##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
  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 333-59287
 R.H. DONNELLEY INC.
 
 Delaware
    
    36-2467635(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 1001 Winstead Drive, Cary, N.C.
    
    27513(Address of principal executive offices)
    
    (Zip Code)
 (919) 297-1600
 
  
 þ o
  o o þ
 o þ
  Title of Class
    
    Shares Outstanding at August 1, 2007Common Stock, no par value
    
    100
 THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF R.H. DONNELLEY CORPORATION. THE REGISTRANT MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING
THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.




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##### Table of Contents



R.H. DONNELLEY INC.
 INDEX TO FORM 10-Q
  PAGEPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2007 and December 31, 2006
    
    
    4Condensed Consolidated Statements of Income and Comprehensive Income for the
three and six months ended June 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Narrative Analysis of Results of Operations *
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk **
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    18Item 1A.
    
    Risk Factors
    
    
    18Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds ***
    
    
    18Item 3.
    
    Defaults Upon Senior Securities ***
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders ***
    
    
    18Item 5.
    
    Other Information
    
    
    18Item 6.
    
    Exhibits
    
    
    19SIGNATURES
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1
 2




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##### Table of Contents



*
    
    Pursuant to General Instruction H(2)(a) of Form 10-Q: (i) the information
called for by Item 2 of Part I, Managements Discussion and Analysis of
Financial Condition and Results of Operations has been omitted and (ii) the
registrant is providing a Managements Narrative Analysis of Results of
Operations.**
    
    Omitted pursuant to General Instruction H(2)(c) of Form 10-Q.***
    
    Omitted pursuant to General Instruction H(2)(b) of Form 10-Q. 3




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
  R.H. Donnelley Inc. and Subsidiaries
 
 Condensed Consolidated Balance Sheets (Unaudited)
 June 30,
    
    December 31,(in thousands, except share data)
    
    2007
    
    2006AssetsCurrent AssetsCash and cash equivalents
    
    $
    2,968
    
    
    $
    4,905Accounts receivableBilled
    
    
    117,592
    
    
    
    120,387Unbilled
    
    
    372,895
    
    
    
    347,051Allowance for doubtful accounts and sales claims
    
    
    (21,551
    )
    
    
    (25,476
    )Net accounts receivable
    
    
    468,936
    
    
    
    441,962Deferred directory costs
    
    
    82,721
    
    
    
    67,204Prepaid expenses and other current assets
    
    
    41,482
    
    
    
    50,017Total current assets
    
    
    596,107
    
    
    
    564,088Fixed assets and computer software, net
    
    
    100,763
    
    
    
    88,076Amount due from Parent, net
    
    
    410,569
    
    
    
    426,192Other non-current assets
    
    
    45,245
    
    
    
    52,147Intangible assets, net
    
    
    2,715,754
    
    
    
    2,755,624Goodwill
    
    
    315,560
    
    
    
    315,560Total Assets
    
    $
    4,183,998
    
    
    $
    4,201,687Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    180,456
    
    
    $
    74,764Accrued interest
    
    
    11,083
    
    
    
    11,950Deferred directory revenue
    
    
    469,182
    
    
    
    439,100Short-term deferred income taxes, net
    
    
    18,356
    
    
    
    100,943Current portion of long-term debt
    
    
    61,959
    
    
    
    112,200Total current liabilities
    
    
    741,036
    
    
    
    738,957Long-term debt
    
    
    2,403,671
    
    
    
    2,442,269Deferred income taxes, net
    
    
    176,144
    
    
    
    181,417Other non-current liabilities
    
    
    51,775
    
    
    
    63,790Total liabilities
    
    
    3,372,626
    
    
    
    3,426,433Commitments and contingenciesShareholders EquityCommon stock, no par value, authorized, issued and outstanding  100 shares
    
    
    12,002
    
    
    
    12,002Additional paid-in capital
    
    
    300,048
    
    
    
    296,940Retained earnings
    
    
    511,133
    
    
    
    476,488Accumulated other comprehensive loss
    
    
    (11,811
    )
    
    
    (10,176
    )Total shareholders equity
    
    
    811,372
    
    
    
    775,254Total Liabilities and Shareholders Equity
    
    $
    4,183,998
    
    
    $
    4,201,687
  4




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R.H. Donnelley Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
 Three months ended
    
    Six months endedJune 30,
    
    June 30,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Net revenue
    
    $
    258,041
    
    
    $
    258,471
    
    
    $
    515,976
    
    
    $
    519,840ExpensesCost of revenue (exclusive of depreciation and
amortization shown separately below)
    
    
    113,902
    
    
    
    99,461
    
    
    
    224,302
    
    
    
    207,098General and administrative expenses
    
    
    16,456
    
    
    
    15,486
    
    
    
    35,695
    
    
    
    37,784Depreciation and amortization
    
    
    24,110
    
    
    
    21,172
    
    
    
    49,043
    
    
    
    42,554Total expenses
    
    
    154,468
    
    
    
    136,119
    
    
    
    309,040
    
    
    
    287,436Operating income
    
    
    103,573
    
    
    
    122,352
    
    
    
    206,936
    
    
    
    232,404Interest expense, net
    
    
    (48,025
    )
    
    
    (47,430
    )
    
    
    (96,217
    )
    
    
    (97,363
    )Income before income taxes
    
    
    55,548
    
    
    
    74,922
    
    
    
    110,719
    
    
    
    135,041Provision for income taxes
    
    
    20,991
    
    
    
    28,441
    
    
    
    41,690
    
    
    
    51,248Net income
    
    $
    34,557
    
    
    $
    46,481
    
    
    $
    69,029
    
    
    $
    83,793Comprehensive IncomeNet income
    
    $
    34,557
    
    
    $
    46,481
    
    
    $
    69,029
    
    
    $
    83,793Unrealized gain (loss) on interest rate swaps, net of tax
    
    
    1,893
    
    
    
    2,201
    
    
    
    (2,378
    )
    
    
    6,876Benefit plans adjustment, net of tax
    
    
    429
    
    
    
    
    
    
    
    743
    
    
    
    Comprehensive income
    
    $
    36,879
    
    
    $
    48,682
    
    
    $
    67,394
    
    
    $
    90,669
  5




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R.H. Donnelley Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 Six months endedJune 30,( in thousands)
    
    2007
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    69,029
    
    
    $
    83,793Reconciliation of net income to net cash provided by operating activities:Depreciation and amortization
    
    
    49,043
    
    
    
    42,554Deferred income tax provision
    
    
    16,542
    
    
    
    51,248Provision for bad debts
    
    
    21,583
    
    
    
    19,165Stock-based compensation expense
    
    
    8,585
    
    
    
    18,510Other non-cash charges
    
    
    5,674
    
    
    
    13,285Changes in assets and liabilities:(Increase) in accounts receivable
    
    
    (48,558
    )
    
    
    (12,814
    )(Increase) in other assets
    
    
    (4,781
    )
    
    
    (2,834
    )(Decrease) in accounts payable and accrued liabilities
    
    
    (5,833
    )
    
    
    (12,656
    )Increase in deferred directory revenue
    
    
    30,082
    
    
    
    1,240(Decrease) in other non-current liabilities
    
    
    (293
    )
    
    
    (8,386
    )Decrease (increase) in amount due from Parent, net
    
    
    7,274
    
    
    
    (25,942
    )Net cash provided by operating activities
    
    
    148,347
    
    
    
    167,163Cash Flows from Investing ActivitiesAdditions to fixed assets and computer software
    
    
    (24,698
    )
    
    
    (14,494
    )Net cash used in investing activities
    
    
    (24,698
    )
    
    
    (14,494
    )Cash Flows from Financing ActivitiesProceeds from the issuance of debt, net of costs
    
    
    
    
    
    
    (1,397
    )Revolver borrowings
    
    
    171,850
    
    
    
    98,200Revolver repayments
    
    
    (218,250
    )
    
    
    (77,400
    )Credit facility repayments
    
    
    (42,440
    )
    
    
    (173,459
    )Decrease in checks not yet presented for payment
    
    
    (158
    )
    
    
    (909
    )Dividend to Parent
    
    
    (39,696
    )
    
    
    Excess tax benefits from exercise of stock options
    
    
    3,108
    
    
    
    Net cash used in financing activities
    
    
    (125,586
    )
    
    
    (154,965
    )Decrease in cash and cash equivalents
    
    
    (1,937
    )
    
    
    (2,296
    )Cash and cash equivalents, beginning of year
    
    
    4,905
    
    
    
    6,963Cash and cash equivalents, end of period
    
    $
    2,968
    
    
    $
    4,667Supplemental Information:Cash paid:Interest
    
    $
    89,857
    
    
    $
    92,441Income taxes, net
    
    $
    419
    
    
    $
    231
  6




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R.H. Donnelley Inc. and Subsidiaries  Notes to Condensed Consolidated Financial Statements (Unaudited)  (tabular amounts in thousands)
 1. Business and Basis of Presentation
    2. Summary of Significant Accounting Policies
 Intangible Assets and Goodwill
 Business
Combinations Goodwill and Other Intangible Assets
 Interest Expense and Deferred Financing Costs
  7




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Advertising Expense
  Concentration of Credit Risk
   Stock-Based Awards
 Share-Based
Payment
  Estimates
  8




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New Accounting Pronouncements
  3. Restructuring Charges
  2003
    
    2005Restructuring
    
    RestructuringThree months ended June 30, 2007
    
    Actions
    
    Actions
    
    TotalBalance at March 31, 2007
    
    $
    960
    
    
    $
    1,891
    
    
    $
    2,851Payments
    
    
    (83
    )
    
    
    (54
    )
    
    
    (137
    )Balance at June 30, 2007
    
    $
    877
    
    
    $
    1,837
    
    
    $
    2,714
 2003
    
    2005Restructuring
    
    RestructuringSix months ended June 30, 2007
    
    Actions
    
    Actions
    
    TotalBalance at December 31, 2006
    
    $
    971
    
    
    $
    1,943
    
    
    $
    2,914Payments
    
    
    (94
    )
    
    
    (106
    )
    
    
    (200
    )Balance at June 30, 2007
    
    $
    877
    
    
    $
    1,837
    
    
    $
    2,714
  4. Income Taxes
 Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109
   9




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5. Benefit Plans
 Employers Disclosures About Pensions and Other Postretirement
Benefits (Revised 2003),
 Pension BenefitsThree Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    1,944
    
    
    $
    1,352
    
    
    $
    3,178
    
    
    $
    2,704Interest cost
    
    
    1,884
    
    
    
    1,691
    
    
    
    3,705
    
    
    
    3,382Expected return on plan assets
    
    
    (2,185
    )
    
    
    (2,063
    )
    
    
    (4,270
    )
    
    
    (4,126
    )Amortization of prior service cost
    
    
    49
    
    
    
    33
    
    
    
    82
    
    
    
    66Amortization of net loss
    
    
    433
    
    
    
    468
    
    
    
    705
    
    
    
    936Net periodic benefit cost
    
    $
    2,125
    
    
    $
    1,481
    
    
    $
    3,400
    
    
    $
    2,962
 Postretirement BenefitsThree Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    153
    
    
    $
    182
    
    
    $
    306
    
    
    $
    364Interest cost
    
    
    331
    
    
    
    312
    
    
    
    662
    
    
    
    624Amortization of prior service cost
    
    
    204
    
    
    
    203
    
    
    
    407
    
    
    
    406Amortization of net loss
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    130Net periodic benefit cost
    
    $
    688
    
    
    $
    762
    
    
    $
    1,375
    
    
    $
    1,524
  10




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6. Business Segments
  7. Legal Proceedings
    8. Related Party Transactions and Allocations
   9.
Credit Facility
  10. Subsequent Events
  11




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Managements Narrative Analysis of Results of Operations
  Forward-Looking Information
  Corporate Overview
  ®
 Segment Reporting
  New Accounting Pronouncements
  12




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RESULTS OF OPERATIONS
Three and six months ended June 30, 2007 and 2006
 Net Revenue
  Three Months Ended June 30,
    
    Six Months Ended June 30,(amounts in millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeGross directory advertising revenue
    
    $
    257.5
    
    
    $
    259.7
    
    
    $
    (2.2
    )
    
    $
    514.9
    
    
    $
    523.4
    
    
    $
    (8.5
    )Sales claims and allowances
    
    
    (2.4
    )
    
    
    (2.4
    )
    
    
    
    
    
    
    (4.6
    )
    
    
    (6.0
    )
    
    
    1.4Net directory advertising revenue
    
    
    255.1
    
    
    
    257.3
    
    
    
    (2.2
    )
    
    
    510.3
    
    
    
    517.4
    
    
    
    (7.1
    )Other revenue
    
    
    2.9
    
    
    
    1.2
    
    
    
    1.7
    
    
    
    5.7
    
    
    
    2.4
    
    
    
    3.3Total
    
    $
    258.0
    
    
    $
    258.5
    
    
    $
    (0.5
    )
    
    $
    516.0
    
    
    $
    519.8
    
    
    $
    (3.8
    )
    13




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Expenses
  Three Months Ended June 30,
    
    Six Months Ended June 30,(amounts in millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeCost of revenue
    
    $
    113.9
    
    
    $
    99.4
    
    
    $
    14.5
    
    
    $
    224.3
    
    
    $
    207.1
    
    
    $
    17.2General and administrative expenses
    
    
    16.5
    
    
    
    15.5
    
    
    
    1.0
    
    
    
    35.7
    
    
    
    37.8
    
    
    
    (2.1
    )Depreciation and amortization
    
    
    24.1
    
    
    
    21.2
    
    
    
    2.9
    
    
    
    49.0
    
    
    
    42.5
    
    
    
    6.5Total
    
    $
    154.5
    
    
    $
    136.1
    
    
    $
    18.4
    
    
    $
    309.0
    
    
    $
    287.4
    
    
    $
    21.6
  Cost of Revenue
  Three Months
    
    Six MonthsEnded
    
    EndedJune 30, 2007
    
    June 30, 2007(amounts in millions)
    
    $ Change
    
    $ ChangeIncreased information technology (IT) expenses
    
    $
    6.2
    
    
    $
    10.9Increased print, paper and distribution expenses
    
    
    3.1
    
    
    
    6.9Increased bad debt expense
    
    
    1.8
    
    
    
    2.4Increased Internet production and distribution costs
    
    
    1.4
    
    
    
    2.7Amortization of cost uplift in 2006 from the AT&T Directory Acquisition
    
    
    (0.2
    )
    
    
    (2.1
    )All other
    
    
    2.2
    
    
    
    (3.6
    )Total increase in cost of revenue for the three and six months
ended June 30, 2007
    
    $
    14.5
    
    
    $
    17.2
 14




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General and Administrative Expenses
  15




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Depreciation and Amortization
  Operating Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,(amounts in millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    2007
    
    
    2006
    
    
    $ ChangeTotal
    
    $
    103.6
    
    
    $
    122.4
    
    
    $
    (18.8
    )
    
    $
    206.9
    
    
    $
    232.4
    
    
    $
    (25.5
    )
   Interest Expense, Net
  Income Taxes
  16




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Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures.
 (b) Changes in Internal Control Over Financial Reporting.
 17




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PART II.
    
    OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  18




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Item 6.
    
    Exhibits
 Exhibit No.
    
    Document31.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 by David C. Swanson, Chairman and Chief
Executive Officer of R.H. Donnelley Inc. under Section 302 of
the Sarbanes-Oxley Act31.2*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 by Steven M. Blondy, Executive Vice
President and Chief Financial Officer of R.H. Donnelley Inc.
under Section 302 of the Sarbanes-Oxley Act32.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 under Section 906 of the Sarbanes-Oxley
Act by David C. Swanson, Chairman and Chief Executive Officer,
and Steven M. Blondy, Executive Vice President and Chief
Financial Officer, for R.H. Donnelley Inc.
 
 *
    
    Filed herewith. 19




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SIGNATURES
  R.H. DONNELLEY INC.Date: August 7, 2007
    By:
    /s/ Steven M. BlondySteven M. BlondyExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)/s/ Karen E. PalczukKaren E. PalczukInterim Controller and Assistant
Vice President 
Process and Performance Management
(Interim Principal Accounting Officer) 20




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Exhibit Index
 Exhibit No.
    
    Document31.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 by David C. Swanson, Chairman and Chief
Executive Officer of R.H. Donnelley Inc. under Section 302 of
the Sarbanes-Oxley Act

31.2*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 by Steven M. Blondy, Executive Vice
President and Chief Financial Officer of R.H. Donnelley Inc.
under Section 302 of the Sarbanes-Oxley Act32.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended June 30, 2007 under Section 906 of the Sarbanes-Oxley
Act by David C. Swanson, Chairman and Chief Executive Officer,
and Steven M. Blondy, Executive Vice President and Chief
Financial Officer, for R.H. Donnelley Inc.
 
 *
    
    Filed herewith. 21