##### 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: 333-115489

Dex Media, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                      
|------------------------------------------------------------------ |  | -------------------------------------
|Delaware                                                           |  | 14-1855759                           
|(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 o          No þ

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

As of August 12, 2004, there were
150,281,662 shares outstanding of the Registrants
Common Stock (par value $0.01 per share).



---






---










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                                      |    |      | 17 | 
|Item 3.                                      |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                                 |    |      | 34 | 
|Item 4.                                      |  | Controls and Procedures                                                                                                        |    |      | 35 | 
|PART II: OTHER
    INFORMATION               |  |                                                                                                                                | 36 |     
|Item 1.                                      |  | Legal Proceedings                                                                                                              |    |      | 36 | 
|Item 2.                                      |  | Changes in Securities and
    Use of Proceeds                                                                                  |    |      | 36 | 
|Item 3.                                      |  | Defaults upon Senior
    Securities                                                                                            |    |      | 36 | 
|Item 4.                                      |  | Submission of Matters to a
    Vote of Security Holders                                                                        |    |      | 36 | 
|Item 5.                                      |  | Other Information                                                                                                              |    |      | 36 | 
|Item 6.                                      |  | Exhibits and Reports on
    Form 8-K                                                                                           |    |      | 36 | 
|Signature                                    |  |                                                                                                                                | 37 |     
|Certification of CEO Pursuant to Section 302
|Certification of CFO Pursuant to Section 302
|Certification of CEO Pursuant to Section 906
|Certification of CFO Pursuant to Section 906



1



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##### Table of Contents






PART I.

FINANCIAL INFORMATION






|        |                     
|------- | --------------------
|Item 1. | Financial Statements

DEX MEDIA, INC. AND SUBSIDIARIES




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              |                                            | $         | 2,478        |           |  | $         | 7,416   |          
|                                                                                                                                                                                                                                                                                                                        | Accounts receivable, net               |                                            |           | 106,570      |           |  |           | 116,409 |          
|                                                                                                                                                                                                                                                                                                                        | Deferred directory costs               |                                            |           | 296,653      |           |  |           | 270,626 |          
|                                                                                                                                                                                                                                                                                                                        | Current deferred taxes                 |                                            |           | 11,432       |           |  |           | 9,855   |          
|                                                                                                                                                                                                                                                                                                                        | Other current assets                   |                                            |           | 8,422        |           |  |           | 13,564  |          
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        
|                                                                                                                                                                                                                                                                                                                        |                                        | Total current assets                       |           |              | 425,555   |  |           |         | 417,870   | 
|Property, plant and equipment, net                                                                                                                                                                                                                                                                                      |                                        |                                            | 103,350   |              |           |  | 77,683    |        
|Goodwill                                                                                                                                                                                                                                                                                                                |                                        |                                            | 3,084,066 |              |           |  | 3,089,317 |        
|Intangible assets, net                                                                                                                                                                                                                                                                                                  |                                        |                                            | 3,239,879 |              |           |  | 3,446,100 |        
|Deferred income taxes                                                                                                                                                                                                                                                                                                   |                                        |                                            | 64,832    |              |           |  | 59,387    |        
|Deferred financing costs                                                                                                                                                                                                                                                                                                |                                        |                                            | 171,819   |              |           |  | 195,346   |        
|Other assets                                                                                                                                                                                                                                                                                                            |                                        |                                            | 4,285     |              |           |  | 4,675     |        
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        
|                                                                                                                                                                                                                                                                                                                        |                                        | Total Assets                               |           | $            | 7,093,786 |  |           | $       | 7,290,378 | 
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        
|                                                                                                                                                                                                                                                                                                                       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                                                                                                                                                               
|Current liabilities:                                                                                                                                                                                                                                                                                                    |                                        |                                            |           |              |           |  |           |        
|                                                                                                                                                                                                                                                                                                                        | Accounts payable                       |                                            | $         | 45,351       |           |  | $         | 65,773  |          
|                                                                                                                                                                                                                                                                                                                        | Employee compensation                  |                                            |           | 29,407       |           |  |           | 32,783  |          
|                                                                                                                                                                                                                                                                                                                        | Deferred revenue and customer deposits |                                            |           | 215,436      |           |  |           | 167,754 |          
|                                                                                                                                                                                                                                                                                                                        | Accrued interest payable               |                                            |           | 63,322       |           |  |           | 73,645  |          
|                                                                                                                                                                                                                                                                                                                        | Current portion of long-term debt      |                                            |           | 143,373      |           |  |           | 71,023  |          
|                                                                                                                                                                                                                                                                                                                        | Other accrued liabilities              |                                            |           | 12,455       |           |  |           | 15,233  |          
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        
|                                                                                                                                                                                                                                                                                                                        |                                        | Total current liabilities                  |           |              | 509,344   |  |           |         | 426,211   | 
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        
|Long-term debt                                                                                                                                                                                                                                                                                                          |                                        |                                            | 6,004,682 |              |           |  | 6,026,411 |        
|Post-retirement and other post-employment benefit
    obligations                                                                                                                                                                                                                                                       |                                        |                                            | 75,201    |              |           |  | 69,381    |        
|Other liabilities                                                                                                                                                                                                                                                                                                       |                                        |                                            | 838       |              |           |  | 7,603     |        
|                                                                                                                                                                                                                                                                                                                        |                                        | Total Liabilities                          |           |              | 6,590,065 |  |           |         | 6,529,606 | 
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        
|Commitments and contingencies (Note 11)                                                                                                                                                                                                                                                                                 |                                        |                                            |           |              |           |  |           |        
|Stockholders Equity (Note 1(a)):                                                                                                                                                                                                                                                                                       |                                        |                                            |           |              |           |  |           |        
|Preferred stock, $.01 par value, 500,000
    undesignated shares authorized, none issued and outstanding at
    June 30, 2004 and December 31, 2003, respectively                                                                                                                                                       |                                        |                                            |          |              |           |  |          |        
|Series A Preferred Stock, $.01 par
    value, 500,000 shares authorized, $125.7 million and
    $175.3 million of total liquidation preference at
    June 30, 2004 and December 31, 2003, respectively.
    323,970 and 323,812 shares issued and outstanding at
    June 30, 2004 and December 31, 2003, respectively |                                        |                                            | 3         |              |           |  | 3         |        
|Common stock, $.01 par value,
    200 million shares authorized, 130,544,820 and
    129,525,570 shares issued and outstanding at June 30,
    2004 and December 31, 2003, respectively                                                                                                                                 |                                        |                                            | 1,305     |              |           |  | 1,295     |        
|Additional paid-in capital                                                                                                                                                                                                                                                                                              |                                        |                                            | 621,171   |              |           |  | 866,640   |        
|Accumulated deficit                                                                                                                                                                                                                                                                                                     |                                        |                                            | (117,740  | )            |           |  | (103,140  | )      
|Accumulated other comprehensive loss                                                                                                                                                                                                                                                                                    |                                        |                                            | (1,018    | )            |           |  | (4,026    | )      
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        
|                                                                                                                                                                                                                                                                                                                        |                                        | Total Stockholders Equity                 |           |              | 503,721   |  |           |         | 760,772   | 
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        
|                                                                                                                                                                                                                                                                                                                        |                                        | Total Liabilities and Stockholders Equity |           | $            | 7,093,786 |  |           | $       | 7,290,378 | 
|                                                                                                                                                                                                                                                                                                                        |                                        |                                            |           |              |           |  |           |        

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents



DEX MEDIA , INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(Dollars in thousands, except loss per
share)


(Unaudited)


|                                        |                                       |                          |         |                  |         |      |         |         |         |   |         |         |         |   |         |         |         |  
|--------------------------------------- | ------------------------------------- | ------------------------ | ------- | ---------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                        |                                       |                          |         |                 
|                                        |                                       | Three Months Ended       |         | Six Months Ended
|                                        |                                       | June 30,                 |         | June 30,        
|                                        |                                       |                          |         |                 
|                                        |                                       | 2004                     |         | 2003             |         | 2004 |         | 2003   
|                                        |                                       |                          |         |                  |         |      |         |        
|Revenue                                 |                                       | $                        | 396,704 |                  |         | $    | 164,278 |         |         | $ | 784,881 |         |         | $ | 317,151 |        
|Operating Expenses:                     |                                       |                          |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                                        | Cost of revenue                       |                          |         | 122,193          |         |      |         | 50,042  |         |   |         | 240,385 |         |   |         | 97,270  |        
|                                        | General and administrative expense    |                          |         | 42,094           |         |      |         | 17,044  |         |   |         | 83,025  |         |   |         | 33,750  |        
|                                        | Bad debt expense                      |                          |         | 10,740           |         |      |         | 6,610   |         |   |         | 23,160  |         |   |         | 13,546  |        
|                                        | Depreciation and amortization expense |                          |         | 7,383            |         |      |         | 2,593   |         |   |         | 13,713  |         |   |         | 5,367   |        
|                                        | Amortization of intangibles           |                          |         | 103,111          |         |      |         | 53,590  |         |   |         | 206,221 |         |   |         | 107,180 |        
|                                        |                                       |                          |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                                        |                                       | Total operating expenses |         |                  | 285,521 |      |         |         | 129,879 |   |         |         | 566,504 |   |         |         | 257,113 |  
|                                        |                                       |                          |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                                        |                                       | Operating income         |         |                  | 111,183 |      |         |         | 34,399  |   |         |         | 218,377 |   |         |         | 60,038  |  
|Other (income) expense:                 |                                       |                          |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                                        | Interest income                       |                          |         | (443             | )       |      |         | (313    | )       |   |         | (700    | )       |   |         | (410    | )      
|                                        | Interest expense                      |                          |         | 117,994          |         |      |         | 50,088  |         |   |         | 242,619 |         |   |         | 98,251  |        
|                                        | Other expense                         |                          |         | 10               |         |      |         | 4,453   |         |   |         | 43      |         |   |         | 8,529   |        
|                                        |                                       |                          |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                                        |                                       | Loss before income taxes |         |                  | (6,378  | )    |         |         | (19,829 | ) |         |         | (23,585 | ) |         |         | (46,332 | )
|Income tax benefit                      |                                       |                          | (2,319  | )                |         |      | (7,941  | )       |         |   | (8,985  | )       |         |   | (18,556 | )      
|                                        |                                       |                          |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|                                        | Net loss                              |                          | $       | (4,059           | )       |      | $       | (11,888 | )       |   | $       | (14,600 | )       |   | $       | (27,776 | )      
|                                        |                                       |                          |         |                  |         |      |         |         |         |   |         |         |         |   |         |        
|Basic and diluted loss per common share |                                       | $                        | (0.04   | )                |         | $    | (0.26   | )       |         | $ | (0.14   | )       |         | $ | (0.59   | )      

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents



DEX MEDIA , INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Dollars in thousands)


(Unaudited)


|                           |                                                               |                                                                       |                                       |          |         |          |   |          |        |          |  
|-------------------------- | ------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------- | -------- | ------- | -------- | - | -------- | ------ | -------- | -
|                           |                                                               |                                                                      
|                           |                                                               | Six Months Ended                                                     
|                           |                                                               | June 30,                                                             
|                           |                                                               |                                                                      
|                           |                                                               | 2004                                                                  |                                       | 2003    
|                           |                                                               |                                                                       |                                       |         
|Operating activities:      |                                                               |                                                                       |                                       |          |         |          |   |         
|                           | Net loss                                                      |                                                                       | $                                     | (14,600  | )       |          | $ | (27,776  | )     
|Adjustments to net loss:   |                                                               |                                                                       |                                       |          |         |          |   |         
|                           | Bad debt expense                                              |                                                                       |                                       | 23,160   |         |          |   | 13,546   |       
|                           | Depreciation and amortization expense                         |                                                                       |                                       | 13,713   |         |          |   | 5,367    |       
|                           | Amortization of intangibles                                   |                                                                       |                                       | 206,221  |         |          |   | 107,180  |       
|                           | Amortization of deferred financing costs                      |                                                                       |                                       | 29,556   |         |          |   | 9,114    |       
|                           | Accretion on discount notes                                   |                                                                       |                                       | 19,392   |         |          |   |         |       
|                           | Stock option expense                                          |                                                                       |                                       | 315      |         |          |   |         |       
|                           | Loss on disposition of investments                            |                                                                       |                                       | 9        |         |          |   |         |       
|                           | Deferred tax benefit                                          |                                                                       |                                       | (8,985   | )       |          |   | (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                                                   |                                       |          | (13,321 | )        |   |          | (4,560 | )       
|                           |                                                               | Deferred directory costs                                              |                                       |          | (26,027 | )        |   |          | (6,323 | )       
|                           |                                                               | Other current assets                                                  |                                       |          | 5,142   |          |   |          | 326    |         
|                           |                                                               | Other long term assets                                                |                                       |          | 425     |          |   |          | (3,360 | )       
|                           |                                                               | Accounts payable and other current liabilities                        |                                       |          | (22,473 | )        |   |          | (6,400 | )       
|                           |                                                               | Accrued interest                                                      |                                       |          | (10,570 | )        |   |          | (3,011 | )       
|                           |                                                               | Deferred revenue and customer deposits                                |                                       |          | 47,682  |          |   |          | 33,227 |         
|                           |                                                               | Employee benefit plan obligations and other
    long-term liabilities |                                       |          | 2,120   |          |   |          | 3,363  |         
|                           |                                                               |                                                                       |                                       |          |         |          |   |         
|                           |                                                               |                                                                       | Cash provided by operating activities |          |         | 251,759  |   |          |        | 101,199  |  
|                           |                                                               |                                                                       |                                       |          |         |          |   |         
|Investing activities:      |                                                               |                                                                       |                                       |          |         |          |   |         
|                           |                                                               | Working capital adjustment related to the
    acquisition of Dex West |                                       |          | 5,251   |          |   |          |       |         
|                           |                                                               | Expenditures for property, plant and equipment                        |                                       |          | (9,772  | )        |   |          | (3,988 | )       
|                           |                                                               | Capitalized software development costs                                |                                       |          | (29,608 | )        |   |          | (9,442 | )       
|                           |                                                               | Escrow deposits                                                       |                                       |          |        |          |   |          | (2,000 | )       
|                           |                                                               |                                                                       |                                       |          |         |          |   |         
|                           |                                                               |                                                                       | Cash used for investing activities    |          |         | (34,129  | ) |          |        | (15,430  | )
|                           |                                                               |                                                                       |                                       |          |         |          |   |         
|Financing activities:      |                                                               |                                                                       |                                       |          |         |          |   |         
|                           | Proceeds from borrowings on revolving credit
    facilities   |                                                                       |                                       | 31,000   |         |          |   |         |       
|                           | Repayments of borrowings on revolving credit
    facilities   |                                                                       |                                       | (28,000  | )       |          |   |         |       
|                           | Proceeds from issuance of long-term debt                      |                                                                       |                                       | 250,476  |         |          |   |         |       
|                           | Repayments on long-term debt                                  |                                                                       |                                       | (222,000 | )       |          |   | (109,803 | )     
|                           | Payment of refinancing costs                                  |                                                                       |                                       | (6,072   | )       |          |   | (846     | )     
|                           | Exercise of employee stock options                            |                                                                       |                                       | 4,743    |         |          |   |         |       
|                           | Distribution to owners                                        |                                                                       |                                       | (252,715 | )       |          |   |         |       
|                           |                                                               |                                                                       |                                       |          |         |          |   |         
|                           |                                                               |                                                                       | Cash used for financing activities    |          |         | (222,568 | ) |          |        | (110,649 | )
|                           |                                                               |                                                                       |                                       |          |         |          |   |         
|Cash and cash equivalents: |                                                               |                                                                       |                                       |          |         |          |   |         
|                           | Decrease                                                      |                                                                       |                                       | (4,938   | )       |          |   | (24,880  | )     
|                           | Beginning balance                                             |                                                                       |                                       | 7,416    |         |          |   | 37,626   |       
|                           |                                                               |                                                                       |                                       |          |         |          |   |         
|                           |                                                               |                                                                       | Ending balance                        |          | $       | 2,478    |   |          | $      | 12,746   |  
|                           |                                                               |                                                                       |                                       |          |         |          |   |         

See accompanying notes to condensed consolidated
financial statements.

4



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)




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



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

As more fully described in Note 13, on
July 27, 2004, the Company consummated its initial public
offering of common stock (the Offering). Immediately
prior to the Offering, the Company 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 or the Company), 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 Dex East Acquisition),
Dex Holdings assigned its right to purchase the directory
business in the Dex East States (as defined below) (Dex
West) to Dex Media East LLC (Dex Media East),
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 (the Dex West Acquisition),
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, acquisition costs and
subject to adjustments relating to working capital levels).
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 and the
Dex West States (collectively the Dex States), which
is the primary local exchange carrier in most service areas
within the Dex 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 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 States through third-party vendors.

5



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



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

The accompanying condensed consolidated interim
financial statements are unaudited. In compliance with the
Securities and Exchange Commissions (the SEC)
instructions for interim financial statements, certain
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
have been omitted. In managements opinion, the condensed
consolidated financial statements reflect all adjustments (which
consist of normal recurring adjustments) necessary to fairly
present the condensed consolidated 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 Offering Prospectus 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 condensed consolidated balance sheets 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 the condensed
consolidated statement of cash flows for the six months ended
June 30, 2004 include the financial position, results of
operations and cash flows of Dex Media West whereas the
condensed consolidated statements of operations for the three
months and six months ended June 30, 2003 and the condensed
consolidated statement of cash flows for the six months ended
June 30, 2003 do not include the results of operations and
cash flows of Dex West, the predecessor of Dex Media West.
Therefore, the financial statements are not comparable.

The accompanying condensed consolidated balance
sheets 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 the condensed
consolidated statement of cash flows for the six months ended
June 30, 2004 include all material adjustments required
under purchase accounting related to the Dex West Acquisition.
The accompanying condensed consolidated statements of operations
for the three months and six months ended June 30, 2003 and
the condensed consolidated statement of cash flows for the six
months ended June 30, 2003 include all material adjustments
required under purchase accounting related to the Dex East
Acquisition.



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



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

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

6



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                    
|--- | -------------------
|(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
13 directories published in December 2002 and publish the
new editions of these directories in January 2004, in most
cases. The lives of the new editions of these 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
is 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 and six months ended
June 30, 2004, the Company published 87 and
161 directories, respectively. For the three months and six
months ended June 30, 2003, the Company and Dex West
collectively published 88 and 149 directories, respectively.

The Company enters into transactions where the
Companys products and services are promoted by an 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

7



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


months and six months ended June 30, 2004
and 2003 would have been as follows (in thousands, except per
share data):

|                                        |             |                    |   |                  |   |      |   |         |   |  |   |         |   |  |   |         |  
|--------------------------------------- | ----------- | ------------------ | - | ---------------- | - | ---- | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                        |             |                    |   |                 
|                                        |             | Three Months Ended |   | Six Months Ended
|                                        |             | June 30,           |   | June 30,        
|                                        |             |                    |   |                 
|                                        |             | 2004               |   | 2003             |   | 2004 |   | 2003   
|                                        |             |                    |   |                  |   |      |   |        
|Net Loss                                |             |                    |   |                  |   |      |   |         |   |  |   |         |   |  |   |        
|                                        | As reported |                    | $ | (4,059           | ) |      | $ | (11,888 | ) |  | $ | (14,600 | ) |  | $ | (27,776 | )
|                                        | Pro forma   |                    |   | (4,032           | ) |      |   | (11,931 | ) |  |   | (14,700 | ) |  |   | (27,862 | )
|Basic and diluted loss per common share |             |                    |   |                  |   |      |   |         |   |  |   |         |   |  |   |        
|                                        | As reported |                    | $ | (0.04            | ) |      | $ | (0.26   | ) |  | $ | (0.14   | ) |  | $ | (0.59   | )
|                                        | Pro forma   |                    |   | (0.04            | ) |      |   | (0.26   | ) |  |   | (0.14   | ) |  |   | (0.59   | )



|    |                     
|--- | --------------------
|(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 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 loss and tax credit carry
forwards if management believes, based upon existing evidence,
that it is more likely than not that the carry forward will be
utilized. All deferred tax assets are reviewed for realizability
and valuation allowances are recorded if it is more likely than
not that the deferred tax assets will not be realized.



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

During the six months ended June 30, 2004,
the following adjustment was recorded to goodwill
(in thousands):

|                             |  |   |           |  
|---------------------------- |  | - | --------- | -
|Balance at December 31, 2003 |  | $ | 3,089,317 |  
|Working capital adjustment   |  | $ | (5,251    | )
|                             |  |   |           |  
|Balance at June 30, 2004     |  | $ | 3,084,066 |  
|                             |  |   |           |  

The initial purchase price and fair value
estimates recorded upon the September 9, 2003 Dex West
Acquisition were adjusted upon settlement of the working capital
adjustment with the seller in 2004 pursuant to the provisions of
the Dex West Purchase Agreement.

8



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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      |        | $        | 1,787,000 |              |  | $        | (391,830 | )        |   | $ | 1,395,170 |           |  |  | 20 years     | (1)
|Account relationships  national   |        |          | 493,000   |              |  |          | (79,577  | )        |   |   | 413,423   |           |  |  | 25 years     | (1)
|Non-compete/ publishing agreements |        |          | 610,000   |              |  |          | (17,770  | )        |   |   | 592,230   |           |  |  | 39-40  years |    
|Dex Trademark                      |        |          | 696,000   |              |  |          |         |          |   |   | 696,000   |           |  |  | Indefinite   |    
|Qwest Dex Trademark agreement      |        |          | 133,000   |              |  |          | (34,942  | )        |   |   | 98,058    |           |  |  | 4-5 years    |    
|Advertising agreements             |        |          | 49,000    |              |  |          | (4,002   | )        |   |   | 44,998    |           |  |  | 15 years     |    
|                                   |        |          |           |              |  |          |          |          |   |   |           |           |  |  |              |    
|                                   | Totals |          | $         | 3,768,000    |  |          | $        | (528,121 | ) |   | $         | 3,239,879 |  |  |              |     | 
|                                   |        |          |           |              |  |          |          |          |   |   |           |           |  |  |              |    

As of December 31, 2003

|                                  |        |          |           |              |  |          |          |          |   |   |           |           |  |  |              |     | 
|--------------------------------- | ------ | -------- | --------- | ------------ |  | -------- | -------- | -------- | - | - | --------- | --------- |  |  | ------------ | --- | 
|                                  |        | Gross    |           |              |  |          |          |         
|                                  |        | Carrying |           | Accumulated  |  | Net Book |          |         
|Intangible Assets                 |        | Value    |           | Amortization |  | Value    |          | Life    
|                                  |        |          |           |              |  |          |          |         
|Account relationships  local     |        | $        | 1,787,000 |              |  | $        | (240,691 | )        |   | $ | 1,546,309 |           |  |  | 20 years     | (1)
|Account relationships  national  |        |          | 493,000   |              |  |          | (48,433  | )        |   |   | 444,567   |           |  |  | 25 years     | (1)
|Non-compete/publishing agreements |        |          | 610,000   |              |  |          | (10,050  | )        |   |   | 599,950   |           |  |  | 39-40  years |    
|Dex Trademark                     |        |          | 696,000   |              |  |          |         |          |   |   | 696,000   |           |  |  | Indefinite   |    
|Qwest Dex Trademark agreement     |        |          | 133,000   |              |  |          | (20,404  | )        |   |   | 112,596   |           |  |  | 4-5 years    |    
|Advertising agreements            |        |          | 49,000    |              |  |          | (2,322   | )        |   |   | 46,678    |           |  |  | 15 years     |    
|                                  |        |          |           |              |  |          |          |          |   |   |           |           |  |  |              |    
|                                  | Totals |          | $         | 3,768,000    |  |          | $        | (321,900 | ) |   | $         | 3,446,100 |  |  |              |     | 
|                                  |        |          |           |              |  |          |          |          |   |   |           |           |  |  |              |    



---



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

9



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

Long-term debt is comprised of the following (in
thousands):

|                                                                                      |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |           |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | --------- | ------------ | - | - | --------- | --------- | -
|                                                                                      |                                                                                                                                                                                                                                                    | June 30, |           | December 31,
|                                                                                      |                                                                                                                                                                                                                                                    | 2004     |           | 2003        
|                                                                                      |                                                                                                                                                                                                                                                    |          |           |             
|Dex Media East Notes Payable to Banks (in
    descending order of right of payment):  |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |          
|                                                                                      | Notes payable to banks, Tranche A term loan,
    bearing interest at adjusted London Interbank Offering 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 1.00% (interest rate of 5.25% as of
    June 30, 2004)                                                               |          |           | 3,000        |   |   |           |          |  
|Dex Media West Notes Payable to Banks (in
    descending order of right of payment):  |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |          
|                                                                                      | Notes payable to banks, Tranche A term loan,
    bearing interest at adjusted LIBOR plus the current applicable
    interest spread of 2.0% (weighted average interest rate of 3.33%
    at June 30, 2004)                                         |          |           | 857,778      |   |   |           | 905,778   |  
|                                                                                      | Notes payable to banks, Tranche B term loan,
    bearing interest at adjusted LIBOR plus the current applicable
    interest spread of 2.25% (weighted average interest rate of
    3.57% at June 30, 2004)                                        |          |           | 1,072,222    |   |   |           | 1,132,222 |  
|Dex Media East Unsecured Notes Payable (in
    descending order of right of payment): |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |          
|                                                                                      | Unsecured senior notes, due in November 2009,
    bearing interest at 9 7/8%                                                                                                                                                                       |          |           | 450,000      |   |   |           | 450,000   |  
|                                                                                      | Unsecured senior subordinated notes, due in
    November 2012, bearing interest at 12 1/8%                                                                                                                                                         |          |           | 525,000      |   |   |           | 525,000   |  
|Dex Media West Unsecured Notes Payable (in
    descending order of right of payment): |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |          
|                                                                                      | Unsecured senior notes, due August 2010, bearing
    interest at 8 1/2%                                                                                                                                                                            |          |           | 385,000      |   |   |           | 385,000   |  
|                                                                                      | Unsecured senior subordinated notes, due August
    2013, bearing interest at 9 7/8%                                                                                                                                                               |          |           | 780,000      |   |   |           | 780,000   |  
|Dex Media Unsecured Notes Payable (in
    descending order of right of payment):      |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |          
|                                                                                      | Unsecured senior notes, due November 2013,
    bearing interest at 8%                                                                                                                                                                              |          |           | 500,000      |   |   |           | 500,000   |  
|                                                                                      | Unsecured senior subordinated notes, due November
    2013, bearing interest at 9%                                                                                                                                                                 |          |           | 523,189      |   |   |           | 253,321   |  
|                                                                                      |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |          
|                                                                                      |                                                                                                                                                                                                                                                    |          | 6,148,055 |              |   |   | 6,097,434 |          
|                                                                                      | Less: current portion of long-term debt                                                                                                                                                                                                            |          |           | (143,373     | ) |   |           | (71,023   | )
|                                                                                      |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |          
|                                                                                      |                                                                                                                                                                                                                                                    | $        | 6,004,682 |              |   | $ | 6,026,411 |          
|                                                                                      |                                                                                                                                                                                                                                                    |          |           |              |   |   |           |          

As of June 30, 2004, there were
$3.0 million of borrowings under the Dex Media East
revolving credit facility (with an additional $1 million
committed under a standby letter of credit). The Company paid
interest and fees on the credit facilities, interest rate swaps,
and outstanding notes of $202.0 million and
$90.7 million

10



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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.

As discussed in Note 13(a), a portion of the
net proceeds from the Offering will be used to redeem
$183.8 million of Dex Media Easts Senior Subordinated
Notes at a redemption price of 112.125% plus accrued and unpaid
interest and $18.2 million of Dex Media Wests Senior
Subordinated Notes at a redemption price of 109.875% plus
accrued and unpaid interest.



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

During November 2002, the Company entered into
four interest rate swap agreements to hedge against the effects
of increases in the interest rates associated with floating rate
debt on its credit facilities. All interest rate related
derivative instruments had forward starting dates of May 8,
2003. The Company has 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 earnings 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,
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, respectively. In connection
with the refinancing, 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) | Stockholders Equity



|    |                
|--- | ---------------
|(a) | Preferred stock

During the three months and six months ended
June 30, 2004, zero and 158 shares, respectively, of
the Companys Series A Preferred Stock were issued
upon exercise of employee stock options. As further discussed in
Note 13(a), all outstanding preferred stock was redeemed on
July 27, 2004 for $128.5 million, including accrued
and unpaid dividends.



|    |             
|--- | ------------
|(b) | Common stock

During the three months and six months ended
June 30, 2004, 19,240 and 1,019,250 shares of common
stock, respectively, were issued, all of which remain
outstanding at June 30, 2004. As discussed in
Note 13(a), the Company plans to begin paying annual
dividends.

11



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |          
|--- | ---------
|(c) | Dividends

On January 28, 2004, Dex Media declared a
distribution to its parent of $250.5 million which was paid
February 17, 2004 and includes payment of cumulative
undeclared dividends on its Series A Preferred Stock up to
February 17, 2004. The Company had cumulative undeclared
dividends on its Series A Preferred Stock of approximately
$2.3 million and $1.2 million at June 30, 2004
and December 31, 2003, respectively. The respective
accumulated and undeclared dividends per share of Series A
Preferred Stock at June 30, 2004 and December 31, 2003
are as follows:

|                  |  |          |      |              |  |   |      | 
|----------------- |  | -------- | ---- | ------------ |  | - | ---- | 
|                  |  | June 30, |      | December 31,
|Issuance dates    |  | 2004     |      | 2003        
|                  |  |          |      |             
|November 8, 2002  |  | $        | 7.22 |              |  | $ | 3.83 | 
|September 9, 2003 |  |          | 7.22 |              |  |   | 3.83 | 
|November 11, 2003 |  |          | 7.64 |              |  |   | 3.83 | 
|March 3, 2004     |  |          | 6.42 |              |  |   | 3.83 | 

No dividends or other distributions may be paid
to the holders of common stock until the Company has declared
and set aside funds for payment of all dividends in arrears on
all Series A Preferred Stock. All accumulated and
undeclared dividends were paid on July 27, 2004 as part of
the redemption of preferred stock on that day as further
discussed in Note 13(a).



|    |                                            
|--- | -------------------------------------------
|(d) | Basic and Diluted Loss per Common
    Share

|                                      |                                     |                                           |        |                          |   |               |         |               |   |   |         |             |   |   |         |            |  
|------------------------------------- | ----------------------------------- | ----------------------------------------- | ------ | ------------------------ | - | ------------- | ------- | ------------- | - | - | ------- | ----------- | - | - | ------- | ---------- | -
|                                      |                                     |                                           |        |                         
|                                      |                                     | For the Three Months Ended                |        | For the Six Months Ended
|                                      |                                     |                                           |        |                         
|                                      |                                     | June 30, 2004                             |        | June 30, 2003            |   | June 30, 2004 |         | June 30, 2003
|                                      |                                     |                                           |        |                          |   |               |         |              
|                                      |                                     |                                          
|                                      |                                     | (Dollars in thousands, except share data)
|Net loss                              |                                     | $                                         | (4,059 | )                        |   | $             | (11,888 | )             |   | $ | (14,600 | )           |   | $ | (27,776 | )         
|Dividend on Series A Preferred Stock  |                                     |                                           | (1,571 | )                        |   |               | (1,649  | )             |   |   | (3,467  | )           |   |   | (3,299  | )         
|                                      |                                     |                                           |        |                          |   |               |         |               |   |   |         |             |   |   |         |           
|Loss available to common stockholders |                                     | $                                         | (5,630 | )                        |   | $             | (13,537 | )             |   | $ | (18,067 | )           |   | $ | (31,075 | )         
|                                      | Weighted average shares outstanding |                                           |        | 130,541,014              |   |               |         | 52,400,000    |   |   |         | 130,067,175 |   |   |         | 52,400,000 |  
|                                      | Basic and diluted loss per share    |                                           | $      | (0.04                    | ) |               | $       | (0.26         | ) |   | $       | (0.14       | ) |   | $       | (0.59      | )



|    |                            
|--- | ---------------------------
|(8) | Comprehensive Income (Loss)

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                                          |  | $                    | (4,059 | )                  |  | $    | (11,888 | )    |  | $ | (14,600 | ) |  | $ | (27,776 | )
|Unrealized gain (loss) on derivatives, net of tax |  |                      | 4,279  |                    |  |      | (2,280  | )    |  |   | 3,008   |   |  |   | (3,940  | )
|                                                  |  |                      |        |                    |  |      |         |      |  |   |         |   |  |   |         |  
|Total comprehensive income (loss)                 |  | $                    | 220    |                    |  | $    | (14,168 | )    |  | $ | (11,592 | ) |  | $ | (31,716 | )
|                                                  |  |                      |        |                    |  |      |         |      |  |   |         |   |  |   |         |  

12



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |              
|--- | -------------
|(9) | 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, the Company 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 is
equal to the estimated fair value of the common stock on the
date the stock option was granted, however, in certain instances
stock options have been granted with an exercise price below the
estimated fair value of the common stock on the date of grant.
All outstanding options have a term of ten years. Outstanding
options vest in two segments. Subject to the optionees
continued employment with the Company (1) 25% of the
options granted will vest in equal annual installments of 5%
each on each December 31 beginning in the year of grant or
the following year, depending upon when during the calendar year
the options are granted, and ending five years after; and
(2) 75% of the options granted will vest on the eighth
anniversary of the grant date; however, an installment equal to
15% of the options granted shall become vested following each of
the fiscal years beginning the year of grant or the following
year, depending upon when during the calendar year the options
are granted, and ending five years after if certain earnings
before interest, taxes, depreciation and amortization
(EBITDA) targets are met with respect to each year.

On November 3, 2003, the Company declared a
distribution to its parent of $750.2 million. As a result
of the distribution and as provided under the Plan, the Company
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 FASB
Interpretation No. (FIN) 44, Accounting for
Certain Transactions Involving Stock Compensation.



|     |                                               
|---- | ----------------------------------------------
|(10) | 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 Dex East Acquisition and the Dex West Acquisition (the
Acquisitions) 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 Acquisitions

13



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 other
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.



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

The components of net periodic benefit costs 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                        |  | $                  | 2,725  |                    |  | $       | 625   |                 |  | $ | 973    |   |  | $ | 239 | 
|Interest cost                       |  |                    | 3,100  |                    |  |         | 800   |                 |  |   | 1,379  |   |  |   | 596 | 
|Expected return on plan assets      |  |                    | (4,100 | )                  |  |         |      |                 |  |   | (1,460 | ) |  |   |    | 
|Amortization of prior service costs |  |                    |       |                    |  |         | (100  | )               |  |   |       |   |  |   |    | 
|                                    |  |                    |        |                    |  |         |       |                 |  |   |        |   |  |   |     | 
|Net periodic benefit cost           |  | $                  | 1,725  |                    |  | $       | 1,325 |                 |  | $ | 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                        |  | $                | 5,450  |                  |  | $       | 1,250 |                 |  | $ | 1,946  |   |  | $ | 478   | 
|Interest cost                       |  |                  | 6,200  |                  |  |         | 1,600 |                 |  |   | 2,758  |   |  |   | 1,192 | 
|Expected return on plan assets      |  |                  | (8,200 | )                |  |         |      |                 |  |   | (2,920 | ) |  |   |      | 
|Amortization of prior service costs |  |                  |       |                  |  |         | (200  | )               |  |   |       |   |  |   |      | 
|                                    |  |                  |        |                  |  |         |       |                 |  |   |        |   |  |   |       | 
|Net periodic benefit cost           |  | $                | 3,450  |                  |  | $       | 2,650 |                 |  | $ | 1,784  |   |  | $ | 1,670 | 
|                                    |  |                  |        |                  |  |         |       |                 |  |   |        |   |  |   |       | 



|     |                              
|---- | -----------------------------
|(11) | 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 core production
platform and related on-going support. Upon the consummation of
the acquisition of Dex West, the Companys obligation under
the agreement totaled approximately $108.0 million. This
project is designed to upgrade the Companys existing
software system to enhance its functionality. As of
June 30, 2004, the Company has approximately
$64 million remaining under this agreement. In addition,
the Company is obligated to pay Amdocs approximately
$10.2 million through 2008 related to the outsourcing of
certain information technology resources.

14



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |                           
|---- | --------------------------
|(12) | Related Party Transactions

In connection with the Acquisitions, 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 Sponsors will
receive an annual advisory fee of $2.0 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
$1.0 million and $0.5 million in pro-rated annual
advisory fees for the three months ended June 30, 2004 and
2003, respectively, and $2.0 million and $1.0 million
for the six months ended June 30, 2004 and 2003,
respectively. As discussed in Note 13(a), the annual
advisory fees payable under the agreements were terminated in
conjunction with the Offering. The Sponsors maintain the right
to act as Dex Media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 expects to pay
SAVVIS approximately $2.2 million 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
consummated its initial public offering of common stock. Dex
Media issued 19,736,842 shares of common stock at an
Offering price of $19 per share for net proceeds to the
Company of $359.1 million. On August 26, 2004, the net
proceeds related to the Offering will be used to redeem
$183.8 million of Dex Media Easts Senior Subordinated
Notes at a redemption price of 112.125% along with the accrued
and unpaid interest and $18.2 million of Dex Media
Wests Senior Subordinated Notes at a redemption price of
109.875% along with the accrued and unpaid interest. The
remainder of the net proceeds was used to redeem all of the
outstanding 5% Series A Preferred Stock including accrued
and unpaid dividends for approximately $128.5 million and
other fees and expenses related to the Offering. In connection
with the Offering, the Company paid $10 million to each of
the Sponsors to eliminate the $4.0 million annual fees
payable under the management consulting agreements. The Company
plans to begin paying annual dividends on our common stock.



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

As discussed in Note 1(a), immediately prior
to the 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.



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

In connection with the Offering, Dex Media East
provided irrevocable notice to the holders of its
12 1/8% Senior Subordinated Notes to redeem
$183.8 million in aggregate principal amount of the
outstanding notes and Dex Media West provided irrevocable notice
to the holders of its 9 ?% Senior Subordinated Notes to
redeem $18.2 million in aggregate principal amount of the
outstanding notes on August 26, 2004. The funds required to
meet the redemption obligations have been set aside using a
portion of the proceeds from the Offering.

15



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##### Table of Contents



DEX MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

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

16



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##### Table of Contents








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

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 Qwest Dex in the Dex East States (defined below) (Dex
East Acquisition) and prior to and subsequent to the
consummation of the acquisition of Qwest Dex in the Dex West
States (defined below) (Dex West Acquisition)
(together, the Acquisitions). The Dex East
States include Colorado, Iowa, Minnesota, Nebraska, New
Mexico, North Dakota and South Dakota. The Dex West
States include Arizona, Idaho, Montana, Oregon, Utah,
Washington and Wyoming. The Dex East States and the Dex West
States are referred to collectively as the Dex
States. References to Dex East refer to the
historical operations of Qwest Dex Holdings, Inc. and its
subsidiary in the Dex East States prior to November 8,
2002. References to Dex West refer to the historical
operations of Qwest Dex Holdings, Inc. and its subsidiary in the
Dex West States prior to September 9, 2003. Pursuant to
generally accepted accounting principles (GAAP), Dex
East is considered to be the predecessor to Dex Media.

We have operated as a stand-alone company since
the Dex East Acquisition. The Dex East Acquisition and the Dex
West Acquisition have been 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 dates
were not carried over to Dex Medias 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 dates.

Prior to the Dex East Acquisition, Qwest Dex
Holdings, Inc. and its subsidiary operated the directory
businesses of Dex East and Dex West as one business. In this
Managements Discussion and Analysis of Financial
Condition and Results of Operations section, we have
provided a discussion and analysis of the historical results of
Dex Media for the three months and six months ended
June 30, 2004 compared to the combined results of Dex Media
and Dex West for the three months and six months ended
June 30, 2003.

We have provided the combined results described
in the previous paragraph because (1) we believe that such
financial information is important to an investors
understanding of Dex Medias future operations due to the
Dex West Acquisition and (2) Dex Media and Dex West were
under common management for all periods presented. In the
following discussion and analysis, we,
our or us refers to (1) Dex Media
and (2) Dex Media and Dex West combined, as applicable.

The discussion and analysis of periods prior to
the acquisition of Dex West do not reflect the significant
impact that the Dex West Acquisition has had on us, including
significantly increased leverage and liquidity requirements. In
addition, 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 the 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 accounts.



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

We are the largest directory publisher in the Dex
States and the fourth largest directory publisher in the
U.S. For the three months ended June 30, 2004 and
2003, we published 87 and 88 directories, respectively, and
distributed approximately 9.4 million and 9.6 million
copies, respectively, of these directories to business and
residential consumers in the Dex States. For the six months
ended June 30, 2004 and 2003, we published 161 and
149 directories, respectively, and distributed
approximately 25.2 million and 22.4 million copies,

17



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##### Table of Contents



respectively, of these directories to business
and residential consumers in the Dex States. As of June 30,
2004, we had a total of over 400,000 local advertising accounts,
consisting primarily of small and medium-sized businesses, and
approximately 4,000 national advertisers. 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 $396.7 million and
$784.9 million in revenue, respectively. Excluding the
effects of purchase accounting adjustments to deferred revenue,
our revenue for the three and six months ended June 30,
2004 would have been $412.0 million and
$822.9 million, respectively. Approximately 96.9% and 97.1%
of our total revenue, excluding the effects of purchase
accounting, 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 States. We plan to continue to build our
knowledge of their businesses and develop value-added content
that can be distributed to our accounts 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.

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, 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
13 directories published in December 2002 would be
extended. The new editions of these 13 directories were
published in January 2004, in most cases. 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

18



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##### Table of Contents



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-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.

19



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##### Table of Contents



Items Affecting Comparability Between
Periods

Our revenue and cost of revenue for the twelve
months following the consummation of the Dex East Acquisition
were $85.9 million and $22.2 million lower,
respectively, than our revenue and cost of revenue would have
been because the Dex East Acquisition was accounted for under
the purchase method of accounting. Our revenue and cost of
revenue for the twelve months following the consummation of the
Dex West Acquisition will be $120.6 million and
$31.6 million lower, respectively, than our revenue and
cost of revenue would have been because the Dex West Acquisition
was accounted for under the purchase method of accounting. Under
the purchase method of accounting, deferred revenue and related
deferred directory costs associated with directories that had
previously been published and distributed 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 in the twelve months subsequent to the
Acquisitions. The purchase method of accounting will not affect
our revenue and directory costs subsequent to 2004. These
purchase accounting adjustments are non-recurring and have no
historical or future cash impact.

Also, the condensed consolidated results of
operations for the three months and six months ended
June 30, 2004 include the results of operations for Dex
Media West, whereas the condensed consolidated results of
operations for three months and six months ended June 30,
2003 do not include the results of Dex West. Consequently, the
periods presented in the financial statements are non-comparable.

Results of Operations



| |                                               
| | ----------------------------------------------
| | Combined Results of Dex Media and Dex
    West

As discussed previously, we have provided the
following combined results of Dex Media and Dex West because
1) we believe that such financial information is important
to an investors understanding of the impact of the Dex
West Acquisition on Dex Medias future financial results
and 2) Dex Media and Dex West were under common management
for all periods presented. The financial information for the
combined three months and six months ended June 30, 2003
includes the financial information of Dex Media and Dex West for
the three months and six months ended June 30, 2003.
Because our relationship with Qwest Dex Holdings and Qwest Dex,
as well as Qwest and its other affiliates, changed as a result
of the Acquisitions, our cost structure has changed from that
reflected in our historical results of operations, including the
combined results of operations that follow. There were no
significant transactions between Dex Media and Dex West to
consider in combining the results as described above. Although
we have provided these combined results in order to provide a
more meaningful discussion of the periods presented, this
presentation is not in accordance generally accepted accounting
principles and the periods presented are not comparable due to
the change in basis of assets that resulted from the Dex West
Acquisition.

20



---



##### Table of Contents





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

|                                                                   |                             |                          |         |              |         |          |         |          |         |   |        |        |       |  |       |      |     |  
|------------------------------------------------------------------ | --------------------------- | ------------------------ | ------- | ------------ | ------- | -------- | ------- | -------- | ------- | - | ------ | ------ | ----- |  | ----- | ---- | --- | -
|                                                                   |                             |                          |         | Combined     |         |          |         |         
|                                                                   |                             | Three Months             |         | Three Months |         |          |         |         
|                                                                   |                             | Ended                    |         | Ended        |         |          |         |         
|                                                                   |                             | June 30,                 |         | June 30,     |         |          |         |         
|                                                                   |                             | 2004                     |         | 2003         |         | $ Change |         | % Change
|                                                                   |                             |                          |         |              |         |          |         |         
|                                                                   |                             |                         
|                                                                   |                             | (Dollars in thousands)  
|Revenue:                                                           |                             |                          |         |              |         |          |         |          |         |   |        |        |       |  |       |     
|                                                                   | Local directory services    |                          | $       | 336,467      |         |          | $       | 330,406  |         |   | $      | 6,061  |       |  |       | 1.8  | %  
|                                                                   | National directory services |                          |         | 51,209       |         |          |         | 52,529   |         |   |        | (1,320 | )     |  |       | (2.5 | )% 
|                                                                   |                             |                          |         |              |         |          |         |          |         |   |        |        |       |  |       |     
|                                                                   |                             | Total directory services |         |              | 387,676 |          |         |          | 382,935 |   |        |        | 4,741 |  |       |      | 1.2 | %
|Other revenue                                                      |                             |                          | 9,028   |              |         |          | 10,149  |          |         |   | (1,121 | )      |       |  | (11.0 | )%  
|                                                                   |                             |                          |         |              |         |          |         |          |         |   |        |        |       |  |       |     
|                                                                   |                             | Total revenue            |         |              | 396,704 |          |         |          | 393,084 |   |        |        | 3,620 |  |       |      | 0.9 | %
|Cost of revenue                                                    |                             |                          | 122,193 |              |         |          | 121,804 |          |         |   | 389    |        |       |  | 0.3   | %   
|                                                                   |                             |                          |         |              |         |          |         |          |         |   |        |        |       |  |       |     
|                                                                   | Gross profit                |                          | $       | 274,511      |         |          | $       | 271,280  |         |   | $      | 3,231  |       |  |       | 1.2  | %  
|                                                                   | Gross margin                |                          |         | 69.2%        |         |          |         | 69.0%    |         |   |        |        |       |  |       |      |    
|General and administrative expense, including bad
    debt expense |                             | $                        | 52,834  |              |         | $        | 52,011  |          |         | $ | 823    |        |       |  | 1.6   | %   



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

Total revenue increased by $3.6 million, or
0.9%, to $396.7 million for the three months ended
June 30, 2004 from $393.1 million for the combined
three months ended June 30, 2003. Total revenue was
$15.4 million and $13.6 million lower for the three
months ended June 30, 2004 and the combined three months
ended June 30, 2003, respectively, due to the effects of
purchase accounting. Excluding the effects of purchase
accounting, total revenue increased $5.4 million, or 1.3%.
Total revenue, excluding the effects of purchase accounting,
included $403.0 million in directory services revenue and
$9.0 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
$4.7 million, or 1.2%, to $387.7 million for the three
months ended June 30, 2004 from $382.9 million for the
combined three months ended June 30, 2003. Total directory
services revenue was $15.4 million and $13.6 million
lower for the three months ended June 30, 2004 and the
combined three months ended June 30, 2003, respectively,
due to the effects of purchase accounting. Excluding the effects
of purchase accounting, total directory services revenue
increased $6.6 million, or 1.7%.

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, 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
$6.1 million, or 1.8%, to $336.5 million for the three
months ended June 30, 2004 compared to $330.4 million
for the combined three months ended June 30, 2003. Local
directory services revenue was $3.5 million and
$3.3 million lower for the three months ended June 30,
2004

21



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##### Table of Contents



and the combined three months ended June 30,
2003, respectively, due to the effects of purchase accounting.
Excluding the effects of purchase accounting, local directory
services revenue increased $6.3 million, or 1.9%.


Revenue from national advertisers decreased
$1.3 million, or 2.5%, to $51.2 million for the three
months ended June 30, 2004 as compared to
$52.5 million for the combined three months ended
June 30, 2003. Revenue from national advertisers was
$11.9 million and $10.3 million lower for the three
months ended June 30, 2004 and the combined three months
ended June 30, 2003, respectively, due to the effects of
purchase accounting. Excluding the effects of purchase
accounting in 2003, revenue from national advertisers increased
$0.3 million, or 0.5%.

Other revenue decreased by $1.1 million, or
11.0%, to $9.0 million for the three months ended
June 30, 2004 from $10.1 million for the combined
three months ended June 30, 2003.



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

Cost of revenue recognized was
$122.2 million for the three months ended June 30,
2004 compared to $121.8 million for the combined three
months ended June 30, 2003. Recognized cost of revenue was
$3.3 million and $4.0 million lower than it would have
been for the three months ended June 30, 2004 and the
combined three months ended June 30, 2003, respectively,
due to the effects of purchase accounting. Excluding the effects
of purchase accounting, cost of revenue recognized decreased
$0.3 million, or 0.2%. Cost of revenue recognized
represented 30.5% and 30.9% of revenue, excluding the effects of
purchase accounting, for the three months ended June 30,
2004 and the combined three months ended June 30, 2003,
respectively.

For the three months ended June 30, 2004 and
the combined three months ended June 30, 2003, we incurred
costs subject to deferral and amortization of
$118.1 million and $115.3 million, respectively. The
increase in incurred costs is primarily due to increased
contracting and professional fees related to on-going support
for our production system conversion.

Employee costs incurred decreased
$1.8 million, or 3.2%, to $54.6 million for the three
months ended June 30, 2004 from $56.4 million for the
combined three months ended June 30, 2003. The decrease is
due primarily to changes in sales incentives and a reduction in
the number of employees.

Direct costs of publishing incurred which
primarily included paper, printing and distribution, were
$37.3 million and $36.3 million for the three months
ended June 30, 2004 and the combined three months ended
June 30, 2003, respectively.

Contracting and professional fees incurred
increased $3.8 million to $6.2 million from
$2.4 million for the three months ended June 30, 2004
and 2003, respectively. The increase is primarily due to
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, office and facilities expense and
national commissions were $20.0 million and
$20.2 million for the three months ended June 30, 2004
and the combined three months ended June 30, 2003,
respectively.



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

Our gross profit was $274.5 million for the
three months ended June 30, 2004 compared to
$271.3 million for the combined three months ended
June 30, 2003. Excluding the effects of purchase
accounting, gross profit for the three months ended
June 30, 2004 and the combined three months ended
June 30, 2003, was $286.6 million and
$280.9 million, respectively. Gross margin, excluding the
effects of purchase accounting, increased to 69.5% for the three
months ended June 30, 2004 from 69.1% for the combined
three months ended June 30, 2003.



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

General and administrative expense, excluding
depreciation and amortization, increased $0.8 million, or
1.6%, to $52.8 million for the three months ended
June 30, 2004 from $52.0 million for the combined three

22



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months ended June 30, 2003. The increase was
primarily due to increases in employee costs, advertising
expense and contracting and professional fees.


Employee costs, which include salaries and wages,
benefits and other employee costs, increased $3.1 million,
or 27.0%, to $14.6 million for the three months ended
June 30, 2004 from $11.5 million for the combined
three months ended June 30, 2003. Salaries and wages
increased $1.9 million, or 26.4%, to $9.1 million for
the three months ended June 30, 2004 from $7.2 million
for the combined three months ended June 30, 2003 due to
additional stand-alone costs resulting from operating as a
separate entity from Qwest. Prior to 2004, the functions of
finance, human resources, real estate and information technology
were provided primarily by Qwest and were included in other
general and administrative expense as affiliate expenses.
Benefits were $4.8 million and $3.4 million for the
three months ended June 30, 2004 and the combined three
months ended June 30, 2003, respectively. The increase in
benefits is a result of higher costs of medical benefits and to
pension credits recognized in 2003 related to Qwests
over-funded pension plan from which Dex Media does not benefit.
Other employee costs were $0.7 million and
$0.9 million for the three months ended June 30, 2004
and the combined three months ended June 30, 2003,
respectively.

Bad debt expense decreased $2.8 million, or
20.7%, to $10.7 million for the three months ended
June 30, 2004 from $13.5 million for the combined
three months ended June 30, 2003. Bad debt expense as a
percentage of revenue, excluding the effects of purchase
accounting, was 2.6% for the three months ended June 30,
2004 as compared to 3.3% for the combined three months ended
June 30, 2003. The decrease in bad debt expense is
primarily a result of higher expense in the second quarter of
2003 relating to the bankruptcy of a specific CMR.

Advertising increased $4.5 million to
$9.3 million for the three months ended June 30, 2004
from $4.8 million for the combined 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, increased to 2.3% for the three
months ended June 30, 2004 from 1.2% for the combined three
months ended June 30, 2003.

Contracting and professional fees increased
$2.2 million, or 30.6%, to $9.4 million for the three
months ended June 30, 2004 from $7.2 million for the
three 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 $6.2 million, or 41.3%, to $8.8 million for
the three months ended June 30, 2004 from
$15.0 million for the combined three months ended
June 30, 2003. For the three months ended June 30,
2003, other general and administrative expense included
affiliate charges from Qwest, including finance, human
resources, real estate and information technology with the costs
of such expenses incurred directly in salaries and wages for the
three months ended June 30, 2004.

23



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

|                                                                   |                             |                          |         |            |         |          |         |          |         |   |       |        |        |  |      |      |     |  
|------------------------------------------------------------------ | --------------------------- | ------------------------ | ------- | ---------- | ------- | -------- | ------- | -------- | ------- | - | ----- | ------ | ------ |  | ---- | ---- | --- | -
|                                                                   |                             |                          |         | Combined   |         |          |         |         
|                                                                   |                             | Six Months               |         | Six Months |         |          |         |         
|                                                                   |                             | Ended                    |         | Ended      |         |          |         |         
|                                                                   |                             | June 30,                 |         | June 30,   |         |          |         |         
|                                                                   |                             | 2004                     |         | 2003       |         | $ Change |         | % Change
|                                                                   |                             |                          |         |            |         |          |         |         
|                                                                   |                             |                         
|                                                                   |                             | (Dollars in thousands)  
|Revenue:                                                           |                             |                          |         |            |         |          |         |          |         |   |       |        |        |  |      |     
|                                                                   | Local directory services    |                          | $       | 671,505    |         |          | $       | 656,277  |         |   | $     | 15,228 |        |  |      | 2.3  | %  
|                                                                   | National directory services |                          |         | 95,140     |         |          |         | 99,278   |         |   |       | (4,138 | )      |  |      | (4.2 | )% 
|                                                                   |                             |                          |         |            |         |          |         |          |         |   |       |        |        |  |      |     
|                                                                   |                             | Total directory services |         |            | 766,645 |          |         |          | 755,555 |   |       |        | 11,090 |  |      |      | 1.5 | %
|Other revenue                                                      |                             |                          | 18,236  |            |         |          | 19,017  |          |         |   | (781  | )      |        |  | (4.1 | )%  
|                                                                   |                             |                          |         |            |         |          |         |          |         |   |       |        |        |  |      |     
|                                                                   |                             | Total revenue            |         |            | 784,881 |          |         |          | 774,572 |   |       |        | 10,309 |  |      |      | 1.3 | %
|Cost of revenue                                                    |                             |                          | 240,385 |            |         |          | 236,644 |          |         |   | 3,741 |        |        |  | 1.6  | %   
|                                                                   |                             |                          |         |            |         |          |         |          |         |   |       |        |        |  |      |     
|                                                                   | Gross profit                |                          | $       | 544,496    |         |          |         | 537,928  |         |   |       | 6,568  |        |  |      | 1.2  | %  
|                                                                   | Gross margin                |                          |         | 69.4%      |         |          |         | 69.4%    |         |   |       |        |        |  |      |      |    
|General and administrative expense, including bad
    debt expense |                             | $                        | 106,185 |            |         | $        | 99,485  |          |         | $ | 6,700 |        |        |  | 6.7  | %   



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

Total revenue increased by $10.3 million or
1.3%, to $784.9 million for the six months ended
June 30, 2004 from $774.6 million for the combined six
months ended June 30, 2003. Total revenue for the six
months ended June 30, 2004 and the combined six months
ended June 30, 2003 was $38.1 million and
$38.3 million lower, respectively, than it would have been
due to the effects of purchase accounting. Excluding the effects
of purchase accounting, total revenue increased
$10.1 million, or 1.2%. Total revenue, excluding the
effects of purchase accounting, included $804.7 million in
directory services revenue and $18.2 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
$11.1 million, or 1.5% to $766.6 million for the six
months ended June 30, 2004 from $755.6 million for the
combined six months ended June 30, 2003. Total directory
services revenue for the six months ended June 30, 2004 and
the combined six months ended June 30, 2003 was
$38.1 million and $38.3 million lower, respectively,
than it would have been due to the effects of purchase
accounting. Excluding the effects of purchase accounting, total
directory services revenue increased $10.8 million,
or 1.4%.

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, 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
$15.2 million, or 2.3%, to $671.5 million for the six
months ended June 30, 2004 compared to $656.3 million
for the combined six months ended June 30, 2003. Local
directory services revenue for the six months ended
June 30, 2004 and the combined six months ended
June 30, 2003 was $5.9 million and $12.4 million
lower, respectively, than it would have been due to the effects
of purchase accounting. Excluding the effects of purchase
accounting, local directory services revenue

24



---



##### Table of Contents



increased $8.7 million, or 1.3%. Local
directory services revenue, excluding the effects of purchase
accounting, accounted for 82.3% of revenue for each of the six
months ended June 30, 2004 and the combined six months
ended June 30, 2003.


Revenue from national advertisers decreased
$4.1 million, or 4.2%, to $95.1 million for the six
months ended June 30, 2004, as compared to
$99.3 million for the combined six months ended
June 30, 2003. Revenue from national advertisers for the
six months ended June 30, 2004 and the combined six months
ended June 30, 2003 was $32.2 million and
$25.9 million lower, respectively, than it would have been
due to the effects of purchase accounting. Excluding the effects
of purchase accounting, revenue from national advertisers
increased $2.1 million, or 1.7%. Revenue from national
advertisers for the six months ended June 30, 2004
accounted for 15.5% of revenue, excluding the effects of
purchase accounting, as compared to 15.4% for six months ended
June 30, 2003.

Other revenue decreased by $0.8 million, or
4.1%, to $18.2 million for the six months ended
June 30, 2004 from $19.0 million for the combined
six months ended June 30, 2003.



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

Cost of revenue recognized was
$240.4 million for the six months ended June 30, 2004
compared to $236.6 million for the combined six months
ended June 30, 2003. Recognized cost of revenue for the
six months ended June 30, 2004 and the combined
six months ended June 30, 2003 was $9.7 million
and $9.9 million lower than it would have been,
respectively, due to the effects of purchase accounting.
Excluding the effects of purchase accounting, cost of revenue
recognized increased $3.6 million, or 1.5%. Cost of revenue
recognized represented 30.4% of revenue, excluding the effects
of purchase accounting, for the six months ended June 30,
2004, compared to 30.3% of revenue for the combined
six months ended June 30, 2003.

For the six months ended June 30, 2004 and
for the combined six months ended June 30, 2003, we
incurred costs subject to deferral and amortization of
$258.5 million and $238.4 million, respectively. The
increase in incurred costs is primarily due to increased
on-going support costs related to our production system
conversion and to the shifts in publication schedules of
13 directories from December 2003 to the first quarter of
2004, which totaled $14.9 million.

Employee costs incurred decreased by
$1.5 million, or 1.3%, to $109.7 million for the six
months ended June 30, 2004 from $111.2 million for the
combined six months ended June 30, 2003. The decrease is a
result of changes to sales incentives and a reduction in the
number of employees.

Direct costs of publishing incurred, which
primarily include paper, printing and distribution, were
$95.2 million and $79.4 million for the six months
ended June 30, 2004 and for the combined six months ended
June 30, 2003, respectively. The differences in directory
publication schedules between the periods contributed
$10.7 million of the increase.

Contracting and professional fees incurred
increased $7.0 million to $11.1 million from
$4.1 million for the six months ended June 30, 2004
and 2003, respectively. The increase is primarily due to
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 was $42.5 million for the six months
ended June 30, 2004 compared to $43.7 million for the
combined six months ended June 30, 2003.



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

Our gross profit was $544.5 million for the
six months ended June 30, 2004 compared to
$537.9 million for the combined six months ended
June 30, 2003. Excluding the effects of purchase
accounting, gross profit for the six months ended and the
combined six months ended was $572.9 million and
$566.4 million, respectively. Gross margin, excluding the
effects of purchase accounting, decreased to 69.6% for the six
months ended June 30, 2004 from 69.7% for the combined six
months ended June 30, 2003.

25



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##### Table of Contents





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

General and administrative expense, excluding
depreciation and amortization, increased $6.7 million, or
6.7%, to $106.2 million for the six months ended
June 30, 2004 from $99.5 million for the combined 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.

Employee costs increased $7.5 million, or
32.9%, to $30.3 million from $22.8 million for the six
months ended June 30, 2004 and for the combined six months
ended June 30, 2003, respectively. Employee costs include
salaries and wages, benefits and other employee costs. Salaries
and wages increased $4.4 million, or 31.4%, to
$18.4 million for the six months ended June 30, 2004
from $14.0 million for the six months ended June 30,
2003. The increase in salaries and wages was due to additional
stand-alone costs resulting from operating the Company as a
separate entity from Qwest. Prior to 2004, the functions of
finance, human resources, real estate and information technology
were provided primarily by Qwest and were included in other
general and administrative expense as affiliate expenses.
Benefits increased $2.8 million, or 38.4%, to
$10.1 million for six months ended June 30, 2004 from
$7.3 million for the combined six months ended
June 30, 2003. This increase is primarily due to higher
costs of medical benefits and to pension credits recognized in
2003 related to Qwests over-funded pension plan from which
Dex Media does not benefit. Other employee costs were
$1.8 million and $1.5 million for the six months ended
June 30, 2004 and for the combined six months ended
June 30, 2003, respectively.

Bad debt expense decreased $4.0 million, or
14.7%, to $23.2 million for the six months ended
June 30, 2004 from $27.2 million for the combined six
months ended June 30, 2003. Bad debt expense as a percent
of total revenue, excluding the effects of purchase accounting,
was 2.8% for the combined six months ended June 30, 2004
compared to 3.3% for the six months ended June 30, 2003.
The decrease in bad debt expense is primarily a result of higher
expense in the second quarter of 2003 relating to the bankruptcy
of a specific CMR.

Advertising increased $7.7 million, or
86.5%, to $16.6 million for the six months ended
June 30, 2004 from $8.9 million for the combined 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, increased to 2.0%
for the six months ended June 30, 2004 compared to 1.1% for
the combined six months ended June 30, 2003.

Contracting and professional fees increased
$6.0 million, or 46.9%, to $18.8 million for the three
months ended June 30, 2004 from $12.8 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 $10.5 million, or 37.8%, to $17.3 million
for the six months ended June 30, 2004 from
$27.8 million for the combined six months ended
June 30, 2003. For the six months ended June 30, 2003,
other general and administrative expense included affiliate
charges from Qwest, including finance, human resources, real
estate and information technology with the costs of such
expenses incurred directly in salaries and wages for the six
months ended June 30, 2004.

Historical Results of Operations

The condensed consolidated results of operations
for the three months and six months ended June 30, 2004
include the results of operations for Dex Media West, whereas
the condensed consolidated results of operations for three
months and six months ended June 30, 2003 do not include
the results of Dex West. Consequently, the periods presented in
the financial statements are non-comparable. As such, we have
provided a comparison of the three months and six months ended
June 30, 2004 to the combined three months and six months
ended June 30, 2003 in the previous section. In addition
and as described further below, in connection with the
acquisition of Dex West, we acquired intangible assets subject
to amortization and incurred significant indebtedness.

26



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

In connection with the Dex West Acquisition, we
recorded significant intangible assets at the date of Dex West
Acquisition. Substantial portions of these assets have definite
lives and are subject to amortization. For the three months
ended June 30, 2004 and the combined three months ended
June 30, 2003, we recognized $103.1 million and
$53.6 million, respectively, in amortization expense
related to our identifiable intangible assets. For the six
months ended June 30, 2004 and the combined six months
ended June 30, 2003, we recognized $206.2 million and
$107.2 million, respectively, in amortization expense
related to our identifiable intangible assets.



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

We incurred significant indebtedness in
connection with the Dex West Acquisition. As such, interest
expense subsequent to and prior to the Dex West Acquisition are
not comparable. We recognized interest expense of
$118.0 million and $50.1 million for the three months
ended June 30, 2004 and the combined three months ended
June 30, 2003, respectively. We recognized interest expense
of $242.6 million for the six months ended June 30,
2004 and $98.3 million for the combined six months ended
June 30, 2003. Interest expense for the six months ended
June 30, 2004 includes $29.6 million of amortization
of deferred financing costs and $19.4 million of accretion
on discount notes. Interest expense for the six months ended
June 30, 2003 includes $9.1 million 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 $76.3 million of
deferred income tax assets resulting primarily from net
operating loss carryforwards. Based upon current projections of
income and expenses, we have determined that it is more likely
than not that we will utilize these deferred tax assets before
the expiration of the net operating loss carryforward periods.
Accordingly, no valuation allowance has been recorded.

Liquidity and Capital Resources



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

Following the Acquisitions, our primary source of
liquidity continues to be cash flow generated from the
operations of our subsidiaries. Our subsidiaries also have
availability under their revolving credit facilities, subject to
certain conditions.

In connection with the Acquisitions, we incurred
$3,653 million of borrowings under our subsidiaries
credit facilities and $2,140 million of indebtedness with
the issuance of outstanding subsidiary notes. On
November 10, 2003, we issued $500.0 million of
8% Notes due 2013 and $389.0 million of 9% Discount
Notes due 2013 for gross proceeds of $750.2 million. On
February 11, 2004, we issued $361.0 million of 9%
Discount Notes due 2013 for gross proceeds of
$250.5 million. The gross proceeds of $750.2 million
and $250.5 million were paid by us as a distribution to our
parent and ultimately to the Sponsors. As a result, our
liquidity requirements have significantly increased due to
increased debt service obligations. These notes are expected to
be serviced and repaid from distributions from Dex Media East
and Dex Media West, subject in each case to restrictions
contained in our subsidiaries respective debt agreements.
As of June 30, 2004, we had outstanding
$6,148.1 million in aggregate indebtedness due to aggregate
debt repayments since the Acquisitions of $852.1 million.
In connection with the Offering, Dex Media East provided
irrevocable notice to the holders of its
12 1/8% Senior Subordinated Notes to redeem
$183.8 million in aggregate principal amount of the
outstanding notes and Dex Media West provided irrevocable notice
to the holders of its 9 7/8% Senior Subordinated Notes
to redeem $18.2 million in aggregate principal amount of
the outstanding notes on August 26, 2004. The funds
required to meet the redemption obligations have been set aside
using a portion of the proceeds from the Offering.

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Our subsidiaries credit facilities each
consist of revolving credit and term loan facilities. The
revolving credit facility for Dex Media East expiring in
November 2008 and the revolving credit facility for Dex Media
West expiring in September 2009 are comprised of total principal
of up to $100.0 million each, both of which are available
for general corporate purposes, subject to certain conditions.
Our subsidiaries term loan facilities consist of
Tranche A term loan facilities and Tranche B term loan
facilities. The Tranche A term loan facility and
Tranche B term loan facility for Dex Media East mature in
November 2008 and May 2009, respectively. The Tranche A
term loan facility and Tranche B term loan facility for Dex
Media West mature in September 2009 and March 2010, respectively.

Our subsidiaries credit facilities bear
interest, at their 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
subsidiaries revolving credit facilities, the
Tranche A term loan facilities and the Tranche B term
loan facilities are subject to change depending on the leverage
ratio of Dex Media East or Dex Media West, as applicable. In
addition to paying interest on outstanding principal amounts
under our subsidiaries credit facilities, our subsidiaries
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 subsidiaries revolving credit facilities. The
commitment fees are payable quarterly in arrears.

On June 11, 2004, we entered into amended
and restated credit agreements to, among other things,
(i) reduce the applicable margins on loans under our
subsidiaries credit facilities and the commitment fees on
their revolving credit facilities, (ii) permit the
redemption of all of our 5% Series A preferred stock, which
is held by our Sponsors and management, plus accrued and unpaid
dividends, (iii) permit (a) the redemption of up to
35% of Dex Media Easts outstanding
12 1/8% senior subordinated notes due 2012 and its
associated redemption premium, plus accrued and unpaid interest,
and (b) the redemption of up to 35% of Dex Media
Wests outstanding 9 7/8% senior subordinated
notes due 2013 and its associated redemption premium, plus
accrued and unpaid interest from proceeds from the Offering,
(iv) make a final lump sum payment to our Sponsors to
terminate the annual advisory fees payable under the management
consulting agreements, and (v) permit Dex Media East and
Dex Media West to distribute to us the funds required to meet
the quarterly dividends on our common stock if and when such
dividends are declared, up to $70.0 million annually. The
amendments to the credit agreements, except the repricing of the
applicable margins and commitment fees which were effective on
June 11, 2004, were effective immediately upon the
consummation of the Offering on July 27, 2004.

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

Dex Media East and Dex Media West each entered
into a billing and collection services agreement with Qwest LEC
upon the consummation of the respective Acquisitions. Under
these agreements, 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

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approximately 47% of our revenue, excluding the
effects of purchase accounting, on our behalf, and we billed the
remaining 53% directly. Qwest LEC bills the account on the same
billing statement on which it bills the customer for local
telephone service. In connection with the Acquisitions, 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
$251.7 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
$34.1 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
$222.5 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 $222.0 million and
$109.8 million, respectively, of repayments on long-term
borrowings as well as $252.7 million distributed to owners
in 2004. Significant sources of cash from financing activities
included $250.5 million of 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
subsidiaries 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 our
subsidiaries note indentures and credit agreements
prohibit us from commingling the funds of our subsidiaries. They
also prohibit our subsidiaries from borrowing any funds from
each other. Despite the restrictive covenants under our
subsidiaries note indentures and credit agreements
limiting our ability to incur additional indebtedness and
dispose of our assets, we have 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 $196.1 million of our
    subsidiaries revolving facilities available to our
    subsidiaries as of June 30, 2004.                                                                                                                                                                                      
|
| | iii. | Other unsecured indebtedness up to an aggregate
    principal amount of $360.0 million, of which our
    subsidiaries may incur up to an aggregate principal amount of
    $125.0 million.                                                                                                                     
|
| | iv.  | Our subsidiaries may sell, or dispose of, assets
    up to $10.0 million and $15.0 million annually for Dex
    Media East and Dex Media West, respectively, subject to an
    aggregate amount of $20.0 million and $30.0 million,
    respectively.                                                          
|
| | v.   | The proceeds from any debt issuance, which our
    subsidiaries may use as long as the respective leverage ratio of
    Dex Media East and Dex Media West is at or below 4.0 to 1.0.                                                                                                                           
|
| | vi.  | Our subsidiaries may use the proceeds from any
    equity offering as follows: a) 50%, if the respective
    leverage ratio is above 4.0 to 1.0 or b) 100%, if the
    respective leverage ratio is at or below 4.0 to 1.0. As a
    condition to the closing of the Offering, we amended our
    subsidiaries

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| |  |                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | credit facilities to, among other things, allow
    our subsidiaries access to 100% of the proceeds from this equity
    offering irrespective of their leverage ratios.

Our subsidiaries credit agreements and
indentures of the senior notes and senior subordinated notes
permit our subsidiaries to pursue the option of financing
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 for Dex Media East and
$45.0 million at any time for Dex Media West. As of
June 30, 2004, the outstanding balance of capital leases
was $1.1 million.

Our access to liquidity will improve
significantly when the respective leverage ratios of Dex Media
East and Dex Media West drop below 4.0 to 1.0. The leverage
ratios can be improved by reducing debt levels or increasing the
amount of earnings before interest, taxes, depreciation and
amortization (EBITDA). When our subsidiaries
leverage ratio is under 4.0 to 1.0, our subsidiaries 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 our subsidiaries
use equity proceeds to optionally repay a cumulative amount of
non-credit facility related debt in excess of
$20.0 million, our subsidiaries are required to repay equal
amounts of debt under the 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 indebtedness, our
subsidiaries credit facilities and notes, capital
expenditures and working capital. During the six months ended
June 30, 2004, we used cash generated from operations in
excess of liquidity requirements to make optional repayments
under our subsidiaries credit facilities.

Our subsidiaries, Dex Media East and Dex Media
West, together made optional repayments in an aggregate
principal amount of $222.0 million under their respective
credit facilities during the six months ended June 30,
2004, using the excess cash flow generated from operations. As a
result of the repayments, our consolidated debt portfolio,
consisting of the amounts borrowed under the credit facilities,
senior notes, senior subordinated notes, and discounted notes,
is comprised of 57.5% fixed rate debt and 42.5% floating rate
debt as of June 30, 2004. Mandatory repayments or optional
repayments under the Dex Media East and Dex Media West credit
facilities in the future will cause the percentage of fixed rate
debt in the debt portfolio to increase. As fixed rate debt as a
percentage of 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 have significantly lower interest rates than the
fixed interest rates of senior notes and senior subordinated
notes. If short-term interest rates rise, the effective interest
rate of the portfolio will also increase.

Tranche A and Tranche B of Dex Media
Easts term loan credit facilities have scheduled quarterly
principal repayments that previously began September 30,
2003 and continue until the maturity dates of the facilities.
Any optional repayment is applied to reduce the subsequent
scheduled repayments of each tranche, in direct order of the
first four scheduled repayments, and thereafter, rateably. As a
result of the optional repayments made through June 30,
2004, the required quarterly payments for 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 in an amount of $22.9 million.

Tranche A and Tranche B of Dex Media
Wests term loan credit facilities have scheduled quarterly
principal repayments previously starting June 30, 2004 and
continue until the maturity dates of the facilities. Any
optional repayment is applied to reduce the subsequent scheduled
repayments of each tranche, in direct order of the first four
scheduled repayments, and thereafter, rateably. As a result of
the optional repayments made through June 30, 2004, the
required quarterly repayments for each tranche in the period
from June 30, 2004 to March 31, 2005 have been reduced
to zero. The first mandatory repayment is now due on
June 30, 2005 in an amount of $39.9 million.

On November 10, 2003, we issued
$500.0 million of 8% Notes due 2013 and
$389.0 million of 9% Discount Notes due 2013 for gross
proceeds of $750.2 million. The gross proceeds of
$750.2 million were paid by us as a distribution to our
parent and ultimately to the Sponsors. We did not retain any of
the proceeds from

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the offering. These notes are expected to be
serviced and repaid from distributions to us from Dex Media East
and Dex Media West, subject in each case to restrictions
contained in our subsidiaries respective debt agreements.


On February 11, 2004, we issued another
$361.0 million of 9% Discount Notes due 2013 for gross
proceeds of $250.5 million. The gross proceeds of
$250.5 million were paid by us as a distribution to our
parent and ultimately to the Sponsors. We did not retain any of
the proceeds from the offering. These discount notes defer
interest until May 2009 at which time Dex Media East and Dex
Media West will be expected to service and repay this debt in
the form of distributions to us, subject in each case to
restrictions contained in our subsidiaries respective debt
agreements. Accordingly, our cash requirement will increase in
May 2009 when cash interest becomes payable on our 9% Discount
Notes.

We have no operations of our own and we derive
all of our cash flow and liquidity from our subsidiaries. We
depend on the earnings and the distribution of funds from Dex
Media East and Dex Media West to meet our business needs.
Although our subsidiaries are not obligated to make funds
available to us for any purpose, Dex Media East and Dex Media
West are expected to make cash distributions of
$8.4 million and $11.6 million, respectively, to us
semi-annually to service our cash interest obligations on the
8% Notes due 2013, subject to certain covenant requirements
under the subsidiary note indentures and the credit agreements.
Particularly, Dex Media Easts indentures relating to the
senior notes and the senior subordinated notes prohibit Dex
Media East from distributing funds to us if the amount of such
distribution, together with all other restricted payments made
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 Dex Media East since January 1, 2003. The
indentures relating to Dex Media Wests senior notes and
senior subordinated notes permit up to $50.0 million in any
fiscal year to be distributed to us to make interest payments on
our notes. Although the terms of Dex Media Easts and Dex
Media Wests credit facilities permit them to pay cash
distributions to us in amounts not to exceed 42% and 58%,
respectively, of the regularly scheduled interest payments on
$250.0 million of the $500.0 million of 8% Notes
due 2013, Dex Media East and Dex Media West must meet interest
coverage ratios for the four consecutive fiscal quarters prior
to the payment of the distributions to us to cover Dex Media
Easts 42% and Dex Media Wests 58% portions of the
regularly scheduled interest payments on the remaining
$250.0 million of the $500.0 million of 8% Notes
due 2013.

Additionally, although the terms of our
subsidiaries credit facilities permitted Dex Media to
issue the outstanding discount notes, such credit facilities do
not specifically permit the payment of dividends to Dex Media to
pay cash interest on the outstanding discount notes when cash
interest becomes payable on such notes on May 15, 2009.
Accordingly, any dividend to Dex Media for payment of cash
interest on the outstanding discount notes must be permitted to
be paid pursuant to the general dividend basket of each of our
subsidiaries credit facilities, which restricts Dex Media
East (including its immediate parent and its subsidiaries) and
Dex Media West (including its immediate parent and its
subsidiaries), as applicable, from paying dividends to Dex Media
in excess of $5.0 million and $12.5 million per year,
respectively, if Dex Media East (including its immediate parent
and its subsidiaries) or Dex Media West (including its immediate
parent and its subsidiaries), as applicable, does not comply
with a coverage ratio and a leverage ratio test; furthermore,
assuming the applicable parties comply with such tests, any such
dividend would be limited to a portion of excess cash flow (as
defined in the Dex Media East and Dex Media West credit
facilities). If Dex Media East and Dex Media West are not able
to pay Dex Media dividends under the general dividend basket of
our subsidiaries credit facilities in amounts sufficient
to meet our obligations to pay cash interest on the outstanding
discount notes once cash payments become due, we will need to
refinance or amend our subsidiaries credit facilities
before such date. We cannot assure you that we will be able to
refinance or amend our subsidiaries credit facilities on
commercially reasonable terms or at all.

Furthermore, our subsidiaries are permitted under
the terms of our subsidiaries credit facilities, the
indentures governing the subsidiary notes and the terms of other
indebtedness to enter into other agreements or incur additional
indebtedness that may severely restrict or prohibit the making
of distributions, the payment of dividends or the making of
loans by such subsidiaries to us. In addition to these
contractual restrictions and prohibitions, the laws of our
subsidiaries jurisdiction of organization may restrict or
prohibit the making of

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distributions, the payment of dividends or the
making of loans by our subsidiaries to us. We cannot assure you
that the agreements governing the current and future
indebtedness of our subsidiaries, other agreements of our
subsidiaries and statutory restrictions will permit our
subsidiaries to provide us with sufficient dividends,
distributions or loans to fund scheduled interest and principal
payments on our indebtedness when due.


In addition to the limitations on distributions,
dividends or loans to us by our subsidiaries mentioned above,
our subsidiaries credit facilities, the indentures
governing our notes, the terms of our other indebtedness or any
future agreements may prohibit or limit our ability to, among
other things, dispose of assets (including the stock of our
subsidiaries), issue additional indebtedness, or issue equity
securities, which transactions could provide funds to make
payments on our notes if not prohibited or limited. In addition,
even if such transactions were permitted, use of the proceeds
therefrom for payment on our notes may be prohibited or limited
by agreements governing our current and future indebtedness. The
indentures governing our notes will not significantly limit our
subsidiaries from entering into agreements restricting such
distributions, dividends or loans. We cannot assure you that the
agreements governing our current and future indebtedness or
other agreements will permit Dex Media to engage in transactions
to fund scheduled interest and principal payments on our
indebtedness when due, if such transactions are necessary.

In addition, we cannot assure you that our
business will generate sufficient cash flow from operations or
that future borrowings will be available to our subsidiaries
under our subsidiaries revolving credit facilities in an
amount sufficient to enable us to pay our indebtedness or to
fund our other liquidity needs. Further, if we consummate an
acquisition, our debt service requirements could increase. We
may need to refinance all or a portion of our indebtedness on or
before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness on commercially reasonable
terms or at all.

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 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.



| |                  
| | -----------------
| | Stand-Alone Costs

Historically, the Predecessor reimbursed Qwest
for services Qwest and its affiliates provided to Dex West based
upon either (1) tariffed or negotiated contract rates,
(2) market prices or (3) fully distributed costs
(FDC). The historical costs for services provided to
Dex West by Qwest affiliates do not reflect the expenses that we
have begun to incur as a stand-alone entity. As of
December 31, 2003 we have completed the replacement of the
services provided by Qwest and Qwest LEC with services provided
internally or through arrangements with third parties. There can
be no assurance that the costs we incur on a stand-alone basis
will be comparable to historical costs for services previously
provided by Qwest and its affiliates.



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

Based on industry sources, overall usage of
printed yellow pages directories in the U.S. and in the Dex
States has 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

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advertising in our yellow pages directories from
doing so. Any of these factors could affect our ability to
generate revenue and have a material adverse effect on our
business.




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

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



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

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

On July 28, 2004, Moodys Investor
Service upgraded the credit ratings of our notes, our
subsidiaries 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 States.
For example, new competitive directories were introduced in six
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.

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

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



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

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



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

It is our determination that it is more likely
than not that we will utilize our deferred tax assets before the
expiration of the net operating loss carryforward period. 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 report 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 report and, except as required under the
federal securities laws and the rules and regulations of the
SEC, we assume no obligation to update or revise them or to
provide reasons why actual results may differ.






|        |                                                               
|------- | --------------------------------------------------------------
|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 $6,148.1 million comprising of
$2,984.9 million of variable rate debt drawn under our
subsidiaries credit facilities, $835.0 million of
senior notes and $1,305.0 million of senior subordinated
notes issued by our subsidiaries and $1,023.2 million of
cash pay and discount notes issued directly by us. Dex Media
Easts 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 under our
revolving credit facility. Dex Media Wests credit
facilities were made up of $857.8 million of Tranche A
term loan maturing in September 2009 and $1,072.2 million
of Tranche B term loan maturing in March 2010. Due to the
variable rate characteristics of the credit facilities,

34



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##### Table of Contents



the carrying amounts of Tranche A term
loans, Tranche B term loans and revolving credit facilities
approximated fair values.


The $450.0 million Dex Media Easts
unsecured senior notes bearing a fixed interest rate of 9.875%
matures in November 2009 and the $385.0 million Dex Media
Wests unsecured senior notes bearing a fixed interest rate
of 8.5% matures in August 2010. Due to changes in interest rates
and market conditions since the issuance of these fixed rate
notes, the fair values of the Dex Media Easts and Dex
Media Wests notes were $505.1 million and
$419.7 million, respectively as June 30, 2004.

The $525.0 million Dex Media Easts
unsecured senior subordinated notes bearing a fixed interest
rate of 12.125% matures in November 2012 and the
$780.0 million Dex Media Wests unsecured senior
subordinated notes bearing a fixed interest rate of 9.875%
matures in August 2013. Due to changes in interest rates and
market conditions since the issuance of these fixed rate notes,
the fair values of the Dex Media Easts and Dex Media
Wests notes were $612.9 million and
$856.1 million, respectively as June 30, 2004.

The $500.0 million cash pay notes,
$389.0 million and $361.0 million of discount notes
issued directly by us all mature November 2013. The cash pay
notes bear a fixed interest rate of 8.0% while the discount
notes bear a fixed interest rate of 9%. Until November 15,
2008, interest will accrue on the discount notes in the form of
an increase in the Accreted Value between the date of original
issuance and November 15, 2008. Due to changes in interest
rates and market conditions since the issuance of these fixed
rate notes, the fair values of the cash pay and the two series
of discount notes were $480.0 million $250.9 million,
and $232.8 million, respectively as June 30, 2004.

Interest Rate Risk

As of June 30, 2004, we had
$3.0 million outstanding under our subsidiaries
revolving credit facilities (and approximately $1 million
committed under a stand-by letter of credit), and
$2,981.9 million of debt outstanding under our
subsidiaries term loan facilities. Our subsidiaries
revolving credit facility and 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 these credit facilities, we have hedged a portion of our
interest rate risk. The interest rate swap agreements became
effective May 8, 2003, have an aggregate notional amount of
$370.0 million, with 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 $6.6 million and $13.3 million,
respectively. We do not use any financial derivative instruments
for speculative purposes.





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

Dex Media maintains disclosure controls and
procedures (as defined in Rule 13a-15(e) promulgated under
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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 carried out an evaluation, under the
supervision and with the participation of Dex Medias
management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of Dex Medias disclosure controls and
procedures. Based on the foregoing, Dex Medias Chief
Executive Officer and Chief Financial Officer concluded that Dex
Media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s internal controls or in other factors that could
significantly affect the internal controls subsequent to the
date Dex Media completed its evaluation.

35



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##### Table of Contents






PART II.

OTHER INFORMATION






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

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

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






|        |                                              
|------- | ---------------------------------------------
|Item 2. | 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, Inc. pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002
|Exhibit 31.2                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | Certification of Chief Financial Officer of Dex
    Media, Inc. pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002
|Exhibit 32.1                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | Certification of Chief Executive Officer of Dex
    Media, Inc. pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002
|Exhibit 32.2                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | Certification of Chief Financial Officer of Dex
    Media, Inc. 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:



| |      
| | -----
| | None.

36



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##### Table of Contents






SIGNATURE

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



| |                
| | ---------------
| | DEX MEDIA, INC.



| |     |                              
| | --- | -----------------------------
| | 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

37



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##### Table of Contents



EXHIBIT INDEX

|                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   |  |                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------
|Number                                                                                                                                                                                                                                                                                                                                                                                                                        |  |   |  | Description                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   |  |                                                                                                                              
|Exhibit 31.1                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | Certification of Chief Executive Officer of Dex
    Media, Inc. pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002
|Exhibit 31.2                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | Certification of Chief Financial Officer of Dex
    Media, Inc. pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002
|Exhibit 32.1                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | Certification of Chief Executive Officer of Dex
    Media, Inc. pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002
|Exhibit 32.2                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | Certification of Chief Financial Officer of Dex
    Media, Inc. 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.