##### 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 June 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)  June 30, 2004 and
    December 31, 2003                                |    |      | 2  | 
|                                             |  | Condensed Consolidated
    Statements of Operations (unaudited)  Three Months
    and Six Months Ended June 30, 2004 and 2003 |    |      | 3  | 
|                                             |  | Condensed Consolidated
    Statements of Cash Flows (unaudited)  Six Months
    Ended June 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                                      |    |      | 15 | 
|Item 3.                                      |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                                 |    |      | 29 | 
|Item 4.                                      |  | Controls and Procedures                                                                                                        |    |      | 30 | 
|PART II: OTHER
    INFORMATION               |  |                                                                                                                                | 30 |     
|Item 1.                                      |  | Legal Proceedings                                                                                                              |    |      | 30 | 
|Item 2.                                      |  | Changes in Securities and
    Use of Proceeds                                                                                  |    |      | 31 | 
|Item 3.                                      |  | Defaults upon Senior
    Securities                                                                                            |    |      | 31 | 
|Item 4.                                      |  | Submission of Matters to a
    Vote of Security Holders                                                                        |    |      | 31 | 
|Item 5.                                      |  | Other Information                                                                                                              |    |      | 31 | 
|Item 6.                                      |  | Exhibits and Reports on
    Form 8-K                                                                                           |    |      | 31 | 
|Signature                                    |  |                                                                                                                                | 32 |     
|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



---



##### Table of Contents






PART I.

FINANCIAL INFORMATION




Item 1.     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       
|                                                                                                        |                                        | June 30,                             |           | December 31,
|                                                                                                        |                                        | 2004                                 |           | 2003        
|                                                                                                        |                                        |                                      |           |             
|ASSETS                                                                                                 
|Current assets:                                                                                         |                                        |                                      |           |              |           |  |           |        
|                                                                                                        | Cash and cash equivalents              |                                      | $         |             |           |  | $         | 2,758   |          
|                                                                                                        | Accounts receivable, net               |                                      |           | 46,431       |           |  |           | 62,176  |          
|                                                                                                        | Deferred directory costs               |                                      |           | 133,662      |           |  |           | 128,333 |          
|                                                                                                        | Current deferred taxes                 |                                      |           | 6,837        |           |  |           | 5,979   |          
|                                                                                                        | Amounts due from affiliates            |                                      |           |             |           |  |           | 28,554  |          
|                                                                                                        | Other current assets                   |                                      |           | 5,499        |           |  |           | 5,906   |          
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total current assets                 |           |              | 192,429   |  |           |         | 233,706   | 
|Property, plant and equipment, net                                                                      |                                        |                                      | 52,467    |              |           |  | 39,667    |        
|Goodwill                                                                                                |                                        |                                      | 890,731   |              |           |  | 890,731   |        
|Intangible assets, net                                                                                  |                                        |                                      | 1,454,237 |              |           |  | 1,544,800 |        
|Deferred income taxes                                                                                   |                                        |                                      | 34,635    |              |           |  | 42,151    |        
|Deferred financing costs                                                                                |                                        |                                      | 64,154    |              |           |  | 78,925    |        
|Amounts due from affiliate related to
    post-retirement and other post-employment benefit obligations |                                        |                                      |          |              |           |  | 35,519    |        
|Other assets                                                                                            |                                        |                                      | 1,338     |              |           |  | 1,719     |        
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total Assets                         |           | $            | 2,689,991 |  |           | $       | 2,867,218 | 
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|LIABILITIES AND OWNERS EQUITY                                                                         
|Current liabilities:                                                                                    |                                        |                                      |           |              |           |  |           |        
|                                                                                                        | Accounts payable                       |                                      | $         | 29,057       |           |  | $         | 49,062  |          
|                                                                                                        | Amounts due to affiliate               |                                      |           | 27,317       |           |  |           |        |          
|                                                                                                        | Employee compensation                  |                                      |           |             |           |  |           | 32,783  |          
|                                                                                                        | Deferred revenue and customer deposits |                                      |           | 99,046       |           |  |           | 99,522  |          
|                                                                                                        | Accrued interest payable               |                                      |           | 14,929       |           |  |           | 18,684  |          
|                                                                                                        | Current portion of long-term debt      |                                      |           | 103,470      |           |  |           | 50,845  |          
|                                                                                                        | Other accrued liabilities              |                                      |           | 8,983        |           |  |           | 9,120   |          
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total current liabilities            |           |              | 282,802   |  |           |         | 260,016   | 
|Long-term debt                                                                                          |                                        |                                      | 1,926,396 |              |           |  | 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           |                                        |                                      | 36,440    |              |           |  |          |        
|Other liabilities                                                                                       |                                        |                                      | 814       |              |           |  | 7,195     |        
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total Liabilities                    |           |              | 2,246,452 |  |           |         | 2,426,860 | 
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|Commitments and contingencies
    (Note 9)                                                              |                                        |                                      |           |              |           |  |           |        
|Accumulated deficit                                                                                     |                                        |                                      | (62,913   | )            |           |  | (69,902   | )      
|Accumulated other comprehensive loss                                                                    |                                        |                                      | (1,018    | )            |           |  | (4,026    | )      
|Owners interest                                                                                        |                                        |                                      | 507,470   |              |           |  | 514,286   |        
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total Owners Equity                 |           |              | 443,539   |  |           |         | 440,358   | 
|                                                                                                        |                                        |                                      |           |              |           |  |           |        
|                                                                                                        |                                        | Total Liabilities and Owners Equity |           | $            | 2,689,991 |  |           | $       | 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                |         | Six Months Ended
|                               |                                       | June 30,                          |         | June 30,        
|                               |                                       |                                   |         |                 
|                               |                                       | 2004                              |         | 2003             |         | 2004 |         | 2003   
|                               |                                       |                                   |         |                  |         |      |         |        
|Revenue                        |                                       | $                                 | 179,809 |                  |         | $    | 164,278 |         |         | $ | 360,598 |         |         | $ | 317,151 |        
|Operating Expenses:            |                                       |                                   |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                               | Cost of revenue                       |                                   |         | 55,281           |         |      |         | 50,042  |         |   |         | 110,651 |         |   |         | 97,270  |        
|                               | General and administrative expense    |                                   |         | 18,375           |         |      |         | 17,044  |         |   |         | 36,464  |         |   |         | 33,750  |        
|                               | Bad debt expense                      |                                   |         | 5,021            |         |      |         | 6,610   |         |   |         | 11,332  |         |   |         | 13,546  |        
|                               | Depreciation and amortization expense |                                   |         | 3,138            |         |      |         | 2,593   |         |   |         | 5,629   |         |   |         | 5,367   |        
|                               | Amortization of intangibles           |                                   |         | 45,281           |         |      |         | 53,590  |         |   |         | 90,563  |         |   |         | 107,180 |        
|                               |                                       |                                   |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                               |                                       | Total operating expenses          |         |                  | 127,096 |      |         |         | 129,879 |   |         |         | 254,639 |   |         |         | 257,113 |  
|                               |                                       |                                   |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                               |                                       | Operating income                  |         |                  | 52,713  |      |         |         | 34,399  |   |         |         | 105,959 |   |         |         | 60,038  |  
|Other (income) expense:        |                                       |                                   |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                               | Interest income                       |                                   |         | (208             | )       |      |         | (313    | )       |   |         | (318    | )       |   |         | (410    | )      
|                               | Interest expense                      |                                   |         | 44,264           |         |      |         | 50,088  |         |   |         | 94,548  |         |   |         | 98,251  |        
|                               | Other expense, net                    |                                   |         | 10               |         |      |         | 4,453   |         |   |         | 43      |         |   |         | 8,529   |        
|                               |                                       |                                   |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                               |                                       | Income (loss) before income taxes |         |                  | 8,647   |      |         |         | (19,829 | ) |         |         | 11,686  |   |         |         | (46,332 | )
|Income tax provision (benefit) |                                       |                                   | 3,480   |                  |         |      | (7,941  | )       |         |   | 4,697   |         |         |   | (18,556 | )      
|                               |                                       |                                   |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                               | Net income (loss)                     |                                   | $       | 5,167            |         |      | $       | (11,888 | )       |   | $       | 6,989   |         |   | $       | (27,776 | )      
|                               |                                       |                                   |         |                  |         |      |         |         |         |   |         |         |         |   |         |        

See accompanying notes to condensed consolidated
financial statements.

3



---



##### 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)


|                                  |                                                               |                                                                                             |                                       |          |         |          |   |          |        |          |  
|--------------------------------- | ------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------- | -------- | ------- | -------- | - | -------- | ------ | -------- | -
|                                  |                                                               |                                                                                            
|                                  |                                                               | Six Months                                                                                 
|                                  |                                                               | Ended June 30,                                                                             
|                                  |                                                               |                                                                                            
|                                  |                                                               | 2004                                                                                        |                                       | 2003    
|                                  |                                                               |                                                                                             |                                       |         
|Operating activities:             |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  | Net income (loss)                                             |                                                                                             | $                                     | 6,989    |         |          | $ | (27,776  | )     
|Adjustments to net income (loss): |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  | Bad debt expense                                              |                                                                                             |                                       | 11,332   |         |          |   | 13,546   |       
|                                  | Depreciation and amortization expense                         |                                                                                             |                                       | 5,629    |         |          |   | 5,367    |       
|                                  | Amortization of intangibles                                   |                                                                                             |                                       | 90,563   |         |          |   | 107,180  |       
|                                  | Amortization of deferred financing costs                      |                                                                                             |                                       | 15,669   |         |          |   | 9,114    |       
|                                  | Stock option expense                                          |                                                                                             |                                       | 137      |         |          |   |         |       
|                                  | Deferred tax provision (benefit)                              |                                                                                             |                                       | 4,697    |         |          |   | (18,556  | )     
|                                  | Unrealized gain on foreign currency derivative
    instrument |                                                                                             |                                       |         |         |          |   | (4,517   | )     
|                                  | Unrealized loss on translation of foreign
    currency debt   |                                                                                             |                                       |         |         |          |   | 3,579    |       
|                                  | Changes in operating assets and liabilities:                  |                                                                                             |                                       |          |         |          |   |          |       
|                                  |                                                               | Accounts receivable                                                                         |                                       |          | 4,413   |          |   |          | (4,560 | )       
|                                  |                                                               | Deferred directory costs                                                                    |                                       |          | (5,329  | )        |   |          | (6,323 | )       
|                                  |                                                               | Other current assets                                                                        |                                       |          | 407     |          |   |          | 326    |         
|                                  |                                                               | Other long-term assets                                                                      |                                       |          | 424     |          |   |          | (3,360 | )       
|                                  |                                                               | Accounts payable and other liabilities                                                      |                                       |          | (22,355 | )        |   |          | (6,400 | )       
|                                  |                                                               | Accrued interest                                                                            |                                       |          | (4,002  | )        |   |          | (3,011 | )       
|                                  |                                                               | Deferred revenue and customer deposits                                                      |                                       |          | (476    | )        |   |          | 33,227 |         
|                                  |                                                               | Amounts due to affiliates                                                                   |                                       |          | 27,317  |          |   |          |       |         
|                                  |                                                               | Amounts due to affiliates related to
    post-retirement and other post-employment benefits |                                       |          | 2,578   |          |   |          |       |         
|                                  |                                                               | Employee benefit plan obligations and other
    long-term liabilities                       |                                       |          | (3,317  | )        |   |          | 3,363  |         
|                                  |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  |                                                               |                                                                                             | Cash provided by operating activities |          |         | 134,676  |   |          |        | 101,199  |  
|                                  |                                                               |                                                                                             |                                       |          |         |          |   |         
|Investing activities:             |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  |                                                               | Expenditures for property, plant and equipment                                              |                                       |          | (5,977  | )        |   |          | (3,988 | )       
|                                  |                                                               | Capitalized software development costs                                                      |                                       |          | (12,451 | )        |   |          | (9,442 | )       
|                                  |                                                               | Escrow deposits                                                                             |                                       |          |        |          |   |          | (2,000 | )       
|                                  |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  |                                                               |                                                                                             | Cash used for investing activities    |          |         | (18,428  | ) |          |        | (15,430  | )
|                                  |                                                               |                                                                                             |                                       |          |         |          |   |         
|Financing activities:             |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  | Proceeds from borrowings on revolving credit
    facility     |                                                                                             |                                       | 8,000    |         |          |   |         |       
|                                  | Repayments of borrowings on revolving credit
    facility     |                                                                                             |                                       | (5,000   | )       |          |   |         |       
|                                  | Repayments on long-term debt                                  |                                                                                             |                                       | (114,000 | )       |          |   | (109,803 | )     
|                                  | Payment of refinancing costs                                  |                                                                                             |                                       | (941     | )       |          |   | (846     | )     
|                                  | Distribution to parent                                        |                                                                                             |                                       | (7,065   | )       |          |   |         |       
|                                  |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  |                                                               |                                                                                             | Cash used for financing activities    |          |         | (119,006 | ) |          |        | (110,649 | )
|                                  |                                                               |                                                                                             |                                       |          |         |          |   |         
|Cash and cash equivalents:        |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  | Decrease                                                      |                                                                                             |                                       | (2,758   | )       |          |   | (24,880  | )     
|                                  | Beginning balance                                             |                                                                                             |                                       | 2,758    |         |          |   | 37,626   |       
|                                  |                                                               |                                                                                             |                                       |          |         |          |   |         
|                                  |                                                               |                                                                                             | Ending balance                        |          | $       |         |   |          | $      | 12,746   |  
|                                  |                                                               |                                                                                             |                                       |          |         |          |   |         

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

As more fully described in Note 13, on
July 27, 2004, the Companys indirect parent, Dex
Media consummated its initial public offering of common stock
(the Offering). Immediately prior to the Offering,
Dex Media completed a 10-for-1 split of all authorized shares of
common stock. Share and per share data (except par value) for
all periods presented have been restated to reflect the stock
split.



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

On August 19, 2002, Dex Holdings LLC
(Dex Holdings), the parent of Dex Media, Inc.
(Dex Media), 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) 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 sale, 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.



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



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

The accompanying condensed consolidated interim
financial statements are unaudited. In compliance with the
Securities and Exchange Commissions (the SEC)
instructions for interim financial statements,

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)


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 statement
of financial position as of June 30, 2004 and
December 31, 2003, the condensed consolidated statements of
operations for the three months and six months ended
June 30, 2004 and 2003 and the condensed consolidated
statements of cash flows for the six months ended June 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 six months
ended June 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 six months
ended June 30, 2003 and the condensed consolidated
statements of cash flows for the six months ended June 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, Dex Media East Finance Co. and Dex
Media International Inc. 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 lives of certain directories in order to more
efficiently manage work and account flow. During 2003, the
Company determined it would extend the lives of five directories
published in December 2002 and publish the new editions of these
five directories in January 2004. The lives of the new editions
of these five directories will be 12 months thereafter.
These extensions did not have a significant impact on the
Companys results of operations for the three months and
six months ended June 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. For the three months ended June 30, 2004 and
2003, the Company published 59 and 60 directories,
respectively. For the six months ended June 30, 2004 and
2003, the Company published 92 and 88 directories,
respectively, in the Dex East States.

6



---



##### Table of Contents



DEX MEDIA EAST LLC


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


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


The Company enters into transactions where the
Companys products and services are promoted by the account
and, in exchange, the Company carries the account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.Such transactions were not significant
to the Companys operations for the three months and six
months ended June 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. 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 six
months ended June 30, 2004 and 2003 would have been as
follows (in thousands):

|                  |             |                    |   |                  |  |      |   |         |   |  |   |       |  |  |   |         |  
|----------------- | ----------- | ------------------ | - | ---------------- |  | ---- | - | ------- | - |  | - | ----- |  |  | - | ------- | -
|                  |             |                    |   |                 
|                  |             | Three Months Ended |   | Six Months Ended
|                  |             | June 30,           |   | June 30,        
|                  |             |                    |   |                 
|                  |             | 2004               |   | 2003             |  | 2004 |   | 2003   
|                  |             |                    |   |                  |  |      |   |        
|Net Income (Loss) |             |                    |   |                  |  |      |   |         |   |  |   |       |  |  |   |        
|                  | As reported |                    | $ | 5,167            |  |      | $ | (11,888 | ) |  | $ | 6,989 |  |  | $ | (27,776 | )
|                  | Pro forma   |                    |   | 5,178            |  |      |   | (11,931 | ) |  |   | 6,944 |  |  |   | (27,862 | )



|    |                     
|--- | --------------------
|(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

7



---



##### Table of Contents



DEX MEDIA EAST LLC


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


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 six months ended
June 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 June 30, 2004

|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |     | 
|--------------------------------- | ------ | -------- | ------- | ------------ |  | -------- | -------- | -------- | - | - | ------- | --------- |  |  | ---------- | --- | 
|                                  |        | Gross    |         |              |  |          |          |         
|                                  |        | Carrying |         | Accumulated  |  | Net Book |          |         
|Intangible Assets                 |        | Value    |         | Amortization |  | Value    |          | Life    
|                                  |        |          |         |              |  |          |          |         
|Account relationships  local     |        | $        | 897,000 |              |  | $        | (250,033 | )        |   | $ | 646,967 |           |  |  | 20  years  | (1)
|Account relationships  national  |        |          | 241,000 |              |  |          | (51,515  | )        |   |   | 189,485 |           |  |  | 25  years  | (1)
|Non-compete/publishing agreements |        |          | 251,000 |              |  |          | (10,330  | )        |   |   | 240,670 |           |  |  | 40 years   |    
|Dex Trademark                     |        |          | 311,000 |              |  |          |         |          |   |   | 311,000 |           |  |  | Indefinite |    
|Qwest Dex Trademark agreement     |        |          | 68,000  |              |  |          | (22,370  | )        |   |   | 45,630  |           |  |  | 5 years    |    
|Advertising agreements            |        |          | 23,000  |              |  |          | (2,515   | )        |   |   | 20,485  |           |  |  | 15 years   |    
|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |    
|                                  | Totals |          | $       | 1,791,000    |  |          | $        | (336,763 | ) |   | $       | 1,454,237 |  |  |            |     | 
|                                  |        |          |         |              |  |          |          |          |   |   |         |           |  |  |            |    

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



---



##### 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       
|                                                                                                                                                                                                                                                |  | June 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 2.0% (weighted average interest rate of 3.32% at
    June 30, 2004) |  | $        | 527,987   |              |  | $ | 585,288   |  
|Notes payable to banks, Tranche B term loan,
    bearing interest at adjusted LIBOR plus the current applicable
    interest spread of 2.0% (weighted average interest rate of 3.32%
    at June 30, 2004)                                      |  |          | 523,879   |              |  |   | 580,825   |  
|Revolving credit facility bearing interest at
    Annual Base Rate (ABR) plus the current applicable
    interest spread of 1.0% (interest rate of 5.25% at June 30,
    2004)                                                                |  |          | 3,000     |              |  |   |          |  
|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%                                                                                                                                                         |  |          | 525,000   |              |  |   | 525,000   |  
|                                                                                                                                                                                                                                                |  |          |           |              |  |   |           |  
|                                                                                                                                                                                                                                                |  |          | 2,029,866 |              |  |   | 2,141,113 |  
|Less: current portion of long-term debt                                                                                                                                                                                                         |  |          | (103,470  | )            |  |   | (50,845   | )
|                                                                                                                                                                                                                                                |  |          |           |              |  |   |           |  
|                                                                                                                                                                                                                                                |  | $        | 1,926,396 |              |  | $ | 2,090,268 |  
|                                                                                                                                                                                                                                                |  |          |           |              |  |   |           |  

As of June 30, 2004, there were
$3.0 million of borrowings under the revolving credit
facility (with an additional $1 million 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 $81.8 million and
$90.7 million during the six months ended June 30,
2004 and 2003, respectively. As of June 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 price reductions have been
effective since June 11, 2004.

As discussed in Note 13(a), the
Companys indirect parent, Dex Media, consummated its
initial public offering of common stock effective July 27,
2004. Part of the proceeds related to this offering were used to
redeem $183.8 million of the Companys Senior
Subordinated Notes at a redemption price of 112.125% along with
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 $1.8 million and
$1.0 million of hedging losses into interest expense for
the three months ended June 30, 2004 and 2003,
respectively. The Company reclassified $3.6 million and
$1.0 million of hedging losses into interest expense for
the six months ended June 30, 2004 and 2003, respectively.
For the three months ended June 30, 2004 and 2003, the
Company had $4.3 million of unrealized gains and
$2.3 million of unrealized losses, respectively, net of tax
which are included in other comprehensive loss. For the six
months ended June 30, 2004 and 2003, the Company had
$3.0 million of unrealized gains and $3.9 million of
unrealized losses,

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)


respectively, net of tax which are included in
other comprehensive loss. As of June 30, 2004 and
December 31, 2003, $1.0 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 six months
ended June 30, 2003, the Company recognized
$2.5 million and $4.3 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
$2.3 million and $3.6 million for the three months and
six months ended June 30, 2003. In connection with the
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 and $0.2 million for the three months
ended June 30, 2004 and 2003, respectively, and less than
$0.1 million and $0.6 million for the six months ended
June 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 Six Months
|                                                  |  | Ended June 30,       |       | Ended June 30,    
|                                                  |  |                      |       |                   
|                                                  |  | 2004                 |       | 2003               |  | 2004 |         | 2003
|                                                  |  |                      |       |                    |  |      |         |     
|Net loss                                          |  | $                    | 5,167 |                    |  | $    | (11,888 | )    |  | $ | 6,989 |  |  | $ | (27,776 | )
|Unrealized gain (loss) on derivatives, net of tax |  |                      | 4,279 |                    |  |      | (2,280  | )    |  |   | 3,008 |  |  |   | (3,940  | )
|                                                  |  |                      |       |                    |  |      |         |      |  |   |       |  |  |   |         |  
|Total comprehensive income (loss)                 |  | $                    | 9,446 |                    |  | $    | (14,168 | )    |  | $ | 9,997 |  |  | $ | (31,716 | )
|                                                  |  |                      |       |                    |  |      |         |      |  |   |       |  |  |   |         |  



|    |              
|--- | -------------
|(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. As of June 30,
2004, the maximum number of shares of common stock available for
issuance under the 2002 Plan was 6,230,000, with
5,066,540 shares underlying outstanding options and
1,163,460 shares available for issuance pursuant to new
awards. As more fully discussed in Note 13(d), effective
July 27, 2004, Dex Media adopted the Dex Media, Inc. 2004
Incentive Award Plan under which there are 1,000,000 shares
of common stock available for grant. The Compensation Committee
of Dex Media determines the terms for each option. Generally,
all outstanding stock options have an exercise price that are
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
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

10



---



##### Table of Contents



DEX MEDIA EAST LLC


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


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(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 EBITDA targets are met with respect to each
year.

On November 3, 2003, Dex Media declared a
distribution to its parent of $750.2 million. As a result
of the distribution and as provided under the Plan, Dex Media
adjusted the exercise price of all outstanding options to $6.00,
effective November 10, 2003. As the aggregate intrinsic
value of the awards immediately after the change in exercise
price was not greater than the aggregate intrinsic value of the
awards immediately prior to the change in exercise price, and as
the ratio of the exercise price per share to the market price
per share was not reduced, the adjustment 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.

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 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 change in
exercise price was not greater than the aggregate intrinsic
value of the awards immediately prior to the change in exercise
price, and as the ratio of the exercise price per share to the
market price per share was not reduced, the adjustment 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
FIN 44.



|    |                                               
|--- | ----------------------------------------------
|(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 six months ended June 30, 2004 and 2003. The
post-retirement benefit plan is pay-as-you go and is 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 six months ended June 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

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)


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
|                                    |  | June 30, 2004      |        | June 30, 2003     
|                                    |  |                    |        |                   
|                                    |  | Pension            |        | Post-Retirement    |  | Pension |     | Post-Retirement
|                                    |  | Benefit            |        | Benefits           |  | Benefit |     | Benefits       
|                                    |  |                    |        |                    |  |         |     |                
|Service cost                        |  | $                  | 1,254  |                    |  | $       | 282 |                 |  | $ | 973    |   |  | $ | 239 | 
|Interest cost                       |  |                    | 1,387  |                    |  |         | 386 |                 |  |   | 1,379  |   |  |   | 596 | 
|Expected return on plan assets      |  |                    | (1,916 | )                  |  |         |    |                 |  |   | (1,460 | ) |  |   |    | 
|Amortization of prior service costs |  |                    |       |                    |  |         | (43 | )               |  |   |       |   |  |   |    | 
|                                    |  |                    |        |                    |  |         |     |                 |  |   |        |   |  |   |     | 
|Net periodic benefit cost           |  | $                  | 725    |                    |  | $       | 625 |                 |  | $ | 892    |   |  | $ | 835 | 
|                                    |  |                    |        |                    |  |         |     |                 |  |   |        |   |  |   |     | 

|                                    |  |                  |        |                  |  |         |       |                 |  |   |        |   |  |   |       | 
|----------------------------------- |  | ---------------- | ------ | ---------------- |  | ------- | ----- | --------------- |  | - | ------ | - |  | - | ----- | 
|                                    |  |                  |        |                 
|                                    |  | Six Months Ended |        | Six Months Ended
|                                    |  | June 30, 2004    |        | June 30, 2003   
|                                    |  |                  |        |                 
|                                    |  | Pension          |        | Post-Retirement  |  | Pension |       | Post-Retirement
|                                    |  | Benefit          |        | Benefits         |  | Benefit |       | Benefits       
|                                    |  |                  |        |                  |  |         |       |                
|Service cost                        |  | $                | 2,508  |                  |  | $       | 564   |                 |  | $ | 1,946  |   |  | $ | 478   | 
|Interest cost                       |  |                  | 2,774  |                  |  |         | 772   |                 |  |   | 2,758  |   |  |   | 1,192 | 
|Expected return on plan assets      |  |                  | (3,832 | )                |  |         |      |                 |  |   | (2,920 | ) |  |   |      | 
|Amortization of prior service costs |  |                  |       |                  |  |         | (86   | )               |  |   |       |   |  |   |      | 
|                                    |  |                  |        |                  |  |         |       |                 |  |   |        |   |  |   |       | 
|Net periodic benefit cost           |  | $                | 1,450  |                  |  | $       | 1,250 |                 |  | $ | 1,784  |   |  | $ | 1,670 | 
|                                    |  |                  |        |                  |  |         |       |                 |  |   |        |   |  |   |       | 



|     |                              
|---- | -----------------------------
|(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) | Amdocs Agreement

During February 2003, Dex Media entered into a
five year agreement with Amdocs, Inc. (Amdocs) for
the complete modernization of the Companys and Dex Media
Wests core production platform and related on-going
support. Upon the consummation of the acquisition of Dex West,
Dex Medias obligation under the agreement totaled
approximately $108.0 million. This project is designed to
upgrade Dex Medias existing software system to enhance its
functionality. The Company will be allocated its proportional
share of these charges in accordance with its Shared Services
and Employees Agreement as the charges are incurred over the
five year period. In the event that the Company is unable to
meet its obligation, Dex Media West is required to assume the
obligation for charges incurred, and in the event Dex Media West
is unable to meet its obligation under the agreement, the
Company may be required to assume the portion of the obligation
currently attributable to Dex Media West. As of June 30,
2004, Dex Media West and the Company collectively have
approximately $64 million of obligations remaining under
this agreement. In addition, the Company and Dex Media West are
obligated to collectively pay Amdocs approximately
$10.2 million through 2008 related to the outsourcing of
certain information technology resources.

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 Note 1(a) and 9(a),
upon consummation of the acquisition of Dex West, all 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 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
will receive an annual advisory fee of $1.0 million for
advisory, consulting and other services. These annual payments
shall continue until the agreements are terminated. Pursuant to
these management consulting agreements, the Company incurred
$0.5 million in pro-rated annual advisory fees for each of
the three months ended June 30, 2004 and 2003 and
$1.0 million for each of the six months ended June 30,
2004 and 2003. As discussed in Note 13(a), the annual
advisory fees payable under the agreements were terminated in
conjunction with Dex Medias initial public offering. 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
June 30, 2004, approximately $1.5 million was not yet
incurred under the contract.



|     |                  
|---- | -----------------
|(13) | Subsequent Events



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

Effective July 27, 2004, the Companys
indirect parent, Dex Media, consummated its initial public
offering of common stock. Part of the proceeds related to this
offering will be 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 this offering, the Company
paid $5.0 million to each of the Sponsors to eliminate the
$2.0 million annual fee payable under the management
consulting agreements.



|    |                   
|--- | ------------------
|(b) | Common Stock Split

As discussed in Note 1(a), immediately prior
to the initial public offering, Dex Media issued a 10-for-1
common stock split. The share and per share data in this report
have been adjusted to reflect the effects of the stock split.

13



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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)




|    |                       
|--- | ----------------------
|(c) | Notice to Bond Holders

In connection with the initial public offering of
common stock by Dex Media, the Company provided irrevocable
notice to the holders of its 12 1/8% Senior
Subordinated Notes that it would redeem $183.8 million of
the outstanding notes on August 26, 2004. The funds
required to meet the redemption obligation has been set aside
using a portion of the proceeds from the initial public offering.



|    |                                              
|--- | ---------------------------------------------
|(d) | Dex Media, Inc. 2004 Incentive Award
    Plan

Upon consummation of Dex Medias initial
public offering of common stock effective July 27, 2004,
Dex Media adopted the Dex Media, Inc. 2004 Incentive Award Plan
under which there are 1,000,000 shares of common stock
available for grant.

14



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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, certain of our 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 and the sixth largest directory publisher in the
United States. For the three months ended June 30, 2004 and
2003, we published 59 and 60 directories, respectively, and
distributed 4.4 million and 4.7 million copies of
these directories, respectively, to business and residential
consumers in the Dex East States. For the six months ended
June 30, 2004 and 2003, we published 92 and
88 directories, respectively, and distributed
9.6 million and 8.8 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 six months ended June 30, 2004, we
generated $179.8 million and $360.6 million in
revenue, respectively. Approximately 96.7% and 96.8% of our
total revenue, excluding the effects of purchase accounting in
2003, for the three months and six months ended June 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 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 product offerings such as bundled print and Internet.

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

15



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##### Table of Contents



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 expect to
replace our entire production system with Amdocs technology in a
phased deployment. The first phase was deployed on June 1,
2004 with the last phase expected to be completed in the first
quarter of 2005. Costs related to the phased deployment and
related on-going support to be incurred by us and Dex Media
West, through 2008, include a $108.0 million contract with
Amdocs of which $63.9 million was not yet incurred as of
June 30, 2004, and to date we have incurred other costs of
approximately $16 million.

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 six months ended
June 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, 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 an account and, in exchange, we carry
that accounts advertisement. We account for these
transactions in accordance with Emerging Issues Task Force
(EITF) Issue No. 99-17, Accounting for
Advertising Barter Transactions.Such transactions
were not significant to our operations for the three months and
six months ended June 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-

16



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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 because the
Acquisition was accounted for under the purchase method of
accounting. For the three months ended June 30, 2003, our
revenue and cost of revenue were $13.6 million and
$4.0 million lower, respectively, as a result of the
purchase method of accounting. For the six months ended
June 30, 2003, our revenue and cost of revenue were
$38.2 million and $9.9 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.

17



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##### Table of Contents



Results of Operations



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

|                                                                   |                             |                          |        |              |         |          |        |          |         |   |       |        |        |  |       |      |      |  
|------------------------------------------------------------------ | --------------------------- | ------------------------ | ------ | ------------ | ------- | -------- | ------ | -------- | ------- | - | ----- | ------ | ------ |  | ----- | ---- | ---- | -
|                                                                   |                             | Three Months             |        | Three Months |         |          |        |         
|                                                                   |                             | Ended                    |        | Ended        |         |          |        |         
|                                                                   |                             | June 30,                 |        | June 30,     |         |          |        |         
|                                                                   |                             | 2004                     |        | 2003         |         | $ Change |        | % Change
|                                                                   |                             |                          |        |              |         |          |        |         
|                                                                   |                             |                         
|                                                                   |                             | (Dollars in thousands)  
|Revenue:                                                           |                             |                          |        |              |         |          |        |          |         |   |       |        |        |  |       |     
|                                                                   | Local directory services    |                          | $      | 146,305      |         |          | $      | 141,278  |         |   | $     | 5,027  |        |  |       | 3.6  | %   
|                                                                   | National directory services |                          |        | 29,489       |         |          |        | 18,417   |         |   |       | 11,072 |        |  |       | 60.1 | %   
|                                                                   |                             |                          |        |              |         |          |        |          |         |   |       |        |        |  |       |     
|                                                                   |                             | Total directory services |        |              | 175,794 |          |        |          | 159,695 |   |       |        | 16,099 |  |       |      | 10.1 | %
|Other revenue                                                      |                             |                          | 4,015  |              |         |          | 4,583  |          |         |   | (568  | )      |        |  | (12.4 | )%  
|                                                                   |                             |                          |        |              |         |          |        |          |         |   |       |        |        |  |       |     
|                                                                   |                             | Total revenue            |        |              | 179,809 |          |        |          | 164,278 |   |       |        | 15,531 |  |       |      | 9.5  | %
|Cost of revenue                                                    |                             |                          | 55,281 |              |         |          | 50,042 |          |         |   | 5,239 |        |        |  | 10.5  | %   
|                                                                   |                             |                          |        |              |         |          |        |          |         |   |       |        |        |  |       |     
|                                                                   | Gross profit                |                          | $      | 124,528      |         |          | $      | 114,236  |         |   | $     | 10,292 |        |  |       | 9.0  | %   
|                                                                   | Gross margin                |                          |        | 69.3         | %       |          |        | 69.5     | %       |   |       |        |        |  |       |      |     
|General and administrative expense, including bad
    debt expense |                             | $                        | 23,396 |              |         | $        | 23,654 |          |         | $ | (258  | )      |        |  | (1.1  | )%  



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

Total revenue increased by $15.5 million, or
9.5%, to $179.8 million for the three months ended
June 30, 2004 from $164.3 million for the three months
ended June 30, 2003. Total revenue for the three months
ended June 30, 2003 was $13.6 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 $1.9 million, or 1.1%, in 2004. Total
revenue included $175.8 million in directory services
revenue and $4.0 million in revenue for all other products
for the three months ended June 30, 2004.

Total directory services revenue, which consists
of local and national directory services revenue, increased
$16.1 million, or 10.1%, to $175.8 million for the
three months ended June 30, 2004 from $159.7 million
for the three months ended June 30, 2003. Total directory
services revenue for the three months ended June 30, 2003
was $13.6 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 $2.5 million, or 1.4%, 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 increased directory services revenue.

Local directory services revenue increased
$5.0 million, or 3.6%, to $146.3 million for the three
months ended June 30, 2004 compared to $141.3 million
for the three months ended June 30, 2003. Local directory
services revenue for the three months ended June 30, 2003
was $3.3 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 $1.7 million, or 1.2%, in 2004.

18



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##### Table of Contents



Revenue from national advertisers increased
$11.1 million, or 60.1%, to $29.5 million for the
three months ended June 30, 2004 as compared to
$18.4 million for the three months ended June 30,
2003. Revenue from national advertisers for the three months
ended June 30, 2003 was $10.3 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 $0.8 million, or 2.8%,
in 2004.

Other revenue decreased by $0.6 million, or
12.4%, to $4.0 million for the three months ended
June 30, 2004 from $4.6 million for the three months
ended June 30, 2003.



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

Cost of revenue recognized was $55.3 million
for the three months ended June 30, 2004 compared to
$50.0 million for the three months ended June 30,
2003. Recognized cost of revenue for the three months ended
June 30, 2003 was $4.0 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 $1.3 million, or 2.4%, in 2004. Cost
of revenue recognized represented 30.8% of revenue for the three
months ended June 30, 2004, compared to 30.4% of revenue,
excluding the effects of purchase accounting, for the three
months ended June 30, 2003.

For the three months ended June 30, 2004 and
2003, we incurred costs subject to deferral and amortization of
$53.3 million and $50.2 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 production system conversion.

Employee costs incurred increased by
$0.7 million, or 2.9%, to $24.8 million for the three
months ended June 30, 2004 from $24.1 million for the
three months ended June 30, 2003. This increase was
primarily a result of increases in employee time preparing for
our production system conversion and higher cost of medical
benefits.

Direct costs of publishing incurred, which
primarily included paper, printing and distribution, were
$17.1 million and $15.7 million for the three months
ended June 30, 2004 and 2003, respectively. The increase in
direct costs of publishing is a result of increased printing and
paper costs.

Contracting and professional fees incurred
increased $1.7 million to $2.7 million from
$1.0 million for the three months ended June 30, 2004
and 2003, respectively. The increase is primarily due to
increased on-going support related to our production system
conversion for which the first phase was deployed in the second
quarter of 2004.

Other cost of revenue incurred, which primarily
includes systems expense, national commissions and office and
facilities expense were $8.7 million and $9.4 million
for the three months ended June 30, 2004 and 2003,
respectively.



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

Our gross profit was $124.5 million for the
three months ended June 30, 2004 compared to
$114.2 million for the three months ended June 30,
2003. Gross profit for the three months ended June 30, 2003
was $9.6 million lower due to the effects of purchase
accounting. Excluding the effects of purchase accounting in
2003, gross profit increased $0.7 million in the second
quarter of 2004 and gross margin decreased to 69.3% in 2004 from
69.6% in 2003.



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

General and administrative expense, excluding
depreciation and amortization, decreased $0.3 million, or
1.1%, to $23.4 million from $23.7 million for the
three months ended June 30, 2003. The decrease was
primarily due to decreases in bad debt expense and other general
and administrative costs offset by increases in advertising and
contracting and professional fees.

19



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##### Table of Contents



Employee costs, which include salaries and wages,
benefits and other employee costs, remained constant at
$6.3 million for each of the three months ended
June 30, 2004 and 2003. Salaries and wages were
$4.0 million and $4.1 million for the three months
ended June 30, 2004 and 2003, respectively. Benefits were
$2.1 million and $1.9 million for the three months
ended June 30, 2004 and 2003, respectively. Other employee
costs were $0.2 million and $0.3 million for the three
months ended June 30, 2004 and 2003, respectively.

Bad debt expense decreased $1.6 million, or
24.2%, to $5.0 million from $6.6 million for the three
months ended June 30, 2004 and 2003, respectively. Bad debt
expense as a percentage of revenue was 2.8% for the three months
ended June 30, 2004 compared to 3.7% of revenue, excluding
the effects of purchase accounting, for the three months ended
June 30, 2003. The decrease in bad debt expense is
primarily a result of improvement in aged receivable balances.

Advertising increased $2.7 million to
$4.3 million for the three months ended June 30, 2004
from $1.6 million for the three months ended June 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 June 30, 2004 from 0.9% for the three months
ended June 30, 2003.

Contracting and professional fees were
$4.2 million and $3.8 million for the three months
ended June 30, 2004 and 2003, respectively.

All other general and administrative expense,
decreased $1.8 million, or 33.3%, to $3.6 million for
the three months ended June 30, 2004 from $5.4 million
for the comparable period in 2003. For the three months ended
June 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 three months ended June 30, 2004.



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

In connection with the Acquisition, we recorded
significant intangible assets at the date of Acquisition.
Substantial portions of these assets have definite lives and are
subject to amortization. For the three months ended
June 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 incurred significant indebtedness in
connection with the Acquisition. We recognized interest expense
of $44.3 million and $50.1 million for the three
months ended June 30, 2004 and 2003. The decrease in
interest expense is primarily a result of the reduction in debt
balance from repayments made and a reduction in the interest
rate spreads on the Tranche A and Tranche B term loans.



| |             
| | ------------
| | 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
June 30, 2004, we have recorded $41.5 million of
deferred income tax assets of which the largest component is a
result of our 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.

20



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| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The Six Months Ended June 30, 2004
    Compared to the Six Months Ended June 30,
    2003.

|                                                                   |                             |                          |         |            |         |          |        |          |         |   |        |        |        |  |      |      |      |  
|------------------------------------------------------------------ | --------------------------- | ------------------------ | ------- | ---------- | ------- | -------- | ------ | -------- | ------- | - | ------ | ------ | ------ |  | ---- | ---- | ---- | -
|                                                                   |                             | Six Months               |         | Six Months |         |          |        |         
|                                                                   |                             | Ended                    |         | Ended      |         |          |        |         
|                                                                   |                             | June 30,                 |         | June 30,   |         |          |        |         
|                                                                   |                             | 2004                     |         | 2003       |         | $ Change |        | % Change
|                                                                   |                             |                          |         |            |         |          |        |         
|                                                                   |                             |                         
|                                                                   |                             | (Dollars in thousands)  
|Revenue:                                                           |                             |                          |         |            |         |          |        |          |         |   |        |        |        |  |      |     
|                                                                   | Local directory services    |                          | $       | 292,748    |         |          | $      | 277,796  |         |   | $      | 14,952 |        |  |      | 5.4  | %   
|                                                                   | National directory services |                          |         | 59,658     |         |          |        | 30,890   |         |   |        | 28,768 |        |  |      | 93.1 | %   
|                                                                   |                             |                          |         |            |         |          |        |          |         |   |        |        |        |  |      |     
|                                                                   |                             | Total directory services |         |            | 352,406 |          |        |          | 308,686 |   |        |        | 43,720 |  |      |      | 14.2 | %
|Other revenue                                                      |                             |                          | 8,192   |            |         |          | 8,465  |          |         |   | (273   | )      |        |  | (3.2 | )%  
|                                                                   |                             |                          |         |            |         |          |        |          |         |   |        |        |        |  |      |     
|                                                                   |                             | Total revenue            |         |            | 360,598 |          |        |          | 317,151 |   |        |        | 43,447 |  |      |      | 13.7 | %
|Cost of revenue                                                    |                             |                          | 110,651 |            |         |          | 97,270 |          |         |   | 13,381 |        |        |  | 13.8 | %   
|                                                                   |                             |                          |         |            |         |          |        |          |         |   |        |        |        |  |      |     
|                                                                   | Gross profit                |                          | $       | 249,947    |         |          | $      | 219,881  |         |   | $      | 30,066 |        |  |      | 13.7 | %   
|                                                                   | Gross margin                |                          |         | 69.3       | %       |          |        | 69.3     | %       |   |        |        |        |  |      |      |     
|General and administrative expense, including bad
    debt expense |                             | $                        | 47,797  |            |         | $        | 47,296 |          |         | $ | 501    |        |        |  | 1.1  | %   



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

Total revenue increased by $43.4 million, or
13.7%, to $360.6 million for the six months ended
June 30, 2004 from $317.2 million for the six months
ended June 30, 2003. Total revenue for the six months ended
June 30, 2003 was $38.3 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 $5.1 million, or 1.4%, in 2004. Total revenue
included $352.4 million in directory services revenue and
$8.2 million in revenue for all other products for the six
months ended June 30, 2004.

Total directory services revenue, which consists
of local and national directory services revenue, increased
$43.7 million, or 14.2%, to $352.4 million for the six
months ended June 30, 2004 from $308.7 million for the
six months ended June 30, 2003. Total directory services
revenue for the six months ended June 30, 2003 was
$38.3 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 $5.4 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 increased directory services revenue.

Local directory services revenue increased
$15.0 million, or 5.4%, to $292.8 million for the six
months ended June 30, 2004 compared to $277.8 million
for the six months ended June 30, 2003. Local directory
services revenue for the six months ended June 30, 2003 was
$12.4 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 $2.6 million, or 0.9%, in 2004.

Revenue from national advertisers increased
$28.8 million, or 93.1%, to $59.7 million for the six
months ended June 30, 2004 as compared to
$30.9 million for the six months ended June 30, 2003.
Revenue from national advertisers for the six months ended
June 30, 2003 was $25.9 million lower than it would
have been

21



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due to the effects of purchase accounting.
Excluding the effects of purchase accounting in 2003, revenue
from national advertisers increased $2.9 million, or 5.1%,
in 2004.


Other revenue decreased by $0.3 million, or
3.2%, to $8.2 million for the six months ended
June 30, 2004 from $8.5 million for the six months
ended June 30, 2003.



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

Cost of revenue recognized was
$110.7 million for the six months ended June 30, 2004
compared to $97.3 million for the six months ended
June 30, 2003. Recognized cost of revenue for the six
months ended June 30, 2003 was $9.9 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 $3.5 million, or 3.3%, in
2004. Cost of revenue recognized represented 30.7% of revenue
for the six months ended June 30, 2004, compared to 30.2%
of revenue, excluding the effects of purchase accounting, for
the six months ended June 30, 2003.

For the six months ended June 30, 2004 and
2003, we incurred costs subject to deferral and amortization of
$111.5 million and $103.4 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 production system conversion and to the shifts in
publication schedules of five directories from December 2003 to
the first quarter of 2004, which impacted direct costs of
publishing and national commissions by $5.1 million.

Employee costs incurred increased by
$1.6 million, or 3.4%, to $49.0 million for the six
months ended June 30, 2004 from $47.4 million for the
six months ended June 30, 2003. This increase was primarily
a result of increases in employee time preparing for our
production system conversion and higher cost of medical benefits.

Direct costs of publishing incurred, which
primarily included paper, printing and distribution, were
$39.4 million and $33.8 million for the six months
ended June 30, 2004 and 2003, respectively. The difference
in directory publication schedules between the periods
contributed to $3.6 million of the increase. The remaining
increase is primarily a result of increased printing and paper
costs.

Contracting and professional fees incurred
increased $3.1 million to $4.9 million from
$1.8 million for the six months ended June 30, 2004
and 2003, respectively. The increase is primarily due to
increased on-going support related to our production system
conversion for which the first phase was deployed in the second
quarter of 2004.

Other costs of revenue incurred, which primarily
includes systems expense, national commissions and office and
facilities expense were $18.2 million and
$20.4 million for the six months ended June 30, 2004
and 2003, respectively.



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

Our gross profit was $249.9 million for the
six months ended June 30, 2004 compared to
$219.9 million for the six months ended June 30, 2003.
Gross profit for the six months ended June 30, 2003 was
$28.4 million lower due to the effects of purchase
accounting. Excluding the effects of purchase accounting in
2003, total gross profit increased $1.6 million, or 0.7%,
in 2004 and gross margin decreased to 69.3% in 2004 from 69.8%
in 2003.



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

General and administrative expense, excluding
depreciation and amortization, increased $0.5 million, or
1.1%, to $47.8 million from $47.3 million for the six
months ended June 30, 2003. The increase was primarily due
to increases in employee costs, advertising 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 $0.6 million,
or 4.7%, to $13.4 million for the six months ended
June 30, 2004 from $12.8 million for the six

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months ended June 30, 2003. Salaries and
wages were $8.0 million and $7.9 million for the six
months ended June 30, 2004 and 2003, respectively. Benefits
were $4.5 million and $4.2 million for the six months
ended June 30, 2004 and 2003, respectively. Other employee
costs were $0.9 million and $0.7 million for the six
months ended June 30, 2004 and 2003, respectively.


Bad debt expense decreased $2.2 million, or
16.3%, to $11.3 million from $13.5 million for the six
months ended June 30, 2004 and 2003, respectively. Bad debt
expense as a percentage of revenue was 3.1% for the six months
ended June 30, 2004 compared to 3.8% of revenue, excluding
the effects of purchase accounting, for the six months ended
June 30, 2003. The decrease in bad debt expense is
primarily a result of improvement in aged receivable balances.

Advertising increased $4.3 million to
$7.8 million for the six months ended June 30, 2004
from $3.5 million for the six months ended June 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 2.2% from 1.0% for the
six months ended June 30, 2004 compared to the six months
ended June 30, 2003, respectively.

Contracting and professional fees increased
$0.9 million, or 12.2%, to $8.3 million for the six
months ended June 30, 2004 from $7.4 million for the
six months ended June 30, 2003. The increase is primarily
due to increased receivable collection efforts and accounting
and legal fees.

All other general and administrative expense,
decreased $3.1 million, or 30.7%, to $7.0 million for
the six months ended June 30, 2004 from
$10.1 million for the comparable period in 2003. For the
six months ended June 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 six months ended
June 30, 2004.



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

For the six months ended June 30, 2004 and
2003 we recognized $90.6 million and $107.2 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
$94.5 million and $98.3 million for the six months
ended June 30, 2004 and 2003, respectively. The decrease in
interest expense is primarily a result of the reduction in debt
balance from prepayments made and a reduction on the interest
rate spreads on the Tranche A and Tranche B term
loans. Interest expense for the six months ended June 30,
2004 and 2003 includes $15.7 million and $9.1 million,
respectively, of amortization of deferred financing costs.



| |             
| | ------------
| | 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
June 30, 2004, we have recorded $41.5 million of
deferred income tax assets of which the largest component is a
result of our 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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##### Table of Contents



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 June 30, 2004, we had outstanding
$2,029.9 million in aggregate indebtedness due to aggregate
debt repayments since the Acquisition of $394.1 million. As
a result, we are significantly leveraged and our liquidity
requirements will be significantly increased, primarily due to
increased debt service obligations. In connection with the
initial public offering of common stock by Dex Media, we
provided irrevocable notice to the holders of our
12 1/8% Senior Subordinated Notes that we will redeem
$183.8 million of the outstanding notes on August 26,
2004. The funds required to meet the redemption obligation has
been set aside using a portion of the proceeds from the initial
public 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 is 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 initial public 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 consulting agreement, and
(v) permit us to distribute to Dex Media 42% of the funds
required to meet the quarterly 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 initial
public offering of Dex Medias common stock 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,

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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. Under this agreement, Qwest LEC will continue until
November 7, 2004 subject to renewal, 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
from the Qwest LEC billing and collection system to our own
billing and collection system, for those accounts billed by
Qwest, within approximately two weeks should we choose
to do so.



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

Net cash provided by operations was
$134.7 million and $101.2 million for the six months
ended June 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
$18.4 million and $15.4 million for the six months
ended June 30, 2004 and 2003, respectively. The principal
use of cash for investing activities for the six months ended
June 30, 2004 and 2003 was expenditures for property, plant
and equipment and software.

Net cash used for financing activities was
$119.0 million and $110.6 million for the six months
ended June 30, 2004 and 2003, respectively. Significant
uses of cash for financing activities for the six months ended
June 30, 2004 and 2003 include $114.0 million and
$109.8 million, respectively, 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.

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 $96.1 million of the revolving credit
    facility available to us as of June 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.

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 Dex Medias initial public offering, we amended our
    credit facilities to, among other things, allow us access to a
    portion of the proceeds from this equity 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 June 30, 2004, the
outstanding balance of capital leases was $0.5 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 six months
ended June 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 $114.0 million under our credit
facilities in the six months ended June 30, 2004 using the
excess cash flow generated from operations. Our debt portfolio,
consisting of the amounts borrowed under the credit facilities,
senior notes and senior subordinated notes, is comprised of
66.3% fixed rate debt and 33.7% floating rate debt as
of June 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.

Tranche A and Tranche B of our term
loan credit facilities have scheduled quarterly principal
repayments that began September 30, 2003 and continue until
the maturity dates of the facilities. As a result of the
optional repayments made through June 30, 2004, the
required quarterly payments from each tranche in the period from
September 30, 2003 to June 30, 2004 have been reduced
to zero. The first mandatory repayment is now due on
September 30, 2004 of $22.9 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 gross proceeds of
$750.2 million. The gross proceeds of $750.2 million
were paid by Dex Media as a distribution to its parent and
ultimately to the 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.
Accordingly, our cash requirements will increase in May 2009
when cash interest becomes payable on Dex Medias 9%
Discount Notes.

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
$250.5 million were paid by Dex Media as a distribution to
its parent and ultimately to the Sponsors. These

26



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##### Table of Contents



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 the 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.

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.



| |      
| | -----
| | 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

27



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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 initial public 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
Poors 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 list of factors 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.



| |                    
| | -------------------
| | 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.

28



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| |                                                         
| | --------------------------------------------------------
| | 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.






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

Long-Term Debt

As of June 30, 2004, we had a total
outstanding debt balance of $2,029.9 million comprising of
$1,054.9 million of variable rate debt drawn under the
secured credit facilities, $450.0 million of senior notes
and $525.0 million of senior subordinated notes. The credit
facilities were made up of $528.0 million of Tranche A
Term Loan maturing in November 2008, $523.9 million of
Tranche B Term Loan maturing in May 2009 and
$3.0 million borrowed on our revolving credit facility. Due
to the variable rate characteristics of the credit facilities,
the carrying amounts of Tranche A Term Loan, Tranche B
Term Loan and revolving credit facility 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 notes was $505.1 million at June 30, 2004.

The $525.0 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 notes was $612.9 million at
June 30, 2004.

Interest Rate Risk

As of June 30, 2004, we had
$3.0 million outstanding under our revolving credit
facility (and approximately $1 million was committed under
a stand-by letter of credit), $528.0 million of debt
outstanding under our Tranche A term loan facility and
$523.9 million of debt outstanding under our Tranche B
term loan

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##### Table of Contents



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 six months ended June 30,
2004 would have increased by $1.7 million and
$3.5 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.




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.

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|        |                                              
|------- | ---------------------------------------------
|Item 2. | Changes in 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 and Reports on
    Form 8-K

(a) 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.

(b) Reports on Form 8-K:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 21, 2004, we filed a Current Report
    on Form 8-K, relating to the press release dated
    June 18, 2004 announcing the completion of the repricing of
    our Tranche A and Tranche B term loan facilities as
    permitted under the Credit Agreement, dated as of
    September 9, 2003, as amended, among Dex Media, Inc., Dex
    Media East, Inc., Dex Media East LLC, the lenders thereto and
    JPMorgan Chase Bank, as administrative agent and collateral
    agent, pursuant to the Second Amendment thereto, dated as of the
    effective date of the initial public offering of common stock by
    our indirect parent, Dex Media, Inc.
|
| | On May 15, 2004, we filed a Current Report
    on Form 8-K relating to the press release dated
    May 14, 2004 announcing our financial results for the three
    months ended March 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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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.       
| | Chief Financial Officer and     
| | Executive Vice President        
| | (principal financial officer and
| | duly authorized officer)        

Date: August 12, 2004

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EXHIBIT INDEX

|                                                                                                                                                                                                                                                                                                                                                                                                                             |               |  |  |             |  |                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------- |  |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------
|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.