10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

(  ) 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)	(I.R.S. Employer Identification No.)

1001 Winstead Drive, Cary, N.C.	27513
(Address of principal executive offices)	(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No (  )

Indicate by check mark whether registrant is an accelerated filer Yes (X) No (  )

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Title of Class	Shares Outstanding at August 1, 2004
Common Stock, par value $1 per share	31,294,817

Commission file number 333-59287

R.H. DONNELLEY INC. *

(Exact name of registrant as specified in its charter)

Delaware	36-2467635
(State of Incorporation)	(I.R.S. Employer Identification No.)

1001 Winstead Drive, Cary, N.C.	27513
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (800) 497-6329

* 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 H (1)(a) and (b) of Form 10-Q 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 1/8% Senior Subordinated Notes, which were redeemed in full on February 6, 2004. In addition, R.H. Donnelley Inc. is the obligor of 8 7/8% Senior Notes due 2010 and 10 7/8% Senior Subordinated Notes due 2012 and is subject to the filing requirements of Section 15(d) as a result of such notes. As of August 1, 2004, 100 shares of R.H. Donnelley Inc. common stock, no par value, were outstanding.

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R.H. DONNELLEY CORPORATION

INDEX TO FORM 10-Q

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2004 and December 31, 2003		4
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2004 and 2003		5
Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003		6
Consolidated Statement of Changes in Shareholders’ (Deficit) Equity for the six months ended June 30, 2004		7
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3. Quantitative and Qualitative Disclosures About Market Risk		52
Item 4. Controls and Procedures		52
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		54
Item 4. Submission of Matters to a Vote of Security Holders		59
Item 6. Exhibits and Reports on Form 8-K		61
SIGNATURES		70

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

R.H. Donnelley Corporation and Subsidiaries

Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
(in thousands, except share and per share data)	2004			2003
Assets
Current Assets
Cash and cash equivalents	$	10,594		$	7,722
Accounts receivable
Billed		46,775			49,203
Unbilled		187,507			173,734
Allowance for doubtful accounts and sales claims		(10,762	)		(11,956	)
Net accounts receivable		223,520			210,981
Deferred directory costs		35,229			33,034
Income tax receivable		58,910			—
Other current assets		23,251			32,854
Total current assets		351,504			284,591
Fixed assets and computer software, net		28,027			20,624
Partnership investment		174,160			175,729
Other non-current assets		91,004			95,583
Intangible assets, net		1,840,251			1,865,167
Goodwill		97,040			97,040
Total Assets	$	2,581,986		$	2,538,734
Liabilities, Redeemable Convertible Preferred Stock and Shareholders’ Equity (Deficit)
Current Liabilities
Accounts payable and accrued liabilities	$	26,846		$	19,083
Checks not yet presented for payment		16,178			6,708
Accrued interest		7,088			7,711
Deferred directory revenue		227,773			216,525
Current portion of long-term debt		28,896			49,586
Total current liabilities		306,781			299,613
Long-term debt		1,913,771			2,042,547
Deferred income taxes, net		121,906			33,629
Other non-current liabilities		26,953			20,967
Total liabilities		2,369,411			2,396,756
Commitments and contingencies Redeemable convertible preferred stock (liquidation preference of $225,765 at June 30, 2004 and $216,998 at December 31, 2003)		206,990			198,223
Shareholders’ Equity (Deficit)
Common stock, par value $1 par value, 400,000,000 shares authorized, 51,621,894 shares issued		51,622			51,622
Additional paid-in capital		95,310			92,610
Unamortized restricted stock		(356	)		(531	)
Warrants outstanding		13,758			13,758
Retained earnings (accumulated deficit)		5,807			(49,954	)
Treasury stock, at cost, 20,338,063 shares at June 30, 2004 and 20,589,520 shares at December 31, 2003		(163,709	)		(163,741	)
Accumulated other comprehensive income (loss)		3,153			(9	)
Total shareholders’ equity (deficit)		5,585			(56,245	)
Total Liabilities, Redeemable Convertible Preferred
Stock and Shareholders’ Equity (Deficit)	$	2,581,986		$	2,538,734

The accompanying notes are an integral part of the consolidated financial statements.

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R.H. Donnelley Corporation and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except per share data)	2004			2003			2004			2003
Net revenue	$	144,641		$	38,634		$	288,448		$	51,053
Expenses
Operating expenses		56,932			34,862			110,890			66,795
General and administrative expenses		15,429			12,206			28,046			22,216
Depreciation and amortization		14,947			16,443			29,339			32,471
Total expenses		87,308			63,511			168,275			121,482
Partnership income		34,803			35,341			58,701			58,974
Operating income (loss)		92,136			10,464			178,874			(11,455	)
Interest expense, net		(37,496	)		(43,253	)		(77,796	)		(91,928	)
Other income		—			723			—			1,523
Income (loss) before income taxes		54,640			(32,066	)		101,078			(101,860	)
Provision (benefit) for income taxes		21,583			(13,155	)		39,926			(41,762	)
Net income (loss)		33,057			(18,911	)		61,152			(60,098	)
Preferred dividend		5,392			5,978			10,678			48,132
Income (loss) available to common shareholders	$	27,665		$	(24,889	)	$	50,474		$	(108,230	)
Earnings (loss) per share
Basic	$	0.68		$	(0.81	)	$	1.25		$	(3.56	)
Diluted	$	0.65		$	(0.81	)	$	1.20		$	(3.56	)
Shares used in computing earnings (loss) per share
Basic		31,204			30,605			31,132			30,424
Diluted		32,546			30,605			32,379			30,424
Comprehensive Income (Loss)
Income (loss) available to common shareholders	$	27,665		$	(24,889	)	$	50,474		$	(108,230	)
Unrealized gain (loss) on interest rate swaps, net of tax		5,869			(3,257	)		3,161			(3,257	)
Comprehensive income (loss)	$	33,534		$	(28,146	)	$	53,635		$	(111,487	)

The accompanying notes are an integral part of the consolidated financial statements.

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R.H. Donnelley Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

	Six months ended
	June 30
(amounts in thousands)	2004			2003
Cash Flows from Operating Activities
Net income (loss)	$	61,152		$	(60,098	)
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation and amortization		29,339			32,471
Deferred income taxes		39,926			(41,762	)
Provision for bad debts		6,491			288
Other non-cash charges		11,031			6,856
Changes in assets and liabilities, net of effects from acquisition:
Cash in excess of partnership income		1,569			6,058
(Increase) decrease in accounts receivable		(19,030	)		15,548
Decrease (increase) in other assets		1,863			(24,436	)
Increase (decrease) in accounts payable and accrued liabilities		2,729			(13,362	)
Increase in deferred directory revenue		11,248			208,975
Increase in other non-current liabilities		1,142			984
Net cash provided by operating activities		147,460			131,522
Cash Flows from Investing Activities
Additions to fixed assets and computer software		(8,857	)		(5,473	)
Acquisition of SPA, net of cash received		—			(2,259,633	)
Decrease in restricted cash – funds held in escrow at year end		—			1,825,000
Decrease in restricted cash – other		—			69,300
Net cash used in investing activities		(8,857	)		(370,806	)
Cash Flows from Financing Activities
Proceeds from the issuance of debt, net of costs		—			461,307
Proceeds from the issuance of Redeemable Convertible Preferred Stock and warrants, net of costs		—			125,683
Pre-acquisition debt refinanced with proceeds from new debt		—			(243,005	)
Debt repayments		(150,866	)		(152,787	)
Borrowings under the Revolver		1,400			24,100
Increase in checks not yet presented for payment		9,470			—
Proceeds from employee stock option exercises		4,265			16,199
Net cash (used in) provided by financing activities		(135,731	)		231,497
Increase (decrease) in cash and cash equivalents		2,872			(7,787	)
Cash and cash equivalents, beginning of year		7,722			7,787
Cash and cash equivalents, end of period	$	10,594		$	—
Supplemental Information:
Cash paid (received):
Interest	$	70,881		$	89,036
Income taxes, net	$	(12,443	)	$	—

The accompanying notes are an integral part of the consolidated financial statements.

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R.H. Donnelley Corporation and Subsidiaries

Consolidated Statement of Changes in Shareholders’ (Deficit) Equity (Unaudited)
Six months ended June 30, 2004

									(Accumulated						Accumulated			Total
	Common Stock and					Unamortized			Deficit)						Other			Shareholders’
	Additional			Warrants		Restricted			Retained						Comprehensive			(Deficit)
(in thousands)	Paid-in Capital			Outstanding		Stock			Earnings			Treasury Stock			(Loss) Income			Equity
Balance, December 31, 2003	$	144,232		$	13,758	$	(531	)	$	(49,954	)	$	(163,741	)	$	(9	)	$	(56,245	)
Net income										61,152									61,152
Preferred dividend		(5,287	)							(5,391	)								(10,678	)
Employee stock option exercises, including tax benefit		4,187											318						4,505
Stock issued for employee bonus plans		1,342											64						1,406
Issuance of restricted stock		(8	)										8						—
Restricted stock amortization							175												175
Stock acquired for treasury													(358	)					(357	)
Additional compensatory stock issued in Founders grant		553																	553
Beneficial conversion feature from issuance of Preferred Stock		1,913																	1,913
Unrealized gain on interest rate swaps, net of tax																3,162			3,161
Balance, June 30, 2004	$	146,932		$	13,758	$	(356	)	$	5,807		$	(163,709	)	$	3,153		$	5,585

The accompanying notes are an integral part of the consolidated financial statements.

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R.H. Donnelley Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)
(tabular amounts in thousands, except per share data)

1. Business and Basis of Presentation

The interim financial statements of R.H. Donnelley Corporation and its direct and indirect wholly owned subsidiaries (the “Company”, “RHD”, “we”, “us” and “our”) have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2003. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Certain prior year amounts have been reclassified to conform to the current year’s presentation.

We are a leading yellow pages publisher and directional media company. Directional media is where consumers go to find who sells the goods and services they are ready to purchase. We currently publish approximately 260 directories under the Sprint Yellow Pages ® brand in 18 states, with major markets including Las Vegas, Orlando, and Lee County, Florida, with a total circulation of approximately 18 million serving approximately 160,000 local and 4,000 national advertisers. We also offer online city guides and search web sites in these and other major markets under the Best Red Yellow Pages brand at www.bestredyp.com. In addition, through The DonTech II Partnership (“DonTech”), our perpetual partnership with an affiliate of SBC Communications Inc. (“SBC”), we serve as the exclusive sales agent for 129 SBC-branded directories under the SBC ® Yellow Pages brand in Illinois and northwest Indiana, with a total circulation of approximately 10 million serving approximately 100,000 local advertisers.

On January 3, 2003, we acquired all the outstanding capital stock of the various entities comprising Sprint Publishing and Advertising (“SPA”), Sprint Corporation’s (“Sprint”) directory publishing business, for $2,229.8 million in cash. 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 business are included in our consolidated results from and after January 3, 2003. SPA operates as R.H. Donnelley Publishing & Advertising, Inc., an indirect, wholly owned subsidiary of the Company.

2. Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of R.H. Donnelley Corporation and its direct and indirect wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

Reclassifications. In 2003 preferred stock dividends of $44.8 million have been reclassified from accumulated deficit to additional paid-in capital.

Revenue Recognition. We earn revenue principally from the sale of advertising into our Sprint-branded 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. We also earn revenue from providing pre-press publishing services to SBC for those directories in the DonTech markets. Revenue from pre-press publishing services is recognized as services are performed.

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.

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Equity Method Accounting. DonTech is a 50/50 perpetual partnership in which we and a subsidiary of SBC are the partners. DonTech is a separate legal entity that provides its services with its own employees and a stand-alone management team. The employees of DonTech have the right, authority and power to do any act to accomplish, and enter into any contract incidental to attain the purposes of the partnership. No employees of either RHD or SBC are involved in the day-to-day operations of DonTech and, because the partners share equally in the net profits and each has one voting member on the DonTech board of directors, neither partner has the unilateral ability to control or influence the operations of DonTech. Accordingly, we account for DonTech under the equity method and do not consolidate the DonTech results in our financial statements.

We recognize our 50% share of the net income of DonTech as partnership income in our consolidated statement of operations. DonTech recognizes commission revenue based on the annual value of a sales contract in the period the contract is executed (calendar sales) and recognizes expenses as incurred. Partnership income also includes revenue participation income from SBC. Revenue participation income is based on DonTech advertising sales and is recognized when a sales contract is executed with a customer. Our investment in DonTech and the revenue participation receivable from SBC are reported as partnership investment on the consolidated balance sheet. On July 28, 2004, the Company signed a definitive agreement to acquire SBC’s directory publishing business in Illinois and Northwest Indiana, including SBC’s interest in DonTech, for $1.42 billion in cash. See Note 14, Subsequent Events.

Cash and Cash Equivalents. Cash equivalents include liquid investments with a maturity of less than three months at their time of acquisition. We place our investments with high quality financial institutions. At times, such investments may be in excess of federally insured limits.

Accounts Receivable. Accounts receivable consist of balances from our advertising customers. Advertisers typically enter into a 12-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.

Income Taxes. Income tax receivable reflects the Company’s election to carryback a federal net operating loss in connection with the SPA acquisition.

Deferred Financing Costs. Costs associated with the issuance of debt instruments are capitalized and included in other non-current assets on the consolidated balance sheet. These costs are amortized to interest expense over the terms of the related debt agreements. The bond outstanding method is used to amortize deferred financing costs relating to debt instruments with respect to which we accelerate principal payments. Other deferred financing costs are amortized using the straight-line method. Amortization of deferred financing costs included in interest expense was $3.7 million and $2.4 million for the three months ended June 30, 2004 and 2003, respectively, and $7.1 million and $6.3 million for the six months ended June 30, 2004 and 2003, respectively.

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 expense was $3.7 million and $2.2 million for the three months ended June 30, 2004 and 2003, respectively, and $5.6 million and $4.1 million for the six months ended June 30, 2004 and 2003, respectively. Advertising expense for the three months ended June 30, 2004 includes $1.1 million and $0.3 million of advertising costs that pertain to 2003 and the first quarter of 2004, respectively.

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 are subject to a credit review. If the advertisers qualify, we

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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 approximate 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 companies. 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 have 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 the local advertisers.

We maintain a significant receivable balance with SBC for revenue participation and pre-press publishing services fees. The revenue participation receivable is subject to limited upward adjustment based on contractual provisions. The receivable is recorded at net realizable value. We do not currently foresee a material credit risk associated with this receivable, although there can be no assurance that full payment will be received on a timely basis.

At June 30, 2004, we had interest rate swap agreements with major financial institutions with a notional value of $555.0 million. We are exposed to credit risk in the event that one or more of the counterparties to the agreements does not, or cannot, meet their obligation. The notional amount is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The loss would be limited to the amount that would have been received, if any, over the remaining life of the swap agreement. The counterparties to the swap agreements are major financial institutions with credit ratings of A or higher. We do not currently foresee a material credit risk associated with these swap agreements; however, no assurances can be given.

Derivative Financial Instruments. We do not use derivative financial instruments for trading or speculative purposes. Our derivative financial instruments are limited to interest rate swap agreements used to manage exposure to fluctuations in interest rates on variable rate debt. These agreements effectively convert $555.0 million of our variable rate debt to fixed rate debt, mitigating our exposure to increases in interest rates. Under the terms of the swap agreements, we receive variable interest based on the three-month LIBOR and pay a weighted average fixed rate of 2.70%. The swaps mature in October 2005, June 2006 and March 2007. The weighted average rate received was 1.13% and 1.14% during the three and six months ended June 30, 2004, respectively. These periodic payments and receipts are recorded as interest expense.

The interest rate swaps have been designated as cash flow hedges to hedge three-month LIBOR-based interest payments on $555.0 million of bank debt. To the extent the swaps provide an effective hedge, changes in the fair value of the swaps are recorded in other comprehensive income, a component of shareholders’ equity. Any ineffectiveness is recorded through earnings. As of June 30, 2004, our interest rate swaps provided an effective hedge of the three-month LIBOR-based interest payments on $555.0 million of bank debt, and no ineffectiveness was included in earnings.

Earnings per Share. In March 2004, the Emerging Issues Task Force (“EITF”) reached a final consensus on EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement 128 (“EITF 03-6”), which established standards regarding the computation of earnings per share (“EPS”) by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company. EITF 03-6 is effective for interim periods ending June 30, 2004 for calendar year companies. We adopted the provisions of EITF 03-6 during the first quarter of 2004. EITF 03-6 requires earnings available to common shareholders for the period, after deduction of preferred stock dividends, to be allocated between the common and preferred shareholders based on their respective rights to receive dividends. Basic EPS is then calculated by dividing income (loss) allocable to common shareholders by the weighted average number of shares outstanding. EITF 03-6 does not require the presentation of basic and diluted EPS for securities other than common stock; therefore, the following EPS amounts only pertain to our common stock.

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Under the guidance of EITF 03-6, diluted EPS are calculated by dividing income (loss) allocable to common shareholders by the weighted average common shares outstanding plus dilutive potential common stock. Potential common stock includes stock options and warrants, the dilutive effect of which is calculated using the treasury stock method, and Preferred Stock, the dilutive effect of which is calculated using the if-converted method. The calculation of basic and diluted EPS for the three and six months ended June 30, 2004 and 2003 is presented below.

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except per share data)	2004			2003			2004			2003
Basic EPS–Two–Class Method
Income (loss) available to common shareholders	$	27,665		$	(24,889	)	$	50,474		$	(108,230	)
Amount allocable to common shareholders(1)		77	%		100	%		77	%		100	%
Income (loss) allocable to common shareholders		21,302			(24,889	)		38,865			(108,230	)
Weighted average common shares outstanding		31,204			30,605			31,132			30,424
Basic earnings (loss) per share–two–class method.	$	0.68		$	(0.81	)	$	1.25		$	(3.56	)

(1) 31,204 / (31,204 + 9,387) for the three months ended June 30, 2004 and 31,132 / (31,132 + 9,295) for the six months ended June 30, 2004. In computing basic EPS using the two-class method, we have not allocated the net loss in the three and six months ended June 30, 2003 between common and preferred shareholders since the preferred shareholders do not have a contractual obligation to share in the net loss.

Diluted EPS
Income (loss) available to common shareholders	$	27,665		$	(24,889	)	$	50,474		$	(108,230	)
Amount allocable to common shares (1)		77	%		100	%		77	%		100	%
Income (loss) allocable to common shareholders		21,302			(24,889	)		38,865			(108,230	)
Weighted average common shares outstanding		31,204			30,605			31,132			30,424
Dilutive effect of stock options (2)		1,342			—			1,247			—
Dilutive effect of Preferred Stock assuming conversion (2)		—			—			—			—
Weighted average diluted shares outstanding		32,546			30,605			32,379			30,424
Diluted earnings (loss) per share	$	0.65		$	(0.81	)	$	1.20		$	(3.56	)

(2) The effect of certain stock options in the three and six months ended June 30, 2003 and the assumed conversion of the Preferred Stock in the three and six months ended June 30, 2004 and 2003 were anti-dilutive and therefore are not included in the calculation of diluted EPS.

Employee Stock Options. We follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations in accounting for our 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.

A grant was made in October 2002 of 1.5 million options (“Founders Grant”) to certain employees, including senior management in connection with the acquisition of SPA. These options were granted with an exercise price equal to the fair market value of the Company’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 the Company’s common stock exceeded the exercise price. Accordingly, these options were accounted for as compensatory options, and we are recognizing non-cash compensation expense over the vesting period of the options. We recognized non-cash compensation expense related to these stock options of $0.3 million and $0.6 million in the three months ended June 30, 2004 and 2003, respectively, and $0.6 million and $1.0 million in the six months ended June 30, 2004 and 2003, respectively.

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The following table reflects the pro forma net income (loss) and earnings (loss) per share for the three and six months ended June 30, 2004 and 2003 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 income and earnings per share in future years.

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except per share data)	2004			2003			2004			2003
Net income (loss), as reported	$	33,057		$	(18,911	)	$	61,152		$	(60,098	)
Add: Stock-based compensation expense included in reported net income (loss), net of related tax effects		238			426			553			1,501
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		(1,618	)		(1,277	)		(2,933	)		(5,696	)
Pro forma net income (loss)		31,677			(19,762	)		58,772			(64,293	)
Preferred dividend		5,392			5,978			10,678			48,132
Pro forma income (loss) available to common shareholders	$	26,285		$	(25,740	)	$	48,094		$	(112,425	)
Basic earnings (loss) per share
As reported	$	0.68		$	( 0.81	)	$	1.25		$	(3.56	)
Pro forma	$	0.65		$	( 0.84	)	$	1.19		$	(3.70	)
Diluted earnings (loss) per share
As reported	$	0.65		$	(0.81	)	$	1.20		$	(3.56	)
Pro forma	$	0.62		$	(0.84	)	$	1.14		$	(3.70	)

The pro forma information was determined based on the fair value of stock options calculated using the Black-Scholes option-pricing model with the following assumptions:

	2004			2003
Dividend yield		0	%		0	%
Expected volatility		29	%		35	%
Risk-free interest rate		2.2	%		2.6	%
Expected holding period	4 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. In March 2004, the EITF reached a final consensus on EITF 03-6 that established standards regarding the computation of EPS by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company. EITF 03-6 is effective for interim periods ending on or after June 30, 2004 for calendar year companies. We adopted the provisions of EITF 03-6 during the first quarter of 2004.

In May 2004, the Financial Accounting Standards Board issued Financial Staff Position No. FAS 106-2, Accounting

12

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 health care 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 will require 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 Company is in the process of evaluating the impact of the Act on the consolidated financial statements and will adopt the FSP in the third quarter of 2004, as required.

3. Business Combination

On January 3, 2003, we acquired all of the outstanding capital stock of the various entities comprising SPA for $2,229.8 million and became the publisher of approximately 260 revenue-generating, Sprint-branded yellow pages directories in 18 states. The results of the SPA business are included in our consolidated results from and after January 3, 2003, the acquisition closing date.

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 value of certain long-term intangible assets were identified and recorded at their estimated fair value. Identifiable intangible assets acquired include 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 value of the identifiable intangible assets is 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 4, 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 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 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 assets of the Company. Also under purchase accounting rules, we did not assume or record the deferred directory costs at January 3, 2003 related to those directories that were published prior to the acquisition and during January 2003, totaling $63.3 million. These costs represented operating expenses that would have been recognized subsequent to the acquisition under the deferral and amortization method had the acquisition not occurred.

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4. Intangible Assets and Goodwill

As a result of the SPA acquisition, certain long-term intangible assets were identified and recorded at their estimated fair value. Amortization expense for intangible assets was $12.4 million for both the three months ended June 30, 2004 and 2003 and $24.9 million for both the six months ended June 30, 2004 and 2003. The acquired long-term intangible assets and their respective book values at June 30, 2004 are shown in the table below.

	Directory Services			Local customer			National CMR
	Agreements			relationships			relationships			Trade names			Total
Estimated useful life	50 years			15 years			30 years			15 years
Initial fair value	$	1,625,000		$	200,000		$	60,000		$	30,000		$	1,915,000
Accumulated amortization		(48,749	)		(20,000	)		(3,000	)		(3,000	)		(74,749	)
Net intangible assets	$	1,576,251		$	180,000		$	57,000		$	27,000		$	1,840,251

Directory services agreements between Sprint and the Company include a directory services license agreement, a trademark license agreement and a non-competition agreement (collectively “Directory Services Agreements”) with certain affiliates of Sprint. The directory services license agreement gives us the exclusive right to produce, publish and distribute directories for Sprint in 18 states where Sprint provided local telephone service at the time of the agreement. The trademark license agreement gives us the exclusive right to use certain specified Sprint trademarks, including the Sprint diamond logo, in those markets, and the non-competition agreement prohibits Sprint in those markets from selling local directory advertising, with certain limited exceptions, or producing, publishing and distributing print directories. 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 value of local and national customer relationships was determined based on the present value of estimated future cash flows and historical attrition rates and is being amortized under an accelerated method that assumes the value derived from customer relationships is greater in the earlier years and steadily declines over time. The weighted average useful life of these relationships is 18 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.

Goodwill represents the excess of the purchase price for SPA over the net tangible and intangible assets acquired. In accordance with SFAS 142, Goodwill and Other Intangible Assets, goodwill is not amortized, but is subject to impairment testing. No impairment losses were recorded during the period. All goodwill is included in the Donnelley segment (see Note 10, Business Segments, for a further description of our segment information).

5. Partnership Investment

Partnership income includes our 50% share of the net profits of DonTech and revenue participation income received directly from SBC, which is based on the value of advertising sales. Partnership income for the three and six months ended June 30, 2004 and 2003 consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Revenue participation income	$	28,515	$	28,553	$	49,329	$	49,000
50% share of DonTech net income		6,288		6,788		9,372		9,974
Partnership income	$	34,803	$	35,341	$	58,701	$	58,974

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Summarized financial information of DonTech is shown in the table below. These results are not consolidated in our financial statements.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Net revenue	$	30,179	$	30,315	$	51,982	$	51,870
Operating income		12,574		13,750		18,639		20,138
Net income		12,577		13,575		18,744		19,947

Total assets of DonTech were $117.0 million at June 30, 2004 and $117.5 million at December 31, 2003. Our investment in DonTech, including the revenue participation receivable from SBC, was $174.1 million at June 30, 2004 and $175.7 million at December 31, 2003. On July 28, 2004, the Company signed a definitive agreement to acquire SBC’s directory publishing business in Illinois and Northwest Indiana, including SBC’s interest in DonTech, for a total of $1.42 billion in cash. See Note 14, Subsequent Events.

6. Long-Term Debt

Long-term debt at June 30, 2004 and December 31, 2003 consisted of the following:

	June 30,		December 31,
	2004		2003
Credit Facility	$	1,017,667	$	1,145,888
8 7/8% Senior Notes due 2010		325,000		325,000
10 7/8% Senior Subordinated Notes due 2012		600,000		600,000
9 1/8% Senior Subordinated Notes		—		21,245
Total		1,942,667		2,092,133
Less current portion		28,896		49,586
Long-term debt	$	1,913,771	$	2,042,547

Our Senior Secured Credit Facility, as amended (“Credit Facility”), consists of a $241 million Term Loan A-2, a $925 million Term Loan B-2 and a $125 million Revolving Credit Facility (the “Revolver”). Term Loans A-2 and B-2 require quarterly principal payments. As of June 30, 2004, the outstanding balances of Term Loans A-2 and B-2 were $99.5 million and $918.2 million, respectively. The Revolver and Term Loan A-2 mature in December 2008, and Term Loan B-2 matures in June 2010. Substantially all of our assets, including the capital stock of our subsidiaries, are pledged to collateralize our obligations under the Credit Facility. As of June 30, 2004 and December 31, 2003, there were no borrowings under the Revolver.

Our Credit Facility bears interest, at our option at either:

• The higher of (i) a base rate as determined by Deutsche Bank Securities Inc., Salomon Smith Barney Inc. or Bear, Stearns & Co. Inc., plus a 2.25% margin on the Revolver and a 1.25% margin on Term Loans A-2 and B-2; and (ii) the Federal Funds Effective Rate (as defined) plus 1/2 of 1%, plus a 2.25% margin on the Revolver and a 1.25% margin on Term Loans A-2 and B-2; or

• LIBOR rate plus a 3.25% margin on the Revolver and a 2.25% margin on Term Loans A-2 and B-2. We may elect interest periods of 1, 2, 3, 6, 9 or 12 months for LIBOR borrowings.

The effective interest rate on the Credit Facility during the three and six months ended June 30, 2004 was 4.00% and 3.97%, respectively. We are in the process of amending our Credit Facility in connection with the acquisition of SBC’s directory publishing business in Illinois and Northwest Indiana. For additional information, see Note 14, Subsequent Events.

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We have also issued $325.0 million 8 7/8% Senior Notes due 2010 (“Senior Notes”) and $600.0 million 10 7/8% Subordinated Notes due 2012 (“Subordinated Notes,” and collectively with the Senior Notes, the “Notes”). Interest is paid on the Notes semi-annually on June 15 and December 15.

On February 6, 2004, we redeemed the remaining aggregrate principal amount of the 9 1/8 % Senior Subordinated Notes due 2008 totaling $21.2 million at a redemption price of 104.563% of the principal amount thereof, plus accrued and unpaid interest. In the six months ended June 30, 2004, we recorded interest expense related to these notes of $1.2 million, consisting of a premium over par value paid at redemption of $1.0 million, plus the write-off of $0.2 million of unamortized deferred financing costs.

7. Redeemable Convertible Preferred Stock and Warrants

We have 10 million shares of preferred stock authorized for issuance. At June 30, 2004 and December 31, 2003, we had 200,604 shares of Preferred Stock outstanding. The Preferred Stock, and any accrued and unpaid dividends, are convertible into common stock at any time after issuance at a price of $24.05 and earns a cumulative dividend of 8% compounded quarterly. We cannot pay cash dividends on the Preferred Stock through September 2005, during which time the dividends will accrue. After October 1, 2005, we may pay the Preferred Stock dividends in cash, subject to any limitations under our Credit Facility, or allow it to accrue, at our option.

We may redeem the Preferred Stock in cash at any time on or after January 3, 2006 if the market price (as defined) of our common stock exceeds 200% of the conversion price for 30 of 45 trading days. The Preferred Stock is redeemable in cash by us at any time on or after January 3, 2013. The Preferred Stock is redeemable in cash at the option of the holder in the event of a change in control (as defined). At June 30, 2004 and December 31, 2003, the redemption value of the Preferred Stock was $225.8 million and $217.0 million, respectively, and at June 30, 2004, the Preferred Stock was convertible into approximately 9.4 million shares of common stock.

The net proceeds received from the issuance of Preferred Stock were allocated to the Preferred Stock, warrants and the beneficial conversion feature (“BCF”) of the Preferred Stock based on their relative fair values. The fair value of the Preferred Stock was estimated using the Dividend Discount Method, which determines the fair value based on the discounted cash flows of the security. The BCF is a function of the conversion price of the Preferred Stock, the fair value of the warrants and the fair market value of the underlying common stock on the date of issuance of the preferred stock. In connection with the issuance of our Preferred Stock and each subsequent quarterly dividend date, a BCF was recorded because the fair value of the underlying common stock at the time of issuance of the preferred stock was greater than the conversion price of the Preferred Stock. The BCF is treated as a deemed dividend because the Preferred Stock was convertible into common stock immediately after issuance. The Preferred Stock dividend for the three and six months ended June 30, 2004 of $5.4 million and $10.7 million, respectively, consisted of the stated 8% dividend of $4.4 million and $8.7 million, respectively, and a BCF of $1.0 million and $1.9 million, respectively. The Preferred Stock dividend for the three and six months ended June 30, 2003 of $6.0 million and $48.1 million, respectively, consisted of the stated 8% dividend of $4.1 million and $8.0 million, respectively, and a BCF of $1.9 million and $40.1 million, respectively. The BCF recorded in the six months ended June 30, 2003 was higher than BCF amounts recorded in subsequent periods, reflecting the issuance of the preferred stock and related warrants in January 2003.

8. Restructuring Charge

As a result of the SPA acquisition, we consolidated publishing and technology operations, sales offices and administrative personnel and relocated the headquarters functions in Overland Park, Kansas and Purchase, New York to Cary, North Carolina. Approximately 140 people were affected by the relocation of the headquarters functions in Overland Park, Kansas and Purchase, New York, of which 75 have been included in the restructuring reserve. The remaining 65 people have relocated with the Company. In 2003, $9.5 million was charged to earnings primarily representing severance and related costs associated with the consolidation of the publishing and technology operations, sales offices and administrative personnel and the relocation of our headquarters. In the second quarter of 2004, an additional reserve of $0.7 million was recorded representing an adjustment to previous severance and related cost estimates. Payments of $2.7 million and $4.1 million were made during the three and six months ended

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June 30, 2004, respectively, and the remaining costs will be paid in 2004 and 2005. An additional reserve of $2.1 million was recorded during the second quarter of 2004, representing the estimated fair value of the remaining lease payments, net of estimated sub-lease income on the former headquarters office lease. Payments of $0.1 million were made with respect to the former headquarters office lease during the three and six months ended June 30, 2004 and the remaining payments will be made through 2006.

In 2003 a $2.2 million reserve was recorded, with an offsetting charge to goodwill, representing the closure of the pre-press publishing facility operated by SPA in Tennessee. The reserve represented the remaining lease payments, net of estimated sub-lease income, on the pre-press facility. Payments of $0.2 million and $0.3 million were made with respect to the former pre-press publishing facility during the three and six months ended June 30, 2004, respectively, and the remaining payments will be made through 2012.

The table below shows the activity in our restructuring reserve during the three and six months ended June 30, 2004.

	Three Months
	Ended June 30, 2004
Balance at March 31, 2004	$	7,331
Additions to reserve charged to earnings		2,844
Payments		(2,998	)
Balance at June 30, 2004	$	7,177

	Six Months
	Ended June 30, 2004
Balance at January 1, 2004	$	8,499
Additions to reserve charged to earnings		3,201
Payments		(4,523	)
Balance at June 30, 2004	$	7,177

9. Benefit Plans

Retirement Plans. We have a defined benefit pension plan covering substantially all 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”). Benefits for certain employees who were participants in the predecessor The Dun & Bradstreet Corporation (“D&B”) defined benefit pension plan are also determined based on the participant’s average compensation and years of service (“final average pay benefit”) and benefits to be paid will equal the greater of the final average pay benefit or the cash balance benefit. Pension costs, on an annual basis, are determined using the projected unit credit actuarial cost method. Our funding policy is to contribute an amount at least equal to the minimum legal funding requirement. No contributions were required to be made in 2003, 2002 or 2001. The underlying pension plan assets are invested in diversified portfolios consisting primarily of equity and debt securities. We use a measurement date of December 31 for the majority of our plan assets.

We also have 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).

We offer a defined contribution savings plan to substantially all employees and contribute $0.50 for each dollar

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contributed by a participating employee, up to a maximum of 6% of each participating employee’s salary (including bonus and commissions). The plan provides that in the event the Company’s EPS increases by a specified amount between consecutive annual reporting periods, RHD is required to make an additional matching contribution based on a formula specified in the plan. During the second quarter of 2004, the Company provided for an additional matching contribution resulting from an increase in EPS between 1999 and 2000. The additional matching contribution charged to operations in the second quarter of 2004 was $0.7 million, inclusive of interest and penalties and net of plan forfeitures. The plan has been subsequently amended to eliminate the provision requiring additional matching contributions.

Other Postretirement Benefits. We have an unfunded postretirement benefit plan that provides certain healthcare and life insurance benefits to those full-time employees who reach retirement age while working for the Company.

The net periodic benefit expense of the retirement plans for the three and six months ended June 30, 2004 and 2003 was as follows:

	Pension Benefits
	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2004			2003			2004			2003
Service cost	$	900		$	811		$	1,800		$	1,622
Interest cost		963			918			1,926			1,836
Expected return on plan assets		(1,458	)		(1,477	)		(2,916	)		(2,954	)
Unrecognized prior service cost		27			27			54			54
Amortization of unrecognized loss		138			—			276			—
Net periodic benefit expense	$	570		$	279		$	1,140		$	558
	Other Benefits
	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2004			2003			2004			2003
Service cost	$	113		$	122		$	226		$	244
Interest cost		165			122			330			244
Unrecognized prior service cost		130			(17	)		260			(34	)
Amortization of unrecognized loss		32			25			64			50
Net periodic benefit expense	$	440		$	252		$	880		$	504

We do not expect to make significant cash contributions to the retirement and postretirement benefit plans in 2004.

In May 2004, the Financial Accounting Standards Board issued Financial Staff Position 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 health care 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 will require 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 Company is in the process of evaluating the impact of the Act on the consolidated financial statements and will adopt the FSP in the third quarter of 2004, as required.

10. Business Segments

Our reportable operating segments are Donnelley and DonTech. Donnelley includes the revenue from approximately 260 Sprint-branded yellow pages directories, revenue from our pre-press publishing services contract with SBC and all operating and administrative expenses. The DonTech segment includes revenue participation income and our 50% interest in the net profits of DonTech. Although DonTech provides advertising sales of yellow pages and other

18

directory products similar to Donnelley, the partnership is considered a separate operating segment since, among other things, it has its own board of directors and the employees of DonTech, including officers and managers, are not employees of the Company.

We evaluate the performance of our segments based primarily on operating income and earnings before interest, taxes, depreciation and amortization (“EBITDA”). We evaluate and report the performance of our segments based on EBITDA because we believe that EBITDA is a useful measure of our underlying operating performance and ability to satisfy our significant debt service requirements.

We also evaluate the performance of Donnelley and DonTech based on the value of advertising sales in directories published during the period (“publication sales”). Advertising sales are a critical measure of performance that we review and that play an important role in our decision to allocate financial resources between our segments.

Segment information for the three and six months ended June 30, 2004 and 2003 is as follows:

	Three Months Ended June 30, 2004						Six Months Ended June 30, 2004
	Donnelley		DonTech		Total		Donnelley		DonTech		Total
Net revenue	$	144,641	$	—	$	144,641	$	288,448	$	—	$	288,448
Operating income		57,333		34,803		92,136		120,173		58,701		178,874
Depreciation and amortization		14,947		—		14,947		29,339		—		29,339
EBITDA (1)		72,280		34,803		107,083		149,512		58,701		208,213
Total assets		2,407,826		174,160		2,581,986

	Three Months Ended June 30, 2003							Six Months Ended June 30, 2003
	Donnelley			DonTech		Total		Donnelley			DonTech		Total
Net revenue	$	38,634		$	—	$	38,634	$	51,053		$	—	$	51,053
Operating (loss) income		(24,877	)		35,341		10,464		(70,429	)		58,974		(11,455	)
Depreciation and amortization		16,443			—		16,443		32,471			—		32,471
EBITDA (1)		(7,711	)		35,341		27,630		(36,435	)		58,974		22,539
Total assets		2,417,856			179,912		2,597,768

(1) EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles (“GAAP”) and should not be considered as a substitute for operating income or net income prepared in conformity with GAAP. In addition, EBITDA may not be comparable to similarly titled measures of other companies. See the reconciliation of EBITDA to net income, the most comparable GAAP measure, below.

The most comparable GAAP measure for EBITDA is net income. The reconciliation of net income (loss) to EBITDA is presented below.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2004		2003			2004		2003
Net income (loss)	$	33,057	$	(18,911	)	$	61,152	$	(60,098	)
+ tax expense (benefit)		21,583		(13,155	)		39,926		(41,762	)
+ interest expense, net		37,496		43,253			77,796		91,928
+ depreciation and amortization		14,947		16,443			29,339		32,471
EBITDA	$	107,083	$	27,630		$	208,213	$	22,539

11. Litigation

We are involved in various legal proceedings arising in the ordinary course of our business, as well as certain litigation and tax matters described below. 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 consolidated

19

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, including the litigation and tax matters described below, will not have a material adverse effect on our results of operations, cash flows or financial position, as described below.

In order to understand our potential exposure under the litigation and tax matters described below under the captions “Information Resources, Inc.” and “Tax Matters,” you need to understand the relationship between us and D&B, and certain of our predecessors and affiliates that, through various corporate reorganizations and contractual commitments, have assumed varying degrees of responsibility with respect to such matters.

In November 1996, the company then known as The Dun & Bradstreet Corporation separated through a spin-off (“1996 Distribution”) into three separate public companies: The Dun and Bradstreet Corporation, ACNielsen Corporation (“ACNielsen”), and Cognizant Corporation (“Cognizant”). In June 1998, The Dun & Bradstreet Corporation separated through a spin-off (“1998 Distribution”) into two separate public companies: R.H. Donnelley Corporation (formerly The Dun & Bradstreet Corporation) and a new company that changed its name to The Dun & Bradstreet Corporation. Later in 1998, Cognizant separated through a spin-off (“Cognizant Distribution”) into two separate public companies: IMS Health Incorporated (“IMS”), and Nielsen Media Research, Inc. (“NMR”). In September 2000, The Dun & Bradstreet Corporation separated into two separate public companies: Moody’s Corporation, (“Moody’s”) (formerly The Dun & Bradstreet Corporation), and a new company that changed its name to The Dun & Bradstreet Corporation. As a result of the form of R.H. Donnelley Corporation’s separation from The Dun & Bradstreet Corporation in 1998, we are the corporate successor of and technically the defendant and taxpayer referred to below as D&B with respect to any matter accruing prior to June 30, 1998.

Information Resources, Inc.

The following is a description of an antitrust lawsuit filed in 1996 by Information Resources, Inc. (“IRI”). As more fully described below, VNU N.V., a publicly traded Dutch company (“VNU”), and its U.S. subsidiaries VNU, Inc., ACNielsen, AC Nielsen (US), Inc. (“ACN (US)”), and NMR (collectively, the “VNU Parties”), have assumed exclusive joint and several liability for any judgment or settlement of this antitrust lawsuit. As a result of the indemnity obligation, we do not have any exposure to a judgment or settlement of this lawsuit unless the VNU Parties default on their obligations. In the event of such default, we have contingent liability for this matter as a result of our succeeding to D&B’s liabilities and obligations as part of the 1998 Distribution. In such event, however, under the contractual commitments described below, any such amounts that we might need to pay would be shared equally (50% each) by D&B and Moody’s. Only if D&B and Moody’s were unable to bear all or a part of this liability, would we be liable, and then only to the extent that either of them could not satisfy their joint and several indemnity obligations to us.

In July 1996, IRI filed a complaint, and subsequently amended in 1997, in the United States District Court for the Southern District of New York, naming as defendants D&B (now, the Company, as successor of D&B), A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS (then known as Cognizant), at the time of the filing, all wholly owned subsidiaries of D&B.

The complaint alleges various violations of U.S. antitrust laws under Sections 1 and 2 of the Sherman Antitrust Act. The complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a prospective business relationship. These claims relate to the acquisition by defendants of Survey Research Group Limited (“SRG”). IRI alleges SRG violated an alleged agreement with IRI when it agreed to be acquired by the defendants and that the defendants induced SRG to breach that agreement.

IRI’s antitrust claims allege that the defendants developed and implemented a plan to undermine IRI’s ability to compete within the U.S. and foreign markets in North America, Latin America, Asia, Europe and Australia/New Zealand through a series of anti-competitive practices, including: unlawfully tying/bundling services in the markets in which defendants allegedly had monopoly power with services in markets in which ACNielsen competed with IRI;

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entering into exclusionary contracts with retailers in certain countries to deny IRI’s access to sales data necessary to provide retail tracking services or to artificially raise the cost of that data; predatory pricing; acquiring foreign market competitors with the intent of impeding IRI’s efforts to expand; disparaging IRI to financial analysts and clients; and denying IRI access to capital necessary for it to compete.

IRI’s complaint originally sought damages in excess of $350.0 million, which amount IRI sought to treble under antitrust laws. IRI has since revised its allegation of damages to exceed $650.0 million, which IRI also seeks to treble. IRI has filed with the Court the report of its expert who has opined that IRI suffered damages of between $581.6 million and $651.7 million from the defendants’ alleged practices. IRI also seeks punitive damages of an unspecified amount.

In April 2003, the court denied a motion for partial summary judgment by the defendants that sought to dismiss certain of IRI’s claims and granted in part a motion by IRI seeking reconsideration of certain summary judgment rulings the Court had previously made in favor of the defendants. The motion granted by the court concerns IRI’s claims of injuries from defendants’ alleged conduct in certain foreign markets.

Pursuant to a scheduling order entered by the Court on April 8, 2004, discovery is scheduled to end on November 1, 2004, and trial is scheduled to begin April 18, 2005.

On June 21, 2004, pursuant to a stipulation between IRI and defendants, the Court ordered that certain of IRI’s claims be dismissed with prejudice from the lawsuit, including the claim for tortious interference with the SRG acquisition. We believe that the dismissal of the tortious interference claims also precludes any claim for punitive damages.

In connection with the 1996 Distribution, Cognizant (now NMR), ACNielsen and D&B (now the Company) entered into an Indemnity and Joint Defense Agreement (the “Original JDA”), pursuant to which they agreed to:

• allocate potential liabilities that may relate to, arise out of or result from the IRI lawsuit (“IRI Liabilities”); and

• conduct a joint defense of such action.

In particular, the Original JDA provided that:

• ACNielsen would assume exclusive liability for IRI Liabilities up to a maximum amount to be calculated at such time as such liabilities become payable as a result of a final non-appealable judgment or any settlement permitted under the Original JDA (the “ACN Maximum Amount”); and

• D&B and Cognizant would share liability equally for any amounts in excess of the ACN Maximum Amount.

As a result of VNU’s acquisition of ACNielsen in 2001, VNU assumed ACNielsen’s liabilities under the Original JDA and pursuant to the Original JDA would be included with ACNielsen in the computation of the ACN Maximum Amount.

On July 30, 2004, the VNU Parties, the Company, D&B, Moody’s and IMS entered into an Amended and Restated Indemnity and Joint Defense Agreement (the “Amended JDA”).

Pursuant to the Amended JDA, any and all IRI Liabilities incurred by us, D&B, Moody’s or IMS relating to a judgment (even if not final) or any settlement being entered into in the IRI action will be jointly and severally assumed and fully discharged exclusively by the VNU Parties. Under the Amended JDA, the VNU Parties have agreed to, jointly and severally, indemnify us, D&B, Moody’s and IMS from and against all IRI Liabilities to which they become subject. As a result, the concept of “ACN Maximum Amount” which had been used under the Original JDA to cap ACNielsen’s liability for the IRI Liabilities no longer exists, and all such liabilities are the responsibility

21

of the VNU Parties pursuant to the Amended JDA.

In addition, the Amended JDA provides that if it becomes necessary to post any bond pending an appeal of an adverse judgment, then the VNU Parties shall obtain the bond required for the appeal and shall pay the full cost of such bond.

In connection with entering into the Amended JDA, the Company, D&B, Moody’s and IMS agreed to amend certain covenants of the Original JDA to provide operational flexibility for ACNielsen going forward. In addition, the Amended JDA includes certain amendments to the covenants of ACNielsen (which, under the Amended JDA, are now also applicable to ACN (US), which we understand holds ACNielsen’s operating assets) which are designed to preserve such parties claim-paying ability and protect the Company, D&B, Moody’s and IMS. Among other covenants, ACNielsen and ACN (US) agreed that neither they nor any of their respective subsidiaries will incur any indebtedness to any affiliated person, except indebtedness which its payment will, after a payment obligation under the Amended JDA comes due, be conditioned on, and subordinated to, the payment and performance of the obligations of such parties under the Amended JDA. VNU has agreed to having a process agent in New York to receive on its behalf service of any process concerning the Amended JDA.

Under the agreements relating to the 1998 Distribution, D&B assumed the defense and agreed to indemnify us against any payments that we may be required to make, including any liabilities arising under the Original JDA, and IRI Liabilities arising from the IRI action itself, and in each case related legal fees. As required by those agreements, Moody’s Corporation, which subsequently separated from D&B in the 2000 Distribution, has agreed to be jointly and severally liable with D&B for the indemnity obligation to us. We understand that D&B and Moody’s have agreed amongst themselves to share equally (50% each) these indemnity obligations to us. Only if D&B and Moody’s were unable to bear all or a part of their aggregate 50% share of the liability in excess of the cap, would we be liable, and then only to the extent that either of them could not satisfy their joint and several indemnity obligations to us. Because liability for violations of the antitrust laws is joint and several and because the rights and obligations relating to the Amended JDA are based on contractual relationships, the failure of the VNU Parties to fulfill their obligations under the Amended JDA could result in the other parties bearing all or a share of the IRI Liabilities. Joint and several liability for the IRI Liabilities means that even where more than one defendant is determined to have been responsible for an alleged wrongdoing, the plaintiff can collect all or part of the judgment from just one of the defendants. This is true regardless of whatever contractual allocation of responsibility the defendants and any other indemnifying parties may have made, including the allocations described above between the VNU Parties, the Company, D&B, Moody’s and IMS.

Accordingly, and as a result of the allocations of liability described above, in the event the VNU Parties default on their obligations under the Amended JDA, each of D&B and Moody’s will be responsible for the payment of 50% of the portion of any judgment or settlement ultimately payable by the Company (which is the defendant in the IRI action), which could be as high as all of the IRI Liabilities.

We are unable to predict the outcome of the IRI litigation or the financial condition of any of the VNU Parties or the other defendants at the time of any such outcome (and hence we cannot estimate their ability to pay the IRI Liabilities pursuant to the Amended JDA or the judgment or settlement in the IRI action). Nonetheless, while we cannot assure you as to the outcome of this matter, management presently believes that the VNU Parties have sufficient financial resources and borrowing capacity to satisfy their obligations under the Amended JDA and, if they default, D&B and Moody’s have sufficient financial resources and borrowing capacity to reimburse us for any payments we may be required to make and related costs we may incur in connection with this matter. Therefore, management presently believes that the ultimate resolution of this matter would not have a material adverse effect on the Company’s results of operations, cash flows or financial condition. Accordingly, no amount in respect of this matter has been accrued in our consolidated financial statements.

Tax Matters

D&B entered into global tax-planning initiatives in the normal course of its business, primarily through tax-free restructurings of both its foreign and domestic operations. The status of Internal Revenue Service reviews of these initiatives is summarized below.

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We understand that D&B recently reached a basis for settlement with the IRS regarding the two legacy tax matters described below under the headings “Utilization of Capital Losses – 1989-1990” and “Royalty Expense Deductions – 1993-1997.” These agreements are tentative, and will not bind either the IRS or D&B until final settlement agreements are executed. Upon final settlement, we understand that D&B expects that the net impact to D&B’s cash flow for these two matters could be up to $51.0 million (tax, interest, and penalties, net of associated tax benefits).

Pursuant to a series of agreements relating to the spin-offs and separations referred to above, IMS and NMR are jointly and severally liable for, and must pay one-half of, and D&B and Moody’s are jointly and severally liable for, and must pay the other half of, any payments over $137.0 million for taxes, accrued interest and other amounts resulting from unfavorable IRS rulings on the matters summarized below (other than the matter summarized below under “— Amortization and Royalty Expense Deductions/Royalty Income — 1997-2004,” for which D&B and Moody’s, jointly and severally, are solely responsible). D&B, on our behalf, was contractually obligated to pay, and did pay, the first $137.0 million of tax liability in connection with the matter summarized below as “— Utilization of Capital Losses — 1989-1990.”

Under the terms of the 1998 Distribution, D&B agreed to assume the defense and to indemnify us for any tax liability that may be assessed against us and any related costs and expenses that we may incur in connection with any of these tax matters. Also, as required by those agreements, Moody’s has agreed to be jointly and severally liable with D&B for the indemnity obligation to us. Under the terms of certain of the other spin-offs and separations, D&B and Moody’s have, between each other, agreed to be financially responsible for 50% of any potential liabilities that may arise to the extent such potential liabilities are not directly attributable to each party’s respective business operations. Only if D&B and Moody’s were unable to bear all or a part of these liabilities, would we be liable, and then only to the extent that both of them could not satisfy their joint and several indemnity obligations to us.

While we cannot assure you as to the outcome in these matters, management presently believes that D&B and Moody’s have sufficient financial resources, borrowing capacity and indemnity rights against IMS and NMR (who succeeded to Cognizant’s indemnity obligations under the Cognizant Distribution) and IMS and NMR in turn have sufficient financial resources and borrowing capacity to satisfy their respective indemnity obligations to D&B and Moody’s, so as to reimburse us for any payments we may be required to make and related costs we may incur in connection with these tax matters. Therefore, management presently believes that the ultimate resolution of these matters would not have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Utilization of Capital Losses – 1989 – 1990 (Tentative Settlement Pending)

In 2000, D&B filed an amended tax return with respect to the utilization of capital losses in 1989 and 1990 in response to a formal IRS notice of adjustment. The amended tax return reflected an additional $561.6 million of tax and interest due. In 2000, D&B paid the IRS approximately $349.3 million and IMS (on behalf of itself and NMR) paid the IRS approximately $212.3 million. We understand that these payments were made under dispute in order to stop additional interest from accruing and that D&B has filed a complaint for a refund in the United States District Court. As noted above, we understand that D&B recently reached a basis for settlement of this matter with the IRS. The agreement is tentative and non-binding until a definitive settlement agreement is executed. The pending settlement requires that the complaint for a refund be withdrawn and that D&B make an additional payment to the IRS. We understand that D&B expects that the net impact to D&B’s cash flow to settle this matter could be up to $14.0 million (tax, interest, and penalties, net of associated tax benefits), and that such payments will be made in 2004.

Royalty Expense Deductions – 1993 – 1997 (Tentative Settlement Pending)

In the second quarter of 2003, D&B received (on our behalf) a proposed notice of deficiency from the IRS with respect to a partnership transaction entered into in 1993. Specifically, the IRS is proposing to disallow certain royalty expense deductions claimed by D&B on its 1993 through 1996 tax returns. We understand that D&B estimates that the disallowance of the 1993 and 1994 royalty expense deductions would result in a loss of approximately $5.0 million in pending tax refunds and that the additional tax liability with respect to the disallowance of the 1995 and 1996 royalty expense deductions could be up to approximately $45.0 million (tax, interest and penalties, net of associated tax benefits).

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In addition, and also in the second quarter of 2003, D&B received from the IRS on behalf of the partnership associated with the above transaction a notice of proposed partnership adjustment challenging the tax treatment of certain royalty payments received by the partnership in which D&B was a partner. In that notice, the IRS is seeking to reallocate certain partnership income to D&B. In January and April 2004, D&B received additional IRS notices (similar to those received in the second quarter of 2003) associated with D&B’s remaining interest in the partnership transaction (as described above) for the three months in 1997 for which the entities were partners. The additional tax liability with respect to D&B’s share of this income for the notices received in the second quarter of 2003 and January and April 2004 could be up to $22.3 million (tax, interest and penalties, net of associated tax benefits). We understand that D&B believes that these positions regarding the partnership are inconsistent with the IRS’ position with respect to the same royalty expense deductions described above. This $22.3 million additional liability would be in addition to the $45.0 million of additional liability related to royalty expense deductions discussed in the previous paragraph.

As noted above, we understand that D&B recently reached a basis for settlement regarding the disallowance of the 1995 and 1996 royalty expense deductions. The agreement is tentative and non-binding until a definitive settlement agreement is executed. The agreement would eliminate the “inconsistent positions” described above. We understand that D&B expects that the net impact to D&B’s cash flow with respect to the agreement could be up to $37.0 million (tax, interest, and penalties, net of associated tax benefits), and that such payments will be made in 2004. We also understand that D&B continues to discuss with IRS Appeals the 1993, 1994, and 1997 royalty expense deductions, described above, which amounts represent $6.5 million (tax, interest, and penalties, net of associated tax benefits).

Amortization Expense Deductions – 1997 — 2004

In the fourth quarter of 2003, D&B received (on our behalf) IRS notices of proposed adjustment with respect to a partnership transaction entered into in 1997. In addition, D&B received, on behalf of the partnership, various IRS materials further explaining the examining agent’s position with respect to the activities of the partnership in 1997 and 1998.

In April 2004, D&B received (on our behalf) proposed notices of deficiency from the IRS, proposing adjustments with respect to the same partnership transaction entered into in 1997 described above. The adjustments proposed in the April notice reflect the notices of proposed adjustment and other IRS materials referred to above.

Specifically, the IRS asserted that certain amortization expense deductions claimed by D&B on its 1997 and 1998 tax returns should be disallowed. We understand that D&B estimates that the additional tax liability as a result of the disallowance of the 1997 and 1998 amortization deductions and the disallowance of such deductions claimed from 1999 to date could be up to $55.7 million (tax, interest and penalties, net of associated tax benefits). This transaction is scheduled to expire in 2012 and, unless earlier terminated, based on current interest rates and tax rates, additional tax exposure would increase at a rate of approximately $2.1 million per quarter (including potential penalties) as future amortization expenses are deducted.

In addition, the IRS has asserted that royalty expense deductions, claimed by D&B on its tax returns for 1997 and 1998 for royalties paid to the partnership should be disallowed. The IRS also has asserted that the receipt of these same royalties by the partnership should be reallocated to and reported as royalty income by D&B, including the portions of the royalties that were allocated to third party partners in the partnership, and, thus, included in their taxable income. We understand that D&B believes that the IRS’ stated positions with respect to the treatment of the royalty expense and royalty income are mutually inconsistent, making it unlikely that the IRS will prevail on both of the positions. As a result, we understand that D&B estimates that after taking into account certain other tax benefits resulting from the IRS’ position on the partnership it is unlikely that there will be any additional cash tax payments due in addition to the amounts noted above related to the amortization expense deduction.

In the event the IRS were to prevail on both positions with respect to the royalty expense/income, which D&B believes unlikely, D&B estimates that the additional tax liability as a result of the disallowance of the 1997 and 1998 royalty expense deductions, the disallowance of such deductions claimed from 1999 to date and the inclusion of the reallocated royalty income for all relevant years could be up to $138.8 million (tax, interest and penalties, net of

24

associated tax benefits), which would be in addition to the $55.7 million noted above related to the amortization expense deduction.

We understand that D&B has filed protests relating to these matters with the IRS Office of Appeals, attempting to resolve these matters at the Appeals phase before proceeding to litigation, if necessary. If D&B were to challenge, at any time, any of these IRS positions for years 1997 and 1998 in U.S. District Court or the U.S. Court of Federal Claims, rather than in U.S. Tax Court, the disputed amounts for each applicable year would need to be paid in advance for the Court to have jurisdiction over the case.

Conclusion

As a result of our assessment of our exposure in these matters relating to our prior relationship with D&B and its former affiliates, especially in light of our indemnity arrangements with D&B and Moody’s (and the VNU Parties with respect to the IRI matter), and their respective financial resources, borrowing capacity and, in the case of Tax Matters, indemnity rights against IMS and NMR, and in turn IMS and NMR’s respective financial resources and borrowing capacity to satisfy their respective indemnity obligations to D&B and Moody’s, no material amounts have been accrued in our consolidated financial statements for any of these D&B-related litigation and tax matters.

Other Matters

We are also involved in other legal proceedings, claims and litigation arising in the ordinary conduct of our business. Although we cannot assure you of any outcome, management presently believes that the outcome of such legal proceedings will not have a material adverse effect on our results of operations or financial condition and no material amounts have been accrued in our consolidated financial statements with respect to these matters.

12. Guarantees

R.H. Donnelley Inc. is a direct wholly owned subsidiary of the Company and the issuer of the 9 1/8 % Senior Subordinated Notes due 2008, which were redeemed in full on February 6, 2004, the Notes. The Company and the direct and indirect wholly owned subsidiaries of R.H. Donnelley Inc. jointly and severally, fully and unconditionally, guarantee these debt instruments. At June 30, 2004, R.H. Donnelley Inc.’s direct wholly owned subsidiaries were R.H. Donnelley Publishing & Advertising, Inc., R.H. Donnelley APIL, Inc. and Get Digital Smart.com Inc.

As of June 30, 2004, R.H. Donnelley Corporation has issued 200,604 shares of its Preferred Stock. See Note 7, Redeemable Convertible Preferred Stock and Warrants, for a further description of the terms of the Preferred Stock and the related dividend requirements. See Note 11, Litigation, for a description of various legal proceedings in which the Company is involved and related contingencies.

R.H. Donnelley Corporation receives dividends from R.H. Donnelley Inc. for the payment of income taxes and certain other public company matters. Dividends for these items in these periods were not material.

In general, the Company and its subsidiaries are restricted from paying dividends to any third party, and our subsidiaries are restricted from paying dividends, loans or advances to R.H. Donnelley Corporation, with very limited exceptions, under the terms of our Credit Facility. See Note 6, Long-Term Debt, for a further description of our debt instruments.

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R.H. Donnelley Corporation

Consolidating Condensed Balance Sheet

June 30, 2004

					R.H.
	R.H. Donnelley		R.H. Donnelley		Donnelley			Other					Consolidated
	Corp.		Inc.		Publishing &			Guarantor					R.H. Donnelley
	(Parent)		(Issuer)		Advertising			Subsidiaries		Eliminations			Corporation
Assets
Cash and cash equivalents	$	—	$	8,694	$	1,880		$	20	$	—		$	10,594
Accounts receivable, net		—		—		223,520			—		—			223,520
Deferred directory costs		—		—		35,229			—		—			35,229
Other current assets		—		17,054		65,107			—		—			82,161
Total current assets				25,748		325,736			20					351,504
Investment in subsidiaries		212,575		3,818,864		(1,968,816	)		124,256		(2,012,719	)		174,160
Fixed assets, net		—		24,291		3,736			—		—			28,027
Other assets		—		91,005		—			—		(1	)		91,004
Intangible assets, net		—		—		1,840,251			—		—			1,840,251
Goodwill		—		—		97,040			—		—			97,040
Total assets	$	212,575	$	3,959,908	$	297,947		$	124,276	$	(2,012,720	)	$	2,581,986
Liabilities, Preferred Stock and Shareholders’ Equity (Deficit)
Accounts payable and accrued liabilities	$	—	$	126,520	$	23,579		$	3	$	(99,990	)	$	50,112
Deferred directory revenue		—		—		227,773			—		—			227,773
Current portion LTD		—		28,896		—			—		—			28,896
Total current liabilities		—		155,416		251,352			3		(99,990	)		306,781
Long-term debt		—		1,913,771		—			—		—			1,913,771
Deferred income taxes, net		—		47,203		39,813			35,034		(144	)		121,906
Other long-term liabilities		—		25,701		973			—		279			26,953
Redeemable convertible preferred stock		206,990		206,990		—			—		(206,990	)		206,990
Shareholders’ equity		5,585		1,610,827		5,809			89,239		(1,705,875	)		5,585
Total liabilities, preferred stock and shareholders’ equity (deficit)	$	212,575	$	3,959,908	$	297,947		$	124,276	$	(2,012,720	)	$	2,581,986

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R.H. Donnelley Corporation

Consolidated Condensed Balance Sheet

December 31, 2003

							R.H.
	R.H. Donnelley			R.H. Donnelley			Donnelley								Consolidated
	Corp.			Inc.			Publishing &			Guarantor					R.H. Donnelley
	(Parent)			(Issuer)			Advertising			Subsidiaries		Eliminations			Corporation
Assets
Cash and cash equivalents	$	—		$	6,900		$	801		$	21	$	—		$	7,722
Accounts receivable, net		—			—			210,981			—		—			210,981
Deferred directory costs		—			—			33,034			—		—			33,034
Other current assets		—			12,696			20,158			—		—			32,854
Total current assets		—			19,596			264,974			21		—			284,591
Investment in subsidiaries		141,978			2,362,171			(2,124,955	)		4,250,311		(4,453,776	)		175,729
Fixed assets, net		—			17,201			3,424			—		(1	)		20,624
Other assets		—			95,583			—			—		—			95,583
Intangible assets		—			—			1,865,167			—		—			1,865,167
Goodwill		—			—			97,040			—		—			97,040
Total assets	$	141,978		$	2,494,551		$	105,650		$	4,250,332	$	(4,453,777	)	$	2,538,734
Liabilities, Preferred Stock and Shareholders’ Deficit
Accrued liabilities	$	—		$	119,155		$	19,292		$	—	$	(104,945	)	$	33,502
Deferred 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 tax		—			(22,739	)		(50,480	)		106,848		—			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			(79,714	)		4,143,484		(4,348,832	)		(56,245	)
Total liabilities, preferred stock and shareholders’ (deficit) equity	$	141,978		$	2,494,551		$	105,650		$	4,250,332	$	(4,453,777	)	$	2,538,734

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R.H. Donnelley Corporation

Consolidating Condensed Statement of Operations

For the Three Months Ended June 30, 2004

						R.H.
	R.H. Donnelley		R.H. Donnelley			Donnelley			Other					Consolidated
	Corp.		Inc.			Publishing &			Guarantor					R.H. Donnelley
	(Parent)		(Issuer)			Advertising			Subsidiaries		Eliminations			Corporation
Net revenue	$	—	$	4,656		$	139,985		$	—	$	—		$	144,641
Expenses		—		24,179			63,094			35		—			87,308
Partnership income		32,674		106,488			—			28,515		(132,874	)		34,803
Operating income		32,674		86,965			76,891			28,480		(132,874	)		92,136
Interest expense		—		(37,496	)		—			—		—			(37,496	)
Pre-tax income		32,674		49,469			76,891			28,480		(132,874	)		54,640
Income tax expense (benefit)		—		16,795			(4,873	)		10,044		(383	)		21,583
Net income		32,674		32,674			81,764			18,436		(132,491	)		33,057
Preferred dividend		5,392		—			—			—		—			5,392
Income available to common shareholders	$	27,282	$	32,674		$	81,764		$	18,436	$	(132,491	)	$	27,665

R.H. Donnelley Corporation

Consolidating Condensed Statement of Operations

For the Three Months Ended June 30, 2003

							R.H.
	R.H. Donnelley			R.H. Donnelley			Donnelley			Other					Consolidated
	Corp.			Inc.			Publishing &			Guarantor					R.H. Donnelley
	(Parent)			(Issuer)			Advertising			Subsidiaries		Eliminations			Corporation
Net revenue	$	—		$	6,448		$	32,186		$	—	$	—		$	38,634
Expenses		—			18,564			44,572			375		—			63,511
Partnership (loss) income		(18,525	)		21,690			—			60,224		(28,048	)		35,341
Operating (loss) income		(18,525	)		9,574			(12,386	)		59,849		(28,048	)		10,464
Interest (expense) income		—			(46,818	)		(46,474	)		50,039		—			(43,253	)
Other income		—			723			—			—		—			723
Pre-tax (loss) income		(18,525	)		(36,521	)		(58,860	)		109,888		(28,048	)		(32,066	)
Income tax expense (benefit)		386			(17,996	)		(23,893	)		28,348		—			(13,155	)
Net (loss) income		(18,911	)		(18,525	)		(34,967	)		81,540		(28,048	)		(18,911	)
Preferred dividend		5,978			—			—			—		—			5,978
(Loss) income available to common shareholders	$	(24,889	)	$	(18,525	)	$	(34,967	)	$	81,540	$	(28,048	)	$	(24,889	)

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R.H. Donnelley Corporation

Consolidating Condensed Statement of Operations

For the Six Months Ended June 30, 2004

						R.H.
	R.H. Donnelley		R.H. Donnelley			Donnelley		Other					Consolidated
	Corp.		Inc.			Publishing &		Guarantor					R.H. Donnelley
	(Parent)		(Issuer)			Advertising		Subsidiaries		Eliminations			Corporation
Net revenue	$	—	$	9,866		$	278,582	$	—	$	—		$	288,448
Expenses		—		45,767			122,457		51		—			168,275
Partnership income		61,151		172,698			—		49,329		(224,477	)		58,701
Operating income		61,151		136,797			156,125		49,278		(224,477	)		178,874
Interest expense		—		(77,796	)		—		—		—			(77,796	)
Pre-tax income		61,151		59,001			156,125		49,278		(224,477	)		101,078
Income tax (benefit) expense		—		(2,150	)		24,483		17,593		—			39,926
Net income		61,151		61,151			131,642		31,685		(224,477	)		61,152
Preferred dividend		10,678		—			—		—		—			10,678
Income available to common shareholders	$	50,473	$	61,151		$	131,642	$	31,685	$	(224,477	)	$	50,474

R.H. Donnelley Corporation

Consolidating Condensed Statement of Operations

For the Six Months Ended June 30, 2003

							R.H.
	R.H. Donnelley			R.H. Donnelley			Donnelley			Other					Consolidated
	Corp.			Inc.			Publishing &			Guarantor					R.H. Donnelley
	(Parent)			(Issuer)			Advertising			Subsidiaries		Eliminations			Corporation
Net revenue	$	—		$	13,003		$	38,050		$	—	$	—		$	51,053
Expenses		—			35,380			85,691			411		—			121,482
Partnership (loss) income		(60,447	)		17,339			—			111,538		(9,456	)		58,974
Operating (loss) income		(60,447	)		(5,038	)		(47,641	)		111,127		(9,456	)		(11,455	)
Interest (expense) income		—			(95,493	)		(94,909	)		98,474		—			(91,928	)
Other income		—			1,523			—			—		—			1,523
Pre-tax (loss) income		(60,447	)		(99,008	)		(142,550	)		209,601		(9,456	)		(101,860	)
Income tax (benefit) expense		(349	)		(38,561	)		(56,165	)		53,313		—			(41,762	)
Net (loss) income		(60,098	)		(60,447	)		(86,385	)		156,288		(9,456	)		(60,098	)
Preferred dividend		48,132			—			—			—		—			48,132
(Loss) income available to common shareholders	$	(108,230	)	$	(60,447	)	$	(86,385	)	$	156,288	$	(9,456	)	$	(108,230	)

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R.H. Donnelley Corporation

Consolidating Condensed Statement of Cash Flows

For the Six Months Ended June 30, 2004

	R.H. Donnelley		R.H. Donnelley			R.H. Donnelley			Other						Consolidated
	Corp.		Inc.			Publishing &			Guarantor						R.H. Donnelley
	(Parent)		(Issuer)			Advertising			Subsidiaries			Eliminations			Corporation
Cash flow from operations	$	—	$	(81,513	)	$	173,335		$	50,404		$	5,234		$	147,460
Cash flow from investing activities		—		(7,893	)		(964	)		—			—			(8,857	)
Cash flow from financing activities
Debt repayments		—		(150,866	)		—			—			—			(150,866	)
Intercompany transfers		—		237,798			(182,160	)		(50,404	)		(5,234	)		—
Other		—		4,268			10,867			—			—			15,135
Net cash flow from financing activities		—		91,200			(171,293	)		(50,404	)		(5,234	)		(135,731	)
Change in cash		—		1,794			1,078			—			—			2,872
Cash at beginning of year		—		6,900			801			21			—			7,722
Cash at end of period	$	—	$	8,694		$	1,879		$	21		$	—		$	10,594

R.H. Donnelley Corporation

Consolidating Condensed Statement of Cash Flows

For the Six Months Ended June 30, 2003

													Consolidated
	R.H. Donnelley			R.H.			R.H. Donnelley			Other			R.H.
	Corp.			Donnelley Inc.			Publishing &			Guarantor			Donnelley
	(Parent)			(Issuer)			Advertising			Subsidiaries			Corporation
Cash flow from operations	$	—		$	(100,959	)	$	22,842		$	209,639		$	131,522
Cash flow from investing activities		69,300			(407,926	)		(32,180	)		—			(370,806	)
Cash flow from financing activities		(69,300	)		501,140			9,338			(209,681	)		231,497
Change in cash		—			(7,745	)		—			(42	)		(7,787	)
Cash at beginning of year		—			7,745			—			42			7,787
Cash at end of period	$	—		$	—		$	—		$	—		$	—

13. Lease Commitment

The lease of the new corporate headquarters building in Cary, North Carolina commenced April 1, 2004 and expires June 30, 2015. The lease terms include eight months of free rent and escalating rent thereafter. Total cash rental payments of $16.0 million will be recognized as rent expense on a straight-line basis over the lease term. In accordance with FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases, landlord lease incentives totaling $2.7 million were recorded during the second quarter of 2004 with a corresponding charge to leasehold improvements, which are being amortized ratably as a monthly reduction to rent expense over the lease term. The leasehold improvements are being amortized over the term of the lease or their useful lives, whichever is less.

14. Subsequent Events

On July 28, 2004, the Company signed a definitive agreement to acquire SBC’s directory publishing business in Illinois and Northwest Indiana, including SBC’s interest in DonTech, for $1.42 billion in cash after settlement of approximately a $30 million liquidation preference owed to the Company with respect to such directory publishing business. The transaction is expected to be completed during the third quarter of 2004, subject to regulatory approval and certain closing conditions. Upon completion of the transaction, RHD will control and publish 389 yellow pages directories serving more than 260,000 local and national advertisers. Additionally, equity accounting related to DonTech will no longer be applicable once the transaction is completed. The Company is amending its Credit Facility in

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connection with this acquisition to finance the purchase price.

In connection with the closing of the transaction, the Company and/or certain of its affiliates will enter into commercial arrangements with SBC and/or its affiliates under which the Company will be the exclusive directory publisher for SBC in Illinois and Northwest Indiana for an initial term of 50 years. In addition, for the concurrent period (subject to certain exceptions), SBC will generally agree not to (i) produce, publish or distribute print directories in these territories or solicit or sell advertising for inclusion in such print directories or (ii) solicit or sell local internet yellow pages advertising for certain internet yellow pages directories or license its name in these territories to a third party for that purpose.

On July 2, 2004, we entered into an interest rate swap agreement with a total notional value of $50.0 million. This interest rate swap effectively converts $50.0 million of variable rate debt to fixed rate debt. Under the terms of this agreement, we receive variable interest based on three-month LIBOR and pay a fixed rate of 3.20%. This swap agreement matures on July 3, 2006.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

Certain statements contained in this Form 10-Q regarding our future operating results, performance, business plans or prospects and any other statements not constituting historical fact are “forward-looking statements” subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, words such as “believe”, “expect”, “anticipate”, “should”, “will”, “would”, “planned”, “estimated”, “potential”, “goal”, “outlook”, “could”, and similar expressions, are used to identify such forward-looking statements. All forward-looking statements reflect only our current beliefs and assumptions with respect to our future results, business plans, and prospects, and are based solely on information currently available to us. Accordingly, these statements are subject to significant risks and uncertainties and our actual results, business plans and prospects could differ significantly from those expressed in, or implied by, these statements. We caution readers not to place undue reliance on, and we undertake no obligation to update, other than imposed by law, any forward-looking statements. Unless otherwise indicated, the terms “Company”, “we”, “us” and “our” refer to R.H. Donnelley Corporation and its direct and indirect wholly owned subsidiaries. Such risks and uncertainties are described in detail in our Annual Report on Form 10-K for the year ended December 31, 2003 and our other filings with the SEC.

Corporate Overview

We are a leading yellow pages publisher and directional media company. Directional media is where consumers go to find who sells the goods and services they are ready to purchase. We currently publish approximately 260 directories under the Sprint Yellow Pages ® brand in 18 states, with major markets including Las Vegas, Orlando, and Lee County, Florida, with a total circulation of approximately 18 million serving approximately 160,000 local and 4,000 national advertisers. We also offer online city guides and search web sites in these and other major markets under the Best Red Yellow Pages brand at www.bestredyp.com. In addition, through The DonTech II Partnership (“DonTech”), our perpetual partnership with an affiliate of SBC Communications Inc. (“SBC”), we serve as the exclusive sales agent for 129 SBC-branded directories under the SBC ® Yellow Pages brand in Illinois and northwest Indiana, with a total circulation of approximately 10 million serving approximately 100,000 local advertisers.

On January 3, 2003, we acquired all the outstanding capital stock of the various entities comprising Sprint Publishing and Advertising (“SPA”), Sprint Corporation’s (“Sprint”) directory publishing business, for $2,229.8 million in cash. 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 business are included in our consolidated results from and after January 3, 2003. SPA operates as R.H. Donnelley Publishing & Advertising, Inc., an indirect, wholly owned subsidiary of the Company.

Recent Developments

On July 28, 2004, the Company signed a definitive agreement to acquire SBC’s directory publishing business in Illinois and Northwest Indiana, including SBC’s interest in DonTech, for $1.42 billion in cash after settlement of approximately a $30 million liquidation preference owed to the Company with respect to such directory publishing business. The transaction is expected to be completed during the third quarter of 2004, subject to regulatory approval and certain closing conditions. Upon completion of the transaction, RHD will control and publish 389 yellow pages directories serving more than 260,000 local and national advertisers. Additionally, equity accounting related to DonTech will no longer be applicable once the transaction is completed. The Company is amending its Credit Facility in connection with this acquisition to finance the purchase price. See “Liquidity and Capital Resources”.

In connection with the closing of the transaction, the Company and/or certain of its affiliates will enter into commercial arrangements with SBC and/or its affiliates under which the Company will be the exclusive directory publisher for SBC in Illinois and Northwest Indiana for an initial term of 50 years. In addition, for the concurrent period (subject to initial exceptions), SBC will generally agree not to (i) produce, publish or distribute print directories in these territories or solicit or sell advertising for inclusion in such print directories or (ii) solicit or sell local internet yellow pages advertising for certain internet yellow pages directories or license its name in these territories to a third party for that purpose.

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Segment Reporting

Donnelley

As the publisher of yellow pages directories, directory revenue is recognized under the deferral and amortization method based on the annual billing value of the advertisements sold in a directory (“publication sales”), subject to a provision for sales claims and allowances. 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. Certain costs directly related to selling and production of directories are also deferred when incurred and recognized ratably over the life of a directory. These costs include sales commissions and print, paper and initial distribution costs. All of our other operating and administrative costs are included in this segment as well and are expensed as incurred. We also earn revenue from pre-press publishing and billing services provided to SBC for the yellow pages directories for which DonTech sells advertising and from SBC for sales-related computer application services provided to DonTech. The fees received for these services are included in our Donnelley segment, as they relate more to our pre-press publishing services than DonTech sales activities.

DonTech

DonTech is a 50/50 perpetual partnership with a subsidiary of SBC. DonTech acts as the exclusive sales agent for yellow pages directories published by SBC in Illinois and northwest Indiana and earns a commission from SBC at the time a sales contract is signed. We account for our investment in DonTech under the equity method and record our income from DonTech as partnership income. Our reported income from DonTech is comprised of our 50% interest in the net profits of DonTech and revenue participation income received directly from an affiliate of SBC. Revenue participation income is based on a percentage of DonTech advertising sales and comprises approximately 80% to 85% of our total annual income related to DonTech. Total income from DonTech accounted for approximately 28% of our total operating income before depreciation and amortization for the six months ended June 30, 2004. Certain general and administrative expenses incurred to support this business are not allocated to the DonTech segment, but we believe such expenses are not material to our segment reporting.

The DonTech partnership is considered a separate operating segment because, among other things, the partnership has its own Board of Directors and the employees of DonTech, including its officers and managers, are not our employees. The SPA transaction did not affect our partnership with SBC, and DonTech continues to act as a sales agent for SBC. Further, we have consistently accounted for our partnership interest in DonTech under the equity method.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (“GAAP”) requires management to estimate the effect of various matters that are inherently uncertain as of the date of the financial statements. Each of these estimates varies in regard to the level of judgment involved and its potential impact on the Company’s reported financial results. Estimates are deemed critical when a different estimate could have reasonably been used or when changes in the estimate are reasonably likely to occur from period to period, and could materially impact the Company’s financial condition, changes in financial condition or results of operations. The Company’s significant accounting polices are discussed in Note 2 of the consolidated financial statements included in Item 1 of this quarterly report. The critical estimates inherent in these accounting polices are discussed below.

Allowance for Doubtful Accounts and Sales Claims

We record our revenue net of an allowance for sales claims. In addition, we record a provision for bad debts. The provision for bad debts and allowance for sales claims is estimated for each directory based on historical experience. We also evaluate the current condition of our customer balances, bankruptcy filings, historical charge-off patterns, recovery rates and other data when determining our allowance for doubtful accounts reserve. We review these estimates periodically to assess whether additional adjustment is needed based on economic events or other circumstances, including actual experience at the end of the billing and collection cycle with respect to each directory. We believe that the allowance for doubtful accounts and sales claims is adequate to cover anticipated

33

losses under current conditions; however, significant deterioration in any of the factors noted above or in the overall economy could materially change these expectations. The provisions for sales claims and doubtful accounts are estimated based on a percentage of revenue. Accordingly, an additional 1% change in either of these allowance percentages would impact net income by approximately $3.0 million annually.

Pension Benefits

Our pension plan obligations and related assets of our defined benefit retirement plans are presented in Note 9 to our consolidated financial statements. Plan assets consist primarily of marketable equity and debt instruments and are valued using market quotations. Plan obligations and annual pension expense are determined by independent actuaries and through the use of a number of assumptions. Key assumptions in measuring the plan obligations include the discount rate, the rate of future salary increases and the long-term expected return on plan assets. In determining the discount rate, we look at yields on high-quality, fixed-income investments with maturities corresponding to the anticipated timing of the benefit payments. Salary increase assumptions are based upon historical experience and anticipated future management actions. Asset returns are based upon the anticipated average rate of earnings expected on invested funds of the plan over the long-run. At December 31, 2003, the weighted-average actuarial assumptions were: discount rate of 6.0%; long-term rate of return on plan assets of 8.25%; and assumed salary increases of 3.66%. Net periodic pension costs recognized in 2003 were $1.1 million. A 1% change in the discount rate would affect net income by approximately $0.5 million; a 1% change in the long-term rate of return on plan assets would affect net income by approximately $0.4 million; and a 1% change in assumed salary increases would affect net income by approximately $0.3 million.

Intangible Assets and Goodwill Valuation and Amortization

Our intangible assets consist of directory service agreements between the Company and Sprint, established customer relationships, and trade names, all resulting from the SPA acquisition. The intangible assets are being amortized over the period the assets are expected to contribute to the cash flow of the Company, which reflect the expected pattern of benefit. Our recorded goodwill resulted from the SPA acquisition and is not subject to amortization.

The intangible assets are subject to an impairment test in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (“SFAS 144”), and the goodwill is subject to an impairment test in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). The Company reviews the carrying value of its intangible assets for impairment at least annually or more frequently whenever events or circumstances indicate that their carrying amount may not be recoverable. The impairment test for the intangible assets is performed by comparing the carrying amount of the intangible assets to the sum of the undiscounted expected future cash flows. In accordance with SFAS 144, impairment exists if the sum of the future undiscounted cash flows is less than the carrying amount of the intangible asset, or to its related group of assets. Impairment would result in a write-down of the intangible asset to its estimated fair value based on the discounted future cash flows. Goodwill is tested for impairment by comparing the carrying amount of the reporting unit to which it was assigned to the estimated fair value of the reporting unit. In accordance with SFAS 142, impairment exists if the carrying amount of the reporting unit is less than its estimated fair value. Impairment would result in a write-down equal to the difference between the carrying amount and the estimated fair value of the reporting unit.

We used certain estimates and assumptions in our impairment evaluation, including, but not limited to, projected future cash flows, revenue growth, customer attrition levels, and estimated write-offs. As of December 31, 2003, management believes that there was no impairment to the intangible assets or goodwill. However, significant deterioration in our business, the assumptions underlying the impairment evaluations, or in the overall economy, could result in impairment charges in future reporting periods. Had the aggregate net book value of the intangible assets at December 31, 2003 been impaired by 1%, net income would have been adversely impacted by approximately $11.0 million.

Additionally, management must assess whether the remaining useful lives of the intangible assets represent the period that the intangible assets are expected to contribute to the cash flow of the Company. In our assessment process, we used certain estimates and assumptions, including projected future cash flows, customer attrition levels

34

and industry and economic conditions. In accordance with SFAS 142, we evaluate the remaining useful lives annually to determine whether events or circumstances warrant a revision to the remaining period of amortization. If the estimated remaining useful lives change, the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life. For the year ended December 31, 2003, amortization of intangible assets was approximately $50 million. Should the remaining useful lives of the intangible assets be shortened by 10%, net income would be adversely impacted by approximately $3.0 million.

Management believes the current assumptions and other considerations used to estimate these amounts in the Company’s consolidated financial statements are appropriate. Each of these critical accounting estimates pertains only to the Donnelley segment, as further described in Note 10 to the consolidated financial statements included in Item 1 of this quarterly report. We do not believe we make any critical accounting estimates with respect to our DonTech segment, but would do so after we consummate the pending acquisition.

New Accounting Pronouncements.

In March 2004, the Emerging Issues Task Force (“EITF”) reached a final consensus on EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement 128 (“EITF 03-6”), which established standards regarding the computation of earnings per share (“EPS”) by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company. EITF 03-6 is effective for interim periods ending on or after June 30, 2004 for calendar year companies. We adopted the provisions of EITF 03-6 during the first quarter of 2004.

In May 2004, the Financial Accounting Standards Board issued Financial Staff Position 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 health care 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 will require 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 Company is in the process of evaluating the impact of the Act on the consolidated financial statements and will adopt the FSP in the third quarter of 2004, as required.

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RESULTS OF OPERATIONS
Three and six months ended June 30, 2004 and 2003

Factors Affecting Comparability

SPA Acquisition

Because of the SPA acquisition, the related financing and associated accounting, our 2003 GAAP results previously reported are not comparable to our 2004 results prepared in accordance with GAAP. Also, because purchase accounting rules precluded us from recognizing revenue and certain expenses for those directories that published prior to the acquisition, including all January 2003 published directories, revenue and certain expenses reported in 2003 are not representative of revenue and certain expenses that would have been reported in 2003 absent these purchase accounting adjustments. Accordingly, in addition to a discussion of the reported 2004 GAAP results compared to the reported 2003 GAAP results, we are also providing a comparison of 2004 GAAP results to 2003 adjusted results. Among other things, the 2003 adjusted results exclude the effect of purchase accounting on deferred revenue and certain expenses. For a detailed discussion of 2004 GAAP revenue and expenses versus 2003 adjusted revenue and expenses, which we believe are more comparable, as well as a detailed discussion of advertising sales, which drive revenue, see “Adjusted Amounts and Other Non-GAAP Measures” below.

Relocation Charges

Expenses for the three and six months ended June 30, 2004 include primarily severance, and move-related charges of $4.8 and $7.4 million, respectively, relating to the relocation of our corporate offices to Cary, North Carolina. These costs are included in general and administrative expenses.

Net Revenue

The components of our net revenue in the three and six months ended June 30, 2004 and 2003 were as follows:

	Three Months June 30,									Six Months Ended June 30,
(amounts in millions)	2004			2003			$ Change			2004			2003			$ Change
Gross directory advertising revenue	$	140.3		$	31.7		$	108.6		$	279.2		$	37.0		$	242.2
Sales allowances		(1.5	)		(0.3	)		(1.2	)		(3.2	)		(0.4	)		(2.8	)
Net directory advertising revenue		138.8			31.4			107.4			276.0			36.6			239.4
Pre-press publishing fees		4.2			6.0			(1.8	)		9.0			12.2			(3.2	)
Other revenue		1.6			1.2			.4			3.4			2.3			1.1
Total	$	144.6		$	38.6		$	106.0		$	288.4		$	51.1		$	237.3

Revenue is derived entirely from our Donnelley segment since DonTech is accounted for under the equity method. Our directory advertising revenue is earned primarily from the sale of advertising in yellow pages directories we publish, net of sales allowances. Revenue from directory advertising sales is recognized under the deferral and amortization method, whereby revenue from advertising sales is initially deferred when the directory is published and recognized ratably over the directory’s life, which is typically 12 months. Pre-press publishing fees and other revenue are recognized when earned. Total net revenue in the three and six months ended June 30, 2004 was $144.6 million and $288.4 million, respectively, as compared to $38.6 million and $51.1 million in the same periods in the prior year. The increase in total net revenue in 2004 is primarily a result of purchase accounting adjustments that adversely impacted 2003 results as described above. Due to the adjustments, directory revenue for the three and six months ended June 30, 2003 includes only the amortization of publication sales beginning in February 2003 under the deferral and amortization method.

Revenue from pre-press publishing services was $4.2 million and $9.0 million in the three and six months ended

36

June 30, 2004 as compared to $6.0 million and $12.2 million in the same period in the prior year. The decrease in pre-press publishing fees for both the three- and six-month periods is primarily due to fees earned from a third party pre-press publishing contract for which we ceased providing services in the first half of 2003. There were no comparable revenues earned in the first half of 2004. Other revenue in 2004 and 2003 included fees for sales-related computer application services rendered to DonTech on behalf of SBC, plus revenue for late fees paid on outstanding customer balances, sales of directories and fees from telephone companies for publishing their information pages. Changes in these items account for the difference in other revenue between 2004 and 2003.

Expenses

The components of our total expenses for the three and six months ended June 30, 2004 and 2003 were as follows:

	Three Months Ended June 30,							Six Months Ended June 30,
(amounts in millions)	2004		2003		$ Change			2004		2003		$ Change
Operating expenses	$	56.9	$	34.9	$	22.0		$	110.9	$	66.8	$	44.1
G&A expenses		15.4		12.2		3.2			28.0		22.2		5.8
D&A expenses		15.0		16.4		(1.4	)		29.4		32.5		(3.1	)
Total	$	87.3	$	63.5	$	23.8		$	168.3	$	121.5	$	46.8

All reported expenses are derived entirely from our Donnelley segment since DonTech is accounted for under the equity method. Certain costs directly related to the selling and production of directories are initially deferred and recognized ratably over the life of the directory.

Operating Expenses

Total operating expenses in the three and six months ended June 30, 2004 were $56.9 million and $110.9 million, respectively, as compared to $34.9 million and $66.8 million in the same periods in the prior year. The increase in operating expenses in 2004 is primarily a result of the same purchase accounting adjustments in 2003 that impacted revenues described above. Similar to the deferral and amortization method of revenue recognition, certain 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. Due to the elimination of SPA’s deferred revenue and deferred costs for all prior (including January 2003) directories as required by purchase accounting, our reported operating expenses in 2003 did not include certain expenses associated with those directories totaling approximately $19.4 million and $46.0 million for the three and six months ended June 30, 2003. Due to these adjustments, directory expenses for the three and six months ended June 30, 2003 include only the amortization of deferred directory costs relating to directories published beginning in February 2003. Additionally, for the three and six months ended June 30, 2004, sales costs were $2.6 million and $3.6 million higher, respectively, compared to the same periods in 2003, due to higher commission expense and sales bonuses resulting from favorable publication sales results over those periods. Operating expenses in the three months ended June 30, 2004 include $1.1 million and $0.3 million of advertising costs that pertain to 2003 and the first quarter of 2004 promotional activities, respectively. While these amounts relate to prior accounting periods, the failure to record them in such earlier periods is an oversight from the process of relocating our corporate headquarters from New York to North Carolina and did not arise or result from a material weakness in our disclosure controls and procedures, including our internal controls over financial reporting. Further, marketing expense was $1.1 million higher in the quarter and year-to-date 2004 periods due to additional marketing research expenses. Operating expenses also reflect the final purchase accounting adjustments from the SPA acquisition of $0.8 million and $3.5 million in the three and six months ended June 30, 2004, respectively. Partially offsetting the increase in operating expenses is a reduction of bad debt expense of $2.9 million and $5.8 million for the three and six months ended June 30, 2004, respectively, resulting from continued favorable performance in the collection process. Additionally, publishing and information technology costs were lower by approximately $2.1 million and $5.2 million for the three and six months ended June 30, 2004, respectively, due to the elimination of duplicate facility and associated operational costs resulting from the integration of the SPA acquisition. The majority of these duplicative costs were eliminated subsequent to the first half of 2003.

37

General and Administrative Expenses

General and administrative (“G&A”) expenses in three and six months ended June 30, 2004 were $15.4 million and $28.0 million, respectively, as compared to $12.2 million and $22.2 million in the same periods in the prior year. The increase in G&A expenses is primarily attributable to incremental costs of $4.8 million and $7.4 million in the three and six months ended June 30, 2004 relating to the relocation of our corporate offices to Cary, North Carolina, and increased employee-related costs, of approximately $1.0 million in the quarter and $1.4 million for the first half of 2004. Included in the increased employee-related costs for the quarter and year-to-date in 2004 is a $0.4 million charge relating to an additional matching contribution made in connection with the Company’s defined contribution plan. This charge resulted from a plan provision, which has subsequently been eliminated, whereby an additional matching contribution was required to be made anytime the Company’s EPS increased by a specified amount between consecutive annual reporting periods. Such a specified increase occurred between 1999 and 2000, thus requiring the additional matching contribution. While this amount relates to a prior accounting period, the failure to record it in such earlier period reflects an oversight and did not arise or result from a material weakness in our disclosure controls and procedures, including our internal controls over financial reporting. In addition, the three and six months ended June 30, 2003 included a $3.1 million charge related to the shutdown of one our publishing facility in Tennessee.

Depreciation and Amortization

Depreciation and amortization (“D&A”) for the three and six months ended June 30, 2004 was $14.9 million and $29.4 million, respectively, as compared to $16.4 million and $32.5 million in the same periods in the prior year. Amortization of intangible assets was $12.4 million and $24.9 million for the three and six months ended June 30, 2004 and 2003. Depreciation of fixed assets and amortization of computer software was $2.5 million and $4.5 million in the three and six months ended June 30, 2004, respectively, and $4.0 million and $7.6 million in the same periods in the prior year. This decrease is due to certain fixed assets and computer software that were fully depreciated in 2003.

Partnership Income

Partnership income relates exclusively to our DonTech segment and includes our 50% share of the net income of DonTech (accounted for under the equity method) and revenue participation income from SBC. As a sales agent for SBC, DonTech earns commission revenue based on the annual value of sales contracts executed during the period (“calendar sales”). We also earn revenue participation income based on the amount of calendar sales during the period. Partnership income was $34.8 million and $58.7 million for the three and six months ended June 30, 2004, respectively, as compared to $35.3 million and $59.0 million in the same periods in the prior year. The decrease in partnership income from DonTech for the three months ended June 30, 2004 is primarily due to lower calendar sales and higher operating costs incurred by DonTech in 2004 as compared to the same periods in the prior year. The decrease in partnership income for the six months ended June 30, 2004 is primarily due to higher operating costs, partially offset by higher calendar sales versus the comparable period last year. DonTech’s higher operating costs include certain marketing related initiatives, increased benefit costs and timing associated with variable sales compensation. See “Adjusted Amounts and Other Non-GAAP Measures — DonTech Advertising Sales-Calendar and Publication Sales” below for a further description of these amounts.

Operating Income / (Loss)

Operating income (loss) by segment for the three and six months ended June 30, 2004 and 2003 was as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
(amounts in millions)	2004		2003			2004		2003
Donnelley	$	57.3	$	(24.9	)	$	120.2	$	(70.4	)
DonTech		34.8		35.3			58.7		59.0
Total	$	92.1	$	10.4		$	178.9	$	(11.4	)

38

39

Reported operating income for the three months ended June 30, 2004 of $92.1 million increased by $81.7 million from the operating income of $10.4 million in the same period in the prior year. Reported operating income for the six months ended June 30, 2004 of $178.9 million increased by $190.3 million from the operating loss of $11.4 million in the same period in the prior year. The increase in operating income was primarily a result of purchase accounting rules that precluded us from recognizing revenue and certain expenses in 2003 for those directories that published prior to the acquisition, including all January 2003 published directories.

Interest Expense, Net

Net interest expense was $37.5 million and $77.8 million for the three and six months ended June 30, 2004, respectively, as compared to $43.3 million and $91.9 million in the same periods in the prior year. Interest expense in 2004 includes $0.3 million related to the additional matching contribution described in General and Adminstrative Expenses above. The decrease in net interest expense is a result of lower outstanding debt balances and lower interest rates in 2004 as compared to the prior year, offset by a $1.2 million charge to interest expense resulting from the redemption of the remaining 9 1/8% Senior Subordinated Notes in the first quarter of 2004. The $1.2 million charge consisted of the premium over par value paid at redemption of $1.0 million, plus the non-cash write-off of $0.2 million of unamortized deferred financing costs. Interest expense for the three months ended June 30, 2004 and 2003 includes $3.7 million and $2.3 million of non-cash amortization of deferred financing costs, respectively. Interest expense for the six months ended June 30, 2004 and 2003 includes $7.1 million and $6.3 million of non-cash amortization of deferred financing costs, respectively.

Other Income

Other income of $0.7 million and $1.5 million for the three and six months ended June 30, 2003 represents a gain on hedging activities. In December 2002, a charge of $1.5 million was recorded to reclassify to earnings the cumulative change in the fair value of the swap that was previously recognized in accumulated other comprehensive loss on the balance sheet due to the loss of hedge accounting treatment. In 2003, we recognized a corresponding gain of $1.5 million as the swap matured. In the first and second quarters of 2003, we recognized $0.8 million and $0.7 million of this gain, respectively. The swap matured in June 2003.

Net Income (Loss) and Earnings (Loss) Per Share

Net income for the three and six months ended June 30, 2004 was $33.1 million and $61.2 million, respectively, as compared to the net loss of $18.9 million and $60.1 million for the same periods in the prior year. The results for 2003 were adversely affected by purchase accounting adjustments that prevented us from recognizing deferred revenue and certain expenses associated with those directories published prior to the acquisition, including all January 2003 published directories.

The dividend on our 8% redeemable convertible cumulative preferred stock (“Preferred Stock”) reduces net income or increases the net loss, resulting in income (loss) available to common shareholders from which earnings per share amounts are calculated. The amount of the Preferred Stock dividend includes the stated 8% dividend, plus a deemed dividend for a beneficial conversion feature (“BCF”). The BCF is a function of the conversion price of the Preferred Stock, the fair value of the related warrants issued with the Preferred Stock and the fair market value of the underlying common stock on the date of issuance of the preferred stock. In connection with the issuance of our Preferred Stock and each subsequent quarterly dividend date, a BCF was recorded because the fair value of the underlying common stock at the time of issuance of the preferred stock was greater than the conversion price of the Preferred Stock. The full amount of the BCF is treated as a deemed dividend because the Preferred Stock was convertible into common stock immediately after issuance in January 2003. The Preferred Stock dividend in the second quarter of 2004 and 2003 of $5.4 million and $6.0 million, respectively, consisted of the stated 8% dividend of $4.4 million and $4.1 million, respectively, and a BCF of $1.0 million and $1.9 million, respectively. The Preferred Stock dividend for the six months ended June 30, 2004 and 2003 of $10.7 million and $ 48.1 million, respectively, consisted of the stated 8% dividend of $8.8 million and $8.0 million, respectively, and a BCF of $1.9 million and $40.1 million, respectively. The BCF recorded in the first half of 2003 was more significant than BCF amounts recorded in subsequent periods, reflecting the issuance of the Preferred Stock and related warrants in

40

January 2003. The resulting income (loss) available to common shareholders was $27.7 million and $50.5 million in the three and six months ended June 30, 2004, respectively, as compared to ($24.9) million and ($108.2) million for the same periods in the prior year.

All EPS amounts have been calculated using the two-class method. See Note 2, Summary of Significant Accounting Policies, in Part 1 — Item 1 of this quarterly report for further details and computations of the basic and diluted EPS amounts. For the three months ended June 30, 2004, basic EPS were $0.68 and diluted EPS were $0.65. For the six months ended June 30, 2004, basic EPS were $1.25 and diluted EPS were $1.20 per share. For the three months ended June 30, 2003, basic and diluted EPS were a loss of $0.81, and basic and diluted EPS for the six months ended June 30, 2003 were a loss of $3.56. Because there was a reported net loss in each of the periods in 2003, the calculation of diluted EPS was anti-dilutive compared to basic EPS. Diluted EPS cannot be greater than basic EPS (or less of a loss). Therefore, reported diluted EPS and basic EPS for the three and six months ended June 30, 2003 were the same.

Adjusted Amounts and Other Non-GAAP Measures

As a result of the SPA acquisition, our 2003 GAAP results previously reported are not comparable to our 2004 results prepared in accordance with GAAP. Under our deferral and amortization revenue recognition method, certain directories published in 2002, plus all directories published in January 2003, would have been recognized as revenue in 2003. However, purchase accounting adjustments precluded us from recognizing directory revenue and certain expenses associated with directories that published prior to the acquisition, plus all January 2003 published directories. Accordingly, our reported 2003 GAAP results are not indicative of our underlying operations and financial performance during 2003. Accordingly, management has presented adjusted results for the three and six months ended June 30, 2003 that, among other things, eliminate the purchase accounting impact on revenue and certain expenses to provide data better comparable to our results for the three and six months ended June 30, 2004. Management believes that the presentation of this adjusted information will help readers better and more easily compare current period underlying operational results to what our performance would likely have been in the comparable 2003 periods, absent purchase accounting considerations. All of the following adjusted amounts are non-GAAP measures, which have been reconciled to the most comparable GAAP measures below.

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	Three months
	ended June 30,
	2004		Three months ended June 30, 2003
	Reported		Reported
(amounts in millions)	GAAP		GAAP			Adjustments			Adjusted
Net revenue	$	144.6	$	38.6		$	105.0	(1)	$	143.6
Expenses, other than depreciation and amortization		72.4		47.0			19.4	(2)		66.4
Depreciation and amortization.		14.9		16.4			—			16.4
Partnership income		34.8		35.3			—			35.3
Operating income	$	92.1	$	10.5		$	85.6		$	96.1
	Six months
	ended June 30,
	2004		Six months ended June 30, 2003
	Reported		Reported
(amounts in millions)	GAAP		GAAP			Adjustments			Adjusted
Net revenue	$	288.4	$	51.0		$	236.1	(1)	$	287.1
Expenses, other than depreciation and amortization		138.9		89.0			46.0	(2)		135.0
Depreciation and amortization.		29.3		32.5			—			32.5
Partnership income		58.7		59.0			—			59.0
Operating income (loss)	$	178.9	$	(11.5	)	$	190.1		$	178.6

(1) Represents revenue for directories that published prior to the acquisition, plus all January 2003 published directories, which 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 acquisition, plus all January 2003 published directories, which would have been recognized during the period had it not been for purchase accounting adjustments required under GAAP, and the effect of differences in the application of accounting policies between legacy SPA and the Company.

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2004 GAAP Revenue and Expenses Compared to 2003 Adjusted Revenue and Expenses

The components of 2004 GAAP revenue and 2003 adjusted revenue for the three and six months ended June 30 are as follows:

	Three Months Ended June 30,
	2004			2003
	Reported			Reported						2003						%
(amounts in millions)	GAAP			GAAP			Adjustments			Adjusted			$ Change			Change
Gross directory advertising revenue	$	140.3		$	31.7		$	105.7	(1)	$	137.4			2.9			2.0	%
Sales claims and allowances		(1.5	)		(0.3	)		(1.2	)(1)		(1.5	)		0.0			0.0
Net directory advertising revenue		138.8			31.4			104.5			135.9			2.9			2.0
Pre-press publishing fees		4.2			6.0						6.0			(1.8	)		(1.3	)
Other revenue		1.6			1.2			0.5	(2)		1.7			(0.1	)		(5.9	)
Net revenue	$	144.6		$	38.6		$	105.0		$	143.6		$	1.0			0.7	%

	Six Months Ended June 30,
	2004			2003
	Reported			Reported						2003						%
(amounts in millions)	GAAP			GAAP			Adjustments			Adjusted			$ Change			Change
Gross directory advertising revenue	$	279.2		$	37.0		$	237.8	(1)	$	274.8		$	4.4			1.6	%
Sales claims and allowances		(3.2	)		(0.4	)		(2.7	)(1)		(3.1	)		(0.1	)		3.2
Net directory advertising revenue		276.0			36.6			235.1			271.7			4.3			1.6
Pre-press publishing fees		9.0			12.2						12.2			(3.2	)		26.2
Other revenue		3.4			2.3			1.0	(2)		3.3			(0.1	)		(0.3	)
Net revenue	$	288.4		$	51.1		$	236.1		$	287.2		$	1.2			0.4	%

(1)	Represents revenue and sales claims and allowances for directories that published prior to the acquisition, plus all January 2003 published directories, which would have been recognized during the period had it not been for purchase accounting adjustments required under GAAP.
(2)	Represents other revenue, primarily revenue from graphics production, related to directories that published prior to the acquisition, plus all January 2003 published directories, which would have been recognized during the period had it not been for purchase accounting adjustments required under GAAP.

Total net revenue in the three months ended June 30, 2004 was $144.6 million, an increase of $1.0 million or 0.7 % from adjusted net revenue of $143.6 million in the comparable period in the prior year. Total net revenue for the six months ended June 30, 2004 was $288.4 million, an increase of $1.2 million or 0.4% from adjusted net revenue of $287.2 million in the comparable period in the prior year. Under the deferral and amortization method of revenue recognition, revenue from directory advertising sales is initially deferred when a directory is published and recognized ratably over the life of the directory, which is typically 12 months.

The increase in adjusted gross directory advertising revenue is a result of higher advertiser renewal rates and new business in our major Sprint markets for which directories published in the first half of 2004 and the second half of 2003, which was partially offset by weaker performance in national sales and certain smaller Sprint markets for which directories published in those same periods. Further, the adjusted revenue in 2003 was lower than in 2004 due to the overall weaker performance in the first half of 2003 and second half of 2002. In addition, due to the

43

deferral and amortization method, sales growth in published directories is amortized to revenue over the life of the directory, which delays recognition of publication sales growth as recorded revenue growth. The decrease in pre-press publishing fees for the three and six months ended June 30, 2004 of $1.8 million and $3.2 million, respectively, is primarily a result of the expiration of a third party pre-press publishing contract for which we ceased providing services in the first half of 2003.

Operating and G&A expenses in the three months ended June 30, 2004 of $72.4 million increased by $6.0 million or 9.0% from adjusted operating and G&A expenses of $66.4 million in the comparable period in the prior year. Similar to the deferral and amortization method of revenue recognition, certain 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. For the three months ended June 30, 2004, we incurred $4.8 million relating to the relocation of our corporate offices to Cary, North Carolina. Sales costs were $2.6 million higher in the quarter, compared to adjusted second quarter 2003, due to higher commission expense and sales bonuses resulting from favorable first and second quarter publication sales results. Operating expenses in the three months ended June 30, 2004 include $1.1 million and $0.3 million of advertising costs that pertain to 2003 and the first quarter of 2004 promotional activities, respectively. While these amounts relate to prior accounting periods, the failure to record them in such earlier periods is an oversight from the process of relocating our corporate headquarters from New York to North Carolina and did not arise or result from a material weakness in our disclosure controls and procedures, including our internal controls over financial reporting. Marketing expense was $1.1 million higher in the quarter due to increased marketing research expense. Included in general and administrative expenses for the quarter is a $0.4 million charge relating to an additional matching contribution made in connection with the Company’s defined contribution plan. This charge resulted from a plan provision, which has subsequently been eliminated, whereby an additional matching contribution was required to be made anytime the Company’s EPS increased by a specified amount between consecutive annual reporting periods. Such a specified increase occurred between 1999 and 2000, thus requiring the additional matching contribution. Lastly, the remaining purchase accounting adjustments of $0.8 million related to the SPA acquisition were recorded as operating expenses in the three months ended June 30, 2004. Offsetting these increases was lower bad debt expense of $2.9 million resulting from continued favorable performance in the collection process. Additionally, Publishing and IT synergy savings in the quarter was approximately $2.1 million, resulting from the elimination of duplicative processes and facilities from the SPA acquisition, compared to adjusted second quarter 2003.

For the six months ended June 30, 2004, operating and G&A expenses increased by $4.0 million or 3.0%, to $138.9 million from adjusted Operating and G&A expenses of $134.9 million in the comparable period in 2003. Expenses related to the relocation of our corporate headquarters were $7.4 million for the six months ended June 30, 2004. Sales costs were $3.6 million higher for the period, due to higher commission expense and sales bonuses resulting from favorable first quarter and second quarter publication sales results. Operating expenses in the six months ended June 30, 2004 include $1.1 million of advertising costs that pertain to 2003 promotional activities and a $0.4 million charge relating to an additional matching contribution made in connection with the Company’s defined contribution plan, as described above. Lastly, the remaining purchase accounting adjustments of $3.5 million related to the SPA acquisition were recorded as operating expenses in the six months ended June 30, 2004. Offsetting this was lower bad debt expense of $5.8 million due to continued favorable performance in the collection process. Additionally, Publishing and IT synergy savings was approximately $5.4 million compared to the same period in 2003 due to the elimination in subsequent periods of 2003 of duplicative facilities and processes resulting from the SPA acquisition.

Operating income in the three months ended June 30, 2004 was $92.1 million, a decrease of $4.0 million or 4.2% from adjusted operating income in the three months ended June 30, 2003 of $96.1 million, reflecting the above variances. Operating income in the six months ended June 30, 2004 was $178.9 million, an increase of $0.3 million or 0.2% from adjusted operating income in the six months ended June 30, 2003 of $178.6 million. Additionally, our 2004 operating results during the three and six months ended June 30, 2004 were impacted by purchase accounting adjustments described above that precluded us from recognizing $0.8 million and $3.5 million in additional operating income, respectively.

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Donnelley Advertising Sales – Publication Sales

Management reviews and evaluates the value of advertising sales in directories that published during the period (“publication sales”) as its primary sales performance measure for the Donnelley segment. Directory advertising revenue is driven by publication sales. Management believes that a comparison of publication sales for the same directories from one period to another gives a better indication of underlying sales trends, economic conditions and business confidence than a comparison of directory revenue recognized using the deferral and amortization method. Because we recognize directory revenue ratably over the life of a directory, the amount of revenue recognized during a period is not directly related to the sales trends, economic conditions and business confidence during that period. Publication sales are comparable to a “same-store” sales measure and are utilized and disclosed by many directory publishers, thus facilitating comparison of sales performance among publishers. If events occur during the current period that affect the comparability of publication sales to the prior year period, such as changes in directory publication dates, then prior year publication sales amounts are adjusted to conform to the current period presentation.

Publication sales in the three months ended June 30, 2004 for the Donnelley segment were $137.8 million, up $2.9 million or 2.1% from publication sales for the Donnelley segment of $134.9 million in the three months ended June 30, 2003. Publication sales in the six months ended June 30, 2004 for the Donnelley segment were $289.1 million, up $6.7 million or 2.4% from publication sales for the Donnelley segment of $282.4 million in the six months ended June 30, 2003. The increase in publication sales resulted from higher advertiser renewal rates and new business in our major Sprint markets for which directories published in the first and second quarters of 2004. These results were partially offset by weaker performance in national sales and certain smaller Sprint markets. Publication sales are a non-GAAP measure for which the most comparable GAAP measure related to the Donnelley segment is net revenue. A reconciliation of publication sales to net revenue reported in accordance with GAAP is presented below:

	Three months						Six months
	ended June 30,						ended June 30,
(amounts in millions)	2004			2003			2004			2003
Publication sales-Donnelley segment	$	137.8		$	134.9		$	289.1		$	282.4
Less: adjustment for changes in directory publication date(s)		—			(2.0	)		—			(4.4	)
Publication sales disclosed in second quarter 2003 earnings release		137.8			132.9			289.1			278.0
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		(115.9	)		(111.9	)		(176.4	)		(149.4	)
Plus net revenue recognized from prior period publishing sales		116.9			10.4			163.3			10.4
Net directory advertising revenue on above publication sales		138.8			31.4			276.0			36.6
Pre-press publishing revenue		4.2			6.0			9.0			12.2
Other revenue		1.6			1.2			3.4			2.3
Net revenue — GAAP		144.6			38.6			288.4			51.1
Plus: Net revenue that would have been reported for publication sales made prior to acquisition plus all January 2003 published directories absent purchase accounting		—			105.0			—			236.1
Net Revenue-Adjusted	$	144.6		$	143.6		$	288.4		$	287.2

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DonTech Advertising Sales – Calendar and Publication Sales

Calendar Sales

As a sales agent for SBC-branded direcories, DonTech recognizes commission revenue based on the annual value of a sales contract in the period the contracts are executed (calendar sales). Management reviews calendar sales for DonTech because this is a primary driver of our partnership income from DonTech. DonTech manages the sale of advertising to customers on a directory-by-directory basis or project basis (a project consists of two or more directories in a geographic area) and organizes the sales into directories as a sales campaign. Accordingly, changes in the beginning and ending dates of a sales campaign and the actual sales recorded at any point during the campaign can vary from one period to the next. These variations, or timing factors, can cause calendar sales, and thus partnership income, to be materially different from the prior comparative period. DonTech calendar sales in the three months ended June 30, 2004 were $119.5 million, 0.5% lower than in the three months ended June 30, 2003 of $120.1 million. Calendar sales in the six months ended June 30, 2004 were $205.9 million, 0.2% higher than in the six months ended June 30, 2003 of $205.4 million. These fluctuations are primarily attributable to the softness in the Chicago-area economy affecting the timing of the value of accounts sold in the first half of 2004 as compared to the first half of 2003.

Income from DonTech consisted of the following:

	Three months ended June 30,				Six months ended June 30,
(amounts in millions)	2004		2003		2004		2003
50% share of DonTech net profits	$	6.3	$	6.8	$	9.4	$	10.0
Revenue participation income		28.5		28.5		49.3		49.0
Total partnership income	$	34.8	$	35.3	$	58.7	$	59.0

Partnership income from DonTech in the three months ended June 30, 2004 of $34.8 million decreased $0.5 million or 1.4% from $35.3 million in the corresponding period in the prior year, and partnership income in the six months ended June 30, 2004 of $58.7 million decreased $0.3 million or 0.5% from $59.0 million in the corresponding period in the prior year. The decrease in partnership income for both periods is primarily a result of higher operating costs, including certain marketing related initiatives, increased benefit costs and timing associated with variable sales compensation, incurred by DonTech in 2004. Accordingly, our 50% share of DonTech’s profits decreased by $0.5 million and $0.6 million, respectively, for the quarter and year-to-date periods. Revenue participation income received from SBC was relatively flat between the 2004 and 2003 year-to-date periods reflecting the slight change in DonTech’s calendar sales from which our revenue participation income is derived.

Publication Sales

Management also utilizes publication sales to evaluate the sales performance of DonTech because management believes that this measure provides a better indication of comparable sales year-over-year in the DonTech markets than a comparison of partnership income from DonTech. This is due to the timing factors that can impact calendar sales (and thus partnership income) as described above. Publication sales at DonTech represent the annual billing value of the SBC-branded directories published during the period for which DonTech sells advertising. Publication sales in the three months ended June 30, 2004 were $89.4 million, down $1.4 million or 1.5% from $90.8 million in the three months ended June 30, 2003. Publication sales in the six months ended June 30, 2004 were $173.5 million, down $5.9 million or 3.3% from $179.4 million in the six months ended June 30, 2003. This decrease is a result of continued weak economic factors in Illinois (particularly unemployment) and competition in the local media market. Calendar sales and publication sales are non-GAAP measures for which the most comparable GAAP measure related to DonTech is partnership income. A reconciliation of publication sales and calendar sales to partnership income is provided below.

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	Three months ended						Six months ended
	June 30,						June 30,
(amounts in millions)	2004			2003			2004			2003
DonTech publication sales	$	89.4		$	90.8		$	173.5		$	179.4
Less the value of contracts executed and reported as calendar sales in prior periods		(83.1	)		(86.8	)		(164.9	)		(173.1	)
Plus the value of contracts executed during the period to be reported as publication sales in future periods		113.2			116.1			197.3			199.1
DonTech calendar sales in the period	$	119.5		$	120.1		$	205.9		$	205.4
Commission revenue from above calendar sales	$	30.2		$	30.3		$	52.0		$	51.9
Partnership net expenses		(17.7	)		(16.8	)		(33.3	)		(32.0	)
Partnership profit	$	12.5		$	13.5		$	18.7		$	19.9
Donnelley’s 50% share of partnership profits	$	6.3		$	6.8		$	9.4		$	10.0
Revenue participation income on above calendar sales		28.5			28.5			49.3			49.0
Partnership income-GAAP	$	34.8		$	35.3		$	58.7		$	59.0

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LIQUIDITY AND CAPITAL RESOURCES

Our Senior Secured Credit Facility, as amended (“Credit Facility”), consists of a $241 million Term Loan A-2, a $925 million Term Loan B-2 and a $125 million Revolving Credit Facility (the “Revolver”). Term Loans A-2 and B-2 require quarterly principal payments. As of June 30, 2004, the outstanding balances of Term Loans A-2 and B-2 were $99.5 million and $918.2 million, respectively. The Revolver and Term Loan A-2 mature in December 2008, and Term Loan B-2 matures in June 2010. Substantially all of our assets, including the capital stock of our subsidiaries, are pledged to collateralize our obligations under the Credit Facility. As of June 30, 2004 and December 31, 2003, there were no outstanding borrowings under the Revolver. We plan to amend our Credit Facility to increase Term Loans A-2 and B-2 to finance the acquisition (“Acquisition”) of SBC’s directory publishing business in Illinois and Northwest Indiana, including SBC’s interest in DonTech. See “Recent Developments”. See also our Current Report on Form 8-K furnished to the SEC on August 3, 2004 for further details regarding the proposed amendment of our Credit Facility.

Our Credit Facility bears interest, at our option at either:

• The higher of (i) a base rate as determined by Deutsche Bank Securities Inc., Salomon Smith Barney Inc. or Bear, Stearns & Co. Inc., plus a 2.25% margin on the Revolver and a 1.25% margin on Term Loans A-2 and B-2; and (ii) the Federal Funds Effective Rate (as defined) plus 1/2 of 1%, plus a 2.25% margin on the Revolver and a 1.25% margin on Term Loans A-2 and B-2; or

• LIBOR rate plus a 3.25% margin on the Revolver and a 2.25% margin on Term Loans A-2 and B-2. We may elect interest periods of 1, 2, 3, 6, 9 or 12 months for LIBOR borrowings.

We have also issued $325 million 8 7/8% Senior Notes due 2010 (“Senior Notes”) and $600 million 10 7/8% Subordinated Notes due 2012 (“Subordinated Notes,” and collectively with the Senior Notes, the “Notes”). Interest is paid on the Notes semi-annually on June 15 and December 15. Under the Credit Facility, we obtained 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 Notes and redemption of equity, subject to certain limitations.

Aggregate outstanding debt as of June 30, 2004 was $1,942.7 million. During the six months ended June 30, 2004, we made scheduled principal payments of $18.3 million and prepaid an additional $110.0 million in principal under our Credit Facility. During the first quarter of 2004, we also redeemed the remaining aggregate principal amount of the 9 1/8% Senior Subordinated Notes totaling $21.2 million at a redemption price of 104.563% of the principal amount thereof, plus accrued and unpaid interest. Interest expense was charged in the six months ended June 30, 2004 by $1.2 million consisting of a premium over par value paid at redemption of $1.0 million, plus the write-off of $0.2 million of unamortized deferred directory costs.

At June 30, 2004, we had $10.6 million of cash and cash equivalents before checks not yet presented for payment of $16.2 million, and available borrowings under the Revolver of $125 million and $400 million under Term Loan C as described above. During the three months ended June 30, 2004, $1.4 million in borrowings have been made under the Revolver and repaid before quarter end. No borrowings have been made under Term Loan C. Both before and after the Acquisition, our primary source of liquidity will continue to be cash flows from operations as well as available borrowing capacity under the Revolver. Aside from the Acquisition, we expect our primary liquidity requirement will be to fund operations and for principal and interest payments on our debt. Both before and after the Acquisition, our ability to meet our debt service requirements will depend on our ability to generate cash flow in the future. Our primary sources of cash flow will consist mainly of cash receipts from the sale of advertising in our yellow pages directories, and prior to the Acquisition, revenue participation payments and other cash distributions related to DonTech. Upon completion of the Acquisition our principal source of cash flow will consist of cash receipts from the sale of advertising in our yellow page directories, including those in Illinois and Northwests Indiana. These sources are directly dependent on the value of yellow pages advertising sold and can be impacted by, among other factors, general economic conditions, competition from other yellow pages directory publishers and other alternative products, consumer confidence and the level of demand for yellow pages advertising. Assuming the Credit Facility is amended as proposed, and the acquisition is consummated, we believe that cash flows from operations, along with borrowing capacity under the Revolver, will be adequate to fund our operations and capital expenditures and to meet our debt service requirements for at least the next 12 to 24 months. In addition, the

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Company will receive $58.9 million in the third quarter of 2004 resulting from the Company’s election to carryback a federal net operating loss in connection with the SPA acquisition. However, we make no assurances that our business will generate sufficient cash flow from operations or that sufficient borrowing will be available under the Revolver or Term Loan C to enable us to fund our operations, capital expenditures and meet all debt service requirements, or for other purposes.

Cash flow provided by operating activities was $147.5 million for the six months ended June 30, 2004. Key contributors to operating cash flow include the following:

• $144.8 million consisting of $61.2 million in net income plus $83.6 million of net non-cash charges primarily consisting of $29.3 million of depreciation and amortization, $6.5 million in the bad debts provision, $7.9 million in other non-cash charges and $39.9 in deferred taxes.

• $2.7 million increase in accounts payable and accrued liabilities, reflects a source of cash based on the timing of invoices received as compared to invoices paid during the six months ended June 30, 2004, resulting in a higher accounts payable and accrued liability at quarter end.

• $19.0 million increase in accounts receivable and an $11.2 million 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, typically 1/12 of the billing value is recognized as revenue and customers are billed on a periodic basis.

• $1.6 million in cash received from partnership in excess of recorded partnership income representing a source of cash. Partnership income during the six months ended June 30, 2004 consists of our 50% interest in DonTech’s net income and the revenue participation income from SBC. We receive 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.

• $1.9 million decrease in other assets reflects an $2.2 million increase in deferred directory costs, offset by a decrease in prepaid insurance of $2.3 million and a decrease of $1.8 million in other current and non-current assets. 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.

Cash used in investing activities for the six months ended June 30, 2004 was $8.9 million used to purchase fixed assets, primarily computer equipment, software and leasehold improvements.

Cash used in financing activities through June 30, 2004 was $135.7 million and includes the following:

• $129.7 million in principal payments on debt borrowed under the Credit Facility. Of this amount, $18.3 million represents scheduled quarterly payments, $110.0 million represents principal payments made on an accelerated basis, at our option, from excess cash flow generated from operations and $1.4 million represents principal payments on the Revolver.

• $21.2 million in principal payments on the remaining 9 1/8% Senior Subordinated Notes.

• $1.4 million in borrowings under the Revolver.

• $9.5 million in the increased value of checks not yet presented for payment.

• $4.3 million in proceeds from the exercise of employee stock options.

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Cash flow provided by operating activities was $131.5 million through June 30, 2003. Key contributors to operating cash flow included the following:

• $(62.2) million consisting of $(60.1) million in net loss plus $(2.1) million of net non-cash charges primarily consisting of $32.5 million of depreciation and amortization, $0.3 million in the bad debts provision, $6.9 million in other non-cash charges and $(41.8) million in deferred taxes.

• $209.0 million increase in deferred revenue primarily resulting from directories published subsequent to the SPA acquisition. Deferred revenue represents the value of published directories that will be recognized as revenue over the remaining life of the directories. As a result of purchase accounting considerations, we did not record deferred revenue associated with SPA directories published prior to the transaction, including all January 2003 directories. Prior to the SPA acquisition, we did not have deferred directory revenue. Consequently, deferred revenue increased by the value of directories published during the period (excluding January 2003 directories) and was reduced by the amount amortized and recognized as directory revenue.

• $15.5 million decrease in accounts receivable due to higher cash collections on accounts receivable. As a result of the SPA acquisition, we acquired the rights associated with the collection of over $250 million of accounts receivable under advertising contracts executed prior to the SPA acquisition. Prior to the acquisition, accounts receivable collections were for our commission on advertising sales contracts executed.

• $6.1 million in cash received from partnership in excess of recorded partnership income representing a source of cash. Partnership income during the six months ended June 30, 2003 consisted of our 50% interest in DonTech’s net income and the revenue participation income from SBC. We receive 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 typicallyexceeds the income recognized from the current period.

• $24.4 million increase in other assets resulted in a use of cash primarily due to payments made to sales persons and vendors for directories that were scheduled to publish at a later date. These payments were deferred until the directory was published.

Cash used in investing activities through June 30, 2003 was $370.8 million and included the following:

• $2,259.6 million in cash payments to acquire SPA and pay transaction costs.

• $1,825.0 million in funds raised prior to year-end 2002 under the Credit Facility were released from escrow in the first quarter of 2003 in connection with the acquisition of SPA.

• $69.3 million in net proceeds raised prior to year-end 2002 from the issuance of $70 million of Preferred Stock and released from escrow in the first quarter of 2003 in connection with the SPA acquisition.

• $5.5 million used to purchase fixed assets, primarily computer equipment and computer software.

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Cash provided by financing activities through June 30, 2003 was $231.5 million and included the following:

• $461.3 million in net borrowings under the Credit Facility.

• $125.7 million in net proceeds from the issuance of $130 million of Preferred Stock.

• $243.0 million in principal payments on pre-acquisition debt, which consisted of $114.2 million of variable rate bank debt and $128.8 million of fixed rate bond debt, with borrowings from the Credit Facility and proceeds from the Preferred Stock.

• $128.7 million of $152.8 principal payments on acquisition-related debt in the first quarter of 2003 with the cash flows generated by operations, less $24.1 in borrowings under the revolver.

• $16.2 million in proceeds from the exercise of employee stock options.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk and Risk Management

     The Credit Facility bears interest at variable rates, and accordingly, our earnings and cash flow are affected by changes in interest rates. The Credit Facility requires that we maintain hedge agreements to provide either a fixed interest rate or interest rate protection on at least 50% of our total outstanding debt. The Company has entered into the following interest rate swaps that effectively convert variable rate debt to fixed rate debt through June 30, 2004. Under the terms of the agreements, the Company receives variable interest based on three-month LIBOR and pays a fixed rate of interest.

Effective Date	Notional Amount			Pay rate			Maturity Date
amounts in millions
March 28, 2003	$	255	(1)		2.85	%	March 28, 2007
October 9, 2003	$	150			1.96	%	October 9, 2005
June 21, 2004	$	50			3.23	%	June 21, 2006
June 23, 2004	$	50			3.17	%	June 23, 2006
June 28, 2004	$	50			3.11	%	June 28, 2006

(1) consists of three swaps

The outstanding interest rate swaps expose us to credit risk in the event that the counterparties to the agreements do not or cannot meet their obligations. The notional amount is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The loss would be limited to the amount that would have been received, if any, over the remaining life of the swap agreements. The counterparties to the swaps are major financial institutions, and we expect the counterparties to be able to perform their obligations under the swaps. We use derivative financial instruments for hedging purposes only and not for trading or speculative purposes.

Market Risk Sensitive Instruments

The interest rate swap agreements have been designated as cash flow hedges. In accordance with the provisions of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 137 and SFAS 138, the swaps are recorded at fair value. On a quarterly basis, the fair value of the swaps are determined based on quoted market prices and, assuming effectiveness, the difference between the fair value and the book value of the swaps are recognized in other comprehensive income, a component of shareholders’ equity. Any ineffectiveness of the swaps is required to be recognized in earnings. The swaps and the hedged item (three-month LIBOR-based interest payments on $555 million of bank debt) have been designed so that the critical terms (interest reset dates, duration and index) coincide. Assuming the critical terms continue to coincide, the cash flows from the swaps will exactly offset the cash flows of the hedged item and no ineffectiveness will exist.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Based on their evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) the principal executive officer and principal financial officer of the Company have each concluded that such disclosure controls and procedures are effective and sufficient to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms.

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(b) Changes in Internal Control. 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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various legal proceedings arising in the ordinary course of our business, as well as certain litigation and tax matters described below. 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 consolidated 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, including the litigation and tax matters described below, will not have a material adverse effect on our results of operations, cash flows or financial position, as described below.

In order to understand our potential exposure under the litigation and tax matters described below under the captions “Information Resources, Inc.” and “Tax Matters,” you need to understand the relationship between us and D&B, and certain of our predecessors and affiliates that, through various corporate reorganizations and contractual commitments, have assumed varying degrees of responsibility with respect to such matters.

In November 1996, the company then known as The Dun & Bradstreet Corporation separated through a spin-off (“1996 Distribution”) into three separate public companies: The Dun and Bradstreet Corporation, ACNielsen Corporation (“ACNielsen”), and Cognizant Corporation (“Cognizant”). In June 1998, The Dun & Bradstreet Corporation separated through a spin-off (“1998 Distribution”) into two separate public companies: R.H. Donnelley Corporation (formerly The Dun & Bradstreet Corporation) and a new company that changed its name to The Dun & Bradstreet Corporation. Later in 1998, Cognizant separated through a spin-off (“Cognizant Distribution”) into two separate public companies: IMS Health Incorporated (“IMS”), and Nielsen Media Research, Inc. (“NMR”). In September 2000, The Dun & Bradstreet Corporation separated into two separate public companies: Moody’s Corporation, (“Moody’s”) (formerly The Dun & Bradstreet Corporation), and a new company that changed its name to The Dun & Bradstreet Corporation. As a result of the form of R.H. Donnelley Corporation’s separation from The Dun & Bradstreet Corporation in 1998, we are the corporate successor of and technically the defendant and taxpayer referred to below as D&B with respect to any matter accruing prior to June 30, 1998.

Information Resources, Inc.

The following is a description of an antitrust lawsuit filed in 1996 by Information Resources, Inc. (“IRI”). As more fully described below, VNU N.V., a publicly traded Dutch company (“VNU”), and its U.S. subsidiaries VNU, Inc., ACNielsen, AC Nielsen (US), Inc. (“ACN (US)”), and NMR (collectively, the “VNU Parties”), have assumed exclusive joint and several liability for any judgment or settlement of this antitrust lawsuit. As a result of the indemnity obligation, we do not have any exposure to a judgment or settlement of this lawsuit unless the VNU Parties default on their obligations. In the event of such default, we have contingent liability for this matter as a result of our succeeding to D&B’s liabilities and obligations as part of the 1998 Distribution. In such event, however, under the contractual commitments described below, any such amounts that we might need to pay would be shared equally (50% each) by D&B and Moody’s. Only if D&B and Moody’s were unable to bear all or a part of this liability, would we be liable, and then only to the extent that either of them could not satisfy their joint and several indemnity obligations to us.

In July 1996, IRI filed a complaint, and subsequently amended in 1997, in the United States District Court for the Southern District of New York, naming as defendants D&B (now, the Company, as successor of D&B), A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS (then known as Cognizant), at the time of the filing, all wholly owned subsidiaries of D&B.

The complaint alleges various violations of U.S. antitrust laws under Sections 1 and 2 of the Sherman Antitrust Act. The complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a

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prospective business relationship. These claims relate to the acquisition by defendants of Survey Research Group Limited (“SRG”). IRI alleges SRG violated an alleged agreement with IRI when it agreed to be acquired by the defendants and that the defendants induced SRG to breach that agreement.

IRI’s antitrust claims allege that the defendants developed and implemented a plan to undermine IRI’s ability to compete within the U.S. and foreign markets in North America, Latin America, Asia, Europe and Australia/New Zealand through a series of anti-competitive practices, including: unlawfully tying/bundling services in the markets in which defendants allegedly had monopoly power with services in markets in which ACNielsen competed with IRI; entering into exclusionary contracts with retailers in certain countries to deny IRI’s access to sales data necessary to provide retail tracking services or to artificially raise the cost of that data; predatory pricing; acquiring foreign market competitors with the intent of impeding IRI’s efforts to expand; disparaging IRI to financial analysts and clients; and denying IRI access to capital necessary for it to compete.

IRI’s complaint originally sought damages in excess of $350.0 million, which amount IRI sought to treble under antitrust laws. IRI has since revised its allegation of damages to exceed $650.0 million, which IRI also seeks to treble. IRI has filed with the Court the report of its expert who has opined that IRI suffered damages of between $581.6 million and $651.7 million from the defendants’ alleged practices. IRI also seeks punitive damages of an unspecified amount.

In April 2003, the court denied a motion for partial summary judgment by the defendants that sought to dismiss certain of IRI’s claims and granted in part a motion by IRI seeking reconsideration of certain summary judgment rulings the Court had previously made in favor of the defendants. The motion granted by the court concerns IRI’s claims of injuries from defendants’ alleged conduct in certain foreign markets.

Pursuant to a scheduling order entered by the Court on April 8, 2004, discovery is scheduled to end on November 1, 2004, and trial is scheduled to begin April 18, 2005.

On June 21, 2004, pursuant to a stipulation between IRI and defendants, the Court ordered that certain of IRI’s claims be dismissed with prejudice from the lawsuit, including the claim for tortious interference with the SRG acquisition. We believe that the dismissal of the tortious interference claims also precludes any claim for punitive damages.

In connection with the 1996 Distribution, Cognizant (now NMR), ACNielsen and D&B (now the Company) entered into an Indemnity and Joint Defense Agreement (the “Original JDA”), pursuant to which they agreed to:

• allocate potential liabilities that may relate to, arise out of or result from the IRI lawsuit (“IRI Liabilities”); and

• conduct a joint defense of such action.

In particular, the Original JDA provided that:

• ACNielsen would assume exclusive liability for IRI Liabilities up to a maximum amount to be calculated at such time as such liabilities become payable as a result of a final non-appealable judgment or any settlement permitted under the Original JDA (the “ACN Maximum Amount”); and

• D&B and Cognizant would share liability equally for any amounts in excess of the ACN Maximum Amount.

As a result of VNU’s acquisition of ACNielsen in 2001, VNU assumed ACNielsen’s liabilities under the Original JDA and pursuant to the Original JDA would be included with ACNielsen in the computation of the ACN Maximum Amount.

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On July 30, 2004, the VNU Parties, the Company, D&B, Moody’s and IMS entered into an Amended and Restated Indemnity and Joint Defense Agreement (the “Amended JDA”).

Pursuant to the Amended JDA, any and all IRI Liabilities incurred by us, D&B, Moody’s or IMS relating to a judgment (even if not final) or any settlement being entered into in the IRI action will be jointly and severally assumed and fully discharged exclusively by the VNU Parties. Under the Amended JDA, the VNU Parties have agreed to, jointly and severally, indemnify us, D&B, Moody’s and IMS from and against all IRI Liabilities to which they become subject. As a result, the concept of “ACN Maximum Amount” which had been used under the Original JDA to cap ACNielsen’s liability for the IRI Liabilities no longer exists, and all such liabilities are the responsibility of the VNU Parties pursuant to the Amended JDA.

In addition, the Amended JDA provides that if it becomes necessary to post any bond pending an appeal of an adverse judgment, then the VNU Parties shall obtain the bond required for the appeal and shall pay the full cost of such bond.

In connection with entering into the Amended JDA, the Company, D&B, Moody’s and IMS agreed to amend certain covenants of the Original JDA to provide operational flexibility for ACNielsen going forward. In addition, the Amended JDA includes certain amendments to the covenants of ACNielsen (which, under the Amended JDA, are now also applicable to ACN (US), which we understand holds ACNielsen’s operating assets) which are designed to preserve such parties claim-paying ability and protect the Company, D&B, Moody’s and IMS. Among other covenants, ACNielsen and ACN (US) agreed that neither they nor any of their respective subsidiaries will incur any indebtedness to any affiliated person, except indebtedness which its payment will, after a payment obligation under the Amended JDA comes due, be conditioned on, and subordinated to, the payment and performance of the obligations of such parties under the Amended JDA. VNU has agreed to having a process agent in New York to receive on its behalf service of any process concerning the Amended JDA.

Under the agreements relating to the 1998 Distribution, D&B assumed the defense and agreed to indemnify us against any payments that we may be required to make, including any liabilities arising under the Original JDA, and IRI Liabilities arising from the IRI action itself, and in each case related legal fees. As required by those agreements, Moody’s Corporation, which subsequently separated from D&B in the 2000 Distribution, has agreed to be jointly and severally liable with D&B for the indemnity obligation to us. We understand that D&B and Moody’s have agreed amongst themselves to share equally (50% each) these indemnity obligations to us. Only if D&B and Moody’s were unable to bear all or a part of their aggregate 50% share of the liability in excess of the cap, would we be liable, and then only to the extent that either of them could not satisfy their joint and several indemnity obligations to us. Because liability for violations of the antitrust laws is joint and several and because the rights and obligations relating to the Amended JDA are based on contractual relationships, the failure of the VNU Parties to fulfill their obligations under the Amended JDA could result in the other parties bearing all or a share of the IRI Liabilities. Joint and several liability for the IRI Liabilities means that even where more than one defendant is determined to have been responsible for an alleged wrongdoing, the plaintiff can collect all or part of the judgment from just one of the defendants. This is true regardless of whatever contractual allocation of responsibility the defendants and any other indemnifying parties may have made, including the allocations described above between the VNU Parties, the Company, D&B, Moody’s and IMS.

Accordingly, and as a result of the allocations of liability described above, in the event the VNU Parties default on their obligations under the Amended JDA, each of D&B and Moody’s will be responsible for the payment of 50% of the portion of any judgment or settlement ultimately payable by the Company (which is the defendant in the IRI action), which could be as high as all of the IRI Liabilities.

We are unable to predict the outcome of the IRI litigation or the financial condition of any of the VNU Parties or the other defendants at the time of any such outcome (and hence we cannot estimate their ability to pay the IRI Liabilities pursuant to the Amended JDA or the judgment or settlement in the IRI action). Nonetheless, while we cannot assure you as to the outcome of this matter, management presently believes that the VNU Parties have sufficient financial resources and borrowing capacity to satisfy their obligations under the Amended JDA and, if they default, D&B and Moody’s have sufficient financial resources and borrowing capacity to reimburse us for any payments we may be required to make and related costs we may incur in connection with this matter. Therefore,

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management presently believes that the ultimate resolution of this matter would not have a material adverse effect on the Company’s results of operations, cash flows or financial condition. Accordingly, no amount in respect of this matter has been accrued in our consolidated financial statements.

Tax Matters

D&B entered into global tax-planning initiatives in the normal course of its business, primarily through tax-free restructurings of both its foreign and domestic operations. The status of Internal Revenue Service reviews of these initiatives is summarized below.

We understand that D&B recently reached a basis for settlement with the IRS regarding the two legacy tax matters described below under the headings “Utilization of Capital Losses – 1989-1990” and “Royalty Expense Deductions – 1993-1997.” These agreements are tentative, and will not bind either the IRS or D&B until final settlement agreements are executed. Upon final settlement, we understand that D&B expects that the net impact to D&B’s cash flow for these two matters could be up to $51.0 million (tax, interest, and penalties, net of associated tax benefits).

Pursuant to a series of agreements relating to the spin-offs and separations referred to above, IMS and NMR are jointly and severally liable for, and must pay one-half of, and D&B and Moody’s are jointly and severally liable for, and must pay the other half of, any payments over $137.0 million for taxes, accrued interest and other amounts resulting from unfavorable IRS rulings on the matters summarized below (other than the matter summarized below under “— Amortization and Royalty Expense Deductions/Royalty Income — 1997-2004,” for which D&B and Moody’s, jointly and severally, are solely responsible). D&B, on our behalf, was contractually obligated to pay, and did pay, the first $137.0 million of tax liability in connection with the matter summarized below as “— Utilization of Capital Losses — 1989-1990.”

Under the terms of the 1998 Distribution, D&B agreed to assume the defense and to indemnify us for any tax liability that may be assessed against us and any related costs and expenses that we may incur in connection with any of these tax matters. Also, as required by those agreements, Moody’s has agreed to be jointly and severally liable with D&B for the indemnity obligation to us. Under the terms of certain of the other spin-offs and separations, D&B and Moody’s have, between each other, agreed to be financially responsible for 50% of any potential liabilities that may arise to the extent such potential liabilities are not directly attributable to each party’s respective business operations. Only if D&B and Moody’s were unable to bear all or a part of these liabilities, would we be liable, and then only to the extent that both of them could not satisfy their joint and several indemnity obligations to us.

While we cannot assure you as to the outcome in these matters, management presently believes that D&B and Moody’s have sufficient financial resources, borrowing capacity and indemnity rights against IMS and NMR (who succeeded to Cognizant’s indemnity obligations under the Cognizant Distribution) and IMS and NMR in turn have sufficient financial resources and borrowing capacity to satisfy their respective indemnity obligations to D&B and Moody’s, so as to reimburse us for any payments we may be required to make and related costs we may incur in connection with these tax matters. Therefore, management presently believes that the ultimate resolution of these matters would not have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Utilization of Capital Losses – 1989 – 1990 (Tentative Settlement Pending)

In 2000, D&B filed an amended tax return with respect to the utilization of capital losses in 1989 and 1990 in response to a formal IRS notice of adjustment. The amended tax return reflected an additional $561.6 million of tax and interest due. In 2000, D&B paid the IRS approximately $349.3 million and IMS (on behalf of itself and NMR) paid the IRS approximately $212.3 million. We understand that these payments were made under dispute in order to stop additional interest from accruing and that D&B has filed a complaint for a refund in the United States District Court. As noted above, we understand that D&B recently reached a basis for settlement of this matter with the IRS. The agreement is tentative and non-binding until a definitive settlement agreement is executed. The pending settlement requires that the complaint for a refund be withdrawn and that D&B make an additional payment to the IRS. We understand that D&B expects that the net impact to D&B’s cash flow to settle this matter could be up to $14.0 million (tax, interest, and penalties, net of associated tax benefits), and that such payments will be made in 2004.

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Royalty Expense Deductions – 1993 – 1997 (Tentative Settlement Pending)

In the second quarter of 2003, D&B received (on our behalf) a proposed notice of deficiency from the IRS with respect to a partnership transaction entered into in 1993. Specifically, the IRS is proposing to disallow certain royalty expense deductions claimed by D&B on its 1993 through 1996 tax returns. We understand that D&B estimates that the disallowance of the 1993 and 1994 royalty expense deductions would result in a loss of approximately $5.0 million in pending tax refunds and that the additional tax liability with respect to the disallowance of the 1995 and 1996 royalty expense deductions could be up to approximately $45.0 million (tax, interest and penalties, net of associated tax benefits).

In addition, and also in the second quarter of 2003, D&B received from the IRS on behalf of the partnership associated with the above transaction a notice of proposed partnership adjustment challenging the tax treatment of certain royalty payments received by the partnership in which D&B was a partner. In that notice, the IRS is seeking to reallocate certain partnership income to D&B. In January and April 2004, D&B received additional IRS notices (similar to those received in the second quarter of 2003) associated with D&B’s remaining interest in the partnership transaction (as described above) for the three months in 1997 for which the entities were partners. The additional tax liability with respect to D&B’s share of this income for the notices received in the second quarter of 2003 and January and April 2004 could be up to $22.3 million (tax, interest and penalties, net of associated tax benefits). We understand that D&B believes that these positions regarding the partnership are inconsistent with the IRS’ position with respect to the same royalty expense deductions described above. This $22.3 million additional liability would be in addition to the $45.0 million of additional liability related to royalty expense deductions discussed in the previous paragraph.

As noted above, we understand that D&B recently reached a basis for settlement regarding the disallowance of the 1995 and 1996 royalty expense deductions. The agreement is tentative and non-binding until a definitive settlement agreement is executed. The agreement would eliminate the “inconsistent positions” described above. We understand that D&B expects that the net impact to D&B’s cash flow with respect to the agreement could be up to $37.0 million (tax, interest, and penalties, net of associated tax benefits), and that such payments will be made in 2004. We also understand that D&B continues to discuss with IRS Appeals the 1993, 1994, and 1997 royalty expense deductions, described above, which amounts represent $6.5 million (tax, interest, and penalties, net of associated tax benefits).

Amortization Expense Deductions – 1997 — 2004

In the fourth quarter of 2003, D&B received (on our behalf) IRS notices of proposed adjustment with respect to a partnership transaction entered into in 1997. In addition, D&B received, on behalf of the partnership, various IRS materials further explaining the examining agent’s position with respect to the activities of the partnership in 1997 and 1998.

In April 2004, D&B received (on our behalf) proposed notices of deficiency from the IRS, proposing adjustments with respect to the same partnership transaction entered into in 1997 described above. The adjustments proposed in the April notice reflect the notices of proposed adjustment and other IRS materials referred to above.

Specifically, the IRS asserted that certain amortization expense deductions claimed by D&B on its 1997 and 1998 tax returns should be disallowed. We understand that D&B estimates that the additional tax liability as a result of the disallowance of the 1997 and 1998 amortization deductions and the disallowance of such deductions claimed from 1999 to date could be up to $55.7 million (tax, interest and penalties, net of associated tax benefits). This transaction is scheduled to expire in 2012 and, unless earlier terminated, based on current interest rates and tax rates, additional tax exposure would increase at a rate of approximately $2.1 million per quarter (including potential penalties) as future amortization expenses are deducted.

In addition, the IRS has asserted that royalty expense deductions, claimed by D&B on its tax returns for 1997 and 1998 for royalties paid to the partnership should be disallowed. The IRS also has asserted that the receipt of these same royalties by the partnership should be reallocated to and reported as royalty income by D&B, including the portions of the royalties that were allocated to third party partners in the partnership, and, thus, included in their taxable income. We understand that D&B believes that the IRS’ stated positions with respect to the treatment of the royalty expense and royalty income are mutually inconsistent, making it unlikely that the IRS will prevail on both of

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the positions. As a result, we understand that D&B estimates that after taking into account certain other tax benefits resulting from the IRS’ position on the partnership it is unlikely that there will be any additional cash tax payments due in addition to the amounts noted above related to the amortization expense deduction.

In the event the IRS were to prevail on both positions with respect to the royalty expense/income, which D&B believes unlikely, D&B estimates that the additional tax liability as a result of the disallowance of the 1997 and 1998 royalty expense deductions, the disallowance of such deductions claimed from 1999 to date and the inclusion of the reallocated royalty income for all relevant years could be up to $138.8 million (tax, interest and penalties, net of associated tax benefits), which would be in addition to the $55.7 million noted above related to the amortization expense deduction.

We understand that D&B has filed protests relating to these matters with the IRS Office of Appeals, attempting to resolve these matters at the Appeals phase before proceeding to litigation, if necessary. If D&B were to challenge, at any time, any of these IRS positions for years 1997 and 1998 in U.S. District Court or the U.S. Court of Federal Claims, rather than in U.S. Tax Court, the disputed amounts for each applicable year would need to be paid in advance for the Court to have jurisdiction over the case.

Conclusion

As a result of our assessment of our exposure in these matters relating to our prior relationship with D&B and its former affiliates, especially in light of our indemnity arrangements with D&B and Moody’s (and the VNU Parties with respect to the IRI matter), and their respective financial resources, borrowing capacity and, in the case of Tax Matters, indemnity rights against IMS and NMR, and in turn IMS and NMR’s respective financial resources and borrowing capacity to satisfy their respective indemnity obligations to D&B and Moody’s, no material amounts have been accrued in our consolidated financial statements for any of these D&B-related litigation and tax matters.

Other Matters

We are also involved in other legal proceedings, claims and litigation arising in the ordinary conduct of our business. Although we cannot assure you of any outcome, management presently believes that the outcome of such legal proceedings will not have a material adverse effect on our results of operations or financial condition and no material amounts have been accrued in our consolidated financial statements with respect to these matters.

Item 4. Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Stockholders (“Meeting”) was held in Cary, N.C. on May 5, 2004. At the Meeting, the Company’s stockholders elected each of the three Class II directors nominated for election by the Board of Directors to serve a three-year term as follows:

			Votes
Name	Votes For		Withheld
Kenneth G. Campbell		37,104,526		428,167
Carol J. Parry		37,032,877		499,816
Barry Lawson Williams		37,019,374		513,319

The Board of Directors now comprises nine members consisting of three classes of three directors each. The other members of our Board of Directors (David C. Swanson, Nancy E. Cooper, Robert R. Gheewalla, Robert Kamerschen, Terrence M. O’Toole and David M. Veit ) were not subject to re-election by stockholders this year and continue in office.

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At the Meeting, the Company’s stockholders also ratified the appointment of PricewaterhouseCoopers LLP (“PwC”) to serve as the Company’s independent accountants for 2004 as follows:

	Votes For		Votes Against		Abstentions
Ratification of the appointment of PwC		37,146,834		341,472		44,387

Lastly, at the Meeting, the Company’s stockholders also approved a stockholder proposal relating to the Company’s stockholder rights plan, as follows:

	Votes For		Votes Against		Abstentions
Stockholder Proposal re: Rights Plan		16,558,779		16,419,820		4,554,094

With respect to the stockholder proposal, abstentions include broker non-votes, and for the election of directors proposal, abstentions are included under votes withheld.

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Item 6. Exhibits and Reports on Form 8-K

     (a) 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). The Company agrees to furnish supplementally a copy of any omitted schedules to the Securities and Exchange Commission upon request.
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.
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)
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)

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Exhibit No.	Document
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 1/8% 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 1/8% 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 1/8% 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 1/8% 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)
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 1/8% 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)

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Exhibit No.	Document
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 7/8% 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 7/8% 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 7/8% Senior Notes due 2010 (included in Exhibit 4.13)
4.16	Guarantees relating to the 8 7/8% 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 7/8% 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)
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 7/8% 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 7/8% Senior Subordinated Notes due 2012 (included in Exhibit 4.17)
4.20	Guarantees relating to the 10 7/8% 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)

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Exhibit No.	Document
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 7/8% 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)
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 June 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 June 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.
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)

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Exhibit No.	Document
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	Limited Liability Company Agreement of CenDon, L.L.C. dated April 27, 2000 between R.H. Donnelley Inc. and Centel Directory Company (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 10.14 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)
10.11	Sales Agency Agreement dated as of April 27, 2000 among R.H. Donnelley Inc., Centel Directory Company and CenDon, L.L.C. (incorporated by reference to Exhibit 10.15 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)
10.12	Agreement for Publishing Services dated as of April 27, 2000 between R.H. Donnelley and CenDon, L.L.C. (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 10.16 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)
10.13^	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)
10.14^	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)
10.15^	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)
10.16^	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)

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Exhibit No.	Document
10.17^	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)
10.18^	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)
10.19^	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)
10.20^	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)
10.21^	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)
10.22^	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 June 30, 2002, filed with the Securities and Exchange Commission on August 14, 2002, Commission File No. 001-07155)
10.23^	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)
10.24^	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)
10.25^	Separation Agreement and Release dated as of July 25, 2003 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q for the three month period ended June 30, 2003, filed with the Securities and Exchange Commission on August 13, 2003, Commission File No. 001-07155)
10.26^	Employment Agreement dated as of September 26, 2000 between the Company and William C. Drexler (incorporated by reference to Exhibit 10.35 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)
10.27^	Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and William C. Drexler (incorporated by reference to Exhibit 10.36 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)

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Exhibit No.	Document
10.28^	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)
10.29^	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)
10.30	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)
10.31	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)
10.32	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 June 30, 2003, filed with the Securities and Exchange Commission on August 13, 2003, Commission File No. 001-07155)
10.33	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)
10.34	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)
10.35	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)
10.36	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)

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Exhibit No.	Document
10.37	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)
10.38	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 bookrunners (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)
10.39	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 bookrunners, 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)
21	Subsidiaries of the Company (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)
31.1*	Certification of Quarterly Report on Form 10-Q for the period ended June 30, 2004 by David C. Swanson, Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act
31.2*	Certification of Quarterly Report on Form 10-Q for the period ended June 30, 2004 by Steven M. Blondy, Senior Vice President and Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act
31.3*	Certification of Quarterly Report on Form 10-Q for the period ended June 30, 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 Quarterly Report on Form 10-Q for the period ended June 30, 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 Quarterly Report on Form 10-Q for the period ended June 30, 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

68

Exhibit No.	Document
32.2*	Certification of Quarterly Report on Form 10-Q for the period ended June 30, 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

     (b) Reports on Form 8-K:

On April 27, 2004, the Company furnished a Current Report on Form 8-K disclosing under Item 12 certain financial results of the Company for the three months ended March 31, 2004 and attached a copy of its related press release as Exhibit 99.1.

On June 8, 2004, the Company furnished a Current Report on Form 8-K disclosing under Item 9 that certain members of senior management of the Company were scheduled to make a presentation at a media industry conference and that management intended to make a slide presentation. The company attached a copy of the slide presentation as Exhibit 99.1

On July 28, 2004, the Company furnished a Current Report on Form 8-K disclosing under Item 12 certain financial results of the Company for the three months and six months ended June 30, 2004 and attached a copy of its related press release as Exhibit 99.1.

On July 29, 2004, the Company furnished a Current Report on Form 8-K disclosing under Item 9 that management had posted a slide presentation on its website in connection with the Company’s public announcement that it had entered into a definitive agreement to purchase SBC Communications Inc.’s directory publishing business in Illinois and Northwest Indiana. The Company attached a copy of the slide presentation as Exhibit 99.1.

On August 2, 2004, the Company filed a Current Report on Form 8-K disclosing under Item 5 that it had entered into a definitive agreement to purchase SBC Communications Inc.’s directory publishing business in Illinois and Northwest Indiana. A copy of the definitive purchase agreement was attached as Exhibit 99.1.

On August 3, 2004, the Company furnished a Current Report on Form 8-K disclosing under Item 9 that management was scheduled to make certain presentations in connection with the syndication of its senior credit facility amendment relating to the financing of the purchase price of its recently announced acquisition of the directory publishing business of SBC Communications Inc. in Illinois and Northwest Indiana. A copy of certain slides describing the material provisions of the proposed amendment were attached as Exhibit 99.1.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		R.H. DONNELLEY CORPORATION
Date: August 9, 2004	By:	/s/ Steven M. Blondy
		Steven M. Blondy
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Date: August 9, 2004	By:	/s/ Thomas D. D’Orazio
		Thomas D. D’Orazio
		Vice President and Controller (Principal Accounting Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		R.H. DONNELLEY INC.
Date: August 9, 2004	By:	/s/ Steven M. Blondy
		Steven M. Blondy
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Date: August 9, 2004	By:	/s/ Thomas D. D’Orazio
		Thomas D. D’Orazio
		Vice President and Controller (Principal Accounting Officer)

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Exhibit Index

Exhibit No.	Document
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.
31.1*	Certification of Quarterly Report on Form 10-Q for the period ended June 30, 2004 by David C. Swanson, Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act
31.2*	Certification of Quarterly Report on Form 10-Q for the period ended June 30, 2004 by Steven M. Blondy, Senior Vice President and Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act
31.3*	Certification of Quarterly Report on Form 10-Q for the period ended June 30, 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 Quarterly Report on Form 10-Q for the period ended June 30, 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 Quarterly Report on Form 10-Q for the period ended June 30, 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 Quarterly Report on Form 10-Q for the period ended June 30, 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

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EX-10.3

EXECUTION COPY

Exhibit 10.3

AMENDED AND RESTATED
INDEMNITY AND JOINT DEFENSE AGREEMENT

     This Amended and Restated Indemnity and Joint Defense Agreement (this “Agreement”), is entered into as of July 30, 2004, by and among VNU, N.V., a corporation organized under the laws of the Netherlands (“VNU”), VNU, Inc., a New York corporation and a wholly owned subsidiary of VNU (“VNU Inc.”), ACNielsen Corporation, a Delaware corporation and a wholly owned subsidiary of VNU (“ACNielsen”), AC Nielsen (US), Inc., a Delaware corporation and a wholly owned subsidiary of VNU Inc. (“New ACN”), Nielsen Media Research, Inc. (formerly, Cognizant Corporation (“Cognizant”)), a Delaware corporation and a wholly owned subsidiary of VNU Inc. (“NMR”), R.H. Donnelley Corporation (formerly, The Dun & Bradstreet Corporation (“Old D&B”)), a Delaware corporation (“Donnelley”), The Dun & Bradstreet Corporation, a Delaware corporation (“D&B”), Moody’s Corporation, a Delaware corporation (“Moody’s”), and IMS Health Incorporated, a Delaware corporation (“IMS”) (each individually, a “Party,” and collectively, the “Parties”).

     WHEREAS, Old D&B, ACNielsen Company (a subsidiary of ACNielsen) and I.M.S. International, Inc. (formerly a subsidiary of Cognizant and a predecessor of IMS) have been named as defendants in an action commenced by Information Resources, Inc. (“IRI”) by the filing of its complaint dated July 29, 1996 in the action captioned Information Resources, Inc. v. The Dun & Bradstreet Corporation, A.C. Nielsen Co. and I.M.S. International, Inc. (S.D.N.Y.) 96 Civ. 5716 (this action and any amended complaint or action arising out of the same or substantially similar factual allegations by IRI or any successor or Affiliate thereof are referred to herein as the “Lawsuit”);

     WHEREAS, Old D&B, Cognizant and ACNielsen are parties to an Indemnity and Joint Defense Agreement, dated as of October 28,1996 (the “Original Agreement”), which provided for, among other things (i) allocation of financial responsibility among Old D&B, Cognizant and ACNielsen for the liabilities arising out of, or in connection with, the Lawsuit, and (ii) terms and conditions for the joint defense by the parties thereto against the Lawsuit;

     WHEREAS, pursuant to the terms of the Distribution Agreement, dated as of October 28, 1996, among Old D&B, Cognizant and ACNielsen (the “1996 Distribution Agreement”), the shares of Cognizant and ACNielsen were distributed by Old D&B to the stockholders of Old D&B (the “1996 Distribution”):

     WHEREAS, the 1996 Distribution Agreement provided for, among other things, assumptions of liabilities and cross indemnities designed to allocate among Old D&B, Cognizant and ACNielsen financial responsibility for the liabilities arising out of, or in connection with, the businesses conducted by Old D&B and its Subsidiaries before the 1996 Distribution;

     WHEREAS, pursuant to the terms of the Distribution Agreement, dated as of June 30, 1998, between Cognizant (subsequently renamed NMR) and IMS (the “1998 Cognizant/IMS Distribution Agreement”), the shares of IMS were distributed by Cognizant to the stockholders of Cognizant (the “1998 Cognizant/IMS Distribution”);

     WHEREAS, the 1998 Cognizant/IMS Distribution Agreement provided for, among other things, assumptions of liabilities and cross indemnities designed to allocate between Cognizant and IMS financial responsibility for the liabilities arising out of, or in connection with, the businesses conducted by Cognizant and its subsidiaries before the 1998 Cognizant/IMS Distribution, including Cognizant’s liabilities under the 1996 Distribution Agreement and the Original Agreement;

     WHEREAS, under the terms of the 1996 Distribution Agreement, as a condition to the 1998 Cognizant/IMS Distribution, EMS was required to undertake, and did undertake, to each of Old D&B and ACNielsen to be jointly and severally liable with Cognizant for all of Cognizant’s liabilities under the 1996 Distribution Agreement;

     WHEREAS, pursuant to the terms of the Distribution Agreement, dated as of June 30, 1998, between Old D&B (subsequently renamed Donnelley) and The New Dun & Bradstreet Corporation (subsequently renamed The Dun & Bradstreet Corporation) (the “1998 Old D&B/Donnelley Distribution Agreement”), the shares of The New Dun & Bradstreet Corporation were distributed by Old D&B to the stockholders of Old D&B (the “1998 Old D&B/Donnelley Distribution”);

     WHEREAS, the 1998 Old D&B/Donnelley Distribution Agreement provided for, among other things, assumptions of liabilities and cross indemnities designed to allocate between Old D&B and The New Dun & Bradstreet Corporation financial responsibility for the liabilities arising out of, or in connection with, the businesses conducted by Old D&B and its subsidiaries before the 1998 Old D&B/Donnelley Distribution, including Old D&B’s liabilities under the 1996 Distribution Agreement and the Original Agreement;

     WHEREAS, under the terms of the 1996 Distribution Agreement, as a condition to the 1998 Old D&B/Donnelley Distribution, The New Dun & Bradstreet Corporation was required to undertake, and did undertake, to each of Cognizant and ACNielsen to be jointly and severally liable with Old D&B for all of Old D&B’s liabilities under the 1996 Distribution Agreement;

     WHEREAS, pursuant to the terms of the Agreement and Plan of Merger, dated as of August 15, 1999, among VNU USA, Inc. (“VNUUSA”), Niner Acquisition, Inc., a wholly owned subsidiary of VNU USA (“Niner”), and NMR, Niner merged with and into NMR, with NMR continuing as the surviving corporation and a wholly owned subsidiary of VNU USA;

     WHEREAS, pursuant to the terms of the Distribution Agreement, dated as of September 30, 2000, between The Dun & Bradstreet Corporation (subsequently renamed Moody’s) and The New Dun & Bradstreet Corporation (subsequently renamed

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D&B) (the “2000 D&B/Moody’s Distribution Agreement”), the shares of D&B were distributed by Moody’s to the stockholders of Moody’s (the “2000 D&B/Moody’s Distribution”);

     WHEREAS, the 2000 D&B/Moody’s Distribution Agreement provided for, among other things, assumptions of liabilities and cross indemnities designed to allocate between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation financial responsibility for the liabilities arising out of, or in connection with, the businesses conducted by The Dun & Bradstreet Corporation and its subsidiaries before the 2000 Distribution, including The Dun & Bradstreet Corporation’s liabilities under the 1996 Distribution Agreement, the Original Agreement and the 1998 Old D&B/Donnelley Distribution Agreement;

     WHEREAS, under the terms of the 1996 Distribution Agreement, as a condition to the 2000 D&B/Moody’s Distribution, The New Dun & Bradstreet Corporation was required to undertake, and did undertake, to each of NMR (as successor to Cognizant) and ACNielsen to be jointly and severally liable with Donnelley (as successor to Old D&B) for all of Old D&B’s liabilities under the 1996 Distribution Agreement;

     WHEREAS, under the terms of the 1998 Old D&B/Donnelley Distribution Agreement, as a condition to the 2000 D&B/Moody’s Distribution, The New Dun & Bradstreet Corporation was required to undertake, and did undertake, to Donnelley (as successor to Old D&B) to be jointly and severally liable with The Dun & Bradstreet Corporation for all of The Dun & Bradstreet Corporation’s liabilities under the 1998 Old D&B/Donnelley Distribution Agreement;

     WHEREAS, pursuant to the terms of the Agreement and Plan of Merger, dated as of December 17, 2000, among VNU, Artist Acquisition, Inc., a wholly owned subsidiary of VNU (“Artist”), and ACNielsen, Artist merged with and into ACNielsen, with ACNielsen continuing as the surviving corporation and a wholly owned subsidiary of VNU (the “ACNielsen Acquisition”);

     WHEREAS, under the terms of the Original Agreement, in connection with the ACNielsen Acquisition, VNU was required to assume, and did assume, all of ACNielsen’s obligations under the Original Agreement;

     WHEREAS, pursuant to the terms and subject to the limitations hereof, VNU, VNU Inc., ACNielsen, New ACN and NMR, jointly and severally, have agreed, inter alia, (i) to assume and duly and punctually perform, be bound by, and otherwise discharge in accordance with their terms the IRI Liabilities and (ii) indemnify Donnelley (as successor to Old D&B), D&B, Moody’s and IMS against any IRI Liabilities which may be incurred, directly or indirectly, by any of them;

     WHEREAS, the Parties believe that they have a mutuality of interest in a joint defense in connection with the Lawsuit and any additional actions, investigations or

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proceedings that have arisen or may arise in connection with the subject matter of the Lawsuit;

     WHEREAS, it is the intention and understanding of the Parties that communications between and among them as provided herein and any joint interviews of prospective witnesses for the purpose of a joint defense are confidential and are protected from disclosure to any third party by the attorney-client privilege, the work product doctrine and any other applicable privileges;

     WHEREAS, in order to pursue a joint defense effectively, the Parties have also concluded that, from time to time, their mutual interests will be best served by sharing privileged material, mental impressions, memoranda, interview reports and other work products and information, including the confidences of each party;

     WHEREAS, it is a purpose of this Agreement to insure that the exchanges and disclosures of privileged materials contemplated herein do not diminish or constitute a waiver of any privilege that may otherwise be available by virtue of any prior agreement, conduct, operation of law or otherwise;

     WHEREAS, the Parties desire to amend and restate the Original Agreement as set forth herein and each Party expressly acknowledges that the execution and delivery of this Agreement does not in any manner constitute an admission that the Lawsuit has any merit,

     NOW, THEREFORE, in consideration of the mutual promises, covenants and releases contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I
DEFINITIONS

     SECTION 1.1. Definitions. The following terms shall have the following meanings:

     “1996 Distribution” shall have the meaning set forth in the recitals hereto.

     “1996 Distribution Agreement” shall have the meaning set forth in the recitals hereto.

     “1998 Cognizant/IMS Distribution” shall have the meaning set forth in the recitals hereto.

     “1998 Cognizant/IMS Distribution Agreement shall have the meaning set forth in the recitals hereto.

     “1998 Old D&B/Donnellev Distribution” shall have the meaning set forth in the recitals hereto.

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     “1998 Old D&B/Donnelley Distribution Agreement” shall have the meaning set forth in the recitals hereto.

     “2000 D&B/Moody’s Distribution” shall have the meaning set forth in the recitals hereto.

     “2000 D&B/Moody’s Distribution Agreement” shall have the meaning set forth in the recitals hereto.

     “ACNielsen” shall have the meaning set forth in the recitals hereto.

     “ACNielsen Acquisition” shall have the meaning set forth in the recitals hereto.

     “Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

     “Ancillary Agreements” shall mean all of the written agreements, instruments, assignments or other written arrangements (other than this Agreement and the 1996 Distribution Agreement) entered into in connection with the transactions contemplated by this Agreement and the 1996 Distribution Agreement, including, without limitation, the Conveyancing and Assumption Instruments, the Data Services Agreement, the Employee Benefits Agreement, the Intellectual Property Agreement, the Shared Transaction Services Agreements, the TAM Master Agreement, the Tax Allocation Agreement and the Transition Services Agreement.

     “Artist” shall have the meaning set forth in the recitals hereto.

     “Board of Directors” shall mean, when used with respect to a specified corporation, the board of directors of the corporation so specified, and when used with respect to VNU, the executive board of VNU.

     “Business Combination” means, with respect to any Person, any consolidation or merger or any sale, conveyance, assignment, transfer, lease or other disposition of all or substantially all of the properties and assets of such Person as an entirety in one transaction or series of transactions,

     “Business Day” means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by law to be closed in New York, New York.

     “Capital Lease Obligations” of a Person means any obligation which is required to be classified and accounted for as a capital lease for financial reporting

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purposes in accordance with GAAP; the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.

     “Capital Stock” means, with respect to any Person, any and all shares, interests, participations, rights to purchase, warrants, options, or other equivalents (however designated) of capital stock of a corporation, and any and all equivalent ownership interests in a Person other than a corporation, in each case whether now outstanding or hereafter issued.

     “Cash Equivalents” means, at any time, (a) any evidence of Indebtedness with a maturity of 180 days or less from the date of acquisition issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided, that the full faith and credit of the United States of America is pledged in support thereof); (b) certificates of deposit, money market deposit accounts and acceptances with a maturity of 180 days or less from the date of acquisition of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500 million; (c) commercial paper with a maturity of 180 days or less from the date of acquisition issued by a corporation that is not an Affiliate of a VNU Party whose debt rating, at the time as of which such investment is made, is at least “A-l” by Standard & Poor’s Corporation or at least “P-l” by Moody’s Investors Service, Inc., or rated at least an equivalent rating category of another nationally recognized securities rating agency; (d) repurchase agreements and reverse repurchase agreements having a term of not more than 30 days for underlying securities of the types described in clause (a) above entered into with a financial institution meeting the qualifications described in clause (b) above; (e) any security, maturing not more than 180 days after the date of acquisition, backed by standby or direct pay letters of credit issued by a bank meeting the qualifications described in clause (b) above; and (f) any security, maturing not more than 180 days after the date of acquisition, issued or fully guaranteed by any state, commonwealth, or territory of the United States of America, or by any political subdivision thereof, and rated at least “A” by Standard & Poor’s Corporation or at least “A” by Moody’s Investors Service, Inc., or rated at least an equivalent rating category of another nationally recognized securities rating agency.

     “Cognizant” shall have the meaning set forth in the recitals hereto.

     “Consolidated EBITDA” means for any period the sum of Consolidated Net Income plus, to the extent deducted in computing Consolidated Net Income, Consolidated Interest Expense, Consolidated Tax Expense, all depreciation and, without duplication, all amortization, in each case, for such period, of the Relevant Party and its Subsidiaries on a consolidated basis, all as determined in accordance with GAAP.

     “Consolidated Interest Expense” means for any period the sum of (a) the aggregate of the interest expense on Indebtedness of the Relevant Party and its Subsidiaries for such period, on a consolidated basis as determined in accordance with GAAP (excluding the amortization of costs relating to original debt issuances but including the amortization of debt discount) plus (b) without duplication, that portion of

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Capital Lease Obligations of the Relevant Party and its Subsidiaries representing the interest factor for such period as determined in accordance with GAAP plus (c) without duplication, dividends paid in respect of preferred stock of Subsidiaries or Disqualified Stock of the Relevant Party and its Subsidiaries to Persons other than the Relevant Party or a wholly owned Subsidiary of the Relevant Party.

     “Consolidated Net Income” means, for any period, the net income or loss of the Relevant Party and its Subsidiaries for such period on a consolidated basis as determined in accordance with GAAP, adjusted by excluding the after-tax effect of (a) any gains (but not losses) from currency exchange transactions not in the ordinary course of business; (b) the net income of any Person which is not a Subsidiary of the Relevant Party or is accounted for by the equity method of accounting except to the extent of the amount of dividends or distributions actually paid in cash by such Person to the Relevant Party or a Subsidiary of the Relevant Party during such period; (c) except to the extent includible pursuant to clause (b), the net income of any Person accrued prior to the date it becomes a Subsidiary of the Relevant Party or is merged into or consolidated with the Relevant Party or any of its Subsidiaries or such Person’s assets are acquired by the Relevant Party or any of its Subsidiaries; (d) net gains attributable to write-ups (determined after taking into account losses attributable to write-downs) of assets or liabilities other than in the ordinary course of business; (e) the cumulative effect of a change in accounting principles; and (f) net income from discontinued operations.

     “Consolidated Net Worth” of a Person and its Subsidiaries means as of any date all amounts that would be included under stockholders’ equity on a consolidated balance sheet of such Person and its Subsidiaries determined in accordance with GAAP.

     “Consolidated Tax Expense” means for any period the aggregate of the federal, state, local and foreign income tax expense of the Relevant Party and its Subsidiaries for such period, on a consolidated basis as determined in accordance with GAAP, to the extent deducted in computing Consolidated Net Income.

     “Covenant Party” shall have the meaning set forth in Section 3.1 hereto.

     “Counsel of Record” shall have the meaning set forth in Section 4.1 hereto.

     “D&B” shall have the meaning set forth in the recitals hereto.

     “D&B Party” shall have the meaning set forth in Section 2.2 hereto.

     “D&B Parties Counsel” shall have the meaning set forth in Section 4.1 hereto.

     “Defense Costs” shall have the meaning set forth in Section 4.1 hereto.

     “Defense Costs Statement” shall have the meaning set forth in Section 4.1 hereto.

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     “Defense Materials” shall have the meaning set forth in Section 4.1 hereto.

     “Designated Officers” means, with respect to any VNU Party, the chief financial officer (or equivalent officer) of such VNU Party.

     “Disqualified Stock” means any Capital Stock which pays a mandatory dividend (other than in Capital Stock) or which, by its terms (or by the terms of any security into which it is convertible or exchangeable), or upon the happening of any event, (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (ii) is redeemable at the option of the holder thereof, in whole or in part or (iii) is convertible or exchangeable for Indebtedness or Disqualified Stock of any Relevant Party or its Subsidiaries.

     “Donnelley” shall have the meaning set forth in the recitals hereto.

     “Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York.

     “Fixed Charge Coverage Ratio” means for any period the ratio of Consolidated EBITDA to Consolidated Interest Expense for such period; provided, however, that in making such computation, the interest expense on any Indebtedness to be incurred and computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period.

     “GAAP” means the generally accepted accounting principles in the United States, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession in the United States, in each case applied on a consistent basis.

     “IMS” shall have the meaning set forth in the recitals hereto.

     “IMS Counsel” shall have the meaning set forth in Section 4.1 hereto.

     “Indebtedness” means, with respect to any Person, without duplication, (a) the principal of and premium (if any) in respect of (i) indebtedness of such Person for money borrowed and (ii) indebtedness evidenced by notes, indentures, bonds, other similar instruments for the payment of which such Person is responsible or liable; (b) all Capital Lease Obligations of such Person; (c) all obligations of such Person issued or assumed as the deferred purchase price of property; (d) all obligations of such Person for the reimbursement of any obligor on any letter of credit or similar credit transaction; (e) all dividends on Capital Stock issued by third parties for the payment of which such

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Person is responsible; (f) all obligations of the type referred to in clauses (a) through (e) above of third parties secured by any Lien on any property or asset of such Person, the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; (g) indebtedness secured by any Lien existing on property acquired by such Person subject to such Lien, whether or not the indebtedness secured thereby shall have been assumed; provided, that if such Person has not assumed such Indebtedness the amount of Indebtedness of such Person shall be deemed to be the lesser of the value of such acquired property or the amount of the indebtedness secured; (h) guarantees, endorsements and other obligations, whether or not contingent, in respect of, or agreements to purchase or otherwise acquire, Indebtedness of other Persons; (i) all Disqualified Stock issued by such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; (j) preferred stock issued by any Subsidiary of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; and (k) all obligations under or in respect of Interest Rate Protection and Other Hedging Agreements.

     For purposes of this definition, “maximum fixed repurchase price” of any preferred stock issued by any Subsidiary of a Person and of any Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such preferred stock or such Disqualified Stock as if such preferred stock or such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the fair market value of such preferred stock or Disqualified Stock, such fair market value shall be determined in good faith by the Board of Directors of the issuer of such preferred stock or such Disqualified Stock.

     “Indemnified Parties” shall have the meaning set forth in Section 2.2 hereto.

     “Interest Rate Protection and Other Hedging Agreements” means one or more of the following agreements entered into by one or more financial institutions: (a) interest rate protection agreements (including, without limitation, interest rate, swaps, caps, floors, collars and similar agreements), (b) foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against fluctuations in currency values and/or (c) other types of hedging agreements from time to time.

     “IRI” shall have the meaning set forth in the recitals hereto.

     “IRI Investor” shall have the meaning set forth in Section 2.3 hereto.

     “IRI Liabilities” shall have the meaning set forth in Section 2.1 hereto.

     “Lawsuit” shall have the meaning set forth in the recitals hereto.

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     “Lien” means any mortgage, lien, pledge, security interest, conditional sale or other title retention agreement or other security interest or encumbrance of any kind (including any agreement to give any security interest).

     “Moody’s” shall have the meaning set forth in the recitals hereto.

     “Niner” shall have the meaning set forth in the recitals hereto.

     “NMR” shall have the meaning set forth in the recitals hereto.

     “Officer” means the Chairman of the Board of Directors, the Vice-Chairman of the Board of Directors, the Chief Executive Officer or the Chief Financial Officer of the relevant party.

     “Officer’s Certificate” means a certificate signed by an Officer.

     “Old D&B” shall have the meaning set forth in the recitals hereto.

     “Original Agreement” shall have the meaning set forth in the recitals hereto.

     “Parent” of a Person means any other Person with the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of Voting Stock, by contract or otherwise.

     “Party” shall have the meaning set forth in the recitals hereto.

     “Party Counsel” shall have the meaning set forth in Section 4.1 hereto.

     “Permitted Related Person Subordinated Indebtedness” shall have the meaning set forth in Section 3.6 hereto.

     “Person” means any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof.

     “Prime Rate” means a fluctuating interest rate per annum in effect from time to time, which shall at all times be equal to the higher of (i) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.’s prime rate and (ii) ½ of 1% per annum above the Federal Funds Rate.

     “Process Agent” shall have the meaning set forth in Section 5.13 hereto.

     “Related Person” means (a) any Affiliate of a Relevant Party, (b) any Person who directly or indirectly holds 5% or more of any class of Voting Stock of a Relevant Party or any Subsidiary of a Relevant Party, (c) any Person who is an executive officer or director of a Relevant Party and (d) any Affiliate of or any relative by blood,

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marriage or adoption not more remote than first cousin of any such Person referred to in clause (b) or (c) above.

     “Relevant Party” shall have the meaning set forth in Section 3.4 hereto.

     “Restricted Payment” means, with respect to a Covenant Party and its Subsidiaries, (a) any declaration or payment of any dividend on, or any distribution in respect of, or any purchase, redemption or retirement for value of, any Capital Stock of such Covenant Party or its Subsidiary or any deposit with respect to the foregoing (other than dividends or distributions payable solely to such Covenant Party), (b) any charitable contribution, (c) any voluntary payments to pension or other benefit plans, (d) any payments in respect of any Permitted Related Person Subordinated Indebtedness (other than amounts paid solely to a Covenant Party) or (e) any accelerated payment of any accounts payable or any cancellation or discounting of, or delay or extension in the collection of, any accounts receivable, unless such acceleration, cancellation, discounting, delay or extension, as the case may be, is in the ordinary course of such Person’s business.

     “Strategic Transaction” shall mean any direct or indirect acquisition or disposition of any business or of any assets comprising a business, or any acquisition or disposition of any interest in a joint venture or other equity investment in any business.

     “Subordination Agreement” shall have the meaning set forth in Section 3.6 hereto.

     “Subsidiary” shall mean any corporation, partnership or other entity of which another entity (a) owns, directly or indirectly, ownership interests sufficient to elect a majority of the Board of Directors (or persons performing similar functions) (irrespective of whether at the time any other class or classes of ownership interests of such corporation, partnership or other entity shall or might have such voting power upon the occurrence of any contingency) or (b) is a general partner or an entity performing similar functions (e.g., a trustee). For purposes of this Agreement, the term “Subsidiary” as it relates to IMS shall be deemed to include the following former affiliates of IMS: Gartner Inc., Synavant, Inc. and Cognizant Technology Solutions Corporation, and their respective successors and assigns, provided, in the case of any such assigns, that VNU has granted its prior written consent to such assignment.

     “Trust” shall have the meaning set forth in Section 2.3 hereto.

     “VNU” shall have the meaning set forth in the recitals hereto.

     “VNU USA” shall have the meaning set forth in the recitals hereto.

     “VNU Inc.” shall have the meaning set forth in the recitals hereto.

     “VNU Party” shall have the meaning set forth in Section 2.1 hereto.

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     “Voting Stock” means all outstanding classes of Capital Stock of any Person ordinarily entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or other voting members of the governing body of such Person.

     “Withdrawing Party” shall have the meaning set forth in Section 4,1 hereto.

ARTICLE II
ALLOCATION OF LIABILITIES/
INDEMNIFICATION

     SECTION 2.1. Allocation of Liabilities. The Parties agree that in the event that liabilities are incurred by any Party hereto or any Subsidiary (including, with respect to IMS, Gartner Inc., Synavant, Inc. and Cognizant Technology Solutions Corporation, and their respective successors and assigns, provided, in the case of any such assigns, that VNU has granted its prior written consent to such assignment) thereof, relating to, arising out of or resulting from a judgment being entered, or any settlement permitted hereby being entered into, in connection with the Lawsuit, any and all of such liabilities (“IRI Liabilities”) shall be jointly and severally assumed and duly and fully paid and discharged in accordance with their terms exclusively by VNU, VNU Inc., ACNielsen, New ACN and NMR (each, a “VNU Party” and, collectively, the “VNU Parties”). IRI Liabilities shall not include Defense Costs (whether or not paid), which shall be shared by the Parties in accordance with Section 4.1(h).

     SECTION 2.2. Indemnification. The VNU Parties shall, jointly and severally, indemnify, defend and hold harmless Donnelley, D&B, Moody’s (collectively, the “D&B Parties”) and IMS and their respective Subsidiaries (including, with respect to IMS, Gartner Inc., Synavant, Inc. and Cognizant Technology Solutions Corporation, and their respective successors and assigns, provided, in the case of any such assigns, that VNU has granted its prior written consent to such assignment) (collectively, the “Indemnified Parties”) from and against, and shall reimburse the same for and in respect of, any and all IRI Liabilities assessed against any of them, or to which any of them becomes subject, as a result of the Lawsuit.

     SECTION 2.3. Other Agreements Relating to Allocation of IRI Liabilities.

          (a) If any of the D&B Parties or IMS acquires beneficial ownership of 20% or more of the outstanding contingent value rights issued by the Information Resources Inc. Litigation Contingent Payment Rights Trust (or any successor thereof) (the “Trust”) (an “IRI Investor”), then such IRI Investor shall be deemed to be Withdrawing Party for purposes of and with the consequences set forth in Section 4.1(g).

          (b) The VNU Parties agree that if it shall be necessary to post any bond pending any appeal of the Lawsuit or otherwise in connection therewith, the

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VNU Parties shall promptly procure such a bond and shall exclusively pay the full cost thereof.

          (c) The directors of A.C. Nielsen Company immediately prior to the 1996 Distribution shall be third-party beneficiaries of the agreements set forth in Article II.

ARTICLE III
COVENANTS/ REPRESENTATION AND WARRANTIES

     SECTION 3.1. Limitation on Restricted Payments.

          (a) Neither ACNielsen nor New ACN (each a “Covenant Party” and, collectively, the “Covenant Parties”) will, nor will they permit any of their Subsidiaries to, directly or indirectly, make any Restricted Payment if, at the time of such Restricted Payment, and after giving effect thereto, the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made for the then current calendar year shall exceed the sum of:

               (i) $30 million; and

               (ii) 20% of the aggregate, without duplication, Consolidated Net Income (which, for purposes of this Section 3.1, shall not be less than zero) of the Covenant Parties accrued on a cumulative basis during the last four completed calendar quarters ending on or prior to the date of such proposed Restricted Payment;

provided, however, that the foregoing provisions will not prevent the payment of a dividend within 60 days after the date of its declaration if at the date of declaration such payment was permitted by the foregoing provisions.

          (b) The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of such Restricted Payment of the asset(s) or securities proposed to be paid, transferred or issued by such Covenant Party or its Subsidiary, as the case may be, pursuant to such Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors of such Covenant Party acting in good faith, whose determination shall be conclusive and whose resolution with respect thereto shall be delivered to each of the D&B Parties and IMS not later than three (3) days following the date of making such Restricted Payment, such determination to be based upon an opinion or appraisal issued by an internationally recognized investment banking firm if such fair market value is estimated to exceed $15 million.

     SECTION 3.2. Limitation on Transactions with Related Persons.

          (a) Neither Covenant Party will, nor will it permit any of its Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or

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lease of assets, property or services) with any Related Person unless (i) such transaction or series of transactions is on terms that are no less favorable to the relevant Covenant Party or its Subsidiary, as the case may be, than would be available in a comparable transaction with an unrelated third party and (ii) where such transaction or series of transactions involves aggregate consideration (including, without limitation, the assumption of indebtedness) in excess of 7.5% of the aggregate Consolidated Net Worth of the Covenant Parties on a combined basis (without duplication) as of the end of the prior fiscal year, the relevant Covenant Party shall also deliver to each of the D&B Parties and IMS not later than the date of entering into any such transaction, an opinion from an internationally recognized investment banking firm chosen by such Covenant Party as to the fairness of such transaction or series of transactions to such Covenant Party or such Subsidiary from a financial point of view.

          (b) For purposes of the foregoing, a series of related transactions will be deemed to include, without limitation, a series of transactions if, within six months of closing one transaction, another transaction is entered into with the same Person or with a successor or affiliate thereof.

          (c) Notwithstanding the foregoing, the provisions of this Section 3.2 will not apply to (i) compensation or employee benefit arrangements with any officer or director of a Covenant Party or (ii) any Restricted Payment permitted to be made pursuant to this Agreement.

     SECTION 3.3. Merger and Consolidation. Neither Covenant Party may engage in any Business Combination with any Person, unless:

          (a) either:

               (i) the Covenant Party shall be the continuing corporation and the Persons who were such Covenant Party’s stockholders immediately prior to such Business Combination continue to hold more than 50% of the combined voting power of the Voting Stock of the continuing corporation upon consummation of such Business Combination; or

               (ii) (A) such Person and such Person’s Parent, if any, (x) shall be a corporation, partnership or trust organized and validly existing under the laws of the United States or any State thereof or the District of Columbia or (y) shall duly execute and deliver to each of the D&B Parties and IMS a consent to jurisdiction in the form set forth in Exhibit 3.3(A) hereto and (B) such Person and such Person’s Parent, if any, shall expressly assume, by an instrument of assumption in the form set forth in Exhibit 3.3(B) hereto executed and delivered to each of the D&B Parties and IMS, all of the VNU Parties’ obligations hereunder;

          (b) immediately after the Business Combination, the Covenant Party and its Subsidiaries or such Person, or such Person’s Parent, if any, and its Subsidiaries shall have a Consolidated Net Worth equal to or greater than the

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Consolidated Net Worth of such Covenant Party and its Subsidiaries immediately prior to such Business Combination;

          (c) the Covenant Party shall have delivered to each of the D&B Parties and IMS (i) an Officer’s Certificate stating that such Business Combination complies with this Agreement and (ii) an Officer’s Certificate and an opinion of reputable outside counsel, each stating that such consent to jurisdiction, in the event clause (a)(ii)(A)(y) is applicable, and such instrument of assumption, in the event clause (a)(ii)(B) is applicable, constitute legal, valid and binding obligations of such Person and such Person’s Parent, if any, enforceable in accordance with their terms; and

          (d) such Business Combination is permitted under Section 3.4 below.

     SECTION 3.4. Limitation on Certain Transactions.

          (a) Neither Covenant Party will enter into any Strategic Transaction or engage in any Business Combination unless an Officer’s Certificate is delivered to each of the D&B Parties and IMS certifying that, after giving pro forma effect to such Strategic Transaction or Business Combination, the Fixed Charge Coverage Ratio of the Covenant Parties on a combined basis, or, in the case of a Business Combination, the Fixed Charge Coverage Ratio on a combined basis of the continuing corporation (or, in the case of a Business Combination that is a sale, conveyance, assignment, transfer, lease or other disposition of all or substantially all of the properties and assets of the Covenant Party, the purchaser, recipient, assignee, transferee or lessor of such properties and assets) following such Business Combination, (the Covenant Party engaging in such Strategic Transaction or Business Combination, or such continuing corporation, purchaser, recipient, assignee, transferee or lessor, as the case may be, and the other Covenant Party referred to individually as the “Relevant Party”) and of the other Covenant Party, in each case calculated as set forth in Section 3.4(c) below, is greater than 2 to 1, which Officer’s Certificate shall be accompanied by a letter from each Relevant Party’s independent accountants confirming that such Fixed Charge Coverage Ratio has been correctly calculated in accordance with the requirements hereof and based on financial statements prepared in accordance with GAAP.

          (b) In addition, neither Covenant Party will enter into any Strategic Transaction or engage in any Business Combination involving aggregate consideration (including, without limitation, the assumption of indebtedness) in excess of $50 million, unless the following conditions are met:

               (i) the Board of Directors of such Covenant Party has received an opinion in writing from an internationally recognized investment bank chosen by such Covenant Party, to the effect that such transaction is fair, from a financial point of view, to the Covenant Party, a copy of which opinion shall have been delivered to the D&B Parties and IMS; and

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               (ii) in the case of a disposition of a business, an equity interest in a business or the disposition of assets comprising a business, which disposition does not involve the simultaneous equity investment in a joint venture entity which is the acquirer of such business, equity investment or assets, the consideration therefor is limited to cash, Cash Equivalents and/or marketable securities which are freely tradable on a public stock exchange or inter-dealer quotation system.

          (c) The Fixed Charge Coverage Ratio shall be for the most recent four consecutive full fiscal quarters ending prior to such certification, taken as one period, and calculated on the assumptions that (i) any Indebtedness to be incurred in connection with an acquisition or Business Combination had been incurred on the first day of such four-quarter period, (ii) any other Indebtedness incurred, repaid or retired by the Relevant Party and its Subsidiaries since the beginning of such four-quarter period was incurred, repaid or retired, as the case may be, on the first day of such four-quarter period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four-quarter period or during such shorter included period when such facility was outstanding or (B) if such facility was created after the end of such four-quarter period, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of the calculation) and (iii) any acquisition or disposition by the Relevant Party or its Subsidiaries of any assets out of the ordinary course of business or of any company, division or line of business, in each case since the first day of its last four completed fiscal quarters, had been consummated on such first day of such four-quarter period.

          (d) For purposes of the foregoing, any issuance or transfer of any Capital Stock of a wholly owned Subsidiary which is a holder of obligations of a Subsidiary that constitute Indebtedness shall be deemed an incurrence of Indebtedness if such issuance or transfer results in such wholly owned Subsidiary no longer being a wholly owned Subsidiary.

     SECTION 3.5. Limitation on Reincorporation. Neither Covenant Party will, without the prior written consent of each D&B Party and IMS, re-incorporate or reorganize its corporate form under the laws of a jurisdiction other than the State of Delaware unless such Covenant Party, as re-incorporated or re-organized under the laws of such other jurisdiction, could take substantially the same actions without stockholder (or equity holder) consent or approval under the laws of such jurisdiction and such Covenant Party’s then applicable certificate of incorporation, charter, by-laws or other organizational documents as such Covenant Party could take without stockholder consent or approval under the General Corporation Law of the State of Delaware and such Covenant Party’s certificate of incorporation and by-laws as of the date hereof, and counsel reasonably satisfactory to the D&B Parties and IMS confirms the foregoing in writing to the reasonable satisfaction of the D&B Parties and IMS.

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     SECTION 3.6. Subordination. No Covenant Party shall (i) directly or indirectly, create, incur, assume or guaranty, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness to any Related Person except any such Indebtedness which is expressly subordinated and made junior to the payment and performance in full of all of the obligations of the Covenant Parties under this Agreement in accordance with a subordination agreement in the form of Exhibit 3.6 hereto (the “Subordination Agreement”) or (ii) permit any of its Subsidiaries to directly or indirectly, create, incur, assume or guaranty, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness to any Related Person except any such Indebtedness which is expressly subordinated and made junior to the payment and performance in full of all of the obligations of the Covenant Parties under this Agreement to the same extent as set forth in the Subordination Agreement (such subordinated Indebtedness under clauses (i) and (ii), “Permitted Related Person Subordinated Indebtedness”).

     SECTION 3.7. Notices. Each VNU Party shall deliver to each of the D&B Parties and IMS, promptly upon actual awareness of any Designated Officer becoming aware of any default by such VNU Party in the performance or observance of its obligations or covenants under this Agreement, an Officers’ Certificate specifying such default.

     SECTION 3.8. VNU Covenants. VNU covenants and agrees to cause each Covenant Party and its respective Subsidiaries to fully comply with the covenants set forth in this Agreement.

     SECTION 3.9. Representations and Warranties of the VNU Parties. To induce the D&B Parties and IMS to enter into this Agreement, each VNU Party represents and warrants, as of the date first written above, that the following statements are true and correct:

          (a) Organization; Requisite Power and Authority. Each VNU Party (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

          (b) Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of each VNU Party. This Agreement has been duly executed and delivered by each VNU Party and is a legally valid and binding obligation of each VNU Party, enforceable against each VNU Party in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

          (c) Properties and Assets. New ACN and its Subsidiaries collectively own, hold, lease, are licensees of, or otherwise have the legal right to the use

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of, substantially all of the assets and properties (in each case, tangible and intangible) utilized in the business and operations of ACNielsen and New ACN and their respective Subsidiaries as presently conducted.

     SECTION 3.10. Representations and Warranties of Donnelley. To induce the VNU Parties to enter into this Agreement, Donnelly represents and warrants, as of the date first written above, that the following statements are true and correct:

          (a) Organization; Requisite Power and Authority. Donnelley (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

          (b) Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of Donnelley. This Agreement has been duly executed and delivered by Donnelley and is a legally valid and binding obligation of Donnelley, enforceable against Donnelley in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

     SECTION 3.11. Representations and Warranties of D&B. To induce the VNU Parties to enter into this Agreement, D&B represents and warrants, as of the date first written above, that the following statements are true and correct:

          (a) Organization; Requisite Power and Authority. D&B (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

          (b) Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of D&B. This Agreement has been duly executed and delivered by D&B and is a legally valid and binding obligation of D&B, enforceable against D&B in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

     SECTION 3.12. Representations and Warranties of Moody’s. To induce the VNU Parties to enter into this Agreement, Moody’s represents and warrants, as of the date first written above, that the following statements are true and correct:

          (a) Organization; Requisite Power and Authority. Moody’s (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and

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authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

          (b) Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of Moody’s. This Agreement has been duly executed and delivered by Moody’s and is a legally valid and binding obligation of Moody’s, enforceable against Moody’s in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

     SECTION 3.13. Representations and Warranties of IMS. To induce the VNU Parties to enter into this Agreement, IMS represents and warrants, as of the date first written above, that the following statements are true and correct:

          (a) Organization; Requisite Power and Authority. IMS (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

          (b) Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of IMS. This Agreement has been duly executed and delivered by IMS and is a legally valid and binding obligation of IMS, enforceable against IMS in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

ARTICLE IV
JOINT DEFENSE PROVISIONS

     SECTION 4.1. Counsel.

          (a) ACNielsen shall select counsel of record to represent ACNielsen Company, Donnelley (as successor to Old D&B), D&B, Moody’s, NMR (as successor to Cognizant) and IMS (which reference to IMS shall be deemed to include I.M.S. International, Inc.), in the Lawsuit (“Counsel of Record"'). Counsel of Record shall communicate and consult with all Parties in connection with the defense of the Lawsuit, but shall be subject to direction only from ACNielsen.

          (b) Each of the D&B Parties and IMS shall be free to retain at their own expense counsel to monitor the Lawsuit (“D&B Parties Counsel” and “IMS Counsel” respectively, and, collectively, “Party Counsel”). Counsel of Record shall communicate and consult with any Party Counsel. Neither Party Counsel nor any other

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counsel retained by any of the D&B Parties or IMS shall appear in the Lawsuit unless such Party shall have become a Withdrawing Party under Section 4.1(g) hereof.

          (c) Counsel of Record and Party Counsel shall make available to other such counsel and any Party confidential oral information and memoranda or other documents related to the defense of the Lawsuit (“Defense Materials”) to the extent that they deem it prudent and consistent with the objectives of the joint defense provided for herein.

          (d) The Defense Materials obtained by counsel for any Party shall remain confidential and shall be protected from disclosure to any third party except as provided herein.

          (e) Counsel of Record and Party Counsel shall not disclose Defense Materials or the contents thereof to anyone except their respective clients, expert witnesses and consultants, counsel for other Parties to the Agreement, or attorneys, paralegals and staff within their firms, without first obtaining the consent of Counsel of Record and Party Counsel whose clients (or who themselves) may be entitled to claim any privilege with respect to such materials. All persons permitted access to Defense Materials shall be specifically advised that the Defense Materials are privileged and subject to the terms of this Agreement.

          (f) If any other person or entity requests or demands, by subpoena or otherwise, any Defense Materials from any of the Parties or their counsel, the recipient of the request will immediately notify Counsel of Record and Party Counsel, and each such counsel shall take all steps necessary to permit the assertion of all applicable rights and privileges with respect to such Defense Materials and shall cooperate fully with such other counsel in any proceeding relating to the disclosure of Defense Materials.

          (g) If any of the D&B Parties or IMS decides that it no longer wishes to engage in a joint defense (a “Withdrawing Party”), the Withdrawing Party immediately shall notify the other Parties to this Agreement in writing and shall simultaneously return to Counsel of Record the originals and all copies of Defense Materials provided to it. In such event, the Withdrawing Party shall no longer have any rights to obtain Defense Materials, but shall retain other rights and obligations set forth in the Agreement, including the obligations to share Defense Costs pursuant to and on the terms of Section 4.1(h) below, unless otherwise specifically provided. The Withdrawing Party shall lose its right to indemnification by the VNU Parties under this Agreement. ACNielsen shall have the absolute right to continue to be represented in all matters in and affecting the Lawsuit by Counsel of Record. All Parties expressly agree that Counsel of Record may continue to represent Parties that have not withdrawn, and all Parties agree and acknowledge that receipt and use of Defense Materials by Counsel of Record or any action taken or knowledge gained by Counsel of Record in connection with its representation of a Withdrawing Party shall not be grounds for disqualification of Counsel of Record as counsel for any other Party to this Agreement in the Lawsuit.

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          (h) It is the intention of the Parties that ACNielsen, the D&B Parties (collectively, in accordance with their separate agreements) and NMR and IMS (collectively, in accordance with their separate agreement) shall each pay one third of the costs of defending the Lawsuit, including attorneys’ fees, expert witness and consultants’ fees and all other costs and expenses for the defense of the Lawsuit (or prosecution of any counterclaim to the Lawsuit) duly incurred by ACNielsen or Counsel of Record (“Defense Costs”). ACNielsen shall forward to each of the D&B Parties, IMS and NMR, on a monthly basis, a statement of the Defense Costs incurred in the preceding month (the “Defense Costs Statement”) and the D&B Parties (collectively, in accordance with their separate agreements) and NMR and IMS (collectively, in accordance with their separate agreement) shall each reimburse ACNielsen for one third of such Defense Costs promptly thereafter. Any such Defense Costs that are not so reimbursed to ACNielsen within thirty (30) days following receipt of the Defense Costs Statement by the Party required to reimburse such Defense Costs to ACNielsen under this Section 4.1(h) shall accrue interest on the amount of such Defense Costs at the Prime Rate payable by such Party, commencing on the later of (i) the 31^st day following such receipt or (ii) the date of actual payment of such costs by ACNielsen, and continuing until (but not including) the date of payment in full of such Defense Costs together with all interest accrued thereon. In the event that ACNielsen obtains reimbursement for Defense Costs from IRI or the Trust in accordance with a certain Settlement Agreement and Release between ACNielsen and IRI, dated as of July 1,1985, or for any other reason, the VNU Parties shall repay to each of the D&B Parties (collectively) and NMR and IMS (collectively) one third of such reimbursement up to the extent of their respective payments of Defense Costs pursuant to the Original Agreement or this Agreement.

          (i) No Party may enter into any settlement agreement in the Lawsuit without express consent in writing of the other Parties, except that ACNielsen may, if it so chooses, enter into a full and final settlement of the Lawsuit provided that the VNU Parties pay the full amount of the settlement and obtain a full and final release of each of the D&B Parties, IMS, I.M.S. International, Inc. and their respective Subsidiaries with respect to the Lawsuit. Such a settlement shall impose no obligation on any other Party to this Agreement without such Party’s express consent in writing. In the event that any Party receives a settlement proposal with respect to the Lawsuit, it shall immediately communicate the substance of the offer to the Counsel of Record.

          (j) All other Parties to this Agreement shall cooperate with ACNielsen in the defense of the Lawsuit and the prosecution of any counterclaim therein, including providing, or causing to be provided, records or witnesses as soon as practicable after receipt of any request therefor from or on behalf of ACNielsen.

ARTICLE V
MISCELLANEOUS

     SECTION 5.1. Complete Agreement; Construction. This Agreement, including the Exhibits hereto, shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter, including the Original

21

Agreement. In the event and to the extent that there is a conflict between the provisions of this Agreement and the provisions of the 1996 Distribution Agreement, this Agreement shall control.

     SECTION 5.2. Ancillary Agreements. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements.

     SECTION 5.3. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties.

     SECTION 5.4. Notices. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the Parties at the following addresses (or at such other addresses for a Party as shall be specified by like notice) and will be deemed given on the date on which such notice is received:

     If to any VNU Party, to:

VNU
770 Broadway, 8th Floor
New York, NY 10003
Facsimile: (646) 654-5060
Attention: Chief Legal Officer

with a copy to:

Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
Facsimile: (212) 848-7179
Attention: Henry Weisburg, Esq.

     If to Donnelley, to:

R.H. Donnelley Corporation
1001 Winstead
Dr. Cary, NC 27513
Facsimile: (919) 297-1518
Attention: General Counsel

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     If to D&B, to:

The Dun & Bradstreet Corporation
103 John F. Kennedy Parkway
Short Hills, NJ 07078
Facsimile: (866)561-5154
Attention: General Counsel

with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Facsimile: (212) 735-2000
Attention: David Fox, Esq.

     If to Moody’s, to:

Moody’s Corporation
99 Church Street
New York, NY 10007
Facsimile: (212) 553-0084
Attention: General Counsel

with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Facsimile: (212) 735-2000
Attention: David Fox, Esq.

     If to IMS, to:

IMS Health Incorporated
1499 Post Road
Fairfield, CT 06824
Facsimile: (203)319-4552
Attention: General Counsel

with a copy to:

Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Facsimile: (212) 558-3588
Attention: Alan J. Sinsheimer, Esq.

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     SECTION 5.5. Waivers. The failure of any Party to require strict performance by any other Party of any provision in this Agreement will not waive or diminish that Party’s right to demand strict performance thereafter of that or any other provision hereof.

     SECTION 5.6. Amendments. This Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties hereto.

     SECTION 5.7. Assignment. This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Parties, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void.

     SECTION 5.8. Successors and Assigns. The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns.

     SECTION 5.9. Termination. This Agreement may not be terminated except by an agreement in writing signed by all Parties.

     SECTION 5.10. Third Party Beneficiaries. Except as provided in Article II, this Agreement is solely for the benefit of the Parties hereto and their respective Subsidiaries (including, with respect to IMS, Gartner Inc., Synavant, Inc. and Cognizant Technology Solutions Corporation, and their respective successors and assigns, provided, in the case of any such assigns, that VNU has granted its prior written consent to such assignment) and Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

     SECTION 5.11. Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

     SECTION 5.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISIONS OR RULES THEREOF.

     SECTION 5.13. Consent to Jurisdiction.

          (a) Each of the Parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be

24

brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County.

          (b) Each of the Parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section, except that in the event that at any time VNU ceases to maintain an office in New York, New York, VNU hereby agrees to irrevocably appoint CT Corporation System (the “Process Agent”), with an office on the date hereof, at 111 Eight Avenue, 13^th Floor, New York, New York 10011, United States, as its agent to receive on behalf of VNU service of copies of the summons and complaint and any other process which may be served in all such actions and proceedings. Such service may be made by mailing or delivering a copy of such process to VNU in care of the Process Agent at the Process Agent’s above address, and VNU hereby irrevocably authorizes and directs the Process Agent to accept such service on behalf of VNU.

          (c) Each of the parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

          (d) Concurrently with the execution and delivery of this Agreement, each of the D&B Parties and IMS have received opinions from De Brauw Blackstone Westbroek N.V., outside Dutch counsel for VNU, and Bird & Bird, outside Dutch counsel for D&B, each dated as of the date hereof, to the effect that, under Dutch law and VNU’s organizational documents, this Agreement (i) has been duly authorized, executed and delivered by VNU, (ii) constitutes a valid and legally binding agreement of VNU and (iii) is enforceable against VNU in accordance with its terms. Copies of such opinions are attached as Exhibit 5.13 hereto.

     SECTION 5.14. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

     SECTION 5.15. Further Assurances. From time to time, as and when reasonably requested by any other Party hereto, each Party hereto shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other Party may

25

reasonably deem necessary or desirable to effect the purposes of this Agreement and the transactions contemplated hereunder.

     SECTION 5.16. Specific Enforcement. The parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to a preliminary and/or permanent injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court set forth in Section 5.13, this being in addition to any other remedy to which they are entitled at law or in equity.

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     IN WITNESS WHEREOF the Parties have caused this Agreement to be executed and delivered as of the date first above written.

VNU N.V.
By:	/s/ F.J.G.M.Cremers
Name:	F.J.G.M.Cremers
Title:	Member of the Executive Board

VNU, Inc.
By:	/s/ Michael E. Elias
Name:	Michael E. Elias
Title:	Vice President & Deputy General Counsel

ACNielsen Corporation
By:	/s/ Michael E. Elias
Name:	Michael E. Elias
Title:	Vice President & Assistant Secretary

Nielsen Media Research, Inc.
By:	/s/ James Ross
Name:	James Ross
Title:	Assistant Secretary

AC Nielsen (US), Inc.
By:	/s/ Michael E. Elias
Name:	Michael E. Elias
Title:	Vice President & Assistant Secretary

R.H Donnelley Corporation
By:	/s/ Robert J. Bush
Name:	Robert J. Bush
Title:	Vice President, General Counsel and Corporate Secretary

The Dun & Bradstreet Corporation
By:
Name:	David Lewinter
Title:	Senior Vice President and General Counsel

Moody’s Corporation
By:
Name:	John Goggins
Title:	Senior Vice President and General Counsel

IMS Health Incorporated
By:
Name:	Robert H. Steinfeld
Title:	Senior Vice President, General Counsel and Corporate Secretary

R.H Donnelley Corporation
By:
Name:	Robert J. Bush
Title:	Vice President, General Counsel and Corporate Secretary

The Dun & Bradstreet Corporation
By:	/s/ David Lewinter
Name:	David Lewinter
Title:	Senior Vice President and General Counsel

Moody’s Corporation
By:
Name:	John Goggins
Title:	Senior Vice President and General Counsel

IMS Health Incorporated
By:
Name:	Robert H. Steinfeld
Title:	Senior Vice President, General Counsel and Corporate Secretary

R. H Donnelley Corporation
By:
Name:	Robert J. Bush
Title:	Vice President, General Counsel and Corporate Secretary

The Dun & Bradstreet Corporation
By:
Name:	David Lewinter
Title:	Senior Vice President and General Counsel

Moody’s Corporation
By:	/s/ John Goggins
Name:	John Goggins
Title:	Senior Vice President and General Counsel

IMS Health Incorporated
By:
Name:	Robert H. Steinfeld
Title:	Senior Vice President, General Counsel and Corporate Secretary

R. H Donnelley Corporation
By:
Name:	Robert J. Bush
Title:	Vice President, General Counsel and Corporate Secretary

The Dun & Bradstreet Corporation
By:
Name:	David Lewinter
Title:	Senior Vice President and General Counsel

Moody’s Corporation
By:
Name:	John Goggins
Title:	Senior Vice President and General Counsel

IMS Health Incorporated
By:	/s/ Robert H. Steinfeld
Name:	Robert H. Steinfeld
Title:	Senior Vice President, General Counsel and Corporate Secretary

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, David C. Swanson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of R.H. Donnelley Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.)	designed such disclosure controls and procedures, or caused such disclosure controls or procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
c.)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a.)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2004	By:	/s/ David C. Swanson
		David C. Swanson
		Chairman and Chief Executive Officer

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EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Steven M. Blondy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of R.H. Donnelley Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.)	designed such disclosure controls and procedures, or caused such disclosure controls or procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
c.)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a.)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2004	By:	/s/ Steven M. Blondy
		Steven M. Blondy
		Senior Vice President and Chief Financial Officer

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EX-31.3

Exhibit 31.3

CERTIFICATIONS

I, David C. Swanson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of R.H. Donnelley Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.)	designed such disclosure controls and procedures, or caused such disclosure controls or procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
c.)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5 The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a.)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2004	By:	/s/ David C. Swanson
		David C. Swanson
		President and Chief Executive Officer

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EX-31.4

Exhibit 31.4

CERTIFICATIONS

I, Steven M. Blondy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of R.H. Donnelley Inc;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.)	designed such disclosure controls and procedures, or caused such disclosure controls or procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
c.)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a.)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2004	By:	/s/ Steven M. Blondy
		Steven M. Blondy
		Senior Vice President and Chief Financial Officer

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EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report on Form 10-Q of R.H. Donnelley Corporation for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of R.H. Donnelley Corporation as of the dates and for the periods expressed in the Report.

/s/ David C. Swanson	/s/ Steven M. Blondy
David C. Swanson	Steven M. Blondy
Chairman and Chief Executive Officer	SVP and Chief Financial Officer
August 9, 2004	August 9, 2004

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

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EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report on Form 10-Q of R.H. Donnelley Inc. for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of R.H. Donnelley Corporation as of the dates and for the periods expressed in the Report.

/s/ David C. Swanson	/s/ Steven M. Blondy
David C. Swanson	Steven M. Blondy
President and Chief Executive Officer	SVP and Chief Financial Officer
August 9, 2004	August 9, 2004

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

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