##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-Q

|   |  |                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended
    September 30, 2004                                           
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                                 

Commission File Number: 333-102395

Dex Media East LLC

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Delaware                                                           |  | 42-1554575                          
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS Employer
    Identification No)

198 Inverness Drive West

Englewood, Colorado


80112


(Address of principal executive
offices)


(303) 784-2900

(Registrants telephone number, including
area code)




---

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes o          No þ



---






---










INDEX

|                                             |  |                                                                                                                                      |    |      |    | 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                             |  |                                                                                                                                      |    | Page
|                                             |  |                                                                                                                                      |    | Nos.
|                                             |  |                                                                                                                                      |    |     
|PART I: FINANCIAL
    INFORMATION            |  |                                                                                                                                      | 2  |     
|Item 1.                                      |  | Financial Statements                                                                                                                 |    |      | 2  | 
|                                             |  | Condensed Consolidated
    Balance Sheets (unaudited)  September 30, 2004
    and December 31, 2003                                 |    |      | 2  | 
|                                             |  | Condensed Consolidated
    Statements of Operations (unaudited)  Three Months
    and Nine Months Ended September 30, 2004 and 2003 |    |      | 3  | 
|                                             |  | Condensed Consolidated
    Statements of Cash Flows (unaudited)  Nine Months
    Ended September 30, 2004 and 2003                  |    |      | 4  | 
|                                             |  | Notes to Condensed
    Consolidated Financial Statements (unaudited)                                                                 |    |      | 5  | 
|Item 2.                                      |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                                            |    |      | 14 | 
|Item 3.                                      |  | Quantitative and Qualitative
    Disclosures about Market Risk                                                                       |    |      | 29 | 
|Item 4.                                      |  | Controls and Procedures                                                                                                              |    |      | 29 | 
|PART II: OTHER
    INFORMATION               |  |                                                                                                                                      | 30 |     
|Item 1.                                      |  | Legal Proceedings                                                                                                                    |    |      | 30 | 
|Item 2.                                      |  | Unregistered Sales of Equity
    Securities and Use of Proceeds                                                                      |    |      | 30 | 
|Item 3.                                      |  | Defaults upon Senior
    Securities                                                                                                  |    |      | 30 | 
|Item 4.                                      |  | Submission of Matters to a
    Vote of Security Holders                                                                              |    |      | 30 | 
|Item 5.                                      |  | Other Information                                                                                                                    |    |      | 30 | 
|Item 6.                                      |  | Exhibits                                                                                                                             |    |      | 30 | 
|Signature                                    |  |                                                                                                                                      | 31 |     
|Certification of CEO Pursuant to Section 302
|Certification of CFO Pursuant to Section 302
|Certification of CEO Pursuant to Section 906
|Certification of CFO Pursuant to Section 906



1



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##### Table of Contents






PART I.

FINANCIAL INFORMATION






|        |                     
|------- | --------------------
|Item I. | Financial Statements

DEX MEDIA EAST LLC

AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.





CONDENSED CONSOLIDATED BALANCE
SHEETS


(Dollars in thousands)


(Unaudited)


|                                                                                                        |                                        |                                      |           |              |           |  |           |         |           | 
|------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------ | --------- | ------------ | --------- |  | --------- | ------- | --------- | 
|                                                                                                        |                                        | As of                                |           | As of       
|                                                                                                        |                                        | September 30,                        |           | December 31,
|                                                                                                        |                                        | 2004                                 |           | 2003        
|                                                                                                        |                                        |                                      |           |             
|ASSETS                                                                                                 
|Current assets:                                                                                         |                                        |                                      |           |              |           |  |           |        
|                                                                                                        | Cash and cash equivalents              |                                      | $         |             |           |  | $         | 2,758   |          
|                                                                                                        | Accounts receivable, net               |                                      |           | 40,207       |           |  |           | 62,176  |          
|                                                                                                        | Deferred directory costs               |                                      |           | 122,383      |           |  |           | 128,333 |          
|                                                                                                        | Current deferred taxes                 |                                      |           | 5,162        |           |  |           | 5,979   |          
|                                                                                                        | Amounts due from affiliates            |                                      |           |             |           |  |           | 28,554  |          
|                                                                                                        | Other current assets                   |                                      |           | 8,984        |           |  |           | 5,906   |          
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total current assets                 |           |              | 176,736   |  |           |         | 233,706   | 
|Property, plant and equipment, net                                                                      |                                        |                                      | 52,906    |              |           |  | 39,667    |        
|Goodwill                                                                                                |                                        |                                      | 890,731   |              |           |  | 890,731   |        
|Intangible assets, net                                                                                  |                                        |                                      | 1,408,955 |              |           |  | 1,544,800 |        
|Deferred income taxes                                                                                   |                                        |                                      | 48,178    |              |           |  | 42,151    |        
|Deferred financing costs                                                                                |                                        |                                      | 54,486    |              |           |  | 78,925    |        
|Amounts due from affiliate related to
    post-retirement and other post-employment benefit obligations |                                        |                                      |          |              |           |  | 35,519    |        
|Other assets                                                                                            |                                        |                                      | 1,339     |              |           |  | 1,719     |        
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total Assets                         |           | $            | 2,633,331 |  |           | $       | 2,867,218 | 
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                       
|LIABILITIES AND OWNERS EQUITY                                                                         
|Current liabilities:                                                                                    |                                        |                                      |           |              |           |  |           |        
|                                                                                                        | Accounts payable                       |                                      | $         | 21,446       |           |  | $         | 49,062  |          
|                                                                                                        | Amounts due to affiliate               |                                      |           | 14,744       |           |  |           |        |          
|                                                                                                        | Employee compensation                  |                                      |           |             |           |  |           | 32,783  |          
|                                                                                                        | Deferred revenue and customer deposits |                                      |           | 82,549       |           |  |           | 99,522  |          
|                                                                                                        | Accrued interest payable               |                                      |           | 35,945       |           |  |           | 18,684  |          
|                                                                                                        | Current portion of long-term debt      |                                      |           | 101,840      |           |  |           | 50,845  |          
|                                                                                                        | Other accrued liabilities              |                                      |           | 10,535       |           |  |           | 9,120   |          
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total current liabilities            |           |              | 267,059   |  |           |         | 260,016   | 
|Long-term debt                                                                                          |                                        |                                      | 1,687,837 |              |           |  | 2,090,268 |        
|Post-retirement and other post-employment benefit
    obligations                                       |                                        |                                      |          |              |           |  | 69,381    |        
|Amounts due to affiliate related to
    post-retirement and other post-employment obligations           |                                        |                                      | 37,693    |              |           |  |          |        
|Other liabilities                                                                                       |                                        |                                      | 2,049     |              |           |  | 7,195     |        
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total Liabilities                    |           |              | 1,994,638 |  |           |         | 2,426,860 | 
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|Commitments and contingencies (Note 10)                                                                 |                                        |                                      |           |              |           |  |           |        
|Accumulated deficit                                                                                     |                                        |                                      | (78,348   | )            |           |  | (69,902   | )      
|Accumulated other comprehensive loss                                                                    |                                        |                                      | (1,810    | )            |           |  | (4,026    | )      
|Owners interest                                                                                        |                                        |                                      | 718,851   |              |           |  | 514,286   |        
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total Owners Equity                 |           |              | 638,693   |  |           |         | 440,358   | 
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total Liabilities and Owners Equity |           | $            | 2,633,331 |  |           | $       | 2,867,218 | 
|                                                                                                        |                                        |                                      |           |              |           |  |           |        

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents



DEX MEDIA EAST LLC

AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.





CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(Dollars in thousands)


(Unaudited)


|                        |                                       |                          |         |                   |         |      |         |        |         |   |         |         |         |   |         |         |         |  
|----------------------- | ------------------------------------- | ------------------------ | ------- | ----------------- | ------- | ---- | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                        |                                       |                          |         |                  
|                        |                                       | Three Months Ended       |         | Nine Months Ended
|                        |                                       | September 30,            |         | September 30,    
|                        |                                       |                          |         |                  
|                        |                                       | 2004                     |         | 2003              |         | 2004 |         | 2003  
|                        |                                       |                          |         |                   |         |      |         |       
|Revenue                 |                                       | $                        | 182,891 |                   |         | $    | 175,259 |        |         | $ | 543,488 |         |         | $ | 492,410 |        
|Operating Expenses:     |                                       |                          |         |                   |         |      |         |        |         |   |         |         |         |   |         |        
|                        | Cost of revenue                       |                          |         | 54,984            |         |      |         | 50,150 |         |   |         | 165,634 |         |   |         | 147,420 |        
|                        | General and administrative expense    |                          |         | 22,741            |         |      |         | 19,454 |         |   |         | 59,205  |         |   |         | 53,203  |        
|                        | Bad debt expense                      |                          |         | 4,935             |         |      |         | 4,899  |         |   |         | 16,267  |         |   |         | 18,446  |        
|                        | Termination of annual advisory fees   |                          |         | 10,000            |         |      |         |       |         |   |         | 10,000  |         |   |         |        |        
|                        | Depreciation and amortization expense |                          |         | 3,488             |         |      |         | 2,707  |         |   |         | 9,117   |         |   |         | 8,074   |        
|                        | Amortization of intangibles           |                          |         | 45,282            |         |      |         | 53,590 |         |   |         | 135,845 |         |   |         | 160,770 |        
|                        |                                       |                          |         |                   |         |      |         |        |         |   |         |         |         |   |         |        
|                        |                                       | Total operating expenses |         |                   | 141,430 |      |         |        | 130,800 |   |         |         | 396,068 |   |         |         | 387,913 |  
|                        |                                       |                          |         |                   |         |      |         |        |         |   |         |         |         |   |         |        
|                        |                                       | Operating income         |         |                   | 41,461  |      |         |        | 44,459  |   |         |         | 147,420 |   |         |         | 104,497 |  
|Other (income) expense: |                                       |                          |         |                   |         |      |         |        |         |   |         |         |         |   |         |        
|                        | Interest income                       |                          |         | (327              | )       |      |         | (118   | )       |   |         | (645    | )       |   |         | (592    | )      
|                        | Interest expense                      |                          |         | 68,573            |         |      |         | 47,449 |         |   |         | 163,121 |         |   |         | 145,764 |        
|                        | Other expense, net                    |                          |         |                  |         |      |         | 2,769  |         |   |         | 43      |         |   |         | 11,299  |        
|                        |                                       |                          |         |                   |         |      |         |        |         |   |         |         |         |   |         |        
|                        |                                       | Loss before income taxes |         |                   | (26,785 | )    |         |        | (5,641  | ) |         |         | (15,099 | ) |         |         | (51,974 | )
|Income tax benefit      |                                       |                          | (11,350 | )                 |         |      | (2,259  | )      |         |   | (6,653  | )       |         |   | (20,816 | )      
|                        |                                       |                          |         |                   |         |      |         |        |         |   |         |         |         |   |         |        
|                        | Net loss                              |                          | $       | (15,435           | )       |      | $       | (3,382 | )       |   | $       | (8,446  | )       |   | $       | (31,158 | )      
|                        |                                       |                          |         |                   |         |      |         |        |         |   |         |         |         |   |         |        

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents



DEX MEDIA EAST LLC

AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Dollars in thousands)


(Unaudited)


|                           |                                                               |                                                                                             |                                       |          |         |          |   |          |         |          |  
|-------------------------- | ------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------- | -------- | ------- | -------- | - | -------- | ------- | -------- | -
|                           |                                                               |                                                                                            
|                           |                                                               | Nine Months Ended                                                                          
|                           |                                                               | September 30,                                                                              
|                           |                                                               |                                                                                            
|                           |                                                               | 2004                                                                                        |                                       | 2003    
|                           |                                                               |                                                                                             |                                       |         
|Operating activities:      |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           | Net loss                                                      |                                                                                             | $                                     | (8,446   | )       |          | $ | (31,158  | )      
|Adjustments to net loss:   |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           | Bad debt expense                                              |                                                                                             |                                       | 16,267   |         |          |   | 18,446   |        
|                           | Depreciation and amortization expense                         |                                                                                             |                                       | 9,117    |         |          |   | 8,074    |        
|                           | Amortization of intangibles                                   |                                                                                             |                                       | 135,845  |         |          |   | 160,770  |        
|                           | Amortization of deferred financing costs                      |                                                                                             |                                       | 25,336   |         |          |   | 12,985   |        
|                           | Stock option expense                                          |                                                                                             |                                       | 344      |         |          |   |         |        
|                           | Deferred tax benefit                                          |                                                                                             |                                       | (6,653   | )       |          |   | (20,816  | )      
|                           | Unrealized gain on foreign currency derivative
    instrument |                                                                                             |                                       |         |         |          |   | (4,857   | )      
|                           | Unrealized loss on translation of foreign
    currency debt   |                                                                                             |                                       |         |         |          |   | 3,776    |        
|                           | Changes in operating assets and liabilities:                  |                                                                                             |                                       |          |         |          |   |          |        
|                           |                                                               | Accounts receivable                                                                         |                                       |          | 5,701   |          |   |          | (9,402  | )       
|                           |                                                               | Deferred directory costs                                                                    |                                       |          | 5,951   |          |   |          | (589    | )       
|                           |                                                               | Other current assets                                                                        |                                       |          | (3,078  | )        |   |          | 1,431   |         
|                           |                                                               | Other long-term assets                                                                      |                                       |          | 424     |          |   |          | (3,348  | )       
|                           |                                                               | Accounts payable and other liabilities                                                      |                                       |          | (27,878 | )        |   |          | (10,478 | )       
|                           |                                                               | Accrued interest                                                                            |                                       |          | 17,014  |          |   |          | 23,154  |         
|                           |                                                               | Deferred revenue and customer deposits                                                      |                                       |          | (16,973 | )        |   |          | 24,582  |         
|                           |                                                               | Amounts due to affiliates                                                                   |                                       |          | 14,744  |          |   |          | 4,120   |         
|                           |                                                               | Amounts due to affiliates related to
    post-retirement and other post-employment benefits |                                       |          | 3,831   |          |   |          | (372    | )       
|                           |                                                               | Employee benefit plan obligations and other
    long-term liabilities                       |                                       |          | (3,928  | )        |   |          | 5,999   |         
|                           |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           |                                                               |                                                                                             | Cash provided by operating activities |          |         | 167,618  |   |          |         | 182,317  |  
|                           |                                                               |                                                                                             |                                       |          |         |          |   |         
|Investing activities:      |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           |                                                               | Expenditures for property, plant and equipment                                              |                                       |          | (7,465  | )        |   |          | (8,305  | )       
|                           |                                                               | Capitalized software development costs                                                      |                                       |          | (14,891 | )        |   |          | (15,434 | )       
|                           |                                                               | Escrow deposits                                                                             |                                       |          |        |          |   |          | (2,000  | )       
|                           |                                                               | Escrow funds released                                                                       |                                       |          |        |          |   |          | 4,000   |         
|                           |                                                               | Additional consideration for the acquisition of
    Dex East                                |                                       |          |        |          |   |          | (4,472  | )       
|                           |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           |                                                               |                                                                                             | Cash used for investing activities    |          |         | (22,356  | ) |          |         | (26,211  | )
|                           |                                                               |                                                                                             |                                       |          |         |          |   |         
|Financing activities:      |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           | Proceeds from borrowings on revolving credit
    facility     |                                                                                             |                                       | 18,000   |         |          |   | 5,000    |        
|                           | Repayments of borrowings on revolving credit
    facility     |                                                                                             |                                       | (18,000  | )       |          |   | (5,000   | )      
|                           | Proceeds from issuance of long-term debt                      |                                                                                             |                                       |         |         |          |   | 160,000  |        
|                           | Repayments on long-term debt                                  |                                                                                             |                                       | (351,189 | )       |          |   | (149,873 | )      
|                           | Payment of refinancing costs                                  |                                                                                             |                                       | (941     | )       |          |   | (2,639   | )      
|                           | Contributions from parent                                     |                                                                                             |                                       | 212,280  |         |          |   | 50,000   |        
|                           | Distributions to parent                                       |                                                                                             |                                       | (8,170   | )       |          |   | (210,000 | )      
|                           |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           |                                                               |                                                                                             | Cash used for financing activities    |          |         | (148,020 | ) |          |         | (152,512 | )
|                           |                                                               |                                                                                             |                                       |          |         |          |   |         
|Cash and cash equivalents: |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           | (Decrease) increase                                           |                                                                                             |                                       | (2,758   | )       |          |   | 3,594    |        
|                           | Beginning balance                                             |                                                                                             |                                       | 2,758    |         |          |   | 37,626   |        
|                           |                                                               |                                                                                             |                                       |          |         |          |   |         
|                           |                                                               |                                                                                             | Ending balance                        |          | $       |         |   |          | $       | 41,220   |  
|                           |                                                               |                                                                                             |                                       |          |         |          |   |         

See accompanying notes to condensed consolidated
financial statements.

4



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##### Table of Contents



DEX MEDIA EAST LLC

AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)




|    |                        
|--- | -----------------------
|(1) | Description of Business



|    |                                      
|--- | -------------------------------------
|(a) | Dex Media Initial Public
    Offering

Effective July 27, 2004, the Companys
indirect parent, Dex Media, Inc. (Dex Media)
consummated its initial public offering of common stock, (the
Offering). Part of the proceeds related to the
Offering were used to redeem $183.8 million of the
Companys senior subordinated notes on August 26, 2004
at a redemption price of 112.125% along with the accrued and
unpaid interest. In connection with the Offering, the Company
paid $5.0 million to each of the Sponsors (as defined
below) to eliminate the aggregate $2.0 million annual
advisory fee payable under its management consulting agreements.



|    |            
|--- | -----------
|(b) | Acquisition

On August 19, 2002, Dex Holdings LLC
(Dex Holdings), the parent of Dex Media, both new
entities formed by the private equity firms of The Carlyle Group
and Welsh, Carson, Anderson & Stowe (WCAS)
(together, the Sponsors), entered into concurrent
purchase agreements (the Dex East Purchase Agreement
and the Dex West Purchase Agreement) to purchase the
business of Qwest Dex Holdings, Inc. and its wholly-owned
subsidiary Qwest Dex, Inc. (together Qwest Dex) from
Qwest Communications International Inc. (Qwest) in
two separate phases.

In the first phase, consummated on
November 8, 2002 (the Acquisition), Dex
Holdings assigned its right to purchase the directory business
in the Dex East States (as defined below) (Dex West)
to Dex Media East LLC (Dex Media East or the
Company), an indirect wholly-owned subsidiary of Dex
Media. Dex Media East now operates the directory business in
Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota
and South Dakota (the Dex East States). The total
amount of consideration paid for Qwest Dexs directory
business in the Dex East States was $2.8 billion (excluding
fees and acquisition costs).

In the second phase, consummated on
September 9, 2003, Qwest Dex contributed its remaining
assets and liabilities relating to its directory business in the
Dex West States (as defined below) to GPP LLC, a newly-formed
limited liability company. Immediately following this
contribution, Dex Media West LLC (Dex Media West),
an indirect wholly-owned subsidiary of Dex Media, purchased all
of the interests in GPP LLC for $4.3 billion (excluding
fees and acquisition costs). Immediately following such
purchase, Dex Media West merged with GPP LLC. Dex Media West now
operates the directory business acquired in Arizona, Idaho,
Montana, Oregon, Utah, Washington and Wyoming (the Dex
West States). In conjunction with the acquisition, Dex
West employees became employees of Dex Media West and were
immediately transferred to Dex Media East. On January 1,
2004, all employees of Dex Media East were transferred to
another indirect wholly-owned subsidiary of Dex Media, Dex Media
Service LLC (Service Co.).



|    |           
|--- | ----------
|(c) | Operations

The Company is the exclusive official directory
publisher for Qwest Corporation, Qwests local exchange
carrier (Qwest LEC), in the Dex East States, which
is the primary local exchange carrier in most service areas
within the Dex East States. As a result, the Company is the
largest telephone directory publisher of white and yellow pages
directories to businesses and residents in the Dex East States.
The Company provides directory and Internet solutions to local
and national advertisers. Virtually all of the Companys
revenue is derived from the sale of advertising in its various
directories. Published directories are distributed to businesses
and residents in the Dex East States through third-party vendors.

5



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##### Table of Contents



DEX MEDIA EAST LLC


AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                      
|--- | ---------------------
|(2) | Basis of Presentation



|    |        
|--- | -------
|(a) | General

The accompanying condensed consolidated interim
financial statements are unaudited. In compliance with the
instructions of the Securities and Exchange Commission (the
SEC) for interim financial statements, certain
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
have been omitted. In managements opinion, the condensed
consolidated financial statements reflect all adjustments (which
consist of normal recurring adjustments) necessary to fairly
present the condensed consolidated statements of financial
position as of September 30, 2004 and December 31,
2003, the condensed consolidated statements of operations for
the three months and nine months ended September 30, 2004
and 2003 and the condensed consolidated statements of cash flows
for the nine months ended September 30, 2004 and 2003.
These condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial
statements of the Company as of December 31, 2003 and 2002
and for the year ended December 31, 2003, for the periods
from November 9 to December 31, 2002 and from January 1 to
November 8, 2002, and for the year ended December 31,
2001 included in the Companys Form 10-K as filed with
the SEC. The condensed consolidated statements of operations for
the three months and nine months ended September 30, 2004
are not necessarily indicative of the results expected for the
full year.

The accompanying condensed consolidated
statements of operations for the three months and nine months
ended September 30, 2003 and the condensed consolidated
statements of cash flows for the nine months ended
September 30, 2003 include all material adjustments
required under purchase accounting.



|    |                  
|--- | -----------------
|(b) | Reclassifications

Certain prior period amounts have been
reclassified to conform to the 2004 presentation.



|    |                                               
|--- | ----------------------------------------------
|(3) | Summary of Significant Accounting
    Policies



|    |                            
|--- | ---------------------------
|(a) | Principles of Consolidation

The condensed consolidated financial statements
include the financial statements of Dex Media East and its
wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.



|    |                 
|--- | ----------------
|(b) | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts and disclosures reported
in these condensed consolidated financial statements and
accompanying notes. Actual results could differ significantly
from those estimates.



|    |                    
|--- | -------------------
|(c) | Revenue Recognition

The sale of advertising in printed directories
published by the Company is the primary source of revenue.
Revenue is recognized ratably over the life of each directory
using the deferral and amortization method of accounting, with
revenue recognition commencing in the month of delivery. The
Company publishes white and yellow pages directories primarily
with 12-month lives. From time to time, the Company may choose
to change the publication dates of certain directories in order
to more efficiently manage work and account flow. The lives of
the effected directories will primarily be 12 months
thereafter. Such extensions did not have a significant impact on
the Companys results of operations for the three months
and nine months ended September 30, 2004 and they are not
expected to have a material effect on revenue or cost of revenue
in future

6



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##### Table of Contents



DEX MEDIA EAST LLC


AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


periods under the deferral and amortization
method of accounting. For the three months ended
September 30, 2004 and 2003, the Company published 25 and
26 directories, respectively. For the nine months ended
September 30, 2004 and 2003, the Company published 117 and
114 directories, respectively, in the Dex East States.

The Company enters into transactions where the
Companys products and services are promoted by a third
party and, in exchange, the Company carries the partys
advertisement. The Company accounts for these transactions in
accordance with Emerging Issues Task Force (EITF)
Issue No. 99-17, Accounting for Advertising Barter
Transactions.Revenue and expense related to such
transactions are classified in the consolidated statements of
operations consistently with similar items sold or purchased for
cash. Such barter transactions were not significant to the
Companys operations for the three months and nine months
ended September 30, 2004 and 2003.

In certain cases, the Company enters into
agreements with accounts that involve the delivery of more than
one product or service. Revenue for such arrangements is
allocated in accordance with EITF Issue No. 00-21,
Revenue Arrangements with Multiple
Deliverables.



|    |                
|--- | ---------------
|(d) | Cost of Revenue

The Company accounts for cost of revenue under
the deferral and amortization method of accounting. Accordingly,
the cost of revenue recognized in a reporting period consists of
(1) costs incurred in that period and recognized in that
period, principally sales salaries and wages, (2) costs
incurred in a prior period, a portion of which is amortized and
recognized in the current period, and (3) costs incurred in
the current period, a portion of which is amortized and
recognized in that period and the balance of which is deferred
until future periods. Consequently, there will be a difference
between the cost of revenue recognized in any given period and
the costs incurred in the given period, which may be significant.

Costs incurred in the current period and subject
to deferral include direct costs associated with the publication
of directories, including sales commissions, paper, printing,
transportation, distribution and pre-press production and
employee and systems support costs relating to each of the
foregoing. Sales commissions include commissions paid to
employees for sales to local advertisers and to third party
certified marketing representatives, which act as the
Companys channel to national advertisers. All deferred
costs related to the sale and production of directories are
recognized ratably over the life of each directory under the
deferral and amortization method of accounting, with cost
recognition commencing in the month of delivery.



|    |                         
|--- | ------------------------
|(e) | Stock-Based Compensation

The Company accounts for the Stock Option Plan of
Dex Media, Inc. and the Dex Media, Inc. 2004 Incentive Award
Plan under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employees,and related Interpretations. Had the
Company accounted for employee stock options grants under the
fair value method prescribed by Statement of Financial
Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, the
pro forma results of the Company for the three months and nine
months ended September 30, 2004 and 2003 would have been as
follows (in thousands):

|          |             |                    |   |                   |   |      |   |        |   |  |   |        |   |  |   |         |  
|--------- | ----------- | ------------------ | - | ----------------- | - | ---- | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|          |             |                    |   |                  
|          |             | Three Months Ended |   | Nine Months Ended
|          |             | September 30,      |   | September 30,    
|          |             |                    |   |                  
|          |             | 2004               |   | 2003              |   | 2004 |   | 2003  
|          |             |                    |   |                   |   |      |   |       
|Net loss: |             |                    |   |                   |   |      |   |        |   |  |   |        |   |  |   |        
|          | As reported |                    | $ | (15,435           | ) |      | $ | (3,382 | ) |  | $ | (8,446 | ) |  | $ | (31,158 | )
|          | Pro forma   |                    |   | (15,490           | ) |      |   | (3,430 | ) |  |   | (8,599 | ) |  |   | (31,292 | )

7



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##### Table of Contents



DEX MEDIA EAST LLC


AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                     
|--- | --------------------
|(f) | Income Tax Provision

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recorded to reflect the future tax consequences of temporary
differences between the financial reporting bases of assets and
liabilities and their tax bases at each year end. Deferred tax
assets and liabilities are measured using the enacted income tax
rates in effect for the period in which those temporary
differences are expected to be recovered or settled. Deferred
tax assets and liabilities are adjusted for future income tax
rate changes in the year the changes are enacted. Deferred tax
assets are recognized for operating loss and tax credit carry
forwards if management believes, based upon existing evidence,
that it is more likely than not that the carry forward will be
utilized. All deferred tax assets are reviewed for realizability
and valuation allowances are recorded if it is more likely than
not that the deferred tax assets will not be realized.



|    |                               
|--- | ------------------------------
|(4) | Goodwill and Intangible Assets

For the three months and nine months ended
September 30, 2004 and 2003 no goodwill was acquired,
impaired or otherwise adjusted.

The gross carrying amount and accumulated
amortization of other intangible assets and their estimated
useful lives are as follows (dollars in thousands):

As of September 30, 2004

|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |     | 
|--------------------------------- | ------ | -------- | ------- | ------------ |  | -------- | -------- | -------- | - | - | ------- | --------- |  |  | ---------- | --- | 
|                                  |        | Gross    |         |              |  |          |          |         
|                                  |        | Carrying |         | Accumulated  |  | Net Book |          |         
|Intangible Assets                 |        | Value    |         | Amortization |  | Value    |          | Life    
|                                  |        |          |         |              |  |          |          |         
|Account relationships  local     |        | $        | 897,000 |              |  | $        | (282,910 | )        |   | $ | 614,090 |           |  |  | 20  years  | (1)
|Account relationships  national  |        |          | 241,000 |              |  |          | (58,567  | )        |   |   | 182,433 |           |  |  | 25  years  | (1)
|Non-compete/publishing agreements |        |          | 251,000 |              |  |          | (11,900  | )        |   |   | 239,100 |           |  |  | 40 years   |    
|Dex Trademark                     |        |          | 311,000 |              |  |          |         |          |   |   | 311,000 |           |  |  | Indefinite |    
|Qwest Dex Trademark agreement     |        |          | 68,000  |              |  |          | (25,770  | )        |   |   | 42,230  |           |  |  | 5 years    |    
|Advertising agreements            |        |          | 23,000  |              |  |          | (2,898   | )        |   |   | 20,102  |           |  |  | 15 years   |    
|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |    
|                                  | Totals |          | $       | 1,791,000    |  |          | $        | (382,045 | ) |   | $       | 1,408,955 |  |  |            |     | 
|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |    

As of December 31, 2003

|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |     | 
|--------------------------------- | ------ | -------- | ------- | ------------ |  | -------- | -------- | -------- | - | - | ------- | --------- |  |  | ---------- | --- | 
|                                  |        | Gross    |         |              |  |          |          |         
|                                  |        | Carrying |         | Accumulated  |  | Net Book |          |         
|Intangible Assets                 |        | Value    |         | Amortization |  | Value    |          | Life    
|                                  |        |          |         |              |  |          |          |         
|Account relationships  local     |        | $        | 897,000 |              |  | $        | (184,280 | )        |   | $ | 712,720 |           |  |  | 20  years  | (1)
|Account relationships  national  |        |          | 241,000 |              |  |          | (37,410  | )        |   |   | 203,590 |           |  |  | 25  years  | (1)
|Non-compete/publishing agreements |        |          | 251,000 |              |  |          | (7,190   | )        |   |   | 243,810 |           |  |  | 40 years   |    
|Dex Trademark                     |        |          | 311,000 |              |  |          |         |          |   |   | 311,000 |           |  |  | Indefinite |    
|Qwest Dex Trademark agreement     |        |          | 68,000  |              |  |          | (15,570  | )        |   |   | 52,430  |           |  |  | 5 years    |    
|Advertising agreements            |        |          | 23,000  |              |  |          | (1,750   | )        |   |   | 21,250  |           |  |  | 15 years   |    
|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |    
|                                  | Totals |          | $       | 1,791,000    |  |          | $        | (246,200 | ) |   | $       | 1,544,800 |  |  |            |     | 
|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |    



---



|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(1) | Amortization is calculated using a declining
    method in relation to estimated retention lives of acquired
    accounts.

8



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##### Table of Contents



DEX MEDIA EAST LLC


AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |               
|--- | --------------
|(5) | Long-Term Debt

Long-term debt is comprised of the following (in
thousands, in descending order of right of payment):

|                                                                                                                                                                                                                                                      |  |               |           |              |  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ------------ |  | - | --------- | -
|                                                                                                                                                                                                                                                      |  | As of         |           | As of       
|                                                                                                                                                                                                                                                      |  | September 30, |           | December 31,
|                                                                                                                                                                                                                                                      |  | 2004          |           | 2003        
|                                                                                                                                                                                                                                                      |  |               |           |             
|Notes payable to banks, Tranche A term loan,
    bearing interest at adjusted London Interbank Offer Rates
    (LIBOR) plus the current applicable interest spread
    of 2.00% (weighted average interest rate of 3.77% at
    September 30, 2004) |  | $             | 495,193   |              |  | $ | 585,288   |  
|Notes payable to banks, Tranche B term loan,
    bearing interest at adjusted LIBOR plus the current applicable
    interest spread of 2.00% (weighted average interest rate of
    3.75% at September 30, 2004)                                      |  |               | 503,234   |              |  |   | 580,825   |  
|Unsecured senior notes, due November 2009,
    bearing interest at 9 7/8%                                                                                                                                                                             |  |               | 450,000   |              |  |   | 450,000   |  
|Unsecured senior subordinated notes, due November
    2012, bearing interest at 12 1/8%                                                                                                                                                               |  |               | 341,250   |              |  |   | 525,000   |  
|                                                                                                                                                                                                                                                      |  |               |           |              |  |   |           |  
|                                                                                                                                                                                                                                                      |  |               | 1,789,677 |              |  |   | 2,141,113 |  
|Less: current portion of long-term debt                                                                                                                                                                                                               |  |               | (101,840  | )            |  |   | (50,845   | )
|                                                                                                                                                                                                                                                      |  |               |           |              |  |   |           |  
|                                                                                                                                                                                                                                                      |  | $             | 1,687,837 |              |  | $ | 2,090,268 |  
|                                                                                                                                                                                                                                                      |  |               |           |              |  |   |           |  

A portion of the net proceeds from the Offering
was used to redeem $183.8 million of the Companys
senior subordinated notes at a redemption price of 112.125% plus
accrued and unpaid interest.

As of September 30, 2004, there were no
borrowings under the revolving credit facility (although
approximately $1 million is committed under a standby
letter of credit). The Company paid interest and fees for the
credit facilities, interest rate swaps, senior notes and senior
subordinated notes of $119.6 million and
$106.8 million during the nine months ended
September 30, 2004 and 2003, respectively. Included in
interest expense paid in 2004, were $22.3 million of early
redemption premiums paid to redeem a portion of our senior
subordinated notes and the accelerated payment of
$6.3 million accrued interest on those notes. The premium
and interest were paid from a portion of the net proceeds from
the Offering. As of September 30, 2004, the Company was in
compliance with all covenants under its credit facilities.

In connection with the amendment and restatement
of the Companys credit agreement, the applicable margins
on the revolving credit facility, Tranche A term loan and
Tranche B term loan have been reduced. The commitment fee
on the unused portion of the revolving credit facility has been
reduced to 0.375% from 0.5%. The reductions have been effective
since June 11, 2004.

As discussed in Note 1(a), a portion of the
net proceeds from the Offering was used to redeem
$183.8 million of the Companys senior subordinated
notes at a redemption price of 112.125% plus accrued and unpaid
interest.



|    |                                                  
|--- | -------------------------------------------------
|(6) | Derivative Instruments and Hedging
    Activities

During November 2002, the Company entered into
four interest rate swap agreements to hedge against the effects
of increases in the interest rates associated with floating rate
debt on its credit facilities. All interest rate related
derivative instruments had forward starting dates of May 8,
2003. The Company reclassified $1.5 million and
$1.8 million of hedging losses into interest expense for
the three months ended September 30, 2004 and 2003,
respectively. The Company reclassified $5.2 million and
$2.8 million of hedging losses into

9



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##### Table of Contents



DEX MEDIA EAST LLC


AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


interest expense for the nine months ended
September 30, 2004 and 2003, respectively. For the three
months ended September 30, 2004 and 2003, the Company had
$0.8 million of unrealized losses and $1.8 million of
unrealized gains, respectively, net of tax which are included in
other comprehensive loss. For the nine months ended
September 30, 2004 and 2003, the Company had
$2.2 million of unrealized gains and $2.2 million of
unrealized losses, respectively, net of tax which are included
in other comprehensive loss. As of September 30, 2004 and
December 31, 2003, $1.8 million and $4.0 million,
respectively, of deferred losses,net of tax on
derivative instruments are recorded in accumulated other
comprehensive loss, of which $0.8 million, net of tax is
expected to be reclassified to earnings during the next
12 months.

During November 2002, the Company entered into a
foreign currency swap agreement to hedge against the effects of
foreign currency fluctuation between the US Dollar and the Euro
on its Tranche B-Euros. For the three months and nine
months ended September 30, 2003, the Company recognized
$0.6 million and $4.9 million, respectively, in
unrealized gains on the foreign currency derivative instrument.
These gains were offset by losses on foreign currency
transaction adjustments to the underlying debt instrument of
$0.4 million and $3.8 million for the three months and
nine months ended September 30, 2003, respectively. In
connection with a refinancing of the Tranche B and
Tranche-B Euros in November 2003, the Company canceled its
foreign currency swap agreement on November 10, 2003.

During November 2002, the Company entered into an
interest rate cap agreement. Losses of less than
$0.1 million for each of the three months ended
September 30, 2004 and 2003, and less than
$0.1 million and $0.6 million for the nine months
ended September 30, 2004 and 2003, respectively, relating
to this agreement are included in earnings for those periods.



|    |                     
|--- | --------------------
|(7) | Comprehensive Income

Components of comprehensive income (loss) are
changes in equity other than those resulting from investments by
owners and distributions to owners. Net income (loss) is the
primary component of comprehensive income (loss). For the
Company, the component of comprehensive income (loss) other than
net income (loss) is the change in unrealized gain or loss on
derivatives qualifying for hedge accounting, net of tax. The
aggregate amounts of such changes to equity that have not been
recognized in net income are reported in the equity portion of
the consolidated balance sheets as accumulated other
comprehensive income (loss). Comprehensive income (loss) for the
periods presented is as follows (in thousands):

|                                                  |  |                      |         |                     |  |      |        |      |  |   |        |   |  |   |         |  
|------------------------------------------------- |  | -------------------- | ------- | ------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                  |  |                      |         |                    
|                                                  |  | For the Three Months |         | For the Nine Months
|                                                  |  | Ended September 30,  |         | Ended September 30,
|                                                  |  |                      |         |                    
|                                                  |  | 2004                 |         | 2003                |  | 2004 |        | 2003
|                                                  |  |                      |         |                     |  |      |        |     
|Net loss                                          |  | $                    | (15,435 | )                   |  | $    | (3,382 | )    |  | $ | (8,446 | ) |  | $ | (31,158 | )
|Unrealized gain (loss) on derivatives, net of tax |  |                      | (792    | )                   |  |      | 1,785  |      |  |   | 2,216  |   |  |   | (2,155  | )
|                                                  |  |                      |         |                     |  |      |        |      |  |   |        |   |  |   |         |  
|Total comprehensive income (loss)                 |  | $                    | (16,227 | )                   |  | $    | (1,597 | )    |  | $ | (6,230 | ) |  | $ | (33,313 | )
|                                                  |  |                      |         |                     |  |      |        |      |  |   |        |   |  |   |         |  



|    |              
|--- | -------------
|(8) | Stock Options

On November 8, 2002, Dex Media adopted the
Stock Option Plan of Dex Media, Inc. (the 2002 Plan)
that permits the grant of nonqualified and incentive stock
options to its employees, consultants and independent directors
or those of its wholly-owned subsidiaries. Effective May 2004,
Dex Media adopted the Dex Media, Inc. 2004 Incentive Award Plan
(the 2004 Plan). The 2004 Plan provides for a
variety of stock-based awards, including non-qualified stock
options, incentive stock options, stock appreciation rights,
restricted stock awards, restricted stock unit awards, deferred
stock awards, dividend equivalents, performance-based awards and
other stock-based awards. Effective with the adoption of the
2004 Plan, Dex Media discontinued grants under the 2002 Plan,
while the 5,066,540 options outstanding under the 2002 Plan
remain

10



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##### Table of Contents



DEX MEDIA EAST LLC


AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


outstanding pursuant to the terms of that plan.
Upon adoption of the 2004 Plan, 210,110 shares available
for issuance under the 2002 Plan became available for issuance
under the 2004 Plan. As of September 30, 2004, the number
of shares available for issuance under the 2004 Plan was
1,210,110 with 12,500 shares issued under a restricted
stock award and 1,197,610 shares available for issuance
pursuant to future awards.

The Compensation Committee of Dex Media
determines the terms for each award. Generally, all outstanding
stock options have an exercise price that is equal to the
estimated fair value of the common stock on the date the stock
option was granted, however, in certain instances stock options
have been granted with an exercise price below the estimated
fair value of the common stock on the date of grant. All
outstanding options have a term of ten years. Outstanding
options vest in two segments. Subject to the optionees
continued employment with the Company, (1) 25% of the
options granted will vest in equal annual installments of 5%
each on each December 31 beginning in the year of grant or
the following year, depending upon when during the calendar year
the options are granted, and ending five years after; and
(2) 75% of the options granted will vest on the eighth
anniversary of the grant date; however, an installment equal to
15% of the options granted shall become vested following each of
the fiscal years beginning the year of grant or the following
year, depending upon when during the calendar year the options
are granted, and ending five years after if certain earnings
before interest, taxes, depreciation and amortization
(EBITDA) targets are met with respect to each year.
All shares issued under restricted stock awards are subject to
restrictions on sales and transfer of shares. These restrictions
lapse on one-third of the shares granted on each of the first
three anniversary dates, provided that the recipient is still an
employee or director of the Company.

On November 3, 2003, Dex Media declared a
distribution to Dex Holdings of $750.2 million. As a result
of the distribution and as provided under the 2002 Plan, Dex
Media adjusted the exercise price of all outstanding options to
$6.00, effective November 10, 2003. On January 28,
2004, Dex Media declared another distribution to its parent of
$250.5 million. As a result of the distribution and as
allowed under the 2002 Plan, Dex Media adjusted the exercise
price of outstanding options to $4.64 and increased the number
of outstanding options by 9.3587%, effective March 3, 2004.
As the aggregate intrinsic value of the awards immediately after
the changes in exercise price was not greater than the aggregate
intrinsic value of the awards immediately prior to the changes
in exercise price, and as the ratio of the exercise price per
share to the market price per share was not reduced, the
adjustments to the exercise price of the options did not result
in any accounting recognition in the Companys consolidated
statements of operations in accordance with APB Opinion
No. 25 and FASB Interpretation No. (FIN) 44,
Accounting for Certain Transactions Involving Stock
Compensation.



|    |                                               
|--- | ----------------------------------------------
|(9) | Pension and Other Post-Retirement
    Benefits



|    |                    
|--- | -------------------
|(a) | General Description

Effective November 8, 2002, Dex Media
adopted a pension plan and effective December 1, 2002, Dex
Media adopted a post-retirement benefit plan providing retiree
healthcare (together, the Dex Media Plans). All
individuals who became employees of Dex Media in connection with
the Acquisition and who previously participated in the Qwest
plans now participate in the Dex Media Plans. Employees of Qwest
Dex who retired prior to the date of the Acquisition became
retirees of Qwest and as such receive benefits under the Qwest
plans. Dex Media has filed for a determination letter with the
IRS for its pension plan.

Pension costs and other post-retirement costs are
recognized over the periods in which the employee renders
services and becomes eligible to receive benefits as determined
by using the projected unit credit method. Dex Medias
funding policy is to make contributions with the objective of
accumulating sufficient assets to pay all benefits when due. No
pension funding was required for Dex Media for the three months
and nine months ended September 30, 2004 and 2003. The
post-retirement benefit plan is pay-as-you go and is

11



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##### Table of Contents



DEX MEDIA EAST LLC


AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


funded out of Dex Medias operating cash as
the costs are incurred. No other post-retirement benefit funding
was required for Dex Media for the three months and nine months
ended September 30, 2004 and 2003.

On September 9, 2003, Dex West employees
became employees of Dex Media East. Effective January 1,
2004, all employees of Dex Media East were transferred to
Service Co. As such, all employee-related liabilities, including
pension and other post-retirement obligations, are now included
in Service Co.s reported liabilities. The Company records
an affiliate payable for the portion of the liability associated
with the employees who provide services to Dex Media East. Under
the Shared Services and Employees Agreement dated
September 9, 2003, costs related to employees providing
services entirely for Dex Media East are allocated 100% to Dex
Media East. Shared employee costs are allocated and charged to
Dex Media East based upon Dex Media Easts proportional
share of consolidated Dex Media revenue.



|    |                                            
|--- | -------------------------------------------
|(b) | Components of Net Periodic Benefit
    Cost

The components of net periodic benefit cost for
the Company are as follows (in thousands):

|                                    |  |                    |        |                    |  |         |     |                 |  |   |        |   |  |   |     | 
|----------------------------------- |  | ------------------ | ------ | ------------------ |  | ------- | --- | --------------- |  | - | ------ | - |  | - | --- | 
|                                    |  |                    |        |                   
|                                    |  | Three Months Ended |        | Three Months Ended
|                                    |  | September 30, 2004 |        | September 30, 2003
|                                    |  |                    |        |                   
|                                    |  | Pension            |        | Post-Retirement    |  | Pension |     | Post-Retirement
|                                    |  | Benefit            |        | Benefits           |  | Benefit |     | Benefits       
|                                    |  |                    |        |                    |  |         |     |                
|Service cost                        |  | $                  | 1,254  |                    |  | $       | 282 |                 |  | $ | 1,078  |   |  | $ | 265 | 
|Interest cost                       |  |                    | 1,387  |                    |  |         | 386 |                 |  |   | 1,527  |   |  |   | 660 | 
|Expected return on plan assets      |  |                    | (1,916 | )                  |  |         |    |                 |  |   | (1,617 | ) |  |   |    | 
|Amortization of prior service costs |  |                    |       |                    |  |         | (43 | )               |  |   |       |   |  |   |    | 
|                                    |  |                    |        |                    |  |         |     |                 |  |   |        |   |  |   |     | 
|Net periodic benefit cost           |  | $                  | 725    |                    |  | $       | 625 |                 |  | $ | 988    |   |  | $ | 925 | 
|                                    |  |                    |        |                    |  |         |     |                 |  |   |        |   |  |   |     | 

|                                    |  |                    |        |                    |  |         |       |                 |  |   |        |   |  |   |       | 
|----------------------------------- |  | ------------------ | ------ | ------------------ |  | ------- | ----- | --------------- |  | - | ------ | - |  | - | ----- | 
|                                    |  |                    |        |                   
|                                    |  | Nine Months Ended  |        | Nine Months Ended 
|                                    |  | September 30, 2004 |        | September 30, 2003
|                                    |  |                    |        |                   
|                                    |  | Pension            |        | Post-Retirement    |  | Pension |       | Post-Retirement
|                                    |  | Benefit            |        | Benefits           |  | Benefit |       | Benefits       
|                                    |  |                    |        |                    |  |         |       |                
|Service cost                        |  | $                  | 3,762  |                    |  | $       | 846   |                 |  | $ | 3,024  |   |  | $ | 743   | 
|Interest cost                       |  |                    | 4,161  |                    |  |         | 1,158 |                 |  |   | 4,285  |   |  |   | 1,852 | 
|Expected return on plan assets      |  |                    | (5,748 | )                  |  |         |      |                 |  |   | (4,537 | ) |  |   |      | 
|Amortization of prior service costs |  |                    |       |                    |  |         | (129  | )               |  |   |       |   |  |   |      | 
|                                    |  |                    |        |                    |  |         |       |                 |  |   |        |   |  |   |       | 
|Net periodic benefit cost           |  | $                  | 2,175  |                    |  | $       | 1,875 |                 |  | $ | 2,772  |   |  | $ | 2,595 | 
|                                    |  |                    |        |                    |  |         |       |                 |  |   |        |   |  |   |       | 



|     |                              
|---- | -----------------------------
|(10) | Commitments and Contingencies



|    |           
|--- | ----------
|(a) | Litigation

The Company is involved, from time to time, in
litigation arising in the normal course of business. The outcome
of this litigation is not expected to have a material adverse
impact on the Company.



|    |                             
|--- | ----------------------------
|(b) | Planned Work Force Reduction

In September of 2004, the Company announced a
planned work force reduction primarily due to efficiencies
gained by the replacement of our core production platform with
technology from Amdocs. Accordingly, the Company accrued
$3.8 million of severance costs in the third quarter of
2004.

12



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##### Table of Contents



DEX MEDIA EAST LLC


AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF DEX
MEDIA, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |                             
|---- | ----------------------------
|(11) | Transactions with Affiliates

As also described in Notes 1(a) and 9(a),
upon consummation of the acquisition of Dex West on
September 9, 2003 all Dex West employees transferred to Dex
Media West and became legal employees of Dex Media East.
Effective January 1, 2004, all employees of Dex Media East
were transferred to Service Co. As such, all employee-related
liabilities, including pension and other post-retirement
obligations, are now included in Service Co.s liabilities,
with an offsetting asset recorded as an affiliate receivable.
Dex Media East is charged and carries an affiliate payable for
the portion of the liability associated with employees providing
services to Dex Media East. Pursuant to Shared Services and
Employees Agreement dated September 9, 2003, costs related
to Dex Media East employees providing services entirely for Dex
Media East are allocated 100% to Dex Media East. Shared employee
costs are allocated and charged to Dex Media East based upon Dex
Media Easts proportional share of consolidated Dex Media
revenue. All cash related affiliate balances are settled at
least monthly.



|     |                                                      
|---- | -----------------------------------------------------
|(12) | Related Party Transactions, Other than
    Affiliates

In connection with the Acquisition, the Company
entered into a management consulting agreement with each of the
Sponsors. Each agreement allows the Company access to the
Sponsors expertise in areas such as corporate management,
financial transactions, product strategy, investment,
acquisitions and other matters that relate to the Companys
business, administration and policies. Each of the two Sponsors
received an annual advisory fee of $1.0 million for
advisory, consulting and other services. Pursuant to these
management consulting agreements, the Company incurred
$0.5 million in pro-rated annual advisory fees for the
three months ended September 30, 2003 and $1.0 million
and $1.5 million for the nine months ended
September 30, 2004 and 2003, respectively. The annual
advisory fees payable under the agreements were terminated in
conjunction with the Offering for a one-time fee of
$5.0 million paid to each of the Sponsors. The Sponsors
maintain the right to act as the Companys financial
advisor or investment banker in connection with any merger,
acquisition, disposition, finance or the like in return for
additional reasonable compensation and expenses as may be agreed
upon by the parties.

Dex Media has entered into a two year network
services agreement with SAVVIS Communications Corporation
(SAVVIS), pursuant to which SAVVIS will provide
network connections and other services to support the
Companys integrated production system and other systems.
SAVVIS is an affiliate of WCAS. The Company and Dex Media West
expect to pay SAVVIS approximately $2.2 million,
collectively, over the two-year term of the contract, although
the Company has the option to purchase additional services for
which the Company would pay SAVVIS additional fees. As of
September 30, 2004, approximately $1.2 million was not
yet incurred under the contract.

13



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Executive Overview



| |           
| | ----------
| | Background

The following discussion and analysis of our
financial condition and results of operations covers periods
subsequent to the consummation of the acquisition of the assets
of Dex East (the Acquisition). Dex East
refers to the operations of Qwest Dex Holdings, Inc. and its
subsidiary in Colorado, Iowa, Minnesota, Nebraska, New Mexico,
North Dakota and South Dakota (the Dex East States).
References to we, our or us
refers to Dex Media East, the successor to Dex East. We have
operated as a stand-alone company since the Acquisition. The
Acquisition was accounted for under the purchase method of
accounting. Under this method, the pre-acquisition deferred
revenue and related deferred costs associated with directories
that were published prior to the acquisition date were not
carried over to our balance sheet. The effect of this accounting
treatment is to reduce revenue and related costs that would
otherwise have been recognized during the twelve months
subsequent to the acquisition date.

The statements in the discussion and analysis
regarding industry outlook, our expectations regarding the
future performance of our business and the other non-historical
statements are forward-looking statements. These forward-looking
statements are subject to numerous risks and uncertainties. Our
actual results may differ materially from those contained in any
forward-looking statements. See  Disclosure
Regarding Forward-Looking Statements. You should read the
following discussion together with our condensed consolidated
financial statements and related notes thereto included
elsewhere herein.

As a result of our conversion to the Amdocs
software system (discussed below), certain of our customer
account categories will be reclassified, which may result in a
change in how we report our total number of customer accounts.



| |             
| | ------------
| | Our Business

We are the largest directory publisher in the Dex
East States. For the three months ended September 30, 2004
and 2003, we published 25 and 26 directories, respectively,
and distributed 2.5 million and 3.1 million copies of
these directories, respectively, to business and residential
consumers in the Dex East States. For the nine months ended
September 30, 2004 and 2003, we published 117 and
114 directories, respectively, and distributed
12.1 million and 12.0 million copies of these
directories, respectively, to business and residential consumers
in the Dex East States. We also provide related services,
including an Internet-based directory, direct marketing lists
and the sale of Dex directories and other publishers
directories outside of the normal delivery schedule. For the
three months and nine months ended September 30, 2004, we
generated $182.9 million and $543.5 million in
revenue, respectively. Approximately 98% of our total revenue
for the three months and nine months ended September 30,
2004, respectively, was generated from the publication of
directories.

Our Strategy

Our strategy is centered on building
relationships with our major account groups: small and
medium-sized local businesses and national companies doing
business in the Dex East States. We plan to continue to build
our knowledge of their businesses and develop value-added
content that can be distributed to business and residential
consumers in a variety of forms. Currently, the primary method
of distribution is our print directories. We also use the
Internet and CD-ROMs to deliver our content. We plan to continue
evaluating different methods of distribution as markets and
electronic device acceptance change, particularly in the digital
space. Additionally, we will look to enhance print product
offerings such as Internet-related products and distribution.

Maximizing the utility of our content is an
important aspect of our overall strategy. To accomplish this, we
plan to continue: innovating new products such as advertising on
book spines, covers and tabs; expanding on market segmentation
such as bilingual directories in select markets; and enhancing
our distribution

14



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##### Table of Contents



platforms. In addition, we plan to continue
evaluating our related businesses based on the utility of these
product offerings to our advertisers and consumers.


Also, now that we are a stand-alone company, our
strategy is to focus on improving our infrastructure in order to
achieve a more efficient cost structure and improve revenue
opportunities in the long-term. Beginning in 2004, we began
replacing our entire production system with Amdocs technology in
a phased deployment. The first phase was deployed on
September 1, 2004 with the last phase expected to be
completed in 2005.

Results of Operations



| |         
| | --------
| | Overview

Our condensed consolidated financial statements
included herein have been prepared on the basis of the deferral
and amortization method of accounting, under which revenue and
expenses are initially deferred and then recognized ratably over
the life of each directory, commencing in the month of delivery.
In 2003, we determined that the 12-month lives of five
directories published in December 2002 would be extended. The
new editions of these five directories were published in January
2004. These extensions were made to more efficiently manage work
and account flow. The lives of the new editions of these
directories are expected to be 12 months thereafter. These
extensions did not have a significant impact on our results of
operations for the three months and nine months ended
September 30, 2004 and are not expected to have a material
effect on revenue or cost of revenue in future periods under the
deferral and amortization method of accounting.



| |        
| | -------
| | Revenue

We derive virtually all of our revenue from the
sale of advertising in our printed directories, which we refer
to as directory services revenue. We also provide related
services, including an Internet-based directory, other
Internet-related products, direct marketing lists and the sale
of Dex directories and other publishers directories
outside of the normal delivery schedule, which we refer to
collectively as other revenue. Growth in directory services
revenue is affected by several factors, including changes in the
quantity and size of advertisements sold as well as the
proportion of premium advertisements sold, changes in the
pricing of advertising, changes in the quantity and mix of
advertising purchased per account and the introduction of
additional products which generate incremental revenue.
Directory services revenue may also increase through the
publication of new printed directories.

We enter into transactions where our products and
services are promoted by a third party and, in exchange, we
carry that partys advertisement. We account for these
transactions in accordance with Emerging Issues Task Force
(EITF) Issue No. 99-17, Accounting for
Advertising Barter Transactions.Revenue and expense
related to such transactions are classified in the consolidated
statements of operations consistently with similar items sold or
purchased for cash. Such barter transactions were not
significant to our operations for the three months and nine
months ended September 30, 2004 and 2003.

In certain cases, we enter into agreements with
accounts that involve the delivery of more than one product or
service. We allocate revenue for such arrangements in accordance
with EITF Issue No. 00-21, Revenue Arrangements
with Multiple Deliverables.



| |                
| | ---------------
| | Cost of Revenue

We account for cost of revenue under the deferral
and amortization method of accounting. Accordingly, our cost of
revenue recognized in a reporting period consists of
(1) costs incurred in that period and recognized in that
period, principally sales salaries and wages, (2) costs
incurred in a prior period, a portion of which is amortized and
recognized in the current period, and (3) costs incurred in
the current period, a portion of which is amortized and
recognized in that period and the balance of which is deferred
until future periods. Consequently, there will be a difference
between the cost of revenue recognized in any given period and
the costs incurred in the given period, which may be significant.

Costs incurred in the current period and subject
to deferral include direct costs associated with the publication
of directories, including sales commissions, paper, printing,
transportation, distribution and pre-

15



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##### Table of Contents



press production, and employee and systems
support costs relating to each of the foregoing. Sales
commissions include commissions paid to employees for sales to
local advertisers and to certified marketing representatives
(CMRs), which act as our channel to national
advertisers. All deferred costs related to the sale and
production of directories are recognized ratably over the life
of each directory under the deferral and amortization method of
accounting, with cost recognition commencing in the month of
delivery.




| |                                       
| | --------------------------------------
| | General and Administrative
    Expense

Our general and administrative expense consists
primarily of the costs of advertising, promotion and marketing,
administrative staff, information technology, training, account
billing, corporate management, office and facilities expense and
bad debt expense. All of our general and administrative expense
is recognized in the period in which it is incurred.
Historically, our general and administrative expense has
included the costs of other services that were shared among
Qwest affiliates, including real estate, information
technologies, finance and human resources. However, since we
have terminated the transition services agreements with Qwest as
of December 31, 2003, we now incur these costs directly.



| |                     
| | --------------------
| | Income Tax Provision

We account for income taxes under the asset and
liability method of accounting. Deferred tax assets and
liabilities are recorded to reflect the future tax consequences
of temporary differences between the financial reporting bases
of assets and liabilities and their tax bases at each year end.
Deferred tax assets and liabilities are measured using the
enacted income tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
Deferred tax assets and liabilities are adjusted for future
income tax rate changes in the year the changes are enacted.
Deferred tax assets are recognized for operating losses and tax
credit carry forwards if management believes, based upon
existing evidence, that it is more likely than not that the
carry forward will be utilized. All deferred tax assets are
reviewed for realizability and valuation allowances are recorded
if it is more likely than not that the deferred tax assets will
not be realized.

Items Affecting Comparability Between
Periods

Our revenue and cost of revenue for the twelve
months following the consummation of the Acquisition were
$85.9 million and $22.2 million lower, respectively,
than our revenue and cost of revenue would have been otherwise
because the Acquisition was accounted for under the purchase
method of accounting. For the three months ended
September 30, 2003, our revenue and cost of revenue were
$5.4 million and $1.4 million lower, respectively, as
a result of the purchase method of accounting. For the nine
months ended September 30, 2003, our revenue and cost of
revenue were $43.6 million and $11.3 million lower,
respectively, as a result of the purchase method of accounting.
Under the purchase method of accounting, deferred revenue and
related deferred directory costs associated with directories
that were published and distributed prior to the Acquisition
were not carried over to our balance sheet. The effect of this
accounting treatment was to reduce revenue and related costs
that would otherwise have been recognized in the twelve months
subsequent to the Acquisition. The purchase method of accounting
has not affected our revenue and directory costs subsequent to
2003. This purchase accounting adjustment was non-recurring and
has no historical or future cash impact.

Results of Operations



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | The Three Months Ended September 30,
    2004 Compared to the Three Months Ended September 30,
    2003.

The results of operations below include the
effects of purchase accounting for the three months ended
September 30, 2003 and therefore the periods presented are
not comparable. Please refer to the section Items

16



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##### Table of Contents



Affecting Comparability Between Periods and
the discussion below for detail regarding the effects of these
adjustments.


|                                                                                                           |                             |                          |        |               |         |   |        |         |         | 
|---------------------------------------------------------------------------------------------------------- | --------------------------- | ------------------------ | ------ | ------------- | ------- | - | ------ | ------- | ------- | 
|                                                                                                           |                             | Three Months             |        | Three Months 
|                                                                                                           |                             | Ended                    |        | Ended        
|                                                                                                           |                             | September 30,            |        | September 30,
|                                                                                                           |                             | 2004                     |        | 2003         
|                                                                                                           |                             |                          |        |              
|                                                                                                           |                             |                         
|                                                                                                           |                             | (Dollars in thousands)  
|Revenue:                                                                                                   |                             |                          |        |               |         |   |        |        
|                                                                                                           | Local directory services    |                          | $      | 150,319       |         |   | $      | 145,962 |        
|                                                                                                           | National directory services |                          |        | 28,594        |         |   |        | 24,813  |        
|                                                                                                           |                             |                          |        |               |         |   |        |        
|                                                                                                           |                             | Total directory services |        |               | 178,913 |   |        |         | 170,775 | 
|Other revenue                                                                                              |                             |                          | 3,978  |               |         |   | 4,484  |        
|                                                                                                           |                             |                          |        |               |         |   |        |        
|                                                                                                           |                             | Total revenue            |        |               | 182,891 |   |        |         | 175,259 | 
|Cost of revenue                                                                                            |                             |                          | 54,984 |               |         |   | 50,150 |        
|                                                                                                           |                             |                          |        |               |         |   |        |        
|                                                                                                           | Gross profit                |                          | $      | 127,907       |         |   | $      | 125,109 |        
|                                                                                                           | Gross margin                |                          |        | 69.9%         |         |   |        | 71.4%   |        
|General and administrative expense, including bad
    debt expense and termination of annual advisory fees |                             | $                        | 37,676 |               |         | $ | 24,353 |        



| |        
| | -------
| | Revenue

Total revenue increased by $7.6 million, or
4.4%, to $182.9 million for the three months ended
September 30, 2004 from $175.3 million for the three
months ended September 30, 2003. Total revenue for the
three months ended September 30, 2003 was $5.4 million
lower than it would have been due to the effects of purchase
accounting. Excluding the effects of purchase accounting in
2003, total revenue increased $2.2 million, or 1.2%, in
2004. Total revenue included $178.9 million in directory
services revenue and $4.0 million in revenue for all other
products for the three months ended September 30, 2004.

Total directory services revenue, which consists
of local and national directory services revenue, increased
$8.1 million, or 4.8%, to $178.9 million for the three
months ended September 30, 2004 from $170.8 million
for the three months ended September 30, 2003. Total
directory services revenue for the three months ended
September 30, 2003 was $5.4 million lower than it
would have been due to the effects of purchase accounting.
Excluding the effects of purchase accounting in 2003, total
directory services revenue increased $2.7 million, or 1.5%,
in 2004.

Directory services revenue is affected by a
variety of volume and pricing factors. Volume related factors
include quantity of advertisements sold, the change in mix of
advertisements among our product families and the proportion of
advertisements sold with premium features and the volume of
promotional services obtained from our advertisers in exchange
for our publication of their advertisement in our directories
and the number of local advertiser disconnects during a period.
Pricing factors include price increases related to our standard
rates that may be made from time to time in varying markets for
varying categories, offset by discount programs that may be
initiated in local markets for certain advertiser headings. Such
factors generally affect the dollar volume of orders initiated
in a period which are recognized as revenue over the life of a
given directory, beginning in the month of delivery. Multiple
factors contribute to changes in revenue, and although no single
factor can be distinguished as the primary cause, improvements
in product mix and pricing, combined with stable account
renewal, contributed to our changes in directory services
revenue.

Local directory services revenue increased
$4.4 million, or 3.0%, to $150.3 million for the three
months ended September 30, 2004 compared to
$146.0 million for the three months ended
September 30, 2003. Local directory services revenue for
the three months ended September 30, 2003 was
$1.0 million lower than it would have been due to the
effects of purchase accounting. Excluding the effects of
purchase accounting in 2003, local directory services revenue
increased $3.3 million, or 2.2%, in 2004.

17



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##### Table of Contents



Revenue from national advertisers increased
$3.8 million, or 15.2%, to $28.6 million for the three
months ended September 30, 2004 as compared to
$24.8 million for the three months ended September 30,
2003. Revenue from national advertisers for the three months
ended September 30, 2003 was $4.4 million lower than
it would have been due to the effects of purchase accounting.
Excluding the effects of purchase accounting in 2003, revenue
from national advertisers decreased $0.6 million, or 2.1%,
in 2004.

Other revenue decreased by $0.5 million, or
11.3%, to $4.0 million for the three months ended
September 30, 2004 from $4.5 million for the three
months ended September 30, 2003. In 2004, we substantially
reduced the number of products in our direct services product
line which represented $0.3 million of the decline between
periods.



| |                
| | ---------------
| | Cost of Revenue

Cost of revenue recognized was $55.0 million
for the three months ended September 30, 2004 compared to
$50.2 million for the three months ended September 30,
2003. Recognized cost of revenue for the three months ended
September 30, 2003 was $1.4 million lower than it
would have been due to the effects of purchase accounting.
Excluding the effects of purchase accounting in 2003, cost of
revenue recognized increased $3.4 million, or 6.6%, in
2004. Cost of revenue recognized represented 30.1% of revenue
for the three months ended September 30, 2004, compared to
28.6% of revenue, excluding the effects of purchase accounting,
for the three months ended September 30, 2003.

For the three months ended September 30,
2004 and 2003, we incurred costs subject to deferral and
amortization of $45.9 million and $44.3 million,
respectively. The increase in incurred costs is primarily a
result of increased contracting and professional fees related to
on-going support related to our new production system.

Employee costs incurred decreased by
$1.8 million, or 6.7%, to $25.0 million for the three
months ended September 30, 2004 from $26.8 million for
the three months ended September 30, 2003. The decrease is
due primarily to changes in sales incentives and a reduction in
the number of employees.

Direct costs of publishing incurred, which
primarily included paper, printing and distribution, were
$10.2 million and $11.1 million for the three months
ended September 30, 2004 and 2003, respectively. The
decrease primarily results from lower copy counts of directories
distributed and lower page counts of directories printed during
the three months ended September 30, 2004.

Contracting and professional fees incurred
increased $2.3 million to $4.2 million from
$1.9 million for the three months ended September 30,
2004 and 2003, respectively. The increase is primarily due to
increased on-going support related to our new production system.

Other cost of revenue incurred, which primarily
includes systems expense, national commissions and office and
facilities expense were $6.5 million and $4.5 million
for the three months ended September 30, 2004 and 2003,
respectively.



| |             
| | ------------
| | Gross Profit

Our gross profit was $127.9 million for the
three months ended September 30, 2004 compared to
$125.1 million for the three months ended
September 30, 2003. Gross profit for the three months ended
September 30, 2003 was $4.0 million lower due to the
effects of purchase accounting. Excluding the effects of
purchase accounting in 2003, gross profit decreased
$1.2 million in the third quarter of 2004 and gross margin
decreased to 69.9% in 2004 from 71.4% in 2003.



| |                                       
| | --------------------------------------
| | General and Administrative
    Expense

General and administrative expense, excluding
depreciation and amortization, increased $13.3 million, or
54.7%, to $37.7 million from $24.4 million for the
three months ended September 30, 2003. The increase was
primarily due to the termination of annual advisory fees and
increases in employee costs, advertising expense and contracting
and professional fees.

18



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##### Table of Contents



Employee costs, which include salaries and wages,
benefits and other employee costs, increased $3.1 million,
or 46.3%, to $9.8 million from $6.7 million for the
three months ended September 30, 2004 and 2003. Salaries
and wages were $3.5 million and $4.1 million for the
three months ended September 30, 2004 and 2003,
respectively. Benefits were $2.2 million and
$2.4 million for the three months ended September 30,
2004 and 2003, respectively. Other employee costs were
$4.1 million and $0.2 million for the three months
ended September 30, 2004 and 2003, respectively. The
increase in other employee costs is due primarily to accrued
severance costs of $3.8 million related to the planned
workforce reduction as a result of efficiencies gained by the
replacement of our core production platform with technology from
Amdocs.

Advertising expense increased $1.8 million,
or 69.2%, to $4.4 million for the three months ended
September 30, 2004 from $2.6 million for the three
months ended September 30, 2003 due to additional media
advertisements and exclusivity arrangements designed to increase
consumer awareness, including promoting the new Dex trademark
and product offerings. Advertising as a percent of revenue,
excluding the effects of purchase accounting in 2003, increased
to 2.4% for the three months ended September 30, 2004 from
1.4% for the three months ended September 30, 2003.

Contracting and professional fees were
$4.4 million and $4.7 million for the three months
ended September 30, 2004 and 2003, respectively.

Bad debt expense remained constant at
$4.9 million for the three months ended September 30,
2004 and 2003. Bad debt expense as a percentage of revenue was
2.7% for each of the three months ended September 30, 2004
and the three months ended September 30, 2003, excluding
the effects of purchase accounting.

In connection with the initial public offering of
our parent, Dex Media (the Offering), we paid
$5.0 million to each of our two Sponsors to eliminate the
$2.0 million aggregate annual fee payable under our
management consulting agreements. This non-recurring termination
fee was not incurred in the prior year period. The annual
advising fee paid in prior periods is included in contracting
and professional fees.

All other general and administrative expense,
decreased $1.3 million, or 23.6%, to $4.2 million for
the three months ended September 30, 2004 from
$5.5 million for the comparable period in 2003.



| |                            
| | ---------------------------
| | Amortization of Intangibles

For the three months ended September 30,
2004 and 2003 we recognized $45.3 million and
$53.6 million, respectively, in amortization expense
related to our identifiable intangible assets. The decrease in
amortization from the prior year was the result of a declining
method used to amortize the value of acquired accounts in
proportion with their estimated retention lives.



| |                 
| | ----------------
| | Interest Expense

We recognized interest expense of
$68.6 million and $47.4 million for the three months
ended September 30, 2004 and 2003. The increase in interest
expense is primarily a result of the additional borrowings of
$160.0 million Tranche A term loan in conjunction with
the acquisition of Dex West on September 9, 2003, and the
early redemption premiums paid of $22.3 million, the
accelerated payment of $6.3 million accrued interest and
the write off of $5.1 million deferred financing costs in
conjunction with the redemption of $183.8 million of our
senior subordinated notes.



| |             
| | ------------
| | Income Taxes

SFAS No. 109 requires that we recognize
deferred income tax assets on net operating losses to the extent
realization of these assets is more likely than not. As of
September 30, 2004, we have recorded $53.3 million of
deferred income tax assets resulting primarily from net
operating loss carryforwards. Based upon current projections of
income and expenses, we have determined that it is more likely
than not that we will utilize these deferred tax assets before
the expiration of the net operating loss carryforward periods.
Accordingly, no valuation allowance has been recorded.

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| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | The Nine Months Ended September 30,
    2004 Compared to the Nine Months Ended September 30,
    2003.

The results of operations below include the
effects of purchase accounting for the nine months ended
September 30, 2003 and therefore the periods presented are
not comparable. Please refer to the section Items
Affecting Comparability Between Periods and the discussion
below for detail regarding the effects of these adjustments.

|                                                                                                           |                             |                          |         |               |         |   |         |         |         | 
|---------------------------------------------------------------------------------------------------------- | --------------------------- | ------------------------ | ------- | ------------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                           |                             | Nine Months              |         | Nine Months  
|                                                                                                           |                             | Ended                    |         | Ended        
|                                                                                                           |                             | September 30,            |         | September 30,
|                                                                                                           |                             | 2004                     |         | 2003         
|                                                                                                           |                             |                          |         |              
|                                                                                                           |                             |                         
|                                                                                                           |                             | (Dollars in thousands)  
|Revenue:                                                                                                   |                             |                          |         |               |         |   |         |        
|                                                                                                           | Local directory services    |                          | $       | 443,066       |         |   | $       | 423,757 |        
|                                                                                                           | National directory services |                          |         | 88,253        |         |   |         | 55,703  |        
|                                                                                                           |                             |                          |         |               |         |   |         |        
|                                                                                                           |                             | Total directory services |         |               | 531,319 |   |         |         | 479,460 | 
|Other revenue                                                                                              |                             |                          | 12,169  |               |         |   | 12,950  |        
|                                                                                                           |                             |                          |         |               |         |   |         |        
|                                                                                                           |                             | Total revenue            |         |               | 543,488 |   |         |         | 492,410 | 
|Cost of revenue                                                                                            |                             |                          | 165,634 |               |         |   | 147,420 |        
|                                                                                                           |                             |                          |         |               |         |   |         |        
|                                                                                                           | Gross profit                |                          | $       | 377,854       |         |   | $       | 344,990 |        
|                                                                                                           | Gross margin                |                          |         | 69.5%         |         |   |         | 70.1%   |        
|General and administrative expense, including bad
    debt expense and termination of annual advisory fees |                             | $                        | 85,472  |               |         | $ | 71,649  |        



| |        
| | -------
| | Revenue

Total revenue increased by $51.1 million, or
10.4%, to $543.5 million for the nine months ended
September 30, 2004 from $492.4 million for the nine
months ended September 30, 2003. Total revenue for the nine
months ended September 30, 2003 was $43.6 million
lower than it would have been due to the effects of purchase
accounting. Excluding the effects of purchase accounting in
2003, total revenue increased $7.5 million, or 1.4%, in
2004. Total revenue included $531.3 million in directory
services revenue and $12.2 million in revenue for all other
products for the nine months ended September 30, 2004.

Total directory services revenue, which consists
of local and national directory services revenue, increased
$51.9 million, or 10.8%, to $531.3 million for the
nine months ended September 30, 2004 from
$479.5 million for the nine months ended September 30,
2003. Total directory services revenue for the nine months ended
September 30, 2003 was $43.6 million lower than it
would have been due to the effects of purchase accounting.
Excluding the effects of purchase accounting in 2003, total
directory services revenue increased $8.2 million, or 1.6%,
in 2004.

Directory services revenue is affected by a
variety of volume and pricing factors. Volume related factors
include quantity of advertisements sold, the change in mix of
advertisements among our product families and the proportion of
advertisements sold with premium features and the volume of
promotional services obtained from our advertisers in exchange
for our publication of their advertisement in our directories.
Pricing factors include price increases related to our standard
rates that may be made from time to time in varying markets for
varying categories, offset by discount programs that may be
initiated in local markets for certain advertiser headings. Such
factors generally affect the dollar volume of orders initiated
in a period which are recognized as revenue over the life of a
given directory, beginning in the month of delivery. Multiple
factors contribute to changes in revenue, and although no single
factor can be distinguished as the primary cause, improvements
in product mix and pricing, combined with stable account
renewal, contributed to our changes in directory services
revenue.

Local directory services revenue increased
$19.3 million, or 4.6%, to $443.1 million for the nine
months ended September 30, 2004 compared to
$423.8 million for the nine months ended September 30,
2003. Local directory services revenue for the nine months ended
September 30, 2003 was $13.4 million lower than it

20



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would have been due to the effects of purchase
accounting. Excluding the effects of purchase accounting in
2003, local directory services revenue increased
$5.9 million, or 1.3%, in 2004.


Revenue from national advertisers increased
$32.6 million, or 58.4%, to $88.3 million for the nine
months ended September 30, 2004 as compared to
$55.7 million for the nine months ended September 30,
2003. Revenue from national advertisers for the nine months
ended September 30, 2003 was $30.2 million lower than
it would have been due to the effects of purchase accounting.
Excluding the effects of purchase accounting in 2003, revenue
from national advertisers increased $2.4 million, or 2.8%,
in 2004.

Other revenue decreased by $0.8 million, or
6.0%, to $12.2 million for the nine months ended
September 30, 2004 from $13.0 million for the nine
months ended September 30, 2003. In 2004, we substantially
reduced the number of products in our direct marketing services
product line which represented $0.5 million of the decline
between periods.



| |                
| | ---------------
| | Cost of Revenue

Cost of revenue recognized was
$165.6 million for the nine months ended September 30,
2004 compared to $147.4 million for the nine months ended
September 30, 2003. Recognized cost of revenue for the nine
months ended September 30, 2003 was $11.3 million
lower than it would have been due to the effects of purchase
accounting. Excluding the effects of purchase accounting in
2003, cost of revenue recognized increased $6.9 million, or
4.3%, in 2004. Cost of revenue recognized represented 30.5% of
revenue for the nine months ended September 30, 2004,
compared to 29.6% of revenue, excluding the effects of purchase
accounting, for the nine months ended September 30, 2003.

For the nine months ended September 30, 2004
and 2003, we incurred costs subject to deferral and amortization
of $157.3 million and $147.8 million, respectively.
The increase in incurred costs is primarily a result of
increased contracting and professional fees related to on-going
support related to our new production system and to the shifts
in publication schedules of five directories from December 2003
to the first quarter of 2004.

Employee costs incurred were $74.1 million
and $74.2 million for the nine months ended
September 30, 2004 and 2003, respectively.

Direct costs of publishing incurred, which
primarily included paper, printing and distribution, were
$49.6 million and $45.0 million for the nine months
ended September 30, 2004 and 2003, respectively. The
difference in directory publication schedules between the
periods contributed to $3.6 million of the increase.

Contracting and professional fees incurred
increased $5.4 million to $9.1 million from
$3.7 million for the nine months ended September 30,
2004 and 2003, respectively. The increase is primarily due to
increased on-going support related to our new production system.

Other costs of revenue incurred, which primarily
includes systems expense, national commissions and office and
facilities expense were $24.5 million and
$24.9 million for the nine months ended September 30,
2004 and 2003, respectively.



| |             
| | ------------
| | Gross Profit

Our gross profit was $377.9 million for the
nine months ended September 30, 2004 compared to
$345.0 million for the nine months ended September 30,
2003. Gross profit for the nine months ended September 30,
2003 was $32.3 million lower due to the effects of purchase
accounting. Excluding the effects of purchase accounting in
2003, total gross profit increased $0.6 million, or 0.2%,
in 2004 and gross margin decreased to 69.5% in 2004 from 70.4%
in 2003.



| |                                       
| | --------------------------------------
| | General and Administrative
    Expense

General and administrative expense, excluding
depreciation and amortization, increased $13.8 million, or
19.3%, to $85.5 million from $71.6 million for the
nine months ended September 30, 2003. The increase was
primarily due to the termination of annual advisory fees and
increases in employee costs, advertising expense

21



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and contracting and professional fees offset by
decreases in bad debt expense and other general and
administrative expenses.


Employee costs, which include salaries and wages,
benefits and other employee costs, increased $3.8 million,
or 19.5%, to $23.3 million for the nine months ended
September 30, 2004 from $19.5 million for the nine
months ended September 30, 2003. Salaries and wages were
$11.6 million and $12.0 million for the nine months
ended September 30, 2004 and 2003, respectively. Benefits
were $6.7 million and $6.6 million for the nine months
ended September 30, 2004 and 2003, respectively. Other
employee costs were $5.0 million and $0.9 million for
the nine months ended September 30, 2004 and 2003,
respectively. The increase in other employee costs is primarily
due to accrued severance costs of $3.8 million related to
the planned workforce reduction as a result of the efficiencies
gained by the replacement of our core production platform with
technology from Amdocs.

Advertising increased $6.2 million to
$12.3 million for the nine months ended September 30,
2004 from $6.1 million for the nine months ended
September 30, 2003 due to additional media advertisements
and exclusivity arrangements designed to increase consumer
awareness, including promoting the new Dex trademark and product
offerings. Advertising as a percent of revenue, excluding the
effects of purchase accounting in 2003, increased to 2.3% for
the nine months ended September 30, 2004 compared to 1.1%
for the nine months ended September 30, 2003.

Contracting and professional fees increased
$0.6 million, or 5.0%, to $12.7 million from
$12.1 million for the nine months ended September 30,
2003. The increase is primarily due to increased receivable
collection efforts by external collection agencies and legal
fees.

Bad debt expense decreased $2.2 million, or
11.8%, to $16.3 million from $18.4 million for the
nine months ended September 30, 2004 and 2003,
respectively. Bad debt expense as a percentage of revenue was
3.0% for the nine months ended September 30, 2004 compared
to 3.4% of revenue, excluding the effects of purchase
accounting, for the nine months ended September 30, 2003.
The decrease in bad debt expense is primarily a result of
improvement in aged receivable balances.

In connection with the Offering, we paid
$5.0 million to each of our two Sponsors to eliminate the
$2.0 million aggregate annual advisory fee payable under
our management consulting agreements. This non-recurring
termination fee was not incurred in the prior year period. The
annual advisory fee paid in prior periods is included in
contracting and professional fees.

All other general and administrative expense,
decreased $4.6 million, or 29.7%, to $10.9 million for
the nine months ended September 30, 2004 from
$15.5 million for the comparable period in 2003. For the
nine months ended September 30, 2003, other general and
administrative expense includes shared services with Qwest,
including services for finance, human resources, real estate and
information technology with the costs of such services incurred
directly in salaries and wages for the nine months ended
September 30, 2004.



| |                            
| | ---------------------------
| | Amortization of Intangibles

For the nine months ended September 30, 2004
and 2003 we recognized $135.8 million and
$160.8 million, respectively, in amortization expense
related to our identifiable intangible assets. The decrease in
amortization from the prior year was the result of a declining
method used to amortize the value of acquired accounts in
proportion with their estimated retention lives.



| |                 
| | ----------------
| | Interest Expense

We recognized interest expense of
$163.1 million and $145.8 million for the nine months
ended September 30, 2004 and 2003, respectively. The
increase in interest expense is primarily a result of additional
borrowings of $160.0 million Tranche A term loan in
conjunction with the acquisition of Dex West on
September 9, 2003 as well as the early redemption premiums
paid, an accelerated accrued interest payment and an additional
write off of deferred financing costs related to the redemption
of a portion of our senior subordinated notes. Interest expense
for the nine months ended September 30, 2004 and 2003
includes $25.3 million and $13.0 million,
respectively, of amortization of deferred financing costs.
Interest expense for

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the nine months ended September 30, 2004
also includes the $22.3 million of early redemption
premiums paid, the $6.3 million accelerated accrued
interest payment and the $5.1 million write off of deferred
financing costs related to the redemption of our senior
subordinated notes.




| |             
| | ------------
| | Income Taxes

SFAS No. 109 requires that we recognize
deferred income tax assets on net operating losses to the extent
realization of these assets is more likely than not. As of
September 30, 2004, we have recorded $53.3 million of
deferred income tax assets resulting primarily from net
operating loss carryforwards. Based upon current projections of
income and expenses, we have determined that it is more likely
than not that we will utilize these deferred tax assets before
the expiration of the net operating loss carryforward periods.
Accordingly, no valuation allowance has been recorded.

Liquidity and Capital Resources



| |         
| | --------
| | Overview

Following the transactions related to the
Acquisition, our primary source of liquidity continues to be
cash flow generated from operations. We also have availability
under our revolving credit facility, subject to certain
conditions.

In connection with the Acquisition, we incurred
$1,280.0 million of borrowings under our credit facilities
and $975.0 million of indebtedness with the issuance of the
outstanding notes. In connection with the acquisition in
September 2003, of Dex West by Dex Media, our indirect parent,
we borrowed an additional $160.0 million under our credit
facilities. As of September 30, 2004, we had outstanding
$1,789.7 million in aggregate indebtedness due primarily to
aggregate debt repayments since the Acquisition of
$631.3 million and foreign exchange loss through November
2003 of $6.0 million. In connection with the Offering, we
redeemed $183.8 million of our 12 1/8% senior
subordinated notes at a redemption price of 112.125% plus
accrued and unpaid interest on August 26, 2004 with a
portion of the proceeds from the Offering.

Our credit facilities consist of a revolving
credit facility and term loan facilities. The revolving credit
facility expiring in November 2008 is comprised of total
principal of up to $100.0 million available for general
corporate purposes, subject to certain conditions. The term loan
facilities consist of a Tranche A term loan facility and a
Tranche B term loan facility, which mature in November 2008
and May 2009, respectively.

Our credit facilities bear interest, at our
option, at either:



| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a base rate used by JPMorgan Chase Bank, plus an
    applicable margin; or                                                                                                                                                              
|
| |  | a eurocurrency rate on deposits for one, two,
    three or six-month periods (or nine or twelve-month periods if,
    at the time of the borrowing, all lenders agree to make such a
    duration available), plus an applicable margin.

The applicable margins on loans under our
revolving credit facility, the Tranche A term loan facility
and the Tranche B term loan facility are subject to change
depending on our leverage ratio.

In addition to paying interest on outstanding
principal amounts under our credit facilities, we are required
to pay an annual commitment fee of 0.375% (reduced from 0.5%
when the credit facilities were amended on June 11, 2004)
to the lenders for the unused commitments under our revolving
credit facility. The commitment fee is payable quarterly in
arrears and is subject to change depending on our leverage ratio.

On June 11, 2004, we entered into an amended
and restated credit agreement to, among other things,
(i) reduce the applicable margins on loans under our credit
facilities and the commitment fee on the revolving credit
facility, (ii) permit the redemption of all of Dex
Medias 5% Series A preferred stock, which was
held by our Sponsors and management, plus accrued and unpaid
dividends, (iii) permit the redemption of up to 35% of our
outstanding 12 1/8% senior subordinated notes due 2012
and its associated redemption premium, plus accrued and unpaid
interest from proceeds from the Offering of Dex Medias
common stock, (iv) make a final lump sum payment to our
Sponsors to terminate the annual advisory fees payable under the
management

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consulting agreements, and (v) permit us to
distribute to Dex Media 42% of the funds required to fund the
dividends on Dex Medias common stock if and when such
dividends are declared, up to $29.4 million annually. The
amendments to the credit agreement, except the repricing of the
applicable margins and commitment fees which were effective on
June 11, 2004, were effective immediately upon the
consummation of the Offering on July 27, 2004.


Our credit facilities contain negative and
affirmative covenants and requirements affecting us and domestic
subsidiaries that we create or acquire, with certain exceptions
set forth in our credit agreement. Our credit facilities contain
the following negative covenants and restrictions, among others:
restrictions on liens, sale-leaseback transactions, incurrence
of debt, payment of dividends and other restricted junior
payments, redemptions and stock repurchases, consolidations and
mergers, acquisitions, asset dispositions, investments, loans,
advances, changes in line of business, changes in fiscal year,
restrictive agreements with subsidiaries, transactions with
affiliates, capital expenditures, amendments to charter, by-laws
and other material documents, hedging agreements and
inter-company indebtedness. Our credit facilities also require
us to meet certain financial covenants, including leverage
ratios, an interest coverage ratio and a fixed charges coverage
ratio.

We entered into a billing and collection services
agreement with Qwest LEC upon the consummation of the
Acquisition which was renewed effective November 1, 2004.
Under this renewed agreement, Qwest LEC will continue until
December 31, 2008, to bill and collect, on our behalf,
amounts owed by our accounts, that are also Qwest local
telephone customers, for our directory services. In 2003, Qwest
LEC billed approximately 43% of our revenue, excluding the
effects of purchase accounting, on our behalf, and we billed the
remaining 57% directly. Qwest LEC bills the account on the same
billing statement on which it bills the customer for local
telephone service. In conjunction with the Acquisition, we
developed and continue to maintain the ability to transition
those accounts billed by Qwest from the Qwest LEC billing and
collection system to our own billing and collection system
within approximately two weeks should we choose to do so.



| |                     
| | --------------------
| | Sources of Liquidity

Net cash provided by operations was
$167.6 million and $182.3 million for the nine months
ended September 30, 2004 and 2003, respectively. Cash
provided by operations was generated primarily from cash
receipts from the sale of directory advertisements, reduced by
cash disbursements for cost of revenue incurred, general and
administrative expenses and interest expense.

Net cash used for investing activities was
$22.4 million and $26.2 million for the nine months
ended September 30, 2004 and 2003, respectively. The
principal use of cash for investing activities for the nine
months ended September 30, 2004 and 2003 was expenditures
for property, plant and equipment and software.

Net cash used for financing activities was
$148.0 million and $152.5 million for the nine months
ended September 30, 2004 and 2003, respectively.
Significant sources of cash flows for the nine months ended
September 30, 2004 included $212.3 million of
contributions from parent to fund the redemption of the senior
subordinated notes in conjunction with the Offering. Significant
uses of cash flows for the nine months ended September 30,
2004 included $351.2 million in total debt repayments of
which $183.8 million was the redemption of the senior
subordinated notes in conjunction with the Offering. The
principal sources of cash flows for the nine months ended
September 30, 2003 were borrowings of $160.0 million
and contributions from parent of $50.0 million which were
distributed to the parent to fund the acquisition of Dex West.
Other significant uses of cash flows for the nine months ended
September 30, 2003 were $149.9 million of repayments
on long-term borrowings.

Our ability to make payments on and to refinance
our indebtedness and to fund planned capital expenditures will
depend to a large extent on our ability to generate cash in the
future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control. Based on our current
level of operations, we believe our cash flow from operations,
available cash and available borrowings under our credit
facilities will be adequate to meet our future liquidity needs
for at least the next 12 months.

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We cannot assure you, however, that our business
will generate cash flow from operations in an amount sufficient
to enable us to pay our indebtedness or to fund our other
liquidity needs. The restrictive covenants under the note
indentures and credit agreement prohibit us from commingling the
funds of Dex Media West with ours. They also prohibit us from
borrowing any funds from Dex Media West. Despite the restrictive
covenants under the note indentures and credit agreement
limiting our ability to incur additional indebtedness and
dispose of our assets, the covenants allow for multiple sources
of limited liquidity that we may access to meet our ongoing
business needs, including:



| |      |                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i.   | Cash from operating cash flow.                                                                                                                                                                                                                                                                                                                                                                                
|
| | ii.  | Up to $99.1 million of the revolving credit
    facility available to us as of September 30, 2004.                                                                                                                                                                                                                                                                                                            
|
| | iii. | Other unsecured indebtedness which we may incur
    up to an aggregate principal amount of $50.0 million.                                                                                                                                                                                                                                                                                                     
|
| | iv.  | We may sell, or dispose of, assets up to
    $10.0 million annually, subject to an aggregate amount of
    $20.0 million.                                                                                                                                                                                                                                                                                     
|
| | v.   | The proceeds from any debt issuance which we may
    use as long as our leverage ratio is at or below 4.0 to 1.0.                                                                                                                                                                                                                                                                                             
|
| | vi.  | We may use the proceeds from any equity offering
    as follows: a) 50%, if our leverage ratio is above 4.0 to
    1.0 or b) 100%, if our leverage ratio is at or below 4.0 to
    1.0. As a condition to the closing of the Offering, we amended
    our credit facilities to, among other things, allow us access to
    a portion of the proceeds from the Offering irrespective of our
    leverage ratio.

The credit agreement and indentures governing the
notes permit us to pursue the option of financing our capital
expenditures with capital leases as long as the aggregate
outstanding balance of capital leases is not in excess of
$30.0 million at any time. As of September 30, 2004,
the outstanding balance of capital leases was $0.4 million.

Our access to liquidity will improve
significantly when our leverage ratio drops below 4.0 to 1.0.
The leverage ratio can be improved by reducing debt levels or
increasing the amount of earnings before interest, taxes,
depreciation and amortization (EBITDA). When our
leverage ratio is under 4.0 to 1.0, we may retain any proceeds
from debt or equity issuances for any business purpose, except
for optional repayment of non-credit facility related debt with
equity proceeds. If we use equity proceeds to optionally repay a
cumulative amount of non-credit facility related debt in excess
of $20.0 million, we are required to repay equal amounts of
debt under our term facilities with the proceeds from the same
equity issuances.



| |                  
| | -----------------
| | Uses of Liquidity

We expect that our primary liquidity requirements
will be for debt service on our credit facilities and notes,
capital expenditures and working capital. During the nine months
ended September 30, 2004, we used the funds generated from
operations in excess of liquidity requirements to make optional
repayments under our credit facilities.

We made optional repayments in an aggregate
principal amount of $167.4 million under our credit
facilities and $183.8 million on our senior subordinated
notes in the nine months ended September 30, 2004 using the
excess cash flow generated from operations and a portion of the
proceeds from the Offering. Our debt portfolio, consisting of
the amounts borrowed under the credit facilities, senior notes
and senior subordinated notes, is comprised of 64.9% fixed rate
debt and 35.1% floating rate debt as of September 30, 2004.
Mandatory repayments or optional repayments under the credit
facilities in the future will cause the percentage of fixed rate
debt in our debt portfolio to increase. As our fixed rate debt
as a percentage of our total debt increases, the effective
interest rate of our debt portfolio will rise. Due to the
current low interest rate environment, the floating rate debt
under the credit facilities has significantly lower interest
rates than the fixed interest rates of our senior notes and
senior subordinated notes. If short-term interest rates rise,
the effective interest rate of our portfolio will also increase.

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Tranche A and Tranche B of our term
loan credit facilities have required quarterly principal
repayments that were scheduled to begin September 30, 2003
and continue until the maturity dates of the facilities. Any
optional repayment is applied to reduce the subsequent scheduled
repayments of each tranche in direct order of the first four
scheduled repayments, and thereafter, ratably. As a result of
the optional repayments made, the required quarterly payments
from each tranche in the period from September 30, 2003 to
June 30, 2004 were reduced to zero. The first mandatory
repayment was due and paid on September 30, 2004 in the
amount of $22.4 million.

On November 10, 2003, our indirect parent,
Dex Media, issued $500.0 million of 8% Notes due 2013
and $389.0 million aggregate principal amount at maturity
of 9% Discount Notes due 2013 for aggregate gross proceeds of
$750.2 million. On February 11, 2004, our indirect
parent, Dex Media, issued another $361.0 million aggregate
principal amount at maturity of 9% Discount Notes due 2013 for
gross proceeds of $250.5 million. The gross proceeds of
$750.2 million and $250.5 million were paid by Dex
Media as a distribution to its parent and ultimately to our
Sponsors. These notes are expected to be serviced and repaid
from distributions to Dex Media from us and our affiliate, Dex
Media West, subject in each case to restrictions contained in
our respective debt agreements. These discount notes defer
interest until May 2009 at which time we, along with our
affiliate, Dex Media West, will be expected to service and repay
this debt in the form of distributions to Dex Media, subject in
each case to restrictions contained in our respective debt
agreements.

Dex Media has no operations of its own and
derives all of its cash flow and liquidity from its
subsidiaries. It depends on the earnings and the distribution of
funds from us and Dex Media West to meet its cash needs.
Although we are not obligated to make funds available to Dex
Media for any purpose, we are expected to make cash
distributions of $8.4 million to Dex Media semi-annually to
service its cash interest obligations on its 8% Notes due
2013, subject to certain covenant requirements under the note
indentures and credit agreement. The indentures relating to our
senior notes and senior subordinated notes prohibit us from
distributing funds to Dex Media if the amount of such
distribution, together with all other restricted payments made
by us since November 8, 2002, would exceed the sum of an
amount calculated pursuant to a formula taking into account,
among other things, the amount of adjusted consolidated net
income accrued by us since January 1, 2003. In addition, in
order to make any such distribution of funds to Dex Media, we
would have to meet the coverage tests relating to the issuance
of indebtedness under the indentures relating to our senior
notes and senior subordinated notes. Although the terms of our
credit facilities permit us to pay cash distributions to Dex
Media in an amount not to exceed 42% of the regularly scheduled
interest payments on $250.0 million of the
$500.0 million of 8% Notes due 2013, we must meet an
interest coverage ratio for the four consecutive fiscal quarters
prior to the payment of the distribution to Dex Media to cover
our 42% portion of the regularly scheduled interest payments on
the remaining $250.0 million of the $500.0 million of
8% Notes due 2013. Accordingly, our cash requirements will
increase in May 2009 when cash interest becomes payable on Dex
Medias 9% Discount Notes.

Material Trends, Known Facts and
Uncertainties



| |                    
| | -------------------
| | Advertising Revenue

Directory services revenue is our most
significant source of revenue. Competition from other yellow
pages publishers affects our ability to attract and retain
advertisers and to increase advertising rates.



| |             
| | ------------
| | Paper Prices

Paper is our principal raw material.
Substantially all of the paper that we use (other than for
covers) is supplied by two companies: Nippon Paper Industries
USA Co, Ltd. (formerly Daishowa America Co., Ltd.) and Norske
Skog Canada (USA), Inc. Prices under the two agreements with
these vendors are negotiated each year based on prevailing
market rates, which have been declining consistent with general
U.S. market trends for directory paper over the last three
years.

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| |      
| | -----
| | Usage

Based on industry sources, overall usage of
printed yellow pages directories in the U.S. declined by a
compound annual rate of approximately 2% between 1999 and 2003.
Several factors, including the publication of competing
directories and the increased usage of Internet-based
directories, could cause usage of our printed directories to
continue to decline. Any declines in usage could limit 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 purchase advertising in our
yellow pages directories from doing so. Any of these factors
could affect our ability to generate revenue and have a material
adverse effect on our business.



| |                  
| | -----------------
| | On-Line Migration

Although we remain primarily focused on our
printed directories, we also market an Internet-based directory
service, DexOnline.com (formerly Qwestdex.com), to our
advertisers. We view our Internet-based directory as a
complement to our print product rather than as a stand-alone
business. We believe that any decline in the usage of our
printed directories could be offset in part by an increase in
usage of our Internet-based directory. We also believe that
increased usage of Internet-based directories will continue to
support overall usage and advertising rates in the
U.S. directory advertising industry and could provide us
with growth in advertisements. However, if we cannot provide
services over the Internet successfully or compete successfully
with other Internet-based directory services, our business could
be negatively impacted.



| |             
| | ------------
| | Bond Ratings

In anticipation of the Offering of common stock
by Dex Media and the use of a portion of the proceeds to reduce
debt, on May 17, 2004 Standard and Poors revised the
outlook on our credit ratings to stable from negative.

On July 28, 2004, Moodys Investor
Service upgraded the credit ratings of our credit facilities,
senior notes and senior subordinated notes by two notches. The
rating upgrade does not have any immediate impact on our
financing costs.



| |            
| | -----------
| | Competition

The U.S. directory advertising industry is
competitive. There are a number of independent directory
publishers and publishers affiliated with local exchange
carriers with which we compete in one or more of the Dex East
States. For example, new competitive directories were introduced
in two of our top ten markets in 2003 compared to just one new
competitive directory in 2002.

Through our Internet-based directory, we compete
with these publishers and with other Internet sites providing
search and classified directory information. In addition, we
compete against other forms of media, including newspapers,
radio, television, the Internet, billboards and direct mail, for
business and professional advertising.

The foregoing discussion of material trends,
known facts and uncertainties should not be construed as
exhaustive or as an admission regarding the adequacy of
disclosure made by us. We disclaim any intention or obligation
to update or revise forward-looking statements, whether as a
result of new information, future events or otherwise.

Critical Accounting Policies and
Estimates

We have identified the policies below as critical
to our business operations and the understanding of our results
of operations. The effect and any associated risks related to
these policies on our business operations is discussed
throughout Managements Discussion and Analysis of
Financial Condition and Results of Operations where these
policies affect our reported and expected financial results.

27



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| |                    
| | -------------------
| | Revenue Recognition

The sale of advertising in printed directories
published by us is our primary source of revenue. We recognize
revenue ratably over the life of each directory using the
deferral and amortization method of accounting, with revenue
recognition commencing in the month of delivery. Our directories
are initially published with an estimated 12-month useful life,
although we may revise the estimate of a directory life
subsequent to its publication in order to better manage account
and production workflow as it relates to other directories
published in the same period. Because we generally have the
right to bill and collect revenue related to the extension of
directory publishing dates, a revision in the estimated life of
a given directory should not have a significant impact on our
results of operations or cash flows.



| |                
| | ---------------
| | Cost of Revenue

Direct costs related to the sales, production and
distribution of directories are recognized ratably over the life
of each directory under the deferral and amortization method of
accounting, with cost recognition commencing in the month of
delivery. Direct costs include sales commissions, graphics costs
and the costs of printing, publishing and distribution.
Revisions in the estimated useful lives of directories after
their initial publication may cause the acceleration or
deceleration of cost recognition related to the amortization of
deferred directory costs. Although we cannot predict the extent
such changes could have on future cost recognition, the movement
of book publishing dates has historically had a minimal impact
on cost recognition between periods.



| |                                                         
| | --------------------------------------------------------
| | Allowance for Doubtful Accounts and Bad
    Debt Expense

We periodically make judgments regarding the
collectibility of outstanding receivables and provide
appropriate allowances when collectibility becomes doubtful.
Although we believe our allowance for doubtful accounts
adequately reflects that portion of our receivables that are
uncollectible, we may revise our estimates in future periods
based upon new circumstances and such revisions may be material.



| |             
| | ------------
| | Income Taxes

It is our determination that it is more likely
than not that we will utilize our deferred tax assets before the
expiration of the net operating loss carryforward periods. This
determination is based upon our estimation of projected book and
taxable income over the next several years. To the extent our
projections vary significantly from actual results, a portion of
our deferred tax benefits may not be realizable, resulting in a
charge to income tax expense.

Disclosure Regarding Forward-Looking
Statements

This Form 10-Q contains forward-looking
statements. These statements relate to future events or our
future financial performance, and involve known and unknown
risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels of
activity, performance or achievements expressed or implied by
these forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as
may, will, should,
expects, intends, plans,
anticipates, believes,
estimates, predicts,
potential, continue or the negative of
these terms or other comparable terminology. These statements
are only predictions. Actual events or results may differ
materially.

Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance
or achievements. These forward-looking statements are made as of
the date of this Form 10-Q 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.

28



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|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

Long-Term Debt

As of September 30, 2004, we had a total
outstanding debt balance of $1,789.7 million comprising of
$998.4 million of variable rate debt drawn under the
secured credit facilities, $450.0 million of senior notes
and $341.3 million of senior subordinated notes. The credit
facilities were made up of $495.2 million of Tranche A
term loan maturing in November 2008 and $503.2 million of
Tranche B term loan maturing in May 2009. Due to the
variable rate characteristics of the credit facilities, the
carrying amounts of Tranche A term loan and Tranche B
term loan approximated fair values.

The $450.0 million of unsecured senior notes
bearing a fixed interest rate of 9.875% matures in November
2009. Due to changes in interest rates and market conditions
since the issuance of these fixed rate notes, the fair value of
the senior notes was $517.5 million at September 30,
2004.

The $341.3 million of unsecured senior
subordinated notes bearing a fixed interest rate of 12.125%
matures in November 2012. Due to changes in interest rates and
market conditions since the issuance of these fixed rate notes,
the fair value of the senior subordinated notes was
$424.9 million at September 30, 2004.

Interest Rate Risk

As of September 30, 2004, we had no
borrowings outstanding under our revolving credit facility
(although approximately $1 million is committed under a
stand-by letter of credit), $495.2 million of debt
outstanding under our Tranche A term loan facility and
$503.2 million of debt outstanding under our Tranche B
term loan facility. Our revolving credit facility and each of
our term loan facilities are subject to variable rates.
Accordingly, our earnings and cash flow are affected by changes
in interest rates. As required by the terms of our credit
facilities, we have hedged a portion of our interest rate risk.
The interest rate swap agreements have an aggregate notional
amount of $370.0 million and applicable fixed rates ranging
from 2.354% to 4.085%. They will expire in various terms ranging
from November 2004 to May 2008. The notional amount of our
interest rate cap totals $200.0 million, has a cap interest
rate of 4.75% and expires in May 2005. Assuming we had incurred
this level of borrowings on January 1, 2004 at variable
rates and assuming a one percentage point increase in the
average interest rate under these borrowings, our interest
expense for the three months and nine months ended
September 30, 2004 would have increased by
$1.6 million and $4.8 million, respectively. We do not
intend to use any financial derivative instruments for
speculative purposes.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Dex Media East maintains disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended) that are designed to ensure
that information that would be required to be disclosed in
Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to Dex Media Easts management, including its
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.

As of the end of the period covered by this
report, Dex Media East carried out an evaluation, under the
supervision and with the participation of Dex Media Easts
management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of Dex Media Easts disclosure controls and
procedures. Based on the foregoing, Dex Media Easts Chief
Executive Officer and Chief Financial Officer concluded that Dex
Media Easts disclosure controls and procedures were
effective as of the end of the period covered by this report.

There have been no significant changes in Dex
Media Easts internal controls or in other factors that
could significantly affect the internal controls subsequent to
the date Dex Media East completed its evaluation.

29



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##### Table of Contents






PART II.

OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

From time to time, we are a party to litigation
matters arising in connection with the normal course of our
business. In many of these matters, plaintiffs allege that they
have suffered damages from errors or omissions or improper
listings contained in directories published by us. Although we
have not had notice of any such claims that we believe to be
material, any pending or future claim could have a material
adverse effect on our business.

In addition, we are exposed to defamation and
breach of privacy claims arising from our publication of
directories and our methods of collecting, processing and using
personal data. The subjects of our data and users of data that
we collect and publish could have claims against us if such data
were found to be inaccurate, or if personal data stored by us
was improperly accessed and disseminated by unauthorized
persons. Although we have not had notice of any material claims
relating to defamation or breach of privacy claims to date, we
may be party to litigation matters that could have a material
adverse effect on our business.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 2. | Unregistered Sale of Equity Securities and
    Use of Proceeds

None.






|        |                                    
|------- | -----------------------------------
|Item 3. | Defaults upon Senior
    Securities

None.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None.






|        |                  
|------- | -----------------
|Item 5. | Other Information

None.






|        |         
|------- | --------
|Item 6. | Exhibits

|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |  |                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------
|Exhibit 31.1                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Certification of Chief Executive Officer of Dex
    Media East LLC pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002
|Exhibit 31.2                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Certification of Chief Financial Officer of Dex
    Media East LLC pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002
|Exhibit 32.1                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Certification of Chief Executive Officer of Dex
    Media East LLC pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002
|Exhibit 32.2                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Certification of Chief Financial Officer of Dex
    Media East LLC pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002
|Exhibits 32.1 and 32.2 are being furnished
    solely to accompany this Report pursuant to 18 U.S.C.
    § 1350, and are not being filed for purposes of
    Section 18 of the Securities Exchange Act of 1934, as
    amended, and are not to be incorporated by references into any
    of our filings, whether made before or after the date hereof,
    regardless of any general incorporation language in such filing.

30



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SIGNATURE

Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, Dex Media East LLC has caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



| |                   
| | ------------------
| | DEX MEDIA EAST LLC



| |     |                              
| | --- | -----------------------------
| | By: | /s/ ROBERT M. NEUMEISTER, JR.

| |                                 
| | --------------------------------
| |                                 
| | Robert M. Neumeister, Jr.       
| | Executive Vice President        
| | and Chief Financial Officer     
| | (principal financial officer and
| | duly authorized officer)        

Date: November 10, 2004

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EXHIBIT INDEX

|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |  |                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------
|Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |  |                                                                                                                                 
|Number                                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |  | Description                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |  |                                                                                                                                 
|Exhibit 31.1                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Certification of Chief Executive Officer of Dex
    Media East LLC pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002
|Exhibit 31.2                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Certification of Chief Financial Officer of Dex
    Media East LLC pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002
|Exhibit 32.1                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Certification of Chief Executive Officer of Dex
    Media East LLC pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002
|Exhibit 32.2                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Certification of Chief Financial Officer of Dex
    Media East LLC pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002
|Exhibits 32.1 and 32.2 are being furnished
    solely to accompany this Report pursuant to 18 U.S.C.
    § 1350, and are not being filed for purposes of
    Section 18 of the Securities Exchange Act of 1934, as
    amended, and are not to be incorporated by references into any
    of our filings, whether made before or after the date hereof,
    regardless of any general incorporation language in such filing.