Yellow Pages Annual Report 2011

FY2011 Annual Report · Yellow Pages

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ANNUAL REPORT
2011

YELLOW MEDIA INC.
IS A LEADING
DIGITAL COMPANY
OFFERING MEDIA AND
MARKETING SOLUTIONS
TO SMALL AND MEDIUM BUSINESSES
ACROSS CANADA.

YELLOW MEDIA INC. IS ALSO A LEADER IN NATIONAL DIGITAL
ADVERTISING THROUGH MEDIATIVE, A DIGITAL ADVERTISING
AND MARKETING SOLUTIONS PROVIDER TO NATIONAL AGENCIES
AND ADVERTISERS.

Our strategy is to leverage our multiplatform media and marketing solutions to enhance
services to our advertisers, build traffi c to our network of properties and improve user
experience by focusing on the deployment of the Yellow Pages 360º Solution.

With this comprehensive solution we are strengthening our commitment to help businesses
across Canada embrace the new digital space, providing them with the right services and
products to manage and grow their businesses.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Financial and Operational Highlights
(in millions of Canadian dollars)

Revenues
EBITDA
Free Cash Flow from Continuing Operations
Advertiser Count
Online advertisers
Reach of Online Canadians
Mobile Downloads

2011

1,328.9
679.7
275.2
340,000
63%
38%
3.7M

ANNUALIZED
ONLINE REVENUES OF
$360 MILLION

Evolution of
Online Revenues
as a % of
Total Revenues

%
9
2

20%

%
1
2

2009

2010

2011

Revenues
(in millions of Canadian dollars)

Online Revenues
(in millions of Canadian dollars)

2010

2011

1,401.1

1,328.9

2010

2011

EBITDA
(in millions of Canadian dollars)

Net Debt
(in millions of Canadian dollars)

2010

2011

757.1

679.7

2010

2011

267.0

1,713.3

346.1

2,334.7

YELLOW MEDIA INC. ANNUAL REPORT 2011 3

“WE’RE DETERMINED TO

SERVE
THE NEEDS

OF CANADIAN SMALL AND
MEDIUM BUSINESSES
BY DELIVERING PRODUCTS AND
SERVICES THAT WILL HELP THEM
BETTER MANAGE AND GROW
THEIR BUSINESS.”
MARC P. TELLIER
PRESIDENT AND CHIEF EXECUTIVE OFFICER

MESSAGE TO OUR SHAREHOLDERS

AS WE FOCUS ON OFFERING EFFECTIVE LOCAL SEARCH TOOLS TO CANADIANS,
WE CONTINUE TO GENERATE VALUABLE BUSINESS LEADS TO OUR ADVERTISERS.

Needless to say, 2011 was a diffi cult year for Yellow Media. While we are encouraged by the progress made
towards the execution of our strategy, we recognize the challenges associated with our capital structure
and industry transformation.

Our industry continues to adapt to a new reality which stems from changes in how consumers look for
information and how they fulfi ll their shopping needs. Indeed, we are increasingly seeing a shift in usage
patterns as consumers’ search habits migrate from traditional media to digital alternatives.

While times of change present opportunities, they do not come without challenges or happen overnight. We
are building on the changes we have made to our business over the course of the past 10 years including
those introduced in 2011 – managed websites, Yellow Pages AnalyticsTM – as well as YellowAPI and other
improvements to our online and mobile properties.

By transforming our business and adapting to new market trends, we continue to offer great value to our
advertisers in our products and services.

The launch of Yellow Pages 360° Solution during 2011 marked a key milestone in our digital transformation.
For the fi rst time, advertisers have single-point access to our comprehensive suite of products and services.
Yellow Pages 360° Solution is an opportunity to not only reposition but also to expand our products and
services, signifi cantly increasing our addressable market.

The evolution of our products and services ensures that Yellow Media maximizes business opportunities
for its advertisers in the context of changing consumer local search habits, therefore optimizing their return
on investment. This business transformation brings relevancy to Yellow Media’s product portfolio moving
forward and generates growth potential for the Company.

As part of our focus to improve the online user experience and engagement, we are offering more compelling
local search alternatives to Canadians across a broad spectrum of print, online and mobile platforms.

YELLOW MEDIA INC. ANNUAL REPORT 2011 5

MESSAGE TO OUR SHAREHOLDERS

OUR CONFIDENCE IN THE FUTURE OF OUR BUSINESS
AND OUR STRATEGY IS UNDIMINISHED.

Our objective is to redefi ne local search by offering timely, complete and relevant content on local
merchants on the YellowPages.caTM website and mobile applications as well as by expanding our distribution
channels. For advertisers, this will mean more opportunities to increase their visibility and generate valuable
business leads.

We serve the needs of more than 340,000 Canadian advertisers — accounting for approximately one-third of
all Canadian businesses. Of these, two-thirds are online. YPG has direct relationships with these advertisers
through one of the largest face-to-face sales forces in Canada. We invested in these professionals in 2011,
and will continue to enhance their skills and digital knowledge so we can deliver superior value to Canadian
advertisers.

One of our main goals continues to be to align our capital structure to our operational objectives in order
to ensure fi nancial fl exibility to execute our business transformation.

Despite progress in Yellow Media’s transformation in 2011, the climate of uncertainty remained. We therefore
took actions to protect our business. On July 28, Yellow Media sold Trader Corporation for $702 million,
followed by the sale of LesPAC on November 14 for $71 million. Proceeds from these sales are enabling
us to focus on our core business, reduce indebtedness and invest in YPG’s continuing transformation. We
repaid approximately $800 million of debt during the year.

The Company has begun evaluating alternatives to refi nance maturities in 2012 and beyond. In connection
with this review, the Board of Directors of Yellow Media has established a committee of independent directors
to serve as the Financing Committee of the Company that will oversee this process with the objective of
completing any transaction or transactions during the current fi scal year.

The Financing Committee of the Company is comprised of directors Michael T. Boychuk, John R. Gaulding,
Anthony G. Miller and Bruce K. Robertson.

6 YELLOW MEDIA INC. ANNUAL REPORT 2011

“FOR THE FIRST TIME,
ADVERTISERS HAVE
SINGLE-POINT
ACCESS TO
OUR COMPREHENSIVE
SUITE OF PRODUCTS
AND SERVICES.”

“MANY NEW

CUSTOMERS ARE

FINDING

ME WITH THE YELLOW PAGES
MOBILE APP. I’VE ACTUALLY
SEEN A RISE IN THE NUMBER OF
RESERVATIONS AND WALK-INS.”

MESSAGE TO OUR SHAREHOLDERS

OUR MOBILE APPLICATIONS HAVE BEEN DOWNLOADED
ALMOST 4 MILLION TIMES.

In addition to the creation of the Financing Committee, we are pleased to welcome new directors to our Board.
David G. Leith, retired Deputy Chairman of CIBC World Markets and Merchant Banking; Bruce K. Robertson,
current Principal at Grandview Capital and Craig Forman, a former executive at EarthLink and Yahoo! have
recently joined our Board of Directors.

As we continue our business transformation, it is essential to have the right people and skill sets to support
the execution of our digital strategy. Our Board members collectively contribute extensive knowledge in fi elds
such as corporate fi nance and corporate development and strategy within the technology, media and telecom
industries. Their experience will benefi t our Company as we continue to lead our industry transformation in
Canada.

We will build on the investments we have made in our business and continue to embrace technology in order
to adapt our business model to the new digital market reality.

Our business transformation allows us to ensure relevancy of our product and service portfolio moving
forward, maximizing business opportunities for our advertisers and in turn generating growth potential for
the Company.

Investing to better serve advertisers and consumers
The launch of 360° Solution early in 2011 enabled us to reposition our value proposition. 360° Solution is a
comprehensive offer, with all the components of a complete media solution for Canadian businesses. It is
central in enabling our advertisers to be found by qualifi ed buyers with online, mobile and print choices. Our
sales professionals are now better equipped to offer the right solutions that fi t our advertisers’ evolving needs.

During the year, we further strengthened our offering with mobile placement, which enables advertisers to
rank higher on consumers’ mobile searches.

As we respond to changes in consumer behaviour, we invested in more powerful mobile search platforms
that give our advertisers greater opportunities for visibility. Our mobile applications have been downloaded
3.7 million times and mobile searches continue to grow.

YELLOW MEDIA INC. ANNUAL REPORT 2011 9

MESSAGE TO OUR SHAREHOLDERS

WE PROVIDE BUSINESSES WITH TURN-KEY WEBSITES AND SEARCH ENGINE
SOLUTIONS TO OPTIMIZE THEIR ONLINE MARKETING INVESTMENT.

We also focused on website creation and management, as research shows that approximately half of Canadian
SMEs don’t have a website, and those who do are seeking help to improve or optimize it.

Our network of online sites reaches 38% of Canada’s online population. We remain focused on improving
the user experience on our digital properties. Our goal is to leverage richer content on local merchants which
increases the engagement of online and mobile users ultimately driving increased business leads. In 2011
we invested in YellowPages.ca and ramped-up its performance. It provides great advertiser value through
improved fulfi llment and lead generation. We also repositioned RedFlagDeals.com, our deals destination
site, with richer content to support avid bargain hunters.

Complementing Yellow Pages Group’s SME strategy, Mediative continues to serve the needs of national
advertisers. Award-winning Mediative is now among North America’s largest integrated advertising and digital
marketing companies, with a client list that includes some of the world’s most-recognized brands.

Focusing on execution
In the year ahead, we will focus on operational excellence to deliver superior customer value. This means
delivering on the full potential of 360° Solution, as well as offering a superior consumer experience on all
our platforms. We will be investing in our properties to bring more benefi ts to consumers and grow traffi c
and business leads to our advertisers. We will introduce differentiated products and services for larger
advertisers, increase sales support effectiveness by introducing improved sales tools and simplifi ed order
processing, and improve operational execution in fulfi llment, billing and support.

Our confi dence in Yellow Media’s fundamentals and strategy remains strong. We recognize that while our
business transformation is well underway, it will be a journey. Nevertheless, we remain committed to creating
Canada’s industry-leading digital media company.

MARC L. REISCH
Chairman of the Board

MARC P. TELLIER
President and Chief Executive Offi cer

10 YELLOW MEDIA INC. ANNUAL REPORT 2011

“TODAY, BEING ON THE
WEB ISN’T AN OPTION.
IT’S
ESSENTIAL…

SO WHEN CUSTOMERS
SEARCH, THEY EASILY FIND
ME AND MY SHOWCASE OF
PROJECTS.”

YEAR IN REVIEW

WE BRING
SUCCESS
TO CANADIAN
BUSINESSES

CANADIAN ENTREPRENEURS HAVE
ENOUGH TO DEAL WITH, TRYING
TO RUN A BUSINESS AND KEEP UP
WITH HOW TODAY’S ONLINE AND
MOBILE CUSTOMERS SEARCH,
BROWSE AND BUY.

AT YELLOW PAGES GROUP, WE ARE
COMMITTED TO SUPPORTING THEM
AND HELPING THEM DEMYSTIFY
THE DIGITAL UNIVERSE. WE ARE
FOCUSED ON OFFERING THEM
SUPERIOR CUSTOMER VALUE
WHILE DELIVERING QUALIFIED
BUSINESS OPPORTUNITIES.

Our 360° Solution offers a multi-channel approach
which complements the challenges SMEs face,
bringing single-point access to our entire suite of
products and services. No other service provider
offers such a comprehensive solution.

YELLOW PAGES 360° SOLUTION OFFERS:

• Targeted print advertising - Print is still a powerful
tool for Canadians looking for a business near
them, with a monthly average of 42 million
searches conducted last year. Print directories
are found in 89% of Canadian households.

12 YELLOW MEDIA INC. ANNUAL REPORT 2011

•
•

• Presence on leading Canadian properties
and applications such as YellowPages.ca
online and mobile.
Managed website solutions and videos.
Customized Search Engine Marketing and
Optimization — helping advertisers get the
best possible result on search engines.
Access to a broad network and partners
as well as to performance reporting through
Yellow Pages Analytics which provides
advertisers with detailed reports, so they
can track and optimize their investment’s
performance.

•

KEEPING UP WITH MOBILE CANADIANS

Canadians are increasingly mobile, making
search and purchase decisions while on
the go. Our award-winning apps have been
downloaded 3.7 million times. To help
SMEs keep up with consumer behaviour,
in 2011 we strengthened our mobile
offering by:

• Launching Sponsored Placement,
which enables advertisers to top
search lists made through mobile
devices, and Brand Filter, which
enables national businesses to
showcase their brands alongside
relevant searches.
Introducing ShopWiseTM just before
the key holiday season. The new
iPhone app saves time and money by
pinpointing the best and nearest deals.

•

• Adding new features and richer

content, including an innovative deals
feature on the YellowPages.ca mobile
app that drive more ready-to-buy
consumers to advertisers.

YPG apps are drawing strong reviews.
YellowPages.ca won “Best in Mobile”
at the Digi awards and is listed among
Apple’s top apps for the second year
running.

YELLOW MEDIA INC. ANNUAL REPORT 2011 13

The Yellow Pages 360° Solution was
launched via an award-winning national
ad campaign. It is supported by a
business to business website that
showcases our portfolio of products
and services that helps Canadian
businesses with their overall marketing
needs. This website was visited over
two million times in 2011 and won
Grand Prize at the Boomerang awards for
best Business to Business website for
the second year running.

YEAR IN REVIEW

INVESTING
TO INCREASE
BUSINESS LEADS
FOR ADVERTISERS

THROUGHOUT 2011, YPG INNOVATED
AND INVESTED TO KEEP UP WITH
EVOLVING CONSUMER NEEDS,
MAKING ITS DIGITAL PLATFORMS
MORE ATTRACTIVE TO CANADIAN
CONSUMERS… AND THEREFORE
TO CANADIAN SMEs.

Our fl agship site is now more personalized and
easier to navigate, with user accounts, ratings
and reviews, HD videos, enhanced maps and
social media plug-ins. In late 2011, we launched
an innovative deals feature which redefi ned local
search by offering timely and relevant deals
linked directly to business search results, based
on one of the largest deals database in Canada.

Searching our database of over 12 million
personal listings and 1.5 million local business
listings is a richer experience than ever,
with a completely redesigned site, enhanced with
additional features and search functionalities.
Canadians now have access to results
aggregated from the leading social media
networks, to help them refi ne their search
results even more.

We redesigned Canada’s number one online
destination for deals and shopping tools — a
destination that attracts 1.5 million unique visitors
each month. Now faster and more intuitive than
ever, RedFlagDeals.com sports a new mobile app
and one of the country’s largest deals databases,
leveraging YellowPages.ca, our mobile apps and
ShopWise… in addition to setting the stage for
future innovations.

14 YELLOW MEDIA INC. ANNUAL REPORT 2011

MEDIATIVE HITS THE GROUND RUNNING

In the year since its launch, Mediative has
emerged as one of North America’s largest
integrated digital marketing
companies.

Its best-in-class digital media
strategists and practitioners serve
clients and agencies, maximizing the
online presence of iconic brands such
as WalMart, Future Shop, Best Buy,
Disney, Martha Stewart and Toys ‘R Us,
and managing ad inventory for over
500 websites.

The YellowAPI Developer program was
launched this year to provide seed
funding and support to app developers
who integrate our advertiser database.
To date, YellowAPI.com engaged over
1,500 developers and helped to launch
over 30 new apps, while nurturing
homegrown entrepreneurship and
innovation. We are continually pursuing
distribution partnerships with leading
mobile and web properties to generate
more traffi c for our advertisers.

Mediative’s digital advertising network
reaches more than 15 million unique
visitors per month.

In 2011 the respected industry
authority, Top SEOs, named Mediative
as its top Canadian pick in two
Performance Solution categories.

YELLOW MEDIA INC. ANNUAL REPORT 2011 15

CORPORATE SOCIAL RESPONSIBILITY

A RESPONSIBILITY
TO CANADIAN
COMMUNITIES

OUR MORE THAN 100-YEAR LEGACY
IN SUPPORTING LOCAL BUSINESSES
GIVES US A SPECIAL RELATIONSHIP
WITH CANADIAN COMMUNITIES.
INDEED, IT’S A RELATIONSHIP WE
DON’T TAKE FOR GRANTED.

IN 2011, WE DELIVERED ON OUR
COMMITMENTS BY LAUNCHING A
FREE, EIGHT-CITY SEMINAR SERIES
TO HELP BUSINESS OWNERS
UNDERSTAND THEIR CHANGING
CUSTOMERS — HOW TO HARNESS
ONLINE MARKETING AND, ULTIMATELY,
HOW TO SUCCEED AND CONTRIBUTE
TO A STRONGER LOCAL ECONOMY.

Along with the online and mobile
Yellow Pages search tools, the
Yellow Pages directory helps consumers
fi nd local goods and services in their
community thereby supporting
local businesses, the pillars of our
communities. This fosters a more
robust local economy and a healthier
national economy.

CONTINUOUSLY IMPROVING OUR ENVIRONMENTAL PERFORMANCE

1995
Recycled paper
included
in directory
production

2004
YPG
Environmental
Strategic Plan
deployed

2005
Residential
directories
in major cities
now distributed
every 24 months

2006
Vegetable-based
inks used in
directories to
facilitate recycling

1992
YPG switched
from dyed
yellow paper
to white paper
printed yellow.
Directories
now entirely
recyclable.

16 YELLOW MEDIA INC. ANNUAL REPORT 2011

OUR MANUFACTURING
AND DISTRIBUTION
CENTRES REDUCED
PAPER CONSUMPTION BY

22%

FROM 2010 TO 2011
AND BY 44% OVER
THE PAST THREE YEARS.

PROVIDING CHOICE TO CANADIANS

With more than 340,000 advertisers, or about one third of all Canadian businesses, including
230,000 online advertisers, YPG has a strong market presence across the country. About 84%
of Canadians consumers search our online, mobile or print platforms to fi nd the product, service
or business they’re looking for.

Giving the changing consumer habits of Canadians who now increasingly turn to digital alternatives
such as our YellowPages.ca site or mobile application, we provide choice. We have a customer delivery
program enabling Canadians to opt-out of receiving the Yellow Pages print directory. We promote this pro-
gram directly on the cover of our directories, via social media and other activities.

2008
All office
paper 100%
recycled and
FSC-certified

2009
YPG commits
to a 12-step eco
initiatives plan,
developed with
Equiterre

2009
Print directory
delivery opt-out
program
launched

2009
EcoGuide local
environmental
resource content
included in the
directories

2009
Employee
carpooling
program
deployed

2010
Residential
directories
now distributed
by request only,
in 8 major cities

YELLOW MEDIA INC. ANNUAL REPORT 2011 17

WE’VE REDUCED OUR CAR-
BON FOOTPRINT BY

17%

IN 2010
THIS COVERS ALL YPG
OPERATIONS, INCLUDING
THE FULL LIFE CYCLE
OF OUR DIRECTORIES.

ONE STEP AT A TIME

We’ve also implemented Changing
the World, One Step at a Time, in
partnership with Équiterre, a leading
environmental organization. We have
completed 25 of the program’s
31 initiatives, including offering
Canadians a choice about whether
to receive a printed directory, and
ensuring that all our new desktop
computers are energy effi cient
(Energy Star 5.0).

CORPORATE SOCIAL RESPONSIBILITY

ENVIRONMENTAL
STEWARDSHIP

While more Canadians are opting for
digital and mobile search tools every day,
about two out of three Canadians used
at least once a Yellow Pages
directory to fi nd a local business search
in 2011. Our environmental stewardship
therefore focuses on reducing paper
consumption while still satisfying the
needs of consumers and advertisers.
In this respect, we’ve made excellent
progress.

We accomplished this through
on-demand distribution of residential
directories in large cities in Québec
and Ontario to better refl ect evolving
consumer habits.

What’s more, we continuously monitor
our greenhouse gas emissions, waste,
paper and water consumption and other
key performance indicators.

TOP 100
EMPLOYER

For the sixth year in a row, YPG was chosen
as one of the top 100 companies to work for.

This selection was based on our fl exible work
schedule, how we live our values and educational
programs that include more than 500 online
courses.

18 YELLOW MEDIA INC. ANNUAL REPORT 2011

2011
FINANCIAL REVIEW

TABLE OF CONTENTS

Management’s Discussion and Analysis .......................... 20
Management’s Report ....................................................... 53
Independent Auditor’s Report ........................................... 54
Consolidated Statements of Financial Position ............... 55
Consolidated Income Statements ..................................... 56
Consolidated Statements of
Comprehensive (Loss) Income .......................................... 57
Consolidated Statements of Changes in Equity ......... 58-59
Consolidated Statements of Cash Flows .......................... 60
Notes to the Consolidated Financial Statements .... 61-113

19
YELLOW MEDIA INC. ANNUAL REPORT 2011 19
YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

February 9, 2012

This management’s discussion and analysis (MD&A) is intended to help the reader understand and assess trends and significant
changes in the results of operations and financial condition of Yellow Media Inc. (or the Corporation) and its subsidiaries for the
years ended December 31, 2011 and 2010 and should be read in conjunction with our audited consolidated financial statements
and accompanying notes. Quarterly reports, the annual report and supplementary information can be found under the “Financial
Reports” section of our corporate web site: www.ypg.com. Additional information, including our annual information form (AIF), can
be found on SEDAR at www.sedar.com.

The financial information presented herein has been prepared on the basis of International Financial Reporting Standards (IFRS) for
financial statements and is expressed in Canadian dollars, unless otherwise stated.

The audited IFRS-related disclosures and values in this MD&A have been prepared using the standards and interpretations
currently issued and effective at the end of our first annual IFRS reporting period, December 31, 2011.

The amounts in this MD&A and the accompanying financial statements for the years ended December 31, 2011 and 2010 have
been restated to reflect our adoption of IFRS, effective from January 1, 2010. Periods prior to January 1, 2010 have not been
restated and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP). Please refer to
Note 31 of the accompanying consolidated financial statements for a summary of the differences between our consolidated
financial statements previously prepared under Canadian GAAP and those under IFRS for the year ended December 31, 2010
and as at January 1, 2010.

On March 25, 2011, Yellow Media Inc. announced that it had reached a definitive agreement to sell the automotive and generalist
print and online business of Trader Corporation. The transaction closed on July 28, 2011 for a purchase price consideration of
$702 million, net of fees, working capital and other adjustments. The purchase price consideration included a note receivable of
$15 million.

As a result of the sale of Trader Corporation, we have reclassified the results of the automotive and generalist print and online business
of Trader Corporation as discontinued operations. Accordingly, the current and prior period’s consolidated income statement and cash
flows have been restated to reflect this change.

Consequently, during the first quarter of 2011, the Company changed the composition of its reportable segments in a manner
which is better aligned with the way operating results are now reviewed by senior management to make decisions about resources
to be allocated to the segments and to assess their performance. The key changes include the reallocation of the real estate,
employment and LesPAC businesses to the Directories segment. These businesses were previously included in the Vertical Media
segment but were not part of the divestiture of Trader Corporation. The Company now has only one operating segment.

In this MD&A, the words “we”, “us”, “our”, “the Company”, “the Fund” and “YPG” refer to Yellow Media Inc., and its subsidiaries (including
Yellow Pages Group Co., Canpages Inc., Wall2Wall Media Inc. (Wall2Wall), YPG (USA) Holdings, Inc. and Yellow Pages Group, LLC (the
latter two collectively YPG USA), Trader Corporation and Dealer Dot Com Inc.), which are reported under the following segments:

(cid:131)

“Directories,” which refers to our print and online directories as well as performance marketing solutions, real estate
and employment publications and LesPAC.com; LesPAC.com was sold on November 14, 2011 and

“Vertical Media,” which refers to the automotive and generalist print and online vertical publications sold to funds
advised by Apax Partners as part of the sale of Trader Corporation that was completed on July 28, 2011.

Forward-looking information

Our reporting structure reflects how we manage our business and how we classify our operations for planning and for measuring our
performance. This MD&A contains assertions about the objectives, strategies, financial condition, results of operations and businesses
of YPG. These statements are considered “forward-looking” because they are based on current expectations of our business, on the
markets we operate in, and on various estimates and assumptions.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

These forward-looking statements describe our expectations on February 9, 2012.

(cid:131)

Our actual results could be materially different from our expectations if known or unknown risks affect our business, or
if our estimates or assumptions turn out to be inaccurate. As a result, we cannot guarantee that any forward-looking
statements will materialize.

Forward-looking statements do not take into account the effect that transactions or non-recurring items, announced or
occurring after the statements are made, may have on our business.

(cid:131) We disclaim any intention or obligation to update any forward-looking statements, except as required by law, even if

new information becomes available through future events or for any other reason.

(cid:131)

Risks that could cause our actual results to differ materially from our current expectations are discussed in Section 6 –
Risks and Uncertainties.

Definitions relative to understanding our results

Income from Operations before Depreciation and Amortization, Impairment of Goodwill and Intangible assets, Acquisition-
related Costs and Restructuring and Special Charges (EBITDA)

We report on our EBITDA (Income from operations before depreciation and amortization, impairment of goodwill and intangible
assets, acquisition-related costs, and restructuring and special charges). EBITDA is not a performance measure defined under
IFRS and is not considered an alternative to income from operations or net (loss) earnings in the context of measuring YPG’s
performance. EBITDA does not have a standardized meaning and is therefore not likely to be comparable with similar measures
used by other publicly traded companies. EBITDA should not be used as an exclusive measure of cash flow since it does not
account for the impact of working capital changes, capital expenditures, debt principal reductions and other sources and uses
of cash, which are disclosed on page 42 of this MD&A. Please refer to Note 31 of the accompanying consolidated financial
statements for a summary of the differences between our consolidated financial statements previously prepared under
Canadian GAAP and those under IFRS for the year ended December 31, 2010.

Adjusted Earnings from Continuing Operations (Adjusted Earnings)

Adjusted earnings is a non-IFRS measure. It is defined as the net (loss) earnings from continuing operations available to common
shareholders excluding amortization of intangible assets attributable to shareholders, non-cash financial charges, non-cash income
taxes and non-recurring items such as acquisition-related costs, restructuring and special charges, impairment of goodwill and
intangible assets, impairment of investment in associate and gain on disposal of subsidiary. All adjustments except non-cash income
taxes, impairment of goodwill and intangible assets, and the impairment of investment in associate are net of the income tax effect
thereon calculated at the statutory income tax rate. Adjusted Earnings is defined as an indicator of financial performance. It should
not be seen as a measurement of liquidity or as a substitute for comparable metrics prepared in accordance with IFRS. Adjusted
earnings is used by investors, management and other stakeholders to evaluate the ongoing performance of YPG. Adjusted earnings
may differ from similar calculations as reported by other companies and should not be considered comparable. For a reconciliation
with IFRS, please refer to Section 4 – Adjusted Earnings from Continuing Operations of this MD&A.

Free cash flow

Free cash flow is a non-IFRS measure generally used as an indicator of financial performance. It should not be seen as a substitute
for cash flow from operating activities. Free cash flow is defined as cash flow from operating activities from continuing operations, as
reported in accordance with IFRS less an adjustment for capital expenditures. Please refer to Note 31 of the accompanying
consolidated financial statements for a summary of the differences between our consolidated financial statements previously
prepared under Canadian GAAP and those under IFRS for the year ended December 31, 2010.

Dividends per Common Share

We report dividends per common share because it is a measure of return used by investors. On September 28, 2011, the Company
announced the elimination of the dividends on its common shares. Please refer to Section 4 – Adjusted Earnings from Continuing
Operations of this MD&A.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

This MD&A is divided into the following sections:

Our Business, Mission, Strategy and Capability to Deliver Results

Results

Liquidity and Capital Resources

Adjusted Earnings from Continuing Operations

Critical Assumptions

Risks and Uncertainties

Controls and Procedures

1. Our Business, Mission, Strategy and Capability to Deliver Results

Our Business

Yellow Media Inc. is a leading digital company offering media and marketing solutions to small and medium enterprises (SMEs)
across Canada. Yellow Media Inc. is also a leader in national digital advertising through Mediative, a digital advertising and
marketing solutions-provider to national agencies and advertisers. This section provides an overview of our business and our
current priorities.

Directories

This business segment is composed of YPG, Canpages, Wall2Wall and Mediative.

YPG is Canada’s leading digital and print local commercial search provider and marketing solutions company while Canpages is
a Canadian digital local search company. Wall2Wall manages activities, publications, and services related to the real estate,
employment and hospital newsprint and online verticals.

We serve approximately 340,000 local businesses excluding Canpages, through our nation-wide sales force of approximately
1,500 media consultants. YPG also caters to the country’s largest national agencies and advertisers through Mediative, its national
digital advertising and marketing solutions division.

We own and operate some of Canada’s leading properties and publications including Yellow Pages™ directories, YellowPages.ca™,
Canada411.ca™, Canpages.ca™ and RedFlagDeals.com™. Our online destinations reach approximately 9 million unique visitors
monthly. YellowPages.ca™ can also be accessed on mobile devices through our various mobile applications on BlackBerry™, Apple
iPhone™ and iPad™, Windows Mobile™ and Google™’s Android™. Our mobile applications for finding local businesses and deals
have been downloaded 3.7 million times.

In addition, we are the official directory publisher for Bell Canada (Bell), TELUS Communications Inc. (TELUS), Bell Aliant
Regional Communications LP (Bell Aliant), MTS Allstream Inc. and for a number of other incumbent telephone companies that
have a leading share in their respective markets. In 2011, we published more than 400 different print telephone directories
with a total circulation of approximately 29 million copies.

Our classified directories are delivered into almost every household and business in our markets, and are available online and
through a variety of digital options. Our local content is rich and diverse which draws consumers to our directories and in so
doing generates leads, calls, visits and clicks, and in turn attracts yet more advertisers.

We are the exclusive owner of the Yellow Pages™, Pages Jaunes™ Walking Fingers & Design™, as well as the Canada411™ and
RedFlagDeals.com™ trademarks in Canada.

Vertical Media

Consequently, during the first quarter of 2011, the Company changed the composition of its reportable segments in a manner
which is better aligned with the way operating results are now reviewed by senior management to make decisions about
resources to be allocated to the segments and to assess their performance. The key changes included the reallocation of the
real estate, employment and LesPAC businesses, which were not part of the divestiture of Trader Corporation, to the Directories
segment. Vertical Media is therefore no longer a reporting segment.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Mission

Bringing local consumers and businesses together via our network of mobile, web and print properties.

Strategy

We have implemented a business strategy with an intent to reacquire growth in revenues and improve our operations. We continue
to invest in order to transform from a print directory business to a digital media and marketing solutions company.

Our strategy remains to leverage our multiplatform media and marketing solutions, to enhance services to our advertisers, build
traffic to our network of properties and improve user experience. Our goal is to serve the advertising needs of small and
medium enterprises across Canada, by providing the right services and tools to manage and grow their businesses.

We are focusing on key areas, such as:

(cid:131)

Improving our operations with increased focus on sales effectiveness, product fulfillment, billing and customer support;

(cid:131) Provisioning of new services for our customers with the objective of offering an overall better customer experience and

return on investment by driving more quality leads through calls, clicks, forms and emails;

(cid:131)

Improving our value proposition for the consumer by enhancing our content on our online and mobile properties;

(cid:131) Creating partnerships in traffic and distribution to augment leads to our advertisers; and

(cid:131) Branding and promotion to raise awareness of our 360° Solution product portfolio and accelerate our brand transformation.

We achieve profitability by maximizing our operating efficiency and constantly reviewing all of our operations with a view to ensuring
we maintain a competitive cost structure. Improving our cost structure remains a key priority and will continue to be achieved
through:

(cid:131)

Business process redesign;

Cost containment initiatives; and

Investment in technology to better support our operations and our transformation.

For a review of developments and performance relative to key priorities identified for 2011, see Section 2 – Results.

Our key priorities for 2012 are to:

(cid:131)

Execute the Yellow Pages 360° Solution sales approach;

(cid:131) Deliver superior customer value; and

(cid:131)

Lead our industry transformation.

Execution of 360 sales approach

The launch of our new Yellow Pages 360° Solution during 2011 was a key milestone of our business transformation. We now
offer the key components of a complete media solution for Canadian businesses. The Yellow Pages 360º Solution is central in
enabling our advertisers to be found by qualified buyers with online, mobile and print choices. Our sales professionals are now
better equipped to offer the solutions that fit our advertisers’ evolving needs.

In 2012 we will be introducing differentiated products and services for larger advertisers, increasing sales support effectiveness
through the introduction of improved sales tools and simplified order processing and improving operational execution in
fulfilment, billing and support.

Deliver superior customer value

Our first and foremost goal is to serve the needs of our advertisers, enabling them to manage and grow their businesses.
In 2012, we will continue to focus on delivering a superior value proposition by expanding our product portfolio to meet large
advertiser needs, by increasing digital leads to advertisers and demonstrating value through Yellow Pages Analytics.
This performance reporting tool provides valuable insight into advertisers’ YPG campaign and allows them to gain access to
online, near real-time statistics on visits, clicks, traffic trends and more.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Lead our industry transformation

We have undertaken a significant business transformation from a print company to a leading performance media and marketing
solutions provider company and have made progress thus far. In 2012, we will continue to lead this transformation by making the
required investments and focusing on key growth avenues. We will invest in our mobile offering, to grow our local lead generation
and audience and further capturing local smart shopping. We will evolve our brand promise to include digital capabilities and also
grow our national strategy.

Capability to Deliver Results

This section of our MD&A explains how we are positioning the Company to continue to operate on a financially viable and progressive
basis.

Capital Resources

YPG generates sufficient cash flow from its operations to support required capital expenditures and to service its debt obligations. Its
cash flow, along with the availability under its committed bank facilities provide sufficient resources to finance its cash requirements
in the foreseeable future while maintaining adequate liquidity. Please refer to Section 3 – Liquidity and Capital Resources of this MD&A
for an analysis of the company’s ability to generate sufficient cash and to meet operating needs in the current market environment.

Non-capital Resources

YPG’s critical intangible resources include:

(cid:131)

Strong brands;

Established relationships with customers;

Breadth and depth of local content;

(cid:131) Dedicated and experienced employees; and

(cid:131)

Culture and values that characterize our organization.

Strong Brands

YPG is the exclusive owner of a number of leading brands which have high-recognition value among our various audiences including
Yellow Pages, Pages Jaunes, Walking Fingers Design, RedFlagDeals and Canada411 trademarks in Canada.

Established Relationships with Customers

We employ a sales force of approximately 1,500 people, including sales support staff. This large and primarily face-to-face sales
force is broken down into various customer segments allowing a more dedicated relationship between the sales force and the
SMEs resulting in 87% of our advertisers renewing their advertising with us each year.

Breadth and Depth of Local Content

The quality of our local content generates usage which in turn encourages local and national advertisers to advertise in our print
and online properties.

Dedicated and Experienced Employees

Our employees have consistently improved our operations. Despite a challenging environment, our employees have executed on
the initiatives needed to position the corporation for transformation and we are confident that they will continue to remain
focused on our common objectives.

Culture and Values

We have a performance-based culture. That culture is defined by all of our values and influences our thinking and our actions
which drive our desire to compete to win. This focus on performance also dictates the competencies and skills we seek to
attract and retain. All our employees are expected to value teamwork and be focused on our customers; they should act with
integrity, respect and passion for the job at hand while maintaining open communications.

We believe that our culture and our values form the foundation of our organization and are critical to its sustained success.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

2. Results

This section provides an overview of our financial performance in 2011 compared to 2010 and 2010 compared to 2009. It is
also important to note that in order to help investors better understand our performance we rely on several metrics, some of
which are not measures recognized by IFRS. Definitions of these financial metrics are provided on page 21 of this MD&A and
are important aspects which should be considered when analyzing our performance.

Overall Performance

(cid:131)

Revenues decreased by $72.3 million or 5.2% to reach $1,328.9 million compared to the previous year.

Income from operations before depreciation and amortization, impairment of goodwill and intangible assets, acquisition-
related costs and restructuring and special charges (EBITDA) decreased by $77.4 million or 10.2% to $679.7 million
compared to the previous year.

Highlights1,2,3
(in thousands of Canadian dollars– except share information)

Revenues

Income from operations before depreciation and amortization, impairment of goodwill and

intangible assets, acquisition-related costs, and restructuring and special charges (EBITDA)

Basic (loss) earnings per share attributable to common shareholders

From continuing operations

Total

Cash flows from operating activities from continuing operations

Free cash flow from continuing operations4

Years ended December 31,

2011

11,328,866

6679,707

(5.33)

(5.58)

3336,573

2275,174

2010

1,401,129

757,108

0.42

0.44

569,607

529,211

1 On March 25, 2011, Yellow Media Inc. announced that it had reached a definitive agreement to sell its Vertical Media segment. Consequently, the results of the

Vertical Media segment are presented as discontinued operations and excluded from these figures. The transaction closed on July 28, 2011.

2 Included in the 2010 figures are the results of the Fund. In addition, the 2010 comparatives have been restated to conform to IFRS.

3 We closed the acquisitions of Canpages Inc. (Canpages) on May 25, 2010, Mediative Performance LP (Mediative LP), previously Enquiro Search Solutions
Inc.(Enquiro) on September 21, 2010, Uptrend Media Inc. (Uptrend Media) on October 20, 2010 and AdSplash Inc. on October 28, 2010. As such, included in the
2010 and 2011 results are the results of each acquired business from their respective dates of acquisition. We also disposed of LesPAC on November 14, 2011.
As such, included in 2011 are the results of LesPAC up to the date of its divestiture.

4 Please refer to Section 4 for a reconciliation of free cash flow from continuing operations to IFRS.

Revenues
(in millions of dollars)

(5.2%)

1,401.1

1,328.9

1,500

1,250

1,000

750

500

250

EBITDA
(in millions of dollars)

800

757.1

(10.2%)

679.7

600

400

200

2010

2011

2010

2011

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Performance Relative to Business Strategy

As we position Yellow Media Inc. as a leading Canadian performance media and marketing solutions provider, our focus in 2011 was:

(cid:131)

To expand our advertiser offering and value proposition with the launch of the new Yellow Pages 360° Solution;

To improve the user experience and grow traffic to our network of properties; and

To develop a compelling national strategy with the creation of Mediative.

Enhancement and expansion of products

Yellow Pages 360° Solution (cid:548) Our primary objective in 2011 was to deliver superior customer value and experience by focusing on
the deployment of the Yellow Pages 360º Solution. This unique value proposition is a key element of our digital transformation,
enabling advertisers to get unprecedented visibility with online, mobile and print media platforms, and access to various services
such as website development, search engine marketing and search engine optimization. The entire sales organization was trained with
the new Yellow Pages 360º Solution during the first quarter and started to sell the solution to advertisers across Canada during the
second quarter of 2011. Since the launch of the 360º Solution, we have sold close approximately 11,000 websites for SMEs, making
us one of the leading website providers in Canada. With results to date encouraging, we believe the Yellow Pages 360° Solution will
allow us to grow our average revenue per advertiser and improve advertiser renewal.

Yellow Pages 360º Solution Website (cid:548) Concurrent with the launch of the Yellow Pages 360° Solution, we launched a business to
business Website to present our portfolio of products and services and assist Canadian businesses with their overall marketing
needs by providing a comprehensive and integrated multiplatform solution in a simple, direct and interactive way. The site received
the grand prize at the Boomerang Awards for best business to business website for a large corporation. This is a strong recognition
for the progress made thus far on our digital transformation.

MarketProfilerTM (cid:548) During the first quarter of 2011, YPG launched MarketProfiler™, the first free automated online tool of its kind
in Canada. MarketProfilerTM creates customized reports to help SMEs gain insight into their market, their online performance,
their competitors, and on how to improve their online visibility and advertising strategy. We recently received an award from the
Relationship Marketing Association for this tool.

User Experience

Online (cid:548) Significant efforts were made in 2011 to enhance the user experience across our online properties. We redesigned
the layout of yp.ca and continued to increase its performance, making it faster and improving the advertiser value by improving
product fulfilment and increasing lead generation. New functionalities were also added to yp.ca, and include an improved
mapping experience to facilitate local search, and new features such as “What’s Nearby” and Deals, allowing users to perform
smarter local buying decisions by facilitating the shopping experience. Our network of sites for the quarter reached an average
of 9.5 million unduplicated unique visitors representing 38% of the Canadian online population.

Canada411.ca, the country’s most frequented and trusted destination to find personal contact information and businesses, was
also redesigned and enhanced to include results aggregated from the leading social media networks of Facebook®, Twitter®
and LinkedIn®.

Mobile (cid:548) Our strategy revolves around the continued improvement of the mobile user experience and engagement in order to
provide additional value for our advertisers. In 2011, we updated our Yellow Pages application with numerous additional
features and functionalities that provide more relevant content to help consumers make better shopping decisions. We provide
users with information that includes photos, videos, the advertiser’s website, reviews and local deals and promotions.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Our mobile applications have been downloaded 3.7 million times. Our initial strategy was to build traffic on our applications.
As we reached critical mass mid-2011, we launched our first two mobile products: Sponsored Placement and Brand Filter.
The Sponsored Placement product allows businesses to place themselves at the top of the list for any mobile search list in
which their services fit the results, giving them premium placement and visibility. The Brand Filter product enables national
businesses to showcase their brand and business information.

In December of this year, our Yellow Pages™ mobile application received the “Best in Mobile” award at the 2011 Digi Awards for
location-based services. Our iPhone application continues to rank high among productivity applications in Apple’s app store and
it was also selected for the second year as part of the Rewind 2011 list of top 100 best applications.

Also in 2011, we launched ShopWise™, a new mobile application for iPhone that pinpoints the most popular deals on products
and services within a given geographic location. ShopWise™ will help Canadians shop smarter by allowing them to benefit from
deals around them using the largest deals database.

Partnerships (cid:548) A key component of our digital strategy is to create partnerships in traffic and distribution to augment leads to
our advertisers. For example, we continue to support Canadian technology entrepreneurs with our YellowAPI Developer
Program. We currently have over 1,500 developers signed up to the YellowAPI.com portal and we are continually pursuing
additional North American partnerships with leading mobile and web properties to bring additional traffic to YPG for the benefit
of our advertisers. For example, the Yahoo.ca mobile website began integrating yellowpages.ca results for local searches. We
also entered into a partnership with Skype earlier this year, a first of its kind in Canada to connect Skype users to YPG online advertisers
for free, which means more incentive to call our advertisers. We also signed a one-year agreement with theweathernetwork.com. They
are now carrying the Deal of the Day widget on their cities pages.

National Strategy

Mediative (cid:548) We launched Mediative a year ago and it is now one of Canada’s largest integrated advertising and digital marketing
companies. Mediative has extensive experience in developing innovative and unique marketing solutions for national companies.
In 2011, we were selected as the top company in Canada in two Performance Solution categories by TopSEOs. TopSEOs is an
independent authority on search vendors which evaluates and ranks the best vendors in the Internet Marketing community.
Mediative was chosen as the top Enterprise SEO Services as well as Integrated Search Company. Mediative is now serving the
marketing needs of some of the biggest brands in North America – brands like WalMart, Futureshop, Sears and Disney among
others. It is also one of Canada’s leading ad display network, managing the ad inventory of approximately 500 web sites such as
Best Buy, Martha Stewart, Sears, FutureShop and Toys ‘R Us. Mediative’s advertising network reaches over 15 million unique visitors
per month.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Consolidated Operating and Financial Results

Consolidated Results1
(in thousands of Canadian dollars – except share information)

Revenues

Operating costs

Income from operations before depreciation and

amortization, impairment of goodwill and intangible
assets, acquisition-related costs, and restructuring
and special charges

Depreciation and amortization

Impairment of goodwill and intangible assets

Acquisition-related costs

Restructuring and special charges

(Loss) income from operations

Financial charges, net

Gain on deemed disposition of equity investment

Gain on disposal of subsidiary

(Loss) earnings before dividends on Preferred shares,
series 1 and 2, income taxes, and impairment and
share of losses from investments in associates

Dividends on Preferred shares, series 1 and 2

(Loss) earnings before income taxes and impairment

and share of losses from investments in associates

Provision for income taxes

Impairment of investment in associate (net of income

taxes of $0.2 million)

Share of losses from investments in associates

2011

20101

20101,3

20092,3

1,328,866

1,401,129

1,679,860

1,639,884

6649,159

644,021

829,545

746,446

Years ended December 31,

679,707

1160,906

22,900,000

77,743

226,142

((2,415,084)

1130,582

(cid:16)
((6,211)

(2,539,455)

119,187

(2,558,642)

887,149

50,271

112,060

757,108

180,265

(cid:16)
30,575

31,391

514,877

148,437

(cid:16)
(cid:16)

366,440

21,171

345,269

93,583

(cid:16)
19,900

231,786

(2,380)

850,315

270,117

(cid:16)
30,539

33,903

515,756

144,796

(2,374)

(2,338)

375,672

21,171

354,501

60,527

(cid:16)
19,939

274,035

(cid:16)

893,438

142,414

315,000

(cid:16)
40,316

395,708

114,600

(cid:16)
(cid:16)

281,108

22,427

258,681

42,710

(cid:16)
7,089

208,882

(cid:16)

Net (loss) earnings from continuing operations

(2,708,122)

Net loss from discontinued operations, net of income taxes

(120,877)

Net (loss) earnings

(2,828,999)

229,406

274,035

208,882

Basic (loss) earnings per share2 attributable to

common shareholders

From continuing operations

Total

Diluted (loss) earnings per share2 attributable to

common shareholders

From continuing operations

Total

Total assets

Long-term debt

Exchangeable and convertible instruments

Preferred Shares Series 1 and 2

1 Included in the 2010 figures are the results of the Fund.

2 2009 Comparative amounts are per Trust unit.

(5.33)

(5.58)

(5.33)

(5.58)

5,048,932

1,510,892

184,214

149,173

0.42

0.44

0.38

0.40

9,211,110

1,923,203

319,029

446,725

0.53

0.47

9,300,248

2,218,203

319,029

446,725

0.40

0.36

8,941,606

2,225,720

83,886

472,777

3 Canadian GAAP and results of Trader are included in the results of continuing operations.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Analysis of Consolidated Operating and Financial Results

The consolidated income statements of Yellow Media Inc. up to net (loss) earnings from continuing operations represent the
results of the restated Directories segment given the presentation of the results of the automotive and generalist print and
online business of Trader as discontinued operations.

Management’s Discussion and Analysis

Fiscal 2011 versus 2010

Revenues

Revenues decreased to $1,328.9 million during 2011 compared with $1,401.1 million for 2010. The decrease for the year ended
December 31, 2011 is due to lower print revenues in our traditional markets, partly offset by increased online revenues.
Canpages’ contribution offset lower print revenues in our traditional markets for the first half of 2011 as it was acquired in
May 2010. As at December 31, 2011, the number of advertisers, excluding Canpages, was 340,000 compared to 365,000 as at
December 31, 2010 reflecting a decrease of 7%. Advertiser renewal dropped slightly to 87% as at December 31, 2011 compared
to 88% as at December 31, 2010. During the last 12 months, YPG acquired approximately 24,000 new advertisers. Although
there was a reduction in the number of advertisers, the average revenue per advertiser (ARPA) remained stable at approximately
$3,400 compared to the same period last year. As at December 31, 2011, our Revenue Generating Units1 per advertiser was
relatively unchanged at 1.68 compared to 1.70 for the same period last year.

As of December 31, 2011, the number of advertisers excluding Canpages, choosing to advertise both in print and online was
63.4% across Canada compared to 65.2% for the corresponding period last year.

Online revenues reached $346.1 million in 2011, representing a growth of 29.6% for 2011. In
addition to the introduction of new products, online revenue growth is attributable to revenues
from Canpages acquired in May of 2010 and Mediative, our digital and marketing solutions
provider for national agencies and advertisers launched in October 2010. Our network of web
sites in Directories attracted 9.5 million unduplicated unique visitors2 on average during the
fourth quarter of 2011, representing a reach of 38%2 of the Canadian internet population.

We expect revenue growth from our online product offerings to continue. However, this growth is
not expected to compensate for the declining revenue in our traditional print offerings in the near
future. Accordingly, our focus remains positioning our platforms through investment in new
product introduction executing on our 360º Solution strategy and improved market coverage.

EBITDA

EBITDA decreased by $77.4 million to $679.7 million during 2011 compared with $757.1 million
in 2010. While most of our new online placement products contribute margins similar to those
of our print products in our local markets, lower print revenues resulted in decreases in EBITDA.

Online Usage
(in millions)

9.7

9.5

Q4 2010

Q4 2011

Cost of sales increased by $27.5 million to $392.5 million during 2011 compared with $365 million in 2010. The increase for the
year ended December 31, 2011 results mainly from the increased costs associated with Canpages and our Mediative division
acquired during 2010 offset by lower manufacturing costs associated with lower print revenues.

Gross profit margin decreased to 70.5% for 2011 compared to 74% for 2010. The decrease for the year is due to lower margins
associated with Canpages, Wall2Wall and our Mediative division.

General and administrative expenses decreased by $22.4 million to $256.7 million for 2011 compared with $279.1 million in 2010.
In 2010, we incurred costs related to our conversion and rebranding costs from an income fund to a corporation.

Depreciation and amortization

Depreciation and amortization decreased to $160.9 million from $180.3 million during 2011. The decrease for the year ended
December 31, 2011 is mainly attributable to lower amortization of certain intangible assets related to the acquisition of Canpages.

1 Revenue Generating Units (RGU) measures the number of product groups selected by advertisers.

2 Source: comScore Media Metrix Canada (excluding LesPAC for the month of December).

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Impairment of goodwill and intangible assets

Following a comprehensive review of its strategic and operating plans completed during the third quarter of 2011, Yellow Media Inc.
determined that the recoverability of the carrying value of certain of its assets had to be reviewed for impairment purposes.
Consequently, as announced on September 28, 2011, we recorded a charge of $2.9 billion related to the impairment of goodwill and
intangible assets. This impairment charge did not affect the Company’s operations, its liquidity, its cash flows from operating
activities, its bank credit agreement or its note indentures.

Acquisition-related costs

We incurred costs of $7.7 million during the year ended December 31, 2011, associated with potential investments. In 2010,
we incurred $30.6 million mainly in association with our acquisition of Canpages, RedFlagDeals.com, Restaurantica, Enquiro,
UpTrend Media, AdSplash, and 411.ca.

Restructuring and special charges

For the year ended December 31, 2011, we incurred costs of $26.1 million compared to $31.4 million for the same period last
year as a result of the creation of centres of excellence and internal reorganizations. These costs were associated with a
workforce reduction, elimination of duplicate activities and the termination of certain contractual obligations. In addition, in
2011, we undertook a complete review of our Canpages print directories and have eliminated the publication of certain
overlapping directories and will be integrating the Canpages business within YPG.

Financial charges

Financial charges decreased by $17.9 million to $130.6 million during 2011. The decrease for the year ended December 31, 2011 is
due to an increased gain on the repurchase of debt instruments partly offset by a redemption premium in connection with a Total
Return Swap and higher amortization and write-off of deferred financing costs. The increase in the effective interest rate reflects the
suspension of the commercial paper program and the increased cost under the credit facility following our credit ratings downgrade.

Gain on disposal of subsidiary

During 2011, the Company sold the assets of LesPAC.com to Mediagrif Interactive Technologies Inc. for a net purchase price
consideration of $70.9 million. The transaction closed on November 14, 2011, which resulted in a gain on sale of $6.2 million.

Dividends on preferred shares, Series 1 and 2

Dividends on the two series of redeemable preferred shares amounted to $19.2 million for 2011 compared to $21.2 million for the
same period last year. The decrease is due to a lower level of preferred shares resulting from our share buy-back under our normal
course issuer bid.

Provision for income taxes

The combined statutory provincial and federal tax rate was 27.9% and 29.9% for the years ended December 31, 2011 and 2010
respectively. The Company recorded an expense of 3.4% on the loss and an expense of 27.1% of earnings for the years ended
December 31, 2011 and 2010 respectively. As the impairment of goodwill and Ziplocal recorded in 2011 are not fully deductible
for tax purposes, the Company recorded an expense of $87.1 million for the year, compared with an expense of $93.6 million in
2010. Excluding these items, the effective tax rate in 2011 would have been in line with the statutory rates.

Impairment of investment in associate

During the year, Yellow Media Inc. determined that its investment in Ziplocal LP (Ziplocal) was impaired and as a result a net
loss of $50.3 million was recorded to reduce its net investment in Ziplocal to $nil. Ziplocal was in default of its debt obligations
and had undertaken important restructuring initiatives.

Share of losses from investments in associates

During 2011 we recorded our share of losses from our investments in 411.ca and Acquisio, in the amount of $12.1 million
compared to $19.9 million for the same period last year. The decrease for the year is due to the fact that no share of losses
was recorded from our investment in Ziplocal, as this investment was written-off during the second quarter of 2011. These
losses include the amortization of intangible assets in connection with these equity investments.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Loss from discontinued operations

On March 25, 2011, Yellow Media Inc. announced that it had reached a definitive agreement to sell Trader Corporation. The
transaction closed on July 28, 2011. The real estate, employment and LesPAC.com businesses were excluded from the
divestiture. The Company sold the assets of LesPAC.com on November 14, 2011. The real estate and employment businesses
continue to be owned and managed by YPG. As a result, we reclassified the results of the automotive and generalist verticals
as discontinued operations. Accordingly, the prior period’s consolidated income statement and cash flows have been restated to
reflect this change.

Included in the results from discontinued operations of the automotive and generalist business are revenues of $148.1 million
for the year ended December 31, 2011 compared with $254 million for the same period last year. The results are not
comparable as we completed the sale of Trader Corporation on July 28, 2011.

EBITDA from the operations of the automotive and generalist business decreased to $34.7 million for 2011 compared with
$74.9 million for the same period last year. The results are not comparable as we completed the sale of Trader Corporation on
July 28, 2011.

The net loss from discontinued operations amounted to $120.9 million for 2011. This includes a loss on disposal of $134.3 million
(net of income taxes) for the year ended December 31, 2011, which represents the difference between the fair value net of selling
costs and the carrying value of net assets sold.

In addition to the above, as a result of the adoption of IFRS, the disposal of YPG Directories, LLC, a US subsidiary, on April 15, 2010
is also presented as a discontinued operation for the year ended December 31, 2010.

Net (loss) earnings

Net earnings decreased by $3,058.4 million to a loss of $2,829 million during 2011. The decrease for the year is mainly due to
the impairment of goodwill and intangible assets discussed above. In addition to these elements, the decrease for the year is
also due to the impairment of our investment in Ziplocal of $50.3 million and to the loss on disposal associated with our
divestiture of Trader Corporation in the amount of $134.3 million (net of income taxes).

Fiscal 2010 versus 2009

The discussion that follows is based on Canadian GAAP figures as reported in our 2010 MD&A.

Revenues

Revenues increased to $1,679.9 million during 2010 compared with $1,639.9 million for 2009. The additional contribution of
revenues from Canpages during the year ended December 31, 2010 was partly offset by the loss of revenues resulting from the
divestiture of YPG USA. Dealer.com contributed approximately $78 million of revenues in 2010. If we exclude the results from
Dealer.com, organic revenues declined due to lower print revenues in both segments. The continuing shift in the media and
publishing industries towards more online content continues to place pressure on our traditional print offerings. Organic online
revenue growth for 2010 reached 15.8%. Online revenues from the Directories and Vertical Media segments combined reached
$445.3 million in 2010. Our network of web sites in Directories and Vertical Media attracted 10.3 million unduplicated unique
visitors1 on average during the fourth quarter of 2010, representing a reach of 41.4%1 of the Canadian internet population.

EBITDA

EBITDA decreased by $43.1 million to $850.3 million compared to $893.4 million in 2009. In 2010, we incurred conversion and
rebranding costs of $48.5 million associated with our conversion from an income trust to a corporation. If we exclude these costs,
EBITDA increased by $5.4 million compared to 2009.

Cost of sales increased by $15.3 million to $479.5 million compared to $464.2 million in 2009. The increase for the year ended
December 31, 2010 results mainly from the increased costs associated with Dealer.com acquired in the first quarter of 2010.
Canpages also contributed additional costs during the year when compared to 2009 as it was acquired in May 2010. This was offset
by the lower costs resulting from the divestiture of YPG USA.

Gross profit margin remained stable at 71.5% in 2010 compared to 71.7% in 2009.

General and administrative expenses increased by $67.7 million to $350 million compared to $282.3 million in 2009. The
increases in general and administrative expenses for 2010 are mainly attributable to conversion and rebranding costs, as well
as, higher costs in the Vertical Media segment following the acquisition of Dealer.com on January 5, 2010, and the higher costs
following the acquisition of Canpages on May 25, 2010.

1 Source: comScore Media Metrix Canada.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Depreciation and amortization

Depreciation and amortization increased to $270.1 million during 2010 compared with $142.4 million in 2009. The increase is
mainly attributable to higher amortization of certain intangible assets related to the acquisitions of Dealer.com and Canpages.

Acquisition-related costs

During 2010 we recorded acquisition-related costs of $30.5 million as a result of our acquisitions of Canpages, RedFlagDeals.com,
Restaurantica, Mediative LP, Uptrend Media, AdSplash, 411.ca and CanadianDriver. This includes $18.8 million of transaction costs
and $11.7 million of restructuring and other charges.

Restructuring and special charges

During 2010 and in connection with the acquisition of Canpages, we recorded restructuring and special charges relating to
internal reorganization, workforce reduction, the acceleration of business process changes in our centres of excellence and
other items amounting to $33.9 million. Similar initiatives amounting to $40.3 million were undertaken in 2009.

Financial charges

Financial charges increased by $30.2 million to $144.8 million compared to $114.6 million in 2009. The increase is due in part
to a lower gain on the repurchase of preferred shares, Medium Term Notes, credit facilities and Exchangeable Debentures of
$4.2 million in 2010 compared to a net gain of $42.8 million in 2009. The effective average interest rate on our debt portfolio
as of December 31, 2010 was 5.4% compared to 5.8% as of December 31, 2009.

Gain on deemed disposition of equity investment

The previously held equity interest of Trader in Dealer.com, which was accounted for under the equity method up to January 5, 2010,
was re-measured at its fair value of $40.6 million and the gain on deemed disposition was recognized in net earnings. The
unrealized cumulative loss on translating the financial statements of Dealer.com to Canadian dollars was also recognized in net
earnings on the same basis as would be required if Trader had disposed directly of its previously held equity interest. The above
transactions generated a net gain of $2.4 million which was recorded in the first quarter of 2010.

Gain on disposal of subsidiary

During 2010, the Company contributed its interest in YPG Directories, LLC in exchange for a 35% minority interest in a new
entity resulting from the combination of YPG Directories, LLC and Ziplocal LP. The transaction closed on April 15, 2010, which
resulted in a gain on sale of $2.3 million.

Dividends on preferred shares, Series 1 and 2

Dividends on the two series of redeemable preferred shares amounted to $21.2 million compared to $22.4 million in 2009.

Provision for income taxes

The combined statutory provincial and federal tax rate was 29.9% and 31.4% in 2010 and 2009 respectively. The Company
recorded an expense of 17.1% of earnings in 2010 compared to 16.5% in 2009. Prior to the conversion from an income trust,
the Fund’s subsidiary, YPG LP was a limited partnership, and as such, was not subject to income taxes whereas YPG LP’s
subsidiaries were subject to income tax. The difference between the statutory and the effective tax rates was primarily due to
inter-company revenues which were not taxable when received by YPG LP.

Share of losses from equity investees

In 2010 we recorded our share of losses from our equity investments in the amount of $19.9 million compared to $7.1 million in
2009. These losses include the amortization of intangible assets amounting to $22 million (2009 - $12.9 million) in connection
with these equity investments.

Net earnings

Net earnings increased by $65.2 million to $274 million in 2010. The increase is mainly due to the impairment of goodwill that
occurred in 2009 partly offset by higher depreciation and amortization following the business acquisitions in 2010, as well as the
expenses incurred in connection with our conversion and rebranding efforts and the acquisition-related costs incurred in connection
with the acquisitions of Canpages, RedFlagDeals.com, Restaurantica, Mediative LP, Uptrend Media, AdSplash, 411.ca and
CanadianDriver in 2010.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Summary of Consolidated Quarterly Results

Quarterly Results
(in thousands of Canadian dollars – except share information)

Revenues

$$ 313,315 $ 323,441 $ 342,738 $ 349,372 $ 345,378 $ 355,949 $ 360,118 $ 339,684

2011

2010

Operating costs
Income from operations
before depreciation
and amortization,
impairment of goodwill
and intangible assets,
acquisition-related
costs and restructuring
and special charges
(EBITDA)

EBITDA margin

Depreciation and
amortization

Impairment of goodwill

and intangible assets

Acquisition-related costs

Restructuring and
special charges

Income (loss) from
operations

Net earnings (loss)
Basic earnings (loss) per
share attributable to
common shareholders
from continuing
operations

Diluted earnings (loss)

per share attributable
to common
shareholders from
continuing operations

1166,117

157,443

166,262

159,337

184,043

162,726

156,140

141,112

1147,198

165,998

176,476

190,035

161,335

193,223

203,978

198,572

447%

51.3%

51.5%

54.4%

46.7%

54.3%

56.6%

58.5%

23,003

37,800

47,735

52,368

76,269

48,349

31,269

24,378

(cid:548)
2210

2,900,000

497

(cid:548)
6,233

(cid:548)
803

(cid:548)
5,066

(cid:548)
1,960

(cid:548)
19,934

(cid:548)
3,615

14,254

(cid:548)

11,888

(cid:548)

6,229

16,185

8,977

(cid:548)

1109,731

(2,772,299)

110,620

136,864

73,771

126,729

143,798

445,292

(2,825,452)

(14,250)

(34,589)

(14,694)

64,999

51,982

170,579

127,119

0.08 $

(5.52) $

(0.05) $

0.13 $

(0.03) $

0.12 $

0.09 $

0.23

0.03 $

(5.52) $

(0.05) $

0.11 $

(0.03) $

0.10 $

0.09 $

0.20

During the second quarter of 2010, we acquired Canpages causing revenues to increase. Revenues decreased quarter-over-
quarter throughout 2010 and 2011 as a result of continued pressure on our print product. In the first quarter of 2011, revenues
increased due to the seasonality associated with the publication of Canpages directories.

Our EBITDA margin decreased progressively during 2010 and 2011, reflecting the decline in print revenues and lower margins
associated with Canpages and Mediative acquired in 2010. In the fourth quarter of 2010, our EBITDA margin was lower due to
conversion and rebranding costs associated with our conversion to a corporation. During the fourth quarter of 2011, we incurred a
non-recurring expense of approximately $6 million as a result of a sales tax assessment.

Internal reorganizations and cost containment initiatives resulted in restructuring and special charges impacting some of our
quarterly results in 2010 and 2011. Net earnings for the second half of 2010 and for 2011 were affected by depreciation and
amortization of intangible assets related to the acquisition of Canpages. Net earnings throughout 2010 were impacted by
conversion and rebranding costs associated with our conversion from an income trust to a corporation as well as acquisition-
related costs, most notably in the fourth quarter of 2010. We recorded a loss related to our disposal of Trader Corporation and
an impairment of our investment in Ziplocal in the first and second quarters of 2011, respectively. Lastly, during the third
quarter of 2011, we recorded a charge of $2.9 billion related to the impairment of goodwill and intangible assets.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Analysis of fourth quarter 2011 results

Revenues

Revenues decreased to $313.3 million during the fourth quarter of 2011 compared with $345.4 million for the same period last year.
The decrease for the quarter is due to lower print revenues in our traditional markets, partly offset by increased online revenues.

EBITDA

EBITDA decreased by $14.1 million to $147.2 million during the fourth quarter of 2011 compared with $161.3 million the same
period last year. While most of our online products contribute margins similar to those of our print products in our local markets,
lower revenues resulted in decreases in EBITDA.

Cost of sales increased by $11.4 million to $103.9 million during the fourth quarter compared with the same period last year. The
increase for the quarter is attributable to additional selling expenses in connection with our Mediative division.

Gross profit margin decreased to 66.8% for the fourth quarter of 2011 compared to 73.2% for the fourth quarter of 2010. The
decrease for the quarter is due to lower print revenues and lower margins associated with Canpages and our Mediative division.

General and administrative expenses decreased by $29.3 million to $62.2 million for the three-month period ended December 31, 2011
compared with $91.5 million the same period last year. In the fourth quarter of 2010, conversion and rebranding costs of $30 million
were incurred. During the fourth quarter of 2011, we incurred a non-recurring expense of approximately $6 million in connection with a
sales tax assessment.

Depreciation and amortization

Depreciation and amortization decreased to $23 million from $76.3 million during the fourth quarter of 2011 compared with
the same period last year. The decrease for the quarter is due to lower amortization of certain intangible assets of YPG USA and
Canpages, which were fully amortized during the quarter.

Acquisition-related costs

We incurred costs of $0.2 million during the three month period ended December 31, 2011, resulting from potential investments.
In 2010, we incurred $5.1 million during the fourth quarter. The costs in 2010 were mainly associated with our acquisition of
Canpages, AdSplash, Uptrend Media and Mediative LP.

Restructuring and special charges

We incurred $14.3 million of restructuring and special charges during the quarter compared with $6.2 million for the same
period last year. The costs incurred in 2011 were associated with a workforce reduction and the termination of contractual
obligations as a result of the elimination of the publication of certain overlapping directories and the integration of our Canpages
operations into YPG.

Dividends on preferred shares, Series 1 and Series 2

Dividends on the two series of redeemable preferred shares amounted to $4.6 million for the fourth quarter of 2011 compared to
$5.1 million for the same period last year.

Provision for income taxes

The combined statutory provincial and federal tax rate was 27.9% and 29.9% for the three-month periods ended December 31, 2011
and 2010 respectively. The Company recorded an expense of 20.6% of earnings for the three-month period ended December 31, 2011
and 95% on the earnings for the three-month period ended December 31, 2010. In connection with the disposal of YPG Directories, LLC
in 2010, Yellow Media Inc. reviewed the status of its deferred tax assets of 2010. As a result, a valuation allowance of $22.9 million was
recorded during the fourth quarter.

Share of losses from equity investees

During the fourth quarter of 2011 we recorded our share of losses from our investments in 411.ca and Acquisio, in the amount
of $0.4 million compared to $8.3 million for the same period last year. The decrease for the quarter is due to the fact that no
share of losses was recorded from our investment in Ziplocal, as this investment was written-off during the second quarter of
2011. These losses include the amortization of intangible assets in connection with these equity investments.

Net earnings

Net earnings increased by $60 million from a net loss of $14.7 million to net earnings of $45.3 million during the fourth quarter
of 2011 compared to the same period last year. The increase for the quarter is mainly due to conversion and rebranding costs
incurred in the fourth quarter of 2010.

YELLOW MEDIA INC. ANNUAL REPORT 2011

3. Liquidity and Capital Resources

This section examines the Company’s capital structure, sources of liquidity and various financial instruments including debt and
preferred shares.

Management’s Discussion and Analysis

Financial Position

Capital Structure
(in thousands of Canadian dollars)

Cash

Medium Term Notes

Credit facilities

Commercial paper

Obligations under finance leases and other

Net debt (net of cash)

Exchangeable and convertible debt instruments

Preferred shares, series 1 and 2

Equity attributable to the shareholders of Yellow Media Inc.

Non-controlling interests

Total capitalization

Net debt1 to total capitalization

As at December 31, 2011

As at December 31, 2010

84,186

69,325

1,404,083

205,000

(cid:16)
44,148

1,656,200

250,000

295,000

20,672

1,529,045

2,152,547

1184,214

3398,886

22,084,225

802

319,029

446,725

5,215,937

52,568

4,197,172

8,186,806

440.8%

28.5%

Net Debt1 to Latest Twelve
Months EBITDA Ratio2,3

Capital Structure
(in millions of dollars)

2.6 x

2.5 x

3.0

2.3

1.5

0.8

0.0

Dec. 31, 2010 Dec. 31, 2011

9,000

7,500

6,000

4,500

3,000

1,500

28.5%

5,269

40.8%

137
447

2,088

399

2,335

1,713

Dec. 31, 2010 Dec. 31, 2011

Total Equity
Exchangeable Promissory Notes
Preferred Shares
Net Debt1

As at December 31, 2011, YPG had approximately $1.5 billion of net debt, or $2.1 billion including preferred shares, Series 1
and 2, and convertible debt instruments. The net debt1 to Latest Twelve Month EBITDA2,3 ratio as of December 31, 2011 was
2.5 times. The net debt to total capitalization was 40.8% as of December 31, 2011, compared to 28.5% as of December 31, 2010.
Total capitalization was reduced by $4 billion during the year, as a result of the goodwill impairment charge and debt reduction.

1 Net debt including Convertible Debentures.

2 Latest twelve month income from operations before depreciation and amortization, impairment of goodwill and intangible assets, acquisition-related costs,
conversion and rebranding costs of 2010, restructuring and special charges, giving effect to the acquisitions and divestitures (Latest Twelve Month EBITDA).
Latest twelve month EBITDA is a non-IFRS measure and may not be comparable with similar measures used by other publicly traded companies. Please refer to
page 21 for a definition of EBITDA and to Note 31 of the accompanying consolidated financial statements for a summary of the differences between our
consolidated financial statements previously prepared under Canadian GAAP and those under IFRS for the year ended December 31, 2010.

3 Includes discontinued operations for the year ended December 31, 2010.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Medium Term Notes

Yellow Media Inc. had a total of $1.4 billion of notes outstanding under its Medium Term Note program as of December 31, 2011
with varying maturity dates between 2013 and 2036.

During 2011, Yellow Media Inc. repurchased for cancellation a total of $256 million of Medium Term Notes consisting of the principal
amount of $42.8 million of the Series 2 Medium Term Notes, $67.5 million of the Series 4 Medium Term Notes, $23.9 million of the
Series 5 Medium Term Notes and $121.9 million of the Series 7 Medium Term Notes for a total cash consideration of $229.3 million.

Credit facilities and commercial paper program

As at February 9, 2012, Yellow Media Inc. has in place a senior unsecured credit facility consisting of:

(cid:131)

a $250 million revolving tranche maturing in February 2013; and

a $180 million non-revolving tranche maturing in February 2013.

On September 28, 2011, Yellow Media Inc. announced the amendment of its senior unsecured credit facility. Concurrently, the
Company repaid a total amount of $500 million of its bank indebtedness. The amended credit facility is unsecured and bears
interest at BA rates plus a spread of 3.5% and/or at prime rate plus a margin of 2.5%.

Yellow Media Inc. is required to make quarterly repayments of $25 million on the outstanding balance of the non-revolving tranche
of the principal facility, commencing in January 2012 through January 2013. The Company repaid $45 million of the non-revolving
tranche in the fourth quarter of 2011, following the divestiture of LesPAC. In addition, the first quarterly repayment of $25 million
was made in January 2012. Once the non-revolving facility is repaid it may not be re-borrowed. The maturity date for the
repayment of the remainder of the outstanding borrowings under the facility remains February 18, 2013.

Under the amended facility, Yellow Media Inc. must maintain a Consolidated Total Debt to Consolidated Latest Twelve Month
EBITDA1 ratio of not more than 3.5 to 1 and a Consolidated Latest Twelve Month EBITDA1 to Consolidated Interest Expense ratio of
not less than 3.5 to 1.

The Company has also agreed to certain restrictions on the repurchase or redemption of shares and the repurchase or repayment
of debt prior to their stipulated maturity dates, subject to certain exceptions, which include the refinancing of such instruments
subject to specified conditions. The amended facility allows the Company to repurchase up to $125 million of its Series 8 and
Series 9 Medium Term Notes prior to their maturity date in 2013, subject to certain conditions. The credit facility also includes
restrictions with respect to the incurrence or assumption of indebtedness and liens, the transfer of assets as well as acquisitions
and investments. Going forward, the amended facility restricts the declaration and payment of common share dividends. Refer to
Section 4 – Adjusted Earnings from Continuing Operations.

Pursuant to the amendments to Yellow Media Inc.’s credit facility dated September 28, 2011, the Company has agreed not to
exercise its right to redeem its Preferred Shares Series 1 for cash. However, the Company retains the right to exercise its exchange
rights in respect of the Preferred Shares Series 1. Refer to “Cumulative Redeemable Preferred Shares” in this section.

As of December 31, 2011, $205 million was outstanding on the non-revolving tranche of the credit facility and the revolving tranche
was undrawn. The revolving facility may be used for general corporate purposes.

As of February 9, 2012, $180 million was outstanding on the non-revolving tranche of the credit facility. The Company also has drawn
$239 million on the revolving tranche and has approximately $280 million of cash as at February 9, 2012.

Following our downgrade to a non-investment grade rating, our access to the commercial paper market was discontinued.

YPG was in compliance with all of its debt covenants as at December 31, 2011.

1 Latest twelve month Income from operations before depreciation and amortization, impairment of goodwill and intangible assets, acquisition-related costs, conversion
and rebranding costs of 2010, restructuring and special charges, giving effect to the acquisitions and divestitures (Latest Twelve Month EBITDA). Latest twelve month
EBITDA is a non-IFRS measure and may not be comparable with similar measures used by other publicly traded companies. Please refer to page 21 for a definition of
EBITDA and to Note 31 of the accompanying consolidated financial statements for a summary of the differences between our consolidated financial statements
previously prepared under Canadian GAAP and those under IFRS for the year ended December 31, 2010.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Exchangeable Promissory Notes

In connection with the Canpages acquisition in 2010, Yellow Media Inc. issued $141.6 million of Mandatory Exchangeable Promissory
Notes (the Notes).

Starting in the first quarter of 2011, the Notes were exchangeable into a number of common shares of Yellow Media Inc. based upon
a price equal to 95% of the price of the Yellow Media Inc. shares at the time of exchange. Each quarter, holders of the Notes had the
right to exchange 25% of the principal amount representing a maximum of $35.4 million of the Notes. Until December 31, 2014,
YPG had the option at any time to redeem all or a portion of the Notes for cash together with accrued and unpaid interest. The Notes
ranked subordinate to the senior debt of Yellow Media Inc. and bore interest at a fixed initial rate of 5%, payable quarterly in cash,
subject to step up provisions over time. The Notes had a final maturity of December 31, 2014. Any remaining Notes would have
been automatically exchanged into common shares of Yellow Media Inc. on December 31, 2014.

On October 15, 2010, the holders of the Notes monetized their investment through a resale of the Notes to a third-party financial
institution. In order to facilitate this resale transaction and the orderly conversion of the Notes into common shares during the
course of 2011, Yellow Media Inc. entered into a Total Return Swap transaction referencing the Notes with the same counterparty
for a period ending December 15, 2011. Pursuant to the terms of the Total Return Swap, the 5% fixed interest rate under the
Notes was converted to the floating rate of interest equal to the three-month Banker’s Acceptance plus 1.75%. In addition, under
the Total Return Swap, the counterparty as a holder of the Notes was expected to exchange 25% of the principal amount into
underlying Yellow Media Inc. common shares at 95% of the prevailing market price. In addition, Yellow Media Inc. would have
received or paid under the Total Return Swap an adjustment amount to the extent that the value realized by the Total Return
Swap counterparty on the exchange or redemption of the Notes exceeded or was less than the $141.6 million principal amount of
the Notes.

On February 15, 2011, the exchange right was exercised and one quarter of the Notes was converted into 6.3 million common
shares of Yellow Media Inc. Also, since the value realized by the Total Return Swap counterparty on the exchange of the Notes
was less than the principal amount of the Notes, Yellow Media Inc. paid an adjustment amount of $4.2 million under the Total
Return Swap.

On March 31, 2011 Yellow Media Inc. exercised its redemption right applicable to another quarter of the principal amount of the
Notes representing $35.4 million. The principal amount along with the 5% redemption premium stipulated under the Total Return
Swap was paid on April 1, 2011.

During the second quarter of 2011, the remaining Notes were redeemed by Yellow Media Inc. in accordance with the terms of
the Notes. The remaining principal amount along with the 5% redemption premium stipulated under the Total Return Swap was
completely repaid on June 10, 2011 and the Total Return Swap was unwound.

Convertible Debentures

On July 8, 2010, Yellow Media Inc. announced the completion of the public offering of $200 million principal amount of 6.25%
convertible unsecured subordinated debentures (Convertible Debentures). The Convertible Debentures pay interest semi-annually
on April 1 and October 1 of each year commencing October 1, 2010. The Convertible Debentures have a maturity date of October
1, 2017 and are convertible, at the option of the holder, for common shares of Yellow Media Inc. at an exchange price of $8.00 per
common share. An amount of $10.1 million was classified as a separate component of equity attributable to owners of the
Company. Net proceeds resulting from the offering were used to fund the redemption of the outstanding Exchangeable
Debentures, and to repay indebtedness under the credit facilities and commercial paper program. The Convertible Debentures
have been given a rating of B by S&P and a rating of B(high) by DBRS.

Cumulative Redeemable Preferred Shares

Yellow Media Inc. has two series of cumulative redeemable first preferred shares outstanding. On March 6, 2007, 12,000,000
cumulative redeemable preferred shares, Series 1 (Series 1 Preferred Shares) were issued for gross proceeds of $300 million.
Holders of the Series 1 Preferred Shares are entitled to receive fixed cumulative preferential cash dividends, if, as and when
declared by the Board of Directors of the Company in an amount equal to $1.0625 per Series 1 Preferred Share per annum,
payable quarterly, yielding 4.25% per annum. At any time and from time to time on or after March 31, 2012 and prior to
December 31, 2012, the Company may, at its option in accordance with the terms of the Series 1 Preferred Shares, exchange
the outstanding Series 1 Preferred Shares, in whole or in part, into common shares of the Company at a conversion price equal
to the greater of $2.00 and 95% of the then applicable weighted average trading price of the common shares. On and after
December 31, 2012, a holder of Series 1 Preferred Shares may require the Company to redeem such Series 1 Preferred Shares
for a cash price of $25.00 per Series 1 Preferred Share, together with any accrued and unpaid dividends up to but excluding the
date fixed for redemption.

Pursuant to the amendments to Yellow Media Inc.’s credit facility dated September 28, 2011, the Company has agreed not to
exercise its right to redeem its Series 1 Preferred Shares for cash. However, the Company retains the right to exercise its exchange
rights in respect of the Series 1 Preferred Shares. Refer to “Cumulative Redeemable Preferred Shares” in this section for details.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

On June 8, 2007, 8,000,000 cumulative redeemable preferred shares, Series 2 (Series 2 Preferred Shares) were issued for
gross proceeds of $200 million. Holders of the Series 2 Preferred Shares are entitled to receive fixed cumulative preferential
cash dividends, if, as and when declared by the Board of Directors of the Company in an amount equal to $1.25 per Series 2
Preferred Share per annum, payable quarterly, yielding 5.0% per annum.

At any time and from time to time on or after June 30, 2012 and prior to June 30, 2017, the Company may, at its option in
accordance with the terms of the Series 2 Preferred Shares, exchange the outstanding Series 2 Preferred Shares, in whole or in
part, into common shares of the Company at a conversion price equal to the greater of $2.00 and 95% of the then applicable
weighted average trading price of the common shares. On and after June 30, 2017, a holder of Series 2 Preferred Shares may
require the Company to redeem such Series 2 Preferred Shares for a cash price of $25.00 per Series 2 Preferred Share,
together with any accrued and unpaid dividends up to but excluding the date fixed for redemption.

On June 8, 2010, Yellow Media Inc. received approval from the Toronto Stock Exchange (TSX) on its notice of intention to renew
its normal course issuer bid for its Series 1 Preferred Shares and Series 2 Preferred Shares through the facilities of the TSX from
June 11, 2010 to no later than June 10, 2011, in accordance with applicable rules and regulations of the TSX.

On May 11, 2011, Yellow Media Inc. received approval from the TSX on its notice of intention to renew its normal course issuer bid
for its Series 1 Preferred Shares and Series 2 Preferred Shares for the period from June 13, 2011 to no later than May 12, 2012
through the facilities of the TSX, in accordance with applicable rules and regulations of the TSX. Under its normal course issuer bid,
Yellow Media Inc. was entitled to purchase for cancellation up to 1,127,882 and 542,406 of its outstanding first Series 1 Preferred
Shares and Series 2 Preferred Shares, respectively.

Under these two NCIB programs, during 2011, Yellow Media Inc. purchased for cancellation 1,232,948 Preferred Shares Series
1 shares of Yellow Media Inc. for a total cash consideration of $25.5 million including brokerage fees and 778,156 Series 2
Preferred Shares of Yellow Media Inc. for a total cash consideration of $11.3 million including brokerage fees. The carrying
value of these Series 1 and Series 2 Preferred Shares was $30.6 million and $19.1 million, respectively.

In order to maximize funds available for debt repayment and reinvestment in the business, Yellow Media Inc. suspended activity
under its normal course issuer bid for its Series 1 and Series 2 Preferred Shares. This decision is in compliance with the
amendments that Yellow Media Inc. agreed to make with respect to its principal credit facility.

Rate reset Preferred Shares

Yellow Media Inc. has two series of rate reset first preferred shares outstanding.

On September 23, 2009, 7,500,000 cumulative rate reset preferred shares, Series 3 (Series 3 Preferred Shares) were issued for
gross proceeds of $187.5 million. On September 28, 2009, an additional 800,000 cumulative rate reset Series 3 Preferred Shares
were issued for gross proceeds of $20 million. Holders of the Series 3 Preferred Shares are entitled to receive cumulative
preferential cash dividend, if, as and when declared by the Board of Directors of the Company, of $1.6875 per share per annum,
payable quarterly, yielding 6.75% per annum for the initial five year period ending December 31, 2014. The dividend rate will be
reset on September 30, 2014 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus
4.17%. The Series 3 Preferred Shares will be redeemable by Yellow Media Inc. on or after September 30, 2014, in accordance with
their terms. Holders of the Series 3 Preferred Shares will have the right, at their option, to convert their shares into cumulative
floating rate preferred shares, series 4 (Series 4 Preferred Shares), subject to certain conditions, on September 30, 2014 and every
five years thereafter. Holders of the Series 4 Preferred Shares will be entitled to receive cumulative quarterly floating dividends, if,
as and when declared by the Board of Directors of the Company, at a rate equal to the three-month Government of Canada
Treasury Bill yield plus 4.17%.

On December 22, 2009, 5,000,000 cumulative rate reset preferred shares, Series 5 (Series 5 Preferred Shares) were issued for
gross proceeds of $125 million. Holders of the Series 5 Preferred Shares are entitled to receive a cumulative preferential cash
dividend, if, as and when declared by the Board of Directors of the Company, of $1.7250 per share per annum, payable
quarterly, yielding 6.90% per annum for the initial five and one-half year period ending June 30, 2015. The dividend rate will be
reset on June 30, 2015 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus
4.26%. The Series 5 Preferred Shares will be redeemable by the Issuer on or after June 30, 2015, in accordance with their
terms. Holders of the Series 5 Preferred Shares will have the right, at their option, to convert their shares into cumulative
floating rate preferred shares, series 6 (Series 6 Preferred Shares), subject to certain conditions, on June 30, 2015 and on
June 30 every five years thereafter. Holders of the Series 6 Preferred Shares will be entitled to receive cumulative quarterly
floating dividends, if, as and when declared by the Board of Directors of the Company, at a rate equal to the three-month
Government of Canada Treasury Bill yield plus 4.26%.

Net proceeds resulting from the sale of the Series 3 and Series 5 Preferred Shares were used to repay indebtedness under the
credit facility and commercial paper program, and for general corporate purposes.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Cumulative Exchangeable Preferred Shares

In connection with the acquisition of RedFlagDeals.com, Yellow Media Inc. issued 1,300,000 cumulative redeemable preferred
shares, Series 7 (Series 7 Preferred Shares) on February 9, 2010, at a price of $7.50 per Series 7 Preferred Shares as payment to
the vendors for the acquisition by way of a private placement. Holders of the Series 7 Preferred Shares are entitled to receive fixed
cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Yellow Media Inc. in an amount equal
to $0.375 per Series 7 Preferred Shares per annum, yielding 5% per annum, payable quarterly on the third last business day
of March, June, September and December of each year. The Series 7 Preferred Shares are exchangeable into common shares
of Yellow Media Inc., at the option of the holders of the Series 7 Preferred Shares and at a ratio of one preferred share for
one common share of Yellow Media Inc., regardless of the market price of the common shares of Yellow Media Inc. On or after
January 1, 2012, 300,000 Series 7 Preferred Shares may be exchanged subject to certain time-based and performance conditions.

As at February 9, 2012, a total of 916,667 of the Series 7 Preferred Shares had been converted into common shares of
Yellow Media Inc. at a ratio of one preferred share for one common share of Yellow Media Inc. There are 383,333 Series 7 Preferred
Shares currently outstanding.

After careful consideration, the Board of Directors has decided to suspend the dividends on the outstanding Series 1, Series 2,
Series 3, Series 5 and Series 7 Preferred Shares.

Credit Ratings

DBRS Limited
BB credit rating

Standard and Poor’s Rating Services
BB-/Watch negative corporate credit rating

R-4 commercial paper rating

BB- credit rating for existing credit facilities and medium term notes

B (high) convertible subordinated debentures rating

B convertible subordinated debentures rating

Pfd-4 (low) preferred shares rating

P-4 (low) preferred shares rating

Liquidity

As part of its financial policy and capital structure guidelines, YPG remains committed to maintaining adequate liquidity at all times.

As at December 31, 2011, YPG maintained a credit facility containing two tranches totalling $455 million (of which $205 million
was outstanding on the non-revolving tranche of the principal credit facility), providing sufficient liquidity to fund its operations.
The revolving facility may be used for general corporate purposes. The revolving and non-revolving tranches both mature on
February 18, 2013 and YPG is required to make quarterly repayments of $25 million on the outstanding balance of the non-
revolving tranche commencing in January 2012. Refer to “Credit Facilities” in this section.

On December 31, 2011, cash amounted to $84.2 million. The Company’s principal source of liquidity is cash generated from
operations and is supplemented by borrowings under its credit facility. The Company expects to generate sufficient cash flow
from operations to fund capital expenditures, working capital requirements and to service its outstanding debt obligations.

The Company has begun evaluating alternatives to refinance maturities in 2012 and beyond. A broad range of alternatives will
be considered and may involve the issuance of secured or unsecured debt, equity or other securities or other transactions.
At this time, the Board of directors has decided to suspend the dividends on the outstanding series of preferred shares.

In connection with this review, the Board of directors of Yellow Media has established a committee of independent directors to
serve as the Financing Committee of the Board (the “Financing Committee”) that will oversee this process with the objective of
completing any transaction or transactions during the current fiscal year.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Share data

As at February 9, 2012, outstanding share data was as follows:

Outstanding Share Data

Common shares outstanding

Preferred shares Series 3, 5 and 7 outstanding

Options outstanding and exercisable

520,402,094

13,424,153

380,882

520,402,094

13,424,153

380,882

516,017,984

13,933,333

380,882

As at February 9, 2012

As at December 31, 2011

As at December 31, 2010

On November 11, 2010, the Board of Directors of Yellow Media Inc. adopted a new stock option plan (the 2010 Plan). The 2010
Plan was approved by shareholders on May 5, 2011. The 2010 Plan allows the Board of Directors to issue a maximum of 25 million
options to eligible employees.

As at December 31, 2011, 12,100,000 options are outstanding with the following terms and conditions:

(cid:131)

The exercise price of $6.35 is equal to the volume weighted-average trading prices of the common shares on the TSX
during the five trading days preceding the date on which the options were granted.

The options vest on the third anniversary of the grant date.

The options expire five years after the grant date.

As at February 9, 2012, Yellow Media Inc. also has a total of $200 million of Convertible Debentures outstanding which are convertible
at any time, at the option of the holder into common shares of the Company at an exchange price of $8.00 per common share.

As at February 9, 2012, there were 10,045,872 preferred shares, Series 1 and 6,062,128 preferred shares, Series 2 outstanding.
Both series of preferred shares are redeemable by the issuer under certain conditions through the issuance of common shares of
the Company.

As at February 9, 2012, there were 383,333 Series 7 preferred shares outstanding. This series of preferred shares are convertible
into common shares of the Corporation, at a ratio of one preferred share for one common share subject to certain conditions.

Normal course issuer bid

On May 11, 2011, Yellow Media Inc. received approval from the TSX on its notice of intention to make a normal course issuer
bid for its common shares, first preferred shares, Series 3 (Series 3 shares) and first preferred shares, Series 5 (Series 5
shares) for the period from May 13, 2011 to no later than May 12, 2012, in accordance with applicable rules and regulations of
the TSX.

Under its normal course issuer bid, Yellow Media Inc. was entitled to purchase for cancellation up to 51,782,537 of its outstanding
common shares, 830,000 of its outstanding Series 3 shares and 500,000 of its outstanding Series 5 shares.

During 2011, Yellow Media Inc. purchased for cancellation 11,252,884 common shares of Yellow Media Inc. for a total cash
consideration of $46.5 million including brokerage fees. The average carrying value of the common shares was $7.86 per
share. The difference between the purchase price and the carrying value of the common shares of $41.9 million was credited
to Deficit. In addition, a portion of the reserve related to the share capital reduction recorded in November 2010 under the Plan
of Arrangement in the amount of $42.9 million was also credited to Deficit.

During 2011, Yellow Media Inc. purchased for cancellation 179,100 Series 3 shares of Yellow Media Inc. for a total cash
consideration of $2.7 million including brokerage fees and 80,080 Series 5 shares of Yellow Media Inc. for a total cash consideration
of $1.2 million including brokerage fees. The carrying value of these Series 3 shares and Series 5 shares was $4.4 million and
$1.9 million respectively. The difference between the purchase price and the carrying value was credited to Deficit.

In order to maximize funds available for debt repayment and reinvestment in the business, Yellow Media Inc. suspended activity
under its normal course issuer bid for its common and Series 3 shares and Series 5 shares, as announced on September 28, 2011.
This decision is in compliance with the amendments that Yellow Media Inc. agreed to make with respect to its credit facility.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Reduction of capital

The stated capital of Yellow Media Inc., in respect of its common shares was reduced by $500 million and Reduction of Capital
and Other Reserves was increased by the same amount.

Management’s Discussion and Analysis

Contractual Obligations and Other Commitments

Contractual obligations
(in thousands of Canadian dollars)

TTotal

1 – 3 years

4 – 5 years

After 5 years

Payments due for the periods ending December 31

Long-term debt1

1,610,505

714,733

457,977

437,795

Obligations under finance leases1

Preferred shares1

Exchangeable and convertible instruments1

Operating leases

Other

4,148

402,700

200,000

121,650

86,843

3,814

251,147

(cid:548)
59,461

83,826

334

(cid:548)
(cid:548)
38,042

267

(cid:548)
151,553

200,000

24,147

2,750

Total contractual obligations

2,425,846

1,112,981

496,620

816,245

1 Principal amount

Obligations under finance leases

We enter into finance lease agreements for office equipment and software. As of December 31, 2011, minimum payments under
these finance leases up to 2016 totalled $4.1 million.

Operating leases

We rent our premises and office equipment under various operating leases. As of December 31, 2011, minimum payments under
these operating leases up to 2021 totalled $121.7 million.

Purchase obligations

We use the services of outside suppliers to distribute our directories and have entered into long-term agreements with a number of
these suppliers. These agreements expire between 2012 and 2038. As at December 31, 2011, we have an obligation to purchase
services for $86 million over the next five years and thereafter. Cash from operations will be used to meet these purchase
obligations.

Pension Obligations

YPG sponsors a pension plan registered with the Canada Revenue Agency and the Financial Services Commission of Ontario
with a defined benefit component (the YPG Defined Benefit Plan) and a defined contribution component covering substantially
all employees of the Company.

As at December 31, 2011, the YPG Defined Benefit Plan assets totalled $389 million and were invested in a diversified portfolio
of Canadian fixed income securities and Canadian and international equity securities. The YPG Defined Benefit Plan’s rate of
return on assets was 1.1% for 2011, 0.4% lower than that of our benchmark portfolio. The underperformance reflects the
difficult and volatile capital market conditions in 2011. The return of our plan exceeded its benchmark by 0.2% in 2010.

The most recent actuarial valuation of the YPG Defined Benefit Plan for funding purpose was performed as at April 30, 2011.
The April 2011 valuation resulted in a going concern deficit of $59 million and a solvency deficit of $61 million. This valuation
also established the amount of contributions the Company is required to make under the YPG Defined Benefit Plan from
April 30, 2011 until the next valuation, which is due no later than April 30, 2014.

In 2012, the Company will have to make annual contributions equivalent to the current service cost (the Annual Employer Cost)
of approximately $11 million to the YPG Defined Benefit Plan compared to $8.2 million in 2010. In addition to the Annual
Employer Cost, the Company will also fund the deficit with annual contributions of $13.4 million over a five-year period. Both
the Annual Employer Cost and the Annual Amortization Payments are effective as at April 30, 2011 and retroactive adjustment
payments will be made in the first quarter of 2012.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Sources and Uses of Cash

Consistent with other directories and media companies the Company has relatively minimal capital spending requirements
combined with relatively low operating costs.

Sources and Uses of Cash
(in thousands of Canadian dollars)

Cash flows from operating activities from continuing operations

Cash flows from operations from continuing operations

Change in operating assets and liabilities

Cash flows from (used) in investing activities from continuing operations

Disposal of subsidiary

Disposal of Trader

Disposal of cash related to the sale of Trader

Business acquisitions, net of cash acquired and bank indebtedness assumed

Acquisition of investment in associates

Acquisition of intangible assets

Acquisition of property, plant and equipment

Issuance of note

Proceeds from lease inducements

Cash flows used in financing activities from continuing operations

Issuance of long-term debt and commercial paper

Repayment of long-term debt and commercial paper

Redemption of exchangeable and convertible instruments

Issuance of exchangeable and convertible instruments

Dividends to shareholders

Repurchase of Preferred shares, series 1 and 2, and Medium Term Notes

Repurchase of common shares and Preferred shares series 3 and 5

Other

Years ended December 31,

2011

2010

379,210

((42,637)

336,573

70,938

6690,230

((24,517)

((49)

(cid:548)
((46,686)

((15,565)

((1,238)

8852

673,965

1,062,000

((1,403,585)

((106,172)

(cid:548)
((209,134)

((266,183)

((50,432)

((28,244)

535,833

33,774

569,607

(cid:548)
(cid:548)
(cid:548)
(119,161)

(5,356)

(55,063)

(4,178)

(cid:548)
(cid:548)

(183,758)

840,265

(469,263)

(cid:548)
200,000

(395,522)

(501,812)

(cid:548)
(64,852)

(1,001,750)

(391,184)

Cash flows from operating activities from continuing operations

Cash flows from operating activities from continuing operations decreased from $569.6 million for the year ended December 31, 2010
to $336.6 million for the year ended December 31, 2011 due to lower revenues in traditional print products. The decrease in
operating assets and liabilities for the year ended December 31, 2011 was $76.4 million compared with the same period last year.
During the year ended December 31, 2011, we paid income taxes of $105.2 million compared to $24.8 million for the previous year.
In addition, working capital fluctuations arose due to Canpages which was acquired in May 2010. The remaining variance is due to
the timing of payment of certain accounts payable as well as a decrease in deferred revenues.

Cash flows from (used) in investing activities from continuing operations

Cash used in investing activities from continuing operations decreased from $183.8 million to generate cash flow from investing
activities of $674 million in 2011 reflecting the proceeds from the disposal of Trader and LesPAC. In 2011, we did not complete any
business acquisitions. In 2010, the Company acquired a 60% interest in Mediative LP, the shares of Uptrend Media and all of the
operations of Restaurantica, RedFlagDeals.com, and AdSplash Inc. for a cash consideration of $38.3 million. We also acquired all of
the shares of Canpages for a cash consideration of $80.9 million. In addition, the Company made an equity investment in 411.ca for
$3.6 million. During 2011, we made acquisitions of intangible assets and property, plant and equipment of $46.1 million and
$16.2 million, respectively, which in total, was more than the corresponding amounts of $55.1 million and $4.2 million spent in 2010.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Acquisition of property, plant, equipment and intangible assets, net of lease inducements
(in thousands of Canadian dollars)

Sustaining

Transition

Growth

Total

Adjustment to reflect expenditures on a cash basis

Acquisition of property, plant, equipment and intangible assets, net of lease inducements

Years ended December 31,

2011

2010

229,619

13,699

55,004

334,260

668,883

((7,484)

661,399

9,011

19,926

42,636

(2,240)

40,396

Sustaining capital expenditures amounted to $29.6 million for the year ended December 31, 2011 compared to $13.7 million
for the previous year due to increased activity associated with acquisitions made in 2010. Specifically, during the second
quarter of 2011, we invested in leasehold improvements to house our new Mediative division in offices located in Toronto,
Montreal and Vancouver.

Transition capital expenditures amounted to $5 million for the year ended December 31, 2011 compared to $9 million for the
previous year. The decrease results from the fact that we made no new business acquisitions in 2011.

Growth capital expenditures relate to the development and implementation of new technology and software aimed at new initiatives
as we continue our transformation to a leading performance media and marketing solutions provider company. During 2011, these
amounted to $34.3 million compared to $19.9 million for the previous year.

Total capital expenditures for 2011 amounted to $68.9 million and were in line with expectations.

Cash flows used in financing activities from continuing operations

Cash used in financing activities from continuing operations increased by $610.6 million to $1,001.8 million during 2011 from
$391.2 million for the same period last year. The lower level of dividends per share compared to 2010 resulted in a reduction in
the dividend per share paid to shareholders of $186.4 million for 2011 compared to the same period last year. We had a net
repayment of long-term debt and commercial paper in 2011 of $341.6 million compared with a net long-term debt and commercial
issuance of $371 million in 2010. We had lower levels of repurchases of various debt instruments in 2011. For 2011, we
repurchased shares and debt instruments for a consideration of $316.6 million compared to $501.8 million in 2010. In 2011, we
also redeemed the remaining $106.2 million of Notes issued in connection with the acquisition of Canpages.

Financial and Other Instruments

(See Note 25 of the Consolidated Financial Statements of the Company for the year ended December 31, 2011).

The Company’s financial instruments consist of cash, trade receivables, investments, trade and other payables, dividends payable,
short-term and long-term debt, convertible and exchangeable instruments, and preferred shares.

Derivative Instruments

In August 2009, the Company entered into three interest rate swaps totalling $130 million to hedge the Series 9 Medium Term
Notes. The Company received interest on these swaps at 6.5% and paid a floating rate equal to the three-month Banker’s
Acceptance plus a spread of 4.3%. The swaps were to mature July 10, 2013, matching the maturity date of the underlying debt.

In February 2010, the Company also entered into two interest rate swaps totalling $125 million to hedge the Series 8 Medium
Term Notes. The Company received interest on these swaps at 6.85% and paid a floating rate equal to the three-month
Banker’s Acceptance plus a spread of 4.3%. The swaps were to mature December 3, 2013, matching the maturity date of the
underlying debt.

On June 27, 2011, Yellow Media Inc. terminated the five interest rate swaps mentioned above with a notional amount of
$255 million, for gross proceeds of $3.8 million. The $3.8 million will be amortized over the term of the underlying debt. Taking
into consideration the debt instruments outstanding, the Series 1 and Series 2 shares and the cash, our fixed-to-floating ratio was
94% fixed rate as at December 31, 2011.

The terms and conditions of Series 1 and Series 2 Preferred Shares provide for redemption at the option of the Company under
certain circumstances. These options meet the definition of an embedded derivative. They are recorded at their fair value on the
consolidated statement of financial position with changes in fair value recognized in financial charges.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

The carrying value of embedded derivatives was an asset of $7 thousand on December 31, 2011. The carrying value is
calculated as is customary in the industry using discounted cash flows with quarter-end market rates. We reported a loss of
$3.5 million for the year ended December 31, 2011 (2010 - $1 million gain) on derivatives, excluding the loss on derivatives
designated as cash flow hedges in prior periods transferred to earnings in the period and payments on interest rate swaps that
have discontinued hedge accounting. In addition, we reported an adjustment amount of $4.2 million and a redemption
premium stipulated under the Total Return Swap of $5.3 million for 2011.

4. Adjusted Earnings from Continuing Operations

A reconciliation between net earnings attributable to common shareholders and adjusted earnings is provided below:

Adjusted Earnings from Continuing Operations
(in thousands of Canadian dollars – except share information )

Net (loss) earnings from continuing operations

Attributable to non-controlling interest

Dividends to preferred shareholders

Net (loss) earnings from continuing operations available to

common shareholders of Yellow Media Inc.

Amortization of intangible assets1,3

Impairment of goodwill and intangible assets5

Acquisition-related costs2,3

Restructuring and special charges3

Financial charges3

Interest paid

Gain on disposal of subsidiary3

Impairment of investment in associate (net of income taxes of $0.2 million)

Non-cash income taxes

Adjusted earnings from continuing operations

Weighted average number of common shares outstanding

Adjusted earnings per common share from continuing

operations3,4

Dividends on common shares

Dividends declared per common share

Payout ratio

Years ended December 31,

2011

2010

(2,708,122)

231,786

4490

((22,539)

((2,730,171)

1116,707

22,880,677

55,582

118,848

994,150

((141,555)

((4,478)

550,271

((18,054)

164

(22,834)

209,116

133,696

(cid:548)
21,433

22,005

104,054

(137,871)

(cid:548)
(cid:548)
68,747

271,977

421,180

5511,765,665

503,111,679

0.53

207,345

0.40

775%

0.84

402,719

0.80

95%

1 Represents amortization of intangible assets attributable to shareholders.

2 Acquisition-related costs are excluded from the calculation as they do not reflect the ongoing operations of the business.

3 Items are net of income taxes using the combined statutory provincial and federal tax rate of 27.9% (29.9% for 2010).

4 Please refer to Section 2 – Results for the calculation of Basic earnings per share.

5 Item is net of income taxes of $19.3 million.

Free cash flow from continuing operations

Free cash flow from continuing operations
(in thousands of Canadian dollars)

Cash flow from operating activities from continuing operations

Capital expenditures, net of lease inducements

Free cash flow from continuing operations

Three-month periods ended
December 31,

Years ended
December 31,

22011

92,964

114,741

78,223

2010

22011

153,615 $$

336,573

13,396

661,399

140,219 $$

275,174

2010

569,607

40,396

529,211

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Dividends

Dividends
(in thousands of Canadian dollars- except share information)

TThree-month periods ended
December 31,

Years ended
December 31,

2011

2010

2011

2010

Accumulated dividends, beginning of period1

$$ 3,642,527 $

3,334,551

3,435,182 $

3,032,463

Dividends on common shares

(cid:548)

100,631

2207,345

402,719

Accumulated dividends, end of period1

$$ 3,642,527 $

3,435,182

Accumulated dividends per common share, beginning of period
Dividends declared per common share
Accumulated dividends per common share, end of period

7.60 $

(cid:548)
7.60 $

7.00

0.20

7.20

3,642,527 $

3,435,182

7.20 $

00.40

7.60 $

6.40

0.80

7.20

1 Amounts prior to November 1, 2010 were distributions of Yellow Pages Income Fund.

Dividends on Common Shares

On September 28, 2011, the Yellow Media Inc. Board of Directors determined that it was in the best interest of the Company to
eliminate future dividends on its common shares.

This decision is in compliance with the amendments that the Company agreed to make to its principal credit agreement and that
was announced on September 28, 2011, and will improve the Company’s financial profile and capital position. The cash retained
from the elimination of dividends will be used to reduce indebtedness and make additional investments to accelerate our digital
transformation.

5. Critical Assumptions

When we prepare our financial statements in accordance with IFRS, we must make certain estimates and assumptions about our
business. These estimates and assumptions in turn affect the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities in the financial statements.

In this section we provide detailed information on these important estimates and assumptions which are under continuous evaluation
by the Company.

Intangible assets and goodwill

The values associated with identifiable intangible assets and goodwill involve significant estimates and assumptions, including
those with respect to future cash inflows and outflows, discount rates and asset lives. These significant estimates require
considerable judgment which could affect Yellow Media Inc.’s future results if the current estimates of future performance and
fair value changes. These determinations will affect the amount of amortization expense on identifiable intangible assets
recognized in future periods and impairment of goodwill and intangible assets.

Yellow Media Inc. assesses impairment by comparing the recoverable amount of an identifiable intangible asset or goodwill with
its carrying value. The determination of the recoverable amount involves significant management judgment.

Yellow Media Inc. performs its annual test for impairment of indefinite life intangible assets and goodwill in accordance with the
policy described in note 3.14. Goodwill is tested at the operating segment level since this represents the lowest level within
Yellow Media Inc. at which the goodwill is monitored for internal management purposes.

The recoverable amount of the CGUs was determined based on the value-in-use approach using a discounted cash flow model
that relies on significant key assumptions, including after-tax cash flows forecasted over an extended period of years, terminal
growth rates and discount rates. We use published statistics or seek advice where possible when determining the assumptions
we use. Details of Yellow Media Inc.’s impairment reviews are disclosed in Note 4. The recoverable amount of each of the units
was greater than its carrying value. Projections of future revenues were a critical estimate in determining fair value.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Employee future benefits

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that
have terms to maturity approximating the terms of the related pension liability. Determination of benefit expense requires
assumptions such as the expected return on assets available to fund pension obligations, the discount rate to measure
obligations, the projected age of employees upon retirement, the expected rate of future compensation and the expected
healthcare cost trend rate. For the purpose of calculating the expected return on plan assets, the assets are valued at fair value.
Actual results will differ from results which are estimated based on assumptions.

Income taxes

Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of Yellow Media Inc.’s
ability to utilize the underlying future tax deductions against future taxable income before they expire. Yellow Media Inc.’s assessment
is based upon existing tax laws and estimates of future taxable income. If the assessment of Yellow Media Inc.’s ability to utilize the
underlying future tax deductions changes, Yellow Media Inc. would be required to recognize more or fewer of the tax deductions as
assets, which would decrease or increase the income tax expense in the period in which this is determined.

Yellow Media Inc. is subject to taxation in numerous jurisdictions. Significant judgement is required in determining the consolidated
provision for taxation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the
ordinary course of business. Yellow Media Inc. maintains provisions for uncertain tax positions that it believes appropriately reflect
its risk with respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise
considered to involve uncertainty. These provisions for uncertain tax positions are made using the best estimate of the amount
expected to be paid based on a qualitative assessment of all relevant factors. Yellow Media Inc. reviews the adequacy of these
provisions at each balance sheet date. However, it is possible that at some future date an additional liability could result from
audits by tax authorities. Where the final tax outcome of these matters is different from the amounts that were initially recorded,
such differences will affect the tax provisions in the period in which such determination is made.

Critical Accounting Policies and Estimates

In this section we provide detailed information on these important estimates and assumptions which are under continuous
evaluation by the Company.

New Accounting Standards

Recent Accounting Pronouncements

In February 2008, the Accounting Standards Board (AcSB) confirmed that IFRS will be mandatory in Canada for profit-oriented
publicly accountable entities for fiscal periods beginning on or after January 1, 2011. Our first annual IFRS financial statements
are for the year ended December 31, 2011 and include the comparative period of 2010. Please refer to Note 31 of the
accompanying financial statements for a summary of the differences between our financial statements previously prepared
under Canadian GAAP and to those under IFRS.

Certain new standards, interpretations and amendments to published standards

IFRS 7 (Revised) - Financial Instruments: Disclosures

On December 16, 2011 the IASB and FASB issued common disclosure requirements that are intended to help investors and
other users to better assess the effect or potential effect of offsetting arrangements on a company's financial position. The new
requirements are set out in Disclosures-Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7). The IFRS 7
amendments are effective for annual reporting periods beginning on or after January 1, 2013.

IFRS 9 - Financial Instruments

IFRS 9 is the first phase of the IASB’s three phase project to replace IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 issued in November 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9
amended in October 2010 includes the requirements for the classification and measurement of financial liabilities and for
derecognition.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

Key requirements of IFRS 9 are described as follows:

(cid:131)

IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition
and Measurement to be subsequently measured at amortized cost or fair value.

The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the
accounting for changes in the fair value of a financial liability (designated as at fair value through profit or loss)
attributable to changes in the credit risk of that liability and the elimination of the cost exemption for derivative liabilities
to be settled by delivery of unquoted equity instruments.

IFRS 9 is applied prospectively with transitional arrangements depending on the date of application. The Standard is not applicable
until annual periods beginning on or after January 1, 2015, but is available for early adoption. Yellow Media Inc. has not fully
assessed the impact of adopting IFRS 9.

IFRS 10 - Consolidated Financial Statements

IFRS 10 replaces the consolidation requirements in IAS 27, Consolidated and Separate Financial Statements, and SIC-12
Consolidation - Special Purpose Entities. IFRS 10 establishes principles for the presentation and preparation of consolidated
financial statements when an entity controls one or more other entities. It is effective for annual periods beginning on or after
January 1, 2013. Earlier application is permitted, provided IFRS 11, IFRS 12 and the related amendments to IAS 27 and 28 (the
“package of five”) are adopted at the same time. Yellow Media Inc. has not yet assessed the impact of adopting IFRS 10.

IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities - Non-Monetary Contributions by
Venturer. IFRS 11 requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by
assessing its rights and obligations arising from the arrangement. The standard also requires the use of a single method to
account for interests in jointly controlled entities, namely the equity method. IFRS 11 is applicable at the same time as IFRS 10.
Yellow Media Inc. has not yet assessed the impact of adopting IFRS 11.

IFRS 12 - Disclosure of Interests in Other Entities

IFRS 12 is a new standard on disclosure requirements for all forms of interests in other entities, including subsidiaries,
joint arrangements, associates and unconsolidated structured entities. IFRS 12 is applicable at the same time as IFRS 10.
Yellow Media Inc. has not yet assessed the impact of adopting IFRS 12.

IFRS 13 - Fair Value Measurement

IFRS 13 is a new standard that defines fair value and requires disclosures about fair value measurements. IFRS 13 is effective
for fiscal years beginning on or after January 1, 2013. Earlier application is permitted. It applies prospectively from the
beginning of the annual period in which it is adopted. Yellow Media Inc. has not yet assessed the impact of adopting IFRS 13.

IAS 12 (Revised), Deferred Tax: Recovery of Underlying Assets and SIC-21 (amendments), Income Taxes—Recovery of Revalued
Non-Depreciable Assets

The amendment introduces a rebuttable presumption that an investment property measured using the fair value model is
recovered entirely through sale unless the investment property is depreciable and is held within a business model whose
objective is to consume substantially all of the economic benefits over time. As a result of the amendments, SIC-21 would no
longer apply to investment properties carried at fair value. The IAS 12 amendments are effective for annual reporting periods
beginning on or after January 1, 2012.

IAS 19 (Revised) – Employee Benefits

A revised version of IAS 19 was issued in June 2011 and is effective for financial years beginning on or after January 1, 2013.
Early application is permitted. The main change of this revised version is the elimination of the corridor approach, with all
changes to the defined benefit obligation and plan assets recognized when they occur. Yellow Media Inc. has not fully assessed
the impact of adopting IAS 19 (Revised).

IAS 1 (Revised) – Presentation of Financial Statements

On June 16, 2011, the IASB issued amendments to IAS 1, Presentation of Financial Statements, which require entities to group
together items within Other Comprehensive Income (“OCI”) that may be reclassified to the profit or loss section of the income
statement and to separately group together items that will not be reclassified to the profit or loss section of the income
statement. The amendments also reaffirm existing requirements that profit or loss and OCI should be presented as either a
single statement or two consecutive statements. The amendments are effective for financial years commencing on or after
July 1, 2012. Yellow Media Inc. has not fully assessed the impact of adopting IAS 1 (Revised).

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

6. Risks and Uncertainties

The following section examines the major risks and uncertainties that could materially affect YPG’s future business results and
explains how these risks are managed.

Understanding and managing risks are important parts of YPG’s strategic planning process. The Board requires that our senior
management identify and properly manage the principal risks related to our business operations. To understand and manage
risks at YPG, our Board and senior management analyze risks in three major categories:

1. Strategic risks - which are primarily external to the business;

2. Financial risks - generally related to matters addressed in the Financial Risk Management Policy and in the Pension

Statement of Investment Policy and Procedures; and,

3 Operational risks - related principally to risks under the control of management across key functional areas of the organization.

YPG has put in place certain guidelines in order to manage the risks to which it may be exposed. Please refer to the Annual Information
Form for a complete description of these risk factors. Despite these guidelines, the Company cannot provide assurances that any such
efforts will be successful.

Competition

YPG competes with other directory and classified advertising businesses and with other forms of advertising media. This includes
newspapers, television, radio, the Internet, mobile telecommunication devices, magazines, billboards and direct mail advertising.

These competitors may reduce their prices to increase their market share or may be able to offer their services at lower costs
than we can. In either case, YPG could be forced to reduce prices or offer and perform other services in order to remain
competitive. YPG’s failure to compete effectively with its current or future competitors could have a number of impacts such as,
a reduction in its advertiser base, lower rates and increased costs. This could have a material adverse effect on our financial
condition and on our results of operations.

We actively monitor and assess our competition and determine our competitiveness within each of our markets. We address
this competition by ensuring we best meet customer needs through targeted offers and pricing.

We continuously enhance our value proposition with initiatives targeting the following objectives:

(cid:131)

Enhancement of our product offerings and extension of our services to customers;

Improvement of user experience; and

(cid:131) Growth of traffic to our network of properties.

We also use multimedia campaigns to promote our brand and deliver our message to the market reinforcing the value our segments
offer.

Decline in print revenue

YPG could be materially adversely affected if the usage of printed telephone directories decline at a rate higher than anticipated.
The development of new technologies and the widespread use of Internet is causing changes in preferences and consumer
habits. In particular, this has a significant influence on printed products, and the decrease in usage gradually leads to lower
advertising revenues. The continuing transition in the media and publishing industries towards more online and targeted
content is driving us to develop new products that leverage the demand for new media while ensuring that our print products
remain a key component of our advertisers’ media mix.

Furthermore, given this transition from print to online and uncertainties surrounding whether and when new product introductions
will compensate for the declining trend in print revenues, if revenue from our online products does not increase significantly, our
cash flow, results of operations and financial condition may be adversely affected.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

The availability of capital is dependent on the future operating performance of the Corporation’s business and the Corporation’s
ability to refinance its indebtedness.

The ability of the Corporation to make scheduled payments under its indebtedness will depend on, among other things, its
future operating performance. There can be no assurance that the Corporation will be able to generate sufficient cash from its
operations to pay its debt obligations. Each of these factors is, to a large extent, subject to economic, financial, competitive,
operational and other factors, many of which are beyond the Corporation’s control.

There can be no assurance that the Corporation will continue to be able to obtain on a timely basis sufficient funds on terms
acceptable to the Corporation to provide adequate liquidity and to finance the operating and capital expenditures necessary to
overcome the challenges associated with the transformation of its business and support its business strategy if cash flows from
operations and cash on hand are insufficient.

The Corporation may need to refinance its available credit facilities or other debt and there can be no assurance that it will be able
to do so or be able to do so on terms as favourable as those presently in place. If the Corporation is unable to refinance these credit
facilities or other debt, or is only able to refinance these credit facilities or other debt on less favourable or more restrictive terms,
this may have a material adverse effect on the Corporation, its business, results from operations and financial condition.

Failure to generate sufficient funds, whether from operations or debt or equity financings or refinancing transactions, could
require the Corporation to delay or abandon some of its anticipated expenditures or to modify its business strategy and could
have a material adverse effect on the Corporation, its business, results from operations and financial condition. Furthermore,
competitors with greater liquidity or their ability to raise money more easily and on less onerous terms could create a competitive
disadvantage for the Corporation.

There can be no assurance that the Corporation’s credit ratings will not be further downgraded, which would add to the
Corporation’s borrowing costs, hamper its ability to attract capital, adversely impact its liquidity, and limit its ability to operate its
business, all of which could have a material adverse effect on the Corporation, its business, results from operations and financial
condition.

The Corporation’s substantial indebtedness could adversely affect its financial health and the Corporation’s efforts to refinance
or reduce its indebtedness may not be successful.

The Corporation’s substantial amount of debt could have material adverse effects on the Corporation, its business, results from
operations and financial condition. For example, it could:

(cid:131)

limit the Corporation’s ability to obtain additional financing, if needed, for working capital, capital expenditures, acquisitions,
debt service requirements or other purposes;

increase the Corporation’s vulnerability to adverse economic and industry conditions;

require the Corporation to dedicate a substantial portion of its cash flows from operations to make payments on its
debt, thereby reducing funds available for operations, future business opportunities or other purposes;

limit the Corporation’s flexibility in planning for, or reacting to, changes in its business and its industry; and

place the Corporation at a competitive disadvantage compared to its competitors that have less debt.

In addition, the Corporation’s credit facilities and other debt contain a number of financial and other restrictive covenants that
require the Corporation to meet certain financial ratios and financial condition tests and limit the ability to enter into certain
transactions. A failure to comply with the obligations in the credit facilities and other debt could result in a default which, if not
cured or waived, could permit acceleration of the relevant indebtedness. If the indebtedness under the credit facilities or other
debt were to be accelerated, there can be no assurance that the Corporation would have sufficient liquidity to repay in full that
indebtedness.

The Company has begun evaluating alternatives to refinance maturities in 2012 and beyond. A broad range of alternatives will
be considered and may involve the issuance of secured or unsecured debt, equity or other securities or other transactions. The
Financing Committee will oversee this process with the objective of completing any transactions during the current fiscal year.
The Corporation can provide no assurance that it will be able to complete any such refinancing transactions, or sell assets or
complete any other debt reduction initiative that would enable it to reduce its outstanding debt.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

The recent downgrades in Yellow Media's credit ratings may increase our borrowing costs.

DBRS Limited ("DBRS") lowered its corporate rating of the Corporation from BBB (high) to BBB on August 4, 2011 and to BB on
September 28, 2011. In addition, DBRS revised their rating to R-4 for the Corporation’s commercial paper, B (high) for its
convertible subordinated debentures rating and Pfd-4 (low) for its preferred shares.

Standard & Poor's Ratings Services ("S&P") lowered its corporate credit rating on the Corporation from 'BBB-' to 'BB+', with a ratings
outlook of stable, on August 4, 2011 and to 'BB-' placed under CreditWatch with negative implications on December 4, 2011. In
addition, S& P lowered the issue-level rating on the company's senior unsecured debt to 'BB-' from 'BB+'. The agency also lowered
its rating on the Corporation’s subordinated debt to 'B' from 'BB-'. Finally, S&P reduced the rating on the preferred shares to 'P-4
(Low)' from 'P-4 (High)'.

Because we could potentially rely on external sources of financing to refinance our existing debt or enter into other debt
transactions related to our capital structure, the recent downgrades of our debt ratings could increase our borrowing costs or
potentially reduce our liquidity and, therefore, adversely affect our results of operations.

Dividends are not expected to be paid with respect to our common stock and preferred shares for the foreseeable future.

We do not anticipate that cash dividends or other distributions will be paid with respect to our common shares or preferred shares
in the foreseeable future. In addition, restrictive covenants in our credit agreement, as amended on September 28, 2011, prohibit
us from paying dividends to our common shareholders.

Interest rate fluctuations

YPG is exposed to fluctuations in short term interest rates on some of its financial obligations bearing variable interest rates.
YPG is also exposed to fluctuations in long term interest rates and credit spreads relative to the refinancing of its debt
obligations upon their maturity. The interest rate on new long term debt issuances will be based on the prevailing market rates
at the time of the refinancing and will depend on the tenor of the new debt issued. Increases in short term interest rates and
increases in interest rates on new debt issuances may have a material adverse effect on our earnings.

We manage interest rate exposure by maintaining a balanced schedule of debt maturities, and through a combination of fixed
and floating interest rate obligations. YPG monitors market conditions and the impact of interest rate fluctuations on our fixed-
to-floating interest rate exposure mix. From time to time, we enter into interest rate swap agreements and other interest rate
derivatives in order to manage this exposure.

Pension Contributions

We may be required to make contributions to our pension plans in the future depending on various factors including future
returns on pension plan assets, long-term interest rates and changes in pension regulations, which may have a negative effect
on our liquidity and results of operations.

The funding requirements of our pension plans, resulting from valuations of our pension plan assets and liabilities, depend on a
number of factors, including actual returns on pension plan assets, long-term interest rates, plan demographic and pension
regulations. Changes in these factors could cause actual future contributions to significantly differ from our current estimates
and could require us to make contributions to our pension plans in the future and, therefore, could have a negative effect on our
liquidity and results of operations.

There is no assurance that our pension plans will be able to earn their assumed rate of return. A material portion of our pension
plans' assets is invested in public equity securities. As a result, the ability of our pension plans to earn the rate of return that we
have assumed significantly depends on the performance of capital markets. The market conditions also impact the discount
rate used to calculate our solvency obligations and thereby could also significantly affect our cash funding requirements.

YPG's reliance on outsourcing for billing, collection, printing and binding and other services

We have a Billing and Collection Services Agreement with Bell Canada and a Master Billing and Collection Services Agreement
with TELUS, a Billing and Collection Services Agreement with MTS Allstream Inc. and a Billing and Collection Service Agreement
with Bell Aliant. Through these agreements, our billing is included as a separate line item on the telephone bills of Bell, TELUS,
MTS Allstream Inc. and Bell Aliant customers who use our services respectively. Bell Canada, TELUS, MTS Allstream Inc. and
Bell Aliant (the Telco Partners) contract with third parties to conduct monthly billing of customers who use them as their local
telephone service providers. In addition, the Telco Partners provide collection services for YPG with those advertisers who are
also their customers. Additionally, YPG has entered into publishing agreements with each Telco Partner. If YPG fails to perform
its obligations under these agreements and the agreements are consequently terminated by such Telco Partner, other
agreements with such Telco Partners may also be terminated, including the Bell Canada Trademark License Agreement, the
TELUS Trademark License Agreement, the MTS Allstream Inc. Branding and Trademark Agreement and the Bell Aliant Branding
and Trademark Agreement, as well as non-competition covenants we benefit from with such Telco Partners.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

We have agreements with outside service suppliers to print and distribute our directories and publications. These agreements
are for services that are integral to our business.

The failure of the Telco Partners or any of the other suppliers to fulfill their contractual obligations under these agreements
could result in a material adverse effect on our business until we could find a replacement supplier for those services.

Advertisers who do not use the Telco Partners as their local telephone provider are billed directly by YPG. Our internal billing
and collection services are cost-effective and can be grown as our customer base expands.

Reliance on key brands and trademarks and failure to protect intellectual property rights

YPG relies heavily on its existing brands and trademarks for a significant portion of its revenues. Failure to adequately maintain
the strength and integrity of these brands and trademarks, or to develop new brands and trademarks, could adversely affect our
results from operations and our financial condition.

It is possible that third parties could infringe upon, misappropriate or challenge the validity of YPG’s trademarks or our other
intellectual property rights. This could have a material adverse effect on our business, our financial condition or our operating
results. The actions that YPG takes to protect its trademarks and other proprietary rights may not be adequate. Litigation may be
necessary to enforce or protect YPG's intellectual property rights, its trade secrets or to determine the validity and scope of the
proprietary rights of others. We cannot ensure that we will be able to prevent infringement of our intellectual property rights or
misappropriation of our proprietary information.

Any such infringement or misappropriation could harm any competitive advantage we currently derive, or may derive, from our
proprietary rights. Third parties may assert infringement claims against YPG. Any such claims and any resulting litigation could
subject YPG to significant liability for damages. An adverse judgement arising from any litigation of this type could require YPG to
design around a third party's patent or to license alternative technology from another party. In addition, litigation may be time-
consuming and expensive to defend against and could result in the diversion of YPG's time and resources. Any claims from third
parties may also result in limitations on YPG's ability to use the intellectual property subject to these claims.

We devote significant resources to the development and protection of our trademarks and take a proactive approach to protecting
our brand exclusivity.

Labour relations

Certain non-management employees of YPG are unionized. Current union agreements range between two to four years in
duration and are subject to expiration at various dates in the future. If YPG is unable to renew these agreements as they come
up for renegotiation from time to time, it could result in work stoppages and other labour disturbances which could have a
material adverse effect on our business.

We manage labour relations risk by ensuring that collective agreements’ expiration dates are strategically positioned to minimize
potential disruptions on both a regional (geographic) or on a functional (sales and clerical) basis. Also, every negotiation process to
renew a collective agreement includes a cross-functional team in which all business units are represented. This team has the
responsibility to develop and ultimately implement an effective contingency plan that would allow YPG to continue its day to day
operations with minimal disruptions in the event of a labour dispute.

Income Tax Matters

In the normal course of the Company's activities, the tax authorities are carrying out ongoing reviews. In that respect, Yellow Media Inc.
is of the view that all expenses claimed by the different entities of the group are reasonable and deductible and that the cost
amount and capital cost allowance claims of such entities' depreciable properties have been correctly determined. There is no
assurance that the tax authorities may not challenge these positions. Such challenge, if successful, may have an adverse effect on
our earnings and may affect the return to shareholders.

Impairment Losses

The Corporation may be subject to impairment losses that would reduce its reported assets and earnings. Goodwill and identifiable
intangible assets comprise a substantial portion of the Corporation’s total assets. Economic, legal, regulatory, competitive, contractual
and other factors may affect the value of goodwill and identifiable intangible assets. If any of these factors impair the value of these
assets, accounting rules would require the Corporation to reduce their carrying value and recognize an impairment charge, which would
reduce the reported assets and earnings of the Corporation in the year the impairment charge is recognized.

Recent Acquisitions of New Businesses

Acquisitions of new businesses could expose the Corporation to business risks, including difficulties in integrating administrative,
financial reporting, and operational systems, difficulties in managing newly acquired operations and improving their operating
efficiency, and difficulties in retaining key employees of the acquired operations and diversions of management time and resources. In
addition, future acquisitions could result in the incurrence of additional debt, costs, and contingent liabilities. Moreover, expected
synergies for acquisitions completed may not materialize.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Discussion and Analysis

7. Controls and Procedures

As a public entity we must take every step to ensure that material information regarding our reports filed or submitted under
securities legislation fairly presents the financial information of YPG. Responsibility for this resides with management, including
the President and Chief Executive Officer and the Interim Chief Financial Officer. Management is responsible for establishing,
maintaining and evaluating disclosure controls and procedures, as well as internal control over financial reporting.

Disclosure Controls and Procedures (DC&P)

The evaluation of the effectiveness of DC&P as defined in National Instrument 52-109 was performed under the supervision of
the President and Chief Executive Officer and the Interim Chief Financial Officer. They concluded that these disclosure controls
and procedures were adequate and effective, as at December 31, 2011. YPG’s management can therefore provide reasonable
assurance that it receives material information relating to the company in a timely manner so that it can provide investors with
complete and reliable information.

Internal Control over Financial Reporting (ICFR)

Management has designed ICFR to provide reasonable assurance that our financial reporting is reliable and that our
consolidated financial statements were prepared in accordance with IFRS. The design and effectiveness of ICFR were evaluated
as defined in National Instruments 52-109 under the supervision of the President and Chief Executive Officer and Interim Chief
Financial Officer. Based on the evaluations, they concluded that the ICFR is adequate and effective to provide such assurance
as at December 31, 2011.

Management also concluded that during the fourth quarter ended December 31, 2011, no changes were made to ICFR that
would have materially affected, or would be reasonably considered to materially affect, these controls.

52
52

YELLOW MEDIA INC. ANNUAL REPORT 2011
YELLOW MEDIA INC. ANNUAL REPORT 2011

Management’s Report

The accompanying financial statements of Yellow Media Inc. and all information in this annual report are the responsibility of
management and have been approved by the Board of Directors. The financial statements are based upon management’s best
estimates and judgements and have been prepared in conformity with International Financial Reporting Standards. Financial
information used elsewhere in the annual report is consistent with that in the financial statements.

To ensure the integrity and objectivity of the data, management maintains internal accounting controls and established policies
and procedures designed to ensure reasonable assurance that transactions are recorded and executed in accordance with its
authorization, that assets are properly safeguarded and that reliable financial records are maintained. The internal control
systems and financial records are subject to review by the external auditors during the examination of the financial statements.

The responsibility of the Board of Directors is pursued principally through the Audit Committee. The Audit Committee, which is
composed exclusively of outside directors, meets regularly with the external auditors and with management, to discuss
accounting policies and practices, internal control systems, the scope of audit work and to assess reports on audit work
performed. The external auditors have direct access to the Audit Committee, with or without the presence of management, to
discuss results of their audits and any recommendations they have for improvements in internal controls, the quality of financial
reporting and any other matters of interest. The financial statements have been reviewed and approved by the Board of
Directors on the recommendation of the Audit Committee.

Ginette Maillé
G
Chief Financial Officer

Daniel Verret
Daniel Verret
Vice President and Corporate Controller

YELLOW MEDIA INC. ANNUAL REPORT 2011 53

Independent Auditor’s Report

To the Shareholders of Yellow Media Inc.

We have audited the accompanying consolidated financial statements of Yellow Media Inc., which comprise the consolidated
statements of financial position as at December 31, 2011,, December 31, 2010 and January 1, 2010, and the consolidated
income statements, statements of comprehensive (loss) income, statements of changes in equity and statements of cash flows
for the years ended December 31, 2011 and December 31, 2010, and a summary of significant accounting policies and other
explanatory information.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.

We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Yellow Media Inc.
at December 31, 2011, December 31, 2010 and January 1, 2010, and its financial performance and its cash flows for the years
ended December 31, 2011 and December 31, 2010 in accordance with International Financial Reporting Standards.

February 9, 2012
Montréal, Québec
____________________
1 Chartered accountant auditor permit No. 20293

YELLOW MEDIA INC. ANNUAL REPORT 2011

Consolidated Statements of Financial Position
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)

ASSETS
ASSETS
CURRENT ASSETS

Cash

Trade receivables (Note 25)

Prepaid expenses

Deferred publication costs and other assets

TOTAL CURRENT ASSETS

DEFERRED PUBLICATION COSTS

FINANCIAL AND OTHER ASSETS

INVESTMENTS IN ASSOCIATES (Note 8)

DERIVATIVES (Note 25)

PROPERTY, PLANT AND EQUIPMENT (Note 9)

INTANGIBLE ASSETS (Note 10)

GOODWILL (Note 10)

DEFERRED INCOME TAXES (Note 17)

TOTAL NON-CURRENT ASSETS

TOTAL ASSETS

LIABILITIES AND EQUITY
LIABILITIES AND EQUITY
CURRENT LIABILITIES

Trade and other payables (Note 11)

Dividends payable

Current income tax liabilities

Provisions (Note 12)

Deferred revenues

Commercial paper (Note 14)

Current portion of long-term debt (Note 14)

Current portion of preferred shares Series 1 (Note 16)

TOTAL CURRENT LIABILITIES

DEFERRED CREDITS (Note 24)

DEFERRED INCOME TAXES (Note 17)

INCOME TAX LIABILITIES

POST-EMPLOYMENT BENEFITS (Note 13)

DEFERRED CONSIDERATION (Note 5)

LONG-TERM DEBT (Note 14)

EXCHANGEABLE AND CONVERTIBLE INSTRUMENTS (Note 15)

PREFERRED SHARES SERIES 1 AND 2

(Note 16)

TOTAL NON-CURRENT LIABILITIES

TOTAL LIABILITIES

CAPITAL AND RESERVES

DEFICIT

EQUITY ATTRIBUTABLE TO SHAREHOLDERS

NON-CONTROLLING INTERESTS

TOTAL EQUITY

TOTAL LIABILITIES AND EQUITY

As at December 31, 2011
As at December 31, 2011

As at December 31, 2010

As at January 1, 2010

$$
$

84,186
84,186
166,586
166,586
5,017
5,017
94,770
94,770
350,559
350,559
7,484
7,484
14,872
14,872
3,616
3,616
7
7
46,496
46,496
1,658,051
1,658,051
2,967,847
2,967,847
–
–
4,698,373
4,698,373
5,048,932
5,048,932

156,482
156,482
–
–
22,974
22,974
48,300
48,300
54,805
54,805
––
–
1102,339
102,339
2249,713
249,713
634,613
634,613
16,536
16,536
119,305
119,305
43,806
43,806
298,796
298,796
6,570
6,570
1,510,892
1,510,892
184,214
184,214

149,173
149,173
2,329,292
2,329,292
2,963,905
2,963,905
6,398,132
6,398,132
(4,313,907)
(4,313,907)
2,084,225
2,084,225
802
802
2,085,027
2,085,027
5,048,932
5,048,932

69,325

219,026

7,298

104,258

399,907

9,701

6,845

64,503

6,145

80,743

2,152,000

6,467,092

24,174

8,811,203

36,170

215,356

6,480

130,844

388,850

8,358

3,111

34,977

1,817

67,424

2,035,341

6,342,580

31,197

8,524,805

9,211,110

8,913,655

201,560

153,702

27,820

4,024

60,341

80,725

295,000

3,669

––
–
673,139

21,165

192,030

163,870

188,877

14,567

1,923,203

319,029

446,725

3,269,466

3,942,605

6,476,911

(1,260,974)

5,215,937

52,568

5,268,505

34,220

6,956

52,161

104,662

74,000

2,254

––
–
427,955

23,452

105,842

122,107

104,836

–

2,151,720

83,886

472,777

3,064,620

3,492,575

6,090,067

(1,024,817)

5,065,250

355,830

5,421,080

9,211,110

8,913,655

The accompanying notes are an integral part of these consolidated financial statements.

Approved on behalf of Yellow Media Inc. by

Marc L. Reisch, Director Michael T. Boychuk, Director

ANNUAL REPORT 2011 YELLOW MEDIA INC 55

Consolidated Income Statements

For the years ended December 31,
(in thousands of Canadian dollars, except per share information)

Revenues

Operating costs (Note 21)

Income from operations before depreciation and amortization, impairment of

goodwill and intangible assets, acquisition-related costs, and restructuring
and special charges

Depreciation and amortization (Notes 9 and 10)

Impairment of goodwill and intangible assets (Note 4)

Acquisition-related costs

Restructuring and special charges (Note 12)

(Loss) income from operations

Financial charges, net (Note 22)

Gain on disposal of subsidiary (Note 6)

(Loss) earnings before dividends on Preferred shares, series 1 and 2, income taxes

and impairment and share of losses from investments in associates

Dividends on Preferred shares, series 1 and 2

(Loss) earnings before income taxes and impairment and share of losses from

investments in associates

Provision for income taxes (Note 17)

Impairment of investment in associate (net of income taxes of $0.2 million) (Note 8)

Share of losses from investments in associates

Net (loss) earnings from continuing operations

Net loss from discontinued operations, net of income taxes (Note 7)

Net (loss) eearnings

Net (lloss) earnings attributable to:

Common shareholders of Yellow Media Inc.1

Non-controlling interests3

Holders of Preferred shares, series 3, 5 and 7

Basic (loss) earnings per share attributable to common shareholders

From continuing operations

Total

2011

2010

1,328,866

1,401,129

6649,159

644,021

679,707

1160,906

22,900,000

7,743

226,142

((2,415,084)

1130,582

((6,211)

((2,539,455)

119,187

((2,558,642)

87,149

50,271

12,060

(2,708,122)

(120,877)

(2,828,999)

(2,832,649)

3,650

–

(2,828,999)

(5.33)

(5.58)

757,108

180,265

–

30,575

31,391

514,877

148,437

–

366,440

21,171

345,269

93,583

–

19,900

231,786

(2,380)

229,406

226,498

(16,275)

19,183

229,406

0.42

0.44

Weighted average shares outstanding –– basic (loss) earnings per share (Note 19)2

511,765,665

503,111,679

Diluted (loss) earnings per share attributable to common shareholders

From continuing operations

Total

(5.33)

(5.58)

0.38

0.40

Weighted average shares outstanding –– diluted (loss) earnings per share (Note 19)2

511,765,665

640,050,287

1 Included in the net earnings attributable to common shareholders of Yellow Media Inc. for the year ended December 31, 2010 are net earnings attributable to

Owners of the Fund for the period from January 1 until October 31, 2010.

2 Comparative amounts presented are trust units.

3 Included in the net earnings (loss) attributable to non-controlling interests for the year ended December 31, 2011 is $4.1 million (2010 (cid:16) ($16.1 million)) related

to discontinued operations.

The accompanying notes are an integral part of these consolidated financial statements.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Consolidated Statements of Comprehensive (Loss) Income

For the years ended December 31,

(in thousands of Canadian dollars)

Net (loss) earnings

Other comprehensive income (loss), net of related income taxes:

Reclassification adjustment on derivatives designated as cash flow hedges

in the year1

Change in gains and losses on derivatives designated as cash flow hedges

Unrealized loss on available–for–sale investment in the year2

Change in unrealized loss on available–for–sale financial asset

Unrealized exchange differences on translating financial statements of

foreign operations and foreign associates3

Reclassification adjustment of cumulative translation loss realized upon

disposition of foreign operations (Note 7)

Change in unrealized exchange differences on translating financial
statements of foreign operations and foreign associates

Actuarial losses4

Retirement benefits

Other comprehensive loss

Total comprehensive (loss) income

Total comprehensive (loss) income attributable to:

Common shareholders of Yellow Media Inc.5

Non-controlling interests

Holders of Preferred shares, series 3, 5 and 7

1 Net of income taxes of $28 (2010 (cid:16) $164).

2 Net of income taxes of $nil (2010 (cid:16) $nil).

2011

2010

(2,828,999)

229,406

(88)

(81)

(5,410)

4,590

(820)

(77,652)

(78,641)

348

(193)

(7,922)

2,924

(4,998)

(56,285)

(61,128)

(2,907,640)

168,278

(2,909,695)

167,995

2,055

–

(18,900)

19,183

(2,907,640)

168,278

3 Unrealized exchange differences on translating financial statements of foreign operations and foreign associates include $3.9 million loss (2010 (cid:16) $7.8 million

loss) for discontinued operations and $1.5 million loss for continuing operations (2010 - $0.1 million loss).

4 Net of income taxes of $27.1 million (2010 - $19.5 million).

5 Included in the total comprehensive income attributable to common shareholders for the year ended December 31, 2010 is total comprehensive income

attributable to Owners of the Fund until October 31, 2010.

The accompanying notes are an integral part of these consolidated financial statements.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Consolidated Statements of Changes in Equity

For the years ended December 31,
(in thousands of Canadian dollars)

Shareholders’
Capital

Restricted
Shares

Preferred
Shares

Compound
financial
instruments1

Stock-based
compensation

Reduction of
capital and other
reserves

Balance, December 31, 2010

$ 4,079,838 $

(78,135) $

328,880

7,423

20,799

2,119,177

Other comprehensive loss

Net loss for the year

Total comprehensive income

Issuance (exchange) of shares

Reduction of capital (Note 18)

Repurchase of shares (Note 18)

Stock options

Restricted shares (Note 20)

Restricted shares vested (Note 20)

Dividends

Sale of Trader (Note 7)

Dividends on Preferred shares,

Series 3, 5 and 7

(cid:16)

63,296

(500,000)

(88,419)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

(2,899)

26,060

(cid:16)
(cid:16)

(cid:16)

(1,875)

(cid:16)

(6,318)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

245

(468)

(26,060)

(cid:16)
(cid:16)

(cid:16)

500,000

(42,947)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

Balance, December 31, 2011

$ 3,554,715 $

(54,974) $

320,687

7,423

(5,484)

2,576,230

1 The equity component of the convertible debentures presented above is net of income taxes of $2.7 million.

Shareholders’
Capital

Restricted
Shares

Preferred
Shares

Balance, January 1, 2010

$ 6,030,339 $

(72,898) $

Conversion of exchangeable units

of YPG LP

31,700

Reduction of capital (Note 18)

(2,000,000)

Reclassification arising from the
conversion to a corporation

Issuance (exchange) of shares

Stock options

Restricted shares (Note 20)

Restricted shares vested (Note 20)

Issuance of Preferred Shares, Series 7

Redemption on exchangeable and

convertible instruments

Option on exchangeable and

convertible instruments

Dividends

Business acquisitions (Note 5)

Increased interest in a subsidiary

Other comprehensive income

Net earnings for the year

Net loss attributable to non-controlling

interests

Dividends on Preferred shares,

Series 3, 5 and 7

(cid:16)

17,799

(cid:16)

(14,491)

9,254

(cid:16)

333,880

(5,000)

(cid:16)

Compound
financial
instruments1

Stock-based
compensation

Reduction of
capital and other
reserves

3,618

9,797

118,064

(cid:16)

(cid:16)
(cid:16)

(cid:16)

(3,618)

7,423

(cid:16)

975

19,281

(9,254)

(cid:16)

2,000,000

(cid:16)

810

(cid:16)

3,618

(cid:16)

(3,315)

(cid:16)

Balance, December 31, 2010

$ 4,079,838 $

(78,135) $

328,880

7,423

20,799

2,119,177

The accompanying notes are an integral part of these consolidated financial statements.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Available for
sale
investment

Cash flow
hedges

Foreign
currency
translation

Capital and
Reserves

Equity
attributable to
shareholders

Deficit

Non-controlling
interests

Total Equity

2011

1,077

(2,373) $ 6,476,911 $

(1,260,974)

5,215,937

52,568 $ 5,268,505

225

(81)

(cid:16)

(81)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

(88)

(cid:16)

(88)

775

(cid:16)

775

(cid:16)

(cid:16)
(cid:16)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

606

(cid:16)

606

61,421

(cid:16)

(77,652)

(2,832,649)

(2,910,301)

(cid:16)

(137,684)

87,252

(cid:16)

(207,345)
(cid:16)

245

(3,367)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

(77,046)

(1,595)

(78,641)

(2,832,649)

(2,909,695)

3,650

(2,828,999)

2,055

(2,907,640)

61,421

(cid:16)

(50,432)

245

(3,367)

(cid:16)

(207,345)
(cid:16)

(cid:16)

61,421

(cid:16)

(50,432)

245

(3,367)

(cid:16)

(207,345)

(53,821)

(22,539)

(cid:16)

(22,539)

144

989

(1,598) $ 6,398,132 $

(4,313,907)

2,084,225

802 $ 2,085,027

Available for
sale
investment

Cash flow
hedges

Foreign
currency
translation

Capital and
Reserves

Equity
attributable to
shareholders

Deficit

Non-controlling
interests

Total Equity

418

729

(cid:16) $ 6,090,067 $

(1,024,817)

5,065,250

$ 355,830 $ 5,421,080

2010

(cid:16)

(193)

348

(2,373)

(cid:16)

31,700

(cid:16)

333,880

13,609

975

4,790

(cid:16)

7,423

(cid:16)

(3,315)

(2,218)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

(cid:16)
(cid:16)

(cid:16)

(402,719)

(cid:16)

(56,285)

229,406

31,700

(31,700)

(cid:16)

333,880

13,609

975

4,790

(cid:16)

7,423

(402,719)

(cid:16)

(3,315)

(58,503)

229,406

(333,880)

(cid:16)

9,750

(cid:16)

73,054

(1,586)

(2,625)

(cid:16)
(cid:16)

(cid:16)

13,609

975

4,790

(cid:16)

9,750

(cid:16)

7,423

(402,719)

73,054

(4,901)

(61,128)

(cid:16)

229,406

16,275

(16,275)

(cid:16)

(22,834)

(cid:16)

(22,834)

225

1,077

(2,373) $ 6,476,911 $

(1,260,974)

5,215,937

52,568 $ 5,268,505

YELLOW MEDIA INC. ANNUAL REPORT 2011

Consolidated Statements of Cash Flows

For the years ended December 31,
(in thousands of Canadian dollars)

OPERATING ACTIVITIES

2011

2010

Net (loss) earnings from continuing operations

(2,708,122)

231,786

Adjusting items

Depreciation and amortization

Impairment of goodwill and intangible assets

Gain on disposal of subsidiary

Post employment benefit costs, net

Stock-based compensation (reversal) expense

Impairment of investment in associate

Share of losses from investments in associates

Other non-cash items

Income taxes recognized in net loss (earnings)

Financial charges recognized in net loss (earnings)

Change in operating assets and liabilities

Income taxes paid

Interest paid

INVESTING ACTIVITIES

Disposal of subsidiary (Note 6)

Disposal of Trader (Note 7)

Disposal of cash related to the sale of Trader

Business acquisitions, net of cash acquired and bank indebtedness assumed (Note 5)

Acquisition of investment in associates

Acquisition of intangible assets

Acquisition of property, plant and equipment

Issuance of note

Proceeds from lease inducements

FINANCING ACTIVITIES

Issuance of long-term debt and commercial paper

Repayment of long-term debt and commercial paper

Redemption of exchangeable and convertible instruments

Issuance of exchangeable and convertible instruments

Dividends to shareholders

Repurchase of Preferred shares, series 1 and 2, and Medium Term Notes

Repurchase of common shares and Preferred shares, Series 3 and 5

Dividends on Preferred shares, series 3, 5 and 7

Stock-based compensation (Note 20)

Deferred consideration

Proceeds on derivative financial instruments

Debt and preferred share issuance and other costs

Effect of exchange rate changes on cash denominated in foreign currencies

NET INCREASE (DECREASE) IN CASH

CASH FLOWS FROM DISCONTINUED OPERATIONS (Note 7)

CASH, BEGINNING OF YEAR

CASH, END OF YEAR
Supplemental disclosure of cash flow information (Note 23)

1160,906

22,900,000

((6,211)

11,609

((565)

550,271

112,060

((1,711)

887,149

1130,582

((42,637)

((105,203)

((141,555)

3336,573

770,938

6690,230

((24,517)

((49)
(cid:16)
((46,686)

((15,565)

((1,238)

8852

180,265
(cid:16)
(cid:16)
3,879

21,870
(cid:16)
19,900

(1,180)

93,583

148,437

33,774

(24,836)

(137,871)

569,607

(cid:16)
(cid:16)
(cid:16)
(119,161)

(5,356)

(55,063)

(4,178)
(cid:16)
(cid:16)

6673,965

(183,758)

11,062,000

((1,403,585)

((106,172)
(cid:16)
((209,134)

((266,183)

(50,432)

((22,539)

((2,899)

((4,502)

33,819

((2,123)

840,265

(469,263)
(cid:16)
200,000

(395,522)

(501,812)
(cid:16)
(22,834)

(16,536)
(cid:16)
(1,748)

(23,734)

((1,001,750)

(391,184)

((1,862)

66,926

77,935

669,325

84,186

(1,529)

(6,864)

40,019

36,170

69,325

The accompanying notes are an integral part of these consolidated financial statements.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

1. Description

Yellow Media Inc. through its subsidiaries, operates print and digital media and marketing solutions in all the Provinces of Canada.
References herein to Yellow Media Inc. represent the financial position, results of operations, cash flows and disclosures of
Yellow Media Inc. and its subsidiaries on a consolidated basis.

Yellow Media Inc.’s registered office is located at 16, Place du Commerce, Montreal, Quebec, Canada, H3E 2A5 and is listed on the
Toronto Stock Exchange (“TSX”).

On November 1, 2010, Yellow Pages Income Fund (the “Fund”) and Yellow Media Inc. (the “Company”) entered into a Plan of
arrangement pursuant to which, the parties proposed to implement an arrangement under the Canada Business Corporations
Act (the “Plan of Arrangement”). The Plan of Arrangement involved the exchange, on a one-for-one basis of units of the Fund for
common shares of Yellow Media Inc. As a result of the Plan of Arrangement, the holders of units of the Fund became the sole
shareholders of Yellow Media Inc. The effective date of the Plan of Arrangement was November 1, 2010.

As part of the reorganization, YPG LP was wound up and its assets were distributed to YPG General Partner Inc, (“YPG GP”) and
YPG Trust (the “Trust”) on a pro rata basis. The Trust and the Fund were then wound up and their assets were ultimately distributed
to Yellow Media Inc. YPG GP amalgamated with Yellow Media Inc. and other subsidiaries of Yellow Media Inc. to form the existing
Yellow Media Inc. The conversion was treated as a change in business form and was accounted for as a continuity of interests; as
such the carrying amounts of assets, liabilities and unitholders’ equity in the consolidated financial statements of the Fund
immediately before the conversion were the same as the carrying values of Yellow Media Inc. immediately after the conversion.
Yellow Media Inc. refers to common shares, shareholders and dividends which were formerly referred to as units, unitholders and
distributions under the Fund. Comparative amounts in these financial statements are those of the Fund up until November 1, 2010.

The Board of Directors approved the consolidated financial statements for the year ended December 31, 2011 and authorized their
publication on February 9, 2012.

2. Adoption of IFRS and upcoming revised standards

2.1. Adoption of IFRS

As a consequence of the adoption of the International Accounting Standards Board’s (“IASB”) standards and interpretations and
the replacement of Canadian Generally Accepted Accounting Principles (“GAAP”) by International Financial Reporting Standards
(“IFRS”) for publicly accountable enterprises, Yellow Media Inc.’s audited consolidated financial statements for the year ended
December 31, 2011 were prepared in accordance with IFRS.

IFRS transition (IFRS 1)

The impacts of this change in accounting basis are reported in the reconciliation tables presented in Note 31. Specifically:

(cid:131)

as at January 1, 2010: a reconciliation note on the GAAP and IFRS opening equity;

as at December 31, 2010 and for the year ended December 31, 2010: a reconciliation note on equity, net earnings and
comprehensive income and an explanation of variation in cash flow statements, for the comparison of the GAAP and IFRS
annual financial statements.

2.2. Standards, interpretations and amendments to published standards that are issued but not yet effective

Certain new standards, interpretations and amendments to existing standards have been published and are mandatory for
Yellow Media Inc.’s accounting periods beginning on or after January 1, 2012. Yellow Media Inc. has not early adopted these
standards and has not fully assessed the impact of adopting them. Those which are considered to be relevant to Yellow Media Inc.’s
operations are as follows:

IFRS 7 (Revised) - Financial Instruments: Disclosures

On December 16, 2011 the IASB and Financial Accounting Standards Board (“FASB”) issued common disclosure requirements that
are intended to help investors and other users to better assess the effect or potential effect of offsetting arrangements on a
company's financial position. The new requirements are set out in Disclosures-Offsetting Financial Assets and Financial Liabilities
(Amendments to IFRS 7). The IFRS 7 amendments are effective for annual reporting periods beginning on or after January 1, 2013.

IFRS 9 - Financial Instruments

IFRS 9 is the first phase of the IASB’s three phase project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS
9 issued in November 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 amended in
October 2010 includes the requirements for the classification and measurement of financial liabilities and for de-recognition.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Key requirements of IFRS 9 are described as follows:

(cid:131)

IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition
and Measurement to be subsequently measured at amortized cost or fair value.

The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the
accounting for changes in the fair value of a financial liability (designated as at fair value through profit or loss) attributable
to changes in the credit risk of that liability and the elimination of the cost exemption for derivative liabilities to be settled by
delivery of unquoted equity instruments.

IFRS 9 is applied prospectively with transitional arrangements depending on the date of application. The Standard is not
applicable until annual periods beginning on or after January 1, 2015, but is available for early adoption.

IFRS 10 - Consolidated Financial Statements

IFRS 11 - Joint Arrangements

IFRS 12 - Disclosure of Interests in Other Entities

IFRS 13 - Fair Value Measurement

IFRS 13 is a new standard that defines fair value and requires disclosures about fair value measurements. IFRS 13 is effective for
fiscal years beginning on or after January 1, 2013. Earlier application is permitted. It applies prospectively from the beginning of the
annual period in which it is adopted.

IAS 19 (Revised) – Employee Benefits

A revised version of IAS 19 was issued in June 2011 and is effective for financial years beginning on or after January 1, 2013. Early
application is permitted. The main change of this revised version is the elimination of the corridor approach, with all changes to the
defined benefit obligation and plan assets recognized when they occur.

IAS 1 (Revised) – Presentation of Financial Statements

On June 16, 2011, the IASB issued amendments to IAS 1, Presentation of Financial Statements, which require entities to group
together items within Other Comprehensive Income (“OCI”) that may be reclassified to the profit or loss section of the income
statement and to separately group together items that will not be reclassified to the profit or loss section of the income statement.
The amendments also reaffirm existing requirements that profit or loss and OCI should be presented as either a single statement or
two consecutive statements. The amendments are effective for financial years commencing on or after July 1, 2012.

IAS 12 (Revised), Deferred Tax: Recovery of Underlying Assets and SIC-21 (amendments), Income Taxes—Recovery of Revalued
Non-Depreciable Assets

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

3. Basis of presentation and significant accounting policies

3.1 Statement of compliance

These consolidated financial statements of Yellow Media Inc. and its subsidiaries were prepared by management in accordance with
IFRS, as issued by the IASB. As these financial statements represent Yellow Media Inc.’s initial presentation of its results and financial
position under IFRS, they were prepared in accordance with IFRS 1, First-time Adoption of IFRS. These financial statements have been
prepared in accordance with the following accounting policies which have been applied consistently to all periods presented
throughout the consolidated entities.

3.2 Basis of measurement

The consolidated financial statements have been prepared on the historical cost convention as modified by the revaluation of
financial assets and liabilities (including derivative instruments) at fair value in accordance with IFRS.

3.3 Functional and presentation currency

The consolidated financial statements are presented in Canadian dollars, which is the functional and presentation currency of
Yellow Media Inc.

3.4 Basis of consolidation

3.4.1 Subsidiaries

Subsidiaries that are directly controlled by Yellow Media Inc. or indirectly controlled by other consolidated subsidiaries are fully
consolidated. Subsidiaries are all entities over which Yellow Media Inc. exercises control.

Control is defined as the power to govern, directly or indirectly, the financial and operating policies of an entity so as to obtain economic
benefit from its activities. This situation generally implies directly or indirectly holding more than 50% of the voting rights. The existence
and effect of potential voting rights that are exercisable or convertible are taken into account in the assessment of control.

Subsidiaries are fully consolidated from the effective date of acquisition up to the effective date of disposal. Inter-company assets
and liabilities and transactions between fully consolidated companies are eliminated. Gains and losses on internal transactions
with controlled companies are fully eliminated. Accounting policies and methods are modified where necessary to ensure
consistency of accounting treatment at the Yellow Media Inc. level.

Changes in Yellow Media Inc.’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
The carrying amounts of Yellow Media Inc.’s interests and the non-controlling interests are adjusted to reflect the changes in their
relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the
fair value of the consideration paid or received is recognized directly in equity and attributed to Yellow Media Inc.

When Yellow Media Inc. loses control of a subsidiary, the gain or loss on disposal is calculated as the difference between (i) the
aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying
amount of the assets (including goodwill), liabilities of the subsidiary and any non-controlling interests. Amounts previously
recognized in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or
transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were
disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the
fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement
or as initial cost for an investment in an associate or jointly controlled entity.

3.4.2 Associates

Associates are all entities in which Yellow Media Inc. exercises a significant influence over the entity’s management and operating
and financial policy, without exercising control, and generally implies holding 20% to 50% of the voting rights.

Investments in associates are accounted for using the equity method and initially measured at cost. Subsequently, the share in
profits or losses of the associate attributable to equity holders of Yellow Media Inc. is recognized in net earnings and the change
in equity attributable to equity holders of Yellow Media Inc. is recognized in equity. Included in the recognized share of net loss
is the amortization of the amortizable assets based on their fair values at the acquisition date. When Yellow Media Inc.’s share
of losses exceed its interest in an equity-accounted investee, the carrying amount of the investment including any long-term
interests that form part thereof, is reduced to zero and the recognition of further losses is discontinued except to the extent that
Yellow Media Inc. has an obligation or has made payments on behalf of the investee.

Goodwill related to an associate is included in the carrying amount of the investment.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Gains or losses on internal transactions with equity-accounted associates are eliminated in the amount of Yellow Media Inc.’s
investment in these companies, to the extent of Yellow Media Inc.’s interest.

The accounting policies and methods of associates are modified where necessary to ensure consistency of accounting treatment at
the Yellow Media Inc. level.

3.4.3 Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The cost of the acquisition is
measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by Yellow Media Inc. in exchange for control of the acquiree. Acquisition-related costs are recognized in the
income statement as incurred. Where appropriate, the cost of acquisition includes any asset or liability resulting from a contingent
consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted
against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in
the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs and
reflected through net earnings. Changes in the fair value of contingent consideration classified as equity are not recognized.

The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are
recognized at their fair value at the acquisition date, with the exception of:

(cid:131)

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and
measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and

liabilities or equity instruments related to the replacement by Yellow Media Inc. of an acquiree’s share-based payment
awards are measured in accordance with IFRS 2 Share-based Payment; and

assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations are measured in accordance with that Standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, Yellow Media Inc. reports provisional amounts for the items for which the accounting is incomplete. Those provisional
amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognized, to reflect
new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have
affected the amounts recognized as of that date.

The measurement period is the period from the date of acquisition to the date Yellow Media Inc. receives complete information
about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year.

Where a business combination is achieved in stages, Yellow Media Inc.’s previously-held interests in the acquired entity are
remeasured to fair value at the acquisition date (i.e. the date Yellow Media Inc. attains control) and the resulting gain or loss, if
any, is recognized in the income statement. Amounts arising from interests in the acquiree prior to the acquisition date that
have previously been recognized in other comprehensive income are reclassified to profit or loss, where such treatment would
be appropriate if that interest were disposed of.

3.4.4 Non-controlling interests

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from Yellow Media Inc.’s equity
therein. The interest of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition-by-
acquisition basis. Subsequent to acquisition, non-controlling interests consist of the amount attributed to such interests at initial
recognition and the non-controlling interest’s share of changes in equity since the date of the combination.

3.4.5 Discontinued operations

Classification as a discontinued operation occurs on disposal or when the operation meets the criteria to be classified as held
for sale. When an operation which is deemed to be a separate major line of business or separate geographical area is classified
as a discontinued operation, the comparative income statement and statement of comprehensive income are re-presented as if
the operation had been discontinued from the start of the comparative year.

3.4.6 Assets held for sale

Non-current assets and disposal groups that are expected to be sold are classified as held for sale. Immediately before classification,
the assets are remeasured at the lower of their previous carrying amount and fair value less costs to sell. Any impairment loss is
allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis. Impairment losses on initial
classification as held for sale and subsequent gains and losses on remeasurement are recognized in net earnings. Once classified
as held for sale, intangible assets and property, plant and equipment are no longer amortized or depreciated and any equity
accounted investee is no longer equity accounted.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.5 Foreign currency

3.5.1 Foreign currency transactions

Foreign currency transactions are converted into the relevant functional currency at market exchange rates applicable at the
date of the transactions. Amounts payable or receivable in foreign currencies at the statement of financial position date are
converted into the relevant functional currency at market exchange rates at the statement of financial position date. Any
currency translation gains and losses that arise are included in the income statement.

3.5.2 Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated in Canadian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are
translated at exchange rates at the dates of transactions.

Foreign currency differences are recognized directly in equity in the foreign currency translation reserve.

Foreign exchange gains or losses arising from a monetary item receivable or payable to a foreign operation, the settlement of
which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign
operation and are recognized directly in equity in the foreign currency translation reserve.

On the disposal of a foreign operation, all of the accumulated exchange differences in respect of that operation attributable to
Yellow Media Inc. are reclassified to profit or loss. Any exchange differences that have previously been attributed to non-controlling
interests are derecognized, but they are not reclassified to profit or loss.

3.6 Cash

Cash consists of funds on deposit and, from time to time, highly liquid investments with a purchased maturity of three months or less.

3.7 Trade receivables

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest
method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that Yellow Media Inc. will not be
able to collect all amounts due according to the original terms of the receivables.

3.8 Financial assets

Financial assets are classified into the following specified categories: financial assets “at fair value through profit and loss” (“FVTPL”),
“held-to-maturity” investments, “available-for-sale” (“AFS”) financial assets and “loans and receivables”. The classification depends on
the nature and purpose of the financial assets and is determined at the time of initial recognition. A financial asset is derecognized if
the contractual rights to the cash flows from the financial asset expire or the asset is transferred and the transfer qualifies for
derecognition.

3.8.1 Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial asset/liability and of allocating interest
income/expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
flows (including all fees that form an integral part of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the financial asset/liability, or, where appropriate, a shorter period.

Transactions costs are comprised primarily of legal, accounting, underwriters’ fees and other costs directly attributable to the
issuance of the financial instruments.

Income is recognized on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL.

3.8.2 Financial assets at FVTPL

Financial assets at FVTPL includes financial assets held by Yellow Media Inc. for short-term profit, derivatives not in a qualifying
hedging relationship and assets voluntarily classified in this category subject to meeting specified criteria. These assets are
measured at fair value, with any resultant gain or loss recognized in the income statement.

In general, transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and liabilities at fair value through profit or loss) are added to or deducted from the fair value of the
financial assets or liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of
financial assets or liabilities at fair value through profit or loss are recognized immediately in profit or loss.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.8.3 Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market and are not held for trading purposes or available for sale.

These assets are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method.
Short-term receivables without a stated interest rate are valued at the amount of the original invoice unless the effective interest
rate has a material impact.

Cash and trade receivables are included in this category.

3.8.4 Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets, other than loans or receivables, with fixed or determinable
payments and fixed maturity that Yellow Media Inc. has the positive intention and ability to hold to maturity.

These assets are initially recognized at fair value and subsequently at amortized cost using the effective interest method.

Held-to-maturity investments are presented in non-current financial assets. Other financial assets, with the exception of other
investments, are classified in this category.

3.8.5 AFS financial assets

AFS financial assets are non-derivative financial assets that are not included in the aforementioned categories. They are recognized
at fair value. Unrealized capital gains or losses are recognized in equity until the disposal of the assets. However, where there is an
objective indication of loss in value of an AFS financial asset, the accumulated loss is recognized in income.

For listed securities, fair value corresponds to a market price. For unlisted securities, fair value is determined by reference to
recent transactions or using valuation techniques based on reliable and objective indicators. However, when the fair value of a
security cannot be reasonably estimated, it is recorded at historical cost.

This category mainly comprises other than temporary investments and marketable securities that do not meet other financial
asset definitions.

3.8.6 Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each statement of financial position
date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after
the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are
subsequently assessed for impairment on a collective basis.

For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of
trade receivables, where the carrying amount is reduced through the use of an allowance account.

With the exception of AFS equity instruments and debt instruments, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed in the income statement to the extent that the carrying amount of the investment at the
date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been
recognized.

Yellow Media Inc. does not currently hold any AFS debt instruments.

In respect of AFS equity securities, impairment losses previously recognized in the income statement are not subsequently
reversed in the income statement. Any increase in fair value subsequent to an impairment loss is recognized directly in equity.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.9 Deferred publication costs

An intangible asset is recognized for direct and incremental publication costs incurred during the sale, manufacturing and
distribution of telephone print directories. The intangible asset represents costs that will be recovered in future periods, when the
related directories revenues are recognized. An intangible asset is capitalized when the following conditions are met:

(cid:131)

Yellow Media Inc. has control over the contract for which the costs were incurred;

the control results from past events;

future economic benefits are expected to flow to Yellow Media Inc.;

the asset is identifiable, non-monetary and without physical substance.

Deferred publication costs are initially measured at cost and are amortized over the same period in which the related revenues
are recognized.

3.10 Property, plant and equipment

Property, plant and equipment are recognized at cost less accumulated depreciation and impairment losses. The various
components of property, plant and equipment are recognized separately when their estimated useful lives and therefore their
depreciation periods are significantly different. The cost of an asset includes the expenses that are directly attributable to its
acquisition. All other borrowing costs are recognized in profit or loss in the period in which they are incurred. Yellow Media Inc.
has not capitalized any borrowing costs during the periods presented.

Subsequent costs are included in the carrying amount of the asset or recognized as a separate component, where necessary, if
it is probable that future economic benefits will flow to Yellow Media Inc. and the cost of the asset can be reliably measured. All
other repair and maintenance costs are expensed in the year they are incurred.

Depreciation is calculated using the straight-line method, based on the capitalized costs, less any residual value over a period
corresponding to the useful life of each asset. Assets held under finance leases are depreciated over their expected useful lives
on the same basis as owned assets or, where shorter, the term of the relevant lease.

As at December 31, 2011, the expected useful lives are as follows:

Office equipment

Computer equipment

Other equipment

Leasehold improvements

10 years

3 years

3 – 12 years

Shorter of term of lease or useful life

The residual value, the depreciation method and the useful life of an asset are reviewed annually.

Property, plant and equipment are tested for impairment when an indication of impairment loss exists. When the asset’s recoverable
amount is less than its net carrying amount, an impairment loss is recognized. Where the recoverable amount of an individual asset
does not generate independent cash inflows, Yellow Media Inc. determines the recoverable amount of the cash generating units
(“CGU”) or group of CGUs to which the asset belongs.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying amount of the asset and is recognized in the income statement.

3.11 Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognized as assets of Yellow Media Inc. at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in
the statement of financial position as an obligation under finance lease that is included with long-term debt.

Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are charged directly to the income statement, unless they are
directly attributable to qualifying assets, in which case they are capitalized in accordance with Yellow Media Inc.’s general policy on
borrowing costs.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a deferred
credit. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis.

3.12 Intangibles assets

Intangible assets acquired separately are reported at cost less accumulated amortization and accumulated impairment losses.
Intangible assets acquired in a business combination are identified and recognized separately from goodwill where they arise from
legal or contractual rights or are capable of being separated from the acquiree and sold, transferred, licensed or exchanged. The
cost of such intangible assets is their fair value at the acquisition date.

Intangible assets developed internally (consisting of software used by the Company) are recognized to the extent the criteria in
IAS 38 Intangible Assets are met. Development costs for internally generated intangible assets are capitalized at cost if and
only if Yellow Media Inc. can demonstrate:

(cid:131)

the technical feasibility of completing the asset so that it will be available for use or sale;

the intention to complete the intangible asset and use or sell it;

the ability to use or sell the intangible asset;

how the intangible asset will generate probable future economic benefits;

the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset; and

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date
when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be
recognized, development expenditures are charged to the income statement in the period in which they are incurred.

Internally developed intangibles include the cost of software tools and licenses used in the development of Yellow Media Inc.’s
systems, as well as all directly attributable payroll and consulting costs. These items are not amortized until the assets are available
for use.

Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment
loss. Intangibles assets are amortized, unless their useful lives are indefinite, as follows:

Non-competition agreements and logos

Customer-related intangible assets

Pro rata based on related revenues, not exceeding 24 months

Straight-line over life of agreement

Trademarks

Domain names

Software

Indefinite or straight-line over 1-6 years

Indefinite or straight-line over 18 years

Straight-line over 3 years

The estimated useful life and amortization method are reviewed at the end of each period or annual reporting period, with the effect
of any changes in estimate being accounted for on a prospective basis.

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains
or losses arising from the de-recognition of an intangible asset, measured as the difference between the net disposal proceeds
and the carrying amount of the asset, are recognized in profit or loss when the asset is de-recognized.

3.13 Goodwill

Goodwill arising on the acquisition of a subsidiary is recognized as an asset at the date that control is acquired (the acquisition
date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in
the acquiree and the fair value of the acquirer’s previously-held equity interest (if any) in the entity over the net fair value of the
identifiable net assets recognized.

Goodwill is not amortized, but is reviewed for impairment at least annually or sooner if indicators of impairment exist. Any
impairment loss is recognized immediately in profit or loss and is not subsequently reversed.

3.14 Impairment of tangible and intangible assets including goodwill

At each reporting date, Yellow Media Inc. determines whether there are any indications that the carrying amounts of its tangible
and intangible assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual
asset, Yellow Media Inc. estimates the recoverable amount of the CGU to which the asset belongs.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually,
and whenever there is an indication that the asset may be impaired. A majority of the Company’s intangible assets do not have
cash inflows independent of those from other assets and as such are tested within their respective CGUs.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss is recognized immediately in the income statement.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss
is recognized immediately in the income statement.

For the purpose of impairment testing of goodwill, goodwill is tested at the reporting segment level (Group of CGUs) which
represents the lowest level where goodwill is monitored for internal management purposes. Goodwill is tested for impairment
annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the Group
of CGUs is less than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of goodwill and
then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

3.15 Trade and other payables

Trade and other payables, including accruals, are recorded when Yellow Media Inc. is required to make future payments as a
result of purchases of assets or services. Trade and other payables are carried at amortized cost.

3.16 Financial liabilities

The valuation of financial liabilities depends on their IAS 39 classification. Financial liabilities are classified as either financial
liabilities “at FVTPL” or “other financial liabilities”.

Excluding liability derivatives and financial liabilities accounted for at FVTPL, Yellow Media Inc. recognizes all financial liabilities and
particularly debts, trade payables and other liabilities initially at fair value less transaction costs and subsequently at amortized
cost, using the effective interest method.

The net carrying amount of financial liabilities that qualify as hedged items as part of fair value hedging relationships are valued
at amortized cost and is adjusted to the fair value of the hedged risk.

Financial liabilities designated as FVTPL, other than derivative liabilities, are carried at fair value. Changes in fair value are taken to
the income statement. Transaction costs incurred in setting up these financial liabilities are recognized immediately in expenses.

Yellow Media Inc. derecognizes financial liabilities when, and only when, Yellow Media Inc.’s obligations are discharged, cancelled or
they expire.

3.17 Provisions

Provisions are recognized when Yellow Media Inc. has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the
statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Provisions are
measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognized as a financial charge.

3.17.1 Onerous contracts

Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is
considered to exist where Yellow Media Inc. has a contract under which the unavoidable costs of meeting the obligations under
the contract exceed the economic benefits expected to be received under it.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.17.2 Restructuring

A restructuring provision is recognized when Yellow Media Inc. has developed a detailed formal plan for the restructuring and
has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or
announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct
expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and
not associated with the ongoing activities of the entity.

3.18 Long-term debt

All long-term debts are initially stated at the fair value of consideration received after deduction of issue costs. Debts are
subsequently stated at amortized cost. Issue costs are charged to the income statement together with the coupon, as finance
costs, on a constant-yield basis over the term of the debt, or over a shorter period where the lender can require earlier repayment.

3.19 Employee benefits

3.19.1 Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined
contribution pension plans are recognized as an employee benefit expense in the income statement when they are due. Prepaid
contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.

3.19.2 Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Yellow Media Inc.’s net
obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future
benefits that employees have earned in return for their service in the current and prior periods; that benefit is discounted to
determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The
discount rate is the yield at the reporting date on high quality corporate bonds that have terms to maturity approximating to the
terms of the related pension liability adjusted for a spread to reflect any additional credit risk and that are denominated in the
currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the
projected unit credit method.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is
recognized in the income statement on a straight-line basis over the average period until the benefits become vested. To the
extent that the benefits vest immediately, the expense is recognized immediately in the income statement.

All actuarial gains and losses at January 1, 2010, the date of transition to IFRSs, were recognized in retained earnings. Yellow Media Inc.
recognizes all actuarial gains and losses arising subsequently from defined benefit plans in other comprehensive income. The
interest cost and expected return on plan assets of defined benefit plans are included within net financial charges while service costs
are recorded in operating expenses.

3.19.3 Other long-term employee benefits

Yellow Media Inc.’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future
benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to
determine its present value, and the fair value of any related asset is deducted. The discount rate is the yield at the reporting
date on high quality corporate bonds that have terms to maturity approximating the terms of the related obligation. The
calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized in the period in
which they arise.

3.19.4 Termination benefits

Termination benefits are recognized as an expense when Yellow Media Inc. is demonstrably committed, without realistic
possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to
provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary
redundancies are recognized as an expense if Yellow Media Inc. has made an offer of voluntary redundancy, it is probable that
the offer will be accepted, and the number of acceptances can be estimated reliably.

3.19.5 Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is
provided.

A liability is recognized for the amount expected to be paid if Yellow Media Inc. has a present legal or constructive obligation to
pay this amount as a result of a past service provided by the employee and the obligation can be estimated reliably.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.19.6 Share-based payment transactions

Yellow Media Inc.’s Restricted Shares and Stock Options granted to employees and others providing similar services are
measured at the fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over
the vesting period, based on Yellow Media Inc.’s estimate of equity instruments that will eventually vest. At each statement of
financial position date, Yellow Media Inc. revises its estimate of the number of equity instruments expected to vest. The impact
of the revision of the original estimate, if any, is recognized in the income statement, with a corresponding adjustment to the
equity-settled employee benefits reserve.

3.20 Equity instruments issued by Yellow Media Inc.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by Yellow Media Inc. are recorded at the proceeds received, net of direct issue costs.

Transaction costs incurred by Yellow Media Inc. in issuing, acquiring or reselling its own equity instruments are accounted for as a
deduction from equity to the extent that they are incremental costs directly attributable to the equity transaction that otherwise
would have been avoided.

3.21 Operating segments

Disclosure of segment information is reported in a manner consistent with the internal reports regularly reviewed by Yellow Media Inc.’s
Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. The chief operating
decision-maker who is responsible for allocating resources and assessing performance of the operating segments, has been identified
as the President and Chief Executive Officer.

3.22 Revenues

Yellow Media Inc.’s revenues are measured at the fair value of the consideration received or receivable after deduction of sales
allowances and sales taxes.

Print directory advertising is mostly sold in bundles that can include several related advertising products including online products
that are not sold separately. Revenues from print directory advertising as well as revenues from related internet products are
recognized in the income statement rateably on a monthly basis from the point at which service is first provided over the life of the
contract. Revenues for certain other directories, not sold in bundles, are recognized when the directory is published (publication
method).

Revenues from private and commercial classified advertisements and display advertisements are recognized at the time the
advertisements are published either on a weekly or monthly basis. Revenues related to advertisements appearing on multiple
occasions are recognized over the period the advertisements are displayed.

3.23 Derivative financial instruments

Yellow Media Inc. enters into a variety of derivative financial instruments to manage the combination of fixed to floating interest
rates on its long-term debt and to manage the interest rate risk for future planned issuances.

Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-
measured to their fair value at each statement of financial position date. The resulting gain or loss is recognized in the income
statement immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of
the recognition in profit or loss depends on the nature of the hedge relationship.

Yellow Media Inc. designates certain derivatives as either hedges of the fair value of recognized assets or liabilities or firm commitments
(fair value hedges), hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow
hedges).

3.23.1 Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks
and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value
with changes in fair value recognized in the income statement.

3.23.2 Hedge accounting

Yellow Media Inc. designates certain hedging instruments, which include derivatives and non-derivatives, as either fair value hedges
or cash flow hedges.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged
item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the
inception of the hedge and on an ongoing basis, Yellow Media Inc. documents whether the hedging instrument that is used in a
hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.

Details of the fair values of the derivative instruments used for hedging purposes are presented on an annual basis. Movements
in the hedging reserve in equity are detailed in the statement of changes in equity.

3.23.3 Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded immediately in the
income statement, together with any changes in the fair value of the hedged item that are attributable to the hedged risk. The
change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are
recognized in the line of the income statement relating to the hedged item.

Hedge accounting is discontinued when Yellow Media Inc. revokes the hedging relationship, the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged
item arising from the hedged risk is amortized to the income statement from that date.

3.23.4 Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred
in equity. The gain or loss relating to the ineffective portion is recognized immediately in the income statement.

Amounts deferred in equity are transferred to the income statement in the periods when the hedged item is recognized in the income
statement, in the same line of the income statement as the recognized hedged item. However, when the forecast transaction that is
hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity
are transferred from equity and included in the initial measurement of the cost of the asset or liability.

Hedge accounting is discontinued when Yellow Media Inc. revokes the hedging relationship, the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that
time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When
a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognized
immediately in the income statement.

3.24 Borrowing costs

Borrowing costs directly attributable to the acquisition or construction of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets
are substantially ready for their intended use.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

3.25 Taxation

Income tax expense represents the sum of the current and deferred tax.

3.25.1 Current income tax

Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Yellow Media Inc.’s
liability for current income tax is calculated using tax rates that have been enacted or substantively enacted by the statement of
financial position date.

3.25.2 Deferred tax

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and
the corresponding tax basis used in the computation of taxable profit, and is accounted for using the liability method. Deferred
tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for
all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those
deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference
arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the accounting profit.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and
associates, except where Yellow Media Inc. is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only recognized to the extent that it is probable that there will be
sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in
the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is
settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the
statement of financial position date. The measurement of deferred tax liabilities and assets reflects the tax consequences that
would follow from the manner in which Yellow Media Inc. expects, at the reporting date, to recover or settle the carrying amount
of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities
and when they relate to income taxes levied by the same taxation authority and Yellow Media Inc. intends to settle its tax assets
and liabilities on a net basis.

3.25.3 Current and deferred tax for the period

Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items that are
recognized outside net earnings (whether in other comprehensive income or directly in equity), in which case the tax is also
recognized outside net earnings, or where they arise from the initial accounting for a business combination. In the case of a
business combination, the applicable tax effects are taken into account in the accounting for the business combination.

3.26 Significant estimates and judgements

The preparation of consolidated financial statements requires management to make estimates and assumptions that can affect
the carrying amount of certain assets and liabilities, income and expenses, and the information disclosed in the notes to the
financial statements. Management reviews these estimates and assumptions on a regular basis to ensure their pertinence with
respect to past experience and the current economic situation. Items in future financial statements could differ from current
estimates as a result of changes in these assumptions. The impact of changes in accounting estimates is recognized during the
period in which the change took place and all affected future periods.

The estimates and judgements made by management that are critical to the determination of the carrying value of assets and
liabilities are addressed below.

3.26.1 Intangible assets and goodwill

The values associated with identifiable intangible assets and goodwill involve significant estimates and assumptions, including those
with respect to future cash inflows and outflows, discount rates and asset lives. These significant estimates require considerable
judgment which could affect Yellow Media Inc.’s future results if the current estimates of future performance and fair values change.
These determinations will affect the amount of amortization expense on identifiable intangible assets recognized in future periods.

Yellow Media Inc. performs its annual test for impairment of indefinite life intangible assets and goodwill in the fourth quarter in
accordance with the policy described in Note 3.14. Goodwill is tested at the operating segment level since this represents the
lowest level within Yellow Media Inc. at which the goodwill is monitored for internal management purposes.

3.26.2 Useful lives of property, plant and equipment

Yellow Media Inc. reviews the estimated useful lives of property, plant and equipment at the end of each reporting period. At the
end of the current reporting period, the directors determined that the useful lives of property, plant and equipment was adequate.

3.26.3 Held to maturity financial assets

Yellow Media Inc. has reviewed the held-to-maturity financial assets and has confirmed the positive intention and ability to hold
those assets to maturity.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.26.4 Employee future benefits

3.26.5 Income Taxes

Yellow Media Inc. is subject to taxation in numerous jurisdictions. Significant judgement is required in determining the
consolidated provision for taxation. There are many transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. Yellow Media Inc. maintains provisions for uncertain tax positions that it
believes appropriately reflect its risk with respect to tax matters under active discussion, audit, dispute or appeal with tax
authorities, or which are otherwise considered to involve uncertainty. These provisions for uncertain tax positions are made
using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors.
Yellow Media Inc. reviews the adequacy of these provisions at each statement of financial position date. However, it is possible
that at some future date an additional liability could result from audits by tax authorities. Where the final tax outcome of these
matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in
which such determination is made.

4. Impairment of goodwill and intangible assets

Yellow Media Inc.’s annual impairment analysis for testing goodwill and indefinite life intangible assets is normally performed
during the fourth quarter.

As a majority of the intangible assets do not generate cash inflows that are largely independent of those from other assets or
groups of assets, the Company performed its impairment analysis of its intangible assets at the cash generating unit (“CGU”) level.
The significant CGUs of the Company are as follows: Yellow Pages Group, Canpages, Mediative and Other (includes multiple CGUs
for which the carrying value of its intangibles and other long-lived assets is not significant in comparison with the Company's total
carrying amount of intangible and other long-lived assets).

Goodwill was tested for impairment at the lowest level within the Company at which the goodwill is monitored for internal
management purposes; the Directories segment (group of CGU’s).

As a result of the impairment test, the Company recorded an impairment charge of $2.9 billion for the year ended December 31, 2011.
This charge was mainly related to the impairment of goodwill for an amount of $2.88 billion while other intangible assets arising
from the acquisition of Canpages, mainly trademarks, non-compete agreements, customer contracts and software were deemed
impaired by $20 million.

The recoverable amount resulting in the goodwill impairment charge of $2.88 billion was determined based on the value-in-use
approach using a discounted cash flow model. The significant key assumptions include forecasted cash flows based on financial
plans approved by management covering a five-year period. The discounted cash flow model was established using a discount rate
of 11% (pre-tax rate of 15%), which assumes a cost of equity between 13% and 14% and a cost of debt between 10% and 10.5%
and a terminal growth rate in line with historical inflation at 2.50%. This impairment charge is the result of a combination of factors,
including the pressure on EBITDA due to the accelerated transition from print to online, the uncertainties surrounding whether new
product introductions will compensate for the declining trend in print revenues and the lower margins from recent business
acquisitions. This impairment charge does not affect the Company’s operations, its liquidity, its cash flows from operating activities,
its bank credit agreement or its note indentures.

As at December 31, 2011, the calculated recoverable amount of Yellow Media Inc. would have to decrease by 97 basis points
before the associated goodwill would be impaired. Impairment will occur if the terminal growth rate decreases by at least 11 basis
points or if the post-tax discount rate is to increase by at least 9 basis points.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

The impairment charge of $20 million associated with Canpages’ intangible assets was also determined based on the value-in-
use approach, using a pre-tax discount rate of 23.7% and a nil terminal growth rate. This charge is the result of a combination
of factors, mostly due to the lower margins generated by these operations.

The recoverable amount of each CGU was determined based on the value-in-use approach. These calculations use cash flow
projections based on financial plans approved by management covering a five-year period. Cash flows beyond the periods of the
approved plans are extrapolated using the long-term growth rates stated below. The allocation of intangible assets and goodwill
as at September 30, 2011 by CGU or group of CGUs, prior to the impairment charge and the key assumptions used for value-in-
use calculations are presented below:

Yellow Pages Group

Canpages

Mediative

Other

Total

Intangible assets by CGUs

Trademarks and domain names

with finite lives

Non-competition agreements and logos

Customer - related intangible assets

Software

Goodwill

Key assumptions :

Terminal growth rate

Discount rate – post-tax

Discount rate – pre-tax

1,058,309

9,300

462,757

–

72,840

n/a

2.50%

11%

15%

–

22,222

5,597

967

1,359

n/a

23.7%

35%

7,978

$ 40,055

$ 1,106,342

308

8,752

5,834

–

n/a

3.50%

19-25%

25-35%

–

994

–

3,143

31,830

478,100

6,801

77,342

n/a

$ 5,895,926

3.50%

12%

16%

2.50%

11%

15%

Further to the above and in line with Yellow Media Inc.’s accounting policy, Yellow Media Inc. reperformed its tests of recoverability of
goodwill, indefinite life intangible assets (tested at the CGU level) and other long-lived assets as at December 31, 2011 and determined
that no further impairment was required. The following table presents the intangible assets and goodwill as at December 31, 2011 by
CGU and the key assumptions used in performing value-in-use calculations.

Intangible assets by CGUs

Trademarks and domain names

Trademarks and domain names with finite lives

Non-competition agreements and logos

Customer - related intangible assets

Software

Goodwill

Key assumptions :

Terminal growth rate

Discount rate – post-tax

Discount rate – pre-tax

1 Includes Canpages.

Yellow Pages Group

Mediative

Other1

Total

$ 1,058,309

8,200

457,246

–

76,137

n/a

2.50%

11%

15%

7,978

$ 24,555

$ 1,090,842

–

8,176

4,364

–

n/a

3.50%

20%

25%

6,596

2,324

–

4,166

14,796

467,746

4,364

80,303

n/a

$ 2,967,847

3.50%

16.5%

21%

2.50%

11%

15%

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

5. Business acquisitions

2011

During 2011, Yellow Media Inc. did not complete any business acquisitions.

2010

Directories

On January 8, 2010, Yellow Media Inc. completed the acquisition of all the assets related to the operations of the website
Restaurantica.ca (“Restaurantica”). Restaurantica was established in 2003 and lists restaurants, bars and cafés’ information,
with user-generated reviews on these establishments in North America.

On February 9, 2010, Yellow Media Inc. acquired all of the shares of Clear Sky Media Inc. (“Clear Sky Media”), owner of RedFlagDeals.com
(“Red Flag Deals”). Red Flag Deals is a leader in providing online promotions and shopping tools to Canadians.

The acquisitions were financed with drawings under existing credit facilities, issuance of preferred shares, series 7 (“Series 7 shares”)
and cash on hand.

On May 25, 2010, Yellow Media Inc. acquired all of the shares of Canpages for a purchase price consideration of $226.4 million,
which included working capital and other adjustments. The purchase price consideration was comprised of $84.8 million payable
in cash at closing to settle third party debt obligations and the issuance of $141.6 million of Mandatory Exchangeable Promissory
Notes (“Exchangeable Notes”) of Yellow Media Inc. (Note 15).

On September 21, 2010, Yellow Media Inc. acquired a 60% equity interest in Mediative LP, formerly Enquiro Search Solutions Inc.
(“Enquiro”), a leading search engine solutions company. The non-controlling interest in Enquiro was measured at the non-controlling
interest's proportionate share of the fair value of Enquiro’s identifiable net assets.

On October 20, 2010, Yellow Media Inc. acquired all of the shares of Uptrend, Canada’s leading independent online advertising
representation firm and on October 28, 2010, Yellow Media Inc. acquired all of the assets of AdSplash Inc. (“Adsplash”) a
national retail advertising leader.

These acquisitions positioned Yellow Media Inc. to better compete in the digital world and enabled Yellow Media Inc. to expand
its sales force, online capabilities and advertiser offerings.

Vertical Media (Note 7)

On January 5, 2010 Trader acquired an additional 10% equity interest in Dealer.com bringing its total equity interest to approximately
30%. Trader had an option to increase its ownership in the privately held company that was exercisable. If exercised, this option
would have provided Yellow Media Inc. with a majority voting interest and the continuing ability to elect the majority of the members
of the board of directors of Dealer.com. As such, Trader effectively controlled Dealer.com and accordingly the financial position and
results of Dealer.com were consolidated in Yellow Media Inc.’s financial statements from the date of acquisition until the
disposition of Trader.

The previously held equity interest of Trader in Dealer.com, which was accounted for under the equity method up to that date,
was re-measured at its fair value of $40.6 million and the gain on deemed disposition was recognized in net earnings. The
above transaction generated a net gain of $8 million which is included in net earnings from discontinued operations.

The non-controlling interest in Dealer.com was measured at the non-controlling interest's proportionate share of the fair value of
Dealer.com’s identifiable net assets.

On July 9, 2010, Trader acquired all of the assets of CanadianDriver Communications Inc. (“Canadian Driver”). Canadian Driver is
the operator of CanadianDriver.com, an award-winning online automotive magazine that features over 11,000 automotive articles
including new car reviews, test drives and automotive news as well as other automotive topics.

Yellow Media Inc. accounted for all of the acquisitions using the acquisition method of accounting. The purchase prices were
allocated to the identifiable assets acquired and the liabilities assumed on the basis of their fair values.

We incurred costs of $7.7 million during the year ended December 31, 2011, resulting from potential investments. In 2010, we
incurred $30.6 million mainly in association with our acquisition of Canpages, RedFlagDeals.com, Restaurantica, Enquiro, UpTrend
Media, AdSplash, and 411.ca.

YELLOW MEDIA INC. ANNUAL REPORT 2011

The fair values of the identifiable assets acquired and liabilities assumed were allocated as follows:

For the year ended December 31, 2010

CCanpages

Dealer.com

Other

Total

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Current assets and liabilities

Cash

Trade receivables

Prepaid expenses

Trade and other payables

Deferred revenues

Property, plant and equipment

Intangibles

Trademarks and domain names

Customer-related

Non-competition agreements and logos

Software

Long-term debt

Deferred income tax liabilities

Non-controlling interest

Net identifiable assets acquired

Reversal of previously owned equity investment

Goodwill ($65.9 million tax deductible)

Purchase price

Consideration

Cash

Series 7 shares

Exchangeable Notes

Deferred consideration

Total

3,912

10,722

(29,385)

(1,730)

1,328

40,000

97,500

1,670

3,500

–

(4,983)

–

122,599

–

103,810

19,681

1,170

6,459

925

(5,406)

(2,997)

9,028

21,747

65,343

–

52,025

(5,352)

(56,702)

(71,513)

33,238

(40,614)

28,186

5,858

109

(5,128)

–

419

16,027

11,128

11,700

–

(7,561)

(1,541)

32,223

–

37,512

24,763

23,039

1,099

(39,919)

(4,727)

10,775

77,774

173,971

13,370

55,567

(5,352)

(69,246)

(73,054)

188,060

(40,614)

169,508

226,409

20,810

69,735

316,954

CCanpages

DDealer.com

OOther

Total

84,847

20,810

43,363

149,020

–

141,562

–

9,750

–

16,622

9,750

141,562

16,622

226,409

20,810

69,735

316,954

Deferred consideration includes payments that are contingent on the basis of time and others that are based on the achievement
of specific performance objectives.

During 2011, Yellow Media Inc. paid $4.5 million of the deferred consideration. A reversal of $1.3 million was included in financial
charges. Giving effect to the reversal, the deferred consideration outstanding from continuing operations as at December 31, 2011
could reach $11.5 million, undiscounted, if all performance objectives are met.

6. Disposal of subsidiary

On November 14, 2011, Yellow Media Inc. announced that it had sold the assets of LesPAC.com (LesPAC) to Mediagrif Interactive
Technologies Inc. for cash proceeds of $70.9 million, net of fees and working capital adjustments. The carrying value of the net assets
disposed of on November 14, 2011 was $64.7 million resulting in a gain of $6.2 million recorded in the consolidated income statements.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

The carrying value of assets and liabilities disposed are summarized below:

Current assets

Property, plant and equipment

Intangible assets

Goodwill

Trade and other payables

Total

7. Discontinued operations

YPG Directories, LLC

427

132

16,306

48,079

(217)

64,727

On March 29, 2010, Yellow Media Inc. entered into a definitive agreement with HM Capital whereby Yellow Media Inc. contributed
its 100% interest in YPG Directories, LLC in exchange for a 35% minority ownership in a new entity resulting from the business
combination of YPG Directories, LLC and Ziplocal, LP (“Ziplocal”). The transaction closed on April 15, 2010.

Trader Corporation

On March 25, 2011, Yellow Media Inc. announced that it had reached a definitive agreement to sell Trader (the “disposed
business”) to funds advised by Apax Partners. On July 28, 2011, the divestiture of the disposed business was completed for
proceeds of $702 million, net of fees, working capital and other adjustments. The purchase price consideration included a note
receivable of $11 million, discounted which was recorded in Financial and other Assets in the statement of financial position.
The note has a stated value of $15 million, matures on July 28, 2020 and carries an interest rate of 8%.

The real estate, employment and LesPAC.com businesses were excluded from the divestiture. Yellow Media Inc. sold the assets
of LesPAC.com on November 14, 2011 as described in Note 6. The real estate and employment business continue to be owned
and managed by Yellow Media Inc.

As a result of the above, Yellow Media Inc. reclassified the current and prior period results of the disposed businesses, up to the
date of disposal, as discontinued operations.

The carrying value of assets and liabilities of Trader disposed of as at July 28, 2011 are summarized below:

Current assets1

Property, plant and equipment

Other non-current assets

Intangible assets

Goodwill2

Trade and other payables

Deferred revenues

Deferred credits

Long-term debt

Deferred income taxes

Non-controlling interest

Cumulative translation amount

Total

1 Includes cash of $21.3 million.

63,220

42,450

1,382

355,538

473,544

(37,532)

(5,614)

(2,108)

(13,546)

(95,396)

(53,821)

4,590

732,707

2 Goodwill for discontinued operations is presented net of the impairment charge of $97.4 million recorded upon revaluation of discontinued operations to fair value

less costs to sell, as required by IFRS 5.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Analysis of net loss from discontinued operations for the years ended December 31, 2011 and 2010 are as follows:

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Revenues

Operating costs

Depreciation and amortization

Restructuring and special charges (recovery)

Other

Gain on deemed disposal of investment in associate

Gain on disposal of subsidiary

Earnings (loss) from discontinued operations before income taxes, share of

losses from investment in associates and loss on disposal

Provision (recovery) of income taxes

Share of losses from investment in associates

Loss on disposal, net of income taxes recovery of $1.4 million

2011

148,051

113,339

16,065

(737)

456

(cid:16)
(cid:16)

18,928

5,331

128

134,346

2010

$ 266,228

187,860

90,477

2,512

740

(8,007)

(586)

(6,768)

(4,427)

(cid:16)

Net loss from discontinued operations

(120,877)

(2,380)

Cash flows from discontinued operations for the years ended December 31, 2011 and 2010 are as follows:

Cash from (used in):

Operating activities

Investing activities

Financing activities

Net increase in cash from discontinued operations

8. Investments in associates

2011

2010

31,598

76,929

(22,126)

(1,537)

7,935

(43,971)

7,061

40,019

List of associates

As at,

Canada

411 Local Search

Acquisio

Bignition

USA

Ziplocal

December 31, 2011

December 31, 2010

January 1, 2010

Consolidation % ownership

Consolidation

% ownership

Equity method

–

Equity method

–

Equity method

–

The aggregate amounts of assets, liabilities, revenues and net loss for the investment in associates not adjusted for the percentage
ownership held by Yellow Media Inc. is presented below:

For the periods ended,

DDecember 31, 2011

December 31, 2010

Total assets

Total liabilities

Revenues

Net loss

20,537

18,952

17,929

(3,425)

97,552

148,420

83,901

(18,820)

January 1, 2010

35,346

17,535

Ziplocal was in default of its debt obligations and had undertaken important restructuring initiatives. And as a result during 2011,
Yellow Media Inc. determined that its investment in Ziplocal was impaired and a loss of $50.3 million (net of income taxes of
$0.2 million) was recorded to reduce its net investment in Ziplocal to $nil. Consequently, Yellow Media Inc. no longer recognizes its
share of losses in Ziplocal.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

9. Property, plant and equipment

Net book value as at December 31, 2011

$ 15,749

6,220

Cost

As at December 31, 2010

Additions2

Discontinued operations

Disposals, write-offs and transfers

Translation adjustments

As at December 31, 2011

Accumulated depreciation

As at December 31, 2010

Depreciation expense2

Discontinued operations

Disposals, write-offs and transfers

Translation adjustments

As at December 31, 2011

Cost

As at January 1, 2010

Business acquisitions

Additions2

Discontinued operations

Disposals, write-offs and transfers

Translation adjustments

As at December 31, 2010

Accumulated depreciation

As at January 1, 2010

Depreciation expense2

Discontinued operations

Disposals, write-offs and transfers

Translation adjustments

As at December 31, 2010

Office
equipment1

Computer
equipment1

Other
equipment

Leasehold
improvements

Total

For the year ended December 31, 2011

$ 34,109

50,723

26,012

51,234 $

162,078

5,144

(3,766)

(2,295)

(114)

2,801

(22,697)

(1,157)

(cid:16)

$ 33,078

29,670

$ 15,799

37,126

3,771

(1,061)

(1,145)

(35)

5,478

(19,012)

(142)

(cid:16)

17,329

23,450

9,002

(31,162)

(431)

(727)

9,524

(18,151)

(2,999)

(20)

26,471

(75,776)

(6,882)

(861)

2,694

39,588 $

105,030

5,238

23,172 $

574

(4,568)

(7)

(12)

1,225

1,469

4,317

(8,685)

(2,269)

(5)

16,530

23,058 $

81,335

14,140

(33,326)

(3,563)

(52)

58,534

46,496

Office
equipment1

Computer
equipment1

Other
equipment

Leasehold
improvements

Total

For the year ended December 31, 2010

28,561

44,643

1,821

3,998

(214)

(cid:16)
(57)

697

5,036

(74)

425

(4)

7,092

7,599

11,371

(3)

287

(334)

48,125 $

128,421

658

2,558

(82)

(cid:16)
(25)

10,775

22,963

(373)

712

(420)

34,109

50,723

26,012

51,234 $

162,078

11,678

28,141

4,162

(27)

(cid:16)
(14)

9,445

(51)

(407)

(2)

3,840

1,216

(3)

192

(7)

17,338 $

5,843

(7)

(cid:16)
(2)

15,799

37,126

5,238

23,172

60,997

20,666

(88)

(215)

(25)

81,335

80,743

Net book value as at December 31, 2010

18,310

13,597

20,774

28,062 $

1 The net book value of office and computer equipment includes $3.5 million and $nil, respectively of assets held under finance leases (2010 - $3.7 million and

$2.3 million, respectively).

2 Included in the additions and depreciation expense is $10.2 million (2010 - $16.1 million) and $2.3 million (2010 - $9.1 million), respectively for discontinued operations.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

10.

Intangible assets and goodwill

Trademarks
and domain
names2

Non-
competition
agreements
and logos

Customer-
related
intangible
assets

Software4

Total
Intangible
assets

Goodwill

For the year ended December 31, 2011

Cost

As at December 31, 2010

1,466,095

646,859

171,433

346,658 $

2,631,045 $ 6,467,092

Additions3

Discontinued operations1

Impairment (Note 4)

Disposals, write-offs and

transfers

Translation adjustments

(cid:16)
(284,135)

(14,463)

(15,500)

(817)

(cid:16)
(22,357)

(3,643)

(3,800)

(cid:16)

(cid:16)
(60,006)

(629)

(145)

(2,455)

60,569

(120,520)

(487,018)

(cid:16)
(570,966)

(1,265)

(20,000)

(2,880,000)

1,303

(2,235)

(18,142)

(48,079)

(5,507)

(200)
2,160,947 $ 2,967,847

As at December 31, 2011

1,151,180

617,059

108,198

284,510 $

Accumulated amortization

As at December 31, 2010

42,846

134,204

95,032

206,963 $

Amortization expense3

Discontinued operations

Disposals, write-offs and

transfers

Translation adjustments

19,296

(16,600)

(cid:16)
(cid:16)

26,791

(8,212)

(3,470)

(cid:16)

57,119

(46,211)

(145)

(1,961)

59,625

(60,457)

(926)

(998)

As at December 31, 2011

45,542

149,313

103,834

204,207

479,045 $
162,831
(131,480)

(4,541)

(2,959)
502,896

(cid:16)
(cid:16)
(cid:16)
(cid:16)

(cid:16)

Net book value as at

December 31, 2011

1,105,638

467,746

4,364

80,303 $

1,658,051 $ 2,967,847

Trademarks
and domain
names2

Non-
competition
agreements
and logos

Customer-
related
intangible
assets

Software4

Total
Intangible
assets

Goodwill

For the year ended December 31, 2010

Cost

As at January 1, 2010

1,404,067

630,393

26,325

$ 241,576 $

2,302,361 $ 6,342,580

Business acquisitions

Additions3

Discontinued operations

Disposals, write-offs and

transfers

Translation adjustments

77,774

12,616

(16,137)

(10,500)

(1,725)

13,370

5,831

(2,610)

(cid:16)
(125)

173,971

200

(20,153)

(5,068)

(3,842)

55,567

52,724

(377)

(554)

(2,278)

As at December 31, 2010

1,466,095

646,859

171,433

$ 346,658 $

Accumulated amortization

320,682

71,371

(39,277)

169,508

(cid:16)
(41,767)

(16,122)

(cid:16)
(3,229)
2,631,045 $ 6,467,092

(7,970)

As at January 1, 2010

25,800

108,526

26,182

$ 106,512 $

Amortization expense3

Discontinued operations

Disposals, write-offs and

transfers

Translation adjustments

27,546

(cid:16)

(10,500)

(cid:16)

26,101

(413)

(cid:16)
(10)

96,539

(20,116)

(5,068)

(2,505)

99,890

(114)

1,325

(650)

As at December 31, 2010

42,846

134,204

95,032

206,963

267,020 $
250,076
(20,643)

(14,243)

(3,165)
479,045

(cid:16)
(cid:16)
(cid:16)

(cid:16)
(cid:16)

(cid:16)

Net book value as at

December 31, 2010

1,423,249

512,655

76,401

$ 139,695 $

2,152,000 $ 6,467,092

1 Goodwill for discontinued operations is presented gross of the impairment charge of $97.4 million recorded upon revaluation of discontinued operations to fair

value less costs to sell, as required by IFRS 5.

2 Trademarks and domain names with indefinite useful lives amounted to $1,090.8 million (2010 - $1,374.7 million).

3 Included in the additions and amortization expense is $9.8 million (2010 - $16 million) and $13.8 million (2010 - $81.4 million), respectively for discontinued operations.

4 Software assets under development amounted to $35 million (2010 - $32 million).

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

11. Trade and other payables

Trade

Deposits

Deferred consideration (Note 5)

Payroll related accruals

Publishing related accruals

Accrued interest

Other accrued liabilities

12. Provisions

December 31, 2011 December 31, 2010

January 1, 2010

70,979

96,059

67,201

8,849

22,798

88,683

112,871

30,434

221,868

15,428

2,055

13,837

17,917

38,172

18,092

5,740

––

12,145

16,156

38,891

13,569

156,482

201,560

153,702

During the year ended December 31, 2011, Yellow Media Inc. recorded restructuring and special charges of $26.1 million. The
creation of centers of excellence and the elimination of print publications from our Canpages division resulted in a workforce
reduction and the termination of contractual obligations.

In 2010, in connection with acquisitions made during the year, Yellow Media Inc. recorded costs of $30.5 million including a provision
for restructuring and special charges of $11.7 million. Yellow Media Inc. had adopted formal plans to integrate and restructure the
acquired businesses. Consequently, Yellow Media Inc. established provisions related to planned termination of employment of
certain employees of the acquired businesses who were performing functions already available through its existing structuring and
other restructuring of the acquired businesses’ operations.

During 2010, Yellow Media Inc. also recorded additional restructuring and special charges of $33.9 million related to an internal
reorganization, workforce reduction and the termination of certain contractual commitments.

The provision for restructuring and special charges represents the present value of the best estimate of the future outflow of
economic benefits that will be required to settle the provision and may vary as a result of new events affecting the severances
and charges that will need to be paid. These amounts are expected to be paid mainly in 2012 as the plan is executed.

Other provisions include provisions primarily for vacation and short term incentive plans.

As at January 1, 2010

Charge1

Reversal (utilized provision)

Reversal (surplus provision)

Business acquisitions

Discontinued operations

As at December 31, 2010

Charge1

Reversal (utilized provision)

Reversal (surplus provision)1

Discontinued operations

As at December 31, 2011

Provisions for
restructuring

Provisions for
special charges

Other
provisions

Total
Provisions

16,051

37,538

(30,096)

–

23,493

19,830

(18,251)

(6,100)

(1,335)

17,637

24,811

11,299

8,033

(14,891)

–

9,967

(3,623)

(421)

1,781

(108)

17,953

18,895

9,938

(8,148)

(73)

(664)

3,227

(6,816)

(1,600)

(2,049)

52,161

55,538

(48,610)

(421)

1,781

(108)

60,341

32,995

(33,215)

(7,773)

(4,048)

19,006

111,657

48,300

1 Included in the restructuring and special charges (recovery) is $(0.7) million (2010 - $2.5 million) for discontinued operations.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

13. Post-employment benefits

Yellow Media Inc. maintains pension plans with defined benefit and defined contribution components which cover substantially
all of the employees of Yellow Media Inc. Yellow Media Inc. maintains unfunded supplementary defined benefit pension plans
for certain executives and also maintains other retirement and post-employment benefits (“other benefits”) plans which cover
substantially all employees of Yellow Media Inc.

The changes in the defined benefit obligations and in the fair value of assets and the reconciliation of funded status of the defined
benefit plans to the amount recorded on the consolidated statements of financial position as at December 31, 2011 and 2010
were as follows:

December 31, 2011

December 31, 2010

Pension
Benefits

Other
Benefits

Pension
Benefits

Other
Benefits

Fair value of plan assets, beginning of year

413,755

Expected return on plan assets

Benefit payments

Transfers from defined benefit to defined contribution component of the plan

Actuarial (loss) gains1

Employer contributions

Employee contributions

Fair value of plan assets, end of year

Accrued benefit obligation, beginning of year

Current service cost

Employee contributions

Interest cost

Actuarial losses2

Benefit payments

Defined benefit obligation, end of year

Net defined benefit obligation

28,111

(35,026)

––

(27,664)

10,194

490

3389,860

551,707

12,871

490

29,250

77,000

(35,026)

636,292

–

––

(1,880)

–

11,880

––

–

550,925

8812

––

22,466

441

((1,880)

552,364

$ 400,955

28,335

(31,464)

(276)

7,965

7,674

566

413,755

460,785

12,492

566

29,829

79,499

(31,464)

551,707

–

(2,276)

–

2,276

–

45,006

1,061

–

2,923

4,211

(2,276)

50,925

(246,432)

$ (52,364)

(137,952) $

(50,925)

1 Actuarial gains included experience adjustments on plan assets of $28.6 million (2010 - $8 million).

2 Actuarial losses included experience adjustments on plan liabilities of $23.2 million (2010 - $nil).

While all the plans are not considered fully funded for financial reporting purposes, registered plans are funded in accordance
with the applicable statutory funding rules and regulations governing the particular plans.

The significant assumptions adopted in measuring Yellow Media Inc.’s pension and other benefit obligations as at December 31, 2011
and 2010 were as follows:

Post-employment benefit obligation

Discount rate, end of year

Rate of compensation increase

Net benefit plan costs

Discount rate, end of preceding year

Rate of compensation increase

Expected long-term rate of return on plan assets

Expected average remaining service life (years)

December 31, 2011

December 31, 2010

Pension
Benefits

Other
Benefits

Pension
Benefits

Other
Benefits

4.50%

3.25%

44.50%

33.50%

5.50%

3.25%

5.50%

3.50%

5.50%

3.25%

7.0%

55.50%

33.50%

––

6.50%

3.25%

7.0%

6.50%

3.50%

–

For measurement purposes, a 8% annual increase in the per capita cost of covered health care benefits (the health care cost
trend rate) was assumed in 2011. The rate of increase of the cost of medication was assumed to gradually decline to 5% by
2026 and to remain at that level thereafter. A 4.50% annual increase in per capita cost of covered dental care benefits was
assumed in 2011.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-
point change in assumed healthcare cost trend rates would have the following effects:

Effect on other benefits – total service and interest costs

Effect on other benefits – Post-employment benefit obligation

152

$$ 2,069

(147)

(2,018)

One-Percentage-Point - Increase

One-Percentage- Point - Decrease

The net benefit plan costs include the following components:

Current service cost1

Interest cost (Note 22)

Expected return on plan assets (Note 22)

Net benefit costs recognized in income statement

Actuarial losses

Net benefit costs recognized in other comprehensive income

Pension
Benefits

12,871

229,250

((28,111)

114,010

1104,664

For the years ended December 31,

2011

Other
Benefits

Pension
Benefits

2010

Other
Benefits

812

12,492

2,466

–

3,278

29,829

(28,335)

13,986

71,534

1,061

2,923

–

3,984

4,211

8,195

–

8,195

Total net benefit plan costs for the YPG Co. defined benefit plans

118,674

3,319

85,520

Net benefit plan costs for the YPG Co. defined contribution plans

3,551

–

2,857

Total net benefit plan costs

1 Included in operating costs

122,225

3,319

88,377

Plan assets are represented primarily by Canadian and foreign equities, government and corporate bonds, debentures and
secured mortgages. Plan assets are held in trust and the asset allocation was as follows as at December 31, 2011 and 2010
and January 1, 2010:

(in percentages - %)

DDecember 31, 2011

December 31, 2010

January 1, 2010

Asset categories in the Master Trust:

Cash and other short-term investments

Publicly traded equity securities

Publicly traded fixed income securities

Pending MTS transfer

662

335

–

The expected return on plan assets is determined by considering long-term historical returns, future estimates of long-term
investment returns and asset allocations.

The total cash payments for pension and other benefit plans made by Yellow Media Inc. amounted to $15.6 million for 2011
(2010 – $12.5 million). Total cash payments for pension and other benefit plans expected in 2012 amount to approximately
$43 million.

As at December 31, 2011 and 2010 and January 1, 2010, the publicly traded equity securities did not directly include any
shares of Yellow Media Inc.

Yellow Media Inc.’s funding policy is to make contributions to its pension plans based on various actuarial cost methods as
permitted by pension regulatory bodies. Yellow Media Inc. is responsible to adequately fund the plans. Contributions reflect
actuarial assumptions concerning future investment returns, salary projections and future service benefits.

Yellow Media Inc.’s expense for provincial, federal and state pensions plans was $7.6 million for the year ended December 31, 2011
(2010 – $6.6 million).

As at December 31, 2011, Yellow Media Inc. had recognized an accumulated balance of $133.9 million, net of income taxes of
$46.6 million in actuarial losses in Other Comprehensive Income.

YELLOW MEDIA INC. ANNUAL REPORT 2011

14. Long-term debt

Medium Term Notes

Credit facilities

Obligations under finance leases1

Less current portion of long-term debt

Medium Term Notes

Credit facilities

Note payable

Obligations under finance leases1

Less current portion of long-term debt

Medium Term Notes

Credit facilities

Obligations under finance leases1

Less current portion of long-term debt

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Principal amount

1,405,505

2205,000

44,148

11,614,653

1102,339

Fair value adjustment
of hedged item

Deferred
financing costs

December 31, 2011

Total

7,964

(9,386)

1,404,083

–

7,964

–

(9,386)

–

205,000

4,148

1,613,231

102,339

1,512,314

7,964

(9,386)

1,510,892

Principal amount

1,661,586

250,000

12,258

8,414

1,932,258

3,669

Fair value adjustment
of hedged item

Deferred
financing costs

December 31, 2010

Total

8,439

(13,825)

1,656,200

–

8,439

–

(13,825)

–

250,000

12,258

8,414

1,926,872

3,669

1,928,589

8,439

(13,825)

1,923,203

Principal amount

2,053,345

100,000

9,027

2,162,372

2,254

Fair value adjustment
of hedged item

Deferred
financing costs

January 1, 2010

Total

10,703

(19,101)

2,044,947

–

10,703

–

(19,101)

–

100,000

9,027

2,153,974

2,254

2,160,118

10,703

(19,101)

2,151,720

1 Less imputed interest at varying rates not exceeding 10.1% (2010 - 15.6%).

Medium Term Notes

Medium Term Notes were issued in various series between April 2004 and November 2009. The terms and conditions of these notes
are governed by a Trust indenture dated April 2004. Medium Term Notes outstanding as at December 31, 2011 are as follows:

- $254.7 million of 5.71% Series 2 Notes maturing on April 21, 2014 priced at $99.985, for an initial yield to the

noteholders of 5.71% compounded semi-annually

- $121.2 million of 5.85% Series 3 Notes maturing on November 18, 2019 priced at par, for an initial yield to the

noteholders of 5.85% compounded semi-annually

- $319.9 million of 5.25% Series 4 Notes maturing on February 15, 2016 priced at $99.571, for an initial yield to the

noteholders of 5.31% compounded semi-annually

- $16.6 million of 6.25% Series 5 Notes maturing on February 15, 2036 priced at $100.933, for an initial yield to the

noteholders of 6.181% compounded semi-annually

- $138.1 million of 7.3% Series 7 Notes maturing on February 2, 2015 priced at par, for an initial yield to the

noteholders of 7.3% compounded semi-annually

- $125 million of 6.85% Series 8 Notes maturing on December 3, 2013 priced at par, for an initial yield to the

noteholders of 6.85% compounded semi-annually

- $130 million of 6.50% Series 9 Notes maturing on July 10, 2013 priced at par, for an initial yield to the noteholders of

6.50% compounded semi-annually and

- $300 million of 7.75% Series 10 Notes maturing on March 2, 2020 priced at par, for an initial yield to the noteholders

of 7.75% compounded semi-annually

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

During 2011, Yellow Media Inc. repurchased for cancellation an amount of $42.8 million of the Series 2 Medium Term Notes,
$67.5 million of the Series 4 Medium Term Notes, $23.9 million of the Series 5 Medium Term Notes and $121.9 million of the
Series 7 Medium Term Notes for a total cash consideration of $229.3 million. The difference between the purchase price and the
carrying value of the Medium Term Notes of $26 million was recorded as a gain in financial charges.

All Series of Notes are unsecured and are unconditionally guaranteed by Yellow Media Inc., YPG Co., Canpages, YPG (USA) Holdings Inc.,
and Yellow Pages Group, LLC. as to the payment of principal and interest.

Credit facilities

Yellow Media Inc. has in place a senior unsecured credit facility consisting of:

(cid:131) A $455 million facility (the “credit facility”) which is comprised of:

(cid:131)

a $250 million revolving tranche maturing in February 2013 and;

a $205 million non-revolving tranche maturing in February 2013.

The revolving tranche can be used for general corporate purposes.

On September 28, 2011, Yellow Media Inc. amended its then $1 billion credit facility which consisted of a $750 million revolving
tranche and a $250 million non-revolving tranche to a $500 million credit facility.

As at December 31, 2011, the revolving tranche of the credit facility was undrawn and the outstanding balance of the non-revolving
tranche amounted to $205 million. Yellow Media Inc. is required to make quarterly repayments of $25 million on the outstanding
balance of the non-revolving tranche of the credit facility, commencing in January 2012 through January 2013. This amount may not
be re-borrowed once repaid.

The use of available borrowings is subject to certain restrictions and future indebtedness is limited under the amended and currently
effective credit facility. Furthermore, there are certain restrictions and limitations on the utilization of future cash proceeds on the
disposal of certain assets. The amended facility allows Yellow Media Inc. to repurchase up to $125 million of its Series 8 and Series 9
Medium Term Notes prior to their maturity date in 2013, subject to certain conditions. The amended credit facility also includes
restrictions with respect to the incurrence or assumption of indebtedness and liens, the transfer of assets as well as acquisitions and
investments. The amended facility restricts on a going forward basis the declaration and payment of common share dividends.

Yellow Media Inc. must meet various covenants under the amended facility including but not limited to the following: a Consolidated Total
Debt to Consolidated Latest Twelve Month EBITDA1 ratio of not more than 3.5 to 1 and a Consolidated Latest Twelve Month EBITDA1 to
Consolidated Interest Expense ratio of not less than 3.5 to 1.

The amended facility bears interest at BA rates plus a spread of 3.5%. This spread is based on a ratings grid. The revolving facility may
be used for general corporate purposes. The effective interest rate on the credit facility including interest on commercial paper and
commitment fees was 4.4% in 2011.

A portion of the deferred financing fees associated with the original credit facility was written off during the third quarter of 2011. The
financing fees associated with the amended credit facility have been deferred and will be amortized over the remaining life of the
amended credit facility.

Yellow Media Inc. was in compliance with all of its debt covenants as at December 31, 2011.

Commercial paper

Following our downgrade to a non-investment grade rating, our access to the commercial paper market was discontinued. As at
December 31, 2011, no amount was outstanding on the commercial paper program. As at December 31, 2010, there was
$295 million outstanding under the Commercial Paper program ($74 million – January 1, 2010). The commercial paper bore
interest at approximately BA rates plus an applicable spread and commission.

Obligations under finance leases

Yellow Media Inc. entered into several lease agreements with third parties for office equipment and for software. The obligations
under finance leases are secured by a moveable hypothec on the office equipment leased.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Finance lease liabilities are payable as at December 31, 2011 as follows:

Less than one year

Between one and five years

More than five years

Future minimum
lease payments

22,513

1,922

–

44,435

Interest

1174

113

–

Present value of minimum
lease payments

22,339

1,809

–

2287

44,148

15. Exchangeable and convertible instruments

Principal amount

Equity component

Accretion

Deferred financing costs

December 31, 2011

December 31, 2010

200,000

341,562

January 1, 2010

86,549

((10,139)

11,685

((7,332)

(10,139)

533

(12,927)

(3,618)

2,362

(1,407)

184,214

319,029

83,886

The remaining balance of $86.5 million of Exchangeable Debentures was redeemed by Yellow Media Inc. on August 2, 2010 for
a total cash consideration of $86.5 million excluding accrued interest. The carrying value of the Exchangeable Debentures was
$84.8 million. A loss of $1.7 million was recorded in net earnings in financial charges. The remaining balance of the conversion
option amounting to $3.6 million related to the purchase was credited to other reserves.

In connection with the Canpages acquisition, Yellow Media Inc. issued Mandatory Exchangeable Promissory Notes (“Exchangeable
Notes”) for a principal amount of $141.6 million. On February 25, 2011, $35.4 million Exchangeable Notes were exchanged into
6,255,026 shares of Yellow Media Inc. (Note 18). In March 31, 2011 Yellow Media Inc. exercised its redemption right applicable to
one quarter of the principal amount of the Exchangeable Notes representing $35.4 million. The principal amount along with the 5%
redemption premium stipulated under the total return swap (“TRS”) was paid on April 1, 2011. During the second quarter of 2011,
the remaining $70.8 million Exchangeable Notes balance were redeemed before maturity. The principal remaining amounts along
with the 5% redemption premium stipulated under the TRS was paid on June 10, 2011 and the TRS was unwound.

On July 8, 2010, Yellow Media Inc. issued convertible unsecured subordinated debentures for a principal amount of $200 million
(“Convertible Debentures”). The Convertible Debentures bear interest payable semi-annually at a rate of 6.25% and mature on
October 1, 2017. The Convertible Debentures may be exchanged at any time, at the option of the holder, for common shares of
Yellow Media Inc. at an exchange price of $8 per share (the “Exchange price”). On and after October 1, 2013 and prior to
October 1, 2015, the Convertible Debentures may be redeemed in whole or in part from time to time at the option of Yellow Media Inc.
at a price equal to their principal amount plus accrued and unpaid interest, provided that the current market price of the common
shares preceding the date on which the notice of redemption is given is not less than 125% of the Exchange price. On and after
October 1, 2015, the Convertible Debentures may be redeemed in whole or in part from time to time at the option of Yellow Media Inc.
at a price equal to their principal amount plus accrued interest. Yellow Media Inc. may also, at its option and subject to certain
conditions, elect to satisfy its obligation to repay all or any portion of the principal amounts and interest of the Convertible Debentures
that are to be redeemed or repaid at maturity, by issuing common shares of Yellow Media Inc. The number of shares a holder will
receive in respect of each Convertible Debenture will be determined by dividing the principal amount of the Convertible Debentures
that are to be redeemed or repaid at maturity by 95% of the market price of the common shares.

The conversion option was valued at $7.4 million (net of income taxes of $2.7 million) at the date of issuance and is included in
Equity attributable to the shareholders. The liability portion is being accreted such that the liability at maturity will equal the gross
proceeds less conversions.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

16. Preferred shares, Series 1 and 2

Shares issued, Series 1 and Series 2

402,700

452,978

481,408

December 31, 2011

December 31, 2010

January 1, 2010

Derivative component

Deferred financing costs

Less current portion

a) Series 1

7741

((4,555)

398,886

249,713

962

(7,215)

446,725

–

1,161

(9,792)

472,777

–

149,173

446,725

472,777

On March 6, 2007, Yellow Media Inc. issued 12,000,000 Series 1 cumulative redeemable first preferred shares (“Series 1 shares”)
for net proceeds of $291 million after deducting underwriters’ fees in the amount of $8 million and other issuance costs of $1 million.

Voting rights

All of the issued and outstanding Series 1 shares are non-voting, except under special circumstances when the holders are entitled
to one vote per share.

Entitlement to dividends

The holders of the Series 1 shares are entitled to receive fixed cumulative preferential cash dividends, if, as and when declared
by the Board of Directors, in an amount equal to $1.0625 per Series 1 share per annum, payable quarterly.

Redemption by the issuer

On or after March 31, 2012, Yellow Media Inc. may, at its option, redeem at par for cash the Series 1 shares, in whole or in part.
Also, on or after March 31, 2012, and prior to December 31, 2012, Yellow Media Inc. may, at its option, exchange the outstanding
Series 1 shares, in whole or in part, into common shares of the Company. In addition, the Series 1 shares will be redeemable at a
premium in cash or exchangeable at the option of Yellow Media Inc., in whole or in part into common shares of the Company on or
after March 31, 2007 provided that any exchange prior to March 31, 2012 shall be limited to circumstances in which the Series 1
shares are entitled to vote separately as a class or series by law or court order at a conversion price equal to the greater of
$2.00 and 95% of the then applicable weighted average trading price of the common shares. This option is an embedded
derivative and is recorded at fair value on the consolidated statement of financial position with changes in fair value recognized in
financial charges.

Redemption by the holder

On or after December 31, 2012, each preferred share is redeemable, at the option of the holder, at a price equal to $25.00 per
share plus any accrued and unpaid dividends in arrears.

b) Series 2

On June 8, 2007, Yellow Media Inc. issued 8,000,000 Series 2 cumulative redeemable first preferred shares (“Series 2 shares”) for
net proceeds of $193 million after deducting underwriters’ fees in the amount of $6 million and other issuance costs of $1 million.

Voting rights

All of the issued and outstanding Series 2 shares are non-voting, except under special circumstances when the holders are
entitled to one vote per share.

Entitlement to dividends

The holders of the Series 2 shares are entitled to receive fixed cumulative preferential cash dividends, if, as and when declared
by the Board of Directors, in an amount equal to $1.25 per Series 2 share per annum, payable quarterly.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Redemption by the issuer

On or after June 30, 2012, Yellow Media Inc. may, at its option, redeem for cash the Series 2 shares, in whole or in part at a
decreasing premium until June 30, 2016 and at par thereafter. Also, on or after June 30, 2012, and prior to June 30, 2017,
Yellow Media Inc. may, at its option, exchange the outstanding Series 2 shares, in whole or in part, into common shares of the
Company at a decreasing premium until June 30, 2016 and at par thereafter. In addition, the Series 2 shares will be
redeemable at a premium in cash or exchangeable at the option of Yellow Media Inc., in whole into common shares of the
Company on or after June 30, 2007 provided that any exchange prior to June 30, 2012 shall be limited to circumstances in
which the Series 2 shares are entitled to vote separately as a class or series by law or court order. This option is an embedded
derivative and is recorded at fair value on the consolidated statement of financial position with changes in fair value recognized
in financial charges.

Redemption by the holder

On or after June 30, 2017, each preferred share is redeemable, at the option of the holder, at a price equal to $25.00 per share
plus any accrued and unpaid dividends in arrears.

Normal course issuer bid

On May 11, 2011, Yellow Media Inc. received approval from the TSX on its notice of intention to renew its normal course issuer
bid for its preferred shares Series 1 and preferred shares Series 2 for the period from June 13, 2011 to no later than
May 12, 2012 through the facilities of the TSX, in accordance with applicable rules and regulations of the TSX.

Under its normal course issuer bid, Yellow Media Inc. can purchase for cancellation up to 1,127,882 and 542,406 of its
outstanding first preferred shares, Series 1 (“Series 1 shares”) and first preferred shares, Series 2 (“Series 2 shares”), respectively.
During 2011, Yellow Media Inc. purchased for cancellation, under the current and prior normal course issuer bids, 1,232,948
Series 1 shares of Yellow Media Inc. for a total cash consideration of $25.5 million including brokerage fees and 778,156 Series 2
shares of Yellow Media Inc. for a total cash consideration of $11.3 million including brokerage fees. The carrying value of these
Series 1 and Series 2 shares was $30.6 million and $19.1 million, respectively. The difference between the purchase price and the
carrying value of the Series 1 and Series 2 shares of $12.8 million was recorded as a gain and included in financial charges. As at
December 31, 2011, there were 10,045,872 Series 1 and 6,062,128 Series 2 outstanding.

In order to maximize funds available for debt repayment and reinvestment in the business, Yellow Media Inc. has decided to suspend
activity under its normal course issuer bid for its preferred shares, Series 1 and Series 2, as announced on September 28, 2011.
This decision is in compliance with the amendments that Yellow Media Inc. agreed to make with respect to its credit facility.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

17.

Income taxes

A reconciliation of income taxes at Canadian statutory rates with reported income taxes is as follows:

(Loss) earnings before income taxes and impairment and share of losses

from investments in associates

Combined Canadian federal and provincial tax rates

Income tax (recovery) expense at statutory rates

Increase (decrease) resulting from:

Intercompany interest income earned in non-taxable entities

Impairment of goodwill and intangible assets

Non-deductible dividend expense

Other

Unrecognized tax attributes

Writedown of deferred tax assets

Difference in the statutory rate applicable to foreign operations

Rate differential on temporary differences

Provision for income taxes

For the years ended December 31,

2011

2010

(2,558,642)

27.90%

(713,861)

345,269

29.91%

103,270

–

745,102

7,921

6,255

32,526

8,081

(3,676)

4,801

(43,820)

–

8,503

(4,273)

25,188

10,513

(6,445)

647

87,149

93,583

The combined applicable statutory tax rate has decreased by approximately 2% resulting mainly from the reduction in the Canadian
Federal statutory tax rate.

Provisions for income taxes include the following amounts for the years ended:

Current - continuing operations

Deferred – continuing operations

Current – discontinued operations

Deferred - discontinued operations

December 31, 2011

December 31, 2010

9,508

77,641

87,149

6,162

(2,275)

3,887

91,036

49,057

44,526

93,583

7,481

(11,908)

(4,427)

89,156

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Deferred income tax (assets) liabilities are attributable to the following items as at:

Deferred
financing
costs

Non-capital
losses
carryforward

Deferred
revenues

Post-
employ-
ment
benefits

Deriva-
tives

Accrued
liabilities

Property,
plant and
equipment
and lease
induce-
ments

Exchan-
geable and
Conver-
tible Instru-
ments

Deferred
income tax
liabilities,
net

Intangibles

December

31, 2010

$ 5,555 $

(9,627) $ (20,986) $ (50,526) $

(900) $ (10,704) $

(1,951) $ 2,716 $ 254,279 $ 167,856

(Benefit) expense

to income
statement

Benefit to other

comprehensive
income

Discontinued
operations

Translation
and other

December

2,810

(4,241)

5,951

(1,249)

(1,246)

311

8,444

(451)

65,037

75,366

–

(27,053)

4,453

261

170

–

(28)

(27,081)

1,926

(1,544)

–

(100,662)

(95,396)

–

(1,533)

(1,440)

31, 2011

$ 8,366 $

(9,415) $ (14,774) $ (78,658) $ (2,146) $ (8,467) $ 5,041 $ 2,265 $ 217,093 $ 119,305

Deferred
financing
costs

Non-capital
losses
carryforward

Deferred
revenues

Post-
employment
benefits

Deriva-
tives

Accrued
liabilities

Property,
plant and
equipment
and lease
induce-
ments

Exchan-
geable and
Conver-
tible Instru-
ments

Deferred
income tax
liabilities,
net

Intangibles

January 1, 2010 $ 1,777 $ (23,010) $ (26,714) $ (34,551) $

(53) $ (10,422) $

(1,088) $ 1,081 $ 167,625 $ 74,645

Acquisitions

–

(2)

–

69,247

69,245

(Benefit) expense

to income
statement

Charge to equity

(Benefit) expense

to other compre-
hensive income

Discontinued
operations

Translation
and other

December

31, 2010

3,778

13,383

5,728

688

(1,011)

(380)

(849)

(1,081)

12,362

32,618

–

(19,460)

164

2,797

–

2,716

–

2,716

–

(12)

–

(19,296)

5,113

7,996

(68)

$ 5,555 $

(9,627) $ (20,986) $ (50,526) $

(900) $ (10,704) $

(1,951) $ 2,716 $ 254,279 $ 167,856

At December 31, 2011, Yellow Media Inc. has not recognized deferred income tax assets with respect to Canadian operating losses
of $58.5 million expiring from 2026 to 2031, foreign operating losses of $38.3 million which expire from 2028 to 2031, Canadian
capital losses of $68.9 million which can be utilized indefinitely, and deductible temporary differences of $384.5 million.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

18. Shareholders’ capital

Common shares

An unlimited number of common shares are authorized to be issued.

Balance, January 1, 2011

Shares issued pursuant to the dividend reinvestment plan

Repurchase of common shares under normal course issuer bid

Reduction in capital

Exchange of Preferred Shares, Series 7

Conversion of Exchangeable Notes (Note 15)

Balance, December 31, 20111

Balance, January 1, 2010

Conversion of Exchangeable Shares of YPG LP

Shares issued

Capital reduction pursuant to the Plan of Arrangement

Exchange of Preferred Shares, Series 7

Shares issued pursuant to the dividend reinvestment plan

Balance, December 31, 20101

December 31, 2011

Number of Shares

Amount

516,017,984

4,079,838

99,131,968

((11,252,884)

(cid:16)
2250,000

66,255,026

26,031

(88,419)

(500,000)

1,875

35,390

5520,402,094

3,554,715

December 31, 2010

Number of shares

Amount

511,044,685

6,030,339

2,000,000

3,104

(cid:16)
666,667

2,303,528

31,700

(2,000,000)

4,190

13,597

516,017,984

4,079,838

1 Includes 7,806,780 Restricted Shares (2010 – 10,300,605) pursuant to the Restricted Share Plan.

During the year ended December 31, 2011, Yellow Media Inc. declared total dividends to common shareholders of $207.3 million
or $0.40 per share ($402.7 million or $0.80 per share in 2010).

Dividend reinvestment plan

During 2010, Yellow Media Inc. announced a dividend reinvestment plan (“Drip”) which became effective November 1, 2010.
Under the plan, holders of common shares of Yellow Media Inc. who are residents of Canada have elected to have cash dividends
paid on their common shares reinvested into additional common shares of Yellow Media Inc. The Drip allowed Yellow Media Inc. to
purchase the common shares on the open market or elect to have the common shares issued from treasury. Yellow Media Inc.
could issue the common shares from treasury with a discount from prevailing market prices ranging from 2% to 5%. The new amended
credit facility restricts the declaration and payment of common share dividends.

Preferred shares

Authorized:

(cid:131)

8,625,000 Series 3 cumulative rate reset preferred shares

8,625,000 Series 4 cumulative floating rate preferred shares

5,000,000 Series 5 cumulative rate reset preferred shares

5,000,000 Series 6 cumulative floating rate preferred shares

1,300,000 Series 7 cumulative exchangeable preferred shares

YELLOW MEDIA INC. ANNUAL REPORT 2011

Issued:

Balance, December 31, 2010

Repurchase of preferred shares under normal course issuer bid

Exchange of Preferred Shares, Series 7

Balance, December 31, 2011

Balance, January 1, 2010

Reclassified from non-controlling interest

Exchange of Preferred Shares, Series 7

Balance, December 31, 20101

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

December 31, 2011

Number of Shares

Amount

113,933,333

328,880

((259,180)

((250,000)

(6,318)

(1,875)

113,424,153

320,687

Number of Shares

(cid:16)
14,600,000

(666,667)

13,933,333

December 31, 2010

Amount

(cid:16)
333,880

(5,000)

328,880

1 During the first nine months of 2010, the preferred shares, Series 3 and 5 were classified as non-controlling interest.

Series 3

On September 23, 2009, Yellow Media Inc. issued 7,500,000 Series 3 cumulative rate reset preferred shares (“Series 3
shares”) at a purchase price of $25.00 per share. On September 28, 2009, Yellow Media Inc. issued an additional 800,000
Series 3 shares pursuant to the exercise of the over allotment option granted to the underwriters for combined net proceeds of
$200.5 million after deducting underwriters’ fees in the amount of $6 million and other issuance costs of $1 million and
excluding income tax recovery of $2 million on the fees.

Voting rights

All of the issued and outstanding Series 3 shares are non-voting, except under special circumstances when the holders are entitled
to one vote per share.

Entitlement to dividends

The holders of the Series 3 shares are entitled to receive fixed cumulative preferential cash dividends, if, as and when declared
by the Board of Directors, in an amount equal to $1.6875 per Series 3 share per annum, payable quarterly, for the initial five
year period ending September 30, 2014. The dividend rate will be reset on September 30, 2014 and every 5 years thereafter.

Redemption by the issuer

On September 30, 2014, and on September 30 every five years thereafter, Yellow Media Inc. may, at its option, redeem at par
for cash the Series 3 shares, in whole or in part.

Conversion at the option of the holder

On September 30, 2014, each preferred share is convertible, at the option of the holder, into Series 4 preferred shares (“Series 4”)
on a one to one basis. The Series 4 shares will be entitled to floating rate cumulative preferential cash dividends, as and when
declared by the Board of Directors, payable quarterly. The floating quarterly dividend rate will be equal to the sum of the three-
month government of Canada Treasury bill yield plus 4.17% per annum.

Series 5

On December 22, 2009, Yellow Media Inc. issued 5,000,000 Series 5 cumulative rate reset preferred shares (“Series 5 shares”) at
a purchase price of $25.00 per share for net proceeds of $120.3 million after deducting underwriters’ fees in the amount of
$3.7 million and other issuance costs of $1 million and excluding income tax recovery of $1.4 million on the fees.

Voting rights

All of the issued and outstanding Series 5 shares are non-voting, except under special circumstances when the holders are
entitled to one vote per share.

Redemption by the issuer

On June 30, 2015, and June 30 every five years thereafter, Yellow Media Inc. may, at its option, redeem at par for cash the Series 5
shares, in whole or in part.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Entitlement to dividends

The holders of the Series 5 shares are entitled to receive fixed cumulative preferential cash dividends, if, as and when declared
by the Board of Directors, in an amount equal to $1.725 per Series 5 share per annum, payable quarterly, for the initial five year
period ending June 30, 2015. The dividend rate will be reset on June 30, 2015 and every 5 years thereafter.

Conversion at the option of the holder

On June 30, 2015, each preferred share is convertible, at the option of the holder, into Series 6 preferred shares (“Series 6”) on
a one to one basis. The Series 6 shares will be entitled to floating rate cumulative preferential cash dividends, as and when
declared by the Board of Directors, payable quarterly. The floating quarterly dividend rate will be equal to the sum of the
three-month government of Canada Treasury bill yield plus 4.26% per annum.

Series 7

On February 9, 2010, in connection with the acquisition of Red Flag Deals, Yellow Media Inc. issued 1,300,000 Series 7 shares at a
price of $7.50 per Series 7 share as payment to the vendors for the acquisition by way of a private placement. The holders of the
Series 7 shares are entitled to receive fixed cumulative preferential cash dividends, if, as and when declared by the Board of
Directors of Yellow Media Inc. in an amount equal to $0.375 per Series 7 share per annum, yielding 5% per annum, payable quarterly
on the third last business day of March, June, September and December of each year. The Series 7 shares are exchangeable into
shares of Yellow Media Inc. at a ratio of one preferred share for one share of Yellow Media Inc. On or after January 1, 2012, 300,000
Series 7 shares may be exchanged subject to certain time-based and performance conditions (Note 5).

During 2010, 666,667 Series 7 were exchanged into 666,667 common shares of Yellow Media Inc. As at December 31, 2011,
there were 383,333 Series 7 shares outstanding (2010 - 633,333).

The Series 3, 5 and 7 shares were initially classified as non-controlling interest on the statement of financial position as they were
issued by a subsidiary of the Fund. As a result of the conversion from an income trust to a corporation on November 1, 2010, the
Series 3, 5, and 7 are now classified in Shareholders’ equity.

During 2011, the holder exchanged 250,000 Series 7 into 250,000 common shares with a carrying value of $1.9 million.

During 2011, Yellow Media Inc. declared dividends to holders of Series 3, 5, and 7 of $22.5 million or $1.6875 per Series 3,
$1.725 per Series 5, and $0.375 per Series 7 ($22.8 million in 2010 or $1.6875 per Series 3, $1.725 per Series 5 and $0.375
per Series 7).

Reduction of capital

The stated capital of Yellow Media Inc, in respect of common shares was reduced by $500 million and Reduction of Capital and
Other Reserves was increased by the same amount.

Normal course issuer bid

On May 11, 2011, Yellow Media Inc. received approval from the TSX on its notice of intention to make a normal course issuer
bid for its common shares, first preferred shares, Series 3 and first preferred shares, Series 5 for the period from May 13, 2011
to no later than May 12, 2012, in accordance with applicable rules and regulations of the TSX.

Under its normal course issuer bid, Yellow Media Inc. could purchase for cancellation up to 51,782,537 of its outstanding common
shares, 830,000 of its outstanding first preferred shares, Series 3, and 500,000 of its outstanding first preferred shares, Series 5.

During the year ended December 31, 2011, Yellow Media Inc. purchased for cancellation 11,252,884 common shares of
Yellow Media Inc. for a total cash consideration of $46.5 million including brokerage fees. The average carrying value of the
common shares was $7.86 per share. The difference between the purchase price and the carrying value of the common shares
of $41.9 million was credited to Deficit. In addition, a portion of the reserve related to the share capital reduction recorded in
November 2010 under the Plan of Arrangement in the amount of $42.9 million was also credited to Deficit.

During the year ended December 31, 2011, Yellow Media Inc. also purchased for cancellation 179,100 Series 3 shares of
Yellow Media Inc. for a total cash consideration of $2.7 million including brokerage fees and 80,080 Series 5 shares of
Yellow Media Inc. for a total cash consideration of $1.2 million including brokerage fees. The carrying value of these Series 3
and 5 shares was $4.4 million and $1.9 million, respectively. The difference between the purchase price and the carrying value
was credited to Deficit.

In order to maximize funds available for debt repayment and reinvestment in the business, Yellow Media Inc. has decided to suspend
activity under its normal course issuer bid for its common, Series 3 and Series 5 shares, as announced on September 28, 2011. This
decision is in compliance with the amendments that Yellow Media Inc. agreed to make with respect to its credit facility.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

19. Earnings per share

The following table reconciles the net (loss) earnings attributable to shareholders and the weighted average number of shares
outstanding used in computing basic (loss) earnings per share to weighted average number of shares outstanding used in computing
diluted (loss) earnings per share:

Weighted average number of shares outstanding used in computing basic earnings per share

Dilutive effect of options

Dilutive effect of Restricted Shares1

Dilutive effect of Series 7 Preferred shares

Dilutive effect of Series 1 Preferred shares

Dilutive effect of Series 2 Preferred shares

Dilutive effect of Exchangeable Debentures

Dilutive effect of Convertible Debentures

Dilutive effect of Exchangeable notes

For the years ended December 31,

2011
5511,765,665
––

––

20102

503,111,679

382,039

10,016,622

1,125,571

51,890,688

31,847,677

8,819,220

17,564,620

15,292,171

Weighted average number of shares outstanding used in computing diluted (loss) earnings per share

5511,765,665

640,050,287

1 Subject to specific payout conditions.
2 Comparative amounts presented as trust units.

Net (loss) earnings from continuing operations

Attributable to non-controlling interest

Dividends to preferred shareholders

For the years ended December 31,

2011

2010

(2,708,122)

231,786

490

164

(22,539)

(22,834)

Net (loss) earnings from continuing operations available to common shareholders of Yellow Media Inc.

used in the computation of basic (loss) earnings per share

(2,730,171)

209,116

Impact of assumed conversion of Exchangeable Debentures, net of applicable taxes

Impact of assumed conversion of Series 1 Preferred shares, net of applicable taxes

Impact of assumed conversion of Series 2 Preferred shares, net of applicable taxes

Impact of assumed conversion of Series 7 Preferred shares, net of applicable taxes

Impact of assumed conversion of Convertible Debentures, net of applicable taxes

Impact of assumed conversion of Exchangeable Notes

Net (loss) earnings adjusted for dilutive effect

–

3,948

14,503

8,591

461

5,065

2,967

(2,730,171)

244,651

For the years ended December 31,

2011

2010

Net (loss) earnings attributable to common shareholders of Yellow Media Inc.

((2,832,649)

226,498

Dividends to preferred shareholders

Net (loss) earnings available to common shareholders of

(22,539)

(3,651)

Yellow Media Inc. used in the computation of basic earnings per share

(2,855,188)

222,847

Impact of assumed conversion of Exchangeable Debentures, net of applicable taxes

Impact of assumed conversion of Series 1 Preferred shares, net of applicable taxes

Impact of assumed conversion of Series 2 Preferred shares, net of applicable taxes

Impact of assumed conversion of Series 7 Preferred shares, net of applicable taxes

Impact of assumed conversion of Convertible Debentures, net of applicable taxes

Impact of assumed conversion of Exchangeable notes

Net (loss) earnings adjusted for dilutive effect

––

3,948

14,503

8,591

461

5,065

2,967

(2,855,188)

258,382

Yellow Media Inc. did not calculate the diluted loss per share for year ended December 31, 2011 because the conversion of the
dilutive instruments listed above would be anti-dilutive to the loss.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Net loss from discontinued operations

Attributable to non-controlling interest

For the years ended December 31,

2011

2010

((120,877)

(2,380)

(4,140)

16,111

Net (loss) earnings from discontinued operations available to common shareholders of Yellow Media Inc.

used in the computation of basic and diluted earnings per share

(125,017)

13,731

Basic (loss) earnings per share attributable to common shareholders from discontinued operations

Diluted (loss) earnings per share attributable to common shareholders from discontinued operations

For the years ended December 31,

2011

((0.24)

(0.24)

2010

0.03

0.02

The diluted loss per share from discontinued operations is not calculated for the year ended December 31, 2011 because the
conversion of the dilutive instruments listed above would be anti-dilutive.

20. Stock-based compensation plans

The Group’s stock-based compensation plans consist of a Restricted Share Plan and Stock Option Plans.

Restricted Share Unit Plan

Yellow Media Inc. has established an employee benefit plan known as the Restricted Share Unit Plan (the “RS Plan”). The RS
Plan provides certain eligible employees the right to receive shares subject to the terms and conditions of the RS Plan.

Cash dividends received on all Restricted shares awarded to eligible employees and directors were reinvested in additional
Restricted Shares and vested according to the terms of the grant pursuant to which they are paid. Cash dividends received on
all Restricted Shares awarded to non-executive directors were not reinvested in additional Restricted Shares and were paid
according to the terms of the grant pursuant to which they were paid. Unless instructed otherwise by a participant, upon the
vesting of the Restricted Shares, the plan custodian shall sell the Restricted Shares of the participant on the open market of the
TSX and remit to the participant the net proceeds from the sale thereof after deducting all applicable taxes and other costs
associated therewith.

Upon termination for cause or resignation, all Restricted Shares not vested shall be forfeited and cancelled. Upon a participant’s
retirement, termination without cause, death and long-term disability, the time-based Restricted Shares will vest as a pro-rata of
the performance cycle completed versus the 36 month period. All performance-based Restricted Shares that are not vested on
the date of the participant’s retirement, termination without cause, death or long-term disability shall be forfeited and cancelled
on such date.

The Restricted shares have vesting acceleration provisions under certain circumstances.

Employees who were awarded shares under the RS Plan subsequent to 2008 were granted Restricted Shares in equal proportion
between time-based vesting and performance-based vesting criteria which vest between 2012 and 2014. Yellow Media Inc. also
awarded Restricted Shares to non-executive directors of Yellow Media Inc., which are time-based vesting only. In the case of the
2009 and 2011 grants, the number of Restricted Shares that vest could have potentially reached up to two-and-a-half times the
actual number of Restricted Shares awarded if the actual performance reached the maximum level of the objectives.

Upon the Fund’s conversion to a corporation, the plan was amended to allow for the purchase of Yellow Media Inc. common
shares (the “Restricted shares”) on the open market.

During the year ended December 31, 2011, an amount of $8 million (2010 - $20.7 million) representing 1,994,552 (2010 – 3,840,009)
Restricted Shares were granted at an average market price of $4.02 (2010 - $5.39). An amount of $2.9 million (2010 - $7.2 million) was
used to reinvest in 1,246,868 (2010 – 1,196,851) Restricted Shares using the proceeds from the dividends on the Restricted
Shares held in escrow. During 2010, an amount of $17.6 million was used to purchase Restricted Shares on the open market of
the TSX. In addition, 57,239 Restricted Shares which were not allocated to any specific employee were reinvested. This includes
388,509 (2010 – 319,915) Restricted Shares associated with the portion which provides for up to a 250% payout.

YELLOW MEDIA INC. ANNUAL REPORT 2011

The following table summarizes the status of the grants:

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Outstanding, beginning of year

Granted

Vested

Forfeited

Cash dividends reinvested

Outstanding, end of year

Weighted average remaining life

Outstanding, beginning of year

Granted

Vested

Forfeited

Cash distributions reinvested

Outstanding, end of year

Weighted average remaining life

December 31, 2011

Number of Restricted Shares

2009 and 2011 Grants

77,337,315

11,994,552

((3,740,692)

((1,930,292)

9915,598

44,576,481

11.09 years

December 31, 2010

Number of Restricted Shares

2008 to 2010 Grants

4,558,668

3,840,009

(572,974)

(1,365,324)

876,936

7,337,315

0.57 years

During 2010, Yellow Media Inc. sold 1,360,398 Restricted shares which were not allocated to any specific employee at an average
market price of $6.09. As a result of this transaction, an amount of $2.1 million, representing the excess of the cost over proceeds,
was credited to stock-based compensation.

As at December 31, 2011 there were 1,515,455 (2010 – 50,000) Restricted Shares which were not allocated to any specific employee
and 1,714,844 (2010 – 2,913,290) Restricted Shares representing the portion which provides up to a 250% payout. During the year, a
recovery of $0.5 million (2010 – expense of $21.3 million) was recorded in the consolidated income statement.

Stock Options (cid:16) 2003 Plan

YPG LP

Prior to the inception of the Fund, certain employees were issued options to purchase common shares of Yellow Media Inc.
Employees who participated in the equity plan were granted options in equal proportions between time-based vesting and
performance-based vesting criteria. Employees who did not participate in the equity plan only received performance-based options.
Time-based options were exercisable as to 20% to 33 1/3 % per year on the anniversary of the grant date in each of the three to
five subsequent years. Performance-based options were exercisable as to 20% per year on the anniversary of the grant date in each
of the five subsequent years provided that YPG Co. achieves specified performance targets. At December 31, 2007, YPG Co. had
achieved the performance targets identified at the time of establishment of the Stock Option Plan and all of the performance-based
options became exercisable in 2008.

The following table summarizes the status of the stock option program:

Outstanding and exercisable beginning and end of year1

380,882

3.92

Number of options

Weighted average exercise price per option

December 31, 2011

1 Weighted average remaining life: 0.54 years as at December 31, 2011.

Compensation expense for the years ended December 31, 2011 and 2010 amounted to $nil.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Stock Options (cid:16) 2010 Plan

On November 11, 2010, the Board of Directors of Yellow Media Inc. adopted a new stock option plan (the “2010 Plan”). The 2010
Plan was approved by the Shareholders and by the TSX on May 5, 2011. The 2010 Plan permits the Board of Directors to select
eligible employees that will qualify for the 2010 Plan. A maximum of 25 million options may be granted under the 2010 Plan.

Number of options

Weighted average exercise price per option

December 31, 2011

Outstanding, beginning of year

Granted

Forfeited

Outstanding, end of year

Exercisable, end of year

(cid:16)
115,850,000

((3,750,000)

12,100,000

(cid:16)

(cid:16)
$ 6.35

$ 6.35

(cid:16)

The fair value of the share options granted during the year is $0.14 per option. Options were valued using a binomial option
pricing model. Expected volatility is based on the historical share price volatility over the average expected life of the options
granted. Key inputs into the valuation model are:

(cid:131) Grant date share price: $4.51
(cid:131)
(cid:131)

Expected volatility: 31.00%

Exercise price: $6.35

(cid:131)
Contractual life: 5 year
(cid:131) Dividend yield: 14.4%
(cid:131)

Risk-free interest rate: 2.55%

(cid:131)

Vesting period: 3 year

(cid:131) Weighted average remaining life: 4 years

A net recovery of $0.1 million was recorded in 2011 (2010 - $0.5 million) in relation to this grant as options were forfeited during
the year.

21.

Operating costs

Salaries, commissions and benefits

Supply chain and logistics1

Other goods and services2

Information services

Bad debt expense

2011

303,756

131,186

129,564

45,255

39,398

For the years ended December 31,

2010

293,609

138,325

131,194

41,308

39,585

649,159

644,021

1 Supply chain and logistics relate to external supplier costs for manufacturing and distribution of our print and online products as well as related media costs

associated to our Search Engine Solutions.

2 Other goods and services include promotion and advertising costs, real estate, telecommunications, office services and equipment, consulting services including

contractors and professional fees. Operating leases recognized in operating costs during the year amounted to $20.9 million (2010 - $18.5 million).

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

22. Financial charges, net

The significant components of the financial charges are as follows:

Interest on long-term debt, exchangeable and convertible instruments

Interest on commercial paper

Standby fees and other financial charges, net

Other charges (credits) related to derivative financial instruments

Gain on repurchase of Preferred shares, series 1 and 2 and Medium Term Notes, net

Amortization and write-off of deferred financing costs

Accreted interest on compound financial instruments

Accreted interest on retirement benefit obligations

Expected return on pension plan assets

Reversal of deferred consideration

Foreign exchange loss

23. Supplemental disclosure of cash flow information

Dividends on Preferred shares Series 1 and 2 paid

Issuance of note (Note 7)

Issuance of Series 7 shares as partial consideration for a business acquisition

Conversion of Exchangeable Notes (Note 15)

Additions to property, plant and equipment under finance leases

Additions to property, plant and equipment included in trade and other payables

Additions to intangible assets included in trade and other payables

For the years ended December 31,

2011

2010

128,227

126,520

2,273

7,239

12,502

((38,815)

15,269

1,034

31,716

(28,111)

(1,252)

500

3,111

6,618

(407)

(4,187)

9,903

860

32,752

(28,335)

(cid:16)
1,602

130,582

148,437

For the years ended December 31,

2011

19,208

11,046

(cid:16)
35,390

943

909

7,825

2010

21,179

(cid:16)
9,750

(cid:16)
2,569

1,123

3,772

Total cash includes an amount of $nil of restricted cash ($35.5 million as at December 31, 2010, $nil as at January 1, 2010).

24.

Commitment and contingencies

a) Yellow Media Inc. has commitments under various leases for premises, equipment and purchase obligations through long-term
distribution agreements for each of the next five years and thereafter, as at December 31, 2011, and in the aggregate of:

2012

2013

2014

2015

2016

Thereafter

Operating leases

Other

Total commitments

20,323

19,571

19,567

19,512

18,530

24,147

83,304

103,627

369

153

139

128

2,750

119,940

119,720

119,651

118,658

226,897

121,650

86,843

208,493

Under certain lease agreements, inducements for leasehold improvements exist. These lease inducements are accounted for as
part of deferred credits and amount to $16.5 million. These lease inducements are recorded as a reduction of rent expense on a
straight-line basis over the term of the lease.

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

b) Yellow Media Inc. has four billing and collection services Agreements. The term of the Billing & Collection Services Agreement
with Bell Canada (“Bell”) expires on December 31, 2014, with an automatic renewal for two successive one-year periods thereafter
unless Yellow Media Inc. provides prior notice not to renew. The agreement with TELUS Communications Inc. (“TELUS”) includes
automatic renewal for successive one-year periods. The agreement with MTS Allstream Inc. expires on October 2, 2016, with two
automatic renewal periods for ten years up to a maximum of 30 years. The agreement with Bell Aliant Regional Communications LP
(“Bell Aliant”) expires on April 30, 2017, with two automatic renewal periods for ten years.

Pursuant to publication agreements with each of Bell, TELUS, MTS Allstream Inc. and Bell Aliant, YPG Co. produces alphabetical
listing telephone directories for each of these companies in order for them to meet their regulatory obligations.

YPG Co. also entered into several other agreements with Bell, TELUS, MTS Allstream Inc. and Bell Aliant, providing for the use of
listing information and trademarks for the publications of directories. If YPG Co. materially fails to perform its obligations under
the publication agreements mentioned above and as a result they are terminated in accordance with their terms, these other
agreements with any of Bell, TELUS, MTS Allstream Inc. or Bell Aliant may also be terminated.

c) Yellow Media Inc. entered into directory printing agreements with its printing suppliers to print, bind and furnish alphabetical,
classified and combined directories as well as other publications. It also entered into distribution agreements. These agreements
will terminate in 2020.

d) Yellow Media Inc. is subject to various claims and proceedings which have been instituted against it during the normal
course of business for which certain of the claims are provided for and included in accounts payable and accrued liabilities
based on management’s best estimate of the likelihood of the outcome. Management believes that the disposition of the
matters pending or asserted is not expected to have any material adverse effect on the financial position, results of operations
or cash flows of Yellow Media Inc.

25. Financial risk management

Credit Risk

Credit risk stems primarily from the potential inability of a customer or counterparty to a financial instrument to meet its
contractual obligations. Yellow Media Inc. is exposed to credit risk with respect to cash, trade receivable from customers and
derivative financial instruments. The carrying amount of financial assets represents Yellow Media Inc.’s maximum exposure.

Credit risk associated with cash is minimized substantially by ensuring that these financial assets are placed with creditworthy
counterparties. An ongoing review is performed to evaluate changes in the status of counterparties.

Yellow Media Inc.’s extension of credit to customers involves considerable judgment. Yellow Media Inc. has established internal
controls designed to mitigate credit risk, including a formal credit policy managed by its credit department. New customers,
customers increasing their advertising spend by a certain threshold and customers not respecting payment terms are subject to
a specific vetting and approval process.

Yellow Media Inc. considers that it has limited exposure to concentration of credit risk with respect to trade receivable from
customers due to its large and diverse customer base operating in numerous industries and its geographic diversity. There are
no individual customers that account for 1% or more of revenues and there are no trade receivable from any one individual
customer and certified marketing representative that exceeds 5% of the total balance of trade receivable at any point in time
during the period.

Bell, TELUS, MTS Allstream Inc. and Bell Aliant provide Yellow Media Inc. with customer collection services with respect to advertisers
who are also their customers. As such they receive money from customers on behalf of Yellow Media Inc. Yellow Media Inc. retains the
ultimate collection risks on these receivables.

Allowance for doubtful accounts and past due receivables are reviewed by management at each statement of financial position
reporting date. Yellow Media Inc. updates its estimate of the allowance for doubtful accounts based on the evaluation of the
recoverability of trade receivable balances of each customer taking into account historic collection trends of past due accounts.
Trade receivables are written-off once determined not to be collectable.

100

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Trade receivables are aged as follows:

Current

Past due less than 180 days

Past due over 180 days

Trade receivable

December 31, 2011

December 31, 2010

104,070

142,353

551,350

111,166

63,639

13,034

January 1, 2010

133,867

62,867

18,622

166,586

219,026

215,356

Yellow Media Inc.’s trade receivables are stated after deducting a provision of $39.8 million at December 31, 2011 (2010 - $48.9 million).
The movements in the provision for doubtful accounts were as follows:

Balance, beginning of year

Bad debt expense, net of recovery1

Discontinued operations and other

Written-off

Balance, end of year

December 31, 2011

December 31, 2010

448,919

339,285

((1,181)

((47,184)

45,776

41,619

6,577

(45,053)

39,839

48,919

1 Included in bad debt expense is $0.1 million recovery (2010 - $2 million) for discontinued operations.

In addition, Yellow Media Inc. is exposed to credit risk if counterparties to its derivative financial instruments fail to meet their
obligations. Yellow Media Inc. expects that its counterparties will meet their obligations because they are highly-rated financial
institutions that have strong credit ratings.

Interest Rate Risk

Yellow Media Inc. is exposed to interest rate risks through its financial obligations bearing variable interest rates. The interest
rates on Yellow Media Inc.’s bank facility, commercial paper issuances, and cash and short-term investments are generally
based on the Canadian Banker's Acceptance rate. As at December 31, 2011, including the impact of the financial derivatives
described below, the net amount exposed to short-term rates fluctuations was $289.2 million. Based on this exposure as at
December 31, 2011, an assumed 0.5 percentage point increase in the Banker's Acceptance rate would have an unfavourable
impact of $1.4 million on net earnings with an equal but opposite effect for an assumed 0.5 percentage point decrease.
Yellow Media Inc. is also exposed to fluctuations in long-term interest rates relative to the refinancing of its debt obligations
upon their maturity. The interest rate on new long-term debt issuances will be based on the prevailing rates at the time of the
refinancing, and will also depend on the tenor of the new debt issued. Yellow Media Inc. manages interest rate risk exposure by
having a balanced schedule of debt maturities, as well as a combination of fixed and floating interest rate obligations and uses
interest rate derivative products when appropriate to hedge interest rate risk.

Yellow Media Inc. uses derivative contracts to manage the combination of fixed and floating interest rates on its long-term debt
and to manage interest rate risk on planned debt issuances.

In August 2009, Yellow Media Inc. entered into three interest rate swaps totalling $130 million to hedge the Series 9 Medium
Term Notes. Yellow Media Inc. received interest on these swaps at 6.5% and paid a floating rate equal to the three-month
Banker’s Acceptance plus a spread of 4.3%. The swaps were to mature July 10, 2013, matching the maturity date of the
underlying debt.

In February 2010, Yellow Media Inc. also entered into two interest rate swaps totalling $125 million to hedge the Series 8
Medium Term Notes. Yellow Media Inc. received interest on these swaps at 6.85% and paid a floating rate equal to the three-
month Banker’s Acceptance plus a spread of 4.3%. The swaps were to mature December 3, 2013, matching the maturity date
of the underlying debt.

On June 27, 2011, Yellow Media Inc. terminated the above interest rate swaps for gross proceeds of $3.8 million. The $3.8 million
will be amortized over the term of the underlying debt.

YELLOW MEDIA INC. ANNUAL REPORT 2011

101

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

On October 15, 2010, the holders of the Exchangeable Notes monetized their investment through a resale of the Notes to a third-
party financial institution. In order to facilitate this resale transaction and the orderly conversion of the Exchangeable Notes into
common shares during the course of 2011, Yellow Media Inc. entered into a total return swap (“TRS”) transaction referencing the
Notes with the same counterparty for a period ending December 15, 2011. Pursuant to the terms of the TRS, the 5% fixed interest
rate under the Exchangeable Notes was converted to the floating rate of interest equal to the three-month Banker’s Acceptance
plus 1.75%. In addition, under the TRS, the counterparty as a holder of the Notes was expected to exchange 25% of the principal
amount into underlying Yellow Media Inc. common shares at 95% of the prevailing market price, to be calculated using a volume
weighted average price over a period of up to 20 days. In addition, Yellow Media Inc. may have received or paid under the TRS an
adjustment amount to the extent that the value realized by the TRS counterparty on the exchange or redemption of the Notes
exceeded or was less than the $141.6 million principal amount of the Exchangeable Notes. The TRS was measured at fair value
and was marked-to-market through net earnings at each statement of financial position date.

On February 15, 2011, the exchange right was exercised and one quarter of the Exchangeable Promissory Notes was converted
into 6.3 million common shares of Yellow Media Inc. Also, since the value realized by the Total Return Swap counterparty on the
exchange of the Notes was less than the principal amount of the Notes, Yellow Media Inc. paid an adjustment amount of
$4.2 million under the Total Return Swap.

During the second quarter of 2011, the remaining Exchangeable Notes were redeemed. The remaining principal amount along with the
5% redemption premium stipulated under the Total Return Swap was paid on June 10, 2011 and the Total Return Swap was unwound.

Foreign Exchange Risk

Yellow Media Inc. operates in the United States and is exposed to foreign exchange risk arriving from various currency transactions.
Foreign exchange transaction risk arises primarily from commercial transactions that are denominated in a currency that is not the
functional currency of Yellow Media Inc.’s business unit that is party to the transaction. Yellow Media Inc. is exposed to fluctuations
in the US dollar. The effect on net earnings and other comprehensive income from existing US dollar exposures of a 1 point
increase or decrease in the Canadian/US dollar exchange rate is not significant.

Liquidity Risk

Liquidity risk is the exposure of Yellow Media Inc. to the risk of not being able to meet its financial obligations as they become
due. Yellow Media Inc. manages liquidity risk through the management of its capital structure and financial leverage as outlined
in Note 26 - Capital Disclosures.

The following are the contractual maturities of the financial liabilities and related capital amounts:

NNon-derivative financial liabilities1

Deferred consideration

Long-term debt

Obligations under finance leases

Exchangeable and convertible instruments

Preferred shares, Series 1 and 2

Total

1 Principal amount

Payments due for the years following December 31, 2011

Total

1 – 3 years

4 – 5 years

After 5 years

9,368

––

1,610,505

4,148

200,000

402,700

714,733

3,814

––

251,147

457,977

437,795

334

––

200,000

151,553

2,226,721

979,062

458,311

789,348

On December 31, 2011 cash amounted to $84.2 million. Yellow Media Inc. can access another $250 million under its credit facility.

Fair values

The fair value is the amount at which a financial instrument could be exchanged between willing parties, based on current
markets for instruments with the same risk, principal and remaining maturity. Fair value estimates are based on present value
and other valuation techniques using rates that reflect those that Yellow Media Inc. could currently obtain, on the market, for
loans with similar terms, conditions and maturities. The entity’s own credit risk and the credit risk of the counterparty was taken
into account when determining the fair value of financial assets and financial liabilities including derivative instruments

The fair value of trade receivable, accounts payable and accrued liabilities, Credit Facilities and commercial paper is approximately
equal to their carrying values due to their short-term maturity.

102

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

The fair value of the investment classified as available–for–sale, Convertible Debentures, Exchangeable Notes and Preferred
shares is evaluated based on quoted market prices at the statement of financial position date.

Fair values of Medium Term Notes and derivative financial instruments are determined based on market rates prevailing at the
statement of financial position date and compared to those provided by financial institutions for similar financial instruments.

These estimates are significantly affected by assumptions including the amount and timing of estimated future cash flows and
discount rates, all of which reflect varying degrees of risk.

The following schedule represents the carrying values and the fair values of other financial instruments:

Other assets– investment – available for sale

Note receivable

Long-term debt due within one year

Preferred shares, Series 1 – due within one year

Deferred consideration

Long-term debt

Exchangeable and convertible instruments1

Preferred shares, Series 2

Derivative financial instruments

– Redemption option on Preferred shares

Other assets– investment – available for sale

Long-term debt due within one year

Deferred consideration

Commercial paper

Long-term debt

Exchangeable and convertible instruments1

Preferred shares, Series 1 and 2

Derivative financial instruments

– Redemption option on Preferred shares

– Interest rate swaps

Long – term

– Total return swaps

1. The carrying value includes the liability portion of the Convertible Debentures

Other assets– investment – available for sale

Long-term debt due within one year

Commercial paper

Long-term debt

Exchangeable Debentures1

Preferred shares, Series 1 and 2

Derivative financial instruments

– Redemption option on Preferred shares

– Interest rate swaps – liabilities

Short – term

Long – term

1. The carrying value includes the liability portion of the Exchangeable Debentures

Carrying Value

372

11,046

102,339

249,713

9,368

1,510,892

184,214

149,173

Carrying Value

453

3,669

16,622

295,000

1,923,203

319,029

446,725

1,541

1,771

2,833

Carrying Value

646

2,254

74,000

2,151,720

83,886

472,777

2,612

719

December 31, 2011

Fair Value

372

11,046

102,339

18,283

9,368

727,958

49,878

12,246

December 31, 2010

Fair Value

453

3,669

16,622

295,000

1,964,324

344,129

426,984

1,541

1,771

2,833

January 1, 2010

Fair Value

646

2,254

74,000

2,125,289

86,767

431,281

2,612

719

YELLOW MEDIA INC. ANNUAL REPORT 2011

103

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Fair value hierarchy

The three levels of fair value hierarchy are as follows:

(cid:131)

Level 1 – inputs are unadjusted quoted prices of identical instruments in active markets.

Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly.

Level 3 – inputs used in a valuation technique are not based on observable market data in determining fair values of the
instruments.

Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available. The
classification of a financial instrument in the hierarchy is based upon the lowest level of input that is significant to the measurement
of fair value.

The following table summarizes the financial instruments measured at fair value in the consolidated statement of financial
position as at December 31, 2011, classified using the fair value hierarchy:

FFinancial asset or liability

Investment – available for sale

Redemption option on Preferred shares

Deferred consideration

Total

Level 1

Level 2

Level 3

Total

372

–

372

–

(9,368)

372

(9,368)

(8,989)

Yellow Media Inc.’s available-for-sale investment is comprised of an actively traded equity security and is carried at fair value
based on available quoted prices.

Yellow Media Inc.’s derivatives transactions are accounted for on a fair value basis and are comprised of non-speculative interest
rate swaps to hedge interest rate exposures and total return swaps. These derivatives are valued using either industry standard or
internally developed valuation models. Where applicable, these models use market-based observable inputs including interest-rate-
yield curves, volatility of certain prices or rates and credit spreads. In certain cases, market-based observable inputs are not
available and, in those cases, judgment is used to develop assumptions used to determine fair values. Yellow Media Inc. currently
does not use unobservable inputs that are significant to the fair value measurement in its entirety.

26. Capital disclosures

Yellow Media Inc.’s objective in managing capital is to:

(cid:131)

Ensure sufficient liquidity to cover financial obligations and investment requirements;

Preserve access to funding; and

Improve credit ratings.

Yellow Media Inc. actively manages and monitors its capital structure and makes adjustments based on the objectives described
above in response to changes in economic conditions and the risk characteristics of the underlying assets.

The primary measure used by Yellow Media Inc. to monitor its financial leverage is its ratio of consolidated total debt to consolidated
Latest Twelve Month EBITDA1. Yellow Media Inc. also uses other financial metrics to monitor its financial leverage including net debt2
and preferred shares to Latest Twelve Month1, Fixed Charges Coverage Ratio and Net Debt2 to Capitalization.

1 Latest twelve month Income from operations before depreciation and amortization, impairment of goodwill and intangible assets, acquisition-related costs,
conversion and rebranding costs of 2010, restructuring and special charges, giving effect to the acquisitions and divestitures (Latest Twelve Month EBITDA).
Latest twelve month EBITDA is a non-IFRS measure and may not be comparable with similar measures used by other publicly traded companies. It also includes
discontinued operations for the year ended December 31, 2010.

2 Net debt includes convertible debentures.

104

YELLOW MEDIA INC. ANNUAL REPORT 2011

Yellow Media Inc.’s capital is comprised of Net debt, Preferred shares, series 1 and 2, Exchangeable and convertible instruments
and equity attributable to shareholders of Yellow Media Inc. as follows:

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Cash

Medium Term Notes

Credit Facilities

Commercial paper

Obligations under finance leases and other

Net debt (net of cash)

Exchangeable and convertible instruments

Preferred shares, Series 1 and 2

Equity attributable to shareholders

Equity attributable to owners of the Fund

Equity attributable to non-controlling interests

Total capitalization

Net debt2 to total capitalization

Latest Twelve Month EBITDA1

Net Debt2 to Latest Twelve Month EBITDA ratio1

December 31, 2011

December 31, 2010

84,186

69,325

January 1, 2010

36,170

1,404,083

2205,000

––

44,148

11,529,045

1184,214

3398,886

2,084,225

–

802

1,656,200

250,000

295,000

20,672

2,152,547

319,029

446,725

5,215,937

–

52,568

2,044,947

100,000

74,000

9,027

2,191,804

83,886

472,777

–

5,065,250

355,830

4,197,172

8,186,806

8,169,547

440.8%

28.5%

27.9%

For the year ended

December 31, 2011

December 31, 2010

671,909

907,633

2.5

2.6

1 Latest twelve month Income from operations before depreciation and amortization, impairment of goodwill and intangible assets, acquisition-related costs,
conversion and rebranding costs of 2010, restructuring and special charges, giving effect to the acquisitions and divestitures (Latest Twelve Month EBITDA).
Latest twelve month EBITDA is a non-IFRS measure and may not be comparable with similar measures used by other publicly traded companies. It also includes
discontinued operations for the year ended December 31, 2010.

2 Net debt includes convertible debentures.

27.

Guarantees

In the normal course of operations, Yellow Media Inc. has entered into agreements which are customary in the industry.

Yellow Media Inc. has entered into agreements which contain indemnification of its directors and officers indemnifying them
against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by them in connection
with any action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly
and in good faith with a view to the best interests of Yellow Media Inc. Yellow Media Inc. benefits from directors’ and officers’
liability insurance which is purchased by Yellow Media Inc. No amount has been accrued in the consolidated statement of financial
position as at December 31, 2011, with respect to this indemnity.

Pursuant to the acquisitions of Aliant, YPG USA, the contribution of YPG Directories, LLC to Ziplocal, LP in exchange for a 35%
minority interest in such combined entity as well as pursuant to the Share Purchase Agreement for the sale of the shares of
Trader Corporation to funds advised by Apax Partners which closed in July 2011, Yellow Media Inc. has entered into agreements
whereby Yellow Media Inc. agrees to indemnify and hold harmless the other party from and against any and all claims, liabilities,
costs and expenses arising out of, based upon or related to (i) any breach by Yellow Media Inc. in the performance of its
obligations under these agreements and (ii) any breach of a representation contained herein. Furthermore, agreements entered
into by LesPAC, Trader and its predecessor companies prior to the acquisition and which were transferred as part of the Trader
divestiture contain indemnifications similar to the ones just described. No amount has been accrued in the consolidated
statement of financial position as at December 31, 2011 with respect to these indemnities.

The nature of these guarantees prevents Yellow Media Inc. from making a reasonable estimate of the maximum potential amount it
could be required to pay to counterparties.

28. Segmented information

During the first quarter of 2011, in light of the disposal of Trader (Note 7), Yellow Media Inc. reviewed the structure of its
internal organization and decided to change the composition of its reportable segments in a way that will be better aligned with
the way operating results are now reviewed by senior management to make decisions about resources to be allocated to the
segments and to assess their performance.

YELLOW MEDIA INC. ANNUAL REPORT 2011

105

As at,

Canada

YPG Trust

YPG LP

YPG GP

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

The key changes include the reallocation of the real estate, employment and LesPac businesses to the Directories segment.
These businesses were previously included in the Vertical Media segment but were not included in the divestiture of
Trader Corporation.

After considering the effect of restating the reportable segments and given the disposition of the Vertical Media segment, the
presentation as discontinued operations of the totality of the Vertical Media segment, the income statements of Yellow Media Inc.,
up to net earnings from discontinued operations, represent the results of the Directories segment. After the completion of the sale
of Trader, management reassessed its operating segments and concluded that the Directories segment is the only operating
segment.

At December 31, 2011, Yellow Media Inc. had non-current assets other than deferred tax assets held in a foreign country of
$30.3 million (2010 - $233.1 million).

29. List of subsidiaries

December 31, 2011

December 31, 2010

January 1, 2010

Consolidation % ownership

Consolidation

% ownership

–

– Full consolidation

Yellow Media Inc.

Full consolidation

100 Full consolidation

Yellow Pages Group Co.

Full consolidation

100 Full consolidation

Snap Guides Inc.

Full consolidation

100 Full consolidation

Vertical Guides Limited
Partnership

Trader Corporation

–

– Full consolidation

100 Full consolidation

Wall2Wall Media Inc.

Full consolidation

100

–

Gestion LesPAC Inc.

Clear Sky Media Inc.

Canpages

7737351 Canada Inc.

–

– Full consolidation

100 Full consolidation

Full consolidation

100 Full consolidation

100

–

(formerly LesPAC s.e.n.c.)

Full consolidation

100 Full consolidation

USA

YPG (USA) Holdings, Inc

Full consolidation

100 Full consolidation

Yellow Pages Group, LLC

Full consolidation

100 Full consolidation

YPG Directories, LLC

Dealer Dot Com, Inc.

–

– Full consolidation

31.73

Equity method

30. Related party disclosures

Key management personnel compensation

Remuneration paid to members of the Board of Directors and Yellow Media Inc.’s key management personnel is as follows:

100

–

100

–

100

Short-term employee benefits

Post-employment benefits

Share-based payments

For the years ended December 31

2011

2,851

217

1,185

4,253

2010

2,726

210

6,439

9,375

Short-term employee benefits correspond to the amounts paid during the year. Post-employment benefits and share-based payments
correspond to the amounts recorded as expenses.

106

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Other related party transactions

For the years ended December 31,

Transaction value

Balance outstanding

Sales of good and services

Associate1

Expenses

Associate

2011

2010

22011

2010

44,177

8,138

––

962

776

1,398

113

1 In 2011, $3.4 million of trade receivable was written off and included in the impairment of investment in associate of $50.3 million.

All outstanding balances with these related parties are based on arm’s length prices and are to be settled in cash under
standard payment conditions. None of these balances are secured.

31. Transition to IFRS

Yellow Media Inc.’s financial statements for the year ending December 31, 2011 are the first annual financial statements that
comply with IFRS and these financial statements were prepared as described in Note 2, including the application of IFRS 1.
IFRS 1 requires an entity to make an explicit and unreserved statement of compliance with IFRS in its first annual financial
statements prepared under IFRS. Yellow Media Inc. made this statement in its 2011 annual financial statements.

IFRS 1 also requires that comparative financial information be provided. As a result, the first date at which Yellow Media Inc. has
applied IFRS was January 1, 2010 (the “Transition Date”). IFRS 1 requires first-time adopters to retrospectively apply all effective
IFRS standards as of the reporting date, which for Yellow Media Inc. was December 31, 2011. However, it also provides for certain
optional exemptions and certain mandatory exceptions for first-time IFRS adopters.

Initial Elections upon Adoption

Set forth below are the IFRS 1 elections made by Yellow Media Inc. to convert the GAAP results to IFRS.

IFRS Exemption Options

1. Business combinations – IFRS 3, Business Combinations, may be applied retrospectively or prospectively. The retrospective
basis would require restatement of all business combinations that occurred prior to the Transition Date. We elected not to
retrospectively apply IFRS 3 to business combinations that occurred prior to the Transition Date and such business combinations
have not been restated. Any goodwill arising on such business combinations before the Transition Date have not been adjusted
from the carrying value previously determined under GAAP as a result of applying these exemptions except as required under IFRS
1. Goodwill was tested for impairment at the date of transition and Yellow Media Inc. concluded that no impairment charge was
necessary as of that date.

2. Fair value as deemed cost – IFRS 1 provides a choice between measuring property, plant and equipment or an intangible
asset at its fair value at the date of transition and using those amounts as deemed cost. Yellow Media Inc. continued to apply
the cost model for property, plant and equipment and intangible asset, as such; Yellow Media Inc. did not restate property, plant
and equipment or any intangible assets to fair value under IFRS.

3. Employee benefits – IAS 19, Employee Benefits, allows certain actuarial gains and losses to be either deferred and
amortized, subject to certain provisions (corridor approach), or immediately recognized through equity. Retrospective application
of the corridor approach for recognition of actuarial gains and losses in accordance with IAS 19 would require Yellow Media Inc.
to determine actuarial gains and losses from the date benefit plans were established. Yellow Media Inc. elected to recognize all
cumulative actuarial gains and losses that existed at the Transition Date in opening retained earnings for all employee benefit
plans.

4. Cumulative translation differences – Retrospective application of IFRS would have required Yellow Media Inc. to determine
cumulative currency translation differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from
the date a subsidiary or associate was formed or acquired. IFRS 1 permits cumulative translation gains and losses to be reset to
zero at the Transition Date. Yellow Media Inc. elected to reset all cumulative translation gains and losses to zero in opening
retained earnings at the Transition Date.

5. Share based payments – IFRS 2, Share Based Payments, encourages application of its provisions to equity instruments
granted on or before November 7, 2002, but permits the application only to equity instruments granted after November 7, 2002
that had not vested by the Transition Date. Yellow Media Inc. elected to avail itself of the exemption provided under IFRS 1 and
applied IFRS 2 for all equity instruments granted after November 7, 2002 that had not vested by January 1, 2010.

YELLOW MEDIA INC. ANNUAL REPORT 2011

107

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

6. Borrowing Costs – IAS 23 (Revised 2007) requires an entity to capitalize the borrowing costs related to all the qualifying assets
for which the commencement date for capitalization is on or after January 1, 2009. Early adoption is permitted. IFRS 1 permits to
adopt IAS 23 at the Transition Date if later than January 1, 2009. Yellow Media Inc. elected to use this option, thus borrowing costs
related to the qualifying assets for which the commencement date is prior to January 1, 2010 are expensed, and those with a
commencement date subsequent to January 1, 2010 will be capitalized.

IFRS Mandatory Exceptions

1. Hedge accounting – Hedge accounting can only be applied prospectively from the Transition Date to transactions that satisfy the
hedge accounting criteria in IAS 39 at that date. Hedging relationships cannot be designated retrospectively and the supporting
documentation cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria
as of the Transition Date have been reflected as hedges in Yellow Media Inc.’s IFRS results.

2. Estimates – Hindsight is not used to create or revise estimates. The estimates we previously made under GAAP cannot be
revised for application of IFRS except where necessary to reflect any difference in accounting policies.

Reconciliation of GAAP to IFRS

IFRS 1 requires an entity to reconcile equity, net earnings, and comprehensive income for prior periods.

The following represents the reconciliations from GAAP to IFRS for the respective periods noted for equity, net earnings and
comprehensive income:

Reconciliation of equity

For the period ended,

Total equity previously reported under Canadian GAAP

Differences decreasing reported equity:

A – Employee benefits

B – Intangibles assets

C – Income taxes

D – Revenue recognition

Total equity under IFRS

Reconciliation of net earnings

Net earnings previously reported under Canadian GAAP

Differences increasing (decreasing) reported net earnings:

A – Employee benefits

B – Intangibles assets

C – Income taxes

D – Revenue recognition

E – Foreign currency translation adjustments

F – Stock based compensation

G – Discontinued operations

Net earnings from continued operations under IFRS, before presentation of the sale of Trader as

discontinued operations

Restatement of net earnings to present the sale of Trader as discontinued operations1

Net earnings from continuing operations under IFRS as reported

Net loss from discontinued operations under IFRS, as reported

Net earnings, as reported

December 31, 2010

January 1, 2010

5,503,344

5,548,870

(90,158)

(1,785)

(125,329)

(17,567)

(13,186)

(1,159)

(113,445)

––

5,268,505

5,421,080

For the year ended December 31, 2010

274,035

(1,227)

(626)

(28,628)

(17,567)

3,881

(461)

(3,043)

226,364

5,422

231,786

(2,380)

229,406

1 As explained in Note 7, the sale of Trader meets the criteria of a discontinued operation as per IFRS 5, as such, comparative figures have been restated, after the

conversion to IFRS, to reflect this 2011 transaction.

108

YELLOW MEDIA INC. ANNUAL REPORT 2011

Reconciliation of comprehensive (loss) income

Other comprehensive loss previously reported under Canadian GAAP

Differences decreasing reported other comprehensive income:

A – Employee benefits1

E – Foreign currency translation adjustments

Other comprehensive loss under IFRS

Net earnings

Total comprehensive income

1 Net of income taxes of $19,5 million.

Reconciliation of cash flows

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

For the year ended December 31, 2010

(962)

(56,285)

(3,881)

(61,128)

229,406

168,278

Given that Yellow Media Inc.’s first time adoption of IFRS did not have an impact on the total operating, investing or financing
cash flows, no specific reconciliation is presented for cash flows. Changes in presentation of income taxes paid and interest
paid were made to show these payments on separate lines.

a. Employee Benefits

PAST SERVICE COST

GAAP – Past service costs arising from plan amendments are amortized on a straight-line basis over the average remaining
service period of active employees expected to benefit from the amendment.

IFRS – These costs are amortized on a straight-line basis over the average period until the benefits become vested. To the
extent that the amended benefits are already vested, past service costs are recognized immediately.

Impact on Yellow Media Inc. – As at January 1, 2010, Yellow Media Inc. had an unamortized plan amendment balance of $4.9 million
attributable to amended benefits already vested after modification to the other benefits plan made in 2005. This balance was
reversed against opening retained earnings at the date of transition. During 2010, Yellow Media Inc. recorded a gain of $1.2 million
representing reversal of amortization of these past service costs. This has been reversed in the IFRS income statement.

ACTUARIAL GAINS AND LOSSES

GAAP - Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of
plan assets are recognized on a systematic and consistent basis, subject to a minimum required amortization based on a “corridor”
approach. The “corridor” equals to 10% of the greater of the accrued benefit obligation at the beginning of the year and the fair
value of plan assets at the beginning of the year. This excess of 10% is amortized as a component of pension expense on a straight-
line basis over the expected average service life of active participants. Actuarial gains and losses below the 10% corridor are
deferred.

IFRS – As stated in the section entitled “Initial Exemption Options”, Yellow Media Inc. applied the exemption in IFRS 1 for
actuarial gains and losses. On a going forward basis, Yellow Media Inc. elected to recognize all actuarial gains and losses arising
from its defined benefit plan in other comprehensive income.

Impact on Yellow Media Inc. – Unamortized net actuarial losses of $24.4 million for pension benefits and gains of $9.1 million
for other benefits existing as at January 1, 2010 have been reversed against opening retained earnings at the date of transition.
A charge of $75.7 million representing actuarial losses of 2010 was recorded in other comprehensive income net of income
taxes of $19.5 million in the fourth quarter of 2010.

CONSTRUCTIVE OBLIGATION

GAAP – Employee benefits obligations are recognized based on both written and unwritten actions of an entity, with considerations
given to company’s past practices.

IFRS - More specific guidance is provided under IFRS on the concept of constructive obligation. Constructive obligation may
arise from informal practices which if changed would cause unacceptable damage to relationship with employees.

Impact on Yellow Media Inc. – As a result of the above difference, Yellow Media Inc. had to recognize a supplemental provision
of $2.8 million as at January 1, 2010. This provision did not vary significantly in 2010.

YELLOW MEDIA INC. ANNUAL REPORT 2011

109

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

b. Intangible assets

INTERNALLY GENERATED INTANGIBLE ASSETS

GAAP – Prior to the adoption of Section 3064 Goodwill and Intangible assets, which is significantly converged with IFRS, the cost of
an internally generated intangible asset was not explicitly defined. Yellow Media Inc. adopted Section 3064 on January 1, 2009;
however, transitional provisions at this time were different than upon transition to IFRS.

IFRS – The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce
and prepare the asset to be capable of operating in the manner intended by management.

Impact on Yellow Media Inc. – As at January 1, 2010, Yellow Media Inc. had expensed a total of $0.9 million of costs related to
internally generated assets, mostly software that needed to be capitalized under IFRS. These costs have been capitalized as
part of opening retained earnings at the date of transition and are amortized over the remaining useful life of their related
assets. During 2010, the supplemental amortization expense related to these costs represented $0.6 million.

IMPAIRMENT – GROUPING OF ASSETS

GAAP – When a long-lived asset does not have identifiable cash flows that are largely independent of those from other assets,
that asset must be grouped with other related assets for impairment. This is referred to as the asset group.

IFRS – Grouping of assets should be done when an asset does not have identifiable cash inflows, as opposed to net cash flows,
that are independent of those from other assets.

Impact on Yellow Media Inc. – As a result of the different asset grouping required under IFRS, intangible assets in the disposed
Vertical Media segment were deemed to be impaired by an amount of $2.1 million as at January 1, 2010. The impairment
described above was recorded through an opening retained earnings adjustment on the date of transition. No other impairment
of either goodwill or other long-lived assets subject to impairment testing was needed in the opening statement of financial
position for the Directories segment and the disposed Vertical Media segment.

c. Income Taxes

INCOME TAXES – TEMPORARY DIFFERENCES ON INTANGIBLE ASSETS

GAAP – Deferred income taxes are calculated from temporary differences that are differences between the tax basis of an asset
or liability and its carrying amount in the statement of financial position. Under the current Canadian Income Tax Act, "eligible
capital expenditures" are deductible for tax purposes to the extent of 75 percent of the cost incurred; Section 3465 – Income
taxes addresses this specific situation and specifies that for these assets, at any point in time, the tax basis represents the
balance in the cumulative eligible capital pool plus 25 percent of the carrying amount.

IFRS – The definition of temporary differences under IFRS is generally consistent with GAAP. However, IFRS does not provide
specific guidance in relation to the determination of the tax basis of eligible capital expenditures such as the one described
above. As such, the tax basis of these assets, without taking into consideration the 25 percent adjustment of the carrying
amount as allowed under GAAP, should be compared with the carrying amount in the statement of financial position to
determine the temporary difference relating to these assets.

Impact on Yellow Media Inc.– As at January 1, 2010, in order to comply with IFRS, Yellow Media Inc. had to increase deferred
income tax liabilities by $76.8 million to account for temporary differences currently excluded on the 25 percent adjustment of
the carrying amount of eligible capital expenditures. This increase was recorded through an opening retained earnings
adjustment at the date of transition. During 2010, a recovery of $0.2 million was recorded in relation to this adjustment.

INCOME TAXES – UNCERTAIN TAX POSITIONS

GAAP – Uncertain tax positions generally refers to positions taken by Yellow Media Inc. that may be challenged by the tax
authorities, and which may result in additional taxes, penalties or interest, in changes in the tax basis of assets or liabilities, or
in changes in the amount of available tax loss carry-forwards. Accounting for tax exposures is not specifically addressed under
GAAP and a number of alternatives were possible. Yellow Media Inc. accounted for these tax positions under Section 3290 –
Contingencies. This Section provides general recognition and measurement principles applicable to all contingencies, including
tax exposures.

IFRS – Similar to GAAP, the accounting for tax exposures is not specifically addressed in the tax standard, IAS 12 – Income taxes.
As such, uncertain tax positions are recognized and measured in accordance with IAS 37 – Provisions. The recognition and
measurement approaches under IAS 37 significantly differ in some aspects from Section 3290, including a lower recognition
threshold and different measurement methodologies applicable to certain situations.

110

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Impact on Yellow Media Inc.– As at January 1, 2010, Yellow Media Inc. had to increase deferred income tax liabilities by
$39.3 million in order to comply with IAS 37 recognition and measurement criteria. This increase was recorded through an opening
retained earnings adjustment at the date of transition. During 2010, Yellow Media Inc. recorded an expense of $34.1 million.

EQUITY PORTION OF EXCHANGEABLE AND CONVERTIBLE DEBENTURES

GAAP – Settlement of a compound financial instrument in accordance with its terms, either through settlement on maturity or
conversion, might not result in the incidence of tax to the issuer. As such, when the enterprise is able to settle the instrument
without the incidence of tax, the tax basis of the liability component is considered to be the same as its carrying amount and
there is no temporary difference.

IFRS - As a result of classifying the liability and equity components of a compound financial instrument according to its
substance, the component of a compound financial instrument classified as a liability will be different from the tax basis of the
instrument and this creates taxable or deductible amounts that would be included in the determination of taxable income. As
such, a temporary difference needs to be recognized.

Impact on Yellow Media Inc. – As at January 1, 2010, in order to comply with IFRS, Yellow Media Inc. had to increase deferred
income tax liabilities by $1.1 million to account for temporary differences related to the equity portion of exchangeable
debentures. This increase was recorded through an opening retained earnings adjustment at the date of transition. This
difference resulted in a recovery of $1.1 million for 2010. Furthermore, upon the issuance of convertible debentures in the
third quarter of 2010, an amount of $2.7 million was recorded directly to equity.

Under GAAP we used the residual method to bifurcate compound financial instruments in their debt and equity components by
fair valuing the debt component first and allocating the remainder to the equity component. This is in line with the requirements
under IFRS.

INCOME TAX EFFECT OF OTHER RECONCILING DIFFERENCES BETWEEN GAAP AND IFRS

Differences from income taxes include the deferred tax effect on earnings of pre-tax differences between GAAP and IFRS
described above.

d. Revenue Recognition

GAAP – Under GAAP, all deliverables included in a multiple deliverable arrangement need to be measured and recognized
separately if all of the following criteria are met:

(cid:131)

The delivered item has value to the customer on a stand-alone basis;

There is objective and reliable evidence of the fair value of the undelivered item;

Delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor;

When the above conditions are not met, revenue is recognized in the same period as that of the last deliverable of the arrangement.

IFRS – Under IFRS, the value of each deliverable to a contract should be recognized separately if an estimated selling price to
the component exists and if all significant obligations related to the delivery of the component have been fulfilled.

Impact on Yellow Media Inc. – Revenues from print directories, that do not form part of a multiple deliverable arrangement are
recognized when the directory is published (publication method) whereas revenues from print directories in a multiple deliverable
arrangement are recognized using the deferral method when the estimated selling price is not determinable. This difference had
no impact on equity at the date of transition, but reduced net earnings for the year ended December 31, 2010 by $17.6 million.
This reduction includes the recognition of costs related to the print directories revenues recognized.

As a result of the above, Goodwill has been reduced as at December 31, 2010 by $41.9 million as the change in policy under
IFRS impacts the purchase price allocation of the acquisition of Canpages in 2010 to remove any deferred revenue relating to
this acquisition.

e. Foreign currency translation adjustment

As noted in the section entitled “IFRS Exemption Options,” Yellow Media Inc. has applied the one-time exemption to set the foreign
currency cumulative translation adjustment (“CTA”) to zero as at January 1, 2010. The cumulative translation adjustment balance
as at January 1, 2010 of $3.9 million was recognized as an adjustment to opening retained earnings. The application of the
exemption had no impact on net opening equity. During 2010, the amount of the foreign currency translation adjustment reversed
upon transition to IFRS was reclassified to the statement of earnings. This recycling adjustment under GAAP resulting from the
disposals of foreign operations and the foreign associate created a difference between IFRS and GAAP net earnings of $3.9 million
for 2010.

YELLOW MEDIA INC. ANNUAL REPORT 2011

111

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

f. Stock-based Compensation

FORFEITURES

GAAP – Forfeitures of awards may and are recognized as they occur.

IFRS – Forfeiture estimates are recognized in the current period and revised for actual experience in subsequent periods.

Impact on Yellow Media Inc. – The opening adjustment related to the above difference as at January 1, 2010 of $0.4 million
was recognized as an adjustment to opening retained earnings. The application of this difference had no impact on net opening
equity. For 2010, the stock based compensation expense was lower by $0.1 million under IFRS.

STOCK OPTIONS

GAAP – Under GAAP, an enterprise becomes contingently obligated to award equity instruments on the grant date.

IFRS – IFRS requires an entity to recognize a compensation cost for the period between when the employees to whom the equity
instruments were granted and when the employees began rendering services. In this situation, the entity should estimate the
grant date fair value of the equity instruments, for the purposes of recognizing the services received during the period between
service commencement date and grant date.

Impact on Yellow Media Inc. – On November 11, 2010, the Board of Directors of Yellow Media Inc. granted, subject to approval by the
Shareholders and by the TSX, 15,850,000 options. These options were submitted to the Shareholders at the Annual Shareholders
Meeting held on May 5, 2011. Under IFRS, Yellow Media Inc. recorded a compensation cost of $0.5 million in 2010 for this grant.

g. Discontinued Operations

GAAP - To qualify as a discontinued operation an entity may not have any significant continuing involvement in the operations of
the entity after the disposal transaction.

IFRS – Continuing involvement with a sold entity does not preclude presentation as a discontinued operation.

Impact on Yellow Media Inc. – The disposal of YPG Directories LLC, a US subsidiary of Yellow Media Inc., as explained in Note 7,
meets the definition of a discontinued operation under IFRS and is presented as such in the IFRS financial statements.

h. Presentation adjustments

EXCHANGEABLE UNITS

GAAP – Exchangeable securities issued by a subsidiary of an income trust should be presented on the consolidated statement
of financial position of the income trust as debt if classification as debt is appropriate under Section 3863 Financial instruments
- Presentation. However, if the conditions mentioned in EIC-151, Exchangeable securities issued by subsidiaries of income
trusts, are met upon issuance, the exchangeable securities can be presented as part of unitholders' equity in the consolidated
statement of financial position of the income trust.

IFRS – Exchangeable securities issued by a subsidiary of an income trust that do not meet the definition of a liability should be
presented as a non-controlling interest.

Impact on Yellow Media Inc. – To account for the above difference an amount of $31.7 million was reclassified as at January 1, 2010
from unitholders’ capital to non-controlling interest. This adjustment was no longer necessary at the end of the first quarter of 2010
since the exchangeable units had then all been converted.

COMMERCIAL PAPER

GAAP – EIC-122 – Balance sheet classification of callable debt obligations and debt obligations expected to be refinanced
provides guidance on the classification as short-term or long-term of obligations that are callable by the creditor in the next year
but for which the debtor does not intend to repay the obligation within one year from the statement of financial position date.
EIC-122 specifies that obligations, which by their terms are due within one year from the statement of financial position date,
should be classified as a current liability unless the obligation will be refinanced on a long-term basis and the debtor intends to
refinance the obligation on a long-term basis and such intent is supported by an ability to consummate the refinancing. In such
case, these obligations should be classified as long-term.

IFRS – Under IFRS, an obligation that the entity expects, and has the discretion, to refinance or roll over for at least twelve
months after the reporting period should be classified as non-current only if it can be refinanced or rolled over under an existing
loan facility with the same lender, on the same or similar terms.

112

YELLOW MEDIA INC. ANNUAL REPORT 2011

Notes to the Consolidated Financial Statements – December 31, 2011
(all tabular amounts are in thousands of Canadian dollars, except share information)

Impact on Yellow Media Inc. – As a result of the above difference, in order to comply with IFRS, Yellow Media Inc. had to reclassify
the outstanding obligation under the commercial paper program from long-term to short-term given that this obligation did not meet
the IFRS conditions to be classified as long-term. An amount of $74 million was reclassified to short-term as at January 1, 2010
($295 million as at December 31, 2010).

DEFERRED TAX

GAAP - Deferred taxes are split between current and non-current components on the basis of either (1) the underlying asset or
liability or (2) the expected reversal of items not related to an asset or liability.

IFRS - All deferred tax assets and liabilities are classified as non-current.

OTHER

Under IFRS, investments in equity accounted investees, provisions and current income tax payables have to be presented as a
separate line item in the statement of financial position.

Moreover intangible assets as at January 1, 2010 and December 31, 2010 were increased by approximately $28 million and
$32 million, respectively, related to a reclassification of software assets under development that were presented in “Fixed
Assets” under the GAAP financial statements and are now being recorded in “Intangible Assets” in these IFRS financial
statements. The purpose of this reclassification is to more accurately reflect the nature of our assets under development
between fixed assets and intangible assets and does not result from an IFRS and GAAP difference.

Long-term income tax liabilities were reclassified from deferred income taxes on the statement of financial position for all the
periods being presented. This reclassification has no impact on current liabilities or total liabilities.

YELLOW MEDIA INC. ANNUAL REPORT 2011

113

CORPORATE INFORMATION

LEADERSHIP TEAM

Marc P. Tellier
President and Chief Executive Ofﬁ cer

Ginette Maillé
Chief Financial Ofﬁ cer

François D. Ramsay
Senior Vice President - General Counsel and Secretary

Catherine Caplice
Vice-President - Customer Experience

Doug A. Clarke
Senior Vice President - Sales

Nicolas Gaudreau
Vice President - Digital & Print Media, Acquisition &
Retention

Jeff Knisley
Vice President – Sales, Western Region

Patrick Lauzon
President - Mediative

Lise R. Lavoie
Vice President - Sales, Québec and Atlantic Canada

Chris Long
Vice-President - Sales, Central Canada

René Poirier
Chief Information Ofﬁ cer

Stephen Port
Vice President - Corporate Performance

D. Lorne Richmond
Vice President - Supply Chain & Logistics

Paul T. Ryan
Chief Technology Ofﬁ cer

Greg Shearer
Vice President - Business Solutions

Tracy Smith
Vice-President - Performance Marketing & Go-To-Market

Dominique Vallée
Vice President - Sales, Advantage Group and Call Centres
Initiative

Daniel Verret
Vice President and Corporate Controller

16 Place du Commerce
Verdun, Québec H3E 2A5

www.ypg.com

INVESTOR RELATIONS

1 877 YLO-2003 (1 877 956-2003)
ir.info@ypg.com

AUDITORS

Deloitte & Touche LLP

SHARES AND OTHER SECURITIES
LISTED ON THE TORONTO STOCK EXCHANGE

Common Shares

YLO
YLO.DB.A Convertible Debentures
YLO.PR.A

YLO.PR.B

YLO.PR.C

YLO.PR.D

Series 1 Cumulative Redeemable First
Preferred shares
Series 2 Cumulative Redeemable First
Preferred shares
Series 3 Cumulative Rate Reset First
Preferred shares
Series 5 Cumulative Rate Reset First
Preferred shares

TRANSFER AGENT

Canadian Stock Transfer Company Inc.
2001 University Street
Suite 1600
Montréal, Québec H3A 2A6
Telephone: 1 800 387-0825
E-Mail Inquiries: inquiries@canstockta.com

ANNUAL REPORT

To consult the online interactive version of our
Annual Report, visit: www.ypg.com/annualreport2011

Ce rapport est également disponible en français.
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communiquer avec la Société canadienne de
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114

YELLOW MEDIA INC. ANNUAL REPORT 2011

BOARD OF DIRECTORS

1
Michael T. Boychuk, FCA
President, Bimcor Inc.
Chairman of the Audit Committee and
Member of the Corporate Governance and Nominating
Committee and of the Financing Committee

2
Craig Forman
Executive Chairman of the Board, Appia Inc.
Member of the Corporate Governance
and Nominating Committee

3
John R. Gaulding
Chairman, Gaulding & Co.
Chairman of the Human Resources and
Compensation Committee and
Member of the Corporate Governance and
Nominating Committee and of the Financing Committee

4
Paul Gobeil, FCA
Vice-Chairman of the Board of Directors, Metro Inc.
Member of the Audit Committee and of the Corporate
Governance and Nominating Committee

5
Michael R. Lambert, CA
Senior Vice President and Chief Financial Offi cer,
Parkland Fuel Corporation
Member of the Human Resources and
Compensation Committee and of the Audit Committee

6
David G. Leith
Corporate Director
Member of the Audit Committee

7
Anthony G. Miller
Corporate Director
Chairman of the Corporate Governance and
Nominating Committee and Member of the Audit Committee
and of the Financing Committee

8
Martin Nisenholtz
Senior Advisor, The New York Times Company
Member of the Audit Committee, of the Corporate Governance
and Nominating Committee and of the Human Resources and
Compensation Committee

9
Marc L. Reisch
Chairman, President and
Chief Executive Offi cer, Visant Corporation
Chairman of the Board
Member of the Human Resources and Compensation Committee

10
Michael E. Roach
President and Chief Executive Offi cer, CGI Group Inc.
Member of the Human Resources and Compensation Committee

11
Bruce K. Robertson, CA
Principal, Grandview Capital
Chairman of the Financing Committee and
Member of the Audit Committee

12
Marc P. Tellier
President and Chief Executive Offi cer,
Yellow Media Inc.

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WWW.YPG.COM

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