10-Q 1 g24306e10vq.htm FORM 10-Q e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
     
þ     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
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 þ 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 o 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. (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ (Do not check if a smaller reporting company)   Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 þ 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 July 31, 2010
Common Stock, par value $.001 per share   50,015,691
 
 

 


 

DEX ONE CORPORATION
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 EX-31.1
 EX-31.2
 EX-32.1

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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Dex One Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
                   
    Successor Company       Predecessor Company  
(in thousands, except share data)   June 30, 2010       December 31, 2009  
Assets
                 
Current Assets
                 
Cash and cash equivalents
  $ 121,755       $ 665,940  
Accounts receivable:
                 
Billed
    211,492         244,048  
Unbilled
    599,537         636,350  
Allowance for doubtful accounts
    (54,557 )       (54,612 )
           
Net accounts receivable
    756,472         825,786  
Deferred directory costs
    133,084         138,061  
Prepaid expenses and other current assets
    61,479         90,928  
           
Total current assets
    1,072,790         1,720,715  
 
                 
Fixed assets and computer software, net
    197,506         157,272  
Deferred income taxes, net
            399,885  
Other non-current assets
    4,489         62,699  
Intangible assets, net
    2,463,363         2,158,223  
Goodwill, net
    1,344,784          
           
 
                 
Total Assets
  $ 5,082,932       $ 4,498,794  
           
 
                 
Liabilities and Shareholders’ Equity (Deficit)
                 
 
                 
Current Liabilities Not Subject to Compromise
                 
Accounts payable and accrued liabilities
  $ 119,215       $ 168,488  
Short-term deferred income taxes, net
    47,345         108,184  
Accrued interest
    33,274         4,643  
Deferred directory revenues
    564,015         848,775  
Current portion of long-term debt
    165,524         993,528  
           
Total current liabilities not subject to compromise
    929,373         2,123,618  
 
                 
Long-term debt
    2,809,480         2,561,248  
Deferred income taxes, net
    294,803          
Other non-current liabilities
    109,227         380,163  
           
Total liabilities not subject to compromise
    4,142,883         5,065,029  
 
                 
Liabilities subject to compromise
            6,352,813  
 
                 
Commitments and contingencies
                 
 
                 
Shareholders’ Equity (Deficit)
                 
Successor Company common stock, par value $.001 per share, authorized — 300,000,000 shares; issued and outstanding–50,015,691 shares at June 30, 2010
    50          
Predecessor Company common stock, par value $1 per share, authorized — 400,000,000 shares; issued–88,169,275 shares and outstanding–68,955,674 shares at December 31, 2009
            88,169  
Additional paid-in capital
    1,452,704         2,442,549  
Accumulated deficit
    (512,705 )       (9,137,160 )
Predecessor Company treasury stock, at cost, 19,213,601 shares at December 31, 2009
            (256,114 )
Accumulated other comprehensive loss
            (56,492 )
           
 
                 
Total shareholders’ equity (deficit)
    940,049         (6,919,048 )
           
 
                 
Total Liabilities and Shareholders’ Equity (Deficit)
  $ 5,082,932       $ 4,498,794  
           
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 Operations and Comprehensive Income (Loss) (Unaudited)
                                           
    Successor Company       Predecessor Company  
    Three Months Ended     Five Months Ended       One Month Ended     Three Months Ended     Six Months Ended  
(in thousands, except per share data)     June 30, 2010       June 30, 2010         January 31, 2010       June 30, 2009       June 30, 2009  
Net revenues
  $ 160,891     $ 214,035       $ 160,372     $ 565,628     $ 1,167,615  
 
                                         
Expenses:
                                         
Production and distribution expenses (exclusive of depreciation and amortization shown separately below)
    51,476       80,485         27,069       92,739       194,640  
Selling and support expenses
    93,502       151,855         40,882       160,736       312,738  
General and administrative expenses
    40,202       61,930         8,186       25,973       67,568  
Depreciation and amortization
    59,581       99,005         20,161       142,322       285,167  
Impairment charges
    769,674       769,674                      
           
Total expenses
    1,014,435       1,162,949         96,298       421,770       860,113  
 
                                         
Operating income (loss)
    (853,544 )     (948,914 )       64,074       143,858       307,502  
 
                                         
Interest expense, net
    (73,423 )     (122,357 )       (19,656 )     (161,469 )     (360,305 )
           
 
                                         
Income (loss) before reorganization items, net and income taxes
    (926,967 )     (1,071,271 )       44,418       (17,611 )     (52,803 )
 
                                         
Reorganization items, net
                  7,793,132       (70,781 )     (70,781 )
           
 
                                         
Income (loss) before income taxes
    (926,967 )     (1,071,271 )       7,837,550       (88,392 )     (123,584 )
 
                                         
(Provision) benefit for income taxes
    157,044       558,566         (917,541 )     12,910       (353,108 )
           
 
                                         
Net income (loss)
  $ (769,923 )   $ (512,705 )     $ 6,920,009     $ (75,482 )   $ (476,692 )
           
 
                                         
Earnings (loss) per share:
                                         
Basic
  $ (15.39 )   $ (10.25 )     $ 100.3     $ (1.10 )   $ (6.92 )
           
Diluted
  $ (15.39 )   $ (10.25 )     $ 100.2     $ (1.10 )   $ (6.92 )
           
 
                                         
Shares used in computing earnings (loss) per share:
                                         
Basic
    50,016       50,013         69,013       68,918       68,892  
           
Diluted
    50,016       50,013         69,052       68,918       68,892  
           
 
                                         
Comprehensive Income (Loss)
                                         
Net income (loss)
  $ (769,923 )   $ (512,705 )     $ 6,920,009     $ (75,482 )   $ (476,692 )
Amortization of gain (loss) on interest rate swaps, net of tax
                  1,083       (4,212 )     (3,884 )
Benefit plans adjustment, net of tax
                  (4,535 )     17,215       17,232  
           
Comprehensive income (loss)
  $ (769,923 )   $ (512,705 )     $ 6,916,557     $ (62,479 )   $ (463,344 )
           
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)
                           
    Successor Company       Predecessor Company  
    Five Months       One Month     Six Months  
    Ended       Ended     Ended  
    June 30,       January 31,     June 30,  
(in thousands)   2010       2010     2009  
Cash Flows Provided By Operating Activities
  $ 240,060       $ 71,741     $ 176,622  
 
                         
Cash Flows from Investing Activities
                         
Additions to fixed assets and computer software
    (15,192 )       (1,766 )     (9,846 )
           
Net cash used in investing activities
    (15,192 )       (1,766 )     (9,846 )
 
                         
Cash Flows from Financing Activities
                         
Credit facilities repayments
    (303,436 )       (511,272 )     (229,415 )
Debt issuance and other financing costs
    (2,785 )       (22,096 )      
Revolver borrowings
                  361,000  
Revolver repayments
                  (18,749 )
Increase (decrease) in checks not yet presented for payment
    3,653         (3,092 )     (3,864 )
           
Net cash provided by (used in) financing activities
    (302,568 )       (536,460 )     108,972  
 
                         
Increase (decrease) in cash and cash equivalents
    (77,700 )       (466,485 )     275,748  
Cash and cash equivalents, beginning of year
    199,455         665,940       131,199  
           
Cash and cash equivalents, end of period
  $ 121,755       $ 199,455     $ 406,947  
           
 
                         
Supplemental Information:
                         
Cash paid:
                         
Interest, net
  $ 69,263       $ 15,460     $ 282,839  
           
Income taxes, net
  $ 2,148       $     $ 1,062  
           
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 Changes in Shareholders’ Equity (Deficit)
                                                 
                                    Accumulated        
                                    Other     Total  
    Common     Additional     Accumulated     Treasury     Comprehensive     Shareholders’  
(in thousands)   Stock     Paid-in Capital     Deficit     Stock     Income (Loss)     Equity (Deficit)  
 
Balance, December 31, 2009 (Predecessor Company)
  $ 88,169     $ 2,442,549     $ (9,137,160 )   $ (256,114 )   $ (56,492 )   $ (6,919,048 )
Net income
                6,920,009                   6,920,009  
Compensatory stock awards
          613                         613  
Other adjustments related to compensatory stock awards
          (103 )           103              
Amortization of gain on interest rate swaps, net of tax
                            1,083       1,083  
Benefit plans adjustment, net of tax
                            (4,535 )     (4,535 )
Cancellation of Predecessor Company common stock
    (88,169 )                             (88,169 )
Elimination of Predecessor Company additional paid-in capital, accumulated deficit, treasury stock and accumulated other comprehensive loss
          (2,443,059 )     2,217,151       256,011       59,944       90,047  
     
Balance, January 31, 2010 (Predecessor Company)
  $     $     $     $     $     $  
 
Issuance of Successor Company Common Stock
  $ 50     $     $     $     $     $ 50  
Establishment of Successor Company additional paid-in capital
          1,450,734                         1,450,734  
     
Balance, February 1, 2010 (Successor Company)
    50       1,450,734                         1,450,784  
Net loss
                (512,705 )                 (512,705 )
Compensatory stock awards
          1,970                         1,970  
     
Balance, June 30, 2010 (Successor Company)
  $ 50     $ 1,452,704     $ (512,705 )   $     $     $ 940,049  
     
The accompanying notes are an integral part of the condensed consolidated financial statements.

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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 “Successor Company,” 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, 2009. The interim condensed consolidated financial statements include the accounts of Dex One and its direct and indirect wholly-owned subsidiaries. As of June 30, 2010, R.H. Donnelley Corporation, R.H. Donnelley Inc. (“RHDI”), Dex Media, Inc. (“Dex Media”), Business.com, Inc. (“Business.com”) and Dex One Service, Inc. (“Dex One Service”) 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.
Dex One became the successor registrant to R.H. Donnelley Corporation (“RHD” or the “Predecessor Company” for operations prior to January 29, 2010, the “Effective Date”) upon emergence from Chapter 11 relief under Title 11 of the United States Code (the “Bankruptcy Code”) on the Effective Date. References to the Predecessor Company in this Quarterly Report on Form 10-Q pertain to periods prior to the Effective Date. See Note 3, “Fresh Start Accounting” for a presentation of the impact of emergence from reorganization and fresh start accounting on our financial position, results of operations and cash flows.
Corporate Overview
We are a marketing solutions company that helps local businesses grow by providing marketing products that help them get found by ready-to-buy consumers and marketing services that help them get chosen over their competitors. Through our Dex® Advantage, clients’ business information is published and marketed through a single profile and distributed via a variety of both owned and operated products and through other local search products. Dex Advantage spans multiple media platforms for local advertisers including print with our Dex published directories, which we co-brand with other brands in the industry such as Qwest, CenturyLink and AT&T, online and mobile devices with DexKnows.com ® and voice-activated directory search at 1-800-Call-Dex™. Our digital affiliate provided solutions are powered by DexNet™, which leverages network partners including the premier search engines, such as Google® and Yahoo!® and other leading online sites. Our growing list of marketing services include local business and market analysis, message and image creation, target market identification, advertising and digital profile creation, keyword and search engine optimization strategies and programs, distribution strategies, social strategies, and tracking and reporting.
Retirement of Chairman and Chief Executive Officer
Effective May 28, 2010 (the “Separation Date”), our Chairman and Chief Executive Officer, David C. Swanson, retired from the Company. The Company’s Board of Directors (the “Board”) has established an Executive Oversight Committee comprised of three of the Board’s current directors, Jonathan B. Bulkeley, W. Kirk Liddell and Mark A. McEachen, to lead the Company on an interim basis. Mr. Liddell serves as the Company’s Interim Principal Executive Officer and current Board member, Alan F. Schultz, serves as the non-executive Chairman of the Board.
In connection with Mr. Swanson’s retirement, the Company entered into a Separation Agreement with Mr. Swanson (the “Separation Agreement”) on May 20, 2010. The Separation Agreement provides that Mr. Swanson will receive severance benefits to which he is entitled under his Amended and Restated Employment Agreement (the “Employment Agreement”), in connection with a termination not for Cause following a Change of Control (as such terms are defined in the Employment Agreement). In accordance with the Separation Agreement, Mr. Swanson received a lump-sum separation payment of $6.4 million plus accrued and unpaid salary and vacation days totaling $0.5 million during the three months ended June 30, 2010 and will receive a pro rata portion of his 2010 annual bonus totaling $0.4 million no later than March 15, 2011.

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In accordance with the Separation Agreement, the Company will reimburse Mr. Swanson for the costs of obtaining term life insurance coverage from the Separation Date until the earlier of (i) December 31, 2013 and (ii) the date on which Mr. Swanson becomes employed or self-employed. In addition, the Company will reimburse Mr. Swanson for costs of obtaining health, medical and dental insurance and long-term disability insurance benefits from the Separation Date until the earlier of (i) May 31, 2013 and (ii) the date on which Mr. Swanson becomes employed or self-employed. Mr. Swanson will also be reimbursed for costs of financial planning and outplacement services, dues for continuing his health club and country club memberships and executive health expenses during this period. He will also have access to periodic administrative and technical support through the end of 2010.
Following the Separation Date, Mr. Swanson has no equity interest in the Company or any of its affiliates or subsidiaries other than 25,320 previously issued and currently vested stock appreciation rights in the Company. All other unvested stock appreciation rights held by Mr. Swanson have terminated. Mr. Swanson will continue to participate in the Company’s 2009 Long Term Incentive Plan (“LTIP”) and will be eligible to receive payment of up to $3.5 million under the LTIP subject to satisfaction of the performance standards contained in the LTIP. Mr. Swanson will also receive $5.7 million in full satisfaction for amounts due to him under certain non-qualified pension plans and $0.5 million associated with his vested benefits under the Company’s qualified pension plan and under the R.H. Donnelley Corporation Restoration Plan. Pursuant to the Separation Agreement, Mr. Swanson agreed to release the Company from, among other things, all claims, demands, damages, actions or rights of action of any nature, arising out of or related to or based upon his employment with the Company. Mr. Swanson further agreed to comply with and be bound by a 12 month non-competition and non-solicitation covenant beginning on the Separation Date and covenants prohibiting disclosure of the Company’s confidential information.
Reclassifications
Certain prior period amounts included in the condensed consolidated statements of operations have been reclassified to conform to the current period’s presentation. Purchased traffic costs incurred to direct traffic to our online properties have been reclassified from advertising expense, a component of selling and support expenses, to production and distribution expenses in the condensed consolidated statements of operations. In addition, information technology expenses have been reclassified from production and distribution expenses to general and administrative expenses in the condensed consolidated statements of operations. These reclassifications had no impact on operating income or net loss for the three and six months ended June 30, 2009. The tables below summarize these reclassifications.
                         
    Three Months Ended June 30, 2009
    As            
    Previously           As
    Reported   Reclass   Reclassified
 
Production and distribution expenses
  $ 88,499     $ 4,240     $ 92,739  
Selling and support expenses
    172,184       (11,448 )     160,736  
General and administrative expenses
    18,765       7,208       25,973  
                         
    Six Months Ended June 30, 2009
    As            
    Previously           As
    Reported   Reclass   Reclassified
 
Production and distribution expenses
  $ 184,651     $ 9,989     $ 194,640  
Selling and support expenses
    337,068       (24,330 )     312,738  
General and administrative expenses
    53,227       14,341       67,568  
In addition, certain prior period amounts associated with accounts receivable that are included in the condensed consolidated balance sheets have been reclassified to conform to the current period’s presentation.

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Filing of Voluntary Petitions in Chapter 11
On May 28, 2009 (the “Petition Date”), the Predecessor Company and its subsidiaries (collectively with the Predecessor Company, the “Debtors”) filed voluntary petitions for Chapter 11 relief under the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).
Confirmed Plan of Reorganization and Emergence from the Chapter 11 Proceedings
On January 12, 2010, the Bankruptcy Court entered the Findings of Fact, Conclusions of Law, and Order Confirming the Joint Plan of Reorganization for the Predecessor Company and its subsidiaries (the “Confirmation Order”). On the Effective Date, the Joint Plan of Reorganization for the Predecessor Company and its subsidiaries (the “Plan”) became effective in accordance with its terms.
From the Petition Date until the Effective Date, the Debtors operated their businesses as debtors-in-possession in accordance with the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the “Chapter 11 Cases”) were jointly administered under the caption In re R.H. Donnelley Corporation, Case No. 09-11833 (KG) (Bankr. D. Del. 2009).
Restructuring
As part of a restructuring that was conducted in connection with the Debtors’ emergence from bankruptcy, the Debtors merged, consolidated, dissolved, or terminated, shortly after the Effective Date, certain of their wholly-owned subsidiaries, as set forth below:
    DonTech Holdings, LLC and R.H. Donnelley Publishing & Advertising of Illinois Holdings, LLC were merged into their sole member, RHDI;
 
    The DonTech II Partnership and R.H. Donnelley Publishing & Advertising of Illinois Partnership technically terminated their respective partnership agreements due to the loss of a second partner;
 
    Dex Media East Finance Co. was merged into Dex Media East LLC;
 
    Dex Media West Finance Co. was merged into Dex Media West LLC;
 
    Work.com, Inc. was merged into Business.com, Inc.;
 
    GetDigitalSmart.com, Inc. was merged into RHDI;
 
    Dex Media East LLC was merged into Dex Media East, Inc. (“DME Inc.”);
 
    Dex Media West LLC was merged into Dex Media West, Inc. (“DMW Inc.”); and
 
    R.H. Donnelley Publishing & Advertising, Inc. was merged into RHDI.
After effectuating the restructuring transactions, Dex One became the ultimate parent company of each of the following surviving subsidiaries: (i) R.H. Donnelley Corporation, a newly formed subsidiary of Dex One (ii) RHDI, (iii) Dex Media, (iv) DME Inc., (v) DMW Inc., (vi) Dex Media Service LLC, (vii) Dex One Service LLC (which was subsequently converted into a Delaware corporation under the name Dex One Service effective March 1, 2010, (viii) Business.com and (ix) R.H. Donnelley APIL, Inc.
Consummation of the Plan
Issuance of New Common Stock
Upon emergence from Chapter 11 and pursuant to the Plan, all of the issued and outstanding shares of the Predecessor Company’s common stock and any other outstanding equity securities of the Predecessor Company including all stock options, stock appreciation rights (“SARs”) and restricted stock, were cancelled. On the Effective Date, the Company issued an aggregate amount of 50,000,001 shares of new common stock, par value $.001 per share. See Note 10, “Capital Stock” for additional information regarding our new common stock.

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Distributions Pursuant to the Plan
Since the Effective Date, the Company has substantially consummated the various transactions contemplated under the confirmed Plan. The Company has made the following distributions of stock and securities that were required to be made under the Plan to creditors with allowed claims:
    On the Effective Date, in accordance with the Plan, the Company issued the following number of shares of Dex One common stock: (i) approximately 10.5 million shares, representing 21.0% of total outstanding common stock, to all holders of notes issued by RHD; (ii) approximately 11.65 million shares, representing 23.3% of total outstanding common stock, to all holders of notes issued by Dex Media, Inc.; (iii) approximately 12.9 million shares, representing 25.8% of total outstanding common stock, to all holders of notes issued by RHDI; (iv) approximately 6.5 million shares, representing 13.0% of total outstanding common stock, to all holders of senior notes issued by Dex Media West; and (v) approximately 8.45 million shares, representing 16.9% of total outstanding common stock, to all holders of senior subordinated notes issued by Dex Media West.
 
    On the Effective Date, in accordance with the terms of the Plan, holders of the Dex Media West 8.5% Senior Notes due 2010 and 5.875% Senior Notes due 2011 also received their pro rata share of Dex One’s $300.0 million aggregate principal amount of 12%/14% Senior Subordinated Notes due 2017 (“Dex One Senior Subordinated Notes”).
As of June 30, 2010 and pursuant to the Plan, the Company has made distributions in cash on account of all, or substantially all, of the allowed claims of general unsecured creditors. Allowed claims of general unsecured creditors that have not been paid as of June 30, 2010 will be paid during the remainder of 2010.
Pursuant to the terms of the Plan, the Company is also obligated to make certain additional payments to certain creditors, including certain distributions that may become due and owing subsequent to the initial distribution date and certain payments to holders of administrative expense priority claims and fees earned by professional advisors during the Chapter 11 Cases.
Discharge, Releases, and Injunctions Pursuant to the Plan and the Confirmation Order
The Plan and Confirmation Order also contain various discharges, injunctive provisions, and releases that became operative upon the Effective Date. These provisions are summarized in Sections M through O of the Confirmation Order and more fully described in Article X of the Plan.
Registration Rights Agreement
On the Effective Date and pursuant to the Plan, the Company entered into a Registration Rights Agreement (the “Agreement”), requiring the Company to register with the SEC certain shares of its common stock and/or the Dex One Senior Subordinated Notes upon the request of one or more Eligible Holders (as defined in the Agreement), in accordance with the terms and conditions set forth therein. On April 8, 2010 and pursuant to the Agreement, the Company filed a shelf registration statement to register for resale by Franklin Advisers, Inc. and certain of its affiliates 15,262,488 shares of our common stock and $116.6 million aggregate principal amount of the Dex One Senior Subordinated Notes. These securities were registered pursuant to the Agreement to permit the sale of the securities from time to time at fixed prices, prevailing market prices at the times of sale, prices related to the prevailing market prices, varying prices determined at the times of sale or negotiated prices. The shelf registration statement became effective on April 16, 2010.
Impact on Long-Term Debt Upon Emergence from the Chapter 11 Proceedings
On the Effective Date and in accordance with the Plan, $6.1 billion of the Predecessor Company’s senior notes, senior discount notes and senior subordinated notes (collectively the “notes in default”) were exchanged for (a) 100% of the reorganized Dex One equity and (b) $300.0 million of the Dex One Senior Subordinated Notes issued to the holders of the Dex Media West 8.5% Senior Notes due 2010 and 5.875% Senior Notes due 2011 on a pro rata basis in addition to their share of the reorganized Dex One equity. See Note 6, “Long-Term Debt, Credit Facilities and Notes” for further details of our long-term debt.

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Accounting Matters Resulting from the Chapter 11 Proceedings
The filing of the Chapter 11 petitions constituted an event of default under the indentures governing the Predecessor Company’s notes in default and the debt obligations under those instruments became automatically and immediately due and payable, although any actions to enforce such payment obligations were automatically stayed under applicable bankruptcy laws. Based on the bankruptcy petitions, the notes in default are included in liabilities subject to compromise on the consolidated balance sheet at December 31, 2009.
The filing of the Chapter 11 petitions also constituted an event of default under the Predecessor Company’s credit facilities. However, pursuant to the Plan, these secured lenders received 100% principal recovery and scheduled amortization and interest subsequent to the filing of the Chapter 11 petitions. The Predecessor Company has determined that the fair value of the collateral securing each of its credit facilities exceeded the book value of such credit facilities, including accrued interest and interest rate swap liabilities associated with each of the credit facilities, and therefore, the credit facilities are excluded from liabilities subject to compromise on the consolidated balance sheet at December 31, 2009.
As a result of filing the Chapter 11 petitions, certain interest rate swaps were terminated by the respective counterparties and, as such, are no longer deemed financial instruments to be measured at fair value. These interest rate swaps were not settled prior to the Effective Date. In conjunction with the amendment and restatement of the Predecessor Company’s credit facilities on the Effective Date, these interest rate swaps were converted into a new tranche of term loans under each of the related credit facilities. See Note 7, “Derivative Financial Instruments” for additional information.
For periods subsequent to the Chapter 11 bankruptcy filing, Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, Reorganizations (“FASB ASC 852”), has been applied in preparing the consolidated financial statements. FASB ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses including professional fees, realized gains and losses and provisions for losses that are realized from the reorganization and restructuring process are classified as reorganization items on the condensed consolidated statement of operations. Additionally, on the condensed consolidated balance sheet at December 31, 2009, liabilities are segregated between liabilities not subject to compromise and liabilities subject to compromise. Liabilities subject to compromise are reported at their pre-petition amounts or current unimpaired values, even if they may be settled for lesser amounts.
The Predecessor Company’s financial statements included in this Quarterly Report on Form 10-Q do not purport to reflect or provide for the consequences of the Chapter 11 bankruptcy proceeding. In particular, the financial statements do not purport to show (i) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (ii) as to pre-petition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (iii) as to shareholders’ deficit accounts, the effects of any changes that may be made in the Predecessor Company’s capitalization; or (iv) as to operations, the effects of any changes that may be made to the Predecessor Company’s business.
Going Concern
As a result of our emergence from the Chapter 11 proceedings and the restructuring of the Predecessor Company’s outstanding debt, we believe that Dex One will generate sufficient cash flow from operations to satisfy all of its debt obligations according to applicable terms and conditions for a reasonable period of time. See Note 3, “Fresh Start Accounting” for information and analysis on our emergence from the Chapter 11 proceedings and the impact on our financial position. The Company’s goodwill and intangible asset impairment charges recorded during the three months ended June 30, 2010 do not affect our ability to continue as a going concern, as we are permitted to exclude such charges from debt covenant evaluations.

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2. Summary of Significant Accounting Policies
Identifiable Intangible Assets and Goodwill
Goodwill of $2.1 billion was recorded in connection with the Company’s adoption of fresh start accounting as discussed in Note 3, “Fresh Start Accounting” and represented the excess of the reorganization value of Dex One over the fair value of identified tangible and intangible assets. Goodwill is not amortized but is subject to impairment testing on an annual basis as of October 31st or more frequently if indicators of potential impairment exist. Goodwill is tested for impairment at the reporting unit level, which represents one level below an operating segment in accordance with FASB ASC 350, Intangibles — Goodwill and Other (“FASB ASC 350”). The Company’s reporting units are RHDI, DME Inc., DMW Inc. and Business.com.
The Company and the Predecessor Company review the carrying value of goodwill, definite-lived intangible assets and other long-lived assets whenever events or circumstances indicate that their carrying amount may not be recoverable. The Company and the Predecessor Company reviewed the following information, estimates and assumptions to determine if any indicators of impairment existed during the three and five months ended June 30, 2010 and the one month ended January 31, 2010, respectively:
    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 carrying values;
 
    Trading values of our debt and equity securities; and
 
    Other Company-specific and Predecessor Company-specific information.
Based upon the decline in the trading value of our debt and equity securities during the three months ended June 30, 2010 and the retirement of our Chairman and Chief Executive Officer on May 28, 2010, among others, the Company concluded that there were indicators of impairment during the three months ended June 30, 2010. The Company and the Predecessor Company concluded that there were no indicators of impairment during the two months ended March 31, 2010 and the one month ended January 31, 2010, respectively.
As a result of identifying indicators of impairment, we performed impairment tests as of June 30, 2010 of our goodwill, definite-lived intangible assets and other long-lived assets in accordance with FASB ASC 350 and FASB ASC 360, Property, Plant and Equipment (“FASB ASC 360”), respectively, using estimates and assumptions described above. The Company’s definite-lived intangible assets and other long-lived assets have been assigned to the respective reporting unit they represent for impairment testing. The fair values of our intangible assets were determined using unobservable inputs (level 3 in the fair value hierarchy) based on a discounted cash flow valuation technique. See Note 3, “Fresh Start Accounting” for additional information on how the fair values of our intangible assets were determined for our impairment testing, as a similar methodology and process was used in conjunction with our adoption of fresh start accounting. The impairment test of our definite-lived intangible assets and other long-lived assets was performed by comparing the carrying amount of our definite-lived intangible assets and other long-lived assets, including goodwill, to the sum of their undiscounted expected future cash flows, including goodwill. In accordance with FASB ASC 360, impairment exists if the sum of the undiscounted expected future cash flows is less than the carrying amount of the intangible asset, or its related group of assets, and other long-lived assets. The testing results of our definite-lived intangible assets and other long-lived assets resulted in an impairment charge of $17.3 million during the three and five months ended June 30, 2010 associated with trade names and trademarks, technology, local customer relationships and other from our Business.com reporting unit.
Our impairment test of goodwill was performed at the reporting unit level and involved a two-step process. The first step involved comparing the fair value of each reporting unit with the carrying amount of its assets and liabilities, including goodwill, as goodwill was specifically assigned to each of the reporting units upon our adoption of fresh start accounting. The fair value was determined by valuing the Company’s debt securities at par value, as the respective debt agreements include provisions that would require the debt securities to be repaid at par value upon a change of control, and by using a market based approach for the Company’s publicly traded common stock, which included a trailing 20-day average of the closing market price of our common stock ending June 30, 2010. The aggregate debt and equity values were used to arrive at a consolidated Business Enterprise Value (“BEV”) for the Company. Since our reporting units’ equity securities are not publicly traded, there is no observable market information for these securities. As such, we have calculated a BEV for each reporting unit using unobservable inputs (level 3 in the fair value hierarchy) based on a discounted cash flow valuation technique. The Company ensured that the sum of the individual reporting units’ BEVs using the discounted cash flow valuation technique was consistent with the Company’s consolidated BEV using observable market pricing.

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As a result of our testing, we determined that each reporting unit’s fair value was less than the carrying amount of its assets and liabilities, requiring us to proceed with the second step of the goodwill impairment test. In the second step of the testing process, the impairment loss was determined by comparing the implied fair value of each reporting unit’s goodwill to the recorded amount of goodwill. Determining the implied fair value of a reporting unit requires judgment and the use of significant estimates and assumptions noted above as well as other inputs such as discount rates and terminal growth rates. We believe that the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated or the amount of impairment recorded. The valuation of each of our reporting units was based upon a discounted cash flow methodology. Under the discounted cash flow method, the Company determined fair value based on the estimated future cash flows of each reporting unit, discounted to present value using risk-adjusted discount rates, which reflect the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn. Cash flow projections were derived from management’s financial projections for the period 2010 to 2013. Subsequent period cash flows were developed for each reporting unit using growth rates that the Company believes are reasonably likely to occur along with a terminal value derived from the reporting unit’s earnings before interest, taxes, depreciation and amortization. Supporting analyses used to determine each reporting unit’s fair value included (a) a comparison of selected financial data of the Company with similar data of other publicly held companies in businesses similar to ours and (b) an assessment of tax attributes. A detailed discussion of the discounted cash flow methodology, supporting analyses used and development of the Company’s business plan and long-term financial projections is presented in Note 3, “Fresh Start Accounting — Methodology, Analysis and Assumptions,” as a similar methodology and process was utilized to value the Company for fresh start accounting on February 1, 2010. Based upon this analysis, we recognized a goodwill impairment charge of $752.3 million during the three and five months ended June 30, 2010, which has been recorded at each of our reporting units as follows:
         
Reporting Unit   Goodwill Impairment Charge  
RHDI
  $ 243,674  
DME Inc.
    241,512  
DMW Inc.
    225,955  
Business.com
    41,199  
 
     
Total
  $ 752,340  
 
     
The following table presents a summary of the Company’s goodwill by reporting unit as well as critical assumptions used in the valuation of the reporting units at June 30, 2010:
                                                         
                                                    Percentage  
                                                    By Which  
                                                    Reporting  
                                                    Unit Fair  
                                            Reporting     Value  
                                    Years of Cash     Unit     Exceeds  
                            Terminal     Flow Before     Fair Value     its  
    Goodwill     Percentage of     Discount     Growth     Terminal     at June 30,     Carrying  
Reporting Unit   Balance     Total     Rate     Rate (1)     Value     2010     Value  
RHDI
  $ 380,161       28.3 %     10.5 %     0.0 %   3.5 years   $ 1,540,000       0.0 %
DME Inc.
    430,571       32.0       10.5 %     0.0 %   3.5 years     1,180,000       0.0 %
DMW Inc.
    527,878       39.2       10.5 %     0.0 %   3.5 years     1,335,000       0.0 %
Business.com
    6,174       0.5       16.0 %     1.0 %   9.5 years     15,600       0.0 %
 
   
Total
  $ 1,344,784       100.0 %                     $ 4,070,600        
 
   
 
(1)   Terminal growth rate is determined by reconciling the market value of our debt and equity securities as of June 30, 2010 to the Company’s long-term financial projections.
The change in the carrying amount of goodwill for the five months ended June 30, 2010 is as follows:
         
Balance at February 1, 2010
  $ 2,097,124  
Goodwill impairment charge
    (752,340 )
 
     
Balance at June 30, 2010
  $ 1,344,784  
 
     

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The sum of the goodwill and intangible asset impairment charges totaled $769.7 million for the three and five months ended June 30, 2010.
In connection with the Company’s adoption of fresh start accounting, identifiable intangible assets that were either developed by the Predecessor Company or acquired by the Predecessor Company in prior acquisitions have been recorded at their estimated fair value and are being amortized over their estimated useful lives in a manner that best reflects the economic benefit derived from such assets. See Note 3, “Fresh Start Accounting” for additional information and how the fair values of our intangible assets were determined. Our identifiable intangible assets and their respective book values at June 30, 2010, which are shown in the following table, have been adjusted for the impairment charge during the three months ended June 30, 2010 noted above. The adjusted book values of these intangible assets represent their new cost basis. Accumulated amortization prior to the impairment charge has been eliminated and the new cost basis will be amortized over the remaining useful lives of the intangible assets.
                                                 
                                    Technology,        
    Directory     Local     National     Trade     Advertising        
    Services     Customer     Customer     Names and     Commitments        
    Agreements     Relationships     Relationships     Trademarks     & Other     Total  
Net intangible assets fair value
  $ 1,330,000     $ 561,400     $ 175,000     $ 381,900     $ 88,400     $ 2,536,700  
Accumulated amortization
    (36,368 )     (22,449 )     (2,972 )     (8,567 )     (2,981 )     (73,337 )
 
   
Net intangible assets at June 30, 2010
  $ 1,293,632     $ 538,951     $ 172,028     $ 373,333     $ 85,419     $ 2,463,363  
 
   
Amortization expense related to the Company’s intangible assets was $46.3 million and $77.1 million for the three and five months ended June 30, 2010, respectively, and was impacted by the increase in fair value of our intangible assets and the establishment of the estimated useful lives resulting from our adoption of fresh start accounting. Amortization expense related to the Predecessor Company’s intangible assets was $15.6 million for the one month ended January 31, 2010 and was impacted by the reduced carrying values of intangible assets resulting from impairment charges recorded by the Predecessor Company during the fourth quarter of 2009 and the associated reduction in remaining useful lives effective January 1, 2010. Amortization expense related to the Predecessor Company’s intangible assets was $128.6 million and $257.0 million for the three and six months ended June 30, 2009, respectively.
The Company expects to recognize amortization expense associated with its intangible assets of $165.9 million during the eleven months ended December 31, 2010, which includes the affect of reduced book values of our intangible assets subsequent to the impairment charge during the three months ended June 30, 2010 noted above.
The combined weighted average useful life of our identifiable intangible assets at June 30, 2010 is 22 years. The weighted average useful lives and amortization methodology for each of our identifiable intangible assets at June 30, 2010 are shown in the following table:
         
    Weighted Average   Amortization
Intangible Asset   Useful Lives   Methodology
Directory services agreements
  27 years   Income forecast method (1)
Local customer relationships
  15 years   Income forecast method (1)
National customer relationships
  26 years   Income forecast method (1)
Trade names and trademarks
  15 years   Straight-line method
Technology, advertising commitments and other
  9 years   Income forecast method (1)
 
(1)   The fair value assigned to these identifiable intangible assets is 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.

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The Company and the Predecessor Company evaluate the remaining useful lives of identifiable 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. In conjunction with our impairment testing during the three months ended June 30, 2010, the Company evaluated the remaining useful lives of identifiable intangible assets and other long-lived assets 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. In addition, in conjunction with our adoption of fresh start accounting and the determination of the fair value of our assets and liabilities in the first quarter of 2010, the Company and the Predecessor Company evaluated the remaining useful lives of identifiable intangible assets and other long-lived assets by considering the factors noted above. Based on this evaluation, the Company and the Predecessor Company have determined that the estimated useful lives of intangible assets presented above reflect the period they are expected to contribute to future cash flows and are therefore 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 if the trading value of our debt and equity securities decline significantly, we will be required to once again assess the recoverability of goodwill in addition to our annual evaluation and recoverability and useful lives of our intangible assets and other long-lived assets. This 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 and Deferred Financing Costs
Certain costs associated with the issuance of debt instruments have been capitalized and were included in other non-current assets on the condensed consolidated balance sheets. These costs have been amortized to interest expense over the terms of the related debt agreements. The bond outstanding method was used to amortize deferred financing costs relating to debt instruments with respect to which we made accelerated principal payments. Other deferred financing costs were amortized using the effective interest method. The Company did not record any amortization of deferred financing costs for the three and five months ended June 30, 2010, as financing costs associated with our new debt arrangements were included in the fair value determination of our long-term debt resulting from our adoption of fresh start accounting. Amortization of the Predecessor Company’s deferred financing costs included in interest expense was $1.8 million, $8.3 million and $16.6 million for the one month ended January 31, 2010 and three and six months ended June 30, 2009, respectively.
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 $8.3 million and $13.9 million for the three and five months ended June 30, 2010, respectively. See Note 3, “Fresh Start Accounting” for additional information.
In connection with the amendment and restatement of the Dex Media East and RHDI credit facilities on the Effective Date, we entered into interest rate swap and interest rate cap agreements during the first quarter of 2010, which have not been designated as cash flow hedges. The Company’s interest expense for the three and five months ended June 30, 2010 includes expense of $5.6 million and $6.7 million, respectively, resulting from the change in fair value of these interest rate swaps and interest rate caps.

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The Predecessor Company’s interest expense for the one month ended January 31, 2010 and three and six months ended June 30, 2009 includes expense of $0.8 million, $5.1 million and $5.1 million, respectively, associated with the change in fair value of the Dex Media East LLC interest rate swaps no longer deemed financial instruments as a result of filing the Chapter 11 petitions. The Predecessor Company’s interest expense for the one month ended January 31, 2010 and three and six months ended June 30, 2009 also includes expense of $1.1 million, $2.0 million and $2.0 million, respectively, resulting from amounts previously charged to accumulated other comprehensive loss related to these interest rate swaps. The amounts previously charged to accumulated other comprehensive loss related to the Dex Media East LLC interest rate swaps were to be amortized to interest expense over the remaining life of the interest rate swaps based on future interest payments, as it was not probable that those forecasted transactions would not occur. In accordance with fresh start accounting and reporting, unamortized amounts previously charged to accumulated other comprehensive loss related to these interest rate swaps have been eliminated as of the Fresh Start Reporting Date. See Note 3, “Fresh Start Accounting” for additional information.
As a result of the amendment of the RHDI credit facility and the refinancing of the former Dex Media West LLC credit facility on June 6, 2008, the Predecessor Company’s interest rate swaps associated with these two debt arrangements were no longer highly effective in offsetting changes in cash flows. Accordingly, cash flow hedge accounting treatment was no longer permitted. In addition, as a result of filing the Chapter 11 petitions, these interest rate swaps were required to be settled or terminated during 2009. As a result of the change in fair value of these interest rate swaps prior to the Effective Date, the Predecessor Company’s interest expense includes expense of $0.4 million for the one month ended January 31, 2010 and a reduction of $2.6 million and $9.3 million for the three and six months ended June 30, 2009, respectively.
In conjunction with the Predecessor Company’s acquisition of Dex Media (“Dex Media Merger”) and as a result of purchase accounting required under U.S. generally accepted accounting principles (“GAAP”), the Predecessor Company recorded Dex Media’s debt at its fair value on January 31, 2006. The Predecessor Company recognized an offset to interest expense in each period subsequent to the Dex Media Merger through May 28, 2009 for the amortization of the corresponding fair value adjustment. The offset to interest expense was $3.0 million and $7.7 million for the three and six months ended June 30, 2009, respectively. The offset to interest expense was to be recognized over the life of the respective debt, however due to filing the Chapter 11 petitions, unamortized fair value adjustments at May 28, 2009 of $78.5 million were written-off and recognized as a reorganization item during 2009.
Contractual interest expense that would have appeared on the Predecessor Company’s condensed consolidated statement of operations if not for the filing of the Chapter 11 petitions was $65.9 million, $202.9 million and $398.1 million for the one month ended January 31, 2010 and three and six months ended June 30, 2009, respectively.
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 $6.8 million and $11.0 million for the three and five months ended June 30, 2010, respectively. Total advertising expense for the Predecessor Company was $1.0 million, $6.4 million and $10.1 million for the one month ended January 31, 2010 and three and six months ended June 30, 2009, respectively.
Concentration of Credit Risk
Approximately 85% of our advertising revenues are derived from the sale of our marketing products and services to local businesses. Most new clients and clients desiring to expand their advertising programs are subject to a credit review. We do not require collateral from our clients, although we do charge late fees to clients that do not pay by specified due dates. The remaining approximately 15% of our advertising revenues are derived from the sale of our marketing products and services to national or large regional chains. Substantially all of the revenues derived through national accounts are serviced through certified marketing representatives (“CMRs”) from which we accept orders. We receive payment for the value of advertising placed in our directories, net of the CMR’s commission, directly from the CMR. While we are still exposed to credit risk, the amount of credit losses from these accounts has historically been less than our credit losses on local accounts because the clients, and in some cases the CMRs, tend to be larger companies with greater financial resources than local clients.

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At June 30, 2010, we had interest rate swap and interest rate cap agreements with major financial institutions with a notional amount of $500.0 million and $400.0 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 AA- 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.
                 
    Successor Company  
    Three Months     Five Months  
    Ended     Ended  
    June 30, 2010     June 30, 2010  
 
Basic EPS
               
Net loss
  $ (769,923 )   $ (512,705 )
Weighted average common shares outstanding
    50,016       50,013  
     
Basic EPS
  $ (15.39 )   $ (10.25 )
     
 
Diluted EPS
               
Net loss
  $ (769,923 )   $ (512,705 )
Weighted average common shares outstanding
    50,016       50,013  
Dilutive effect of stock awards (1)
           
     
Weighted average diluted shares outstanding
    50,016       50,013  
     
Diluted EPS
  $ (15.39 )   $ (10.25 )
     
                         
    Predecessor Company  
    One Month     Three Months     Six Months  
    Ended     Ended     Ended  
    January 31, 2010     June 30, 2009     June 30, 2009  
 
Basic EPS
                       
Net income (loss)
  $ 6,920,009     $ (75,482 )   $ (476,692 )
Weighted average common shares outstanding
    69,013       68,918       68,892  
     
Basic EPS
  $ 100.3     $ (1.10 )   $ (6.92 )
     
 
Diluted EPS
                       
Net income (loss)
  $ 6,920,009     $ (75,482 )   $ (476,692 )
Weighted average common shares outstanding
    69,013       68,918       68,892  
Dilutive effect of stock awards (1)
    39              
     
Weighted average diluted shares outstanding
    69,052       68,918       68,892  
     
Diluted EPS
  $ 100.2     $ (1.10 )   $ (6.92 )
     
 
(1)   Due to the Company’s reported net loss for the three and five months ended June 30, 2010 and the Predecessor Company’s reported net loss for the three and six months ended June 30, 2009, the effect of all stock-based awards was anti-dilutive and therefore not included in the calculation of diluted EPS. For the three and five months ended June 30, 2010, 1.0 million shares and 1.0 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. For the one month ended January 31, 2010 and three and six months ended June 30, 2009, 4.6 million shares, 5.7 million shares and 5.7 million shares, respectively, of the Predecessor Company’s stock-based awards had exercise prices that exceeded the average market price of the Predecessor Company’s common stock for the respective period.

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Stock-Based Awards
On the Effective Date, the Company’s Board of Directors ratified the Dex One Equity Incentive Plan (“EIP”), which was previously approved as part of the Confirmation Order. Under the EIP, certain employees and non-employee directors of the Company are eligible to receive stock options, SARs, limited stock appreciation rights in tandem with stock options, restricted stock and restricted stock units. Under the EIP, 5.6 million shares of our common stock were authorized for grant. To the extent that shares of our common stock are not issued or delivered by reason of (i) the expiration, termination, cancellation or forfeiture of such award, with certain exceptions, or (ii) the settlement of such award in cash, then such shares of our common stock shall again be available under the EIP. Stock awards will typically be granted at the market value of our common stock at the date of the grant, become exercisable in ratable installments or otherwise, over a period of one to three years from the date of grant, and may be exercised up to a maximum of ten years from the date of grant. The Company’s Compensation & Benefits Committee will determine termination, vesting and other relevant provisions at the date of the grant.
On March 1, 2010 and pursuant to the Plan, the Company granted 1.3 million SARs to certain employees, including executive officers, as intended in the Plan and in conjunction with the EIP. These SARs, which are settled in our common stock, were granted at a grant price of $28.68 per share, which was equal to the volume weighted average market value of our common stock during the first thirty calendar days upon emergence from Chapter 11, and vest ratably over three years. On March 1, 2010, the Company also granted and issued less than 0.1 million shares of common stock to members of its Board of Directors. These shares of common stock vested immediately upon issuance. The Company recorded $1.1 million and $2.0 million of stock-based compensation expense related to the March 1, 2010 grants during the three and five months ended June 30, 2010, respectively.
Upon emergence from Chapter 11 and pursuant to the Plan, all outstanding equity securities of the Predecessor Company including all stock options, SARs and restricted stock, were cancelled. As a result, the Predecessor Company recognized $1.9 million of remaining unrecognized compensation cost related to these stock-based awards as reorganization items, net during the one month ended January 31, 2010.
Prior to the cancellation of its equity awards, the Predecessor Company recorded stock-based compensation expense related to stock-based awards granted under its various employee and non-employee stock incentive plans of $0.6 million, $2.8 million and $6.8 million for the one month ended January 31, 2010 and three and six months ended June 30, 2009, respectively.
Long-Term Incentive Program
The Company’s LTIP is a cash-based plan designed to provide long-term incentive compensation to participants based on the achievement of performance goals. The LTIP was originally approved by the Predecessor Company’s Compensation & Benefits Committee in 2009. During the bankruptcy proceedings, the Bankruptcy Court approved for the LTIP to be carried forward by the Company upon emergence from Chapter 11. The amount of each award under the LTIP will be paid in cash and is dependent upon the attainment of certain performance measures related to the amount of the Company’s and Predecessor Company’s cumulative free cash flow for the 2009, 2010 and 2011 fiscal years (the “Performance Period”). Participants who are executive officers of the Company and Predecessor Company, and certain other participants designated by the Chief Executive Officer, were also eligible to receive a payment upon the achievement of a restructuring, reorganization and/or recapitalization relating to the Predecessor Company’s outstanding indebtedness and liabilities (the “Specified Actions”) during the Performance Period. Payments are to be made following the end of the Performance Period or the date of a Specified Action, as the case may be. Upon emergence from Chapter 11 and the achievement of the Specified Actions, the Company made cash payments associated with the LTIP of $8.0 million during the five months ended June 30, 2010.
These cash-based awards were granted to participants in April 2009. The Company recognized compensation expense related to the LTIP of $3.2 million and $3.9 million during the three and five months ended June 30, 2010, respectively, which includes $2.3 million of accelerated compensation expense associated with the retirement of our Chief Executive Officer. The Predecessor Company recognized compensation expense related to the LTIP of $0.5 million, $1.8 million and $1.8 million during the one month ended January 31, 2010 and three and six months ended June 30, 2009, respectively.

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Fair Value of Financial Instruments
At June 30, 2010 and December 31, 2009, the fair value of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximated their carrying value based on the net short-term nature of these instruments. As discussed in Note 3, “Fresh Start Accounting,” all of the Company’s assets and liabilities were fair valued as of the Fresh Start Reporting Date in connection with our adoption of fresh start accounting. The Company has utilized quoted market prices, where available, to compute the fair market value of our long-term debt at June 30, 2010 as disclosed in Note 6, “Long-Term Debt, Credit Facilities and Notes.” These 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. As a result of filing the Chapter 11 petitions and the Plan, the Predecessor Company does not believe that it is meaningful to present the fair market value of its long-term debt at December 31, 2009.
FASB ASC 820, Fair Value Measurements and Disclosures (“FASB ASC 820”) defines fair value, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and expands disclosures about fair value measurements. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy, which gives the highest priority to quoted prices in active markets, is comprised of the following three levels:
Level 1 — Unadjusted quoted market prices in active markets for identical assets and liabilities.
Level 2 — Observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions, or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Prices or valuations that require inputs that are both significant to the measurement and unobservable.
As required by FASB ASC 820, assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s and the Predecessor 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 and the Predecessor Company had interest rate swaps with a notional amount of $500.0 million and $200.0 million at June 30, 2010 and December 31, 2009, respectively, that are and were measured at fair value on a recurring basis. At June 30, 2010, the Company had interest rate caps with a notional amount of $400.0 million that are measured at fair value on a recurring basis. The following table presents the Company’s and the Predecessor Company’s assets and liabilities that were measured at fair value on a recurring basis at June 30, 2010 and December 31, 2009, 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)
    Successor Company     Predecessor Company
Derivatives:   June 30, 2010     December 31, 2009
       
Interest Rate Swap — Liabilities
  $ (5,070 )     $ (6,695 )
Interest Rate Cap — Assets
  $ 551       $  
There were no transfers of assets or liabilities into or out of Level 2 during the three and five months ended June 30, 2010 or the one month ended January 31, 2010.
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.

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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 7, “Derivative Financial Instruments,” interest rate yield curves such as the London Inter Bank Swap Curve, 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 June 30, 2010, the impact of applying counterparty credit risk in determining the fair value of our derivative instruments was an increase to our derivative instruments liability of less than $0.1 million. At June 30, 2010, 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 $0.5 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.
Estimates
The preparation of financial statements in conformity with 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 reserves, deferred income taxes, certain estimates pertaining to liabilities under FASB ASC 740, certain assumptions pertaining to our stock-based awards, certain estimates associated with liabilities classified as liabilities subject to compromise, and certain estimates and assumptions used in our impairment evaluation of goodwill, definite-lived intangible assets and other long-lived assets, among others.
New Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends FASB ASC 820 to clarify existing disclosure requirements and require additional disclosure about fair value measurements. ASU 2010-06 clarifies existing fair value disclosures about the level of disaggregation presented and about inputs and valuation techniques used to measure fair value for measurements that fall in either Level 2 or Level 3 of the fair value hierarchy. The additional disclosure requirements include disclosure regarding the amounts and reasons for significant transfers in and out of Level 1 and Level 2 of the fair value hierarchy and separate presentation of purchases, sales, issuances and settlements of items within Level 3 of the fair value hierarchy. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about Level 3 activity of purchases, sales, issuances and settlements, which is effective for interim and annual reporting periods beginning after December 15, 2010. Effective January 1, 2010, we adopted the disclosure provisions of ASU 2010-06 that are effective for interim and annual reporting periods beginning after December 15, 2009. These disclosures are required to be provided only on a prospective basis.

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In September 2009, the Emerging Issues Task Force (“EITF”) reached final consensus on EITF Issue No. 08-1, Revenue Arrangements with Multiple Deliverables (“EITF 08-1”). EITF 08-1 has not yet been incorporated into the FASB’s Codification. EITF 08-1 updates the current guidance pertaining to multiple-element revenue arrangements included in FASB ASC 605-25, which originated from EITF 00-21, Revenue Arrangements with Multiple Deliverables. EITF 08-1 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. EITF 08-1 will be effective for the Company in the annual reporting period beginning January 1, 2011. EITF 08-1 may be applied retrospectively or prospectively and early adoption is permitted. The Company does not expect the adoption of EITF 08-1 to have an impact on its financial position, results of operations or cash flows.
We have reviewed other accounting pronouncements that were issued as of June 30, 2010, 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.
3. Fresh Start Accounting
The Company adopted fresh start accounting and reporting effective February 1, 2010, the Fresh Start Reporting Date, in accordance with FASB ASC 852, as the holders of existing voting shares immediately before confirmation of the Plan received less than 50% of the voting shares of the emerging entity and the reorganization value of the Company’s assets immediately before the date of confirmation was less than the post-petition liabilities and allowed claims. The Company was required to adopt fresh start accounting and reporting as of January 29, 2010, the Effective Date. However, in light of the proximity of that date to our accounting period close immediately after the Effective Date, which was January 31, 2010, as well as the results of a materiality assessment discussed below, we elected to adopt fresh start accounting and reporting on February 1, 2010.
The financial statements as of the Fresh Start Reporting Date will report the results of Dex One with no beginning retained earnings or accumulated deficit. Any presentation of Dex One represents the financial position and results of operations of a new reporting entity and is not comparable to prior periods presented by RHD. The consolidated financial statements for periods ended prior to the Fresh Start Reporting Date do not include the effect of any changes in capital structure or changes in the fair value of assets and liabilities as a result of fresh start accounting.
The Company performed a quantitative and qualitative materiality assessment in accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, in order to determine the appropriateness of choosing the Fresh Start Reporting Date for accounting and reporting purposes instead of the Effective Date. RHD and Dex One concluded that the quantitative assessment did not have a material impact on either RHD for the one month ended January 31, 2010 or Dex One for the two months ended March 31, 2010 and five months ended June 30, 2010 and that there were no qualitative factors that would preclude the use of the Fresh Start Reporting Date for accounting and reporting purposes.
In accordance with FASB ASC 852, the results of operations of RHD prior to the Fresh Start Reporting Date include (i) a pre-emergence gain of approximately $4.5 billion resulting from the discharge of liabilities under the Plan, partially offset by the issuance of new Dex One common stock and additional paid-in capital and the Dex One Senior Subordinated Notes; (ii) pre-emergence charges to earnings recorded as reorganization items resulting from certain costs and expenses relating to the Plan becoming effective; and (iii) a pre-emergence increase in earnings of $3.3 billion resulting from the aggregate changes to the net carrying value of our pre-emergence assets and liabilities to reflect their fair values under fresh start accounting, as well as the recognition of goodwill. See Note 4, “Reorganization Items, Net” for additional information.
Enterprise Value / Reorganization Value Determination
Enterprise value represented the fair value of an entity’s interest-bearing debt and shareholders’ equity. In the disclosure statement associated with the Plan, which was confirmed by the Bankruptcy Court, we estimated a range of enterprise values between $4.2 billion and $5.3 billion, with a midpoint of $4.8 billion. Based on the then current and anticipated economic conditions and the direct impact these conditions have on our business, we deemed it appropriate to use the midpoint between the low end of the range and the overall midpoint of the range to determine the final enterprise value of $4.5 billion, comprised of debt valued at $3.3 billion and equity valued at $1.3 billion less cash required to be on hand as a result of the Plan of $125.0 million.

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FASB ASC 852 provides for, among other things, a determination of the value to be assigned to the assets of the reorganized Company as of a date selected for financial reporting purposes. The Company adjusted its enterprise value of $4.5 billion for certain items such as post-petition liabilities, deferred income taxes and cash on hand post emergence to determine a reorganization value of $5.9 billion. Under fresh start accounting, the reorganization value was allocated to Dex One’s assets based on their respective fair values in conformity with the purchase method of accounting for business combinations included in FASB ASC 805, Business Combinations. The excess reorganization value over the fair value of identified tangible and intangible assets of $2.1 billion was recorded as goodwill.
The reorganization value represents the amount of resources available, or that become available, for the satisfaction of post-petition liabilities and allowed claims, as negotiated between the Company and its creditors (the “Interested Parties”). This value, along with other terms of the Plan, was determined only after extensive arms-length negotiations between the Interested Parties. Each Interested Party developed its view of what the value should be based upon expected future cash flows of the business after emergence from Chapter 11, discounted at rates reflecting perceived business and financial risks. This value is viewed as the fair value of the entity before considering liabilities and is intended to approximate the amount a willing buyer would pay for the assets of Dex One immediately after restructuring. The reorganization value was determined using numerous projections and assumptions that are inherently subject to significant uncertainties and the resolution of contingencies beyond the control of the Company. Accordingly, there can be no assurance that the estimates, assumptions and amounts reflected in the valuation will be realized.
Methodology, Analysis and Assumptions
Dex One’s valuation was based upon a discounted cash flow methodology, which included a calculation of the present value of expected un-levered after-tax free cash flows reflected in our long-term financial projections, including the calculation of the present value of the terminal value of cash flows, and supporting analysis that included (a) a comparison of selected financial data of the Company with similar data of other publicly held companies in businesses similar to ours, (b) an analysis of comparable valuations indicated by precedent mergers and acquisitions of such companies and (c) a valuation of post-emergence tax attributes. A detailed discussion of this methodology and supporting analysis is presented below.
The Company’s business plan was the foundation for developing long-term financial projections used in the valuation of our business. Specific operating and financial metrics that drive or inform the long-term financial projections include, but are not limited to, customer numbers, customer behaviors, average spend per customer, product usage, and sales representative productivity. The business planning and forecasting process also included a review of Company, industry and macroeconomic factors including, but not limited to, achievement of future financial results, projected changes associated with our reorganization initiatives, anticipated changes in general market conditions including variations in market regions, and known new business opportunities and challenges. Detailed research and forecast materials from leading industry and economic analysts were also used to form our assumptions and to provide context for the business plan and long-term financial projections. The planning and forecasting process further included sensitivity analyses related to key Company, industry and macroeconomic variables.
The following represents a detailed discussion of the methodology and supporting analysis used to value our business using the business plan and long-term financial projections developed by the Company:
Discounted Cash Flow Methodology
The Discounted Cash Flow (“DCF”) analysis is a forward-looking enterprise valuation methodology that relates the value of an asset or business to the present value of expected future cash flows to be generated by that asset or business. Under this methodology, projected future cash flows are discounted by the business’ weighted average cost of capital (“WACC”). The WACC reflects the estimated blended rate of return that debt and equity investors would require to invest in the business based on its capital structure. Our DCF analysis has three components: (1) the present value of the expected un-levered after-tax free cash flows for a determined period, (2) the present value of the terminal value of cash flows, which represents a firm value beyond the time horizon of the long-term financial projections, and (3) the present value of the below market cost of secured debt at Dex Media East and Dex Media West through the term of the relevant securities.

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The DCF calculation was based on management’s financial projections of un-levered after-tax free cash flows for the period 2010 to 2014. The Company used a range of WACCs to discount future cash flows and terminal values between 9.0% and 11.0%, with a midpoint of 10.0%. These ranges were determined based upon a market cost of debt, rather than the anticipated cost of debt of the reorganized Company upon emergence from bankruptcy, and a market cost of equity using a capital asset pricing model. Assumptions used in the DCF analysis, including the appropriate components of the WACC, were deemed to be those of “market participants” upon analysis of peer groups’ capital structures.
In conjunction with our analysis of publicly traded companies described below, the Company used a range of exit multiples of 2014 earnings before interest, taxes, depreciation and amortization (“EBITDA”) between 4.75 and 6.25, with a marginally lower than midpoint of 5.13 exit multiple selected, to determine the present value of the terminal value of cash flows. The period of 2014 was chosen as it represents the maturity date of the secured debt held at Dex Media East and Dex Media West and the period over which the Company will recognize the benefit of recording the secured debt at below market cost. The present value of the below market cost of secured debt at Dex Media East and Dex Media West was determined using the pricing of the new RHDI secured debt at the time the valuation was performed as a proxy for a market cost of similar debt. The Company measured the difference between the actual cost of debt at Dex Media East and Dex Media West and the assumed market cost of debt and discounted the difference using a range of WACCs between 9.0% and 11.0% with a midpoint of 10.0%. Upon emergence, it was determined that the pricing for the new RHDI secured debt was also at below market cost and has been recorded by the Company accordingly.
The sum of the present value of the projected un-levered after-tax free cash flows was added to the present value of the terminal value of cash flows and present value of the below market cost of the secured debt at Dex Media East and Dex Media West to determine the Company’s enterprise value.
Publicly Traded Company Analysis
As part of our valuation analysis, the Company identified publicly traded companies whose businesses are relatively similar to ours and have comparable operational characteristics to derive comparable revenue and EBITDA multiples for our DCF analysis. Criteria for selecting comparable companies for the analysis included, among other relevant characteristics, similar lines of businesses, business risks, growth prospects, maturity of businesses, market presence, size, and scale of operations. The analysis included a detailed multi-year financial comparison of each company’s income statement, balance sheet and statement of cash flows. In addition, each company’s performance, profitability, margins, leverage and business trends were also examined. Based on these analyses, a number of financial multiples and ratios were calculated to gauge each company’s relative performance and valuation. The ranges of ratios derived were then applied to the Company’s projected financial results to develop a range of implied values. The selected range of ratios was 4.75 to 6.25, with a marginally lower than midpoint of 5.13 exit multiple selected.
Precedent Transaction Analysis
Additionally, the Company utilized a precedent transaction analysis, which estimates value by examining public merger and acquisition transactions. The valuations paid in such transactions were analyzed as ratios of various financial results. These transaction multiples were calculated based on the purchase price paid to acquire companies that are comparable to us. We also observed historical expected synergies and enterprise premiums paid in selected transactions.
Analysis of Post-Emergence Tax Attributes
Following our emergence from Chapter 11, the Company was permitted to retain tax attributes to the extent the Company’s tax attributes as of the Petition Date exceeded its cancellation of debt income. The Company valued these tax attributes by calculating the present value of the tax savings expected to be provided relative to the taxes the Company would otherwise pay absent the availability of such attributes. These cash flows were then discounted at a range of discount rates based on the Company’s relevant cost of capital or cost of equity. Furthermore, the Company took into account a variety of qualitative factors in estimating the value of the tax attributes, including such factors as implementation and utilization risk.

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Final Enterprise Value, Accounting Policies and Reorganized Consolidated Balance Sheet
In determining the final enterprise value attributed to the Company of $4.5 billion, we blended our publicly traded company analysis and precedent transaction analysis with the DCF methodology and then factored in the post-emergence tax attributes analysis, with more emphasis on the DCF methodology.
Fresh start accounting and reporting permits the selection of appropriate accounting policies for Dex One. The Predecessor Company’s significant accounting policies that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 were adopted by Dex One as of the Fresh Start Reporting Date, though many of the account balances were affected by the reorganization and fresh start adjustments presented below.
The adjustments presented below were made to the January 31, 2010 condensed consolidated balance sheet. The condensed consolidated balance sheet, reorganization adjustments and fresh start adjustments presented below summarize the impact of the Plan and the adoption of fresh start accounting as of the Fresh Start Reporting Date.
Reorganized Condensed Consolidated Balance Sheet
As of January 31, 2010
(Unaudited)
                                 
    January 31, 2010  
    Predecessor     Reorganization     Fresh Start     Successor  
    Company     Adjustments(1)     Adjustments(2)     Company(10)  
 
Assets                                
Current Assets
                               
Cash and cash equivalents
  $ 725,955     $ (526,500 )(3)   $     $ 199,455  
Net accounts receivable
    798,113             (41,156 )(2)     756,957  
Deferred directory costs
    135,479             (135,479 )(2)      
Prepaid expenses and other current assets
    86,925       (1,401 )(4)(7)     9,657 (2)     95,181  
     
Total current assets
    1,746,472       (527,901 )     (166,978 )     1,051,593  
Fixed assets and computer software, net
    154,439             49,814 (2)     204,253  
Other non-current assets
    60,664             (57,952 )(9)     2,712  
Deferred income taxes, net
    423,485       (333,275 )(7)     (90,210 )(2)      
Intangible assets, net
    2,142,668             415,132 (2)     2,557,800  
Goodwill
                2,097,124 (2)     2,097,124  
     
Total Assets
  $ 4,527,728     $ (861,176 )   $ 2,246,930     $ 5,913,482  
     
 
                               
Liabilities and Shareholders’ (Deficit) Equity                                
 
                               
Current Liabilities
                               
Accounts payable and accrued liabilities
  $ 150,974     $ 13,910 (4)(7)   $ (3,172 )(2)   $ 161,712  
Short-term deferred income taxes, net
    134,080       (66,651 )(7)     153,573 (2)     221,002  
Accrued interest
    20,417       (20,417 )(3)(4)            
Deferred directory revenues
    811,999             (791,034 )(2)     20,965  
Current portion of long-term debt
    993,526       (827,579 )(3)(4)     (31,575 )(4)(8)     134,372  
     
Total current liabilities
    2,110,996       (900,737 )     (672,208 )     538,051  
Long-term debt
    2,561,248       657,628 (3)(4)     (88,670 )(4)(8)     3,130,206  
Deferred income taxes, net
          245,025 (7)     66,322 (2)     311,347  
Other non-current liabilities
    380,091       120,391 (4)(7)     (17,388 )(2)     483,094  
Liabilities subject to compromise
    6,352,813       (6,352,813 )(5)            
     
Total liabilities
    11,405,148       (6,230,506 )     (711,944 )     4,462,698  
 
                               
Shareholders’ (Deficit) Equity
                               
Common stock — Predecessor
    88,169       (88,169 )(6)            
Additional paid-in capital — Predecessor
    2,443,059       (2,443,059 )(6)            
(Accumulated deficit) retained earnings
    (9,092,693 )     6,133,819 (6)     2,958,874 (2)      
Treasury Stock — Predecessor
    (256,011 )     256,011 (6)            
Accumulated other comprehensive loss
    (59,944 )     59,944 (6)            
Common stock — Successor
          50 (5)           50  
Additional paid-in capital — Successor
          1,450,734 (5)           1,450,734  
     
Total shareholders’ (deficit) equity.
    (6,877,420 )     5,369,330       2,958,874       1,450,784  
     
 
                               
Total Liabilities and Shareholders’ (Deficit) Equity
  $ 4,527,728     $ (861,176 )   $ 2,246,930     $ 5,913,482  
     

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(1)   Represents amounts to be recorded on the Fresh Start Reporting Date for the implementation of the Plan, including the settlement of liabilities subject to compromise and related payments, distributions of cash and new shares of Dex One common stock to pre-petition creditors, the cancellation of RHD common stock and the elimination of the Predecessor Company’s additional paid-in capital, a portion of accumulated deficit, treasury stock and accumulated other comprehensive loss. The reorganization adjustments also include the establishment of Dex One additional paid-in capital of $1.5 billion based on the fair value of equity of $1.5 billion less the par value of Dex One common stock of less than $0.1 million. Common shares outstanding of the Predecessor Company immediately prior to their cancellation on the Effective Date were 69,058,991.
 
(2)   Represents the adjustments for fresh start accounting primarily related to recording goodwill, recording our intangible assets, accounts receivable, fixed assets and computer software and other assets and liabilities at fair value and related deferred income taxes in accordance with ASC 805. Additionally, such fresh start accounting adjustments reflect the elimination of substantially all of our deferred directory revenue of $791.0 million and all of the related deferred directory costs of $135.5 million, based on the minimal obligations we have subsequent to the Fresh Start Reporting Date for advertising sales fulfilled prior to the Fresh Start Reporting Date. The remaining deferred directory revenues of $21.0 million have been recorded at fair value in fresh start accounting and pertain to billings ahead of publications and revenues associated with our internet products and services for which we have future obligations subsequent to the Fresh Start Reporting Date. Prepaid expenses and other current assets include $14.4 million of cost-uplift, which is defined and discussed below. The fresh start accounting adjustments also include the elimination of (1) the remaining portion of the Predecessor Company’s accumulated deficit, (2) prepaid director and officer insurance included in prepaid expenses and other current assets and (3) deferred rent included in accounts payable and accrued liabilities as well as other non-current liabilities.
The following table represents a reconciliation of the enterprise value attributed to Dex One assets, determination of the total reorganization value to be allocated to these assets and the determination of goodwill. The table also presents a reconciliation of the total reorganization value to be allocated to assets to new Dex One common stock and additional paid-in capital:
         
Enterprise value attributed to Dex One
  $ 4,515,907  
Plus: cash and cash equivalents
    199,455  
Plus: liabilities (excluding amended and restated credit facilities and Dex One Senior Subordinated Notes)
    1,198,120  
 
     
Total reorganization value to be allocated to assets
    5,913,482  
Less: fair value assigned to tangible and intangible assets
    (3,816,358 )
 
     
Value of Dex One assets in excess of fair value (goodwill)
  $ 2,097,124  
 
     
 
       
Total reorganization value to be allocated to assets
  $ 5,913,482  
Less: amended and restated credit facilities and Dex One Senior Subordinated Notes
    (3,264,578 )
Less: other liabilities
    (1,198,120 )
 
     
New Dex One common stock (less than $0.1 million) and additional paid-in capital ($1,450.7 million)
  $ 1,450,784  
 
     
The following table represents the impact of fresh start accounting adjustments on retained earnings:
         
Fresh start accounting adjustments:
       
Goodwill
  $ 2,097,124  
Write off of deferred revenue and deferred directory costs
    655,555  
Fair value adjustment to intangible assets
    415,132  
Fair value adjustment to the amended and restated credit facilities
    120,245  
Fair value adjustment to fixed assets and computer software
    49,814  
Write-off of deferred financing costs
    (48,443 )
Other fresh start accounting adjustments
    (20,450 )
 
     
Impact of fresh start accounting on statement of operations
    3,268,977  
Adjustment to income tax provision
    (310,103 )
 
     
Total impact on retained earnings for fresh start accounting adjustments
  $ 2,958,874  
 
     

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The determination of the fair value of our intangible assets resulted in a $415.1 million net increase in intangible assets on the reorganized condensed consolidated balance sheet at January 31, 2010. The following table presents the increase (decrease) in fair value of intangible assets by category:
         
Directory services agreements
  $ (92,061 )
Local customer relationships
    303,326  
National customer relationships
    116,976  
Trade names and trademarks
    16,074  
Technology, advertising commitments and other
    70,817  
 
     
Total increase in fair value of intangible assets
  $ 415,132  
 
     
 
(3)   In accordance with the Plan, cash disbursements of $526.5 million were made on the Effective Date related to the repayment of principal and accrued interest on outstanding debt.
 
(4)   Reflects the amendment and restatement of our credit facilities as well as the issuance of the $300.0 million Dex One Senior Subordinated Notes completed on the Effective Date. The following tables present a reconciliation of outstanding debt, including the current portion, at January 31, 2010 to reorganized outstanding debt, including the current portion, at January 31, 2010.
         
    January 31, 2010  
Current portion of long-term debt
  $ 993,526  
Reclass of current portion of long-term debt
    (827,579 )
Adjustment to record the current portion of long-term debt at fair value
    (31,575 )
 
     
Reorganized current portion of long-term debt
  $ 134,372  
 
     
         
    January 31, 2010  
Long-term debt
  $ 2,561,248  
Reorganization adjustments:
       
Repayment of long-term debt
    (511,272 )
Reclass of current portion of long-term debt
    827,579  
Dex One Senior Subordinated Notes
    300,000  
Interest rate swaps and accrued interest
    41,321  
 
     
Total reorganization adjustments
    657,628  
Adjustment to record long-term debt at fair value
    (88,670 )
 
     
Reorganized long-term debt
  $ 3,130,206  
 
     
 
(5)   Liabilities subject to compromise generally refer to pre-petition obligations, secured or unsecured, that may be impaired by a plan of reorganization. FASB ASC 852 requires such liabilities, including those that became known after filing the Chapter 11 petitions, be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. These liabilities represented the estimated amount expected to be resolved on known or potential claims through the Chapter 11 process. Liabilities subject to compromise also includes items that may be assumed under the plan of reorganization, and may be subsequently reclassified to liabilities not subject to compromise. The Company has classified all of its notes in default as liabilities subject to compromise at January 31, 2010. Liabilities subject to compromise also include certain pre-petition liabilities including accrued interest, accounts payable and accrued liabilities, tax related liabilities and lease related liabilities. The table below identifies the principal categories of liabilities subject to compromise at January 31, 2010:
         
    January 31, 2010  
Notes in default
  $ 6,071,756  
Accrued interest
    241,585  
Tax related liabilities
    28,845  
Accounts payable and accrued liabilities
    10,627  
 
     
Total liabilities subject to compromise
  $ 6,352,813  
 
     

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Liabilities subject to compromise at January 31, 2010 were either settled by the issuance of new Dex One common stock, the issuance of the Dex One Senior Subordinated Notes, cash disbursements or reclassified out of liabilities subject to compromise into appropriate balance sheet accounts. As a result of the extinguishment of liabilities subject to compromise, the Predecessor Company recorded a gain on reorganization of $4.5 billion for the one month ended January 31, 2010, the components of which are presented in the following table.
         
    One Month Ended  
    January 31, 2010  
Liabilities subject to compromise
  $ 6,352,813  
Less:
       
Issuance of new Dex One common stock (par value)
    (50 )
Dex One additional paid-in capital
    (1,450,734 )
Dex One Senior Subordinated Notes
    (300,000 )
Reclassified into other balance sheet liability accounts
    (39,471 )
Professional fees and other
    (38,403 )
 
     
Gain on reorganization / settlement of liabilities subject to compromise
  $ 4,524,155  
 
     
The Predecessor Company has incurred professional fees associated with filing the Chapter 11 petitions of $30.6 million during the one month ended January 31, 2010, of which $22.7 million have been paid in cash during the one month ended January 31, 2010. Professional fees include financial, legal and valuation services directly associated with the reorganization process. Professional fees for post-emergence activities related to Plan implementation and other transition costs attributable to the reorganization are expected to continue into 2010.
During the one month ended January 31, 2010, the Predecessor Company did not receive any operating cash receipts resulting from the filing of the Chapter 11 petitions.
 
(6)   Represents the impact of reorganization adjustments on accumulated deficit:
         
Gain on reorganization / settlement of liabilities subject to compromise
  $ 4,524,155  
Elimination of Predecessor Company common stock
    88,169  
Elimination of Predecessor Company additional paid-in capital
    2,443,059  
Elimination of Predecessor Company treasury stock
    (256,011 )
Elimination of Predecessor Company accumulated other comprehensive loss
    (59,944 )
Adjustment to income tax provision
    (607,487 )
Other charges
    1,878  
 
     
Total impact on accumulated deficit for reorganization adjustments
  $ 6,133,819  
 
     
In connection with the Company’s adoption of fresh start accounting, the following table presents the amounts included in accumulated other comprehensive loss at January 31, 2010 that were eliminated as part of fresh start accounting adjustments:
         
Interest rate swaps, net
  $ 15,278  
Employee benefit plans, net
    44,666  
 
     
Total
  $ 59,944  
 
     
 
(7)   Represents reorganization adjustments associated with the Predecessor Company’s deferred income taxes, interest rate swap liabilities and related interest receivables that have been converted into a new tranche of term loans under the amended and restated credit facilities and the reclass of certain liabilities from liabilities subject to compromise.

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(8)   Represents the adjustment to record our long-term debt, including the current portion, at fair value as of the Fresh Start Reporting Date. See Note 2, “Summary of Significant Accounting Policies — Interest Expense and Deferred Financing Costs” and            Note 6, “Long-Term Debt, Credit Facilities and Notes” for additional information. The following tables present the fair value adjustments to our long-term debt, including the current portion, by issuance:
         
Current portion of long-term debt:
       
RHDI Amended and Restated Credit Facility
  $ 4,149  
Dex Media East Amended and Restated Credit Facility
    22,424  
Dex Media West Amended and Restated Credit Facility
    5,002  
 
     
Total fair value adjustments
  $ 31,575  
 
     
 
       
Long-term debt:
       
RHDI Amended and Restated Credit Facility
  $ 14,224  
Dex Media East Amended and Restated Credit Facility
    63,633  
Dex Media West Amended and Restated Credit Facility
    10,813  
 
     
Total fair value adjustments
  $ 88,670  
 
     
 
(9)   Represents elimination of deferred financing costs associated with the Predecessor Company’s existing credit facilities and the write-off of other non-current assets as a result of fresh start accounting.
 
10)   The following table summarizes the allocation of fair values of the Predecessor Company’s assets and liabilities as shown in the reorganized condensed consolidated balance sheet at January 31, 2010:
         
    January 31, 2010  
Cash and cash equivalents
  $ 199,455  
Net accounts receivable
    756,957  
Prepaid expenses and other current assets
    95,181  
Fixed assets and computer software, net
    204,253  
Other non-current assets
    2,712  
Goodwill
    2,097,124  
Intangible assets, net
    2,557,800  
 
     
Total assets
    5,913,482  
Less: accounts payable and accrued liabilities
    161,712  
Less: short-term deferred income taxes, net
    221,002  
Less: deferred directory revenues
    20,965  
Less: current portion of long-term debt
    134,372  
Less: long-term debt
    3,130,206  
Less: deferred income taxes, net
    311,347  
Less: other non-current liabilities
    483,094  
 
     
Net assets acquired
  $ 1,450,784  
 
     
The Company utilized the following methodologies and assumptions to value its assets in connection with fresh start accounting:
Cash
Cash and cash equivalents of the Predecessor Company have been carried forward to Dex One’s opening balance sheet. No valuation adjustments were necessary as book value is a reasonable estimate for fair value.
Accounts Receivable
The accounts receivable balances were valued at fair value using the net realizable value approach. The net realizable value approach was determined by reducing the gross receivable balance by our allowance for doubtful accounts and sales claims. Due to the relatively short collection period, the net realizable value approach was determined to result in a reasonable indication of fair value of the assets. The Company will re-establish an allowance for doubtful accounts as accounts receivable are billed in 2010, which will be based upon collection history and an estimate of uncollectible accounts. Management will exercise judgment in adjusting the allowance for known items such as current local business conditions and credit trends.

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Deferred Directory Costs
Unamortized deferred directory costs of the Predecessor Company have been eliminated on Dex One’s opening balance sheet as they do not represent assets to Dex One. These deferred directory costs relate entirely to directories that have already been published by the Predecessor Company as of the Fresh Start Reporting Date. Dex One will begin to record deferred directory costs associated with directories published subsequent to the Fresh Start Reporting Date.
Deferred income taxes, net
Deferred income taxes, net associated with the Predecessor Company have been eliminated on Dex One’s opening balance sheet as a result of fresh start accounting. Dex One has recorded deferred taxes, as applicable, related to any temporary differences, tax carry-forwards, and uncertain tax positions in accordance with ASC 740, Income Taxes, commencing on the Fresh Start Reporting Date.
A summary of the Company’s deferred tax balances at February 1, 2010 and the Predecessor Company’s deferred tax balances at December 31, 2009 is as follows:
                   
    Successor Company       Predecessor Company  
    February 1, 2010       December 31, 2009  
           
Gross deferred tax assets
  $ 139,326       $ 1,988,997  
Valuation allowance
    (7,876 )       (1,531,905 )
Gross deferred tax liabilities
    (663,799 )       (165,391 )
           
Net deferred tax asset (liability)
  $ (532,349 )     $ 291,701  
           
See Note 8, “Income Taxes” for additional information.
Prepaid expenses & other current assets
Prepaid directory costs relate to directories that have not yet been published as of the Fresh Start Reporting Date. Prepaid directory costs have been recorded at fair value, determined as (a) the estimated billable value of the published directory less (b) the expected costs to complete the directory, plus (c) a normal profit margin. This incremental adjustment to step up the recorded value of the prepaid directory costs to fair value is hereby referred to as “cost-uplift.” The fair value of these costs was determined to be $14.4 million, which has been recorded as a fresh start accounting adjustment on Dex One’s opening balance sheet. Cost-uplift will be reclassified from prepaid expenses and other current assets to deferred directory costs as directories associated with these costs are published.
Other prepaid expenses and current assets have been carried forward to Dex One’s opening balance sheet. The nature of these items relate predominantly to prepaid deposits and rents. These amounts have been paid in advance with cash and will be amortized over a 12 month period to match the timing of the use of the related assets. No valuation adjustments were necessary for these items as book value is a reasonable estimate for fair value.
Fixed Assets
Fixed assets were measured at fair value and as such, all amounts in accumulated depreciation were reduced to zero. In establishing fair value, we used (i) the cost approach, where the current replacement cost of the fixed asset being appraised is adjusted for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence and (ii) third-party appraisals of certain fixed assets such as buildings. The Company carried forward the useful lives for each of the fixed assets of the Predecessor Company, which were reviewed by the Predecessor Company as of December 31, 2009. This approach was deemed reasonable since the information used and analysis performed to determine the useful lives did not materially differ as of January 31, 2010.

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Other non-current assets
Historically, other non-current assets were comprised of unamortized deferred financing costs as well as various other items. Unamortized deferred financing costs associated with the Predecessor Company’s credit facilities have been written off in fresh start accounting. Throughout bankruptcy and until the adoption of fresh start accounting, these credit facilities were not subject to compromise on the condensed consolidated balance sheet and therefore the unamortized deferred financing costs associated with these credit facilities were not written off to reorganization items, net on the condensed consolidated statement of operations until the Fresh Start Reporting Date.
Intangible Assets
The financial information and assumptions used to determine the fair value of individual intangible assets was consistent with the information and assumptions used in estimating the enterprise value of Dex One. The following is a summary of the methodology used in the valuation of each category of intangible asset:
Directory Services Agreements — The Company has acquired directory services agreements through prior acquisitions. See Note 2, “Summary of Significant Accounting Policies — Identifiable Intangible Assets and Goodwill” for additional information on these directory services agreements. As these directory services agreements have a direct contribution to the financial performance of the business, the Company utilized the multi-period excess earnings method, which is a variant of the income approach, to assign a fair value to these assets. The multi-period excess earnings method uses a discounted cash flow model, whereby the projected cash flows of the intangible asset are computed indirectly, which means that future cash flows are projected with deductions made to recognize returns on appropriate contributory assets, leaving the excess, or residual net cash flow, as indicative of the intangible asset fair value. The multi-period excess earnings method assumes the value derived from the respective asset is greater in the earlier years and steadily declines over time.
Local and National Customer Relationships — The Company has acquired significant local and national customer relationships through prior acquisitions and has also developed significant new local and national customer relationships. These local and national customer relationships provide ongoing and repeat business for the Company. Given the direct contribution made by these local and national customer relationships to the financial performance of the business, the Company utilized the multi-period excess earnings method to assign a fair value to these assets.
Trade Names and Trademarks - The fair value of trade names and trademarks obtained as a result of prior acquisitions was determined based on an income approach known as the “relief from royalty” method, which values the trade names and trademarks based on the estimated amount that a company would have to pay in an arms length transaction to use them. Significant assumptions utilized to value these assets were forecasted revenue streams, estimated applicable royalty rates, applicable income tax rates and appropriate discount rates. Royalty rates were estimated based on the assessment of risk and return on investment factors of comparable transactions.
Technology, Advertising Commitments and Other — The Company’s developed software technology and content, which has a direct contribution to the financial performance of the business, was valued using the cost approach. The cost approach measures the value of an intangible asset by quantifying the aggregate expenditures that would be required to replace the asset, given its future service capability. Advertising Commitments and other, which includes third-party contracts, were valued using the multi-period excess earnings method.
The Company established useful lives for each of the intangible assets noted above in conjunction with their fair value determination in fresh start accounting. See Note 2, “Summary of Significant Accounting Policies — Identifiable Intangible Assets and Goodwill” for information on the useful lives and the analysis performed.

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4. Reorganization Items, Net
Reorganization items directly associated with the process of reorganizing the business under Chapter 11 of the Bankruptcy Code have been recorded on a separate line item on the condensed consolidated statement of operations. The Predecessor Company has recorded $7.8 billion of reorganization items during the one month ended January 31, 2010 comprised of a $4.5 billion gain on reorganization / settlement of liabilities subject to compromise and fresh start accounting adjustments of $3.3 billion. The following table displays the details of reorganization items for the one month ended January 31, 2010:
         
    Predecessor Company  
    One Month Ended  
    January 31, 2010  
 
Liabilities subject to compromise
  $ 6,352,813  
Issuance of new Dex One common stock (par value)
    (50 )
Dex One additional paid-in capital
    (1,450,734 )
Dex One Senior Subordinated Notes
    (300,000 )
Reclassified into other balance sheet liability accounts
    (39,471 )
Professional fees and other
    (38,403 )
 
     
Gain on reorganization / settlement of liabilities subject to compromise
    4,524,155  
 
     
 
Fresh start accounting adjustments:
       
Goodwill
    2,097,124  
Write off of deferred revenue and deferred directory costs
    655,555  
Fair value adjustment to intangible assets
    415,132  
Fair value adjustment to the amended and restated credit facilities
    120,245  
Fair value adjustment to fixed assets and computer software
    49,814  
Write-off of deferred financing costs
    (48,443 )
Other fresh start accounting adjustments
    (20,450 )
 
     
Total fresh start accounting adjustments
    3,268,977  
 
     
Total reorganization items, net
  $ 7,793,132  
 
     
See Note 3 “Fresh Start Accounting” for information on the gain on reorganization / settlement of liabilities subject to compromise and the fresh start accounting adjustments presented above.
During the three and six months ended June 30, 2009, the Predecessor Company recorded $70.8 million of reorganization items on a separate line item on the condensed consolidated statement of operations. The following table displays the details of reorganization items for the three and six months ended June 30, 2009:
         
    Predecessor Company  
    Three and Six Months  
    Ended June 30, 2009  
 
Write-off of unamortized deferred financing costs
  $ 64,475  
Professional fees
    50,463  
Write-off of net premiums / discounts on long-term debt
    34,886  
Write-off of fair value adjustments
    (78,511 )
Lease rejections
    (532 )
 
     
Total reorganization items
  $ 70,781  
 
     
The write-off of unamortized deferred financing costs of $64.5 million, unamortized net premiums / discounts of $34.9 million and unamortized fair value adjustments required by GAAP as a result of the Dex Media Merger of $78.5 million at May 28, 2009 related to long-term debt classified as liabilities subject to compromise at June 30, 2009.
The Predecessor Company incurred professional fees of $50.5 million during the three and six months ended June 30, 2009 associated with filing the Chapter 11 petitions, of which $47.0 million have been paid in cash. Professional fees include financial, legal and valuation services directly associated with the reorganization process.

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The Predecessor Company reclassified a previously recognized restructuring charge of $0.5 million to reorganization items, net for leases that have been rejected by the Predecessor Company and approved by the Bankruptcy Court as part of the Chapter 11 Cases.
5. Restructuring Charges
During 2009, the Predecessor Company initiated a restructuring plan that included vacating leased facilities and headcount reductions (“2009 Actions”). During the five months ended June 30, 2010, the Company relieved the remaining restructuring reserve associated with the 2009 Actions of $0.2 million to earnings. The Company made payments associated with the 2009 Actions of $0.3 million during the five months ended June 30, 2010. During the one month ended January 31, 2010, the Predecessor Company relieved a portion of the restructuring reserve associated with the 2009 Actions by $0.6 million with a corresponding credit to earnings. The Predecessor Company did not make any payments associated with the 2009 Actions during the one month ended January 31, 2010. During the three and six months ended June 30, 2009, the Predecessor Company recognized a restructuring charge to earnings associated with the 2009 Actions of $2.1 million and made payments of $0.3 million.
Restructuring charges that are (credited) charged to earnings are included in production and distribution expenses, selling and support expenses or general and administrative expenses on the condensed consolidated statements of operations, as applicable.
6. Long-Term Debt, Credit Facilities and Notes
The following table presents the fair market value of our long-term debt at June 30, 2010 based on quoted market prices on that date, as well as the carrying value of our long-term debt at June 30, 2010, which includes $106.4 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. See Note 3 “Fresh Start Accounting” for additional information.
                 
    Successor Company  
    Fair Market Value     Carrying Value  
    June 30, 2010     June 30, 2010  
 
RHDI Amended and Restated Credit Facility
  $ 986,067     $ 1,091,403  
Dex Media East Amended and Restated Credit Facility
    717,932       810,040  
Dex Media West Amended and Restated Credit Facility
    708,402       773,561  
Dex One 12%/14% Senior Subordinated Notes due 2017
    279,000       300,000  
     
Total Dex One consolidated
    2,691,401       2,975,004  
Less current portion
    165,185       165,524  
     
Long-term debt
  $ 2,526,216     $ 2,809,480  
     
RHDI Amended and Restated Credit Facility
As of June 30, 2010, the outstanding carrying value under the amended and restated RHDI credit facility (“RHDI Amended and Restated Credit Facility”) totaled $1,091.4 million. The RHDI Amended and Restated Credit Facility requires quarterly principal and interest payments at our option at either:
    The highest (subject to a floor of 4.00%) of (i) the Prime Rate (as defined in the RHDI Amended and Restated Credit Facility), (ii) the Federal Funds Effective Rate (as defined in the RHDI Amended and Restated Credit Facility) plus 0.50%, and (iii) one month LIBOR plus 1.00% in each case, plus an interest rate margin for base rate loans. The interest rate margin for base rate loans is initially 5.25% per annum, and such interest rate margin adjusts pursuant to a pricing grid that provides for a margin equal to 5.25% per annum if RHDI’s consolidated leverage ratio is greater than or equal to 4.25 to 1.00, and equal to 5.00% per annum if RHDI’s consolidated leverage ratio is less than 4.25 to 1.00; or
 
    The higher of (i) LIBOR rate and (ii) 3.00%, in each case, plus an interest rate margin for Eurodollar loans. The interest rate margin for Eurodollar loans is initially 6.25% per annum, and such interest rate margin adjusts pursuant to a pricing grid that provides for a margin equal to 6.25% per annum if RHDI’s consolidated leverage ratio is greater than or equal to 4.25 to 1.00, and equal to 6.00% per annum if RHDI’s consolidated leverage ratio is less than 4.25 to 1.00. RHDI may elect interest periods of 1, 2, 3 or 6 months for LIBOR borrowings.

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The RHDI Amended and Restated Credit Facility matures on October 24, 2014. The weighted average interest rate of outstanding debt under the RHDI Amended and Restated Credit Facility was 9.25% at June 30, 2010.
Dex Media East Amended and Restated Credit Facility
As of June 30, 2010, the outstanding carrying value under the amended and restated Dex Media East credit facility (“Dex Media East Amended and Restated Credit Facility”) totaled $810.0 million. The Dex Media East Amended and Restated Credit Facility requires quarterly principal and interest payments at our option at either:
    The highest of (i) the Prime Rate (as defined in the Dex Media East Amended and Restated Credit Facility), (ii) the Federal Funds Effective Rate (as defined in the Dex Media East Amended and Restated Credit Facility) plus 0.50%, and (iii) one month LIBOR plus 1.00% in each case, plus an interest rate margin for base rate loans. The interest rate margin for base rate loans is initially 1.50% per annum, and such interest rate margin adjusts pursuant to a pricing grid that provides for a margin equal to 1.50% per annum if DME Inc.’s consolidated leverage ratio is greater than or equal to 2.75 to 1.00, equal to 1.25% per annum if DME Inc.’s consolidated leverage ratio is greater than or equal to 2.50 to 1.00 but less than 2.75 to 1.00 and equal to 1.00% per annum if DME Inc.’s consolidated leverage ratio is less than 2.50 to 1.00; or
 
    The LIBOR rate plus an interest rate margin for Eurodollar loans. The interest rate margin for Eurodollar loans is initially 2.50% per annum, and such interest rate margin adjusts pursuant to a pricing grid that provides for a margin equal to 2.50% per annum if DME Inc.’s consolidated leverage ratio is greater than or equal to 2.75 to 1.00, equal to 2.25% per annum if DME Inc.’s consolidated leverage ratio is greater than or equal to 2.50 to 1.00 but less than 2.75 to 1.00 and equal to 2.00% per annum if DME Inc.’s consolidated leverage ratio is less than 2.50 to 1.00. DME Inc. may elect interest periods of 1, 2, 3 or 6 months for LIBOR borrowings.
The Dex Media East Amended and Restated Credit Facility matures on October 24, 2014. The weighted average interest rate of outstanding debt under the Dex Media East Amended and Restated Credit Facility was 2.95% at June 30, 2010.
Dex Media West Amended and Restated Credit Facility
As of June 30, 2010, the outstanding carrying value under the amended and restated Dex Media West credit facility (“Dex Media West Amended and Restated Credit Facility”) totaled $773.6 million. The Dex Media West Amended and Restated Credit Facility requires quarterly principal and interest payments at our option at either:
    The highest (subject to a floor of 4.00%) of (i) the Prime Rate (as defined in the Dex Media West Amended and Restated Credit Facility), (ii) the Federal Funds Effective Rate (as defined in the Dex Media West Amended and Restated Credit Facility) plus 0.50%, and (iii) one month LIBOR plus 1.00% in each case, plus an interest rate margin for base rate loans. The interest rate margin for base rate loans is initially 3.50% per annum, and such interest rate margin adjusts pursuant to a pricing grid that provides for a margin equal to 3.50% per annum if DMW Inc.’s consolidated leverage ratio is greater than or equal to 2.75 to 1.00, equal to 3.25% per annum if DMW Inc.’s consolidated leverage ratio is greater than or equal to 2.50 to 1.00 but less than 2.75 to 1.00 and equal to 3.00% per annum if DMW Inc.’s consolidated leverage ratio is less than 2.50 to 1.00; or
 
    The higher of (i) LIBOR rate and (ii) 3.00%, in each case, plus an interest rate margin for Eurodollar loans. The interest rate margin for Eurodollar loans is initially 4.50% per annum, and such interest rate margin adjusts pursuant to a pricing grid that provides for a margin equal to 4.50% per annum if DMW Inc.’s consolidated leverage ratio is greater than or equal to 2.75 to 1.00, equal to 4.25% per annum if DMW Inc.’s consolidated leverage ratio is greater than or equal to 2.50 to 1.00 but less than 2.75 to 1.00 and equal to 4.00% per annum if DMW Inc.’s consolidated leverage ratio is less than 2.50 to 1.00. DMW Inc. may elect interest periods of 1, 2, 3 or 6 months for LIBOR borrowings.
The Dex Media West Amended and Restated Credit Facility matures on October 24, 2014. The weighted average interest rate of outstanding debt under the Dex Media West Amended and Restated Credit Facility was 7.50% at June 30, 2010.

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Each of the amended and restated credit facilities described above includes an uncommitted revolving credit facility available for borrowings up to $40.0 million. The availability of such uncommitted revolving credit facility is subject to certain conditions including the prepayment of the term loans under each of the amended and restated credit facilities in an amount equal to such revolving credit facility.
The amended and restated credit facilities contain provisions for prepayment from net proceeds of asset dispositions, equity issuances and debt issuances subject to certain exceptions, from a ratable portion of the net proceeds received by the Company from asset dispositions by the Company, subject to certain exceptions, and from a portion of excess cash flow.
Each of the amended and restated credit facilities described above contain certain covenants that, subject to exceptions, limit or restrict each borrower and its subsidiaries’ incurrence of liens, investments (including acquisitions), sales of assets, indebtedness, payment of dividends, distributions and payments of certain indebtedness, sale and leaseback transactions, swap transactions, affiliate transactions, capital expenditures and mergers, liquidations and consolidations. Each amended and restated credit facility also contains certain covenants that, subject to exceptions, limit or restrict each borrower’s incurrence of liens, indebtedness, ownership of assets, sales of assets, payment of dividends or distributions or modifications of the Dex One Senior Subordinated Notes. Each borrower is required to maintain compliance with a consolidated leverage ratio covenant. RHDI and DMW Inc. are also required to maintain compliance with a consolidated interest coverage ratio covenant. DMW Inc. is also required to maintain compliance with a consolidated senior secured leverage ratio covenant. The Dex Media West Amended and Restated Credit Agreement includes an option for additional covenant relief under the senior secured leverage covenant through the fourth quarter of 2011, subject to increased amortization of the loans through the first quarter of 2012, an increase in the excess cash flow sweep for 2010 and 2011 and payment of a 25 basis point fee ratably to the lenders under the Dex Media West Amended and Restated Credit Agreement.
On March 31, 2010, the Company exercised the Senior Secured Leverage Ratio Election, as defined in the Dex Media West Amended and Restated Credit Agreement. The Company incurred a fee of $2.1 million to exercise this option.
The obligations under each of the amended and restated credit facilities are guaranteed by the subsidiaries of the borrower and are secured by a lien on substantially all of the borrower’s and its subsidiaries’ tangible and intangible assets, including a pledge of the stock of their respective subsidiaries, as well as a mortgage on certain real property, if any.
Pursuant to a shared guaranty and collateral agreement and subject to an intercreditor agreement among the administrative agents under each of the amended and restated credit facilities, the Company and, subject to certain exceptions, certain subsidiaries of the Company, guaranty the obligations under each of the amended and restated credit facilities and the obligations are secured by a lien on substantially all of such guarantors’ tangible and intangible assets (other than the assets of the Company’s subsidiary, Business.com), including a pledge of the stock of their respective subsidiaries, as well as a mortgage on certain real property, if any.
Dex One Senior Subordinated Notes
On the Effective Date, we issued the $300.0 million Dex One Senior Subordinated Notes in exchange for the Dex Media West 8.5% Senior Notes due 2010 and 5.875% Senior Notes due 2011. 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 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 paid-in-kind (“PIK”) interest payments. The Company may elect, prior to the start of each interest payment 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 incremental or additional senior secured notes. The interest rate on the Dex One Senior Subordinated Notes may be subject to adjustment in the event the Company incurs certain specified debt with a higher effective yield to maturity than the yield to maturity of the Dex One Senior Subordinated Notes. The Dex One Senior Subordinated Notes are unsecured obligations of the Company, effectively subordinated in right of payment to all of the Company’s existing and future secured debt, including Dex One’s guarantee of borrowings under each of the amended and restated credit facilities and are structurally subordinated to any existing or future liabilities (including trade payables) of our direct and indirect subsidiaries.

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The indenture governing the Dex One Senior Subordinated Notes contains certain covenants that, subject to certain exceptions, among other things, limit or restrict the Company’s (and, in certain cases, the Company’s restricted subsidiaries’) incurrence of indebtedness, making of certain restricted payments, incurrence of liens, entry into transactions with affiliates, conduct of its business and the merger, consolidation or sale of all or substantially all of its property. The indenture governing the Dex One Senior Subordinated Notes also requires the Company to offer to repurchase the Dex One Senior Subordinated Notes at par after certain changes of control involving the Company or the sale of substantially all of the assets of the Company. Holders of the Dex One Senior Subordinated Notes also may cause the Company to repurchase the Dex One Senior Subordinated Notes at a price of 101% of the principal amount upon the incurrence by the Company of certain acquisition indebtedness.
The Dex One Senior Subordinated Notes are redeemable at our option beginning in 2011 at the following prices (as a percentage of face value):
         
Redemption Year   Price  
2011
    106.000 %
2012
    102.000 %
2013
    101.000 %
2014 and thereafter
    100.000 %
On the Effective Date and in accordance with the Plan, $6.1 billion of the Predecessor Company’s notes in default, which are presented as long-term debt subject to compromise in the table below, were exchanged for (a) 100% of the reorganized Dex One equity and (b) $300.0 million of the Dex One Senior Subordinated Notes issued to the holders of the Dex Media West 8.5% Senior Notes due 2010 and 5.875% Senior Notes due 2011 on a pro rata basis in addition to their share of the reorganized Dex One equity. In accordance with the Plan, the Predecessor Company’s existing credit facilities were amended and restated on the Effective Date, the terms and conditions of which are noted above. The following table presents the carrying value of the Predecessor Company’s long-term debt at December 31, 2009. As a result of filing the Chapter 11 petitions and the Plan, we do not believe that it is meaningful to present the fair market value of our long-term debt at December 31, 2009.
                 
    Predecessor Company  
    Notes in Default     Credit Facilities  
    December 31, 2009  
RHD
               
6.875% Senior Notes due 2013
  $ 206,791     $  
6.875% Series A-1 Senior Discount Notes due 2013
    320,903        
6.875% Series A-2 Senior Discount Notes due 2013
    483,365        
8.875% Series A-3 Senior Notes due 2016
    1,012,839        
8.875% Series A-4 Senior Notes due 2017
    1,229,760        
 
               
R.H. Donnelley Inc.
               
Credit Facility
          1,424,048  
11.75% Senior Notes due 2015
    412,871        
 
               
Dex Media, Inc.
               
8% Senior Notes due 2013
    500,000        
9% Senior Discount Notes due 2013
    749,857        
 
               
Dex Media East
               
Credit Facility
          1,039,436  
 
               
Dex Media West
               
Credit Facility
          1,091,292  
8.5% Senior Notes due 2010
    385,000        
5.875% Senior Notes due 2011
    8,720        
9.875% Senior Subordinated Notes due 2013
    761,650        
     
Total Predecessor Company consolidated
    6,071,756       3,554,776  
Less current portion not subject to compromise
          993,528  
     
Long-term debt subject to compromise
  $ 6,071,756        
 
             
Long-term debt not subject to compromise
          $ 2,561,248  
 
             

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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 amended and restated 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 amended and restated credit facilities, of which $106.4 million remains unamortized at June 30, 2010, as shown in the following table.
                         
                    Outstanding Debt at  
            Unamortized Fair     June 30, 2010 Excluding the  
    Carrying Value at     Value Adjustments     Impact of Unamortized Fair  
    June 30, 2010     at June 30, 2010     Value Adjustments  
 
RHDI Amended and Restated Credit Facility
  $ 1,091,403     $ 16,536     $ 1,107,939  
Dex Media East Amended and Restated Credit Facility
    810,040       76,296       886,336  
Dex Media West Amended and Restated Credit Facility
    773,561       13,552       787,113  
Dex One 12%/14% Senior Subordinated Notes due 2017
    300,000             300,000  
     
Total
  $ 2,975,004     $ 106,384     $ 3,081,388  
     
7. 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.
Successor Company
The Company has entered into the following interest rate swaps that effectively convert approximately $500.0 million, or 19%, of the Company’s variable rate debt to fixed rate debt as of June 30, 2010. At June 30, 2010, approximately 90% 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 27% of our total debt portfolio as of June 30, 2010. The interest rate swaps mature at varying dates from February 2012 through February 2013.
Interest Rate Swaps — Dex Media East
                         
      Effective Dates   Notional Amount     Pay Rates     Maturity Dates
(amounts in millions)                        
February 26, 2010
  $ 300 (2)     1.20% - 1.796 %   February 29, 2012 — February 28, 2013
March 5, 2010
    100 (1)     1.668 %   January 31, 2013
March 10, 2010
    100 (1)     1.75 %   January 31, 2013
 
                     
Total
  $ 500                  
 
                     
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 1.5%. The weighted average rate received on our interest rate swaps was 0.5% for the five months ended June 30, 2010. These periodic payments and receipts are recorded as interest expense.

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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
  $ 200 (3)   3.0% - 3.5%   February 28, 2012 — February 28, 2013
March 8, 2010
    100 (4)   3.5%   January 31, 2013
March 10, 2010
    100 (4)   3.0%   April 30, 2012
 
                     
Total
  $ 400                  
 
                     
 
(1)   Consists of one swap
 
(2)   Consists of three swaps
 
(3)   Consists of two caps
 
(4)   Consists of one cap
The following tables present the fair value of our interest rate swaps and interest rate caps at June 30, 2010. 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 sheet at June 30, 2010. The following tables also present the loss recognized in interest expense from the change in fair value of our interest rate swaps and interest rate caps for the three and five months ended June 30, 2010.
                         
            Loss Recognized in  
            Interest Expense  
            From the Change in Fair  
            Value of Interest Rate
Swaps
 
    Fair Value     Three Months     Five Months  
    Measurements     Ended     Ended  
    at June 30, 2010     June 30, 2010     June 30, 2010  
 
Interest Rate Swaps:
                       
Other non-current assets
  $     $ 2,511     $  
Accounts payable and accrued liabilities
    (3,428 )     294       3,428  
Other non-current liabilities
    (1,642 )     1,642       1,642  
     
Total
  $ (5,070 )   $ 4,447     $ 5,070  
     
                         
            Loss Recognized in  
            Interest Expense  
            From the Change in Fair  
            Value of Interest Rate
Caps
 
    Fair Value     Three Months     Five Months  
    Measurements     Ended     Ended  
    at June 30, 2010     June 30, 2010     June 30, 2010  
 
Interest Rate Caps:
                       
Prepaid expenses and other current assets
  $ 1     $ 23     $ 66  
Other non-current assets
    550       1,091       1,520  
     
Total
  $ 551     $ 1,114     $ 1,586  
     
During the three and five months ended June 30, 2010, the Company reclassified $7.1 million and $8.7 million, respectively, of hedging losses related to our interest rate swaps and interest rate caps into earnings, including accrued interest.

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Predecessor Company
As a result of filing the Chapter 11 petitions, the Predecessor Company does not have any interest rate swaps designated as cash flow hedges. The following table presents the fair value of the Predecessor Company’s interest rate swaps at December 31, 2009. The fair value of the Predecessor Company’s interest rate swaps is presented in accounts payable and accrued liabilities and other non-current liabilities on the condensed consolidated balance sheet at December 31, 2009. The following table also presents the (gain) loss recognized in interest expense from the change in fair value of the Predecessor Company’s interest rate swaps for the one month ended January 31, 2010.
                 
            (Gain) Loss Recognized in  
            Interest Expense  
            From the Change in Fair  
    Fair Value     Value of Interest Rate
Swaps
 
    Measurements at     One Month Ended  
    December 31, 2009     January 31, 2010  
 
Interest Rate Swaps:
               
Accounts payable and accrued liabilities
  $ (5,043 )   $ 3,898  
Other non-current liabilities
    (1,652 )     (1,600 )
     
Total
  $ (6,695 )   $ 2,298  
     
During the one month ended January 31, 2010, the Predecessor Company reclassified $3.0 million of hedging losses related to interest rate swaps into earnings, including accrued interest. In accordance with fresh start accounting, unamortized amounts previously charged to accumulated other comprehensive loss of $15.3 million related to the Predecessor Company’s interest rate swaps were eliminated as of the Fresh Start Reporting Date. See Note 3, “Fresh Start Accounting” for additional information.
On the Effective Date, liabilities associated with the Predecessor Company’s unsettled and terminated interest rate swaps of $37.8 million, excluding accrued interest, were converted into a new tranche of term loans under the Company’s amended and restated credit facilities as follows:
         
RHDI Amended and Restated Credit Facility
  $ 11,346  
Dex Media East Amended and Restated Credit Facility
    26,301  
Dex Media West Amended and Restated Credit Facility
    121  
 
     
Total
  $ 37,768  
 
     
On April 15, 2009, the Predecessor Company exercised a 30-day grace period on interest payments due on its 8.875% Series A-4 Senior Notes due 2017. As a result of exercising the 30-day grace period, certain existing Dex Media East LLC interest rate swaps were required to be settled on May 28, 2009. Cash settlement payments of $26.4 million were made during the three and six months ended June 30, 2009 associated with these interest rate swaps.
As a result of the decline in certain of the Predecessor Company’s credit ratings, an existing Dex Media West LLC interest rate swap was required to be settled on April 23, 2009. A cash settlement payment of $0.5 million was made during the three and six months ended June 30, 2009 associated with this interest rate swap.
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.

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On the day a derivative contract is executed, the Company may designate the derivative instrument as a hedge of the variability of cash flows to be received or paid (cash flow hedge). For all designated hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. For derivative instruments that are designated as cash flow hedges and that are determined to provide an effective hedge, the differences between the fair value and the book value of the derivative instruments are recognized in accumulated other comprehensive income (loss), a component of shareholders’ equity (deficit).
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer highly effective in offsetting changes in the cash flows of the hedged item, the derivative or hedged item is expired, sold, terminated, exercised, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. In situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the condensed consolidated balance sheet and recognizes any subsequent changes in its fair value in earnings as a component of interest expense. Any amounts previously recorded to accumulated other comprehensive income (loss) will be amortized to interest expense in the same period(s) in which the interest expense of the underlying debt impacts earnings.
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 AA- 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.
8. Income Taxes
The Company’s effective tax rate on loss before income taxes is 16.9% and 52.1% for the three and five months ended June 30, 2010. The Predecessor Company’s effective tax rate on income (loss) before income taxes for the one month ended January 31, 2010 and three and six months ended June 30, 2009 was 11.7%, 14.6% and (285.7)%, respectively. The following tables summarize the significant differences between the U.S. Federal statutory tax rate and our effective tax rate, which has been applied to the Company’s and the Predecessor Company’s income (loss) before income taxes.
                 
    Successor Company  
    Three Months Ended     Five Months Ended  
    June 30, 2010     June 30, 2010  
 
Loss before income taxes
  $ (926,967 )   $ (1,071,271 )
 
               
Statutory U.S. Federal tax rate
    35.0 %     35.0 %
State and local taxes, net of U.S. Federal tax benefit
    3.6       3.2  
Non-deductible impairment charges
    (21.8 )     (18.8 )
Section 382 limitation
          32.8  
Change in valuation allowance
    0.1        
Change in state tax law
          (0.1 )
 
Effective tax rate
    16.9 %     52.1 %
 

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    Predecessor Company  
    One Month Ended     Three Months Ended     Six Months Ended  
    January 31, 2010     June 30, 2009     June 30, 2009  
 
Income (loss) before income taxes
  $ 7,837,550     $ (88,392 )   $ (123,584 )
 
                       
Statutory U.S. Federal tax rate
    35.0 %     35.0 %     35.0 %
State and local taxes, net of U.S. Federal tax benefit
    2.6       (10.5 )     (6.8 )
Tax-exempt reorganization gain
    (28.0 )            
Other non-deductible expenses
          (7.5 )     (5.4 )
Section 382 limitation
    1.1             (303.7 )
Section 108 tax attribution reduction
    21.4              
Change in valuation allowance
    (19.5 )     (1.8 )     (1.3 )
Change in state tax law
                (1.9 )
Other
    (0.9 )     (0.6 )     (1.6 )
 
Effective tax rate
    11.7 %     14.6 %     (285.7 )%
 
As a result of the goodwill and intangible asset impairment charges during the three and five months ended June 30, 2010, we recognized a non-deductible adjustment to our effective tax rate of $201.8 million for the three and five months ended June 30, 2010.
Internal Revenue Code Section 382 (“Section 382”) imposes limitations on the availability of net operating losses and other corporate tax attributes as ownership changes occur. Under Section 382, potential limitations are triggered when there has been an ownership change, which is generally defined as a greater than 50% change in stock ownership (by value) over a three-year period. Such change in ownership will restrict the Company’s ability to use certain net operating losses and other corporate tax attributes in the future. However, the ownership change does not constitute a change in control under any of the Company’s debt agreements or other contracts.
Based upon the closing of the SEC filing period for Schedules 13-G and review of these schedules filed through February 15, 2010, the Company determined that, more likely than not, a certain “check-the-box” election was effective prior to the date of the 2009 ownership change under Section 382. As a result, the Company recorded a tax benefit for the reversal of a liability for unrecognized tax benefit of $351.9 million in the Company’s statement of financial condition and results of operations for the five months ended June 30, 2010, which was the primary driver of our effective tax rate for the five months ended June 30, 2010.
Our certificate of incorporation contains provisions generally prohibiting (i) the acquisition of 4.9% or more of our common stock by any one person or group of persons whose shares would be aggregated pursuant to Section 382 and (ii) the acquisition of additional common stock by persons already owning 4.9% or more of our common stock, in each case until February 2, 2011, or such shorter period as may be determined by our board of directors. Without these restrictions, it is possible that certain changes in the ownership of our common stock could result in the imposition of limitations on the ability of the Company and its subsidiaries to fully utilize the net operating losses and other tax attributes currently available to them for U.S. federal and state income tax purposes.
In connection with the Company’s adoption of fresh start accounting, we evaluated all temporary timing differences. The Company recorded significant deferred tax liabilities associated with intangible assets and deferred revenue, and reduced our deferred tax liabilities to zero related to interest costs and deferred tax assets to zero related to deferred financing costs, which were recognized though the cancellation of our debt. Due to this reduction in tax basis, an incremental deferred tax liability was created, which can be utilized in the Company’s valuation allowance assessment. As a result, the Company has reduced its valuation allowance and is in a net deferred tax liability position of $532.3 million at February 1, 2010 and $342.1 million at June 30, 2010. See Note 3, “Fresh Start Accounting” for information on fresh start accounting adjustments related to income taxes.
The discharge of our debt in conjunction with our emergence from Chapter 11 resulted in a tax gain of $5,031.8 million. Generally, the discharge of a debt obligation for an amount less than the adjusted issue price creates cancellation of indebtedness income (“CODI”), which must be included in the Company’s taxable income. However, recognition of CODI is limited for a taxpayer that is a debtor in a reorganization case if the discharge is granted by the Bankruptcy Court or pursuant to a plan of reorganization approved by the Bankruptcy Court. The Plan enabled the Predecessor Company to qualify for this bankruptcy exclusion rule and exclude substantially all of the gain on the settlement of debt obligations and derivative liabilities from taxable income. Under Internal Revenue Code Section 108, the Company has reduced its tax attributes primarily in net operating loss carry-forwards, intangible asset basis, and stock basis.

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At June 30, 2009, the Predecessor Company recognized an increase in its deferred tax liability of $375.4 million related to Section 382, which directly impacted our deferred tax expense and significantly decreased our effective tax rate for the six months ended June 30, 2009.
9. Benefit Plans
The following tables provide the components of the Company’s net periodic benefit (credit) cost for the three and five months ended June 30, 2010 and the Predecessor Company’s net periodic benefit (credit) cost for the one month ended January 31, 2010 and three and six months ended June 30, 2009.
                 
    Pension Benefits  
    Successor Company  
    Three Months Ended     Five Months Ended  
    June 30, 2010     June 30, 2010  
     
Interest cost
  $ 3,425     $ 5,660  
Expected return on plan assets
    (3,328 )     (5,751 )
Curtailment (gain)
    (3,754 )     (3,754 )
     
Net periodic benefit (credit)
  $ (3,657 )   $ (3,845 )
     
                         
    Pension Benefits  
    Predecessor Company  
    One Month Ended     Three Months Ended     Six Months Ended  
    January 31, 2010     June 30, 2009     June 30, 2009  
   
Service cost
  $     $ 1,378     $ 2,819  
Interest cost
    1,124       3,844       7,452  
Expected return on plan assets
    (1,385 )     (4,546 )     (9,125 )
Amortization of prior service cost
    81              
Amortization of net loss (gain)
    122       (57 )     (27 )
Settlement loss
          3,546       3,546  
     
Net periodic benefit (credit) cost
  $ (58 )   $ 4,165     $ 4,665  
     
                 
    Postretirement Benefits  
    Successor Company  
    Three Months Ended     Five Months Ended  
    June 30, 2010     June 30, 2010  
   
Interest cost
  $ 28     $ 53  
     
Net periodic benefit cost
  $ 28     $ 53  
     
                         
    Postretirement Benefits  
    Predecessor Company  
    One Month Ended     Three Months Ended     Six Months Ended  
    January 31, 2010     June 30, 2009     June 30, 2009  
   
Service cost
  $     $ 146     $ 414  
Interest cost
    10       644       1,403  
Amortization of prior service cost
          (2 )     (4 )
Amortization of net (gain)
    (21 )     (261 )     (261 )
Curtailment (gain)
          (13,460 )     (13,460 )
     
Net periodic benefit (credit)
  $ (11 )   $ (12,933 )   $ (11,908 )
     

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During the three and five months ended June 30, 2010, we recognized a one-time curtailment gain of $3.8 million associated with the retirement of the Company’s Chief Executive Officer.
In conjunction with our emergence from Chapter 11, the Predecessor Company performed a remeasurement of its pension and postretirement obligations as of January 31, 2010. The discount rate reflects the current rate at which the pension and postretirement obligations could effectively be settled at the end of the year. The Predecessor Company utilized the Mercer Pension Discount Yield Curve to determine the appropriate discount rate for its defined benefit plans. The weighted average discount rate used by the Predecessor Company for the remeasurement at January 31, 2010 was 5.70%. The weighted average discount rate used by the Predecessor Company for the year ended December 31, 2009 was 5.72%.
Upon ratification of a new collective bargaining agreement with the International Brotherhood of Electrical Workers of America (“IBEW”) on June 15, 2009 and in conjunction with the comprehensive redesign of the Predecessor Company’s employee retirement savings and pension plans, the Predecessor Company recognized a one-time curtailment gain as a result of eliminating retiree health care and life insurance benefits for IBEW employees of $13.5 million for the three and six months ended June 30, 2009.
On May 31, 2009, settlements of the Dex Media, Inc. Pension Plan occurred. At that time, lump sum payments to participants exceeded the sum of the service cost plus interest cost component of the net periodic benefit costs. These settlements resulted in the recognition of an actuarial loss of $3.5 million for the three and six months ended June 30, 2009.
The Company made contributions to its pension plans of $1.2 million and $7.4 million during the three and five months ended June 30, 2010, respectively. The Predecessor Company did not make any contributions to its pension plans during the one month ended January 31, 2010. The Predecessor Company made contributions of $4.8 million and $26.9 million to its pension plans during the three and six months ended June 30, 2009, respectively.
During the three and five months ended June 30, 2010, the Company made contributions of $1.4 million and $2.2 million, respectively, to its postretirement plans. During the one month ended January 31, 2010 and three and six months ended June 30, 2009, the Predecessor Company made contributions of $0.4 million, $1.3 million and $2.1 million, respectively, to its postretirement plan. We expect to make total contributions of approximately $9.7 million and $2.9 million to our pension plans and postretirement plans, respectively, in 2010.
10. Capital Stock
The Company has authority to issue (i) 300,000,000 shares of common stock, $.001 par value per share (“Common Stock”), and (ii) 10,000,000 shares of preferred stock, $.001 par value per share (“Preferred Stock”). The powers, preferences and rights of holders of shares of our Common Stock are subject to, and may be adversely affected by, the powers, preferences and rights of the holders of shares of any series of Preferred Stock that we may designate and issue in the future without stockholder approval. As of June 30, 2010, the Company had not issued any shares of Preferred Stock.
11. Business Segments
Management reviews and analyzes its business of providing marketing products and marketing services as one operating segment.

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12. Legal Proceedings
We are involved in various legal proceedings arising in the ordinary course of our business, as well as certain litigation and tax matters. In many of these matters, plaintiffs allege that they have suffered damages from errors or omissions in their advertising or improper listings, in each case, contained in directories published by us.
Beginning on October 23, 2009, a series of putative securities class action lawsuits were commenced in the United States District Court for the District of Delaware on behalf of all persons who purchased or otherwise acquired the Company’s publicly traded securities between July 26, 2007 and the time the Company filed for bankruptcy on May 28, 2009, alleging that certain Company officers issued false and misleading statements regarding the Company’s business and financial condition and seeking damages and equitable relief. 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 the time the lawsuit was filed 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 Company directors, officers and employees similar to those set forth in the putative securities class action lawsuit as well as allegations of breaches of fiduciary duties under ERISA and seeks damages and equitable relief. On December 18, 2009, a lawsuit was filed in California state court by certain former shareholders of the Company alleging that certain Company officers issued false and misleading statements regarding the Company’s business and financial condition and seeking damages and equitable relief. This case was removed to the United States District Court for the Central District of California on February 4, 2010. On April 27, 2010, this case was dismissed for lack of personal jurisdiction over the named defendants. The Company believes the allegations set forth in all of these lawsuits are without merit and intends to vigorously defend any and all such actions pursued against the Company and/or its current and former officers, employees and directors.
We are also exposed to potential defamation and breach of privacy claims arising from our publication of directories and our methods of collecting, processing and using advertiser and telephone subscriber data. If such data were determined to be inaccurate or if data stored by us were improperly accessed and disseminated by us or by unauthorized persons, the subjects of our data and users of the data we collect and publish could submit claims against the Company. Although to date we have not experienced any material claims relating to defamation or breach of privacy, we may be party to such proceedings in the future that could have a material adverse effect on our business.
We periodically assess our liabilities and contingencies in connection with these matters based upon the latest information available to us. For those matters where it is probable that we have incurred a loss and the loss or range of loss can be reasonably estimated, we record a liability in our consolidated financial statements. In other instances, we are unable to make a reasonable estimate of any liability because of the uncertainties related to both the probable outcome and amount or range of loss. As additional information becomes available, we adjust our assessment and estimates of such liabilities accordingly.
Based on our review of the latest information available, we believe our ultimate liability in connection with pending or threatened legal proceedings will not have a material effect on our results of operations, cash flows or financial position. No material amounts have been accrued in our consolidated financial statements with respect to any of such matters.
13. Dex One Corporation (“Parent Company”) Financial Statements
The following condensed Parent Company financial statements should be read in conjunction with the condensed consolidated financial statements of the Company and the Predecessor Company.
In general, substantially all of the net assets of the Company and its subsidiaries are restricted from being paid as dividends to any third party, and our subsidiaries are restricted from paying dividends, loans or advances to us with very limited exceptions, under the terms of our amended and restated credit facilities.

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Condensed Parent Company Balance Sheets
                   
    Successor       Predecessor  
    Company       Company  
    June 30,       December, 31  
    2010       2009  
           
Assets
                 
 
                 
Cash and cash equivalents
  $ 1,189       $ 5,007  
Intercompany, net
            109,102  
Intercompany loan receivable
    1,900         5,000  
Prepaid and other current assets
    367         8,055  
           
Total current assets
    3,456         127,164  
 
                 
Investment in subsidiaries
    1,274,875          
Fixed assets and computer software, net
            5,990  
Deferred income taxes, net
    286         71,878  
Intercompany note receivable
            300,000  
           
 
                 
Total assets
  $ 1,278,617       $ 505,032  
           
 
                 
Liabilities and Shareholders’ Equity (Deficit)
                 
 
                 
Accounts payable, accrued liabilities and other
  $ 93       $ 80,061  
Accrued interest
    9,049          
Intercompany, net
    16,079          
Short-term deferred income taxes, net
    12,307          
           
Total current liabilities not subject to compromise
    37,528         80,061  
 
                 
Long-term debt
    300,000          
Deficit in subsidiaries
            3,950,031  
Other non-current liabilities
    1,040         8,232  
           
Total liabilities not subject to compromise
    338,568         4,038,324  
 
                 
Liabilities subject to compromise
            3,385,756  
 
                 
Shareholders’ equity (deficit)
    940,049         (6,919,048 )
           
 
                 
Total liabilities and shareholders’ equity (deficit)
  $ 1,278,617       $ 505,032  
           

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Condensed Parent Company Statements of Operations
                                           
    Successor Company       Predecessor Company  
    Three Months Ended     Five Months Ended       One Month Ended     Three Months Ended     Six Months Ended  
    June 30, 2010     June 30, 2010       January 31, 2010     June 30, 2009     June 30, 2009  
           
Expenses
  $ 9,193     $ 12,095       $ 891     $ 4,947     $ 10,253  
Partnership and equity income (loss)
    (908,838 )     (1,043,949 )       643,971       57,365       92,028  
           
Operating income (loss)
    (918,031 )     (1,056,044 )       643,080       52,418       81,775  
Interest expense, net
    (8,936 )     (15,227 )             (41,487 )     (106,036 )
           
Income (loss) before reorganization items, net and income taxes
    (926,967 )     (1,071,271 )       643,080       10,931       (24,261 )
Reorganization items, net
                  7,194,470       (99,323 )     (99,323 )
           
Income (loss) before income taxes
    (926,967 )     (1,071,271 )       7,837,550       (88,392 )     (123,584 )
(Provision) benefit for income taxes
    157,044       558,566         (917,541 )     12,910       (353,108 )
           
Net income (loss)
  $ (769,923 )   $ (512,705 )     $ 6,920,009     $ (75,482 )   $ (476,692 )
           
Condensed Parent Company Statements of Cash Flows
                           
    Successor Company       Predecessor Company  
    Five Months Ended       One Month Ended     Six Months Ended  
    June 30, 2010       January 31, 2010     June 30, 2009  
           
Cash flow used in operating activities
  $ (5,419 )     $ (531 )   $ (120,776 )
Cash flow from investing activities:
                         
Additions to fixed assets and computer software, net
            (643 )     (134 )
Intercompany loan
    (1,900 )             (7,000 )
           
Net cash used in investing activities
    (1,900 )       (643 )     (7,134 )
Cash flow from financing activities:
                         
Debt issuance and other financing costs
            (370 )      
Decrease in checks not yet presented for payment
    (1,073 )       (182 )     (905 )
Dividends from subsidiaries
    6,300               129,600  
           
Net cash provided by (used in) financing activities
    5,227         (552 )     128,695  
           
Change in cash
    (2,092 )       (1,726 )     785  
Cash at beginning of period
    3,281         5,007       948  
           
Cash at end of period
  $ 1,189       $ 3,281     $ 1,733  
           

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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 “Successor Company,” 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) our ability to hire a new chief executive officer; (2) changes in directory advertising spend and consumer usage; (3) competition and other economic conditions; (4) our ability to generate sufficient cash to service our debt; (5) 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; (6) our ability to refinance or restructure our debt on reasonable terms and conditions as might be necessary from time to time; (7) increasing LIBOR rates; (8) regulatory and judicial rulings; (9) changes in the Company’s and the Company’s subsidiaries credit ratings; (10) changes in accounting standards; (11) adverse results from litigation, governmental investigations or tax related proceedings or audits; (12) the effect of labor strikes, lock-outs and negotiations; (13) successful realization of the expected benefits of acquisitions, divestitures and joint ventures; (14) the continued enforceability of the commercial agreements with Qwest, CenturyLink and AT&T; (15) our reliance on third-party vendors for various services; and (16) 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, 2009.
Corporate Overview
We are a marketing solutions company that helps local businesses grow by providing marketing products that help them get found by ready-to-buy consumers and marketing services that help them get chosen over their competitors. Through our Dex® Advantage, clients’ business information is published and marketed through a single profile and distributed via a variety of both owned and operated products and through other local search products. Dex Advantage spans multiple media platforms for local advertisers including print with our Dex published directories, which we co-brand with other brands in the industry such as Qwest, CenturyLink and AT&T, online and mobile devices with DexKnows.com ® and voice-activated directory search at 1-800-Call-Dex™. Our digital affiliate provided solutions are powered by DexNet™, which leverages network partners including the premier search engines, such as Google® and Yahoo!® and other leading online sites. Our growing list of marketing services include local business and market analysis, message and image creation, target market identification, advertising and digital profile creation, keyword and search engine optimization strategies and programs, distribution strategies, social strategies, and tracking and reporting.

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Recent Trends Related to Our Business
We have been experiencing lower advertising sales primarily as a result of declines in new and recurring business, including both renewal and incremental sales to existing advertisers, mainly driven by (1) declines in overall advertising spending by our clients, (2) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (3) an increase in competition and more fragmentation in local business search.
The Company currently projects its future operating results, cash flow and liquidity will be negatively impacted by the aforementioned conditions. This was evidenced by the continued decline in our net revenues for the three and five months ended June 30, 2010 as compared to the prior year, excluding the impact of fresh start accounting. The Company expects that these challenging conditions will continue in our markets, and, as such, our advertising sales and operating results will continue to be adversely impacted for the foreseeable future. As a result, the Company’s historical operating results will not be indicative of future operating performance. Although our long-term financial forecast currently anticipates a gradual improvement in the local business conditions during the second half of 2010, improvement has progressed slower than originally anticipated.
As more fully described below in Part 1 — Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Revenues,” our method of recognizing revenue under the deferral and amortization method results in delayed recognition of declining 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 advertising sales will result in a decline in revenue recognized in future periods. In addition, improvements in local business conditions that are anticipated in our forecast noted above will not have a significant immediate impact on our revenues.
In response to these challenges, we continue to actively manage expenses and are considering and acting upon a host of initiatives to streamline operations and contain costs. At the same time, we are improving the value we deliver to our clients by expanding the number of platforms and media through which we deliver their message to consumers. We are also committing our sales force to focus on selling the value provided to local businesses through these expanded platforms, including our Dex published directories, online and mobile devices, voice-activated directory search as well as our network of owned and operated and partner online search sites. In addition, the Company continues to invest in its future through initiatives such as its overall digital product and service offerings, sales force automation, a client self service system and portal, new mobile and voice search platforms and associated employee training. As local business conditions recover in our markets, we believe these investments will drive future revenue.
Impairment Charges
Based upon the decline in the trading value of our debt and equity securities during the three months ended June 30, 2010 and the retirement of our Chairman and Chief Executive Officer on May 28, 2010, among others, the Company concluded that there were indicators of impairment during the three months ended June 30, 2010. As a result of identifying indicators of impairment, we performed impairment tests as of June 30, 2010 of our goodwill, definite-lived intangible assets and other long-lived assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles — Goodwill and Other (“FASB ASC 350”) and FASB ASC 360, Property, Plant and Equipment (“FASB ASC 360”). The testing results of our definite-lived intangible assets and other long-lived assets resulted in an impairment charge of $17.3 million during the three and five months ended June 30, 2010 associated with trade names and trademarks, technology, local customer relationships and other from our Business.com reporting unit. The testing results of our goodwill resulted in an impairment charge of $752.3 million during the three and five months ended June 30, 2010, which has been recorded in each of our reporting units. The sum of the goodwill and intangible asset impairment charges totaled $769.7 million for the three and five months ended June 30, 2010. See Item 1, “Financial Statements — Unaudited” — Note 2, “Summary of Significant Accounting Policies — Identifiable Intangible Assets and Goodwill” for additional information.

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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 if the trading value of our debt and equity securities decline significantly, we will be required to once again assess the recoverability of goodwill in addition to our annual evaluation and recoverability and useful lives of our intangible assets and other long-lived assets. This 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.
Retirement of Chairman and Chief Executive Officer
Effective May 28, 2010 (the “Separation Date”), our Chairman and Chief Executive Officer, David C. Swanson, retired from the Company. The Company’s Board of Directors (the “Board”) has established an Executive Oversight Committee comprised of three of the Board’s current directors, Jonathan B. Bulkeley, W. Kirk Liddell and Mark A. McEachen, to lead the Company on an interim basis. Mr. Liddell serves as the Company’s Interim Principal Executive Officer and current Board member, Alan F. Schultz, serves as the non-executive Chairman of the Board.
In connection with Mr. Swanson’s retirement, the Company entered into a Separation Agreement with Mr. Swanson (the “Separation Agreement”) on May 20, 2010. The Separation Agreement provides that Mr. Swanson will receive severance benefits to which he is entitled under his Amended and Restated Employment Agreement (the “Employment Agreement”), in connection with a termination not for Cause following a Change of Control (as such terms are defined in the Employment Agreement). In accordance with the Separation Agreement, Mr. Swanson received a lump-sum separation payment of $6.4 million plus accrued and unpaid salary and vacation days totaling $0.5 million during the three months ended June 30, 2010 and will receive a pro rata portion of his 2010 annual bonus totaling $0.4 million no later than March 15, 2011.
In accordance with the Separation Agreement, the Company will reimburse Mr. Swanson for the costs of obtaining term life insurance coverage from the Separation Date until the earlier of (i) December 31, 2013 and (ii) the date on which Mr. Swanson becomes employed or self-employed. In addition, the Company will reimburse Mr. Swanson for costs of obtaining health, medical and dental insurance and long-term disability insurance benefits from the Separation Date until the earlier of (i) May 31, 2013 and (ii) the date on which Mr. Swanson becomes employed or self-employed. Mr. Swanson will also be reimbursed for costs of financial planning and outplacement services, dues for continuing his health club and country club memberships and executive health expenses during this period. He will also have access to periodic administrative and technical support through the end of 2010.
Following the Separation Date, Mr. Swanson has no equity interest in the Company or any of its affiliates or subsidiaries other than 25,320 previously issued and currently vested stock appreciation rights in the Company. All other unvested stock appreciation rights held by Mr. Swanson have terminated. Mr. Swanson will continue to participate in the Company’s 2009 Long Term Incentive Plan (“LTIP”) and will be eligible to receive payment of up to $3.5 million under the LTIP subject to satisfaction of the performance standards contained in the LTIP. Mr. Swanson will also receive $5.7 million in full satisfaction for amounts due to him under certain non-qualified pension plans and $0.5 million associated with his vested benefits under the Company’s qualified pension plan and under the R.H. Donnelley Corporation Restoration Plan. Pursuant to the Separation Agreement, Mr. Swanson agreed to release the Company from, among other things, all claims, demands, damages, actions or rights of action of any nature, arising out of or related to or based upon his employment with the Company. Mr. Swanson further agreed to comply with and be bound by a 12 month non-competition and non-solicitation covenant beginning on the Separation Date and covenants prohibiting disclosure of the Company’s confidential information.
Filing of Voluntary Petitions in Chapter 11
On May 28, 2009 (the “Petition Date”), R.H. Donnelley Corporation (“RHD” or the “Predecessor Company”) and its subsidiaries (collectively with the Predecessor Company, the “Debtors”) filed voluntary petitions for Chapter 11 relief under Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).
Confirmed Plan of Reorganization and Emergence from the Chapter 11 Proceedings
On January 12, 2010, the Bankruptcy Court entered the Findings of Fact, Conclusions of Law, and Order Confirming the Joint Plan of Reorganization for the Predecessor Company and its subsidiaries (the “Confirmation Order”). On January 29, 2010 (the “Effective Date”), the Joint Plan of Reorganization for the Predecessor Company and its subsidiaries (the “Plan”) became effective in accordance with its terms.

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From the Petition Date until the Effective Date, the Debtors operated their businesses as debtors-in-possession in accordance with the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the “Chapter 11 Cases”) were jointly administered under the caption In re R.H. Donnelley Corporation, Case No. 09-11833 (KG) (Bankr. D. Del. 2009).
Dex One became the successor registrant to the Predecessor Company for operations prior to the Effective Date upon emergence from Chapter 11 relief under the Bankruptcy Code on the Effective Date. References to the Predecessor Company in this Quarterly Report on Form 10-Q pertain to periods prior to the Effective Date.
Restructuring
As part of a restructuring that was conducted in connection with the Debtors’ emergence from bankruptcy, the Debtors merged, consolidated, dissolved, or terminated, shortly after the Effective Date, certain of their wholly-owned subsidiaries, as set forth below:
    DonTech Holdings, LLC and R.H. Donnelley Publishing & Advertising of Illinois Holdings, LLC were merged into their sole member, RHDI;
 
    The DonTech II Partnership and R.H. Donnelley Publishing & Advertising of Illinois Partnership technically terminated their respective partnership agreements due to the loss of a second partner;
 
    Dex Media East Finance Co. was merged into Dex Media East LLC;
 
    Dex Media West Finance Co. was merged into Dex Media West LLC;
 
    Work.com, Inc. was merged into Business.com, Inc.;
 
    GetDigitalSmart.com, Inc. was merged into RHDI;
 
    Dex Media East LLC was merged into Dex Media East, Inc. (“DME Inc.”);
 
    Dex Media West LLC was merged into Dex Media West, Inc. (“DMW Inc.”); and
 
    R.H. Donnelley Publishing & Advertising, Inc. was merged into RHDI.
After effectuating the restructuring transactions, Dex One became the ultimate parent company of each of the following surviving subsidiaries: (i) R.H. Donnelley Corporation, a newly formed subsidiary of Dex One (ii) RHDI, (iii) Dex Media, (iv) DME Inc., (v) DMW Inc., (vi) Dex Media Service LLC, (vii) Dex One Service LLC (which was subsequently converted into a Delaware corporation under the name Dex One Service effective March 1, 2010, (viii) Business.com and (ix) R.H. Donnelley APIL, Inc.
Consummation of the Plan
Issuance of New Common Stock
Upon emergence from Chapter 11 and pursuant to the Plan, all of the issued and outstanding shares of the Predecessor Company’s common stock and any other outstanding equity securities of the Predecessor Company including all stock options, stock appreciation rights (“SARs”) and restricted stock, were cancelled. On the Effective Date, the Company issued an aggregate amount of 50,000,001 shares of new common stock, par value $.001 per share.
Distributions Pursuant to the Plan
Since the Effective Date, the Company has substantially consummated the various transactions contemplated under the confirmed Plan. The Company has made the following distributions of stock and securities that were required to be made under the Plan to creditors with allowed claims:
    On the Effective Date, in accordance with the Plan, the Company issued the following number of shares of Dex One common stock: (i) approximately 10.5 million shares, representing 21.0% of total outstanding common stock, to all holders of notes issued by RHD; (ii) approximately 11.65 million shares, representing 23.3% of total outstanding common stock, to all holders of notes issued by Dex Media, Inc.; (iii) approximately 12.9 million shares, representing 25.8% of total outstanding common stock, to all holders of notes issued by RHDI; (iv) approximately 6.5 million shares, representing 13.0% of total outstanding common stock, to all holders of senior notes issued by Dex Media West; and (v) approximately 8.45 million shares, representing 16.9% of total outstanding common stock, to all holders of senior subordinated notes issued by Dex Media West.

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    On the Effective Date, in accordance with the terms of the Plan, holders of the Dex Media West 8.5% Senior Notes due 2010 and 5.875% Senior Notes due 2011 also received their pro rata share of Dex One’s $300.0 million aggregate principal amount of 12%/14% Senior Subordinated Notes due 2017 (“Dex One Senior Subordinated Notes”).
As of June 30, 2010 and pursuant to the Plan, the Company has made distributions in cash on account of all, or substantially all, of the allowed claims of general unsecured creditors. Allowed claims of general unsecured creditors that have not been paid as of June 30, 2010 will be paid during the remainder of 2010.
Pursuant to the terms of the Plan, the Company is also obligated to make certain additional payments to certain creditors, including certain distributions that may become due and owing subsequent to the initial distribution date and certain payments to holders of administrative expense priority claims and fees earned by professional advisors during the Chapter 11 Cases.
Discharge, Releases, and Injunctions Pursuant to the Plan and the Confirmation Order
The Plan and Confirmation Order also contain various discharges, injunctive provisions, and releases that became operative upon the Effective Date. These provisions are summarized in Sections M through O of the Confirmation Order and more fully described in Article X of the Plan.
Registration Rights Agreement
On the Effective Date and pursuant to the Plan, the Company entered into a Registration Rights Agreement (the “Agreement”), requiring the Company to register with the Securities and Exchange Commission (“SEC”) certain shares of its common stock and/or the Dex One Senior Subordinated Notes upon the request of one or more Eligible Holders (as defined in the Agreement), in accordance with the terms and conditions set forth therein. On April 8, 2010 and pursuant to the Agreement, the Company filed a shelf registration statement to register for resale by Franklin Advisers, Inc. and certain of its affiliates 15,262,488 shares of our common stock and $116.6 million aggregate principal amount of the Dex One Senior Subordinated Notes. These securities were registered pursuant to the Agreement to permit the sale of the securities from time to time at fixed prices, prevailing market prices at the times of sale, prices related to the prevailing market prices, varying prices determined at the times of sale or negotiated prices. The shelf registration statement became effective on April 16, 2010.
Impact on Long-Term Debt Upon Emergence from the Chapter 11 Proceedings
On the Effective Date and in accordance with the Plan, $6.1 billion of the Predecessor Company’s senior notes, senior discount notes and senior subordinated notes (collectively the “notes in default”) were exchanged for (a) 100% of the reorganized Dex One equity and (b) $300.0 million of the Dex One Senior Subordinated Notes issued to the holders of the Dex Media West 8.5% Senior Notes due 2010 and 5.875% Senior Notes due 2011 on a pro rata basis in addition to their share of the reorganized Dex One equity. See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 6, “Long-Term Debt, Credit Facilities and Notes” for further details of our long-term debt.
Accounting Matters Resulting from the Chapter 11 Proceedings
The filing of the Chapter 11 petitions constituted an event of default under the indentures governing the Predecessor Company’s notes in default and the debt obligations under those instruments became automatically and immediately due and payable, although any actions to enforce such payment obligations were automatically stayed under applicable bankruptcy laws. Based on the bankruptcy petitions, the notes in default are included in liabilities subject to compromise on the consolidated balance sheet at December 31, 2009. See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 1, “Business and Basis of Presentation — Accounting Matters” for additional information regarding the notes in default and other accounting matters.

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Fresh Start Accounting
The Company adopted fresh start accounting and reporting effective February 1, 2010 (“Fresh Start Reporting Date”) in accordance with FASB ASC 852, Reorganizations (“FASB ASC 852”), as the holders of existing voting shares immediately before confirmation of the Plan received less than 50% of the voting shares of the emerging entity and the reorganization value of the Company’s assets immediately before the date of confirmation was less than the post-petition liabilities and allowed claims. See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 3, “Fresh Start Accounting” for additional information.
Goodwill of $2.1 billion was recorded in connection with the Company’s adoption of fresh start accounting and represents the excess of the reorganization value of Dex One over the fair value of identified tangible and intangible assets. Goodwill is not amortized but is subject to impairment testing on an annual basis as of October 31st or more frequently if indicators of potential impairment exist. See “Impairment Charges” above for information on our impairment evaluation of goodwill, definite-lived intangible assets and other long-lived assets during the three months ended June 30, 2010.
Our net revenues and operating results have been and will continue to be significantly impacted by our adoption of fresh start accounting on the Fresh Start Reporting Date over the twelve month period ending January 31, 2011. See Part 1 — Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Comparability” for additional information on the impact of fresh start accounting and the Company’s presentation of Adjusted and Combined Adjusted results.
Climate Change
There is a growing concern about global climate change and the contribution of emissions of greenhouse gases including, most significantly, carbon dioxide. This concern has led to increased interest in legislative and/or regulatory actions, as well as litigation relating to greenhouse gas emissions. While we cannot predict the impact of any legislation until final, we do not believe the proposed regulations and/or current litigation related to global climate change is reasonably likely to have a material impact on our business, future financial position, results of operations and cash flow. Our current financial projections do not include any impact of proposed regulations and/or current litigation related to global climate change.
Going Concern
As a result of our emergence from the Chapter 11 proceedings and the restructuring of the Predecessor Company’s outstanding debt, we believe that Dex One will generate sufficient cash flow from operations to satisfy all of its debt obligations according to applicable terms and conditions for a reasonable period of time. See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 3, “Fresh Start Accounting” for information and analysis on our emergence from the Chapter 11 proceedings and the impact on our financial position. The Company’s goodwill and intangible asset impairment charges recorded during the three months ended June 30, 2010 do not affect our ability to continue as a going concern, as we are permitted to exclude such charges from debt covenant evaluations.
Segment Reporting
Management reviews and analyzes its business of providing marketing products and marketing services as one operating segment.

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New Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends FASB ASC 820 to clarify existing disclosure requirements and require additional disclosure about fair value measurements. ASU 2010-06 clarifies existing fair value disclosures about the level of disaggregation presented and about inputs and valuation techniques used to measure fair value for measurements that fall in either Level 2 or Level 3 of the fair value hierarchy. The additional disclosure requirements include disclosure regarding the amounts and reasons for significant transfers in and out of Level 1 and Level 2 of the fair value hierarchy and separate presentation of purchases, sales, issuances and settlements of items within Level 3 of the fair value hierarchy. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about Level 3 activity of purchases, sales, issuances and settlements, which is effective for interim and annual reporting periods beginning after December 15, 2010. Effective January 1, 2010, we adopted the disclosure provisions of ASU 2010-06 that are effective for interim and annual reporting periods beginning after December 15, 2009. These disclosures are required to be provided only on a prospective basis.
In September 2009, the Emerging Issues Task Force (“EITF”) reached final consensus on EITF Issue No. 08-1, Revenue Arrangements with Multiple Deliverables (“EITF 08-1”). EITF 08-1 has not yet been incorporated into the FASB’s Codification. EITF 08-1 updates the current guidance pertaining to multiple-element revenue arrangements included in FASB ASC 605-25, which originated from EITF 00-21, Revenue Arrangements with Multiple Deliverables. EITF 08-1 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. EITF 08-1 will be effective for the Company in the annual reporting period beginning January 1, 2011. EITF 08-1 may be applied retrospectively or prospectively and early adoption is permitted. The Company does not expect the adoption of EITF 08-1 to have an impact on its financial position, results of operations or cash flows.
We have reviewed other accounting pronouncements that were issued as of June 30, 2010, 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
Factors Affecting Comparability
Fresh Start Accounting Adjustments
The Company adopted fresh start accounting and reporting effective February 1, 2010, the Fresh Start Reporting Date. The financial statements as of the Fresh Start Reporting Date will report the results of Dex One with no beginning retained earnings or accumulated deficit. Any presentation of Dex One represents the financial position and results of operations of a new reporting entity and is not comparable to prior periods presented by the Predecessor Company. The financial statements for periods ended prior to the Fresh Start Reporting Date do not include the effect of any changes in the Predecessor Company’s capital structure or changes in the fair value of assets and liabilities as a result of fresh start accounting.
We have provided a U.S. generally accepted accounting principles (“GAAP”) analysis of the Company’s results of operations for the three and five months ended June 30, 2010 and the Predecessor Company’s results of operations for the one month ended January 31, 2010 below. This GAAP analysis includes a discussion of results for the individual reporting periods, however does not provide a comparison of the individual reporting periods to the respective prior year reporting periods due to the reasons discussed above.
As a result of the deferral and amortization method of revenue recognition, recognized gross advertising revenues reflect the amortization of advertising sales consummated in prior periods as well as in the current period. The adoption of fresh start accounting has a significant impact on the financial position and results of operations of the Company commencing on the Fresh Start Reporting Date. Consistent with the Predecessor Company’s historical application of the purchase method of accounting for business combinations included in FASB ASC 805, Business Combinations, fresh start accounting precludes us from recognizing advertising revenue and certain expenses associated with advertising sales fulfilled prior to the Fresh Start Reporting Date. Thus, our reported results for the three and five months ended June 30, 2010 are not indicative of our underlying operating and financial performance and are not comparable to any prior period presentation. The adoption of fresh start accounting did not have any impact on cash flows from operations.
Accordingly, in addition to providing a GAAP analysis below, management has also provided a non-GAAP analysis entitled “Non-GAAP Financial Information — Adjusted and Combined Adjusted Results.” Non-GAAP Financial Information — Adjusted Results adjusts GAAP results of the Company for the three months ended June 30, 2010 to (i) eliminate the fresh start accounting impact on revenue and certain related expenses noted above and (ii) exclude cost-uplift recorded under fresh start accounting. Non-GAAP Financial Information — Combined Adjusted Results (1) combines GAAP results of the Company for the five months ended June 30, 2010 and GAAP results of the Predecessor Company for the one month ended January 31, 2010 and (2) adjusts these combined amounts to (i) eliminate the fresh start accounting impact on revenue and certain related expenses noted above and (ii) exclude cost-uplift recorded under fresh start accounting. Deferred directory costs that are included in prepaid expenses and other current assets on the condensed consolidated balance sheet, such as print, paper, distribution and commissions, relate to directories that have not yet been published. Deferred directory costs have been recorded at fair value, determined as (a) the estimated billable value of the published directory less (b) the expected costs to complete the directory, plus (c) a normal profit margin. This incremental fresh start accounting adjustment to step up the recorded value of the deferred directory costs to fair value is hereby referred to as “cost-uplift.” Cost-uplift will be amortized over the terms of the applicable directories, not to exceed twelve months, and has been allocated between production and distribution expenses and selling and support expenses based upon the category of the deferred directory costs that were fair valued. Management’s non-GAAP analysis compares the Non-GAAP Financial Information — Adjusted and Combined Adjusted Results to the Predecessor Company’s GAAP results for the three and six months ended June 30, 2009 through operating income.
Management believes that the presentation of Non-GAAP Financial Information — Adjusted and Combined Adjusted Results will help financial statement users better understand the material impact fresh start accounting has on the Company’s results of operations for the three and five months ended June 30, 2010 and also offers a non-GAAP normalized comparison to GAAP results of the Predecessor Company for the three and six months ended June 30, 2009. The Non-GAAP Financial Information — Adjusted and Combined Adjusted Results presented below are reconciled to the most comparable GAAP measures. While the Non-GAAP Financial Information — Adjusted and Combined Adjusted Results exclude the effects of fresh start accounting and certain other items, it must be noted that the Non-GAAP Financial Information — Adjusted and Combined Adjusted Results are not comparable to the Predecessor Company’s GAAP results for the three and six months ended June 30, 2009 and should not be treated as such.

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Impairment Charges
The Company has excluded the goodwill and intangible asset impairment charges totaling $769.7 million from Adjusted Results for the three months ended June 30, 2010 and Combined Adjusted Results for the six months ended June 30, 2010.
Reclassifications
Certain prior period amounts included in the condensed consolidated statements of operations have been reclassified to conform to the current period’s presentation. Purchased traffic costs incurred to direct traffic to our online properties have been reclassified from advertising expense, a component of selling and support expenses, to production and distribution expenses in the condensed consolidated statements of operations. In addition, information technology expenses have been reclassified from production and distribution expenses to general and administrative expenses in the condensed consolidated statements of operations. These reclassifications had no impact on operating income or net loss for the three and six months ended June 30, 2009. The tables below summarize these reclassifications.
                         
    Three Months Ended June 30, 2009  
    As Previously              
(amounts in millions)   Reported     Reclass     As Reclassified  
 
Production and distribution expenses
  $ 88.5     $ 4.2     $ 92.7  
Selling and support expenses
    172.2       (11.5 )     160.7  
General and administrative expenses
    18.7       7.3       26.0  
                         
    Six Months Ended June 30, 2009  
    As Previously              
(amounts in millions)   Reported     Reclass     As Reclassified  
 
Production and distribution expenses
  $ 184.6     $ 10.0     $ 194.6  
Selling and support expenses
    337.1       (24.4 )     312.7  
General and administrative expenses
    53.2       14.4       67.6  
GAAP Reported Results
Successor Company — Three and Five Months Ended June 30, 2010
Net Revenues
The components of our net revenues for the three and five months ended June 30, 2010 were as follows:
                 
    Successor Company  
    Three Months Ended     Five Months Ended  
(amounts in millions)   June 30, 2010     June 30, 2010  
 
Gross advertising revenues
  $ 157.6     $ 210.2  
Sales claims and allowances
    (1.7 )     (4.2 )
     
Net advertising revenues
    155.9       206.0  
Other revenues
    5.0       8.0  
     
Total
  $ 160.9     $ 214.0  
     

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Our advertising revenues are earned primarily from the sale of advertising in yellow pages directories we publish, net of sales claims and allowances. Advertising revenues also include revenues for Internet-based advertising products including online directories, such as DexKnows.com and DexNet. Advertising revenues are affected by several factors, including changes in the quantity and size of advertisements, acquisition of new clients, renewal rates of existing clients, premium advertisements sold, changes in advertisement pricing, the introduction of new products, 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 advertising products that are sold with print advertising are recognized under the deferral and amortization method. Revenues related to our print advertising are initially deferred when a directory is published and recognized ratably over the directory’s life, which is typically 12 months. Revenues with respect to our Internet-based advertising products that are sold with print advertising are initially deferred until the service is delivered or fulfilled and recognized ratably over the life of the contract. Revenues with respect to Internet-based services that are sold standalone, such as DexNet, are recognized as delivered or fulfilled.
The adoption of fresh start accounting has a significant impact on the results of operations of the Company commencing on the Fresh Start Reporting Date. As a result of the deferral and amortization method of revenue recognition, recognized gross advertising revenues reflect the amortization of advertising sales consummated in prior periods as well as in the current period. Fresh start accounting precludes us from recognizing advertising revenue and certain expenses associated with advertising sales fulfilled prior to the Fresh Start Reporting Date. Thus, our reported results for the three and five months ended June 30, 2010 are not indicative of our underlying operating and financial performance and are not comparable to any prior period presentation.
Gross advertising revenues were $157.6 million and $210.2 million for the three and five months ended June 30, 2010, respectively, and exclude $294.0 million and $551.9 million, respectively, of gross advertising revenues resulting from our adoption of fresh start accounting. Gross advertising revenues continue to be impacted by declines in advertising sales primarily as a result of declines in new and recurring business, mainly driven by (1) declines in overall advertising spending by our clients, (2) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (3) an increase in competition and more fragmentation in local business search.
Sales claims and allowances were $1.7 million and $4.2 million for the three and five months ended June 30, 2010, respectively, and exclude $5.1 million and $9.7 million, respectively, of sales claims and allowances resulting from our adoption of fresh start accounting. Sales claims and allowances were affected by lower claims experience due to process improvements and operating efficiencies, which improved print copy quality in certain of our markets, as well as lower advertising sales volume.
Other revenues were $5.0 million and $8.0 million for the three and five months ended June 30, 2010, respectively, and exclude $2.0 million and $3.8 million, respectively, of other revenues resulting from our adoption of fresh start accounting. Other revenues include late fees received on outstanding customer balances, barter revenues, commissions earned on sales contracts with respect to advertising placed into other publishers’ directories, and sales of directories and certain other advertising-related products.
Expenses
The components of our total expenses for the three and five months ended June 30, 2010 were as follows:
                 
    Successor Company  
    Three Months Ended     Five Months Ended  
(amounts in millions)   June 30, 2010     June 30, 2010  
 
Production and distribution expenses
  $ 51.5     $ 80.5  
Selling and support expenses
    93.5       151.9  
General and administrative expenses
    40.2       61.9  
Depreciation and amortization
    59.6       99.0  
Impairment charges
    769.7       769.7  
     
Total
  $ 1,014.5     $ 1,163.0  
     

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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 clients 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. Except for certain expenses associated with advertising sales fulfilled prior to the Fresh Start Reporting Date, which fresh start accounting precludes us from recognizing, 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
Total production and distribution expenses were $51.5 million and $80.5 million for the three and five months ended June 30, 2010, respectively. Production and distribution expenses are comprised of items such as print, paper and distribution expenses, internet production and distribution expenses and amortization of cost-uplift associated with print, paper and distribution expenses resulting from our adoption of fresh start accounting. As a result of our adoption of fresh start accounting, production and distribution expenses for the three and five months ended June 30, 2010 exclude the amortization of deferred directory costs under the deferral and amortization method for directories published before the Fresh Start Reporting Date totaling $32.6 million and $60.9 million, respectively, and include amortization of cost-uplift of $2.1 million and $3.4 million, respectively. Print paper and distribution expenses continue to be impacted by lower page volumes associated with declines in print advertisements and negotiated price reductions in our print and paper expenses. Internet production and distribution expenses have been affected by a reduction in DexNet customers, purchasing efficiencies and lower headcount, partially offset by increased purchased traffic costs incurred to direct traffic to our online properties.
Selling and Support Expenses
Total selling and support expenses were $93.5 million and $151.9 million for the three and five months ended June 30, 2010, respectively. Selling and support expenses are comprised of items such as bad debt expense, commissions and salesperson expenses, directory publishing expenses, billing, credit and collection expense, occupancy expenses, advertising expense and amortization of cost uplift associated with commissions resulting from our adoption of fresh start accounting. Due to our adoption of fresh start accounting, selling and support expenses for the three and five months ended June 30, 2010 exclude the amortization of deferred directory costs under the deferral and amortization method for directories published before the Fresh Start Reporting Date totaling $29.7 million and $58.3 million, respectively, and include amortization of cost-uplift of $1.2 million and $1.7 million, respectively. Bad debt expense has been impacted by effective credit and collections practices, which have driven improvement in our accounts receivable portfolio, as well as lower billing volumes associated with declines in advertisers and advertisements. If clients fail to pay within specified credit terms, we may cancel their advertising in future directories, which could impact our ability to collect past due amounts as well as adversely impact our advertising sales and revenue trends. Directory publishing expenses continue to be affected by declines in print advertisements and lower headcount. Billing, credit and collections expense has been impacted by lower billing volumes associated with declines in advertisers and advertisements. Occupancy expenses have been impacted by the renegotiation of our leased properties and reduction in the amount of leased square footage during the bankruptcy process.

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General and Administrative Expenses
General and administrative (“G&A”) expenses were $40.2 million and $61.9 million for the three and five months ended June 30, 2010, respectively. G&A expenses are comprised of items such as general corporate expenses, incentive compensation expense and information technology (“IT”) expenses. G&A related incentive compensation expense pertains to expense associated with a stock appreciation rights (“SARs”) grant made on March 1, 2010 to certain employees, including executive officers, common stock granted and issued to members of the Company’s Board of Directors on March 1, 2010 and compensation expense associated with the Company’s Long-Term Incentive Program (“LTIP”), which includes accelerated compensation expense associated with the retirement of our Chief Executive Officer.
Depreciation and Amortization
Depreciation and amortization expense was $59.6 million and $99.0 million for the three and five months ended June 30, 2010, respectively. Amortization of intangible assets was $46.3 million and $77.1 million for the three and five months ended June 30, 2010, respectively, and was impacted by the increase in fair value of our intangible assets and the establishment of the estimated useful lives resulting from our adoption of fresh start accounting. The Company expects to recognize amortization expense associated with its intangible assets of $165.9 million during the eleven months ended December 31, 2010, which includes the affect of reduced book values of our intangible assets subsequent to the impairment charge during the three months ended June 30, 2010 noted below. The Company and the Predecessor Company anticipate a decrease in amortization expense for the full year 2010 of $333.2 million as compared to the full year 2009. This decrease is a result of the reduced carrying values of intangible assets subsequent to the impairment charges recorded by the Company during the three months ended June 30, 2010 and the Predecessor Company during the fourth quarter of 2009, partially offset by increased amortization expense resulting from the increase in fair value of our intangible assets as a result of our adoption of fresh start accounting and the reduction of the remaining useful lives of intangible assets associated with the impairment charges recorded by the Predecessor Company during the fourth quarter of 2009.
Depreciation of fixed assets and amortization of computer software was $13.3 million and $21.9 million for the three and five months ended June 30, 2010, respectively. Depreciation of fixed assets and amortization of computer software was affected by the increase in fair value of our fixed assets and computer software resulting from our adoption of fresh start accounting as well as capital projects placed into service during the three and five months ended June 30, 2010.
Impairment Charges
Based upon the decline in the trading value of our debt and equity securities during the three months ended June 30, 2010 and the retirement of our Chairman and Chief Executive Officer on May 28, 2010, among others, the Company concluded that there were indicators of impairment during the three months ended June 30, 2010. As a result of identifying indicators of impairment, we performed impairment tests as of June 30, 2010 of our goodwill, definite-lived intangible assets and other long-lived assets in accordance with FASB ASC 350 and FASB ASC 360. The testing results of our definite-lived intangible assets and other long-lived assets resulted in an impairment charge of $17.3 million during the three and five months ended June 30, 2010 associated with trade names and trademarks, technology, local customer relationships and other from our Business.com reporting unit. The testing results of our goodwill resulted in an impairment charge of $752.3 million during the three and five months ended June 30, 2010, which has been recorded in each of our reporting units. The sum of the goodwill and intangible asset impairment charges totaled $769.7 million for the three and five months ended June 30, 2010. See Item 1, “Financial Statements — Unaudited” — Note 2, “Summary of Significant Accounting Policies — Identifiable Intangible Assets and Goodwill” for additional information.

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Operating Loss
Operating loss was $(853.5) million and $(948.9) million for the three and five months ended June 30, 2010, respectively. Under fresh start accounting, most deferred net revenues related to directories published prior to the Fresh Start Reporting Date have been eliminated however, only certain deferred direct expenses related to these directories have been eliminated. Expenses that are not directly associated with net revenues from these directories will continue to be recognized as period expenses subsequent to the Fresh Start Reporting Date. As such, fresh start accounting has had a disproportionate adverse effect on reported net revenues versus expenses in determining operating loss for the three and five months ended June 30, 2010. Each month subsequent to the Fresh Start Reporting Date until the impact of fresh start accounting expires in the first quarter of 2011, the ratio of reported net revenue to expense will increase. Operating loss for the three and five months ended June 30, 2010 was directly impacted by the goodwill and intangible asset impairment charges noted above, the significant impact of the effects of fresh start accounting as well as the revenue and expense trends described above.
Interest Expense, Net
Net interest expense was $73.4 million and $122.4 million for the three and five months ended June 30, 2010, respectively. The Company did not record any amortization of deferred financing costs to interest expense for the three and five months ended June 30, 2010, as financing costs associated with our new debt arrangements were included in the fair value determination of our long-term debt resulting from our adoption of fresh start accounting.
In conjunction with our adoption of fresh start accounting and reporting on the 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 $8.3 million and $13.9 million for the three and five months ended June 30, 2010, respectively.
In connection with the amendment and restatement of the Dex Media East and RHDI credit facilities on the Effective Date, we entered into interest rate swap and interest rate cap agreements during the first quarter of 2010, which have not been designated as cash flow hedges. The Company’s interest expense for the three and five months ended June 30, 2010 includes expense of $5.6 million and $6.7 million, respectively, resulting from the change in fair value of these interest rate swaps and interest rate caps.
Income Taxes
The effective tax rate on loss before income taxes is 16.9% and 52.1% for the three and five months ended June 30, 2010, respectively.
As a result of the goodwill and intangible asset impairment charges during the three and five months ended June 30, 2010, we recognized a non-deductible adjustment to our effective tax rate of $201.8 million for the three and five months ended June 30, 2010.
Internal Revenue Code Section 382 (“Section 382”) imposes limitations on the availability of net operating losses and other corporate tax attributes as ownership changes occur. Under Section 382, potential limitations are triggered when there has been an ownership change, which is generally defined as a greater than 50% change in stock ownership (by value) over a three-year period. Such change in ownership will restrict the Company’s ability to use certain net operating losses and other corporate tax attributes in the future. However, the ownership change does not constitute a change in control under any of the Company’s debt agreements or other contracts.
Based upon the closing of the SEC filing period for Schedules 13-G and review of these schedules filed through February 15, 2010, the Company determined that, more likely than not, a certain “check-the-box” election was effective prior to the date of the 2009 ownership change under Section 382. As a result, the Company recorded a tax benefit for the reversal of a liability for unrecognized tax benefit of $351.9 million in the Company’s statement of financial condition and results of operations for the five months ended June 30, 2010, which was the primary driver of our effective tax rate for the five months ended June 30, 2010.

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Net Loss and Loss Per Share
Net loss was $(769.9) million and $(512.7) million for the three and five months ended June 30, 2010, respectively, and was directly impacted by the goodwill and intangible asset impairment charges noted above, the significant impact of the effects of fresh start accounting and the revenue and expense trends described above, partially offset by the income tax benefit recorded for the three and five months ended June 30, 2010 noted above.
See Item 1, “Financial Statements — Unaudited” — Note 2, “Summary of Significant Accounting Policies — Earnings (Loss) Per Share” for further details and computations of the basic and diluted earnings (loss) per share (“EPS”) amounts. For the three and five months ended June 30, 2010, basic and diluted EPS was $(15.39) and $(10.25), respectively.
Predecessor Company — One Month Ended January 31, 2010
Net Revenues
The components of the Predecessor Company’s net revenues for the one month ended January 31, 2010 were as follows:
         
    Predecessor Company  
    One Month Ended  
(amounts in millions)   January 31, 2010  
 
Gross advertising revenues
  $ 161.0  
Sales claims and allowances
    (3.5 )
 
     
Net advertising revenues
    157.5  
Other revenues
    2.9  
 
     
Total
  $ 160.4  
 
     
Gross advertising revenues were $161.0 million for the one month ended January 31, 2010. Gross advertising revenues continue to be impacted by declines in advertising sales over the past twelve months, primarily as a result of declines in new and recurring business, mainly driven by (1) declines in overall advertising spending by our clients, (2) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (3) an increase in competition and more fragmentation in local business search.
Sales claims and allowances were $3.5 million for the one month ended January 31, 2010. Sales claims and allowances were affected by lower claims experience due to process improvements and operating efficiencies, which improved print copy quality in certain of our markets, as well as lower advertising sales volume.
Other revenues were $2.9 million for the one month ended January 31, 2010. Other revenues include late fees received on outstanding customer balances, barter revenues, commissions earned on sales contracts with respect to advertising placed into other publishers’ directories, and sales of directories and certain other advertising-related products.
Expenses
The components of the Predecessor Company’s total expenses for the one month ended January 31, 2010 were as follows:
         
    Predecessor Company  
    One Month Ended  
(amounts in millions)   January 31, 2010  
 
Production and distribution expenses
  $ 27.0  
Selling and support expenses
    40.9  
General and administrative expenses
    8.2  
Depreciation and amortization
    20.2  
 
     
Total
  $ 96.3  
 
     

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Production and Distribution Expenses
Total production and distribution expenses were $27.0 million for the one month ended January 31, 2010. Production and distribution expenses are comprised of items such as print, paper and distribution expenses and internet production and distribution expenses. Print paper and distribution expenses continue to be impacted by lower page volumes associated with declines in print advertisements, negotiated price reductions in our print and paper expenses and favorable paper inventory expenses. Internet production and distribution expenses have been affected by a reduction in DexNet customers, purchasing efficiencies and lower headcount, partially offset by increased purchased traffic costs incurred to direct traffic to our online properties.
Selling and Support Expenses
Total selling and support expenses were $40.9 million for the one month ended January 31, 2010. Selling and support expenses are comprised of items such as bad debt expense, commissions and salesperson expenses, directory publishing expenses, billing, credit and collection expense, occupancy expenses and advertising expense. Bad debt expense has been impacted by effective credit and collections practices, which have driven improvement in our accounts receivable portfolio, as well as lower billing volumes associated with declines in advertisers and advertisements. Directory publishing expenses continue to be affected by declines in print advertisements and lower headcount. Billing, credit and collections expense has been impacted by lower billing volumes associated with declines in advertisers and advertisements. Occupancy expenses have been impacted by the renegotiation of our leased properties and reduction in the amount of leased square footage during the bankruptcy process.
General and Administrative Expenses
G&A expenses were $8.2 million for the one month ended January 31, 2010. G&A expenses are comprised of items such as restructuring expenses, general corporate expenses, incentive compensation expense, and IT expenses. Restructuring expenses have been impacted by lower severance expense and fees associated with outside consultant services. G&A related incentive compensation expense includes the remaining unrecognized compensation expense related to stock-based awards that were cancelled upon emergence from Chapter 11 and pursuant to the Plan, compensation expense associated with the Predecessor Company’s LTIP and the reversal of an accrual associated with the Predecessor Company’s incentive compensation plan.
Depreciation and Amortization
Depreciation and amortization expense was $20.2 million for the one month ended January 31, 2010. Amortization of intangible assets was $15.6 million for the one month ended January 31, 2010 and was impacted by the reduced carrying values of intangible assets resulting from impairment charges recorded by the Predecessor Company during the fourth quarter of 2009 and the associated reduction in remaining useful lives effective January 1, 2010.
Depreciation of fixed assets and amortization of computer software was $4.6 million for the one month ended January 31, 2010. Depreciation of fixed assets and amortization of computer software was impacted by capital projects placed into service during the one month ended January 31, 2010.
Operating Income
Operating income was $64.1 million for the one month ended January 31, 2010 and was determined based on the revenue and expense trends described above.

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Interest Expense, Net
Contractual interest expense that would have appeared on the Predecessor Company’s condensed consolidated statement of operations if not for the filing of the Chapter 11 petitions was $65.9 million for the one month ended January 31, 2010. Net interest expense for the one month ended January 31, 2010 was $19.7 million and includes $1.8 million of non-cash amortization of deferred financing costs.
The Predecessor Company’s interest expense for the one month ended January 31, 2010 includes expense of $0.8 million associated with the change in fair value of the Dex Media East LLC interest rate swaps no longer deemed financial instruments as a result of filing the Chapter 11 petitions. The Predecessor Company’s interest expense for the one month ended January 31, 2010 also includes expense of $1.1 million resulting from amounts previously charged to accumulated other comprehensive loss related to these interest rate swaps. The amounts previously charged to accumulated other comprehensive loss related to the Dex Media East LLC interest rate swaps were to be amortized to interest expense over the remaining life of the interest rate swaps based on future interest payments, as it was not probable that those forecasted transactions would not occur. In accordance with fresh start accounting and reporting, unamortized amounts previously charged to accumulated other comprehensive loss related to these interest rate swaps have been eliminated as of the Fresh Start Reporting Date.
As a result of the amendment of the RHDI credit facility and the refinancing of the former Dex Media West LLC credit facility on June 6, 2008, the Predecessor Company’s interest rate swaps associated with these two debt arrangements were no longer highly effective in offsetting changes in cash flows. Accordingly, cash flow hedge accounting treatment was no longer permitted. In addition, as a result of filing the Chapter 11 petitions, these interest rate swaps were required to be settled or terminated during 2009. As a result of the change in fair value of these interest rate swaps prior to the Effective Date, the Predecessor Company’s interest expense includes expense of $0.4 million for the one month ended January 31, 2010.
Reorganization Items, Net
Reorganization items directly associated with the process of reorganizing the business under Chapter 11 of the Bankruptcy Code have been recorded on a separate line item on the condensed consolidated statement of operations. The Predecessor Company has recorded $7.8 billion of reorganization items during the one month ended January 31, 2010 comprised of a $4.5 billion gain on reorganization / settlement of liabilities subject to compromise and fresh start accounting adjustments of $3.3 billion. The following table displays the details of reorganization items for the one month ended January 31, 2010:
         
    Predecessor Company  
    One Month Ended  
(amounts in thousands)   January 31, 2010  
 
Liabilities subject to compromise
  $ 6,352,813  
Issuance of new Dex One common stock (par value)
    (50 )
Dex One additional paid-in capital
    (1,450,734 )
Dex One Senior Subordinated Notes
    (300,000 )
Reclassified into other balance sheet liability accounts
    (39,471 )
Professional fees and other
    (38,403 )
 
     
Gain on reorganization / settlement of liabilities subject to compromise
    4,524,155  
 
     
Fresh start accounting adjustments:
       
Goodwill
    2,097,124  
Write off of deferred revenue and deferred directory costs
    655,555  
Fair value adjustment to intangible assets
    415,132  
Fair value adjustment to the amended and restated credit facilities
    120,245  
Fair value adjustment to fixed assets and computer software
    49,814  
Write-off of deferred financing costs
    (48,443 )
Other fresh start accounting adjustments
    (20,450 )
 
     
Total fresh start accounting adjustments
    3,268,977  
 
     
Total reorganization items, net
  $ 7,793,132  
 
     
See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 3 “Fresh Start Accounting” for information on the gain on reorganization / settlement of liabilities subject to compromise and the fresh start accounting adjustments presented above.

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Income Taxes
The effective tax rate on income before income taxes is 11.7% for the one month ended January 31, 2010.
In connection with the Company’s adoption of fresh start accounting, we evaluated all temporary timing differences. The Company recorded significant deferred tax liabilities associated with intangible assets and deferred revenue and reduced our deferred tax liabilities to zero related to interest costs and deferred tax assets to zero related to deferred financing costs, which were recognized though the cancellation of our debt. Due to this reduction in tax basis, an incremental deferred tax liability was created, which can be utilized in the Company’s valuation allowance assessment. As a result, the Company has reduced its valuation allowance and is in a net deferred tax liability position of $532.3 million at February 1, 2010.
The discharge of our debt in conjunction with our emergence from Chapter 11 resulted in a tax gain of $5,031.8 million. Generally, the discharge of a debt obligation for an amount less than the adjusted issue price creates cancellation of indebtedness income (“CODI”), which must be included in the Company’s taxable income. However, recognition of CODI is limited for a taxpayer that is a debtor in a reorganization case if the discharge is granted by the Bankruptcy Court or pursuant to a plan of reorganization approved by the Bankruptcy Court. The Plan enabled the Predecessor Company to qualify for this bankruptcy exclusion rule and exclude substantially all of the gain on the settlement of debt obligations and derivative liabilities from taxable income. Under Internal Revenue Code Section 108, the Company has reduced its tax attributes primarily in net operating loss carry-forwards, intangible asset basis, and stock basis.
Net Income and Earnings Per Share
Net income of $6,920.0 million for the one month ended January 31, 2010 is primarily due to the gain on reorganization and fresh start accounting adjustments that comprise reorganization items, net. In addition, net income for the one month ended January 31, 2010 was determined based on the revenue and expense trends and income taxes described above.
See Item 1, “Financial Statements — Unaudited” — Note 2, “Summary of Significant Accounting Policies — Earnings (Loss) Per Share” for further details and computations of the basic and diluted EPS amounts. For the one month ended January 31, 2010, basic EPS was $100.3 and diluted EPS was $100.2.

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Non-GAAP Financial Information — Adjusted and Combined Adjusted Results
Management believes that the presentation of Non-GAAP Financial Information — Adjusted and Combined Adjusted Results will help financial statement users better understand the material impact fresh start accounting has on the Company’s results of operations for the three and five months ended June 30, 2010 and also offers a non-GAAP normalized comparison to GAAP results of the Predecessor Company for the three and six months ended June 30, 2009. The Non-GAAP Financial Information — Adjusted and Combined Adjusted Results presented below are reconciled to the most comparable GAAP measures. While the Non-GAAP Financial Information — Adjusted and Combined Adjusted Results exclude the effects of fresh start accounting and certain other items such as goodwill and intangible asset impairment charges, it must be noted that the Non-GAAP Financial Information — Adjusted and Combined Adjusted Results are not comparable to the Predecessor Company’s GAAP results for the three and six months ended June 30, 2009 and should not be treated as such.
Adjusted Results for the Three Months Ended June 30, 2010
compared to Predecessor Company GAAP Results for the Three Months Ended June 30, 2009
Net Revenues
The components of our adjusted net revenues for the three months ended June 30, 2010 and the Predecessor Company GAAP net revenues for the three months ended June 30, 2009 were as follows:
                                                 
    Successor                     Predecessor              
    Company             Adjusted     Company              
    Three Months Ended             Three Months Ended     Three Months Ended              
    June 30,     Fresh Start     June 30,     June 30,              
(amounts in millions)   2010     Adjustments     2010     2009     $ Change     % Change  
 
Gross advertising revenues
  $ 157.6     $ 294.0 (1)   $ 451.6     $ 569.9     $ (118.3 )     (20.8 )%
Sales claims and allowances
    (1.7 )     (5.1 )(1)     (6.8 )     (11.7 )     4.9       41.9  
     
Net advertising revenues
    155.9       288.9       444.8       558.2       (113.4 )     (20.3 )
Other revenues
    5.0       2.0 (1)     7.0       7.4       (0.4 )     5.4  
     
Total
  $ 160.9     $ 290.9     $ 451.8     $ 565.6     $ (113.8 )     (20.1 )%
     
 
(1)   Represents gross advertising revenues, sales claims and allowances and other revenues for advertising sales fulfilled prior to the Fresh Start Reporting Date, which would have been recognized during the three months ended June 30, 2010 absent our adoption of fresh start accounting required under GAAP.
Adjusted gross advertising revenues for the three months ended June 30, 2010 decreased $118.3 million, or 20.8%, from the Predecessor Company three months ended June 30, 2009. The decline in adjusted gross advertising revenues for the three months ended June 30, 2010 is primarily due to declines in advertising sales over the past twelve months, primarily as a result of declines in new and recurring business, mainly driven by (1) declines in overall advertising spending by our clients, (2) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (3) an increase in competition and more fragmentation in local business search. The decline in adjusted gross advertising revenues for the three months ended June 30, 2010 is also due to the timing of publication deliveries.
Adjusted sales claims and allowances for the three months ended June 30, 2010 decreased $4.9 million, or 41.9%, from the Predecessor Company three months ended June 30, 2009. The decline in adjusted sales claims and allowances for the three months ended June 30, 2010 is primarily due to lower claims experience as a result of process improvements and operating efficiencies, which improved print copy quality in certain of our markets, as well as lower advertising sales volume.

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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. Adjusted advertising sales for the three months ended June 30, 2010 were $448.8 million, compared to $518.4 million for the Predecessor Company three months ended June 30, 2009. The $69.6 million, or 13.4%, decrease in adjusted advertising sales for the adjusted three months ended June 30, 2010 is a result of declines in new and recurring business, mainly driven by (1) declines in overall advertising spending by our clients, (2) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (3) an increase in competition and more fragmentation in local business search. 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.
Expenses
The components of our adjusted total expenses for the three months ended June 30, 2010 and the Predecessor Company GAAP total expenses for the three months ended June 30, 2009 were as follows:
                                                 
    Successor                     Predecessor              
    Company             Adjusted     Company              
    Three Months Ended     Fresh Start     Three Months Ended     Three Months Ended              
    June 30,     and Other     June 30,     June 30,              
(amounts in millions)   2010     Adjustments     2010     2009     $ Change     % Change  
 
Production and distribution expenses
  $ 51.5     $ 30.5 (1)   $ 82.0     $ 92.7     $ (10.7 )     (11.5 )%
Selling and support expenses
    93.5       28.5 (1)     122.0       160.7       (38.7 )     (24.1 )
General and administrative expenses
    40.2             40.2       26.0       14.2       54.6  
Depreciation and amortization
    59.6       (2)     59.6       142.3       (82.7 )     (58.1 )
Impairment charges
    769.7       (769.7 )(3)                        
     
Total
  $ 1,014.5     $ (710.7 )   $ 303.8     $ 421.7     $ (117.9 )     (28.0 )%
     
 
(1)   Represents (a) certain deferred expenses for advertising sales fulfilled prior to the Fresh Start Reporting Date, which would have been recognized during the three months ended June 30, 2010 absent our adoption of fresh start accounting required under GAAP, and (b) the exclusion of cost-uplift recorded under fresh start accounting.
 
(2)   Depreciation and amortization expense has not been adjusted for the increase in fair value of our intangible assets and fixed assets and computer software as a result of our adoption of fresh start accounting, the reduced carrying values of intangible assets resulting from impairment charges recorded by the Predecessor Company during the fourth quarter of 2009 and the associated reduction in remaining useful lives effective January 1, 2010.
 
(3)   Goodwill and intangible asset impairment charges have been excluded for the adjusted three months ended June 30, 2010.

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Production and Distribution Expenses
Total adjusted production and distribution expenses for the three months ended June 30, 2010 were $82.0 million, compared to $92.7 million for the Predecessor Company three months ended June 30, 2009. The primary components of the $10.7 million, or 11.5%, decrease in adjusted production and distribution expenses for the three months ended June 30, 2010 were as follows:
         
    Adjusted Three  
    Months Ended June  
(amounts in millions)   30, 2010  
 
Lower print, paper and distribution expenses
  $ (8.5 )
Lower internet production and distribution expenses
    (1.5 )
All other, net
    (0.7 )
 
     
Total decrease in adjusted production and distribution expenses for the three months ended June 30, 2010
  $ (10.7 )
 
     
Adjusted print, paper and distribution expenses for the three months ended June 30, 2010 declined $8.5 million, compared to the Predecessor Company three months ended June 30, 2009. This decline is primarily due to lower page volumes associated with declines in print advertisements, negotiated price reductions in our print and paper expenses and timing of publication deliveries as compared to the prior year period.
Adjusted internet production and distribution expenses for the three months ended June 30, 2010 declined $1.5 million, compared to the Predecessor Company three months ended June 30, 2009, primarily due to a reduction in DexNet customers, purchasing efficiencies and lower headcount, partially offset by increased purchased traffic costs incurred to direct traffic to our online properties.
Selling and Support Expenses
Total adjusted selling and support expenses for the three months ended June 30, 2010 were $122.0 million, compared to $160.7 million for the Predecessor Company three months ended June 30, 2009. The primary components of the $38.7 million, or 24.1%, decrease in adjusted selling and support expenses for the three months ended June 30, 2010 were as follows:
         
    Adjusted Three  
    Months Ended June  
(amounts in millions)   30, 2010  
 
Lower bad debt expense
  $ (31.6 )
Lower commissions and salesperson expenses
    (6.4 )
Lower occupancy expenses
    (1.2 )
All other, net
    0.5  
 
     
Total decrease in adjusted selling and support expenses for the three months ended June 30, 2010
  $ (38.7 )
 
     
Adjusted bad debt expense for the three months ended June 30, 2010 declined $31.6 million, compared to the Predecessor Company three months ended June 30, 2009, primarily due to effective credit and collections practices, which have driven improvement in our accounts receivable portfolio, as well as lower billing volumes associated with declines in advertisers and advertisements. Adjusted bad debt expense for the three months ended June 30, 2010 represented 2.5% of our net revenue, compared to 7.6% for the Predecessor Company three months ended June 30, 2009. Bad debt expense can fluctuate during the year based on changes in projected write-off experience. For the full year 2010, the Company anticipates that bad debt expense as a percentage of net revenue will range between 3% to 5%.
Adjusted commissions and salesperson expenses for the three months ended June 30, 2010 decreased $6.4 million, compared to the Predecessor Company three months ended June 30, 2009, primarily due to lower advertising sales and its effect on variable-based commissions as well as lower headcount resulting from declines in advertisers.
Adjusted occupancy expenses for the three months ended June 30, 2010 decreased $1.2 million, compared to the Predecessor Company three months ended June 30, 2009, primarily due to the renegotiation of our leased properties and reduction in the amount of leased square footage during the bankruptcy process.

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General and Administrative Expenses
Adjusted G&A expenses for the three months ended June 30, 2010 were $40.2 million, compared to $26.0 million for the Predecessor Company three months ended June 30, 2009. The primary components of the $14.2 million, or 54.6%, increase in adjusted G&A expenses for the three months ended June 30, 2010 were as follows:
         
    Adjusted Three  
    Months Ended June  
(amounts in millions)   30, 2010  
 
Change in net curtailment gains
  $ 9.7  
One-time expenses associated with retirement of Chief Executive Officer
    9.5  
Lower restructuring expenses
    (2.0 )
All other, net
    (3.0 )
 
     
Total increase in adjusted G&A expenses for the three months ended June 30, 2010
  $ 14.2  
 
     
During the adjusted three months ended June 30, 2010, we recognized a one-time net curtailment gain of $3.8 million associated with the retirement of the Company’s Chief Executive Officer. This represents a decrease of $9.7 million in net curtailment gains from the three months ended June 30, 2009 during which we recognized $13.5 million associated with the freeze on the Predecessor Company’s defined benefit plans for certain union employees and the elimination of certain union retiree health care and life insurance benefits.
During the adjusted three months ended June 30, 2010, we recognized one-time expenses of $9.5 million associated with the retirement of the Company’s Chief Executive Officer.
Adjusted restructuring expenses for the three months ended June 30, 2010 decreased $2.0 million, compared to the Predecessor Company three months ended June 30, 2009, primarily due to lower severance expense and fees associated with outside consultant services.
Depreciation and Amortization
Depreciation and amortization expense for the adjusted three months ended June 30, 2010 was $59.6 million, compared to $142.3 million for the Predecessor Company three months ended June 30, 2009. Amortization of intangible assets was $46.3 million for the adjusted three months ended June 30, 2010, compared to $128.6 million for the Predecessor Company three months ended June 30, 2009. The decrease in amortization expense for the adjusted three months ended June 30, 2010 is a result of the reduced carrying values of intangible assets subsequent to the impairment charges recorded by the Predecessor Company during the fourth quarter of 2009, partially offset by increased amortization expense resulting from the increase in fair value of our intangible assets as a result of our adoption of fresh start accounting and the reduction of the remaining useful lives of intangible assets associated with the impairment charges recorded by the Predecessor Company during the fourth quarter of 2009.
Depreciation of fixed assets and amortization of computer software was $13.3 million for the adjusted three months ended June 30, 2010, compared to $13.7 million for the Predecessor Company three months ended June 30, 2009. The decrease in depreciation expense for the adjusted three months ended June 30, 2010 was primarily due to the acceleration of depreciation on fixed assets no longer in service during the three months ended June 30, 2009, partially offset by the increase in depreciation expense for the adjusted three months ended June 30, 2010 as a result of the increase in fair value of our fixed assets and computer software in conjunction with our adoption of fresh start accounting.

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Operating Income (Loss)
Adjusted operating income (loss) for the three months ended June 30, 2010 and the Predecessor Company GAAP operating income for the three months ended June 30, 2009 was as follows:
                                                 
    Successor                     Predecessor              
    Company             Adjusted     Company              
    Three Months Ended     Fresh Start     Three Months Ended     Three Months Ended              
    June 30,     and Other     June 30,     June 30,              
(amounts in millions)   2010     Adjustments     2010     2009     $ Change     % Change  
Total
  $ (853.5 )   $ 1,001.6 (1)   $ 148.1     $ 143.9     $ 4.2       2.9 %
 
                                   
 
(1)   Represents the net effect of (a) eliminating gross advertising revenues, sales claims and allowances, other revenues and certain deferred expenses for advertising sales fulfilled prior to the Fresh Start Reporting Date, which would have been recognized during the three months ended June 30, 2010 absent our adoption of fresh start accounting required under GAAP, (b) the exclusion of cost-uplift recorded under fresh start accounting and (c) excludes the goodwill and intangible asset impairment charges during the three months ended June 30, 2010.
Adjusted operating income for the three months ended June 30, 2010 of $148.1 million, compares to operating income of $143.9 million for the Predecessor Company three months ended June 30, 2009. The increase in adjusted operating income for the three months ended June 30, 2010 is due to the significant decline in amortization expense associated with our intangible assets and lower operating expenses described above, partially offset by declines in net revenues described above.
Combined Adjusted Results for the Six Months Ended June 30, 2010
compared to Predecessor Company GAAP Results for the Six Months Ended June 30, 2009
Net Revenues
The components of our combined adjusted net revenues for the six months ended June 30, 2010 and the Predecessor Company GAAP net revenues for the six months ended June 30, 2009 were as follows:
                                                         
    Successor     Predecessor             Combined     Predecessor              
    Company     Company             Adjusted     Company              
    Five Months Ended     One Month Ended             Six Months Ended     Six Months Ended              
    June 30,     January 31,     Fresh Start     June 30,     June 30,              
(amounts in millions)   2010     2010     Adjustments     2010     2009     $ Change     % Change  
Gross advertising revenues
  $ 210.2     $ 161.0     $ 551.9 (1)   $ 923.1     $ 1,178.1     $ (255.0 )     (21.6 )%
Sales claims and allowances
    (4.2 )     (3.5 )     (9.7 ) (1)     (17.4 )     (25.9 )     8.5       32.8  
 
                                         
Net advertising revenues
    206.0       157.5       542.2       905.7       1,152.2       (246.5 )     (21.3 )
Other revenues
    8.0       2.9       3.8 (1)     14.7       15.4       (0.7 )     4.5  
 
                                         
Total
  $ 214.0     $ 160.4     $ 546.0     $ 920.4     $ 1,167.6     $ (247.2 )     (21.2 )%
 
                                         
 
(1)   Represents gross advertising revenues, sales claims and allowances and other revenues for advertising sales fulfilled prior to the Fresh Start Reporting Date, which would have been recognized during the six months ended June 30, 2010 absent our adoption of fresh start accounting required under GAAP.
Combined adjusted gross advertising revenues for the six months ended June 30, 2010 decreased $255.0 million, or 21.6%, from the Predecessor Company six months ended June 30, 2009. The decline in combined adjusted gross advertising revenues for the six months ended June 30, 2010 is primarily due to declines in advertising sales over the past twelve months, primarily as a result of declines in new and recurring business, mainly driven by (1) declines in overall advertising spending by our clients, (2) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (3) an increase in competition and more fragmentation in local business search. The decline in combined adjusted gross advertising revenues for the six months ended June 30, 2010 is also due to the timing of publication deliveries.

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Combined adjusted sales claims and allowances for the six months ended June 30, 2010 decreased $8.5 million, or 32.8%, from the Predecessor Company six months ended June 30, 2009. The decline in combined adjusted sales claims and allowances for the six months ended June 30, 2010 is primarily due to lower claims experience as a result of process improvements and operating efficiencies, which improved print copy quality in certain of our markets, as well as lower advertising sales volume.
Combined adjusted advertising sales for the six months ended June 30, 2010 were $904.8 million, compared to $1,080.3 million for the Predecessor Company six months ended June 30, 2009. The $175.5 million, or 16.2%, decrease in combined adjusted advertising sales for the combined adjusted six months ended June 30, 2010 is a result of declines in new and recurring business, mainly driven by (1) declines in overall advertising spending by our clients, (2) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (3) an increase in competition and more fragmentation in local business search.
Expenses
The components of our combined adjusted total expenses for the six months ended June 30, 2010 and the Predecessor Company GAAP total expenses for the six months ended June 30, 2009 were as follows:
                                                         
    Successor     Predecessor             Combined     Predecessor              
    Company     Company             Adjusted     Company              
    Five Months Ended     One Month Ended     Fresh Start     Six Months Ended     Six Months Ended              
    June 30,     January 31,     and Other     June 30,     June 30,              
(amounts in millions)   2010     2010     Adjustments     2010     2009     $ Change     % Change  
Production and distribution expenses
  $ 80.5     $ 27.0     $ 57.5 (1)   $ 165.0     $ 194.6     $ (29.6 )     (15.2 )%
Selling and support expenses
    151.9       40.9       56.6 (1)     249.4       312.7       (63.3 )     (20.2 )
General and administrative expenses
    61.9       8.2             70.1       67.6       2.5       3.7  
Depreciation and amortization
    99.0       20.2       (2)     119.2       285.2       (166.0 )     (58.2 )
Impairment charges
    769.7             (769.7 )(3)                        
 
                                         
Total
  $ 1,163.0     $ 96.3     $ (655.6 )   $ 603.7     $ 860.1     $ (256.4 )     (29.8 )%
 
                                         
 
(1)   Represents (a) certain deferred expenses for advertising sales fulfilled prior to the Fresh Start Reporting Date, which would have been recognized during the five months ended June 30, 2010 absent our adoption of fresh start accounting required under GAAP, and (b) the exclusion of cost-uplift recorded under fresh start accounting.
 
(2)   Depreciation and amortization expense has not been adjusted for the increase in fair value of our intangible assets and fixed assets and computer software as a result of our adoption of fresh start accounting, the reduced carrying values of intangible assets resulting from impairment charges recorded by the Predecessor Company during the fourth quarter of 2009 and the associated reduction in remaining useful lives effective January 1, 2010.
 
(3)   Goodwill and intangible asset impairment charges have been excluded for the combined adjusted six months ended June 30, 2010.

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Production and Distribution Expenses
Total combined adjusted production and distribution expenses for the six months ended June 30, 2010 were $165.0 million, compared to $194.6 million for the Predecessor Company six months ended June 30, 2009. The primary components of the $29.6 million, or 15.2%, decrease in combined adjusted production and distribution expenses for the six months ended June 30, 2010 were as follows:
         
    Combined  
    Adjusted Six  
(amounts in millions)   Months Ended June
30, 2010
 
Lower print, paper and distribution expenses
  $ (18.7 )
Lower internet production and distribution expenses
    (9.3 )
All other, net
    (1.6 )
 
     
Total decrease in combined adjusted production and distribution expenses for the six months ended June 30, 2010
  $ (29.6 )
 
     
Combined adjusted print, paper and distribution expenses for the six months ended June 30, 2010 declined $18.7 million, compared to the Predecessor Company six months ended June 30, 2009. This decline is primarily due to lower page volumes associated with declines in print advertisements, negotiated price reductions in our print and paper expenses, timing of publication deliveries as compared to the prior year period and favorable paper inventory expenses.
Combined adjusted internet production and distribution expenses for the six months ended June 30, 2010 declined $9.3 million, compared to the Predecessor Company six months ended June 30, 2009, primarily due to a reduction in DexNet customers, purchasing efficiencies and lower headcount, partially offset by increased purchased traffic costs incurred to direct traffic to our online properties.
Selling and Support Expenses
Total combined adjusted selling and support expenses for the six months ended June 30, 2010 were $249.4 million, compared to $312.7 million for the Predecessor Company six months ended June 30, 2009. The primary components of the $63.3 million, or 20.2%, decrease in combined adjusted selling and support expenses for the six months ended June 30, 2010 were as follows:
         
    Combined  
    Adjusted Six Months  
(amounts in millions)   Ended June 30, 2010  
Lower bad debt expense
  $ (47.7 )
Lower commissions and salesperson expenses
    (13.0 )
Lower occupancy expenses
    (2.9 )
All other, net
    0.3  
 
     
Total decrease in combined adjusted selling and support expenses for the six months ended June 30, 2010
  $ (63.3 )
 
     
Combined adjusted bad debt expense for the six months ended June 30, 2010 declined $47.7 million, compared to the Predecessor Company six months ended June 30, 2009, primarily due to effective credit and collections practices, which have driven improvement in our accounts receivable portfolio, as well as lower billing volumes associated with declines in advertisers and advertisements. Combined adjusted bad debt expense for the six months ended June 30, 2010 represented 3.6% of our net revenue, compared to 6.9% for the Predecessor Company six months ended June 30, 2009. Bad debt expense can fluctuate throughout the year and as such, the Company anticipates that bad debt expense as a percentage of net revenue will range between 3% to 5% for the full year 2010.
Combined adjusted commissions and salesperson expenses for the six months ended June 30, 2010 decreased $13.0 million, compared to the Predecessor Company six months ended June 30, 2009, primarily due to lower advertising sales and its effect on variable-based commissions as well as lower headcount resulting from declines in advertisers.
Combined adjusted occupancy expenses for the six months ended June 30, 2010 decreased $2.9 million, compared to the Predecessor Company six months ended June 30, 2009, primarily due to the renegotiation of our leased properties and reduction in the amount of leased square footage during the bankruptcy process.

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General and Administrative Expenses
Combined adjusted G&A expenses for the six months ended June 30, 2010 were $70.1 million, compared to $67.6 million for the Predecessor Company six months ended June 30, 2009. The primary components of the $2.5 million, or 3.7%, increase in combined adjusted G&A expenses for the six months ended June 30, 2010 were as follows:
         
    Combined Adjusted  
    Six Months Ended June  
(amounts in millions)   30, 2010  
Change in net curtailment gains
  $ 9.7  
One-time expenses associated with retirement of Chief Executive Officer
    9.5  
Lower restructuring expenses
    (11.1 )
All other, net
    (5.6 )
 
     
Total increase in combined adjusted G&A expenses for the six months ended June 30, 2010
  $ 2.5  
 
     
During the combined adjusted six months ended June 30, 2010, we recognized a one-time net curtailment gain of $3.8 million associated with the retirement of the Company’s Chief Executive Officer. This represents a decrease of $9.7 million in net curtailment gains from the six months ended June 30, 2009 during which we recognized $13.5 million associated with the freeze on the Predecessor Company’s defined benefit plans for certain union employees and the elimination of certain union retiree health care and life insurance benefits.
During the combined adjusted six months ended June 30, 2010, we recognized one-time expenses of $9.5 million associated with the retirement of the Company’s Chief Executive Officer.
Combined adjusted restructuring expenses for the six months ended June 30, 2010 decreased $11.1 million, compared to the Predecessor Company six months ended June 30, 2009, primarily due to lower severance expense and fees associated with outside consultant services.
All other, net primarily consists of the reversal of an accrual associated with the Predecessor Company’s incentive compensation plan during the one month ended January 31, 2010.
Depreciation and Amortization
Combined depreciation and amortization expense for the six months ended June 30, 2010 was $119.2 million, compared to $285.2 million for the Predecessor Company six months ended June 30, 2009. Combined amortization of intangible assets was $92.7 million for the six months ended June 30, 2010, compared to $257.0 million for the Predecessor Company six months ended June 30, 2009. The decrease in combined amortization expense for the six months ended June 30, 2010 is a result of the reduced carrying values of intangible assets subsequent to the impairment charges recorded by the Predecessor Company during the fourth quarter of 2009, partially offset by increased amortization expense resulting from the increase in fair value of our intangible assets as a result of our adoption of fresh start accounting and the reduction of the remaining useful lives of intangible assets associated with the impairment charges recorded by the Predecessor Company during the fourth quarter of 2009.
Combined depreciation of fixed assets and amortization of computer software was $26.5 million for the six months ended June 30, 2010, compared to $28.2 million for the Predecessor Company six months ended June 30, 2009. The decrease in combined depreciation expense for the six months ended June 30, 2010 was primarily due to the acceleration of depreciation on fixed assets no longer in service during the six months ended June 30, 2009, partially offset by the increase in depreciation expense for the combined six months ended June 30, 2010 as a result of the increase in fair value of our fixed assets and computer software in conjunction with our adoption of fresh start accounting.

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Operating Income (Loss)
Combined adjusted operating income (loss) for the six months ended June 30, 2010 and the Predecessor Company GAAP operating income for the six months ended June 30, 2009 was as follows:
                                                         
    Successor     Predecessor             Combined     Predecessor              
    Company     Company             Adjusted     Company              
    Five Months Ended     One Month Ended             Six Months Ended     Six Months Ended              
    June 30,     January 31,     Fresh Start     June 30,     June 30,              
(amounts in millions)   2010     2010     Adjustments     2010     2009     $ Change     % Change  
Total
  $ (948.9 )   $ 64.1     $ 1,201.6 (1)   $ 316.8     $ 307.5     $ 9.3       3.0 %
 
                                         
 
(1)   Represents the net effect of (a) eliminating gross advertising revenues, sales claims and allowances, other revenues and certain deferred expenses for advertising sales fulfilled prior to the Fresh Start Reporting Date, which would have been recognized during the five months ended June 30, 2010 absent our adoption of fresh start accounting required under GAAP, (b) the exclusion of cost-uplift recorded under fresh start accounting (c) excludes the goodwill and intangible asset impairment charges during the five months ended June 30, 2010.
Combined adjusted operating income for the six months ended June 30, 2010 of $316.8 million, compares to operating income of $307.5 million for the Predecessor Company six months ended June 30, 2009. The increase in combined adjusted operating income for the six months ended June 30, 2010 is due to the significant decline in amortization expense associated with our intangible assets and lower operating expenses described above, partially offset by declines in net revenues described above.

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LIQUIDITY AND CAPITAL RESOURCES
The following table presents the fair market value of our long-term debt at June 30, 2010 based on quoted market prices on that date, as well as the carrying value of our long-term debt at June 30, 2010, which includes $106.4 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. See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 3 “Fresh Start Accounting” for additional information.
                 
    Successor Company  
    Fair Market Value     Carrying Value  
    June 30, 2010     June 30, 2010  
RHDI Amended and Restated Credit Facility
  $ 986,067     $ 1,091,403  
Dex Media East Amended and Restated Credit Facility
    717,932       810,040  
Dex Media West Amended and Restated Credit Facility
    708,402       773,561  
Dex One 12%/14% Senior Subordinated Notes due 2017
    279,000       300,000  
 
           
Total Dex One consolidated
    2,691,401       2,975,004  
Less current portion
    165,185       165,524  
 
           
Long-term debt
  $ 2,526,216     $ 2,809,480  
 
           
RHDI Amended and Restated Credit Facility
As of June 30, 2010, the outstanding carrying value under the amended and restated RHDI credit facility (“RHDI Amended and Restated Credit Facility”) totaled $1,091.4 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 9.25% at June 30, 2010.
Dex Media East Amended and Restated Credit Facility
As of June 30, 2010, the outstanding carrying value under the amended and restated Dex Media East credit facility (“Dex Media East Amended and Restated Credit Facility”) totaled $810.0 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 2.95% at June 30, 2010.
Dex Media West Amended and Restated Credit Facility
As of June 30, 2010, the outstanding carrying value under the amended and restated Dex Media West credit facility (“Dex Media West Amended and Restated Credit Facility”) totaled $773.6 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 7.50% at June 30, 2010.
Dex One Senior Subordinated Notes
On the Effective Date, we issued the $300.0 million Dex One Senior Subordinated Notes in exchange for the Dex Media West 8.5% Senior Notes due 2010 and 5.875% Senior Notes due 2011. 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 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 paid-in-kind (“PIK”) interest payments. The Company may elect, prior to the start of each interest payment 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 incremental or additional senior secured notes. The interest rate on the Dex One Senior Subordinated Notes may be subject to adjustment in the event the Company incurs certain specified debt with a higher effective yield to maturity than the yield to maturity of the Dex One Senior Subordinated Notes. The Dex One Senior Subordinated Notes are unsecured obligations of the Company, effectively subordinated in right of payment to all of the Company’s existing and future secured debt, including Dex One’s guarantee of borrowings under each of the amended and restated credit facilities and are structurally subordinated to any existing or future liabilities (including trade payables) of our direct and indirect subsidiaries.

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The indenture governing the Dex One Senior Subordinated Notes contains certain covenants that, subject to certain exceptions, among other things, limit or restrict the Company’s (and, in certain cases, the Company’s restricted subsidiaries’) incurrence of indebtedness, making of certain restricted payments, incurrence of liens, entry into transactions with affiliates, conduct of its business and the merger, consolidation or sale of all or substantially all of its property. The indenture governing the Dex One Senior Subordinated Notes also requires the Company to offer to repurchase the Dex One Senior Subordinated Notes at par after certain changes of control involving the Company or the sale of substantially all of the assets of the Company. Holders of the Dex One Senior Subordinated Notes also may cause the Company to repurchase the Dex One Senior Subordinated Notes at a price of 101% of the principal amount upon the incurrence by the Company of certain acquisition indebtedness.
See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 6, “Long-Term Debt, Credit Facilities and Notes” for further details of our long-term debt.
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 amended and restated 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 amended and restated credit facilities, of which $106.4 million remains unamortized at June 30, 2010, as shown in the following table.
                         
                    Outstanding Debt at
            Unamortized Fair   June 30, 2010 Excluding
    Carrying Value at   Value Adjustments   the Impact of Unamortized
    June 30, 2010   at June 30, 2010   Fair Value Adjustments
RHDI Amended and Restated Credit Facility
  $ 1,091,403     $ 16,536     $ 1,107,939  
Dex Media East Amended and Restated Credit Facility
    810,040       76,296       886,336  
Dex Media West Amended and Restated Credit Facility
    773,561       13,552       787,113  
Dex One 12%/14% Senior Subordinated Notes due 2017
    300,000             300,000  
 
                       
Total
  $ 2,975,004     $ 106,384     $ 3,081,388  
 
                       
See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 3, “Fresh Start Accounting” for a presentation of the impact of emergence from reorganization and fresh start accounting on our financial position.
Issuance of New Common Stock
Upon emergence from Chapter 11 and pursuant to the Plan, all of the issued and outstanding shares of the Predecessor Company’s common stock and any other outstanding equity securities of the Predecessor Company including all stock options, SARs and restricted stock, were cancelled. On the Effective Date, the Company issued an aggregate amount of 50,000,001 shares of new common stock, par value $.001 per share. See Part 1 — Item 1, “Financial Statements (Unaudited)” — Note 10, “Capital Stock” for additional information regarding our new common stock.
Registration Rights Agreement
On the Effective Date and pursuant to the Plan, the Company entered into a Registration Rights Agreement (the “Agreement”), requiring the Company to register with the SEC certain shares of its common stock and/or the Dex One Senior Subordinated Notes upon the request of one or more Eligible Holders (as defined in the Agreement), in accordance with the terms and conditions set forth therein. On April 8, 2010 and pursuant to the Agreement, the Company filed a shelf registration statement to register for resale by Franklin Advisers, Inc. and certain of its affiliates 15,262,488 shares of our common stock and $116.6 million aggregate principal amount of the Dex One Senior Subordinated Notes. These securities were registered pursuant to the Agreement to permit the sale of the securities from time to time at fixed prices, prevailing market prices at the times of sale, prices related to the prevailing market prices, varying prices determined at the times of sale or negotiated prices. The shelf registration statement became effective on April 16, 2010.

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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 products and marketing services and can be impacted by, among other factors, general local business conditions, 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.
Based on current financial projections, but in any event for 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 these prospective cash requirements.
See Part 1 — Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Trends Related to Our Business,” for additional information related to trends and uncertainties with respect to our business.
Successor Company
Aggregate outstanding debt at June 30, 2010 was $2,975.0 million, which includes fair value adjustments of $106.4 million required by GAAP in connection with the Company’s adoption of fresh start accounting. During the five months ended June 30, 2010, we made scheduled and accelerated principal payments of $303.4 million under our amended and restated credit facilities. For the five months ended June 30, 2010, we made aggregate net cash interest payments of $69.3 million. At June 30, 2010, we had $121.8 million of cash and cash equivalents before checks not yet presented for payment of $11.4 million.
Cash provided by operating activities was $240.1 million for the five months ended June 30, 2010 and included net loss, non-cash items such as goodwill and intangible asset impairment charges and depreciation and amortization, and changes in assets and liabilities primarily driven by changes in deferred directory revenues, partially offset by other non-cash items, net primarily related to a deferred income tax benefit.
Cash used in investing activities for the five months ended June 30, 2010 was $15.2 million and relates to the purchase of fixed assets, primarily computer equipment, software and leasehold improvements.
Cash used in financing activities for the five months ended June 30, 2010 was $302.6 million and includes the following:
    $303.4 million in principal payments on our amended and restated credit facilities.
 
    $2.8 million in other financing costs.
 
    $3.6 million in the increased balance of checks not yet presented for payment.
Predecessor Company
During the one month ended January 31, 2010, the Predecessor Company made principal payments of $511.3 million under its credit facilities in accordance with the Plan and in conjunction with our emergence from Chapter 11 and made aggregate net cash interest payments of $15.5 million.
Cash provided by operating activities was $71.7 million for the one month ended January 31, 2010 and included net income, non-cash items, net primarily related to non-cash reorganization items, net, offset by a deferred income tax provision and depreciation and amortization, and changes in assets and liabilities primarily driven by changes in deferred income taxes and pension and postretirement long-term liabilities.
Cash used in investing activities for the one month ended January 31, 2010 was $1.8 million and relates to the purchase of fixed assets, primarily computer equipment, software and leasehold improvements.

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Cash used in financing activities for the one month ended January 31, 2010 was $536.5 million and includes the following:
    $511.3 million in principal payments on term loans under the Predecessor Company’s credit facilities in accordance with the Plan and in conjunction with our emergence from Chapter 11.
 
    $22.1 million in costs associated with the issuance of the Dex One Senior Subordinated Notes and other financing related costs.
 
    $3.1 million in the decreased balance of checks not yet presented for payment.
Cash provided by operating activities was $176.6 million for the six months ended June 30, 2009 and included net loss, non-cash items, net primarily related to a deferred income tax provision, depreciation and amortization, the provision for bad debts and changes in assets and liabilities primarily related to changes in deferred directory revenues, timing of accounts payable and accrued liabilities and changes in pension and postretirement long-term liabilities.
Cash used in investing activities for the six months ended June 30, 2009 was $9.8 million and relates to the purchase of fixed assets, primarily computer equipment, software and leasehold improvements.
Cash provided by financing activities for the six months ended June 30, 2009 was $109.0 million and includes the following:
    $229.4 million in principal payments on term loans under the Predecessor Company’s credit facilities.
 
    $361.0 million in borrowings under the Predecessor Company’s revolvers. The Predecessor Company made the borrowings under the various revolving credit facilities to preserve its financial flexibility in light of the continuing uncertainty in the global credit markets.
 
    $18.7 million in principal payments on the Predecessor Company’s revolvers.
 
    $3.9 million in the decreased balance of checks not yet presented for payment.

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Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Contractual Obligations
The contractual obligations table presented below sets forth our annual commitments for principal and interest payments on our debt as of June 30, 2010. The debt repayments as presented in this table include the scheduled principal payments under the current debt agreements as well as an estimate of additional debt repayments resulting from cash flow sweep requirements under our amended and restated credit facilities. Our amended and restated 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 amended and restated credit facilities. The debt repayments also exclude fair value adjustments required by GAAP as a result of our adoption of fresh start accounting of $106.4 million, as these adjustments do not impact our payment obligations. There have not been any material changes to the other contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.
                                         
    Payment Due by Period
            Less than   1-3   3-5   More than 5
(amounts in millions)   Total   1 Year   Years   Years   Years
 
Long-term debt (1)
  $ 3,081.4     $ 196.0     $ 625.9     $ 1,959.5     $ 300.0  
Interest on long-term debt (2)
    1,003.2       218.5       400.0       318.9       65.8  
     
Total long-term debt and related interest contractual obligations
  $ 4,084.6     $ 414.5     $ 1,025.9     $ 2,278.4     $ 365.8  
     
 
(1)   Included in long-term debt are principal amounts owed under the amended and restated credit facilities and the Dex One Senior Subordinated Notes, including the current portion of long-term debt and an estimate of additional debt repayments resulting from cash flow sweep requirements under our amended and restated credit facilities, as of June 30, 2010.
 
(2)   Interest on debt represents cash interest payment obligations assuming all indebtedness as of June 30, 2010 will be paid in accordance with its contractual maturity and assumes interest rates on variable interest debt as of June 30, 2010 will remain unchanged in future periods.
Please refer to “Liquidity and Capital Resources” for information on the amended and restated credit facilities and the Dex One Senior Subordinated Notes.

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Item 3.   Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk and Risk Management
The Company’s amended and restated 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.
The Company has entered into the following interest rate swaps that effectively convert approximately $500.0 million, or 19%, of the Company’s variable rate debt to fixed rate debt as of June 30, 2010. At June 30, 2010, approximately 90% 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 27% of our total debt portfolio as of June 30, 2010. The interest rate swaps mature at varying dates from February 2012 through February 2013.
Interest Rate Swaps — Dex Media East
                         
      Effective Dates   Notional Amount     Pay Rates     Maturity Dates  
(amounts in millions)                        
February 26, 2010
  $ 300 (2)     1.20% - 1.796 %   February 29, 2012 — February 28, 2013
March 5, 2010
    100 (1)     1.668 %   January 31, 2013
March 10, 2010
    100 (1)     1.75 %   January 31, 2013
 
                     
Total
  $ 500                  
 
                     
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 1.5%. The weighted average rate received on our interest rate swaps was 0.5% for the five months ended June 30, 2010. 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
  $ 200 (3)     3.0% - 3.5 %   February 28, 2012 — February 28, 2013
March 8, 2010
    100 (4)     3.5 %   January 31, 2013
March 10, 2010
    100 (4)     3.0 %   April 30, 2012
 
                     
Total
  $ 400                  
 
                     
 
(1)   Consists of one swap
 
(2)   Consists of three swaps
 
(3)   Consists of two caps
 
(4)   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 AA- or higher, or the equivalent dependent upon the credit rating agency.

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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.
For derivative instruments that are designated as cash flow hedges and that are determined to provide an effective hedge, the differences between the fair value and the book value of the derivative instruments are recognized in accumulated other comprehensive income (loss), a component of shareholders’ equity (deficit).

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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 Interim Principal 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 June 30, 2010. Based on that evaluation, the Interim Principal 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 Securities and Exchanges Commission’s rules and forms.
(b) Changes in Internal Controls
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.

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various legal proceedings arising in the ordinary course of our business, as well as certain litigation and tax matters. In many of these matters, plaintiffs allege that they have suffered damages from errors or omissions in their advertising or improper listings, in each case, contained in directories published by us.
Beginning on October 23, 2009, a series of putative securities class action lawsuits were commenced in the United States District Court for the District of Delaware on behalf of all persons who purchased or otherwise acquired the Company’s publicly traded securities between July 26, 2007 and the time the Company filed for bankruptcy on May 28, 2009, alleging that certain Company officers issued false and misleading statements regarding the Company’s business and financial condition and seeking damages and equitable relief. 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 the time the lawsuit was filed 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 Company directors, officers and employees similar to those set forth in the putative securities class action lawsuit as well as allegations of breaches of fiduciary duties under ERISA and seeks damages and equitable relief. On December 18, 2009, a lawsuit was filed in California state court by certain former shareholders of the Company alleging that certain Company officers issued false and misleading statements regarding the Company’s business and financial condition and seeking damages and equitable relief. This case was removed to the United States District Court for the Central District of California on February 4, 2010. On April 27, 2010, this case was dismissed for lack of personal jurisdiction over the named defendants. The Company believes the allegations set forth in all of these lawsuits are without merit and intends to vigorously defend any and all such actions pursued against the Company and/or its current and former officers, employees and directors.
We are also exposed to potential defamation and breach of privacy claims arising from our publication of directories and our methods of collecting, processing and using advertiser and telephone subscriber data. If such data were determined to be inaccurate or if data stored by us were improperly accessed and disseminated by us or by unauthorized persons, the subjects of our data and users of the data we collect and publish could submit claims against the Company. Although to date we have not experienced any material claims relating to defamation or breach of privacy, we may be party to such proceedings in the future that could have a material adverse effect on our business.
We periodically assess our liabilities and contingencies in connection with these matters based upon the latest information available to us. For those matters where it is probable that we have incurred a loss and the loss or range of loss can be reasonably estimated, we record a liability in our consolidated financial statements. In other instances, we are unable to make a reasonable estimate of any liability because of the uncertainties related to both the probable outcome and amount or range of loss. As additional information becomes available, we adjust our assessment and estimates of such liabilities accordingly.
Based on our review of the latest information available, we believe our ultimate liability in connection with pending or threatened legal proceedings will not have a material effect on our results of operations, cash flows or financial position. No material amounts have been accrued in our consolidated financial statements with respect to any of such matters.
Item 1A. Risk Factors
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, 2009. 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.

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Item 6. Exhibits
     
Exhibit No.   Document
31.1*
  Certification of Quarterly Report on Form 10-Q for the period ended June 30, 2010 by W. Kirk Liddell, Interim Principal Executive Officer 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 June 30, 2010 by Steven M. Blondy, 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 June 30, 2010, under Section 906 of the Sarbanes-Oxley Act by W. Kirk Liddell, Interim Principal Executive Officer, and Steven M. Blondy, Executive Vice President and Chief Financial Officer, for Dex One Corporation
 
*   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: August 11, 2010  By:   /s/ Steven M. Blondy    
    Steven M. Blondy   
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer) 
 
 
     
    /s/ Sylvester J. Johnson    
    Sylvester J. Johnson   
    Vice President, Corporate Controller and Chief Accounting Officer
(Principal Accounting Officer) 
 

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Exhibit Index
     
Exhibit No.   Document
31.1*
  Certification of Quarterly Report on Form 10-Q for the period ended June 30, 2010 by W. Kirk Liddell, Interim Principal Executive Officer 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 June 30, 2010 by Steven M. Blondy, 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 June 30, 2010, under Section 906 of the Sarbanes-Oxley Act by W. Kirk Liddell, Interim Principal Executive Officer, and Steven M. Blondy, Executive Vice President and Chief Financial Officer, for Dex One Corporation
 
*   Filed herewith.

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