R.H. Donnelley 1998 Annual Report

Notes to Consolidated Financial Statements

4. Partnerships

DonTech In 1991, the Company formed a general partnership with an operating unit of Ameritech, the DonTech Partnership ("DonTech I"). Prior to August 1997, DonTech I published various directories, solicited advertising, and manufactured and delivered directories in Illinois and northwest Indiana. Under this agreement, the Company's share in the profits of DonTech I was 54% in 1996 and 53% during 1997. In August 1997, the Company signed a series of agreements with Ameritech changing the structure of the existing partnership. A new partnership was formed ("DonTech") appointing DonTech the exclusive sales agent in perpetuity for yellow pages directories published by Ameritech in Illinois and northwest Indiana. Under the new sales agency partnership, DonTech performs the advertising sales function for the directories and earns a commission while Ameritech serves as the publisher. The Company has a 50% interest in the profits of DonTech. The Company also receives direct fees ("Revenue Participation") from an operating unit of Ameritech, which are tied to advertising sales.

The Company recognized equity earnings, including Revenue Participation, of $120,087, $116,228, and $121,354 from the DonTech partnership during 1998, 1997, and 1996, respectively. The Company's investment in DonTech was $198,848 and $203,589 at December 31, 1998 and 1997, respectively. The Revenue Participation receivable from Ameritech, included in the Company's total investment, was $100,748 at December 31, 1998, and $51,610 at December 31, 1997.

CenDon The Company has a 50% interest in the profits of CenDon. The Company recognized equity earnings of $15,767, $12,219 and $9,695 from CenDon during 1998, 1997 and 1996, respectively. The Company's investment in CenDon was $17,634 and $15,031 at December 31, 1998 and 1997, respectively. The CenDon agreement extends through the end of December 2004.

The Company also provides sales and publishing services to CenDon. The partnership is billed upon the publication of each directory based on a contractual rate for sales and is billed pro rata during the year for publishing services based on a contractual fee. Sales commissions and publishing services revenue for the Company were $32,560, $35,126, and $32,258 for 1998, 1997 and 1996, respectively.

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