Forward-Looking Information
Certain statements contained in this Quarterly Report on 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. Such risks, uncertainties and contingencies include, but are not limited to, statements about the continuing benefits of the merger between R.H. Donnelley Corporation ("RHD") and Dex Media, Inc. ("Dex Media") (the "Dex Media Merger"), including future financial and operating results, RHD's plans, objectives, expectations and intentions and other statements that are not historical facts. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: (1) the risk that the legacy Dex Media and RHD businesses will not continue to be integrated successfully;
(2) the risk that the expected strategic advantages and remaining cost savings from the Dex Media Merger may not be fully realized or may take longer to realize than expected; (3) disruption from the Dex Media Merger making it more difficult to maintain relationships with customers, employees or suppliers; and
(4) general economic conditions and consumer sentiment in our markets. Additional risks and uncertainties are described in detail in Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2006 ("2006 10-K"). Unless otherwise indicated, the terms "Company," "we," "us" and "our" refer to R.H. Donnelley Corporation and its direct and indirect wholly-owned subsidiaries. Corporate Overview
We are one of the nation's largest Yellow Pages and online local commercial search companies, based on revenue. We publish and distribute advertiser content utilizing three of the most highly recognizable brands in the industry, Dex, Embarq (formerly known as Sprint) and AT&T (formerly known as SBC). Our "triple-play" integrated marketing solutions assist advertisers by attracting large volumes of ready-to-buy consumers through the combination of our print directories, Internet Yellow Pages ("IYP") and search engine marketing ("SEM") and search engine optimization ("SEO") services.
As previously announced, we are utilizing a new Dex market brand for all of our print and online products across our entire footprint. As part of this branding strategy, we also announced DexKnows.comŽ as our new uniform resource locator ("URL") across our entire footprint that will upgrade our existing online sites over the remainder of 2007. This initiative was undertaken as IYP is a cornerstone of our "triple play" strategy and this platform will make our rich, accurate content available on a single search site. We will continue to leverage the recognizable Embarq and AT&T brands on our print products in those respective markets while also creating a single look and feel for both print and online products by highlighting the Dex name. The Dex brand has tremendous name recognition within its markets where DexOnline.com is the leader in online local search. The DexKnows.com site leverages this success and adds enhanced capabilities, new features and an intuitive interface. The conversion of existing online sites will occur in stages over the remainder of 2007 starting with DexOnline.com followed by the Embarq and AT&T markets. Segment Reporting
Management reviews and analyzes its business of publishing yellow pages directories and related local commercial search as one operating segment. New Accounting Pronouncements
We have reviewed accounting pronouncements that were issued as of June 30, 2007, which the Company has not yet adopted, and do not believe that the pronouncements will have a material impact on our financial position or operating results.

                                     Three Months Ended June 30,                           Six Months Ended June 30,

(amounts in millions)           2007             2006           $ Change            2007              2006           $ Change


Gross directory
advertising revenue          $  670.8          $ 431.3          $ 239.5          $ 1,339.4          $ 754.2          $ 585.2
Sales claims and
allowances                      (14.7 )           (7.3 )           (7.4 )            (31.4 )          (15.3 )          (16.1 )

Net directory
advertising revenue             656.1            424.0            232.1            1,308.0            738.9            569.1
Other revenue                    10.5              8.3              2.2               21.4             13.9              7.5

Total                        $  666.6          $ 432.3          $ 234.3          $ 1,329.4          $ 752.8          $ 576.6

Our directory advertising revenue is earned primarily from the sale of advertising in yellow pages directories we publish, net of sales claims and allowances. Directory advertising revenue also includes revenue for those Internet-based advertising products that are bundled with print advertising, including certain IYP products, and Internet-based advertising products not bundled with print advertising, such as our SEM and SEO services. Directory advertising revenue is affected by several factors, including changes in the quantity and size of advertisements sold, defectors and new advertisers, as well as the proportion of premium advertisements sold, changes in the pricing of advertising, changes in the quantity and mix of advertising purchased per account and the introduction of additional products that generate incremental revenue. Revenue with respect to print advertising, and Internet-based advertising products that are bundled with print advertising, is recognized under the deferral and amortization method, whereby revenue is initially deferred when a directory is published and recognized ratably over the directory's life, which is typically 12 months. Revenue with respect to Internet-based services that are not bundled with print advertising, such as SEM and SEO services, is recognized as delivered or fulfilled.

Total net revenue for the three and six months ended June 30, 2007 was $666.6 million and $1,329.4 million, respectively, representing an increase of $234.3 million and $576.6 million, respectively, from total net revenue reported for the three and six months ended June 30, 2006 of $432.3 million and $752.8 million, respectively. The increase in total net revenue for the three months ended June 30, 2007 is primarily due to the effects of purchase accounting associated with the Dex Media Merger in 2006 described below. The increase in total net revenue for the six months ended June 30, 2007 is primarily due to recognizing a full period of results from the acquired Dex Media business, absent any adverse impact from purchase accounting associated with the Dex Media Merger, as opposed to recognizing only five months of results from the Dex Media business during the six months ended June 30, 2006 and the related purchase accounting impact during that period. Total net revenue for the three and six months ended June 30, 2007 includes $409.3 million and $814.3 million, respectively, of net revenue from directories acquired in the Dex Media Merger ("Qwest" directories), compared to $175.0 million and $235.4 million for the three and six months ended June 30, 2006, respectively. Due to purchase accounting, net directory revenue for the three and six months ended June 30, 2006 excluded the amortization of advertising revenue for Qwest directories published before February 2006 under the deferral and amortization method totaling $244.4 million and $460.4 million, respectively, which would have been reported in the period absent purchase accounting. Purchase accounting related to the Dex Media Merger will have no impact on reported revenue in 2007. The increase in total net revenue for the three and six months ended June 30, 2007 is also due to new product introductions, including online products and services, in our Qwest, Embarq and AT&T markets, increases in national directory revenue in our Qwest and Embarq markets and increased internet-based revenue in our Embarq markets. These increases are partially offset by declines in renewal business and sales productivity related to systems modernization and weaker housing trends in certain of our Embarq markets, declines in some of our AT&T markets during the first quarter of 2007 due to re-alignment of the coverage areas of our publications to better reflect shopping patterns, weaker national directory revenue across the AT&T footprint, as well as lower overall barter revenue.
Other revenue for the three and six months ended June 30, 2007 totaled $10.5 million and $21.4 million, respectively, representing an increase of $2.2 million and $7.5 million, respectively, from other revenue of $8.3 million and $13.9 million reported for the three and six months ended June 30, 2006, respectively. Other revenue includes barter revenue, late fees received on outstanding customer balances, commissions earned on sales contracts with respect to advertising placed into other publishers' directories, and sales of directories and certain other advertising-related products. The increase in other revenue for the three months ended June 30, 2007 is primarily due to increased late fees revenue and revenue from other advertising-related products. The increase in other revenue for the six months ended June 30, 2007 is primarily a result of recognizing a full period of results from the Dex Media business, as opposed to recognizing only five months of results from the Dex Media business during the six months ended June 30, 2006, as well as increased late fees revenue and revenue from other advertising-related products. Advertising sales is a statistical measure and consists of sales of advertising in print directories distributed during the period and Internet-based products and services with respect to which such advertising first appeared publicly during the period. It is important to distinguish advertising sales from net revenue, which is recognized under the deferral and amortization method. Advertising sales for the three and six months ended June 30, 2007 were $729.0 million and $1,476.3 million, respectively. Advertising sales for the three and six months ended June 30, 2006 were $727.7 million and $1,476.7 million, respectively, and for the six months ended June 30, 2006 assumes the Dex Media Merger occurred on January 1, 2006. The $1.3 million increase in advertising sales for the three months ended June 30, 2007 is a result of SEM sales in our AT&T markets as well as an increase in local advertising sales in certain of our AT&T markets, offset by declines in local advertising sales in certain of our Qwest markets. The $0.4 million decrease in advertising sales for the six months ended June 30, 2007 is a result of a modest decline in local advertising sales in certain of our Qwest markets, partially offset by increases in national advertising sales in our Embarq markets. Revenue with respect to print advertising, and Internet-based advertising products that are bundled with print advertising, is recognized under the deferral and amortization method, whereby revenue is initially deferred when a directory is published and recognized ratably over the directory's life, which is typically 12 months. Revenue with respect to Internet-based services that are not bundled with print advertising, such as SEM and SEO services, is recognized as delivered or fulfilled.

Expenses
The components of our total expenses for the three and six months ended June 30,
2007 and 2006 were as follows:

                                      Three Months Ended June 30,                           Six Months Ended June 30,
(amounts in millions)           2007              2006            $ Change            2007             2006           $ Change


Cost of revenue              $   283.5          $ 232.6          $   50.9          $  578.0          $ 413.1          $ 164.9
General and
administrative
expenses                          34.8             40.8              (6.0 )            72.0             80.0             (8.0 )
Depreciation and
amortization                     109.1             85.5              23.6             212.2            148.2             64.0

Total                        $   427.4          $ 358.9          $   68.5          $  862.2          $ 641.3          $ 220.9

Substantially all expenses are derived from our directory publishing business and Internet-based advertising products and services. Certain costs directly related to the selling and production of directories are initially deferred and recognized ratably over the life of the directory. These costs are specifically identifiable to a particular directory and include sales commissions and print, paper and initial distribution costs. Sales commissions include commissions paid to employees for sales to local advertisers and to certified marketing representatives ("CMRs"), which act as our channel to national advertisers. All other expenses, such as sales person salaries, sales manager compensation, sales office occupancy, publishing and information technology services, are not specifically identifiable to a particular directory and are recognized as incurred. Our costs recognized in a reporting period consist of: (i) costs incurred in that period and fully recognized in that period; (ii) costs incurred in a prior period, a portion of which is amortized and recognized in the current period; and (iii) costs incurred in the current period, a portion of which is amortized and recognized in the current period and the balance of which is deferred until future periods. Consequently, there will be a difference between costs recognized in any given period and costs incurred in the given period, which may be significant. All deferred costs related to the sale and production of directories are recognized ratably over the life of each directory under the deferral and amortization method of accounting, with cost recognition commencing in the month of directory distribution.
Cost of Revenue
Total cost of revenue for the three and six months ended June 30, 2007 was $283.5 million and $578.0 million, respectively, compared to $232.6 million and $413.1 million reported for the three and six months ended June 30, 2006, respectively. The primary components of the respective $50.9 million and $164.9 million increase in cost of revenue are as follows:

                                                                   Three Months Ended         Six Months Ended
                                                                      June 30, 2007             June 30, 2007
(amounts in millions)                                                   $ Change                  $ Change

Expenses related to the Dex Media business excluded from the
three and six months ended June 30, 2006 due to purchase
accounting from the Dex Media Merger                                $          61.3            $        170.3
Increased internet production and distribution costs                            5.7                      13.2
Increased information technology ("IT") expenses                                5.2                      13.1
Decreased "cost uplift" expense                                               (26.5 )                   (22.9 )
All other                                                                       5.2                      (8.8 )

Total increase in cost of revenue for the three and six
months ended June 30, 2007                                          $          50.9            $        164.9

Cost of revenue for the three months ended June 30, 2007 increased $50.9 million compared to the three months ended June 30, 2006 primarily due to the effects of purchase accounting associated with the Dex Media Merger in 2006. Cost of revenue for the six months ended June 30, 2007 increased $164.9 million compared to the six months ended June 30, 2006 primarily due to the effects of purchase accounting associated with the Dex Media Merger in 2006, as well as recognizing a full period of results from the acquired Dex Media business.

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. As a result of purchase accounting required by GAAP, deferred commissions, print and delivery costs totaling $61.3 million and $170.3 million, were not reported during the three and six months ended June 30, 2006, respectively, related to directories that published prior to the Dex Media Merger. Directory expenses incurred during the three and six months ended June 30, 2006 include the amortization of deferred directory costs relating to Qwest directories published beginning in February 2006.
During the three months ended June 30, 2007, we incurred $5.7 million of additional expenses compared to the three months ended June 30, 2006, related to internet production and distribution due to investment in our triple play strategy. During the six months ended June 30, 2007, we incurred $13.2 million of additional expenses compared to the six months ended June 30, 2006, related to internet production and distribution due to recognizing a full period of results from the acquired Dex Media business, as well as investment in our triple play strategy. This investment focuses on enhancing our online products and services (IYP, SEM and SEO). During the three months ended June 30, 2007, we incurred approximately $5.2 million of additional IT expenses compared to the three months ended June 30, 2006, due to enhancements and technical support of multiple production systems as we continue implementing our integration plan to a consolidated IT platform. During the six months ended June 30, 2007, we incurred approximately $13.1 million of additional IT expenses compared to the six months ended June 30, 2006, due to recognizing a full period of results from the acquired Dex Media business, as well as enhancements and technical support of multiple production systems.
As a result of purchase accounting required by GAAP, we recorded the deferred directory costs related to directories that were scheduled to publish subsequent to the Dex Media Merger and the AT&T Directory Acquisition at their fair value, determined as (a) the estimated billable value of the published directory less
(b) the expected costs to complete the directories, plus (c) a normal profit margin. We refer to this purchase accounting entry as "cost uplift." The fair value of these costs was determined to be $157.7 million and $81.3 million for the Dex Media Merger and AT&T Directory Acquisition, respectively. These costs are amortized as cost of revenue over the terms of the applicable directories and such amortization totaled $7.6 million and $24.6 million, respectively, for the three and six months ended June 30, 2007 relating to the Dex Media Merger compared to $34.1 million and $47.5 million, respectively, for the three and six months ended June 30, 2006 relating to the Dex Media Merger and AT&T Directory Acquisition. This represents a decrease in cost uplift expense of $26.5 million and $22.9 million, respectively, for the three and six months ended June 30, 2007. Changes in the All other category primarily relate to higher advertising expenses to support new advertising campaigns during the three and six months ended June 30, 2007, offset by achieving economies of scale subsequent to the Dex Media Merger during the six months ended June 30, 2007 and a decrease in non-cash stock-based compensation expense for the three and six months ended June 30, 2007.
General and Administrative Expenses
General and administrative ("G&A") expenses for the three and six months ended June 30, 2007 were $34.8 million and $72.0 million, respectively, compared to $40.8 million and $80.0 million for the three and six months ended June 30, 2006, respectively. The primary components of the respective $6.0 million and $8.0 million decrease in G&A expenses are as follows:

                                                                   Three Months Ended        Six Months Ended
                                                                     June 30, 2007             June 30, 2007
(amounts in millions)                                                   $ Change                 $ Change

Decreased general corporate expenses                                $         (1.7 )          $        (4.8 )
All other                                                                     (4.3 )                   (3.2 )

Total decrease in G&A expenses for the three and six months
ended June 30, 2007                                                 $         (6.0 )          $        (8.0 )

G&A expenses for the three and six months ended June 30, 2007 included reduction in general corporate expenses of $1.7 million and $4.8 million, respectively, from the three and six months ended June 30, 2006. Reductions in general corporate expenses relate partially to achieving economies of scale subsequent to the Dex Media Merger, as well as Company-wide expense reductions during the three and six months ended June 30, 2007.
Changes in the All other category primarily relate to a decrease in non-cash stock-based compensation expense for the three and six months ended June 30, 2007, offset by an increase in billing, credit and collection expenses for the six months ended June 30, 2007.
Depreciation and Amortization
Depreciation and amortization ("D&A") expense for the three and six months ended June 30, 2007 was $109.1 million and $212.2 million, respectively, compared to $85.5 million and $148.2 million for the three and six months ended June 30, 2006, respectively. Amortization of intangible assets was $97.3 million and $187.1 million for the three and six months ended June 30, 2007, respectively, compared to $72.0 million and $126.4 million for the three and six months ended June 30, 2006, respectively. The increase in amortization expense for the three months ended June 30, 2007 is primarily due to amortizing the local customer relationships intangible asset acquired in the Dex Media Merger beginning in the first quarter of 2007. The increase in amortization expense for the six months ended June 30, 2007 is due to recognizing a full period of amortization related to intangible assets acquired in the Dex Media Merger, as well as amortizing the local customer relationships intangible asset acquired in the Dex Media Merger beginning in the first quarter of 2007. Depreciation of fixed assets and amortization of computer software was $11.8 million and $25.1 million for the three and six months ended June 30, 2007, respectively, compared to $13.5 million and $21.8 million for the three and six months ended June 30, 2006, respectively. The decrease in depreciation expense for the three months ended June 30, 2007 was primarily due to fixed asset retirements. The increase in depreciation expense for the six months ended June 30, 2007 was primarily due to recognizing a full period of depreciation related to fixed assets acquired in the Dex Media Merger, offset by fixed asset retirements. Operating Income
Operating income for the three and six months ended June 30, 2007 and 2006 was as follows:

Three Months Ended June 30, Six Months Ended June 30, (amounts in millions) 2007 2006 $ Change 2007 2006 $ Change

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