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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number: 333-102395

Dex Media East LLC

(303) 784-2900

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     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

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PART I.

Cautionary Note Regarding Forward-Looking Statements

      This annual 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. These risks and other factors include, among other things, those listed in Item 1 — “Business — Risk Factors,” Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Stand-Alone Company” and elsewhere in this annual report. 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,” “assumption” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined in Item 1 — “Business — Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statement.

      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 annual report and, except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission (“SEC”), we assume no obligation to update or revise them or to provide reasons why actual results may differ.

      We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this annual report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this annual report.

Market and Industry Data

      Unless otherwise indicated, information contained in this annual report concerning the U.S. directory advertising industry, the U.S. advertising industry and their respective segments, our general expectations concerning such industries and their segments and our market position and market share within such industries and their segments are derived from data from various third party sources. We have not independently verified any of such information and cannot assure you of its accuracy or completeness. In addition, this annual report presents similar information based on management estimates. Such estimates are derived from third party sources as well as data from our internal research and on assumptions made by us, based on such data and our knowledge of the U.S. directory advertising industry, which we believe to be reasonable. Our internal research has not been verified by any independent source. While we are not aware of any misstatements regarding any industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the caption Item 1 — “Business — Risk Factors,” in this annual report.

      Data on our market position and market share within our industry is based on U.S. directory advertising sales. A few of our competitors utilize the point of publication accounting method of recognizing revenue and expenses under which revenue and expenses are recognized when a directory is published. We utilize the deferral and amortization accounting method under which revenue and expenses are recognized over the lives of the directories. As a result, while we believe that the information presented herein with respect to ourselves and our competitors is comparable, comparisons made beyond the scope of those made in this annual report may be impacted by the differing accounting methods. Except where otherwise noted, the calculation of advertiser renewal and retention rates is based on local advertisers and excludes the loss of advertisers as a result of business failures, which we believe is the customary calculation method in our industry. Our revenue per advertiser (local) for a given period is calculated by dividing the total local advertising revenue in a given

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      The DEX® trademark referred to in this annual report is a registered trademark of Dex Media, Inc. (“Dex Media”). The QWEST DEX® and QWEST DEX ADVANTAGE® trademarks referred to in this annual report are registered trademarks of Qwest and are used by us under license.

	•	“We,” “our,” and “us” refers to our predecessor, Dex East, as defined below, for periods prior to November 8, 2002, and refers to Dex Media East LLC (formerly known as SGN LLC) (“Dex Media East”), a co-issuer of the East Notes, as defined below, for periods after November 8, 2002. In addition, where the context so requires, “we,” “our,” and “us” refers to Dex Media East and Dex East collectively;
	•	“Dex East” and “Predecessor” refer to the historical operations of Qwest Dex Holdings, Inc. and its subsidiary in Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota prior to November 8, 2002, the date that Dex Media East acquired Dex East;
	•	“Dex West” refers to the historical operations of Qwest Dex Holdings, Inc. and its subsidiary in Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming;
	•	“Dex Media West” refers to Dex Media West LLC, the successor to Dex West following the acquisition of Dex West by Dex Media West LLC, an indirect, wholly-owned subsidiary of Dex Media;
	•	“Dex Media International” refers to Dex Media International, Inc. (known as LCI International, Inc. until January 2003), currently the only guarantor of the East Notes;
	•	“Qwest” refers to Qwest Communications International Inc. and its subsidiaries, other than Qwest Corporation;
	•	“Qwest LEC” refers to Qwest Corporation, the local exchange carrier subsidiary of Qwest;
	•	“Predecessor Period” refers to the period from January 1, 2002 through November 8, 2002;
	•	“Successor Period” refers to the period from November 9, 2002 through December 31, 2002;
	•	“East Notes” refers collectively to the 9 7/8% Senior Notes due 2009 and the 12 1/8% Senior Subordinated Notes due 2012 that were issued by Dex Media East and Dex Media East Finance Co. on November 8, 2002.
	•	“West Notes” refers collectively to the 8 1/2% Senior Notes due 2010 and the 9 7/8% Senior Subordinated Notes due 2013 that were issued by Dex Media West and Dex Media West Finance Co. on August 29, 2003.

Background Information

      On August 19, 2002, Dex Holdings LLC (“Dex Holdings”), the parent of Dex Media, entered into two purchase agreements with Qwest to acquire the directory business of Qwest Dex, Inc. (together with its parent, Qwest Dex Holdings, Inc., “Qwest Dex”), the directory services subsidiary of Qwest, in two separate phases. Pursuant to the purchase agreement relating to the first phase, Dex Holdings agreed to purchase Qwest Dex’s directory business in Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota, which we refer to as the Dex East States. Dex Holdings assigned its right to purchase these businesses to us and we consummated the first phase on November 8, 2002. The historical information, including the historical financial data, included in this annual report for periods prior to November 8, 2002 is that of our predecessor, Dex East.

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      Pursuant to the purchase agreement relating to the second phase, Dex Holdings agreed to purchase Qwest Dex’s directory business in Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming, which we refer to as the Dex West States. The second phase was consummated on September 9, 2003. Dex Media West, a separate indirect subsidiary of Dex Media, operates the directory business in the Dex West States.

      We have operated as a stand-alone company since the acquisition of Dex East on November 8, 2002. The acquisition was accounted for under the purchase method of accounting. Under this method, the pre-acquisition deferred revenue and related deferred costs associated with directories that were published prior to the acquisition date were not carried over to Dex Media East’s balance sheet. The effect of this accounting treatment was to reduce revenue and related costs that would otherwise have been recognized during the twelve months subsequent to the acquisition date. For purposes of prior year comparisons in this annual report, we have provided the combined results of the Successor Period and Predecessor Period to provide additional information about our results.

The Business

      We are the largest print directory publisher in the Dex East States and the sixth largest print directory publisher in the United States. We are the exclusive official directory publisher for Qwest LEC in the Dex East States. We have been publishing print directories for over 100 years. In 2003, we had at least a 77% aggregate market share in our top 10 geographic markets, which accounted for approximately 71% of our directory services revenue in that year. In 2003, we published 147 directories and distributed approximately 20 million copies of these directories to business and residential consumers in the Dex East States. We introduced two new books in 2003, and extended the publishing dates of five books which were published in January 2004. As of December 31, 2003, we had a total of approximately 197,000 local advertising customer accounts consisting primarily of small and medium-sized businesses and approximately 4,100 national advertisers. We also provide related services, including an Internet-based directory and direct marketing services. For the year ended December 31, 2003, the combined Successor Period and Predecessor Period, and the year ended December 31, 2001, we generated $668.8 million, $648.0 million and $666.2 million in revenue, respectively. Excluding the effects of purchase accounting, as described in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we generated $713.2 million and $689.5 million in revenue for the year ended December 31, 2003 and the combined Successor Period and Predecessor Period, respectively.

      We believe that the U.S. directory advertising industry is attractive due to its stable and consistent revenue growth. Industry revenue has increased each year since 1985. In addition, during the last two recessions in 1991 and 2001, the U.S. directory advertising industry experienced positive growth, while other major advertising media, including radio, television and newspaper, experienced revenue declines. We believe that this is driven in large part by the fact that print directories are, in many cases, the primary form of paid advertising used by small and medium-sized businesses. In addition, we believe that the once-yearly publication cycle and the priority placement given to renewal advertisements result in a high customer renewal rate even during weak economic times.

Markets

      In 2003, we published 147 directories, including white pages, yellow pages and other specialty directories, and distributed approximately 20 million copies of these directories to business and residential consumers in metropolitan areas and local communities in the Dex East States. Our directories are generally well-established in their communities and cover contiguous geographic areas to create a strong local market presence and achieve selling efficiencies. The following table shows the percentage of directory services

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(1)	Excludes non-print related directory services.

      We derive a significant portion of our directory services revenue from the sale of directory advertising to businesses in large metropolitan areas. For the year ended December 31, 2003, 61.2% and 71.3% of our directory services revenue was from the sale of directory advertising in our 5 and 10 largest geographic markets, respectively.

Products

      Our main product is printed telephone directories, which generated approximately 97% of our total revenue, excluding the effects of purchase accounting, for the year ended December 31, 2003. We also operate an Internet-based telephone directory and provide direct and database marketing services.

      In 2003, we published 147 printed directories, consisting of:

	•	135 directories that contained both white and yellow pages;
	•	Five directories that contained only yellow pages, which contains a listing of businesses by various directory headings as well as display and other paid advertisements;
	•	Five directories that contained only white pages, which contains a listing of the names, addresses and phone numbers of residences and businesses in the area served, as well as display and other paid advertisements; and
	•	Two specialty “On the Go” directories, which are yellow pages directory editions that are designed for use in the car.

      Whenever practicable, we combine the white and yellow pages sections into one volume.

      Our directories are designed to meet the advertising needs of local and national businesses and the informational needs of consumers. The diversity of our advertising options enables us to create customized advertising programs that are responsive to specific customer needs and financial resources. Our yellow pages and white pages directories are also efficient sources of information for consumers, featuring a comprehensive list of businesses in the local market that are conveniently organized under approximately 4,400 directory headings.

      Yellow pages directories. We offer businesses a basic listing at no charge in the relevant edition of our yellow pages directories. This listing includes the name, address and telephone number of the business and is included in alphabetical order in the relevant heading.

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      For the year ended December 31, 2003, we derived approximately 96% of our directory services revenue, excluding the effects of purchase accounting, from the sale of advertising in our yellow pages directories. A range of paid advertising options is available in our yellow pages directories, as set forth below:

	•	Listing options. An advertiser may enhance its complimentary listing in several ways. It may pay to have its listing highlighted or printed in bold or superbold text, which increases the visibility of the listing. An advertiser may also purchase extra lines of text to convey information such as hours of operation or a more detailed description of its business.
	•	In-column advertising options. For greater prominence on a page, an advertiser may expand its basic alphabetical listing by purchasing advertising space in the column in which the listing appears. The cost of in-column advertising depends on the size and type of the advertisement purchased. In-column advertisements may include such features as bolding, special fonts, color and graphics.
	•	Display advertising options. A display advertisement allows businesses to include a wide range of information, illustrations, photographs and logos. The cost of display advertisements depends on the size and type of advertisement purchased. Display advertisements are usually placed at the front of a heading, and are ordered first by size and then by advertiser seniority. This process of ordering provides a strong incentive to advertisers to increase the size of their advertisements and renew their advertising purchases from year to year to ensure that their advertisements receive priority placement. Display advertisements range in size from a quarter column to as large as two pages (a “double truck” advertisement) and three pages (a “triple truck” advertisement).
	•	Awareness products. Our line of “awareness products” allows businesses to advertise in a variety of highly visible locations on or in a directory. Each directory has a limited inventory of awareness products, which provide high value to advertisers and are priced at a premium to in-column and display advertisements. Our awareness products include:

	•	Cover. Premium location advertisements are available on the front cover, inside front cover and the inside and outside back cover of a directory.
	•	Spine. Premium location advertisements are available on the spine of yellow and white pages directories.
	•	Tabs. A full-page, double-sided, hardstock, full-color insert that is bound inside and that separates key sections of the directory. These inserts enable advertisers to achieve prominence and increase the amount of information displayed to directory users.
	•	Tip-On. Removable paper or magnet coupon placed on the front cover of the directory.
	•	Banners. An ad sold at the bottom of any page in the Community or Government sections of the print directory.
	•	Delivery Bag. Used in the delivery of all hand-delivered print directories. Between one and three advertisers per bag.

      White pages directories. State public utilities commissions require Qwest LEC, as the local exchange carrier in its local service area, to have white pages directories published to serve the local service areas. Qwest LEC has contracted with us to publish these directories until November 7, 2052. By virtue of this agreement, we provide a white pages listing to every residence and business in a given area that sets forth the name, address and phone number of the residence or business in question unless they have requested to be a non-published or non-listed customer.

      For the year ended December 31, 2003, we derived approximately 4% of our directory services revenue, excluding the effects of purchase accounting, from the sale of advertising in our white pages directories. Advertising options include bolding and highlighting for added visibility, extra lines for the inclusion of supplemental information and in-column and display advertisements. With a renewed company focus on selling white pages advertising in 2003, we more than doubled our white pages revenue growth rate over the

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      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. All of the listings in our printed directories also appear in our Internet-based directory, which is available in real time to users and at no additional charge to our advertisers. We began to post the proprietary display advertisements we create for our printed directions on DexOnLine.com in April 2003. We believe these proprietary display advertisements cannot currently be replicated by other Internet-based directories.

      We believe that DexOnline.com is the leading Internet-based directory in the Dex East States. In January 2004, we introduced significant new search capabilities. DexOnline.com now includes fully searchable content from our more than 240,000 Yellow Pages display advertisements. It also includes more than 15 million business listings and more than 200 million residential listings from across the United States. The new site incorporates free text search capability, with a single search box that is similar in its design and functionality to popular search engines. In addition, we have incorporated intelligence capabilities such as “spell check” and “thesaurus.” Users can now refine their searches using important selection criteria that include such things as specific product and brand names, hours of operation, payment options and locations.

      We view our Internet-based directory as an integrated complement to our printed directories through expanded distribution capability rather than as a stand-alone business. We believe that increased usage of Internet-based directories, such as DexOnline.com, will serve to enhance overall Yellow Pages advertising usage thereby lowering our advertisers’ cost per thousand uses (“CPMU”) despite some growth in advertising rates.

      To promote usage of our Internet-based directories, we have bundled some of our Internet products to enhance completeness with our print advertising products. We believe bundling will drive-up our usage rates, which will in turn increase the customer value proposition. As in our printed directories, businesses may pay to enhance their listings on DexOnline.com and for other premium advertising products. Options that are available include extra lines, replica advertisements, website and email link, pop-up windows, priority placement and banners.

      We provide database lists, direct mail services, insert delivered with the yellow pages directories and other database services to businesses through our direct marketing group. We sell continually updated lists of residents and businesses that have recently moved into or out of an area, a service that allows our customers to maintain up-to-date databases and customer lists. We are also able to overlay demographic and behavioral data that is purchased through third-party providers so that our customers can identify, for example, who in the area is newly retired, newly married or a new home owner. This content provides a valuable mechanism for direct mail and other targeted advertising.

      We also help businesses develop and refine their customer databases. In addition to list cleaning, the process of removing obsolete data from a data list, we are able to fill in missing names, addresses and telephone numbers when only partial information is available, and add demographic data (e.g., single-family or multi-family dwelling, home owner or renter, male or female). We provide data analysis that ranks consumers by likelihood of a response to direct marketing contact.

      While we provide customer names, addresses and telephone numbers to outside companies, this information does not include any private, non-published or non-listed information. In addition to the most current data, delivered to the customer every 24 hours, we have an extensive New Mover list providing businesses access to the most current new business or residence list in the Dex East States. These files are frequently utilized by our customers for direct mail advertising where we provide creative development, production and mailing with a one-stop delivery process, with the directory delivered right to the mailbox or

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Sales and Marketing

      The marketing of directory advertisements is primarily a direct sales effort that requires both maintaining existing customers and developing new customers. Renewing customers comprise our core advertiser base, and a large number of these customers have advertised in our directories for many years. For the year ended December 31, 2003, we retained approximately 91% of our local advertisers from the previous year. This high renewal rate reflects the importance of our directories to our local customers for whom yellow pages directory advertising is, in many cases, the primary form of advertising. Larger national companies also use advertising in our directories as an integral part of their national advertising strategy.

      We believe that we have one of the most experienced sales forces in the U.S. directory advertising industry. We believe this experience has enabled our sales representatives to develop long-term relationships with our advertisers, which we believe promotes a high level of renewal among our customers. In addition, we believe that in 2003, our experienced sales force has allowed us to achieve local market penetration of 38%, printed revenue per sales representative (local) of approximately $1.3 million and directory services revenue per advertiser (local) of approximately $2,900.

      As of December 31, 2003, our locally-based sales force was comprised of approximately 461 quota-bearing sales representatives who average approximately nine years of employment with us. The sales force is divided into three principal groups:

	•	Premise sales representatives. Our approximately 183 premise sales representatives generally focus on high revenue customers. A premise sales representative typically interacts with customers on a face-to-face basis at the customer’s place of business.
	•	Telephone sales representatives. Our approximately 185 telephone sales representatives generally focus on medium-sized customers. A telephone sales representative typically interacts with customers over the telephone. Telephone sales represent our principal source of new advertisers.
	•	Centralized sales representatives. Our approximately 93 centralized sales representatives include both centralized account representatives, who generally focus on the smallest accounts, and prospector sales representatives, who generally focus on customer win-back.

      We assign our customers among premise representatives and telephone representatives based on a careful assessment of a customer’s expected advertising expenditures. This practice allows us to deploy our sales force in an effective manner. Our sales force is generally decentralized and locally based, operating from 24 locations. We believe that our locally based sales force facilitates the establishment of personal, long-term relationships with local advertisers necessary to maintain a high rate of customer renewal.

      We believe that formal training is important to maintaining a highly productive sales force. Our sales force undergoes ongoing training, with new sales representatives receiving approximately eight weeks of training in their first year, including classroom training on sales techniques, our product portfolio, customer care and administration, and standards and ethics. Following classroom training, they are accompanied on sales calls by experienced sales personnel for further training. Ongoing training and our commitment to developing the best sales practices are intended to ensure that sales representatives are able to give advertisers high-quality service and advice on appropriate advertising products and services.

      We have well-established practices and procedures to manage the productivity and effectiveness of our sales force. Each sales representative has a specified customer assignment consisting of both new business leads and renewing advertisers and is accountable for meeting sales goals on a regular basis. Our sales

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      For purposes of managing our sales force, we divide the local service area into six territories. In each territory, between six and 15 sales managers supervise the performance of the sales representatives who are assigned to that territory. Every sales manager within a territory reports to the sales director for the territory, and the six sales directors report to the Senior Vice President of Sales for the relevant territory.

      In 2002, we began compensating our sales managers and directors pursuant to an incentive-based compensation plan that ties their compensation to their success in meeting specific sales targets. Prior to the November 8, 2002 Acquisition, bonuses for our sales managers and directors were determined by our Predecessor by reference to Qwest’s overall financial performance.

      In addition to our locally based sales personnel, we have a separate sales channel to serve our national advertisers. National advertisers are typically national or large regional chains, such as rental car companies, insurance companies and pizza delivery businesses, that purchase advertisements in many yellow pages directories in multiple geographical regions. In order to sell to national advertisers, we retain the services of third party certified marketing representatives (“CMRs”). CMRs design and create advertisements for national companies and place those advertisements in yellow pages directories nationwide. Some CMRs are departments of general advertising agencies, while others are specialized agencies that focus solely on directory advertising. The national advertiser pays the CMR, which then pays us after deducting its commission. We have contracts with approximately 160 CMRs and employ eight national sales managers to manage our selling efforts to national customers.

Customers

      In 2003, we had approximately 197,000 accounts with local businesses which purchased advertising in our directories. Approximately 81% of our revenue, excluding the effects of purchase accounting, for the year ended December 31, 2003 was generated by the sale of our advertising to local businesses, which are generally small and medium-sized enterprises. Approximately 16% of our revenue, excluding the effects of purchase accounting, was generated by sales to national advertisers. The remaining 3% of our revenue, excluding the effects of purchase accounting, was generated from sources other than sales of advertising in our print directories, including Internet-based directory and direct marketing services.

      We do not depend to any significant extent on the sale of advertising to a particular industry or to a particular advertiser. For the year ended December 31, 2003, no single directory heading accounted for more than 2.9% of our total revenue, no single customer accounted for more than 0.3% of our total revenue (other than Qwest, which accounted for 2.5% of our total revenue), the top 10 customers accounted for 1.5% of our total revenue and the top 10 directory headings accounted for approximately 15% of total revenue. The diversity of our customer base reduces exposure to adverse economic conditions that may affect particular geographic regions or particular industries and provides additional stability in operating results. The table

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      We enjoy high customer renewal rates. From 1996 to 2002, our annual renewal rate remained stable at approximately 93%, which we believe compared favorably with the renewal rates of our competitors. In 2003, we retained approximately 91% of our local advertiser accounts from the previous year (which excludes the loss of advertiser accounts as a result of business failures). This attrition was offset by the addition of new customer accounts such that the overall size of our local customer account base fell by approximately 2% in 2003. As it relates to our revenue results, increases in total advertising spending and average dollars spent per advertisement substantially offset the net loss of advertiser accounts.

      We believe that this low level of turnover reflects a high level of satisfaction among our customers. The training that we provide to our sales representatives emphasizes the fostering of long-term relationships between sales representatives and their customers, and our incentive-based compensation structure rewards sales consultants who retain a high percentage of their accounts. In addition, our customers often do not reduce or eliminate directory spending during difficult economic periods because the failure to advertise cannot be remedied until the replacement directory is published, usually one year later. Moreover, most directory publishers, including us, give priority placement within a directory classification to long-time advertisers. As a result, businesses have a strong incentive to renew their directory advertising purchases from year to year, even during difficult economic times, so as not to lose their prominence within the directory.

Publishing, Production and Distribution

      We generally publish our directories on a 12-month cycle. The publishing cycles for our directories are staggered throughout the year, which allows us to efficiently use our infrastructure and sales capabilities and the resources of our third-party vendors. The following are the major steps of the publication and production process:

	•	Selling. The sales cycle of a directory varies based on the size of the revenue base and can range from a few weeks to six months. In the months prior to publication, the sales force approaches potential new advertisers in an effort to expand our customer base. Potential new advertisers include businesses that have operated in the area for some time, but did not purchase advertising in the most recent edition of our directory, as well as newly-formed businesses and businesses that have only recently moved into the area. At the same time, the sales force contacts existing advertisers and encourages them to renew and increase the size, and therefore, prominence of their advertisements and to purchase other products in our portfolio. Advertisers generally agree to our standard advertising terms and conditions at the time that they place their order.

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	•	Generation of advertisements. Upon entering into an agreement with a customer, we collaborate with the customer to generate its advertisement. We use our proprietary technology and a team of in-house graphic artists for this purpose.
	•	Pre-press activities. The selling of advertisements typically ceases one month prior to publication, at which time we do not accept additional customers. Once a directory has closed, pre-press activities commence. Pre-press activities include finalizing artwork and proofing and paginating the directories. When the composition of the directory is finalized, we deliver the directory pages to a third-party printer.
	•	Printing. We use two outside contractors, R.R. Donnelley & Sons Company (“Donnelley”) and Quebecor World Directory Sales Corporation (“Quebecor”), for the printing of our directories. In addition, we have purchase contracts with two paper suppliers, Nippon Paper Industries USA, Co., Ltd. (formerly Daishowa America Co., Ltd.) (“Nippon”) and Norske Skog Canada (USA), Inc. (“Norske”), for the paper needed for the pages of our directories and one paper supplier, Spruce Falls, Inc. (“Spruce Falls”), for the paper needed for the covers of our directories. The time required to print a directory depends on its size and may be as long as one month.
	•	Transportation. We use Matson Integrated Logistics (“Matson”) to manage the logistics of transporting our printed directories from our printers to our distributor.
	•	Distribution. We aim to deliver our directories to all of the residences and businesses in the geographical areas for which we produce directories. We use Product Development Corporation (“PDC”) for the distribution of our directories. Distribution begins as soon as the first completed directories are produced. Depending on the circulation and size of a directory, distribution ranges from three to six weeks with most directories taking 30 days or less.

      Paper is our principal raw material. Pursuant to Dex Media’s agreements with Nippon and Norske, they are required to provide up to 60% and 40% of our annual paper supply, respectively. Prices under the two agreements are negotiated each year based on prevailing market rates and are subject to certain price escalation limits. For the year ended December 31, 2003, paper costs were 4% of revenue, excluding the effects of purchase accounting. If, in a particular year, the parties to one of the agreements are unable to agree on repricing, either party may terminate the agreement. Our contracts with Nippon and Norske expire on December 31, 2009 and December 31, 2008, respectively. Pursuant to the agreement between Spruce Falls and Dex Media, Spruce Falls is required to provide 100% of our annual cover stock paper supply. Although the amount of future price increases are specified in the agreement, if Spruce Falls and Dex Media are unable to agree on repricing, either party may terminate this agreement. This agreement expires on December 31, 2006.

      In general, Donnelley prints our larger, higher-circulation directories and Quebecor prints those directories that are smaller and have a more limited circulation. We do not guarantee any minimum volume in our agreements with Donnelley and Quebecor. Our contract with Donnelley allows us to adjust prices annually on a formula based on changes to the consumer price index. Our contracts with Donnelly and Quebecor expire on December 31, 2011 and July 30, 2008, respectively.

      Although prices under Dex Media’s agreement with PDC are fixed, they may be renegotiated under some circumstances, such as new service specifications. We rely on Matson to manage the logistics of transporting our printed directories from our printers’ locations to PDC.

      We believe that each of these agreements is on favorable terms that are currently available in the market and could be replaced.

Billing and Credit Control

      Historically, we have generally billed our customers monthly for advertising fees, either directly by us or by Qwest LEC as part of the customer’s monthly bill for telecommunications services, for which we have paid Qwest LEC a fee. For the year ended December 31, 2003, Qwest LEC billed approximately 43% of our local customer billings on our behalf. In connection with the acquisition of Dex East, we entered into a billing and

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      Because most directories are published on 12-month cycles and we bill most of our customers over the course of that 12-month period, we effectively extend credit to our customers, many of which are small or medium-sized businesses with default rates that usually exceed those of larger businesses. Fees for national advertisers are typically billed upon issue of each directory in which advertising is placed by CMRs, after deduction of commissions. Because we do not usually enter into contracts with our national advertisers, we are subject to the credit risk of CMRs on sales to those advertisers, to the extent we do not receive fees in advance. For the year ended December 31, 2003, bad debt expense for all of our customers amounted to 3.6% of our revenue, excluding the effects of purchase accounting. We attempt to improve collection of accounts receivable by conducting initial credit checks of new advertisers under certain circumstances, reducing the time taken to resolve billing inquiries and, where appropriate, requiring personal guarantees from business owners. We check all new orders from existing advertisers for payments that are past due to us prior to publishing of the new order. When applicable, based on credit policy, we use both internal and external data to decide whether to extend credit to an advertiser. In some cases, where appropriate, we may also require the advertiser to prepay part or all of the amount of its order. Beyond efforts under certain circumstances to assess credit risk prior to extending credit to customers, we employ well-developed collection strategies utilizing an integrated system of internal, external and automated means to engage with customers concerning payment obligations.

Competition

      The U.S. directory advertising industry is competitive. We compete with many different advertising and other media, including newspapers, radio, television, the Internet, billboards, direct mail and other yellow pages directory publishers. There are a number of Independent directory publishers, such as TransWestern Publishing Company LLC and the U.S. business of Yell Group Ltd., with which we compete in one or more of the Dex East States. In addition, we compete with other directory publishers in some of our markets, including local exchange carriers such as Verizon Communications Inc. and SBC Communications Inc. We compete with these publishers on value, quality, features and distribution.

      In connection with the acquisition of Dex East, we entered into a publishing agreement and a non-competition agreement with Qwest LEC. Under the publishing agreement, we are the exclusive official publisher of directories for Qwest LEC in the Dex East States. The publishing agreement expires on November 7, 2052 and will automatically be renewed for additional one-year periods unless either party terminates the contract upon 12 months’ written notice. Acting as the exclusive official publisher of directories for the incumbent telephone company provides us with an advantage over our Independent competitors due to recognition of our brands, higher usage of our directories by end users and our long-term relationships with our customers. Under the non-competition and non-solicitation agreement, which remains in effect until November 7, 2042, Qwest LEC has agreed not to compete with us in the directory publication business in the areas in which we operate.

      The Internet has emerged as a new medium for advertisers. Although advertising on the Internet still represents only a small part of the total advertising market, as the Internet grows, it may become increasingly important as an advertising medium. Most major yellow pages publishers operate an Internet-based directory business. We compete directly through our Internet-based directory, DexOnline.com, with the Internet directories of the Independent publishers and some of the local exchange carriers. In addition, we compete

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Intellectual Property

      We own and license a number of patents, copyrights and trademarks in the United States. The only trademark we consider material to our operations is the DEX® trademark, which is owned by Dex Media and is used by Dex Media West and us. We do not consider any individual patent or other trademark to be material to our operations. We believe that the phrase “yellow pages” and the walking fingers logo are in the public domain in the U.S.

Employees

      As of December 31, 2003, we employed 2,964 employees, including 1,377 former employees of Dex West that were transferred to Dex Media East upon the September 9, 2003 consummation of the acquisition of Dex West. Most of our employees are represented by labor unions covered by two collective bargaining agreements. Our collective bargaining agreement with the International Brotherhood of Electrical Workers (“IBEW”), which covered approximately 27% of our unionized workforce as of December 31, 2003, was recently extended to May 2006. Our collective bargaining agreement with the Communications Workers of America (“CWA”), which covered approximately 73% of our unionized workforce as of December 31, 2003, was recently extended to October 2006. As of January 1, 2004, all non-senior management employees are employed by Dex Media Service LLC, an entity owned 49% by Dex Media East, Inc., 49% by Dex Media West, Inc. and 2% by Dex Media, and are made available to us by Dex Media Service LLC. Dex Media Service LLC was formed as a bankruptcy-remote entity pursuant to the terms of our credit facilities and Dex Media West’s credit facilities in order to mitigate the risk of not having available to us or Dex Media West the services of our non-management employees if the other entity merges, is acquired or files for bankruptcy.

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RISK FACTORS

      You should carefully consider the risks described below as well as the other information contained in this annual report. Any of the following risks could materially adversely affect our business, financial condition or results of operations.

Risks Related to Our Business

      In connection with the acquisition of Dex East, we entered into several agreements with Qwest LEC, including a publishing agreement, a non-competition agreement and a billing and collection services agreement. Under the publishing agreement, we are the exclusive official publisher of directories for Qwest LEC in the Dex East States until November 7, 2052. We believe that acting as the exclusive official publisher of directories for the incumbent telephone company provides us with a competitive advantage. Under the non-competition agreement, Qwest LEC agreed until November 7, 2042 not to sell directory products consisting principally of listings and classified advertisements for subscribers in the geographic areas in the Dex East States in which Qwest LEC provides local telephone service that are directed primarily at customers in those geographic areas. Under the billing and collection services agreement, Qwest LEC agreed until November 7, 2004 to continue to bill and collect, on our behalf, amounts owed by customers in connection with our directory services and purchase the associated accounts receivable from us. For the year ended December 31, 2003, Qwest LEC billed approximately 43% of our local customer billings on our behalf as part of Qwest LEC’s telephone bill and held these collections in joint accounts with Qwest LEC’s own collections. The termination of any of these agreements or the failure by Qwest LEC to satisfy its obligations under these agreements could have a material adverse effect on our business.

      Qwest is currently highly leveraged and has a significant amount of debt service obligations over the near term and thereafter. In addition, Qwest has faced and may continue to face significant liquidity issues as well as issues relating to its compliance with certain covenants contained in the agreements governing its indebtedness. Based on Qwest’s public filings and announcements, Qwest has recently taken measures to improve its near-term liquidity and covenant compliance. However, Qwest still has a substantial amount of indebtedness outstanding and substantial debt service requirements. Consequently, it may be unable to meet its debt service obligations without obtaining additional financing or improving operating cash flow. Accordingly, we cannot assure you that Qwest will not ultimately seek protection under U.S. bankruptcy laws. If Qwest were forced to seek such protection, Qwest LEC, which is controlled by Qwest, might also seek bankruptcy protection. In any such proceeding, our agreements with Qwest LEC, and Qwest LEC’s ability to provide the services under those agreements, could be adversely impacted. For example:

	•	Qwest LEC, or a trustee acting on its behalf, could seek to reject our agreements with Qwest LEC as “executory” contracts under U.S. bankruptcy law, thus allowing Qwest LEC to avoid its obligations under such contracts. Loss of substantial rights under these agreements could effectively require us to operate our business as an independent directory business, which could have a material adverse effect on our business.
	•	Qwest LEC could seek to sell certain of its assets, including the assets relating to Qwest LEC’s local telephone business, to third parties pursuant to the approval of the bankruptcy court. In such case, the purchaser of any such assets might be able to avoid, among other things, our publishing agreement and non-competition agreement with Qwest LEC.
	•	We may have difficulties obtaining the funds collected by Qwest LEC on our behalf pursuant to the billing and collection services agreement at the time such proceeding is instituted, although pursuant to such agreement, Qwest LEC prepares settlement statements 10 times per month for each state in the Dex East States summarizing the amounts due to us and purchases our accounts receivable billed by it within approximately nine business days following such settlement date. Further, if Qwest LEC continued to bill our customers pursuant to the billing and collection services agreement following any

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		such bankruptcy filing, customers of Qwest LEC may be less likely to pay on time, or at all, bills received, including the amount owed to us. Qwest LEC has completed the preparation of its billing and collection system so that we will be able to transition from the Qwest LEC billing and collection system to our own billing and collection system within approximately two weeks should we choose to do so.

      The U.S. directory advertising industry is competitive. There are a number of independent directory publishers, such as TransWestern Publishing Company LLC and the U.S. business of Yell Group Ltd., with which we compete in one or more of the Dex East States. In addition, we compete with other directory publishers in some of our markets, including local exchange carriers such as Verizon Communications Inc. and SBC Communications Inc. Through our Internet-based directory, we compete with these publishers and with other non-publisher Internet sites providing classified directory information, such as Yellowpages.com, Citysearch.com and Zagat.com, and with search engines and portals, such as Yahoo!, Google, MSN, and AOL, some of which have entered into affiliate agreements with other major directory publishers. We cannot assure you that we will be able to compete effectively with these other companies, some of which may have greater resources than we do, for advertising in the future. In addition, we compete against other media, including newspapers, radio, television, the Internet, billboards and direct mail, for business and professional advertising, and we cannot assure you that we will be able to compete successfully against these and other media for such advertising.

      The Telecommunications Act of 1996 effectively opened local telephone markets to increased competition. Consequently, there can be no assurance that Qwest LEC will remain the dominant local telephone service provider in its local service area. If Qwest LEC were no longer the dominant local telephone service provider in its local service area, we may not realize some of the anticipated benefits under our publishing agreement with Qwest LEC, which could have a material adverse effect on our business.

      We believe that overall usage of printed yellow pages directories in the United States and in the Dex East States declined by a compound annual rate of approximately 4% between 1998 and 2002, and increased slightly in 2003. Notwithstanding these declines in usage, we have been able to increase our annual revenue in recent years through, among other things, increases in our advertising prices and new product offerings and enhanced features such as color advertisements and awareness products. There can be no assurance that usage of our yellow pages directories will not continue to decline at the existing rate or more severely. In addition, there can be no assurance that we will be able to continue to increase prices or the average size of our advertisements in the future.

      Any declines in usage could:

	•	impair our ability to maintain or increase our advertising prices;
	•	cause businesses that purchase advertising in our yellow pages directories to reduce or discontinue those purchases; and
	•	discourage businesses that do not purchase advertising in our yellow pages directories from doing so.

      Although we believe that the decline in the usage of our printed directories will be offset in part by an increase in usage of our Internet-based directory, we cannot assure you that we will be able to provide services over the Internet successfully or to compete successfully with other Internet-based directory services. Any of the factors that may contribute to a decline in usage of our printed directories, or a combination of them, could impair our revenue and have a material adverse effect on our business.

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      On March 8, 2002, Qwest, the former owner of our business, received a request from the Denver regional office of the SEC to voluntarily produce documents and information as part of an informal inquiry into certain of its accounting practices. On April 3, 2002, the SEC issued an order authorizing a formal investigation of Qwest. The matters under investigation include, among others, the revenue recognition practices of Qwest Dex. In addition, two former Chief Executive Officers (one of whom is our current Chief Executive Officer) and two former Chief Financial Officers (one of whom is our current Vice President, Financial Planning and Analysis) of Qwest Dex were subpoenaed in August 2002 and have provided documents and testimony to the SEC. In the investigation, the SEC may issue additional subpoenas seeking documents and/or testimony from other current Dex Media and former Qwest Dex employees. We cannot assure you that the SEC investigation will not result in any enforcement action against Qwest Dex (now Dex Media), its employees or those of our employees who were formerly employees of Qwest Dex.

      In addition, on July 9, 2002, Qwest was informed by the U.S. Attorney’s Office for the District of Colorado that it had begun a criminal investigation of Qwest. Although the U.S. Attorney’s Office has not disclosed the subject matter of the investigation, it has indicated that it is investigating the matters under inquiry in the SEC investigation, which include Qwest Dex’s recognition of revenue under the point of publication method. It is not clear whether this investigation involves the business or management of Qwest Dex’s directory business (other than its former revenue recognition policy) or employees who historically worked for the Qwest Dex business, most of whom are now our employees. We do not have any knowledge that former employees of Qwest Dex, most of whom are now our employees, are the subject of the U.S. Attorney’s investigation. None of the former employees of Qwest Dex have informed us that they are the targets of the U.S. Attorney’s investigation or have been contacted by the U.S. Attorney’s office in connection with the investigation.

      Although we acquired only the assets of the Qwest Dex business located in the Dex East States and not the Qwest Dex corporate entity and we did not assume in the acquisition of Dex East any liabilities relating to the SEC or the U.S. Attorney’s Office investigations, there can be no assurances that these investigations or other investigations will not have a material adverse effect on our business.

      We derive our net revenue from the sale of advertising in our directories. Our advertising revenue, as well as those of yellow pages publishers in general, generally do not fluctuate widely with economic cycles. However, a prolonged national or regional economic recession could have a material adverse effect on our business.

      We depend on third parties for the printing and distribution of our directories. For the printing of our directories, Dex Media has a contract with R.R. Donnelley & Sons Company and Quebecor World Directory Sales Corporation, expiring on December 31, 2011 and July 30, 2008, respectively. Because of the large print volume and specialized binding of directories, there are only a small number of companies in the printing industry that could service our needs. Accordingly, the inability or unwillingness of Donnelley or Quebecor to provide printing services to us on acceptable terms or at all could have a material adverse effect on our business.

      Dex Media has a contract with a single company, Product Development Corporation, or “PDC,” for the distribution of our directories. This contract will expire on March 31, 2004. The parties are currently in negotiations to extend the contract through December 31, 2008. However, there can be no assurance that such negotiations will be successful. There are only a small number of companies that could service our distribution needs. Accordingly, the inability or unwillingness of PDC to provide distribution services to us on acceptable terms or at all could have a material adverse effect on our business.

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      Dex Media has a contract with Matson Integrated Logistics to provide logistical support and to transport our printed directories from our printers’ locations to PDC. This contract expires on December 31, 2008. We rely on Matson’s services extensively for our transportation and logistical needs, and only a small number of companies could provide an integrated solution for our transportation needs. Accordingly, any disruptions in the services provided to us by Matson or by a third party upon termination of our contract with Matson could have a material adverse effect on our business.

      The principal raw material that we use is paper. For the year ended December 31, 2003, paper costs equaled 4% of our revenue and 12% of our cost of revenue, each excluding the effects of purchase accounting. Approximately 97% of the paper that we use is supplied by two companies: Nippon and Norske. Pursuant to Dex Media’s agreements with, Nippon and Norske, they are required to provide up to 60% and 40% of our annual paper supply, respectively. Prices under both agreements are set each year based on prevailing market rates. If, in a particular year, the parties to either of the agreements are unable to agree on repricing, either party may terminate the agreement. The Nippon agreement expires on December 31, 2009 and the Norske agreement expires on December 31, 2008. Furthermore, we purchase paper used for the covers of our directories from Spruce Falls. Pursuant to an agreement between Spruce Falls and Dex Media, Spruce Falls is required to provide 100% of our annual cover stock paper supply. Although the amount of future price increases are specified in the agreement, if Spruce Falls and Dex Media are unable to agree on repricing, either party may terminate this agreement. This agreement expires on December 31, 2006. We do not engage in hedging activities to limit our exposure to paper price increases. The price of paper may fluctuate significantly in the future. Changes in the supply of or demand for paper could affect delivery times and prices. We cannot assure you that we will continue to have access to paper in the necessary amounts or at reasonable prices or that any increases in the cost of paper will not have a material adverse effect on our business. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

      We depend on our ability to identify, hire, train and retain qualified sales personnel. Non-management personnel providing services to us are currently employed by Dex Media Service LLC, a bankruptcy-remote entity owned 49% by Dex Media East, Inc., 49% by Dex Media West, Inc. and 2% by Dex Media, and are made available to us and Dex Media West. A loss of a significant number of experienced sales representatives would likely result in fewer sales of advertising in our directories and could materially adversely affect our business. We expend significant resources and management time in identifying and training our sales representatives. Our ability to attract and retain qualified sales personnel depends, however, on numerous factors, including factors that we cannot control, such as conditions in the local employment markets in which we operate. We cannot assure you that we will be able to hire or retain a sufficient number of sales representatives to achieve our financial objectives.

      Furthermore, we depend on the continued services of key personnel, including our senior management and regional sales management personnel. Senior management personnel providing services to us are currently employed by Dex Media and made available to us and Dex Media West. Each of these shared executives must divide his or her time, effort and resources between Dex Media West and us. Consequently, the executives are not able to devote his or her full attention to our business. Although we believe that we could replace our key employees within a reasonable time should the need arise, the loss of key personnel could have a material adverse effect on our business.

      For the year ended December 31, 2003, approximately 81% of our revenue, excluding the effects of purchase accounting, was generated through the sale of advertising to