UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2012

OR

o 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

DEX ONE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	13-2740040
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
1001 Winstead Drive, Cary, N.C.	27513
(Address of principal executive offices)	(Zip Code)

(919) 297-1600

  (Registrant’s telephone number, including area code)

N/A

(Former name, former address and former

fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes x No o

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

Title of class	Shares Outstanding at October 15, 2012
Common Stock, par value $.001 per share	50,884,940

DEX ONE CORPORATION

INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011	3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011	4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
Item 4. Controls and Procedures	37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 6. Exhibits	41
SIGNATURES	42

EX-2.1

EX-31.1

EX-31.2

EX-32.1

EX-101.INS - XBRL INSTANCE DOCUMENT

EX-101.SCH - XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

EX-101.CAL - XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

EX-101.DEF - XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

EX-101.LAB - XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT

EX-101.PRE - XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Dex One Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)	September 30, 2012			December 31, 2011
Assets
Current Assets
Cash and cash equivalents	$	95,606		$	257,939
Accounts receivable:
Billed	118,480			161,980
Unbilled	416,000			497,422
Allowance for doubtful accounts	(35,314		)	(53,696		)
Net accounts receivable	499,166			605,706
Deferred directory costs	98,601			130,744
Short-term deferred income taxes, net	71,509			67,793
Prepaid expenses and other current assets	42,732			51,384
Total current assets	807,614			1,113,566
Fixed assets and computer software, net	117,559			151,545
Other non‑current assets	17,704			13,001
Intangible assets, net	1,920,013			2,182,092
Total Assets	$	2,862,890		$	3,460,204
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities
Accounts payable and accrued liabilities	$	91,685		$	126,158
Accrued interest	22,431			29,245
Deferred revenues	505,921			644,101
Current portion of long-term debt	226,129			326,300
Total current liabilities	846,166			1,125,804
Long-term debt	1,778,565			2,184,057
Deferred income taxes, net	78,159			75,492
Other non-current liabilities	67,961			84,718
Total Liabilities	2,770,851			3,470,071
Commitments and contingencies
Shareholders' Equity (Deficit)
Common stock, par value $.001 per share, authorized – 300,000,000 shares; issued and outstanding – 50,884,940 shares at September 30, 2012 and 50,233,617 shares at December 31, 2011	51			50
Additional paid-in capital	1,463,625			1,460,057
Accumulated deficit	(1,344,709		)	(1,442,556		)
Accumulated other comprehensive loss	(26,928		)	(27,418		)
Total shareholders' equity (deficit)	92,039			(9,867		)
Total Liabilities and Shareholders' Equity (Deficit)	$	2,862,890		$	3,460,204

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

3

Dex One Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2012			2011			2012			2011
Net revenues	$	319,751		$	360,095		$	998,663		$	1,128,596
Expenses:
Production and distribution expenses (exclusive of depreciation and amortization shown separately below)	70,409			71,153			215,149			221,365
Selling and support expenses	84,128			108,088			269,452			322,992
General and administrative expenses	33,473			36,609			94,109			110,757
Depreciation and amortization	104,423			66,027			313,163			182,014
Impairment charges	—			—			—			801,074
Total expenses	292,433			281,877			891,873			1,638,202
Operating income (loss)	27,318			78,218			106,790			(509,606		)
Gain on debt repurchases, net	—			—			139,555			—
Gain on sale of assets, net	—			—			—			13,437
Interest expense, net	(46,624		)	(55,315		)	(151,599		)	(171,094		)
Income (loss) before income taxes	(19,306		)	22,903			94,746			(667,263		)
(Provision) benefit for income taxes	6,641			(719		)	3,101			142,751
Net income (loss)	(12,665		)	22,184			97,847			(524,512		)
Other comprehensive income (loss):
Benefit plans adjustment, net of tax	134			(60		)	490			111
Comprehensive income (loss)	$	(12,531	)	$	22,124		$	98,337		$	(524,401	)
Earnings (loss) per share:
Basic	$	(0.25	)	$	0.44		$	1.94		$	(10.47	)
Diluted	$	(0.25	)	$	0.44		$	1.93		$	(10.47	)
Shares used in computing earnings (loss) per share:
Basic	50,825			50,177			50,562			50,114
Diluted	50,825			50,178			50,573			50,114

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

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Dex One Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
(in thousands)	2012			2011
Cash Flows Provided By Operating Activities	$	261,380		$	294,953
Cash Flows from Investing Activities
Additions to fixed assets and computer software	(17,069		)	(19,187		)
Proceeds from sale of assets	23			15,391
Net cash used in investing activities	(17,046		)	(3,796		)
Cash Flows from Financing Activities
Long-term debt repurchases and repayments	(400,853		)	(207,187		)
Debt issuance costs and other financing items, net	(5,312		)	497
Decrease in checks not yet presented for payment	(502		)	(16,895		)
Net cash used in financing activities	(406,667		)	(223,585		)
(Decrease) increase in cash and cash equivalents	(162,333		)	67,572
Cash and cash equivalents, beginning of period	257,939			127,852
Cash and cash equivalents, end of period	$	95,606		$	195,424
Supplemental Information:
Cash interest, net	$	121,371		$	163,509
Cash income taxes, net	$	4,734		$	8,963
Non-cash Financing Activities:
Reduction of debt from debt repurchases	$	144,315		$	—

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

5

Dex One Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(tabular amounts in thousands, except share and per share data and where otherwise indicated)

1. 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.

6

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

7

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).

2. Summary of Significant Accounting Policies

Identifiable Intangible Assets

The Company reviews the carrying value of definite-lived intangible assets and other long-lived assets whenever events or circumstances indicate that their carrying amount may not be recoverable. The Company reviewed the following information, estimates and assumptions during the three and nine months endedSeptember 30, 2012 to determine if the carrying amounts of our definite-lived intangible assets and other long-lived assets were recoverable:

• Historical financial information, including revenue, profit margins, customer attrition data and price premiums enjoyed relative to competing independent publishers;

• Long-term financial projections, including, but not limited to, revenue trends and profit margin trends;

• Intangible asset and other long-lived asset carrying values and any changes in current and future use;

• Trading values of our debt and equity securities; and

• Other Company-specific information.

Based on our evaluation during the three and nine months endedSeptember 30, 2012, we concluded that the carrying amounts of our definite-lived intangible assets and other long-lived assets were recoverable.

8

Amortization expense related to the Company’s intangible assets was $87.4 million and $50.5 million for the three months ended September 30, 2012 and 2011, respectively, and $262.1 million and $134.2 million for the nine months endedSeptember 30, 2012 and 2011, respectively. Our intangible assets and their respective book values at September 30, 2012 are shown in the following table:

	Directory Services Agreements			Local Customer Relationships			National Customer Relationships			Trade Names and Trademarks			Technology, Advertising Commitments & Other			Total
Gross intangible assets carrying value	$	1,330,000		$	560,000		$	175,000		$	380,000		$	85,500		$	2,530,500
Accumulated amortization	(313,815		)	(152,638		)	(39,940		)	(74,219		)	(29,875		)	(610,487		)
Net intangible assets	$	1,016,185		$	407,362		$	135,060		$	305,781		$	55,625		$	1,920,013

The Company evaluates the remaining useful lives of definite-lived intangible assets and other long-lived assets whenever events or circumstances indicate that a revision to the remaining period of amortization is warranted. If the estimated remaining useful lives change, the remaining carrying amount of the intangible assets and other long-lived assets would be amortized prospectively over that revised remaining useful life. The Company evaluated the remaining useful lives of its definite-lived intangible assets and other long-lived assets during the first quarter 2012 by considering, among other things, the effects of obsolescence, demand, competition, which takes into consideration the price premium benefit we have over competing independent publishers in our markets as a result of directory services agreements acquired in prior acquisitions, and other economic factors, including the stability of the industry in which we operate, known technological advances, legislative actions that result in an uncertain or changing regulatory environment, and expected changes in distribution channels. Based on our evaluation of these factors during the first quarter 2012, the Company determined that the estimated useful lives of our directory services agreements, local and national customer relationships and tradenames and trademarks no longer reflected the period they are expected to contribute to future cash flows. Therefore, the Company reduced the estimated useful lives of these intangible assets as shown in the following table:

Intangible Asset	Previous Weighted Average Useful Lives	Revised Weighted Average Useful Lives	Amortization Methodology
Directory services agreements	25 years	10 years	Income forecast method (1)
Local customer relationships	13 years	9 years	Income forecast method (1)
National customer relationships	24 years	9 years	Income forecast method (1)
Tradenames and trademarks	13 years	9 years	Straight-line method

⁽¹⁾ These intangible assets are being amortized under the income forecast method, which assumes the value derived from these intangible assets is greater in the earlier years and steadily declines over time.

The weighted average useful lives of technology, advertising commitments and other remained at seven years. The Company performed the same evaluation of the remaining useful lives of its definite-lived intangible assets and other long-lived assets during the three months ended September 30, 2012 and determined that the weighted average useful lives presented above continue to be deemed appropriate. The combined weighted average useful life of our intangible assets at September 30, 2012 is nine years. As a result of reducing the estimated useful lives of the intangible assets noted above, the Company expects an increase in amortization expense of $161.6 million and total amortization expense of $349.4 million for 2012. Amortization expense for all intangible assets for the five succeeding years is estimated to be approximately $301.6 million, $257.5 million, $217.1 million, $210.4 million and $206.2 million, respectively.

During the second quarter of 2011, the Company concluded there were indicators of impairment and as a result, we performed an impairment test of our goodwill and an impairment recoverability test of our definite-lived intangible assets and other long-lived assets. The testing results of our definite-lived intangible assets and other long-lived assets indicated they were recoverable and thus no impairment test was required. Based upon the testing results of our goodwill, we determined that the remaining goodwill assigned to each of our reporting units was fully impaired and thus recognized an aggregate goodwill impairment charge of $801.1 million during the nine months ended September 30, 2011. Please refer to our Quarterly Report on From 10-Q for the period ended June 30, 2011 for additional information including estimates and assumptions used in our impairment testing.

9

If industry and local business conditions in our markets deteriorate in excess of current estimates, potentially resulting in further declines in advertising sales and operating results, and / or if the trading value of our debt and equity securities continue to decline significantly, we will be required to assess the recoverability and useful lives of our intangible assets and other long-lived assets. These factors, including changes to assumptions used in our impairment analysis as a result of these factors, could result in future impairment charges, a reduction of remaining useful lives associated with our intangible assets and other long-lived assets and acceleration of amortization expense.

Interest Expense

In conjunction with our adoption of fresh start accounting and reporting on February 1, 2010 ("Fresh Start Reporting Date"), an adjustment was established to record our outstanding debt at fair value on the Fresh Start Reporting Date. This fair value adjustment will be amortized as an increase to interest expense over the remaining term of the respective debt agreements using the effective interest method and does not impact future scheduled interest or principal payments. Amortization of the fair value adjustment included as an increase to interest expense was $5.8 million and $6.9 million for the three months ended September 30, 2012 and 2011, respectively, and $19.6 million and $21.7 million for the nine months endedSeptember 30, 2012 and 2011, respectively.

During the first quarter of 2010, we entered into interest rate swap and interest rate cap agreements that are not designated as cash flow hedges. The Company’s interest expense includes income of $0.6 million and $1.6 million for the three months ended September 30, 2012 and 2011, respectively, and $1.5 million and $1.8 million for the nine months endedSeptember 30, 2012 and 2011, respectively, resulting from the change in fair value of these interest rate swaps and interest rate caps.

Advertising Expense

We recognize advertising expenses as incurred. These expenses include media, public relations, promotional, branding and sponsorship costs and on-line advertising. Total advertising expense for the Company was $1.5 million and $3.9 million for the three months ended September 30, 2012 and 2011, respectively, and $6.7 million and $13.7 million for the nine months endedSeptember 30, 2012 and 2011, respectively.

Concentration of Credit Risk

Trade Receivables

Approximately 85% of our advertising revenue is derived from the sale of our marketing solutions to local businesses. These customers typically enter into 12-month advertising sales contracts and make monthly payments over the term of the contract. Commencing in late 2011, the Company began to offer customers the ability to purchase digital marketing solutions for shorter time frames than our standard one year contract. Some customers prepay the full amount or a portion of the contract value. Most new customers and customers desiring to expand their advertising programs are subject to a credit review. If the customers qualify, we may extend credit to them in the form of a trade receivable for their advertising purchase. Local businesses tend to have fewer financial resources and higher failure rates than large businesses. In addition, full collection of delinquent accounts can take an extended period of time and involve significant costs. We do not require collateral from our customers, although we do charge late fees to customers that do not pay by specified due dates.

The remaining approximately 15% of our advertising revenue is derived from the sale of our marketing solutions to national or large regional chains. The majority of the revenue derived through national accounts is serviced through certified marketing representatives ("CMRs") from which we accept orders. CMRs are independent third parties that act as agents for national customers. The CMRs are responsible for billing the national customers for their advertising. We receive payment for the value of advertising placed in our directories, net of the CMR’s commission, directly from the CMR.

10

Derivative Financial Instruments

At September 30, 2012, we had interest rate swap and interest rate cap agreements with major financial institutions with a notional amount of $300.0 million and $200.0 million, respectively. 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 for interest rate swaps is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. Any loss would be limited to the amount that would have been received over the remaining life of the interest rate swap agreement. Under the terms of the interest rate cap agreements, the Company will receive payments based on the spread in rates if the three-month LIBOR rate increases above the negotiated cap rates. Any loss would be limited to the amount that would have been received based on the spread in rates over the remaining life of the interest rate cap agreement. The counterparties to the interest rate swap and interest rate cap agreements are major financial institutions with credit ratings of A- or higher, or the equivalent dependent upon the credit rating agency.

Earnings (Loss) Per Share

The calculation of basic and diluted earnings (loss) per share (“EPS”) is presented below.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012		2011
Basic EPS
Net income (loss)	$	(12,665	)	$	22,184	$	97,847	$	(524,512	)
Weighted average common shares outstanding	50,825			50,177		50,562		50,114
Basic EPS	$	(0.25	)	$	0.44	$	1.94	$	(10.47	)
Diluted EPS
Net income (loss)	$	(12,665	)	$	22,184	$	97,847	$	(524,512	)
Weighted average common shares outstanding	50,825			50,177		50,562		50,114
Dilutive effect of stock awards	—			1		11		—
Weighted average diluted shares outstanding	50,825			50,178		50,573		50,114
Diluted EPS	$	(0.25	)	$	0.44	$	1.93	$	(10.47	)

Diluted EPS is calculated by dividing net income by the weighted average common shares outstanding plus dilutive potential common stock. Potential common stock includes stock options and restricted stock, the dilutive effect of which is calculated using the treasury stock method. Due to the Company's reported net loss for the three months ended September 30, 2012 and nine months ended September 30, 2011, the effect of all stock-based awards was anti-dilutive and therefore not included in the calculation of EPS. For both the three and nine months endedSeptember 30, 2012, 2.7 million shares of the Company’s stock-based awards had exercise prices that exceeded the average market price of the Company’s common stock for the respective period. For the three and nine months ended September 30, 2011, 3.0 million shares and 2.9 million shares, respectively, of the Company’s stock-based awards had exercise prices that exceeded the average market price of the Company’s common stock for the period.

Fair Value of Financial Instruments

At September 30, 2012 and December 31, 2011, the fair value of cash and cash equivalents, accounts receivable, net and accounts payable and accrued liabilities approximated their carrying value based on the net short-term nature of these instruments. Estimates of fair value may be affected by assumptions made and, accordingly, are not necessarily indicative of the amounts the Company could realize in a current market exchange.

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As required by Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements and Disclosures, assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The Company had interest rate swaps with a notional amount of $300.0 million and $500.0 million at September 30, 2012 and December 31, 2011, respectively, and interest rate caps with a notional amount of $200.0 million and $400.0 million at September 30, 2012 and December 31, 2011, respectively, that are measured at fair value on a recurring basis.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2012 and December 31, 2011, respectively, and the level within the fair value hierarchy in which the fair value measurements were included.

	Fair Value Measurements Using Significant Other Observable Inputs (Level 2)
Derivatives:	September 30, 2012			December 31, 2011
Interest Rate Swap – Liabilities	$	(1,235	)	$	(2,694	)
Interest Rate Cap – Assets	$	—		$	5

There were no transfers of assets or liabilities into or out of Levels 1, 2 or 3 of the fair value hierarchy during the three and nine months endedSeptember 30, 2012 or year ended December 31, 2011. The Company has established a policy of recognizing transfers between levels of the fair value hierarchy as of the end of a reporting period. The Company’s long-term debt obligations are not measured at fair value on a recurring basis, however we present the fair value of the Dex One Senior Subordinated Notes and our Credit Facilities in Note 4, “Long-Term Debt.” The Company has utilized quoted market prices, where available, to compute the fair market value of these long-term debt obligations at September 30, 2012. The Dex One Senior Subordinated Notes are categorized within Level 1 of the fair value hierarchy and our Credit Facilities are categorized within Level 2 of the fair value hierarchy.

Valuation Techniques – Interest Rate Swaps and Interest Rate Caps

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date.

Fair value for our derivative instruments was derived using pricing models based on a market approach. Pricing models take into account relevant observable market inputs that market participants would use in pricing the asset or liability. The pricing models used to determine fair value for each of our derivative instruments incorporate specific contract terms for valuation inputs, including effective dates, maturity dates, interest rate swap pay rates, interest rate cap rates and notional amounts, as disclosed and presented in Note 5, “Derivative Financial Instruments,” interest rate yield curves, and the creditworthiness of the counterparty and the Company. Counterparty credit risk and the Company’s credit risk could have a material impact on the fair value of our derivative instruments, our results of operations or financial condition in a particular reporting period. At September 30, 2012, the impact of applying counterparty credit risk in determining the fair value of our derivative instruments was not material. At September 30, 2012, the impact of applying the Company’s credit risk in determining the fair value of our derivative instruments was a decrease to our derivative instruments liability of $0.3 million.

Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgment, and the pricing inputs are observed from actively quoted markets, as is the case for our derivative instruments. The pricing models used by the Company are widely accepted by the financial services industry. As such and as noted above, our derivative instruments are categorized within Level 2 of the fair value hierarchy.

Fair Value Control Processes– Interest Rate Swaps and Interest Rate Caps

The Company employs control processes to validate the fair value of its derivative instruments derived from the pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable.

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Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and certain expenses and the disclosure of contingent assets and liabilities. Actual results could differ materially from those estimates and assumptions. Estimates and assumptions are used in the determination of recoverability of long-lived assets, sales allowances, allowances for doubtful accounts, depreciation and amortization, employee benefit plans expense, restructuring expense and accruals, deferred income taxes, certain assumptions pertaining to our stock-based awards, and certain estimates and assumptions used in our impairment evaluation and useful lives assessment of definite-lived intangible assets and other long-lived assets, among others.

New Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-12"). ASU 2011-12 defers the effective date of provisions included in ASU 2011-05 that require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements. ASU 2011-12 further states that entities must continue to report reclassification adjustments out of accumulated comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. In August 2012, the FASB issued a proposed ASU, Comprehensive Income (Topic 220): Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income. This proposed ASU would require an entity to present separately by component in a footnote, reclassifications out of accumulated other comprehensive income as well as a tabular disclosure of the effect of items reclassified out of accumulated other comprehensive income on the respective line items of net income but only if the item reclassified is required to be reclassified to net income in its entirety. For other reclassification items that are not required to be reclassified directly to net income in their entirety, the new tabular disclosure only would require a cross-reference to other disclosures currently required for those items. The Company continues to monitor the FASB's deliberations on this proposed ASU. Effective January 1, 2012, the Company adopted the applicable provisions included in ASU 2011-05 and elected to present a single continuous statement of comprehensive income.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04’). ASU 2011-04 was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards. ASU 2011-04 clarifies the FASB’s intent about the application of existing fair value measurement and disclosure requirements, changes certain fair value measurement principles and enhances fair value disclosure requirements. Effective January 1, 2012, the Company adopted the disclosure provisions included in ASU 2011-04. The adoption of ASU 2011-04 had no impact on our financial position or results of operations.

We have reviewed other accounting pronouncements that were issued as of September 30, 2012, which the Company has not yet adopted, and do not believe that these pronouncements will have a material impact on our financial position or operating results.

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3.Restructuring Charges

During the fourth quarter of 2010, the Company initiated a restructuring plan that included headcount reductions, consolidation of responsibilities and vacating leased facilities, which continued into 2011 (“Restructuring Actions”). The Company did not recognize a restructuring charge to earnings related to the Restructuring Actions during the three and nine months endedSeptember 30, 2012. Cash payments of $0.4 million and $7.4 million were made in conjunction with the Restructuring Actions during the three and nine months endedSeptember 30, 2012, respectively. The Company recognized a restructuring charge to earnings of $4.5 million and $19.2 million and made cash payments of $9.9 million and $25.9 million related to the Restructuring Actions during the three and nine months endedSeptember 30, 2011, respectively. The following tables show the activity in our restructuring reserve associated with the Restructuring Actions during the three and nine months endedSeptember 30, 2012:

Three Months Ended September 30, 2012
Balance at July 1, 2012	$	971
Payments	(411		)
Balance at September 30, 2012	$	560

Nine Months Ended September 30, 2012
Balance at January 1, 2012	$	7,967
Payments	(7,407		)
Balance at September 30, 2012	$	560

Restructuring charges that are charged to earnings are included in production and distribution expenses, selling and support expenses or general and administrative expenses on the unaudited condensed consolidated statements of comprehensive income (loss), as applicable.

4. Long-Term Debt

The following table presents the fair market value of our long-term debt at September 30, 2012 based on quoted market prices on that date, as well as the carrying value of our long-term debt at September 30, 2012, which includes (1) $41.6 million of unamortized fair value adjustments required by GAAP in connection with the Company’s adoption of fresh start accounting on the Fresh Start Reporting Date, (2) the issuance of an additional $7.4 million million and $10.5 million of Dex One Senior Subordinated Notes as a result of the Company's election to make PIK interest payments for the semi-annual interest periods ending September 30, 2012 and March 31, 2012, respectively, and (3) the impact of the Debt Repurchases. See Note 1, “Business and Basis of Presentation - Significant Financing Developments” for additional information on the Debt Repurchases.

	September 30, 2012
	Fair Market Value		Carrying Value
RHDI Amended and Restated Credit Facility	$	472,496	$	775,372
Dex Media East Amended and Restated Credit Facility	323,731		511,828
Dex Media West Amended and Restated Credit Facility	328,892		497,786
Dex One Senior Subordinated Notes	81,292		219,708
Total Dex One consolidated	1,206,411		2,004,694
Less current portion	142,924		226,129
Long-term debt	$	1,063,487	$	1,778,565

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Credit Facilities

RHDI Amended and Restated Credit Facility

In conjunction with the Credit Facility Repurchases, RHDI repurchased $92.0 million of loans under the RHDI Amended and Restated Credit Facility at a rate of 43.5% of par. As of September 30, 2012, the outstanding carrying value under the RHDI Amended and Restated Credit Facility totaled $775.4 million. The RHDI Amended and Restated Credit Facility requires quarterly principal and interest payments and matures on October 24, 2014. The weighted average interest rate of outstanding debt under the RHDI Amended and Restated Credit Facility was 9.0% at September 30, 2012.

Dex Media East Amended and Restated Credit Facility

In conjunction with the Credit Facility Repurchases, DME Inc. repurchased $23.6 million of loans under the Dex Media East Amended and Restated Credit Facility at a rate of 53.0% of par. As of September 30, 2012, the outstanding carrying value under the Dex Media East Amended and Restated Credit Facility totaled $511.8 million. The Dex Media East Amended and Restated Credit Facility requires quarterly principal and interest payments and matures on October 24, 2014. The weighted average interest rate of outstanding debt under the Dex Media East Amended and Restated Credit Facility was 2.9% at September 30, 2012.

Dex Media West Amended and Restated Credit Facility

In conjunction with the Credit Facility Repurchases, DMW Inc. repurchased $26.6 million of loans under the Dex Media West Amended and Restated Credit Facility at a rate of 64.0% of par. As of September 30, 2012, the outstanding carrying value under the Dex Media West Amended and Restated Credit Facility totaled $497.8 million. The Dex Media West Amended and Restated Credit Facility requires quarterly principal and interest payments and matures on October 24, 2014. The weighted average interest rate of outstanding debt under the Dex Media West Amended and Restated Credit Facility was 7.3% at September 30, 2012.

Notes

Dex One Senior Subordinated Notes

In conjunction with the Note Repurchases, the Company repurchased $98.2 million aggregate principal amount of Dex One Senior Notes at a rate of 27.0% of par. As of September 30, 2012, the outstanding carrying value of the Dex One Senior Subordinated Notes totaled $219.7 million. Interest on the Dex One Senior Subordinated Notes is payable semi-annually on March 31st and September 30th of each year, commencing on March 31, 2010 through January 29, 2017. The Dex One Senior Subordinated Notes accrue interest at an annual rate of 12% for cash interest payments and 14% if the Company elects PIK interest payments. The Company may elect, no later than two business days prior to the beginning of any such semi-annual interest period, whether to make each interest payment on the Dex One Senior Subordinated Notes (i) entirely in cash or (ii) 50% in cash and 50% in PIK interest, which is capitalized as additional senior subordinated notes. In the absence of such an election for any subsequent semi-annual interest period, interest on the Dex One Senior Subordinated Notes will be payable in the form of the interest payment for the semi-annual interest period immediately preceding such subsequent semi-annual interest period. For the semi-annual interest periods ending September 30, 2012 and March 31, 2012, the Company made interest payments 50% in cash and 50% in PIK interest, as permitted by the indenture governing the Dex One Senior Subordinated Notes, resulting in the issuance of an additional $7.4 million million and $10.5 million, respectively, of Dex One Senior Subordinated Notes.

Impact of Fresh Start Accounting

In conjunction with our adoption of fresh start accounting, an adjustment was established to record our outstanding debt at fair value on the Fresh Start Reporting Date. The Company was required to record our Credit Facilities at a discount as a result of their fair value on the Fresh Start Reporting Date. Therefore, the carrying amount of these debt obligations is lower than the principal amount due at maturity. A total discount of $120.2 million was recorded upon adoption of fresh start accounting associated with our Credit Facilities, of which $41.6 million remains unamortized at September 30, 2012, as shown in the following table.

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	Carrying Value at September 30, 2012		Unamortized Fair Value Adjustments at September 30, 2012		Outstanding Debt at September 30, 2012 Excluding the Impact of Unamortized Fair Value Adjustments
RHDI Amended and Restated Credit Facility	$	775,372	$	7,127	$	782,499
Dex Media East Amended and Restated Credit Facility	511,828		29,048		540,876
Dex Media West Amended and Restated Credit Facility	497,786		5,446		503,232
Dex One Senior Subordinated Notes	219,708		—		219,708
Total	$	2,004,694	$	41,621	$	2,046,315

In conjunction with the Credit Facility Repurchases, we accelerated amortization of fair value adjustments to our Credit Facilities of $2.0 million, which partially offset the net gain on Credit Facility Repurchases recognized during the nine months endedSeptember 30, 2012. See Note 1, “Business and Basis of Presentation - Significant Financing Developments” for additional information.

5. Derivative Financial Instruments

We do not use derivative financial instruments for trading or speculative purposes and our derivative financial instruments are limited to interest rate swap and interest rate cap agreements. The Company utilizes a combination of fixed rate debt and variable rate debt to finance its operations. The variable rate debt exposes the Company to variability in interest payments due to changes in interest rates. Management believes that it is prudent to mitigate the interest rate risk on a portion of its variable rate borrowings. To satisfy our objectives and requirements, the Company has entered into interest rate swap and interest rate cap agreements, which have not been designated as cash flow hedges, to manage our exposure to interest rate fluctuations on our variable rate debt.

All derivative financial instruments are recognized as either assets or liabilities on the condensed consolidated balance sheets with measurement at fair value. On a quarterly basis, the fair values of our interest rate swaps and interest rate caps are determined based on observable inputs. These derivative instruments have not been designated as cash flow hedges and as such, the initial fair value and any subsequent gains or losses on the change in the fair value of the interest rate swaps and interest rate caps are reported in earnings as a component of interest expense. Any gains or losses related to the quarterly fair value adjustments are presented as a non-cash operating activity on the condensed consolidated statements of cash flows. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the possible failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it is not subject to credit risk. The Company minimizes the credit risk in derivative financial instruments by entering into transactions with major financial institutions with credit ratings of A- or higher, or the equivalent dependent upon the credit rating agency.

Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. See Note 2, “Summary of Significant Accounting Policies – Fair Value of Financial Instruments” for additional information regarding our interest rate swaps and interest rate caps.

The Company has entered into the following interest rate swaps that effectively convert $300.0 million, or approximately 17%, of the Company’s variable rate debt to fixed rate debt as of September 30, 2012. Since the RHDI Amended and Restated Credit Facility and the Dex Media West Amended and Restated Credit Facility are subject to a LIBOR floor of 3.00% and the LIBOR rate is below that floor at September 30, 2012, both credit facilities are effectively fixed rate debt until such time LIBOR exceeds the stated floor. At September 30, 2012, approximately 89% of our total debt outstanding consisted of variable rate debt, excluding the effect of our interest rate swaps. Including the effect of our interest rate swaps, total fixed rate debt comprised approximately 26% of our total debt portfolio as of September 30, 2012.

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Interest Rate Swaps – Dex Media East

Effective Dates	Notional Amount			Pay Rates	Maturity Dates
(amounts in millions)
February 26, 2010	$	100	(1)	1.796%	February 28, 2013
March 5, 2010	100		(1)	1.688%	January 31, 2013
March 10, 2010	100		(1)	1.75%	January 31, 2013
Total	$	300

⁽¹⁾ Consists of one swap

Under the terms of the interest rate swap agreements, we receive variable interest based on the three-month LIBOR and pay a weighted average fixed rate of 1.7%. The weighted average rate received on our interest rate swaps was 0.5% for the nine months endedSeptember 30, 2012. These periodic payments and receipts are recorded as interest expense.

Under the terms of the interest rate cap agreements, the Company will receive payments based on the spread in rates if the three-month LIBOR rate increases above the cap rates noted in the table below. The Company paid $2.1 million for the interest rate cap agreements entered into during the first quarter of 2010. We are not required to make any future payments related to these interest rate cap agreements.

Interest Rate Caps – RHDI

Effective Dates	Notional Amount			Cap Rates	Maturity Dates
(amounts in millions)
February 26, 2010	$	100	(2)	3.5%	February 28, 2013
March 8, 2010	100		(2)	3.5%	January 31, 2013
Total	$	200

⁽²⁾ Consists of one cap

The following tables present the fair value of our interest rate swaps and interest rate caps at September 30, 2012 and December 31, 2011. The fair value of our interest rate swaps is presented in accounts payable and accrued liabilities and other non-current liabilities and the fair value of our interest rate caps is presented in prepaid expenses and other current assets and other non-current assets on the condensed consolidated balance sheets at September 30, 2012 and December 31, 2011. The following tables also present the (gain) loss recognized in interest expense from the change in fair value of our interest rate swaps and interest rate caps for the three and nine months endedSeptember 30, 2012 and 2011, respectively.

							Gain Recognized in Interest Expense from the Change in Fair Value of Interest Rate Swaps
	Fair Value Measurements at						Three Months Ended September 30,						Nine Months Ended September 30,
Interest Rate Swaps	September 30, 2012			December 31, 2011			2012			2011			2012			2011
Accounts payable and accrued liabilities	$	(1,235	)	$	(2,269	)	$	(605	)	$	(1,023	)	$	(1,034	)	$	(1,237	)
Other non-current liabilities	—			(425		)	—			(565		)	(425		)	(876		)
Total	$	(1,235	)	$	(2,694	)	$	(605	)	$	(1,588	)	$	(1,459	)	$	(2,113	)
							(Gain) Loss Recognized in Interest Expense from the Change in Fair Value of Interest Rate Caps
	Fair Value Measurements at						Three Months Ended September 30,						Nine Months Ended September 30,
Interest Rate Caps	September 30, 2012			December 31, 2011			2012			2011			2012			2011
Prepaid expenses and other current assets	$	—		$	1		$	—		$	(3	)	$	1		$	—
Other non-current assets	—			4			—			26			4			287
Total	$	—		$	5		$	—		$	23		$	5		$	287

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The Company recognized expense related to our interest rate swaps and interest rate caps, including accrued interest, of $0.4 million and less than $0.1 million during the three months ended September 30, 2012 and 2011, respectively, and $1.6 million and $2.9 million during the nine months endedSeptember 30, 2012 and 2011, respectively.

6. Income Taxes

Our quarterly income tax (provision) benefit for income taxes is measured using an estimated annual effective tax rate for the period, adjusted for discrete items that occurred within the periods presented.

For the three and nine months ended September 30, 2012, we recorded an income tax benefit of $6.6 million and $3.1 million, respectively, which represents an effective tax rate of 34.4% and (3.3)%, respectively. The effective tax rate for the three and nine months ended September 30, 2012 differs from the federal statutory rate of 35.0% primarily due to changes in recorded valuation allowances, the impact of state income taxes and changes in deferred tax liabilities related to the stock basis of subsidiaries and other adjustments related to the filing of our consolidated tax return.

The Debt Repurchases resulted in a tax gain of $141.5 million for the nine months ended September 30, 2012. Generally, the discharge of a debt obligation for an amount less than the adjusted issue price creates cancellation of debt income ("CODI"), which must be included in the taxpayer's taxable income. However, in accordance with Internal Revenue Code ("IRC") Section 108, in lieu of recognizing taxable income from CODI, the Company is required to reduce existing tax attributes. As a result, the Company recognized an estimated decrease in deferred tax assets relating to net operating losses and the basis of amortizable and depreciable property of approximately $3.1 million and $54.7 million for the three and nine months ended September 30, 2012, respectively. These decreases were offset by a decrease in recorded valuation allowance during the three and nine months ended September 30, 2012.

The estimated annual effective tax rate for the current year includes an estimate of the change in the valuation allowance expected to be necessary at the end of the year. The Company recorded a decrease in the valuation allowance during the three and nine months ended September 30, 2012 as a result of the Debt Repurchases (discussed above). In addition, the valuation allowance was decreased during the nine months ended September 30, 2012 as a result of the reduction in estimated useful lives of certain intangible assets as discussed in Note 2, "Summary of Significant Accounting Policies - Identifiable Intangible Assets," which was a change in circumstances that resulted in a change in judgment about the Company's ability to realize deferred tax assets in future years. The resulting change in income tax expense allocated to the three and nine months ended September 30, 2012 relating to the changes in valuation allowance is an increase of $2.8 million and a decrease of $40.0 million, respectively, which reduces our effective tax rate for the three and nine months ended September 30, 2012 by approximately 14.3% and 42.2%, respectively.

For the three months ended September 30, 2011, we recorded an income tax (provision) of $(0.7) million, which represented an effective tax rate of 3.1%. For the nine months ended September 30, 2011, we recorded an income tax benefit of $142.8 million, which represented an effective tax rate of 21.4%. The effective tax rate for the three months ended September 30, 2011 differs from the federal statutory rate of 35.0% primarily due to changes in deferred tax liabilities related to the stock basis of subsidiaries, changes in recorded valuation allowances, increases in the liability for unrecognized tax benefits and tax planning associated with IRC Section 108 and other adjustments related to the filing of our consolidated federal income tax return. The effective tax rate for the nine months ended September 30, 2011 differs from the federal statutory rate of 35.0% primarily due to non-deductible goodwill impairment, changes in deferred tax liabilities related to the stock basis of subsidiaries, changes in recorded valuation allowances, decreases in the liability for unrecognized tax benefits and tax planning associated with IRC Section 108 and other adjustments related to the filing of our consolidated federal income tax return.

The Company recorded a goodwill impairment charge of $801.1 million during the second quarter of 2011, of which $457.2 million related to non-deductible goodwill. Impairment of non-deductible goodwill reduced the income tax benefit of the impairment by $174.1 million and reduced our effective tax rate by approximately 26.1% for the nine months ended September 30, 2011.

Upon emergence from bankruptcy, the Company recorded deferred tax liabilities related to the excess of the financial statement carrying amount over the tax basis of investments in certain subsidiaries. The estimated annual effective tax rate for 2011 included an estimate of the change in these deferred tax liabilities. The goodwill impairment charge recorded during the second quarter of 2011 reduced the financial statement carrying amount of investments in certain subsidiaries, which also caused a reduction in these deferred tax liabilities. The resulting reduction in income tax expense for the three and nine months ended September 30, 2011 related to the change in these deferred tax liabilities was $6.3 million and $85.1 million, respectively, which (decreased) increased the effective tax rate for the three and nine months ended September 30, 2011 by approximately (27.3)% and 12.8%, respectively.

The estimated annual effective tax rate for 2011 included an estimate of the valuation allowance expected to be necessary at the end of the year for originating deferred tax assets. The goodwill impairment charge recorded during the second quarter of 2011 gave rise to a deferred tax asset whose realization did not meet a more-likely-than-not threshold, requiring a valuation allowance. In addition, changes in deferred tax assets and liabilities primarily related to the filing of our consolidated federal tax return resulted in increases to the valuation allowance during the three months ended September 30, 2011. The resulting increase in income tax expense for the three and nine months ended September 30, 2011 was $14.1 million and $60.7 million, respectively, which increased (decreased) the effective tax rate for the three and nine months ended September 30, 2011 by approximately 61.6% and (9.1)%, respectively.

With the filing of our consolidated federal income tax return for the year ended December 31, 2010, the Company recorded an income tax benefit of $23.6 million for both the three and nine months ended September 30, 2011 primarily related to tax planning associated with IRC Section 108 and other adjustments associated with the filing of our consolidated tax return, which resulted in a (decrease) increase in our effective tax rate of (103.1)% and 3.5% for the three and nine months ended September 30, 2011, respectively.

On June 15, 2011, the federal statute of limitations closed for a tax year in which a prior uncertain tax position related to revenue recognition was established. As a result, the Company decreased its liability for unrecognized tax benefits associated with this federal and state uncertain tax position by $28.2 million and recorded a tax benefit of $24.0 million for the nine months ended September 30, 2011, which resulted in an increase to our effective tax rate of 3.6% for the nine months ended September 30, 2011.

The Company increased its liability for unrecognized tax benefits during the three months ended September 30, 2011 by $7.4 million, which resulted in an increase (decrease) to our effective tax rate of 29.6% and (1.0)% for the three and nine months ended September 30, 2011, respectively, primarily related to uncertainty in the realization of certain tax attributes available for reduction under IRC Section 108. The increase also related to the exclusion of non-business income under audit in the state of Illinois.

7. Benefit Plans

The following table provides the components of the Company’s net periodic benefit (credit) cost for the three and nine months endedSeptember 30, 2012 and 2011, respectively.

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Interest cost	$	2,673		$	3,177		$	8,020		$	9,530
Expected return on plan assets	(3,355		)	(3,625		)	(10,064		)	(10,875		)
Settlement loss	—			—			1,540			403
Amortization of net loss	192			—			576			—
Net periodic benefit (credit) cost	$	(490	)	$	(448	)	$	72		$	(942	)

On April 30, 2012, settlements of the Dex Media, Inc. Pension Plan and Dex One Pension Benefit Equalization Plan ("PBEP") occurred as a result of restructuring activities. At that time, year-to-date lump sum payments to participants exceeded the sum of the service cost plus interest cost components of the net periodic benefit cost for the period. These settlements resulted in the recognition of an actuarial loss of $1.5 million for the nine months endedSeptember 30, 2012. Pension liabilities and expense for the Dex Media, Inc. Pension Plan and PBEP were recomputed based on assumptions as of April 30, 2012, resulting in a decrease in the discount rate from 4.38% at December 31, 2011 to 4.22% for the Dex Media, Inc. Pension Plan and 4.51% at December 31, 2011 to 4.25% for the PBEP. The Company utilized a yield curve to determine the appropriate discount rate based on each plan's expected future cash flows. The expected return on plan assets assumption was also reduced for the Company's benefit plans from 8.0% at December 31, 2011 to 7.5%. On May 31, 2011, settlements of the Dex Media, Inc. Pension Plan occurred. These settlements resulted in the recognition of an actuarial loss of $0.4 million for the nine months ended September 30, 2011.

The Company made contributions to its pension plans of $4.6 million and $2.5 million during the three months ended September 30, 2012 and 2011, respectively, and $13.9 million and $15.3 million during the nine months endedSeptember 30, 2012 and 2011, respectively. We expect to make total contributions of approximately $15.2 million to our pension plans in 2012.

8.    Business Segments

For the periods covered by this quarterly report, management reviews and analyzes its business of providing marketing solutions as one operating segment.

9.    Legal Proceedings

We are subject to various lawsuits, claims, and regulatory and administrative proceedings arising out of our business covering matters such as general commercial, governmental regulations, intellectual property, employment, tax and other actions. In the opinion of management, the ultimate resolution of these matters, including the two cases described below, will not have a material adverse effect on our results of operations, cash flows or financial position.

Beginning on October 23, 2009, a series of putative securities class action lawsuits were commenced against certain former Company officers in the United States District Court for the District of Delaware on behalf of all persons who purchased or otherwise acquired our publicly traded securities between July 26, 2007 and the time we filed for bankruptcy on May 28, 2009, alleging that such officers issued false and misleading statements regarding our business and financial condition and seeking damages and equitable relief. On August 19, 2010, an amended consolidated class action complaint was filed as the operative securities class action complaint (the “Securities Class Action Complaint”). The Company is not named as a defendant in the Securities Class Action Complaint. On December 30, 2011, the parties to the Securities Class Action Complaint entered into a memorandum of understanding containing the essential terms of a settlement of all disputes between them. On February 17, 2012, a formal stipulation of settlement was filed with the court. Pursuant to the stipulation of settlement, in exchange for a complete release of all claims, the Company's director's and officer's liability insurers will create a $25 million settlement fund for the benefit of the settlement class. The Company is not making any financial contribution to the settlement fund. The stipulation of settlement was approved by the court on June 19, 2012.

On December 7, 2009, a putative ERISA class action lawsuit was commenced in the United States District Court for the Northern District of Illinois on behalf of certain participants in, or beneficiaries of, the R.H. Donnelley 401(k) Savings Plan at any time between July 26, 2007 and January 29, 2010 and whose plan accounts included investments in R.H. Donnelley common stock. The putative ERISA class action complaint contains allegations against certain current and former directors, officers and employees similar to those set forth in the Securities Class Action Complaint as well as allegations of breaches of fiduciary duties under ERISA and seeks damages and equitable relief. The Company is not named as a defendant in this ERISA class action. On June 21, 2012, the parties to the ERISA class action suit entered into a memorandum of understanding containing the essential terms of a settlement of all disputes between them. On July 9, 2012, a formal settlement agreement and release was filed with the court. Pursuant to the settlement agreement and release, in exchange for a complete release of all claims, the Company's fiduciary liability insurers will create a $2.1 million settlement fund for the benefit of the settlement class. The Company is not making any financial contribution to the settlement fund. The settlement agreement and release is subject to final court approval, which we expect to receive during the second half of 2012.

10. Other Information

On February 14, 2011, we completed the sale of substantially all net assets of Business.com, including long-lived assets, domain names, trademarks, brands, intellectual property, related content and technology platform. As a result, we recognized a gain on the sale of these assets of $13.4 million during the nine months ended September 30, 2011.

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

Forward-Looking Information

Certain statements contained in this Quarterly Report on Form 10-Q regarding Dex One Corporation and its direct and indirect wholly-owned subsidiaries (“Dex One,” the “Company,” “we,” “us” and “our”) future operating results, performance, business plans or prospects and any other statements not constituting historical fact are “forward-looking statements” subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, words such as “believe,” “expect,” “anticipate,” “should,” “will,” “would,” “planned,” “estimated,” “potential,” “goal,” “outlook,” “may,” “predicts,” “could,” or the negative of those words and other comparable expressions, are used to identify such forward-looking statements. All forward-looking statements reflect our current beliefs and assumptions with respect to our future results, business plans and prospects, based on information currently available to us and are subject to significant risks and uncertainties. Accordingly, these statements are subject to significant risks and uncertainties and our actual results, business plans and prospects could differ significantly from those expressed in, or implied by, these statements. We caution readers not to place undue reliance on, and we undertake no obligation to update, other than as imposed by law, any forward-looking statements. Such risks, uncertainties and contingencies include, but are not limited to, statements about Dex One’s future financial and operating results, our plans, objectives, expectations and intentions and other statements that are not historical facts. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: (1) the continuing decline in the use of print directories; (2) increased competition, particularly from existing and emerging digital technologies; (3) ongoing weak economic conditions and continued decline in print advertising sales; (4) our ability to collect trade receivables from customers to whom we extend credit; (5) our ability to generate sufficient cash to service our debt; (6) our ability to comply with the financial covenants contained in our debt agreements and the potential impact to operations and liquidity as a result of restrictive covenants in such debt agreements; (7) our ability to refinance or restructure our debt on reasonable terms and conditions as might be necessary from time to time; (8) increasing interest rates; (9) changes in the Company’s and the Company’s subsidiaries credit ratings; (10) changes in accounting standards; (11) regulatory changes and judicial rulings impacting our business; (12) adverse results from litigation, governmental investigations or tax related proceedings or audits; (13) the effect of labor strikes, lock-outs and negotiations; (14) successful realization of the expected benefits of acquisitions, divestitures and joint ventures; (15) our ability to maintain agreements with CenturyLink and AT&T and other major Internet search and local media companies; (16) our reliance on third-party vendors for various services; and (17) other events beyond our control that may result in unexpected adverse operating results.Additional risks and uncertainties are described in detail in Part I - Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011.

With respect to the proposed merger between Dex One and SuperMedia Inc. ("SuperMedia") noted below, important factors could cause actual results to differ materially from those indicated by forward-looking statements included herein, including, but not limited to, (1) the ability of Dex One and SuperMedia to consummate the transaction on the terms set forth in the Merger Agreement, which is defined below; (2) the risk that anticipated cost savings, growth opportunities and other financial and operating benefits as a result of the transaction may not be realized or may take longer to realize than expected; (3) the risk that benefits from the transaction may be significantly offset by costs incurred in integrating the companies; (4) potential adverse impacts or delay in completing the transaction as a result of obtaining consents from lenders to Dex One or SuperMedia; (5) failure to receive the approval of the stockholders of either Dex One or SuperMedia for the transaction; and (6) difficulties in connection with the process of integrating Dex One and SuperMedia, including (i) coordinating geographically separate organizations; (ii) integrating business cultures, which could prove to be incompatible; (iii) difficulties and costs of integrating information technology systems; and (iv) the potential difficulty in retaining key officers and personnel. Additional risks and uncertainties associated with the proposed merger are described in detail in Part II - Item 1A. “Risk Factors,” in this Quarterly Report on Form 10-Q.

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Recent Trends and Developments Related to Our Business

Agreement and Plan of Merger

On August 20, 2012, Dex One entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SuperMedia, Newdex, Inc., a direct wholly owned subsidiary of the Company (“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.

See Item 1, "Financial Statements (Unaudited)" - Note 1, "Business and Basis of Presentation - Agreement and Plan of Merger" for summarized information on the Merger Agreement. In addition, please refer to the Merger Agreement filed with a Current Report on Form 8-K/A with the Securities and Exchange Commission on August 23, 2012 for detailed information on the terms and conditions of the Merger Agreement.

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. See Item 1, "Financial Statements (Unaudited)" - Note 1, "Business and Basis of Presentation - Significant Financing Developments" for additional information on the cash tender offer to repurchase the Dex One Senior Subordinated Notes. 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, R.H. Donnelley Inc. ("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. See Item 1, "Financial Statements (Unaudited)" - Note 1, "Business and Basis of Presentation - Significant Financing Developments" for additional information on the Amendments and the offers to repurchase loans under the respective Credit Facilities.

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 endedSeptember 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:

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	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 were $139.6 million.

Results of Operations

As discussed in “Results of Operations” below, we continue to experience lower revenues, advertising sales and bookings related to our print products primarily as a result of declines in new and recurring business, including both renewal and incremental sales to existing advertisers, mainly driven by (1) customer attrition, (2) declines in overall advertising spending by our customers, (3) the significant impact of the weak local business conditions on consumer spending in our clients’ markets, (4) an increase in competition and more fragmentation in local business search and (5) the migration of customers to digital marketing solutions. However, despite the challenges associated with our print products, we have seen growth in our digital revenues, advertising sales and bookings driven by new partnerships, a focus on providing targeted solution bundled packages to our customers, new digital products and services and the migration of customers to digital marketing solutions. These advancements have helped partially offset the decline in print revenues, advertising sales and bookings.

The Company currently projects that these challenging conditions associated with our print products will continue for the foreseeable future, and, as such, our print revenues, advertising sales and bookings, as well as overall operating results, cash flow and liquidity, will continue to be adversely impacted. Therefore, the Company’s historical operating results will not be indicative of future operating performance, although our long-term financial forecast currently anticipates no material improvement in local business conditions in our markets until 2013 at the earliest.

As more fully described below in “Results of Operations – Net Revenues,” our method of recognizing print revenue under the deferral and amortization method results in delayed recognition of advertising sales whereby recognized revenues reflect the amortization of advertising sales consummated in prior periods as well as advertising sales consummated in the current period. Accordingly, the Company’s projected decline in print advertising sales will result in a decline in print revenues recognized in future periods. In addition, any improvements in local business conditions that are anticipated in our long-term financial forecast noted above will not have a significant immediate impact on our print revenues.

Our Plan

As more fully described in Part I - Item 1, “Business” of our Annual Report on Form 10-K for the year ended December 31, 2011, 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 proprietary marketing solutions include our Dex published yellow pages directories, our Internet yellow pages site, DexKnows.com and our mobile applications, Dex Mobile and CityCentral. Our digital lead generation solutions are powered by our search engine marketing product, DexNet, 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.

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In conjunction with the Company's continuous evaluation of strategic alternatives in response to the challenging industry and economic environment we face, in August 2012, we announced the proposed merger between Dex One and SuperMedia. The purpose of this proposed transaction is to increase market share and improve our competitive position while benefiting from improved operating scale, significant service and cost synergies and enhanced cash flow, preserving access to tax attributes to offset future taxable income, and to better position the combined entity to retire debt with amended and extended credit facilities. Completion of the proposed merger is subject to certain conditions noted in the Merger Agreement. See “Forward-Looking Information” and "Recent Trends and Developments Related to Our Business - Agreement and Plan of Merger” above for additional information on the proposed merger.

Separate from the proposed merger, the Company continues to work on improving the value we deliver to our customers by (1) providing targeted solution bundles that combine offline and online media platforms, which includes our Dex Guaranteed Actions ("DGA") program and (2) expanding the number of platforms and media through which we deliver their message to consumers. Our growing list of marketing solutions 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. In addition, as the Company continues to transition to a compete-and-collaborate business model, we believe that partnerships will enable us to offer a broader and more robust array of products and services to our customers than we would be able to do on a proprietary basis and without the risks, capital investment, and ongoing maintenance associated with development in house.

We also continue to invest in our business and our people through strategic programs, initiatives and technology such as: (1) the Dex One Account Management System, which provides the ability for customers to log in and make real-time changes to their online marketing as well as view real-time performance data and also enables our marketing consultants to construct proposals on their mobile devices wherever they may be, (2) the Dex One Sales Academy, which provides initial training, ongoing knowledge and skills enhancement, and additional support to marketing consultants throughout the business, (3) the Digital Media Learning Program, which provides our marketing consultants the resources needed to obtain a Google sales certification, and (4) sales force technology, with the introduction of Webex virtual sales presentations for our telephone marketing consultants and the purchase of iPads for our premise marketing consultants. We recently made a strategic change to centralize the telephone marketing consultants from our local markets to three inside sales center locations in Overland Park, Kansas, Denver, Colorado and Omaha, Nebraska. In these locations we expect to be able to leverage scale of resources to allow greater efficiency and focus equally across the geography we serve as well as out of market opportunities. We also expect to be able to utilize state of the art telephone technology to increase reach, contact rates and efficiencies. The Overland Park center was fully staffed in 2011 and the Denver and Omaha centers were fully staffed during 2012. As local business conditions recover in our markets, we believe these strategic investments will help us drive incremental revenue over time.

We continue to actively manage expenses and are considering and acting upon various initiatives and opportunities to streamline operations and reduce our cost structure. One such initiative centers around print product optimization ("PPO") and the evaluation of all print related expenses and processes. The focus of PPO includes initiatives such as transforming our print product's design and content as well as distribution optimization. We believe that PPO will drive significant savings in annual print costs while continuing to provide valuable products and quality service to our customers. We also continue to assess our organizational structure to ensure it properly supports our base of business and is optimized to compete in a rapidly evolving marketplace.

In addition to the proposed merger and associated refinancing of our Credit Facilities, the Company continues to evaluate all options for reducing leverage, extending the maturities of our Credit Facilities and reducing refinancing risk in response to the challenging industry and economic environment we face.  The Company's strategic objective is to build on our existing strengths and assets to maximize value for our shareholders and other constituents. The Company has recently taken significant steps towards reducing its leverage by obtaining the Amendments to our Credit Facilities in March 2012, which resulted in the repurchase of $142.1 million of loans under our Credit Facilities at a purchase price of $69.5 million. In addition, in April 2012 we repurchased $98.2 million aggregate principal amount of Dex One Senior Subordinated Notes for a purchase price of $26.5 million. We retain the option of making additional repurchases of our outstanding debt below par in the future, as permitted. The Company also continues to assess additional alternatives for the strategic objectives noted above including, but not limited to, further amendments to our Credit Facilities, obtaining additional financing and/or refinancing our existing indebtedness, and partnerships both within our industry and in complementary industries.

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Liquidity and Going Concern Analysis

As more fully described below in “Liquidity and Capital Resources,” the Company’s primary sources of liquidity are existing cash on hand and cash flows generated from operations and our primary liquidity requirements are to fund operations and service our indebtedness. The Company’s projected decline in print advertising sales will result in a decline in cash flows in future periods. In addition, while improvements in local business conditions are anticipated in our long-term financial forecast as noted above, these improvements will not have a significant immediate impact on our cash flows. Lastly, on October 25, 2012, the Company announced that possible alternatives to the current transaction structure to effect the Mergers 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.

Despite these conditions and circumstances, based on current financial projections, which do not include the impact of the proposed merger with SuperMedia but do include the impact of projected growth in our digital operations, the recent repurchases of our outstanding debt below par and continuous expense management, the Company expects to be able to continue to generate cash flows from operations in amounts sufficient to fund operations and meet debt service requirements for at least the next 12-15 months.

Impairment and Useful Life Analysis

The Company reviews the carrying value of definite-lived intangible assets and other long-lived assets whenever events or circumstances indicate that their carrying amount may not be recoverable. Based on our evaluation during the three and nine months endedSeptember 30, 2012, we concluded that the carrying amounts of our definite-lived intangible assets and other long-lived assets were recoverable.

The Company evaluates the remaining useful lives of definite-lived intangible assets and other long-lived assets whenever events or circumstances indicate that a revision to the remaining period of amortization is warranted. The Company evaluated the remaining useful lives of definite-lived intangible assets and other long-lived assets during the first quarter of 2012 by considering, among other things, the effects of obsolescence, demand, competition, which takes into consideration the price premium benefit we have over competing independent publishers in our markets as a result of directory services agreements acquired in prior acquisitions, and other economic factors, including the stability of the industry in which we operate, known technological advances, legislative actions that result in an uncertain or changing regulatory environment, and expected changes in distribution channels. Based on our evaluation of these factors during the first quarter of 2012, the Company determined that the estimated useful lives of our directory services agreements, local and national customer relationships and tradenames and trademarks no longer reflected the period they are expected to contribute to future cash flows. Therefore, the Company reduced the estimated useful lives of these intangible assets. See Item 1, "Financial Statements (Unaudited)" - Note 2, "Summary of Significant Accounting Policies - Identifiable Intangible Assets" for additional information. As a result of reducing the estimated useful lives of the intangible assets noted above, the Company expects an increase in amortization expense of $161.6 million and total amortization expense of $349.4 million for 2012. The Company performed the same evaluation of the remaining useful lives of its definite-lived intangible assets and other long-lived assets during the three months ended September 30, 2012 and determined that the current weighted average useful lives continue to be deemed appropriate.

If industry and local business conditions in our markets deteriorate in excess of current estimates, potentially resulting in further declines in advertising sales and operating results, and / or if the trading value of our debt and equity securities continue to decline significantly, we will be required to assess the recoverability and useful lives of our intangible assets and other long-lived assets. These factors, including changes to assumptions used in our impairment analysis as a result of these factors, could result in future impairment charges, a reduction of remaining useful lives associated with our intangible assets and other long-lived assets and acceleration of amortization expense.

Climate Change

There is a growing concern about global climate change and the emissions of carbon dioxide. This concern has led to the possibility of federal climate change legislation as well as litigation relating to greenhouse gas emissions. While we cannot predict the impact of any proposed legislation until final, we do not believe current regulation or litigation related to global climate change is likely to have a material impact on our business, future financial position, results of operations and cash flow. Accordingly, our current financial projections do not include any impact of climate change regulation or litigation.

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Healthcare Reform Legislation

During March 2010, the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010 were signed into law. There has been no significant impact on our financial position, results of operations or cash flows as a result of this new legislation and we do not anticipate any significant impact in the foreseeable future.

Segment Reporting

For periods covered by this quarterly report, management reviews and analyzes its business of providing marketing solutions as one operating segment.

New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-12"). ASU 2011-12 defers the effective date of provisions included in ASU 2011-05 that require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements. ASU 2011-12 further states that entities must continue to report reclassification adjustments out of accumulated comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. In August 2012, the FASB issued a proposed ASU, Comprehensive Income (Topic 220): Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income. This proposed ASU would require an entity to present separately by component in a footnote, reclassifications out of accumulated other comprehensive income as well as a tabular disclosure of the effect of items reclassified out of accumulated other comprehensive income on the respective line items of net income but only if the item reclassified is required to be reclassified to net income in its entirety. For other reclassification items that are not required to be reclassified directly to net income in their entirety, the new tabular disclosure only would require a cross-reference to other disclosures currently required for those items. The Company continues to monitor the FASB's deliberations on this proposed ASU. Effective January 1, 2012, the Company adopted the applicable provisions included in ASU 2011-05 and elected to present a single continuous statement of comprehensive income.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04’). ASU 2011-04 was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. Generally Accepted Accounting Principles ("GAAP") and International Financial Reporting Standards. ASU 2011-04 clarifies the FASB’s intent about the application of existing fair value measurement and disclosure requirements, changes certain fair value measurement principles and enhances fair value disclosure requirements. Effective January 1, 2012, the Company adopted the disclosure provisions included in ASU 2011-04. The adoption of ASU 2011-04 had no impact on our financial position or results of operations.

We have reviewed other accounting pronouncements that were issued as of September 30, 2012, which the Company has not yet adopted, and do not believe that these pronouncements will have a material impact on our financial position or operating results.

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RESULTS OF OPERATIONS

Three and Nine Months Ended September 30, 2012 compared to Three and Nine Months Ended September 30, 2011

Net Revenues

The components of our net revenues for the three and nine months endedSeptember 30, 2012 and 2011 were as follows:

	Three Months Ended September 30,
(amounts in millions)	2012			2011			$ Change			% Change
Gross advertising revenues	$	318.5		$	358.4		$	(39.9	)	(11.1	)%
Sales claims and allowances	(3.3		)	(3.6		)	0.3			8.3
Net advertising revenues	315.2			354.8			(39.6		)	(11.2	)
Other revenues	4.6			5.3			(0.7		)	(13.2	)
Total	$	319.8		$	360.1		$	(40.3	)	(11.2	)%

	Nine Months Ended September 30,
(amounts in millions)	2012			2011			$ Change			% Change
Gross advertising revenues	$	994.5		$	1,124.7		$	(130.2	)	(11.6	)%
Sales claims and allowances	(10.4		)	(12.3		)	1.9			15.4
Net advertising revenues	984.1			1,112.4			(128.3		)	(11.5	)
Other revenues	14.6			16.2			(1.6		)	(9.9	)
Total	$	998.7		$	1,128.6		$	(129.9	)	(11.5	)%

Our advertising revenues are earned primarily from the sale of advertising in yellow pages directories we publish. Advertising revenues also include revenues from our Internet-based marketing solutions including online directories, such as DexKnows.com and DexNet. Advertising revenues are affected by several factors, including changes in the quantity, size and characteristics of advertisements, acquisition of new clients, renewal rates of existing clients, premium advertisements sold, changes in advertisement pricing, the introduction of new marketing solutions, an increase in competition and more fragmentation in the local business search market and general economic factors. Revenues with respect to print advertising and Internet-based marketing solutions that are sold with print advertising are recognized under the deferral and amortization method whereby revenues are initially deferred when a directory is published, net of sales claims and allowances, and recognized ratably over the directory’s life, which is typically 12 months. Revenues with respect to Internet-based marketing solutions that are sold standalone, such as DexNet, are recognized ratably over the life of the contract commencing when they are first delivered or fulfilled. Revenues with respect to our marketing solutions that are performance-based are recognized as the service is delivered or fulfilled.

Gross advertising revenues of $318.5 million and $994.5 million for the three and nine months endedSeptember 30, 2012 declined $39.9 million, or 11.1%, and $130.2 million, or 11.6%, from gross advertising revenues of $358.4 million and $1,124.7 million for the three and nine months endedSeptember 30, 2011, respectively. The decline in gross advertising revenues for the three and nine months endedSeptember 30, 2012 is related to our print products, primarily as a result of continuing declines in new and recurring business, mainly driven by (1) customer attrition, (2) declines in overall advertising spending by our customers, (3) the significant impact of the weak local business conditions on consumer spending in our customers’ markets, (4) an increase in competition and more fragmentation in local business search and (5) the migration of customers to digital marketing solutions. The decline in gross advertising revenues is also a result of recognizing approximately one month of revenues from Business.com in 2011 with no comparable revenues in 2012. Declines in print advertising revenues are partially offset by increased advertising revenues associated with our digital marketing solutions, driven by new partnerships, a focus on providing targeted solution bundled packages to our customers, new digital products and services and the migration of customers to digital marketing solutions.

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Expenses

The components of our expenses for the three and nine months endedSeptember 30, 2012 and 2011 were as follows:

	Three Months Ended September 30,
(amounts in millions)	2012		2011		$ Change			% Change
Production and distribution expenses	$	70.4	$	71.2	$	(0.8	)	(1.1	)%
Selling and support expenses	84.1		108.1		(24.0		)	(22.2	)
General and administrative expenses	33.5		36.6		(3.1		)	(8.5	)
Depreciation and amortization expenses	104.4		66.0		38.4			58.2
Total	$	292.4	$	281.9	$	10.5		3.7	%

	Nine Months Ended September 30,
(amounts in millions)	2012		2011		$ Change			% Change
Production and distribution expenses	$	215.1	$	221.3	$	(6.2	)	(2.8	)%
Selling and support expenses	269.5		323.0		(53.5		)	(16.6	)
General and administrative expenses	94.1		110.8		(16.7		)	(15.1	)
Depreciation and amortization expenses	313.2		182.0		131.2			72.1
Impairment charges	—		801.1		(801.1		)	(100.0	)
Total	$	891.9	$	1,638.2	$	(746.3	)	(45.6	)%

Certain costs directly related to the selling and production of directories are initially deferred and then amortized ratably over the life of the directories under the deferral and amortization method of accounting to match revenue recognized relating to such directories, with cost recognition commencing in the month directory distribution is substantially complete. These costs are specifically identifiable to a particular directory and include sales commissions and print, paper and initial distribution costs. Sales commissions include amounts paid to employees for sales to local customers and to certified marketing representatives ("CMRs"), which act as our channel to national clients. All other expenses, such as sales person salaries, sales manager compensation, sales office occupancy, publishing and information technology services, are not specifically identifiable to a particular directory and are recognized as incurred. Our costs recognized in a reporting period consist of: (i) costs incurred in that period and fully recognized in that period; (ii) costs incurred in a prior period, a portion of which is amortized and recognized in the current period; and (iii) costs incurred in the current period, a portion of which is amortized and recognized in the current period and the balance of which is deferred until future periods. Consequently, there will be a difference between costs recognized in any given period and costs incurred in the given period, which may be significant.

Production and Distribution Expenses

Production and distribution expenses for the three and nine months endedSeptember 30, 2012 were $70.4 million and $215.1 million, respectively, compared to production and distribution expenses of $71.2 million and $221.3 million for the three and nine months endedSeptember 30, 2011, respectively. The primary components of the $0.8 million, or 1.1%, and $6.2 million, or 2.8%, decrease in production and distribution expenses for the three and nine months endedSeptember 30, 2012, respectively, were as follows:

(amounts in millions)	Three Months Ended September 30, 2012			Nine Months Ended September 30, 2012
Lower print, paper and distribution expenses	$	(6.8	)	$	(14.7	)
Higher Internet production and distribution expenses	6.9			10.4
All other	(0.9		)	(1.9		)
Total decrease in production and distribution expenses for the three and nine months ended September 30, 2012	$	(0.8	)	$	(6.2	)

Print, paper and distribution expenses for the three and nine months endedSeptember 30, 2012 declined $6.8 million and $14.7 million, respectively, compared to print, paper and distribution expenses for the three and nine months endedSeptember 30, 2011 primarily due to lower page volumes associated with declines in print advertisements, as well as ongoing PPO initiatives to reduce print-related costs.

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Internet production and distribution expenses for the three and nine months endedSeptember 30, 2012 increased $6.9 million and $10.4 million, respectively, compared to Internet production and distribution expenses for the three and nine months endedSeptember 30, 2011 primarily due to increased DexNet traffic costs driven by higher sales volume and cost per click rates.

Selling and Support Expenses

Selling and support expenses for the three and nine months endedSeptember 30, 2012 were $84.1 million and $269.5 million, respectively, compared to selling and support expenses of $108.1 million and $323.0 million for the three and nine months endedSeptember 30, 2011, respectively. The primary components of the $24.0 million, or 22.2%, and $53.5 million, or 16.6%, decrease in selling and support expenses for the three and nine months endedSeptember 30, 2012, respectively, were as follows:

(amounts in millions)	Three Months Ended September 30, 2012			Nine Months Ended September 30, 2012
Lower commissions and salesperson expenses	$	(9.8	)	$	(20.3	)
Lower bad debt expense	(7.0		)	(9.3		)
Lower advertising expenses	(2.4		)	(7.0		)
Lower directory publishing expenses	(1.3		)	(5.5		)
Change in marketing expenses	0.3			(3.9		)
Lower billing, credit and collection expenses	(1.1		)	(2.9		)
All other, net	(2.7		)	(4.6		)
Total decrease in selling and support expenses for the three and nine months ended September 30, 2012	$	(24.0	)	$	(53.5	)

Commissions and salesperson expenses for the three and nine months endedSeptember 30, 2012 declined $9.8 million and $20.3 million, respectively, compared to commissions and salesperson expenses for the three and nine months endedSeptember 30, 2011 primarily due to lower print advertising sales and its effect on variable-based commissions, as well as lower headcount and related expenses.

Bad debt expense for the three and nine months endedSeptember 30, 2012 declined $7.0 million and $9.3 million, respectively, compared to bad debt expense for the three and nine months endedSeptember 30, 2011 primarily due to effective credit and collections practices, which have driven improvements in our accounts receivable portfolio, as well as lower billing volumes associated with declines in advertisers and advertising sales.

Advertising expenses for the three and nine months endedSeptember 30, 2012 declined $2.4 million and $7.0 million, respectively, compared to advertising expenses for the three and nine months endedSeptember 30, 2011 primarily due to a reduction in media spend.

Directory publishing expenses for the three and nine months endedSeptember 30, 2012 declined $1.3 million and $5.5 million, respectively, compared to directory publishing expenses for the three and nine months endedSeptember 30, 2011 primarily due to declines in print advertisements and lower headcount.

Marketing expenses for the three months ended September 30, 2012 remained level compared to marketing expenses for the three months ended September 30, 2011. Marketing expenses for the nine months ended September 30, 2012 declined $3.9 million compared to marketing expenses for the nine months ended September 30, 2011 primarily due to lower headcount.

Billing, credit and collection expenses for the three and nine months endedSeptember 30, 2012 declined $1.1 million and $2.9 million, respectively, compared to billing, credit and collection expenses for the three and nine months endedSeptember 30, 2011 primarily due to lower headcount.

General and Administrative Expenses

General and administrative (“G&A”) expenses for the three and nine months endedSeptember 30, 2012 were $33.5 million and $94.1 million, respectively, compared to G&A expenses of $36.6 million and $110.8 million for the three and nine months endedSeptember 30, 2011, respectively. The primary components of the $3.1 million, or 8.5%, and $16.7 million, or 15.1%, decrease in G&A expenses for the three and nine months endedSeptember 30, 2012, respectively, were as follows:

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(amounts in millions)	Three Months Ended September 30, 2012			Nine Months Ended September 30, 2012
Restructuring charges incurred in 2011	$	(4.5	)	$	(19.2	)
Lower general corporate expenses	(4.5		)	(9.0		)
Severance and related expenses incurred in 2012	1.5			7.1
Merger transaction and integration expenses	4.4			4.4
Total decrease in G&A expenses for the three and nine months ended September 30, 2012	$	(3.1	)	$	(16.7	)

During the fourth quarter of 2010, the Company initiated a restructuring plan that included headcount reductions, consolidation of responsibilities and vacating leased facilities, which continued into 2011 (“Restructuring Actions”). As a result of the Restructuring Actions, the Company recognized a restructuring charge of $4.5 million and $19.2 million during the three and nine months endedSeptember 30, 2011, respectively. There were no restructuring charges recognized in conjunction with the Restructuring Actions during the three and nine months endedSeptember 30, 2012.

During the three and nine months endedSeptember 30, 2012, the Company recognized lower general corporate expenses of $4.5 million and $9.0 million, respectively, due to lower headcount and related expenses and lower professional fees.

During the three and nine months endedSeptember 30, 2012, the Company recognized severance and related expenses of $1.5 million and $7.1 million, respectively, which were unrelated to the Restructuring Actions.

During the three and nine months endedSeptember 30, 2012, the Company recognized merger transaction and integration expenses of $4.4 million related to the proposed merger between Dex One and SuperMedia.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for the three and nine months endedSeptember 30, 2012 were $104.4 million and $313.2 million, respectively, compared to depreciation and amortization expenses of $66.0 million and $182.0 million for the three and nine months endedSeptember 30, 2011, respectively. Amortization of intangible assets was $87.4 million and $262.1 million for the three and nine months endedSeptember 30, 2012, respectively, compared to $50.5 million and $134.2 million for the three and nine months endedSeptember 30, 2011, respectively. The significant increase in intangible asset amortization expense for the three and nine months endedSeptember 30, 2012 is a result of accelerated amortization expense due to the reduction in estimated useful lives of our directory services agreements, local and national customer relationships and tradenames and trademarks during the first quarter of 2012. See Item 1, "Financial Statements (Unaudited)" - Note 2 - "Summary of Significant Accounting Policies - Identifiable Intangible Assets" for additional information. Depreciation of fixed assets and amortization of computer software of $17.0 million and $51.1 million for the three and nine months endedSeptember 30, 2012, respectively, remained level as compared to $15.5 million and $47.8 million for the three and nine months endedSeptember 30, 2011, respectively.

Impairment Charges

During the second quarter of 2011, the Company concluded there were indicators of impairment and as a result, we performed an impairment test of our goodwill and an impairment recoverability test of our definite-lived intangible assets and other long-lived assets. The testing results of our definite-lived intangible assets and other long-lived assets indicated they were recoverable and thus no impairment test was required. Based upon the testing results of our goodwill, we determined that the remaining goodwill assigned to each of our reporting units was fully impaired and thus recognized an aggregate goodwill impairment charge of $801.1 million during the nine months ended September 30, 2011. Please refer to our Quarterly Report on From 10-Q for the period ended June 30, 2011 for additional information including estimates and assumptions used in our impairment testing.

Operating Income (Loss)

Operating income (loss) was $27.3 million and $106.8 million for the three and nine months endedSeptember 30, 2012, respectively, compared to $78.2 million and $(509.6) million for the three and nine months endedSeptember 30, 2011, respectively. The change in operating income (loss) for the three and nine months endedSeptember 30, 2012 is a result of continuing declines in print revenues as well as the increase in amortization expense described above, partially offset by declines in operating expenses also described above. The change in operating income (loss) for the nine months ended September 30, 2012 is primarily due to the goodwill impairment charge recognized in the second quarter of 2011.

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Gain on Debt Repurchases, Net

As a result of the Debt Repurchases, we recognized non-cash, pre-tax gains of $139.6 million during the nine months endedSeptember 30, 2012. See Item 1, "Financial Statements (Unaudited)" - Note 1 - "Business and Basis of Presentation - Significant Financing Developments" for additional information.

Gain on Sale of Assets, Net

On February 14, 2011, we completed the sale of substantially all net assets of Business.com, including long-lived assets, domain names, trademarks, brands, intellectual property, related content and technology platform. As a result, we recognized a gain on the sale of these assets of $13.4 million during the nine months endedSeptember 30, 2011.

Interest Expense, Net

Net interest expense of the Company was $46.6 million and $151.6 million for the three and nine months endedSeptember 30, 2012, respectively, compared to $55.3 million and $171.1 million for the three and nine months endedSeptember 30, 2011, respectively. The decrease in net interest expense for the three and nine months endedSeptember 30, 2012 is primarily due to lower outstanding debt as a result of mandatory and accelerated debt repayments, partially offset by an increase in net interest expense as a result of the Company's election to make PIK interest payments on the Dex One Senior Subordinated Notes for the semi-annual interest periods ending September 30, 2012 and March 31, 2012.

In conjunction with our adoption of fresh start accounting and reporting on February 1, 2010 ("Fresh Start Reporting Date"), an adjustment was established to record our outstanding debt at fair value on the Fresh Start Reporting Date. This fair value adjustment will be amortized as an increase to interest expense over the remaining term of the respective debt agreements using the effective interest method and does not impact future scheduled interest or principal payments. Amortization of the fair value adjustment included as an increase to interest expense was $5.8 million and $19.6 million for the three and nine months endedSeptember 30, 2012, respectively, and $6.9 million and $21.7 million for the three and nine months endedSeptember 30, 2011, respectively.

During the first quarter of 2010, we entered into interest rate swap and interest rate cap agreements that are not designated as cash flow hedges. The Company’s interest expense includes income of $0.6 million and $1.5 million for the three and nine months endedSeptember 30, 2012, respectively, and income of $1.6 million and $1.8 million for the three and nine months endedSeptember 30, 2011, respectively, resulting from the change in fair value of these interest rate swaps and interest rate caps.

Income Taxes

Our quarterly income tax (provision) benefit for income taxes is measured using an estimated annual effective tax rate for the period, adjusted for discrete items that occurred within the periods presented.

For the three and nine months ended September 30, 2012, we recorded an income tax benefit of $6.6 million and $3.1 million, respectively, which represents an effective tax rate of 34.4% and (3.3)%, respectively. The effective tax rate for the three and nine months ended September 30, 2012 differs from the federal statutory rate of 35.0% primarily due to changes in recorded valuation allowances, the impact of state income taxes and changes in deferred tax liabilities related to the stock basis of subsidiaries and other adjustments related to the filing of the consolidated tax return.

The Debt Repurchases resulted in a tax gain of $141.5 million for the nine months ended September 30, 2012. Generally, the discharge of a debt obligation for an amount less than the adjusted issue price creates cancellation of debt income ("CODI"), which must be included in the taxpayer's taxable income. However, in accordance with Internal Revenue Code ("IRC") Section 108, in lieu of recognizing taxable income from CODI, the Company is required to reduce existing tax attributes. As a result, the Company recognized an estimated decrease in deferred tax assets relating to net operating losses and the basis of amortizable and depreciable property of approximately $3.1 million and $54.7 million for the three and nine months ended September 30, 2012, respectively. These decreases were offset by a decrease in recorded valuation allowance during the three and nine months ended September 30, 2012.

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The estimated annual effective tax rate for the current year includes an estimate of the change in the valuation allowance expected to be necessary at the end of the year. The Company recorded a decrease in the valuation allowance during the three and nine months ended September 30, 2012 as a result of the Debt Repurchases (discussed above). In addition, the valuation allowance was decreased during the nine months ended September 30, 2012 as a result of the reduction in estimated useful lives of certain intangible assets as discussed in Item 1, "Financial Statements (Unaudited)" - Note 2, "Summary of Significant Accounting Policies - Identifiable Intangible Assets," which was a change in circumstances that resulted in a change in judgment about the Company's ability to realize deferred tax assets in future years. The resulting change in income tax expense allocated to the three and nine months ended September 30, 2012 relating to the changes in valuation allowance is an increase of $2.8 million and a decrease of $40.0 million, respectively, which reduces our effective tax rate for the three and nine months ended September 30, 2012 by approximately 14.3% and 42.2%, respectively.

For the three months ended September 30, 2011, we recorded an income tax (provision) of $(0.7) million, which represented an effective tax rate of 3.1%. For the nine months ended September 30, 2011, we recorded an income tax benefit of $142.8 million, which represented an effective tax rate of 21.4%. The effective tax rate for the three months ended September 30, 2011 differs from the federal statutory rate of 35.0% primarily due to changes in deferred tax liabilities related to the stock basis of subsidiaries, changes in recorded valuation allowances, increases in the liability for unrecognized tax benefits and tax planning associated with IRC Section 108 and other adjustments related to the filing of our consolidated federal income tax return. The effective tax rate for the nine months ended September 30, 2011 differs from the federal statutory rate of 35.0% primarily due to non-deductible goodwill impairment, changes in deferred tax liabilities related to the stock basis of subsidiaries, changes in recorded valuation allowances, decreases in the liability for unrecognized tax benefits and tax planning associated with IRC Section 108 and other adjustments related to the filing of our consolidated federal income tax return.

The Company recorded a goodwill impairment charge of $801.1 million during the second quarter of 2011, of which $457.2 million related to non-deductible goodwill. Impairment of non-deductible goodwill reduced the income tax benefit of the impairment by $174.1 million and reduced our effective tax rate by approximately 26.1% for the nine months ended September 30, 2011.

Upon emergence from bankruptcy, the Company recorded deferred tax liabilities related to the excess of the financial statement carrying amount over the tax basis of investments in certain subsidiaries. The estimated annual effective tax rate for 2011 included an estimate of the change in these deferred tax liabilities. The goodwill impairment charge recorded during the second quarter of 2011 reduced the financial statement carrying amount of investments in certain subsidiaries, which also caused a reduction in these deferred tax liabilities. The resulting reduction in income tax expense for the three and nine months ended September 30, 2011 related to the change in these deferred tax liabilities was $6.3 million and $85.1 million, respectively, which (decreased) increased the effective tax rate for the three and nine months ended September 30, 2011 by approximately (27.3)% and 12.8%, respectively.

The estimated annual effective tax rate for 2011 included an estimate of the valuation allowance expected to be necessary at the end of the year for originating deferred tax assets. The goodwill impairment charge recorded during the second quarter of 2011 gave rise to a deferred tax asset whose realization did not meet a more-likely-than-not threshold, requiring a valuation allowance. In addition, changes in deferred tax assets and liabilities primarily related to the filing of our consolidated federal tax return resulted in increases to the valuation allowance during the three months ended September 30, 2011. The resulting increase in income tax expense for the three and nine months ended September 30, 2011 was $14.1 million and $60.7 million, respectively, which increased (decreased) the effective tax rate for the three and nine months ended September 30, 2011 by approximately 61.6% and (9.1)%, respectively.

With the filing of our consolidated federal income tax return for the year ended December 31, 2010, the Company recorded an income tax benefit of $23.6 million for both the three and nine months ended September 30, 2011 primarily related to tax planning associated with IRC Section 108 and other adjustments associated with the filing of our consolidated tax return, which resulted in a (decrease) increase in our effective tax rate of (103.1)% and 3.5% for the three and nine months ended September 30, 2011, respectively.

On June 15, 2011, the federal statute of limitations closed for a tax year in which a prior uncertain tax position related to revenue recognition was established. As a result, the Company decreased its liability for unrecognized tax benefits associated with this federal and state uncertain tax position by $28.2 million and recorded a tax benefit of $24.0 million for the nine months ended September 30, 2011, which resulted in an increase to our effective tax rate of 3.6% for the nine months ended September 30, 2011.

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The Company increased its liability for unrecognized tax benefits during the three months ended September 30, 2011 by $7.4 million, which resulted in an increase (decrease) to our effective tax rate of 29.6% and (1.0)% for the three and nine months ended September 30, 2011, respectively, primarily related to uncertainty in the realization of certain tax attributes available for reduction under IRC Section 108. The increase also related to the exclusion of non-business income under audit in the state of Illinois.

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

Net income (loss) was $(12.7) million and $97.8 million for the three and nine months endedSeptember 30, 2012, respectively, compared to $22.2 million and $(524.5) million for the three and nine months endedSeptember 30, 2011, respectively. The change in net income (loss) for the three and nine months ended September 30, 2012 is due to continuing declines in print revenues as well as the increase in amortization expense described above, partially offset by declines in operating expenses also described above. The change in net income (loss) for the nine months ended September 30, 2012 is primarily a result of the goodwill impairment charge and corresponding income tax benefit recognized in the second quarter of 2011, partially offset by the net gains on Debt Repurchases.

Basic and diluted earnings (loss) per share (“EPS”) was $(0.25) for the three months ended September 30, 2012. Basic EPS was $1.94 and diluted EPS was $1.93 for the nine months ended September 30, 2012. Basic and diluted EPS was $0.44 and $(10.47) for the three and nine months endedSeptember 30, 2011, respectively. See Item 1, “Financial Statements (Unaudited)” - Note 2, “Summary of Significant Accounting Policies – Earnings (Loss) Per Share” for further details and computations of basic and diluted EPS.

Non-GAAP Statistical Measures

Advertising sales is a non-GAAP statistical measure and consists of sales of advertising in print directories distributed during the period and Internet-based products and services with respect to which such advertising first appeared publicly during the period. It is important to distinguish advertising sales from net revenues, which under GAAP are recognized under the deferral and amortization method. Advertising sales in current periods will be recognized as gross advertising revenues in future periods as a result of the deferral and amortization method of revenue recognition. Advertising sales for the three and nine months endedSeptember 30, 2012 were $231.9 million and $862.4 million, respectively, representing a decline of $37.7 million, or 14.0%, and $140.4 million, or 14.0%, from advertising sales of $269.6 million and $1,002.8 million for the three and nine months endedSeptember 30, 2011, respectively.

In order to provide more visibility into what the Company will book as revenue in the future, we are presenting an additional non-GAAP statistical measure called bookings, which represent sales activity associated with our print directories and Internet-based marketing solutions during the period. Bookings associated with our local customers represent signed contracts during the period. Bookings associated with our national customers represent what has been published or fulfilled during the period. Bookings for the three and nine months endedSeptember 30, 2012 were $272.1 million and $851.7 million, respectively, representing a decline of $42.0 million, or 13.4%, and $129.6 million, or 13.2%, from bookings of $314.1 million and $981.3 million for the three and nine months endedSeptember 30, 2011, respectively.

The decrease in advertising sales and bookings for the three and nine months endedSeptember 30, 2012 is related to our print products and is a result of continuing declines in new and recurring business, mainly driven by (1) customer attrition, (2) declines in overall advertising spending by our customers, (3) the significant impact of the weak local business conditions on consumer spending in our customers’ markets, (4) an increase in competition and more fragmentation in local business search and (5) the migration of customers to digital marketing solutions. Declines in print advertising sales and bookings are partially offset by increased advertising sales and bookings associated with our digital marketing solutions, driven by new partnerships, a focus on providing targeted solution bundled packages to our customers, new digital products and services and the migration of customers to digital marketing solutions.

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LIQUIDITY AND CAPITAL RESOURCES

The following table presents the fair market value of our long-term debt at September 30, 2012 based on quoted market prices on that date, as well as the carrying value of our long-term debt at September 30, 2012, which includes (1) $41.6 million of unamortized fair value adjustments required by GAAP in connection with the Company’s adoption of fresh start accounting on the Fresh Start Reporting Date, (2) the issuance of an additional $7.4 million and $10.5 million of Dex One Senior Subordinated Notes as a result of the Company's election to make PIK interest payments for the semi-annual interest periods ending September 30, 2012 and March 31, 2012, respectively, and (3) the impact of the Debt Repurchases. See Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Trends and Developments Related to Our Business: Significant Financing Developments” for additional information on the Debt Repurchases.

	September 30, 2012
	Fair Market Value		Carrying Value
RHDI Amended and Restated Credit Facility	$	472,496	$	775,372
Dex Media East Amended and Restated Credit Facility	323,731		511,828
Dex Media West Amended and Restated Credit Facility	328,892		497,786
Dex One Senior Subordinated Notes	81,292		219,708
Total Dex One consolidated	1,206,411		2,004,694
Less current portion	142,924		226,129
Long-term debt	$	1,063,487	$	1,778,565

Credit Facilities

RHDI Amended and Restated Credit Facility

In conjunction with the Credit Facility Repurchases, RHDI repurchased $92.0 million of loans under the RHDI Amended and Restated Credit Facility at a rate of 43.5% of par. As of September 30, 2012, the outstanding carrying value under the RHDI Amended and Restated Credit Facility totaled $775.4 million. The RHDI Amended and Restated Credit Facility requires quarterly principal and interest payments and matures on October 24, 2014. The weighted average interest rate of outstanding debt under the RHDI Amended and Restated Credit Facility was 9.0% at September 30, 2012.

Dex Media East Amended and Restated Credit Facility

In conjunction with the Credit Facility Repurchases, DME Inc. repurchased $23.6 million of loans under the Dex Media East Amended and Restated Credit Facility at a rate of 53.0% of par. As of September 30, 2012, the outstanding carrying value under the Dex Media East Amended and Restated Credit Facility totaled $511.8 million. The Dex Media East Amended and Restated Credit Facility requires quarterly principal and interest payments and matures on October 24, 2014. The weighted average interest rate of outstanding debt under the Dex Media East Amended and Restated Credit Facility was 2.9% at September 30, 2012.

Dex Media West Amended and Restated Credit Facility

In conjunction with the Credit Facility Repurchases, DMW Inc. repurchased $26.6 million of loans under the Dex Media West Amended and Restated Credit Facility at a rate of 64.0% of par. As of September 30, 2012, the outstanding carrying value under the Dex Media West Amended and Restated Credit Facility totaled $497.8 million. The Dex Media West Amended and Restated Credit Facility requires quarterly principal and interest payments and matures on October 24, 2014. The weighted average interest rate of outstanding debt under the Dex Media West Amended and Restated Credit Facility was 7.3% at September 30, 2012.

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Notes

Dex One Senior Subordinated Notes

In conjunction with the Note Repurchases, the Company repurchased $98.2 million aggregate principal amount of Dex One Senior Notes at a rate of 27.0% of par. As of September 30, 2012, the outstanding carrying value of the Dex One Senior Subordinated Notes totaled $219.7 million. Interest on the Dex One Senior Subordinated Notes is payable semi-annually on March 31^st and September 30^th of each year, commencing on March 31, 2010 through January 29, 2017. The Dex One Senior Subordinated Notes accrue interest at an annual rate of 12% for cash interest payments and 14% if the Company elects PIK interest payments. The Company may elect, no later than two business days prior to the beginning of any such semi-annual interest period, whether to make each interest payment on the Dex One Senior Subordinated Notes (i) entirely in cash or (ii) 50% in cash and 50% in PIK interest, which is capitalized as additional senior subordinated notes. In the absence of such an election for any subsequent semi-annual interest period, interest on the Dex One Senior Subordinated Notes will be payable in the form of the interest payment for the semi-annual interest period immediately preceding such subsequent semi-annual interest period. For the semi-annual interest periods ending September 30, 2012 and March 31, 2012, the Company made interest payments 50% in cash and 50% in PIK interest, as permitted by the indenture governing the Dex One Senior Subordinated Notes, resulting in the issuance of an additional $7.4 million and $10.5 million, respectively, of Dex One Senior Subordinated Notes.

Impact of Fresh Start Accounting

In conjunction with our adoption of fresh start accounting, an adjustment was established to record our outstanding debt at fair value on the Fresh Start Reporting Date. The Company was required to record our Credit Facilities at a discount as a result of their fair value on the Fresh Start Reporting Date. Therefore, the carrying amount of these debt obligations is lower than the principal amount due at maturity. A total discount of $120.2 million was recorded upon adoption of fresh start accounting associated with our Credit Facilities, of which $41.6 million remains unamortized at September 30, 2012, as shown in the following table.

	Carrying Value at September 30, 2012		Unamortized Fair Value Adjustments at September 30, 2012		Outstanding Debt at September 30, 2012 Excluding the Impact of Unamortized Fair Value Adjustments
RHDI Amended and Restated Credit Facility	$	775,372	$	7,127	$	782,499
Dex Media East Amended and Restated Credit Facility	511,828		29,048		540,876
Dex Media West Amended and Restated Credit Facility	497,786		5,446		503,232
Dex One Senior Subordinated Notes	219,708		—		219,708
Total	$	2,004,694	$	41,621	$	2,046,315

In conjunction with the Credit Facility Repurchases, we accelerated amortization of fair value adjustments to our Credit Facilities of $2.0 million, which partially offset the net gain on Credit Facility Repurchases recognized during the nine months endedSeptember 30, 2012. See Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Trends and Developments Related to Our Business: Significant Financing Developments” for additional information.

Liquidity and Cash Flows

The Company’s primary sources of liquidity are existing cash on hand and cash flows generated from operations. The Company’s primary liquidity requirements will be to fund operations and service its indebtedness. The Company’s ability to meet its debt service requirements will be dependent on its ability to generate sufficient cash flows from operations. The primary sources of cash flows will consist mainly of cash receipts from the sale of our marketing solutions and can be impacted by, among other factors, general local business conditions, the continuing decline in the use of our print products, an increase in competition and more fragmentation in the local business search market, consumer confidence and the level of demand for our advertising products and services.

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Based on current financial projections, which do not include the impact of the proposed merger with SuperMedia, for at least the next 12-15 months, the Company expects to be able to continue to generate cash flows from operations in amounts sufficient to fund operations and capital expenditures, as well as meet debt service requirements. However, no assurances can be made that our business will generate sufficient cash flows from operations to enable us to fund the Company's cash requirements since the current information used in our financial projections could change in the future as a result of changes in estimates and assumptions as well as risks noted in Part I - Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011.

The Amendments provide greater flexibility to repurchase amounts outstanding under our Credit Facilities. As noted above, 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. We may from time to time seek to repurchase additional amounts outstanding under our Credit Facilities, as permitted by the Amendments. We also have the ability to repurchase the Dex One Senior Subordinated Notes in the open market. On April 19, 2012, the Company utilized cash on hand of $26.5 million to repurchase $98.2 million aggregate principal amount of Dex One Senior Subordinated Notes. We may also from time to time seek to retire or purchase additional Dex One Senior Subordinated Notes through cash purchases in open market purchases, privately negotiated transactions or otherwise, subject to applicable securities laws and regulations. Such purchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Each of our Credit Facilities require significant balloon payments upon maturity in October 2014. If the Company is unable to extend the maturity or significantly reduce our outstanding indebtedness prior to maturity by either (1) completing the Mergers and associated refinancing of our Credit Facilities, (2) open market repurchases as permitted by the Amendments to our Credit Facilities, (3) obtaining additional financing and/or (4) refinancing our existing indebtedness separate from the Mergers, we will not be able to generate cash flows from operations in amounts sufficient to fund operations and capital expenditures and/or satisfy debt service requirements at that time. In addition, if the Company was to become non-compliant with restrictive covenants under our debt agreements prior to October 2014, default provisions would be triggered under our Credit Facilities and outstanding balances could become due immediately. The Company continues to monitor and assess all available options and opportunities that would allow us to accomplish these financing initiatives; however, no assurances can be made that these financing initiatives will be attained.

As provided for in our Credit Facilities, each of the Company’s operating subsidiaries are permitted to fund a share of the Parent Company’s interest obligations on the Dex One Senior Subordinated Notes. Other funds, based on a percentage of each operating subsidiaries’ excess cash flow, as defined in each credit agreement, may be provided to the Parent Company to fund specific activities, such as acquisitions.  In addition, each of our operating subsidiaries are permitted to send up to $5 million annually to the Parent Company. Lastly, our operating subsidiaries fund on a proportionate basis those expenses paid by the Parent Company to fund the daily operations of our operating subsidiaries. Except for certain limited situations, including those noted above, the Credit Facilities restrict the ability of the Company and its subsidiaries to dividend assets to any third party, and of our subsidiaries to pay dividends, loans or advances to us.

The Company currently believes that the limitations and restrictions imposed by our Credit Facilities noted above will not impact our ability to fund operations and capital expenditures, as well as meet debt service requirements, specifically at the Parent Company level. However, no assurances can be made that these limitations and restrictions will not have an impact on our ability to fund operations and capital expenditures, as well as meet debt service requirements specifically at the Parent Company level in the future.

See Part I - Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011 for additional information regarding risks and uncertainties associated with our business, which could have a significant impact on our future liquidity and cash flows. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments Related to Our Business” for additional information related to trends and uncertainties with respect to our business, which could have a significant impact on our future liquidity and cash flows. See Part II - Item 1A. “Risk Factors” and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Information” for information regarding risks and uncertainties associated with the proposed merger between Dex One and SuperMedia and the impact the proposed merger could have on future liquidity and cash flows of the combined entity.

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Aggregate outstanding debt at September 30, 2012 was $2,004.7 million. During the three and nine months endedSeptember 30, 2012, we made mandatory principal payments under our Credit Facilities at par of $14.1 million and $201.6 million, respectively, and made accelerated principal payments under our Credit Facilities at par of $63.2 million and $103.2 million, respectively. Accelerated principal payments include prepayments of cash flow sweep requirements under our Credit Facilities for 2012 that are due in 2013 and advance payments of mandatory principal payments under our Credit Facilities due in December 2012. As a result of the Credit Facility Repurchases, the Company utilized cash on hand of $69.5 million to repurchase loans under the Credit Facilities of $142.1 million. As a result of the Note Repurchases, the Company utilized cash on hand of $26.5 million to repurchase $98.2 million aggregate principal amount of Dex One Senior Subordinated Notes. In total, we made debt payments with cash on hand of $77.4 million and $400.9 million and reduced outstanding debt by $77.4 million and $545.2 million during the three and nine months endedSeptember 30, 2012, respectively. We made aggregate net cash interest payments of $33.5 million and $121.4 million during the three and nine months endedSeptember 30, 2012, respectively. At September 30, 2012, we had $95.6 million of cash and cash equivalents before checks not yet presented for payment of $0.2 million.

Nine Months EndedSeptember 30, 2012

Cash provided by operating activities for the nine months endedSeptember 30, 2012 was $261.4 million and included net income adjusted for non-cash items such as depreciation and amortization, partially offset by the net gain on Debt Repurchases and changes in assets and liabilities primarily driven by changes in deferred directory revenues.

Cash used in investing activities for the nine months endedSeptember 30, 2012 was $17.0 million and relates to the purchase of fixed assets, primarily computer equipment, software and leasehold improvements, partially offset by proceeds from the sale of assets.

Cash used in financing activities for the nine months endedSeptember 30, 2012 was $406.7 million and includes the following:

• $400.9 million in long-term debt repurchases and repayments;

• $5.3 million in debt issuance costs and other financing items; and

• $0.5 million in the decreased balance of checks not yet presented for payment.

Nine Months Ended September 30, 2011

Cash provided by operating activities for the nine months ended September 30, 2011 was $295.0million and included net loss adjusted for non-cash items such as a goodwill impairment charge during the second quarter of 2011 and the associated deferred income tax benefit as well as depreciation and amortization, partially offset by changes in assets and liabilities primarily driven by changes in deferred directory revenues.

Cash used in investing activities for the nine months ended September 30, 2011 was $3.8million and related to the purchase of fixed assets, primarily computer equipment, software and leasehold improvements, offset by the sale of substantially all net assets of Business.com.

Cash used in financing activities for the nine months ended September 30, 2011 was $223.6million and included the following:

• $207.2 million in principal payments on our Credit Facilities;

• $0.5 million provided by other financing items; and

• $16.9 million in the decreased balance of checks not yet presented for payment.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

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Contractual Obligations

As a result of the Debt Repurchases, we have presented updated annual commitments for principal and interest payments on our debt obligations for the next five years and thereafter as of September 30, 2012. The debt repayments and related interest payments as presented in this table include (1) the scheduled principal and interest payments under the current debt agreements, (2) an estimate of additional debt repayments and the related impact on interest payments resulting from cash flow sweep requirements under our Credit Facilities and (3) assumes the issuance of additional Dex One Senior Subordinated Notes and the related impact on interest payments as a result of the Company's election to make PIK interest payments commencing for the semi-annual interest period ending March 31, 2012 until maturity. The debt repayments and related interest payments as presented in this table do not include the impact of the proposed amendments to our Credit Facilities in conjunction with the Mergers. Our Credit Facilities require that a certain percentage of annual excess cash flow, as defined in the debt agreements, be used to repay amounts under the Credit Facilities. The debt repayments exclude fair value adjustments required by GAAP as a result of our adoption of fresh start accounting of $41.6 million, as these adjustments do not impact our payment obligations.

During the second quarter of 2012, we entered into a five year agreement with an outsource service provider for datacenter / server assessment, migration and ongoing management and administration services. We also entered into a software licensing and services agreement with an Information Technology ("IT") outsource service provider covering a three year term. Contractual obligations associated with these agreements are included in the table below under the heading "Unconditional Purchase Obligations." There have been no significant changes to the other contractual obligations presented in our Annual Report on Form 10-K for the year ended December 31, 2011.

	Payments Due by Period
(amounts in millions)	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Principal Payments on Long-Term Debt (1)	$	2,122.7	$	247.9	$	1,578.8	$	296.0	$	—
Interest on Long-Term Debt (2)	300.5		130.1		144.4		26.0		—
Unconditional Purchase Obligations (3)	48.0		19.6		19.4		9.0		—
Total	$	2,471.2	$	397.6	$	1,742.6	$	331.0	$	—

⁽¹⁾ Included in long-term debt are scheduled principal amounts owed under the Credit Facilities and the Dex One Senior Subordinated Notes as of September 30, 2012, including the current portion of long-term debt, an estimate of additional debt repayments resulting from cash flow sweep requirements under our Credit Facilities, and assumes the issuance of additional Dex One Senior Subordinated Notes as a result of the Company's election to make PIK interest payments commencing for the semi-annual interest period ending March 31, 2012 until maturity.

⁽²⁾ Interest on debt represents cash interest payment obligations assuming all indebtedness as of September 30, 2012 will be paid in accordance with its contractual maturity, assumes interest rates on variable interest debt as of September 30, 2012 will remain unchanged in future periods, reflects the impact on interest payments resulting from an estimate of additional debt repayments due to cash flow sweep requirements under our Credit Facilities, as well as the impact on interest payments as a result of the Company's election to make PIK interest payments commencing for the semi-annual interest period ending March 31, 2012 until maturity.Please refer to “Liquidity and Capital Resources” for interest rates on the Credit Facilities and the Dex One Senior Subordinated Notes.

⁽³⁾ We are obligated to pay an outsource service provider approximately $30.0 million over the years 2012 through 2017 for datacenter / server assessment, migration and ongoing management and administration services. As of September 30, 2012, approximately $27.0 million remains outstanding under this obligation. We are also obligated to pay an IT outsource service provider approximately $22.0 million over the years 2012 through 2015 for software licensing and related services. As of September 30, 2012, approximately $16.3 million remains outstanding under this obligation. Under an Internet Yellow Pages Reseller Agreement, we are obligated to pay AT&T $11.2 million in 2012. As of September 30, 2012, approximately $4.7 million remains outstanding under this obligation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk and Risk Management

The Company’s Credit Facilities each bear interest at variable rates and, accordingly, our earnings and cash flow are affected by changes in interest rates. Management believes that it is prudent to mitigate the interest rate risk on a portion of its variable rate borrowings. To satisfy our objectives and requirements, the Company has entered into interest rate swap and interest rate cap agreements, which have not been designated as cash flow hedges, to manage our exposure to interest rate fluctuations on our variable rate debt.

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The Company has entered into the following interest rate swaps that effectively convert $300.0 million, or approximately 17%, of the Company’s variable rate debt to fixed rate debt as of September 30, 2012. Since the RHDI Amended and Restated Credit Facility and the Dex Media West Amended and Restated Credit Facility are subject to a LIBOR floor of 3.00% and the LIBOR rate is below that floor at September 30, 2012, both credit facilities are effectively fixed rate debt until such time LIBOR exceeds the stated floor. At September 30, 2012, approximately 89% of our total debt outstanding consisted of variable rate debt, excluding the effect of our interest rate swaps. Including the effect of our interest rate swaps, total fixed rate debt comprised approximately 26% of our total debt portfolio as of September 30, 2012.

Interest Rate Swaps – Dex Media East

Effective Dates	Notional Amount			Pay Rates	Maturity Dates
(amounts in millions)
February 26, 2010	$	100	(1)	1.796%	February 28, 2013
March 5, 2010	100		(1)	1.688%	January 31, 2013
March 10, 2010	100		(1)	1.75%	January 31, 2013
Total	$	300

Under the terms of the interest rate swap agreements, we receive variable interest based on the three-month LIBOR and pay a weighted average fixed rate of 1.7%. The weighted average rate received on our interest rate swaps was 0.5% for the nine months endedSeptember 30, 2012. These periodic payments and receipts are recorded as interest expense.

Under the terms of the interest rate cap agreements, the Company will receive payments based on the spread in rates if the three-month LIBOR rate increases above the cap rates noted in the table below. The Company paid $2.1 million for the interest rate cap agreements entered into during the first quarter of 2010. We are not required to make any future payments related to these interest rate cap agreements.

Interest Rate Caps – RHDI

Effective Dates	Notional Amount			Cap Rates	Maturity Dates
(amounts in millions)
February 26, 2010	$	100	(2)	3.5%	February 28, 2013
March 8, 2010	100		(2)	3.5%	January 31, 2013
Total	$	200

(1) Consists of one swap

(2) Consists of one cap

We use derivative financial instruments for hedging purposes only and not for trading or speculative purposes. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the possible failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it is not subject to credit risk. The Company minimizes the credit risk in derivative financial instruments by entering into transactions with major financial institutions with credit ratings of A- or higher, or the equivalent dependent upon the credit rating agency. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

Market Risk Sensitive Instruments

All derivative financial instruments are recognized as either assets or liabilities on the condensed consolidated balance sheets with measurement at fair value. On a quarterly basis, the fair values of our interest rate swaps and interest rate caps are determined based on quoted market prices. These derivative instruments have not been designated as cash flow hedges and as such, the initial fair value and any subsequent gains or losses on the change in the fair value of the interest rate swaps and interest rate caps are reported in earnings as a component of interest expense. Any gains or losses related to the quarterly fair value adjustments are presented as an operating activity on the condensed consolidated statements of cash flows.

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Management conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2012. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer 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 Act of 1934 is recorded, processed, summarized and reported within the time periods specific in the SEC’s rules and forms. In addition, based on that evaluation, the Chief Executive Officer and Chief Financial Officer 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 Act of 1934 is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls Over Financial Reporting

There have not been any changes in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various lawsuits, claims, and regulatory and administrative proceedings arising out of our business covering matters such as general commercial, governmental regulations, intellectual property, employment, tax and other actions. In the opinion of management, the ultimate resolution of these matters, including the two cases described below, will not have a material adverse effect on our results of operations, cash flows or financial position.

Beginning on October 23, 2009, a series of putative securities class action lawsuits were commenced against certain former Company officers in the United States District Court for the District of Delaware on behalf of all persons who purchased or otherwise acquired our publicly traded securities between July 26, 2007 and the time we filed for bankruptcy on May 28, 2009, alleging that such officers issued false and misleading statements regarding our business and financial condition and seeking damages and equitable relief. On August 19, 2010, an amended consolidated class action complaint was filed as the operative securities class action complaint (the “Securities Class Action Complaint”). The Company is not named as a defendant in the Securities Class Action Complaint. On December 30, 2011, the parties to the Securities Class Action Complaint entered into a memorandum of understanding containing the essential terms of a settlement of all disputes between them. On February 17, 2012, a formal stipulation of settlement was filed with the court. Pursuant to the stipulation of settlement, in exchange for a complete release of all claims, the Company's director's and officer's liability insurers will create a $25 million settlement fund for the benefit of the settlement class. The Company is not making any financial contribution to the settlement fund. The stipulation of settlement was approved by the court on June 19, 2012.

On December 7, 2009, a putative ERISA class action lawsuit was commenced in the United States District Court for the Northern District of Illinois on behalf of certain participants in, or beneficiaries of, the R.H. Donnelley 401(k) Savings Plan at any time between July 26, 2007 and January 29, 2010 and whose plan accounts included investments in R.H. Donnelley common stock. The putative ERISA class action complaint contains allegations against certain current and former directors, officers and employees similar to those set forth in the Securities Class Action Complaint as well as allegations of breaches of fiduciary duties under ERISA and seeks damages and equitable relief. The Company is not named as a defendant in this ERISA class action. On June 21, 2012, the parties to the ERISA class action suit entered into a memorandum of understanding containing the essential terms of a settlement of all disputes between them. On July 9, 2012, a formal settlement agreement and release was filed with the court. Pursuant to the settlement agreement and release, in exchange for a complete release of all claims, the Company's fiduciary liability insurers will create a $2.1 million settlement fund for the benefit of the settlement class. The Company is not making any financial contribution to the settlement fund. The settlement agreement and release is subject to final court approval, which we expect to receive during the second half of 2012.

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Item 1A. Risk Factors

Other than as set forth below to reflect the pending transaction with SuperMedia Inc. (“SuperMedia”), there have been no material changes in our risk factors from those disclosed in Part I - Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2011. The risk factors disclosed in our Annual Report on Form 10-K, in addition to the other information set forth in this Quarterly Report on Form 10-Q could materially affect our business, financial condition or results. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition or results.

Dex One and SuperMedia may be unable to obtain in the anticipated timeframe, or at all, the necessary consents to the Mergers from their respective stockholders and senior secured creditors, or such consents may not be obtainable on satisfactory terms.

Completion of the Mergers is contingent upon, among other things, each of Dex One and SuperMedia (a) obtaining consent to the transaction from their respective stockholders and (b) reaching an agreement with 100% of their senior secured creditors to amend their respective secured credit facilities in a manner acceptable to each of Dex One and SuperMedia. We cannot predict the likelihood of stockholder approval of the Mergers, and it will be difficult to obtain the required consent of 100% of our secured creditors. In addition, any amendments to the respective secured credit facilities may contain terms, conditions or restrictions that would be detrimental to the combined companies following the Mergers.

Either Dex One or SuperMedia may terminate the Merger Agreement.

The Merger Agreement may be terminated by either party if the conditions to closing are not satisfied and the closing has not occurred before November 30, 2012, which date may, under certain circumstances, be extended until December 31, 2012. It is not likely that we will obtain the necessary consents and be able to close the Mergers before either such date. In addition, the Merger Agreement may be terminated by either party at any time if it determines in good faith that the lender consents will not be obtained by the outside date. Accordingly, it is possible that the Merger Agreement will be terminated, unilaterally, by either party. The parties may amend the Merger Agreement to extend these deadlines, or may waive the deadlines, but it is possible that no agreement to amend, and no decision to waive, will be reached or that any agreement to so amend would contain terms or conditions that are different from, and less favorable than, the Merger Agreement.

In order to effect a combination with SuperMedia, we may pursue alternatives that have adverse consequences for various constituencies.

We continue to negotiate with our senior secured lenders to obtain the consents necessary to effect the Mergers. Following the announcement of the proposed Mergers, the current senior secured lenders for both companies formed a joint steering committee to evaluate the proposed amendments to the parties' respective credit agreements as set forth in the Merger Agreement. Thus far, the senior secured lenders, acting through the steering committee, have rejected the proposed amendments to the parties' respective credit agreements. The Company and SuperMedia continue to negotiate with the steering committee in an attempt to reach agreement on amendments to the parties' respective credit agreements that will secure the consents necessary to effect the Merger. In light of the current negotiations, however, the Company recognizes that the parties may not be able to obtain sufficient approval from the senior secured lenders to any proposed amendments to the parties' respective credit agreements. Therefore, possible alternatives to the current transaction structure to effect the Merger are under consideration, including a “prepackaged” restructuring of the parties' 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 the parties' respective lenders, while otherwise maintaining the basic economic terms of the Merger Agreement. However, there can be no assurance the Company and SuperMedia can effect a transaction through an alternative structure, that the necessary consents will be obtained, or that the Merger will be consummated.

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Any delay in completing, or any additional conditions imposed in order to complete the Mergers may materially and adversely affect the synergies and other benefits that we expect to achieve from the transaction and the integration of the businesses.

The transaction is subject to a number of conditions beyond our control that may prevent, delay or otherwise materially adversely affect its completion, and these conditions may not be satisfied. Furthermore, the requirements for obtaining any required stockholder, secured creditor or regulatory consents and approvals could delay the completion of the Mergers for a significant period of time or prevent it from occurring altogether. Any delay in completing the Mergers could materially and adversely affect the synergies and other benefits that we expect to achieve from the Mergers and the integration of the businesses.

We will be subject to business uncertainties and contractual restrictions while the proposed transaction with SuperMedia is pending.

Uncertainty about the effect of the Mergers on employees and customers may have an adverse effect on our Company. These uncertainties may impair our ability to retain and motivate key personnel and could cause customers and others that deal with the Company to defer entering into contracts with or making other decisions concerning the Company or seek to change existing business relationships with the Company. Some of our commercial contracts contain change-of-control provisions that may give rise to a right of termination or cancellation in connection with the proposed transaction with SuperMedia. In addition, if key employees depart because of uncertainty about their future roles and the potential risks of the transaction, our business could be harmed. The Merger Agreement restricts us from making specified acquisitions and taking other specified actions until the transaction is completed or the Merger Agreement is terminated. These restrictions may prevent us from pursuing attractive business opportunities that may arise.

We will incur significant transaction and transaction-related transition costs in connection with the proposed transaction with SuperMedia.

We expect that we will incur significant fees and expenses relating to amending existing secured credit agreements and legal, accounting and other transaction fees and other costs associated with our efforts to complete the Mergers. Some of these costs are payable regardless of whether the transaction is completed, and these costs may be higher than we currently anticipate. We will also incur significant costs in connection with integrating the operations of the two companies if the transaction is completed, and we may incur additional costs to maintain employee morale and to retain key employees. Upon termination of the Merger Agreement under specified circumstances, we may be required to pay the other party an expense reimbursement of up to a maximum amount of $7.5 million.

Failure to complete the Mergers could negatively impact our business.

If the transaction with SuperMedia is not completed, our ongoing businesses may be adversely affected and there may be adverse consequences, including:

• the adverse impact to our business caused by the focus on the transaction, without realizing any of the anticipated benefits of the Mergers;

• a negative impact on the market price of our common stock; and

• the possibility of being unable to repay indebtedness when due and payable, and pursuing a proceeding under Chapter 11 of the Bankruptcy Code.

If we are successful in completing the Mergers, failure to successfully integrate our business with that of SuperMedia, or failure to do so in the expected time frame, or at all, may adversely affect our future results.

To realize these anticipated benefits of the Mergers, we must successfully combine our business with that of SuperMedia. Historically, Dex One and SuperMedia have been independent companies, and we will continue to operate as such until the completion of the Mergers. If we do not successfully integrate our business operations with SuperMedia, the anticipated benefits of the Mergers may not be realized fully or at all or may take longer to realize than expected. The integration is also likely to be complex and time consuming and require substantial resources and effort. The diversion of the attention of management from its current operations to the integration effort could adversely affect our business. The integration process and other disruptions resulting from the Mergers may also disrupt our ongoing businesses and/or adversely affect our relationships with employees, regulators and others with whom we have business or other dealings. There can be no assurance that we will be able to accomplish this integration process on a timely basis.

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The Merger Agreement limits Dex One's and SuperMedia's ability to pursue alternatives to the transaction.

The Merger Agreement restricts the ability of each party to pursue alternatives to the proposed transaction, which could result in our inability to pursue other transactions that may be in the interests of our constituencies. Specifically, each of Dex One and SuperMedia has agreed that it will not, among other things, solicit, initiate, encourage or facilitate, or engage in discussions, negotiations or agreements regarding, proposals to acquire 10% or more of the stock or assets of Dex One or SuperMedia, subject to limited exceptions, including that a party may take specified actions in the event it receives an unsolicited acquisition proposal that constitutes a superior proposal or is reasonably expected to lead to a superior proposal, and the party's board of directors determines in good faith, after consultation with its outside legal counsel and financial advisor, that a failure to take action with respect to such takeover proposal would be inconsistent with its duties under applicable law. Each party has also agreed that its board of directors will not change its recommendation to its stockholders or approve any alternative agreement, subject to limited exceptions, including that, at any time prior to the applicable stockholder approval, the applicable board of directors may make a change in recommendation of the transaction if such board concludes in good faith, after consultation with its outside legal counsel and financial advisor, that (1) the failure to take such action would be inconsistent with its duties under applicable laws, (2) if requested by the other party, its representatives shall have negotiated in good faith with the other party for three business days and (3) if such change in recommendation is related to an alternative acquisition proposal, that such proposal constitutes a superior proposal.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding shares acquired from employees during the three months ended September 30, 2012 as payment to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock awarded to employees pursuant to the Dex One Equity Incentive Plan. All such acquired shares were retired upon purchase during the third quarter of 2012.

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2012 - July 31, 2012	—	$	—	—	—
August 1, 2012 - August 31, 2012	—	—		—	—
September 1, 2012 - September 30, 2012	35,070	1.84		—	—
Total	35,070	$	1.84	—	—

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Item 6. Exhibits

Exhibit No.	Document
2.1	Agreement and Plan of Merger by and among Dex One Corporation, Newdex, Inc., Spruce Acquisition Sub, Inc. and SuperMedia Inc., dated August 20, 2012 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K/A filed with the Securities and Exchange Commission on August 23, 2012, Commission File No. 001-07155).
31.1*	Certification of Quarterly Report on Form 10-Q for the period ended September 30, 2012 by Alfred T. Mockett, Chief Executive Officer and President of Dex One Corporation under Section 302 of the Sarbanes-Oxley Act.
31.2*	Certification of Quarterly Report on Form 10-Q for the period ended September 30, 2012 by Gregory W. Freiberg, Executive Vice President and Chief Financial Officer of Dex One Corporation under Section 302 of the Sarbanes-Oxley Act.
32.1*	Certification of Quarterly Report on Form 10-Q for the period ended September 30, 2012, under Section 906 of the Sarbanes-Oxley Act by Alfred T. Mockett, Chief Executive Officer and President, and Gregory W. Freiberg, Executive Vice President and Chief Financial Officer, for Dex One Corporation.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

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SIGNATURES

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

			DEX ONE CORPORATION
Date:	October 30, 2012	By:	/s/ Gregory W. Freiberg
			Gregory W. Freiberg Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)
			/s/ Sylvester J. Johnson
			Sylvester J. Johnson Vice President, Controller and Chief Accounting Officer
			(Principal Accounting Officer)

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Exhibit Index

Exhibit No.	Document
2.1	Agreement and Plan of Merger by and among Dex One Corporation, Newdex, Inc., Spruce Acquisition Sub, Inc. and SuperMedia Inc., dated August 20, 2012 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K/A filed with the Securities and Exchange Commission on August 23, 2012, Commission File No. 001-07155).
31.1*	Certification of Quarterly Report on Form 10-Q for the period ended September 30, 2012 by Alfred T. Mockett, Chief Executive Officer and President of Dex One Corporation under Section 302 of the Sarbanes-Oxley Act.
31.2*	Certification of Quarterly Report on Form 10-Q for the period ended September 30, 2012 by Gregory W. Freiberg, Executive Vice President and Chief Financial Officer of Dex One Corporation under Section 302 of the Sarbanes-Oxley Act.
32.1*	Certification of Quarterly Report on Form 10-Q for the period ended September 30, 2012, under Section 906 of the Sarbanes-Oxley Act by Alfred T. Mockett, Chief Executive Officer and President, and Gregory W. Freiberg, Executive Vice President and Chief Financial Officer, for Dex One Corporation.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

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* Filed herewith.

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