DONNELLEY R H INC - 10-Q Quarterly Report

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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 March 31, 2003

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.)

One Manhattanville Road, Purchase N.Y. 10577
(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 May 1, 2003
-------------- ---------------------------------

Common Stock, par value $1 per share 30,534,167

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.)

One Manhattanville Road, Purchase N.Y. 10577
(Address of principal executive offices) (Zip Code)

Registrants' telephone number, including area code (914) 933-6400

* 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. 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. As of
May 1, 2003, 100 shares of R.H. Donnelley Inc. common stock, no par value, were
outstanding.

R.H. DONNELLEY CORPORATION

INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION PAGE
----

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at March 31, 2003 and December 31, 2002 ... 3

Consolidated Statements of Operations for the three months ended
March 31, 2003 and 2002 ............................................... 4

Consolidated Statements of Cash Flows for the three months ended
March 31, 2003 and 2002 ............................................... 5

Notes to Consolidated Financial Statements ............................ 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... 20

Item 3. Quantitative and Qualitative Disclosure About Market Risk ..................... 30

Item 4. Controls and Procedures ....................................................... 31

PART II. OTHER INFORMATION

Item 1. Legal Proceedings ............................................................. 31

Item 2. Changes in Securities and Use of Proceeds ..................................... 35

Item 4. Submission of Matters to a Vote of Security Holders ........................... 35

Item 6. Exhibits and Reports on Form 8-K .............................................. 36

SIGNATURES ............................................................................. 45

CERTIFICATIONS ......................................................................... 46

2

R.H. DONNELLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

MARCH 31, December 31,
(in thousands, except share and per share data) 2003 2002
=========== ===========

ASSETS

CURRENT ASSETS
Cash and cash equivalents ............................................................ $ 12,203 $ 7,787
Restricted cash ...................................................................... -- 1,928,700
----------- -----------
Total cash, cash equivalents and restricted cash ............................... 12,203 1,936,487
Accounts receivable
Billed ............................................................................. 51,155 --
Unbilled ........................................................................... 209,275 31,978
Allowance for doubtful accounts and sales allowances ............................... (32,290) (4,772)
----------- -----------
Net accounts receivable ........................................................ 228,140 27,206
Deferred directory costs ............................................................. 23,771 --
Other current assets ................................................................. 10,765 4,981
----------- -----------
Total current assets ........................................................... 274,879 1,968,674

Fixed assets and computer software - net ............................................. 23,051 12,008
Partnership investment ............................................................... 174,680 202,236
Other non-current assets ............................................................. 95,008 40,457
Intangible assets, net ............................................................... 1,902,542 --
Goodwill ............................................................................. 77,953 --
----------- -----------

Total Assets ................................................................... $ 2,548,113 $ 2,223,375
=========== ===========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued liabilities ............................................. $ 20,629 $ 9,043
Deferred directory revenue ........................................................... 64,223 --
Accrued interest payable ............................................................. 36,097 11,218
Current portion of long-term debt .................................................... 62,808 13,780
----------- -----------
Total current liabilities ...................................................... 183,757 34,041

Long-term debt ....................................................................... 2,182,525 2,075,470
Deferred income taxes - net .......................................................... 32,176 60,783
Other non-current liabilities ........................................................ 12,944 20,222
----------- -----------
Total liabilities .............................................................. 2,411,401 2,190,516

Commitments and contingencies
Redeemable convertible preferred stock (redemption value at March 31, 2003 $204,482) ... 185,707 63,459

SHAREHOLDERS' DEFICIT
Common stock, par value $1 per share, authorized -
400,000,000 shares; issued - 51,621,894 shares for 2003 and 2002 ................... 51,622 51,622
Additional paid-in capital ........................................................... 119,508 63,586
Warrants outstanding ................................................................. 13,758 5,330
Accumulated (deficit) earnings ....................................................... (69,734) 13,605
Treasury stock, at cost, 21,097,219 shares for 2003 and 21,900,818 shares for 2002 ... (164,150) (164,743)
----------- -----------
Total shareholders' deficit .................................................... (48,996) (30,600)
----------- -----------

Total Liabilities, Redeemable Convertible Preferred
Stock and Shareholders' Deficit ........................................ $ 2,548,113 $ 2,223,375
=========== ===========

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

3

R.H. DONNELLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
-----------------------
(amounts in thousands, except per share data) 2003 2002
======== ========

Net revenue ................................................ $ 12,419 $ 18,828

Expenses
Operating expenses ...................................... 31,932 11,666
General and administrative expenses ..................... 10,010 5,045
Depreciation and amortization ........................... 16,028 1,608
-------- --------
Total expenses ....................................... 57,970 18,319

Partnership income ......................................... 23,633 27,148
-------- --------

Operating (loss) income .............................. (21,918) 27,657

Interest expense, net ...................................... (48,675) (6,222)
Other income ............................................... 799 --
-------- --------

(Loss) income before income taxes .................... (69,794) 21,435

(Benefit) provision for income taxes ....................... (28,607) 8,253
-------- --------

Net (loss) income .................................... (41,187) 13,182

Preferred dividend ......................................... 42,154 --
-------- --------

Net (loss) income available to common shareholders ... $(83,341) $ 13,182
======== ========

Earnings (loss) per share
Basic ................................................ $ (2.76) $ 0.45
======== ========
Diluted .............................................. $ (2.76) $ 0.44
======== ========

Weighted average shares outstanding
Basic ................................................ 30,241 29,453
======== ========
Diluted .............................................. 30,985 30,173
======== ========

COMPREHENSIVE (LOSS) INCOME:
Net (loss) income .......................................... $(41,187) $ 13,182
Preferred dividend ......................................... 42,154 --
-------- --------
Net (loss) income available to common shareholders ......... (83,341) 13,182
Unrealized loss on interest rate swaps, net of tax ......... -- (1,022)
-------- --------
Comprehensive (loss) income ................................ $(83,341) $ 12,160
======== ========

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

4

R.H. DONNELLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
--------------------------
(amounts in thousands) 2003 2002
=========== ========

CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ............................................................ $ (41,187) $ 13,182
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization ........................................... 16,028 1,608
Deferred income tax ..................................................... (28,607) 1,327
Provision for doubtful accounts ......................................... 146 529
Other noncash charges ................................................... 4,669 618
Cash in excess of partnership income .................................... 11,290 10,078
Changes in assets and liabilities, net of effect from acquisition:
Decrease in accounts receivable ......................................... 58,559 1,077
Increase in other current assets ........................................ (11,826) --
(Increase) decrease in other assets ..................................... 719 (1,513)
Increase in accounts payable and accrued liabilities .................... 14,225 3,758
Increase in deferred revenue ............................................ 64,223 --
Increase in other non-current liabilities ............................... 570 1,170
----------- --------
Net cash provided by operating activities ........................ 88,809 31,834

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets and computer software .............................. (2,510) (791)
Acquisition of SPA ........................................................... (2,243,345) --
Release of funds from escrow ................................................. 1,825,000 --
Decrease in restricted cash .................................................. 69,300 --
----------- --------
Net cash used in investing activities ............................ (351,555) (791)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of debt, net of costs ............................. 461,307 --
Proceeds from the issuance of Preferred Stock and warrants, net of costs ..... 125,683 --
Pre-acquisition debt refinanced with proceeds from borrowings ................ (243,005) --
Repayment of debt ............................................................ (89,667) (35,000)
Proceeds from employee stock option exercises ................................ 12,844 722
----------- --------
Net cash provided by (used in) financing activities .............. 267,162 (34,278)

Increase (decrease) in cash and cash equivalents ............................. 4,416 (3,235)
Cash and cash equivalents, beginning of year ................................. 7,787 14,721
----------- --------
Cash and cash equivalents, end of period ..................................... $ 12,203 $ 11,486
=========== ========

SUPPLEMENTAL INFORMATION:
Cash used to pay:
Interest .................................................................. $ 18,783 $ 4,398
=========== ========
Income taxes .............................................................. $ -- $ --
=========== ========

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

5

R.H. DONNELLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(amounts in thousands, except per share data)

1. BASIS OF PRESENTATION

The interim financial statements of R.H. Donnelley Corporation and its direct
and indirect wholly owned subsidiaries (the "Company," "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, 2002. 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.

2. BUSINESS COMBINATION

On January 3, 2003, we completed the acquisition of Sprint Corporation's
directory publishing business, Sprint Publishing & Advertising ("SPA"), for
$2,213,475, subject to a final working capital adjustment. We are now the
publisher of 260 revenue-generating yellow pages directories in 18 states. Prior
to the acquisition, we served as the exclusive sales agent and pre-press
publishing vendor for SPA directories in certain markets. The acquisition
transformed the Company from a sales agent and pre-press vendor into a leading
publisher of yellow pages directories. The results of the SPA business have been
included in our consolidated results from and after January 3, 2003, the
acquisition closing date. SPA is now being operated as R.H. Donnelley Publishing
& Advertising, Inc. ("RHDPA"), an indirect, wholly owned subsidiary of the
Company.

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 and
their respective useful lives were valued by an independent third party with
expert knowledge in the area of valuing acquired businesses and our industry.
Identifiable intangible assets acquired included directory services agreements
entered into between Sprint and us, customer relationships and acquired trade
names (see Note 4). With the possible exception of the final working capital
adjustment and a restructuring reserve, we do not anticipate a material change
in the purchase price allocation. We anticipate that both the working capital
adjustment and our restructuring plans will be finalized during the second
quarter. A summarized condensed balance sheet at January 3, 2003 is presented
below.

January 3,
2003
===========

ASSETS
Cash and cash equivalents ........................ $ 23,986
Other current assets ............................. 308,852
Partnership investment ........................... 185,969
Other non-current assets ......................... 124,140
Intangible assets ................................ 1,915,000
Goodwill ......................................... 77,953
-----------
Total assets ..................................... $ 2,635,900
===========

6

January 3,
2003
===========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Current liabilities .............................. $ 46,101
Current portion long-term debt ................... 58,668
Long-term debt ................................... 2,297,577
Other non-current liabilities .................... 73,956
-----------
Total liabilities ................................ 2,476,302

Redeemable convertible preferred stock ........... 143,553

Shareholders' equity ............................. 16,045
-----------

Total Liabilities, Redeemable Convertible
Preferred Stock and Shareholders' Equity ......... $ 2,635,900
===========

Summarized condensed pro forma information for the quarter ended March 31, 2002
assuming the SPA acquisition and related financing and accounting occurred on
January 1, 2002 is presented below.

Net revenue ...................................... $ 144,587
Operating income ................................. 75,736
Net income ....................................... 18,883
Preferred dividend ............................... 66,374
Net loss available to common shareholders ........ (47,491)

3. 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.
The DonTech Partnership ("DonTech") is accounted for under the equity method as
we do not have control, but do have the ability to exercise significant
influence over DonTech's operating and financial policies. Accordingly,
DonTech's results are not consolidated in our financial statements, but our
share of its net profits is reported as partnership income in the Consolidated
Statements of Operations.

Revenue Recognition and Deferred Directory Costs. We publish 260
revenue-generating yellow pages directories and earn revenue from the sale of
advertising into our yellow pages directories. Revenue from the sale of
advertising is recognized under the deferral and amortization method. Under this
method, revenue from advertising sales are deferred when a directory is
published and recognized ratably over the life of a directory, which is
typically twelve months. Revenue is recorded net of an estimate for claims and
allowances based on historical experience. We adjust our estimate when
information or circumstances indicate that the current estimate may not
adequately represent the amount of claims and allowances we may incur in the
future. Sales commissions, bad debt, printing (including paper costs), and
initial distribution expenses are directly related to the advertising sales
process and are also deferred when a directory is published and recognized
ratably over the life of a directory. We also earn revenue from pre-press
publishing services provided to SBC Communications Inc. ("SBC") for those
directories in the DonTech markets. Revenue and expenses from pre-press
publishing services are recognized as services are performed. We do not
recognize claims and allowances for pre-press publishing services.

Equity Method Accounting. We account for DonTech under the equity method whereby
we recognize our 50% share of the net income of DonTech as partnership income in
our Consolidated Statements of Operations. 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. Partnership investment on the consolidated balance sheets at
March 31, 2003 and December 31, 2002 include our 50% share of the net assets of

7

DonTech and the revenue participation receivable from SBC.

Earnings per Share. Basic earnings per common share (EPS) are generally
calculated by dividing income available to common shareholders by the weighted
average number of common shares outstanding. However, because our redeemable
convertible cumulative preferred stock ("Preferred Stock") contains certain
participation rights, EITF Topic D-95, "Effect of Participating Securities on
the Computation of Basic Earnings Per Share," ("Topic D-95") requires that the
dilutive effect of those securities be included in the weighted average number
of shares outstanding. Furthermore, Topic D-95 requires that the dilutive effect
to be included in basic EPS may be calculated using either the if-converted
method or the two-class method. However, the dilutive effect of the Preferred
Stock cannot be less than that which would result from the application of the
two-class method. We have elected to use the if-converted method in calculating
basic EPS. Diluted EPS equals net income divided by the weighted average common
shares outstanding plus common share equivalents. Common share equivalents
include stock options and warrants, the dilutive effect of which is calculated
using the treasury stock method, and Preferred Stock, the potential dilutive
effect of which is calculated using the if-converted method.

The calculation of basic and diluted EPS for the first quarter 2003 is presented
below.

Basic EPS - If-Converted Method
Loss available to common shareholders ....................... $(83,341)
Preferred Stock dividend .................................... 42,154
--------
Net loss .................................................... $(41,187)
========

Weighted average common shares outstanding .................. 30,241
Additional common shares assuming conversion of
Preferred Stock .......................................... 8,502
--------
Weighted average common equivalent shares assuming
conversion of Preferred Stock ............................. 38,743
========

Basic loss per share - if-converted method ..................... $ (1.06)
========

Basic EPS - Two-Class Method
Loss available to common shareholders ....................... $(83,341)
Amount allocable to common shares (1) ....................... 78%
--------
Rights to undistributed losses .............................. $(65,006)
Weighted average common shares outstanding .................. 30,241
--------
Basic earnings per share - two-class method (2) ............. $ (2.76)
========

(1) 30,241 / (30,241 + 8,502)

(2) Basic EPS calculated under the two-class method was a loss of $2.15.
However, where there is a net loss for the period, the application of the
two-class method is anti-dilutive. Accordingly, reported basic EPS are a
loss of $2.76, calculated as the loss available to common shareholders
($83,341) divided by the weighted average basic shares outstanding
(30,241).

Diluted EPS
Loss available to common shareholders ........................... $(83,341)
========

Weighted average common shares outstanding ...................... 30,241
Dilutive effect of stock options ................................ 744
Dilutive effect of Preferred Stock assuming conversion .......... --
--------
Weighted average diluted shares outstanding ..................... 30,985
========

Diluted EPS (3) ................................................. $ (2.76)
========

8

(3) Because there was a reported net loss in the quarter, the calculation of
diluted earnings per share of a loss of $2.69 was anti-dilutive compared
to basic earnings per share. Diluted earnings per share cannot be greater
than basic earnings per share (or less of a loss). Therefore, reported
diluted earnings per share and basic earnings per share for the first
quarter 2003 were the same. The conversion of the Preferred Stock was not
reflected in the calculation of diluted EPS because the effect was
anti-dilutive.

For the quarter ended March 31, 2002, basic EPS equals net income divided by the
weighted average common shares outstanding and diluted EPS equals net income
divided by the weighted average common shares outstanding plus potentially
dilutive common shares, primarily stock options.

Concentration of Credit Risk. Approximately 85% of our advertising revenue is
derived from the sale of advertising to local small- and medium-sized
businesses. These advertisers enter into twelve-month advertising sales
contracts and typically make monthly payments over the term of the contract.
Some advertisers pre-pay the full amount or a portion of the contract value.
Most advertisers are subject to a credit review. If the advertisers qualify, we
may extend credit to them for their advertising purchase. Small- and
medium-sized businesses tend to have fewer financial resources and higher
financial 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 affect 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 who do not pay within
specified due dates.

The remaining 15% of our 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. To sell advertising to
these accounts, we contract with Certified Marketing Representatives ("CMRs"),
which 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 are 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 adjustment, based on collections by SBC from individual advertisers;
however, the adjustment is limited 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.

We have interest rate swap agreements with major financial institutions with a
notional value of $255,000 at March 31, 2003. 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.

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 not recognized if the exercise price of the stock option is equal to the fair
market value of the underlying stock at the grant date. In October 2002, we
granted stock options contingent upon the closing of the SPA acquisition to
certain key employees. On the date of the SPA closing, the fair market value of
our common stock was greater than the exercise price. Accordingly, we will
recognize compensation expense of approximately $5,100 over the next four years.
Compensation expense of $426 was recognized in the first quarter 2003. We also
grant stock options to certain key employees of DonTech, which are considered
compensatory under current accounting rules. Compensation expense of $196 and
$70 was recognized in the first quarter 2003 and 2002, respectively.

9

The following table reflects the pro forma net income and earnings per share
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
---------------------------
March 31, March 31,
2003 2002
========== ==========

Net (loss) income
As reported ....................................... $ (41,187) $ 13,182
Pro forma ......................................... (43,447) 12,527

Net (loss) income available to common shareholders
As reported ....................................... $ (83,341) $ 13,182
Pro forma ......................................... (85,601) 12,527

Basic earnings per share
As reported ....................................... $ (2.76) $ 0.45
Pro forma ......................................... (2.83) 0.43

Diluted earnings per share
As reported ....................................... $ (2.76) $ 0.44
Pro forma ......................................... (2.83) 0.42

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

2003 2002
======= =======

Dividend yield ............................................. 0% 0%
Expected volatility ........................................ 35% 35%
Risk-free interest rate .................................... 2.7% 3.1%
Expected holding period .................................... 4 years 4 years

4. INTANGIBLE ASSETS AND GOODWILL

As a result of the SPA acquisition and related purchase price allocation,
certain long-term intangible assets and their respective useful lives were
identified and valued by an independent third party. Those identifiable
intangible assets, their useful lives and their net book value at March 31, 2003
are presented below. Amortization expense was $12,458 for the first quarter
2003.

Directory
Services Local customer National CMR
Agreements relationships relationships Trade names TOTAL
=========== ============== ============= =========== ===========

Estimated useful life ...... 50 years 15 years 30 years 15 years
=========== ========= ======== ========

Opening fair value ......... $ 1,625,000 $ 200,000 $ 60,000 $ 30,000 $ 1,915,000
Accumulated amortization ... (8,125) (3,333) (500) (500) (12,458)
----------- --------- -------- -------- -----------
Net intangible assets ...... $ 1,616,875 $ 196,667 $ 59,500 $ 29,500 $ 1,902,542
=========== ========= ======== ======== ===========

Directory services agreements between Sprint and the Company includes a
directory services license agreement, a trademark license agreement and a
non-competition agreement (collectively "Directory Services Agreements"). The
directory services license agreement gives us the exclusive right to produce,
publish and distribute directories for Sprint in the markets where Sprint
currently provides local telephone service. 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 from producing, publishing and distributing print
directories or

10

selling local advertising in those markets, with certain limited exceptions.
These agreements are all interrelated and each has an initial term of 50 years,
subject to earlier termination under specified circumstances. The fair value
assigned to these agreements of $1,625,000 was based on the present value of
estimated future cash flows. The Directory Services Agreements are being
amortized under the straight-line method over 50 years.

We also acquired the established local and national customer relationships of
SPA. The value of these relationships was determined based on the present value
of estimated future cash flows and historical attrition rates. A value of
$200,000 was assigned to the local customer relationships and a value of $60,000
was assigned to the CMR relationships. The local and national relationships are
being amortized under an accelerated method that recognizes the value derived
from customer relationships is greater in the earlier years and steadily
declines over time. These relationships are being amortized over a weighted
average period of 18 years

We also acquired certain trade names historically used in the SPA directory
business. A value of $30,000 was assigned to the acquired trade names 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. This asset is being amortized under the straight-line
method over 15 years.

The excess of the purchase price for SPA over the net tangible and intangible
assets acquired was $77,953. This amount was assigned to goodwill. 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.

Amortization expense for intangible assets for 2003 through 2008 will be
approximately $50,000 per year.

5. PARTNERSHIP INCOME

Partnership income in 2003 includes our 50% share of the net income of DonTech
(accounted for under the equity method) and revenue participation income from
SBC. Partnership income in 2002 also included a priority distribution on our
membership interest in CenDon, LLC. As a result of the acquisition, we acquired
CenDon, LLC. We no longer report priority distribution income, rather we now
consolidate the revenues and expenses of CenDon, LLC in our Consolidated
Statements of Operations. Partnership income for the three months ended March
31, 2003 and 2002 consisted of the following:

Three months ended
March 31,
--------------------
2003 2002
======= =======

Revenue participation income ......................... $20,447 $19,418
50% share of DonTech net income ...................... 3,186 2,487
Priority distribution income from CenDon ............. -- 5,243
------- -------
Partnership income ................................... $23,633 $27,148
======= =======

Summarized combined financial information for DonTech is shown in the table
below.

Three months ended
March 31,
--------------------
2003 2002
======= =======

Net revenue .......................................... $21,555 $20,639
Operating income ..................................... 6,388 5,129
Net income ........................................... 6,372 4,975

Total assets of DonTech were $117,307 at March 31, 2003 and $128,914 at December
31, 2002.

11

6. LONG-TERM DEBT AND CREDIT FACILITIES

Long-term debt at March 31, 2003 and December 31, 2002 consisted of the
following:

March 31, December 31,
2003 2002
========== ============

8 7/8% Senior Notes due 2010 .................... $ 325,000 $ 325,000
10 7/8% Senior Subordinated Notes due 2012 ...... 600,000 600,000
Senior Secured Credit Facility .................. 1,299,088 900,000
9 1/8% Senior Subordinated Notes due 2008 ....... 21,245 150,000
Pre-acquisition Senior Secured Term Facilities .. -- 114,250
---------- ----------
Total .................................... 2,245,333 2,089,250
Less current portion ............................ 62,808 13,780
---------- ----------
Long-term debt ........................... $2,182,525 $2,075,470
========== ==========

In connection with the SPA acquisition, we entered into a new $1,525,000 Credit
Facility ("Credit Facility"), consisting of a $500,000 Term Loan A, a $900,000
Term Loan B and a $125,000 Revolver and issued $325,000 8 7/8% Senior Notes due
2010 ("Senior Notes") and $600,000 10 7/8% Subordinated Notes due 2012
("Subordinated Notes," and collectively with the Senior Notes, the "Notes"). At
December 31, 2002, we issued the Notes and borrowed the Term Loan B under the
Credit Facility. The gross proceeds of $1,825,000 were held in escrow pending
the SPA acquisition closing. On January 3, 2003, we borrowed the $500,000 Term
Loan A and the $1,825,000 was released from escrow. These funds were used to
acquire SPA and refinance existing debt. Amounts outstanding prior to the
acquisition under our Senior Secured Term Facilities of $114,250 were refinanced
and in connection with a tender offer and exit consent solicitation, we
repurchased $128,755 of the 9 1/8% Senior Subordinated Notes due 2008
("Pre-acquisition Notes").

The Term Loan A and Term Loan B require quarterly principal payments. During the
first quarter 2003, we made scheduled payments of $14,667. In addition, we
prepaid approximately $75,000 of borrowings under the Credit Facilities. Under
the Credit Facility, we also have a $125,000 Revolving Credit Facility (the
"Revolver"). There were no outstanding borrowings under the Revolver at March
31, 2003 and there were no outstanding borrowings under the prior revolving
credit facility at December 31, 2002.

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS

We have 10 million shares of preferred stock authorized and at March 31, 2003,
200,604 shares of Preferred Stock were outstanding. On January 3, 2003, we
issued 130,000 shares of Preferred Stock and warrants to purchase 1,072,500
shares of our common stock to investment partnerships affiliated with The
Goldman Sachs Group, Inc. (collectively, the "GS Funds") for gross proceeds of
$130,000. This investment by the GS Funds represented the remaining investment
amount of their $200,000 commitment. On January 3, 2003, the 70,000 shares of
Series B-1 Preferred Stock purchased by the GS Funds in November 2002
automatically converted into 70,604 shares of Preferred Stock. The Preferred
Stock (and any accrued and unpaid dividends) is convertible at any time into
common stock at a price of $24.05. The Preferred Stock earns a cumulative
dividend of 8% compounded quarterly, which we may pay in cash or allow to
accrue, at our option. The Preferred Stock is redeemable in cash at our option
at any time on or after January 3, 2013. The Preferred Stock may be redeemed in
cash at our option on or after January 3, 2006 and before January 3, 2013 if the
market price (as defined) of our common stock exceeds 200% of the conversion
price for 30 trading days. The Preferred Stock is redeemable in cash at the
option of the GS Funds in the event of a change in control (as defined). At
March 31, 2003, the redemption value of the Preferred Stock was $204,482.

The fair value of the Preferred Stock was based on an independent valuation of
the security. The value of the warrants issued January 3, 2003 was $10.43 as
determined using the Black-Scholes model, with the following assumptions:

Dividend yield ........................................................ 0%
Expected volatility ................................................... 35%
Risk-free interest rate ............................................... 2.9%
Expected holding period ............................................... 5 years

12

The net proceeds received were allocated to the Preferred Stock and warrants
based on their relative fair values. Because the fair market value of the
underlying common stock on the date of issuance ($28.96) was greater than the
conversion price, a beneficial conversion feature ("BCF") of $38,216 existed.
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. The BCF was treated as a deemed dividend in the first
quarter of 2003 and was included in the Preferred Stock dividend of $42,154 for
the first quarter 2003. At March 31, 2003, the Preferred Stock was convertible
into 8,502,382 shares of common stock.

8. RESTRUCTURING AND SPECIAL CHARGE

As a result of the SPA acquisition, management determined that certain costs
originally anticipated in the 2001 restructuring charge would not be incurred
and reversed into income $6,694 of the remaining reserve in December 2002. At
December 31, 2002, a reserve of $1,675 was maintained for severance that was
anticipated and included in the original restructuring plan. During the quarter
ended March 31, 2003, 33 positions included in the restructuring charge were
eliminated and as a result, the 2001 restructuring actions are substantially
completed. Severance payments will be made over time in accordance with Company
policy and be applied against the reserve. The table below shows the payments
and all adjustments applied against the reserve during 2003.

Severance
---------

Balance at December 31, 2002 .............................. $ 1,675
Payments applied against reserve .......................... (86)
-------
Balance at March 31, 2003 ................................. $ 1,589
=======

9. BUSINESS SEGMENTS

We have revised our historical segment reporting to reflect the change in the
business that resulted from the SPA acquisition and to reflect the way
management now reviews and analyzes the business. Our reportable operating
segments are Donnelley and DonTech. Donnelley includes the revenue from our 260
Sprint-branded yellow pages directories, our pre-press publishing services 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 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")
contribution. We evaluate and report the performance of our segments based on
EBITDA contribution because we believe that EBITDA is a useful measure of our
underlying operating performance and the ability to satisfy our significant debt
service requirements. Segment information for the first quarter 2002 has been
adjusted to be comparable to the 2003 presentation. Segment information for the
three months ended March 31, 2003 and 2002 is as follows:

Consolidated
Donnelley DonTech Totals
----------- -------- -----------

THREE MONTHS ENDED MARCH 31, 2003
Net revenue .......................... $ 12,419 $ -- $ 12,419
Operating income (loss) .............. (45,551) 23,633 (21,918)
Depreciation and amortization ........ 16,028 -- 16,028
EBITDA (1) ........................... (29,523) 23,633 (5,890)
Total assets ......................... 2,373,433 174,680 2,548,113

13

Consolidated
Donnelley DonTech Totals
----------- -------- -----------

THREE MONTHS ENDED MARCH 31, 2002
Net revenue .......................... $ 18,828 $ -- $ 18,828
Operating income (loss) .............. 5,752 21,905 27,657
Depreciation and amortization ........ 1,608 -- 1,608
EBITDA (1) ........................... 7,360 21,905 29,265
Total assets ......................... 98,391 182,871 281,262

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

The most comparable GAAP measure for EBITDA is operating income. We calculate
EBITDA as operating income computed in accordance with GAAP plus depreciation
and amortization. We do not record depreciation expense for DonTech, therefore
operating income determined in accordance with GAAP is the same as EBITDA for
DonTech. The reconciliation of Donnelley EBITDA is as follows:

Three Months Ended March 31,
----------------------------
2003 2002
-------- ------

Operating (loss) income - GAAP ............ $(45,551) $5,752
Depreciation and amortization ............. 16,028 1,608
-------- ------
EBITDA .................................... $(29,523) $7,360
======== ======

We also evaluate the performance of Donnelley and DonTech based on advertising
sales. Advertising sales are a critical measure of performance that we review
and they play an important role in our decision to allocate financial resources
between our segments. For a discussion of advertising sales, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations."

10. LITIGATION

We are involved in various legal proceedings arising in the ordinary course of
our business, as well as certain extraordinary 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
extraordinary 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 further below.

In order to understand our potential exposure under the extraordinary litigation
and tax matters described below under the captions "Information Resources, Inc."
and "Tax Matters," one needs to understand the relationship between us and The
Dun & Bradstreet Corporation, and certain of its 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
("D&B1") separated (the "1996 Distribution") through a spin-off into three
separate public companies: D&B1, ACNielsen Corporation ("ACNielsen") and
Cognizant Corporation ("Cognizant"). In June 1998, D&B1 separated (the "1998
Distribution") through a spin-off into two separate public companies: D&B1,
which changed its name to R.H. Donnelley Corporation ("Donnelley"), and a new
company named The Dun & Bradstreet Corporation ("D&B2"). Later in 1998,
Cognizant separated

14

(the "Cognizant Distribution") through a spin-off into two separate public
companies: IMS Health Incorporated ("IMS") and Nielsen Media Research, Inc.
("NMR"). In September 2000, D&B2 separated (the "2000 Distribution") through a
spin-off into two separate public companies: D&B2, which changed its name to
Moody's Corporation ("Moody's"), and a new company named The Dun & Bradstreet
Corporation ("D&B3," and together with D&B1 and D&B2, also referred to elsewhere
in this Form 10-K as "D&B"). As a result of the form of our separation from D&B,
we are the corporate successor of, and technically the defendant and taxpayer
referred to below as D&B.

Rockland Yellow Pages

In 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages
initiated a lawsuit against the Company and Bell Atlantic Corporation in the
United States District Court for the Southern District of New York. The Rockland
Yellow Pages is a proprietary directory that competes against a Bell Atlantic
directory in the same region, for which we served as Bell Atlantic's advertising
sales agent through June 30, 2000. The complaint alleged that the defendants
disseminated false information concerning the Rockland Yellow Pages, which
resulted in damages to the Rockland Yellow Pages. In May 2001, the District
Court dismissed substantially all of plaintiffs' claims, and in August 2001, the
remaining claims were either withdrawn by the plaintiffs or dismissed by the
District Court. The plaintiffs then filed a complaint against the same
defendants in New York State Supreme Court, in Rockland County, alleging
virtually the same state law tort claim previously dismissed by the District
Court and seeking unspecified damages. In October 2001, defendants filed a
motion to dismiss this complaint. In May 2002, the Court granted defendants'
motion to dismiss the complaint. Plaintiffs have filed an appeal of this
dismissal in the Appellate Division of the New York State Supreme Court. On
April 10, 2003, the Appellate Division heard oral arguments on the appeal and on
April 28, 2003, the Appellate Division dismissed all but one count of the
complaint, which count alleges immaterial damages with respect to only one
advertiser. Accordingly, we presently do not believe that the final outcome of
this matter will have a material adverse effect on our results of operations or
financial condition.

Information Resources, Inc.

In 1996, Information Resources, Inc. ("IRI"), filed a complaint in the United
States District Court for the Southern District of New York, naming as
defendants the Company, as successor of D&B, ACNielsen Company and IMS
International Inc., at the time of the filing, all wholly owned subsidiaries of
D&B. IRI alleges, among other things, various violations of the antitrust laws,
including alleged violations of Sections 1 and 2 of the Sherman 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 is seeking damages in excess of $350,000, which amount IRI
seeks to treble under antitrust laws. IRI is also seeking punitive damages of an
unspecified amount. No trial date has been set, and discovery is ongoing. Under
the agreements relating to the 1996 Distribution, Cognizant, AC Nielsen and D&B
agreed to conduct a joint defense and allocated liabilities amongst themselves.
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 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. At this stage in the proceedings, we are unable to predict the outcome of
this matter. While we cannot assure you as to any outcome, 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) to reimburse us for any
payments we may be required to make and related costs we may incur in connection
with this matter.

Tax Matters

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

Pursuant to a series of agreements relating to the 1996, 1998, Cognizant and
2000 Distributions, IMS and NMR are jointly and severally liable for, and must
pay one-half, and D&B and Moody's are jointly and severally liable for, and must
pay the other half, of any payments over $137,000 for taxes, accrued interest
and other amounts resulting from unfavorable IRS rulings on the tax matters
summarized below (other than the matter summarized below as "Amortization
Expense Deductions -- 1997-2002," for which D&B and Moody's (jointly and
severally) are solely

15

responsible). D&B, on our behalf, was contractually obligated to pay, and did
pay, the first $137,000 of tax liability in connection with the matter
summarized below as "Utilization of Capital Losses -- 1989-1990." Under the
agreements relating to 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 Corporation has
agreed to be jointly and severally liable with D&B for the indemnity obligation
to us. Under the agreements relating to the 2000 Distribution, D&B and Moody's
have, between each other, agreed to each 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.

While we cannot assure you as to any 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) to reimburse
us for any payments we may be required to make and related costs we may incur in
connection with these tax matters.

Utilization of Capital Losses -- 1989-1990

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 assessment. The
amended tax return reflected an additional $561,600 of tax and interest due. In
2000, D&B paid the IRS $349,300 million while IMS (on behalf of itself and NMR)
paid $212,300 to the IRS. We understand that this payment was made under dispute
in order to stop additional interest from accruing, that D&B is contesting the
IRS's formal assessment and would also contest the assessment of amounts, if
any, in excess of the amounts paid, and that D&B has filed a petition for a
refund in the United States District Court. This case is expected to go to trial
in 2004.

Subsequent to making its payment to the IRS in 2000, IMS sought to obtain
partial reimbursement from NMR under the terms of the agreements relating to the
Cognizant Distribution. NMR paid IMS less than IMS sought. Accordingly, in 2001,
IMS filed an arbitration proceeding against NMR claiming that NMR underpaid to
IMS its proper allocation of the above tax payments as provided by the
agreements relating to the Cognizant Distribution. Neither D&B nor we were party
to the Cognizant Distribution. IMS nonetheless sought to include us in this
arbitration, arguing that if NMR should prevail in its interpretation against
IMS, then IMS could seek to enforce the same interpretation against us (as
successor to D&B) under the agreements relating to the 1996 Distribution. The
arbitration panel ruled that we are a proper party to this arbitration
proceeding. On April 29, 2003, the arbitration panel dismissed all claims
against RHD and found for IMS. If, on appeal of that ruling, NMR should prevail
against IMS and, in turn, IMS should prevail against us, then we believe that
our additional liability would be approximately $15,000 net of tax benefits. As
noted above, D&B and Moody's would be jointly and severally obligated to
indemnify us against any such additional liability and related costs.

We believe the fact that D&B and IMS have already paid the IRS a substantial
amount of additional taxes with respect to the contested tax planning strategies
significantly mitigates our risk. While no assurances can be given, we currently
believe that D&B and Moody's have sufficient financial resources, borrowing
capacity and indemnity rights against IMS and NMR to reimburse us for any
payments we may be required to make and related costs we may incur with respect
to this matter.

Royalty Expense Deductions -- 1994-1996

During the second quarter of 2002, D&B (on our behalf) received a Notice of
Proposed Adjustment from the IRS with respect to a transaction entered into in
1993. In this Notice, the IRS proposed to disallow certain royalty expense
deductions claimed by D&B on its 1994, 1995 and 1996 tax returns. The IRS
previously concluded an audit of this transaction for taxable years 1993 and
1994 and did not disallow any similarly claimed deductions. We understand that
D&B disagrees with the position taken by the IRS in its Notice and has filed a
responsive brief to this effect with the IRS. If the IRS were to issue a formal
assessment consistent with the Notice, then a payment of the disputed amounts
would be required, if D&B opted to challenge the assessment in U.S. District
Court rather than in U.S. Tax Court. In the event of such challenge by D&B, the
required payment by D&B to the IRS would be up to $42,000 ($48,000 offset by a
$6,000 tax benefit). In verbal communications between D&B and the IRS during
2002, we understand that the IRS has expressed some willingness to withdraw its
proposed disallowance of certain royalty expense deductions of $7,500 for 1994.
However, we also understand that the IRS has expressed its intent to

16

seek penalties of $7,500 for 1995 and 1996 based on its interpretation of
applicable law. We have been advised that D&B would challenge the IRS's
interpretation. Again, under the agreements relating to the 1998 and 2000
Distributions, D&B and Moody's have agreed to jointly and severally defend and
indemnify us against any such liability and related costs.

Notwithstanding the verbal communications with the IRS in 2002 noted above
regarding royalty expense deductions of $7,500 for 1994, in a February
2003 letter to D&B (on our behalf) the IRS asserted that it intends to take a
position regarding prior tax years that would have the effect of disallowing a
portion of the 1994 royalty expense deduction, our share of which would be $5
million if the IRS prevailed. We understand that D&B disagrees with the IRS's
position. Also, in February 2003, D&B (on our behalf) received a Preliminary
Partnership Summary Report from the IRS that challenges the tax treatment of
certain royalty payments received by a partnership in which D&B was a partner.
As stated in its Report, the IRS would reallocate certain partnership income to
D&B, which if the IRS prevailed would require an additional payment from us of
$20,000 (which includes tax, interest and penalty, net of associated tax
benefits).

Again, under the agreements relating to the 1998 and 2000 Distributions, D&B and
Moody's have agreed to jointly and severally defend and indemnify us against any
such liability and related costs.

Amortization Expense Deductions -- 1997-2002

We understand that the IRS has sought certain documentation from D&B with
respect to a transaction entered into in 1997 that produces amortization expense
deductions for D&B. While we understand that D&B believes the deductions are
appropriate, the IRS could ultimately challenge them and issue an assessment. If
the IRS were to prevail or the assessment were to be challenged by us in U.S.
District Court, we understand that D&B estimates that its cash payment to the
IRS with respect to deductions claimed to date and including any potential
assessment of penalties of $6,500, could be up to $46,400, or $43,000 net of
associated tax benefits. This transaction is scheduled to expire in 2012 and,
unless earlier terminated by D&B, the cash exposure, based on current interest
rates and tax rates, would increase at a rate of approximately $2,300 per
quarter (including potential penalties) as future amortization expenses are
deducted. Again, under the agreements relating to the 1998 and 2000
Distributions, D&B and Moody's are required to jointly and severally indemnify
us against any such liability and related costs.

As a result of our assessment of our exposure in these matters, especially in
light of our indemnity arrangements with D&B and Moody's, and their financial
resources, borrowing capacity and indemnity rights against IMS and NMR, no
material amounts have been accrued for in our consolidated financial statements
for any of these D&B-related litigation and tax matters.

Coastal Termite and Pest Control

In 2001, Marnan Group, Inc., doing business as Coastal Termite and Pest Control
("Coastal"), filed a complaint in the United States District Court for the
Middle District of Florida against SPA. The complaint, as amended, alleged that
SPA breached certain directory advertising contracts between 1996 and 1999,
fraudulently induced Coastal to enter into another directory advertising
contract and tortiously interfered with Coastal's business relationships with
its customers. Coastal is seeking damages for lost contract benefits, lost
profits and diminution of business value in an unspecified amount, including
pre-judgment interest. In January 2002, SPA filed a motion to dismiss certain of
Coastal's claims. In September 2002, the court denied SPA's motion to dismiss.
Nonetheless, we do not believe that the final outcome of this matter will have a
material adverse effect on our results of operations or financial condition. SPA
had approximately $500 reserved in its consolidated financial statements for
this matter, which amount was transferred to our consolidated financial
statements as a result of the acquisition.

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.

11. GUARANTEES

R.H. Donnelley Inc. is a direct wholly owned subsidiary of the Company and the
issuer of the Notes and Pre-acquisition Notes. The Company and the direct and
indirect wholly owned subsidiaries of R.H. Donnelley Inc. jointly and severally,

17

fully and unconditionally guarantee the Notes and Pre-acquisition Notes. At
March 31, 2003, R.H. Donnelley Inc.'s direct wholly owned subsidiaries were R.H.
Donnelley Publishing & Advertising, R.H. Donnelley APIL, Inc., R.H. Donnelley
CD, Inc. and Get Digital Smart.com Inc. R.H. Donnelley Acquisitions, Inc. is a
wholly owned subsidiary of R.H. Donnelley APIL, Inc. The following consolidating
condensed financial statements should be read in conjunction with the
consolidated financial statements of the Company.

R.H. DONNELLEY CORPORATION
CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 31, 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
--------- -------------- ------------ ------------ ------------ --------------

ASSETS
Cash and cash equivalents .......... $ -- $ 17,485 $ (5,290) $ 8 $ -- $ 12,203
Other current assets ............... -- 7,415 253,469 1,792 -- 262,676
Investment in subsidiaries ......... 136,711 2,248,581 -- 2,293,580 (4,504,192) 174,680
Intercompany advance ............... -- -- -- 2,308,824 (2,308,824) --
Intangible assets .................. -- -- 1,902,542 -- -- 1,902,542
Other assets ....................... -- 107,636 10,423 2 (2) 118,059
Goodwill ........................... -- -- 77,953 -- -- 77,953
--------- ----------- ----------- ---------- ----------- -----------

Total assets ....................... $ 136,711 $ 2,381,117 $ 2,239,097 $4,604,206 $(6,813,018) $ 2,548,118
========= =========== =========== ========== =========== ===========

LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' DEFICIT
Current liabilities ................ $ -- $ 187,772 $ 48,351 $ 19,752 $ (72,118) $ 183,757
Long-term debt ..................... -- 2,182,525 -- -- -- 2,182,525
Other long-term liabilities ........ -- 73,715 12 -- (28,607) 45,120
Intercompany loan .................. -- -- 2,208,834 -- (2,208,834) --

Redeemable convertible preferred
stock ........................... $ 185,707 -- -- -- -- 185,707

Shareholders' (deficit) equity ..... (48,996) (62,895) (18,100) 4,584,454 (4,503,459) (48,996)
--------- ----------- ----------- ---------- ----------- -----------

Total liabilities, redeemable
convertible preferred stock
and shareholders' deficit ....... $ 136,711 $ 2,381,117 $ 2,239,097 $4,604,206 $(6,813,018) $ 2,548,113
========= =========== =========== ========== =========== ===========

R.H. DONNELLEY CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 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 ........................ $ -- $ 6,555 $ 5,864 $ -- $ -- $ 12,419
Expenses ........................... -- 16,816 41,119 35 -- 57,970
Partnership and equity (loss)
income .......................... (41,922) (4,347) -- 51,314 18,588 23,633
--------- ----------- ----------- ---------- ----------- -----------
Operating (loss) income ............ (41,922) (14,608) (35,255) 51,279 18,588 (21,918)
Interest (expense) income .......... -- (48,675) (48,435) 48,435 -- (48,675)
Other income ....................... -- 799 -- -- -- 799
--------- ----------- ----------- ---------- ----------- -----------
Pre-tax (loss) income .............. (41,922) (62,484) (83,690) 99,714 18,588 (69,794)
Income tax benefit (expense) ....... -- 20,562 32,272 (24,962) 735 28,607
--------- ----------- ----------- ---------- ----------- -----------
Net (loss) income .................. (41,922) (41,922) (51,418) 74,752 19,323 (41,187)
Preferred Stock dividend ........... 42,154 -- -- -- -- 42,154
--------- ----------- ----------- ---------- ----------- -----------
Net (loss) income available to
common shareholders ............. $ (84,076) $ (41,922) $ (51,418) $ 74,752 $ 19,323 $ (83,341)
========= =========== =========== ========== =========== ===========

18

R.H. DONNELLEY CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002

R.H.
Donnelley R.H. Donnelley Consolidated
Corp. Inc. Guarantor R.H. Donnelley
(Parent) (Issuer) subsidiaries Eliminations Corporation
--------- -------------- ------------ ------------ --------------

Net revenue ......................... $ -- $ 18,828 $ -- -- $ 18,828
Expenses ............................ -- 18,275 44 -- 18,319
Partnership and equity income ....... 13,182 18,757 25,770 $(30,561) 27,148
------- -------- -------- -------- --------
Operating income .................... 13,182 19,310 25,726 (30,561) 27,657
Interest (expense) income ........... -- (8,004) 1,782 -- (6,222)
------- -------- -------- -------- --------
Pre-tax income ...................... 13,182 11,306 27,508 (30,561) 21,435
Income tax (expense) benefit ........ -- 1,876 (10,129) -- (8,253)
------- -------- -------- -------- --------
Net income .......................... $13,182 $ 13,182 $ 17,379 $(30,561) 13,182
======= ======== ======== ======== ========

R.H. DONNELLEY CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003

R.H. Donnelley R.H. Donnelley R.H. Donnelley Other Consolidated
Corp. Inc. Publishing & Guarantor R.H. Donnelley
(Parent) (Issuer) Advertising subsidiaries Corporation
-------------- -------------- -------------- ------------ --------------

Cash flow from operations ............. $(41,922) $ (2,245) $ 2,263,674 $(2,130,698) $ 88,809
Cash flow from investing activities ... -- (335,685) (2,243,345) 2,227,475 (351,555)
Cash flow from financing activities ... 41,922 347,670 (25,619) (96,811) 267,162
-------- --------- ----------- ----------- ---------
Change in cash ........................ -- 9,740 (5,290) (34) 4,416
Cash at beginning of period ........... -- 7,745 -- 42 7,787
-------- --------- ----------- ----------- ---------
Cash at end of period ................. $ -- $ 17,485 $ (5,290) $ 8 $ 12,203
======== ========= =========== =========== =========

R.H. DONNELLEY CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002

R.H. Donnelley R.H. Donnelley Consolidated
Corp. Inc. Guarantor R.H. Donnelley
(Parent) (Issuer) subsidiaries Corporation
-------------- -------------- ------------ --------------

Cash flow from operations ............. $ 13,182 $ (8,701) $ 27,353 $ 31,834
Cash flow from investing activities ... -- (791) -- (791)
Cash flow from financing activities ... (13,182) 6,268 (27,364) (34,278)
-------- -------- -------- --------
Change in cash ........................ -- (3,224) (11) (3,235)
Cash at beginning of period ........... -- 14,667 54 14,721
-------- -------- -------- --------
Cash at end of period ................. $ -- 11,443 $ 43 $ 11,486
======== ======== ======== ========

19

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 R.H. Donnelley's 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, 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, 2002.

THE COMPANY

On January 3, 2003, we completed the acquisition of Sprint Corporation's
("Sprint") directory operations, Sprint Publishing and Advertising ("SPA") for
$2,213.5 million in cash, subject to a final working capital adjustment. The
acquisition transformed us from a sales agent and pre-press vendor into a
leading publisher of yellow pages directories. We are now the publisher of 260
revenue-generating Sprint Yellow Pages(R) directories in 18 states. Prior to the
acquisition, we served as the exclusive sales agent and pre-press publishing
vendor for SPA directories in certain markets. 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 were included in our consolidated results from and after
January 3, 2003, the acquisition closing date. SPA is now being operated as R.H.
Donnelley Publishing & Advertising, Inc. ("RHDPA"), an indirect, wholly owned
subsidiary of the Company.

Through the DonTech Partnership ("DonTech"), we are also the exclusive sales
agent to sell yellow pages advertising for 129 SBC Communications Inc. ("SBC")
directories in Illinois and northwest Indiana. DonTech was not affected by the
acquisition and continues to act as the exclusive sales agent to SBC.

We have revised our historical segment reporting to reflect the change in the
business that resulted from the SPA acquisition and to reflect the way
management now reviews and analyzes the business. Our reportable operating
segments are Donnelley and DonTech. Donnelley includes the revenue from our 260
Sprint-branded yellow pages directories, our pre-press publishing services 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 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.

DONNELLEY

As the publisher of 260 Sprint-branded yellow pages, our revenue is based on the
annual billing value of the advertisements sold in a directory ("publication
sales"), subject to claims and allowances for bad debt. Prior to the
acquisition, we sold yellow pages advertising in certain Sprint directories on
behalf of SPA and earned a commission based on the contract value of those
sales, subject to allowance for claims and bad debts.

DONTECH

DonTech is a 50/50 perpetual partnership in which the Company and an operating
unit of SBC are the partners. DonTech acts as the exclusive sales agent for
yellow pages directories published by SBC in Illinois and northwest Indiana.
DonTech sells advertising in SBC directories on behalf of SBC and receives a
commission from SBC. Our income associated with DonTech is comprised of two
components, our 50% interest in the net income of DonTech and revenue
participation income received directly from SBC, which is based on a percentage
of DonTech advertising sales. We also provide certain pre-press publishing and
billing services under separately negotiated contracts for the yellow

20

pages directories of SBC (through 2008) for which DonTech sells advertising. We
also provide sales related computer applications 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.

CRITICAL ACCOUNTING POLICIES

Certain amounts in our financial statements require that management make
assumptions and estimates based on the best available information at that time.
Actual results could vary from these estimates and assumptions. Those accounting
policies that involve assumptions or estimates on our part that could have a
material effect on results of operations or financial condition if the actual
results differ from the assumptions or estimates are presented below. Also see
Note 3 in Item 1 "Financial Statements" for additional information on our
accounting policies.

Revenue Recognition and Deferred Directory Costs. We earn revenue from the sale
of advertising into our yellow pages directories. Revenue from the sale of
advertising is recognized under the deferral and amortization method. Under this
method, revenue from advertising sales are deferred when a directory is
published and recognized ratably over the life of a directory, which is
typically twelve months. Sales commissions, bad debt, printing (including paper
costs) and initial distribution expenses are directly related to the advertising
sales process and are also deferred when a directory is published and recognized
ratably over the life of a directory. We record revenue net of an estimate for
claims and allowances based on historical experience. We adjust our estimate
when information or circumstances indicate that our current estimate may no
longer be representative of the amount of claims and allowances we may incur in
the future. A 1% increase or decrease in our claims and allowances estimate
would reduce or increase revenue by $5 to $6 million annually. We also earn
revenue from pre-press publishing services provided to SBC for those directories
in the DonTech markets. Revenue and expenses from pre-press publishing services
are recognized as services are performed.

For the 2002 period, we earned sales commission revenue from the sale of
advertising on behalf of SPA and fees for pre-press publishing services. As a
sales agent for SPA, we recognized sales commission revenue at the time an
advertising contract was executed with a customer. Sales commission revenue was
recorded net of potential sales allowances, which were estimated, based on
historical experience.

Receivables. Advertisers enter into a twelve-month contract for their
advertising. Most advertisers are billed a pro rata amount of their contract
value on a monthly basis. Billed receivables represent the amount that has been
billed to advertisers. Unbilled receivables represent amounts for published
directories that have yet to be billed to advertisers in accordance with the
terms of their contract. We establish an allowance for doubtful accounts for
billed and unbilled receivables based upon historical experience. We adjust our
estimate when information or circumstances indicate that our current estimate
may not adequately represent the amount of bad debts we may incur in the future.
We adjust our estimates based on actual results. A 1% increase or decrease in
our bad debt rate would increase or decrease expenses by $5 to $6 million
annually.

We provide pre-press publishing services to SBC for those directories sold by
DonTech under a separately negotiated contract that expires in 2008. Receivables
for services are billed and collected in accordance with the terms of the
agreement, generally a monthly pro rata amount based on the annual estimated
contract value. An additional amount is billed or reimbursed to SBC early in the
following year for the difference in the cost of actual volumes compared to
payments made for the cost of estimated volumes.

Concentration of Credit Risk. Approximately 85% of our advertising revenue is
derived from the sale of advertising to local small- and medium-sized
businesses. These advertisers enter into twelve-month advertising sales
contracts and typically make monthly payments over the term of the contract.
Some advertisers pre-pay the full amount or a portion of the contract value.
Most advertisers are subject to a credit review. If the advertisers qualify, we
may extend credit to them for their advertising purchase. Small- and
medium-sized businesses tend to have fewer financial resources and higher
financial failure rates than large businesses. In addition, full collection of
delinquent accounts can take an extended period of time and involve increased
costs. While we do not believe that extending credit to our local advertisers
will have a material adverse affect 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 who do not pay within
specified due dates.

21

The remaining 15% of our advertising revenue is derived from the sale of
advertising to national or large regional chains, such as rental car companies,
insurance companies, banks and automobile manufacturers. To sell advertising to
these accounts, we contract with Certified Marketing Representatives ("CMRs"),
which are independent third parties that act as agents for national companies.
The CMRs are responsible for billing the national customers for their
advertisement. 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 are
usually 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 adjustment, based on collections by SBC from individual advertisers;
however, the adjustment is limited 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.

We have interest rate swap agreements with major financial institutions with a
notional value of $255 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. While we do
not currently foresee a material credit risk associated with these swap
agreements, no assurances can be given.

Amortization of intangible assets. Intangible assets consist of directory
services agreements between Sprint and the Company entered into as part of the
SPA acquisition, established customer relationships and trade names. These
intangible assets are being amortized over their estimated useful lives. The
directory services agreements consist of a directory services license agreement,
a trademark license agreement and a non-competition agreement (collectively
"Directory Services Agreements"). These agreements are all interrelated and each
has an initial term of 50 years, subject to earlier termination under specified
circumstances. The fair value assigned to these agreements of $1,625 million was
based on the present value of estimated future cash flows. The Directory
Services Agreements are being amortized under the straight-line method over 50
years.

We also acquired the established local and national customer relationships of
SPA. The value of these relationships was determined based on the present value
of estimated future cash flows and historical attrition rates. A value of $200
million was assigned to the local customer relationships and a value of $60
million was assigned to the CMR relationships. The local customer and CMR
relationships are being amortized under an accelerated method that recognizes
the value derived from customer relationships is greater in the earlier years
and steadily declines over time. These relationships are being amortized over a
weighted average period of 18 years.

We also acquired certain trade names historically used in the SPA directory
business. A value of $30 million was assigned to the acquired trade names 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. This asset is being amortized under the straight-line
method over 15 years.

The estimated fair value and useful lives of these intangible assets were
determined based on an independent valuation and deemed by management to be
reasonable. Annual amortization expense is approximately $50 million. An
increase or decrease of one year in the estimated useful lives of each of these
assets would change the annual amortization expense by approximately $2 million.

The excess of the purchase price for SPA over the net tangible and intangible
assets acquired was $77.9 million . This amount was assigned to goodwill. 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.

Pension and Other Postretirement Benefits. Pension and other postretirement
benefits represent estimated amounts to be paid to employees in the future. The
accounting for benefit costs reflects the recognition of these future costs over

22

the employee's approximate service period based on the terms of the plans and
the investment and funding decisions made. The determination of the future
obligation and the periodic pension and other postretirement benefit costs
requires management to make assumptions regarding the discount rate, return on
retirement plan assets, increase in future compensation and health care cost
trends. Changes in these assumptions can have a significant impact on the
projected benefit obligation, funding requirement and periodic benefit cost. Our
discount rate, which discounts our future obligation to its present value, is
based on rates of return on Aa corporate bonds. The expected rate of return on
plan assets is based on the mix of assets held by the plan and their historical
long-term rates of return. The anticipated trend of future health care costs is
based on historical experience and external factors.

Effective January 1, 2003, we reduced our rate of return on plan assets from
9.75% to 8.25%. As a result of low investment returns over the last few years,
as well as our outlook for the long-term, particularly for equity securities, we
determined that the assumed rate of return of 9.75% no longer reflected our best
estimate of future long-term returns. Based on the current investment
environment and the pension plan's asset allocation, we determined that a
long-term rate of return of 8.25% better reflected our expectations for future
long-term returns.

Earnings per Share. Basic earnings per common share (EPS) are generally
calculated by dividing income available to common shareholders by the weighted
average number of common shares outstanding. However, because the Preferred
Stock contains certain participation rights, EITF Topic D-95, "Effect of
Participating Securities on the Computation of Basic Earnings Per Share,"
("Topic D-95") requires that the dilutive effect of those securities be included
in the weighted average number of shares outstanding. Furthermore, Topic D-95
requires that the dilutive effect to be included in basic EPS may be calculated
using either the if-converted method or the two-class method. However, the
dilutive effect of the Preferred Stock cannot be less than that which would
result from the application of the two-class method. We have elected to use the
if-converted method in calculating basic EPS.

Diluted EPS equals net income divided by the weighted average common shares
outstanding plus common share equivalents. Common share equivalents include
stock options and warrants, the dilutive effect of which is calculated using the
treasury stock method, and Preferred Stock, the potential dilutive effect of
which is calculated using the if-converted method.

RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002

Because of the SPA acquisition, the related financing and associated accounting,
our 2003 results prepared in accordance with generally accepted accounting
principles ("GAAP") will not be comparable to the Company's 2002 GAAP results
previously reported. Also, because purchase accounting rules prevented us from
recognizing deferred revenue and expenses for those directories that published
prior to the acquisition, including all January 2003 published directories,
revenue and expenses are not representative of revenue and expenses that would
be reported in subsequent years. Due to revenue and expense recognition under
the deferral and amortization method, these purchase accounting adjustments will
continue to effect reported results into 2004. For a detailed discussion of 2003
adjusted revenue and expenses versus 2002 adjusted pro forma revenue and
expenses, which are more comparable to each other, as well as a detailed
discussion of advertising sales, which drive revenues, see - "Adjusted and Pro
Forma Amounts" below.

NET REVENUE

Revenue is derived entirely from our Donnelley segment since DonTech is
accounted for under the equity method. We earn revenue primarily from the sale
of advertising in our yellow-pages directories. Net revenue was $12.4 million in
the first quarter of 2003 and $18.8 million in the first quarter of 2002. The
decrease in revenue is primarily due to purchase accounting impacts described
above. Revenue for the first quarter of 2003 includes only the amortization of
February and March 2003 publication sales under the deferral and amortization
method for two months and one month, respectively, and revenue from pre-press
publishing services. Revenue for the first quarter 2002 includes commission
revenue on the value of advertising sold on behalf of SPA in January, February
and March 2002 and revenue from pre-press publishing services in the first
quarter 2002.

23

EXPENSES

Expenses are derived entirely from our Donnelley segment since DonTech is
accounted for under the equity method. Total expenses were $58.0 million in the
first quarter of 2003 and $18.3 million in the first quarter of 2002. Operating
expenses were $31.9 million in the first quarter of 2003 and $11.7 million in
the first quarter of 2002. The increase in operating expenses is mainly because
2003 includes the operating expenses of the combined entity as a publisher,
whereas 2002 expenses include only those expenses incurred in our prior role as
a sales agent for SPA. The expenses we incur as the publisher of directories are
significantly greater than the expenses that we incurred as a sales agent for
SPA. For example, our direct sales costs are higher due to an increase in the
number of directories and the number of sales personnel. Total direct sales
costs in the first quarter of 2003 were $5.3 million higher than last year. We
also incur costs related to the printing (including the cost of paper) and
distribution of directories, marketing and advertising which we did not incur
when we were the sales agent. Total expenses for these incremental items in the
first quarter 2003 were $4.5 million.

General and administrative expenses were $10.0 million in the first quarter of
2003 compared to $5.0 million last year. This increase is primarily attributable
to general and administrative expenses of $3.3 million related to the acquired
SPA business and higher insurance costs of $0.9 million.

Depreciation and amortization was $16 million in the first quarter 2003 and $1.6
million last year. Amortization of intangible assets in the first quarter 2003
was $12.5 million. In 2002, we did not have intangible assets on our balance
sheet and therefore did not incur amortization expense. Depreciation of fixed
assets and amortization of computer software was $3.5 million in the 2003
quarter and $1.6 million in the 2002 quarter. This increase is due to the
acquisition of SPA depreciable assets.

PARTNERSHIP INCOME

Partnership income in 2003 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 level of calendar sales
during the period. DonTech's net income and our revenue participation income are
directly correlated to DonTech's calendar sales and a material decline in their
calendar sales could have an adverse effect on our consolidated results.
Partnership income in 2002 also included a priority distribution on our
membership interest in CenDon, LLC. As a result of the SPA acquisition, we
acquired CenDon, LLC. We no longer report priority distribution income, rather
we now consolidate the revenues and expenses of CenDon, LLC in our Consolidated
Statements of Operations. Partnership income was $23.6 million for the first
quarter 2003 and $27.2 million for the first quarter 2002, of which $21.9
million was from DonTech and $5.3 million was priority distribution income from
CenDon.

DonTech manages the sale of advertising 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. A typical
sales campaign lasts two to five months and ends approximately two months prior
to publication. 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 partnership income to be materially different from the prior comparative
period. DonTech partnership income in 2003 increased $1.7 million, or 7.8% over
2002 mainly due to higher calendar sales and lower expenses at DonTech. DonTech
calendar sales for the first quarter 2003 were $85.3 million, 4.3% higher than
calendar sales for the first quarter 2002, caused by higher servicing of
accounts in the current year period. A reconciliation of DonTech calendar
sales to reported partnership income for the quarters ended March 31, 2003 and
2002 is as follows:

24

amounts in million 2003 2002
===== =====

DonTech calendar sales .......................................... $85.3 $81.8

Commission revenue from above calendar sales .................... 21.6 20.6
Partnership net expenses ........................................ (15.2) (15.6)
----- -----
Partnership profit .............................................. $ 6.4 $ 5.0
===== =====

Company's 50% share of partnership profits ...................... $ 3.2 $ 2.5
Revenue participation income from SBC on above calendar sales ... 20.4 19.4
----- -----
Total income from DonTech ....................................... 23.6 21.9
Priority distribution income from CenDon ........................ -- 5.3
----- -----
Partnership income .............................................. $23.6 $27.2
===== =====

OPERATING INCOME

Operating income by segment for the quarters ended March 31, 2003 and 2002 was
as follows:

2003 2002
------- -------

Donnelley ............................................. $ (45.5) $ 5.8
DonTech ............................................... 23.6 21.9
------- -------
Total ............................................. $(21.9) $ 27.7
======= =======

We reported an operating loss of $21.9 million for the first quarter 2003, and
operating income of $27.7 million for the first quarter of 2002. The significant
decline in operating income was due to purchase accounting rules that prevented
us from recognizing deferred revenue and expenses associated with those
directories published prior to the acquisition, including all January 2003
published directories. Accordingly, operating income in the first quarter 2003
is not indicative of the amount of operating income we will report in subsequent
years. Due to revenue and expense recognition under the deferral and
amortization method, these purchase accounting adjustments will continue to
effect reported operating income through the second quarter 2004. In addition,
we treat more of our operating expenses as period expenses compared to SPA's
historical accounting policy to defer and amortize certain costs. Income from
DonTech is unaffected by the acquisition. See "Partnership Income" above for
details of the increase in DonTech income. For a detailed discussion of 2003
adjusted operating income versus 2002 adjusted pro forma operating income, which
are more comparable to each other, see - "Adjusted and Pro Forma Amounts" below.

INTEREST EXPENSE

Net interest expense was $48.7 million for the first quarter 2003 and $6.2
million last year. Interest expense was significantly higher as a result of the
substantial debt issued in connection with the SPA acquisition. Total debt
outstanding at March 31, 2003 was $2.2 billion compared to $251.8 million last
year.

OTHER INCOME

Other income represents a $0.8 million gain on hedging activities. At December
31, 2002, our $75 million notional value interest rate swap did not qualify for
hedge accounting treatment due to the then-pending repayment of existing
variable rate debt in connection with the SPA acquisition. In December 2002, a
charge of $1.5 million was recorded to reclassify the cumulative change in the
fair value of the swap that was previously recognized in accumulated other
comprehensive loss on the balance sheet to earnings. In 2003, we will recognize
a corresponding gain of $1.5 million as the swap nears maturity in June 2003. We
recognized $0.8 million of this gain in the first quarter and will recognize an
additional gain of $0.7 million in the second quarter.

NET INCOME, NET INCOME AVAILABLE TO COMMON SHAREHOLDERS AND EARNINGS PER SHARE

Net loss for the first quarter 2003 was $41.2 million and net income for the
first quarter 2002 was $13.2 million. The

25

net loss in 2003 was due to purchase accounting rules that prevented us from
recognizing deferred revenue and expenses associated with those directories
published prior to the acquisition, including all January 2003 published
directories, as well as significantly higher interest expense due to the
acquisition financing. In the first quarter 2003, we accrued a dividend on the
Preferred Stock of $42.1 million. This dividend included the stated 8% annual
dividend plus a "deemed dividend" of $38.2 million for a beneficial conversion
feature that existed when the Preferred Stock was issued on January 3, 2003. Net
loss available to common shareholders, or net loss after the preferred dividend,
was $83.3 million.

Basic earnings per share for the first quarter 2003, calculated under the
two-class method, were a loss of $2.76 (see - Note 3 "Significant Accounting
Policies" in Item 1 - Financial Statements for additional information regarding
the two-class method). Diluted earnings per share were also a loss of $2.76.
Because there was a reported net loss in the first quarter 2003, the calculation
of diluted earnings per share was anti-dilutive compared to basic earnings per
share. Diluted earnings per share cannot be greater than basic earnings per
share (or less of a loss). Therefore, reported diluted earnings per share and
basic earnings per share for the first quarter 2003 were the same. For the first
quarter of 2002, basic earnings per share were $0.45 and diluted earnings per
share were $0.44.

ADJUSTED AND PRO FORMA AMOUNTS

As a result of the acquisition, our 2003 results prepared in accordance with
GAAP are not comparable to our 2002 GAAP results previously reported.
Additionally, due to purchase accounting rules that prevent us from recognizing
deferred revenue and expenses associated with directories that published prior
to the acquisition, our reported 2003 GAAP results are not indicative of our
underlying operations and financial performance. Accordingly, management is
presenting adjusted results for 2003 that eliminate the purchase accounting
impacts on revenue and expenses and pro forma information for 2002 that assumes
the acquisition and related financing occurred January 1, 2002. Management
believes that the presentation of this adjusted and pro forma information will
help investors better and more easily compare current period underlying
operating results against what the combined company performance would likely
have been in the comparable prior period. However, while management believes
that the pro forma amounts reasonably represent results as if the two businesses
had been combined for the full year 2002, because of differences in the
application of accounting policies between SPA and RHD, management does not
believe these pro forma amounts are strictly comparable to adjusted 2003 results
on a quarterly basis.

amounts in millions

GAAP
Reported Adjustments Adjusted
-------- ----------- --------

2003
Net revenue .......................... $ 12.4 $ 131.1(1) $ 143.5
Expenses ............................. 41.9 26.6(2) 68.5
Depreciation and amortization ........ 16.0 -- 16.0
Partnership income ................... 23.6 -- 23.6
------- ------- -------
Operating (loss) income .............. (21.9) 104.5 82.6
======= ======= =======

GAAP
Reported Adjustments Pro Forma
-------- ----------- ---------

2002
Net revenue .......................... $ 18.9 $ 125.7(3) $ 144.6
Expenses ............................. 16.8 57.7(4) 74.5
Depreciation and amortization ........ 1.6 14.6(5) 16.2
Partnership income ................... 27.2 (5.3)(6) 21.9
------- ------- -------
Operating income ..................... 27.7 48.1 75.8
======= ======= =======

(1) Represents the revenue for directories that published prior to the
acquisition that would have been recognized during the period had it not
been for purchase accounting adjustments required under GAAP.

(2) Represents the operating expenses for directories that published prior to
the acquisition that would have been recognized during the period had it
not been for purchase accounting adjustments required under GAAP

26

($25.9 million) and the effect of differences in the application of
accounting policies between SPA and RHD ($0.7 million).

(3) Represents revenue recognized by SPA in the first quarter of 2002 ($137.2
million) less RHD commission revenue and pre-press publishing revenue from
SPA included in the reported GAAP amounts ($11.5 million), which would
have been eliminated as intercompany revenues had the acquisition occurred
on January 1, 2002.

(4) Represents expenses recognized by SPA in the first quarter of 2002 ($64.7
million) less SPA commission and pre-press publishing expenses for
services provided by RHD ($11.4 million), which would have been eliminated
as intercompany expenses had the acquisition occurred on January 1, 2002
and the additional expense ($4.4 million) related to a required purchase
accounting adjustment.

(5) Represents depreciation and amortization expense recognized by SPA in the
first quarter of 2002 ($2.1 million) plus amortization expense for
intangible assets acquired in the acquisition assuming it occurred on
January 1, 2002 ($12.5 million).

(6) Represents income from CenDon, LLC recognized by RHD and included in
reported GAAP amounts, which would have been eliminated as intercompany
income had the acquisition occurred on January 1, 2002.

Adjusted revenue in the first quarter 2003 was $143.5 million, down 0.8% from
$144.6 million of pro forma revenue in the first quarter of 2002. The decrease
was primarily due to lower pre-press publishing revenue resulting from the
expiration of a pre-press contract in December 2002.

Management utilizes publication sales as its primary sales performance measure.
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 due to the deferral and amortization method. Because directory
revenue is recognized ratably over the life of a directory under the deferral
and amortization method, 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.

For the first quarter 2003, publication sales for the Donnelley segment were
$145.1 million, up 1.4% from pro forma publication sales for the Donnelley
segment of $143.1 million last year. The increase in publication sales resulted
from higher advertiser renewal rates and solid performance in RHD's larger
markets in Nevada and Florida. These results were partially offset by weaker
performance in smaller Midwestern and Eastern markets where economic conditions
continue to lag the South and West. Publication sales are a non-GAAP measure and
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.

27

For the Quarter Ended March 31,
-------------------------------
2003 2002
------- -------

Publication sales - Donnelley segment ....................................... $ 145.1 $ 143.1
Less publication sales for January 2003 directories that will not be
recognized as revenue due to purchase accounting ...................... (102.4)
Less current period publication sales deferred and not recognized as
revenue in current period ............................................. (37.4)
-------
Less publication sales for those SPA directories not sold by RHD ............ (95.8)
-------
Publication sales reported by RHD in 2002 ................................... 47.3
Less sales contracts executed in prior period and reported as calendar
sales in future periods ............................................... (23.2)
Plus sales sold during the period to be reported as publication sales in
future periods ........................................................ 18.6
Calendar sales in first quarter 2002 ........................................ $ 42.7
=======
Net directory advertising revenue on above advertising sales ................ 5.3
Plus net revenue that would have been reported for publication sales
made prior to acquisition, including all January 2003 directories,
absent purchase accounting ............................................ 131.1
Net commission revenue on first quarter 2002 calendar sales ................. $ 9.8
Plus pro forma adjustment to include SPA revenue reported in first
quarter 2002 .......................................................... 137.2
Less pro forma adjustment to eliminate RHD reported GAAP revenue
from services provided to SPA ......................................... (11.5)
Pre-press publishing revenue ................................................ 6.1 8.9
Other revenue ............................................................... 1.0 0.2
------- -------
ADJUSTED NET REVENUE ........................................................ $ 143.5 $ 144.6

Less net revenue that would have been reported for publication sales
made prior to acquisition, including all January 2003 directories,
absent purchase accounting ............................................ (131.1)
-------
Less pro forma adjustment to include SPA revenue reported in first
quarter 2002 .......................................................... (137.2)
Plus pro forma adjustment to eliminate RHD reported GAAP revenue
from services provided to SPA ......................................... 11.5
-------
NET REVENUE ................................................................. $ 12.4 $ 18.9
======= =======

Adjusted expenses for the first quarter 2003 were $68.5 million, a decrease of
8.1% from $74.5 million of pro forma expenses for the same period last year.
This decrease was attributable to lower bad debt expense of approximately $2
million, lower print and paper costs of approximately $3 million and the
remaining variance is primarily due to the timing of expense recognition caused
by the difference between SPA and RHD accounting policies. Depreciation and
amortization expense for the first quarter 2003 was $16.0 million, consistent
with pro forma depreciation and amortization expense of $16.2 million for the
first quarter 2002.

Partnership income for the first quarter 2003 of $23.6 million and adjusted
partnership income for the first quarter 2002 of $21.9 million represents income
from DonTech. See "- Partnership Income" above for explanation of the increase
in partnership income.

Adjusted operating income for the first quarter 2003 was $82.6 million, an
increase of 9.0% from adjusted pro forma operating income for last year's first
quarter of $75.8 million reflecting the foregoing items.

Management also utilizes publication sales to evaluate the sales performance of
DonTech. Although partnership income from DonTech is not directly correlated to
publication sales for DonTech, management believes that this measure provides a
better

28

indication of underlying sales trends, economic conditions and business
confidence in the DonTech markets than a comparison of partnership income from
DonTech. Publication sales at DonTech represent the annual billing value of the
SBC directories published during the period for which DonTech sells advertising.
For the first quarter of 2003, publication sales were $88.7 million, down 5.7%
from last year's first quarter publication sales of $94.1 million. These sales
represent advertising contracts that were executed in the third and fourth
quarters of 2002 and reflect the weak economic conditions and business
confidence in the Midwest as well as the impact of competition in the Chicago
market. Publication sales are a non-GAAP measure and the most comparable GAAP
measure related to DonTech is partnership income. A reconciliation of
publication sales to calendar sales to partnership income is provided below.

For the Quarter Ended March 31,
-------------------------------
amounts in million 2003 2002
------- -------

DonTech publication sales .............................................. $ 88.7 $ 94.1
Less the value of contracts executed and reported as calendar sales
in prior periods ................................................. (86.3) (91.5)
Plus the value of contracts executed during the period to be
reported as publication sales in future periods .................. 82.9 79.2
------- -------
DonTech calendar sales ................................................. 85.3 81.8

Commission revenue from above calendar sales ........................... 21.6 20.6
Partnership net expenses ............................................... (15.2) (15.6)
------- -------
Partnership profit ..................................................... $ 6.4 $ 5.0
======= =======

Company's 50% share of partnership profits ............................. $ 3.2 $ 2.5
Revenue participation income on above calendar sales ................... 20.4 19.4
------- -------
Total income from DonTech .............................................. 23.6 21.9
Priority distribution income from CenDon, LLC .......................... -- 5.3
------- -------
Partnership income - GAAP .............................................. $ 23.6 $ 27.2
======= =======

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity is cash flows from operations as well as
available borrowing capacity under the Revolver. At March 31, 2003, we had $125
million of borrowing capacity under the Revolver. Our primary liquidity
requirement is to fund operating expenses and principal and interest payments on
our debt. 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 revenue participation payments and cash distributions
related to DonTech. 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. We believe that cash flow from operations, along with
borrowing capacity under the Revolver, will be adequate to fund our operations
and meet our debt service requirements for at least the next 12 to 24 months.
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 to enable us to fund our operations and meet all debt service
requirements.

Cash flow from operations was $88.8 million in the first quarter 2003 and $31.8
million in the first quarter 2002. The increase in 2003 resulted from 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 receivables 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. The increase in other
current assets resulted in a use of cash of $11.8 million primarily due to
payments made to sales persons and vendors for directories that will publish at
a later date. These payments are deferred until the directory is published.
Total cash receipts related to DonTech were $34.9

29

million, $11.3 million more than partnership income related to DonTech of $23.6
million. The increase in accounts payable and accrued liabilities resulted in a
source of cash of $9.1 million, mainly due to the absence of bond interest and
tax payments, which will be made in subsequent quarters. The increase in
deferred revenue of $64.2 million is due to the elimination of SPA historical
deferred revenue in purchase accounting. The increase in deferred revenue was
offset by the net loss for the period, which also resulted primarily from the
elimination of SPA historical deferred revenue. If this account were not
eliminated, deferred revenue would have continued to amortize, resulting in
additional income and the increase in deferred revenue would have been
approximately $50 million less.

Cash used in investing activities was $351.6 million in the first quarter 2003
and $0.8 million in the first quarter of 2002. During the first quarter of 2003,
we paid $2,243.5 million to acquire SPA and pay transaction costs, of which,
$1,825.0 million raised prior to year-end 2002 was released from escrow. Also
prior to year-end 2002, we issued $70 million of Preferred Stock to the GS Funds
in November 2002. The net proceeds received of $69.3 million were reported as
restricted cash at year end 2002. The remaining funds were obtained from
additional borrowings under the Credit Facility and the issuance of Preferred
Stock at the closing (see cash flow from financing activities below).

Cash provided by financing activities was $267.2 million in the first quarter
2003 compared to cash used in financing activities of $34.3 million in the first
quarter 2002. On January 3, 2003, we borrowed $500 million under the Credit
Facility and received net proceeds after issuance costs of $461.3 million. We
also issued $130 million of Preferred Stock and received net proceeds after
issuance costs of $125.7 million. With the proceeds raised from the issuance of
debt and Preferred Stock, we refinanced pre-acquisition debt of $243 million,
which consisted of $114.2 million of variable rate bank debt and $128.8 million
of fixed rate bond debt. We repaid approximately $90 million of
acquisition-related debt in the first quarter with the cash flows generated by
operations and $12.8 million received from stock option exercises. For the first
quarter 2002, we repaid $35 million of debt and received $0.7 million from stock
option exercises.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

RISK MANAGEMENT

The Credit Facility bears interest at variable rates. Accordingly, our earnings
and cash flow are affected by changes in interest rates. The terms of the Credit
Facility required that, within a specified period after the closing of the SPA
acquisition, we enter into hedge agreements to provide either a fixed interest
rate or interest rate protection on at least 50% of our total outstanding debt.
On March 28, 2003, we entered into three interest rate swap agreements with a
total notional value of $255 million. These interest rate swaps effectively
convert $255 million of variable rate debt to fixed rate debt. After the effect
of the swaps, total fixed rate debt comprises 53% of our total debt portfolio.
Under the terms of these agreements, we receive variable interest based on
three-month LIBOR and pay a fixed rate of 2.85%. The swaps mature on March 31,
2007. We also have a $75 million pay-fixed receive-variable interest rate swap
agreement that expires in June 2003.

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 three interest rate swap agreements with a total notional value of $255
million have been designated as cash flow hedges. In accordance with FAS 133,
the swaps are recorded at fair value. On a quarterly basis, the fair value of
the swaps will be determined based on quoted market prices and, assuming perfect
effectiveness, the difference between the fair value and the book value of the
swaps will be 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 (3 month LIBOR-based
interest payments on $255 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

30

flows from the swaps will exactly offset the cash flows of the hedged item and
no ineffectiveness will exist.

The $75 million notional value interest rate swap does not meet the requirements
for hedge accounting treatment. Accordingly, changes in the fair value of the
swap are recorded through earnings. In December 2002, it was determined that
this swap no longer qualified for hedge accounting and a charge of $1.5 million
was recorded to reclassify the cumulative change in the fair value of the swap
that was previously recognized in accumulated other comprehensive loss on the
balance sheet to earnings. In 2003, we will recognize a corresponding gain of
$1.5 million as the swap nears maturity in June 2003. We recognized a gain of
$0.8 million in the first quarter and will record an additional gain of $0.7
million in the second quarter.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Based on their
evaluation, as of a date within 90 days of the filing date of this
Quarterly Report on Form 10-Q, of the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended), the
principal executive officer and principal financial officer of the Company
have each concluded that such disclosure controls and procedures are
effective and sufficient to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission's rules and forms.

(b) Changes in internal controls. Subsequent to their evaluation, there have
not been any significant changes in the Company's internal controls or in
other factors that could significantly affect these controls, including
any corrective action with regard to significant deficiencies and material
weaknesses.

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 extraordinary 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
extraordinary 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 further below.

In order to understand our potential exposure under the extraordinary litigation
and tax matters described below under the captions "Information Resources, Inc."
and "Tax Matters," one needs to understand the relationship between us and The
Dun & Bradstreet Corporation, and certain of its 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
("D&B1") separated (the "1996 Distribution") through a spin-off into three
separate public companies: D&B1, ACNielsen Corporation ("ACNielsen") and
Cognizant Corporation ("Cognizant"). In June 1998, D&B1 separated (the "1998
Distribution") through a spin-off into two separate public companies: D&B1,
which changed its name to R.H. Donnelley Corporation ("Donnelley"), and a new
company named The Dun & Bradstreet Corporation ("D&B2"). Later in 1998,
Cognizant separated (the "Cognizant Distribution") through a spin-off into two
separate public companies: IMS Health Incorporated ("IMS")

31

and Nielsen Media Research, Inc. ("NMR"). In September 2000, D&B2 separated (the
"2000 Distribution") through a spin-off into two separate public companies:
D&B2, which changed its name to Moody's Corporation ("Moody's"), and a new
company named The Dun & Bradstreet Corporation ("D&B3," and together with D&B1
and D&B2, also referred to elsewhere in this Form 10-K as "D&B"). As a result of
the form of our separation from D&B, we are the corporate successor of, and
technically the defendant and taxpayer referred to below as D&B.

Rockland Yellow Pages

In 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages
initiated a lawsuit against the Company and Bell Atlantic Corporation in the
United States District Court for the Southern District of New York. The Rockland
Yellow Pages is a proprietary directory that competes against a Bell Atlantic
directory in the same region, for which we served as Bell Atlantic's advertising
sales agent through June 30, 2000. The complaint alleged that the defendants
disseminated false information concerning the Rockland Yellow Pages, which
resulted in damages to the Rockland Yellow Pages. In May 2001, the District
Court dismissed substantially all of plaintiffs' claims, and in August 2001, the
remaining claims were either withdrawn by the plaintiffs or dismissed by the
District Court. The plaintiffs then filed a complaint against the same
defendants in New York State Supreme Court, in Rockland County, alleging
virtually the same state law tort claim previously dismissed by the District
Court and seeking unspecified damages. In October 2001, defendants filed a
motion to dismiss this complaint. In May 2002, the Court granted defendants'
motion to dismiss the complaint. Plaintiffs have filed an appeal of this
dismissal in the Appellate Division of the New York State Supreme Court. On
April 10, 2003, the Appellate Division heard oral arguments on the appeal and on
April 28, 2003 the Appellate Division dismissed all but one count of the
complaint, which count alleges immaterial damages with respect to only one
advertiser. Accordingly, we presently do not believe that the final outcome of
this matter will have a material adverse effect on our results of operations or
financial condition.

Information Resources, Inc.

In 1996, Information Resources, Inc. ("IRI"), filed a complaint in the United
States District Court for the Southern District of New York, naming as
defendants the Company, as successor of D&B, ACNielsen Company and IMS
International Inc., at the time of the filing, all wholly owned subsidiaries of
D&B. IRI alleges, among other things, various violations of the antitrust laws,
including alleged violations of Sections 1 and 2 of the Sherman 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 is seeking damages in excess of $350 million, which amount
IRI seeks to treble under antitrust laws. IRI is also seeking punitive damages
of an unspecified amount. No trial date has been set, and discovery is ongoing.
Under the agreements relating to the 1996 Distribution, Cognizant, AC Nielsen
and D&B agreed to conduct a joint defense and allocated liabilities amongst
themselves. 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 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. At this stage in the proceedings, we are unable to
predict the outcome of this matter. While we cannot assure you as to any
outcome, 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) to reimburse us for any payments we may be required to make and
related costs we may incur in connection with this matter.

Tax Matters

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

Pursuant to a series of agreements relating to the 1996, 1998, Cognizant and
2000 Distributions, IMS and NMR are jointly and severally liable for, and must
pay one-half, and D&B and Moody's are jointly and severally liable for, and must
pay the other half, of any payments over $137 million for taxes, accrued
interest and other amounts resulting from unfavorable IRS rulings on the tax
matters summarized below (other than the matter summarized below as
"Amortization Expense Deductions -- 1997-2002," 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 million of tax

32

liability in connection with the matter summarized below as "Utilization of
Capital Losses -- 1989-1990." Under the agreements relating to 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 Corporation has agreed to be jointly and severally
liable with D&B for the indemnity obligation to us. Under the agreements
relating to the 2000 Distribution, D&B and Moody's have, between each other,
agreed to each 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.

While we cannot assure you as to any 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) to reimburse
us for any payments we may be required to make and related costs we may incur in
connection with these tax matters.

Utilization of Capital Losses -- 1989-1990

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 assessment. The
amended tax return reflected an additional $561.6 million of tax and interest
due. In 2000, D&B paid the IRS $349.3 million while IMS (on behalf of itself and
NMR) paid approximately $212.3 million to the IRS. We understand that this
payment was made under dispute in order to stop additional interest from
accruing, that D&B is contesting the IRS's formal assessment and would also
contest the assessment of amounts, if any, in excess of the amounts paid, and
that D&B has filed a petition for a refund in the United States District Court.
This case is expected to go to trial in 2004.

Subsequent to making its payment to the IRS in 2000, IMS sought to obtain
partial reimbursement from NMR under the terms of the agreements relating to the
Cognizant Distribution. NMR paid IMS less than IMS sought. Accordingly, in 2001,
IMS filed an arbitration proceeding against NMR claiming that NMR underpaid to
IMS its proper allocation of the above tax payments as provided by the
agreements relating to the Cognizant Distribution. Neither D&B nor we were party
to the Cognizant Distribution. IMS nonetheless sought to include us in this
arbitration, arguing that if NMR should prevail in its interpretation against
IMS, then IMS could seek to enforce the same interpretation against us (as
successor to D&B) under the agreements relating to the 1996 Distribution. The
arbitration panel ruled that we are a proper party to this arbitration
proceeding. On April 29, 2003, the arbitration panel dismissed all claims
against RHD and found for IMS. If on appeal of that ruling NMR should prevail
against IMS and, in turn, IMS should prevail against us, then we believe that
our additional liability would be approximately $15 million, net of tax
benefits. As noted above, D&B and Moody's would be jointly and severally
obligated to indemnify us against any such additional liability and related
costs.

We believe the fact that D&B and IMS have already paid the IRS a substantial
amount of additional taxes with respect to the contested tax planning strategies
significantly mitigates our risk. While no assurances can be given, we currently
believe that D&B and Moody's have sufficient financial resources, borrowing
capacity and indemnity rights against IMS and NMR to reimburse us for any
payments we may be required to make and related costs we may incur with respect
to this matter.

Royalty Expense Deductions -- 1994-1996

During the second quarter of 2002, D&B (on our behalf) received a Notice of
Proposed Adjustment from the IRS with respect to a transaction entered into in
1993. In this Notice, the IRS proposed to disallow certain royalty expense
deductions claimed by D&B on its 1994, 1995 and 1996 tax returns. The IRS
previously concluded an audit of this transaction for taxable years 1993 and
1994 and did not disallow any similarly claimed deductions. We understand that
D&B disagrees with the position taken by the IRS in its Notice and has filed a
responsive brief to this effect with the IRS. If the IRS were to issue a formal
assessment consistent with the Notice, then a payment of the disputed amounts
would be required, if D&B opted to challenge the assessment in U.S. District
Court rather than in U.S. Tax Court. In the event of such challenge by D&B, the
required payment by D&B to the IRS would be up to $42 million ($48 million
offset by a $6 million tax benefit). In verbal communications between D&B and
the IRS during 2002, we understand that the IRS has expressed some willingness
to withdraw its proposed disallowance of certain royalty expense deductions of
$7.5 million for 1994. However, we also understand that the IRS has expressed
its intent to seek penalties of $7.5 million for 1995 and 1996 based on its
interpretation of applicable law. We have been advised

33

that D&B would challenge the IRS's interpretation. Again, under the agreements
relating to the 1998 and 2000 Distributions, D&B and Moody's have agreed to
jointly and severally defend and indemnify us against any such liability and
related costs.

Notwithstanding the verbal communications with the IRS in 2002 noted above
regarding royalty expense deductions of $7.5 million for 1994, in a February
2003 letter to D&B (on our behalf) the IRS asserted that it intends to take a
position regarding prior tax years that would have the effect of disallowing a
portion of the 1994 royalty expense deduction, our share of which would be $5
million if the IRS prevailed. We understand that D&B disagrees with the IRS's
position. Also, in February 2003, D&B (on our behalf) received a Preliminary
Partnership Summary Report from the IRS that challenges the tax treatment of
certain royalty payments received by a partnership in which D&B was a partner.
As stated in its Report, the IRS would reallocate certain partnership income to
D&B, which if the IRS prevailed would require an additional payment from us of
$20 million (which includes tax, interest and penalty, net of associated tax
benefits).

Again, under the agreements relating to the 1998 and 2000 Distributions, D&B and
Moody's have agreed to jointly and severally defend and indemnify us against any
such liability and related costs.

Amortization Expense Deductions -- 1997-2002

We understand that the IRS has sought certain documentation from D&B with
respect to a transaction entered into in 1997 that produces amortization expense
deductions for D&B. While we understand that D&B believes the deductions are
appropriate, the IRS could ultimately challenge them and issue an assessment. If
the IRS were to prevail or the assessment were to be challenged by us in U.S.
District Court, we understand that D&B estimates that its cash payment to the
IRS with respect to deductions claimed to date and including any potential
assessment of penalties of $6.5 million, could be up to $46.4 million, or $43
million net of associated tax benefits. This transaction is scheduled to expire
in 2012 and, unless earlier terminated by D&B, the cash exposure, based on
current interest rates and tax rates, would increase at a rate of approximately
$2.3 million per quarter (including potential penalties) as future amortization
expenses are deducted. Again, under the agreements relating to the 1998 and 2000
Distributions, D&B and Moody's are required to jointly and severally indemnify
us against any such liability and related costs.

As a result of our assessment of our exposure in these matters, especially in
light of our indemnity arrangements with D&B and Moody's, and their financial
resources, borrowing capacity and indemnity rights against IMS and NMR, no
material amounts have been accrued for in our consolidated financial statements
for any of these D&B-related litigation and tax matters.

Coastal Termite and Pest Control

In 2001, Marnan Group, Inc., doing business as Coastal Termite and Pest Control
("Coastal"), filed a complaint in the United States District Court for the
Middle District of Florida against SPA. The complaint, as amended, alleged that
SPA breached certain directory advertising contracts between 1996 and 1999,
fraudulently induced Coastal to enter into another directory advertising
contract and tortiously interfered with Coastal's business relationships with
its customers. Coastal is seeking damages for lost contract benefits, lost
profits and diminution of business value in an unspecified amount, including
pre-judgment interest. In January 2002, SPA filed a motion to dismiss certain of
Coastal's claims. In September 2002, the court denied SPA's motion to dismiss.
Nonetheless, we do not believe that the final outcome of this matter will have a
material adverse effect on our results of operations or financial condition. SPA
had approximately $0.5 million reserved in its consolidated financial statements
for this matter, which amount was transferred to our consolidated financial
statements as a result of the acquisition.

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.

34

Item 2. Changes in Securities and Use of Proceeds

On January 3, 2003, investment partnerships affiliated with the Goldman Sachs
Group, Inc. (the "GS Funds"), purchased 130,000 shares of our preferred stock
and warrants to purchase 1,072,500 shares of our common stock for gross
consideration of $130 million. This preferred stock is immediately convertible
into common stock at a conversion price of $24.05 per share and the exercise
price of the warrants is $28.62 per share. This private placement of securities
was made in reliance on Rule 506 of the Securities Act of 1933. We privately
placed this preferred stock as part of the SPA acquisition financing. No
underwriters were involved in this transaction and no underwriting discounts or
commissions were paid. A 1% closing payment was paid to the GS Funds and we
reimbursed their transaction costs.

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

Our Annual Meeting of Stockholders ("Meeting") was held in White Plains, N.Y. on
May 1, 2003. At the Meeting, the Company's stockholders elected each of the
three Class I directors nominated for election by the Board of Directors to
serve a three-year term as follows:

Votes
Name Votes For Withheld
---- --------- --------

Nancy E. Cooper 31,503,108 4,490,248
Robert Kamerschen 35,435,230 558,126
David C. Swanson 35,602,607 390,749

The Board of Directors now comprises nine members consisting of three classes of
three directors each. The other members of our Board of Directors (Kenneth G.
Campbell, Robert R. Gheewalla, Terrence M. O'Toole, Carol J. Parry, David M.
Veit and Barry Lawson Williams) were not subject to re-election by stockholders
this year and continue in office.

At the Meeting, the Company's stockholders also ratified the appointment of
PricewaterhouseCoopers LLP ("PwC") to serve as the Company's independent
accountants for 2003 as follows:

Votes For Votes Against Abstentions
--------- ------------- -----------

Ratification of the appointment of PwC 30,133,922 5,831,302 28,132

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 16,350,870 13,303,609 6,338,877

With respect to the proposal relating to the Company's stockholder rights plan,
abstentions also included broker non-votes.

The Company announced in February that the Board had adopted a Three-Year
Independent Director Evaluation ("TIDE") policy with respect to its rights plan.
Under this TIDE policy, a committee comprised of independent directors of the
Company will review and evaluate the stockholder rights plan at least once every
three years to determine, in light of all relevant factors, whether the plan
continues to serve the best interests of the Company and all of its stockholders
or whether it should be modified or terminated. The Board has completed the
first review of its stockholder rights plan pursuant to its TIDE policy. The
Corporate Governance Committee, which is an independent Board committee,
conducted the review with the advice and assistance of its outside financial and
legal advisors. The Committee concluded after a review of all relevant factors
that the rights plan continues to serve the best interests of the Company and
all of its stockholders. Accordingly, the Committee recommended and the Board
resolved to maintain the rights plan in its current form. The next TIDE review
of the Company's rights plan will occur not later than May 2006.

35

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

EXHIBIT NO. DOCUMENT

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, 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, Commission File No.
001-07155)

3.3 Certificate of Incorporation of R.H. Donnelley Inc.
(incorporated by reference to Exhibit 3.3 to Amendment
No. 1 to the Registration Statement on Form S-4, filed
with the Securities and Exchange Commission on August 7,
1998, Registration No. 333-59287)

3.4 By-laws of R.H. Donnelley Inc. (incorporated by
reference to Exhibit 3.4 to the Registration Statement
on Form S-4, filed with the Securities and Exchange
Commission on July 17, 1998, Registration No. 333-59287)

3.5 Certificate of Designations of Convertible Cumulative
Preferred Stock of R.H. Donnelley Corporation
(incorporated by reference to Exhibit 3.2 to the Current
Report on Form 8-K, filed with the Securities and
Exchange Commission on January 17, 2003, Commission File
No. 001-07155)

3.6 Certificate of Designations of Series B-1 Convertible
Cumulative Preferred Stock of R.H. Donnelley Corporation
(incorporated by reference to Exhibit 3.1 to the Current
Report Form 8-K, filed with the Securities and Exchange
Commission on December 3, 2002, Commission File No.
001-07155)

4.1 Indenture dated as of June 5, 1998 between R.H.
Donnelley Inc., as Issuer, the Company, as Guarantor,
and the Bank of New York, as Trustee, with respect to
the 91/8% 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 91/8% 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 R.H.
Donnelley Corporation, 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)

36

EXHIBIT NO. DOCUMENT

4.5 Second Supplemental Indenture, dated as of December 20,
2002, among R.H. Donnelley Inc., as Issuer, and R.H.
Donnelley Corporation, 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 R.H. Donnelley
Corporation, 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 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)

4.8 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)

4.9 Form of 8 7/8% Senior Notes due 2010 (included in
Exhibit 4.7)

4.10 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)

4.11 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)

4.12 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)

4.13 Form of 10 7/8% Senior Subordinated Notes due 2012
(included in Exhibit 4.11)

4.14 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)

37

EXHIBIT NO. DOCUMENT

4.15 Registration Rights Agreement, dated as of December 3,
2002, by and among R.H. Donnelley Inc. and Salomon Smith
Barney, Bear, Stearns & Co., Inc. and Deutsche Bank
Securities Inc., as representatives of the initial
purchasers (incorporated by reference to Exhibit 4.15 to
the Registration Statement on Form S-4 filed with the
SEC on May 2, 2003)

4.16 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,
Registration No. 001-07155)

4.17 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, Commission File No. 001-07155)

4.18 Amendment No. 2 to Rights Agreement, dated as of
September 21, 2002, between the Company and The Bank of
New York, as successor Rights Agent (incorporated by
reference to Exhibit 4.1 to the Current Report on Form
8-K, filed with the Securities and Exchange Commission
on October 1, 2002, Commission File No. 001-07155)

4.19 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)

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 Form 8-K of the Company (f/k/a The
Dun & Bradstreet Corporation), filed 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 Form 8-K of the Company (f/k/a The
Dun & Bradstreet Corporation), filed on June 30, 1998,
Commission File No. 001-07155)

10.3 Form of Employee Benefits Agreement between the Company
(f/k/a The Dun & Bradstreet Corporation) and The New Dun
& Bradstreet Corporation (incorporated by reference to
Exhibit 99.4 to the Form 8-K of the Company (f/k/a The
Dun & Bradstreet Corporation), filed on June 30, 1998,
Commission File No. 001-07155)

10.4 Form of Intellectual Property Agreement between the
Company (f/k/a The Dun & Bradstreet Corporation) and The
New Dun & Bradstreet Corporation (incorporated by
reference to Exhibit 99.5 to the Form 8-K of the Company
(f/k/a The Dun & Bradstreet Corporation), filed on June
30, 1998, Commission File No. 001-07155)

10.5 Form of Amended and Restated Transition Services
Agreement between the Company (f/k/a The Dun &
Bradstreet Corporation), The New Dun & Bradstreet
Corporation, Cognizant Corporation, IMS Health
Incorporated, ACNielsen Corporation and Gartner Group,
Inc. (incorporated by reference to Exhibit 99.9 to the
Form 8-K of the Company (f/k/a The Dun & Bradstreet
Corporation), filed on June 30, 1998, Commission File
No. 001-07155)

38

EXHIBIT NO. DOCUMENT

10.6 Credit Agreement among the Company, R.H. Donnelley Inc.,
The Chase Manhattan Bank, as Administrative Agent and
the Lenders party thereto (incorporated by reference to
Exhibit 10.9 to the Registration Statement on Form S-4,
filed with the Securities and Exchange Commission on
July 17, 1998, Registration No. 333-59287)

10.7 First Amendment to Credit Agreement, dated as of March
4, 1999, among the Company, R.H. Donnelley Inc., The
Chase Manhattan Bank, as Administrative Agent, and the
Lenders party thereto (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q for
the three months ended March 31, 1999, Commission File
No. 001-07155)

10.8 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)

10.9 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)

10.10 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)

10.11 Exclusive Sales Agency Agreement, effective August 19,
1997, between APIL Partners Partnership and DonTech II
(incorporated by reference to Exhibit 10.13 to Amendment
No. 1 to the Registration Statement on Form S-4, filed
with the Securities and Exchange Commission on August 7,
1998, Registration No. 333-59287)

10.12 Second Amended and Restated Partnership Agreement,
effective as of August 19, 1997, by and between R.H.
Donnelley Inc. (f/k/a The Reuben H. Donnelley
Corporation) and Ameritech Publishing of Illinois
(incorporated by reference to Exhibit 10.14 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)

10.13 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, Commission File No. 001-07155)

39

EXHIBIT NO. DOCUMENT

10.14 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, Commission File No.
001-07155)

10.15 Sales Agency Agreement dated 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, Commission File No.
001-07155)

10.16 Agreement for Publishing Services dated 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,
Commission File No. 001-07155)

10.17# 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)

10.18# 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 March 31,
2000, Commission File No. 001-07155)

10.19# 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, Commission File No. 001-07155)

10.20# 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, Commission File No. 001-07155)

10.21# 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, Commission File No. 001-07155)

10.22# 2001 Partner Share Plan (incorporated by reference to
Exhibit 99.1 to Registration Statement on Form S-8,
filed with the Securities and Exchange Commission on
April 30, 2001, Registration No. 333-59790)

10.23# 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)

10.24# Form of Annual Incentive Program Award (incorporated by
reference to Exhibit 99.03 to Registration Statement on
Form S-8, filed with the Securities and Exchange
Commission on July, 25, 2001, Registration No.
333-65822)

40

EXHIBIT NO. DOCUMENT

10.25# Form of Performance Unit Program Award (incorporated by
reference to Exhibit 99.04 to Registration Statement on
Form S-8, filed with the Securities and Exchange
Commission on July, 25, 2001, Registration No.
333-65822)

10.26# 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)

10.27# Amended and Restated Employment Agreement dated as of
December 27, 2001 between the Company and Frank R.
Noonan (incorporated by reference to Exhibit 10.23 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, Commission File No. 001-07155)

10.28# Amended and Restated Employment Agreement dated as of
December 27, 2001 between the Company and Philip C.
Danford (incorporated by reference to Exhibit 10.24 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, Commission File No. 001-07155)

10.29# 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, Commission File No. 001-07155)

10.30# Employment Agreement effective September 21, 2002
between the Company and Peter J. McDonald (incorporated
by reference to Exhibit 10.30 to the Company's Quarterly
Report on Form 10-Q for the three months ended September
30, 2002, Commission File No. 001-07155)

10.31# 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,
Commission File No. 001-07155)

10.32# Employment Agreement dated as of September 28, 1998
between the Company and Frank M. Colarusso (incorporated
by reference to Exhibit 10.32 to the Annual Report on
Form 10-K for the year ended December 31, 2000,
Commission File No. 001-07155)

10.33# Amendment No. 1 to Employment Agreement dated as of July
27, 2000 between the Company and Frank M. Colarusso
(incorporated by reference to Exhibit 10.33 to the
Annual Report on Form 10-K for the year ended December
31, 2000, Commission File No. 001-07155)

10.34# Amendment No. 2 to Employment Agreement dated as of
February 27, 2001 between the Company and Frank M.
Colarusso (incorporated by reference to Exhibit 10.34 to
the Annual Report on Form 10-K for the year ended
December 31, 2000, Commission File No. 001-07155)

10.35# Employment Agreement dated as of September 26, 2000
between the Company and William C. Drexler (incorporated
by reference to Exhibit 10.35 to the Annual Report on
Form 10-K for the year ended December 31, 2000,
Commission File No. 001-07155)

10.36# 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 Annual Report on Form 10-K for the year ended
December 31, 2000, Commission File No. 001-07155)

41

EXHIBIT NO. DOCUMENT

10.37# Employment Agreement dated as of January 1, 2001 between
the Company and Robert J. Bush (incorporated by
reference to Exhibit 10.37 to the Annual Report on Form
10-K for the year ended December 31, 2000, Commission
File No. 001-07155)

10.38# 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
Annual Report on Form 10-K for the year ended December
31, 2000, Commission File No. 001-07155)

10.39# Separation Agreement and Release dated as of March 15,
2001 between the Company and Judith A. Norton
(incorporated by reference to Exhibit 10.29 to the
Annual Report on Form 10-K for the year ended December
31, 2000, Commission File No. 001-07155)

10.40 Stock Purchase Agreement, dated as of September 21,
2002, by and among R.H. Donnelley Corporation, Sprint
Corporation and Centel Directories LLC (incorporated by
reference to Exhibit 2.1 to the Current Report on Form
8-K dated October 1, 2002, Commission File No.
001-07155)

10.41 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 dated October 1,
2002, Commission File No. 001-07155)

10.42 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
Current Report on Form 8-K, filed with the Securities
and Exchange Commission on December 3, 2002, Commission
File No. 001-0715)

10.43 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 Current
Report on Form 8-K, filed with the Securities and
Exchange Commission on December 3, 2002, Commission File
No. 001-07155)

10.44 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)

10.45 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)

10.46 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)

42

EXHIBIT NO. DOCUMENT

10.47 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)

10.48 Non-Competition Agreement, dated as of January 3, 2003,
by and among the Company, R.H. Donnelley Publishing &
Advertising, Inc. (f/k/a Sprint Publishing &
Advertising, Inc.), CenDon L.L.C., R.H. Donnelley
Directory Company (f/k/a Centel Directory Company),
Sprint Corporation and the Sprint Local
Telecommunications Division (incorporated by reference
to Exhibit 10.4 to the Current Report on Form 8-K, filed
with the Securities and Exchange Commission on January
17, 2003, Commission File No. 001-07155)

10.49 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)

10.50 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)

21 Subsidiaries of the Company (incorporated by reference
to Exhibit 21 to the Annual Report on Form 10-K for the
year ended December 31, 2000, Commission File No.
001-07155)

99.1* Certification of Quarterly Report on Form 10-Q for the
period ended March 31, 2003 by David C. Swanson, Chief
Executive Officer for R.H. Donnelley Corporation

99.2* Certification of Quarterly Report on Form 10-Q for the
period ended March 31, 2003 by Steven M. Blondy, Senior
Vice President and Chief Financial Officer for R.H.
Donnelley Corporation

99.3* Certification of Quarterly Report on Form 10-Q for the
period ended March 31, 2003 by David C. Swanson, Chief
Executive Officer for R.H. Donnelley Inc.

99.4* Certification of Quarterly Report on Form 10-Q for the
period ended March 31, 2003 by Steven M. Blondy, Senior
Vice President and Chief Financial Officer for R.H.
Donnelley Inc.

- ----------
* Filed herewith

# Management contract or compensatory plan

43

(b) Reports on Form 8-K:

On May 2, 2003, the Company filed a Current Report on Form 8-K disclosing under
Item 5 certain information required by Regulation G, Item 10(e) of Regulation
S-K and Item 12 of Form 8-K regarding non-GAAP financial measures that the
Company intends to routinely publicly disclose.

On May 2, 2003, the Company furnished a Current Report on Form 8-K disclosing
under Items 7 and 9 (actually furnished under Item 12) certain financial results
of the Company for the three months ended March 31, 2003, and attached a copy of
its related press release as Exhibit 99.1.

On March 19, 2003, the Company filed Amendment No. 1 to the Current Report on
Form 8-K/A disclosing under Item 7 the financial statements and pro forma
financial information required to be disclosed in connection with the
acquisition of Sprint Publishing & Advertising.

On March 3, 2003, the Company furnished a Current Report on Form 8-K, disclosing
under Item 9 that on March 3, 2003, certain members of senior management of the
Company were scheduled to make a presentation at a media industry conference
sponsored by Bear Stearns & Co. During its presentation at that conference,
management intended to present a slide presentation. The Company attached a copy
of the slide presentation as Exhibit 99.1.

On January 17, 2003, the Company filed a Current Report on Form 8-K, disclosing
under Item 2 that the Company completed the acquisition of SPA from Sprint. In
addition, under Item 5, the Company disclosed that the GS Funds invested an
additional $130 million in the Company through the purchase 130,000 shares of
Preferred Stock and warrants to purchase 1,072,500 shares of common stock of the
Company and that the Company replaced its existing senior credit facility with a
new senior secured credit facility.

On January 8, 2003, the Company furnished a Current Report on Form 8-K,
disclosing under Item 9 that on January 8, 2003, certain members of senior
management of the Company were scheduled to make a presentation at an investor
conference sponsored by CJS Securities, a research firm that covers the Company.
During its presentation at that conference, management intended to present a
slide presentation. The Company attached a copy of the slide presentation as
Exhibit 99.1.

On January 6, 2003, the Company filed a Current Report on Form 8-K, disclosing
under Item 5 that the Company and R.H. Donnelley Inc., entered into a Third
Supplemental Indenture, dated as of December 20, 2002 (and operative on January
3, 2002), by and among the Company, R.H. Donnelley Inc., R.H. Donnelley
Acquisitions, Inc., R.H. Donnelley APIL, Inc., R.H. Donnelley CD, Inc., Get
Digital Smart.com, Inc., R.H. Donnelley Acquisitions II, Inc. and The Bank of
New York, as trustee.

44

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: May 15, 2003 By: /s/ Steven M. Blondy
----------------------------------------
Steven M. Blondy
Senior Vice President and Chief
Financial Officer

Date: May 15, 2003 By: /s/ William C. Drexler
----------------------------------------
William C. Drexler
Vice President and Controller

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: May 15, 2003 By: /s/ Steven M. Blondy
----------------------------------------
Steven M. Blondy
Senior Vice President and Chief
Financial Officer

Date: May 15, 2003 By: /s/ William C. Drexler
----------------------------------------
William C. Drexler
Vice President and Controller

45

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 quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, 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 in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: May 15, 2003 By: /s/ David C. Swanson
----------------------------------------
David C. Swanson
President and Chief Executive Officer

46

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 quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, 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 in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: May 15, 2003 By: /s/ Steven M. Blondy
----------------------------------------
Steven M. Blondy
Senior Vice President and Chief
Financial Officer

47

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 quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, 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 in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: May 15, 2003 By: /s/ David C. Swanson
----------------------------------------
David C. Swanson
President and Chief Executive Officer

48

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 quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, 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 in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: May 15, 2003 By: /s/ Steven M. Blondy
----------------------------------------
Steven M. Blondy
Senior Vice President and Chief
Financial Officer

49

EXHIBIT INDEX

Exhibit
Number Document
- ------- --------

99.1* Certification of Quarterly Report on Form 10-Q for the period ended
March 31, 2003 by David C. Swanson, Chief Executive Officer for
R.H. Donnelley Corporation

99.2* Certification of Quarterly Report on Form 10-Q for the period ended
March 31, 2003 by Steven M. Blondy, Senior Vice President and Chief
Financial Officer for R.H. Donnelley Corporation

99.3* Certification of Quarterly Report on Form 10-Q for the period ended
March 31, 2003 by David C. Swanson, Chief Executive Officer for R.H.
Donnelley Inc.

99.4* Certification of Quarterly Report on Form 10-Q for the period ended
March 31, 2003 by Steven M. Blondy, Senior Vice President and Chief
Financial Officer for R.H. Donnelley Inc.

50