Description of Business and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

The Company prepares its financial statements in accordance with GAAP. The consolidated financial statements include the financial statements of Dex Media and its wholly owned subsidiaries. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. All inter-company accounts and transactions have been eliminated. The Company is managed as a single business segment.

In the periods subsequent to filing for bankruptcy on March 18, 2013 and until emergence from bankruptcy on April 30, 2013, ASC 852 “Reorganizations" ("ASC 852") was applied in preparing the consolidated financial statements of Dex One.  ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the bankruptcy reorganization from the ongoing operations of the business. Accordingly, certain expenses including professional fees, realized gains and losses and provisions for losses that are realized from the reorganization and restructuring process have been classified as reorganization items on the Company's consolidated statements of comprehensive income (loss). 

The Company accounted for the business combination of Dex One and SuperMedia creating Dex Media, using the acquisition method of accounting in accordance with ASC 805 “Business Combinations” (“ASC 805”). For additional information regarding the merger and acquisition accounting, see Note 2.

Financial Statement Presentation

Certain prior period amounts on our consolidated financial statements have been reclassified to conform to current year presentation.

Dex Media presented its deferred revenue and associated unbilled receivables on a net basis on its consolidated balance sheet beginning June 30, 2013. Deferred revenue on the consolidated balance sheet represents revenue yet to be recognized for those clients who have prepaid their account or have been billed in advance. We recognize revenue from print directory advertising ratably over the life of each directory, which is typically twelve months, using the amortization method, with revenue recognition commencing in the month of publication. In the month of publication, equal offsetting amounts are recorded to deferred revenue and unbilled receivables for the full annual contract value. Each month, as our clients are billed, we reduce deferred revenue and unbilled receivables by equal amounts as revenue is recognized on the consolidated statement of comprehensive income (loss) and billed receivables are recognized on the consolidated balance sheet. The net total of deferred revenue and unbilled receivables for all clients results in a net deferred revenue position as some clients prepay their account or are billed in advance. Our December 31, 2012 consolidated balance sheet has been adjusted to reflect deferred revenue and associated unbilled receivables on a net basis.

Selling, General and Administrative

General and administrative expense includes corporate management and governance functions, which are comprised of finance, human resources, legal, investor relations, billing and receivables management. In addition, general and administrative expense includes bad debt, operating taxes, insurance, stock-based compensation, severance expense, and other general corporate expenses. All general and administrative costs are expensed as incurred.

Selling expense represents the cost to acquire new clients and renew the advertising of existing clients. Selling expense includes the sales and sales support organizations, including base salaries and sales commissions paid to our local sales force, national sales commissions paid to independent certified marketing representatives, sales training, advertising and client care expenses. Sales commissions are amortized over the average life of the directory or advertising service, which is typically twelve months. All other selling costs are expensed as incurred.

Cost of Service

Cost of service represents the cost to fulfill and maintain our advertising services to our clients. Cost of service includes the costs of producing and distributing print directories and online local search services; including publishing operations, paper, printing, distribution, website development, and Internet traffic costs for placement of our clients' information and advertisements on search engine websites with whom we are affiliated. Costs attributable to producing print directories are amortized over the average life of a directory, which is typically twelve months. These costs include the amortization of paper, printing and initial distribution of print directories. All other costs are expensed as incurred.

Use of Estimates

The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Examples of significant estimates include the allowance for doubtful accounts, the recoverability and fair value determination of property, plant and equipment, goodwill, intangible assets and other long-lived assets, pension and post-employment benefit assumptions.

Revenue Recognition

Revenue is earned from the sale of advertising. We are not generally affected by seasonality given our revenue is largely recognized on a straight-line basis over twelve month contract periods.

The sale of advertising in print directories is the primary source of revenue. We recognize revenue from print directory advertising ratably over the life of each directory which is typically twelve months, using the deferral and amortization method of accounting, with revenue recognition commencing in the month of publication.

Revenue derived from digital advertising is earned primarily from two sources: fixed-fee and performance-based advertising. Fixed-fee advertising includes advertisement placement on our and other local search websites, website development and website hosting for client advertisers. Revenue from fixed-fee advertising is recognized ratably over the life of the advertising service. Performance-based advertising revenue is earned when consumers connect with client advertisers by a "click" or “action” on their digital advertising or a phone call to their business. Performance-based advertising revenue is recognized when there is evidence that qualifying transactions have occurred or over the service period of the arrangement, as applicable.

We also offer multiple-deliverable revenue arrangements with our customers that may include a combination of our print or digital marketing solutions. The timing of delivery or fulfillment of our marketing solutions in a multiple-deliverable arrangement may differ, whereby the fulfillment of a digital marketing solutions precedes delivery of our print marketing solutions due to the length of time required to produce the final print product. In addition, multiple print directories included in a multiple-deliverable arrangement may be published at different times throughout the year. We limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery or fulfillment of other marketing solutions included in a multiple-deliverable arrangement.

We evaluate each deliverable in a multiple-deliverable revenue arrangement to determine whether they represent separate units of accounting using the following criteria:

• The delivered item(s) has value to the customer on a stand-alone basis; and

• If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company.

All of our print and digital marketing solutions qualify as separate units of accounting since they are sold on a stand-alone basis and we allocate multiple-deliverable arrangement consideration to each deliverable based on its relative selling price, which is determined using vendor specific objective evidence (“VSOE”). Our sales contracts generally do not include any provisions for cancellation, termination, right of return or refunds that would significantly impact recognized revenue.

The objective of VSOE is to determine the price at which a company would transact a sale if the product or service were sold on a stand-alone basis. In determining VSOE, we require that a substantial majority of our selling prices are consistent with our normal pricing and discounting policies, which have been established by management having relevant authority, for the specific marketing solution when sold on a stand-alone basis. In determining relative selling prices of our marketing solutions sold on a stand-alone basis, we consider, among other things, (1) the geographies in which our marketing solutions are sold, (2) economic factors, (3) local business conditions, (4) competition in our markets, (5) advertiser and consumer behavior and classifications, (6) gross margin objectives and (7) historical pricing practices. There have been no changes to our selling prices or methods used to determine VSOE that had a significant effect on the allocation of total arrangement consideration during the year ended December 31, 2013. However, we may modify our pricing and discounting policies in the future, which could result in changes in selling prices, the methodology used to determine VSOE or use of another method in the selling price hierarchy to allocate arrangement consideration.

Expense Recognition

Costs directly attributable to producing directories are amortized over the life of the directories, which is usually twelve months, under the deferral and amortization method of accounting. Direct costs include paper, printing, initial distribution and sales commissions. All other costs are recognized as incurred.

Barter Transactions

Occasionally, the Company may enter into certain transactions where a third party provides directory placement arrangements, sponsorships or other media advertising in exchange for comparable advertising with the Company. Due to the subjective nature of barter transactions, the Company no longer recognizes revenue and expense from these transactions on the Company’s consolidated statements of comprehensive income (loss). If recognized, revenue associated with barter transactions would be less than 2% of total revenue.

Cash and Cash Equivalents

Highly liquid investments with a maturity of 90 days or less when purchased are considered to be cash equivalents. Cash and cash equivalents consist of bank deposits and money market funds. Cash equivalents are stated at cost, which approximates market value.

Accounts Receivable

Unbilled receivables represent amounts that are not billable at the balance sheet date but are billed over the remaining life of the clients’ advertising contracts.

Receivables are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is calculated using a percentage of sales method based upon collection history, and an estimate of uncollectible accounts. Judgment is exercised in adjusting the provision as a consequence of known items, such as current economic factors and credit trends. Accounts receivable adjustments are recorded against the allowance for doubtful accounts.

Concentration of Credit Risk

Financial instruments subject to concentrations of credit risk consist primarily of temporary cash investments, short-term investments, trade receivables, and debt. Company policy requires the deposit of temporary cash investments with major financial institutions.

Approximately 85% of the Company’s 2013 revenue is derived from the sale of advertising to local small and medium sized businesses that advertise in limited geographical areas. These advertisers are usually billed in monthly installments after the advertising has been published and, in turn, make monthly payments, requiring the Company to extend credit to these customers. This practice is widely accepted within the industry. While most new advertisers and those wanting to expand their current media solutions are subject to a credit review, the default rates of small and medium sized companies are generally higher than those of larger companies.

The remaining 15% of the Company’s 2013 revenue is derived from the sale of advertising to larger businesses that advertise regionally or nationally. Contracted certified marketing representatives ("CMRs") purchase advertising on behalf of these advertisers. Payment for advertising is due when the advertising is published and is received directly from the CMRs, net of the CMRs' commission. The CMRs are responsible for billing and collecting from the advertisers. While the Company still has exposure to credit risks, historically, the losses from this client set have been less than that of local advertisers.

Fixed Assets and Capitalized Software

The cost of additions and improvements associated with fixed assets are capitalized if they have a useful life in excess of one year. Expenditures for repairs and maintenance, including the cost of replacing minor items not considered substantial betterments, are expensed as incurred. When fixed assets are sold or retired, the related cost and accumulated depreciation are deducted from the accounts and any gains or losses on disposition are recognized in income. Fixed assets are reviewed for impairment whenever events or changes in circumstances may indicate that the carrying amount of an asset may not be recoverable.

Costs associated with internal use software are capitalized if they have a useful life in excess of one year. Subsequent additions, modifications or upgrades to internal use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Capitalized software is reviewed for impairment whenever events or changes in circumstances may indicate that the carrying amount of an asset may not be recoverable.

Fixed assets and capitalized software are depreciated on a straight-line basis over the estimated useful lives of the assets, which are presented in the following table.

	Estimated Useful Lives
Buildings and building improvements	8-30 years
Leasehold improvements	3-8 years
Computer and data processing equipment	3 years
Furniture and fixtures	7 years
Capitalized software	3 years
Other	3-7 years

Goodwill

In accordance with GAAP, impairment testing for goodwill is to be performed at least annually unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. The Company has four reporting units, R.H. Donnelley Inc. ("RHD"), Dex Media East, Inc. ("DME"), Dex Media West, Inc. ("DMW") and SuperMedia, however, only the SuperMedia reporting unit has goodwill. Step one compares the fair value of the reporting unit to its carrying value. In performing step one of the impairment test, the Company estimated the fair value of the reporting unit using a combination of the income and market approaches with greater emphasis placed on the income approach, for purposes of estimating the total enterprise value of the Company. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit's goodwill to its implied fair value (i.e., the fair value of the reporting unit less the fair value of the unit's assets and liabilities, including identifiable intangible assets). If the carrying value of goodwill exceeds its implied fair value, the excess is required to be recorded as an impairment.

Intangible Assets

Intangible assets are recorded separately from goodwill if they meet certain criteria. All of the Company’s intangible assets are classified as definite-lived intangible assets. Intangible assets have been recorded to each of our four reporting units. The Company reviews its definite-lived intangible assets whenever events or circumstances indicate that their carrying value may not be recoverable. Our intangible assets are amortized using the income forecast method over their useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The recoverability analysis includes estimates of future cash flows directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the definite-lived intangible asset. An impairment loss is measured as the amount by which the carrying amount of the definite-lived intangible asset exceeds its fair value. The Company evaluated its definite-lived intangible assets based on current economic and business indicators and determined there were indicators of impairment as of October 1, 2013.

Pension and Other Post-employment Benefits

The Company provides pension and other post-employment benefits to certain of its employees. The accounting for benefits reflects the recognition of these benefit costs over the employee’s approximate service period based on the terms of the plan and the investment and funding decisions made. The determination of the benefit obligation and the net periodic pension and other post-employment benefit costs requires management to make assumptions regarding the discount rate, return on plan assets and healthcare cost trends. For these assumptions, management consults with actuaries, monitors plan provisions and demographics, and reviews public market data and general economic information. Changes in these assumptions can have a significant impact on the projected benefit obligation, funding requirement and net periodic benefit cost.

The Company's pension plans are non-contributory defined benefit pension plans. The pension plans include the Dex One Retirement Account, the Dex Media, Inc. Pension Plan; and, in conjunction with the merger with SuperMedia, the SuperMedia Pension Plan for Management Employees and the SuperMedia Pension Plan for Collectively Bargained Employees. The Company also maintains two non-qualified pension plans for certain executives, the Dex One Pension Benefit Equalization Plan and the SuperMedia Excess Pension Plan. Pension assets related to the Company's qualified pension plans, which are held in master trusts and recorded on the Company's consolidated balance sheet, are valued in accordance with applicable accounting guidance on fair value measurements. Participants in the management pension plans no longer earn additional pension benefits. Certain participants in the Company’s collective bargaining units no longer earn pension benefits.

As a result of the acquisition of SuperMedia, the Company has an obligation to provide other post-employment benefits to certain employees of SuperMedia. The Company's current obligation includes post-employment health care and life insurance plans for certain collectively-bargained retirees and their dependents and include a limit on the Company's share of cost for recent and future retirees.

Income Taxes

We account for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes (“ASC 740”).

Deferred tax assets or liabilities are recorded to reflect the expected future tax consequences of temporary differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted as appropriate to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse.

The likelihood that deferred tax assets can be recovered must be assessed. If recovery is not likely, the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for deferred tax assets that are estimated not to be ultimately recoverable. In this process, certain relevant criteria are evaluated, including the existence of deferred tax liabilities that can be used to absorb deferred tax assets and taxable income in future years. A valuation allowance is established to offset any deferred income tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred income tax assets will not be realized.

The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense.

Advertising Costs

Advertising costs, which includes media, promotional, branding and on-line advertising, are included in selling expense in the Company’s consolidated statements of comprehensive income (loss), and are expensed as incurred.

Earnings (Loss) Per Share

Basic earnings (loss) per share are computed by dividing net income (loss) by the number of weighted-average common shares outstanding during the reporting period. Diluted earnings per share are calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. Due to the Company's reported net loss for the years ended December 31, 2013 and 2011, the effect of all stock-based awards was anti-dilutive and therefore not included in the calculation of earnings per share. The effect of potentially dilutive common shares for the year ended December 31, 2012 was not material. For the year ended December 31, 2013, 2012 and 2011, 0.4 million, 0.5 million and 0.5 million shares of the Company’s stock-based awards had exercise prices that exceeded the average market price of the Company’s common stock for the respective period. These shares were not included in our weighted average diluted shares outstanding.

On September 5, 2013, certain employees were granted restricted stock awards, which entitles those participants to receive non-forfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of the Company’s common stock. As such, these unvested restricted stock awards meet the definition of a participating security. Participating securities are defined as unvested stock-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) and are included in the computation of earnings per share pursuant to the two-class method. At December 31, 2013 there were 0.3 million such participating securities outstanding. Under the two-class method, all earnings, whether distributed or undistributed, are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. However, the net loss from continuing operations for the year ended December 31, 2013 was not allocated to these participating securities, as these awards do not share in any loss generated by the Company.

Stock-Based Compensation

The Company grants awards to certain employees and certain non-management directors under stock-based compensation plans. The plans provide for several forms of incentive awards to be granted to designated eligible employees, non-management directors, consultants and independent contractors providing services to the Company. The awards are classified as either liability or equity awards based on the criteria established by the applicable accounting rules for stock-based compensation. Stock-based compensation expense related to incentive compensation awards is recognized on a straight-line basis over the minimum service period required for vesting of the award.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value.

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets;

Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3 - Valuations based on unobservable inputs reflecting our own assumptions. These valuations require significant judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When there is more than one input at different levels within the hierarchy, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assessment of the significance of a particular input, to the fair value measurement in its entirety, requires substantial judgment and consideration of factors specific to the asset or liability. The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach or cost approach.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Comprehensive Income,” (“ASU 2013-02”), which amends ASC 220, “Comprehensive Income.” The amended guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for interim and annual periods beginning after December 15, 2012. The Company has adopted the provisions of ASU 2013-02 as required.

In July 2013, the FASB issued ASU No. 2013-11,  “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”), which clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Earlier application is permitted. The Company is currently assessing the impact ASU 2013-11 will have on its financial statements.