##### 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 September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 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 November 1, 2007Common Stock, no par value
    
    200
 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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##### 



R.H. DONNELLEY INC.
 INDEX TO FORM 10-Q
  PAGEPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September 30, 2007 and December 31,
2006
    
    
    4Condensed Consolidated Statements of Income and Comprehensive Income for the
three and nine months ended September 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Narrative Analysis of Results of Operations *
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk **
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    21Item 1A.
    
    Risk Factors
    
    
    21Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds ***
    
    
    21Item 3.
    
    Defaults Upon Senior Securities ***
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders ***
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    22SIGNATURES
    
    
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1
  2




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*
    
    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)
 September 30,
    
    December 31,(in thousands, except share data)
    
    2007
    
    2006AssetsCurrent AssetsCash and cash equivalents
    
    $
    4,143
    
    
    $
    4,905Accounts receivableBilled
    
    
    109,759
    
    
    
    120,387Unbilled
    
    
    334,868
    
    
    
    347,051Allowance for doubtful accounts and sales claims
    
    
    (22,139
    )
    
    
    (25,476
    )Net accounts receivable
    
    
    422,488
    
    
    
    441,962Deferred directory costs
    
    
    77,333
    
    
    
    67,204Prepaid expenses and other current assets
    
    
    64,620
    
    
    
    50,017Total current assets
    
    
    568,584
    
    
    
    564,088Fixed assets and computer software, net
    
    
    95,078
    
    
    
    88,076Amount due from Parent, net
    
    
    276,796
    
    
    
    426,192Other non-current assets
    
    
    36,937
    
    
    
    52,147Intangible assets, net
    
    
    2,695,819
    
    
    
    2,755,624Goodwill
    
    
    313,753
    
    
    
    315,560Total Assets
    
    $
    3,986,967
    
    
    $
    4,201,687Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    76,232
    
    
    $
    74,764Accrued interest
    
    
    26,725
    
    
    
    11,950Deferred directory revenue
    
    
    430,799
    
    
    
    439,100Short-term deferred income taxes, net
    
    
    
    
    
    
    100,943Current portion of long-term debt
    
    
    77,326
    
    
    
    112,200Total current liabilities
    
    
    611,082
    
    
    
    738,957Long-term debt
    
    
    2,341,686
    
    
    
    2,442,269Deferred income taxes, net
    
    
    199,879
    
    
    
    181,417Other non-current liabilities
    
    
    52,033
    
    
    
    63,790Total liabilities
    
    
    3,204,680
    
    
    
    3,426,433Commitments and contingenciesShareholders EquityCommon stock, no par value, authorized, issued and outstanding  100 shares
    
    
    12,002
    
    
    
    12,002Additional paid-in capital
    
    
    302,850
    
    
    
    296,940Retained earnings
    
    
    485,217
    
    
    
    476,488Accumulated other comprehensive loss
    
    
    (17,782
    )
    
    
    (10,176
    )Total shareholders equity
    
    
    782,287
    
    
    
    775,254Total Liabilities and Shareholders Equity
    
    $
    3,986,967
    
    
    $
    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
    
    Nine months endedSeptember 30,
    
    September 30,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Net revenue
    
    $
    254,761
    
    
    $
    258,315
    
    
    $
    770,737
    
    
    $
    778,155ExpensesCost of revenue (exclusive of depreciation and
amortization shown separately below)
    
    
    108,608
    
    
    
    102,507
    
    
    
    334,412
    
    
    
    309,607General and administrative expenses
    
    
    16,273
    
    
    
    12,888
    
    
    
    50,466
    
    
    
    50,670Depreciation and amortization
    
    
    24,459
    
    
    
    22,526
    
    
    
    73,502
    
    
    
    65,080Total expenses
    
    
    149,340
    
    
    
    137,921
    
    
    
    458,380
    
    
    
    425,357Operating income
    
    
    105,421
    
    
    
    120,394
    
    
    
    312,357
    
    
    
    352,798Interest expense, net
    
    
    (48,216
    )
    
    
    (49,102
    )
    
    
    (144,433
    )
    
    
    (146,465
    )Income before income taxes
    
    
    57,205
    
    
    
    71,292
    
    
    
    167,924
    
    
    
    206,333Provision for income taxes
    
    
    28,534
    
    
    
    27,053
    
    
    
    70,224
    
    
    
    78,301Net income
    
    $
    28,671
    
    
    $
    44,239
    
    
    $
    97,700
    
    
    $
    128,032Comprehensive IncomeNet income
    
    $
    28,671
    
    
    $
    44,239
    
    
    $
    97,700
    
    
    $
    128,032Unrealized loss on interest rate swaps, net of tax
    
    
    (6,343
    )
    
    
    (11,713
    )
    
    
    (8,721
    )
    
    
    (4,836
    )Benefit plans adjustment, net of tax
    
    
    372
    
    
    
    
    
    
    
    1,115
    
    
    
    Comprehensive income
    
    $
    22,700
    
    
    $
    32,526
    
    
    $
    90,094
    
    
    $
    123,196
  5




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R.H. Donnelley Inc. and Subsidiaries  Condensed Consolidated Statements of Cash Flows (Unaudited)
 Nine months endedSeptember 30,( in thousands)
    
    2007
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    97,700
    
    
    $
    128,032Reconciliation of net income to net cash provided by operating activities:Depreciation and amortization
    
    
    73,502
    
    
    
    65,080Deferred income tax provision
    
    
    28,810
    
    
    
    78,301Provision for bad debts
    
    
    33,210
    
    
    
    27,867Stock-based compensation expense
    
    
    11,361
    
    
    
    22,404Other non-cash charges
    
    
    3,195
    
    
    
    3,582Changes in assets and liabilities:(Increase) in accounts receivable
    
    
    (13,736
    )
    
    
    (1,272
    )Decrease in other assets
    
    
    5,094
    
    
    
    17,101Increase in accounts payable and accrued liabilities
    
    
    12,030
    
    
    
    203(Decrease) in deferred directory revenue
    
    
    (8,300
    )
    
    
    (25,993
    )(Decrease) in other non-current liabilities
    
    
    (131,174
    )
    
    
    (4,179
    )Decrease (increase) in amount due from Parent, net
    
    
    138,480
    
    
    
    (82,921
    )Net cash provided by operating activities
    
    
    250,172
    
    
    
    228,205Cash Flows from Investing ActivitiesAdditions to fixed assets and computer software
    
    
    (23,750
    )
    
    
    (27,166
    )Net cash used in investing activities
    
    
    (23,750
    )
    
    
    (27,166
    )Cash Flows from Financing ActivitiesProceeds from the issuance of debt, net of costs
    
    
    
    
    
    
    (1,397
    )Revolver borrowings
    
    
    283,850
    
    
    
    185,600Revolver repayments
    
    
    (309,750
    )
    
    
    (172,200
    )Credit facility repayments
    
    
    (109,557
    )
    
    
    (215,580
    )(Decrease) increase in checks not yet presented for payment
    
    
    (3,359
    )
    
    
    195Dividends to Parent
    
    
    (94,278
    )
    
    
    Excess tax benefits from exercise of stock options
    
    
    5,910
    
    
    
    Net cash used in financing activities
    
    
    (227,184
    )
    
    
    (203,382
    )Decrease in cash and cash equivalents
    
    
    (762
    )
    
    
    (2,343
    )Cash and cash equivalents, beginning of year
    
    
    4,905
    
    
    
    6,963Cash and cash equivalents, end of period
    
    $
    4,143
    
    
    $
    4,620Supplemental Information:Cash paid:Interest
    
    $
    119,024
    
    
    $
    121,740Income taxes, net
    
    $
    1,938
    
    
    $
    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
   Significant Business Developments
     7




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2. Summary of Significant Accounting Policies
 Intangible Assets and Goodwill
 Business
Combinations Goodwill and Other Intangible Assets
 Interest Expense and Deferred Financing Costs
  Advertising Expenses
  Concentration of Credit Risk
  8




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Stock-Based Awards
 Share-Based
Payment
  Estimates
  New Accounting Pronouncements
  3. Credit Facility
  9




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4. Restructuring Charges
  2003
    
    2005Restructuring
    
    RestructuringThree months ended September 30, 2007
    
    Actions
    
    Actions
    
    TotalBalance at June 30, 2007
    
    $
    877
    
    
    $
    1,837
    
    
    $
    2,714Payments
    
    
    (47
    )
    
    
    (29
    )
    
    
    (76
    )Reserve reversal credited to goodwill
    
    
    
    
    
    
    (1,808
    )
    
    
    (1,808
    )Balance at September 30, 2007
    
    $
    830
    
    
    $
    
    
    
    $
    830
 2003
    
    2005Restructuring
    
    RestructuringNine months ended September 30, 2007
    
    Actions
    
    Actions
    
    TotalBalance at December 31, 2006
    
    $
    971
    
    
    $
    1,943
    
    
    $
    2,914Payments
    
    
    (141
    )
    
    
    (135
    )
    
    
    (276
    )Reserve reversal credited to goodwill
    
    
    
    
    
    
    (1,808
    )
    
    
    (1,808
    )Balance at September 30, 2007
    
    $
    830
    
    
    $
    
    
    
    $
    830
   5. Income Taxes
 Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109
   10




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6. Benefit Plans
 Employers Disclosures About Pensions and Other Postretirement
Benefits (Revised 2003),
 Pension BenefitsThree Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    1,589
    
    
    $
    1,352
    
    
    $
    4,767
    
    
    $
    4,056Interest cost
    
    
    1,852
    
    
    
    1,691
    
    
    
    5,557
    
    
    
    5,073Expected return on plan assets
    
    
    (2,135
    )
    
    
    (2,063
    )
    
    
    (6,405
    )
    
    
    (6,188
    )Amortization of prior service cost
    
    
    41
    
    
    
    33
    
    
    
    123
    
    
    
    100Amortization of net loss
    
    
    353
    
    
    
    468
    
    
    
    1,058
    
    
    
    1,403Net periodic benefit cost
    
    $
    1,700
    
    
    $
    1,481
    
    
    $
    5,100
    
    
    $
    4,444
 Postretirement BenefitsThree Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    153
    
    
    $
    183
    
    
    $
    459
    
    
    $
    547Interest cost
    
    
    331
    
    
    
    313
    
    
    
    993
    
    
    
    937Amortization of prior service cost
    
    
    203
    
    
    
    202
    
    
    
    610
    
    
    
    608Amortization of net loss
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    195Net periodic benefit cost
    
    $
    687
    
    
    $
    763
    
    
    $
    2,062
    
    
    $
    2,287
 11




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7. Business Segments
  8. Legal Proceedings
     9. Related Party Transactions and Allocations
  12




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10. Subsequent Events
    13




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Managements Narrative Analysis of Results of Operations
  Forward-Looking Information
  Corporate Overview
  ®
 Significant Business Developments
  14




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Segment Reporting
  New Accounting Pronouncements
  15




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RESULTS OF OPERATIONS
Nine months ended September 30, 2007 and 2006
 Factors Affecting Comparability
  Net Revenue
  Nine months ended September 30,(amounts in millions)
    
    2007
    
    2006
    
    $ ChangeGross directory advertising revenue
    
    $
    769.6
    
    
    $
    778.9
    
    
    $
    (9.3
    )Sales claims and allowances
    
    
    (7.2
    )
    
    
    (8.4
    )
    
    
    1.2Net directory advertising revenue
    
    
    762.4
    
    
    
    770.5
    
    
    
    (8.1
    )Other revenue
    
    
    8.3
    
    
    
    7.7
    
    
    
    0.6Total
    
    $
    770.7
    
    
    $
    778.2
    
    
    $
    (7.5
    )
    16




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Expenses
  Nine months ended September 30,(amounts in millions)
    
    2007
    
    2006
    
    $ ChangeCost of revenue
    
    $
    334.4
    
    
    $
    309.6
    
    
    $
    24.8General and administrative expenses
    
    
    50.5
    
    
    
    50.7
    
    
    
    (0.2
    )Depreciation and amortization
    
    
    73.5
    
    
    
    65.1
    
    
    
    8.4Total
    
    $
    458.4
    
    
    $
    425.4
    
    
    $
    33.0
  Cost of Revenue
  Nine months endedSeptember 30, 2007(amounts in millions)
    
    $ ChangeIncreased print, paper and distribution expenses
    
    $
    9.9Increased information technology (IT) expenses
    
    
    9.4Increased Internet production and distribution costs
    
    
    6.3Increased bad debt expense
    
    
    5.3Amortization of cost uplift in 2006 from the AT&T Directory Acquisition
    
    
    (2.1
    )All other, net
    
    
    (4.0
    )Total increase in cost of revenue for the nine months ended
September 30, 2007
    
    $
    24.8
 17




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General and Administrative Expenses
  Depreciation and Amortization
   18




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Operating Income
  Nine months ended September 30,(amounts in millions)
    
    2007
    
    
    2006
    
    
    $ ChangeTotal
    
    $
    312.4
    
    
    $
    352.8
    
    
    $
    (40.4
    )
  Interest Expense, Net
  Income Taxes
  19




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Quantitative and Qualitative Disclosures About Market Risk
  
 Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures.
 (b) Changes in Internal Control Over Financial Reporting.
 20




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Legal Proceedings
     
 Risk Factors
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  
 Other Information
  21




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Exhibits
 Exhibit No.
    
    Document4.1
    
    Fourth Supplemental Indenture, dated as of October 2, 2007, by
and among R.H. Donnelley Inc., as issuer, R.H. Donnelley
Corporation, as guarantor, the subsidiary guarantors, named
therein, as guarantors, and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 to R.H. Donnelley
Inc.s Current Report on Form 8-K, filed with the Securities
and Exchange Commission on October 9, 2007, Commission File
No. 333-59287)31.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended September 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 September 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 September 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. 22




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SIGNATURES
  R.H. DONNELLEY INC.Date: November 6, 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) 23




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Exhibit Index
 Exhibit No.
    
    Document4.1
    
    Fourth Supplemental Indenture, dated as of October 2, 2007, by
and among R.H. Donnelley Inc., as issuer, R.H. Donnelley
Corporation, as guarantor, the subsidiary guarantors, named
therein, as guarantors, and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 to R.H. Donnelley
Inc.s Current Report on Form 8-K, filed with the Securities
and Exchange Commission on October 9, 2007, Commission File
No. 333-59287)31.1*
    
    Certification of Quarterly Report on Form 10-Q for the period
ended September 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 September 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 September 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. 24