UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

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

For the transition period from                     to                    

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)

Title of class		Name of exchange on which registered
Common Stock, par value $.001 per share		New York Stock Exchange

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.

Yes o No þ

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes 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 (Section 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

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

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

Yes o No þ

On June 30, 2010, the last day of the most recently completed second quarter, the aggregate market value of Dex One Corporation’s common stock (based upon the closing price per share of $19.00 of such stock traded on The New York Stock Exchange on such date) held by non-affiliates of the Registrant was approximately $670,316,789. At June 30, 2010, there were 50,015,691 outstanding shares of the Registrant’s common stock. For purposes of this calculation, those shares held by directors and executive officers of the Registrant and shares held by Franklin Resources Inc., who held approximately 29% of our outstanding shares of common stock at June 30, 2010, have been excluded as held by affiliates. Such exclusion should not be deemed a determination or an admission by the Registrant or any such person that such individuals or entities are or were, in fact, affiliates of the Registrant. At February 1, 2011, there were 50,031,441 outstanding shares of the Registrant’s common stock.

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

Portions of the Registrant’s Proxy Statement for the 2011 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or prior to May 2, 2011, are incorporated by reference in this Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

 

 

TABLE OF CONTENTS

PART I
Item 1. Business			3
Item 1A. Risk Factors			12
Item 1B. Unresolved Staff Comments			20
Item 2. Properties			21
Item 3. Legal Proceedings			22
Item 4. (Removed and Reserved)			22
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			23
Item 6. Selected Financial Data			25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			76
Item 8. Financial Statements and Supplementary Data			F-1
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures			78
Item 9A. Controls and Procedures			78
Item 9B. Other Information			78
PART III
Item 10. Directors, Executive Officers and Corporate Governance			79
Item 11. Executive Compensation			79
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			79
Item 13. Certain Relationships and Related Transactions and Director Independence			79
Item 14. Principal Accountant Fees and Services			79
PART IV
Item 15. Exhibits and Financial Statement Schedules			80
Signatures			86
EX-10.17
EX-10.18
EX-10.19
EX-10.34
EX-10.35
EX-10.36
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

PART I

ITEM 1. BUSINESS.

General

Dex One Corporation became the successor registrant to R.H. Donnelley Corporation upon emergence from Chapter 11 proceedings under Title 11 of the United States Code (“Chapter 11”) on January 29, 2010 (the “Effective Date”) and pursuant to Rule 12g-3 under the Securities Exchange Act of 1934. See Item 8, “Financial Statements and Supplementary Data” — Note 1, “Business and Basis of Presentation” for detailed information on matters associated with the Chapter 11 proceedings. Except where otherwise indicated or as the context may otherwise indicate, the terms “Dex One,” “Successor Company,” “Company,” “Parent Company,” “we,” “us” and “our” refer to Dex One Corporation and its direct and indirect wholly-owned subsidiaries subsequent to the Effective Date. As of December 31, 2010, R.H. Donnelley Corporation, R.H. Donnelley Inc. (“RHDI” or “RHD Inc.”), 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. The financial information set forth in this Annual Report, unless otherwise indicated or as the context may otherwise indicate, reflects the consolidated results of operations and financial position of Dex One as of and for the eleven months ended December 31, 2010. Our executive offices are located at 1001 Winstead Drive, Cary, North Carolina 27513 and our telephone number is (919) 297-1600. Our corporate Internet website address is www.DexOne.com. For more information on the products and services that Dex One offers, please visit our website at www.DexKnows.com^®. We make available free of charge on our website our annual, quarterly and current reports, including amendments to such reports, as soon as practicable after we electronically file such material with, or furnish such material to, the United States Securities and Exchange Commission (“SEC”). Our filings can also be obtained from the SEC website at www.sec.gov. However, the information found on our website and the SEC website is not part of this Annual Report.

Except where otherwise indicated or as the context may otherwise indicate, the terms “Predecessor Company,” “RHD,” “we,” “us” and “our” refer to R.H. Donnelley Corporation and its direct and indirect wholly-owned subsidiaries prior to the Effective Date. The financial information set forth in this Annual Report, unless otherwise indicated or as the context may otherwise indicate, reflects the consolidated results of operations and financial position of RHD as of and for the one month ended January 31, 2010 and for each of the years in the two year period ended December 31, 2009.

On the Effective Date and in connection with our emergence from Chapter 11, RHD was renamed Dex One Corporation. The Company was formed on February 6, 1973 as a Delaware corporation. In November 1996, the Company, then known as The Dun & Bradstreet Corporation separated through a spin-off into three separate public companies: The Dun and Bradstreet Corporation, ACNielsen Corporation, and Cognizant Corporation. In June 1998, The Dun & Bradstreet Corporation separated through a spin-off into two separate public companies: R.H. Donnelley Corporation (formerly The Dun & Bradstreet Corporation) and a new company that changed its name to The Dun & Bradstreet Corporation (“D&B”).

Corporate Overview

We are a marketing solutions company that helps local businesses generate leads and manage their presence among consumers in the ever changing, complex and fragmented markets we serve. Our highly effective marketing solutions combine multiple media platforms that drive large volumes of leads to our clients. Our highly skilled, locally based marketing consultants offer local businesses personalized marketing consulting services and exposure across these media platforms, including our print, online and mobile yellow pages and search solutions, as well as major search engines.

Our proprietary marketing solutions include our Dex published yellow pages directories, which we co-brand with other recognizable brands in the industry such as Qwest, CenturyLink and AT&T, our Internet yellow pages site, DexKnows.com ^® and our mobile application, Dex Mobile ^®. Our growing list of marketing solutions also 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. Our digital affiliate marketing solutions are powered by our search engine marketing product, DexNet™, which extends our clients’ reach to our leading Internet and mobile partners to attract consumers searching for local products and services within our markets.

We believe our ability to effectively compete in our industry is supported by a number of advantages:

	•		A deep domain expertise in the realm of local businesses;
	•		A vast database of local business information within our markets and the ability to collect and continuously update its content; and
	•		Strong, direct and long-standing relationships with local businesses maintained by our locally based marketing consultants who work closely with clients to first discover their business goals and marketing needs, assess their unique situations, and then recommend a customized, cost-effective set of marketing solutions to help generate leads.

Segment Reporting

Management reviews and analyzes its business of providing marketing solutions as one operating segment.

Financial and Other Business Information

See Item 8, “Financial Statements and Supplementary Data” for financial information, including revenues and earnings from operations, for our operating segment.

Business Overview

Our business model of helping local businesses generate leads and manage their presence among consumers in the ever changing, complex and fragmented markets we serve is fulfilled by providing proprietary and affiliate provided marketing solutions that combine multiple media platforms. Local businesses face an overwhelming array of marketing options and are looking for simple, complete and effective marketing solutions that do not require their day-to-day involvement. We believe our marketing solutions fulfill these local business needs by providing targeted solution bundles that combine offline and online media platforms to drive large volumes of leads to our clients. We also provide high levels of support and service through our locally based marketing consultants who strive to understand clients’ businesses and then present customized solutions from our leading offerings to create high impact, multi-platform marketing campaigns.

The Company is in the process of transitioning to a compete-and-collaborate business model, as we anticipate that affiliate provided solutions will grow at a faster rate than our proprietary solutions. This compete-and-collaborate business model entails our collaboration with certain of our competitors. In light of increasing fragmentation within the markets we serve, this model will allow us to aggregate more leads for our clients in our markets. As such, we anticipate expanding the breadth of our affiliate provided solutions to areas such as website creation, web hosting and reputation management.

Our marketing solutions help businesses get found well over a billion times each year by actively shopping consumers. These references result in a conversion of advertising impressions to actual transactions for our clients, which help generate returns on investment that are inclined to be higher than those for other forms of local media, such as magazines, newspapers, radio and television. Unlike many other forms of local media that focus on creative advertising, one of the primary drivers of higher relative return on investment for our clients is our focus on targeting consumers that are closer to making a purchase decision and thus are able to offer our clients a more effective return on investment.

Marketing Solutions

We offer the following marketing solutions, which are complemented by our partnerships with some of the best known search engine companies, such as Google and Yahoo!, to promote businesses on the Internet via our proprietary search network, DexNet.

	•		Assessment of marketing programs and advertisements;
	•		Message and image creation;
	•		Recommendations for advertising placement;
	•		Industry-specific research and information;
	•		Market-specific research and information;
	•		In-depth understanding of how consumers search for businesses and what influences them to buy from one business versus another;

	•		Dex published yellow pages;
	•		Dex published white pages;
	•		DexKnows.com;
	•		Search engine optimization strategies;
	•		Keyword implementation;
	•		Social strategies; and
	•		Tracking and reporting.

Print Products and Services

We offer three primary types of printed yellow pages directories: core directories, community directories and Plus companion directories. Core directories generally cover large population or regional areas, whereas community directories typically focus on a sub-section of the areas addressed by corresponding core directories. The Plus companion directory is a small format directory used in addition to the core and community directories. It is complementary to the core directory with replicated advertising from the core directory. Our print directory advertising products can be broken down into three basic categories: Yellow Pages, White Pages and Specialty/Awareness Products.

Whenever practicable, we combine the white pages section and the yellow pages section of our print directory products into a single directory. In large markets where it is impractical to combine the two sections into one volume, separate stand-alone white and yellow pages print directories are normally published at about the same time. We are committed to environmental stewardship and offer a variety of recycling programs in many of the markets we serve. In many of the markets we serve, consumers also have the ability to choose the print directories that they wish to receive or may elect to receive none at all via the Select Your Dex™ program.

Our directories are designed to meet the advertising needs of local and national businesses and the informational needs of local consumers. The diversity of advertising options available enables us to create customized marketing programs that are responsive to specific client needs and financial resources. The yellow pages and white pages print directories are also efficient sources of information for consumers, featuring a comprehensive list of businesses in the local market that are conveniently organized under thousands of directory headings.

Online Products and Services

DexKnows.com

Our listing and clients’ content is also placed on the DexKnows.com platform through basic text listings and searchable business profiles and through Internet products including DexKnows Enhanced Packs and DexKnows Starter Packs. In many cases, print clients’ content is largely replicated to DexKnows.com, which provides consumers a content rich online search experience.

We purchase information from other national databases to enhance in-region listings and supply out-of-region listings, although these out-of-region listings are not as comprehensive as our in-region information. DexKnows.com includes approximately 13.7 million business listings and more than 190 million residential listings from across the United States.

Consumers can access information on DexKnows.com from their computer or mobile phone. DexKnows.com allows the user to search based on a category, business name or set of keyword terms within a geographic region. In addition, DexKnows.com provides users with the ability to refine their searches using a navigable, flexible digital category structure that includes such things as specific product and brand names, hours of operation, payment options and locations.

We have content agreements and distribution agreements with various search engines, portals and local community destination websites. These agreements provide us with access to important channels to enhance our distribution network on behalf of our clients. This enhanced distribution typically leads to increased usage among consumers and greater value and return on investment for our clients.

One such distribution agreement is with Yahoo!. Qwest region clients benefit from inclusion within the following Yahoo! Local and Yahoo! Yellow Pages advertising products:

	•		Yahoo! Local Featured Listings—sponsored listings with guaranteed placement on the first or second results pages for broader exposure in a specific geography or category.
	•		Yahoo! Local Enhanced Listings—sponsored listings that offer the ability to add a detailed description of their business, photos, a tagline and coupons to create greater online visibility for businesses and enhance their appearance within organic results.

We have a YellowPages.com (“YPC”) Reseller Agreement with AT&T, which allows us to be the exclusive provider of YPC Internet yellow pages advertising in our Illinois and Northwest Indiana markets.

•

Basic Listings — We have the rights to distribute an unlimited number of clients to the YPC Internet yellow pages website.

•

Premium Listings — We have the rights to sell enhanced YPC advertising products, for example, guaranteed placement and/or inclusion on the YPC Internet yellow pages website, to our Illinois and Northwest Indiana clients.

DexNet

DexNet drives leads to our clients through placement of their business listings in prime locations on DexKnows.com and distributes it to other major search engines. Products and services offered by DexNet provide new, innovative solutions to enhance our local directional marketing capabilities.

DexNet provides a comprehensive approach to serving the Internet marketing needs of local businesses through four major product and service elements:

	•		Client Profile—constructs a simple but content rich presence on the web for the client and is designed to maximize the opportunity to appear on major search engines.
	•		Distribution—provides the client’s information and business information to multiple local search platforms including YellowPages.com, Google Maps and Local.com.
	•		Paid Search—develops, deploys and manages effective search marketing campaigns across major search platforms, such as Google and Yahoo!, on behalf of the client.
	•		Reporting—provides transparent, real-time results, such as phone calls, e-mails, listing views, website visits, driving directions, and the total number of times the profile is sent to mobile. Reporting is accessible 24 hours a day, 7 days a week and combines results received from DexKnows.com and leading local search sites.

Business Cycle Overview

Our sales, marketing, operations and production teams work together to foster the efficiency and effectiveness of our end-to-end process from advertising purchase to product distribution or service fulfillment and billing. We work with vendor partners to print and distribute our proprietary print and online products, including DexKnows.com and Dex published yellow pages print directories, while facilitating the fulfillment of DexNet purchases on the sites of our online distribution partners.

Our print directories usually have a 12-month directory cycle period. A publication process generally takes 15 to 20 months from the beginning of the sales cycle to the end of a directory’s life and the sales stage closes approximately 70 days prior to publication. Consistent with our print directories, our online products and services usually have a 12-month billing cycle, although our DexKnows.com platform provides an opportunity for clients to update aspects of their advertising content online at any time before the next sales cycle.

Sales

Our local marketing consultant team is comprised of approximately 1,500 employees.

We assign our clients among local marketing consultants and telephone local marketing consultants based on a careful assessment of a client’s expected advertising expenditures. This practice allows us to deploy our local marketing consultants in an effective manner. Our local marketing consultants are assigned to local service areas. Management believes that our local marketing consultants facilitate the establishment of personal, long-term relationships with local print and online clients that are necessary to maintain a higher rate of client renewal.

Our local sales channel is divided into three sales sub-channels: premise sales, telephone sales and locally centralized sales.

Premise local marketing consultants — conduct sales meetings face to face at clients’ business locations and typically handle higher dollar and more complex accounts.

Telephone local marketing consultants — handle lower dollar value accounts and conduct sales over the phone.

Locally centralized sales — includes multiple types of sales efforts, including centralized local marketing consultants, prospector local marketing consultants and a letter renewal effort. These sales mechanisms are used to contact non-advertisers or very low dollar value clients that in many cases have renewed their account for the same product for several years. Some of these centralized efforts are also focused on initiatives to recover former clients.

Management believes that formal training is important to maintaining a highly productive sales force. Our local marketing consultants are formally trained on relationship selling skills. This process is a highly client-centric consultative selling model that emphasizes diagnosis of needs before developing customized solutions. We believe this process increases effectiveness for retaining and growing existing clients along with the ability to acquire new clients and successfully sell multiple products. New marketing consultants receive extensive initial training including relationship selling skills, product portfolio, client care and administration, standards and ethics. All sales managers have been trained also on new active management processes to provide daily management and coaching to the local marketing consultants on relationship selling skills, maximizing productivity, and managing leading indicators of the business. This relationship sales process, combined with the daily management activities, provides clients a level of high-quality service centered on their individual needs.

National Sales

In addition to our locally based marketing consultants, we utilize a separate sales channel to serve our national clients. In 2010, national clients accounted for about 15% of our revenue. National clients are typically national or large regional chains such as rental car companies, insurance companies and pizza businesses that purchase advertisements in many yellow pages directories in multiple geographic regions. In order to sell to national clients, we employ associates to manage our selling efforts. In addition we contract with third party Certified Marketing Representatives (“CMR”) who design and create advertisements for national companies and place those advertisements in relevant yellow pages directories nationwide and in online products and services. Some CMRs are departments of general advertising agencies, while others are specialized agencies that focus solely on directory advertising. The national client pays the CMR, which then pays us after deducting its commission. We accept orders from approximately 160 CMRs and our associates also manage our CMR relationships.

Printing and Distribution

Our directories are printed through our long-standing relationship with printing vendor R.R. Donnelley & Sons Company (“R.R. Donnelley”), as well as with World Color (USA) Corp. (“Worldcolor”) now owned by Quad/Graphics, Inc. In general, R.R. Donnelley prints all AT&T and CenturyLink directories and larger, higher-circulation Qwest directories, whereas Worldcolor prints Qwest directories that are smaller and have a more limited circulation. Our agreements with R.R. Donnelley and Worldcolor for the printing of all of our directories extend through 2014 and 2015, respectively.

The physical delivery of directories is facilitated through several outsourcing relationships. Delivery methods utilized to distribute directories to consumers are selected based on factors such as cost, quality, geography and market need. Primary delivery methods include U.S. Postal Service and hand delivery. We have contracts with two companies for the distribution of our directories. These contracts are scheduled to expire at various times from May 2012 through May 2013. Occasionally, we use United Parcel Service or other types of expedited delivery methods. Frequently, a combination of these methods is required to meet the needs of the marketplace.

Printing, paper and distribution costs represented approximately 11% of net revenue for the eleven months ended December 31, 2010.

Online Production and Distribution

Online products are provisioned on our proprietary Internet directory site, DexKnows.com, as well as distributed to third party Internet search engines and directories such as Google, Yahoo! and YellowPages.com. Delivery to end users is determined based on factors such as demographics, cost, quality, geography and marketing intent.

The provisioning of online directories and search engine marketing products is facilitated through a combination of internal technology as well as several outsourcing relationships. In 2010, the production of our consumer-oriented Internet advertising site, DexKnows.com, was facilitated through various technology outsourcing relationships while the fulfillment of search engine marketing products utilize our proprietary technology.

Credit, Collections and Bad Debt Expense

Since most of our products and services have 12-month cycles and most clients are billed over the course of that 12-month period, we extend credit to our clients in the form of a trade receivable. A majority of these clients are local businesses with default rates that usually exceed those of larger companies. Our policies toward the extension of credit and collection activities associated with trade receivables are designed to manage bad debt at certain targeted levels while intending to promote reasonable sales growth.

Local advertising clients spending above identified levels may be subject to a credit review that includes, among other criteria, evaluation of credit or payment history with us, third party credit scoring, credit checks with other vendors along with consideration of credit risks associated with particular headings. Where appropriate, advance payments (in whole or in part) and/or personal guarantees from business owners may be required prior to the extension of credit to select advertisers. In addition to efforts to assess credit risk prior to extending credit to clients, we employ well-developed collection strategies utilizing an integrated system of internal and automated means to engage clients concerning payment obligations. The Company may choose to renew contracts with clients who have accounts receivable balances with us in arrears if the client agrees to prepay in full for new advertising.

Fees for national clients are generally billed upon publication of each issue of the directory in which the advertising is placed by CMRs. Because we do not usually enter into contracts with national clients directly, we are subject to the credit risk of CMRs on sales to those clients, to the extent we do not receive fees in advance.

Competition

The local search industry in which we operate is highly competitive and fragmented. We compete with other print and online yellow pages directory publishers, as well as other types of media including direct mail, search engines, local search sites, advertising networks, and emerging technologies. Among our highest spending category of customers, we also compete with television, newspaper and radio, which tend to charge more for similar coverage. Looking ahead, new content delivery technologies and consumer focus continue to evolve in the media environment such as with social media, ratings and reviews, mobile applications, etc. This represents potential competition as well as opportunities for partnership and incremental sales. We regularly monitor developing trends and technologies to assess opportunities for enhancing our own capabilities through new product development, partnerships or acquisitions, and identify competitive threats where a specific response may be warranted. In addition, we expect to operate on a “compete and collaborate” model in which we are both partners and competitors with the same firm in different aspects of operations.

In nearly all of our markets, we compete with one or more traditional print yellow pages directory publishers, including independent publishers such as Yellowbook, White Directory Publishing, Inc. and Phone Directories Company. In some markets, we compete with other incumbent publishers such as SuperMedia and AT&T. We compete with these publishers based on price, quality, features, usage leadership and distribution.

Most of the major yellow pages directory publishers offer print and online directories as well as online search products. Virtually all independent publishers, including Yellowbook, a competitor in the majority of our markets, compete aggressively and use pricing and discounting as a primary competitive tool to try to increase their market share. Due to the recent economic environment and trends in our industry and an increase in competition and more fragmentation in the local business search space, we have experienced a significant decline in advertising sales during 2010 and we currently expect this trend to continue in 2011. We believe these same trends are also impacting our competitors.

Online competition has intensified as technologies have improved and broadband penetration has increased, offering a diverse set of advertising alternatives for small businesses. We consider our primary online competition to be the major search engines, such as Google, Yahoo!, BING and others, in addition to the online directory properties of the largest yellow pages directory publishers, such as Superpages.com, provided by SuperMedia, and YellowPages.com, provided by AT&T. Additionally, we compete with a growing number of local shopping-related competitors including industry specific online verticals, such as FindLaw.com and ServiceMagic.com, user-generated content sites such as Yelp and Kudzu, and search engine intermediaries such as ReachLocal and Yodle. We also compete with a number of well known online map websites such as MapQuest^®, Rand McNally^® and Google Maps. Most of these companies operate on a national scale, competing for consumer and business users across our entire regions and actively soliciting clients in many of our markets. We may not be able to compete effectively with these other companies, some of which may have greater resources than we do, for advertising sales or acquisitions in the future. Our Internet strategy and our business may be adversely affected if major search engines build local sales forces or otherwise begin to more effectively reach small local businesses for local commercial search services.

Our enhanced distribution arrangements have involved, and will likely continue to involve, cooperating with other local media companies with whom we also compete, particularly with respect to online local search. As a result, particularly as usage continues to migrate from print to online, we bear some risk that such cooperation arrangements may presently, or come to constitute, a significant component of the aggregate distribution of the advertising message that we offer to certain of our clients. Some of these local media companies with whom we cooperate and compete have greater financial resources than we do. Should our relationships with such companies be discontinued for any reason, it may be detrimental to our clients and thereby may result in lower rates of renewal of our contractual relationships with our clients. Our reliance on these cooperation arrangements may also provide an unintended competitive advantage to some of our competitors by (a) promoting the products and services of those competitors and (b) establishing, building and reinforcing an indirect relationship between our clients and those competitors, which could facilitate those competitors entering into direct relationships with our clients without our involvement. Over the last few years, we have experienced a loss in our client base due to competition in the markets we serve. We believe that our transition to a compete-and-collaborate business model will allow us to aggregate more leads for our clients in our markets and potentially grow our client base. If we are not able to execute on this business model, we could experience a continued loss of clients, which would have a material adverse effect on our business, financial condition and results of operations.

Raw Materials

Our principal raw material is paper and we use recycled material. It is one of our largest cost items, representing approximately 4.0% of net revenue for the eleven months ended December 31, 2010. Paper used is supplied by two paper companies, CellMark Paper, Inc. (“CellMark”) and Nippon Paper Industries USA, Co., Ltd. (“Nippon”), with whom we have three year agreements that commenced in January 2010. Paper used for the covers and tabs of our directories is supplied by Unisource Worldwide, Inc. (“Unisource”). Both agreements with Unisource expire on December 31, 2012.

Intellectual Property

We own and control confidential information as well as a number of trade secrets, trademarks, service marks, trade names, copyrights, patents and other intellectual property rights that, in the aggregate, are of material importance to our business. We believe that “Dex One^®,” “Dex^®,” “Qwest^®,’’ “CenturyLink^TM,” “AT&T Real Yellow Pages,’’ “DexKnows.com^®,” “DexKnows^®” and “DexNet^®” and related names, marks and logos are, in the aggregate, material to our business. We are licensed to use certain technology and other intellectual property rights owned and controlled by others, and, similarly, other companies are licensed to use certain technology and other intellectual property rights owned and controlled by us.

DexNet is our distribution platform that delivers the local web to local businesses in a predictable and budgeted manner. In connection with DexNet, we recently filed a U.S. Patent Application directed to providing business owners with predictable client lead volume and price transparency of the effective cost-per-lead and managing the consistent delivery of leads throughout the duration of an advertising campaign.

We are the exclusive official directory publisher of listings and classified advertisements for Qwest (and its successors) telephone customers in the states DME Inc. and DMW Inc. operate our directory business (“Qwest States”) and in which Qwest provided local telephone service as of November 8, 2002 (subject to limited extensions). We also have the exclusive right to use certain Qwest branding on directories in these markets. In addition, Qwest assigned and/or licensed to us certain intellectual property used in the Qwest directory business prior to November 8, 2002. These rights generally expire in 2052.

We have an exclusive license to produce, publish and distribute directories for CenturyLink (and its successors) in the markets where Sprint provided local telephone service as of September 21, 2002 (subject to limited extensions), as well as the exclusive license to use CenturyLink’s name and logo on directories in those markets. These rights generally expire in 2052.

We have an exclusive license to provide yellow pages directory services for AT&T (and its successors) and to produce, publish and distribute white pages directories on behalf of AT&T in Illinois and Northwest Indiana, as well as the exclusive right to use the AT&T brand and logo on print directories in those markets. These rights generally expire in 2054.

Under license agreements for subscriber listings and directory delivery lists, each of Qwest, CenturyLink and AT&T have granted to us a non-exclusive, non-transferable restricted license of listing and delivery information for persons and businesses that order and/or receive local exchange telephone services in the relevant service areas at the prices set forth in the respective agreements. Generally, we may use the listing information solely for publishing directories (in any format) and the delivery information solely for delivering directories, although in the case of Qwest, we may also resell the information to third parties solely for direct marketing activities, database marketing, telemarketing, market analysis purposes and internal marketing purposes, and use it ourselves in direct marketing activities undertaken on behalf of third parties. The term of these license agreements is generally consistent with the term of the respective publishing agreements described above.

Although we do not consider any individual trademark or other intellectual property to be material to our operations, we believe that, taken as a whole, the licenses, marks and other intellectual property rights that we acquired in conjunction with prior acquisitions are material to our business. We consider our trademarks, service marks, databases, software and other intellectual property to be proprietary, and we rely on a combination of copyright, trademark, trade secret, non-disclosure and contract safeguards for protection. We also benefit from the use of the phrase “yellow pages” and the walking fingers logo, both of which we believe to be in the public domain in the United States.

Employees

As of February 1, 2011, Dex One has approximately 3,200 employees of which approximately 1,000 are represented by labor unions covered by two collective bargaining agreements with Dex Media in the Qwest States. The unionized employees are represented by either the International Brotherhood of Electrical Workers of America (“IBEW”), which represents approximately 400 of the unionized workforce, or the Communication Workers of America (“CWA”), which represents approximately 600 of the unionized workforce. Dex Media’s collective bargaining agreement with the IBEW expires in May 2012 and Dex Media’s collective bargaining agreement with the CWA expires in September 2012. Dex One considers our relationships with our employees and both unions to be good.

Executive Officers of the Registrant

The following table sets forth information concerning the individuals who serve as executive officers of the Company as of February 1, 2011.

Name		Age		Position(s)
Alfred T. Mockett		62		Chief Executive Officer and President
George F. Bednarz		57		Executive Vice President, Sales and Marketing
				(acting)
Steven M. Blondy		51		Executive Vice President and Chief Financial
				Officer
Atish Banerjea		45		Senior Vice President and Chief Technology Officer
Sean W. Greene		40		Senior Vice President, Interactive (acting)
Tyler D. Gronbach		42		Senior Vice President, Communications
Mark W. Hianik		50		Senior Vice President, General Counsel and
				Corporate Secretary
Donna Towles		58		Senior Vice President, Operations
Gretchen Zech		41		Senior Vice President, Human Resources
Sylvester J. Johnson		50		Vice President, Controller and Chief Accounting
				Officer

The executive officers serve at the pleasure of the Board of Directors. The following descriptions of the business experience of our executive officers include the principal positions held by them since February 2006.

Alfred T. Mockett has served as Chief Executive Officer and President since September 2010. Prior to joining the Company, Mr. Mockett served as Chairman and CEO of Motive, Inc., a provider of software management services to communications providers until the company was sold in 2008. Mr. Mockett has more than 30 years experience in executive management and strategic decision-making at a number of leading technology, telecommunications and professional services companies including American Management Systems, a global business and information technology consulting firm for the U.S. and state governments, financial services and communications industries, BT Group (formerly British Telecom), a global provider of communications solutions and services, and Memorex Telex, a global provider of information technology solutions.

George F. Bednarz has served as Executive Vice President, Sales and Marketing (acting) since January 2011. Prior to that, Mr. Bednarz served as Executive Vice President, Enterprise Sales and Operations since June 2008. Prior to that, Mr. Bednarz served as Senior Vice President, Operations since January 2008. Prior to that, Mr. Bednarz served as Senior Vice President, RHD Interactive since January 2007. Prior to that, Mr. Bednarz served as Senior Vice President, Integration, Corporate Planning, Administration and Communications since January 2006. Prior to that, Mr. Bednarz served as Vice President, Corporate Planning and Information Technology.

Steven M. Blondy has served as Executive Vice President and Chief Financial Officer since January 2006. Prior to that, Mr. Blondy served as Senior Vice President and Chief Financial Officer.

Atish Banerjea has served as Senior Vice President and Chief Technology Officer since January 2011. Prior to joining the Company, Mr. Banerjea served as Executive Vice President of Pearson, PLC, a $9 billion international media group. Prior to his promotion to Executive Vice President of Pearson in 2005, Mr. Banerjea served as Senior Vice President, Technology Strategy and Architecture and Chief Technology Officer for Pearson Education.

Sean W. Greene has served as Senior Vice President, Interactive (acting) since July 2009. Prior to that, Mr. Greene served as Corporate Strategy and Business Development since October 2008. Prior to that, Mr. Greene served as Vice President & General Manager of Dex Search Marketing since December 2007. Prior to that, Mr. Greene served as Vice President of Interactive Strategy, Product Management and Business Development from September 2006 to December 2007. Prior to that, Mr. Greene served as Assistant Vice President of Competitive Strategy and Business Development.

Tyler D. Gronbach has served as Senior Vice President, Communications since January 2011. Prior to that, Mr. Gronbach served as Senior Vice President of Corporate Communications and Administration since January 2007. Prior to that, Mr. Gronbach served as Vice President of Corporate Communications.

Mark W. Hianik has served as Senior Vice President, General Counsel and Corporate Secretary since April 2008. Prior to joining the Company, Mr. Hianik served as Vice President and Assistant General Counsel for Tribune Company, a diversified media company. While at Tribune, Mr. Hianik was lead in-house counsel for numerous M&A and corporate financing transactions. Mr. Hianik was also responsible for overseeing the corporate secretarial function and managing a wide variety of operational matters as well as complex litigation.

Donna Towles has served as Senior Vice President, Operations since January 2011. Prior to that, Ms. Towles served as Vice President, Publishing Operations since November 2006. Prior to that, Ms. Towles served as Assistant Vice President of Publishing.

Gretchen Zech has served as Senior Vice President, Human Resources since June 2006. Prior to joining the Company, Ms. Zech served as Group Vice President, Human Resources at Gartner, Inc., a technology research and consulting firm.

Sylvester J. Johnson has served as Vice President, Controller and Chief Accounting Officer since April 2009. Prior to joining the Company, Mr. Johnson served as Vice President and Controller of 7-Eleven, Inc., a convenience retailing company, from January 2002 to November 2007.

We have been advised that there are no family relationships among any of our executive officers or directors and that there is no arrangement or understanding among any of our executive officers and any other persons pursuant to which they were appointed, respectively, as an executive officer. Each of Ms. Zech and Messrs. Bednarz, Blondy, Greene, Gronbach, Hianik and Johnson were serving as executive officers of the Company when it filed for voluntary reorganization under Chapter 11 on May 28, 2009.

ITEM 1A.		RISK FACTORS

Forward-Looking Information

Certain statements contained in this Annual Report on Form 10-K regarding Dex One’s future operating results, performance, business plans or prospects and any other statements not constituting historical fact are “forward-looking statements” subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, words such as “believe,” “expect,” “anticipate,” “should,” “will,” “would,” “planned,” “estimated,” “potential,” “goal,” “outlook,” “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 only our current beliefs and assumptions with respect to our future results, business plans and prospects, based on information currently available to us and consequently are subject to significant risks and uncertainties. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. In evaluating forward-looking statements included in this annual report, you should specifically consider various factors, including the risks and uncertainties discussed below. These factors may cause our actual results to differ materially from those expressed in, or implied by, our forward-looking statements. All forward-looking statements attributable to us or a person speaking on our behalf are expressly qualified in their entirety by these cautionary statements. These forward-looking statements are made as of the date of this annual report and, except as required under the federal securities laws and the rules and regulations of the SEC, we assume no obligation to update or revise them or to provide reasons why actual results may differ.

Risks, trends, uncertainties and contingencies that could negatively impact our future operating results, performance, business plans or prospects include:

Risks Related to Our Financial Condition and Capital Structure

1) Our substantial debt poses various risks

We have a substantial amount of debt and significant debt service obligations. As of December 31, 2010, we had total outstanding debt of $2.7 billion. See Item 8, “Financial Statements and Supplementary Data” — Note 6, “Long-Term Debt, Credit Facilities and Notes” for detailed information on our outstanding debt. See Item 8, “Financial Statements and Supplementary Data” - Note 3, “Fresh Start Accounting” for information on debt repayments made in conjunction with our emergence from the Chapter 11 proceedings.

As a result of our debt and debt service obligations, we face various risks regarding, among other things, the following:

	•		we may not be able to obtain additional financing or refinance our existing indebtedness on satisfactory terms or at all;
	•		our indebtedness limits our financial flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	•		rising interest rates could increase the costs of servicing our debt because a majority of our debt is at variable interest rates;
	•		interest and principal payments on our indebtedness reduces the cash flow available to us to fund working capital requirements, capital expenditures, acquisitions or other strategic initiatives, investments and other general corporate requirements because a substantial portion of our cash flow is needed to service our debt obligations; and
	•		speculation as to our financial condition and the effect of our debt level and debt service obligations could disrupt our relationships with clients, suppliers, employees, creditors and other third parties.

Based on current financial projections, but in any event for the next 12-15 months, we expect to be able to continue to generate cash flows from operations in amounts sufficient to satisfy our interest and principal payment obligations. However, we can make no assurances that our business will generate sufficient cash flows from operations over longer periods to enable us to satisfy our interest and principal payment obligations.

2) The restrictive covenants under our debt agreements limit our operational flexibility

The agreements governing our credit facilities, including an indenture governing the Dex One Senior Subordinated Notes, contain affirmative and negative covenants. These covenants could adversely affect us by, among other things, limiting our ability to obtain funds from our subsidiaries, or to otherwise meet our capital needs. These covenants generally limit or restrict our ability, and our subsidiaries ability, to:

•

incur additional indebtedness or liens;

•

make capital expenditures and investments (including acquisitions);

•

sell assets;

•

pay dividends or otherwise make distributions;

•

make payments of certain indebtedness;

•

engage in sale and leaseback transactions, swap transactions and transactions with affiliates; and

•

modify the Dex One Senior Subordinated Notes.

The affirmative covenants require, among other things, that we meet various financial covenants, including leverage ratios and interest coverage ratios.

Our ability to comply with these covenants depends on various factors, certain of which are outside of our control. Such factors include our ability to generate sufficient revenues and cash flows from operations, our ability to reduce over time our outstanding indebtedness, and changes in interest rates. Our failure to comply with those covenants could result in our triggering a default under our credit agreements which could have an adverse effect on our business, financial condition and results of operations.

3) Our variable rate indebtedness subjects us to interest rate risk

At December 31, 2010, $2.4 billion, or approximately 89%, of our outstanding indebtedness bore interest at variable rates. An increase in interest rates could cause our debt service obligations to increase significantly. The Company has entered into fixed interest rate swap agreements and interest rate cap agreements to manage fluctuations in cash flows resulting from changes in interest rates on variable rate debt. However, we cannot provide assurances that such agreements will be effective in managing our exposure to rising interest rates. See Item 8, “Financial Statements and Supplementary Data” — Note 6, “Long-Term Debt, Credit Facilities and Notes” for a detailed discussion of the interest rates applicable to borrowings under our credit facilities and Item 8, “Financial Statements and Supplementary Data” — Note 7, “Derivative Financial Instruments” for information on our interest rate swap agreements and interest rate cap agreements.

Risks Related to Our Business

1) The ongoing weak economic conditions could adversely affect our business

As a result of the ongoing weak economic conditions, we have continued to experience lower advertising sales during 2010 primarily as a result of declines in new and recurring business, including both renewal and incremental sales to existing clients, mainly driven by (1) customer attrition, (2) declines in overall advertising spending by our clients, (3) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (4) an increase in competition and more fragmentation in local business search. We currently expect these weak economic conditions to continue throughout 2011. Consequently, prolonged weak economic conditions could have an adverse effect on our business, financial condition and results of operations.

2) Some of our competitors are larger than we are and have greater financial and other resources

The local search industry in which we operate is highly competitive and fragmented. We compete with other print and online yellow pages directory publishers, as well as other types of media including direct mail, search engines, local search sites, advertising networks, and emerging technologies. In nearly all of our markets, we compete with one or more traditional print yellow pages directory publishers, including independent publishers such as Yellowbook, White Directory Publishing, Inc., and Phone Directories Company, and in some markets, we compete with other incumbent publishers such as SuperMedia and AT&T. Most major yellow pages directory publishers offer print and online directories as well as online search products. We compete with these publishers based on price, discounting, quality, features, usage leadership and distribution. Our competitors’ approaches to pricing and discounting may affect our pricing strategies and our future revenues. Among our highest spending category of customers, we also compete with television, newspaper and radio, which tend to charge more for similar coverage. Some of our competitors are larger than we are and have greater financial and technological resources than we have and may be able to commit more resources or otherwise devote more capital to their business, thus limiting our ability to compete effectively with these entities.

3) Competition from emerging online technologies could adversely affect our business

We also face increased competition from online technologies as such technologies have improved, offering a diverse set of advertising alternatives for small businesses. We consider our primary online competition to be the major search engines, such as Google, Yahoo!, BING and others. Additionally, we compete with a growing number of online local shopping-related competitors including industry specific online verticals, such as FindLaw.com and ServiceMagic.com, user-generated content sites such as Yelp and Kudzu, and search engine intermediaries such as ReachLocal and Yodle. We also compete with a number of well known online map websites such as MapQuest^®, Rand McNally^® and Google Maps. Most of these companies operate on a national scale, competing for consumer and business users across our entire region and actively solicit clients in many of our markets. We may not be able to compete effectively with these online competitors, some of which may have greater resources than we do. Our Internet strategy and our business may be adversely affected if major search engines build local sales forces or otherwise begin to more effectively reach small local businesses for local commercial search services.

Our enhanced distribution arrangements have involved, and will likely continue to involve, cooperating with other local media companies with whom we also compete, particularly with respect to online local search. Our reliance on these cooperation arrangements may also provide an unintended competitive advantage to some of our competitors by (a) promoting the products and services of those competitors and (b) establishing, building and reinforcing an indirect relationship between our clients and those competitors, which could facilitate those competitors entering into direct relationships with our clients without our involvement. Material loss of clients would have a material adverse effect on our business, financial condition and results of operations.

4) The changing market position of telephone utilities could adversely affect our business

The market position of telephone utilities, including Qwest, CenturyLink and AT&T, may erode over time. As a result, it is possible that Qwest, CenturyLink and AT&T, or their successors, may not remain the primary local telephone service provider in their local service areas. If Qwest, CenturyLink or AT&T, or their successors, were no longer the primary local telephone service provider in any particular local service area, our license to be the exclusive publisher in that market may decline in value and adversely affect our business, financial condition and results of operations.

5) The termination or modification of one or more material Internet search engine, local search or portal agreements could adversely affect our business

Our ability to provide enhanced distribution arrangements, including Internet marketing solutions to our clients is dependent upon relationships with major Internet search companies and local media companies. If we are unable to maintain these relationships or are unable to renew material portal agreements or if the level of service provided by these search companies changes, it could adversely impact the performance of our business.

6) The continuing decline in the use of print yellow pages could adversely affect our business

Over the past several years, overall references to print yellow pages directories in the United States have continued to decline while the usage of Internet-based directory products has increased rapidly. We believe this decline has been influenced by increasing consumer usage of a variety of digital information services, including search engines, online directories, social networks, industry-specific websites, and mobile applications. We believe that over the next several years, references to print yellow pages directories will continue to decline as users increasingly turn to digital and other interactive media delivery devices for local commercial search information. These trends have, in part, resulted in advertising sales declining in 2010, and we expect these trends to continue in 2011.

Any decline in usage could:

•

impair our ability to maintain or increase our advertising prices;

•

cause businesses that purchase advertising in our yellow pages directories to reduce or discontinue those purchases; and

•

discourage businesses that do not presently purchase advertising in our yellow pages directories from doing so in the future.

Although we believe that any decline in the usage of our printed directories will be offset in part by an increase in usage of our Internet-based directories and distribution partnerships, we cannot provide any assurances that such usage will result in additional revenue or profits. Any of the factors that may contribute to a decline in usage of our print directories, or a combination of them, could adversely affect our business, financial condition or results of operations.

7) New technologies could adversely affect our business

The directory advertising industry is subject to changes arising from developments in technology, including information distribution methods and users’ technological preferences. The use of the Internet and wireless devices by consumers as a means to transact commerce may result in new technologies being developed and services being provided that could compete with our products and services. National search companies such as Google and Yahoo! are focusing and placing a high priority on local commercial search initiatives. As a result of these factors, our growth and future financial performance may depend on our ability to develop and market new products and services, to negotiate satisfactory strategic arrangements with national search companies and utilize new distribution channels, while enhancing existing products, services and distribution channels, to incorporate the latest technological advances and accommodate changing user preferences, including the use of the Internet and wireless devices. We may not be able to develop and market new products. In addition, if we fail to anticipate or respond adequately to changes in technology and user preferences or are unable to finance the capital expenditures necessary to respond to such changes, it could adversely affect our business, financial condition or results of operations.

8) We could recognize impairment charges for our intangible assets or goodwill

At December 31, 2010, the net carrying value of our goodwill and intangible assets totaled $801.1 million and $2,369.2 million, respectively. In the recent past, we have recognized significant goodwill and intangible asset impairment charges. We recognized a total impairment charge of $1,159.3 million during the eleven months ended December 31, 2010. The Predecessor Company recognized impairment charges of $7,337.8 million and $3,870.4 million during the years ended December 31, 2009 and 2008, respectively. These impairment charges had no impact on current or future operating cash flow, compliance with debt covenants or tax attributes. See Item 8, “Financial Statements and Supplementary Data” — Note 2, “Summary of Significant Accounting Policies — Identifiable Intangible Assets and Goodwill” for additional information on these impairment charges.

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. These factors, including changes to assumptions used in our impairment analysis as a result of these factors, could result in future impairment charges, a reduction of remaining useful lives associated with our intangible assets and other long-lived assets and acceleration of amortization expense.

9) Our business could be adversely affected by interruptions to our computer and IT systems

Most of our business activities rely to a significant degree on the efficient and uninterrupted operation of our computer and IT systems and those of third parties with which we have contracted. Our computer and IT systems are vulnerable to damage or interruption from a variety of sources and our disaster recovery systems may be deemed ineffective. Any failure of these systems could impair our business. This could have a material adverse effect on our business, financial condition and results of operations.

10) The bankruptcy of any of our telecommunication partners could adversely affect us

In the event that any of our telecommunications partners sought protection under U.S. bankruptcy laws, our agreements with such partners, including our rights to provide search services under those agreements, could be materially adversely impacted. In addition, our telecommunication partners may be unable in such circumstance to provide services to us under our contracts with them. Consequently, the bankruptcy of any of our telecommunication partners could have an adverse effect on our business, financial condition or results of operations.

11) Early termination of our contracts with our telecommunication partners could have an adverse effect on our business

Our commercial arrangements with Qwest, CenturyLink and AT&T have an initial term of 50 years, subject to specified automatic renewal and early termination provisions. These commercial arrangements may be terminated by our counterparty prior to their stated term under certain specified circumstances, some of which at times may be beyond our reasonable control and/or which may require extraordinary efforts or the incurrence of material excess costs on our part in order to avoid breach of the applicable agreement. It is possible that these arrangements will not remain in place for their full stated term or that we may be unable to avoid all potential breaches of or defaults under these commercial arrangements. Further, any remedy exercised by Qwest, CenturyLink or AT&T, as the case may be, under any of these arrangements could have a material adverse effect on our financial condition or results of operations. At this time, we are not aware of any information or circumstances that might give rise to a termination right by Qwest, CenturyLink and AT&T.

12) Future regulatory changes in directory publishing obligations in the Qwest and AT&T markets could have an adverse effect on our business

Pursuant to our agreements with Qwest and AT&T, we are required to discharge Qwest’s and AT&T’s regulatory obligations to publish White Pages directories in various territories. If the staff of a state public utility commission were to impose additional or changed legal requirements in any of the service territories with respect to these obligations, we would be obligated to comply with these requirements on behalf of Qwest or AT&T, even if such compliance were to increase our publishing costs. Pursuant to our publishing agreements with Qwest and AT&T, Qwest and AT&T are not obligated to reimburse us for all of our increased costs of publishing directories that satisfy Qwest’s or AT&T’s publishing obligations resulting from new governmental legal requirements. Consequently, our costs could increase which could have an adverse effect on our business, financial condition or results of operations.

13) Internet-related regulation may adversely affect our business

As the local search directories industry develops, specific laws relating to the provision of Internet services and the use of Internet and Internet-related applications may become relevant. Regulation of the Internet and Internet-related services is itself still developing both formally by, for instance, statutory regulation, and also less formally by, for instance, industry self regulation. If our regulatory environment becomes more restrictive, including by increased Internet regulation, it could adversely affect our business, financial condition or results of operations.

14) Environmental regulations could adversely affect our business

Our operations, as well as the properties owned and leased for our business, are subject to stringent laws and regulations relating to environmental protection. The failure to comply with applicable environmental laws, regulations or permit requirements, or the imposition of liability related to waste disposal or other matters arising under these laws, could result in civil or criminal fines, penalties or enforcement actions, third-party claims for property damage and personal injury or requirements to clean up property or other remedial actions. Some of these laws provide for “strict liability,” which can render a party liable for environmental or natural resource damage without regard to negligence or fault on the part of the party.

15) Other governmental regulation could adversely affect our business

In addition, new laws and regulations (including, for example, limiting distribution of print directories), new interpretations of existing laws and regulations, increased governmental enforcement or other developments could require us to make additional unforeseen expenditures or could lead to us suffering declines in revenues. For example, “opt out” and “opt in” legislation has been proposed in certain states where we operate that would either (i) allow consumers to opt out of the delivery of print yellow pages or (ii) prevent us from delivery until consumers who preferred delivery of print yellow pages affirmatively elected to receive the print directory. Although to date, this proposed legislation has not been signed into law in any of the states where we operate, we cannot assure you that similar legislation will not be passed in the future. If such legislation were to become effective, it could have a material adverse effect on the use of our products and, ultimately, our revenues. If different forms of this type of legislation are adopted in multiple jurisdictions, it could also materially increase our operating costs in order to comply. We are adopting voluntary measures to permit consumers to share with us their preferences with respect to the delivery of our various print and digital products.

If a large number of consumers advise us that they do not desire delivery of our products, the usage of our products and, ultimately our revenues, could materially decline, which may have an adverse effect on our business, financial condition and results of operations.

Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. To the extent that the costs associated with meeting any of these requirements are substantial and not adequately provided for, there could be a material adverse effect on our business, financial condition and results of operations.

16) Our reliance on, and extension of credit to, local businesses could adversely affect our business

Approximately 85% of our advertising revenues are derived from the sale of our marketing solutions to local businesses. In the ordinary course of our yellow pages publishing business, we extend credit to these clients in the form of a trade receivable for advertising purchases. Local businesses, however, tend to have fewer financial resources and higher failure rates than large businesses, especially during a downturn in the general economy. The proliferation of very large retail stores may continue to adversely affect local businesses. We believe these limitations are significant contributing factors to having clients in any given year not renew their advertising in the following year. If clients fail to pay within specified credit terms, we may cancel their advertising in future directories, which could further impact our ability to collect past due amounts as well as adversely impact our advertising sales and revenue trends. In addition, full or partial collection of delinquent accounts can take an extended period of time. Consequently, we could be adversely affected by our dependence on and our extension of credit to local businesses in the form of a trade receivable.

17) Our dependence on third-party providers of printing, distribution, delivery and IT services could adversely affect our business, financial condition or results of operations

We depend on third parties for the printing and distribution of our respective directories. We also rely on the services of an information technology (“IT”) outsource service provider for IT development and support services related to our directory publishing business. We must rely on the systems of our third-party service providers, their ability to perform key operations on our behalf in a timely manner and in accordance with agreed levels of service and their ability to attract and retain sufficient qualified personnel to perform our work. A failure in the systems of one of our third-party service providers, or their inability to perform in accordance with the terms of our contracts or to retain sufficient qualified personnel, could have a material adverse effect on our business, results of operations and financial condition.

Because of the large print volume and specialized binding of directories, only a limited number of companies are capable of servicing our printing needs. Accordingly, the inability or unwillingness of our third party service providers, as the case may be, to provide printing services on acceptable terms or at all or any deterioration in our relationships with them could have a material adverse effect on our business.

The physical delivery of directories is facilitated through several outsourcing relationships. Delivery methods utilized to distribute directories to consumers are selected based on factors such as cost, quality, geography and market need. Primary delivery methods include U.S. Postal Service and hand delivery. We have contracts with two companies for the distribution of our directories. Although these contracts are scheduled to expire at various times from May 2012 through May 2013, any of these vendors may terminate its contract with us upon 120 days’ written notice. Only a limited number of companies are capable of servicing our delivery needs. Accordingly, the inability or unwillingness of our current vendors to provide delivery services on acceptable terms, or at all, could have a material adverse effect on our business.

If we were to lose the services of the IT outsource service provider, we would be required either to hire sufficient staff to perform these IT development and support services in-house or to find an alternative service provider. In the event we were required to perform any of the services that we currently outsource, it is possible that we would not be able to perform them on a cost-effective basis. There are a limited number of alternative third-party service providers, if any.

18) The sale of advertising to national accounts is coordinated by third parties that we do not control, the performance and financial stability of which could adversely affect our business

Approximately 15% of our revenue is derived from the sale of advertising to national or large regional companies, such as rental car companies, automobile repair shops and pizza delivery businesses, that purchase advertising in several of our directories. Substantially all of the revenue derived from national accounts is serviced through CMRs from which we accept orders. CMRs are independent third parties that act as agents for national companies and design their advertisements, arrange for the placement of those advertisements in directories and provide billing services. As a result, our relationship with these national clients depends significantly on the performance and financial stability of these third party CMRs that we do not control.

Although we believe that our respective relationships with these CMRs have been mutually beneficial, if some or all of the CMRs with which we have established relationships were unable or unwilling to do business with us on acceptable terms or at all, such inability or unwillingness could have a material adverse effect on our business. In addition, any decline in the performance of CMRs with which we do business could harm our ability to generate revenue from our national accounts and could materially adversely affect our business. We also act as a CMR directly placing certain national advertising in competition with these CMRs. It is possible that our status as a competitor of CMRs could adversely impact our relationships with CMRs or expose us to possible legal claims from CMRs. In light of the overall downturn in the economy, we may be adversely impacted by credit risk with CMRs from which we accept orders and credit risk that CMR’s face with their clients. We cannot assure you that this credit risk will not have a significant impact on our financial condition or results of operations in the future. During the fourth quarter of 2010, our bad debt provision was negatively impacted by delinquent balances associated with a CMR.

19) Work stoppages or increased unionization among our work force could adversely affect our business, financial condition or results of operations

Approximately 1,000 of our Dex Media employees are represented by labor unions covered by two collective bargaining agreements with Dex Media. In addition, some of our key suppliers’ employees are represented by unions. The unionized employees are represented by either the International Brotherhood of Electrical Workers of America (“IBEW”), which represents approximately 400 of the unionized workforce, or the Communication Workers of America (“CWA”), which represents approximately 600 of the unionized workforce. Dex Media’s collective bargaining agreement with the IBEW expires in May 2012 and Dex Media’s collective bargaining agreement with the CWA expires in September 2012. If our unionized workers, or those of our key suppliers, were to engage in a strike, work stoppage or other slowdown in the future, our business could experience a significant disruption of operations and an increase in operating costs, which could have a material adverse effect on our business.

20) Turnover among our sales force or key management could adversely affect our business

The success of our business is dependent on the leadership of our key personnel. The loss of a significant number of experienced key personnel could adversely affect our results of operations, financial condition and liquidity. Our success also depends on our ability to identify, hire, train and retain qualified sales personnel in each of the regions in which we operate. We currently expend significant resources and management time in identifying and training our local marketing consultants and sales managers. Our ability to attract and retain qualified sales personnel will depend, however, on numerous factors, including factors outside our control, such as conditions in the local employment markets in which we operate.

Furthermore, our success depends on the continued services of key personnel, including our experienced senior management team as well as our regional sales management personnel. If we fail to retain the necessary key personnel, our results of operations, financial conditions and liquidity, could be adversely affected.

21) The loss of important intellectual property rights could adversely affect our business, financial condition or results of operations

Some trademarks and related names, marks and logos such as “Dex One^®,” “Dex^®,” “Qwest^®,’’ “CenturyLink^TM,” “AT&T Real Yellow Pages,’’ “DexKnows.com^®.” “DexKnows^®” and “DexNet^®” and other intellectual property rights are important to our business. We rely upon a combination of patent, copyright and trademark laws as well as contractual arrangements, including licensing agreements, particularly with respect to Qwest, CenturyLink and AT&T markets, to establish and protect our intellectual property rights. We are required from time to time to bring lawsuits against third parties to protect our intellectual property rights. Similarly, from time to time, we are party to proceedings whereby third parties challenge our rights. We cannot be sure that any lawsuits or other actions brought by us will be successful or that we will not be found to infringe the intellectual property rights of third parties. As the Internet grows, it may prove more onerous to protect our trademarks and domain names, including DexKnows.com, from domain name infringement or to prevent others from using Internet domain names that associate their business with ours. Although we are not aware of any material infringements of any trademark rights that are significant to our business, any lawsuits, regardless of their outcome, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition or results of operations. Furthermore, the loss of important intellectual property rights could have a material adverse effect upon our business, financial condition and results of operations.

22) Legal proceedings could adversely affect our business, financial condition or results of operation

From time to time, we are parties to civil litigation including regulatory and other proceedings with governmental authorities and administrative agencies. Adverse outcomes in lawsuits or investigations could result in significant monetary damages or injunctive relief that could adversely affect our operating results or financial condition as well as our ability to conduct our businesses as they are presently being conducted. See Item 3, “Legal Proceedings.”

23) Fluctuations in the price and availability of paper could adversely affect our business, financial condition or results of operation

Our principal raw material is paper and we use recycled material. It is one of our largest cost items, representing approximately 4.0% of net revenue for the eleven months ended December 31, 2010.

We cannot assure you that we will be able to renegotiate our paper contracts in the future or renegotiate without an increase to the fixed pricing currently agreed upon in the contracts. Changes in the supply of, or demand for, paper could affect market prices or delivery times. We do not engage in hedging activities to limit our exposure to increases in paper prices. In the future, the price of paper may fluctuate significantly due to changes in supply and demand. We cannot assure you that we will have access to paper in the necessary amounts or at reasonable prices or that any increases in paper costs would not have a material adverse effect on our business, results of operations or financial condition especially in light of our projected continuing decline in advertising sales.

ITEM 1B.		UNRESOLVED STAFF COMMENTS

None.

ITEM 2.		PROPERTIES

The following table details the location and general character of the material properties used by the Company to conduct its business as of February 1, 2011:

		Approximate Square
Property Location		Footage		Purpose		Lease Expiration
Lone Tree, CO (1)		143,000		Sales and Administration		2012
Cary, NC		105,000		Corporate Headquarters		2015
Englewood, CO (1)		66,000		Sales and Operations		2011
Morrisville, NC (1)(2)		56,000		Operations and Information Technology		2015
Maple Grove, MN (1)		42,000		Sales and Operations		2014
Bellevue, WA (1)		38,000		Sales and Operations		2012
Overland Park, KS (1)(2)		35,000		Sales and Operations		2012
Chicago, IL (2)		34,000		Sales and Operations		2013
Santa Monica, CA (3)		29,000		Digital Sales and Operations		2011
Beaverton, OR (1)		27,000		Sales and Operations		2013
Phoenix, AZ (1)		26,000		Sales and Operations		2013
Bristol, TN (2)		25,000		Sales and Operations		Owned
Murray, UT (1)		25,000		Sales and Operations		2011
Tinley Park, IL (2)		21,000		Sales and Operations		2014
Dunmore, PA (2)		20,000		Graphics Operations		2011
Lombard, IL (2)		20,000		Sales and Operations		2012

We also lease space for additional operations, administrative and sales offices.

We believe that these facilities are adequate for current and future operations.

ITEM 3.		LEGAL PROCEEDINGS

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

Beginning on October 23, 2009, a series of putative securities class action lawsuits were commenced in the United States District Court for the District of Delaware on behalf of all persons who purchased or otherwise acquired our publicly traded securities between July 26, 2007 and the time we filed for bankruptcy on May 28, 2009, alleging that certain of our officers issued false and misleading statements regarding our business and financial condition and seeking damages and equitable relief. On August 19, 2010, an amended consolidated class action complaint was filed as the operative securities class action complaint (the “Securities Class Action Complaint”). The Securities Class Action Complaint extends the class to include all persons who purchased or otherwise acquired our publicly traded securities between October 26, 2006 and May 28, 2009. 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 directors, officers and employees similar to those set forth in the Securities Class Action Complaint as well as allegations of breaches of fiduciary duties under ERISA and seeks damages and equitable relief. We believe the allegations set forth in both of these lawsuits are without merit and we are vigorously defending the suits.

ITEM 4.		(REMOVED AND RESERVED)

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Registrant’s Common Equity and Related Stockholder Matters

Dex One’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “DEXO.” RHD’s common stock was traded over-the-counter on the Pink Sheets under the symbol “RHDC” from January 2, 2009 through October 21, 2009. From October 22, 2009 through the Effective Date, RHD’s common stock was traded over-the-counter on the Pink Sheets under the symbol “RHDCQ.” Prior to January 2, 2009, RHD’s common stock traded on the NYSE under the symbol “RHD.” The tables below indicate the high and low sales price by quarter of Dex One’s common stock from February 1, 2010, the date of initial trading on the NYSE, through December 31, 2010 and RHD’s common stock from January 1, 2010 through the Effective Date and for 2009.

		2010
		High				Low
1st Quarter
RHD: January 1, 2010 — January 29, 2010		$	0.01			$	0.01
Dex One: February 1, 2010 — March 31, 2010		$	35.00			$	25.71
2nd Quarter		$	30.89			$	17.60
3rd Quarter		$	19.72			$	8.35
4th Quarter		$	12.42			$	4.46

		2009
		High				Low
1st Quarter		$	0.37			$	0.07
2nd Quarter		$	0.31			$	0.04
3rd Quarter		$	0.09			$	0.04
4th Quarter		$	0.05			$	0.01

Upon emergence from Chapter 11 and pursuant to the Plan, all of the issued and outstanding shares of RHD common stock and any other outstanding equity securities of RHD including all stock options, stock appreciation rights and restricted stock, were cancelled. On the Effective Date, Dex One issued an aggregate amount of 50,000,001 shares of new common stock, par value $.001 per share.

On February 1, 2011, there was one registered holder of record of Dex One’s common stock. On February 1, 2011, the closing bid or ask market price of Dex One’s common stock was $5.79.

No shares of Dex One common stock were repurchased and Dex One did not pay any common stock dividends from February 1, 2010 through December 31, 2010. No shares of RHD common stock were repurchased and RHD did not pay any common stock dividends from January 1, 2010 through the Effective Date or during the year ended December 31, 2009.

Our various debt instruments contain financial restrictions that place limitations on our ability to pay dividends in the future. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information regarding these instruments and agreements and relevant limitations thereunder.

Equity Compensation Plan Information

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, stock appreciation rights (“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 four 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 determines termination, vesting and other relevant provisions at the date of the grant.

As previously noted, upon emergence from Chapter 11 and pursuant to the Plan, all outstanding equity securities of RHD including all stock options, SARs and restricted stock, were cancelled.

The following table sets forth securities outstanding under existing equity compensation plans, as well as securities remaining available for future issuance under those plans, in each case as of December 31, 2010.

Equity Compensation Plan Information

(c)

Number of

Securities

(a)

Remaining Available

Number of

for Future Issuance

Securities to Be

(b)

Under Equity

Issued Upon

Weighted-average

Compensation Plans

Exercise of

Exercise Price of

(excluding

Outstanding

Outstanding

securities

Options, Warrants

Options, Warrants

reflected in column

Plan category

and Rights

and Rights

(a))

Equity compensation plans not approved by security holders:

EIP

865,681

$

28.68

3,889,876

CEO Stock-Based Awards (1)

800,000

19.94

—

Total

1,665,681

$

24.48

3,889,876

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data is derived from the Company’s and the Predecessor Company’s audited consolidated financial statements. The information set forth below should be read in conjunction with the audited consolidated financial statements and related notes in Item 8,“Financial Statements and Supplementary Data,” with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1A, “Risk Factors.”

		Successor Company				Predecessor Company
		Eleven Months				One Month Ended
(in thousands, except share and per		Ended December 31,				January 31,				Years Ended December 31,
share data)		2010(1)				2010 (1)				2009				2008				2007(6)				2006(7)
Statements of Operations Data:
Net revenue		$	830,887			$	160,372			$	2,202,447			$	2,616,811			$	2,680,299			$	1,899,297
Impairment charges (2)			(1,159,266	)			—				(7,337,775	)			(3,870,409	)			(20,000	)			—
Operating income (loss)			(1,294,256	)			64,074				(6,797,503	)			(3,005,717	)			904,966				442,826
Gain (loss) on debt transactions, net (3)			—				—				—				265,166				(26,321	)			—
Reorganization items, net (4)			—				7,793,132				(94,768	)			—				—				—
Net income (loss)			(923,592	)			6,920,009				(6,453,293	)			(2,298,327	)			46,859				(237,704	)
Preferred dividend			—				—				—				—				—				1,974
Gain on repurchase of preferred stock(5)			—				—				—				—				—				(31,195	)
Income (loss) available to common shareholders		$	(923,592	)		$	6,920,009			$	(6,453,293	)		$	(2,298,327	)		$	46,859			$	(208,483	)
Earnings (Loss) Per Share:
Basic		$	(18.46	)		$	100.3			$	(93.67	)		$	(33.41	)		$	0.66			$	(3.14	)
Diluted		$	(18.46	)		$	100.2			$	(93.67	)		$	(33.41	)		$	0.65			$	(3.14	)
Shares Used in Computing Earnings (Loss) Per Share:
Basic			50,020				69,013				68,896				68,793				70,932				66,448
Diluted			50,020				69,052				68,896				68,793				71,963				66,448
Balance Sheet Data:
Total assets (8)		$	4,488,848			$	5,913,482			$	4,498,794			$	11,880,709			$	16,089,093			$	16,147,468
Long-term debt, including current maturities (8)			2,737,221				3,264,578				3,554,776				9,622,256				10,175,649				10,403,152
Liabilities subject to compromise (8)			—				—				6,352,813				—				—				—
Shareholders’ equity (deficit) (8)			525,916				1,450,784				(6,919,048	)			(493,375	)			1,822,736				1,820,756

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Item should be read in conjunction with the audited consolidated financial statements and notes thereto that are included in Item 8, “Financial Statements and Supplementary Data.” Unless otherwise indicated or as the context may otherwise indicate, the terms “Dex One,” “Successor Company,” “Company,” “Parent Company,” “we,” “us” and “our” refer to Dex One Corporation and its direct and indirect wholly-owned subsidiaries subsequent to the Effective Date, which is defined below. The financial information set forth in this Annual Report, unless otherwise indicated or as the context may otherwise indicate, reflects the consolidated results of operations and financial position of Dex One as of and for the eleven months ended December 31, 2010.

Dex One became the successor registrant to R.H. Donnelley Corporation (“RHD” “Predecessor Company,” “we,” “us” and “our” for operations prior to January 29, 2010, the “Effective Date”) upon emergence from Chapter 11 proceedings under Title 11 of the United States Code (“Chapter 11”) on the Effective Date. The financial information set forth in this Annual Report, unless otherwise indicated or as the context may otherwise indicate, reflects the consolidated results of operations and financial position of RHD as of and for the one month ended January 31, 2010 and for each of the years in the two year period ended December 31, 2009.

See Item 8, “Financial Statements and Supplementary Data” — Note 1, “Business and Basis of Presentation” for detailed information on the following matters associated with the Chapter 11 proceedings:

	•		The Predecessor Company’s filing of voluntary positions in Chapter 11;
	•		The confirmed Joint Plan of Reorganization (the “Plan”) and our emergence from the Chapter 11 proceedings;
	•		Restructuring conducted in connection with our emergence from the Chapter 11 proceedings;
	•		Consummation of the Plan;
	•		Impact on long-term debt upon emergence from the Chapter 11 proceedings; and
	•		Accounting matters resulting from the Chapter 11 proceedings.

Recent Trends and Developments Related to Our Business

Results of Operations

As discussed in “Results of Operations” below, 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) customer attrition, (2) declines in overall advertising spending by our clients, (3) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (4) an increase in competition and more fragmentation in local business search. This was evidenced by the continued decline in our net revenues and cash flows for the year ended December 31, 2010 as compared to the prior year, apart from the impact on net revenues as a result of fresh start accounting which is discussed below.

The Company currently projects that these challenging conditions will continue for the foreseeable future, and, as such, our advertising sales, operating results, cash flow and liquidity will continue to be adversely impacted. Therefore, the Company’s historical operating results will not be indicative of future operating performance, although our long-term financial forecast currently anticipates a gradual improvement in local business conditions in our clients’ markets commencing in the second half of 2011.

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

Our Plan

As more fully described in Item 1, “Business,” we are a marketing solutions company that helps local businesses generate leads and manage their presence among consumers in the ever changing, complex and fragmented markets we serve. Our proprietary marketing solutions include our Dex published yellow pages directories, our Internet yellow pages site, DexKnows.com ^® and our mobile application, Dex Mobile ^®. Our digital affiliate marketing solutions are powered by our search engine marketing product, DexNet™, which extends our clients’ reach to our leading Internet and mobile partners to attract consumers searching for local products and services within our markets.

In response to the challenges noted above, we are working to improve the value we deliver to our clients by expanding the number of platforms and media through which we deliver their message to consumers. Our growing list of marketing solutions 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, voice search platforms and tracking and reporting. We continue to invest in our future through initiatives such as sales force automation and a client self-service system and portal. We are also training and directing our locally based marketing consultants to focus on selling the value provided to local businesses through these expanded platforms.

The Company is in the process of transitioning to a compete-and-collaborate business model, as we anticipate that affiliate provided solutions will grow at a faster rate than our proprietary solutions. In light of increasing fragmentation within the markets we serve, this model will allow us to aggregate more leads for our clients in our markets. As such, we anticipate expanding the breadth of our affiliate provided solutions to areas such as website creation, web hosting and reputation management.

As local business conditions recover in our markets, we believe these investments will help us drive future revenue.

In response to these challenges, we also continue to actively manage expenses and are considering and acting upon various initiatives and opportunities to streamline operations and reduce our cost structure. We commenced our most significant initiative during the fourth quarter of 2010 by implementing a restructuring plan that realigns internal resources to better support our base of business and ensure we have an organizational structure that is optimized to compete in a rapidly evolving marketplace. This restructuring plan, which will continue into 2011, includes headcount reductions, consolidation of responsibilities and vacating leased facilities. As a result of this restructuring plan, approximately 600 employees were notified of their termination and the Company recorded a restructuring charge of $18.6 million during the fourth quarter of 2010 related to severance. Most of the cash payments associated with this restructuring charge will be made in 2011. The Company anticipates additional charges to earnings related to severance and charges to earnings associated with vacating leased facilities in conjunction with this restructuring plan during 2011. These amounts have not been determined at this time. See Item 8, “Financial Statements and Supplementary Data” — Note 5, “Restructuring Charges” for additional information.

Liquidity and Going Concern Analysis

As more fully described below in “Liquidity and Capital Resources,” the Company’s primary sources of liquidity are existing cash on hand and cash flows generated from operations and our primary liquidity requirements are to fund operations and service our indebtedness. The Company’s projected decline in advertising sales will result in a decline in cash flows in future periods and improvements in local business conditions that are anticipated in our long-term financial forecast noted above will not have a significant impact on our cash flows. However, despite the projected decline in advertising sales and cash flows, as a result of our emergence from the Chapter 11 proceedings and the restructuring of the Predecessor Company’s outstanding debt and based on current financial projections used in our going concern analysis as of December 31, 2010, the Company expects to be able to continue to generate cash flows from operations in amounts sufficient to fund operations and meet debt service requirements for the next 12-15 months.

See Item 8, “Financial Statements and Supplementary Data” — 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 non-goodwill intangible asset impairment charges during the eleven months ended December 31, 2010 noted below do not affect our ability to continue as a going concern, as we are permitted to exclude such charges from debt covenant evaluations.

Fresh Start Accounting

The Company adopted fresh start accounting and reporting on February 1, 2010 (“Fresh Start Reporting Date”). 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 “Results of Operations — Factors Affecting Comparability” below for additional information on the impact of fresh start accounting and the Company’s presentation of Combined Adjusted results.

Impairment Charges

During the second and third quarters of 2010, the Company concluded that there were indicators of impairment based upon (1) the decline in the trading value of our debt and equity securities, (2) the departure of our Chairman and Chief Executive Officer on May 28, 2010 and (3) the adverse impact local business conditions had on our current and future advertising sales, operating results and cash flows as discussed above. Therefore, in addition to our annual impairment test of goodwill, we were required to perform impairment tests of our goodwill, definite-lived intangible assets and other long-lived assets as of September 30, 2010 and June 30, 2010, which resulted in a total impairment charge of $1,159.3 million for the eleven months ended December 31, 2010. See Item 8, “Financial Statements and Supplementary Data” — Note 2, “Summary of Significant Accounting Policies — Identifiable Intangible Assets and Goodwill” for additional information.

New Chief Executive Officer and President and Departure of Former Chairman and Chief Executive Officer

On September 6, 2010, the Company’s Board of Directors (the “Board”) appointed Alfred T. Mockett as Chief Executive Officer and President of Dex One, as well as a member of the Board, effective September 13, 2010. Effective May 28, 2010, our former Chairman and Chief Executive Officer, David C. Swanson, left the Company. See Item 8, “Financial Statements and Supplementary Data” — Note 1, “Business and Basis of Presentation — New Chief Executive Officer and President” and “Business and Basis of Presentation — Departure of Former Chairman and Chief Executive Officer” for additional information.

Labor Unions

Our unionized employees are represented by either the International Brotherhood of Electrical Workers of America (“IBEW”) or the Communication Workers of America (“CWA”). Dex Media’s collective bargaining agreement with the IBEW expires in May 2012 and Dex Media’s collective bargaining agreement with the CWA expires in September 2012.

Climate Change

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

Healthcare Reform Legislation

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

Segment Reporting

Management reviews and analyzes its business of providing marketing solutions as one operating segment.

New Accounting Pronouncements

In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). ASU 2010-20 improves the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. The objective of enhancing these disclosures is to improve financial statement users’ understanding of the nature of an entity’s credit risk associated with its financing receivables and the entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes. The enhanced disclosure requirements provided by ASU 2010-20 are not required for short-term receivables that have maturity dates of less than one year, other than credit card receivables. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company has adopted the disclosure provisions of ASU 2010-20 that are effective for interim and annual reporting periods ending on or after December 15, 2010. Excluding credit card receivables, which are immaterial to our operations, all of our financing receivables have maturity dates of less than one year. Therefore certain of the enhanced disclosure requirements of ASU 2010-20 are not applicable to the Company and have not been provided.

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends FASB Accounting Standards Codification (“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 FASB issued ASU 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”), which updates the current guidance pertaining to multiple-element revenue arrangements included in FASB ASC 605-25, Revenue Recognition — Multiple Element Arrangements. ASU 2009-13 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. ASU 2009-13 will be effective for the Company in the annual reporting period beginning January 1, 2011. ASU 2009-13 may be applied retrospectively or prospectively and early adoption is permitted. The Company does not expect the adoption of ASU 2009-13 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 December 31, 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.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (“GAAP”) requires management to estimate the effect of various matters that are inherently uncertain as of the date of the financial statements. Each of these estimates varies in regard to the level of judgment involved and its potential impact on the Company’s and the Predecessor Company’s reported financial results. Estimates are deemed critical when a different estimate could have reasonably been used or when changes in the estimate are reasonably likely to occur from period to period, and could materially impact the Company’s and the Predecessor Company’s financial condition, changes in financial condition or results of operations. The Company’s significant accounting policies as of December 31, 2010 are discussed in Note 2, “Summary of Significant Accounting Policies,” of the notes to our consolidated financial statements included in Item 8 of this Annual Report. The critical estimates inherent in these accounting policies as of December 31, 2010 are discussed below. Management believes the current assumptions and other considerations used to estimate these amounts in the Company’s consolidated financial statements are appropriate.

Intangible Assets and Goodwill Valuation and Amortization

Goodwill of $2.1 billion was recorded in connection with the Company’s adoption of fresh start accounting as discussed in Item 8, “Financial Statements and Supplementary Data” — 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 31^st 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. As of December 31, 2010, the Company’s reporting units are R.H. Donnelley Inc. (“RHDI”), Dex Media East, Inc. (“DME Inc.”), and Dex Media West, Inc. (“DMW Inc.”).

Our intangible assets consist of (a) directory services agreements between the Company and Qwest, AT&T and CenturyLink, respectively, (b) established customer relationships resulting from prior acquisitions, (c) a non-competition agreement between the Company and Sprint and (d) trademarks and trade names and an advertising commitment resulting from a prior acquisition. The intangible assets are being amortized over their estimated useful lives in a manner that best reflects the economic benefit derived from such assets.

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 following information, estimates and assumptions are analyzed to determine if any indicators of impairment exist:

	•		Historical financial information, including revenue, profit margins, customer attrition data and price premiums enjoyed relative to competing independent publishers;
	•		Long-term financial projections, including, but not limited to, revenue trends and profit margin trends;
	•		Intangible asset and other long-lived asset carrying values and any changes in current and future use;
	•		Trading values of our debt and equity securities;
	•		Industry and economic trends; and
	•		Other Company-specific and Predecessor Company-specific information.

Based upon the decline in the trading value of our debt and equity securities and the departure of our Chairman and Chief Executive Officer on May 28, 2010, among other indicators, the Company performed impairment tests of its goodwill, definite-lived intangible assets and other long-lived assets as of September 30, 2010 and June 30, 2010. As a result of these impairment tests, we recognized a non-goodwill intangible asset impairment charge associated with trade names and trademarks, technology, local customer relationships and other from our former Business.com reporting unit of $21.6 million and a goodwill impairment charge of $1,137.6 million, for a total impairment charge of $1,159.3 million during the eleven months ended December 31, 2010.

The change in the carrying amount of goodwill for the eleven months ended December 31, 2010 is as follows:

Balance at February 1, 2010.		$	2,097,124
Goodwill impairment charge during the three months ended June 30, 2010			(752,340	)
Goodwill impairment charge during the three months ended September 30, 2010			(385,283	)
Reduction in goodwill during the three months ended December 31, 2010			(158,427	)
Balance at December 31, 2010		$	801,074

During the three months ended December 31, 2010, the Company recognized a reduction in goodwill of $158.4 million related to the finalization of cancellation of indebtedness income (“CODI”) and tax attribute reduction calculations required to be performed at December 31, 2010 associated with fresh start accounting.

At December 31, 2010, the net carrying value of our goodwill totaled $801.1 million and is allocated among our reporting units as follows:

		Allocation of Goodwill at
Reporting Unit		December 31, 2010
RHDI		$	250,518
DME Inc.			236,159
DMW Inc.			314,397
Total		$	801,074

As a result of our annual impairment test of goodwill, we determined that each of our reporting unit’s fair value exceeded the carrying amount of its assets and liabilities. Therefore the second step of the goodwill impairment test was not required to be performed. The following table presents the dollar amount and percentage by which each of our reporting unit’s fair value exceeded the carrying amount of its assets and liabilities as of October 31, 2010:

Reporting Unit		$				%
RHDI		$	134,848				10.8	%
DME Inc.			18,479				1.9
DMW Inc.			13,202				1.2

Had our discounted cash flows used to determine the fair value of the RHDI, DME Inc. and DMW Inc. reporting units as of October 31, 2010 been lower by 12.5%, 2.5% and 1.5%, respectively, step one of the annual impairment test of goodwill would have failed at each reporting unit, requiring us to proceed with the second step of the goodwill impairment test.

As a result of filing the Chapter 11 petitions and finalizing an extensive analysis associated with our emergence from Chapter 11, the Predecessor Company performed impairment tests of its definite-lived intangible assets and other long-lived assets during 2009. As a result of these impairment tests, the Predecessor Company recognized a non-goodwill intangible asset impairment charge of $7,337.8 million during the year ended December 31, 2009 associated with directory services agreements, advertiser relationships, third party contracts and network platforms acquired in prior acquisitions.

As a result of the decline in the trading value of the Predecessor Company’s debt and equity securities and the decline in operating results, the Predecessor Company performed impairment tests of its goodwill, definite-lived intangible assets and other long-lived assets during 2008. As a result of these impairment tests, the Predecessor Company recognized a goodwill impairment charge of $3,123.8 million for the year ended December 31, 2008. The Predecessor Company recognized a non-goodwill intangible asset impairment charge of $744.0 million during the year ended December 31, 2008 associated with the local and national customer relationships acquired in prior acquisitions. In addition, as a result of the Predecessor Company’s decision to discontinue the use of tradenames and technology acquired in a prior acquisition, the Predecessor Company recognized a non-goodwill intangible asset impairment charge of $2.2 million during the year ended December 31, 2008. Total impairment charges related to the Predecessor Company’s intangible assets, goodwill and other long-lived assets were $3,870.4 million during the year ended December 31, 2008.

See Item 8, “Financial Statements and Supplementary Data” — Note 2, “Summary of Significant Accounting Policies — Identifiable Intangible Assets and Goodwill” for information on the Company’s and the Predecessor Company’s impairment testing of goodwill, definite-lived intangible assets and other long-lived assets, critical estimates, assumptions and methodologies used for the impairment testing and the impairment charges recognized during the eleven months ended December 31, 2010 and years ended December 31, 2009 and 2008. These impairment charges had no impact on current or future operating cash flow, compliance with debt covenants or tax attributes.

At December 31, 2010, the net carrying value of our intangible assets totaled $2,369.2 million. Amortization expense related to our intangible assets for the eleven months ended December 31, 2010 was $167.0 million. Amortization expense of the Predecessor Company for the one month ended January 31, 2010 and years ended December 31, 2009 and 2008 was $15.6 million, $514.6 million and $415.9 million, respectively. Had the aggregate net book value of our intangible assets at December 31, 2010 been impaired by an incremental 1%, net loss for the eleven months ended December 31, 2010 would have been adversely impacted by approximately $14.2 million.

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 eleven months ended December 31, 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, we evaluated the remaining useful lives of identifiable intangible assets and other long-lived assets by considering the factors noted above. The Company has determined that the combined weighted average useful life of our identifiable intangible assets at December 31, 2010 is 21 years. The weighted average useful lives and amortization methodology for each of our identifiable intangible assets at December 31, 2010 are shown in the following table:

		Weighted Average
Intangible Asset		Useful Lives				Amortization Methodology
Directory services agreements		26 years				Income forecast method (1)
Local customer relationships		14 years				Income forecast method (1)
National customer relationships		25 years				Income forecast method (1)
Trade names and trademarks		14 years				Straight-line method
Technology, advertising commitments and other		8 years				Income forecast method (1)

Had the remaining useful lives of the intangible assets been shortened by 10%, net loss for the eleven months ended December 31, 2010 would have been adversely impacted by approximately $17.7 million.

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. These factors, including changes to assumptions used in our impairment analysis as a result of these factors, could result in future impairment charges, a reduction of remaining useful lives associated with our intangible assets and other long-lived assets and acceleration of amortization expense.

Fresh Start Accounting

The Company adopted fresh start accounting and reporting on the 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. Under FASB ASC 852, the reorganization value represents the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the Company immediately after restructuring. The reorganization value is allocated to the respective fair value of assets. The excess reorganization value over the fair value of identified tangible and intangible assets is recorded as goodwill. Liabilities, other than deferred taxes, are stated at present values of amounts expected to be paid.

Fair values of our assets and liabilities represented our best estimates based on independent appraisals and valuations. Where the foregoing were not available, industry data and trends or references to relevant market rates and transactions were used. These estimates and assumptions were subject to significant uncertainties beyond our reasonable control.

See Item 8, “Financial Statements and Supplementary Data” — Note 3, “Fresh Start Accounting” for a presentation of the critical estimates, assumptions and methodologies used in determining the fair values of our assets and liabilities in fresh start accounting and the impact of emergence from reorganization and fresh start accounting on our financial position, results of operations and cash flows.

Liabilities Subject to Compromise

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 represent the estimated amount expected to be resolved on known or potential claims through the Chapter 11 process, and remain subject to future adjustments from negotiated settlements, actions of the Bankruptcy Court and non-acceptance of certain executory contracts and unexpired leases. 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 Predecessor Company classified $6.1 billion of its senior notes, senior discount notes and senior subordinated notes (collectively the “Notes in Default”) as liabilities subject to compromise at December 31, 2009. Liabilities subject to compromise also included certain pre-petition liabilities including accrued interest, accounts payable and accrued liabilities, tax related liabilities and lease related liabilities. During the bankruptcy process, the likelihood of settlement and potential settlement outcomes was considered in evaluating whether potential obligations were probable and estimable as of the end of each reporting period.

Pre-petition obligations were evaluated to determine whether a potential liability was probable. If probable, an assessment, based on all information then available, was made of whether the potential liability was estimable. A liability was recorded when it was both probable and estimable. The estimates used to determine amounts reported as liabilities subject to compromise reflected our best estimates, but they involved uncertainties based on certain conditions generally outside the control of the Predecessor Company, and in most instances, in the control of the Bankruptcy Court. As a result, if other estimates had been used, material amounts presented as liabilities subject to compromise on the Predecessor Company’s consolidated balance sheet at December 31, 2009 may have been presented as liabilities not subject to compromise. The reclass of these amounts could also have impacted amounts reported as reorganization items, net on the consolidated statement of operations for the year ended December 31, 2009 and one month ended January 31, 2010.

See Item 8, “Financial Statements and Supplementary Data” — Note 3, “Fresh Start Accounting” and Note 4, “Reorganization Items, Net and Liabilities Subject to Compromise” for additional information on amounts presented as liabilities subject to compromise.

Income Taxes

The Company and the Predecessor Company account for income taxes under the asset and liability method in accordance with FASB ASC 740, Income Taxes (“FASB ASC 740”). Deferred income tax liabilities and assets reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is established to offset any deferred income tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred income tax assets will not be realized.

FASB ASC 740 also prescribes a recognition threshold and measurement principles for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. Under FASB ASC 740, the impact of an uncertain income tax position on an income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FASB ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition requirements.

See Item 8, “Financial Statements and Supplementary Data” — Note 8, “Income Taxes,” for more information regarding the Company’s and the Predecessor Company’s (provision) benefit for income taxes.

In the ordinary course of business, there may be many transactions and calculations where the ultimate tax outcome is uncertain. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws. The Company and the Predecessor Company recognize potential liabilities for anticipated tax audit issues based on an estimate of the ultimate resolution of whether, and the extent to which, additional taxes will be due. Although the Company and the Predecessor Company believe the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.

As part of the Company’s and the Predecessor Company’s financial reporting process, we must assess the likelihood that our deferred income tax assets can be recovered. Unless recovery is more likely than not, the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred income tax assets that are estimated not to be ultimately recoverable. In this process, certain relevant criteria are evaluated including the existence of deferred income tax liabilities that can be used to absorb deferred income tax assets and taxable income in future years. The Company’s and the Predecessor Company’s judgment regarding future taxable income may change due to future market conditions, changes in U.S. tax laws and other factors. These changes, if any, may require material adjustments to these deferred income tax assets and an accompanying reduction or increase in net income (loss) in the period when such determinations are made.

In addition, the Company and the Predecessor Company operate within multiple taxing jurisdictions and we are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. The Company and the Predecessor Company maintain a liability for the estimate of potential income tax exposure and in our opinion adequate provision for income taxes has been made for all years.

Allowance for Doubtful Accounts and Sales Claims

The Company and the Predecessor Company record revenue net of an allowance for sales claims. In addition, the Company and the Predecessor Company record a provision for bad debts. The provision for bad debts and allowance for sales claims are estimated based on historical experience. The Company and the Predecessor Company also evaluate the current condition of client balances, bankruptcy filings, any change in credit policy, historical charge-off patterns, recovery rates and other data when determining an allowance for doubtful accounts reserve. The Company and the Predecessor Company review these estimates periodically to assess whether additional adjustment is needed based on economic events or other circumstances, including actual experience at the end of the billing and collection cycle. The Company and the Predecessor Company believe that the allowance for doubtful accounts and sales claims is adequate to cover anticipated losses under current conditions; however, significant deterioration in any of the factors noted above or in the overall economy could materially change these expectations. The provisions for sales claims and doubtful accounts are estimated based on a percentage of revenue. Accordingly, an additional 1% change in either of these allowance percentages would have impacted net loss for the eleven months ended December 31, 2010 by approximately $5.0 million.

Pension Benefits

The Company’s and the Predecessor Company’s pension plan obligations and related assets of the defined benefit pension plans are presented in Item 8, “Financial Statements and Supplementary Data” — Note 10, “Benefit Plans.” Plan assets consist primarily of marketable equity and debt instruments and are valued using market quotations. The determination of plan obligations and annual pension expense requires management to make a number of assumptions. Key assumptions in measuring the plan obligations include the discount rate and the long-term expected return on plan assets. For the eleven months ended December 31, 2010, the Company utilized an outsource provider’s yield curve to determine the appropriate discount rate for each of the defined benefit pension plans based on the individual plans’ expected future cash flows. During January 2010 and the year ended December 31, 2009, the Predecessor Company utilized an outsource provider’s yield curve to determine the appropriate discount rate for the defined benefit pension plans. During the year ended December 31, 2008, the Predecessor Company utilized the Citigroup Pension Liability Index as the appropriate discount rate for its defined benefit pension plans. The Predecessor Company changed to an outsource provider’s yield curve during 2009 to better reflect the specific cash flows of these plans in determining the discount rate. Asset returns are based upon the long-term anticipated average rate of earnings expected on invested funds of the plan. Salary increase assumptions were based upon historical experience and anticipated future management actions.

At December 31, 2010, the weighted-average actuarial assumptions used in determining the Company’s net periodic benefit expense were:

						Long-Term Rate of
		Discount Rate				Return on Plan Assets
Dex One Retirement Plan			5.70	%			8.00	%
Dex Media Pension Plan			5.70	%			8.00	%

At January 31, 2010, the weighted-average actuarial assumptions used in determining the Predecessor Company’s net periodic benefit expense were:

						Long-Term Rate of
		Discount Rate				Return on Plan Assets
Dex One Retirement Plan			5.70	%			8.00	%
Dex Media Pension Plan			5.70	%			8.00	%

At December 31, 2009, the weighted-average actuarial assumptions used in determining the Predecessor Company’s net periodic benefit expense were:

		Discount Rate
		January 1, 2009-				June 1, 2009-
		May 31, 2009				December 31, 2009
Dex One Retirement Plan			5.87	%			5.87	%
Dex Media Pension Plan			5.87	%			6.87	%

		Long-Term Rate of				Rate of Increase in
		Return on Plan Assets				Future Compensation
Dex One Retirement Plan			8.00	%			—
Dex Media Pension Plan			8.00	%			3.66	%

Net periodic pension income recognized by the Company and the Predecessor Company during the eleven months ended December 31, 2010 and one month ended January 31, 2010 were $3.5 million and $0.1 million, respectively. A 1% increase (decrease) in the discount rate would affect net income (loss) for the eleven months ended December 31, 2010 and one month ended January 31, 2010 by approximately $0.7 million and $0.1 million, respectively, and a 1% increase (decrease) in the long-term rate of return on plan assets would affect net income (loss) for the eleven months ended December 31, 2010 and one month ended January 31, 2010 by approximately $1.5 million and $0.2 million, respectively.

During the second quarter of 2010, we recognized a one-time curtailment gain of $3.8 million associated with the departure of the Company’s former Chief Executive Officer.

During 2009, the Predecessor Company froze all current defined benefit plans covering CWA and IBEW represented employees and curtailed the retiree health care and life insurance benefits covering CWA and IBEW represented employees. As a result of implementing the freeze on the defined benefit plans covering CWA and IBEW represented employees, the Predecessor Company recognized a one-time net curtailment gain of $4.2 million during the year ended December 31, 2009, which was entirely offset by losses incurred on plan assets and previously unrecognized prior service costs that had been charged to accumulated other comprehensive loss. As a result of eliminating retiree health care and life insurance benefits for CWA and IBEW represented employees, the Predecessor Company recognized a one-time curtailment gain of $52.0 million for the year ended December 31, 2009.

During 2008, the Predecessor Company froze all current defined benefit plans covering all non-union employees and curtailed the non-union retiree health care and life insurance benefits. As a result of implementing the freeze on the defined benefit plans covering non-union employees, the Predecessor Company recognized a one-time net curtailment loss of $1.6 million during the year ended December 31, 2008, consisting of a curtailment gain of $13.6 million, entirely offset by losses incurred on plan assets and recognition of previously unrecognized prior service costs that had been charged to accumulated other comprehensive loss. As a result of eliminating retiree health care and life insurance benefits for non-union employees, the Predecessor Company recognized a one-time, curtailment gain of $39.6 million for the year ended December 31, 2008.

Stock-Based Compensation

The fair value of the Company’s and the Predecessor Company’s stock options and stock appreciation rights (“SARs”) that do not have a market condition is calculated using the Black-Scholes model at the time the stock-based awards are granted. The fair value of the Company’s stock options and SARs that have a market condition is calculated using the Monte Carlo model at the time the stock-based awards are granted. The use of the Black-Scholes and Monte Carlo models require significant judgment and the use of estimates, particularly for assumptions such as expected volatility, risk-free interest rates and expected lives to value stock-based awards as well as forfeiture rates to recognize stock-based compensation expense and derived service periods for allocation of stock-based compensation expense associated with stock-based awards that have a market condition. The Company granted 2.1 million stock options and SARs and 0.2 million shares of restricted stock during the eleven months ended December 31, 2010. The Predecessor Company did not grant any stock options, SARs or restricted stock during the one month ended January 31, 2010 or year ended December 31, 2009. The Company used an estimated weighted average forfeiture rate in determining stock-based compensation expense of 8.9% during the eleven months ended December 31, 2010. The Predecessor Company used an estimated forfeiture rate in determining stock-based compensation expense of 8.0% during the first quarter of 2009 and 10.2% for the remainder of 2009 and January 2010. For the year ended December 31, 2008, the Predecessor Company utilized an estimated forfeiture rate of 8% in determining stock-based compensation expense.

The following assumptions were used in valuing stock-based awards and for recognition and allocation of stock-based compensation expense for the eleven months ended December 31, 2010 and year ended December 31, 2008:

		Successor Company				Predecessor Company
		Eleven Months Ended				Year Ended
		December 31, 2010				December 31, 2008
Expected volatility			37.3	%			58.8	%
Risk-free interest rate			2.6	%			2.8	%
Expected life		7.1 Years				5 Years
Derived service period (grants using Monte Carlo model)		3.6 Years					—
Forfeiture rate			8.9	%			8.0	%
Dividend yield			0	%			0	%

Since the Company recently emerged from bankruptcy, we do not have sufficient Company-specific historical data in order to determine certain assumptions used for valuing stock-based awards. As such, the Company utilized data from industry sources and peer and competitive company data in order to estimate the expected volatility assumption used for valuing stock-based awards during the eleven months ended December 31, 2010. The Predecessor Company estimated expected volatility based on the historical volatility of the price of its common stock over the expected life of its stock-based awards. The expected life represents the period of time that stock-based awards granted are expected to be outstanding. The Company and the Predecessor Company estimated the expected life by

using the simplified method permitted by Staff Accounting Bulletin No. 110, Use of a Simplified Method in Developing Expected Term of Share Options, as these stock-based awards satisfied the “plain vanilla” criteria. The simplified method calculates the expected life as the average of the vesting and contractual terms of the award. The risk-free interest rate for both the Company and the Predecessor Company is based on applicable U.S. Treasury yields that approximate the expected life of stock-based awards granted by the Company and the Predecessor Company. During the eleven months ended December 31, 2010, the Company used actual voluntary turnover data during the first quarter of 2010 to estimate a weighted average forfeiture rate. The Predecessor Company used historical data to estimate a forfeiture rate for the one month ended January 31, 2010 and years ended December 31, 2009 and 2008. Estimated forfeitures are adjusted to the extent actual forfeitures differ, or are expected to materially differ, from such estimates. Derived service periods associated with stock-based awards that have a market condition were calculated by determining the average time until the Company’s stock price reached the given exercise price across the Monte Carlo simulations. For simulations where the stock price did not reach the exercise price, the Company has excluded such paths.

These assumptions reflect the Company’s and the Predecessor Company’s best estimates, but they involve inherent uncertainties based on certain conditions generally outside the control of the Company and the Predecessor Company. As a result, if other assumptions had been used, total stock-based compensation expense could have been materially impacted. Furthermore, if we use different assumptions for future grants, stock-based compensation expense could be materially impacted in future periods.

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. See Item 8, “Financial Statements and Supplementary Data” — Note 2, “Summary of Significant Accounting Policies — “Stock-Based Awards” for information regarding Dex One’s new Equity Incentive Plan (“EIP”).

Fair Value of Financial Instruments

At December 31, 2010 and 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 Item 8, “Financial Statements and Supplementary Data” — 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 December 31, 2010 as disclosed in Item 8, “Financial Statements and Supplementary Data” — 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 December 31, 2010 and 2009, respectively, that are and were measured at fair value on a recurring basis. At December 31, 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 December 31, 2010 and 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:		December 31, 2010				December 31, 2009
Interest Rate Swap — Liabilities		$	(6,365	)		$	(6,695	)
Interest Rate Cap — Assets		$	308			$	—

There were no transfers of assets or liabilities into or out of Level 2 during the eleven months ended December 31, 2010, one month ended January 31, 2010 or year ended December 31, 2009. The Company has established a policy of recognizing transfers between levels in the fair value hierarchy as of the end of a reporting period. In conjunction with the classification of the Predecessor Company’s credit facilities at December 31, 2009, interest rate swap liabilities were excluded from liabilities subject to compromise on the consolidated balance sheet at December 31, 2009, as both the Predecessor Company’s credit facilities and interest rate swaps were fully collateralized and the fair value of such collateral exceeded the carrying value of the credit facilities and interest rate swaps.

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 and the Predecessor 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 and the Predecessor Company use prices and inputs that are current as of the measurement date.

Fair value for our derivative instruments was derived using pricing models based on a market approach. Pricing models take into account relevant observable market inputs that market participants would use in pricing the asset or liability. The pricing models used to determine fair value for each of our derivative instruments incorporate specific contract terms for valuation inputs, including effective dates, maturity dates, interest rate swap pay rates, interest rate cap rates and notional amounts, as disclosed and presented in Item 8, “Financial Statements and Supplementary Data” — Note 7, “Derivative Financial Instruments,” interest rate yield curves, and the creditworthiness of the counterparty and the Company. Counterparty credit risk and the Company’s credit risk could have a material impact on the fair value of our derivative instruments, our results of operations or financial condition in a particular reporting period. At December 31, 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 December 31, 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 $1.2 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 and the Predecessor 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 and the Predecessor Company employ 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.

Benefit Plan Assets

The fair value of the assets held in the Dex One Retirement Account Master Trust (“Master Trust”) at December 31, 2010 and 2009, by asset category, is as follows:

		Fair Value Measurements at December 31, 2010
						Quoted Prices in				Using
						Active Markets for				Significant Other
						Identical Assets				Observable Inputs
		Total				(Level 1)				(Level 2)
Cash		$	460			$	460			$	—
U.S. Government securities (a)			23,210				—				23,210
Common/collective trusts (b)			67,375				—				67,375
Corporate debt (c)			19,736				—				19,736
Corporate stock (d)			19,720				19,720				—
Registered investment companies (e)			29,860				29,860				—
Real estate investment trust (f)			338				338				—
Credit default swaps and futures (g)			1,149				—				1,149
Collective Fund — Group Trust (h)			25,479				—				25,479
Total		$	187,327			$	50,378			$	136,949

		Fair Value Measurements at December 31, 2009
						Quoted Prices in				Using
						Active Markets for				Significant Other
						Identical Assets				Observable Inputs
		Total				(Level 1)				(Level 2)
Cash		$	1,860			$	1,860			$	—
U.S. Government securities (a)			14,755				—				14,755
Common/collective trusts (b)			80,062				—				80,062
Corporate debt (c)			20,879				—				20,879
Corporate stock (d)			22,051				22,051				—
Registered investment companies (e)			34,036				34,036				—
Real estate investment trust (f)			198				198				—
Credit default swaps and futures (g)			394				—				394
Total		$	174,235			$	58,145			$	116,090

The Asset Management Committee (“AMC”) as appointed by the Compensation and Benefits Committee of the Company’s Board of Directors is a named fiduciary of the plan in matters relating to plan investments and asset management. The AMC has the authority to appoint, retain, monitor and remove any custodian or investment manager and is responsible for establishing and maintaining a funding and investment policy for the Master Trust.

See Item 8, “Financial Statements and Supplementary Data” — Note 10, “Benefit Plans,” for further information regarding our benefit plans.

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. GAAP analysis of the Company’s results of operations for the eleven months ended December 31, 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 eleven months ended December 31, 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 — Combined Adjusted Results.” Non-GAAP Financial Information — Combined Adjusted Results (1) combines GAAP results of the Company for the eleven months ended December 31, 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 (as defined below) recorded under fresh start accounting. Deferred directory costs that are included in prepaid expenses and other current assets on the 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 — Combined Adjusted Results to the Predecessor Company’s GAAP results for the year ended December 31, 2009 through operating income.

Management believes that the presentation of Non-GAAP Financial Information — 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 eleven months ended December 31, 2010 and also offers a non-GAAP normalized comparison to GAAP results of the Predecessor Company for the year ended December 31, 2009. The Non-GAAP Financial Information — Combined Adjusted Results presented below are reconciled to the most comparable GAAP measures. While the Non-GAAP Financial Information — Combined Adjusted Results exclude the effects of fresh start accounting and certain other items, it must be noted that the Non-GAAP Financial Information — Combined Adjusted Results are not comparable to the Predecessor Company’s GAAP results for the year ended December 31, 2009 and should not be treated as such.

Impairment Charges

The Company has excluded the goodwill and non-goodwill intangible asset impairment charges totaling $1,159.3 million for the eleven months ended December 31, 2010 from Combined Adjusted Results. The Predecessor Company has excluded the non-goodwill intangible asset impairment charges totaling $7,337.8 million from Adjusted Results for the year ended December 31, 2009.

Reclassifications

Certain prior period amounts included in the 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 consolidated statements of operations. In addition, information technology expenses have been reclassified from production and distribution expenses to general and administrative expenses in the consolidated statements of operations. These reclassifications had no impact on operating loss or net loss for the years ended December 31, 2009 and 2008. The tables below summarize these reclassifications.

		Year Ended December 31, 2009
		As Previously
(amounts in millions)		Reported				Reclass				As Reclassified
Production and distribution expenses		$	350.7			$	24.6			$	375.3
Selling and support expenses			663.6				(53.3	)			610.3
General and administrative expenses			69.0				28.7				97.7

		Year Ended December 31, 2008
		As Previously
(amounts in millions)		Reported				Reclass				As Reclassified
Production and distribution expenses		$	418.3			$	3.6			$	421.9
Selling and support expenses			729.7				(42.2	)			687.5
General and administrative expenses			120.9				38.6				159.5

GAAP Reported Results

Successor Company — Eleven Months Ended December 31, 2010

Net Revenues

The components of our net revenues for the eleven months ended December 31, 2010 were as follows:

		Successor Company
(amounts in millions)		Eleven Months Ended December 31, 2010
Gross advertising revenues		$	824.4
Sales claims and allowances			(9.9	)
Net advertising revenues			814.5
Other revenues			16.4
Total		$	830.9

Our advertising revenues are earned primarily from the sale of advertising in yellow pages directories we publish. 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 and Internet-based advertising products that are sold with print advertising are initially deferred when a directory is published, net of sales claims and allowances, and recognized ratably over the directory’s life, which is typically 12 months. Revenues with respect to Internet-based services that are sold standalone, such as DexNet, are recognized as delivered or fulfilled. Revenues with respect to our advertising products that are non-performance based are recognized ratably over the life of the contract commencing when they are first delivered or fulfilled. Revenues with respect to our advertising products that are performance-based are recognized as the service is delivered or fulfilled.

The adoption of fresh start accounting has had 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 eleven months ended December 31, 2010 are not indicative of our underlying operating and financial performance and are not comparable to any prior period presentation.

Gross advertising revenues were $824.4 million for the eleven months ended December 31, 2010 and exclude $799.3 million 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) customer attrition, (2) declines in overall advertising spending by our clients, (3) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (4) an increase in competition and more fragmentation in local business search.

Sales claims and allowances were $9.9 million for the eleven months ended December 31, 2010 and exclude $14.0 million 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 $16.4 million for the eleven months ended December 31, 2010 and exclude $5.6 million 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 eleven months ended December 31, 2010 were as follows:

		Successor Company
		Eleven Months Ended
(amounts in millions)		December 31, 2010
Production and distribution expenses		$	223.0
Selling and support expenses			378.8
General and administrative expenses			146.4
Depreciation and amortization			217.7
Impairment charges			1,159.3
Total		$	2,125.2

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 $223.0 million for the eleven months ended December 31, 2010. 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 eleven months ended December 31, 2010 exclude the amortization of deferred directory costs under the deferral and amortization method for directories published before the Fresh Start Reporting Date totaling $88.8 million and include amortization of cost-uplift of $7.5 million. 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 $378.8 million for the eleven months ended December 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, 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 eleven months ended December 31, 2010 exclude the amortization of deferred directory costs under the deferral and amortization method for directories published before the Fresh Start Reporting Date totaling $83.8 million and include amortization of cost-uplift of $4.8 million. Bad debt expense has been impacted by lower write-off experience resulting from 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, partially offset by an increase to the bad debt provision for delinquent balances associated with a CMR. 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. Commissions and salesperson expenses have been affected by lower advertising sales and its effect on variable-based commissions, as well as lower headcount. Directory publishing expenses continue to be affected by declines in print advertisements and lower headcount. 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

General and administrative (“G&A”) expenses were $146.4 million for the eleven months ended December 31, 2010. G&A expenses are comprised of items such as restructuring expenses, 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 issued to members of the Company’s Board of Directors on March 1, 2010, common stock issued to members of the Executive Oversight Committee on September 13, 2010, the stock based awards granted to Mr. Mockett on September 13, 2010 and compensation expense associated with the Company’s Long-Term Incentive Program (“2009 LTIP”), which includes accelerated compensation expense associated with the departure of our former Chief Executive Officer.

Depreciation and Amortization

Depreciation and amortization expense was $217.7 million for the eleven months ended December 31, 2010. Amortization of intangible assets was $167.0 million for the eleven months ended December 31, 2010 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 $152.8 million during the year ended December 31, 2011. Depreciation of fixed assets and amortization of computer software was $50.7 million for the eleven months ended December 31, 2010 and 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 eleven months ended December 31, 2010.

Impairment Charges

Based upon the decline in the trading value of our debt and equity securities and the departure of our Chairman and Chief Executive Officer on May 28, 2010, among other indicators, the Company performed impairment tests of its goodwill, definite-lived intangible assets and other long-lived assets as of September 30, 2010 and June 30, 2010. The testing results of our definite-lived intangible assets and other long-lived assets resulted in an impairment charge associated with trade names and trademarks, technology, local customer relationships and other from our former Business.com reporting unit of $4.3 million and $17.3 million during the three months ended September 30, 2010 and June 30, 2010, respectively, for a total non-goodwill intangible asset impairment charge of $21.6 million during the eleven months ended December 31, 2010. The testing results of our goodwill resulted in an impairment charge of $385.3 million and $752.3 million during the three months ended September 30, 2010 and June 30, 2010, respectively, for a total goodwill impairment charge of $1,137.6 million during the eleven months ended December 31, 2010. The sum of the goodwill and non-goodwill intangible asset impairment charges totaled $1,159.3 million for the eleven months ended December 31, 2010. See Item 8, “Financial Statements and Supplementary Data” — Note 2, “Summary of Significant Accounting Policies — Identifiable Intangible Assets and Goodwill” for additional information.

Operating Loss

Operating loss was $(1,294.3) million for the eleven months ended December 31, 2010. 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 eleven months ended December 31, 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 eleven months ended December 31, 2010 was directly impacted by the goodwill and non-goodwill intangible asset impairment charges noted above, the significant effects of fresh start accounting as well as the revenue and expense trends described above.

Interest Expense, Net

Net interest expense was $249.5 million for the eleven months ended December 31, 2010. 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 $29.3 million for the eleven months ended December 31, 2010.

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 eleven months ended December 31, 2010 includes expense of $8.2 million 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 40.2% for the eleven months ended December 31, 2010. Our effective tax rate benefit of 40.2% is higher than the federal statutory tax rate of 35.0% primarily due to increases in income tax benefits from the recognition of an unrecognized tax position offset, in part, by an increase in income tax expense related to a non-deductible impairment charge.

During 2009, the Predecessor Company accrued an unrecognized tax benefit for the uncertainty surrounding a potential ownership change under Internal Revenue Code (“IRC”) Section 382 (“Section 382”) that occurred prior to the date on which it made a “check-the-box” election for two of its subsidiaries. The date of the change in ownership was in question since as of the December 31, 2009 balance sheet date, the Predecessor Company was unable to confirm the actual date of the ownership change until all SEC Forms 13-G were filed. However, 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 it was more likely than not that certain “check-the-box” elections were 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 $352.3 million in the Company’s statement of operations for the eleven months ended December 31, 2010, which significantly impacted our effective tax rate for the period.

As a result of the goodwill and non-goodwill intangible asset impairment charges during the eleven months ended December 31, 2010, we recognized a non-deductible adjustment to our effective tax rate of 19.5%, or $299.9 million.

The income tax benefit of $620.1 million for the eleven months ended December 31, 2010 is comprised of a federal tax benefit of $567.7 million and a state tax benefit of $52.4 million. The federal tax benefit of $567.7 million is comprised of a current tax provision of $(1.3) million, primarily related to unrecognized tax benefits, and a deferred tax benefit of $569.0 million, primarily related to current year net operating loss, recognition of an unrecognized tax position and goodwill impairment charges during the eleven months ended December 31, 2010. The state tax benefit of $52.4 million is comprised of a current tax benefit of $3.8 million, primarily related to expected state tax refunds, and a deferred tax benefit of $48.6 million, primarily related to the recognition of an unrecognized tax position during the eleven months ended December 31, 2010.

See Item 8, “Financial Statements and Supplementary Data” — Note 8, “Income Taxes” for additional information.

Net Loss and Loss Per Share

Net loss of $(923.6) million for the eleven months ended December 31, 2010 was directly impacted by the goodwill and non-goodwill intangible asset impairment charges as noted above, as well as the significant effects of fresh start accounting and the revenue and expense trends described above, offset by the income tax benefit recorded for the eleven months ended December 31, 2010 as noted above.

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

		Successor Company
		Eleven Months Ended
(amounts in thousands except per share amounts)		December 31, 2010
Basic EPS
Net loss		$	(923,592	)
Weighted average common shares outstanding			50,020
Basic EPS		$	(18.46	)
Diluted EPS
Net loss		$	(923,592	)
Weighted average common shares outstanding			50,020
Dilutive effect of stock awards (1)			—
Weighted average diluted shares outstanding			50,020
Diluted EPS		$	(18.46	)

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		$	161.4
Sales claims and allowances			(3.5	)
Net advertising revenues			157.9
Other revenues			2.5
Total.		$	160.4

Gross advertising revenues were $161.4 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) customer attrition, (2) declines in overall advertising spending by our clients, (3) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (4) 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 $2.5 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		$	27.2
Selling and support expenses			40.7
General and administrative expenses			8.2
Depreciation and amortization			20.2
Total		$	96.3

Production and Distribution Expenses

Total production and distribution expenses were $27.2 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 $40.7 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. 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 2009 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.

Interest Expense, Net

Contractual interest expense that would have appeared on the Predecessor Company’s 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 have been recorded on a separate line item on the 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 Item 8, “Financial Statements and Supplementary Data” — 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.

Income Taxes

The effective tax rate on income before income taxes was 11.7% for the one month ended January 31, 2010. Our effective tax rate provision of 11.7% was lower than the statutory federal tax rate of 35.0% primarily due to decreases in income tax expense for non-taxable fresh start adjustments and the release of our valuation allowance offset, in part, by increases in income tax expense for the estimated loss of tax attributes due to cancellation of debt income at emergence, and the impact of state taxes.

The discharge of our debt in conjunction with our emergence from Chapter 11 resulted in a tax gain of $5,016.6 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 all of the gain on the settlement of debt obligations and derivative liabilities from taxable income. Under IRC Section 108, the Company has reduced its tax attributes primarily in net operating loss carry-forwards, intangible asset basis and stock basis.

The income tax provision of $(917.5) million for the one month ended January 31, 2010 is comprised of a federal tax provision of $(792.8) million and a state tax provision of $(124.8) million. The federal tax provision is comprised of a current tax provision of $(0.6) million, primarily related to an increase in the federal tax accrual related to unrecognized tax benefits, and a deferred tax provision of $(792.2) million, primarily related to the reduction of the Predecessor Company’s tax attributes in accordance with IRC Section 108. The state tax provision of $(124.8) million is comprised of a current tax provision of less than $(0.1) million and a deferred tax provision of $(124.7) million, primarily related to the reduction of the Predecessor Company’s tax attributes in accordance with IRC Section 108.

See Item 8, “Financial Statements and Supplementary Data” — Note 8, “Income Taxes” for additional information.

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.

The calculation of basic and diluted EPS is presented below.

		Predecessor Company
		One Month Ended
(amounts in thousands except per share amounts)		January 31, 2010
Basic EPS
Net income		$	6,920,009
Weighted average common shares outstanding			69,013
Basic EPS		$	100.3
Diluted EPS
Net income		$	6,920,009
Weighted average common shares outstanding			69,013
Dilutive effect of stock awards			39
Weighted average diluted shares outstanding			69,052
Diluted EPS		$	100.2

For the one month ended January 31, 2010, 4.6 million shares 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 period.

Non-GAAP Financial Information — Combined Adjusted Results

Management believes that the presentation of Non-GAAP Financial Information — 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 eleven months ended December 31, 2010 and also offers a non-GAAP normalized comparison to GAAP results of the Predecessor Company for the year ended December 31, 2009. The Non-GAAP Financial Information — Combined Adjusted Results presented below are reconciled to the most comparable GAAP measures. While the Non-GAAP Financial Information — Combined Adjusted Results exclude the effects of fresh start accounting and certain other items such as the goodwill and non-goodwill intangible asset impairment charges during the eleven months ended December 31, 2010, it must be noted that the Non-GAAP Financial Information — Combined Adjusted Results are not comparable to the Predecessor Company’s GAAP results for the year ended December 31, 2009 or Adjusted Results for the year ended December 31, 2009, which exclude the effects of the non-goodwill intangible asset impairment charges during 2009, and should not be treated as such.

Successor Company — Combined Adjusted Results for the Year Ended December 31, 2010 and
Predecessor Company — GAAP and Adjusted Results for the Year Ended December 31, 2009

Net Revenues

The components of our combined adjusted net revenues for the year ended December 31, 2010 and the Predecessor Company GAAP net revenues for the year ended December 31, 2009 were as follows:

						Predecessor
						Company
		Successor				One
		Company				Month
		Eleven Months				Ended								Combined Adjusted				Predecessor Company
		Ended				January				Fresh Start				Year Ended				Year Ended								%
(amounts in millions)		December 31, 2010				31, 2010				Adjustments				December 31, 2010				December 31, 2009				$ Change				Change
Gross advertising revenues		$	824.4			$	161.4			$	799.3	(1)		$	1,785.1			$	2,219.9			$	(434.8	)			(19.6	)%
Sales claims and allowances			(9.9	)			(3.5	)			(14.0	)(1)			(27.4	)			(43.8	)			16.4				37.4
Net advertising revenues			814.5				157.9				785.3				1,757.7				2,176.1				(418.4	)			(19.2	)
Other revenues			16.4				2.5				5.6	(1)			24.5				26.3				(1.8	)			(6.8	)
Total		$	830.9			$	160.4			$	790.9			$	1,782.2			$	2,202.4			$	(420.2	)			(19.1	)%

Combined adjusted gross advertising revenues for the year ended December 31, 2010 decreased $434.8 million, or 19.6%, from the Predecessor Company year ended December 31, 2009. The decline in combined adjusted gross advertising revenues for the year ended December 31, 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) customer attrition, (2) declines in overall advertising spending by our clients, (3) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (4) an increase in competition and more fragmentation in local business search.

Combined adjusted sales claims and allowances for the year ended December 31, 2010 decreased $16.4 million, or 37.4%, from the Predecessor Company year ended December 31, 2009. The decline in combined adjusted sales claims and allowances for the year ended December 31, 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.

Expenses

The components of our combined adjusted total expenses for the year ended December 31, 2010 and the Predecessor Company adjusted total expenses for the year ended December 31, 2009 were as follows:

		Successor				Predecessor
		Company				Company								Combined
		Eleven				One Month				Fresh Start and				Adjusted
		Months Ended				Ended January				Other				Year Ended
(amounts in millions)		December 31, 2010				31, 2010				Adjustments				December 31, 2010
Production and distribution expenses		$	223.0			$	27.2			$	81.3	(1)		$	331.5
Selling and support expenses			378.8				40.7				79.0	(1)			498.5
General and administrative expenses			146.4				8.2				—				154.6
Depreciation and amortization			217.7				20.2				—	(2)			237.9
Impairment charges			1,159.3				—				(1,159.3	)(3)			—
Total		$	2,125.2			$	96.3			$	(999.0	)		$	1,222.5

		Predecessor
		Company
		Year Ended								Adjusted
		December								Year Ended				$				%
(amounts in millions)		31, 2009				Adjustments				December 31, 2009				Change				Change
Production and distribution expenses		$	375.3			$	—			$	375.3			$	(43.8	)			(11.7	)%
Selling and support expenses			610.3				—				610.3				(111.8	)			(18.3	)
General and administrative expenses			97.7				—				97.7				56.9				58.2
Depreciation and amortization			578.8				—				578.8				(340.9	)			(58.9	)
Impairment charges			7,337.8				(7,337.8	)(3)			—				—				—
Total		$	8,999.9			$	(7,337.8	)		$	1,662.1			$	(439.6	)			(26.4	)%

Production and Distribution Expenses

Total combined adjusted production and distribution expenses for the year ended December 31, 2010 were $331.5 million, compared to $375.3 million for the Predecessor Company year ended December 31, 2009. The primary components of the $43.8 million, or 11.7%, decrease in combined adjusted production and distribution expenses for the year ended December 31, 2010 were as follows:

		Combined
		Adjusted Year Ended
(amounts in millions)		December 31, 2010
Lower print, paper and distribution expenses		$	(30.6	)
Lower internet production and distribution expenses			(10.6	)
All other, net			(2.6	)
Total decrease in combined adjusted production and distribution expenses for the year ended December 31, 2010		$	(43.8	)

Combined adjusted print, paper and distribution expenses for the year ended December 31, 2010 declined $30.6 million, compared to the Predecessor Company year ended December 31, 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 year ended December 31, 2010 declined $10.6 million, compared to the Predecessor Company year ended December 31, 2009, primarily due to purchasing efficiencies, lower headcount and a reduction in DexNet customers, 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 year ended December 31, 2010 were $498.5 million, compared to $610.3 million for the Predecessor Company year ended December 31, 2009. The primary components of the $111.8 million, or 18.3%, decrease in combined adjusted selling and support expenses for the year ended December 31, 2010 were as follows:

		Combined
		Adjusted Year Ended
(amounts in millions)		December 31, 2010
Lower bad debt expense		$	(81.2	)
Lower commissions and salesperson expenses			(22.3	)
Lower occupancy expenses			(5.0	)
Lower directory publishing expenses			(4.9	)
All other, net			1.6
Total decrease in combined adjusted selling and support expenses for the year ended December 31, 2010		$	(111.8	)

Combined adjusted bad debt expense for the year ended December 31, 2010 declined $81.2 million, compared to the Predecessor Company year ended December 31, 2009, primarily due to lower write-off experience resulting from 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, partially offset by an increase to the bad debt provision for delinquent balances associated with a CMR. Combined adjusted bad debt expense for the year ended December 31, 2010 represented 3.7% of our net revenue, compared to 6.7% for the Predecessor Company year ended December 31, 2009.

Combined adjusted commissions and salesperson expenses for the year ended December 31, 2010 decreased $22.3 million, compared to the Predecessor Company year ended December 31, 2009, primarily due to lower advertising sales and its effect on variable-based commissions, as well as lower headcount.

Combined adjusted occupancy expenses for the year ended December 31, 2010 decreased $5.0 million, compared to the Predecessor Company year ended December 31, 2009, primarily due to the renegotiation of our leased properties and reduction in the amount of leased square footage during the bankruptcy process.

Combined adjusted directory publishing expenses for the year ended December 31, 2010 decreased $4.9 million, compared to the Predecessor Company year ended December 31, 2009, primarily due to declines in print advertisements and lower headcount.

General and Administrative Expenses

Combined adjusted G&A expenses for the year ended December 31, 2010 were $154.6 million, compared to $97.7 million for the Predecessor Company year ended December 31, 2009. The primary components of the $56.9 million, or 58.2%, increase in combined adjusted G&A expenses for the year ended December 31, 2010 were as follows:

		Combined
		Adjusted Year Ended
(amounts in millions)		December 31, 2010
Change in net curtailment gains		$	48.2
One-time expenses associated with departure of Chief Executive Officer			9.5
Higher restructuring expenses			4.0
Lower general corporate expenses			(4.6	)
All other, net			(0.2	)
Total increase in combined adjusted G&A expenses for the year ended December 31, 2010		$	56.9

During the combined adjusted year ended December 31, 2010, we recognized a one-time net curtailment gain of $3.8 million associated with the departure of the Company’s former Chief Executive Officer. This represents a decrease of $48.2 million in net curtailment gains from the year ended December 31, 2009 during which we recognized $52.0 million associated with the elimination of certain union retiree health care and life insurance benefits.

During the combined adjusted year ended December 31, 2010, we recognized one-time expenses of $9.5 million associated with the departure of the Company’s former Chief Executive Officer.

During the fourth quarter of 2010, we commenced a restructuring plan that included headcount reductions and consolidation of responsibilities. As a result of this restructuring plan, the Company recorded a restructuring charge of $18.6 million during the fourth quarter of 2010. During the year ended December 31, 2009, the Predecessor Company recognized a restructuring charge of $14.6 million related to a restructuring plan implemented during 2009. This represents an increase in restructuring expenses of $4.0 million for the combined adjusted year ended December 31, 2010.

Combined adjusted general corporate expenses for the year ended December 31, 2010 decreased $4.6 million, compared to the Predecessor Company year ended December 31, 2009, due to lower director and officer insurance premiums as a result of contract renegotiations and changes in coverage limits associated with our emergence from Chapter 11.

Depreciation and Amortization

Combined depreciation and amortization expense for the year ended December 31, 2010 was $237.8 million, compared to $578.8 million for the Predecessor Company year ended December 31, 2009. Combined amortization of intangible assets was $182.5 million for the year ended December 31, 2010, compared to $514.6 million for the Predecessor Company year ended December 31, 2009. The decrease in combined amortization expense for the year ended December 31, 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 $55.3 million for the year ended December 31, 2010, compared to $64.2 million for the Predecessor Company year ended December 31, 2009. The decrease in combined depreciation expense for the year ended December 31, 2010 was primarily due to the acceleration of depreciation on fixed assets no longer in service during the year ended December 31, 2009, partially offset by the increase in depreciation expense for the combined year ended December 31, 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.

Operating Income (Loss)

Combined adjusted operating income for the year ended December 31, 2010 and the Predecessor Company adjusted operating income for the year ended December 31, 2009 was as follows:

		Successor				Predecessor Company
		Company				OneMonth								Combined Adjusted
		Eleven Months Ended				Ended January								Year Ended
		December 31,				31,				Fresh Start and Other				December 31,
(amounts in millions)		2010				2010				Adjustments				2010
| | | |
Total		$	(1,294.3	)		$	64.1			$	1,789.9	(1)		$	559.7

		Predecessor
		Company								Adjusted
		Year Ended								Year Ended
		December								December				$				%
(amounts in millions)		31, 2009				Adjustments				31, 2009				Change				Change
Total		$	(6,797.5	)		$	7,337.8	(2)		$	540.3			$	19.4				3.6	%

Combined adjusted operating income for the year ended December 31, 2010 of $559.7 million, compares to adjusted operating income of $540.3 million for the Predecessor Company year ended December 31, 2009. The increase in combined adjusted operating income for the year ended December 31, 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.

Non-GAAP Statistical Measures

Advertising sales is a non-GAAP statistical measure and consists of sales of advertising in print directories distributed during the period and Internet-based products and services with respect to which such advertising first appeared publicly during the period. It is important to distinguish advertising sales from net revenues, which under GAAP are recognized under the deferral and amortization method. Advertising sales in current periods will be recognized as gross advertising revenues in future periods as a result of the deferral and amortization method of revenue recognition. Combined advertising sales for the year ended December 31, 2010 were $1,671.0 million, representing a decline of $320.5 million, or 16.1%, from advertising sales of $1,991.5 million for the Predecessor Company year ended December 31, 2009.

In order to provide more visibility into what the Company will book as revenue in the future, we have introduced a non-GAAP statistical measure called bookings, which represent sales activity associated with our print directories and Internet-based products and services during the period. Bookings associated with our local customers represent signed contracts during the period. Bookings associated with our national customers represent what has been published or fulfilled during the period. Combined bookings for the year ended December 31, 2010 were $1,566.7 million, representing a decline of $283.1 million, or 15.3%, from bookings of $1,849.8 million for the Predecessor Company year ended December 31, 2009.

The decrease in combined advertising sales and combined bookings for the year ended December 31, 2010 is a result of declines in new and recurring business, mainly driven by (1) customer attrition, (2) declines in overall advertising spending by our clients, (3) the significant impact of the weak local business conditions on consumer spending in our clients’ markets and (4) an increase in competition and more fragmentation in local business search. The decrease in combined adjusted advertising sales and combined bookings for the year ended December 31, 2010 is also a result of excluding advertising sales and bookings associated with a CMR who we do not expect to collect and recognize revenue from in 2011.

Year Ended December 31, 2009 compared to Year Ended December 31, 2008

Net Revenues

The components of our net revenues for the years ended December 31, 2009 and 2008 were as follows:

		For the Years Ended December 31,
(amounts in millions)		2009				2008				$ Change				% Change
Gross advertising revenues		$	2,219.9			$	2,628.5			$	(408.6	)			(15.5	)%
Sales claims and allowances			(43.8	)			(45.3	)			1.5				3.3
Net advertising revenues			2,176.1				2,583.2				(407.1	)			(15.8	)
Other revenues			26.3				33.6				(7.3	)			(21.7	)
Total		$	2,202.4			$	2,616.8			$	(414.4	)			(15.8	)%

Gross advertising revenues for the year ended December 31, 2009 decreased $408.6 million, or 15.5%, from the year ended December 31, 2008. The decline in gross advertising revenues for the year ended December 31, 2009 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 businesses, (2) the significant impact of the weaker economy on smaller businesses in the markets in which we do business and (3) an increase in competition and more fragmentation in the local business search market.

Other revenues for the year ended December 31, 2009 decreased $7.3 million, or 21.7%, from the year ended December 31, 2008. Other revenues include late fees received on outstanding client 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.

Non-GAAP Statistical Measures

Advertising sales for the year ended December 31, 2009 were $2,028.6 million, compared to $2,547.6 million for the year ended December 31, 2008. The $519.0 million, or 20.4%, decrease in advertising sales for the year ended December 31, 2009, is a result of declines in new and recurring business, mainly driven by (1) declines in overall advertising spending by businesses, (2) the significant impact of the weaker economy on smaller businesses in the markets in which we do business and (3) an increase in competition and more fragmentation in the local business search market.

Expenses

The components of our total expenses for the years ended December 31, 2009 and 2008 were as follows:

		For the Years Ended December 31,
(amounts in millions)		2009				2008				$ Change				% Change
Production and distribution expenses		$	375.3			$	421.9			$	(46.6	)			(11.1	)%
Selling and support expenses			610.3				687.5				(77.2	)			(11.2	)
General and administrative expenses			97.7				159.5				(61.8	)			(38.8	)
Depreciation and amortization			578.8				483.3				95.5				19.8
Impairment charges			7,337.8				3,870.4				3,467.4				89.6
Total		$	8,999.9			$	5,622.6			$	3,377.3				60.1	%