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Dex One Achieves Quarterly Ad Sales Guidance And Reports Third Quarter Results

Stocks in this article: DEXO

(See attached schedules and related footnotes)

 
DEX ONE CORPORATION Schedule 1

INDEX OF SCHEDULES

   
 
Schedule 1: Index of Schedules
 
Schedule 2: Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011, the three and eight months ended September 30, 2010 (Successor Company) and the one month ended January 31, 2010 (Predecessor Company)
 
 
Schedule 3: Unaudited Statement of Operating Income for the three months ended September 30, 2011, Unaudited Adjusted Statement of Operating Income for the nine months ended September 30, 2011 and Unaudited Adjusted and Combined Adjusted Statements of Operating Income for the three and nine months ended September 30, 2010
 
 
Schedule 4: Unaudited Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010
 
`
Schedule 5: Unaudited Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2011, the three and eight months ended September 30, 2010 (Successor Company) and the one month ended January 31, 2010 (Predecessor Company)
 
 
Schedule 6: Reconciliation of Non-GAAP Measures
 
Schedule 7: Statistical Measures - Advertising Sales and Bookings
 
Schedule 8: Notes to Unaudited Condensed Consolidated Financial Statements
and Non-GAAP Measures
                     
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

         
DEX ONE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Schedule 2
Amounts in millions, except earnings (loss) per share
                     
Successor Company Predecessor Company
Three Months Ended Nine Months Ended Three Months Ended Eight Months Ended One Month Ended
    September 30, 2011   September 30, 2011   September 30, 2010   September 30, 2010   January 31, 2010
Net revenue (1) $ 360.1 $ 1,128.6 $ 259.2 $ 473.3 $ 160.4
Expenses 215.9 655.1 202.6 497.0 76.1
Depreciation and amortization 66.0 182.0 58.3 157.3 20.2
Impairment charges (2)   -       801.1       389.6       1,159.3       -  
Operating income (loss) 78.2 (509.6 ) (391.3 ) (1,340.3 ) 64.1
Gain on sale of assets (3) - 13.4 - - -
Interest expense, net   (55.3 )     (171.1 )     (67.5 )     (189.9 )     (19.7 )
Income (loss) before reorganization items, net and income taxes 22.9 (667.3 ) (458.8 ) (1,530.2 ) 44.4
Reorganization items, net (4)   -       -       -       -       7,793.1  
Income (loss) before income taxes 22.9 (667.3 ) (458.8 ) (1,530.2 ) 7,837.5
Tax (provision) benefit   (0.7 )     142.8       68.2       626.8       (917.5 )
Net income (loss) $ 22.2     $ (524.5 )   $ (390.6 )   $ (903.4 )   $ 6,920.0  
 
Earnings (loss) per share (EPS):
Basic $ 0.44 $ (10.47 ) $ (7.81 ) $ (18.06 ) $ 100.27
Diluted $ 0.44 $ (10.47 ) $ (7.81 ) $ (18.06 ) $ 100.21
Shares used in computing EPS:
Basic 50.2 50.1 50.0 50.0 69.0
Diluted     50.2       50.1       50.0       50.0       69.1  
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 8.
 
 
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

           
DEX ONE CORPORATION

UNAUDITED STATEMENT OF OPERATING INCOME, UNAUDITED ADJUSTED STATEMENT OF OPERATING INCOME AND

UNAUDITED ADJUSTED AND COMBINED ADJUSTED STATEMENTS OF OPERATING INCOME

Schedule 3a
 

Fresh Start Adjustments

 
 

The Company adopted fresh start accounting and reporting effective February 1, 2010, the Fresh Start Reporting Date. The financial statements as of the Fresh Start Reporting Date report the results of Dex One with no beginning retained earnings or accumulated deficit. Any presentation of Dex One represents the financial position and results of operations of a new reporting entity and is not comparable to prior periods presented by the Predecessor Company. The financial statements for periods ended prior to the Fresh Start Reporting Date do not include the effect of any changes in the Predecessor Company's capital structure or changes in the fair value of assets and liabilities as a result of fresh start accounting. As a result of the deferral and amortization method of revenue recognition, recognized gross advertising revenues reflect the amortization of advertising sales consummated in prior periods as well as in the current period. The adoption of fresh start accounting had a significant impact on the financial position and results of operations of the Company subsequent to the Fresh Start Reporting Date. Fresh start accounting precluded us from recognizing deferred revenue of $175.8 million and $721.9 million and certain deferred expenses of $37.9 million and $157.1 million during the three and eight months ended September 30, 2010, respectively, associated with advertising sales fulfilled prior to the Fresh Start Reporting Date. Thus, our reported results for the three and eight months ended September 30, 2010 were not indicative of our underlying operating and financial performance and are not comparable to any current period presentation.  Accordingly, management has provided a non-GAAP analysis that compares the Company’s (1) GAAP results for the three months ended September 30, 2011 to Non-GAAP Adjusted Results for the three months ended September 30, 2010 and (2) GAAP results for the nine months ended September 30, 2011 to Non-GAAP Combined Adjusted Results for the nine months ended September 30, 2010 for net revenue through depreciation and amortization expenses.

 

Management believes that these non-GAAP financial measures are important indicators of our operations because they exclude items that may not be indicative of, or related to, our core operating results, and provide a better baseline for analyzing our underlying business. Non-GAAP Adjusted Results adjusts GAAP results of the Company for the three months ended September 30, 2010 to (i) eliminate the fresh start accounting impact on revenue and certain related expenses noted above and (ii) exclude cost-uplift recorded under fresh start accounting of $3.6 million for the three months ended September 30, 2010. Non-GAAP Combined Adjusted Results (1) combines GAAP results of the Company for the eight months ended September 30, 2010 and GAAP results of the Predecessor Company for the one month ended January 31, 2010 and (2) adjusts these combined amounts to  (i) eliminate the fresh start accounting impact on revenue and certain related expenses noted above and (ii) exclude cost-uplift recorded under fresh start accounting of $8.7 million for the eight months ended September 30, 2010. Deferred directory costs, such as print, paper, distribution and commissions, relate to directories that have not yet been published and have been recorded at fair value, determined as (a) the estimated billable value of the published directory less (b) the expected costs to complete the directory, plus (c) a normal profit margin. This incremental fresh start accounting adjustment to step up the recorded value of the deferred directory costs to fair value is hereby referred to as “cost-uplift.” Cost-uplift has been amortized over the terms of the applicable directories, not to exceed twelve months.

 

Fresh start accounting had an immaterial impact on our results of operations for the three and nine months ended September 30, 2011 and therefore, we have not adjusted our GAAP results for this period. Management believes that the presentation of Non-GAAP Adjusted and Combined Adjusted Results will help financial statement users better understand the material impact fresh start accounting had on the Company’s results of operations for the three and eight months ended September 30, 2010 and also offers a non-GAAP normalized comparison to GAAP results of the Company for the three and nine months ended September 30, 2011. The Non-GAAP Adjusted and Combined Adjusted Results presented below are reconciled to the most comparable GAAP measures. While the Non-GAAP Adjusted and Combined Adjusted Results exclude the effects of fresh start accounting, it must be noted that the Non-GAAP Adjusted and Combined Adjusted Results are not comparable to the Company’s GAAP results for the three and nine months ended September 30, 2011 and should not be treated as such. We strongly encourage investors and stockholders to review our financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

 

Impairment Charges

 
The Company has removed the goodwill impairment charge recognized during the second quarter of 2011 totaling $801.1 million from GAAP results for the nine months ended September 30, 2011. The Company has also removed the goodwill and non-goodwill intangible asset impairment charges totaling $389.6 million and $1,159.3 million from Non-GAAP Adjusted and Combined Adjusted Results for the three and nine months ended September 30, 2010, respectively.
 
Amounts in millions
                 
Successor Company   Successor Company Non-GAAP Adjusted
Three Months Ended Three Months Ended Fresh Start and Three Months Ended
  September 30, 2011   September 30, 2010   Other Adjustments   September 30, 2010
Net revenue (1) $ 360.1 $ 259.2 $ 175.8 $ 435.0
Expenses 215.9 202.6 34.3 236.9
Depreciation and amortization 66.0 58.3 - 58.3
Impairment charges (2)   -     389.6       (389.6 )     -
Operating income (loss) $ 78.2   $ (391.3 )   $ 531.1     $ 139.8
 
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 8.
                           
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

           
DEX ONE CORPORATION

UNAUDITED STATEMENT OF OPERATING INCOME, UNAUDITED ADJUSTED STATEMENT OF OPERATING INCOME AND UNAUDITED ADJUSTED AND COMBINED ADJUSTED STATEMENTS OF OPERATING INCOME (CONTINUED)

Schedule 3b

 

 
 
 
 
Amounts in millions          
Successor Company Non-GAAP Adjusted
Nine Months Ended Nine Months Ended
Adjusted Results September 30, 2011   Adjustments   September 30, 2011
Net revenue (1) $ 1,128.6 $ - $ 1,128.6
Expenses 655.1 - 655.1
Depreciation and amortization 182.0 - 182.0
Impairment charges (2)   801.1       (801.1 )     -  
Operating income (loss) $ (509.6 )   $ (801.1 )   $ 291.5  
                   
Successor Company   Predecessor Company Non-GAAP Combined Adjusted
Eight Months Ended One Month Ended Fresh Start and Nine Months Ended
Combined Adjusted Results September 30, 2010   January 31, 2010   Other Adjustments       September 30, 2010
Net revenue (1) $ 473.3 $ 160.4 $ 721.9 $ 1,355.6
Expenses 497.0 76.1 148.4 721.5
Depreciation and amortization 157.3 20.2 - 177.5
Impairment charges (2)   1,159.3       -       (1,159.3 )         -
Operating income (loss) $ (1,340.3 )   $ 64.1     $ 1,732.8         $ 456.6
 
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 8.
                     
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

       
 
DEX ONE CORPORATION Schedule 4

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 
Amounts in millions      
September 30, 2011   December 31, 2010
Assets
Cash and cash equivalents $ 195.4 $ 127.9
Accounts receivable, net 577.4 678.4
Deferred directory costs 126.1 147.0
Short term deferred income taxes, net 96.0 84.1
Other current assets   50.7     82.7
Total current assets 1,045.6 1,120.1
 
Fixed assets and computer software, net 159.9 188.7
Intangible assets, net (2) 2,235.0 2,369.2
Goodwill, net (2) - 801.1
Other non-current assets   11.8     9.7
Total Assets $ 3,452.3   $ 4,488.8
 
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 114.3 $ 154.5
Accrued interest 18.7 30.9
Deferred directory revenue 609.5 722.6
Current portion of long-term debt (5)   338.0     249.3
Total current liabilities 1,080.5 1,157.3
 
Long-term debt (5) 2,213.7 2,487.9
Deferred income taxes, net 87.8 205.8
Other non-current liabilities   63.7     111.9
Total liabilities 3,445.7 3,962.9
 
Shareholders’ equity   6.6     525.9
 
Total Liabilities and Shareholders' Equity $ 3,452.3   $ 4,488.8
         
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 8.
             
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

           
DEX ONE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Schedule 5
 
 
Amounts in millions                    
Successor Company   Predecessor Company
Three Months Ended Nine Months Ended Three Months Ended Eight Months Ended One Month Ended
    September 30, 2011   September 30, 2011   September 30, 2010   September 30, 2010   January 31, 2010
Net cash provided by operating activities $ 82.4 $ 295.0 $ 154.5 $ 394.5 $ 71.7
 
Investment activities:
Additions to fixed assets and computer software (4.4 ) (19.2 ) (10.3 ) (25.5 ) (1.8 )
Proceeds from sale of assets   -       15.4       -       -       -  
Net cash used in investing activities (4.4 ) (3.8 ) (10.3 ) (25.5 ) (1.8 )
 
Financing activities:
Credit facilities repayments (52.2 ) (207.2 ) (127.2 ) (430.6 ) (511.3 )
Debt issuance costs and other financing items, net - 0.5 - (2.8 ) (22.1 )
Decrease in checks not yet presented for payment - (17.0 ) (9.1 ) (5.3 ) (3.0 )
                 
Net cash used in financing activities (52.2 ) (223.7 ) (136.3 ) (438.7 ) (536.4 )
 
Increase (decrease) in cash and cash equivalents 25.8 67.5 7.9 (69.7 ) (466.5 )
Cash and cash equivalents, beginning of period   169.6       127.9       121.8       199.4       665.9  
Cash and cash equivalents, end of period $ 195.4     $ 195.4     $ 129.7     $ 129.7     $ 199.4  
                       
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 8.
                       
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

DEX ONE CORPORATION      

RECONCILIATION OF NON-GAAP MEASURES

Schedule 6a
(unaudited)    
 

EBITDA, Adjusted EBITDA and Combined Adjusted EBITDA are not measurements of operating performance computed in accordance with GAAP and should not be considered as a substitute for net income (loss) prepared in conformity with GAAP. In addition, EBITDA may not be comparable to similarly titled measures of other companies. Management believes that these non-GAAP financial measures are important indicators of our operations because they exclude items that may not be indicative of, or related to, our core operating results, and provide a better baseline for analyzing our underlying business.  Adjusted EBITDA of the Successor Company for the three months ended September 30, 2011 is determined by adjusting EBITDA for stock-based compensation expense and long-term incentive program. Adjusted EBITDA of the Successor Company for the nine months ended September 30, 2011 is determined by adjusting EBITDA for  (i) impairment charges, (ii) stock-based compensation expense and long-term incentive program and (iii) gain on sale of assets. Adjusted EBITDA of the Successor Company for the three and eight months ended September 30, 2010 is determined by adjusting EBITDA to (i) eliminate the fresh start accounting impact on revenue and certain expenses, (ii) exclude the impact of cost-uplift recorded under fresh start accounting, (iii) exclude goodwill and non-goodwill intangible asset impairment charges and (iv) adjust for stock-based compensation expense and long-term incentive program.

 
Adjusted EBITDA of the Predecessor Company for the one month ended January 31, 2010 is determined by adjusting EBITDA for (i) reorganization items, net and (ii) stock-based compensation expense and long-term incentive program.
 
Combined Adjusted EBITDA for the nine months ended September 30, 2010 combines the Adjusted EBITDA of the Successor Company for the eight months ended September 30, 2010 and the Predecessor Company for the one month ended January 31, 2010.
 
Amounts in millions
                 
Successor Company
Reconciliation of net income (loss) - GAAP to EBITDA, Adjusted EBITDA and Combined Three Months Ended Nine Months Ended Three Months Ended Eight Months Ended
Adjusted EBITDA September 30, 2011   September 30, 2011   September 30, 2010   September 30, 2010
 
 
Net income (loss) - GAAP $ 22.2 $ (524.5 ) $ (390.6 ) $ (903.4 )
Plus (less): tax provision (benefit) 0.7 (142.8 ) (68.2 ) (626.8 )
Plus: interest expense, net 55.3 171.1 67.5 189.9
Plus: depreciation and amortization   66.0       182.0       58.3       157.3  
EBITDA $ 144.2     $ (314.2 )   $ (333.0 )   $ (1,183.0 )
 
Plus: Impairment charges (2) - 801.1 389.6 1,159.3
 

Plus: Net revenue from advertising sales fulfilled prior to February 1, 2010, which would have been recognized during the three and eight months ended September 30, 2010 absent our adoption of fresh start accounting required under GAAP.

- - 175.8 721.9
 
Plus: Cost-uplift on unpublished sales contracts as of February 1, 2010. - - 3.6 8.7
 

Less: Certain deferred expenses for advertising sales fulfilled prior to February 1, 2010, which would have been recognized during the three and eight months ended September 30, 2010 absent our adoption of fresh start accounting required under GAAP.

- - (37.9 ) (157.1 )
 
Less: Gain on sale of assets (3) - (13.4 ) - -
 
Plus: Stock-based compensation expense and long-term incentive program 1.5 4.7 1.9 7.9
 
             
Adjusted EBITDA - Successor Company $ 145.7     $ 478.2     $ 200.0     $ 557.7  
     
Predecessor Company
One Month Ended
    January 31, 2010
 
Net income - GAAP $ 6,920.0
Plus: tax provision 917.5
Plus: interest expense, net 19.7
Plus depreciation and amortization   20.2  
EBITDA 7,877.4
 
Less: Reorganization items, net (4) (7,793.1 )
 
Plus: Stock-based compensation expense and long-term incentive program   1.1  
 
Adjusted EBITDA - Predecessor Company $ 85.4  
     
Nine Months Ended

Combined Adjusted EBITDA

September 30, 2010
 
Adjusted EBITDA - Successor Company $ 557.7
Adjusted EBITDA - Predecessor Company   85.4  
Combined Adjusted EBITDA $ 643.1  
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 8.
 
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

         
DEX ONE CORPORATION

RECONCILIATION OF NON-GAAP MEASURES (cont'd)

Schedule 6b
(unaudited)
Adjusted cash flow from operations, Free cash flow, Adjusted free cash flow and Combined adjusted free cash flow are not measurements of operating performance computed in accordance with GAAP and should not be considered as a substitute for cash flow from operations prepared in conformity with GAAP. In addition, Adjusted cash flow from operations, Free cash flow, Adjusted free cash flow and Combined adjusted free cash flow may not be comparable to similarly titled measures of other companies. Management believes that these adjusted cash flow measures provide investors and stockholders with a relevant measure of liquidity and a useful basis for assessing the Company's ability to fund its activities and obligations. Adjusted cash flow from operations of the Successor Company for the three and eight months ended September 30, 2010 and the Predecessor Company for the one month ended January 31, 2010 is determined by adjusting cash flow from operations - GAAP for cash reorganization payments.
 
Adjusted free cash flow is determined by subtracting additions to fixed assets and computer software - GAAP from Adjusted cash flow from operations.
 
Combined Adjusted free cash flow for the nine months ended September 30, 2010 combines the Adjusted free cash flow of the Successor Company for the eight months ended September 30, 2010 and the Predecessor Company for the one month ended January 31, 2010.
 
Amounts in millions
                 
Successor Company
Reconciliation of cash flow from operations - GAAP to free cash flow, adjusted free Three Months Ended Nine Months Ended Three Months Ended Eight Months Ended
cash flow and combined adjusted free cash flow September 30, 2011   September 30, 2011   September 30, 2010   September 30, 2010
 
Cash flow from operations - GAAP $ 82.4 $ 295.0 $ 154.5 $ 394.5
Add : Cash reorganization payments   -       -       1.0     24.0
Adjusted cash flow from operations (Three and Eight Months Ended September 30, 2010 only) 82.4 295.0 155.5 418.5
Less: Additions to fixed assets and computer software - GAAP   4.4       19.2       10.3     25.5
Free cash flow - Successor Company $ 78.0     $ 275.8  
Adjusted free cash flow - Successor Company $ 145.2   $ 393.0
 
     
Predecessor Company
One Month Ended
    January 31, 2010
 
Cash flow from operations - GAAP $ 71.7
Add: Cash reorganization payments   3.5  
Adjusted cash flow from operations 75.2
Less: Additions to fixed assets and computer software - GAAP   1.8  
Adjusted free cash flow - Predecessor Company $ 73.4  
     
Combined Adjusted Free Cash Flow Nine Months Ended
September 30, 2010
Adjusted free cash flow - Successor Company $ 393.0
Adjusted free cash flow - Predecessor Company   73.4  

Combined adjusted free cash flow

$ 466.4  
 
         
Reconciliation of debt - GAAP to net debt and net debt - eliminating fair value discount (5) (6) September 30, 2011   December 31, 2010
Debt - GAAP $ 2,551.7 $ 2,737.2
Less: Cash and cash equivalents   (195.4 )     (127.9 )
Net debt 2,356.3 2,609.3
Fair value discount   69.3       91.0  
Net debt - eliminating fair value discount $ 2,425.6     $ 2,700.3  
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 8.
 
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

 
DEX ONE CORPORATION

RECONCILIATION OF NON-GAAP MEASURES (cont'd)

Schedule 6c
(unaudited)
 
Amounts in millions
 
     
Reconciliation of adjusted EBITDA outlook (midpoint) to adjusted operating income outlook (midpoint) Full Year 2011
and operating loss - GAAP outlook (midpoint)   Outlook
 
Adjusted EBITDA outlook (midpoint) $ 638
Less: depreciation and amortization   (251 )
Adjusted operating income outlook (midpoint) 387
Less: Stock-based compensation expense and long-term incentive program (6 )
Less: Goodwill impairment charge   (801 )
Operating loss - GAAP outlook (midpoint)   $ (420 )
 
     
Reconciliation of free cash flow outlook (midpoint) to cash flow from Full Year 2011
operations outlook - GAAP (midpoint)   Outlook
 
Free cash flow outlook (midpoint) $ 388
Plus: Additions to fixed assets and computer software   40  
Cash flow from operations outlook - GAAP (midpoint)   $ 428  
 
     
Reconciliation of debt - GAAP to net debt and net debt - eliminating fair value discount (5) (6)   Outlook at December 31, 2011
 
Debt - GAAP $ 2,538
Less: Cash and cash equivalents   (250 )
Net debt 2,288
Fair value discount   62  
Net debt - eliminating fair value discount   $ 2,350  
             
DEX ONE CORPORATION Schedule 7
STATISTICAL MEASURES

CALCULATION OF ADVERTISING SALES AND BOOKINGS PERCENTAGE CHANGE OVER PRIOR YEAR PERIODS

(unaudited)
 
 
Amounts in millions, except percentages                      
Nine Months Ended   Three Months Ended   Three Months Ended   Three Months Ended   Three Months Ended   Three Months Ended
Advertising Sales (7)     September 30, 2011   September 30, 2011   June 30, 2011   March 31, 2011   December 31, 2010   September 30, 2010
 
2011 Advertising sales $ 1,002.6 $ 269.3 $ 368.8 $ 364.5
 
2010 Advertising sales as previously disclosed 1,228.50 333.4 441.9 453.2 $ 442.5 $ 333.4
 
Adjustments primarily related to changes in publication dates and other factors   (47.5 )     (21.3 )     (10.0 )     (16.2 )     0.7       (21.3 )
 
2010 Advertising sales $ 1,181.0 $ 312.1 $ 431.9 $ 437.0 443.2 312.1
 
2009 Advertising sales as previously disclosed 487.8 419.9
 
Adjustments primarily related to changes in publication dates and other factors                   24.9       (49.8 )
 
2009 Advertising sales $ 512.7 $ 370.1
                     
Advertising sales percentage change over prior year periods       (15.1 %)     (13.7 %)     (14.6 %)     (16.6 %)     (13.6 %)     (15.7 %)
                             
Nine Months Ended   Three Months Ended   Three Months Ended   Three Months Ended   Three Months Ended   Three Months Ended
Bookings (7)     September 30, 2011   September 30, 2011   June 30, 2011   March 31, 2011   December 31, 2010   September 30, 2010
 
 
Bookings percentage change over prior year periods       (15.0 %)     (14.0 %)     (15.0 %)     (15.9 %)     (15.8 %)     (15.1 %)
 
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 8.
                             
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

 
DEX ONE CORPORATION Schedule 8

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NON-GAAP MEASURES

 
(1) Our advertising revenues are earned primarily from the sale of advertising in yellow pages directories we publish. Advertising revenues also include revenues from our Internet-based marketing solutions including online directories, such as DexKnows.com and DexNet. Advertising revenues are affected by several factors, including changes in the quantity and size of advertisements, acquisition of new clients, renewal rates of existing clients, premium advertisements sold, changes in advertisement pricing, the introduction of new marketing solutions, an increase in competition and more fragmentation in the local business search market and general economic factors. Revenues with respect to print advertising and Internet-based marketing solutions that are sold with print advertising are recognized under the deferral and amortization method whereby revenues are initially deferred when a directory is published, net of sales claims and allowances, and recognized ratably over the directory’s life, which is typically 12 months. Revenues with respect to Internet-based marketing solutions that are sold standalone, such as DexNet, are recognized ratably over the life of the contract commencing when they are first delivered or fulfilled. Revenues with respect to our marketing solutions that are performance-based are recognized as the service is delivered or fulfilled.
 
(2) The Company concluded there were indicators of impairment as of May 31, 2011. As a result, we performed impairment tests of our goodwill, definite-lived intangible assets and other long-lived assets as of May 31, 2011. The impairment testing results for recoverability of our definite-lived intangible assets and other long-lived assets indicated they were recoverable and thus no impairment test was required as of May 31, 2011. Based upon the testing results of our goodwill, we determined that the remaining goodwill assigned to each of our reporting units was fully impaired and thus recognized an aggregate goodwill impairment charge of $801.1 million during the second quarter of 2011, which was recorded at each of our reporting units. As of September 30, 2011, the Company has no recorded goodwill at any of its reporting units. We have removed the goodwill impairment charge from GAAP results for the nine months ended September 30, 2011 to arrive at adjusted results.
 

During the three months ended September 30, 2010, the Company concluded that there were indicators of impairment and as a result, we performed impairment tests of our goodwill, definite-lived intangible assets and other long-lived assets as of September 30, 2010. The testing results of our definite-lived intangible assets and other long-lived assets resulted in a non-goodwill intangible asset impairment charge of $4.3 million during the three months ended September 30, 2010 associated with trade names and trademarks, technology, local customer relationships and other from our former Business.com reporting unit. The Company also recognized a goodwill impairment charge of $385.3 million during the three months ended September 30, 2010 resulting from our impairment testing, which was recorded at each of our reporting units. The sum of the goodwill and non-goodwill intangible asset impairment charges totaled $389.6 million for the three months ended September 30, 2010 and combined with the goodwill and non-goodwill intangible asset impairment charges during the second quarter of 2010, impairment charges totaled $1,159.3 million for the eight months ended September 30, 2010. We have removed these impairment charges from Adjusted and Combined Adjusted results for the three and nine months ended September 30, 2010.

 
(3) On February 14, 2011, we completed the sale of substantially all net assets of Business.com. As a result, we recognized a gain on sale of these assets of $13.4 million during the nine months ended September 30, 2011.
 
(4) Reorganization items directly associated with the process of reorganizing the business under Chapter 11 of the Bankruptcy Code were recorded as a separate line item on the unaudited condensed consolidated statement of operations. The Predecessor Company had recorded $7.8 billion of reorganization items during the one month ended January 31, 2010 associated with the gain on reorganization/settlement of liabilities subject to compromise and the impact of fresh start accounting adjustments.
 
(5) In conjunction with our adoption of fresh start accounting, an adjustment was established to record our outstanding debt at fair value on the Fresh Start Reporting Date. The Company was required to record our amended and restated credit facilities at a discount as a result of their fair value on the Fresh Start Reporting Date. Therefore, the carrying amount of these debt obligations is lower than the principal amount due at maturity. This fair value adjustment is amortized as an increase to interest expense over the remaining term of the respective debt agreements and does not impact future scheduled interest or principal payments. The unamortized fair value adjustment resulting from fresh start accounting was $69.3 million at September 30, 2011.
 
(6) Net debt represents total debt less cash and cash equivalents on the respective date. Net debt – eliminating fair value discount eliminates the fair value discount as a result of fresh start accounting described in Note 5 and represents principal amounts due at maturity.
 
(7) Advertising sales is a non-GAAP statistical measure and consists of sales of advertising in print directories distributed during the period and Internet-based marketing solutions with respect to which such advertising first appeared publicly during the period.
In order to provide more visibility into what the Company will book as revenue in the future, we present a non-GAAP statistical measure called bookings, which represents sales activity associated with our print directories and Internet-based marketing solutions during the period. Bookings associated with our local customers represent signed contracts during the period. Bookings associated with our national customers represent what has been published or fulfilled during the period. It is important to distinguish advertising sales and bookings from net revenue, which is recognized under the deferral and amortization method.
 
     
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.




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