Description of Business and Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Description of Business and Summary of Significant Accounting Policies | Description of Business and Summary of Significant Accounting Policies |
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General |
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Dex Media, Inc. (“Dex Media”, “we”, “our”, or the “Company”) is a leading provider of local marketing solutions to over 490,000 business clients across the United States. Our approximately 1,900 sales employees work directly with our clients to provide multiple local marketing solutions that drive customer leads to our clients and help our clients connect with their customers. |
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Our local marketing solutions are primarily sold under various “Dex” and “Super” brands, including print yellow page directories, online local search engine websites, mobile local search applications, and placement of our client’s information and advertisements on major search engine websites, with which we are affiliated. Our local marketing solutions also include website development, search engine optimization, market analysis, video development and promotion, reputation management, social media marketing, and tracking/reporting of customer leads. |
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Our print yellow page directories are co-branded with various local telephone service providers; including Verizon Communications Inc. ("Verizon"), AT&T Inc., CenturyLink, Inc., FairPoint Communications, Inc., and Frontier Communications Corporation. We operate as the authorized publisher of print yellow page directories in some of the markets where they provide telephone service, and we hold multiple agreements governing our relationship with each company, including publishing agreements, branding agreements, and non-competition agreements. |
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In 2014, we published more than 1,700 distinct directory titles in 42 states and distributed approximately 100 million directories to businesses and residences in the United States. In 2014, our top ten directories, as measured by revenue, accounted for approximately 5% of our revenue and no single directory or local client accounted for more than 1% of our revenue. |
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Dex Media was created as a result of the merger between Dex One Corporation (“Dex One”) and SuperMedia Inc. (“SuperMedia”) on April 30, 2013. Dex One was the acquiring company. |
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Dex One became the successor registrant to R.H. Donnelley Corporation ("RHDC") upon emergence from Chapter 11 proceedings on January 29, 2010. RHDC was formed on February 6, 1973 as a Delaware corporation. In November 1996, RHDC, then known as The Dun & Bradstreet Corporation, separated through a spin-off into three separate public companies: The Dun and Bradstreet Corporation, ACNielsen Corporation, and Cognizant Corporation. In June 1998, The Dun & Bradstreet Corporation separated through a spin-off into two separate public companies: RHDC (formerly The Dun & Bradstreet Corporation) and a new company that changed its name to The Dun & Bradstreet Corporation. In January 2003, RHDC acquired the directory business of Sprint Corporation (formerly known as Sprint Nextel Corporation). In September 2004, RHDC completed the acquisition of the directory publishing business of AT&T, Inc. (formerly known as SBC Communications, Inc.) in Illinois and Northwest Indiana, including AT&T's interest in the DonTech II Partnership ("DonTech"), a 50/50 general partnership between RHDC and AT&T. In January 2006, RHDC acquired the exclusive publisher of the directories for Qwest Communications International Inc. ("Qwest") where Qwest was the primary local telephone service provider. |
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SuperMedia became the successor company to Idearc, Inc. upon emergence from Chapter 11 bankruptcy proceedings on December 31, 2009. Idearc Inc. was created in November 2006 when Verizon spun-off its domestic directory business. |
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Merger and Related Bankruptcy Filing of Dex One and SuperMedia |
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On December 5, 2012, Dex One entered into an Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") with SuperMedia, Newdex Inc. ("Newdex"), and Spruce Acquisition Sub, Inc., a direct wholly owned subsidiary of Newdex ("Merger Sub"). The Merger Agreement provided that, upon the terms and subject to the conditions set forth therein, (i) Dex One would merge with and into Newdex, with Newdex as the surviving entity and (ii) immediately thereafter, Merger Sub would merge with and into SuperMedia, with SuperMedia as the surviving entity, and become a direct wholly owned subsidiary of Newdex (the "Merger"). As a result of the Merger, Newdex, as successor to Dex One, would be renamed Dex Media, Inc. and become a newly listed company. The Merger Agreement further provided that if either Dex One or SuperMedia were unable to obtain the requisite consents to the Merger from their respective stockholders and to the contemplated amendments to their respective financing agreements from their senior secured lenders to consummate the transactions on an out-of-court basis, the Merger could be effected through voluntary pre-packaged plans of reorganization under Chapter 11 of Title 11 of the United States Code ("Chapter 11" or the "Bankruptcy Code"). Because neither Dex One nor SuperMedia were able to obtain the requisite consents to complete the Merger out of court, each of Dex One and SuperMedia and all of their domestic subsidiaries voluntarily filed pre-packaged bankruptcy petitions under Chapter 11 on March 18, 2013, in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") and requested confirmation of their respective joint pre-packaged Chapter 11 plans (the "Prepackaged Plans"), seeking to effect the Merger and related transactions contemplated by the Merger Agreement. |
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On April 29, 2013, the Bankruptcy Court held a hearing and entered separate orders confirming each of the Prepackaged Plans. On April 30, 2013, Dex One and SuperMedia consummated the Merger and other transactions contemplated by the Merger Agreement and emerged from Chapter 11 protection. Effective with the emergence from bankruptcy and the consummation of the Merger, each share of Dex One common stock was converted into 0.2 shares of common stock of Dex Media and each share of SuperMedia common stock was converted into 0.4386 shares of common stock of Dex Media. The common stock of Dex Media is listed on the NASDAQ Stock Market. |
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Departure/Appointment of Certain Officers |
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On October 14, 2014, the Company announced the appointment of Joseph A. Walsh as President and Chief Executive Officer of the Company and his election to the Company’s Board of Directors. Mr. Walsh succeeds Peter J. McDonald, who retired as the Company’s Chief Executive Officer and Director, effective October 14, 2014. To ensure a smooth transition of his responsibilities, the Company and Mr. McDonald entered into a twelve month consulting services agreement. |
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In November 2014, the Company announced the appointment of several new executive team members, including Mr. Paul D. Rouse, who became the Company’s Executive Vice President - Chief Financial Officer and Treasurer, effective upon the resignation of Mr. Samuel D. Jones as the Executive Vice President - Chief Financial Officer and Treasurer of the Company, on November 14, 2014. |
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The Company also announced the resignation of Frank P. Gatto, the Company’s Executive Vice President - Operations. To ensure a smooth transition of their responsibilities, each of Mr. Jones and Mr. Gatto entered into a twelve month consulting services agreement with the Company. |
Business Transformation Program |
On December 11, 2014, the Company announced an organizational restructuring program, the costs of which the Company has identified as business transformation costs. The program is designed to reorganize and strategically refocus the Company. The program includes the launch of virtual sales offices, enabling the Company to eliminate field sales offices, the automation of the sales process, integration of systems to eliminate duplicative systems and workforce reductions. The Company expects charges associated with the program to range from $70 million to $100 million, and to be incurred in 2014 and throughout 2015. |
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During the year ended December 31, 2014, the Company recorded a severance charge associated with the business transformation program of $43 million, which includes severance associated with our former President and Chief Executive Officer, our former Executive Vice President - Chief Financial Officer and Treasurer, and our former Executive Vice President - Operations of $10 million. The total severance charge was recorded in accordance with the Company’s existing severance program, without enhancement, and represents the cost of the Company's workforce reduction plan to lay off approximately 1,000 employees, beginning in the fourth quarter of 2014 and continuing through 2015. |
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Business transformation costs are recorded as general and administrative expense in our 2014 consolidated statement of comprehensive income (loss). |
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Additional charges associated with lease terminations, costs associated with system consolidations and relocation costs will be incurred beginning in 2015. |
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For additional information regarding business transformation costs, see Note 5. |
Summary of Significant Accounting Policies |
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Basis of Presentation |
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The Company prepares its financial statements in accordance with generally accepted accounting principles ("GAAP") in the United States. 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. |
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In the periods subsequent to filing for bankruptcy on March 18, 2013 and until emergence from bankruptcy on April 30, 2013, Accounting Standards Codification ("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). |
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The Company accounted for the merger of Dex One and SuperMedia creating Dex Media on April 30, 2013, using the acquisition method of accounting in accordance with ASC 805 “Business Combinations” (“ASC 805”). As a result of using the acquisition method of accounting to record the merger of Dex One and SuperMedia, the financial results of SuperMedia prior to April 30, 2013 have been excluded from our consolidated financial results. For additional information regarding the merger and acquisition accounting, see Note 2. |
Certain prior period amounts on our consolidated financial statements have been reclassified to conform to current year presentation. |
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Use of Estimates |
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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. |
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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 assumptions and estimates of selling prices that are used for multiple element arrangements. |
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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 our 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. |
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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. |
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We also offer multiple-deliverable revenue arrangements with our customers that may include a combination of our print and 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. |
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We evaluate each deliverable in a multiple-deliverable revenue arrangement to determine whether they represent separate units of accounting using the following criteria: |
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• | The delivered item(s) has value to the customer on a stand-alone basis; and | | | | | | | | | | | | |
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• | 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. | | | | | | | | | | | | |
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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 estimated selling price. Our sales contracts generally do not include any provisions for cancellation, termination, right of return or refunds that would significantly impact recognized revenue. In determining our estimated selling prices, 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. |
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Expense Recognition |
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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. |
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Barter Transactions |
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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. It is the Company's policy to not recognize 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. |
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Cash and Cash Equivalents |
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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. As of December 31, 2014, the Company's cash and cash equivalents are valued at $171 million. |
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Accounts Receivable |
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At December 31, 2014, the Company’s consolidated balance sheet has accounts receivables of $151 million, which is net of an allowance for doubtful accounts of $30 million, and includes unbilled receivables of $1 million. 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. |
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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. |
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Concentrations of Credit Risk |
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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. |
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Approximately 86% of the Company’s 2014 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. |
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The remaining 14% of the Company’s 2014 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. |
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Fixed Assets and Capitalized Software |
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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. |
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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. |
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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. |
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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 | | | | | | | | | | | | |
For additional information related to fixed assets and capitalized software, see Note 7. |
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Goodwill and Intangible Assets |
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The Company has goodwill of $315 million and intangible assets of $794 million on the consolidated balance sheet as of December 31, 2014 |
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Goodwill |
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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. |
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The Company performed its annual impairment test of goodwill as of October 1, 2014. The Company determined the fair value of the SuperMedia reporting unit exceeded the carrying value of the reporting unit; therefore there was no impairment of goodwill. |
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When the Company performed its annual impairment test of goodwill as of October 1, 2013 on the SuperMedia reporting unit, it was determined that the carrying value of the SuperMedia reporting unit including goodwill exceeded the fair value of the SuperMedia reporting unit, requiring the Company to perform step two of the goodwill impairment test to determine the amount of impairment loss, if any. This test resulted in a goodwill impairment of $74 million, which was recognized in the Company’s consolidated statement of comprehensive income (loss) for the year ended December 31, 2013. |
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Intangible Assets |
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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 assets for potential impairment and determined they were not impaired as of December 31, 2014. |
The Company evaluated its definite-lived intangible assets for potential impairment and determined there were indicators of impairment as of October 1, 2013. As a result, the Company recorded an impairment of $384 million which was recognized in the Company’s consolidated statement of comprehensive income (loss) for the year ended December 31, 2013. |
The Company’s intangible assets and their estimated remaining useful lives are presented in the table below. |
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| Estimated Remaining Useful Lives | | | | | | | | | | | | |
Directory service agreements | 4 years | | | | | | | | | | | | |
Client relationships | 2 years | | | | | | | | | | | | |
Trademarks and domain names | 4 years | | | | | | | | | | | | |
Patented technologies | 3 years | | | | | | | | | | | | |
Advertising commitment | 2 years | | | | | | | | | | | | |
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For additional information related to goodwill and intangible assets and related impairments, see Note 3. |
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Pension and Other Post-Employment Benefits |
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Pension |
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The Company has non-contributory defined benefit pension plans that provide pension benefits to certain of its employees. The accounting for pension 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 cost requires management to make actuarial assumptions, including the discount rate and expected return on plan assets. 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. New mortality tables were published in the fourth quarter of 2014 which reflect improved life expectancies. The Company has adopted these tables resulting in an increase to our pension obligation of approximately $38 million. |
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The pension plans include the Dex One Retirement Account, the Dex Media, Inc. Pension Plan, 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. On January 25, 2014, the Company reached an agreement with certain unions to freeze the SuperMedia Pension Plan for Collectively Bargained Employees. Accordingly, effective April 1, 2014, no employees accrue future pension benefits under any of the pension plans. The Company recorded a curtailment gain of $2 million in 2014 associated with the Union pension plan freeze. |
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Other Post-Employment Benefits |
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Prior to January 25, 2014, the Company was obligated to provide other post-employment benefits ("OPEB"), which included post-employment health care and life insurance plans for certain of the Company's retirees. On January 25, 2014, the Company enacted plan amendments to its OPEB plans, and reached an agreement with certain unions to eliminate the Company's obligation as of April 1, 2014. As a result of the settlement of these plan amendments, the Company recorded a credit of $13 million to general and administrative expense in its consolidated statement of comprehensive income (loss) during the year ended December 31, 2014. |
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For additional information related to pension and other post-employment benefits, see Note 10. |
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Income Taxes |
We account for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes (“ASC 740”). |
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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. |
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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 has netted deferred tax assets for net operating losses with related uncertain tax positions if such settlement is required or expected in the event the uncertain tax position is disallowed. |
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The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. For additional information regarding our provision (benefit) for income taxes, see Note 12. |
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Advertising Costs |
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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. Advertising costs for the years ended December 31, 2014, 2013 and 2012 were $4 million, $7 million and $8 million, respectively. As a result of using the acquisition method of accounting to record the merger of Dex One and SuperMedia, the financial results, including advertising costs, of SuperMedia prior to April 30, 2013 have been excluded from our consolidated financial results. |
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Capital Stock |
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The Company has authority to issue 310 million shares of capital stock, of which 300 million shares are common stock, with a par of value $.001 per share, and 10 million shares are preferred stock, with a par value of $.001 per share. As of December 31, 2014, the Company has 17,608,580 shares of common stock outstanding. The Company has not issued any shares of preferred stock. |
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Earnings (Loss) Per Share |
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The following table sets forth the calculation of the Company’s basic and diluted earnings (loss) per share for the years ended December 31, 2014, 2013 and 2012. |
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Net income (loss) | $ | (371 | ) | | $ | (819 | ) | | $ | 41 | | | |
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Basic and diluted weighted-average common shares outstanding | 17.3 | | | 14.9 | | | 10.1 | | | |
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Basic and diluted earnings (loss) per common share | $ | (21.43 | ) | | $ | (54.89 | ) | | $ | 4.09 | | | |
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The weighted average shares outstanding for periods prior to April 30, 2013 have been adjusted to reflect the 1-for-5 reverse stock split of Dex One common stock. |
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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, 2014 and 2013, 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, 2014, 2013 and 2012, 0.4 million, 0.4 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. |
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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, 2014 and 2013 there were 0.2 million and 0.3 million, respectively, of 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, 2014 and 2013 was not allocated to these participating securities, as these awards do not share in any loss generated by the Company. |
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Stock-Based Compensation |
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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. |
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For additional information related to stock-based compensation, see Note 11. |
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Fair Value Measurements |
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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. |
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Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets; |
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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 |
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Level 3 - Valuations based on unobservable inputs reflecting our own assumptions. These valuations require significant judgment. |
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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. |
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The Company’s financial assets or liabilities required to be measured at fair value on a recurring basis include cash and cash equivalents held in money market funds of $41 million as of December 31, 2014 and 2013. These money market funds have been recorded at fair value using Level 2 inputs. The Company also had $8 million and $9 million held in certificates of deposit and mutual funds as of December 31, 2014 and 2013, respectively, that serve as collateral against letters of credit held primarily with our insurance carriers. These certificates of deposit and mutual funds are classified as prepaid expenses and other on the Company’s consolidated balance sheets and are valued using Level 2 inputs. The assets held for sale of $16 million as of December 31, 2013 were recorded at fair value using Level 3 inputs and were sold during the year ended December 31, 2014. The fair values of trade receivables and accounts payable approximate their carrying amounts due to their short-term nature. The fair values of benefit plan assets and the related disclosure are included in Note 10. The fair values of debt instruments are determined based on the observable market data of a private exchange. |
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The following table sets forth the carrying amount and fair value using Level 2 inputs of the Company’s debt obligations as of December 31, 2014 and 2013. |
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| Carrying Amount | Fair Value | | Carrying Amount | Fair Value |
Debt obligations | (in millions) |
Senior secured credit facilities | | | | | |
SuperMedia Inc. | $ | 841 | | $ | 829 | | | $ | 935 | | $ | 912 | |
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R.H. Donnelley Inc. | 612 | | 435 | | | 685 | | 414 | |
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Dex Media East, Inc. | 354 | | 281 | | | 426 | | 289 | |
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Dex Media West, Inc. | 337 | | 293 | | | 393 | | 307 | |
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Senior subordinated notes | 252 | | 112 | | | 236 | | 123 | |
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Total debt obligations | $ | 2,396 | | $ | 1,950 | | | $ | 2,675 | | $ | 2,045 | |
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The Company detected an immaterial mathematical error in its calculation of the estimated fair value for the debt obligations of its SuperMedia Inc. subsidiary as disclosed in Dex Media’s 2013 Annual Report on Form 10-K and the first quarter 2014 report on Form 10-Q. The correct estimated debt fair values for SuperMedia Inc. were $912 million at December 31, 2013 ($697 million previously reported) and $897 million at March 31, 2014 ($695 million previously reported). The table above reflects the corrected estimated fair value amounts at December 31, 2013. |
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Recent Accounting Pronouncements |
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In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, (“ASU 2014-15”). ASU 2014-15 will require management for each annual and interim reporting period to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and related disclosures. |
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In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period," ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on our financial statements. |
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In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and related disclosures. |