Business and Basis of Presentation

The interim condensed consolidated financial statements of Dex One Corporation and its direct and indirect wholly-owned subsidiaries (“Dex One,” the “Company,” “we,” “us” and “our”) have been prepared in accordance with the Securities and Exchange Commission’s (“SEC”) instructions to this 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, 2011. The interim condensed consolidated financial statements include the accounts of Dex One and its direct and indirect wholly-owned subsidiaries. As of September 30, 2012, R.H. Donnelley Corporation ("RHD"), R.H. Donnelley Inc. (“RHDI” or "RHDI Inc."), Dex Media, Inc. (“Dex Media”), Dex One Digital, Inc. ("Dex One Digital"), formerly known as Business.com, Inc. (“Business.com”), Dex One Service, Inc. (“Dex One Service”) and Newdex, Inc. ("Newdex") were our only direct wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. 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 material adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of financial position, results of operations and cash flows at the dates and for the periods presented have been included.

Business Overview

We are a marketing solutions company that helps local businesses and consumers connect with each other. Our proprietary and affiliate provided marketing solutions combine multiple media platforms, which help drive large volumes of consumer leads to our customers, and assist our customers in managing their presence among those consumers. Our marketing consultants strive to be trusted advisors and offer local businesses personalized marketing consulting services and exposure across leading media platforms used by consumers searching for local businesses. These platforms include online and mobile local search solutions, major search engines, and print directories.

Our proprietary marketing solutions include our Dex published yellow pages directories, which we co-brand with other recognizable brands in the industry such as CenturyLink and AT&T, our Internet yellow pages site, DexKnows.com and our mobile applications, Dex Mobile and CityCentral. Our growing list of marketing solutions also includes local business and market analysis, message and image creation, target market identification, advertising and digital profile creation, web sites, mobile web sites, reputation management, online video development and promotion, keyword optimization strategies and programs, distribution strategies, social strategies and tracking and reporting. Our digital lead generation solutions are powered by our search engine marketing product, Dex Net, which extends our customers’ reach to our leading Internet and mobile partners to attract consumers searching for local businesses, products and services within our markets.

Agreement and Plan of Merger

On August 20, 2012, Dex One entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SuperMedia Inc., (“SuperMedia”), Newdex, and Spruce Acquisition Sub, Inc., a direct wholly owned subsidiary of Newdex (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, (i) Dex One will merge with and into Newdex, with Newdex as the surviving entity (the “Dex Merger”) and (ii) immediately following consummation of the Dex Merger, Merger Sub will merge with and into SuperMedia, with SuperMedia as the surviving entity and becoming a direct wholly owned subsidiary of Newdex (the “SuperMedia Merger” and together with the Dex Merger, the “Mergers”). As a result of the Mergers, Newdex, as successor to Dex One, will be renamed Dex Media, Inc. (“Dex Media”) and become a newly listed company.

At the effective time of the Dex Merger, each share of Dex One common stock will be converted into 0.2 fully paid and nonassessable shares of common stock, par value $0.001 per share, of Newdex (“Newdex Common Stock”), which reflects a 1-for-5 reverse stock split of Dex One's common stock. At the effective time of the SuperMedia Merger, each share of SuperMedia common stock will be converted into 0.4386 fully paid and nonassessable shares of Newdex Common Stock. Immediately following the Mergers, Dex One's stockholders will hold approximately 60% of the Newdex Common Stock and SuperMedia stockholders will hold approximately 40% of the Newdex Common Stock.

Completion of the Mergers is subject to receiving 100% approval from the current lenders to Dex One and SuperMedia, respectively, to amend and extend and make other changes to covenants under each party's existing debt agreements, and to amend and restate Dex One's existing shared services and tax sharing agreements. Completion of the Mergers is also subject to other customary closing conditions, including (i) regulatory approvals, (ii) the approval of Dex One's stockholders and SuperMedia's stockholders and (iii) Dex One and SuperMedia, and certain of their respective subsidiaries, having entered into a tax sharing agreement and a shared services agreement.

The Merger Agreement may be terminated by either Dex One or SuperMedia in certain circumstances, including if either determines the required amendments to the debt agreements will not receive the consent of 100% of the respective lenders or if any changes to the amendments are not reasonably satisfactory to both Dex One and SuperMedia. If the Merger Agreement is terminated by either party, it may be required under certain circumstances specified in the Merger Agreement to pay the other party an expense reimbursement up to a maximum amount of $7.5 million.

Please refer to the Merger Agreement filed with a Current Report on Form 8-K/A with the SEC on August 23, 2012 for additional information on the terms and conditions of the Merger Agreement.

On October 25, 2012, the Company announced that the current lenders of Dex One and SuperMedia's senior secured term loans have, thus far, rejected the proposed amendments to the respective debt agreements as specified in the Merger Agreement. Negotiations between the lenders, Dex One and SuperMedia continue in an attempt to reach agreement on amendments that will secure the consents necessary to effect the merger. If the parties are unable to reach an agreement on the amendments, possible alternatives to the current transaction structure to effect the merger include a “prepackaged” restructuring of Dex One and SuperMedia's senior secured indebtedness through proceedings instituted under Chapter 11 of the Bankruptcy Code to implement possible amendments that may garner sufficient, though not unanimous, support from Dex One and SuperMedia's lenders while otherwise maintaining the basic economic terms of the Merger Agreement. At this time, amendments to Dex One and SuperMedia's senior secured term loans and completion of the proposed merger are not contingent on the prepackaged restructuring alternative.

Upon completion, the Mergers will be accounted for as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations, with Dex One identified as the accounting acquirer. Dex One is considered the acquiring entity for accounting purposes based on certain criteria including, but not limited to, the following: (1) upon consummation of the merger, Dex One stockholders will hold approximately 60% of the common stock of Dex Media as compared to 40% held by SuperMedia stockholders and (2) Dex One's current chairman of the board of directors will continue to serve as the chairman of the board of directors of Dex Media.

Significant Financing Developments

On March 20, 2012, the Company announced the commencement of a cash tender offer to purchase the maximum aggregate principal amount of our outstanding $300.0 million Initial Aggregate Principal Amount of 12%/14% Senior Subordinated Notes due 2017 (“Dex One Senior Subordinated Notes”) for $26.0 million. The Offer to Purchase included a purchase price range of $270 to $300 per $1,000 principal amount of the Dex One Senior Subordinated Notes plus an amount in cash in lieu of the accrued and unpaid interest calculated at a rate of 12% per annum on the aggregate principal amount of the Dex One Senior Subordinated Notes from March 31, 2012 to, but not including, the payment date. The cash tender offer expired on April 19, 2012. On April 19, 2012, under the terms and conditions of the Offer to Purchase, the Company utilized cash on hand of $26.5 million to repurchase $98.2 million aggregate principal amount of Dex One Senior Subordinated Notes, representing 27% of par value ("Note Repurchases"). The Note Repurchases have been accounted for as an extinguishment of debt resulting in a non-cash, pre-tax gain of $70.8 million during the nine months ended September 30, 2012, consisting of the difference between the par value and purchase price of the Dex One Senior Subordinated Notes, offset by fees associated with the Note Repurchases. The following table provides the calculation of the net gain on Note Repurchases for the nine months ended September 30, 2012:



	Nine Months Ended September 30, 2012
Dex One Senior Subordinated Notes (repurchased at 27% of par)	$	98,222
Total purchase price	(26,520		)
Fees associated with the Note Repurchases	(910		)
Net gain on Note Repurchases	$	70,792

On March 9, 2012, RHDI, Dex Media East, Inc. ("DME Inc.") and Dex Media West, Inc. ("DMW Inc.") each entered into the First Amendment (the "Amendments") to the amended and restated RHDI credit facility (“RHDI Amended and Restated Credit Facility”), the amended and restated DME Inc. credit facility (“Dex Media East Amended and Restated Credit Facility”) and the amended and restated DMW Inc. credit facility (“Dex Media West Amended and Restated Credit Facility”) (collectively, the "Credit Facilities"), respectively, with certain financial institutions. The Amendments permit RHDI, DME Inc. and DMW Inc. to make open market repurchases and retire loans under their respective Credit Facilities at a discount to par through December 31, 2013, provided that such discount is acceptable to those lenders who choose to participate. Repurchases may be made with existing cash on hand, subject to certain restrictions and terms noted in the Amendments. RHDI, DME Inc. and DMW Inc. are under no obligation to make such repurchases at any time throughout the term noted in the Amendments.

On March 14, 2012, under the terms and conditions of the Amendments, RHDI commenced an offer to utilize up to $40 million to repurchase loans under the RHDI Amended and Restated Credit Facility at a price of 41.5% to 45.5% of par, DME Inc. commenced an offer to utilize up to $12.5 million to repurchase loans under the Dex Media East Amended and Restated Credit Facility at a price of 50.5% to 54.5% of par and DMW Inc. commenced an offer to utilize up to $23.5 million to repurchase loans under the Dex Media West Amended and Restated Credit Facility at a price of 60.0% to 64.0% of par. The offers expired on March 21, 2012. On March 23, 2012, RHDI, DME Inc. and DMW Inc. collectively utilized cash on hand of $69.5 million to repurchase loans under the Credit Facilities of $142.1 million ("Credit Facility Repurchases"). The Credit Facility Repurchases have been accounted for as an extinguishment of debt resulting in a non-cash, pre-tax gain of $68.8 million during the nine months ended September 30, 2012, consisting of the difference between the par value and purchase price of the Credit Facilities, offset by accelerated amortization of fair value adjustments to our Credit Facilities that were recognized in conjunction with our adoption of fresh start accounting and fees associated with the Credit Facility Repurchases. The following table provides detail of the Credit Facility Repurchases and the calculation of the net gain on Credit Facility Repurchases for the nine months ended September 30, 2012:



	Nine Months Ended September 30, 2012
RHDI Amended and Restated Credit Facility (repurchased at 43.5% of par)	$	91,954
Dex Media East Amended and Restated Credit Facility (repurchased at 53.0% of par)	23,585
Dex Media West Amended and Restated Credit Facility (repurchased at 64.0% of par)	26,593
Total Credit Facilities repurchased	142,132
Total purchase price	(69,519		)
Accelerated amortization of fair value adjustments to Credit Facilities	(2,002		)
Fees associated with the Credit Facility Repurchases	(1,848		)
Net gain on Credit Facility Repurchases	$	68,763

The Note Repurchases and the Credit Facility Repurchases are hereby collectively referred to as the "Debt Repurchases." The net gains on Debt Repurchases for the nine months ended September 30, 2012 of $139.6 million is included in "Gain on debt repurchases, net" on the unaudited condensed consolidated statement of comprehensive income (loss).