description of the
acquisition. Following the SBC Directory Acquisition, R.H. Donnelley, Inc. (RHD Inc.) and its
wholly owned subsidiary, PAIL Holdings, are the new partners of PAIL Partnership. The SBC Directory Acquisition was accounted for as a purchase business combination by RHD and the
purchase price was allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values on September 1, 2004. In connection with
the purchase price allocation, $992.5 million of identifiable
intangible assets and $181.0 million in
goodwill related to PAIL Partnership. See Identifiable Intangible Assets and Goodwill below for
additional information. Following the SBC Directory
Acquisition, PAIL Partnership is a 99% general and 1% limited
partnership between PAIL Holdings and RHD Inc., respectively. PAIL Partnership, after the SBC Directory Acquisition, manages and operates the publishing and
distribution of SBC-branded Yellow Pages and White Pages directories in Illinois and Northwest
Indiana. PAIL Partnership retained DonTech as its sales agent to solicit and sell local yellow
pages and white pages advertising. In addition, PAIL Partnership entered into a five-year
agreement with SBC that provides us the exclusive right to sell local Internet yellow pages
advertising for SBCs Internet yellow pages platform, SMARTpages.com.  2.
    Summary of Significant Accounting Policies Principles of Consolidation.The consolidated financial statements include the accounts of PAIL
Holdings and its 99% owned subsidiary PAIL Partnership. All intercompany transactions and balances
have been eliminated. Revenue Recognition.We earn revenue principally from the sale of advertising into our yellow
pages directories. Revenue from the sale of such advertising is deferred when a directory is
published and recognized ratably over the life of a directory, which is typically 12 months (the
deferral and amortization method). Revenue from the sale of advertising is recorded net of an
allowance for sales claims, estimated based on historical experience on a directory-by-directory
basis. We increase or decrease this estimate as information or circumstances indicate that the
estimate may no longer adequately represent the amount of claims we may incur for a directory in
the future. Deferred Directory Costs. Costs directly related to the selling and production of our directories
are initially deferred when incurred and recognized ratably over the life of a directory, which is
typically twelve months. These costs include sales commissions, paper, printing, and initial
distribution costs. Also included in deferred directory costs are amounts incurred under the
Revenue Participation Agreement between the Company and an affiliated entity, see Note 9. Such
costs that are paid prior to publication are classified as other current assets. Cash and Cash Equivalents.Cash equivalents include liquid investments with an original maturity
of three months or less and the carrying value approximates fair value. Accounts Receivable.Accounts receivable consist of balances owed to us by our advertising
customers. Advertisers typically enter into a twelve-month contract for their advertising. Most
local advertisers are billed a pro rata amount of their contract value on a monthly basis. On
behalf of national advertisers, Certified Marketing Representatives (CMRs) pay to us the total
contract value of their advertising, net of their commission, within 60 days after the publication
month. Billed receivables represent the amount that has been billed to advertisers. Unbilled
receivables F-104




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##### 



represent contractually owed amounts for published directories that have yet to be billed to
advertisers. Billed receivables are recorded net of an allowance for doubtful accounts and sales
claims, estimated based on historical experience on a directory-by-directory basis. We increase or
decrease this estimate as information or circumstances indicate that the estimate may no longer
adequately represent the amount of bad debts and sales claims we may incur. In connection with the SBC Directory Acquisition, we entered into a transition services agreement
with SBC whereby SBC billed and collected from our advertising customers in the Illinois and
Northwest Indiana directories and remitted collections (net of a specified holdback) to us through
early 2005. On a monthly basis, SBC provided an advance to us related to those billings and as
such, we recorded an advance from SBC that was decreased as SBC collected from our advertisers,
thus satisfying that liability.  In early 2005, we assumed all responsibility for billing and
collections and settled remaining amounts from SBC. Identifiable Intangible Assets and Goodwill.As a result of the SBC Directory Acquisition,
certain identifiable intangible assets specific to PAIL Partnerships operations were recorded at
their estimated fair value. Amortization expense for the four months ended December 31, 2004 was
$6.9 million. Amortization expense for these intangible assets for each of the five succeeding
years is estimated to be $20.6 million, $24.9 million, $26.7 million, $26.4 million, and $26.0
million, respectively. The acquired identifiable intangible assets and their respective book values
at December 31, 2004 are shown in the table below. SBCDirectory
    
    
    
    
    
    
    SMARTpagesServices
    
    
    Customer
    
    
    ResellerAgreements
    
    
    relationships
    
    
    Agreement
    
    
    TotalInitial fair value
    
    $
    860,000
    
    
    $
    130,000
    
    
    $
    2,500
    
    
    $
    992,500Accumulated amortization
    
    
    (5,733
    )
    
    
    (1,003
    )
    
    
    (167
    )
    
    
    (6,903
    )Net intangible assets
    
    $
    854,267
    
    
    $
    128,997
    
    
    $
    2,333
    
    
    $
    985,597
 Directory services agreements between SBC and RHD (including PAIL Partnership and other
subsidiaries of RHD) include a directory services license agreement, a non-competition agreement, a
SMARTpages reseller agreement and a directory publishing listing agreement (collectively, SBC
Directory Services Agreements) with certain affiliates of SBC. The directory services license
agreement designates us as the official and exclusive provider of yellow pages directory services
for SBC (and its successors) in the state of Illinois and Northwest Indiana (the Territory),
grants us the exclusive license (and obligation as specified in the agreement) to produce, publish
and distribute white pages directories in the Territory as SBCs agent and grants us the exclusive
license (and obligation as specified in the agreement) to use the SBC brand and logo on print
directories in the Territory. The non-competition agreement prohibits SBC and its affiliates and
successors, with certain limited exceptions, from (1) producing, publishing and distributing yellow
and white pages print directories in the Territory, (2) soliciting or selling local or national
yellow or white pages advertising for inclusion in such directories, and (3) soliciting or selling
local Internet yellow pages advertising for certain Internet yellow pages directories in the
Territory or licensing SBC marks to any third party for that purpose. The SMARTpages reseller
agreement gives us the exclusive right to sell local Internet yellow pages advertising and the
non-exclusive right to sell Internet yellow pages advertising with respect to geographies outside
the Territory to any advertiser (excluding national advertisers) located inside the Territory onto
SBCs SMARTpages.com platform (and any successor product as specified in the agreements). The
directory publishing listing agreement gives us the right to purchase and use basic SBC subscriber
listing information and updates for the purpose of publishing directories. The SBC Directory
Services Agreements (other than the SMARTpages reseller agreement) have initial terms of 50 years,
subject to automatic renewal and early termination under specified circumstances. The SMARTpages
reseller agreement has a term of five years. The fair value of these agreements was determined
based on the present value of estimated future cash flows and is being amortized under the
straight-line method over the indicated terms. The fair value of customer relationships was determined based on the present value of estimated
future cash flows and is being amortized under the income forecast method. The weighted average
useful life of these relationships is 20 years. The excess purchase price for the SBC Directory Acquisition over the net tangible and identifiable
intangible assets F-105




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##### 



acquired of $212.9 million was recorded as goodwill by RHD and of this amount, $181.0 million
related to PAIL Partnership based on the fair value of the Partnerships net assets acquired in the
acquisition. Annual amortization of goodwill for tax purposes is approximately $12.1 million. While we do not anticipate significant changes to the fair value of net assets acquired, additional
information could come to our attention that may require us to revise the purchase price allocation
in connection with the SBC Directory Acquisition. In accordance with SFAS 142, Goodwill and Other
Intangible Assets, goodwill is not amortized, but is subject to periodic impairment testing. No
impairment losses were recorded during 2004 or 2003. Advertising Expense.We recognize advertising expenses as incurred. These expenses include public
relations, media, and on-line advertising, as well as, other promotional and sponsorship costs.
Total advertising expense was $2.4 million for the four months ended December 31, 2004. Concentration of Credit Risk. Approximately 85% of our directory advertising revenue is derived
from the sale of advertising to local small- and medium-sized businesses. These advertisers
typically enter into 12-month advertising sales contracts and make monthly payments over the term
of the contract. Some advertisers prepay the full amount or a portion of the contract value. Most
new advertisers and advertisers desiring to expand their advertising programs are subject to a
credit review. If the advertisers qualify, we may extend credit to them for their advertising
purchase. Small- and medium-sized businesses tend to have fewer financial resources and higher
failure rates than large businesses. In addition, full collection of delinquent accounts can take
an extended period of time and involve significant costs. While we do not believe that extending
credit to our local advertisers will have a material adverse effect on our results of operations or
financial condition, no assurances can be given. We do not require collateral from our
advertisers, although we do charge interest to advertisers that do not pay by specified due dates. The remaining approximately 15% of our directory advertising revenue is derived from the sale of
advertising to national or large regional chains, such as rental car companies, automobile repair
shops and pizza delivery businesses. Substantially all of the revenue derived through national
accounts is serviced through CMRs with which we contract. CMRs are independent third parties that
act as agents for national advertisers. The CMRs are responsible for billing the national
customers for their advertising. We receive payment for the value of advertising placed in our
directory, net of the CMRs commission, directly from the CMR. While we are still exposed to
credit risk, the amount of losses from these accounts has been historically less than the local
accounts as the advertisers, and in some cases the CMRs, tend to be larger companies with greater
financial resources than local advertisers. Income Taxes.We account for income taxes under the liability method in accordance with SFAS
109, Accounting for Income Taxes. Deferred tax liabilities or assets reflect temporary differences
between amounts of assets and liabilities for financial and tax reporting. Such amounts are
adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the
temporary differences reverse. A valuation allowance is established to offset any deferred tax
assets if, based upon the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. See Note 5 for more information regarding our provision
for income taxes. Estimates.The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and certain expenses and the disclosure of
contingent assets and liabilities. Actual results could differ materially from those estimates and
assumptions. Estimates and assumptions are used in the determination of sales allowances,
allowances for doubtful accounts and amortization. Minority Interest. We record minority interest in partnership income or loss that reflects the
portion of the income or loss applicable to RHD Inc., the minority partner in PAIL Partnership.
The minority interest amount recorded on our balance sheet reflects RHD Inc.s proportionate share
of PAIL Partnerships equity.  3.
    Acquisition On September 1, 2004, RHD completed the SBC Directory Acquisition for $1.41 billion in cash, after
working capital adjustments and the settlement of a $30 million liquidation preference owed to RHD
related to DonTech. As a result of the acquisition, we became the publisher of revenue-generating,
SBC-branded yellow pages directories in Illinois and Northwest Indiana. The results of the SBC
Directory Operations are included in our consolidated results from and after September 1, 2004.
The primary purpose of this acquisition was to complete RHDs transformation from a sales agent and
pre-press vendor for yellow pages advertising to a leading publisher of yellow pages directories
with control of its business. F-106




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##### 



The acquisition was accounted for as purchase business combination in accordance with SFAS 141,
Business Combinations. The purchase price was allocated to the related tangible and identifiable
intangible assets acquired and liabilities assumed based on their respective estimated fair values
on the acquisition date. Certain long-term intangible assets were identified and recorded at their
estimated fair value. Identifiable intangible assets acquired include directory services
agreements between the Company and SBC, customer relationships and acquired trademarks and trade
names. In accordance with SFAS 142, Goodwill and Other Intangible Assets, the fair values of the
identifiable intangible assets are being amortized over their estimated useful lives in a manner
that best reflects the economic benefits derived from such assets. Goodwill is not amortized but
is subject to impairment testing on an annual basis. See Note 2, Summary of Significant Accounting
Policies   Identifiable Intangible Assets and Goodwill, for a further description of our
intangible assets and goodwill. Under purchase accounting rules, we did not assume or record the deferred revenue balance
associated with the SBC Directory Business of $204.1 million at September 1, 2004. This amounts
represented revenue that would have been recognized subsequent to the acquisition under the
deferral and amortization method in the absence of purchase accounting. Accordingly, we did not and
will not record revenue associated with directories that were published prior to the acquisition as
well as directories that were published in the month the acquisition was completed. Although the
deferred revenue balance was eliminated, we retained all the rights associated with the collection
of amounts due under and contractual obligations under the advertising contracts executed prior to
the acquisition. As a result, the billed and unbilled accounts receivable balances acquired in the
acquisition became assets of the Company. Also under purchase accounting rules, we did not assume
or record the deferred directory costs related to those directories that were published prior to
the acquisition as well as directories that published in the month the acquisition was completed,
totaling $175.8 million for the SBC-branded directories. These costs represented operating
expenses that would have been recognized subsequent to the acquisitions under the deferral and
amortization method in the absence of purchase accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed in the SBC Directory Acquisition on September 1, 2004: Current assets
    
    $
    206,888Non-current assets
    
    
    81,300Intangible assets
    
    
    992,500Goodwill
    
    
    180,954Total assets acquired
    
    
    1,461,642Current liabilities
    
    
    (194,359
    )Non-current liabilities
    
    
    (51
    )Total liabilities assumed
    
    
    (194,410
    )Net assets acquired
    
    $
    1,267,232
  4.
    Long-Term Debt due to Affiliate In connection with our acquisition of the 99% ownership interest in PAIL Partnership, a wholly
owned affiliate of RHD provided us with a long-term loan in the form of a promissory note. Total
proceeds from the loan were $1,002.6 million. Principal and interest payments are due quarterly
with the amount of principal due accelerating in future years as shown in the table below, maturing
in June 2011. Interest accrues on all unpaid principal at an annual rate equal to the composite
interest rate applicable to borrowings under RHDs Credit Facility (as defined in Note 7). Interest
expense from this loan totaled $13.8 million for the four months ended December 31, 2004. Aggregate maturities of the long-term debt due to affiliate at December 31, 2004 were: 2005
    
    $
    48,8502006
    
    
    54,8232007
    
    
    54,8232008
    
    
    60,7962009
    
    
    96,634Thereafter
    
    
    665,235Total
    
    $
    981,161
 F-107




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##### 



5.
    Income Taxes Deferred tax assets and liabilities are determined based on the estimated future tax effects of
temporary differences between the financial statements and tax basis of assets and liabilities, as
measured by the current enacted tax rates. Deferred tax expense (benefit) is the result of changes
in the deferred tax asset and liability. Provision (benefit) for income taxes consisted of: Four MonthsEndedDecember 31,2004Current benefitU.S. Federal
    
    $
    (24,575
    )State and local
    
    
    (3,140
    )Total current benefit
    
    
    (27,715
    )Deferred provisionU.S. Federal
    
    
    8,310State and local
    
    
    777Total deferred provision
    
    
    9,087Benefit for income taxes
    
    $
    (18,628
    )
 The following table summarizes the significant differences between the U.S. Federal statutory tax
rate and our effective tax rate. Four MonthsEndedDecember 31,2004Statutory U.S. Federal tax rate
    
    
    35.0
    %State and local taxes, net of U.S. Federal tax benefit
    
    
    2.6Effective tax rate
    
    
    37.6
    %
 Deferred tax assets and liabilities consisted of the following at December 31, 2004: Deferred tax assetsNet operating loss carryforwards
    
    $
    Deferred costs
    
    
    5,274Total
deferred tax assets
    
    
    5,274Valuation allowance
    
    
    Net deferred tax assets
    
    
    5,274Deferred tax liabilitiesBad debts
    
    
    4,186Depreciation and amortization.
    
    
    10,175Total deferred tax liabilities
    
    
    14,361Net deferred tax liabilities
    
    $
    9,087
 The Company had federal and state net operating loss carryforwards of approximately $27.7 million.
The federal net operating loss carryforward will begin to expire in 2023, and the state net
operating loss carryforwards will begin to expire in 2008. The 2004 tax benefit is based
on an effective tax rate of 37.6%. RHD is considered the
taxpayer and, as such, any current income tax liabilities or benefits are reflected in amounts due to/from
affiliates on the balance sheet. With regard to the deferred tax assets, we believe that we will
obtain the full benefit of such assets based on an assessment of the Companys anticipated
profitability during the years the deferred tax assets are expected to become tax deductions.  6.
    Commitments Under the terms of the SMARTpages Reseller Agreement and the Directory Publishing Listing Agreement
that were executed in connection with the SBC Directory Acquisition, we are committed to minimum
annual payments for the F-108




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##### 



next five years of $2.4 million, $3.9 million, $4.1 million, $4.1 million and $3.0 million,
respectively.  7.
    Pledge of Equity Interest In connection with the SBC Directory Acquisition, RHD Inc. amended and restated its Credit
Facility (Credit Facility), which at that time consisted of a $700 million Term Loan A-2, a
$1,650 million Term Loan B-2 and a $175 million revolver for an aggregate facility of $2,525
million. On December 6, 2004, RHD Inc. amended its Credit Facility creating a new Term Loan A-3 and
a new Term Loan D, both replacing the Term Loan B-2. Term Loans A-2, A-3 and D require quarterly
principal payments. As of December 31, 2004, the outstanding balances of Term Loans A-2, A-3 and D
were $526 million, $194 million and $1,441 million, respectively, and $41 million was outstanding
under the Revolver. The Revolver, Term Loan A-2 and Term Loan A-3 mature in December 2009, and
Term Loan D matures in June 2011. RHD Inc. also has issued $325 million of 8.875% Senior Notes
(Senior Notes) and $600 million of 10.875% Senior Subordinated Notes (Subordinated Notes, and,
collectively with the Senior Notes, the Notes). The Senior Notes became secured in connection
with the amendment and restatement of the Credit Facility for the SBC Directory Acquisition. Our
equity interest, and thus indirectly all of our assets and members capital, are pledged as
collateral to secure RHD Incs obligations under its Credit Facility and the Senior Notes. We also
guarantee the Senior Notes and the Notes. The total principal amount of the Senior Notes subject
to the pledge of equity interest as of December 31, 2004 was $325 million. RHDs Credit Facility and the indentures governing the Notes contain usual and customary negative
covenants that, among other things, place limitations on its and our ability to (i) incur
additional indebtedness, including capital leases and liens; (ii) pay dividends (except we may
freely pay dividends to our parent) and repurchase capital stock; (iii) enter into mergers,
consolidations, acquisitions, asset dispositions and sale-leaseback transactions; (iv) make capital
expenditures; (v) issue capital stock; and (vi) engage in transactions with affiliates. The Credit
Facility also contains financial covenants relating to maximum consolidated leverage, minimum
interest coverage and maximum senior secured leverage as defined therein.  8.
    Legal Proceedings We are involved in various legal proceedings arising in the ordinary course of our business. We
periodically assess our liabilities and contingencies in connection with these matters based upon
the latest information available to us. For those matters where it is probable that we have
incurred a loss and the loss or range of loss can be reasonably estimated, we record reserves in
our financial statements. In other instances, we are unable to make a reasonable estimate of any
liability because of the uncertainties related to both the probable outcome and amount or range of
loss. As additional information becomes available, we adjust our assessments and estimates of
these liabilities accordingly. Based on our review of the latest information available, we believe our ultimate liability in
connection with pending legal proceedings will not have a material adverse effect on our results of
operations, cash flows or financial position.  9.
    Related Party Transactions and Allocations RHD and its subsidiaries provide us with operating and general and administrative services, which
we record as expenses when incurred. These services include pre-press and IT support services,
general accounting, credit and collection and shared financial services. Indirect costs of RHD and
its subsidiaries, where appropriate, are allocated to us based on several factors, including
relative equity, number of employees, and a composite based on our proportionate share of certain
direct and allocated charges. Direct and indirect cost charges to us from RHD and its affiliates
during the four months ended December 31, 2004 totaled $34.2 million. We also renewed multiple
service agreements with RHD Inc. for publishing, non-publishing, support services, and billing
applications that are set to expire at various dates between December 31, 2005 and December 31,
2008. In connection with our sales agency agreement with DonTech, we incurred $1.2 million in
commission costs under the deferral and amortization method during the four months ended December
31, 2004. As of December 31, 2004, we owed DonTech $88.9 million. APIL Partners entered into a Revenue Participation Agreement (RPI Agreement) with RHD and its
affiliates in 1997. Under the terms of this agreement, APIL Partners paid to RHD 35.9% of
DonTechs advertising sales, less DonTechs commissions. In connection with the SBC Directory
Acquisition, we became the successor to APIL Partners and began paying revenue participation income
to our affiliate, R.H. Donnelley APIL, Inc. Under the RPI Agreement with RHD APIL, Inc., we
incurred $5.5 million in RPI costs that were accounted for under the deferral F-109




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and amortization method for the four-month period ending December 31, 2004. As of December 31,
2004, we owed RHD APIL Inc., $84.6 million.  10.
    Subsequent Event During the first quarter of 2005, we announced a restructuring plan relating to the SBC Directory
Business. A number of our employees will be terminated and others will be relocated to our
corporate headquarters in Cary, North Carolina. Additionally, we will be vacating a portion of our
leased facility in Chicago, Illinois. During the first quarter of 2005, we will record the costs
associated with this restructuring effort, some of which will be expensed and some of which will be
recorded as an adjustment to goodwill in accordance with EITF 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination. F-110




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of R.H. Donnelley Corporation and
Board of Directors and Partners of R.H. Donnelley Publishing & Advertising of Illinois Partnership: In our opinion, the accompanying balance sheet and the related statements of operations, cash flows
and changes in partners capital present fairly, in all material respects, the financial position
of the R.H. Donnelley Publishing & Advertising of Illinois Partnership at December 31, 2004, and
the results of its operations and its cash flows for the four months ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Partnerships management. Our responsibility is
to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Raleigh, North Carolina
March 16, 2005  F-111




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R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS PARTNERSHIP
BALANCE SHEET
December 31, 2004(In thousands) AssetsCurrent AssetsCash and cash equivalents
    
    $
    3,765Accounts receivableBilled
    
    
    63,968Unbilled
    
    
    202,332Allowance for doubtful accounts and sales claims
    
    
    (20,873
    )Net accounts receivable
    
    
    245,427Amounts due from affiliates
    
    
    41,902Deferred directory costs
    
    
    123,855Other current assets
    
    
    2,619Total current assets
    
    
    417,568Intangible assets, net
    
    
    985,597Goodwill
    
    
    180,954Total Assets
    
    $
    1,584,119Liabilities and Partners CapitalCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    15,531Deferred directory revenue
    
    
    158,957Amounts due to related parties
    
    
    173,529Total current liabilities
    
    
    348,017Commitments and contingencies
Partners capital
    
    
    1,236,102Total Liabilities and Partners
Capital
    
    $
    1,584,119
 The accompanying notes are an integral part of the financial statements.  F-112




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R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS PARTNERSHIP
STATEMENT OF OPERATIONS
Four Months Ended December 31, 2004(in thousands) Gross revenue
    
    $
    29,382Sales allowances
    
    
    (273
    )Net revenue
    
    
    29,109ExpensesOperating expenses
    
    
    52,158General and administrative expenses
    
    
    6,297Amortization
    
    
    6,903Total expenses
    
    
    65,358Net loss
    
    $
    (36,249
    )
 The accompanying notes are an integral part of the financial statements.  F-113




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R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS PARTNERSHIP
STATEMENT OF CASH FLOWS
Four Months Ended December 31, 2004(in thousands) Cash Flows from Operating ActivitiesNet loss.
    
    $
    (36,249
    )Reconciliation of net loss to net cash used in operating activities:Amortization.
    
    
    6,903Provision for bad debts
    
    
    1,343Changes in assets and liabilities:Increase in accounts receivable.
    
    
    (39,766
    )Increase in amounts due from affiliates
    
    
    (41,902
    )Increase in deferred directory costs
    
    
    (123,856
    )Increase in other current assets
    
    
    (2,619
    )Increase in accounts payable and accrued liabilities
    
    
    11,022Increase in deferred directory revenue
    
    
    158,957Net cash used in operating
activities
    
    
    (66,167
    )Cash Flows from Financing ActivitiesIncrease in amounts due to affiliates.
    
    
    69,932Net cash provided by financing
activities.
    
    
    69,932Increase in cash and cash equivalents.
    
    
    3,765Cash and cash equivalents, beginning of
period
    
    
    Cash and cash equivalents, end of period
    
    $
    3,765
 The accompanying notes are an integral part of the financial statements.  F-114




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R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS CAPITAL Publishing &Predecessor Parent
    
    
    
    Successor
    
    
    Advertising ofCompany Partners
    
    
    
    R.H. Donnelley
    
    
    Illinois
    
    
    Total Partners(in thousands)
    
    Capital
    
    
    
    Inc.
    
    
    Holdings, LLC
    
    
    CapitalBalance, December 31, 2004
    
    $
    83,299
    
    
    
    $
    
    
    
    $
    
    
    
    $
    83,299Effect of purchase accounting
    
    
    (83,299
    )
    
    
    
    
    
    
    
    
    
    
    
    (83,299
    )Capital contributions from partners
    
    
    
    
    
    
    
    12,723
    
    
    
    1,259,628
    
    
    
    1,272,351Net loss
    
    
    
    
    
    
    
    (362
    )
    
    
    (35,887
    )
    
    
    (36,249
    )Balance, December 31, 2004
    
    $
    
    
    
    
    $
    12,361
    
    
    $
    1,223,741
    
    
    $
    1,236,102
 The accompanying notes are an integral part of the financial statements.  F-115




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R.H. DONNELLEY PUBLISHING & ADVERTISING OF ILLINOIS PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS(tabular amounts in thousands) 1. Business and Basis of Presentation R.H. Donnelley Publishing & Advertising of Illinois Partnership (PAIL Partnership, we, us and
our) is the successor to Ameritech Publishing of Illinois Partners Partnership (APIL Partners),
a general partnership previously between Ameritech Publishing of Illinois, Inc. (APIL) and
Ameritech Publishing, Inc. (API), which are indirect wholly owned subsidiaries of SBC
Communications, Inc. (SBC). APIL Partners provided yellow and white pages directory advertising
primarily in the states of Illinois and Northwest Indiana. On September 1, 2004, R.H. Donnelley Corporation (RHD), our ultimate parent company, completed
the acquisition of the directory publishing business (SBC Directory Business) of SBC
Communications, Inc. (SBC) in Illinois and Northwest Indiana, including SBCs interests in The
DonTech II Partnership (DonTech), a 50/50 general partnership between RHD and SBC (collectively,
the SBC Directory Acquisition) for $1.41 billion in cash. As a part of the SBC Directory
Acquisition, $1.3 billion of the total purchase price was paid by R.H. Donnelley Publishing &
Advertising of Illinois Holdings, LLC (PAIL Holdings) to SBC to acquire the SBC Directory
Business, exclusive of the local sales operations of DonTech (SBC Directory Operations). The
results of the SBC Directory Operations are included in our consolidated results from and after
September 1, 2004. See Note 3, Acquisitions for a further description of the acquisition.
Following the SBC Directory Acquisition, R.H. Donnelley, Inc. (RHD Inc.) and its wholly owned
subsidiary PAIL Holdings are the new partners of PAIL Partnership. The SBC Directory Acquisition was accounted for as a purchase business combination by RHD and the
purchase price was allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values on September 1, 2004. In connection with
the purchase price allocation, $992.5 million of identifiable intangible assets and $181.0 million
in goodwill related to PAIL Partnership. See Identifiable Intangible Assets and Goodwill below
for additional information. Following the SBC Directory Acquisition, PAIL Partnership is a 99% general and 1% limited
partnership between PAIL Holdings and RHD Inc. respectively. PAIL Partnership, after the SBC Directory Acquisition, manages and operates the publishing and
distribution of SBC-branded Yellow Pages and White Pages directories in Illinois and Northwest
Indiana. PAIL Partnership retained DonTech as its sales agent to solicit and sell local yellow
pages and white pages advertising in the directories it publishes. In addition, PAIL Partnership
entered into a five-year agreement with SBC that provides us the exclusive right to sell local
Internet yellow pages advertising for SBCs Internet yellow pages platform, SMARTpages.com. 2. Summary of Significant Accounting Policies Revenue Recognition.We earn revenue principally from the sale of advertising into our yellow
pages directories. Revenue from the sale of such advertising is deferred when a directory is
published and recognized ratably over the life of a directory, which is typically 12 months (the
deferral and amortization method). Revenue from the sale of advertising is recorded net of an
allowance for sales claims, estimated based on historical experience on a directory-by-directory
basis. We increase or decrease this estimate as information or circumstances indicate that the
estimate may no longer adequately represent the amount of claims we may incur for a directory in
the future. Deferred Directory Costs. Costs directly related to the selling and production of our directories
are initially deferred when incurred and recognized ratably over the life of a directory, which is
typically 12 months. These costs include sales commissions, paper, print, and initial distribution
costs. Also included in deferred directory costs are amounts incurred under the Revenue
Participation Agreement between the Company and an affiliated entity, and amounts incurred under
our sales agency agreement with DonTech, see Note 7. Such costs that are paid prior to publication
are  F-116




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classified as other current assets. Cash and Cash Equivalents.Cash equivalents include liquid investments with an original maturity
of less than three months or less and the carrying amount approximates fair value. Accounts Receivable.Accounts receivable consist of balances owed to us by our advertising
customers. Advertisers typically enter into a twelve-month contract for their advertising. Most
local advertisers are billed a pro rata amount of their contract value on a monthly basis. On
behalf of national advertisers, Certified Marketing Representatives (CMRs) typically pay to us
the total contract value of their advertising, net of their commission, within 60 days after the
publication month. Billed receivables represent the amount that has been billed to advertisers.
Unbilled receivables represent contractually owed amounts for published directories that have yet
to be billed to advertisers. Billed receivables are recorded net of an allowance for doubtful
accounts and sales claims, estimated based on historical experience on a directory-by-directory
basis. We increase or decrease this estimate as information or circumstances indicate that the
estimate may no longer adequately represent the amount of bad debts and sales claims we may incur. In connection with the SBC Directory Acquisition, we entered into a transition services agreement
with SBC whereby SBC billed and collected from our advertising customers in the Illinois and
Northwest Indiana directories and remitted collections (net of a specified holdback) to us through
early 2005. On a monthly basis, SBC provided an advance to us related to those billings and as
such, we recorded an advance from SBC that was decreased as SBC collected from our advertisers,
thus satisfying that liability. In early 2005, we assumed all responsibility for billing and
collections and settled remaining amounts from SBC. Identifiable Intangible Assets and Goodwill.As a result of the SBC Directory Acquisition,
certain identifiable intangible assets specific to PAIL Partnerships operations were identified at
their estimated fair value. Amortization expense for the four months ended December 31, 2004 was
$6.9 million. Amortization expense for these intangible assets for the five succeeding years is
estimated to be $20.6 million, $24.9 million, $26.7 million, $26.4 million, and $26.0 million,
respectively. The acquired identifiable intangible assets and their respective book values at
December 31, 2004 are shown in the table below. SBCDirectory
    
    
    
    
    
    
    SMARTpagesServices
    
    
    Customer
    
    
    ResellerAgreements
    
    
    Relationships
    
    
    Agreement
    
    
    TotalInitial fair value
    
    $
    860,000
    
    
    $
    130,000
    
    
    $
    2,500
    
    
    $
    992,500Accumulated amortization
    
    
    (5,733
    )
    
    
    (1,003
    )
    
    
    (167
    )
    
    
    (6,903
    )Net intangible assets
    
    $
    854,267
    
    
    $
    128,997
    
    
    $
    2,333
    
    
    $
    985,597
 Directory services agreements between SBC and RHD (including PAIL Partnership and other
subsidiaries of RHD) include a directory services license agreement, a non-competition agreement, a
SMARTpages reseller agreement and a directory publishing listing agreement (collectively, SBC
Directory Services Agreements) with certain affiliates of SBC. The directory services license
agreement designates us as the official and exclusive provider of yellow pages directory services
for SBC (and its successors) in Illinois and Northwest Indiana (the Territory), grants us the
exclusive license (and obligation as specified in the agreement) to produce, publish and distribute
white pages directories in the Territory as SBCs agent and grants us the exclusive license (and
obligation as specified in the agreement) to use the SBC brand and logo on print directories in the
Territory. The non-competition agreement prohibits SBC (and its affiliates and successors), with
certain limited exceptions, from (1) producing, publishing and distributing yellow and white pages
print directories in the Territory, (2) soliciting or selling local or national yellow or white
pages advertising for inclusion in such directories, and (3) soliciting or selling local Internet
yellow pages advertising for certain Internet yellow pages directories in the Territory or
licensing SBC marks to any third party for that purpose. The SMARTpages reseller agreement gives us
the exclusive right to sell local Internet yellow pages advertising and the non-exclusive right to
sell Internet yellow pages advertising with respect to geographies outside the Territory to any
advertiser (excluding national advertisers) located inside the Territory onto SBCs F-117




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SMARTpages.com platform (and any successor product as specified in the agreements). The directory
publishing listing agreement gives us the right to purchase and use basic SBC subscriber listing
information and updates for the purpose of publishing directories. The SBC Directory Services
Agreements (other than the SMARTpages reseller agreement) have initial terms of 50 years, subject
to automatic renewal and early termination under specified circumstances. The SMARTpages reseller
agreement has a term of five years. The fair value of these agreements was determined based on the
present value of estimated future cash flows and is being amortized under the straight-line method
over the indicated terms. The fair value of customer relationships was determined based on the present value of estimated
future cash flows and has been amortized under the income forecast method. The weighted average
useful life of these relationships is 20 years. The excess purchase price for the SBC Directory Acquisition over the net tangible and identifiable
intangible assets acquired of $212.9 million was recorded as goodwill by RHD and of this amount,
$181.0 million related to PAIL Partnership based on the fair value of the Partnerships net assets
acquired in the acquisition. Annual amortization of goodwill for tax purposes is approximately
$12.1 million. While we do not anticipate significant changes to the fair value of net assets acquired, additional
information could come to our attention that may require us to revise the purchase price allocation
in connection with the SBC Directory Acquisition. In accordance with SFAS 142, Goodwill and Other
Intangible Assets, goodwill is not amortized, but is subject to periodic impairment testing. No
impairment losses were recorded during 2004. Advertising Expense.We recognize advertising expenses as incurred. These expenses include public
relations, media, and on-line advertising, as well as, other promotional and sponsorship costs.
Total advertising expense was $2.4 million for the four months ended December 31, 2004. Concentration of Credit Risk. Approximately 85% of our directory advertising revenue is derived
from the sale of advertising to local small- and medium-sized businesses. These advertisers
typically enter into 12-month advertising sales contracts and make monthly payments over the term
of the contract. Some advertisers prepay the full amount or a portion of the contract value. Most
new advertisers and advertisers desiring to expand their advertising programs are subject to a
credit review. If the advertisers qualify, we may extend credit to them for their advertising
purchase. Small- and medium-sized businesses tend to have fewer financial resources and higher
failure rates than large businesses. In addition, full collection of delinquent accounts can take
an extended period of time and involve significant costs. While we do not believe that extending
credit to our local advertisers will have a material adverse effect on our results of operations or
financial condition, no assurances can be given. We do not require collateral from our
advertisers, although we do charge interest to advertisers that do not pay by specified due dates. The remaining approximately 15% of our directory advertising revenue is derived from the sale of
advertising to national or large regional chains, such as rental car companies, automobile repair
shops and pizza delivery businesses. Substantially all of the revenue derived through national
accounts is serviced through CMRs with which we contract. CMRs are independent third parties that
act as agents for national advertisers. The CMRs are responsible for billing the national
customers for their advertising. We receive payment for the value of advertising placed in our
directory, net of the CMRs commission, directly from the CMR. While we are still exposed to
credit risk, the amount of losses from these accounts has been historically less than the local
accounts as the advertisers, and in some cases the CMRs, tend to be larger companies with greater
financial resources than local advertisers. Estimates.The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and certain expenses and the disclosure of
contingent assets and liabilities. Actual results could differ materially from those estimates and
assumptions. Estimates and assumptions are used in the determination of sales allowances,
allowances for doubtful accounts and amortization. 3. Acquisition On September 1, 2004, RHD completed the SBC Directory Acquisition for $1.41 billion in cash, after
working F-118




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capital adjustments and the settlement of a $30 million liquidation preference owed to RHD related
to DonTech. As a result of the acquisition, we became the publisher of revenue-generating,
SBC-branded yellow pages directories in Illinois and Northwest Indiana. The results of the SBC
Directory Operations are included in our results from and after September 1, 2004. The primary
purpose of this acquisition was to complete RHDs transformation from a sales agent and pre-press
vendor for yellow pages advertising to a leading publisher of yellow pages directories with control
of its business. The acquisition was accounted for as purchase business combination in accordance with SFAS 141,
Business Combinations. The purchase price was allocated to the related tangible and identifiable
intangible assets acquired and liabilities assumed based on their respective estimated fair values
on the acquisition date. Certain long-term intangible assets were identified and recorded at their
estimated fair value. Identifiable intangible assets acquired include directory services
agreements between the Company and SBC, customer relationships and acquired trademarks and trade
names. In accordance with SFAS 142, Goodwill and Other Intangible Assets, the fair values of the
identifiable intangible assets are being amortized over their estimated useful lives in a manner
that best reflects the economic benefits derived from such assets. Goodwill is not amortized but
is subject to impairment testing on an annual basis. See Note 2, Summary of Significant Accounting
Policies   Identifiable Intangible Assets and Goodwill, for a further description of our
intangible assets and goodwill. Under purchase accounting rules, we did not assume or record the deferred revenue balance
associated with the SBC Directory Business of $204.1 million at September 1, 2004. This amount
represented revenue that would have been recognized subsequent to the acquisition under the
deferral and amortization method in the absence of purchase accounting. Accordingly, we did not and
will not record revenue associated with directories that were published prior to the acquisition as
well as directories that were published in the month the acquisition was completed. Although the
deferred revenue balance was eliminated, we retained all the rights associated with the collection
of amounts due under and contractual obligations under the advertising contracts executed prior to
the acquisition. As a result, the billed and unbilled accounts receivable balances acquired in the
acquisition became assets of the Company. Also under purchase accounting rules, we did not assume
or record the deferred directory costs related to those directories that were published prior to
the acquisition as well as directories that published in the month the acquisition was completed,
totaling $175.8 million for the SBC-branded directories. These costs represented operating
expenses that would have been recognized subsequent to the acquisitions under the deferral and
amortization method in the absence of purchase accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed in the SBC Directory Acquisition on September 1, 2004 specific to the SBC Directory
Operations that were allocated to us: Current assets
    
    $
    207,004Non-current assets
    
    
    81,300Intangible assets
    
    
    992,500Goodwill
    
    
    180,838Total assets acquired
    
    
    1,461,642Current liabilities
    
    
    (194,359
    )Non-current liabilities
    
    
    (51
    )Total liabilities assumed
    
    
    (194,410
    )Net assets acquired
    
    $
    1,267,232
 4. Commitments Under the terms of the SMARTpages Reseller Agreement and the Directory Publishing Listing Agreement
that we executed in connection with the SBC Directory Acquisition, we are committed to minimum
annual payments for the next five years of $2.4 million, $3.9 million, $4.1 million, $4.1 million
and $3.0 million, respectively. 5. Legal Proceedings We are involved in various legal proceedings arising in the ordinary course of our business. We
periodically assess our liabilities and contingencies in connection with these matters based upon
the latest information available to us. For those matters where it is probable that we have
incurred a loss and the loss or range of loss can be reasonably F-119




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estimated, we record reserves in our financial statements. In other instances, we are unable to
make a reasonable estimate of any liability because of the uncertainties related to both the
probable outcome and amount or range of loss. As additional information becomes available, we
adjust our assessments and estimates of these liabilities accordingly. Based on our review of the latest information available, we believe our ultimate liability in
connection with pending legal proceedings will not have a material adverse effect on our results of
operations, cash flows or financial position. 6. Pledge of Equity Interest In connection with the SBC Directory Acquisition, RHD Inc. amended and restated its Credit Facility
(Credit Facility), which at that time consisted of a $700 million Term Loan A-2, a $1,650 million
Term Loan B-2 and a $175 million revolver for an aggregate facility of $2,525 million. On December
6, 2004, RHD Inc. amended its Credit Facility creating a new Term Loan A-3 and a new Term Loan D,
both replacing the Term Loan B-2. Term Loans A-2, A-3 and D require quarterly principal payments.
As of December 31, 2004, the outstanding balances of Term Loans A-2, A-3 and D were $526 million,
$194 million and $1,441 million, respectively, and $41 million was outstanding under the Revolver.
The Revolver, Term Loan A-2 and Term Loan A-3 mature in December 2009, and Term Loan D matures in
June 2011. RHD Inc. also has issued $325 million of 8.875% Senior Notes (Senior Notes) and $600
million of 10.875% Senior Subordinated Notes (Subordinated Notes, and, collectively with the
Senior Notes, the Notes). The Senior Notes became secured in connection with the amendment and
restatement of the Credit Facility for the SBC Directory Acquisition. Our equity interests
partners capital and thus indirectly all of our assets and partners capital, are pledged as
collateral to secure RHD Inc.s obligations under its Credit Facility and the Senior Notes. We also
guarantee the Senior Notes and the Notes. The total principal amount of the Senior Notes subject
to the pledge of equity interests as of December 31, 2004 was $325 million. RHDs Credit Facility and the indentures governing the Notes contain usual and customary negative
covenants that, among other things, place limitations on its and our ability to (i) incur
additional indebtedness, including capital leases and liens; (ii) pay dividends (except we may
freely pay dividends to our parent) and repurchase equity interests; (iii) enter into mergers,
consolidations, acquisitions, asset dispositions and sale-leaseback transactions; (iv) make capital
expenditures; (v) issue capital stock; and (vi) engage in transactions with affiliates. The Credit
Facility also contains financial covenants relating to maximum consolidated leverage, minimum
interest coverage and maximum senior secured leverage as defined therein. 7. Related Party Transactions RHD and its subsidiaries provide us with operating and general and administrative services, which
we record as expenses when incurred. These services include pre-press and IT support services,
general accounting, credit and collection and shared financial services. Indirect costs of RHD and
its subsidiaries, where appropriate, are allocated to us based on several factors, including
relative equity, number of employees, and a composite based on our proportionate share of certain
direct and allocated charges. Direct and indirect cost charges to us from RHD and its affiliates
during the four months ended December 31, 2004 totaled $34.2 million. We also renewed multiple
service agreements with RHD Inc. for publishing, non-publishing, support services, and billing
applications that are set to expire at various dates between December 31, 2005 and December 31,
2008. In connection with our sales agency agreement with DonTech, we incurred $1.2 million in commission
costs under the deferral and amortization method during the four months ended December 31, 2004.
As of December 31, 2004, we owed DonTech $88.9 million. APIL Partners entered into a Revenue Participation Agreement (RPI Agreement) with RHD and its
affiliates in 1997. Under the terms of this agreement, APIL Partners paid to RHD 35.9% of
DonTechs advertising sales, less DonTechs commissions. In connection with the SBC Directory
Acquisition, we became the successor to APIL Partners and began paying revenue participation income
to our affiliate, R.H. Donnelley APIL, Inc. Under the RPI Agreement, we incurred $5.5 million in
RPI costs that were accounted for under the deferral and amortization method for the four-month
period ending December 31, 2004. As of December 31, 2004, we owed RHD APIL Inc. $84.6 million. F-120




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8. Subsequent Event During the first quarter of 2005, we announced a restructuring plan relating to the SBC Directory
Business. A number of our employees will be terminated and others will be relocated to our
corporate headquarters in Cary, North Carolina. Additionally, we will be vacating a portion of our
leased facility in Chicago, Illinois. During the first quarter of 2005, we will record the costs
associated with this restructuring effort, some of which will be expensed and some of which will be
recorded as an adjustment to goodwill in accordance with EITF 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination. F-121




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Report of Independent Auditors The Board of Directors
SBC Communications Inc. We have audited the accompanying combined balance sheets of Ameritech Publishing of Illinois, Inc.
and Ameritech Publishing of Illinois Partners Partnership (collectively, the Company), indirect
wholly owned subsidiaries of SBC Communications Inc., as of August 31, 2004 and December 31, 2003
and the related combined statements of income, parent company capital, and cash flows for the
eight-month period ended August 31, 2004 and for each of the two years in the period ended December
31, 2003. These combined financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these combined financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such
opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material
respects, the combined financial position of the Company at August 31, 2004 and December 31, 2003
and the combined results of its operations and its cash flows for the eight-month period ended
August 31, 2004 and each of the two years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States. As discussed in Note 1 to the combined financial statements, in 2003 the Company changed its method
of recognizing revenues and expenses related to publishing directories. /s/ ERNST & YOUNG LLP San Antonio, Texas
March 9, 2005 F-122




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AMERITECH PUBLISHING OF ILLINOIS, INC. AND AMERITECH PUBLISHING OFILLINOIS PARTNERS PARTNERSHIP  COMBINED STATEMENTS OF INCOME
 
 Eightmonths ended
    
    
    Year endedAugust 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Operating Revenues
    
    $
    314,433
    
    
    $
    482,731
    
    
    $
    486,985Operating ExpensesProduct expenses
    
    
    160,961
    
    
    
    253,056
    
    
    
    259,870General and administrative expenses
    
    
    17,501
    
    
    
    42,067
    
    
    
    45,420Total operating expenses
    
    
    178,462
    
    
    
    295,123
    
    
    
    305,290Operating Income
    
    
    135,971
    
    
    
    187,608
    
    
    
    181,695Other Income (Expense)Interest expense
    
    
    
    
    
    
    (2
    )
    
    
    Other income (expense)  net
    
    
    
    
    
    
    1
    
    
    
    293Total other income (expense)
    
    
    
    
    
    
    (1
    )
    
    
    293Income Before Income Taxes
    
    
    135,971
    
    
    
    187,607
    
    
    
    181,988Income taxes
    
    
    59,319
    
    
    
    74,334
    
    
    
    72,068Income Before Cumulative Effect of Accounting
Change
    
    
    76,652
    
    
    
    113,273
    
    
    
    109,920Cumulative effect of accounting change (net of tax)
    
    
    
    
    
    
    (58,711
    )
    
    
    Net Income
    
    $
    76,652
    
    
    $
    54,562
    
    
    $
    109,920
 The accompanying notes are an integral part of the financial statements. F-123




---



##### 



AMERITECH PUBLISHING OF ILLINOIS, INC. AND AMERITECHPUBLISHING OF ILLINOIS PARTNERS PARTNERSHIP  COMBINED BALANCE SHEETS
 
 August 31,
    
    
    December 31,2004
    
    
    2003AssetsCurrent AssetsCash and cash equivalents
    
    $
    
    
    
    $
    1Accounts receivable trade  billed
    
    
    13,061
    
    
    
    24,491Accounts receivable trade  unbilled
    
    
    4,085
    
    
    
    6,054Allowance for accounts receivable  trade
    
    
    (1,549
    )
    
    
    (2,500
    )Accounts receivable from parent
    
    
    198,707
    
    
    
    66,589Accounts receivable from affiliates
    
    
    43,659
    
    
    
    43,216Other receivables
    
    
    
    
    
    
    212Total accounts receivables  net
    
    
    257,963
    
    
    
    138,062Deferred directory charges
    
    
    207,769
    
    
    
    206,906Other current assets
    
    
    
    
    
    
    10Total current assets
    
    
    465,732
    
    
    
    344,979Investment in joint venture  net
    
    
    22,011
    
    
    
    22,484Other noncurrent assets
    
    
    
    
    
    
    3,755Total Assets
    
    $
    487,743
    
    
    $
    371,218Liabilities and Parent Company CapitalCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    4,428
    
    
    $
    4,078Accrued taxes
    
    
    118,248
    
    
    
    63,401Accounts payable to affiliates
    
    
    
    
    
    
    806Deferred revenue (net)
    
    
    41,978
    
    
    
    46,589Deferred income taxes
    
    
    27,738
    
    
    
    23,382Accounts payable to related parties
    
    
    188,821
    
    
    
    191,172Other current liabilities
    
    
    14,464
    
    
    
    22,995Total current liabilities
    
    
    395,677
    
    
    
    352,423Noncurrent LiabilitiesDeferred income taxes
    
    
    8,717
    
    
    
    9,302Postemployment benefit obligations
    
    
    
    
    
    
    1,562Other noncurrent liabilities
    
    
    50
    
    
    
    73Total noncurrent liabilities
    
    
    8,767
    
    
    
    10,937Total Liabilities
    
    
    404,444
    
    
    
    363,360Parent Company CapitalParent company investment
    
    
    39
    
    
    
    39Retained earnings
    
    
    83,260
    
    
    
    7,819Total parent company capital
    
    
    83,299
    
    
    
    7,858Total Liabilities and Parent Company Capital
    
    $
    487,743
    
    
    $
    371,218
 The accompanying notes are an integral part of the financial statements. F-124




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##### 



AMERITECH PUBLISHING OF ILLINOIS, INC. AND AMERITECH PUBLISHING OF ILLINOISPARTNERS PARTNERSHIP  COMBINED STATEMENTS OF CASH FLOWS
 
 Eightmonths ended
    
    
    Year endedAugust 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Operating ActivitiesNet income
    
    $
    76,652
    
    
    $
    54,562
    
    
    $
    109,920Adjustments to reconcile net income to net cash
provided by operating activities:Provision for uncollectible accounts
    
    
    7,536
    
    
    
    30,821
    
    
    
    36,778Deferred income tax expense
    
    
    4,450
    
    
    
    (2,222
    )
    
    
    (5,091
    )Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    58,711
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    4,681
    
    
    
    (34,667
    )
    
    
    (40,114
    )Deferred directory charges
    
    
    (863
    )
    
    
    5,728
    
    
    
    8,341Other current assets
    
    
    10
    
    
    
    13
    
    
    
    (23
    )Accounts payable, accrued and other liabilities
    
    
    38,804
    
    
    
    9,910
    
    
    
    (26,722
    )Other  net
    
    
    1,585
    
    
    
    127
    
    
    
    (1,796
    )Total adjustments
    
    
    56,203
    
    
    
    68,421
    
    
    
    (28,627
    )Net Cash Provided by Operating Activities
    
    
    132,855
    
    
    
    122,983
    
    
    
    81,293Investing ActivitiesChanges in investment in joint venture
    
    
    473
    
    
    
    5,679
    
    
    
    2,145Net Cash Provided by Investing Activities
    
    
    473
    
    
    
    5,679
    
    
    
    2,145Financing ActivitiesDividends
    
    
    (1,211
    )
    
    
    (53,775
    )
    
    
    (109,500
    )Change in amounts receivable/payable from/to parent
    
    
    (132,118
    )
    
    
    (74,886
    )
    
    
    25,821Net Cash Used in Financing Activities
    
    
    (133,329
    )
    
    
    (128,661
    )
    
    
    (83,679
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1
    )
    
    
    1
    
    
    
    (241
    )Cash and cash equivalents beginning of period
    
    
    1
    
    
    
    
    
    
    
    241Cash and Cash Equivalents End of Period
    
    $
    
    
    
    $
    1
    
    
    $
    Cash paid during the eight-month period and year
ended for:Income taxes, net of refunds
    
    $
    22
    
    
    $
    71,883
    
    
    $
    86,976
 The accompanying notes are an integral part of the financial statements. F-125




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##### 



AMERITECH PUBLISHING OF ILLINOIS, INC. AND AMERITECH PUBLISHING OFILLINOIS PARTNERS PARTNERSHIP  COMBINED STATEMENTS OF PARENT COMPANY CAPITAL
 ParentCompany
    
    
    RetainedInvestment
    
    
    EarningsBalance, December 31, 2001
    
    $
    39
    
    
    $
    6,612Net income
    
    
    
    
    
    
    109,920Dividends
    
    
    
    
    
    
    (109,500
    )Balance, December 31, 2002
    
    
    39
    
    
    
    7,032Net income
    
    
    
    
    
    
    54,562Dividends
    
    
    
    
    
    
    (53,775
    )Balance, December 31, 2003
    
    
    39
    
    
    
    7,819Net income
    
    
    
    
    
    
    76,652Dividends
    
    
    
    
    
    
    (1,211
    )Balance, August 31, 2004
    
    $
    39
    
    
    $
    83,260
 The accompanying notes are an integral part of the financial statements. F-126




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##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  1.
    Summary of Significant Accounting Policies  Basis of Presentation The combined financial statements include the accounts of Ameritech
Publishing of Illinois, Inc. (APIL) and Ameritech Publishing of Illinois Partners Partnership
(the Partnership) collectively referred to throughout this document as we the Company or
Ameritech Publishing  IL. APIL is a wholly owned subsidiary of Ameritech Publishing, Inc.
(API), which is a wholly owned subsidiary of Ameritech Corporation (Ameritech). Ameritech is
wholly owned by SBC Communications Inc. (SBC). The Partnership is owned by APIL, the limited
partner, and API, the general partner, with 99% and 1% ownership, respectively. Ameritech
Publishing  IL provides Yellow and White Pages directory advertising primarily within the
state of Illinois and northwest Indiana.As a result of the sale of the Company (see Note 7) and in accordance with the terms of the
agreement to sell the Company, all Company employees and the employee-related liability and
intercompany account balances were transferred to an SBC affiliate prior to August 31, 2004.In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
46 Consolidation of Variable Interest Entities, an Interpretation of Accounting Research
Bulletin (ARB) No. 51 (FIN 46). FIN 46 provides guidance for determining whether an entity is
a variable interest entity (VIE), and which equity investor of that VIE, if any, should include
the VIE in its consolidated financial statements. In December 2003, the FASB staff revised FIN
46 to clarify some of the provisions. For certain VIEs, FIN 46 became effective for periods
ending after December 15, 2003. In addition, the revision delayed the effective date for
application of FIN 46 by large public companies, such as SBC, until periods ending after March
15, 2004 for all types of VIEs other than special-purpose entities, including our joint venture
investment (see Note 3). The adoption of FIN 46 did not have an effect on our accounting for
this investment.The preparation of financial statements in conformity with accounting principles generally
accepted in the United States (GAAP) requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes, including
estimates of probable losses and expenses. Actual results could differ from those estimates.Comprehensive Income Comprehensive income is the same as net income for all periods
presented.Income Taxes We are included in SBCs combined federal income tax return. Federal income
taxes are provided for in accordance with the provisions of our Tax Allocation Agreement
(Agreement) with SBC. In general, our income tax provision under the Agreement reflects the
financial consequences of income, deductions and credits which can be utilized on a separate
return basis or in consolidation
with SBC and which are assured of realization. Deferred income taxes are provided for
temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes.Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments
with original maturities of three months or less, and the carrying amounts approximate fair
value. F-127




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##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  Revenue Recognition and Cumulative Effect of Accounting Change Prior to 2003, we recognized
revenues and expenses directly related to publishing directories on the issue basis method of
accounting. This method recognizes revenue and expenses at the time the initial delivery of
the related directory is completed.Effective January 1, 2003, we changed our method of recognizing revenue and expenses related to
publishing directories from the issue basis method to the amortization method. The
amortization method recognizes revenues and expenses directly related to the directory ratably
over the life of the directory, which is typically 12 months. These expenses, and expenses
directly related to directories that are in progress, are reflected in deferred charges on the
combined balance sheet. We decided to change methods because the amortization method has now
become the more prevalent method used among significant directory publishers.Our directory accounting change resulted in a noncash charge of $58,711, net of a deferred
income tax benefit of $38,664, recorded as a cumulative effect of accounting change on the
combined statement of income as of January 1, 2003. Excluding this cumulative amount, the
effect of this change was to decrease combined pre-tax income for 2003 by $5,515 ($3,331 net of
tax), compared to the issue basis method.The table below shows our estimated results for all years as if we had adopted the amortization
method on January 1, 2002. Eightmonths ended
    
    
    Year endedAugust 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Operating Revenues
    
    $
    314,433
    
    
    $
    482,731
    
    
    $
    486,155Operating Expenses
    
    
    178,462
    
    
    
    295,123
    
    
    
    302,778Operating Income
    
    $
    135,971
    
    
    $
    187,608
    
    
    $
    183,377
  No customer accounted for more than 10% of revenues for the eight-month period ended August 31,
2004 or the years ended December 31, 2003 and 2002.Allowance for Accounts Receivable Our allowance for accounts receivable is estimated
primarily based on analysis of history and future expectations of the Companys customers.
Estimates are based on the Companys actual historical write-offs, net of recoveries, and the
aging of accounts receivable
balances. The Companys assumptions are reviewed at least quarterly and adjustments are made
to the allowance as appropriate. In addition to our allowance for accounts receivable, the
Company reserves for certain receivables which are sold, with recourse, to an affiliate. Such
reserves are subject to an analysis similar to that above and are included in other current
liabilities on the combined balance sheets. F-128




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##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  Advertising Costs Costs for advertising products and services or corporate image are expensed
as incurred. The majority of our advertising is incurred centrally by SBC affiliates and
billed to us on a monthly basis. We recorded advertising expense of $1,551 for the eight-month
period ended August 31, 2004 and $4,298 and $2,446 for the years ended December 31, 2003 and
2002, respectively.Advertising Barter Transactions We sometimes enter into advertising transactions in which
Ameritech Publishing  IL products are exchanged for media advertising, such as time or space
on television or radio, or branding advertising, such as signage in stadiums or other displays.
Revenues and expenses from advertising barter transactions totaled $348 for the eight-month
period ended August 31, 2004 and $2,569 and $615 for the years ended December 31, 2003 and
2002, respectively.Pension and Postretirement Benefits See Note 5
for a comprehensive discussion of our pension and postretirement benefit expense, including a discussion of the actuarial assumptions
determined by SBC.Stock-Based Compensation As discussed in Note 5, under various plans sponsored by SBC, our
employees have received stock options, performance stock units and other nonvested stock units.
We account for these plans using the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123).
Under this method, the estimated fair value of the options granted is amortized to expense over
the options vesting period.Reclassifications We have reclassified amounts in prior financial statements to conform to
the current presentation.2.
    Related Party Transactions and AllocationsWe provide directory advertising and publishing services to SBC and certain of its
subsidiaries. These services are included in operating revenue and totaled $3,430 for the
eight-month period ended August 31, 2004 and $1,868 and $2,021 for the years ended December 31,
2003 and 2002, respectively.SBC and its subsidiaries provide us with financial, marketing, network, telecommunications,
billing and collection, and administrative services, which we record as expenses. Where
possible, certain costs are directly assigned to us. Indirect costs of SBC and its
subsidiaries, where appropriate, are allocated to us based on several factors, including
relative equity, number of employees, marketing costs, proportional revenues and a composite
based on our proportionate share of certain direct and allocated charges. Direct and indirect
costs charged to us for the eight-month period ended August 31,
2004 totaled $7,746. Direct and indirect costs charged to us for the years ended December 31,
2003 and 2002 totaled $11,840 and $10,981, respectively. F-129




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##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  We also share bank accounts with API. Our cash transactions are consolidated with API and the
bank accounts are held by them. Our accounts receivable from, or accounts payable to, parent
represents the difference between our net cash receipts and payments and dividends. We pay
dividends to API based on our net income. Changes in the parent receivable or payable line
items are reflected as financing activities.The majority of our receivables are sold each month with recourse to an SBC subsidiary, which
performs billing and collection services for the Partnership. Amounts receivable under this
arrangement are included in accounts receivable from affiliates. Bad debt expense related to
these receivables is included in the provision for doubtful accounts, and the associated
liability is included in other current liabilities. The liabilities recorded at August 31,
2004 and December 31, 2003 totaled $14,431, and $23,004, respectively.3.
    Investment in Joint Venture and Material Agreements with RHDInvestments in Joint Venture:In August 1997, APIL entered into agreements with the Reuben H.
Donnelley Corporation (RHD) to create the DonTech II Partnership (DonTech). We and RHD each
own 50% of DonTech and our investment is accounted for under the equity method.The following table is a reconciliation of our gross investment in DonTech at: August 31,
    
    
    December 31,2004
    
    
    2003Investment balance at beginning of year
    
    $
    52,382
    
    
    $
    58,061Equity Income
    
    
    12,777
    
    
    
    17,347Distributions
    
    
    (13,250
    )
    
    
    (23,026
    )Ending Balance
    
    $
    51,909
    
    
    $
    52,382
  Balances presented in the combined balance sheets are net of a previous preferential
distribution of $29,898 paid to the Company by DonTech. The amount is payable to DonTech in
the event of a dissolution of DonTech (see Note 7).The Partnership entered into an Exclusive Sales Agency Agreement in August 1997 with DonTech.
Under the terms of the agreement, DonTech is the exclusive sales agent for the Partnerships
yellow pages local and street address directory customers. DonTech is paid a commission of 27%
of net local revenues (local revenue less a bad debt provision). We recorded expense for
DonTech commissions of $52,256 for the eight-month period ended August 31, 2004 and $103,030
and $105,156 for the years ended December 31, 2003 and 2002, respectively. Within accounts
payable to related parties, we had payable balances due DonTech of $96,304 at August 31, 2004
and $97,207 at December 31, 2003.APILs equity income from DonTech is recorded as contra expense to the 27% commission expense
the Partnership pays to DonTech in accordance with the Exclusive Sales Agency Agreement. We
recorded equity income of $12,777 for the eight-month period ended August 31, 2004 and $17,347
and $18,480 for the years ended December 31, 2003 and 2002, respectively. F-130




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##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  The following table presents summarized financial information for DonTech: Eightmonths ended
    
    
    Year endedAugust 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Income StatementsOperating revenues
    
    $
    68,777
    
    
    $
    99,711
    
    
    $
    101,792Operating income
    
    
    25,428
    
    
    
    33,526
    
    
    
    35,230Net income
    
    
    25,554
    
    
    
    34,694
    
    
    
    36,959
 August 31,
    
    
    December 31,2004
    
    
    2003Balance SheetsCurrent assets
    
    $
    103,180
    
    
    $
    103,065Noncurrent assets
    
    
    13,317
    
    
    
    14,441Current liabilities
    
    
    10,851
    
    
    
    11,656Noncurrent liabilities
    
    
    2,177
    
    
    
    1,435
  Material Agreements with RHD:In connection with the creation of DonTech, the Partnership
entered into an agreement with RHD in August 1997 whereby it pays RHD 35.9% of yellow pages
local and street address directory net revenue less DonTech commissions (RHD Revenue
Participation). We recorded expense for RHD Revenue Participation of $63,557 for the
eight-month period ended August 31, 2004 and $99,073 and $102,631 for the years ended December
31, 2003 and 2002, respectively. Within accounts payable to related parties, we had a payable
balance due RHD of $92,517 at August 31, 2004 and $93,591 at December 31, 2003.In January 2002, the Partnership also renewed multiple service agreements with RHD for
publishing, certain nonpublishing applications and support services and billing applications
which are set to expire on either December 31, 2005 and/or December 31, 2008.4.
    Income TaxesSignificant components of our deferred tax liabilities and assets are as follows at: August 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Employee benefits
    
    $
    
    
    
    $
    679
    
    
    $
    841Commissions
    
    
    23,728
    
    
    
    24,243
    
    
    
    24,243Deferred directory charges
    
    
    9,377
    
    
    
    9,377
    
    
    
    56,358Investment in partnership
    
    
    14,197
    
    
    
    8,717
    
    
    
    8,744Other
    
    
    76
    
    
    
    76
    
    
    
    80Total deferred tax liabilities
    
    
    47,378
    
    
    
    43,092
    
    
    
    90,266Deferred tax asset  allowance for accounts receivable
    
    
    10,923
    
    
    
    10,408
    
    
    
    16,696Net deferred tax liabilities
    
    $
    36,455
    
    
    $
    32,684
    
    
    $
    73,570
 F-131




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##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  The components of income tax expense are as follows: Eightmonths ended
    
    
    Year endedAugust 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002FederalCurrent
    
    $
    45,035
    
    
    $
    62,884
    
    
    $
    63,389Deferred  net
    
    
    3,567
    
    
    
    (1,872
    )
    
    
    (4,174
    )48,602
    
    
    
    61,012
    
    
    
    59,215State and localCurrent
    
    
    9,834
    
    
    
    13,672
    
    
    
    13,770Deferred  net
    
    
    883
    
    
    
    (350
    )
    
    
    (917
    )10,717
    
    
    
    13,322
    
    
    
    12,853Total
    
    $
    59,319
    
    
    $
    74,334
    
    
    $
    72,068
  A reconciliation of income tax expense and the amount computed by applying the statutory
federal income tax rate (35%) to income before income taxes is as follows: Eightmonths ended
    
    
    Year endedAugust 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Taxes computed at federal statutory rate
    
    $
    47,590
    
    
    $
    65,662
    
    
    $
    63,696Increases in income taxes resulting from:State and local income taxes  net of federal tax
benefit
    
    
    6,966
    
    
    
    8,659
    
    
    
    8,355Other  net
    
    
    4,763
    
    
    
    13
    
    
    
    17Total
    
    $
    59,319
    
    
    $
    74,334
    
    
    $
    72,068
  Tax expense for the eight-month period ended August 31, 2004 includes $5,400 which relates to
additional tax allocations, due to a parent company (API) true-up of prior periods, as allowed
under the Tax Allocation Agreement with SBC and its affiliates.5.
    Employee BenefitsEmployees of the Company were transferred to an SBC affiliate as of August 15, 2004. As a
result, the associated postemployment benefit obligation liabilities, including those due to
retirees, were also transferred to the SBC affiliate. Accordingly, the August 31, 2004 balance
sheet does not reflect liabilities related to postemployment benefit obligations. Because the
transferred employees were employed by the Company for a majority of the eight-month period
ended August 31, 2004, costs related to postemployment benefit obligations are appropriately
reflected in the income statement. F-132




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##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  Pensions Prior to the transfer of employees to an SBC affiliate, substantially all of our
employees were covered by one of various noncontributory pension and death benefit plans.
Management employees participated in cash balance pension plans. Additionally, all management
employees participated in a traditional pension benefit formula, stated as a percentage of the
employees adjusted career income. The pension benefit formula for most nonmanagement
employees was based on a flat dollar amount per year according to job classification. Most
employees can elect to receive their pension benefits in either a lump sum payment or annuity.
We use a December 31 measurement date for calculating the values reported for plan assets and
benefit obligations for our plans.SBCs objective in funding the plans, in combination with the standards of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient
to meet the plans obligations to provide benefits to employees upon their retirement.
Although no significant cash contributions were required under ERISA regulations during 2004,
in July SBC voluntarily contributed approximately $1 billion to the pension trusts for the
benefit of plan participants, of which $1,000 was allocated to APIL for financial statement
purposes.The plan assets of the Ameritech plans, which include the employees of APIL, are restricted
from transfer prior to October 2004 due to a change in control provision contained in the
plans. The Ameritech plans were combined into the SBC plan effective December 2004.Significant weighted-average assumptions used by SBC in developing pension information include: August 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Discount rate for determining projected
benefit obligation
    
    
    *
    
    
    
    6.25
    %
    
    
    6.75
    %Discount rate in effect for determining
net pension cost (benefit)
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.50
    %Long-term rate of return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    9.50
    %Composite rate of compensation increase
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %
   *As there are no postemployment benefit obligations remaining at August 31, 2004 due to the
transfer of employees, the discount rate for the projected benefit obligation is not
applicable.  In accordance with GAAP, SBCs assumed discount rate of 6.25% at December 31, 2003
reflects the hypothetical rate at which the projected benefit obligation could be effectively
settled or paid out to participants, on that date. SBC determined the discount rate based on a
range of factors including the rates of return on high-quality, fixed-income investments
available at the measurement date.  The expected long-term rate of return on plan assets of 8.5% for 2004 reflects SBCs average
rate of earnings expected on the funds invested, or to be invested, to provide for the benefits
included in the projected benefit obligations. SBC considers many factors that include, but
are not limited to historic returns on plan assets, current market information on long-term
returns (e.g., long-term bond rates) and current and target asset allocations between asset
categories. The target asset allocation is determined based on consultations with external
investment advisors. F-133




---



##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  The weighted-average expected return on assets assumption, which reflects a view of long-term
returns, is one of the most significant of the weighted-average assumptions used to determine
actuarial estimates of pension and postretirement benefit expense. Based on long-term
expectations of market returns in future years, SBCs long-term rate of return on plan assets
is 8.5% for 2004. If all other factors were to remain unchanged, we expect a 1% decrease in
the expected long-term rate of return would have caused 2004 combined pension and
postretirement cost to increase approximately $215 over 2003 (analogous change would result
from a 1% increase).Under GAAP, the expected long-term rate of return is calculated on the market-related value of
assets (MRVA). GAAP requires that actual gains and losses on pension and postretirement plan
assets be recognized in the MRVA equally over a period of not more than five years. SBC uses a
methodology, allowed under GAAP, under which the MRVA is held to within 20% of the actual fair
value of plan assets, which can have the effect of accelerating the recognition of excess
actual gains and losses into the MRVA to less than five years. Due to investment losses on
plan assets experienced in the last several years, this methodology contributed to a higher
combined net pension and postretirement cost in 2003 as compared with not using this
methodology. This methodology did not have a significant effect on our 2004 or 2002 combined
net pension and postretirement benefit as the MRVA was almost equal to the fair value of plan
assets.GAAP requires certain disclosures to be made of components of net periodic pension cost for the
period, including a reconciliation of the funded status of the plans with amounts reported in
the balance sheets and disclosures of specific information about plan assets, such as
investment policies and the targeted and actual return on plan assets by asset category. Since
the funded status of plan assets and obligations relates to all SBC-sponsored plans as a whole,
this information is not presented for the Company.For the eight-month period ended August 31, 2004, we recognized pension benefits of
approximately $16. For the years ended December 31, 2003 and 2002, we recognized pension
benefits of approximately $182 and $1,123, respectively. As of August 31, 2004, the cumulative
amount of our contributions made to the trust in excess of our pension cost was approximately
$3,832. As of December 31, 2003 and 2002, the cumulative amount of our contributions made to
the trust in excess of our pension cost was approximately $3,778 and $3,587, respectively.Postretirement Benefits Prior to the transfer of employees to an SBC affiliate, under
Ameritechs or SBCs benefit plans, we provided certain medical, dental and life insurance
benefits to substantially all retired employees under various plans and accrued actuarially
determined postretirement benefit costs as active employees earned these benefits. SBC
maintains Voluntary Employee Beneficiary Association (VEBA) trusts to partially fund these
postretirement benefits; however, there are no ERISA or other regulations requiring these
postretirement benefit plans to be funded annually. We also fund postretirement life insurance
benefits at an actuarially determined rate. Trust assets consist principally of private and
public equity, government and corporate bonds and index funds. F-134




---



##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  During the second quarter of 2004, SBC agreed to new five-year labor agreements with the
Communications Workers of America (CWA) and the International Brotherhood of Electrical
Workers. The agreement provided for additional contributions from current employees toward
certain medical and prescription drug co-pays.In January 2004, the majority of nonmanagement retirees were informed of medical coverage
changes. SBC subsequently announced modifications to these changes, which were contingent upon
reaching an agreement with the CWA. Agreement was reached and, as modified, effective January
1, 2005, medical coverage for nonmanagement retirees will require increased co-pays and
deductibles for prescription drugs and certain medical services. These changes reduced our
postemployment cost approximately $176 for the eight-month period ended August 31, 2004.In May 2004, the FASB issued guidance (referred to as FSP FAS 106-2) on how employers should
account for provisions of the recently enacted Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (Medicare Act). The Medicare Act allows employers who sponsor a
postretirement health care plan that provides a prescription drug benefit to receive a subsidy
for the cost of providing that drug benefit. In order for employers, such as us, to receive
the subsidy payment under the Medicare Act, the value of our offered prescription drug plan
must be at least equal to the value of the standard prescription drug coverage provided under
Medicare Part D. Due to our lower deductibles and better coverage of drug costs, we believe
that our plan is of greater value than Medicare Part D.The preliminary guidance issued by the FASB, FSP FAS 106-1 permitted us to recognize
immediately this subsidy on our financial statements. SBC accounted for the Medicare Act as a
plan amendment and recorded the adjustment in the amortization of our liability, from the date
of enactment of the Medicare Act, December 2003. The final guidance issued by the FASB,
FSP-FAS 106-2, requires us to account for the Medicare Act as an actuarial gain or loss and
decreased our postretirement cost approximately $53 for the eight-month period ended August 31,
2004 and $6 for the year ended December 31, 2003. SBCs accounting assumes that the plans it
offers will continue to provide drug benefits equivalent to Medicare Part D, that those plans
will continue to be the primary plan for our retirees and that we will receive the subsidy.
SBC does not expect that the Medicare Act will have a significant effect on our retirees
participation in our postretirement benefit plan.GAAP requires certain disclosures to be made of components of net periodic postretirement
benefit cost, including a reconciliation of the funded status of the plans to amounts reported
in the combined balance sheets and disclosures of specific information about plan assets, such
as investment policies and the targeted and actual return on plan assets by asset category.
Since the funded status of assets and obligations relates to SBCs plans as a whole, this
information is not presented for us.For the eight-month period ended August 31, 2004, we recognized postretirement costs of
approximately $264. For the years ended December 31, 2003 and 2002, we recognized
postretirement costs of approximately $637 and $204. At December 31, 2003, the amount included
in our combined balance sheet for accrued postretirement benefit obligations was approximately
$1,508. SBC used the same significant assumptions for the discount rate, long-term
rate of return on plan assets and composite rate of compensation increase used in developing
the accumulated postretirement benefit obligation and related postretirement benefit costs that
were used in developing the pension information. F-135




---



##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  The medical cost trend rate in 2004 is 9.0% for retirees 64 and under and 10.0% for retirees 65
and over, trending to an expected increase of 5.0% in 2009 for all retirees, prior to
adjustment for cost-sharing provisions of the medical and dental plans for certain retired
employees. The assumed dental cost trend rate in 2004 is 5.0%. Raising the annual medical and
dental cost trend rates by one percentage-point increases the total of the service and interest
cost components of net periodic postretirement benefit cost for the year ended December 31,
2003 by approximately 17%. Decreasing the annual medical and dental cost trend rates by one
percentage-point decreases the total of the service and interest cost components of net
periodic postretirement benefit cost for 2003 by approximately 14%.Other Postemployment Benefits Prior to the transfer of employees to an SBC affiliate, under
Ameritechs or SBCs benefit plans, we provided employees varying levels of severance pay,
disability pay, workers compensation and medical benefits under specified circumstances and
accrued these postemployment benefits at the occurrence of an event that rendered an employee
inactive or, if the benefits ratably vested, over the vesting period.Savings Plans Prior to the transfer of employees to an SBC affiliate, substantially all
employees were eligible to participate in contributory savings plans sponsored by SBC. Under
the savings plans, we matched a stated percentage of eligible employee contributions, subject
to a specified ceiling. Our allocated costs related to these savings plans were
approximately $55 for the eight-month period ended August 31, 2004 and $82 and $36 for the
years ended December 31, 2003 and 2002, respectively.Stock-Based Compensation Prior to the transfer of employees to an SBC affiliate, our
employees participated in various stock option plans sponsored by SBC. Under these plans,
senior and other management and nonmanagement employees and nonemployee directors have received
stock options, performance stock units and other nonvested stock units based on SBC stock.
Stock options issued through August 31, 2004 carry exercise prices equal to the market price of
the stock at the date of grant and have maximum terms ranging from five to ten years.
Depending upon the grant, vesting of stock options may occur up to five years from the date of
grant, with most options vesting on a graded basis over three years (1/3 of the grant vests
after one year, another 1/3 vests after two years and the final 1/3 vests after three years
from the grant date). Nonvested stock units are valued at the market price of the stock at the
date of grant and vest over a three- to five-year period. As of August 31, 2004, SBC was
authorized to issue up to 40 million shares of stock (in addition to shares that may be issued
upon exercise of outstanding options or upon vesting of performance stock units or other
nonvested stock units) to officers, employees and directors pursuant to these various plans.SBC uses an accelerated method of recognizing compensation cost for fixed awards with graded
vesting, which essentially treats the grant as three separate awards, with vesting periods of
12, 24 and 36 months for those that vest over three years. As noted above, a majority of the
options vest over three years and for those we recognize approximately 61% of the associated
compensation expense in the first year, 28% in the second year and the remaining 11% in the
third year. As allowed by FAS 123, compensation cost is accrued as if all options granted
subject only to a service requirement are expected to vest. The effects of actual forfeitures
of unvested options are recognized (as a reversal of expense) as they occur. F-136




---



##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  The compensation cost that has been charged against income for these plans is as follows: Eightmonths ended
    
    
    Year endedAugust 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Stock option expense under FAS 123
    
    $
    17
    
    
    $
    72
    
    
    $
    140
  The estimated fair value of the options granted is amortized to expense over the options
vesting period. As options are exercisable in SBC common stock, separate assumptions are not
developed for subsidiaries of SBC. The fair value for these options was estimated at the date
of grant, using a Black-Scholes option pricing model with the following weighted-average
assumptions: Eightmonths ended
    
    
    Year endedAugust 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Risk-free interest rate
    
    
    4.21
    %
    
    
    3.64
    %
    
    
    4.33
    %Dividend yield
    
    
    5.00
    %
    
    
    4.40
    %
    
    
    3.04
    %Expected volatility factor
    
    
    23.78
    %
    
    
    22.38
    %
    
    
    23.22
    %Expected option life in years
    
    
    7.00
    
    
    
    6.74
    
    
    
    4.36
  FAS 123 and FAS 148 require certain disclosures to be made about the outstanding and
exercisable options, option activity, weighted average exercise price per option and option
exercise price range for each income statement period. Since the stock option activity relates
only to SBCs shareowners equity, this information is not presented for us.6.
    Commitments and ContingenciesIn addition to issues specifically discussed elsewhere, we are party to various lawsuits,
proceedings and other matters arising in the ordinary course of business. In our opinion,
although the outcomes of these proceedings are uncertain, they should not have a material
adverse effect on the Companys financial position, results of operations or cash flows.7.
    Subsequent EventsEffective September 1, 2004, APIL sold its 50% interest in DonTech and 100% interest in the
Partnership to RHD for $1.45 billion in cash. As a result of the sale, APILs Exclusive Sales
Agency Agreement with DonTech, its Revenue Participation Agreement with RHD, and the
Partnerships service agreements with RHD were all terminated effective September 1, 2004.
Additionally, the $29,898 payable to DonTech, upon dissolution of the DonTech partnership, was
settled as a part of the sale of the Company. F-137




---



##### 



Ameritech Publishing of Illinois, Inc. and
Ameritech Publishing of Illinois Partners Partnership
Notes to Combined Financial Statements
August 31, 2004
Dollars in thousands  8.
    Quarterly Information (Unaudited) Total
    
    
    
    
    
    
    NetCalendar
    
    Operating
    
    
    Operating
    
    
    IncomeQuarter
    
    Revenues
    
    
    Income
    
    
    (Loss)2004First
    
    $
    116,728
    
    
    $
    46,158
    
    
    $
    23,649Second
    
    
    117,661
    
    
    
    57,188
    
    
    
    34,946Two months ended August 31
    
    
    80,044
    
    
    
    32,625
    
    
    
    18,057Eight months ended August 31
    
    $
    314,433
    
    
    $
    135,971
    
    
    $
    76,6522003First
    
    $
    120,533
    
    
    $
    45,284
    
    
    $
    (34,241
    )Second
    
    
    120,049
    
    
    
    50,363
    
    
    
    33,149Third
    
    
    120,072
    
    
    
    49,258
    
    
    
    29,889Fourth
    
    
    122,077
    
    
    
    42,703
    
    
    
    25,765Annual
    
    $
    482,731
    
    
    $
    187,608
    
    
    $
    54,562
  The first quarter of 2003 includes a cumulative effect of accounting change of $58,711 (income
before cumulative effect of accounting change was $24,470), related to the change in the method
in which we recognize revenues and expenses related to publishing directories from the issue
basis method to the amortization method (see Note 1). F-138




---



##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURES





|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Evaluation of Disclosure Controls and Procedures. Based
    on their evaluation, as of December 31, 2004, 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, as amended), 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.
|
| |     | Managements Annual Report on Internal Control over
Financial Reporting and the independent registered public
accounting firms attestation of that report required under
Item 308 of Regulation S-K has been included in
Item 8 immediately preceding the Companys
consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



| |     |                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Changes in Internal Controls. 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 has materially affected, or is reasonably
    likely to materially affect, the Companys internal control
    over financial reporting.

ITEM 9B.     OTHER
INFORMATION




PART III




|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT





|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION





|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS



68



---



##### 





|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES



PART IV




|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)(1) and (2)  List of financial statements and
financial statement schedules






| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Report of Independent Registered Public Accounting Firm                                                             
| | Consolidated Balance Sheets at December 31, 2004 and 2003                                                           
| | Consolidated Statements of Operations for the three years ended
    December 31, 2004                               
| | Consolidated Statements of Cash Flows for the three years ended
    December 31, 2004                               
| | Consolidated Statements of Changes in Shareholders Equity
    (Deficit) for the three years ended December 31, 2004
| | Notes to Consolidated Financial Statements                                                                          



| |                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following financial statements of the Companys 100%
    owned subsidiaries are included under Item 8 pursuant to
    Rule 3-16 of Regulation S-X because our Senior Notes
    became secured by the capital stock or equity interest of such
    subsidiaries in connection with the SBC Directory Acquisition:



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | R.H. Donnelley Publishing & Advertising, Inc.                                                
|
| | Report of Independent Registered Public Accounting Firm                                      
| | Balance Sheets at December 31, 2004 and 2003                                                 
| | Statements of Operations for the two years ended
    December 31, 2004                       
| | Statements of Cash Flows for the two years ended
    December 31, 2004                       
| | Statements of Changes in Shareholders Equity for the two
    years ended December 31, 2004  
| | Notes to Financial Statements                                                                
|
| | Report of Independent Auditors                                                               
| | Balance Sheet at December 31, 2002                                                           
| | Statement of Operations for the year ended December 31, 2002                                 
| | Statement of Cash Flows for the year ended December 31, 2002                                 
| | Statement of Changes in Shareholders Equity for the year
    ended December 31, 2002        
| | Notes to Combined Consolidated Financial Statements                                          
|
| | R.H. Donnelley APIL, Inc.                                                                    
|
| | Report of Independent Registered Public Accounting Firm                                      
| | Balance Sheets at December 31, 2004 and 2003                                                 
| | Statements of Operations for the three years ended
    December 31, 2004                     
| | Statements of Cash Flows for the three years ended
    December 31, 2004                     
| | Statements of Changes in Shareholders Equity for the three
    years ended December 31, 2004
| | Notes to Financial Statements                                                                

69



---



##### 





| |                                                         
| | --------------------------------------------------------
| | DonTech II Partnership                                  
|
| | Reports of Independent Registered Public Accounting Firm
| | Balance Sheets at December 31, 2004 and 2003            

| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Statements of Operations for the four months end
    December 31, 2004, eight months ended August 31, 2004
    and the two years ended December 31, 2003                      
| | Statements of Cash Flows for the four months end
    December 31, 2004, eight months ended August 31, 2004
    and the two years ended December 31, 2003                      
| | Statements of Changes in Partners Capital for the four
    months end December 31, 2004, eight months ended
    August 31, 2004 and the two years ended December 31,
    2003

| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Notes to Financial Statements                                                                      
|
| | R.H. Donnelley Publishing & Advertising of Illinois
    Holdings, LLC                              
|
| | Report of Independent Registered Public Accounting Firm                                            
| | Consolidated Balance Sheet at December 31, 2004                                                    
| | Consolidated Statement of Operations for the four months
    ended December 31, 2004               
| | Consolidated Statement of Cash Flows for the four months
    ended December 31, 2004               
| | Consolidated Statement of Changes Partners Capital for the
    four months ended December 31, 2004
| | Notes to Consolidated Financial Statements                                                         
|
| | R.H. Donnelley Publishing & Advertising of Illinois
    Partnership                                
|
| | Report of Independent Auditors                                                                     
| | Statements of Operations for the four months ended
    December 31, 2004                           
| | Balance Sheets at December 31, 2004                                                                
| | Statements of Cash Flows for the four months ended
    December 31, 2004                           
| | Statements of Changes in Partners Capital for the four
    months ended December 31, 2004         
| | Notes to Financial Statements                                                                      
|
| | Report of Independent Registered Public Accounting Firm                                            
| | Balance Sheets at August 31, 2004 and December 31, 2003                                            

| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Statements of Operations for the eight months ended
    August 31, 2004 and the two years ended December 31,
    2003                  
| | Statements of Cash Flows for the eight months ended
    August 31, 2004 and the two years ended December 31,
    2003                  
| | Statements of Changes in Partners Capital for the eight
    months ended August 31, 2004 and the two years ended
    December 31, 2003

| |                                       
| | --------------------------------------
| | Notes to Combined Financial Statements



| |                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial statement schedules for the Company have not been
    prepared because the required information has been included in
    the Companys consolidated financial statements included in
    Item 8 of this Annual Report.

(C)     Exhibits:


|            |   |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- | - | -------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   | Document
|            |   |         
|            | 2 | .1#      |  | Stock Purchase Agreement, dated as of September 21, 2002,
    by and among the Company, Sprint Corporation and Centel
    Directories LLC (incorporated by reference to Exhibit 2.1
    to the Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on October 1, 2002,
    Commission File No. 001-07155)                                                                                                                                               
|            | 2 | .2       |  | Supplemental Agreement to Stock Purchase Agreement, dated as of
    December 31, 2002, by and among the Company, Sprint
    Corporation and Centel Directories LLC (incorporated by
    reference to Exhibit 2.2 to the Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on January 17, 2003, Commission File No. 001-07155).
    The Company agrees to furnish supplementally a copy of any
    omitted schedules to the Commission upon request

70



---



##### 



|            |   |     |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | - | --- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   |     | Document
|            |   |     |         
|            | 2 | .3# |          | Preferred Stock and Warrant Purchase Agreement, dated as of
    September 21, 2002, among R.H. Donnelley Corporation and
    investment partnerships affiliated with The Goldman Sachs Group,
    Inc. (incorporated by reference to Exhibit 2.2 to the
    Current Report on Form 8-K, filed with the Securities and
    Exchange Commission on October 1, 2002, Commission File
    No. 001-07155)                                                                                                                                                                                                                            
|            | 2 | .4# |          | Purchase Agreement dated as of July 28, 2004 by and among
    R.H. Donnelley Corporation, Ameritech Corporation and Ameritech
    Publishing, Inc. (incorporated by reference to Exhibit 2.1
    to the Current Report on Form 8-K filed with the SEC on
    August 2, 2004, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                     
|            | 2 | .5  |          | Amendment No. 1 to the Purchase Agreement, dated as of
    September 1, 2004, by and among R.H. Donnelley Corporation,
    Ameritech Corporation and Ameritech Publishing, Inc.
    (incorporated by reference to Exhibit 2.2 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on September 3, 2004,
    Commission File No. 001-07155)                                                                                                                                                                                                                                   
|            | 3 | .1  |          | Certificate of Incorporation of the Company (incorporated by
    reference to Exhibit 3.1 to the Quarterly Report on
    Form 10-Q for the three months ended March 31, 1999,
    filed with the Securities and Exchange Commission on
    May 14, 1999 Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                          
|            | 3 | .2  |          | By-laws of the Company (incorporated by reference to
    Exhibit 3.2 to the Quarterly Report on Form 10-Q for
    the three months ended March 31, 1999, filed with the
    Securities and Exchange Commission on May 14, 1999
    Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                               
|            | 3 | .3  |          | Certificate of Incorporation of R.H. Donnelley Inc.
    (incorporated by reference to Exhibit 3.3 to Amendment
    No. 1 to the Registration Statement on Form S-4, filed
    with the Securities and Exchange Commission on August 7,
    1998, Registration No. 333-59287)                                                                                                                                                                                                                                                                                                                                                    
|            | 3 | .4  |          | By-laws of R.H. Donnelley Inc. (incorporated by reference to
    Exhibit 3.4 to the Registration Statement on Form S-4,
    filed with the Securities and Exchange Commission on
    July 17, 1998, Registration No. 333-59287)                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 3 | .5  |          | Certificate of Designations of Convertible Cumulative Preferred
    Stock of R.H. Donnelley Corporation (incorporated by reference
    to Exhibit 3.2 to the Current Report on Form 8-K,
    filed with the Securities and Exchange Commission on
    January 17, 2003, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                          
|            | 3 | .6  |          | Certificate of Designations of Series B-1 Convertible
    Cumulative Preferred Stock of R.H. Donnelley Corporation
    (incorporated by reference to Exhibit 3.1 to the Current
    Report Form 8-K, filed with the Securities and Exchange
    Commission on December 3, 2002, Commission File
    No. 001-07155)                                                                                                                                                                                                                                                                                                              
|            | 4 | .1  |          | Indenture, dated as of June 5, 1998, among R.H. Donnelley
    Inc., as Issuer, the Company, as Guarantor, and the Bank of New
    York, as Trustee, with respect to the 9.125% Senior
    Subordinated Notes due 2008 (incorporated by reference to
    Exhibit 4.1 to the Registration Statement on Form S-4,
    filed with the Securities and Exchange Commission on
    July 17, 1998, Registration No. 333-59287)                                                                                                                                                                                                          
|            | 4 | .2  |          | Form of the 9.125% Senior Subordinated Notes due 2008
    (included in Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 4 | .3  |          | Company Guarantee (included in Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 4 | .4  |          | First Supplemental Indenture, dated as of November 25,
    2002, among R.H. Donnelley Inc., as Issuer, and the Company,
    R.H. Donnelley Acquisitions, Inc., R.H. Donnelley APIL, Inc.,
    R.H. Donnelley CD, Inc. and Get Digital Smart.com, Inc., as
    Guarantors, and The Bank of New York, as Trustee, with respect
    to the 9.125% Senior Subordinated Notes due 2008
    (incorporated by reference to Exhibit 4.1 to the Current
    Report on Form 8-K, filed with the Securities and Exchange
    Commission on November 25, 2002, Commission File
    No. 001-07155)                                           
|            | 4 | .5  |          | Second Supplemental Indenture, dated as of December 20,
    2002, among R.H. Donnelley Inc., as Issuer, and the Company,
    R.H. Donnelley Acquisitions, Inc., R.H. Donnelley
    Acquisitions II, Inc., R.H. Donnelley APIL, Inc., R.H.
    Donnelley CD, Inc. and Get Digital Smart.com, Inc., as
    Guarantors, and The Bank of New York, as Trustee, with respect
    to the 9.125% Senior Subordinated Notes due 2008
    (incorporated by reference to Exhibit 4.1 to the Current
    Report on Form 8-K, filed with the Securities and Exchange
    Commission on December 20, 2002, Commission File
    No. 001-07155)

71



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##### 



|            |   |      |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- | - | ---- | -------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   |      | Document
|            |   |      |         
|            | 4 | .6   |          | Third Supplemental Indenture, dated as of December 20, 2002
    (operative as of January 3, 2003), among R.H. Donnelley
    Inc., as Issuer, and the Company, R.H. Donnelley Acquisitions,
    Inc., R.H. Donnelley Acquisitions II, Inc., R.H. Donnelley
    APIL, Inc., R.H. Donnelley CD, Inc. and Get Digital Smart.com,
    Inc., as Guarantors, and The Bank of New York, as Trustee, with
    respect to the 9.125% Senior Subordinated Notes due 2008
    (incorporated by reference to Exhibit 4.1 to the Current
    Report on Form 8-K, filed with the Securities and Exchange
    Commission on January 6, 2003, Commission File
    No. 001-07155)
|            | 4 | .7   |          | Rights Agreement, dated as of October 27, 1998, between
    R.H. Donnelley Corporation and First Chicago Trust Company
    (incorporated by reference to Exhibit 4 to the Registration
    Statement on Form 8-A, filed with the Securities and
    Exchange Commission on November 5, 1998, Commission File
    No. 001-07155)                                                                                                                                                                                                                                                                                                                                
|            | 4 | .8   |          | Amendment No. 1 to Rights Agreement, dated as of
    February 26, 2001, by and among R.H. Donnelley Corporation,
    First Chicago Trust Company of New York (as initial Rights
    Agent) and The Bank of New York (as successor Rights Agent)
    (incorporated by reference to Exhibit 4.5 to the Annual
    Report on Form 10-K for the year ended December 31,
    2000, filed with the Securities and Exchange Commission on
    March 28, 2001, Commission File No. 001-07155)                                                                                                                                                                          
|            | 4 | .9   |          | Amendment No. 2 to Rights Agreement, dated as of
    September 21, 2002, between the Company and The Bank of New
    York, as successor Rights Agent (incorporated by reference to
    Exhibit 4.1 to the Current Report on Form 8-K, filed
    with the Securities and Exchange Commission on October 1,
    2002, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                             
|            | 4 | .10  |          | Form of Warrant Agreement, dated as of November 25, 2002,
    between the Company and investment partnerships affiliated with
    The Goldman Sachs Group, Inc. (incorporated by reference to
    Exhibit 4.1 to the Current Report on Form 8-K, filed
    with the Securities and Exchange Commission on January 17,
    2003, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                 
|            | 4 | .11  |          | Form of Warrant Agreement, dated January 3, 2003, between
    the Company and investment partnerships affiliated with The
    Goldman Sachs Group, Inc. (incorporated by reference to
    Exhibit 4.2 to the Current Report on Form 8-K, filed
    with the Securities and Exchange Commission on January 17,
    2003, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                         
|            | 4 | .12  |          | Registration Rights Agreement, dated as of November 25,
    2002, among the Company and investment partnerships affiliated
    with The Goldman Sachs Group, Inc. (incorporated by reference to
    Exhibit 10.2 to the Current Report on Form 8-K, filed
    with the Securities and Exchange Commission on December 3,
    2002, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                              
|            | 4 | .13# |          | Indenture dated as of December 3, 2002 between R.H.
    Donnelley Inc. (as successor to R.H. Donnelley Finance
    Corporation I), as Issuer, and The Bank of New York, as
    Trustee, with respect to the 8.875% Senior Notes due 2010
    (incorporated by reference to Exhibit 4.13 to the Annual
    Report on Form 10-K filed with the Securities and Exchange
    Commission on March 20, 2003, Commission File
    No. 001-07155)                                                                                                                                                                                                                      
|            | 4 | .14  |          | Supplemental Indenture dated as of January 3, 2003 among
    R.H. Donnelley Inc., as Issuer, the Company and the other
    guarantors signatory thereto, as Guarantors, and The Bank of New
    York, as Trustee, with respect to the 8.875% Senior Notes
    due 2010 (incorporated by reference to Exhibit 4.14 to the
    Annual Report on Form 10-K filed with the Securities and
    Exchange Commission on March  20, 2003, Commission
    File No. 001-07155)                                                                                                                                                                                           
|            | 4 | .15  |          | Form of 8.875% Senior Notes due 2010 (included in
    Exhibit 4.13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 4 | .16  |          | Guarantees relating to the 8.875% Senior Notes due 2010
    (incorporated by reference to Exhibit 4.16 to the Annual
    Report on Form 10-K filed with the Securities and Exchange
    Commission on March 20, 2003, Commission File
    No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                                                       
|            | 4 | .17# |          | Indenture dated as of December 3, 2002 between R.H.
    Donnelley Inc. (as successor to R.H. Donnelley Finance
    Corporation I), as Issuer, and The Bank of New York, as
    Trustee, with respect to the 10.875% Senior Subordinated
    Notes due 2012 (incorporated by reference to Exhibit 4.17
    to the Annual Report on Form 10-K filed with the Securities
    and Exchange Commission on March 20, 2003, Commission File
    No. 001-07155)                                                                                                                                                                                                        

72



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##### 



|            |    |      |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- | -- | ---- | -------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |      | Document
|            |    |      |         
|            | 4  | .18  |          | Supplemental Indenture dated as of January 3, 2003 among
    R.H. Donnelley Inc., as Issuer, the Company and the other
    guarantors signatory thereto, as Guarantors, and The Bank of New
    York, as Trustee, with respect to the 10.875% Senior
    Subordinated Notes due 2012 (incorporated by reference to
    Exhibit 4.18 to the Annual Report on Form 10-K filed
    with the Securities and Exchange Commission on March 20,
    2003, Commission File No. 001-07155)                                                      
|            | 4  | .19  |          | Form of 10.875% Senior Subordinated Notes due 2012
    (included in Exhibit 4.17)                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 4  | .20  |          | Guarantees relating to the 10.875% Senior Subordinated
    Notes due 2012 (incorporated by reference to Exhibit 4.20
    to the Annual Report on Form 10-K filed with the Securities
    and Exchange Commission on March 20, 2003, Commission File
    No. 001-07155)                                                                                                                                                                                                                                                                 
|            | 4  | .21  |          | Second Supplemental Indenture dated as of January 9, 2004
    among R.H. Donnelley Inc., as Issuer, the Company and other
    guarantors signatory thereto, as Guarantors, and The Bank of New
    York, as Trustee, with respect to the 10.875% Senior
    Subordinated Notes due 2012 (incorporated by reference to
    Exhibit 4.21 to the Annual Report on Form 10-K filed
    with the Securities and Exchange Commission on March 12,
    2004, Commission File No. 001-07155)                                                   
|            | 4  | .22  |          | Second Supplemental Indenture, dated as of September 1,
    2004, by and among R.H. Donnelley Inc., the guarantors party
    thereto and The Bank of New York, as Trustee, with respect to
    the 8.875% Senior Notes due 2010 of R.H. Donnelley Inc.
    (incorporated by reference to Exhibit 4.1 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on September 3, 2004,
    Commission File No. 001-07155)                                                                   
|            | 4  | .23  |          | Third Supplemental Indenture, dated as of September 1,
    2004, by and among R.H. Donnelley Inc., the guarantors party
    thereto and The Bank of New York, as Trustee, with respect to
    the 10.875% Senior Subordinated Notes due 2012 of R.H.
    Donnelley Inc. (incorporated by reference to Exhibit 4.2 to
    the Companys Current Report on Form 8-K, filed with
    the Securities and Exchange Commission on September 3,
    2004, Commission File No. 001-07155)                                                      
|            | 4  | .24  |          | Senior Guarantees relating to Second Supplemental Indenture to
    the Indenture governing the 8.875% Senior Notes due 2010
    (incorporated by reference to Exhibit 4.3 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on September 3, 2004,
    Commission File No. 001-07155)                                                                                                                                                                                              
|            | 4  | .25  |          | Senior Subordinated Guarantees relating to the Third
    Supplemental Indenture to the Indenture governing the
    10.875% Notes due 2012 (incorporated by reference to
    Exhibit 4.4 to the Companys Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on September 3, 2004, Commission File No. 001-07155)                                                                                                                                                                                    
|            | 4  | .26# |          | Indenture, dated as of January 14, 2005, among R.H.
    Donnelly Corporation and The Bank of New York, as trustee
    (incorporated by reference to Exhibit 4.1 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on January 19, 2005,
    Commission File No. 001-07155)                                                                                                                                                                                                         
|            | 4  | .27  |          | Form of
    67/8% Senior
    Notes due 2013 (included in Exhibit 4.26)                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 10 | .1#  |          | Form of Distribution Agreement between the Company (f/k/a The
    Dun & Bradstreet Corporation) and The New
    Dun & Bradstreet Corporation (incorporated by reference
    to Exhibit 99.2 to the Current Report on Form 8-K of
    the Company (f/k/a The Dun & Bradstreet Corporation),
    filed with the Securities and Exchange Commission on
    September 30, 1998, Commission File No. 001-07155)                                                                                                                             
|            | 10 | .2#  |          | Form of Tax Allocation Agreement between the Company (f/k/a The
    Dun & Bradstreet Corporation) and The New
    Dun & Bradstreet Corporation (incorporated by reference
    to Exhibit 99.3 to the Current Report on Form 8-K of
    the Company (f/k/a The Dun & Bradstreet Corporation),
    filed with the Securities and Exchange Commission on
    September 30, 1998, Commission File No. 001-07155)                                                                                                                           
|            | 10 | .3#  |          | Amended and Restated Indemnity and Joint Defense Agreement dated
    as of July 30, 2004, by and among VNU, N.V., VNU, Inc.,
    ACNielson Corporation, AC Nielson (US), Inc., Nielson Media
    Research, Inc., R.H. Donnelley Corporation, the Dun &
    Bradstreet Corporation, Moodys Corporation, and IMS Health
    Incorporated (incorporated by reference to Exhibit 10.3 to
    the Quarterly Report on Form 10-Q filed with the Securities
    and Exchange Commission on August 9, 2004, Commission File
    No. 001-07155)

73



---



##### 



|            |    |      |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | -- | ---- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |      | Document
|            |    |      |         
|            | 10 | .4#  |          | DonTech II Partnership Agreement, effective August 19,
    1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H.
    Donnelley Corporation) and Ameritech Publishing of Illinois,
    Inc. (incorporated by reference to Exhibit 10.10 to
    Amendment No. 1 to the Registration Statement on
    Form S-4, filed with the Securities and Exchange Commission
    on August 7, 1998, Registration No. 333-59287)                                                                                                                                                                                                                         
|            | 10 | .5   |          | Amendment No. 1 to DonTech II Partnership Agreement
    dated as of January 28, 2000 between R.H. Donnelley Inc.
    and Ameritech Publishing of Illinois, Inc. (incorporated by
    reference to Exhibit 10.4 to the Annual Report on
    Form 10-K filed with the Securities and Exchange Commission
    on March 12, 2004, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                      
|            | 10 | .6#  |          | Revenue Participation Agreement, dated as of August 19,
    1997, by and between APIL Partners Partnership and R.H.
    Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation)
    (incorporated by reference to Exhibit 10.11 to Amendment
    No. 1 to the Registration Statement on Form S-4, filed
    with the Securities and Exchange Commission on August 7,
    1998, Registration No. 333-59287)                                                                                                                                                                                                                                     
|            | 10 | .7#  |          | Master Agreement, executed August 19, 1997, by and among
    R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation),
    the Company (f/k/a The Dun & Bradstreet Corporation),
    The Am-Don Partnership a/k/a DonTech, DonTech II, Ameritech
    Publishing, Inc., Ameritech Publishing of Illinois, Inc.,
    Ameritech Corporation, DonTech I Publishing Company LLC and the
    APIL Partners Partnership (incorporated by reference to
    Exhibit 10.12 to Amendment No. 1 to the Registration
    Statement on Form S-4, filed with the Securities and
    Exchange Commission on August 7, 1998, Registration
    No. 333-59287)
|            | 10 | .8#  |          | Exclusive Sales Agency Agreement, effective August 19,
    1997, between APIL Partners Partnership and DonTech II
    (incorporated by reference to Exhibit 10.13 to Amendment
    No. 1 to the Registration Statement on Form S-4, filed
    with the Securities and Exchange Commission on August 7,
    1998, Registration No. 333-59287)                                                                                                                                                                                                                                                                                                      
|            | 10 | .9   |          | Agreement for Publishing Services, dated as of January 1,
    2002 between Ameritech Publishing Inc. and R.H. Donnelley Inc.
    (certain portions of this exhibit have been omitted and filed
    separately with the Securities and Exchange Commission pursuant
    to an Application for an Order Granting Confidential Treatment)
    (incorporated by reference to Exhibit 10.13 to the
    Companys Quarterly Report on Form 10-Q for the three
    months ended March 31, 2002, filed with the Securities and
    Exchange Commission on May 10, 2002, Commission File
    No. 001-07155)                                                
|            | 10 | .10^ |          | Key Employees Performance Unit Plan, as amended and
    restated (incorporated by reference to Exhibit 10.15 to
    Amendment No. 3 to the Registration Statement on
    Form S-4, filed with the Securities and Exchange Commission
    on September 28, 1998, Registration No. 333-59287)                                                                                                                                                                                                                                                                                                                                                      
|            | 10 | .11^ |          | 1991 Key Employees Stock Option Plan, as amended and
    restated through April  25, 2000 (incorporated by
    reference to Exhibit 10.17 to the Companys Quarterly
    Report on Form 10-Q for the three months ended
    September 30, 2000, filed with the Securities and Exchange
    Commission on November 13, 2000, Commission File
    No. 001-07155)                                                                                                                                                                                                                                                                                   
|            | 10 | .12^ |          | Amended and Restated 1998 Directors Stock Plan
    (incorporated by reference to Exhibit 10.18 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 1999, filed with the Securities and
    Exchange Commission on March  27, 2000, Commission
    File No. 001-07155)                                                                                                                                                                                                                                                                                                                                            
|            | 10 | .13^ |          | Pension Benefit Equalization Plan (incorporated by reference to
    Exhibit 10.16 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2001, filed
    with the Securities and Exchange Commission on March 27,
    2002, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                               
|            | 10 | .14^ |          | 2001 Stock Award and Incentive Plan (incorporated by reference
    to Exhibit 10.17 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2001, filed
    with the Securities and Exchange Commission on March 27,
    2002, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                             
|            | 10 | .15^ |          | Form of Non-Qualified Stock Option Agreement (incorporated by
    reference to Exhibit 99.02 to Registration Statement on
    Form S-8, filed with the Securities and Exchange Commission
    on July 25, 2001, Registration No. 333-65822)                                                                                                                                                                                                                                                                                                                                                                                                       
|            | 10 | .16^ |          | Form of Annual Incentive Program Award (incorporated by
    reference to Exhibit 99.03 to the Registration Statement on
    Form S-8, filed with the Securities and Exchange Commission
    on July 25, 2001, Registration No. 333-65822)                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 10 | .17^ |          | Form of Performance Unit Program Award (incorporated by
    reference to Exhibit 99.04 to the Registration Statement on
    Form S-8, filed with the Securities and Exchange Commission
    on July 25, 2001, Registration No. 333-65822)                                                                                                                                                                                                                                                                                                                                                                                                         

74



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##### 



|            |    |      |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | -- | ---- | -------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |      | Document
|            |    |      |         
|            | 10 | .18^ |          | Form of Stock Appreciation Rights Agreement (incorporated by
    reference to Exhibit 10.21 to the Companys Quarterly
    Report on Form 10-Q for the three month period ended
    September 30, 2004, filed with the Securities and Exchange
    Commission on November 9, 2004, Commission File
    No. 001- 07155)                                                                                                                                                                                                                                                                             
|            | 10 | .19^ |          | Deferred Compensation Plan (incorporated by reference to
    Exhibit 4.01 to the Companys Registration Statement
    on Form S-8, filed with the Securities and Exchange
    Commission on November 24, 1999, Registration
    No. 333-91613)                                                                                                                                                                                                                                                                                                                                                     
|            | 10 | .20^ |          | Employment Agreement effective as of May 1, 2002 between
    the Company and David C. Swanson (incorporated by reference to
    Exhibit 10.29 to the Companys Quarterly Report on
    Form 10-Q for the three months ended September 30,
    2002, filed with the Securities and Exchange Commission on
    August 14, 2002, Commission File No. 001-07155)                                                                                                                                                                                                                                       
|            | 10 | .21^ |          | Employment Agreement effective September 21, 2002 between
    the Company and Peter J. McDonald (incorporated by reference to
    Exhibit 10.30 to the Quarterly Report on Form 10-Q for
    the nine months ended September 30, 2002, filed with the
    Securities and Exchange Commission on November 12, 2002,
    Commission File No. 001-07155)                                                                                                                                                                                                                                              
|            | 10 | .22^ |          | Employment Agreement effective March 1, 2002 between the
    Company and Steven M. Blondy (incorporated by reference to
    Exhibit 10.30 to the Companys Quarterly Report on
    Form 10-Q for the three months ended June 30, 2002,
    filed with the Securities and Exchange Commission on
    August 14, 2002, Commission File No. 001-07155)                                                                                                                                                                                                                                                
|            | 10 | .23^ |          | Employment Agreement dated as of January 1, 2001 between
    the Company and Robert J. Bush (incorporated by reference to
    Exhibit 10.37 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2000, filed
    with the Securities and Exchange Commission on March 28,
    2001, Commission File No. 001-07155)                                                                                                                                                                                                                                                      
|            | 10 | .24^ |          | Amendment No. 1 to Employment Agreement dated as of
    February 27, 2001 between the Company and Robert J. Bush
    (incorporated by reference to Exhibit 10.38 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2000, filed with the Securities and
    Exchange Commission on March 28, 2001, Commission File
    No. 001-07155)                                                                                                                                                                                                                             
|            | 10 | .25  |          | Letter Agreement, dated as of November 25, 2002, among the
    Company, R.H. Donnelley Inc. and investment partnerships
    affiliated with The Goldman Sachs Group, Inc (incorporated by
    reference to Exhibit 10.1 to the Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on December 3, 2002, Commission File No. 001-07155)                                                                                                                                                                                                                           
|            | 10 | .26  |          | Letter Agreement dated as of January 3, 2003 among the
    Company, R.H. Donnelley Inc. and investment partnerships
    affiliated with The Goldman Sachs Group, Inc (incorporated by
    reference to Exhibit 10.8 to the Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on January 17, 2003, Commission File No. 001-07155)                                                                                                                                                                                                                               
|            | 10 | .27  |          | Letter Agreement, dated as of July 22, 2003 among the
    Company and investment partnerships affiliated with The Goldman
    Sachs Group, Inc. (incorporated by reference to
    Exhibit 10.45 to the Companys Quarterly Report on
    Form 10-Q for the three months ended September 30,
    2003, filed with the Securities and Exchange Commission on
    August 13, 2003, Commission File No. 001-07155)                                                                                                                                                                                     
|            | 10 | .28# |          | Directory Services License Agreement, dated as of
    January 3, 2003, by and among R.H. Donnelley
    Publishing & Advertising, Inc. (f/k/a Sprint
    Publishing & Advertising, Inc.), CenDon L.L.C., R.H.
    Donnelley Directory Company (f/k/a Centel Directory Company),
    Sprint Corporation, Sprint Directory Trademark Company, LLC and
    the Sprint Local Telecommunications Division (incorporated by
    reference to Exhibit 10.1 to the Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on January 17, 2003, Commission File No. 001-07155)
|            | 10 | .29# |          | Trademark License Agreement, dated as of January 3, 2003,
    by and among Sprint Directory Trademark Company, LLC, R.H.
    Donnelley Publishing & Advertising, Inc. (f/k/a Sprint
    Publishing & Advertising, Inc.), CenDon L.L.C. and R.H.
    Donnelley Directory Company (f/k/a Centel Directory Company)
    (incorporated by reference to Exhibit 10.2 to the Current
    Report on Form 8-K, filed with the Securities and Exchange
    Commission on January 17, 2003, Commission File
    No. 001-07155)                                                                               

75



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##### 



|            |    |      |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- | -- | ---- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |      | Document
|            |    |      |         
|            | 10 | .30# |          | Publisher Trademark License Agreement, dated as of
    January 3, 2003, by and among R.H. Donnelley
    Publishing & Advertising, Inc. (f/k/a Sprint
    Publishing & Advertising, Inc.), R.H. Donnelley
    Directory Company (f/k/a Centel Directory Company) and Sprint
    Corporation (incorporated by reference to Exhibit 10.3 to
    the Current Report on Form 8-K, filed with the Securities
    and Exchange Commission on January 17, 2003, Commission
    File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                          
|            | 10 | .31  |          | Non-Competition Agreement, dated as of January 3, 2003, by
    and among the Company, R.H. Donnelley Publishing &
    Advertising, Inc. (f/k/a Sprint Publishing &
    Advertising, Inc.), CenDon L.L.C., R.H. Donnelley Directory
    Company (f/k/a Centel Directory Company), Sprint Corporation and
    the Sprint Local Telecommunications Division (incorporated by
    reference to Exhibit 10.4 to the Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on January 17, 2003, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                            
|            | 10 | .32  |          | Subscriber Listings Agreement, dated as of January 3, 2003,
    by and among R.H. Donnelley Publishing & Advertising,
    Inc. (f/k/a Sprint Publishing & Advertising, Inc.),
    CenDon L.L.C., R.H. Donnelley Directory Company (f/k/a Centel
    Directory Company), Sprint Corporation and the Sprint Local
    Telecommunications Division (incorporated by reference to
    Exhibit 10.5 to the Current Report on Form 8-K, filed
    with the Securities and Exchange Commission on January 17,
    2003, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                     
|            | 10 | .33# |          | Directory Services License Agreement, dated as of
    September 1, 2004, among R.H. Donnelley Corporation, R.H.
    Donnelley Publishing & Advertising of Illinois
    Partnership (formerly known as The APIL Partners Partnership),
    DonTech II Partnership, Ameritech Corporation, SBC
    Directory Operations, Inc. and SBC Knowledge Ventures, L.P.
    (incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on September 3, 2004,
    Commission File No. 001-07155)                                                                                                                                                                                                                                                                                         
|            | 10 | .34  |          | Non-Competition Agreement, dated as of September 1, 2004,
    between R.H. Donnelley Corporation and SBC Communications, Inc.
    (incorporated by reference to Exhibit 10.2 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on September 3, 2004,
    Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 10 | .35  |          | SMARTpages Reseller Agreement, dated as of September 1,
    2004, among SBC Communications, Inc., Southwestern Bell Yellow
    Pages, Inc., SBC Knowledge Ventures, L.P., R.H. Donnelley
    Corporation, R.H. Donnelley Publishing & Advertising of
    Illinois Partnership (formerly known as The APIL Partners
    Partnership) and DonTech II Partnership (incorporated by
    reference to Exhibit 10.3 to the Companys Current
    Report on Form 8-K, filed with the Securities and Exchange
    Commission on September 3, 2004, Commission File
    No. 001-07155)                                                                                                                                                                                                                                                                                       
|            | 10 | .36  |          | Ameritech Directory Publishing Listing License Agreement, dated
    as of September 1, 2004, among R.H. Donnelley
    Publishing & Advertising of Illinois Partnership
    (formerly known as The APIL Partners Partnership),
    DonTech II Partnership and Ameritech Services Inc.
    (incorporated by reference to Exhibit 10.4 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on September 3, 2004,
    Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                 
|            | 10 | .37# |          | Credit Agreement, dated as of December 6, 2002, among the
    Company, R.H. Donnelley Inc., R.H. Donnelley Finance
    Corporation II (subsequently merged with and into R.H.
    Donnelley Inc.), the several lenders from time to time party
    thereto, Bear Stearns Corporate Lending Inc. and Citicorp North
    America, Inc., as joint syndication agents, BNP Paribas and
    Fleet National Bank, as joint documentation agents, Deutsche
    Bank Trust Company Americas, as administrative agent, and
    Deutsche Bank Securities Inc., Salomon Smith Barney Inc. and
    Bear, Stearns & Co. Inc., as joint lead arrangers and
    joint book runners (incorporated by reference to
    Exhibit 10.10 to the Current Report on Form 8-K, filed
    with the Securities and Exchange Commission on January 17,
    2003, Commission File No. 001-07155)
|            | 10 | .38  |          | First Amendment, dated as of December 5, 2003, among the
    Company, R.H. Donnelley Inc., the financial institutions parties
    thereto, Deutsche Bank Securities Inc., CitiGroup Global Markets
    Inc. and Bear, Stearns & Co. Inc., as joint lead
    arrangers and joint book runners, Bear Stearns Corporate Lending
    Inc. and Citicorp North America, Inc., as joint syndication
    agents, BNP Paribas and Fleet National Bank, as documentation
    agents, and Deutsche Bank Trust Company Americas, as
    administrative agent, to the Credit Agreement, dated as of
    December 6, 2002 (incorporated by reference to
    Exhibit 99.1 to the Current Report on Form 8-K, filed
    with the Securities and Exchange Commission on February 26,
    2004, Commission File No. 001-07155)                                                        

76



---



##### 



|            |    |      |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | -- | ---- | -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |      | Document
|            |    |      |         
|            | 10 | .39# |          | Amended and Restated Credit Agreement, dated as of
    September 1, 2004, by and among, R.H. Donnelley Inc., as
    borrower, R.H. Donnelley Corporation, the lenders from time to
    time parties thereto, J.P. Morgan Securities Inc. and Bear,
    Stearns & Co. Inc., as joint lead arrangers and joint
    bookrunners, JPMorgan Chase Bank and Bear Stearns Corporate
    Lending Inc., as co-syndication agents, Citicorp North America,
    Inc. and Goldman Sachs Credit Partners L.P., as co-documentation
    agents, and Deutsche Bank Trust Company Americas, as
    administrative agent (incorporated by reference to
    Exhibit 10.5 to the Companys Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on September 3, 2004, Commission File No. 001-07155)
|            | 10 | .40  |          | First Amendment, dated as of December 6, 2004, to the
    Amended and Restated Credit Agreement, dated as of
    September 1, 2004, by and among R.H. Donnelley Corporation,
    R.H. Donnelley Inc., the lenders from time to time parties
    thereto, Deutsche Bank Trust Company Americas, as
    administrative agent and J.P. Morgan Securities Inc. as
    sole bookrunner and sole lead arranger and the other agents
    party thereto (incorporated by reference to Exhibit 10.1 to
    the Companys Current Report on Form 8-K, filed with
    the Securities and Exchange Commission on December 8, 2004,
    Commission File No. 001-07155)                                                                                                                                                         
|            | 10 | .41  |          | Second Amendment, dated as of January 7, 2005, to the
    Amended and Restated Credit Agreement, dated as of
    September 1, 2004, by and among R.H. Donnelley Corporation,
    R.H. Donnelley Inc., the lenders from time to time parties
    thereto, Deutsche Bank Trust Company Americas, as
    administrative agent and the other agents party thereto
    (incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on January 11, 2005,
    Commission File No. 001-07155)                                                                                                                                                                                                                                       
|            | 10 | .42  |          | Amended and Restated Guaranty and Collateral Agreement, dated as
    of September 1, 2004, by and among R.H. Donnelley
    Corporation, R.H. Donnelley Inc., R.H. Donnelley APIL, Inc.,
    R.H. Donnelley Publishing & Advertising, Inc., Get
    Digital Smart.com Inc., R.H. Donnelley Publishing &
    Advertising of Illinois Partnership, DonTech II
    Partnership, DonTech Holdings, LLC, and R.H. Donnelley
    Publishing & Advertising of Illinois Holdings, LLC
    (incorporated by reference to Exhibit 10.6 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on September 3, 2004,
    Commission File No. 001-07155)                                                                                                                       
|            | 10 | .43  |          | Reaffirmation, dated as of December 6, 2004, by R.H.
    Donnelley Corporation, R.H. Donnelley Inc. and its subsidiaries
    in favor of Deutsche Bank Trust Company Americas, as
    administrative agent (incorporated by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on December 8, 2004, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                                              
|            | 10 | .44# |          | Closing Agreement dated as of December 13, 2004 by and
    between the Company and the Commissioner of the Internal Revenue
    Service (incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on December 16, 2004,
    Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 10 | .45# |          | Stock Purchase Agreement dated as of January 10, 2005, by
    and among R.H. Donnelley Corporation and certain investment
    partnerships affiliated with The Goldman Sachs Group, Inc.
    (incorporated by reference to Exhibit 10.2 to the
    Companys Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on January 11, 2005,
    Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 10 | .46  |          | Registration Rights Agreement, dated as of January 14,
    2005, among R.H. Donnelley Corporation and the initial
    purchasers that are party thereto (incorporated by reference to
    Exhibit 4.1 to the Companys Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on January 19, 2005, Commission File No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | 21 |      |          | Subsidiaries of the Company (incorporated by reference to
    Exhibit 21 to the Companys Quarterly Report on
    Form 10-Q for the three month period ended
    September 30, 2004, filed with the Securities and Exchange
    Commission on November 9, 2004, Commission File
    No. 001-07155)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 23 | .1*  |          | Consent of Pricewaterhouse Coopers LLP, Independent Registered
    Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 23 | .2*  |          | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 23 | .3*  |          | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 31 | .1*  |          | Certification of Annual Report on Form 10-K for the year
    ended December 31, 2004 by David C. Swanson, Chief
    Executive Officer of R.H. Donnelley Corporation under
    Section 302 of the Sarbanes-Oxley Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

77



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##### 



|            |    |     |          |                                                                                                                                                                                                                                                                                                   
|----------- | -- | --- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |     | Document
|            |    |     |         
|            | 31 | .2* |          | Certification of Annual Report on Form 10-K for the year
    ended December 31, 2004 by Steven M. Blondy, Senior Vice
    President and Chief Financial Officer of R.H. Donnelley
    Corporation under Section 302 of the Sarbanes-Oxley Act                                                     
|            | 31 | .3* |          | Certification of Annual Report on Form 10-K for the year
    ended December 31, 2004 by David C. Swanson, Chief
    Executive Officer for R.H. Donnelley Inc. under Section 302
    of the Sarbanes-Oxley Act                                                                                     
|            | 31 | .4* |          | Certification of Annual Report on Form 10-K for the year
    ended December 31, 2004 by Steven M. Blondy, Senior Vice
    President and Chief Financial Officer for R.H. Donnelley Inc.
    under Section 302 of the Sarbanes-Oxley Act                                                           
|            | 32 | .1* |          | Certification of Annual Report on Form 10-K for the year
    ended December 31, 2004 under Section 906 of the
    Sarbanes-Oxley Act by David C. Swanson, Chief Executive Officer,
    and Steven M. Blondy, Senior Vice President and Chief Financial
    Officer, for R.H. Donnelley Corporation
|            | 32 | .2* |          | Certification of Annual Report on Form 10-K for the year
    ended December 31, 2004 under Section 906 of the
    Sarbanes-Oxley Act by David C. Swanson, Chief Executive Officer,
    and Steven M. Blondy, Senior Vice President and Chief Financial
    Officer, for R.H. Donnelley Inc.       






|  |                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Filed herewith                                                                                                                                          
| 
|^ | Management contract or compensatory plan                                                                                                                
| 
|# | The Company agrees to furnish supplementally a copy of any
    omitted exhibits or schedules to the Securities and Exchange
    Commission upon request.

78



---



##### 



SIGNATURES






| |                           
| | --------------------------
| | R.H. Donnelley Corporation



| |     |                     
| | --- | --------------------
| | By: | /s/ David C. Swanson

| |                                     
| | ------------------------------------
| |                                     
| | David C. Swanson,                   
| | Chairman and Chief Executive Officer



|                                                     |  |                                                                                     |  |                |  | 
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | -------------- |  | 
|                                                    
|/s/ David C. Swanson(David
    C. Swanson)           |  | Chairman and Chief Executive Officer and Director (Principal
    Executive Officer) |  | March 16, 2005
|                                                    
|/s/ Steven M. Blondy(Steven
    M. Blondy)           |  | Senior Vice President and Chief Financial Officer (Principal
    Financial Officer) |  | March 16, 2005
|                                                    
|/s/ Robert A. Gross(Robert
    A. Gross)             |  | Vice President and Controller (Principal Accounting Officer)                        |  | March 16, 2005
|                                                    
|/s/ Kenneth G. Campbell(Kenneth
    G. Campbell)     |  | Director                                                                            |  | March 16, 2005
|                                                    
|/s/ Nancy E. Cooper(Nancy
    E. Cooper)             |  | Director                                                                            |  | March 16, 2005
|                                                    
|/s/ Robert R. Gheewalla(Robert
    R. Gheewalla)     |  | Director                                                                            |  | March 16, 2005
|                                                    
|/s/ Robert Kamerschen(Robert
    Kamerschen)         |  | Director                                                                            |  | March 16, 2005
|                                                    
|/s/ Terence M. OToole(Terence
    M. OToole)       |  | Director                                                                            |  | March 16, 2005
|                                                    
|/s/ David M. Veit(David
    M. Veit)                 |  | Director                                                                            |  | March 16, 2005
|                                                    
|/s/ Barry Lawson Williams(Barry
    Lawson Williams) |  | Director                                                                            |  | March 16, 2005
|                                                    
|/s/ Edwina Woodbury(Edwina
    Woodbury)             |  | Director                                                                            |  | March 16, 2005

79



---



##### 



SIGNATURES






| |                    
| | -------------------
| | R.H. Donnelley Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ David C. Swanson

| |                        
| | -----------------------
| |                        
| | David C. Swanson,      
| | Chief Executive Officer



|                                           |  |                                                                                                   |  |                |  | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                          
|/s/ David C. Swanson(David
    C. Swanson) |  | Director and Chief Executive Officer
    (Principal Executive Officer)                            |  | March 16, 2005
|                                          
|/s/ Steven M. Blondy(Steven
    M. Blondy) |  | Director, Senior Vice President
    and Chief Financial Officer
    (Principal Financial Officer) |  | March 16, 2005
|                                          
|/s/ Robert A. Gross(Robert
    A. Gross)   |  | Vice President and Controller
    (Principal Accounting Officer)                                  |  | March 16, 2005
|                                          
|/s/ Robert J. Bush(Robert
    J. Bush)     |  | Director                                                                                          |  | March 16, 2005

80