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www.ypg.com
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YELLOW MEDIA LIMITED
2013 ANNUAL REPORT
c o R p o R Ate inf oR mAti on
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Verdun, Québec H3e 2A5
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inve stor relations
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common Shares
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FI NA NCIAL AND OPERATIONA L HI GHL IG HTS
$406 MILLION DIGITAL REVENUES
IN 2013
EVOLUTION OF
DIGITAL REVENUES
AS A PERCENTAGE
OF TOTAL REVENUES 1
1 As of the fourth quarter
REVENUES
(IN MILLIONS OF CANADIAN DOLLARS)
2013 FINANCIAL AND OPERATIONAL HIGHLIGHTS
$1,107.7
REVENUES (in millions of Canadian dollars)
$971.8
(12%)
EBITDA (in millions of Canadian dollars)
2012
2013
DIGITAL REVENUES
(IN MILLIONS OF CANADIAN DOLLARS)
2012
2013
$367.2
$406.3
EBITDA
(IN MILLIONS OF CANADIAN DOLLARS)
2012
2013
$569.4
(27%)
$416.1
NET DEBT
(IN MILLIONS OF CANADIAN DOLLARS)
2012
2013
$781.7
$533.1
$249M
FREE CASH FLOW (in millions of Canadian dollars)
CUSTOMER COUNT
CUSTOMER PENETRATION -
YELLOW PAGESTM 360º SOLUTION
11%
CUSTOMER PENETRATION - DIGITAL
CUSTOMER PENETRATION -
MOBILE PLACEMENT
REACH OF ONLINE CANADIANS2
ONLINE UNDUPLICATED UNIQUE VISITORS2
$971.8
$416.1
$274.6
276,000
27%
62%
15%
26%
7.3M
MOBILE DOWNLOADS
OVER 6.5M
2 All properties, comScore Media Metrix, Q4-2013. Represents desktop traffic only.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
1
29%IN 201138%IN 201245%IN 2013 CHAI R MAN’S MESSAGE TO SHA RE HOL DER S
The past year saw many key milestones and achievements for Yellow Media. We continued to make progress on
the digital transformation, as reflected by continued digital revenue growth, healthy free cash flow generation,
and ongoing deleveraging. We also invested to strengthen our brand image, enhance our digital properties,
grow our offering of products and services for our customer base, deploy our customer acquisition strategy,
and further develop our workforce. The Board also appointed a new CEO with strong operational expertise and
experience in the digital transformations of traditional media companies.
OU R PROGRESS TO DATE
We ended 2013 with $406.3M in digital revenues. The 10.6% year-over-year growth continues to result from
the successful sales execution of our unique value proposition, the Yellow Pages 360º Solution. For the fourth
quarter of 2013, digital revenues represented 45% of total revenues.
Our Yellow Pages 360º Solution remains the most comprehensive, full-serve digital and traditional media
and marketing solutions in Canada. This offering provides our customers with single point access to online
and mobile placement, website fulfillment, social media and search engine solutions, alongside valuable
performance reporting tools such as Yellow Pages Analytics.
In today’s fragmented digital search environment, our customer base needs to be as visible as possible to generate
valuable leads. By providing access to multiple digital products and services, the Yellow Pages 360º Solution
offers its customers a complete and diversified marketing portfolio as well as enhanced ROI on their digital
marketing campaigns. Penetration of the Yellow Pages 360º Solution among our customer base, defined as those
who purchase three product categories or more, has grown to 27.1% at year-end, compared to 16.5% last year.
Online and mobile placement products are currently the most adopted components of our digital solutions
offering. Consequently, attracting local audiences towards our digital network of properties is key in generating
valuable leads for customers and promoting customer renewal and revenue growth.
Our objective is to grow Yellow Media to become the leading local digital media company in Canada by fostering
strong business relationships between Canadian businesses and local consumers, and by developing an
unparalleled local media presence across the country. On the online front, the Company recently developed a
new search engine, allowing for more user-relevant search results and an improved search response time. We
also deployed the Online Merchant Management tool, which promotes a better search experience by eliminating
duplicate listings and ensuring that all content available on a Canadian business is found via a unique and
stable merchant identifier. The Company’s online properties reached 7.3 million unduplicated unique visitors
during the fourth quarter of 2013, representing 26% of Canada’s online population.
Our network of mobile applications also continues to gain traction. The Yellow Pages application was recognized
by the App Store as one of the top 25 most downloaded applications of all time, while ShopWise was selected
by the Local Search Association as the New App Gold Award Winner at the 2013 Industry Excellence Awards. In
2013, we launched a real time gas pricing and comparison feature on our Yellow Pages mobile application, and
updated our ShopWise application to now provide access to digital versions of flyers and shopping circulars from
major retail chains across Canada. Cumulative mobile downloads across our family of applications increased
to over 6.5 million at year-end, compared to 5 million last year.
In our commitment to increase traffic and leads to our customers, we continued to extend our partner eco-
system to allow clients’ business information to be visible outside our network of owned and operated
properties. Leading properties such as Yahoo! Canada, CBC, Google, Poynt, TripAdvisor and OpenTable currently
use our business listings to populate business searches across their platforms. We also signed an agreement
with Facebook, whereby Yellow Pages Group now has the capabilities to use clients’ basic business information
to automatically generate and update basic Facebook Business Pages.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
C H A I R M A N ’ S M E S S A G E T O S H A R E H O L D E R S
The past year also saw the launch of a new brand marketing and communications strategy to engage consumers,
recapture awareness of the Yellow Pages brand and promote the download and use of the Yellow Pages mobile
application. As part of this strategy, the Company launched a national advertising campaign in the spring
followed by a six-week advertising blitz in Toronto in June 2013, both focusing on the Yellow Pages mobile
application. Advertisements were placed in areas where consumers work, live and play. A second flight of this
campaign was also launched in university campuses in Toronto, Montreal and Vancouver. These campaigns
proved successful, leading to an increase in mobile downloads and visits alongside a significant lift in brand
awareness and perception.
WE CONTINUED TO MAKE PROGRESS ON THE DIGITAL
TRANSFORMATION, AS REFLECTED BY CONTINUED
DIGITAL REVENUE GROWTH, HEALTHY FREE CASH
FLOW GENERATION, AND ONGOING DELEVERAGING.
Aligned with the Company’s mission of contributing to healthy, thriving neighbourhoods through support
of local businesses, Yellow Pages Group also launched a flagship event to promote local shopping called
Shop The Neighbourhood. Held on November 30, 2013 in the Greater Toronto Area, the event involved over
1,800 participating businesses offering over 2,000 deals exclusive to event day to attract consumer
participation. The initiative helped build further awareness around the Yellow Pages brand and its relevancy
in advocating for small business growth and connecting local consumers with valuable shopping information.
Despite continued growth in digital revenues, consolidated revenues continued to be in decline. Among the
challenges we faced in the past year, protecting customer spend remained one of them, as we saw challenges
in fully migrating our larger customers’ print spend to digital products and services. We also experienced a
decline in our customer count, primarily amongst low-spend clients.
To promote revenue growth, we’ve introduced in-demand premium products and services, alongside improved
customer servicing initiatives such as PriorityPlus. We’ve also instilled an acquisition culture amongst our sales
force, re-designed our dedicated acquisition channels and launched new product bundles aimed exclusively at
attracting and retaining new customers.
In order to support funding of the digital transformation, the Company also took steps to improve the
efficiency of the organization and align its cost structure. In 2013, we started consolidating and replacing
legacy publishing systems and IT data centers. We also aligned our workforce with the realities of our digital
transformation, transferring resources from legacy operations towards our digital platform, and hired approximately
200 professionals within the domains of information technology and digital media.
In an effort to deliver value to its shareholders, the Company remained active in deleveraging, reducing net debt
by over $248 million to reach $533.1 million by year-end. Our healthier capital structure continues to offer us
the required financial flexibility to invest in our transformation.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
3
C H A I R M A N ’ S M E S S A G E T O S H A R E H O L D E R S
OU TLOOK
While we continue to face challenges in the year ahead, the Board believes Yellow Media has the right strategy
and leadership to meet them head on and turn those challenges into opportunities.
To promote overall revenue growth, the Company will continue investing in extending its brand promise,
attracting valuable audiences, responding to customer needs, further developing its employees, and improving
efficiencies. With profitability in mind, the Company will focus on continued operational realignment, process
streamlining and improved technologies.
We will also invest in developing a stronger digital culture, offering training programs, tools and resources to
elevate digital literacy and promote change management across all facets of the organization.
Lastly, deleveraging remains a key priority, and the Company will continue using excess cash flow to lower the
amount of debt outstanding and deliver additional value to its shareholders.
To lead the next phase of the Company’s strategic plan, we recently welcomed Julien Billot as President and Chief
Executive Officer of Yellow Media. A veteran of the industry, hailing from Solocal Group (formerly PagesJaunes
Groupe, the incumbent local search provider in France), Mr. Billot has a proven track record of successfully
executing print to digital transformations in the global media industry. Both the Board and management team
look forward to working closely with Mr. Billot on our ongoing transformation.
WE WILL ALSO INVEST IN DEVELOPING A STRONGER
DIGITAL CULTURE, OFFERING TRAINING PROGRAMS,
TOOLS AND RESOURCES TO ELEVATE DIGITAL LITERACY
AND PROMOTE CHANGE MANAGEMENT ACROSS ALL
FACETS OF THE ORGANIZATION.
I would also like to say thank you to all Yellow Media employees for their tireless efforts during the year, in
both good and trying times. And lastly, thank you to you, our shareholders, for your patience and support in our
ongoing stages of digital transformation. We look forward to communicating with you our continued progress
on our transformation as it develops.
Robert MacLellan
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
ROBE RT MACL ELLAN
C HAIR MAN OF THE BOARD
JULIEN BILLOT
PR ESID ENT AND CH IEF EXECUTI VE OF FIC ER
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
5
PRESI D ENT AND CEO’S MESSAGE
It is a real honour to join Yellow Media as President and Chief Executive Officer.
I have spent a significant portion of my career working in the media and marketing industry, positioning traditional
media businesses to succeed in today’s digital age. These mandates were always the most challenging, as
I was expected to rapidly and efficiently support business resiliency, growth and profitability within a very
complex and competitive environment.
Regardless of these challenges, I continue to believe in the long-term success of our industry. Yellow Media is
strongly positioned to spearhead digital transformation, as our national presence and history of serving small
businesses remain key assets that cannot be easily replicated by new digital entrants.
The strength and resiliency of Yellow Media are reflected in the fact that amidst print revenue declines and a
competitive and fragmented digital environment, the Company operates some of Canada’s leading digital local
search properties. Yellow Media also offers its customers one of the largest full-serve, comprehensive digital
product offerings and access to one of the country’s largest teams of sales advisors and campaign managers.
With a strengthened capital structure, Yellow Media also has the required financial flexibility to invest and
accelerate its digital transformation.
Despite this progress, challenges still lie ahead. While we have one of the longest standing and most
recognizable brands in Canada, we must re-educate Canadian consumers and businesses on the evolution of
our brand as a champion of neighbourhood economies and local business support. This brand promise will
guide our efforts as we tackle other hurdles on our path to transformation.
To promote revenue growth, we also need to focus on providing current and prospective customers with an enhanced
ROI. This is achieved by growing and protecting traffic on our owned and operated properties and ensuring our
online and mobile platforms retain the majority of public mindshare when it comes to local, needs-based searches.
As such, we’ll need to focus efforts on providing deep, rich content to attract and retain new audiences.
YELLOW MEDIA IS STRONGLY POSITIONED TO
SPEARHEAD DIGITAL TRANSFORMATION, AS OUR
NATIONAL PRESENCE AND HISTORY OF SERVING SMALL
BUSINESSES REMAIN KEY ASSETS THAT CANNOT BE
EASILY REPLICATED BY NEW DIGITAL ENTRANTS.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
P R E S I D E N T A N D C E O ’ S M E S S A G E
Customer service and the customer experience will also be an element we focus on in 2014. An emphasis
on superior customer service must be implemented across the entire organization. We also need to evolve
our products and services to better meet current and prospective customer needs, enhance servicing and
fulfillment of these products, and improve our ability to track the success of our clients’ marketing campaigns
using performance reporting tools. Customer acquisition also remains a key priority, as we strive to gain
additional market share in Canada.
WE WILL MAKE INVESTMENTS IN HIRING NEW
TALENT AND UPGRADING THE SKILLSETS OF
OUR EXISTING WORKFORCE TO BEST SUPPORT
OUR TRANSFORMATION.
These initiatives should be undertaken with profitability in mind, and the Company will work to ensure
measures are taken to maximize efficiency and contain costs where appropriate. We will therefore develop new
technologies to either replace or strengthen existing systems and processes, enabling us to be quicker, more
agile and more responsive as a company and as a service provider to our customers and users. We will also
make investments in hiring new talent and upgrading the skillsets of our existing workforce to best support
our transformation.
These past months, I have been engaged in reviewing the strengths and challenges present in our business
operations. I’ve spent time in each of our offices and with each department at Yellow Media. I’ve met with our
employees across Canada and many of our stakeholders and business partners in order to have a full view of
our competitive landscape, strategy, financials and people.
Based on this review and the information I’ve gathered from various stakeholders, I’m currently in the process
of developing a detailed operational roadmap to execute the transformation of our business into a leading
digital marketing enterprise. I expect to be able to share my roadmap with you in the near future.
I look forward to meeting and speaking with all of you at our upcoming Annual General Meeting.
Julien Billot
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
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BOAR D OF DIRECTORS
JULIEN BILLOT
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
CRAIG FORMAN
EXECUTIVE CHAIRMAN
OF THE BOARD, APPIA INC.
Member of the Corporate
Governance and Nominating
Committee
ROBERT F. MACLELLAN
CHAIRMAN OF
NORTHLEAF CAPITAL PARTNERS LTD.
Chairman of the Board
DONALD H. MORRISON
COPORATE DIRECTOR
Member of the Audit Committee
DAVID A. LAZZARATO
CORPORATE DIRECTOR
Chairman of the Audit Committee
MARTIN NISENHOLTZ
COPORATE DIRECTOR
Member of the Human Resources
and Compensation Committee
DAVID G. LEITH
COPORATE DIRECTOR
Chairman of the Corporate
Governance and Nominating
Committee and Member
of the Audit Committee
JUDITH A. MCHALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
CANE INVESTMENTS, LLC
Member of the Corporate Governance
and Nominating Committee and of
the Human Resources and
Compensation Committee
KALPANA RAINA
MANAGING PARTNER,
252 SOLUTIONS, LLC
Chairman of the Human Resources
and Compensation Committee
MICHAEL G. SIFTON
MANAGING PARTNER,
BERINGER CAPITAL
Member of the Human Resources
and Compensation Committee
A KEY OBJECTIVE OF OURS IS TO GROW
YELLOW MEDIA TO BECOME THE LEADING LOCAL
DIGITAL MEDIA COMPANY IN CANADA.
8
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEM ENT TEAM
JULIEN BILLOT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VÉRONIQUE BERGERON
VICE PRESIDENT – SALES, EASTERN REGION
DOUG A. CLARKE
SENIOR VICE PRESIDENT – SALES
JAMIE BLUNDELL
VICE PRESIDENT – CUSTOMER EXCELLENCE
NICOLAS GAUDREAU
CHIEF MARKETING OFFICER
JEFF KNISLEY
VICE PRESIDENT – SALES, WESTERN REGION
LISE R. LAVOIE
CHIEF TALENT OFFICER
CHRIS LONG
VICE PRESIDENT – SALES, CENTRAL CANADA
GINETTE MAILLÉ
CHIEF FINANCIAL OFFICER
STEPHEN PORT
VICE PRESIDENT – CORPORATE PERFORMANCE
RENÉ POIRIER
CHIEF INFORMATION OFFICER
FRANCO SCIANNAMBLO
VICE PRESIDENT – CORPORATE CONTROLLER
AND CHIEF ACCOUNTING OFFICER
FRANÇOIS D. RAMSAY
SENIOR VICE PRESIDENT – CORPORATE AFFAIRS
AND GENERAL COUNSEL
DARBY SIEBEN
PRESIDENT – MEDIATIVE
D. LORNE RICHMOND
VICE PRESIDENT – PRINT OPERATIONS
AND SALES SUPPORT
DOMINIQUE VALLÉE
VICE PRESIDENT – SALES, ADVANTAGE GROUP
AND CALL CENTRE INITIATIVES
PAUL T. RYAN
CHIEF TECHNOLOGY OFFICER
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
9
O UR N ETWORK OF PROP ERTIES
YellowPages.ca
Available both online and as a
mobile application, YellowPages.ca
provides users access to current
and comprehensive information on
local Canadian businesses.
RedFlagDeals.com
Canada’s leading provider of online
and mobile deals, coupons and
shopping tools.
ShopWise.ca
Mobile application offering geo-
localized deals and flyers, alongside
access to a catalogue of over
7 million products and information
on over 600 local and national
retailers.
Canada411.ca
One of Canada’s most frequented
and trusted online destinations for
personal contact information.
YellowAPI.com
A public API providing application
developers and strategic partners
access to 1.5 million verified
and regularly updated Canadian
business listings.
YellowPages360solution.ca
Integrated marketing, performance
boosting and measurement offering
for Canadian businesses combining
digital and traditional media.
Mediative.com
One of Canada’s largest digital
advertising and marketing solutions
providers to national-scale agencies
and advertisers.
Canpages.ca
A search website with an interactive
focus on consumers’ geographic
location and life needs, while also
offering access to an extensive
database of local real estate listings.
Wall2WallMedia.com
Media solutions company managing
activities, publications and services
related to real estate.
WE CONTINUE TO MAKE STRATEGIC
INVESTMENTS TO BUILD AND SECURE VALUABLE
DIGITAL AUDIENCES.
10
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
2013 FINANCIAL REV IE W
TABLE OF CONTENT S
Management’s Discussion and Analysis
Management’s Report
Independent Auditor’s Report
Consolidated Statements of Financial Position
Consolidated Income Statements
Consolidated Statements of Comprehensive Income (Loss)
13
45
46
47
48
49
Consolidated Statements of Changes in Equity
50-51
Consolidated Statements of Cash Flows
52
Notes to the Consolidated Financial Statements
53-84
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
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12
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
February 13, 2014
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 Limited and its subsidiaries for the years
ended December 31, 2013 and 2012 and should be read in conjunction with our audited consolidated financial statements
and accompanying notes for the year ended December 31, 2013. 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 reporting period, December 31, 2013.
In this MD&A, the words “we”, “us”, “our”, “the Company”, “the Corporation”, “Yellow Media” and “YPG” refer to Yellow Media Limited
and its subsidiaries (including YPG Financing Inc. (formerly Yellow Media Inc.), Yellow Pages Group Corp., Wall2Wall Media Inc.
(Wall2Wall), YPG (USA) Holdings, Inc. and Yellow Pages Group, LLC (the latter two collectively YPG USA)).
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.
Forward-looking information and statements are based on a number of assumptions which may prove to be incorrect. In making
certain forward-looking statements, we have assumed that we will succeed in continuing to implement our business plan, that we will
be able to attract and retain key personnel in key positions, that we will be able to introduce, sell and provision new products and
services, that the directories, digital media and advertising industries into which we sell our products and services will demonstrate
strong demand for our products and services, that the decline in print revenues will not accelerate beyond what is currently
anticipated, that digital growth will not be slower than what is currently anticipated, that we will be able to acquire new advertisers at
the currently anticipated rate, and that general economic conditions will not deteriorate beyond currently anticipated levels. Forward-
looking information and statements are also based upon the assumption that none of the identified risk factors that could cause
actual results to differ materially from the anticipated or expected results described in the forward-looking information and
statements will occur.
When used in this MD&A, such forward-looking statements may be identified by words such as “aim”, “anticipate”, “believe”,
“could”, “estimate”, “expect”, “goal”, “intend”, “objective”, “may”, “plan”, “predict”, “seek”, “should”, “strive”, “target”, “will”,
“would” and other similar terminology. These statements reflect current expectations regarding future events and operating
performance and speak only as at the date of this MD&A. Forward-looking statements involve significant risks and uncertainties,
should not be read as guarantees of future results or performance, and will not necessarily be accurate indications of whether or not
such results or performance will be achieved. A number of factors could cause actual results or performance to differ materially from
the results or performance discussed in the forward-looking statements, including, but not limited to, the factors discussed under
“Substantial competition could reduce the market share of the Corporation and could have a material adverse effect on the
Corporation, its business, results from operations and financial condition”, “A higher than anticipated rate of decline in print
revenue resulting from changes in preferences and consumer habits could have a material adverse effect on the Corporation,
its business, results from operations and financial condition”, “The inability of the Corporation to successfully enhance and
expand its offering of digital and new media products could have a material adverse effect on the Corporation, its business,
results from operations and financial condition”, “The inability of the Corporation to generate sufficient funds from operations,
debt financings, equity financings or refinancing transactions 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 efforts to refinance or reduce its indebtedness and could have a material adverse effect on the Corporation, its business,
results from operations and financial condition”, “Incremental contributions by the Corporation to its pension plans could have a
material adverse effect on the Corporation, its business, results from operations and financial condition”, “Failure by either the
Corporation or the Telco Partners to fulfill the obligations set forth in the agreements between the Corporation and the Telco
Partners could result in a material adverse effect on the Corporation, its business, results from operations and financial
condition”, “Failure by the Corporation to adequately protect and maintain its brands and trade-marks, as well as third party
infringement of such, could have a material adverse effect on the Corporation, its business, results from operations and
financial condition”, “Work stoppages and other labor disturbances could have a material adverse effect on the Corporation, its
business, results from operations and financial condition”, “Challenge by tax authorities of the Corporation’s position on certain
income tax matters could have a material adverse effect on the Corporation, its business, results from operations and financial
condition”, “The loss of key relationships or changes in the level or service provided by internet portals, search engines and
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
13
MANAGEMENT’S DISCUSSION AND ANALYSIS
individual websites could have a material adverse effect on the Corporation, its business, results from operations and financial
condition”, “The failure of the Corporation’s computers and communications systems could have a material adverse effect on
the Corporation, its business, results from operations and financial condition” and “The Corporation might be required to record
additional impairment charges” of the “Risks and Uncertainties” section of this MD&A. Additional risks and uncertainties not currently
known to management or that are currently deemed to be immaterial may also have a material adverse effect on the Corporation’s
business, financial position or financial performance. Although the forward-looking statements contained in this MD&A are based upon
what management of the Corporation believes are reasonable assumptions, the Corporation cannot assure investors that actual
results will be consistent with these forward-looking statements and cautions readers not to place undue reliance on them. These
forward-looking statements are made as of the date of this MD&A and the Corporation assumes no obligation to update or revise
them to reflect new events or circumstances, except as may be required pursuant to securities laws.
DEFINITIONS RELATIVE TO UNDERSTANDING OUR RESULTS
Income from Operations before Depreciation and Amortization, Impairment of Goodwill, Intangible Assets and Property,
Plant and Equipment, Acquisition-related Costs and Restructuring and Special Charges (EBITDA)
We report on our EBITDA (Income from operations before depreciation and amortization, impairment of goodwill, intangible
assets and property, plant and equipment, 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 (loss) from operations or net earnings
(loss) 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, taxes, interest payments, capital
expenditures, debt principal reductions and other sources and uses of cash, which are disclosed on page 35 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.
This MD&A is divided into the following sections:
1.
2.
3.
4.
5.
6.
7.
Our Business, Mission, Strategy and Capability to Deliver Results
Results
Liquidity and Capital Resources
Free Cash Flow
Critical Assumptions
Risks and Uncertainties
Controls and Procedures
1. OUR BUSINESS, MISSION, STRATEGY AND CAPABILITY TO DELIVER RESULTS
OUR BUSINESS
Yellow Media is a Canadian digital media and print company, offering businesses comprehensive media solutions to meet their
key marketing objectives and providing consumers with platforms to access reliable local business information. The Company
offers small and medium-sized enterprises (SMEs) personalized marketing solutions comprised of digital and traditional
marketing products. These include online and mobile priority placement, search engine solutions, websites, social media, videos
and print advertising. We also provide national-scale businesses with high-end digital marketing and performance media
services. Through our sales force of approximately 1,100 media consultants and sales support staff, the Company serves
approximately 276,000 local businesses across Canada.
Yellow Media holds one of the largest database of rich and curated, local business information in Canada. Our advertisers’ local
business information reaches Canadian audiences via a variety of owned and operated digital and print media, and through
various local search networks. We own and operate some of Canada’s leading properties and publications including
YellowPages.ca™, Canada411.ca™, RedFlagDeals.com™, Canpages.ca™, and Yellow Pages™ print directories, as well as the
Yellow Pages, ShopWise and RedFlagDeals mobile search applications. Our mobile applications for finding local businesses and
deals have been downloaded over 6.5 million times, and our online destinations reach approximately 7.3 million unique visitors
monthly. The Company also owns and operates a public application programing interface (API) known as YellowAPI.com, which
contains 1.5 million Canadian business listings and enhanced content on over 270,000 businesses.
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 a number of other incumbent telephone companies that have a leading
share in their respective markets. In 2013, we published more than 345 distinct print telephone directories with a total circulation
of approximately 17 million copies.
14
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
MISSION
We exist to champion the local neighbourhood economy by enabling Canada’s businesses and its consumers to connect, interact
and build relationships.
STRATEGY
Our objective is to become the leading local digital media company in Canada. We will accomplish this by fostering strong business
relationships between Canadian businesses and local consumers, and by developing an unparalleled local media presence across
the country.
2013 marked the completion of Yellow Media’s first phase of digital transformation. Following the implementation of the
recapitalization transaction on December 20, 2012, Yellow Media started 2013 with a stronger balance sheet and the required
financial flexibility to pursue its digital transformation.
The Company built a solid digital foundation, investing in the development of new tools, technologies, processes, and products, as
well as its brand promise. The Company also invested in its workforce, recruiting over 200 information technology and digital media
professionals and implementing dedicated training programs on digital skills upgrade and enhancement. These investments have
strengthened its core assets, which include:
•
•
•
•
•
The most comprehensive, full-serve digital and traditional media and marketing solutions offering in Canada;
One of the largest teams of sales advisors, digital fulfillment professionals and campaign managers in Canada;
High traffic, owned and operated digital properties (online and mobile);
One of the largest databases of curated, local Canadian content;
An extensive network of digital partnerships to help businesses and shoppers connect outside the Company’s owned
and operated properties; and
•
Highly skilled employees.
These factors strongly position Yellow Media as it enters its second phase of transformation, a phase aimed at promoting long-
term revenue growth, profitability, and the Company’s transformation into a powerful local digital media company.
To effectively leverage its core assets and support Yellow Media’s second phase of transformation, the Company has identified the
following key areas of focus for 2014:
•
•
•
•
•
Extending its Brand Promise;
Attracting Valuable Audiences;
Responding to Advertiser Needs;
Investing in its Employees; and
Improving Efficiencies.
Extending its Brand Promise
We remain committed to developing an unparalleled local media presence across the country, promoting the YPG brand as a
trusted source of accurate, local business information. In response, the Company will continue launching branding initiatives
that encourage the download and use of our mobile applications. These campaigns will target on-the-go Canadians through
national television spots, local multi-media advertising, and targeted millennial campaigns across key urban markets. The
Company also aims to improve perception amongst current and prospective advertisers, launching multi-media business to
business campaigns promoting YPG’s products, services and expertise in digital marketing and campaign management.
Attracting Valuable Audiences
The success of our advertisers’ marketing campaigns is dependent on how well they can attract valuable audiences. The
Company will therefore deliver a more compelling and differentiated user experience by improving the quality, completeness
and relevance of the content distributed to its properties and partners, while providing compelling sites and applications for
local discovery. In 2014, the Company will launch new versions of its digital properties, supported by more efficient search
platforms, new digital experiences, and richer content such as deals, ratings and reviews. It will also invest in key traffic and
distribution partnerships, further expanding its partner eco-system and extending YPG’ s digital reach to positively contribute to
advertisers’ return on investment (ROI).
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
Responding to Advertiser Needs
We remain committed to providing current and prospective advertisers with the industry’s most valuable digital marketing
campaigns. In 2014, we will revamp and simplify our existing digital product offerings, and respond to the latest digital
marketing trends by introducing social engagement and digital display offerings. We will also find and attract new customers
through our redesigned acquisition strategy and implement programs, processes and technologies to enhance lead nurturing
and improve conversions. To promote advertiser retention and revenue growth, the Company will introduce enhanced
performance reporting capabilities across each of its digital products, improve sales tools and processes, and further enhance
digital product fulfillment.
Investing in its Employees
Our employees are core components of our digital transformation. In 2014, we will continue investing in our workforce, hiring an
additional 200 professionals within the domains of information technology and digital media. The Company will also invest in
developing a stronger digital culture, offering training programs, tools and resources to elevate digital literacy and promote
change management across all facets of the organization.
Improving Efficiencies
The Company continues to support operational excellence across the organization, building the core platforms and infrastructure to
support the high-volume, cost-effective processing of advertiser orders. In 2014, the Company will streamline business processes,
consolidate legacy systems and replace existing data centers to improve efficiencies and align the Company’s cost structure with its
digital reality.
For a review of developments and performance relative to key priorities that were identified for 2013, see Section 2 – Results.
CAPABILITY TO DELIVER RESULTS
This section of our MD&A explains how we are positioning the Company 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 generation and cash on hand 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:
•
•
•
•
•
Strong media brands;
Breadth and depth of local content;
Established relationships with customers;
Dedicated and experienced employees; and
Culture and values that characterize our organization.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
Strong Media Brands
Our extensive network of properties helps Canadian consumers find valuable information to connect with local businesses and
fulfill their shopping needs.
We own and operate some of Canada’s leading properties and publications including YellowPages.ca™, Canada411.ca™,
RedFlagDeals.com™, Canpages.ca™, and Yellow Pages™ print directories, as well as the Yellow Pages, ShopWise and RedFlagDeals
mobile search applications. Our mobile applications for finding local businesses and deals have been downloaded over 6.5 million
times.
•
•
•
•
•
•
YellowPages.ca – Available both online and as a mobile application, YellowPages.ca provides users access to current
and comprehensive information on local Canadian businesses;
ShopWise – Mobile application offering geo-localized deals and flyers, alongside access to a catalogue of over 7 million
products and information on over 600 local and national retailers;
RedFlagDeals.com – Canada’s leading provider of online and mobile deals, coupons and shopping tools;
Canpages.ca – A search website with an interactive focus on consumers’ geographic location and life needs, while also
offering access to an extensive database of local real estate listings;
Canada411.ca – One of Canada’s most frequented and trusted online destinations for personal contact information;
and
YellowAPI.com – a public API providing application developers and strategic partners access to 1.5 million verified and
regularly updated Canadian business listings.
Yellow Media is also the exclusive owner of the Yellow Pages™, Pages Jaunes™ Walking Fingers & Design™, as well as the
Canada411™, RedFlagDeals.com™ and Mediative™ trademarks in Canada. Mediative is a digital advertising and marketing
solutions provider which offers extensive display, mobile and other location-based marketing solutions to the country’s largest
national agencies and advertisers.
Breadth and Depth of Local Content
Yellow Media holds one of the largest databases of curated, local business information in the country, helping consumers
discover their local neighbourhoods. We remain committed in producing and broadcasting valuable business information. In
response, we are presently strengthening the foundation of our existing database, eliminating all out-of-date, duplicate
merchant listings. We are also improving the completeness of our content, equipping our Media Account Consultants (MACs),
digital support and client servicing teams with new tools and technologies that promote the timely collection and distribution of
valuable merchant information.
Established Relationships with Customers
The Company currently employs a sales force of approximately 1,100 people, including sales support staff. This large and
primarily face-to-face sales force is broken down into various customer segments, allowing for a more dedicated relationship
with our advertisers. The Company has invested heavily in the training of its sales force, transforming its MACs to savvy digital
marketing consultants. Our MACs now engage in more frequent touch-points with their clients, and are more active in promoting
advertiser retention and acquisition. They are also equipped with enhanced selling tools, processes and technologies to provide
advertisers with more valuable digital marketing campaigns.
Dedicated and Experienced Employees
Despite a challenging environment, our employees have executed on the initiatives needed to position and transform the
Company and we are confident that they will continue to remain focused on our common objectives. The Company has aligned
its workforce with the realities of its digital transformation, transferring resources from its legacy operations towards its digital
platform. In 2013, over 200 professionals were hired within the domains of information technology and digital media. The
Company also continues to invest in developing a stronger digital culture, offering training programs, tools and resources to
elevate digital literacy and promote change management across all facets of the organization.
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 of 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 our sustained success.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
2. RESULTS
This section provides an overview of our financial performance in 2013 compared to 2012 and 2011. We present several
metrics to help our investors better understand our performance. Some of these metrics are not measures recognized by IFRS.
Definitions of these financial metrics are provided on page 14 of this MD&A and are important aspects which should be
considered when analyzing our performance.
OVERALL
•
•
Revenues decreased by $136 million or 12.3% to $971.8 million compared to the previous year.
Income from operations before depreciation and amortization, impairment of goodwill, intangible assets and property, plant
and equipment and restructuring and special charges (EBITDA) decreased by $153.3 million or 26.9% to $416.1 million
compared to the previous year.
HIGHLIGHTS
(IN THOUSANDS OF CANADIAN DOLLARS– EXCEPT SHARE INFORMATION)
Revenues
Years ended December 31,
2013
2012
$
971,761
$ 1,107,715
Income from operations before depreciation and amortization, impairment of goodwill,
intangible assets and property, plant and equipment and restructuring and special charges (EBITDA)¹ $
416,112
$
569,380
Net earnings (loss)¹
Basic earnings (loss) per share attributable to common shareholders1
Cash flows from operating activities
Free cash flow2
$ 176,530
$ (1,962,054)
$
$
6.34
340,680
$
274,551
$
$
$
(70.95)
238,573
198,338
1 2012 figures have been revised to reflect the adoption of IAS 19 (Revised), Employee Benefits, effective January 1, 2013, and requiring retrospective application.
Please refer to Note 2 of the Consolidated Financial Statements of Yellow Media Limited for the year ended December 31, 2013.
2 Please refer to Section 4 for a reconciliation of free cash flow.
REVENUES
(IN MILLIONS OF CANADIAN DOLLARS)
(12.3%)
EBITDA
(IN MILLIONS OF CANADIAN DOLLARS)
(26.9%)
2013
2012
$971.8
$19.5
$1,107.7
2013
2012
$416.1
$7.6
$569.4
Revenues from Canpages
EBITDA from Canpages
PERFORMANCE RELATIVE TO BUSINESS STRATEGY
As we reinforced Yellow Media’s positioning as a leading Canadian digital media company, our key priorities for 2013 were to
provide advertisers with the:
•
•
•
Right Value – having knowledgeable advisors provide marketing programs that will deliver real value to our advertisers;
Right Products – offering our advertisers the optimal mix of ever-evolving digital marketing products;
Right Execution and Customer Experience – delivering flawless execution of our advertisers’ marketing campaigns and
an overall superior customer experience; and
•
Right Consumer Audiences – enabling our advertisers to reach and target local qualified consumers.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
Right Value – having knowledgeable advisors provide marketing programs that will deliver superior value to our advertisers
The Yellow Pages 360º Solution is a key element of our digital transformation, positioning the Company as a Canadian leader in
digital marketing. This unique value proposition provides advertisers with a comprehensive digital solution, offering products
and services such as online and mobile priority placement, search engine solutions, websites, social media, videos and print
advertising.
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2013, the penetration of the Yellow Pages 360º Solution
offering amongst our advertiser base, which we define as advertisers who
purchase three product categories or more, grew to 27.1%. This compares to
16.5% as at December 31, 2012.
Online priority placement remains the Company’s highest penetrated digital product
offering, with penetration having increased to 47% as at December 31, 2013
compared to 35% at the end of the same period last year.
Mobile advertising remains a key growth driver for YPG, as Canadians become
increasingly dependent on their smartphones and tablets to obtain valuable,
on-the-go information about businesses and services in and around their
neighbourhoods. Mobile priority placement allows advertisers to gain top
positioning across YPG’s mobile applications, which have currently been
downloaded over 6.5 million times. Mobile priority placement remains the
Company’s fastest growing digital product offering, with advertiser penetration
having increased to 15% as at December 31, 2013, compared to 8% at the end
of the same period in 2012.
Growth in advertiser penetration across online and mobile placement products is due to the successful sales execution of the
Yellow Pages 360º Solution and the Company’s efforts in migrating traditional media advertisers towards digital products and
services. The same dynamic applies to the advertiser penetration of digital services (website, search engine optimization (SEO)
and search engine marketing (SEM) offerings), which grew from 6% last year to 9% as at December 31, 2013. During the first
quarter of 2013, Google selected YPG as a Canadian Google AdWordsTM Premier SMB Partner, further reinforcing YPG’s
reputation of driving value to its advertisers through its SEM offerings. Partners in the Premier Google AdWords SMB Partner
Program must not only meet the highest standards of excellence for qualification, training and customer service, but also hold
strong knowledge of the local search marketing landscape and experience working with SMEs in these areas.
ADVERTISER PENETRATION1
Print
Owned and Operated Digital Media2
Online placement
Mobile placement
Digital Services3
1 YPG only, excludes Mediative and Wall2Wall.
As at December 31,
2013
91.3%
61.2%
47.1%
14.9%
8.7%
2012
94.1%
60.8%
34.5%
8%
6.5%
2 Percentage of YPG advertisers purchasing at least one online placement, mobile placement, legacy, content, and/or video product.
3 Percentage of YPG advertisers purchasing at least one website, SEO, and/or SEM product.
Growing the advertiser base remains a key driver of revenue growth. Over the last twelve months, YPG acquired approximately
13,600 new advertisers, compared to 11,900 for the twelve-month period ended September 30, 2013 and 16,500 for the year
ended December 31, 2012. During the second quarter of 2013, the Company redesigned its acquisition channel and
established a more targeted acquisition strategy. Currently being implemented nationwide, this acquisition strategy is centered
on increasing advertiser leads and conversions through the development of demand generation initiatives, inbound and
outbound call centers, and a dedicated face-to-face national network of specialized MACs.
The Company also launched two new product packages designed exclusively to help prospective advertisers gain a digital media
presence at entry-level pricing:
•
•
Business Builder Bundle: provides advertisers with a virtual profile, online priority placement product, mobile priority
placement product, and print display ad at a fixed price; and
Booster Packs: allow advertisers to choose from three levels of digital exposure via packages including a virtual profile,
an online priority placement product, and a mobile priority placement product.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
19
MANAGEMENT’S DISCUSSION AND ANALYSIS
Our most recent customer surveys reveal a higher level of satisfaction amongst YPG’s clients, due in part to an improved
relationship with their MAC. The Company’s MACs now engage in more touch-points with their customers, and have access to
the right tools to efficiently promote the value of the Company’s products and services. During 2013, the Company repatriated
and relaunched its Yellow Pages Analytics platform to provide enhanced stability, agility and performance capabilities. This new
platform will supply the required foundation for further improvements in 2014, including a simplified user interface and
enhanced reporting capabilities across each of the Company’s digital products and services. The Company initiated the rollout
of a new customer relationship management platform in 2013, providing the foundation to improve sales tools and processes
and optimize all sales channels in 2014.
Right Products – offering our advertisers the optimal mix of continuously evolving digital marketing products
During the fourth quarter of 2013, the Company extended its value proposition to advertisers by helping them leverage the
power of social media. YPG is now able to use advertisers’ basic business content, which includes location, contact information,
websites and images, to automatically generate and update basic Facebook® business pages. This basic Facebook® business
page creation service is currently being integrated at no extra charge into YPG’s existing Virtual Business Profile digital product
offering. The Company will further monetize social media solutions in 2014 via the introduction of more comprehensive and
customizable social media marketing campaigns.
The Company also launched two new premium digital products in 2013 to support retention efforts and deliver a more
sophisticated, customizable, and comprehensive digital offering to its larger clients:
•
•
Digital PowerPlay, which establishes and optimizes a business’ digital presence by determining the necessary steps to
maximize qualified leads across various digital channels while offering the highest level of service and support; and
SEM TouchPoint, which provides a customized paid-search ad campaign inclusive of unique access to a dedicated
SEM expert and in-depth performance reporting.
Right Execution and Customer Experience – delivering flawless execution of our advertisers’ marketing campaigns and
an overall superior customer experience
Increased satisfaction amongst YPG’s clients was also supported by improved customer service and digital product fulfillment.
In 2013, the Company increased training of its customer service agents, enhancing service levels and shortening turnaround
times. The Company also enhanced digital product fulfillment, optimizing website production processes and consolidating online
publication systems to provide better publishing accuracy.
The Company continued to develop platforms that promote content accuracy and relevancy, improve the user experience and
thereby deliver enhanced ROI to its advertisers. The Company launched Online Merchant Management (OMM) during the
second quarter of 2013, a tool which assigns a unique Merchant Identifier to every business in Canada. This technology
eliminates all stale and duplicate listings, and ensures that each current and prospective advertiser has accurate and rich
content available via one single business profile. In an effort to further improve its content collection process, the Company also
deployed content capture applications to certain of its MACs, digital support and client servicing teams in 2013. These
applications allow our sales and support teams to collect and distribute valuable business information to digital audiences live
during sales meetings and calls.
The Company also repatriated and launched a new online and mobile search engine during the year. This new search engine
provides users with more relevant and engaging search results, ranking results based on features such as proximity of location,
business content, popularity of business, and quality of reviews. YellowPages.ca is also equipped with an enhanced
autocomplete service, which allows for quicker results and a reduction in failed searches.
Right Consumer Audiences – enabling our advertisers to reach and target local qualified consumers
Attracting the right consumer audiences is key in promoting ROI for our advertisers’ digital marketing campaigns.
As at December 31, 2013, our mobile applications were downloaded over 6.5 million times compared to 5 million times at the
same period last year. YPG’s mobile applications continued to gain industry recognition in 2013. The Yellow Pages application
was highlighted by the App Store as one of the top 25 most downloaded applications of all time, while ShopWise was selected
by the Local Search Association as the New App Gold Award Winner at the 2013 Industry Excellence Awards. The Company
continued to develop valuable mobile content throughout the year. During the third quarter of 2013, the Company launched a
real time gas pricing and comparison feature on its flagship Yellow Pages mobile application. A ShopWise iPad application was
launched, alongside a new version of the mobile application, helping Canadians shop more efficiently through a digitally-
responsive e-flyer experience and easier-to-find geo-localized deals and savings.
2013 also saw the launch of a brand new marketing and communications strategy to engage consumers, recapture awareness
around the Yellow Pages brand and promote the download and use of the Yellow Pages mobile application. The Company
completed a six-week multimedia advertising blitz in Toronto from June to August 2013, positioning Yellow Pages as the brand
of choice for accurate, local information about the neighbourhoods we live in. This campaign was further extended in the fall of
2013, targeting over 260,000 millennials across university campuses in Montreal, Toronto and Vancouver. These branding
initiatives improved the public’s perception of Yellow Pages as a digital company, increased brand relevance and contributed to
an increase in mobile downloads and visits.
20
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
YPG also launched a new event and awareness initiative in Toronto called Shop the Neighbourhood, designed to promote local
shopping and the growth and success of local businesses. Consumers were asked to shop locally on November 30, 2013, a
weekend when historically Canadians shop in the U.S. for Black Friday or online for Cyber Monday deals. The event attracted
over 1,800 local businesses across the Greater Toronto Area, who offered over 2,000 exclusive deals and savings to consumers
across our online and mobile applications. The campaign was also supported by various local associations, leading political
figures and celebrities.
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED OPERATING AND FINANCIAL RESULTS
(IN THOUSANDS OF CANADIAN DOLLARS – EXCEPT SHARE AND PER SHARE INFORMATION)
For the years ended December 31,
Revenues
Operating costs
Income from operations before depreciation and amortization, impairment of
goodwill, intangible assets and property, plant and equipment, acquisition-
related costs and restructuring and special charges
Depreciation and amortization
Impairment of goodwill, intangible assets and property, plant and equipment
Acquisition-related costs
Restructuring and special charges
Income (loss) from operations
Financial charges, net
Gain on settlement of debt
Gain on disposal of subsidiary
Earnings (loss) before dividends on Preferred shares, series 1 and 2, income
taxes and impairment and earnings (losses) from investments in
associates
Dividends on Preferred shares, series 1 and 2
Earnings (loss) before income taxes and impairment and earnings (losses)
from investments in associates
Provision for (recovery of) income taxes
Impairment of investment in an associate, net of income taxes
Earnings (losses) from investments in associates
Net earnings (loss) from continuing operations
Net loss from discontinued operations, net of income taxes
2013
20121
20111,2
$
971,761 $ 1,107,715 $ 1,328,866
555,649
538,335
650,254
416,112
60,164
23,338
569,380
104,293
3,267,847
44,923
678,612
160,906
2,900,000
7,743
26,142
332,610
(2,847,683)
(2,416,179)
93,357
155,968
(978,589)
136,605
(6,211)
239,253
(2,025,062)
(2,546,573)
17,694
19,187
239,253
(2,042,756)
(2,565,760)
63,421
698
(78,809)
85,310
50,271
1,893
(12,060)
176,530
(1,962,054)
(2,713,401)
(120,877)
Net earnings (loss)
$
176,530 $ (1,962,054) $ (2,834,278)
Basic earnings (loss) per share attributable to common shareholders2
From continuing operations
Total
Diluted earnings (loss) per share attributable to common shareholders2
From continuing operations
Total
Total assets
Long-term debt (including current portion, excluding exchangeable and
convertible debt instruments)
Exchangeable and convertible debt instruments
Preferred shares, series 1 and 2 (including current portion)
$
$
$
$
6.34 $
6.34 $
(70.95) $
(97.85)
(70.95) $
(102.32)
5.46 $
5.46 $
(70.95) $
(97.85)
(70.95) $
(102.32)
$ 1,794,034 $ 1,756,476 $ 5,048,932
$
$
$
647,468 $
801,831 $ 1,613,231
87,934 $
$
86,667 $
$
184,214
398,886
1 Revised to reflect the adoption of IAS 19 (Revised), Employee Benefits, effective January 1, 2013, and requiring retrospective application. Please refer to Note 2 of the
Consolidated Financial Statements of Yellow Media Limited for the year ended December 31, 2013.
2 Pursuant to the closing of the recapitalization transaction on December 20, 2012, the common shares of YPG Financing Inc. were exchanged for new common shares
of Yellow Media Limited in accordance with the terms of the plan of arrangement implementing the recapitalization transaction. As a result, the weighted average
number of common shares outstanding for 2011 and 2012 has been adjusted to reflect the recapitalization.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
ANALYSIS OF CONSOLIDATED OPERATING AND FINANCIAL RESULTS
The consolidated income statements of Yellow Media up to net earnings (loss) from continuing operations represent the results
of the restated digital and traditional media solutions segment. The results of the automotive and generalist print and online
business of Trader Corporation were presented as discontinued operations in 2011.
FISCAL 2013 VERSUS 2012
Revenues
Revenues decreased by 12.3% to $971.8 million during 2013 compared with $1,107.7 million for 2012. On a comparable
basis, when adjusting for the discontinuation of Canpages directories in 2012, revenues decreased by 10.7% during 2013.
Revenues remain adversely impacted by lower print revenues, as larger advertisers reduce their print advertising spend,
alongside a lower advertiser count amongst smaller, low-spend advertisers.
Digital revenues reached $406.3 million in 2013, representing a growth of 10.6%. On a comparable basis, when adjusting for
the discontinuation of Canpages directories in 2012, digital revenues increased by 12.5% during 2013 when compared to the
same period last year. During the fourth quarter of 2013, digital revenues represented 45.1% of total revenues, up from 37.7%
during the same period in 2012.
Growth in digital revenues continues to result from the ongoing migration of traditional media advertisers towards digital
products and services and continued adoption of the Yellow PagesTM 360º Solution across YPG’s sales channels. These factors
also led to an improvement in Revenue Generating Units1 (RGU) per advertiser from 1.74 as at December 31, 2012 to 1.81 as
at December 31, 2013.
The Company had 276,000 advertisers as at December 31, 2013, compared to 309,000 as at the same period last year.
Advertiser renewal rate decreased from 86% last year to 85% for the twelve-month period ended December 31, 2013. During
the last twelve months, YPG acquired approximately 13,600 new advertisers, compared to 16,500 for the same period last year.
Advertiser acquisition improved slightly versus the twelve-month period ended September 30, 2013, whereby 11,900 new
advertisers were acquired. The Company will continue rolling out its redesigned acquisition strategy nationwide and
implementing programs, processes and technologies to reach and attract new advertisers, enhance lead nurturing, and improve
conversions.
ADVERTISER RENEWAL AND ACQUISITION
Advertiser count²
Client renewal rate3
New advertisers2
For the years ended December 31
2013
276,000
85%
13,600
2012
309,000
86%
16,500
For the year ended December 31, 2013, 81% of renewing advertisers3 increased or maintained their level of spending
compared to 82% in 2012. Advertisers experiencing a decrease in spending are mainly larger advertisers that represented
approximately 44% of YPG’s revenues for the year ended December 31, 2013. In response, the Company will continue offering
these clients enhanced execution of their marketing campaigns and providing them access to premium digital solutions.
1 Revenue Generating Units measures the number of product groups selected by YPG advertisers.
2 Excludes the contribution of Wall2Wall and Canpages.
3 YPG advertisers only, excluding the impact of Mediative, Canpages and Wall2Wall advertisers.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
SPENDING DYNAMICS
Amongst Renewing Advertisers1
Increase in spending2
Advertiser distribution
% of revenues
Stable spending3
Advertiser distribution
% of revenues
Decrease in spending4
Advertiser distribution
% of revenues
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended December 31
2013
2012
26%
29%
55%
27%
19%
44%
51%
40%
31%
16%
18%
44%
Average Revenue per Advertiser (ARPA)5
$3,259
$3,260
1 YPG advertisers only, excluding the impact of Mediative, Canpages and Wall2Wall advertisers.
2 Renewing YPG advertisers experiencing an increase in spending over 5%, on a year-over-year basis.
3 Renewing YPG advertisers experiencing an increase in spending between 0% and 5%, on a year-over-year basis.
4 Renewing YPG advertisers experiencing a decrease in spending on a year-over-year basis.
5 Excludes the contribution of Canpages and Wall2Wall.
OPERATIONAL INDICATORS
Yellow Pages 360º Solution Penetration6
RGU per advertiser6
Digital only advertisers6
As at December 31,
2013
27.1%
1.81
23,900
2012
16.5%
1.74
18,000
Digital revenues (in thousands of Canadian dollars)7
$
406,311
$
367,236
6 YPG advertisers only, excluding the impact of Mediative and Wall2Wall advertisers.
7 For the years ended December 31.
EBITDA
EBITDA decreased by $153.3 million to $416.1 million during 2013 compared with $569.4 million in 2012. The decrease in
EBITDA is due to print revenue pressure, as revenue growth from our digital products is not compensating for the loss in print
revenues, combined with a lower EBITDA margin. Our EBITDA margin for 2013 was 42.8% compared to 51.4% for 2012. In
addition to lower revenues, changes in product mix, investments in the business transformation and employee related expenses
were the main contributors to the decrease in EBITDA margin. During the year, we also recorded provisions associated with
sales tax assessments.
Cost of sales decreased by $20.2 million to $318.6 million during 2013 compared with $338.8 million for 2012. The decrease for
the year results mainly from lower sales costs associated with lower revenues and lower manufacturing costs associated with lower
print revenues. These cost savings were partly offset by an increase in provisioning and fulfillment costs of our digital services.
Gross profit margin decreased to 67.2% for 2013 compared to 69.4% for 2012. The decrease is mainly due to a change in product mix
which includes lower margins associated with some of our digital service offerings such as websites, SEO and SEM.
General and administrative expenses increased by $37.5 million to $237 million during 2013 compared with $199.5 million for
2012. The increase for the year ended December 31, 2013 is attributable to higher employee related expenses, investments in
branding as we continued our Meet the New Neighbourhood advertising campaign, non-recurring provisions related to sales tax
assessments and lower non-cash benefit resulting from the amendment to our employees’ pension and post-retirement benefit
plans. This was partly offset by lower bad debts.
Depreciation and amortization
Depreciation and amortization decreased from $104.3 million to $60.2 million during 2013. The decrease is mainly attributable
to lower amortization of certain intangible assets related to the acquisition of Canpages in 2010. These intangibles resulted in a
higher amortization expense in 2012 and were fully written off during the previous year. In addition, certain intangible assets
and property, plant and equipment had a lower cost base in 2013 due to the impairment of $300 million recorded in the fourth
quarter of 2012.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
Impairment of goodwill, intangible assets and property, plant and equipment
During the first quarter of 2012, indicators that the Company’s assets may have been impaired existed were identified, requiring
the Company to perform an impairment test. Also, as a result of the closing of the recapitalization during the fourth quarter of
2012, and the issuance of new debt, shares and warrants pursuant to the recapitalization, and in the context of its annual
impairment testing, the Company determined that the recoverability of certain of its assets had to be reviewed for impairment
purposes. Consequently, we recorded charges of $3,267.8 million in 2012, related to the impairment of goodwill and certain of
our intangible assets and property, plant and equipment. No such charge was recorded during 2013.
Restructuring and special charges
In 2013, we recorded restructuring and special charges of $23.3 million associated with a workforce reduction of approximately
300 employees, the termination and renegotiation of certain contractual obligations and the departure of the former President
and Chief Executive Officer (CEO). As announced on March 21, 2013, Marc P. Tellier stepped down as CEO on August 15, 2013 and
was entitled to remuneration in accordance with the separation agreement entered into on March 20, 2013. In 2012, we incurred
costs of $44.9 million associated with a workforce reduction, a relocation of certain centres of excellence, as well as the
termination and renegotiation of certain contractual obligations.
Financial charges
Financial charges decreased by $62.6 million to $93.4 million during 2013 compared with $156 million for 2012. This decrease
for the year ended December 31, 2013 is mainly attributable to a lower level of indebtedness and lower deferred financing costs as
a result of the December 2012 recapitalization transaction. During 2013, we incurred interest on long-term debt of $79 million and
deferred financing costs of $0.1 million compared to interest on long-term debt of $119.3 million and deferred financing costs of
$8.4 million for the preceding year. During the year, the Company purchased on the open market $8 million of senior secured notes
for a total cash consideration of $8.3 million and exercised its option to redeem $27 million of senior secured notes for a total cash
consideration of $28.4 million. A total loss of $1.7 million was recorded in net earnings in financial charges. In 2012, we incurred a
charge of $18.5 million related to an option associated with our investment in an associate. No such charge was recorded in 2013.
As at December 31, 2013 and 2012, the effective average interest rate on our debt portfolio was 9.1%.
Gain on settlement of debt
During the fourth quarter of 2012, we recorded a gain of $978.6 million on the settlement of debt pursuant to the recapitalization,
net of related fees of $69.5 million, write-off of deferred financing costs of $16.3 million, deferred gains of $5.5 million, an equity
component of $7.2 million and a derivative component of $0.6 million, associated with our previous debt instruments.
Dividends on Preferred shares, series 1 and 2
Dividends on the two series of redeemable preferred shares amounted to $17.7 million for the year ended December 31, 2012.
Pursuant to the December 2012 recapitalization transaction, these preferred shares were cancelled.
Provision for income taxes
The combined statutory provincial and federal tax rate was 26.46% and 26.31% for the years ended December 31, 2013 and
2012, respectively. The Company recorded an expense of $63.4 million for the year compared to a recovery of $78.8 million in
2012. The Company recorded an expense of 26.51% on earnings for the year ended December 31, 2013.
The Company recorded a recovery of 3.9% on the loss for the year ended December 31, 2012. The difference between the
effective and the statutory rates in 2012 is due to the gain on settlement of debt offset by the unrecognized capital losses on its
investment of subsidiaries and to the impairment charge of $3,267.8 million, which is not fully deductible for tax purposes.
Excluding these items, the effective tax rate in 2012 would have been in line with the statutory rate.
Earnings from investments in associates
During 2013, we recorded earnings from our investment in an associate in the amount of $0.7 million compared with
$1.9 million for the same period last year. Effective January 1, 2012, we no longer account for our investment in Acquisio using
the equity method and we recorded a gain of $2.1 million in 2012 on the revaluation of this investment. Our earnings from our
investments in associates include the amortization of intangible assets in connection with these equity investments.
Net earnings (loss)
During 2013, we recorded net earnings of $176.5 million compared with a net loss of $1,962.1 million in 2012. The increase in
earnings is mainly due to the impairment of goodwill, certain intangible assets and property, plant and equipment of $3,267.8 million
recorded in 2012, offset by the gain on settlement of debt of $978.6 million recorded in 2012, lower depreciation and amortization
of $44.1 million, lower restructuring and special charges of $21.6 million, and lower financial charges of $62.6 million, partly offset
by a higher provision for income taxes of $142.2 million and lower EBITDA of $153.3 million.
24
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
FISCAL 2012 VERSUS 2011
Revenues
Revenues decreased by 16.6% to $1,107.7 million during 2012 compared with $1,328.9 million for 2011. On a comparable
basis, revenues decreased by 11.9% during 2012. The decrease for the year ended December 31, 2012 was due to lower print
revenues, primarily amongst larger advertisers who reduced their advertising spend, as well as a lower advertiser count. 18% of
renewing advertisers1 experienced a decrease in spending over the twelve-month period ended December 31, 2012,
unchanged versus 2011. Advertisers who experienced a decrease in spending were mainly larger advertisers. However, 51% of
renewing advertisers1 experienced an increase in spending over the twelve-month period ended December 31, 2012, as
compared to 43% for the corresponding preceding year.
As at December 31, 2012, the number of advertisers, excluding Canpages’ advertisers, was 309,000 compared to 340,000 as at
December 31, 2011, reflecting a decrease of 9.1%. During the twelve-month period ended December 31, 2012, YPG acquired
approximately 17,300 new advertisers versus 23,000 new advertisers for the twelve-month period ended December 31, 2011.
Advertiser renewal decreased to 86% as at December 31, 2012 compared to 87% as at December 31, 2011.
Digital revenues reached $367.2 million in 2012, representing a growth of 6.1% in 2012. Excluding the impact of the Canpages,
LesPAC, Deal of the Day businesses and YPG USA, digital revenues increased by 15.7% during 2012 when compared to 2011.
As at December 31, 2012, the number of advertisers who chose to advertise both in print and online was 61.4% across Canada
compared to 63.4% for the corresponding period in 2011. Digital only advertisers at the end of the fourth quarter of 2012 was
approximately 18,000 compared to approximately 13,000 as at December 31, 2011. Our network of websites attracted
9 million unduplicated unique visitors2 on average during the fourth quarter of 2012, representing a reach of 32.3%2 of the
Canadian internet population.
As at December 31, 2012, 35% of our advertisers had purchased an online placement product compared to 19% in 2011. Also, 8%
had purchased a mobile placement product compared to 1% in 2011. As at December 31, 2012, our RGU per advertiser increased
to 1.74 compared to 1.68 for the same period last year.
EBITDA
EBITDA decreased by $109.2 million to $569.4 million during 2012 compared with $678.6 million in 2011. The decrease in
EBITDA was due principally to print revenue pressure, as our new digital products did not compensate for the loss in print
revenues. Our EBITDA margin for 2012 was 51.4% compared to 51.1% for 2011. Lower revenues were offset by lower bad
debts and general cost containment efforts.
Cost of sales decreased by $54.2 million to $338.8 million during 2012 compared with $393 million for 2011. The decrease for the
year resulted mainly from lower sales costs associated with Canpages given the migration of that business within YPG. We also
incurred lower selling and manufacturing costs associated with lower print revenues and reduced rates following the
renegotiation of supply chain contracts in the third quarter of 2012.
Gross profit margin decreased to 69.4% for 2012 compared to 70.4% for 2011. The decrease was due to a change in product mix,
which included lower margins associated with some of our new online service offerings, such as websites, SEO and SEM.
General and administrative expenses decreased by $57.7 million to $199.5 million during 2012 compared with $257.2 million for
2011. The migration of Canpages within YPG resulted in a cost reduction of $14 million for the year ended December 31, 2012.
The decrease for the year ended December 31, 2012 was also attributable to lower bad debts of approximately $21 million as well
as general cost containment measures including changes to our employees’ pension and post-retirement benefits which included a
non-cash benefit of $13.3 million.
Depreciation and amortization
Depreciation and amortization decreased from $160.9 million to $104.3 million during 2012. The decrease was mainly
attributable to lower amortization of certain intangible assets related to the acquisition of Canpages in 2010. These intangible
assets resulted in a higher amortization expense in 2011.
Impairment of goodwill, intangible assets and property, plant and equipment
During the first quarter of 2012, indicators that the Company’s assets may have been impaired were identified, which required
the Company to perform an impairment test. Also, as a result of the closing of the recapitalization during the fourth quarter of
2012, the issuance of new debt, shares and warrants pursuant to the Recapitalization, and in the context of its annual
impairment testing, the Company determined that the recoverability of certain of its assets had to be reviewed for impairment
purposes. Consequently, we recorded charges of $3,267.8 million in 2012, related to the impairment of goodwill and certain of
our intangible assets and property, plant and equipment.
1 YPG advertisers only, excluding the impact of Mediative and Wall2Wall advertisers.
2 Source: comScore Media Metrix Canada.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
During 2011, we recorded a charge of $2,900 million related to the impairment of goodwill and intangible assets. The impairment
charges did not affect the Company’s operations, its liquidity, its cash flows from operating activities, or its note indentures.
Acquisition-related costs
We incurred costs of $7.7 million in 2011, associated with potential investments. No such costs were incurred in 2012.
Restructuring and special charges
In 2012, we incurred costs of $44.9 million associated with a workforce reduction, a relocation of certain centres of excellence,
as well as, the termination and renegotiation of certain contractual obligations. In 2011, we incurred costs of $26.1 million
associated with a workforce reduction and the termination of certain contractual obligations resulting from the creation of
centers of excellence and the elimination of print publications from the Canpages division.
Financial charges
Financial charges increased by $19.4 million to $156 million during 2012 compared with $136.6 million for 2011. This
increase was mainly attributable to a gain recorded on the repurchase of Preferred shares, series 1 and 2 and medium term
notes of $38.8 million for the year ended December 31, 2011. Excluding this gain, financial charges decreased by $19.5 million
for the year ended December 31, 2012 compared to the same period last year. The decrease for the year was mainly
attributable to lower interest expense and a decrease of the amortization of deferred financing costs. The lower interest
expense was attributable to a lower level of indebtedness as a result of buyback activities of medium term notes and repayment
of commercial paper borrowings as well as repayments under the credit facility in 2011 and 2012. The positive impact of lower
levels of indebtedness on interest expense was partly offset by higher borrowing costs resulting from our credit ratings
downgrades. The decrease in interest was partly offset by higher charges related to derivative financial instruments of
$18.5 million in 2012 compared to $12.5 million in 2011. The charge in 2012 related to an option associated with our investment
in an associate while the charge in 2011 related mainly to the settlement of a total return swap. As at December 31, 2012, the
effective average interest rate on our debt portfolio was 9.1% following the implementation of the Recapitalization compared to
6.2% as at December 31, 2011.
Gain on settlement of debt
We recorded a net gain of $978.6 million on the settlement of debt pursuant to the recapitalization in 2012.
Dividends on Preferred shares, series 1 and 2
Dividends on the two series of redeemable preferred shares amounted to $17.7 million for 2012 compared to $19.2 million for the
same period in 2011. The decrease for the year was due to a lower level of preferred shares which resulted from our share buyback
activity under our normal course issuer bid which took place in 2011.
On February 9, 2012, the Company announced that it had suspended the dividend payment on the Preferred shares, series 1
and 2. Due to the nature of the underlying instrument, the Company continued to accrue for the unpaid dividends on the
Preferred shares, series 1 and 2.
Provision for income taxes
The combined statutory provincial and federal tax rate was 26.3% and 27.9% for the years ended December 31, 2012 and
2011, respectively. The Company recorded a recovery of $78.8 million for the year compared with an expense of $85.3 million
in 2011. The Company recorded a recovery of 3.9% of the loss for the year ended December 31, 2012. The difference between
the effective and the statutory rates in 2012 was due to the gain on settlement of debt offset by the unrecognized capital losses
on its investment of subsidiaries and to the impairment charge of $3,267.8 million which was not fully deductible for tax
purposes. Excluding these items, the effective tax rate in 2012 would have been in line with the statutory rate.
The Company recorded an expense of 3.3% of the loss for the year ended December 31, 2011. The difference between the
effective and the statutory rates in 2011 was due to the impairment of goodwill and intangible assets charge of $2,900 million
which was not fully deductible for tax purposes as well as the non-deductibility of certain expenses for tax purposes such as the
impairment of our investment in Ziplocal, LP (Ziplocal).
Impairment of investment in an associate
During 2011, Ziplocal was in default of its debt obligations and had undertaken important restructuring initiatives. As a result,
the Company determined that its investment in Ziplocal was impaired and a net loss of $50.3 million was recorded in the
second quarter of 2011, which reduced its net investment in Ziplocal to $nil.
Earnings (losses) from investments in associates
During 2012, we recorded earnings from our investment in an associate in the amount of $1.9 million which includes a gain of
$2.1 million related to the revaluation of our investment in Acquisio. Effective January 1, 2012, we no longer account for the
Acquisio investment using the equity method. Our (earnings) losses from investments in associates included the amortization of
intangible assets acquired in connection with these equity investments. During 2011, we recorded our share of losses from our
26
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
investments in associates in the amount of $12.1 million, which included our share of losses from Ziplocal of $10.6 million. No
share of losses was recorded from our investment in Ziplocal in 2012 as this investment was written-off as described above.
Net loss from discontinued operations
On March 25, 2011, Yellow Media announced that it had reached a definitive agreement to sell Trader Corporation. The
transaction closed on July 28, 2011. The real estate and LesPAC businesses were excluded from the divestiture. As a result, we
reclassified the results of the automotive and generalist verticals as discontinued operations.
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.
EBITDA from the operations of the automotive and generalist business was $34.7 million for the year ended December 31, 2011.
The net loss from discontinued operations amounted to $120.9 million for 2011. This included a loss on disposal of
$134.3 million, net of income taxes, for the year ended December 31, 2011, which represented the difference between the fair
value, net of selling costs and the carrying value of net assets sold.
Net loss
The net loss decreased to $1,962.1 million in 2012 compared with $2,834.3 million in 2011. The decrease in the net loss of
$872.2 million for the year ended December 31, 2012 was mainly due to the gain on settlement of debt of $978.6 million
recorded pursuant to the Recapitalization, a decrease in depreciation and amortization of $56.6 million, a decrease in the
provision for income taxes of $164.1 million, the impairment of our Ziplocal investment of $50.3 million and the loss from our
divestiture of Trader Corporation of $120.9 million in 2011, offset by lower EBITDA of $109.2 million, a higher impairment
charge of goodwill, intangible assets and certain property, plant and equipment of $367.8 million, restructuring and special
charges of $18.8 million and financial charges of $19.4 million.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
SUMMARY OF CONSOLIDATED QUARTERLY RESULTS
QUARTERLY RESULTS
(IN THOUSANDS OF CANADIAN DOLLARS – EXCEPT SHARE AND PER SHARE INFORMATION)
Q4
Q3
Q2
2013
Q1
Q4
Q3
Q2
20121
Q1
$ 237,951 $ 237,350 $ 243,183
$ 253,277 $ 264,447 $ 267,711 $ 286,484 $ 289,073
146,698
135,203
135,949
137,799
122,770
129,821
141,545
144,199
91,253
102,147
107,234
115,478
141,677
137,890
144,939
144,874
38.3%
43%
44.1%
45.6%
53.6%
51.5%
50.6%
50.1%
16,106
15,589
14,779
13,690
23,395
26,597
24,220
30,081
Revenues
Operating costs
Income from operations
before depreciation
and amortization,
impairment of
goodwill, intangible
assets and property,
plant and equipment
and restructuring and
special charges
(EBITDA)
EBITDA margin
Depreciation and
amortization
Impairment of goodwill,
intangible assets and
property, plant and
equipment
Restructuring and special
charges
13,134
4,011
300,000
6,193
18,111
26,812
2,967,847
Income (loss) from
operations
Gain (loss) on settlement
of debt2
Net earnings (loss)
Basic earnings (loss) per
share attributable to
common
shareholders2
Diluted earnings (loss) per
share attributable to
common
shareholders2
62,013
82,547
92,455
95,595
(199,829)
84,481
120,719
(2,853,054)
30,964
41,775
50,326
(994,894)
53,465
821,850
10,818
22,236
5,487
65,681
(2,871,821)
$
1.11 $
1.51 $
1.81 $
1.91 $
29.24 $
0.59 $
2.15 $
(102.93)
$
0.97 $
1.30 $
1.55 $
1.64 $
28.50 $
0.59 $
2.15 $
(102.93)
1 Revised to reflect the adoption of IAS 19 (Revised), Employee Benefits, effective January 1, 2013, and requiring retrospective application. Please refer to Note 2 of the
Consolidated Financial Statements of Yellow Media Limited for the year ended December 31, 2013.
2 Pursuant to the closing of the recapitalization transaction on December 20, 2012, the common shares of YPG Financing Inc. were exchanged for new common shares
of Yellow Media Limited in accordance with the terms of the plan of arrangement implementing the recapitalization transaction. As a result, the weighted average
number of common shares outstanding for 2012 has been adjusted to reflect the recapitalization.
Revenues decreased throughout the quarters, as a result of a continued decline of revenues from our print products, partially
offset by an increase in revenues of our digital products. Revenues for the fourth quarter of 2013 increased slightly from the
previous quarter. This was impacted by non-recurring revenues as well as higher revenues at Mediative associated with the
holiday shopping period.
Our EBITDA margin remained relatively stable in the first and second quarters of 2012 but increased in the third quarter of
2012 as we benefited from reduced rates from our supply chain contracts which were renegotiated during the quarter. In the
fourth quarter of 2012, first quarter of 2013, and second quarter of 2013, we recorded non-cash benefits of $13.3 million,
$2.6 million and $4.6 million, respectively, related to amendments to our pension and post-retirement benefit plans. Our
EBITDA margin decreased throughout 2013, primarily reflecting lower print revenues, the loss of margin from a change in
product mix, investments made to accelerate our business transformation and employee related expenses. The fourth quarter
of 2013 was also negatively impacted by provisions related to a legal dispute and a sales tax assessment.
Workforce reductions and cost containment initiatives resulted in restructuring and special charges impacting some of our
quarterly results presented above. Net earnings (loss) for 2012 was affected by depreciation and amortization of intangible
assets related to the acquisition of Canpages. The decrease in 2013 of depreciation and amortization is a result of a lower cost
base of assets to depreciate and amortize following the $300 million impairment recorded in the fourth quarter of 2012.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
During the first and the fourth quarters of 2012, we recorded impairment charges of $2,967.8 million and $300 million, respectively,
related to goodwill, certain of our intangible assets and property, plant and equipment.
During the fourth quarter of 2012, we recorded a gain of $978.6 million on the settlement of debt pursuant to the recapitalization,
net of related fees of $69.5 million, write-off of deferred financing costs of $16.3 million, deferred gains of $5.5 million, an equity
component of $7.2 million and a derivative component of $0.6 million, associated with our previous debt instruments. Upon closing
of the recapitalization transaction in the fourth quarter of 2012, $5.5 million and $10.8 million of recapitalization costs recorded in
the second and third quarters of 2012, respectively, were reclassified to the gain on settlement of debt. The change in presentation
of recapitalization costs and income from operations were made in the prior periods to conform to the December 31, 2013
presentation.
ANALYSIS OF FOURTH QUARTER 2013 RESULTS
Revenues
Revenues decreased to $238 million during the fourth quarter of 2013 compared with $264.4 million for the same period last
year. The revenue decrease for the quarter is due to lower print revenues, as larger advertisers reduce their print advertising
spend, as well as a lower advertiser count amongst smaller, low-spend advertisers.
Digital revenues for the fourth quarter ended December 31, 2013 grew by 7.7% to $107.4 million, as compared to $99.7 million
for the same period last year. Digital revenue growth continues to result from the active migration of traditional media advertisers
towards digital products and services and continued adoption of the Yellow PagesTM 360º Solution across YPG’s sales channels.
EBITDA
EBITDA decreased by $50.4 million to $91.3 million during the fourth quarter of 2013 compared with $141.7 million for the same
period last year. The decrease in EBITDA is due to print revenue pressure, as revenue growth from our digital products is not
compensating for the loss in print revenues, combined with a lower EBITDA margin. Our EBITDA margin for the fourth quarter of
2013 was 38.3% compared to 53.6% for the same period in 2012. In addition to lower revenues, pressure on the EBITDA
margin results mainly from a change in product mix, as well as investments required to advance the Company’s digital
transformation. We also recorded a provision related to a legal dispute and a sales tax assessment. The fourth quarter of 2012
included non-cash benefits of approximately $13.3 million associated with changes to our employee pension and post-
retirement benefit plans. Excluding the foregoing non-recurring items, our EBITDA margin for the fourth quarter of 2013
decreased to 41.2% compared to 48% for the same period last year, on the same basis.
Cost of sales decreased by $3.7 million to $80.9 million during the fourth quarter of 2013 compared with $84.6 million for the
same period last year. The decrease for the quarter results mainly from lower sales costs associated with lower revenues and
lower manufacturing costs associated with lower print revenues. These costs savings were partly offset by an increase in
provisioning and fulfillment costs of our digital services.
Gross profit margin decreased to 66% for the fourth quarter of 2013 compared to 68% for the fourth quarter of 2012. The
decrease is due to a change in product mix, which includes lower margins associated with some of our new online service offerings
such as websites, SEO and SEM.
General and administrative expenses increased by $27.6 million to $65.8 million for the three-month period ended December 31, 2013
compared with $38.2 million for the same period last year. The increase for the quarter ended December 31, 2013 is attributable to a
lower non-cash benefit resulting from the amendment to our employees’ pension and post-retirement benefit plans, non-recurring
provisions related to a legal dispute and a sales tax assessment, as well as employee related expenses.
Depreciation and amortization
Depreciation and amortization decreased to $16.1 million during the fourth quarter of 2013 from $23.4 million during the
fourth quarter of 2012. The decrease is mainly attributable to lower amortization of certain intangible assets related to the
acquisition of Canpages in 2010. These intangibles resulted in a higher amortization expense in 2012 and were fully written off
during the previous year. In addition, certain intangible assets and property, plant and equipment had a lower cost base in 2013
due to the impairment of $300 million recorded in the fourth quarter of 2012.
Impairment of goodwill, intangible assets and property, plant and equipment
During the fourth quarter of 2012, management concluded that indicators that the Company’s assets may be impaired existed,
which required the Company to perform an impairment test. As a result of the impairment test, we recorded an impairment
charge of $300 million in the fourth quarter of 2012 related to certain of our intangible assets and property, plant and
equipment. No such charge was recorded during the fourth quarter of 2013.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
29
MANAGEMENT’S DISCUSSION AND ANALYSIS
Restructuring and special charges
During the fourth quarter of 2013, we recorded restructuring and special charges of $13.1 million compared with $18.1 million
for the same period last year. The charges in the fourth quarter of 2013 relate to a workforce reduction and the termination and
renegotiation of certain contractual obligations. To further advance our digital transformation, we eliminated approximately 300
positions across our offices, primarily in domains related to our print and legacy operations, but also including some support
functions. The charges in the fourth quarter of 2012 were associated with a workforce relocation, a workforce reduction and the
termination and renegotiation of certain contractual obligations.
Financial charges
Financial charges decreased by $27.6 million to $24 million for the three-month period ended December 31, 2013 compared
with $51.6 million for the same period last year. The decrease is mainly due to lower level of indebtedness and lower deferred
financing costs during the fourth quarter of 2013 as a result of the December 2012 recapitalization transaction. In the fourth
quarter of 2012, we incurred a derivative charge of $18.5 million related to an option associated with our investment in an
associate. No such charge was recorded during the fourth quarter of 2013.
Gain on settlement of debt
During the fourth quarter of 2012, we recorded a gain of $994.9 million on the settlement of debt pursuant to the
recapitalization, net of related fees of $53.2 million, a write-off of deferred financing costs of $16.3 million, deferred gains of
$5.5 million, an equity component of $7.2 million and a derivative component of $0.6 million, associated with our previous debt
instruments. Upon closing of the recapitalization in the fourth quarter of 2012, $16.3 million of recapitalization costs recorded
in the second and third quarters of 2012 were reclassified to the gain on settlement of debt.
Dividends on Preferred shares, series 1 and 2
Dividends on the two series of redeemable preferred shares amounted to $4 million during the fourth quarter of 2012. Pursuant to the
December 2012 recapitalization transaction, these preferred shares were cancelled.
Provision for income taxes
The combined statutory provincial and federal tax rate was 26.46% and 26.33% for the three-month periods ended
December 31, 2013 and 2012, respectively. The Company recorded an expense of 19% of earnings for the three-month period
ended December 31, 2013 compared to a recovery of 11% of earnings for the three-month period ended December 31, 2012. The
difference between the effective and the statutory rates in the fourth quarter of 2013 is due to the de-recognition of previously
recognized tax attributes on assets of our foreign subsidiaries and non-taxable and non-deductible items. The difference between the
effective and the statutory rates for 2012 is due to the gain on settlement of debt which is offset by the unrecognized capital losses
on investment of subsidiaries.
Earnings from investments in associates
During the fourth quarter of 2013, we recorded earnings from our investment in an associate in the amount of $0.2 million
compared with $0.1 million for the same period last year. Our earnings from investments in associates include the amortization
of intangible assets during the fourth quarter of 2012. These intangible assets were fully amortized during the first quarter of
2013.
Net earnings
We recorded net earnings of $31 million during the fourth quarter of 2013 compared with $821.9 million for the same period
last year. The decrease for the quarter is mainly due to the gain on the settlement of debt of $994.9 million, offset by the
impairment charge related to certain of our intangible assets and property, plant and equipment of $300 million recorded in the
fourth quarter of 2012. Also, we recorded a higher provision for income taxes and reported lower EBITDA in the fourth quarter of
2013.
30
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
3. LIQUIDITY AND CAPITAL RESOURCES
This section examines the Company’s capital structure, sources of liquidity and various financial instruments including its debt
instruments.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL POSITION
CAPITAL STRUCTURE
(IN THOUSANDS OF CANADIAN DOLLARS)
Cash and cash equivalents
Senior secured notes
Obligations under finance leases
Exchangeable debentures
Net debt, net of cash and cash equivalents1
Equity attributable to the shareholders
Non-controlling interests
Total capitalization
Net debt to total capitalization
As at December 31, 2013
As at December 31, 2012
$
$
$
$
202,287
646,577
891
87,934
533,115
544,495
1,077,610
49.5%
$
$
$
106,807
800,000
1,831
86,667
781,691
285,749
411
$
1,067,851
73.2%
NET DEBT 1 TO LATEST
T WELVE MONTH EBITDA RATIO 2,3
CAPITAL STRUCTURE
(IN MILLIONS OF CANADIAN DOLLARS)
Dec. 31, 2013
Dec. 31, 2012
1.3
1.4
Dec. 31, 2013
Dec. 31, 2012
544
286
533
782
Total Equity
Net Debt
As at December 31, 2013, Yellow Media had approximately $533.1 million of net debt. This compares to $781.7 million of net
debt as at December 31, 2012.
The net debt to Latest Twelve Month EBITDA2 ratio as at December 31, 2013 was 1.3 times compared to 1.4 times as at
December 31, 2012. The improvement is due to a lower level of indebtedness partially offset by lower EBITDA.
Asset-Based Loan
In August 2013, the Company, through YPG Financing Inc., entered into a five-year $50 million asset-based loan (ABL) expiring
in August 2018. The ABL will be used for general corporate purposes. Through the ABL, the Company has access to the funds in
the form of prime rate loans, Banker’s acceptance (BA) equivalent loans or letters of credit. The ABL has a first priority lien over
the receivables of the Company. The ABL is subject to an availability reserve of $5 million if the Company’s trailing twelve-month
fixed charge coverage ratio is below 1.1 times. As at February 13, 2014, the ABL was fully available and was undrawn. Interest
is calculated based either on the BA Rate or the Canadian Prime Rate plus an applicable margin.
The loan agreement governing the ABL contains restrictive covenants, including restrictions on the incurrence of additional
indebtedness, the payment of dividends and other payments, investments, the creation of liens, sale and leaseback transactions,
mergers, consolidations and sales of assets, and certain transactions with affiliates and its business activities.
As at December 31, 2013, the Company was in compliance with all covenants under the loan agreement governing the ABL.
1 Net debt is a non-IFRS measure defined as external debt, net of cash and cash equivalents, as reported in accordance with IFRS.
2 Latest twelve month income from operations before depreciation and amortization, impairment of goodwill, intangible assets and property, plant and equipment and
restructuring and special charges, (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 14 for a definition of EBITDA.
3 Latest Twelve Month EBITDA for the prior period was revised to reflect the adoption of IAS 19 (Revised), Employee Benefits, as described in Note 2 of the Consolidated
Financial Statements of Yellow Media Limited.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
31
MANAGEMENT’S DISCUSSION AND ANALYSIS
Senior Secured Notes
On December 20, 2012, the Company, through its subsidiary YPG Financing Inc., issued $800 million of 9.25% senior secured
notes (Senior Secured Notes) maturing November 30, 2018. Interest on the Senior Secured Notes is payable in cash, quarterly
in arrears, in equal instalments on the last day of February, May, August and November of each year.
As at December 31, 2013, the Company was in compliance with all covenants under the indenture governing the Senior Secured
Notes.
During the year, the Company repaid $153.4 million of its Senior Secured Notes.
Mandatory Redemption
Pursuant to the indenture governing the Senior Secured Notes, the Company is required to use an amount equal to 75% of its
consolidated Excess Cash Flow for the immediately preceding six-month period ending March 31 or September 30, as applicable,
to redeem on a semi-annual basis on the last day of May and November of each year, commencing on May 31, 2013, the Senior
Secured Notes at a redemption price equal to 100% of the principal amount thereof from holders on a pro rata basis, subject to the
Company maintaining a minimum cash balance of $75 million immediately following the mandatory redemption payment. The
$75 million minimum cash balance condition is subject to reduction in certain cases provided in the indenture governing the Senior
Secured Notes. Excess Cash Flow, as defined in the indenture governing the Senior Secured Notes, means the aggregate cash flow
from operating activities adjusted for, among other things, payments relating to interest, taxes, long-term employee compensation
plans, certain pension plan contribution payments and the acquisition of property, plant and equipment and intangible assets. The
Company is required to make minimum annual aggregate mandatory redemption payments of $75 million in 2014, $50 million in
2015, or if the redemption payments made in 2014 exceed $75 million, $50 million less such excess redemption payment. The
minimum annual aggregate mandatory redemption payments for 2014 and 2015 are not subject to the condition that the
Company maintain a minimum cash balance of $75 million immediately following such payments.
For purposes of determining the consolidated Excess Cash Flow, deductions for capital expenditures and information systems/
information technology expenses are each subject to an annual deduction limit of $50 million. Under other circumstances, the
Company may also have to make additional repayments on the Senior Secured Notes (refer to the indenture governing the
Senior Secured Notes).
The Company made mandatory redemption payments of $26.1 million and $92.4 million on May 31, 2013 and December 2, 2013,
respectively.
Optional Redemption
The Company may redeem all or part of the Senior Secured Notes at its option, upon not less than 30 nor more than 60 days
prior notice, at a redemption price equal to:
•
•
In the case of a redemption occurring prior to May 31, 2017, 105% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date; or
In the case of a redemption occurring after May 31, 2017, 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date.
On October 29, 2013, the Company exercised its option to redeem $27 million of Senior Secured Notes at a redemption price of
$1,050 per $1,000 principal amount of Senior Secured Notes and accrued and unpaid interest of $15.16 per $1,000 principal
amount of Senior Secured Notes for a total cash consideration of $28.4 million. A loss of $1.4 million was recorded in net
earnings in financial charges.
Open Market Purchase
During the third quarter of 2013, the Company purchased on the open market $8 million of Senior Secured Notes for a total
cash consideration of $8.3 million. A loss of $0.3 million was recorded in net earnings in financial charges.
Exchangeable Debentures
On December 20, 2012, the Company, through its subsidiary YPG Financing Inc., issued $107.5 million of senior subordinated
exchangeable debentures (Exchangeable Debentures) due November 30, 2022.
Interest on the Exchangeable Debentures accrues at a rate of 8% per annum if, for the applicable interest period, it is paid in cash or
12% per annum, for the applicable interest period, if the Company makes a Payment in Kind (PIK) election to pay interest in respect
of all or any part of the then outstanding Exchangeable Debentures in additional Exchangeable Debentures. Interest on the
Exchangeable Debentures is payable semi-annually in arrears in equal instalments on the last day of May and November of each year.
As at December 31, 2013, the Company was in compliance with all covenants under the indenture governing the Exchangeable
Debentures.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
Exchange Option
The Exchangeable Debentures are exchangeable at the holder’s option into common shares at any time at an exchange price
per common share equal to $19.04, subject to adjustment for specified transactions.
Optional Redemption
The Company may, at any time on or after the date on which all of the Senior Secured Notes have been paid in full, redeem all or
part of the Exchangeable Debentures at its option, upon, not less than 30 nor more than 60 days’ prior notice, at a redemption
price equal to:
•
•
In the case of a redemption occurring prior to May 31, 2021, 110% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date; or
In the case of a redemption occurring on or after May 31, 2021, 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the redemption date.
CREDIT RATINGS
DBRS LIMITED
STANDARD AND POOR’S RATING SERVICES
B (low)/Issuer rating – stable trend
B/Corporate credit rating – stable outlook
CCC (high)/Credit rating for Senior Secured Notes
B+/Credit rating for Senior Secured Notes
CCC/Credit rating for Exchangeable Debentures
CCC+/Credit rating for Exchangeable Debentures
Liquidity
The Company’s principal source of liquidity is cash generated from operations and cash on hand. The Company expects to
generate sufficient liquidity to fund capital expenditures, working capital requirements and current obligations, including the
mandatory repayments on the Senior Secured Notes. The Company had approximately $211.8 million of cash and cash equivalents
as at February 13, 2014.
Share data
As at February 13, 2014, outstanding share data was as follows:
OUTSTANDING SHARE DATA
Common Shares outstanding
Warrants outstanding
Exchangeable Debentures
As at February 13, 2014
As at December 31, 2013
As at December 31, 2012
27,955,339
2,995,506
27,955,077
2,995,506
27,955,077
2,995,506
As at December 31, 2013, the Company had a total of $107.5 million of Exchangeable Debentures outstanding.
Options
On December 20, 2012, as part of the implementation of Yellow Media Limited’s recapitalization transaction, a new stock
option plan (the Stock Option Plan) was adopted. The Stock Option Plan is intended to attract and retain the services of selected
employees of Yellow Media Limited who are in a position to make a material contribution to the successful operation of the
business, provide meaningful incentive to management to lead Yellow Media Limited through the transition and transformation
of its business and to more closely align the interests of management with those of the shareholders of Yellow Media Limited. A
maximum of 1,290,612 options may be granted under the Stock Option Plan. On May 6, 2013, 376,000 options were granted
to selected employees of Yellow Media Limited (the Participants).
The significant terms and conditions of the options granted are as follows:
•
•
•
•
The exercise price is $10.12;
The options vest 50% in February 2015, 25% in February 2016 and 25% in February 2017;
The options expire seven years after the grant date; and
Participants are required to hold 25% of the common shares received pursuant to the exercise of the option until the
Participants meet the ownership guidelines.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
33
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
CONTRACTUAL OBLIGATIONS
(IN THOUSANDS OF CANADIAN DOLLARS)
Long-term debt1,2
Obligations under finance leases1
Exchangeable debentures1
Operating leases
Other
Total contractual obligations
1 Principal amount.
Payments due for the years following December 31, 2013
Total
Less than 1 year
2 – 3 years
4 – 5 years
After 5 years
$
$
$
$
$
$
646,577
891
107,500
89,537
179,257
1,023,762
$
$
$
$
$
$
88,543
508
―
20,832
62,701
172,584
$
$
$
$
$
$
36,457
383
―
40,880
107,579
185,299
$
$
$
$
$
$
521,577
―
―
24,363
7,977
$
$
―
―
$ 107,500
$
$
3,462
1,000
553,917
$ 111,962
2 The repayment of the Senior Secured Notes may vary subject to the Excess Cash Flow clause.
Obligations under finance leases
We enter into finance lease agreements for office equipment and software. As at December 31, 2013, minimum payments
under these finance leases up to 2016 totalled $0.9 million.
Operating leases
We rent our premises and office equipment under various operating leases. As at December 31, 2013, minimum payments
under these operating leases up to 2020 totalled $89.5 million.
Purchase obligations
We use the services of outside suppliers to distribute and print our directories and have entered into long-term agreements with
a number of these suppliers. These agreements expire between 2016 and 2038. We also have purchase obligations under
service contracts for both operating and capital expenditures. As at December 31, 2013, we have an obligation to purchase
services for $178.6 million over the next five years and thereafter. Cash from operations will be used to fund these purchase
obligations.
Pension Obligations
YPG sponsors a pension plan registered with the Canada Revenue Agency and the Financial Services Commission of Ontario
with defined benefit (DB) and defined contribution (DC) components (the YPG Pension Plan) as well as a DC plan registered with
the Régie des Rentes du Québec (the YPG Plan), for the Québec based employees hired on or after January 1, 2006. Both plans
together cover substantially all employees of the Company.
As at December 31, 2013, the DB component of the YPG Pension Plan’s assets totalled $437 million and were invested in a
diversified portfolio of Canadian fixed income securities and Canadian and international equity securities. Its rate of return on
assets was 15.6% for 2013, 3.6% ahead of our benchmark portfolio.
The most recent actuarial valuation of the defined benefit component of the YPG Pension Plan for funding purposes was
performed as at June 1, 2013. The June 2013 valuation resulted in a solvency deficit of $148 million. This valuation also
established the amount of contributions the Company is required to make to the YPG Pension Plan from June 1, 2013 until the
next valuation, which is due no later than June 1, 2014.
In 2013, the Company made annual contributions equivalent to the current service cost (the Annual Employer Cost) of
$28.5 million, including $11.9 million to fund the deficit. Total cash payments are expected to amount to $40.4 million for
2014, of which $21.7 million will be to fund the deficit.
34
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
SOURCES AND USES OF CASH
SOURCES AND USES OF CASH
(IN THOUSANDS OF CANADIAN DOLLARS)
Cash flows from operating activities
Cash flows from operations
Change in operating assets and liabilities
Cash flows used in investing activities
Acquisition of intangible assets and internally-generated software
Acquisition of property, plant and equipment
Business acquisition
Proceeds from sale of assets
Other
Cash flows used in financing activities
Repayment and settlement of long-term debt
Repurchase of long-term debt
Restricted shares
Deferred consideration
Recapitalization costs
Issuance of long-term debt
Other
Cash flows from operating activities
Cash flows from operations
MANAGEMENT’S DISCUSSION AND ANALYSIS
$
$
$
$
Years ended December 31,
2013
2012
$
$
$
$
290,035
50,645
340,680
(54,584)
(11,743)
(3,581)
―
359
(69,549)
(118,984)
(36,670)
(6,630)
(5,624)
(6,641)
―
(1,102)
283,776
(45,203)
238,573
(35,281)
(5,137)
―
1,650
183
(38,585)
(351,426)
―
―
(1,800)
(63,025)
239,000
(116)
$
(175,651)
$
(177,367)
Cash flows from operations increased by $6.3 million from $283.8 million for the year ended December 31, 2012 to
$290 million for the year ended December 31, 2013, mainly due to lower interest paid of $73.3 million, lower income taxes
paid of $47.2 million, a lower funding of pension plans of $8.4 million, as well as lower payments for restructuring and special
charges of $28 million offset by lower EBITDA of $153.3 million.
Change in operating assets and liabilities
The change in operating assets and liabilities for the year ended December 31, 2013 generated an inflow of $50.6 million
compared with an outflow of $45.2 million for the same period last year. The inflow in 2013 is due principally to a better
performance in the collection of our trade receivables. The timing of payment of accounts payable and certain provisions also
generated a net inflow during 2013. The payment of sales tax assessments negatively impacted the change in operating assets
and liabilities in 2012.
Cash flows used in investing activities
Cash used in investing activities amounted to $69.5 million for the year ended December 31, 2013 compared with
$38.6 million for the year ended December 31, 2012. During 2013, we invested in software development and equipment in the
amount of $54.6 million and $11.7 million, respectively, which in total was more than the corresponding amounts of
$35.3 million and $5.1 million, respectively, spent in 2012.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
35
MANAGEMENT’S DISCUSSION AND ANALYSIS
ACQUISITION OF PROPERTY, PLANT, EQUIPMENT AND INTANGIBLE ASSETS, NET OF LEASE INDUCEMENTS
(IN THOUSANDS OF CANADIAN DOLLARS)
Sustaining
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,
2013
21,688
$
38,847
60,535
$
4,907
2012
20,437
22,022
42,459
(2,224)
65,442
$
40,235
$
$
$
Sustaining capital expenditures are related to the ongoing operations required to maintain the integrity of the infrastructure. It
also includes leasehold improvements which we invested in as we re-engineered some premises to accommodate our growing
digital fulfillment teams. Sustaining capital expenditures amounted to $21.7 million for the year ended December 31, 2013,
compared to $20.4 million for the previous year.
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 media and marketing solutions company. During the year ended
December 31, 2013, these amounted to $38.8 million compared to $22 million for the previous year. We spent more in 2013
compared to 2012 as we invested in our new Online Merchant Management (OMM) and Enterprise Tracking and Reporting
tools. We also deployed a new call center platform and a new search engine on all our mobile properties.
Total capital expenditures for 2013 amounted to $60.5 million, and we expect to maintain this level of expenditures in 2014.
Cash flows used in financing activities
Cash used in financing activities amounted to $175.7 million during the year ended December 31, 2013 compared to
$177.4 million for the same period last year. During the year, we repaid $119 million and repurchased $35 million of the Senior
Secured Notes for total consideration of $36.7 million. In January 2012, we drew $239 million on the revolving tranche of the
Credit Facility and made three quarterly payments of $25 million on the non-revolving tranche of our Credit Facility. In addition, we
made a cash payment of $275 million in connection with the recapitalization transaction in December 2012.
FINANCIAL AND OTHER INSTRUMENTS
(See Note 21 of the Consolidated Financial Statements of the Company for the year ended December 31, 2013).
The Company’s financial instruments consist of cash and cash equivalents, trade and other receivables, investments in
associates, trade and other payables, short-term and long-term debt and Exchangeable Debentures.
Derivative Instruments
We currently have an agreement to purchase the remaining shares of an investment in an associate at a pre-determined
multiple. This option qualifies as a derivative liability. Because the option value was greater than the fair value of the remaining
shares, we recorded a charge of $18.5 million for the year ended December 31, 2012 in financial charges.
There is no carrying value of embedded derivatives as at December 31, 2013. The carrying value is calculated, as is customary in
the industry, using discounted cash flows based on quarter-end market rates.
4. FREE CASH FLOW
FREE CASH FLOW
FREE CASH FLOW
(IN THOUSANDS OF CANADIAN DOLLARS)
Cash flow from operating activities
Capital expenditures, net of lease inducements
Free cash flow
Three-month periods ended December 31,
Years ended December 31,
2013
88,444
14,294
74,150
2012
2013
2012
61,749
$
340,680
$
238,573
13,771
66,129
40,235
47,978
$
274,551
$
198,338
$
$
36
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
5. CRITICAL ASSUMPTIONS
When we prepare our consolidated 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, goodwill and property, plant and equipment
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’s future results if the current estimates of future performance and fair
values change. These determinations may affect the amount of amortization expense on identifiable intangible assets
recognized in future periods and impairment of goodwill, intangible assets and property, plant and equipment.
Yellow Media 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. During 2012, it was
determined that the recoverable amount of goodwill was $nil. As such, its carrying value was written-off in its entirety.
Yellow Media performed its annual test for impairment of indefinite life intangible assets in accordance with the policy described in
Note 3.12 of the Consolidated Financial Statements of Yellow Media Limited for the year ended December 31, 2013.
The recoverable amount of the cash generating units (CGUs) was determined based on the value-in-use approach using a
discounted cash flow model which relies on significant key assumptions, including after-tax cash flows forecasted over an
extended period of time, 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’s impairment reviews are disclosed in Note 4 of the
Consolidated Financial Statements of Yellow Media Limited for the year ended December 31, 2013.
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 the 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 may 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’s
ability to utilize the underlying future tax deductions against future taxable income before they expire. Yellow Media’s assessment is
based upon existing tax laws and estimates of future taxable income. If the assessment of Yellow Media’s ability to utilize the
underlying future tax deductions changes, Yellow Media 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 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 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 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.
NEW ACCOUNTING STANDARDS
IAS 1 (Revised) — Presentation of Financial Statements
On June 16, 2011, the International Accounting Standards Board (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 income statement and to separately group together items that will not be reclassified to 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.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
37
MANAGEMENT’S DISCUSSION AND ANALYSIS
In May 2012, the IASB issued further amendments to IAS 1 — Presentation of Financial Statements which are effective for
annual periods beginning on or after January 1, 2013 with early application permitted. IAS 1 requires an entity that changes
accounting policies retrospectively, or makes a retrospective restatement or reclassification to present a statement of financial
position as at the beginning of the preceding period. The amendments to IAS 1 clarify that an entity is required to present a third
statement of financial position only when the retrospective application, restatement or reclassification has a material effect on
the information in the third statement of financial position and that related notes are not required to accompany the third
statement of financial position.
Yellow Media Limited has applied the amendments to IAS 1 on January 1, 2011, in advance of the effective date, as permitted.
The amendments have been applied retrospectively, and hence the presentation of items of OCI has been modified to reflect
the changes. Other than the above mentioned presentation changes, the application of the amendments to IAS 1 did not result
in any impact on profit or loss, OCI and total comprehensive income.
IAS 19 (Revised) — Employee Benefits
Yellow Media Limited has applied the amendments to IAS 19 (Revised) — Employee Benefits effective for financial years beginning
on or after January 1, 2013. Under the amendments, the main changes of this revised version are the elimination of the corridor
approach and acceleration of past service costs recognition with all changes to the defined benefit obligation and plan assets
recognized when they occur. These amendments did not impact the Company’s financial results. Furthermore, the interest cost and
expected return on plan assets used in the previous version of IAS 19 are replaced with the net interest amount which is calculated
by applying the discount rate to the net defined benefit liability or asset and administration fees are now included in service costs.
Please refer to Note 2 of the Consolidated Financial Statements of the Company for the year ended December 31, 2013 for a
summary of the differences between our financial statements previously prepared and those under IAS 19 (Revised).
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). New required note disclosures have been included in the Company’s consolidated financial
statements for the year ended December 31, 2013 to comply with the amendments. The IFRS 7 amendments are effective for
financial years beginning on or after January 1, 2013 and have been applied retrospectively.
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. New required note disclosures have been included in the
Company’s consolidated financial statements for the year ended December 31, 2013 to comply with this new standard.
IFRS 13 — Fair Value Measurement
IFRS 13 is a new standard that defines fair value and requires disclosures about fair value measurements. It applies
prospectively from the beginning of the annual period in which it is adopted. New required note disclosures have been included
in these consolidated financial statements. Other than the additional disclosures, the application of IFRS 13 has not had any
material impact on the amounts recognized in Yellow Media’s Consolidated Financial Statements. IFRS 13 is effective for
financial years beginning on or after January 1, 2013.
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 and changes the definition of control over an investee.
IFRS 11 — Joint Arrangements, and IFRS 12 — Disclosure of Interests in Other Entities and the related amendments to IAS 27 —
Consolidated and Separate Statements and IAS 28 — Investments in Associates (the “package of five”) are adopted at the same
time. Yellow Media Limited reviewed its investments in associates and concluded the adoption of IFRS 10 did not have an
impact on its consolidated financial statements.
IFRS 11 — Joint Arrangements
IFRS 11 supersedes IAS 31— Interests in Joint Ventures, and SIC-13 — Jointly Controlled Entities - Non-Monetary Contributions
by Venturers. 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 joint ventures, namely the equity method.
IAS 32 — Financial Instruments: Presentation in respect of Offsetting
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. As part of
this project, the IASB clarified aspects of IAS 32 — Financial Instruments: Presentation. The amendments to IAS 32 address
inconsistencies in current practice when applying the requirements. The amendments are effective for annual periods beginning
on or after January 1, 2014 and are required to be applied retrospectively. Yellow Media Limited has not early adopted this
standard and has not fully assessed the impact of adopting IAS 32.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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 and November 2013, includes the requirements for the classification and
measurement of financial liabilities and for de-recognition.
Key requirements of IFRS 9 are described as follows:
•
•
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 amendments made to
IFRS 9 in November 2013 remove the mandatory effective date from IFRS 9. However, entities may choose to apply IFRS 9
immediately. Yellow Media Limited has not early adopted this standard and has not fully assessed the impact of adopting IFRS 9.
6. RISKS AND UNCERTAINTIES
The following section examines the major risks and uncertainties that could materially affect YPG’s future business results.
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 across key functional areas of the organization.
YPG has put in place certain guidelines in order to seek to manage the risks to which it may be exposed. Please refer to the
“Risk Factors” section of our AIF for a complete description of these risk factors. Despite these guidelines, the Company cannot
provide assurances that any such efforts will be successful.
Substantial competition could reduce the market share of the Corporation and could have a material adverse effect on
the Corporation, its business, results from operations and financial condition
The Corporation competes with other directory, advertising media and classified advertising businesses and across various
media and platforms. This includes the internet, newspapers, television, radio, mobile telecommunication devices, magazines,
billboards and direct mail advertising. In particular, the directories business faces substantial competition due to increased
online penetration, through the use of online search engines and social networking organizations. The Corporation may not be
able to compete effectively with these online competitors, some of which may have greater resources. The Corporation’s
internet strategy and its directories business may be adversely affected if major search engines build local sales forces or
otherwise begin to more effectively reach local businesses for local commercial search services. These competitors may reduce
their prices to increase their market share or may be able to offer their services at lower costs than the Corporation can.
The Corporation may be forced to reduce its prices or offer and perform other services in order to remain competitive. The
Corporation’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 the Corporation,
its business, results from operations and financial condition.
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:
•
•
•
Enhancement of our product offerings and extension of our services to customers;
Improvement of user experience; and
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.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
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MANAGEMENT’S DISCUSSION AND ANALYSIS
A higher than anticipated rate of decline in print revenue resulting from changes in preferences and consumer habits
could have a material adverse effect on the Corporation, its business, results from operations and financial condition
The Corporation could be materially adversely affected if the usage of print telephone directories declines 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. The usage of internet-based directory products has increased rapidly. The internet has become increasingly
accessible as an advertising medium for businesses of all sizes. Further, the use of the internet, including as a means to
transact commerce through wireless devices, has resulted in new technologies and services that compete with traditional
advertising mediums. In particular, this has a significant influence on print products, and the decrease in usage gradually leads
to lower advertising revenues. References to print business directories may continue to decline as users increasingly turn to
digital and interactive media delivery devices for local commercial search information.
The inability of the Corporation to successfully enhance and expand its offering of digital and new media products could
have a material adverse effect on the Corporation, its business, results from operations and financial condition
The transition from print to digital causes uncertainties surrounding whether and when new product introductions will compensate
for the declining trend in print revenues. If revenue from the Corporation’s digital products does not increase significantly, the
Corporation’s cash flow, results of operations and financial condition will be materially adversely affected.
The Corporation expects to derive a greater portion of its total revenue from its digital and other new media products, as
directory usage continues to shift from print directories to digital and other new media products.
The Corporation’s transformational expansion towards digital and new media products is subject to a variety of challenges and
risks, including the following:
•
•
•
•
•
•
•
•
the Corporation may not continue to grow internet usage on its own sites at the same rate as other providers or may
grow at a slower rate than currently anticipated;
internet usage as a source of information and a medium for advertising may not continue to grow, or may grow at a
slower rate than currently anticipated, as a result of factors that the Corporation cannot predict or control;
the Corporation may incur substantial additional costs and expenses related to investments in its information
technology, modifications to existing products and development of new products and this may reduce profit margins in
the future;
the Corporation may be unable to develop and market new products in a timely and efficient manner, as the
Corporation’s markets are characterised by rapidly changing technology, introductions and enhancements to existing
products and shifting advertising customer and end-user demands, including technology preferences;
the Corporation may be unable to improve its information technology systems so as to efficiently manage increased
levels of traffic on the Corporation’s websites and provide new services and products;
the Corporation’s focus on its digital and new media products may distract or deter advertising customers from
pursuing advertising opportunities in the Corporation’s print products;
the Corporation may be unable to keep apprised of changes to search engines’ terms of service or algorithms, which
could cause the Corporation’s websites, or its advertising customers’ websites, to be excluded from or ranked lower in
search results or make it more difficult or more expensive for the Corporation to provide search engine marketing and
search engine optimisation solutions to its advertising customers;
the Corporation’s advertising customers may be unwilling to pay for digital advertising at the same rates as they had
paid for printed directory advertising; and
•
the Corporation may be unable to increase the prices of its products and services in the future.
If any of the above-mentioned risks were to occur, the Corporation’s digital revenue, as well as its business, results from operations
and financial condition could be materially adversely affected.
The continuing transition in the media and publishing industries towards more digital 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.
The inability of the Corporation to generate sufficient funds from operations, debt financings, equity financings or refinancing
transactions could have a material adverse effect on the Corporation, its business, results from operations and financial
condition
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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
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.
The Corporation’s substantial indebtedness could adversely affect its efforts to refinance or reduce its indebtedness and
could have a material adverse effect on the Corporation, its business, results from operations and financial condition
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:
•
•
•
•
•
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;
place the Corporation at a competitive disadvantage compared to its competitors that have less debt; and
limit the Corporation’s ability to obtain additional financing, if needed, for working capital, capital expenditures, acquisitions,
debt service requirements or other purposes.
In addition, the indenture governing the Senior Secured Notes, the indenture governing the Exchangeable Debentures and the
ABL contain a number of financial and other restrictive covenants, including restrictions on the incurrence of additional
indebtedness, the payment of dividends and other payment restrictions, investments, the creation of liens, sale and leaseback
transactions, mergers, consolidations and sales of assets and certain transactions with affiliates and its business activities. A
failure to comply with such obligations could result in a default which, if not cured or waived, could permit acceleration of the
relevant indebtedness. If the indebtedness under the indenture governing the Senior Secured Notes, the indenture governing
the Exchangeable Debentures or the ABL, as the case may be, were to be accelerated, there can be no assurance that the
Corporation would have sufficient liquidity to repay in full that indebtedness.
Incremental contributions by the Corporation to its pension plans could have a material adverse effect on the Corporation,
its business, results from operations and financial condition
The Corporation is currently and may be required to make incremental contributions to its 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 the Corporation’s liquidity and results from operations. The Corporation is currently making
incremental contributions to its pensions plans to reduce its actuarial solvency deficits.
The funding requirements of the Corporation’s pension plans, resulting from valuations of its 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 the
Corporation’s current estimates and could require the Corporation to make incremental contributions to its pension plans in the
future and, therefore, could have a negative effect on the Corporation’s liquidity, business, results from operations and financial
condition.
There is no assurance that the Corporation’s pension plans will be able to earn their assumed rate of return. A material portion
of the Corporation’s pension plans’ assets is invested in public equity securities. As a result, the ability of the Corporation’s
pension plans to earn the rate of return that the management has assumed depends significantly on the performance of capital
markets. The market conditions also impact the discount rate used to calculate the Corporation’s solvency obligations and
thereby could also significantly affect the Corporation’s cash funding requirements.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Failure by either the Corporation or the Telco Partners to fulfill the obligations set forth in the agreements between the
Corporation and the Telco Partners could result in a material adverse effect on the Corporation, its business, results
from operations and financial condition
We have a Billing and Collection Services Agreement with Bell Canada (up to 2016), with Telus (up to 2031), with MTS Allstream
(up to 2036) and with Bell Aliant (up to 2037). 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.
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
(including in the event that any of them seek protection under Canadian bankruptcy laws), 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.
Failure by the Corporation to adequately protect and maintain its brands and trade-marks, as well as third party infringement
of such, could have a material adverse effect on the Corporation, its business, results from operations and financial condition
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.
Work stoppages and other labor disturbances could have a material adverse effect on the Corporation, its business, results
from operations and financial condition
Certain non-management employees of YPG are unionized. Current union agreements range between one to five 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. Additionally, if a greater percentage of the Corporation’s workforce becomes unionized,
this could have a material adverse effect on its business, results from operations and financial condition.
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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Challenge by tax authorities of the Corporation’s position on certain income tax matters could have a material adverse
effect on the Corporation, its business, results from operations and financial condition
In the normal course of the Company's activities, the tax authorities are carrying out ongoing reviews. In that respect, the
Corporation 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.
The loss of key relationships or changes in the level or service provided by internet portals, search engines and individual
websites could have a material adverse effect on the Corporation, its business, results from operations and financial
condition
The Corporation has entered into agreements with several internet portals, search engines and individual websites to promote
its online directories. These agreements make the Corporation’s content and customer advertising more easily accessible by
these portals, search engines and individual websites. These agreements allow the Corporation to generate a higher volume of
traffic than it would on its own as well as generate business leads for its advertisers, while retaining the client relationship. In
return, the portals, search engines and individual websites obtain business through the Corporation from advertisers who would
not otherwise transact with them. Loss of key relationships or changes in the level of service provided by these internet portals,
search engines and individual websites could impact performance of the Corporation’s internet marketing solutions. In addition,
internet marketing services are provided by many other competitors within the markets the Corporation serves and its clients
could choose to work with other, sometimes larger providers of these services, or with other search engines directly.
The failure of the Corporation’s computers and communications systems could have a material adverse effect on the
Corporation, its business, results from operations and financial condition
The Corporation’s business activities rely significantly on the efficient and uninterrupted operation of computers and communications
systems as well as those of third parties. The Corporation’s sales and advertising processing, data storage, production, billing,
collection and day-to-day operations could be adversely impaired by the failure of such technology, which could in turn have a
material adverse effect on the Corporation, its business, results from operations and financial condition.
In addition, the Corporation’s computer and IT systems are vulnerable to damage or interruption from a variety of sources and
its disaster recovery systems may be deemed ineffective. Any failure of these systems could impair the Corporation’s business.
This could have a material adverse effect on the Corporation, its business, results from operations and financial condition.
The company has in place redundant facilities as well as a disaster recovery plan designed to restore the operability of the
target system, application, or computer facility infrastructure at an alternate site after an emergency.
The Corporation’s inability to attract and retain key personnel could have a material adverse effect on the Corporation,
its business, results from operations and financial condition
The success of the Corporation depends on the abilities, experience and personal efforts of senior management of the Corporation,
including their ability to retain and attract skilled employees. The Corporation is also dependent on the number and experience of
its sales representatives. The loss of the services of such key personnel could have a material adverse effect on the Corporation, its
results from operations and financial condition.
We continually invest in our workforce to develop a strong digital culture. We offer training programs, tools and resources to
elevate digital literacy and promote change management across all facets of the organization.
The Corporation might be required to record additional impairment charges
In the first quarter of 2012, the Corporation recorded an additional $2,967.8 million goodwill and intangible assets impairment
charge. In the fourth quarter of 2012, the Corporation recorded an additional $300 million impairment charge related to certain
of its intangible assets and property, plant and equipment. The Corporation may be subject to impairment losses that would
reduce its reported assets and earnings. Economic, legal, regulatory, competitive, contractual and other factors may affect the
value of 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 additional charge, which would reduce the reported assets and
earnings of the Corporation in the year the impairment charge is recognized.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
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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 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 design and effectiveness of DC&P (a defined in National Instrument 52-109) was performed under the
supervision of the President and Chief Executive Officer and the Chief Financial Officer. They concluded that the Company’s
DC&P were effective, as at December 31, 2013.
INTERNAL CONTROL OVER FINANCIAL REPORTING (ICFR)
The design and effectiveness of ICFR (as defined in Natioal Instruments 52-109) were evaluated under the supervision of the
President and Chief Executive Officer and Chief Financial Officer. Based on the evaluations, they concluded that the Company’s
ICFR was effective, as at December 31, 2013.
Management also concluded that during the quarter beginning on October 1, 2013 and ended on December 31, 2013, no changes
were made to the Company’s ICFR that has materially affected, or is reasonably likely to materially affect the Company’s ICFR.
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MANAGEMENT’S REPORT
The accompanying financial statements of Yellow Media Limited 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.
Julien Billot
President and Chief Executive Officer
Ginette Maillé
Chief Financial Officer
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
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INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Yellow Media Limited,
We have audited the accompanying consolidated financial statements of Yellow Media Limited, which comprise the consolidated
statements of financial position as at December 31, 2013 and December 31, 2012, and the consolidated income statements,
consolidated statements of comprehensive income (loss), consolidated statements of changes in equity and consolidated
statements of cash flows for the years then ended, 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 audits 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 Limited as at December 31, 2013 and December 31, 2012, and its financial performance and its cash flows for
the years then ended in accordance with International Financial Reporting Standards.
February 13, 2014
Montréal, Québec
____________________
1 CPA auditor, CA, public accountancy permit No. A120501
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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS OF CANADIAN DOLLARS)
As at December 31, 2013
As at December 31, 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables (Note 21)
Prepaid expenses
Deferred publication costs
TOTAL CURRENT ASSETS
DEFERRED PUBLICATION COSTS
FINANCIAL AND OTHER ASSETS
INVESTMENTS IN ASSOCIATES (Note 5)
PROPERTY, PLANT AND EQUIPMENT (Note 6)
INTANGIBLE ASSETS (Note 7)
DEFERRED INCOME TAXES (Note 13)
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade and other payables (Note 8)
Income taxes payable
Provisions (Note 9)
Financial liabilities
Deferred revenues
Current portion of long-term debt (Note 11)
TOTAL CURRENT LIABILITIES
PROVISIONS (NOTE 9)
DEFERRED CREDITS AND OTHER
DEFERRED INCOME TAXES (Note 13)
INCOME TAXES PAYABLE
POST-EMPLOYMENT BENEFITS (Note 10)
LONG-TERM DEBT (Note 11)
EXCHANGEABLE DEBENTURES (Note 12)
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
CAPITAL AND RESERVES
DEFICIT
EQUITY ATTRIBUTABLE TO SHAREHOLDERS
NON-CONTROLLING INTERESTS
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
$
$
$
202,287
142,446
6,835
71,018
422,586
7,378
19,096
2,780
29,489
1,310,494
2,211
1,371,448
1,794,034
78,824
25,782
70,632
18,472
34,145
89,051
316,906
6,031
14,349
31,535
55,419
178,948
558,417
87,934
932,633
1,249,539
6,604,971
(6,060,476)
544,495
–
544,495
$
106,807
174,069
8,693
78,078
367,647
6,816
16,642
2,082
27,414
1,312,148
23,727
1,388,829
$
1,756,476
$
87,935
13,585
52,850
22,033
42,219
100,939
319,561
7,362
14,197
10,341
34,382
296,914
700,892
86,667
1,150,755
1,470,316
6,607,114
(6,321,365)
285,749
411
286,160
$
1,794,034
$
1,756,476
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of Yellow Media Limited by
Robert MacLellan, Director
David A. Lazzarato, Director
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
47
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER SHARE INFORMATION)
Revenues
Operating costs (Note 17)
$
Income from operations before depreciation and amortization, impairment of
goodwill, intangible assets and property, plant and equipment, and
restructuring and special charges
Depreciation and amortization (Notes 6 and 7)
Impairment of goodwill, intangible assets and property, plant and equipment
(Note 4)
Restructuring and special charges (Note 9)
Income (loss) from operations
Financial charges, net (Note 18)
Gain on settlement of debt (Note 1)
Earnings (loss) before dividends on Preferred shares, series 1 and 2, income
taxes, and earnings from investments in associates
Dividends on Preferred shares, series 1 and 2
2013
971,761
555,649
416,112
60,164
–
23,338
332,610
93,357
–
239,253
–
Earnings (loss) before income taxes and earnings from investments in associates
239,253
For the years ended December 31,
2012
(Revised – Note 2)
$
1,107,715
538,335
569,380
104,293
3,267,847
44,923
(2,847,683)
155,968
(978,589)
(2,025,062)
17,694
(2,042,756)
(78,809)
1,893
Provision for (recovery of) income taxes (Note 13)
Earnings from investments in associates
Net earnings (loss)
Net earnings (loss) attributable to:
Common shareholders of Yellow Media Limited1
Non-controlling interests
Basic earnings (loss) per share attributable to common
shareholders
Weighted average shares outstanding – basic earnings
(loss) per share (Note 15)
Diluted earnings (loss) per share attributable to common
shareholders
Weighted average shares outstanding – diluted earnings
(loss) per share (Note 15)
63,421
698
$
176,530
$
(1,962,054)
$
$
176,360
170
176,530
$
(1,961,663)
(391)
$
(1,962,054)
$
6.34
$
(70.95)
27,797,170
27,955,077
$
5.46
$
(70.95)
33,615,709
27,955,077
1 Included in net loss attributable to shareholders of Yellow Media Limited for the year ended December 31, 2012 are net losses attributable to shareholders of
YPG Financing Inc. which was succeeded by Yellow Media Limited on December 20, 2012 when the recapitalization transaction was implemented.
The accompanying notes are an integral part of these consolidated financial statements.
48
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS OF CANADIAN DOLLARS)
Net earnings (loss)
Other comprehensive income (loss):
Items that may be reclassified subsequently to net earnings (loss)
Reclassification adjustment on derivatives designated as cash flow hedges
Unrealized loss on available–for–sale investment
Unrealized loss on available–for–sale investment transferred to net loss
Income taxes relating to items that may be reclassified
subsequently
Items that will not be reclassified subsequently to net earnings (loss)
Actuarial gains (losses) (Note 10)
Income taxes relating to items that will not be reclassified subsequently
Other comprehensive income (loss)
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to:
For the years ended December 31,
2013
$
176,530
2012
(Revised – Note 2)
$
(1,962,054)
–
–
–
–
–
117,633
(31,126)
86,507
86,507
(1,395)
(372)
228
406
(1,133)
(11,234)
2,956
(8,278)
(9,411)
$
263,037
$
(1,971,465)
Common shareholders of Yellow Media Limited1
$
262,867
$
(1,971,074)
Non-controlling interests
170
(391)
$
263,037
$
(1,971,465)
1 Included in the total comprehensive loss attributable to shareholders of Yellow Media Limited for the year ended December 31, 2012 is total comprehensive loss
attributable to shareholders of YPG Financing Inc. which was succeeded by Yellow Media Limited on December 20, 2012 when the recapitalization transaction was
implemented.
The accompanying notes are an integral part of these consolidated financial statements.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
49
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(IN THOUSANDS OF CANADIAN DOLLARS)
For the years ended December 31,
(IN THOUSANDS OF CANADIAN DOLLARS)
For the years ended December 31,
Shareholders’
Capital
(Note 14)
$ 4,029,869
$
Restricted
Shares
(6,630)
Compound
financial
instruments1
Stock-based
compensation
and other
reserves
Warrants
$ 1,456 $
3,633 $
116,701
403
1,608
2,476
Reduction of
capital reserve
$
2,457,053
Balance, December 31, 2012
Other comprehensive income
Net income for the year
Total comprehensive income
Stock options (Note 16)
Restricted shares (Note 16)
Dividend to non-controlling interest
Deferred consideration
Shareholders’
Stock-based
Compound
compensation
Capital
Restricted
financial
(Note 14)
Shares
Warrants
instruments1
and other
reserves
Reduction of
capital reserve
Balance, December 31, 2012
$ 4,029,869
$
$ 1,456 $
3,633 $
116,701
$
2,457,053
Other comprehensive income
Net income for the year
Total comprehensive income
Stock options (Note 16)
Restricted shares (Note 16)
Dividend to non-controlling interest
Deferred consideration
Balance, December 31, 2013
$ 4,029,869
$
(6,630) $ 1,456 $
3,633 $
121,188
$
2,457,053
Balance, December 31, 2013
$ 4,029,869
$
(6,630) $ 1,456 $
3,633 $
121,188
$
2,457,053
Shareholders’
Capital
(Note 14)
Restricted
Shares
Preferred
Shares
Warrants
Compound
financial
instruments1
Stock-based
compensation
and other
reserves
Reduction
of capital
reserve
Shareholders’
Capital
Restricted
Preferred
financial
(Note 14)
Shares
Shares
Warrants
instruments1
and other
reserves
Stock-based
Compound
compensation
Reduction
of capital
reserve
(6,630)
1,456
403
1,608
2,476
(35)
(7,388)
3,633
1,189
4,295
(2,476)
Balance, December 31, 2011
$ 3,554,715
$
(54,974) $ 320,68
$
$
7,423
$
113,693 $ 2,457,053
new common shares2 (Note 14)
320,687
(320,687)
Other comprehensive loss
Net loss for the year
Total comprehensive loss
Issuance of new common shares and
warrants2 (Note 14)
153,568
Exchange of preferred shares for
Stock options (Note 16)
Exchange of convertible debentures
(Note 1)
899
Exchange of convertible debentures2
Option on exchangeable debentures2
Restricted shares (Note 16)
Cancellation of restricted shares2
54,974
Deferred consideration
Balance, December 31, 2011
Other comprehensive loss
Net loss for the year
Total comprehensive loss
$ 3,554,715
$
(54,974) $ 320,68
$
$
7,423
$
113,693 $ 2,457,053
1,456
(320,687)
Issuance of new common shares and
warrants2 (Note 14)
153,568
Exchange of preferred shares for
new common shares2 (Note 14)
Stock options (Note 16)
Exchange of convertible debentures
(Note 1)
Exchange of convertible debentures2
Option on exchangeable debentures2
Restricted shares (Note 16)
Cancellation of restricted shares2
Deferred consideration
320,687
899
Balance, December 31, 2012
$ 4,029,869
$
54,974
$
$
(35)
(7,388)
3,633
1,189
4,295
(2,476)
1,456 $
3,633
$
116,701 $ 2,457,053
Balance, December 31, 2012
$ 4,029,869
$
$
$
1,456 $
3,633
$
116,701 $ 2,457,053
1 The equity component of the exchangeable and convertible debentures presented above is net of income taxes of $1.3 million (2012 - $1.3 million).
1 The equity component of the exchangeable and convertible debentures presented above is net of income taxes of $1.3 million (2012 - $1.3 million).
2 Pursuant to the recapitalization transaction described in Note 1.
2 Pursuant to the recapitalization transaction described in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
50
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(IN THOUSANDS OF CANADIAN DOLLARS)
For the years ended December 31,
Balance, December 31, 2012
Other comprehensive income
Net income for the year
Total comprehensive income
Stock options (Note 16)
Restricted shares (Note 16)
Dividend to non-controlling interest
Deferred consideration
Shareholders’
Capital
(Note 14)
$ 4,029,869
$
$
Restricted
Shares
(6,630)
Foreign
currency
translation
Compound
financial
instruments1
Capital and
Reserves
Warrants
Stock-based
compensation
and other
reserves
Deficit
Equity
Reduction of
attributable to
shareholders
capital reserve
Non-controlling
interests
2013
Total Equity
86,507
176,360
$ 1,456 $
(1,598) $ 6,607,114 $
3,633 $
(6,321,365)
262,867
(5,022)
(1,978)
2,476
403
116,701
$
403
1,608
2,476
$
285,749
176,360
262,867
86,507
2,457,053
$
403
498
(5,022)
411 $
170
170
(83)
(498)
286,160
86,507
176,530
263,037
403
(5,022)
(83)
$
544,495
Balance, December 31, 2013
$ 4,029,869
$
$
(6,630) $ 1,456 $
(1,598) $ 6,604,971 $
3,633 $
(6,060,476)
121,188
$
$
544,495
2,457,053
$
Available-
for-sale
investment
Shareholders’
Capital
(Note 14)
Cash flow
hedges
Restricted
Shares
Preferred
Shares
Capital and
Reserves
Warrants
Foreign
currency
translation
Compound
financial
instruments1
Deficit
Stock-based
Equity
compensation
attributable to
and other
shareholders
reserves
Reduction
of capital
reserve
Non-controlling
interests
2012
Total Equity
(Revised –
Note 2)
Balance, December 31, 2011
$
Other comprehensive loss
Net loss for the year
Total comprehensive loss
144
(144)
$
$ 3,554,715
(144)
Issuance of new common shares and
$
989 $
$
(54,974) $ 320,68
(1,598) $ 6,398,132 $
(1,133)
(1,133)
(989)
(989)
(8,278)
$
(4,313,907)
(1,961,663)
(1,969,941)
7,423
$
802 $ 2,085,027
$
2,084,225
(9,411)
$
113,693 $ 2,457,053
(391)
(391)
(1,961,663)
(1,971,074)
(9,411)
(1,962,054)
(1,971,465)
155,024
1,456
153,568
320,687
warrants2 (Note 14)
Exchange of preferred shares for
new common shares2 (Note 14)
Stock options (Note 16)
Exchange of convertible debentures
(Note 1)
Exchange of convertible debentures2
Option on exchangeable debentures2
Restricted shares (Note 16)
Cancellation of restricted shares2
Deferred consideration
Balance, December 31, 2012
$
899
$ 4,029,869
$
$
54,974
(320,687)
1,189
864
(7,388)
3,633
4,295
54,974
(2,476)
$
7,388
(539)
(44,366)
(35)
(7,388)
3,633
3,633
$
155,024
155,024
1,189
1,189
864
3,633
3,756
4,295
10,608
(2,476)
(2,476)
$
285,749
116,701 $ 2,457,053
411 $
$
1,189
864
3,633
3,756
10,608
(2,476)
286,160
$
(1,598) $ 6,607,114 $
1,456 $
(6,321,365)
$
1 The equity component of the exchangeable and convertible debentures presented above is net of income taxes of $1.3 million (2012 - $1.3 million).
2 Pursuant to the recapitalization transaction described in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
51
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF CANADIAN DOLLARS)
OPERATING ACTIVITIES
Net earnings (loss)
Adjusting items
Depreciation and amortization
Past service costs
Stock-based compensation expense
Earnings from investments in associates
Other non-cash items
Income taxes (recovery) recognized in net earnings (loss)
Financial charges recognized in net earnings (loss)
Impairment of goodwill, intangible assets and property, plant and equipment
Gain on settlement of debt, net of unpaid dividends on Preferred shares, series 1 and 2¹
Change in operating assets and liabilities¹
Funding of post-employment benefit plans in excess of costs
Income taxes paid, net
Interest paid
INVESTING ACTIVITIES
Acquisition of intangible assets and internally-generated software
Acquisition of property, plant and equipment
Business acquisition (Note 25)
Proceeds from sale of assets
Other
FINANCING ACTIVITIES
Repayment and settlement of long-term debt
Repurchase of long-term debt
Restricted shares
Deferred consideration
Recapitalization costs
Issuance of long-term debt
Other
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
Supplemental disclosure of cash flow information (Note 19)
Cash and cash equivalents consist of:
Cash
Banker’s acceptances and treasury bills
For the years ended December 31,
2013
2012
(Revised – Note 2)
$
176,530
$
(1,962,054)
60,164
(7,392)
2,011
(698)
(46)
63,421
93,357
50,645
(4,951)
(16,231)
(76,130)
340,680
(54,584)
(11,743)
(3,581)
359
(69,549)
(118,984)
(36,670)
(6,630)
(5,624)
(6,641)
(1,102)
(175,651)
95,480
106,807
104,293
(13,318)
626
(1,893)
(1,955)
(78,809)
155,968
3,267,847
(960,743)
(45,203)
(13,309)
(63,456)
(149,421)
238,573
(35,281)
(5,137)
1,650
183
(38,585)
(351,426)
(1,800)
(63,025)
239,000
(116)
(177,367)
22,621
84,186
$
202,287
$
106,807
$
$
72,287
130,000
202,287
$
$
106,807
106,807
1 The gain on settlement of debt is shown net of unpaid dividends on the Preferred shares, series 1 and 2 of $17.9 million, which was reclassified from change in operating
assets and liabilities.
The accompanying notes are an integral part of these consolidated financial statements.
52
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
1. DESCRIPTION
Yellow Media Limited, through its subsidiaries, operates print and digital media and offers marketing solutions in all the
Provinces of Canada. References herein to Yellow Media Limited (or the “Company”) represent the financial position, financial
performance, cash flows and disclosures of Yellow Media Limited and its subsidiaries on a consolidated basis.
Yellow Media Limited’s registered head office is located at 16, Place du Commerce, Montréal, Québec, Canada, H3E 2A5 and is
listed on the Toronto Stock Exchange (“TSX”) under the symbol “Y”.
On December 10, 2012, the Company announced that it reached a settlement with the lenders under the credit facility (“Credit
Facility”) existing at the time. The Québec Superior Court (the “Court”) issued its final order and approved the recapitalization
transaction (“Recapitalization”), which was aimed at significantly reducing the Company’s debt, on December 14, 2012. On
December 20, 2012 (the “Effective Date”), the Recapitalization was implemented.
A new corporation, Yellow Media Limited, was formed for the purpose of effecting the Recapitalization. Pursuant to the
Recapitalization, Yellow Media Limited issued new common shares (“New Common Shares”) and warrants (“Warrants”) on behalf of
Yellow Media Inc. and became the parent company of Yellow Media Inc. Yellow Media Inc. changed its name to YPG Financing Inc.
The Recapitalization included the exchange of the Company’s Credit Facility and medium term notes (the “Medium Term Notes”),
for a combination of senior secured notes (“Senior Secured Notes”) (Note 11), senior subordinated unsecured exchangeable
debentures (“Exchangeable Debentures”) (Note 12), New Common Shares and cash. It also included the exchange of the
convertible unsecured subordinated debentures (“Convertible Debentures”) for a combination of Exchangeable Debentures (Note
12), New Common Shares and Warrants to purchase New Common Shares (Note 14), as well as the exchange of the preferred
shares and common shares of YPG Financing Inc. for a combination of New Common Shares and Warrants to purchase New
Common Shares (Note 14). The Medium Term Notes, Credit Facility, Convertible Debentures, Preferred Shares, Series 3, 5 and 7
and the common shares of YPG Financing Inc. were cancelled on the Effective Date.
In 2012, Yellow Media Limited recorded a gain on settlement of debt of $978.6 million (before related recovery of income taxes
of $25.9 million), net of related fees of $69.5 million pursuant to the Recapitalization.
The carrying amount of the Preferred shares, series 3, 5 and 7 of $320.7 million was reclassified to shareholder’s capital upon
exchange for New Common Shares. Pursuant to the Recapitalization, the restricted shares were cancelled and the balance of
$55 million was reclassified from the restricted shares balance in equity to Deficit, net of income taxes of $10.6 million.
For the terms governing the new securities issued in connection with the Recapitalization, please refer to the indentures governing
the Senior Secured Notes, the Exchangeable Debentures and the Warrants dated December 20, 2012, which are available on
SEDAR at www.sedar.com.
The Board of Directors (the “Board”) approved the consolidated financial statements for the years ended December 31, 2013
and 2012 and authorized their publication on February 13, 2014.
2. REVISED STANDARDS
2.1.
REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) INTERPRETATIONS AND AMENDMENTS
ADOPTED WITH AN EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS
IAS 1 (Revised) – Presentation of Financial Statements
On June 16, 2011, the International Accounting Standards Board (“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 income statement and to separately group together items that will not be reclassified to 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.
In May 2012, the IASB issued further amendments to IAS 1 — Presentation of Financial Statements which are effective for
annual periods beginning on or after January 1, 2013 with early application permitted. IAS 1 requires an entity that changes
accounting policies retrospectively, or makes a retrospective restatement or reclassification to present a statement of financial
position as at the beginning of the preceding period. The amendments to IAS 1 clarify that an entity is required to present a third
statement of financial position only when the retrospective application, restatement or reclassification has a material effect on
the information in the third statement of financial position and that related notes are not required to accompany the third
statement of financial position.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
Yellow Media Limited has applied the amendments to IAS 1 on January 1, 2011, in advance of the effective date, as permitted.
The amendments have been applied retrospectively, and hence the presentation of items of OCI has been modified to reflect
the changes. Other than the above mentioned presentation changes, the application of the amendments to IAS 1 did not result
in any impact on profit or loss, OCI and total comprehensive income.
IAS 19 (Revised) — Employee Benefits
Yellow Media Limited has applied the amendments to IAS 19 (Revised) — Employee Benefits effective for financial years
beginning on or after January 1, 2013. Under the amendments, the main changes of this revised version are the elimination of
the corridor approach and acceleration of past service costs recognition with all changes to the defined benefit obligation and
plan assets recognized when they occur. These amendments did not impact the Company’s financial results. Furthermore, the
interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with the net interest
amount which is calculated by applying the discount rate to the net defined benefit liability or asset and administration fees are
now included in service costs. The effects of these retrospective amendments are illustrated below.
Impact on net earnings (loss):
For the years ended December 31,
2013
2012
Net earnings (loss) before application of amendments to IAS 19
$
186,363
$
(1,954,005)
Differences (decreasing) increasing net earnings (loss):
Operating costs
Financial charges, net
Income taxes
Net earnings (loss)
Impact on basic earnings (loss) per share:
For the years ended December 31,
Basic earnings (loss) per share before application of amendments to IAS 191
Amendments to IAS 19
Basic earnings (loss) per share
Impact on diluted earnings (loss) per share:
For the years ended December 31,
Diluted earnings (loss) per share before application of amendments to IAS 191
Amendments to IAS 19
Diluted earnings (loss) per share
(1,445)
(11,926)
3,538
(1,220)
(9,703)
2,874
$
176,530
$
(1,962,054)
$
$
$
$
2013
6.70
(0.36)
6.34
2013
5.75
(0.29)
5.46
$
$
$
$
2012
(70.66)
(0.29)
(70.95)
2012
(70.66)
(0.29)
(70.95)
1 After consideration for the impact of the implementation of the Recapitalization on the weighted average number of shares outstanding during the prior period.
Impact on other comprehensive income (loss):
For the years ended December 31,
Other comprehensive income (loss) before application of amendments to IAS 19
Amendments to IAS 19
Other comprehensive income (loss)
$
$
2013
73,136
13,371
86,507
$
$
2012
(17,460)
8,049
(9,411)
There is no impact on equity (deficiency) as at December 31, 2012 and January 1, 2012.
Reconciliation of cash flows:
Given that the adoption of IAS 19 (Revised) did not have an impact on the total operating, investing or financing cash flows, no
specific reconciliation is presented for cash flows.
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). New required note disclosures have been included in these consolidated financial
statements to comply with the amendments. The IFRS 7 amendments are effective for financial years beginning on or after
January 1, 2013 and have been applied retrospectively.
54
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
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. New required note disclosures have been included in these
consolidated financial statements to comply with this new standard.
IFRS 13 — Fair Value Measurement
IFRS 13 is a new standard that defines fair value and requires disclosures about fair value measurements. It applies
prospectively from the beginning of the annual period in which it is adopted. New required note disclosures have been included
in these consolidated financial statements. Other than the additional disclosures, the application of IFRS 13 has not had any
material impact on the amounts recognized in the consolidated financial statements. IFRS 13 is effective for financial years
beginning on or after January 1, 2013.
2.2.
REVISED IFRS, INTERPRETATIONS AND AMENDMENTS ADOPTED WITH NO EFFECT ON THE CONSOLIDATED FINANCIAL
STATEMENTS
The following revised standards are effective for annual periods beginning on January 1, 2013 and their adoption has not had
any impact on the amounts reported in these financial statements but may affect the accounting for future transactions or
arrangements:
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 and changes the definition of control over an investee.
IFRS 11 — Joint Arrangements, and IFRS 12 — Disclosure of Interests in Other Entities and the related amendments to IAS 27 —
Consolidated and Separate Statements and IAS 28 — Investments in Associates (the “package of five”) are adopted at the same
time. Yellow Media Limited reviewed its investments in associates and concluded the adoption of IFRS 10 did not have an
impact on its consolidated financial statements.
IFRS 11 — Joint Arrangements
IFRS 11 supersedes IAS 31 — Interests in Joint Ventures, and SIC-13 — Jointly Controlled Entities - Non-Monetary Contributions
by Venturers. 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 joint ventures, namely the equity method.
2.3.
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 Limited’s accounting periods beginning on or after January 1, 2014. Those which are considered to be relevant to
Yellow Media Limited’s operations are as follows:
IAS 32 — Financial Instruments: Presentation in respect of Offsetting
On December 16, 2011, the IASB and FASB issued common disclosure requirements that are intended to help investors and
other users better assess the effect or potential effect of offsetting arrangements on a company's financial position. As part of
this project, the IASB clarified aspects of IAS 32 — Financial Instruments: Presentation. The amendments to IAS 32 address
inconsistencies in current practice when applying the requirements. The amendments are effective for annual periods beginning
on or after January 1, 2014 and are required to be applied retrospectively. Yellow Media Limited has not early adopted this
standard and has not fully assessed the impact of adopting IAS 32.
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 and November 2013, includes the requirements for the classification and
measurement of financial liabilities and for de-recognition.
Key requirements of IFRS 9 are described as follows:
•
•
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
IFRS 9 is applied prospectively with transitional arrangements depending on the date of application. The amendments made to
IFRS 9 in November 2013 remove the mandatory effective date from IFRS 9. However, entities may choose to apply IFRS 9
immediately. Yellow Media Limited has not early adopted this standard and has not fully assessed the impact of adopting IFRS 9.
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
3.1.
STATEMENT OF COMPLIANCE
These consolidated financial statements of Yellow Media Limited and its subsidiaries were prepared by management in
accordance with IFRS. These financial statements have been prepared in accordance with the following significant 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 basis except for the revaluation of certain
assets and liabilities (including derivative instruments) at fair value as explained in the policies below.
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 Limited.
3.4.
BASIS OF CONSOLIDATION
3.4.1. Subsidiaries
Subsidiaries that are directly controlled by Yellow Media Limited or indirectly controlled through other consolidated subsidiaries
are fully consolidated. Subsidiaries are all entities over which Yellow Media Limited exercises control.
Subsidiaries are fully consolidated from the effective date of acquisition up to the effective date of disposal. Intercompany
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 Limited level.
When Yellow Media Limited 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 value of the assets, liabilities of the subsidiary and any non-controlling interests. Amounts previously recognized in OCI
in relation to the subsidiary are accounted for (i.e. reclassified to net earnings (loss) or transferred directly to deficit) in the same
manner as would be required if the relevant assets or liabilities were disposed of.
3.4.2. Associates
Associates are all entities over which Yellow Media Limited has 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 are initially measured at cost. Subsequently, the
share in profits or losses of the associate attributable to equity holders of Yellow Media Limited is recognized in net earnings.
Included in the recognized share of net earnings is the amortization of the amortizable assets based on their fair value at the
acquisition date. When Yellow Media Limited’s share of losses exceed its interest in an equity-accounted investee, the carrying
value 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 Limited has an obligation or has made payments on behalf of the
investee.
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 Limited 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. 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.
Where a business combination is achieved in stages, Yellow Media Limited’s previously held interests in the acquired entity are
remeasured to fair value at the acquisition date (the date Yellow Media Limited attains control) and the resulting gain or loss, if
any, is recognized in the income statement.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
3.5.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of funds on deposit and, from time to time, highly liquid investments with a purchased maturity
of three months or less.
3.6.
TRADE RECEIVABLES
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest
method, less a provision for impairment. A provision for impairment of trade receivables is established when there is objective
evidence that Yellow Media Limited will not be able to collect all amounts due according to the original terms of the receivables.
3.7.
FINANCIAL ASSETS
Financial assets are classified into the following specified categories: financial assets “at fair value through profit or 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 de-
recognized if the contractual rights to the cash flows from the financial asset expire or the asset is transferred and the transfer
qualifies for de-recognition. Cash and cash equivalents and trade and other receivables are included in the loans and receivables
category.
3.7.1. 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.
3.7.2. 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 when 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 assets, such as trade and other receivables, assets that are assessed not to be impaired
individually, are subsequently assessed for impairment on a collective basis.
3.8.
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 as well as the sale, provisioning and fulfillment of digital products and services. 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:
•
•
•
•
Yellow Media Limited 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 Limited; and
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.
3.9.
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 depreciated 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 the income statement in the period in which they are incurred.
Yellow Media Limited has not capitalized any borrowing costs during the periods presented.
Subsequent costs are included in the carrying value of the asset or recognized as a separate component, where necessary, if it
is probable that future economic benefits will flow to Yellow Media Limited 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, when shorter, the term of the relevant lease.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
As at December 31, 2013, 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 at a minimum, 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 value, an impairment loss is recognized. Where the recoverable amount of an
individual asset does not generate independent cash inflows, Yellow Media Limited determines the recoverable amount of the
cash generating units (“CGUs”) or group of CGUs to which the asset belongs.
3.10.
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 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 Limited’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.
In the event that incentives to enter into operating leases are received, 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.
3.11.
INTANGIBLES ASSETS
Intangible assets acquired through 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 not acquired through a
business combination are reported at cost less accumulated amortization and accumulated impairment losses.
Internally-generated intangible assets, 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 Limited can demonstrate:
•
•
•
•
•
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 expenditures 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-generated intangible assets include the cost of software tools and licenses used in the development of Yellow Media
Limited’s systems, as well as all directly attributable payroll and consulting costs. These items are not amortized until the assets
are available for use.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
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 reporting period or annual reporting period,
with the effect of any changes in estimate being accounted for on a prospective basis.
An intangible asset is de-recognized 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 value of the asset, are recognized in the income statement when the asset is de-recognized.
3.12.
IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS INCLUDING GOODWILL
At each reporting date, Yellow Media Limited determines whether there are any indications that the carrying values 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 Limited estimates the recoverable amount of the CGU or group of CGUs to which the asset
belongs. A CGU is a business operation.
Intangible assets with indefinite useful lives, intangible assets not yet available for use and goodwill 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 of disposal 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 (or CGU) 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 value, the carrying value of the asset (or
CGU) is reduced to its recoverable amount. An impairment loss is recognized immediately in the income statement.
For the purpose of impairment testing of goodwill, goodwill was tested at the operating segment level (group of CGUs) which
represents the lowest level where goodwill is monitored for internal management purposes.
If the recoverable amount of a CGU or group of CGUs is less than the carrying value, the impairment loss is allocated first to
reduce the carrying value of goodwill and then to the other assets of the unit pro-rata on the basis of the carrying value of each
asset in the unit. The Company does not reduce the carrying value of an asset below the highest of its fair value less costs of
disposal and its value in use.
3.13.
TRADE AND OTHER PAYABLES
Trade and other payables, including accruals, are recorded when Yellow Media Limited is required to make future payments as
a result of purchases of assets or services. Trade and other payables are carried at amortized cost.
3.14.
FINANCIAL LIABILITIES
The valuation of financial liabilities depends on their classification. Financial liabilities are classified as either financial liabilities
“at FVTPL” or “other financial liabilities”.
Excluding derivative liabilities and financial liabilities accounted for at FVTPL, Yellow Media Limited recognizes all financial
liabilities, specifically debt instruments, trade payables and other liabilities, initially at fair value less transaction costs and
subsequently at amortized cost, using the effective interest method.
Financial liabilities designated as FVTPL are carried at fair value. Changes in fair value are recorded in the income statement.
Transaction costs incurred in setting up these financial liabilities are recognized immediately as expenses in the income statement.
Yellow Media Limited de-recognizes financial liabilities when, and only when, Yellow Media Limited’s obligations are discharged,
cancelled or expire.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
3.15.
PROVISIONS
Provisions are recognized when Yellow Media Limited 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
reporting 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.
3.15.1. Onerous contracts
Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is
considered to exist where Yellow Media Limited 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.
3.15.2. Restructuring
A restructuring provision is recognized when Yellow Media Limited 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.
3.16.
LONG-TERM DEBT
All long-term debt instruments are initially stated at the fair value of the consideration received after deduction of issue costs.
Debt instruments 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 instrument, or over a shorter period where the
lender can require earlier repayment.
3.17.
EMPLOYEE BENEFITS
3.17.1. 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.
3.17.2. Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Yellow Media Limited’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. The fair value of any plan assets is deducted from the obligation. 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 benefit method
prorated on service.
Yellow Media Limited recognizes all actuarial gains and losses arising subsequently from defined benefit plans in OCI.
Remeasurement, comprising actuarial gains and losses, the effects of changes to the asset ceiling, if applicable, and the return
on plan assets, excluding net interest on the defined benefit obligation, is reflected immediately in the statement of financial
position with a charge or credit recognized in OCI. Remeasurement recognized in OCI is reflected immediately in retained
earnings and will not be classified to the income statement. Past service costs are recognized in the income statement in the
period a plan amendment is announced to employees. The net interest amount, which is calculated by applying the discount
rate to the net defined liability or asset of defined benefit plans, is included within net financial charges while service costs are
recorded in operating expenses.
3.17.3. Other long-term employee benefits
Yellow Media Limited’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.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
3.17.4. Termination benefits
Termination benefits are recognized as an expense when Yellow Media Limited can no longer withdraw the offer of those benefits,
or if earlier, when there is no realistic possibility of withdrawal from a formal detailed plan to either terminate employment before
the normal retirement date, or from providing 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 Limited 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.
3.17.5. 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 Limited 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.
3.17.6. Share-based payment transactions
Yellow Media Limited’s restricted share units, performance share units, deferred share units and stock options granted to
employees and directors are measured at the fair value of the equity instruments at the grant date.
The restricted share units, performance share units and deferred share units granted may be settled in cash or equity at the
Company’s option. If the restricted share unit and performance share unit plan and the deferred share unit plan are funded, eligible
employees and directors will receive, upon vesting of the instruments, common shares. The funded portion of these plans is treated
as equity-settled instruments and recorded accordingly in equity. In the event these plans are unfunded, Yellow Media Limited will
pay to the eligible employees and directors, upon vesting of the instruments, an amount in cash. The unfunded portion of these plans
is treated as cash-settled instruments and recorded as a liability. At each reporting period, the liability is remeasured at fair value with
any changes recorded in operating costs.
The fair value determined at the grant date of the share-based instruments is expensed on a straight-line basis over the vesting
period, based on Yellow Media Limited’s estimate of share-based instruments that will eventually vest. At each reporting period,
Yellow Media Limited revises its estimate of the number of share-based 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 reserve.
3.18.
EQUITY INSTRUMENTS ISSUED BY YELLOW MEDIA LIMITED
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 Limited are recorded at the proceeds received, net of direct issue costs.
Transaction costs incurred by Yellow Media Limited 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.
3.19.
OPERATING SEGMENTS
Disclosure of segment information is reported in a manner consistent with the internal reports regularly reviewed by
Yellow Media Limited’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. The Company currently operates
under one segment.
3.20.
REVENUES
Yellow Media Limited’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 sold in bundles that can include several related online advertising products. Print products are not
sold separately. Revenues from print directory advertising as well as revenues from related online 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 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.
3.21.
DERIVATIVE FINANCIAL INSTRUMENTS
Yellow Media Limited enters from time to time into a variety of derivative financial instruments to manage interest rate risk on its
long-term debt and to manage the risk of fluctuations in the share price of its common shares affecting its stock-based compensation
plans.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured 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 the income statement depends on the nature of the hedge relationship.
Yellow Media Limited 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).
3.21.1. 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.
3.22.
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. The Company currently has not capitalized any borrowing costs.
3.23.
TAXATION
Income tax expense represents the sum of the current and deferred tax.
3.23.1. 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 Limited’s
liability for current income tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
3.23.2. Deferred tax
Deferred tax is recognized on differences between the carrying values of assets and liabilities in the consolidated 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.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and
associates, except where Yellow Media Limited 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 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 value of deferred tax assets is reviewed at each reporting date and reduced to the extent 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 reporting
date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in
which Yellow Media Limited 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 Limited intends to settle its tax
assets and liabilities on a net basis.
3.23.3. Current and deferred tax for the period
Current and deferred taxes are recognized as an expense or income in the income statement, except when they relate to items
that are recognized outside net earnings (whether in OCI 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.
62
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
3.24.
SIGNIFICANT ESTIMATES AND JUDGEMENTS
The preparation of consolidated financial statements requires management to make estimates and assumptions that can affect
the carrying value of certain assets and liabilities, income and expenses, and the information disclosed in the notes to the
consolidated 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.
Significant estimates
Intangible assets
The valuations associated with measuring the recoverability of identifiable intangible assets for impairment analysis purposes
involve significant estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates,
terminal growth rates and asset lives. These significant estimates could affect Yellow Media Limited’s future results if the
current estimates of future performance and fair values change.
Yellow Media Limited assesses impairment by comparing the recoverable amount of a CGU or group of CGUs to which an identifiable
intangible asset belongs, with its carrying value. The determination of the recoverable amount involves significant management
estimates.
Yellow Media Limited performs its annual test for impairment of indefinite life intangible assets in the fourth quarter in accordance
with the policy described in Note 3.12.
Useful lives of intangible assets and property, plant and equipment
Yellow Media Limited reviews the estimated useful lives of its intangible assets and property, plant and equipment at the end of
each reporting period. At the end of the current reporting period, management determined that the useful lives of its intangible
assets and property, plant and equipment were adequate.
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 the net benefit costs (recovery)
requires assumptions such as the discount rate to measure defined benefit obligations and expected return on plan assets, the
projected age of employees upon retirement, the expected rate of future compensation and the expected healthcare cost trend
rate. Actual results may 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 Limited’s ability to utilize the underlying future tax deductions against future taxable income before they expire.
Yellow Media Limited’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment
of Yellow Media Limited’s ability to utilize the underlying future tax deductions changes, Yellow Media Limited 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.
Significant judgements
Uncertain tax provisions
Yellow Media Limited 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 Limited 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 Limited 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.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
4. IMPAIRMENT OF GOODWILL, INTANGIBLE ASSETS AND PROPERTY,
PLANT AND EQUIPMENT
As a majority of the intangible assets do not generate cash inflows that are largely independent of those from other assets or
group of assets, the Company performs its impairment analysis of its intangible assets at the CGU level. The CGUs of the
Company are presented as follows: Yellow Pages Group and Other (includes multiple CGUs for which the carrying value of its
intangible assets with indefinite useful lives is not significant in comparison with the Company’s total carrying value of intangible
assets with indefinite useful lives).
2013
During the fourth quarter of 2013, in the context of its annual impairment testing, the Company completed its impairment
analysis and assessed the recoverability of its assets allocated to its CGUs. The Company calculated the recoverable amounts of
its CGUs using valuation methods which were consistent with those used in prior periods. The recoverable amounts were
determined based on the value in use approach using a discounted cash flow model.
The significant key assumptions included in the forecasted cash flows are based on the Company’s business plan taking into
consideration growth and product mix trends. The cash flows are based on the 2014 budget approved by the Board of Directors
and projected over a five-year period. Applicable terminal growth rates were applied. The forecasted cash flows also
incorporated forecasted print revenue declines per annum between 20% and 25% and online revenue growth rates between 6%
and 11% for the Yellow Pages Group CGU.
As a result of the impairment analysis, the Company determined that the recoverable amounts of if its CGUs exceeded their
carrying values and accordingly, no impairment charge was recognized.
2012
During the first quarter of 2012, indicators that the Company’s assets may have been impaired were identified. This included a
significant change in revenue trends impacting the Company’s long-term revenue mix, an updated five-year plan taking into
account the lower than expected revenue performance, and external factors such as the sale by AT&T of its directory business.
As a result of these internal and external sources of information, management performed an impairment analysis. Following the
completion of the impairment analysis, the Company recorded a goodwill impairment charge of $2,967.8 million during the first
quarter of 2012, reducing the balance of goodwill to $nil.
Goodwill was tested for impairment at the lowest level within the Company at which the goodwill is monitored for internal
management purposes; the digital and traditional media solutions segment (Group of CGUs), the only operating segment of the
Company.
During the fourth quarter of 2012, as a result of the closing of the Recapitalization and in the context of its annual impairment
testing, the Company completed its impairment analysis and assessed the recoverability of its assets allocated to its CGUs. As a
result of the impairment analysis, the Company determined that the carrying amounts of if its CGUs exceeded their recoverable
amounts and accordingly, the Company recorded an impairment charge of $300 million, which was applied to certain intangible
assets and property, plant and equipment.
The impairment charges did not affect the Company’s operations, its liquidity, its cash flows from operating activities, its Senior
Secured Notes or its Exchangeable Debentures indentures.
Carrying values and assumptions
Cash flows beyond the periods of the plan were extrapolated using the terminal growth rates stated in the table below.
The allocation of the carrying value of the intangible assets as at December 31, 2013 and 2012 by CGU or group of CGUs, prior
to the impairment charge and the key assumptions used for the value in use calculations for the December 31, 2013,
December 31, 2012 and March 31, 2012 impairment analyses are presented below:
Carrying value of intangible assets by CGU
Trademarks and domain names
Trademarks and domain names with finite lives
Non-competition agreements and logos
Customer-related intangible assets
Software
Total carrying value of intangible assets by CGU
64
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
Yellow Pages Group
Other
Total
December 31, 2013
$
$
$
$
$
$
876,823
2,879
341,501
81,036
1,302,239
$
$
$
$
$
$
2,022
4,167
520
442
1,104
8,255
$
$
$
$
$
$
878,845
7,046
342,021
442
82,140
1,310,494
Carrying value of intangible assets by CGU
Trademarks and domain names
Trademarks and domain names with finite lives
Non-competition agreements and logos
Software
Total carrying value of intangible assets by CGU
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
Yellow Pages Group
Other
Total
December 31, 2012¹
$
$
$
$
$
1,060,842
3,800
435,192
68,246
1,568,080
$
$
$
$
$
17,385
8,333
6,255
1,705
33,678
$
$
$
$
$
1,078,227
12,133
441,447
69,951
1,601,758
1 Prior to impairment charge of $300 million as discussed above, of which $289.6 million was applied to intangible assets.
Key assumptions :
Terminal growth rate
December 31, 2013
December 31, 2012
March 31, 2012
Discount rate – post-tax
December 31, 2013
December 31, 2012
March 31, 2012
Discount rate – pre-tax
December 31, 2013
December 31, 2012
March 31, 2012
Yellow Pages Group
Other
Total
December 31, 2013 and 2012
-15% to 4.5%
-15% to 2.5%
-10% to 2.5%
5%
-15% to 2.5%
3.5%
10% to 20%
11% to 19%
10% to 19%
13.9%
11% to 19%
16.5% to 20%
-15% to 5%
-15% to 2.5%
-10% to 3.5%
10% to 20%
11% to 19%
10% to 20%
16.6% to 26.7%
17.3%
16.6% to 26.7%
13.6% to 24.1%
13.6% to 24.1%
13.6% to 24.1%
12.4% to 24.1%
20.7% to 25.5%
12.4% to 25.5%
Sensitivity to changes in assumptions
The table below shows the percentages by which each key assumption must change in isolation in order for the estimated
recoverable amount to equal to its carrying value:
Key assumptions :
Terminal growth rate
Discount rate – post-tax
Revenue decline per annum
5. INVESTMENTS IN ASSOCIATES
December 31, 2013
Yellow Pages Group
-1%
1%
-1% to -6%
List of associates:
As at
Canada
Principal Activity
Consolidation % ownership
Consolidation
% ownership
December 31, 2013
December 31, 2012
411 Local Search Corp.
Online search engine
Equity method
30
Equity method
USA
Ziplocal, LP
Printing of directories
Equity method
35
Equity method
30
35
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
Shareholders of 411 Local Search Corp. (“411”) have the ability to exercise a put option (derivative liability) requiring the
Company to acquire the remaining 70% interest of 411 at a price which is based on a fixed multiple of adjusted earnings before
interest, income taxes, depreciation and amortization for the year ending March 31, 2013 or 2014. The fair value of this
derivative liability amounted to $18.5 million as at December 31, 2012, resulting in a charge to the income statement. The fair
value remains unchanged as at December 31, 2013. As at December 31, 2013, 411 had not exercised this option. The
Company may exercise its call option to purchase the remaining interest during a specified period of time in 2014. The
Company also had this call option during a specified period of time in 2013. The fair value of this derivative is $nil as at
December 31, 2012 and 2013. As at December 31, 2013, the Company had not exercised this option.
The net earnings (loss) for the investment in associates, excluding Ziplocal, LP (“Ziplocal”) not adjusted for the percentage ownership
held by Yellow Media Limited amounted to $2.4 million for the year ended December 31, 2013 (2012 – $(0.2 million)).
In 2011, Ziplocal was in default of its debt obligations and had undertaken important restructuring initiatives. As a result,
Yellow Media Limited 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, which reduced its net investment in Ziplocal to $nil. Consequently, Yellow Media Limited no longer
recognizes its share of losses in Ziplocal.
6. PROPERTY, PLANT AND EQUIPMENT
Office
equipment1
Computer
equipment
Other
equipment
Leasehold
improvements
2013
Total
Cost
As at December 31, 2012
$
29,550
$
18,362 $
Additions
Disposals, write-offs and transfers
As at December 31, 2013
Accumulated depreciation
As at December 31, 2012
Depreciation expense
Disposals, write-offs and transfers
As at December 31, 2013
Net book value as at December 31, 2013
$
$
1,123
(234)
6,798
(832)
30,439
$
24,328 $
20,966
$
13,076 $
2,172
(213)
2,876
(841)
$
$
22,925
7,514
$
$
15,111 $
9,217 $
1,510 $
159
1,669 $
891 $
93
984 $
685 $
29,048 $
2,105
78,470
10,185
(1,066)
31,153 $
87,589
16,123 $
51,056
2,957
19,080 $
12,073 $
8,098
(1,054)
58,100
29,489
2012
Total
Office
equipment1
Computer
equipment
Other
equipment
Leasehold
improvements
Cost
As at December 31, 2011
$
33,078
$
29,670 $
2,694 $
39,588 $
105,030
Additions
Impairment (Note 4)
Disposals, write-offs and transfers
As at December 31, 2012
Accumulated depreciation
As at December 31, 2011
Depreciation expense
Disposals, write-offs and transfers
As at December 31, 2012
Net book value as at December 31, 2012
504
(3,201)
(831)
29,550
17,329
4,545
(908)
$
$
$
$
$
$
20,966
8,584
$
$
4,167
(1,177)
(14,298)
356
(565)
(975)
1,800
(5,447)
(6,893)
6,827
(10,390)
(22,997)
18,362 $
1,510 $
29,048 $
78,470
23,450 $
1,225 $
16,530 $
3,826
(14,200)
13,076 $
5,286 $
240
(574)
891 $
619 $
6,275
(6,682)
16,123 $
12,925 $
58,534
14,886
(22,364)
51,056
27,414
1 The net book value of office equipment includes $0.5 million of assets held under finance leases (2012 - $1.1 million).
66
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
7. INTANGIBLE ASSETS
Trademarks
and domain
names1
Non-
competition
agreements
and logos
Customer-
related
intangible
assets
Software2
2013
Total
Intangible
assets
Cost
As at December 31, 2012
$
951,184 $
536,102 $
108,198 $
134,960 $ 1,730,444
Additions
Disposals, write-offs and transfers
As at December 31, 2013
Accumulated amortization
As at December 31, 2012
Amortization expense
Disposals, write-offs and transfers
As at December 31, 2013
Net book value as at December 31, 2013
$
$
(161)
785
51,288
52,073
(96,870)
(5,611)
(102,642)
$
951,023 $
536,102 $
12,113 $
180,637 $ 1,679,875
$
60,705 $
175,612 $
108,198 $
4,427
65,132 $
18,469
343
(96,870)
194,081 $
11,671 $
73,781 $
28,827
(4,111)
98,497 $
418,296
52,066
(100,981)
369,381
885,891 $
342,021 $
442 $
82,140 $ 1,310,494
Trademarks
and domain
names1
Non-
competition
agreements
and logos
Customer-
related
intangible
assets
Software2
2012
Total
Intangible
assets
Cost
As at December 31, 2011
$
1,151,180 $
617,059 $
108,198 $
284,510 $ 2,160,947
Additions
Impairment (Note 4)
Disposals, write-offs and transfers
As at December 31, 2012
Accumulated amortization
As at December 31, 2011
Amortization expense
Disposals, write-offs and transfers
As at December 31, 2012
Net book value as at December 31, 2012
$
$
(199,881)
(115)
(80,957)
33,528
(8,772)
(174,306)
33,528
(289,610)
(174,421)
$
951,184 $
536,102 $
108,198 $
134,960 $ 1,730,444
$
45,542 $
149,313 $
103,834 $
204,207 $
502,896
15,163
60,705 $
26,299
4,364
43,581
89,407
(174,007)
(174,007)
175,612 $
108,198 $
73,781 $
418,296
890,479 $
360,490 $
$
61,179 $ 1,312,148
1 Trademarks and domain names with indefinite useful lives amounted to $878.8 million (2012 - $879.0 million).
2 Software assets under development amounted to $25.3 million (2012 - $25.4 million).
8. TRADE AND OTHER PAYABLES
As at
Trade
Accrued interest
Payroll related
Current portion of long-term incentive plans
Publishing related
Other accrued liabilities
December 31, 2013
December 31, 2012
$
44,085
$
58,271
5,717
3,146
2,067
10,103
13,706
78,824
$
2,753
1,722
10,261
14,928
$
87,935
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
9. PROVISIONS
During the year ended December 31, 2013, Yellow Media Limited recorded restructuring and special charges of $23.3 million.
These costs were associated with workforce reductions and the termination and renegotiation of certain contractual obligations.
During the year ended December 31, 2012, Yellow Media Limited recorded restructuring and special charges of $44.9 million.
These costs were associated with a workforce reduction, relocation of centers of excellence and the termination and renegotiation
of certain contractual obligations.
The provisions for restructuring and special charges represent the present value of the best estimate of the future outflow of
economic benefits that will be required to settle the provisions and may vary as a result of new events affecting the severances
and charges that will need to be paid.
Other provisions include provisions primarily for vacation and short-term incentive plans.
As at December 31, 2012
Charge1
Utilized provision
Surplus provision
As at December 31, 2013
Less current portion
Non-current portion
As at December 31, 2011
Charge1
Utilized provision
Surplus provision
As at December 31, 2012
Less current portion
Non-current portion
Provisions for
restructuring
Provisions for
special charges
Other
provisions
Total
Provisions
12,413 $
22,910
$
24,889 $
21,020
(12,086)
21,347 $
18,951
2,396
$
2,330
(5,478)
35,520
(23,047)
(1,808)
19,762
$
35,554 $
16,127
35,554
3,635
$
$
60,212
58,870
(40,611)
(1,808)
76,663
70,632
6,031
Provisions for
restructuring
Provisions for
special charges
Other
provisions
Total
Provisions
17,637 $
19,006
$
11,657 $
16,569
(21,793)
12,413 $
12,175
238 $
27,681
(23,777)
18,118
(3,252)
(1,634)
22,910
$
24,889 $
15,786
24,889
7,124
$
$
48,300
62,368
(48,822)
(1,634)
60,212
52,850
7,362
$
$
$
$
$
$
1 Included in the restructuring and special charges are $(12 thousand) (2012 - $673 thousand) of other costs not affecting the provision.
10. POST-EMPLOYMENT BENEFITS
Yellow Media Limited maintains pension plans with defined benefit and defined contribution components which cover substantially
all of the employees of Yellow Media Limited. Yellow Media Limited 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 of its employees.
The defined benefit plans typically expose the Company to actuarial risks such as: investment, interest rate, longevity and salary
risks.
Investment risk
Interest risk
Longevity risk
Salary risk
The present value of the defined benefit plan obligation is calculated using a discount rate determined by reference to
high quality corporate bond yields; if the actual return on plan assets is below the assumed rate, it will create a plan
deficit. Currently, the defined benefit plan has a relatively balanced investment in equity securities and debt
instruments. Due to the long-term nature of the defined benefit plan obligation, the pension committee considers it
appropriate that a reasonable portion of the plan assets should be invested in equity instruments to leverage the
return generated by the fund.
A decrease in the bond interest rate will increase the defined benefit plan obligation, particularly on a solvency basis.
Although this will be partially offset by an increase in the return of the defined benefit plan’s investments, the impact
may be material as pension liabilities are sensitive to variations in interest rates.
The present value of the defined benefit plan liability is calculated based on assumptions regarding mortality rates of
plan participants both during and after their employment. An increase in the life expectancy of the plan participants
will increase the defined benefit obligation.
The present value of the defined benefit plan obligation is calculated by reference to the projected salaries of plan
participants. As such, a higher salary increase than projected of the plan participants will increase the defined benefit
plan’s liability.
68
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out
by Morneau Shepell, Fellows of the Canadian Institute of Actuaries and Society of Actuaries, as at December 31, 2013. The
present value of the defined benefit obligation and the related current service cost and past service costs, were measured using
the projected benefit method prorated on service.
The changes in the defined benefit obligations and in the fair value of assets and the reconciliation of the funded status of the
defined benefit plans to the amount recorded on the consolidated statements of financial position as at December 31, 2013
and 2012 were as follows:
Fair value of plan assets, beginning of year
Employer contributions
Employee contributions
Interest income
Return on plan assets excluding interest income (actuarial
gains)
Benefit payments
Administration costs
Fair value of plan assets, end of year
December 31, 2013
December 31, 2012
Pension
Benefits1
Other
Benefits
Pension
Benefits1
Other
Benefits
$ 406,554 $
– $ 389,860 $
–
19,991
2,073
30,796
1,975
803
15,901
43,478
–
–
–
390
17,466
17,926
–
–
–
(47,274)
(2,073)
(48,664)
(1,975)
(1,445)
–
(1,220)
$ 438,008 $
– $ 406,554 $
–
–
Accrued benefit obligation, beginning of year
$
651,238 $ 52,230 $ 636,292 $ 52,364
Current service cost
Employee contributions
Benefit payments
Interest cost
Past service costs
Actuarial (gains) losses due to:
Experience adjustments
Changes in demographic assumptions
Changes in financial assumptions
Defined benefit obligation, end of year
Net defined benefit obligation
14,802
803
866
–
17,201
1,041
390
(47,274)
(2,073)
(48,664)
25,829
(3,297)
2,082
(4,095)
28,618
(8,027)
–
(1,975)
2,359
(5,291)
(6,046)
11,401
(5,506)
1,163
(13,583)
–
–
–
(70,792)
(4,375)
39,011
3,732
$
576,664 $ 40,292 $ 651,238 $ 52,230
$ (138,656) $ (40,292) $ (244,684) $ (52,230)
1 Including unfunded supplementary defined benefit pension plans.
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 Limited’s pension and other benefit obligations as at
December 31, 2013 and 2012 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
Weighted average duration (years)
December 31, 2013
December 31, 2012
Pension
Benefits
Other
Benefits
Pension
Benefits
Other
Benefits
4.75%
3.00%
4.00%
3.25%
15
4.75%
3.00%
4.00%
3.25%
13
4.00%
3.25%
4.50%
3.25%
17
4.00%
3.50%
4.50%
3.50%
15
For measurement purposes, a 7.0% annual increase in the per capita cost of covered medical care benefits (the medical care
cost trend rate) was assumed in 2013. The rate of increase of the cost of medical care was assumed to gradually decline to
4.5% by 2028 and to remain at that level thereafter. A 4.5% annual increase in per capita cost of covered dental care benefits
was assumed in 2012 and thereafter.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
The following table shows how the defined benefit obligation as at December 31, 2013 would have been affected by changes
that were reasonably possible at that date in each significant actuarial assumption:
Discount rate, end of year – 4.50% instead of 4.75%
Rate of compensation increase – 3.25% in 2014 and 3.50% thereafter, instead of 3.00%
in 2014 and 3.25% thereafter
Health care cost trend rates – medical: 8.0% in 2013 reducing to 5.5% over 15 years
instead of 7.0% in 2013 reducing to 4.5% over 15 years; dental: 5.5% instead of 4.5%
The net benefit plan costs included in the income statements are the following components:
Pension benefits
Other benefits
$
22,534 $
1,219
$
$
3,299 $
–
N/A $
1,322
Current service cost1
Administration costs1
Past service costs1
Service cost
Interest cost (Note 18)
Interest income (Note 18)
Net interest on the net defined benefit obligation
Net benefit costs (recovery) recognized in the income statement
Actuarial (gains) losses recognized in other comprehensive income
Total net benefit plan (recovery) costs for the Yellow Pages Group
Corp. (“YPG Co.”) defined benefit plans
For the years ended December 31,
2013
Other
Benefits
Pension
Benefits
2012
Other
Benefits
Pension
Benefits
$
14,802
$
866
$ 17,201
$
1,041
1,445
(3,297)
12,950
25,829
(15,901)
9,928
22,878
(108,915)
–
(4,095)
1,220
(8,027)
$
(3,229)
$ 10,394
$ 2,082
$ 28,618
–
(17,466)
$ 2,082
$ 11,152
$
$
(1,147)
(8,718)
$ 21,546
$
7,502
(86,037)
$
(9,865)
$ 29,048
$
$
$
$
$
$
–
(5,291)
(4,250)
2,359
–
2,359
(1,891)
3,732
1,841
–
$
$
$
$
$
$
Net benefit plan costs for the YPG Co. defined contribution plans1
6,438
–
4,288
Total net benefit plan (recovery) costs
$
(79,599)
$
(9,865)
$ 33,336
$
1,841
1 Included in operating costs.
During the years ended December 31, 2012 and 2013, the Company amended the retirement and post-employment benefit
plans for certain groups of employees. These amendments were made prospectively and applied only to certain groups of
employees and included among other items for the affected employees, the elimination of post-retirement benefits, the
elimination of post-retirement indexing for future service, the introduction of employee contributions and the reduction of short-
term disability coverage. Certain of these amendments resulted in negative past service costs in the amount of $7.4 million
(2012 - $13.3 million).
On May 31, 2013, the plan was split administratively into two plans:
•
a plan that applies to all defined benefit plan and defined contribution plan members except Quebec-based defined
contribution plan members; and
•
a plan that applies to all Quebec-based defined contribution plan members.
This split has no impact on the benefits of current active or retired members.
Plan assets include primarily 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, 2013 and 2012:
70
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
(in percentages - %)
Fair value of the plan assets:
Canadian bonds and debentures
Canadian common stocks
Global common stocks
Pooled fund units
Canadian pooled equity funds
Global pooled equity funds
Canadian pooled fixed-income funds
Pooled mortgage funds
Pooled money market fund
Short-term notes and treasury bills
Cash and cash equivalents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
December 31, 2013
December 31, 2012
27.5
12.5
10.0
19.0
22.0
6.5
1.5
–
0.5
0.5
29.0
13.5
9.5
18.0
21.0
6.0
2.0
1.0
–
–
As at December 31, 2013 and 2012, the publicly traded equity securities did not directly include any shares of Yellow Media Limited.
The total cash payments for pension and other benefit plans made by Yellow Media Limited amounted to $28.5 million for 2013
(2012 – $37.1 million). Total cash payments for pension and other benefit plans expected in 2014 amount to approximately
$40.4 million.
Yellow Media Limited’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 Limited is responsible to adequately fund the plans. Contributions reflect
actuarial assumptions concerning future investment returns, salary projections and future service benefits.
Yellow Media Limited’s expense for provincial, federal and state pension plans was $7.3 million for the year ended December 31, 2013
(2012 – $6.7 million).
As at December 31, 2013, Yellow Media Limited had recognized an accumulated balance of $55.7 million, net of income taxes
of $18.3 million, in actuarial losses in OCI.
11. LONG-TERM DEBT
The long-term debt is comprised of the following:
As at
Senior Secured Notes
Obligations under finance leases
Less current portion1
Non-current portion
December 31, 2013
December 31, 2012
$
$
$
646,577
891
647,468
89,051
558,417
$
800,000
1,831
$
801,831
100,939
$
700,892
1 The current portion of the repayment of the Senior Secured Notes may vary subject to the Excess Cash Flow clause.
ASSET-BASED LOAN
In August 2013, the Company, through YPG Financing Inc., entered into a five-year $50 million asset-based loan (“ABL”) expiring
in August 2018. The ABL will be used for general corporate purposes. Through the ABL, the Company has access to the funds in
the form of prime rate loans, Banker’s acceptance (“BA”) equivalent loans or letters of credit. The ABL has a first priority lien
over the receivables of the Company. The ABL is subject to an availability reserve of $5 million if the Company’s trailing
12-month fixed charge coverage ratio is below 1.1 times. As at December 31, 2013, the ABL was fully available and was
undrawn. Interest is calculated based either on the BA Rate or the Canadian Prime Rate plus an applicable margin.
The loan agreement governing the ABL contains restrictive covenants, including restrictions on the incurrence of additional
indebtedness, the payment of dividends and other payment restrictions, investments, the creation of liens, sale and leaseback
transactions, mergers, consolidations and sales of assets, and certain transactions with affiliates and its business activities.
As at December 31, 2013, the Company was in compliance with all covenants under the loan agreement governing the ABL.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
SENIOR SECURED NOTES
On December 20, 2012, the Company through its subsidiary, YPG Financing Inc., issued $800 million of 9.25% Senior Secured
Notes maturing November 30, 2018. Interest on the Senior Secured Notes is payable in cash, quarterly in arrears and in equal
instalments at 9.25% per annum on the last day of February, May, August and November of each year.
The Senior Secured Notes are unconditionally guaranteed on a senior secured basis by Yellow Media Limited and all of its
Restricted Subsidiaries (as such term is defined in the indenture governing the Senior Secured Notes).
The Senior Secured Notes and each Senior Secured Note guarantee are secured by a first priority lien, subject to certain
permitted liens, in the collateral, which consists of all of the property of Yellow Media Limited and the Restricted Subsidiaries,
whether owned on the Effective Date or thereafter acquired, other than certain excluded property.
The indenture governing the Senior Secured Notes contains restrictive covenants, including restrictions on the incurrence of
additional indebtedness, the payment of dividends and other payment restrictions, investments, the creation of liens, sale and
leaseback transactions, mergers, consolidations and sales of assets, and certain transactions with affiliates and its business
activities. The indenture does not contain the obligation to maintain financial ratios. Financial ratio restrictions only apply upon
incurrence of additional indebtedness and other transactions (other than the ABL).
As at December 31, 2013 and 2012, the Company was in compliance with all covenants under the indenture governing the
Senior Secured Notes.
Mandatory Redemption
Pursuant to the indenture governing the Senior Secured Notes, the Company is required to use an amount equal to 75% of its
consolidated Excess Cash Flow for the immediately preceding six-month period ending March 31 or September 30, as applicable,
to redeem on a semi-annual basis on the last day of May and November of each year, commencing on May 31, 2013, the Senior
Secured Notes at a redemption price equal to 100% of the principal amount thereof from holders on a pro rata basis, subject to the
Company maintaining a minimum cash balance of $75 million immediately following the mandatory redemption payment. Excess
Cash Flow, as defined in the indenture governing the Senior Secured Notes, means the aggregate cash flow from operating
activities adjusted for, among other things, payments relating to interest, taxes, long-term employee compensation plans, certain
pension plan contribution payments and the acquisitions of property, plant, equipment and intangible assets.
The Company is required to make minimum annual aggregate mandatory redemption payments of $75 million in 2014,
$50 million in 2015, or if the redemption payments made in 2014 exceed $75 million, $50 million less such excess redemption
payment. The minimum annual aggregate mandatory redemption payments for 2014 and 2015 are not subject to the condition
that the Company maintain a minimum cash balance of $75 million immediately following such payments.
For purposes of determining the consolidated Excess Cash Flow, deductions for capital expenditures and information systems/
information technology expenses are each subject to an annual deduction limit of $50 million. Under other circumstances, the
Company may also have to make additional repayments on the Senior Secured Notes (refer to the indenture governing the
Senior Secured Notes).
Optional Redemption
The Company may redeem all or part of the Senior Secured Notes at its option at any date, upon not less than 30 nor more than
60 days prior notice, at a redemption price equal to:
•
•
In the case of a redemption occurring prior to May 31, 2017, 105% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date; or
In the case of a redemption occurring on or after May 31, 2017, 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the redemption date.
On May 31, 2013 and December 2, 2013, Yellow Media Limited made mandatory redemption payments on the Senior Secured
Notes of $26.1 million and $92.4 million, respectively. On September 25, 2013, Yellow Media Limited purchased on the open
market $8 million of the Senior Secured Notes for a total cash consideration of $8.3 million. A loss of $0.3 million was recorded
in net earnings in financial charges. On October 29, 2013, Yellow Media Limited exercised its option to redeem $27 million of
Senior Secured Notes for a total cash consideration of $28.4 million. A loss of $1.4 million was recorded in net earnings in
financial charges.
72
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
OBLIGATIONS UNDER FINANCE LEASES
The Company 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.
Finance lease liabilities payable as at December 31, 2013 are as follows:
Less than one year
Between one and five years
12. EXCHANGEABLE DEBENTURES
As at
Face value of Exchangeable Debentures
Less unaccreted interest
Future minimum
lease payments
Interest
Present value of minimum
lease payments
$
$
551
396
947
$
$
43
13
56
$
$
508
383
891
December 31, 2013
December 31, 2012
$
$
107,500
(19,566)
87,934
$
$
107,500
(20,833)
86,667
On December 20, 2012, the Company through its subsidiary YPG Financing Inc., issued $107.5 million of senior subordinated
Exchangeable Debentures due November 30, 2022. Interest on the Exchangeable Debentures accrues at a rate of 8% per
annum if for the applicable interest period, it is paid in cash, or 12% per annum if the Company makes a Payment in Kind (“PIK”)
election to pay interest in respect of all or any part of the then outstanding Exchangeable Debentures in additional Exchangeable
Debentures. Interest on the Exchangeable Debentures is payable semi-annually in arrears, and in equal instalments on the last
day of May and November of each year. The initial fair value on December 20, 2012 of the Exchangeable Debentures was
$91.6 million.
The Exchangeable Debentures are senior subordinated and unsecured obligations of YPG Financing Inc. The Exchangeable
Debentures are unconditionally guaranteed on a subordinated unsecured basis by Yellow Media Limited and all of its Restricted
Subsidiaries (as such term is defined in the indenture governing the Exchangeable Debentures).
The indenture governing the Exchangeable Debentures contains restrictive covenants, including restrictions on the incurrence of
additional indebtedness, the payment of dividends and other payment restrictions, investments, the creation of liens, sale and
leaseback transactions, mergers, consolidations and sales of assets and certain transactions with affiliates. The indenture does not
contain the obligation to maintain financial ratios. Financial ratio restrictions only apply upon incurrence of indebtedness and other
transactions.
As at December 31, 2013 and 2012, the Company was in compliance with all covenants under the indenture governing the
Exchangeable Debentures.
Exchange Option
The Exchangeable Debentures are exchangeable at the holder’s option into New Common Shares at any time at an exchange
price per New Common Share equal to $19.04, subject to adjustment for specified transactions.
The conversion option was valued at $3.6 million, net of income taxes of $1.3 million, at the date of issuance and is included in
Equity. The liability portion is being accreted such that the liability at maturity equals the principal amount less exchanges.
Optional Redemption
The Company may, at any time on or after the date on which all of the Senior Secured Notes have been paid in full, redeem all or
part of the Exchangeable Debentures at its option at a redemption price equal to:
•
•
in the case of a redemption occurring prior to May 31, 2021, 110% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date; or
in the case of a redemption occurring on or after May 31, 2021, 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the redemption date.
The redemption option for cash is an embedded derivative and is recorded at fair value on the consolidated statements of
financial position with changes in fair value recognized in financial charges.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
13.
INCOME TAXES
A reconciliation of income taxes at Canadian statutory rates with reported income taxes is as follows:
Earnings (loss) before income taxes and share of earnings from investments in associates
Combined Canadian federal and provincial tax rates1
Income tax expense (recovery) at statutory rates
Increase (decrease) resulting from:
Unrecognized tax attributes of the current year
Recognition of previously unrecognized tax attributes
Difference in the statutory rate applicable to foreign operations
Rate differential on temporary differences
Derivative financial instruments
Gain on settlement of debt
Impairment of goodwill, intangible assets and property, plant and equipment
Non-deductible dividend expense
Other
Provision for (recovery of) income taxes
For the years ended December 31,
2013
2012
$
$
239,253
26.46%
63,306
(Revised – Note 2)
$
$
(2,042,756)
26.31%
(537,449)
3,332
(3,312)
(1,026)
(300)
–
–
–
–
1,421
63,421
$
7,850
(15,393)
(2,922)
1,938
4,274
(282,848)
738,925
4,655
2,161
$
(78,809)
1 The combined applicable statutory tax rate increased by 0.15% resulting mainly from the increase in the British Columbia and New Brunswick statutory tax rate.
Provision for (recovery of) income taxes includes the following amounts for the years ended:
Current
Deferred
December 31, 2013
December 31, 2012
(Revised – Note 2)
$
$
48,241
15,180
63,421
$
$
48,603
(127,412)
(78,809)
Deferred income tax (assets) liabilities are attributable to the following items:
Deferred
financing
costs
Non-capital
losses carry
forward
Deferred
revenues
Post-
employment
benefits
Accrued
liabilities
Property,
plant and
equipment
and lease
inducements
Exchang-
eable
Deben-
tures
Deferred
income tax
(assets)
liabilities,
net
Intangible
assets
December
31, 2012 $ (11,112)
$
(3,954) $ (11,726) $
(77,362) $
(9,941) $
(920) $ 5,599 $ 96,030 $ (13,386)
Expense
(benefit)
to income
statement
Expense to
other
compre-
hensive
income
Other
December
6,347
(103)
2,257
(2,582)
(3,186)
(3,878)
(340)
16,665
15,180
–
–
–
–
–
–
31,126
–
–
–
–
–
–
–
–
(3,596)
31,126
(3,596)
31, 2013 $
(4,765)
$
(4,057) $
(9,469) $
(48,818) $ (13,127)
$
(4,798) $ 5,259 $ 109,099 $ 29,324
74
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
Deferred
financing
costs
Non-capital
losses carry
forward
Deferred
revenues
Post-
employ-
ment
benefits
Fair value
adjustment
of hedged
item
Accrued
liabilities
Property,
plant and
equipment
and lease
induce-
ments
Exchang-
eable and
Conver-
tible
Deben-
tures
Deferred
income tax
liabilities
(assets),
net
Intangible
assets
December
31, 2011
$ 8,366 $
(9,415) $ (14,774) $ (78,658) $ (2,146) $ (8,467) $ 5,041 $ 2,265 $ 217,093 $ 119,305
(Benefit)
expense
to income
statement
Charge to
equity
Benefit to other
compre-
hensive
income
Other
December
(19,478)
5,461
3,048
7,126
2,552
(1,474)
(5,961)
1,999
(117,811)
(124,538)
–
–
–
–
–
–
–
–
–
–
–
(5,830)
(406)
–
–
–
–
–
–
1,335
–
1,335
–
–
–
–
–
(3,252)
(6,236)
(3,252)
31, 2012
$ (11,112) $
(3,954) $ (11,726) $ (77,362) $
– $ (9,941) $
(920) $ 5,599 $ 96,030 $ (13,386)
As at December 31, 2013, the Company had not recognized deferred income tax assets with respect to foreign operating losses
of $84.3 million which expire from 2028 to 2033, Canadian capital losses of $1.7 million which can be utilized indefinitely, and
deductible temporary differences of $285 million.
14. SHAREHOLDERS’ CAPITAL
COMMON SHARES
An unlimited number of New Common Shares are authorized to be issued.
Balance, December 31, 2011
Exercise of conversion option on Convertible Debentures prior to the
Recapitalization (Note 1)
Exchange of Convertible Debentures1
Cancellation of common shares1
Issuance of New Common Shares to settle prior debt1
Issuance of New Common Shares to prior common shareholders1
Exchange of preferred shares series 3, 5 and 7 for New Common Shares1
Balance, December 31, 2012 and 2013
1 Pursuant to the Recapitalization.
December 31, 2013 and 2012
Number of Shares
Amount
520,402,094
$ 3,554,715
116,250
99,535,000
(620,053,344)
24,567,901
2,564,647
822,529
27,955,077
899
–
–
153,568
–
320,687
$ 4,029,869
Pursuant to the Recapitalization, the common shares of YPG Financing Inc. were cancelled on December 20, 2012.
WARRANTS
As described in Note 1 – Description, pursuant to the Recapitalization, the Company issued a total of 2,995,506 Warrants.
Each Warrant is transferable and entitles the holder to purchase one New Common Share at an exercise price of $28.16 per
Warrant payable in cash at any time on or prior to December 20, 2022. The fair value of the Warrants on the Effective Date was
$1.5 million.
The fair value of the Warrants was calculated using a binomial option pricing model with the following assumptions:
Risk free interest rate
Expected life
Expiry date
Expected volatility
2.27%
10 years
December 20, 2022
33.5%
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
15. EARNINGS (LOSS) PER SHARE
The following table reconciles the net earnings (loss) attributable to common shareholders and the weighted average number of
shares outstanding used in computing basic earnings (loss) per share to weighted average number of shares outstanding used
in computing diluted earnings (loss) per share:
Weighted average number of shares outstanding used in computing basic earnings (loss) per share
Dilutive effect of restricted share units and performance share units
Dilutive effect of stock options
Dilutive effect of Exchangeable Debentures
For the years ended December 31,
2013
27,797,170
157,907
14,624
5,646,008
2012
27,955,077
–
–
–
Weighted average number of shares outstanding used in computing diluted earnings (loss) per share
33,615,709
27,955,077
Pursuant to the closing of the Recapitalization approved by the Court, the common shares of YPG Financing Inc. were
exchanged for New Common Shares of the Company. As a result, the weighted average number of shares outstanding for the
prior period has been adjusted to reflect the Recapitalization.
For the years ended December 31,
2013
2012
(Revised - Note 2)
Net earnings (loss) attributable to common shareholders of Yellow Media Limited
$
176,360
$ (1,961,663)
Dividends to preferred shares, Series 3, 5 and 7 shareholders
–
(21,606)
Net earnings (loss) available to common shareholders of Yellow Media Limited used in the
computation of basic and diluted loss per share
$
176,360
$ (1,983,269)
Impact of assumed conversion of Exchangeable Debentures, net of applicable taxes
7,244
–
Net earnings (loss) adjusted for dilutive effect
$
183,604
$ (1,983,269)
For the year ended December 31, 2013, the diluted earnings per share calculation did not take into consideration the
potentially dilution effect of the warrants (refer to Note 14 – Shareholders’ capital) as they are not dilutive. Yellow Media Limited
did not calculate the diluted loss per share for the year ended December 31, 2012 as the conversion of the warrants, stock
options and Exchangeable Debentures would not be dilutive to the loss.
16. STOCK-BASED COMPENSATION PLANS
2013
Yellow Media Limited’s stock-based compensation plans consist of restricted share units, performance share units, deferred
share units and stock options of Yellow Media Limited.
Restricted Share Unit and Performance Share Unit Plan
On May 6, 2013, Yellow Media Limited adopted a restricted share unit and performance share unit plan (the “RSU and PSU
Plan”) to reward the key employees and officers of Yellow Media Limited (the “Participants”). Following the implementation of
the RSU and PSU Plan, Yellow Media Limited granted to Participants a number of restricted share units (“RSUs”) and/or
performance share units (“PSUs”), as applicable. The RSUs are time-based awards and will vest upon the continuous
employment of the Participants for a period of 36 months starting from the date of the grant; or such other period not exceeding
36 months determined by the Board of Directors. The PSUs are performance-based awards and will vest upon confirmation by
the Board of Directors of the achievement of specified performance targets and upon the continuous employment of the
Participants for a period of 36 months starting from the date of the grant; or such other period not exceeding 36 months
determined by the Board of Directors. The PSUs for which the performance targets have not been achieved shall automatically
be forfeited and cancelled.
Pursuant to the terms of the RSU and PSU Plan, if the RSU and PSU Plan is funded, Participants will receive, upon vesting of the
RSUs and PSUs, common shares of the Company. In the event the RSU and PSU Plan is unfunded, Yellow Media Limited will pay
to the Participant an amount in cash, equivalent to the number of RSUs or PSUs that have vested.
The number of PSUs that vest could potentially reach up to one-and-a-half times the actual number of PSUs awarded if the
actual performance reaches the maximum level of performance targets.
During the year ended December 31, 2013, 65,883 PSUs were set aside for a possible payout of up to 150%.
76
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
During the year ended December 31, 2013, 454,482 common shares of Yellow Media Limited were purchased on the open
market of the TSX by the trustee appointed under the RSU and PSU Plan at a cost of $6.6 million and are restricted for the
purpose of funding of the RSU and PSU Plan.
The following table summarizes the status of the RSU and PSU grants during the year ended December 31, 2013:
Outstanding, beginning of period
Granted
Vested
Forfeited
Outstanding, end of period
Weighted average remaining life
Deferred Share Unit Plan
RSUs
300,871
(48,216)
252,655
2 years
December 31, 2013
Number of RSUs and PSUs
PSUs
140,669
(8,893)
131,776
2 years
On June 12, 2013, as part of the implementation of a revised Board of Directors compensation structure, Yellow Media Limited
adopted a deferred share unit plan (the “DSU Plan”) and Directors of Yellow Media Limited were granted a one-time deferred
share unit (“DSU”) award, such grant representing a total amount of 58,536 DSUs. The 58,536 DSUs vested immediately upon
being granted. The Company shall settle the vested DSUs in cash or in common shares of the Company at its discretion when a
Director leaves the Board.
Subsequent grants were awarded to Directors of Yellow Media Limited for a total amount of 42,021 DSUs which vested over a
period of up to six months, and ended on December 31, 2013.
During the year ended December 31, 2013, an expense of $3.7 million was recorded in the consolidated income statement in
relation to the RSU and PSU Plan as well as the DSU Plan. As at December 31, 2013, a liability of $2.1 million related to the
DSU Plan is recorded in trade and other payables.
Stock Options
On December 20, 2012, as part of the implementation of Yellow Media Limited’s Recapitalization transaction, a new stock
option plan (the “Stock Option Plan”) was adopted. The Stock Option Plan is intended to attract and retain the services of
selected employees of Yellow Media Limited who are in a position to make a material contribution to the successful operation of
the business, provide meaningful incentive to management to lead Yellow Media Limited through the transformation of its
business and to more closely align the interests of management with those of the shareholders of Yellow Media Limited. A
maximum of 1,290,612 options may be granted under the Stock Option Plan. On May 6, 2013, 376,000 options were granted
to selected employees of Yellow Media Limited. These options vest 50% in February 2015, 25% in February 2016 and 25% in
February 2017.
Outstanding, beginning of period
Granted
Forfeited
Outstanding, end of period
Exercisable, end of period
Number of options
Weighted average exercise price per option
December 31, 2013
376,000
376,000
$ 10.12
$ 10.12
The fair value of the options granted during the year is $3.67 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:
• Grant date share price: $8.66
• Exercise price: $10.12
• Expected volatility: 40%
• Contractual life: 7 years
• Risk-free interest rate: 1.94%
• Weighted average remaining life: 6.3 years
An expense of $0.4 million was recorded during the year ended December 31, 2013 in relation to the Stock Option Plan.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
2012
In 2012, the Company’s stock-based compensation plans consisted of a Restricted Share Unit Plan and a Stock Option Plan.
Restricted Share Unit Plan
The Company had established an employee benefit plan known as the Restricted Share Unit Plan (the “RS Plan”). The RS Plan
provided certain eligible employees the right to receive shares subject to the terms and conditions of the RS Plan.
During the year ended December 31, 2012, no restricted shares were granted under the RS Plan.
Pursuant to the Recapitalization approved by the Court, the holders of the restricted shares surrendered their restricted shares
for the payment in cash of the volume weighted average trading price (“VWAP”) of the underlying shares. All restricted shares
were subsequently cancelled. The RS Plan and all rights under the RS Plan were terminated and cancelled.
A total expense of $4.3 million was recorded for the year ended December 31, 2012.
Stock Options – 2003 Plan
Pursuant to the Recapitalization, the 2003 Plan and all outstanding options granted thereunder were cancelled for no consideration.
17. OPERATING COSTS
Salaries, commissions and benefits1
Supply chain and logistics2
Other goods and services3
Information systems
Bad debt expense
For the years ended December 31,
2013
2012
$
281,567 $
274,960
105,798
108,851
44,964
14,469
110,191
91,311
43,716
18,157
$
555,649 $
538,335
¹ The prior period has been revised to reflect the adoption of IAS 19 (Revised), Employee Benefits, as described in Note 2.
2 Supply chain and logistics costs relate to external supplier costs for manufacturing and distribution of our print and online products as well as related media costs
associated with our Search Engine Solutions.
3 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 $19.8 million (2012 - $19.8 million).
18. FINANCIAL CHARGES, NET
The significant components of the financial charges are as follows:
Interest on long-term debt, Exchangeable Debentures and Convertible Debentures
$
79,017 $
119,329
For the years ended December 31,
2013
2012
Net interest on retirement benefit obligations¹
Interest income, standby fees and other financial charges, net
Loss on repurchase of the Senior Secured Notes
Amortization and write-off of deferred financing costs
Increase in derivative financial instruments
Other, net
12,010
(680)
1,670
84
1,256
13,511
(3,328)
8,442
18,479
(465)
$
93,357 $
155,968
¹ The prior period has been revised to reflect the adoption of IAS 19 (Revised), Employee Benefits, as described in Note 2.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
19. SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
The following are non-cash transactions:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
Additions to property, plant and equipment included in trade and other payables
Additions to intangible assets included in trade and other payables
Additions to property, plant and equipment under finance leases
Issuance of Senior Secured Notes
Issuance of Exchangeable Debentures
Extinguishment of Medium Term Notes
Extinguishment of Credit Facility
Extinguishment of Preferred shares, series 1 and 2
Issuance of New Common Shares pursuant to the Recapitalization
Conversion of Convertible Debentures
20. COMMITMENT AND CONTINGENCIES
For the years ended December 31,
2013
1,005
4,134
$
$
$
$
$
$
$
$
$
$
2012
2,575
6,072
24
800,000
107,500
1,404,127
344,000
400,644
153,568
899
$
$
$
$
$
$
$
$
$
$
a) Yellow Media Limited has commitments under various leases for premises, equipment, purchase and service contract obligations
for both operating and capital expenditures for each of the next five years and thereafter, as at December 31, 2013, and in the
aggregate of:
2014
2015
2016
2017
2018
Thereafter
Operating leases
Other
Total commitments
$
20,832
20,910
19,970
17,189
7,174
3,462
$
62,701
59,171
48,408
4,906
3,071
1,000
$
83,533
80,081
68,378
22,095
10,245
4,462
$
89,537
$
179,257
$
268,794
Under certain lease agreements, inducements for leasehold improvements exist. These lease inducements are accounted for as
part of deferred credits and amount to $12.5 million. These lease inducements are recorded as a reduction of rent expense on
a straight-line basis over the term of the lease.
b) Yellow Media Limited has four billing and collection services agreements. The term of the Billing and 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 Limited provides prior notice not to renew. The agreement with TELUS Communications
Inc. (“TELUS”) expires up to 2031 and 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, Yellow Media Limited produces
alphabetical listing telephone directories for each of these companies in order for them to meet their regulatory obligations.
The Company 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 the Company 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. These agreements will
terminate in 2038.
c) Yellow Media Limited 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.
d) Yellow Media Limited 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 trade and other payables 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, financial performance or cash flows of Yellow Media Limited.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
21. 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 Limited is exposed to credit risk with respect to cash, cash equivalents, trade receivables from customers,
and a note receivable. The carrying value of financial assets represents Yellow Media Limited’s maximum exposure.
Credit risk associated with cash and cash equivalents 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 Limited’s extension of credit to customers involves judgment. Yellow Media Limited 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 Limited considers that it has limited exposure to concentration of credit risk with respect to trade receivables 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 receivables from any one individual
customer and certified marketing representative that exceeds 5% of the total balance of trade receivables at any point in time
during the year.
Bell, TELUS, MTS Allstream Inc. and Bell Aliant provide Yellow Media Limited 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 Limited.
Yellow Media Limited retains the ultimate collection risk on these receivables.
Allowance for doubtful accounts and past due receivables are reviewed by management at each statement of financial position
date. Yellow Media Limited 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 collectible. Subsequent recoveries of amounts previously written off
are credited to the income statement.
In 2011, Yellow Media Limited sold Trader Corporation. The purchase price consideration included a note receivable of
$15 million. The note receivable matures in 2020. Interest and principal on the note receivable is subordinated to the senior
debt of Trader Corporation.
The components of trade and other receivables are as follows:
Trade receivables
Current
Past due less than 180 days
Past due over 180 days
Trade receivables
Other receivables 1
Trade and other receivables
December 31, 2013
December 31, 2012
$
$
$
$
81,449
33,341
4,373
119,163
23,283
142,446
$
$
$
$
76,916
58,328
5,246
140,490
33,579
174,069
1 Other receivables is mainly comprised of sales tax receivables and a loan receivable associated with a forward contract.
Yellow Media Limited’s trade receivables are stated after deducting an allowance for doubtful accounts of $21.1 million as at
December 31, 2013 (2012 - $23.8 million). The movements in the allowance for doubtful accounts were as follows:
As at
Balance, beginning of year
Bad debt expense, net of recovery
Written-off
Balance, end of year
December 31, 2013
December 31, 2012
$
$
$
23,812
14,469
(17,159)
21,122
$
39,839
18,157
(34,184)
23,812
In addition, Yellow Media Limited is exposed to credit risk if counterparties to its derivative financial instruments fail to meet
their obligations.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
MARKET RISK
(i) Interest Rate Risk
Yellow Media Limited is exposed to interest rate risks resulting from fluctuations in interest rates on cash equivalents that earn
interest at market rates and on its ABL with rates which are generally based on the Canadian BA rate. Yellow Media Limited
does not use derivative instruments to reduce its exposure to interest rate risk. As at December 31, 2013, the ABL was
undrawn. The Company manages its interest rate risk by maximizing the interest income earned on excess funds while
maintaining the necessary liquidity to conduct its day-to-day operations.
Yellow Media Limited may also be 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. There are no upcoming maturities that will
require refinancing. Changes in interest rates will also affect the fair value of future cash flows of Yellow Media Limited’s fixed
rate debt. As interest rates on the Senior Secured Notes and Exchangeable Debentures are fixed, the Company is not exposed
to interest rate fluctuation risk.
(ii) Foreign Exchange Risk
Yellow Media Limited is exposed to foreign exchange risk arising from various currency transactions, which are not significant.
Foreign exchange transaction risk arises primarily from commercial transactions that are denominated in a currency that is not
the functional currency of Yellow Media Limited’s business unit that is party to the transaction. Yellow Media Limited is exposed
to fluctuations in the U.S. dollar. The effect on net earnings and OCI from existing U.S. dollar exposures of a one point increase
or decrease in the Canadian/U.S. dollar exchange rate is not significant.
Liquidity Risk
Liquidity risk is the exposure of Yellow Media Limited to the risk of not being able to meet its financial obligations as they become
due.
Yellow Media Limited manages this risk by maintaining detailed cash forecasts and long-term operating and strategic plans. The
management of liquidity requires a constant monitoring of expected cash inflows and outflows which is achieved through a
detailed forecast of the Company’s liquidity position to ensure adequacy and efficient use of cash resources.
The Company is required to make minimum annual aggregate mandatory redemption payments of $75 million in 2014, $50 million
in 2015, or if the redemption payments made in 2014 exceed $75 million, $50 million less such excess redemption payments.
These requirements will be met through internally-generated cash, cash on hand and drawings on the ABL.
The following are the contractual maturities of the financial liabilities and related capital amounts:
Total Less than 1 year
2 – 3 years
4 – 5 years
After 5 years
Payments due for the years following December 31, 2013
Non-derivative financial liabilities
Long-term debt1,2
$
646,577
$
88,543
$
36,457
$
521,577
$
891
107,500
78,824
76,663
508
–
78,824
70,632
383
–
–
5,034
–
–
–
927
–
–
107,500
–
70
$
910,455
$
238,507
$
41,874
$
522,504
$
107,570
Obligations under finance leases1
Exchangeable Debentures1
Trade and other payables
Provisions
Total
1 Principal amount.
2 The repayment of the Senior Secured Notes may vary subject to the Excess Cash Flow clause.
Fair values
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants.
The fair value of cash and cash equivalents, trade and other receivables, trade and other payables, and the current portion of
provisions is approximately equal to their carrying values due to their short-term maturity.
The fair value of the Senior Secured Notes and the Exchangeable Debentures is evaluated based on quoted market prices at
the statement of financial position date. The fair value of the note receivable is based on valuation techniques using interest
rates that the Company could currently obtain on the market for similar terms, conditions and maturities.
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.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
The following schedule represents the carrying values and the fair values of other financial instruments not measured at fair
value on the statement of financial position:
Note receivable1
Long-term debt due within one year
Long-term debt
Exchangeable Debentures
December 31, 2013
Level
Carrying Value
Fair Value
3
1
1
1
$
$
$
$
11,707
89,051
558,417
87,934
$
$
$
$
13,361
93,035
583,529
119,605
1 The note receivable is included in Financial and other assets in the Consolidated Statement of Financial Position.
Fair value hierarchy
The three levels of fair value hierarchy are as follows:
•
•
•
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, 2013, classified using the fair value hierarchy:
Financial asset or liability
Investment – available for sale
Put option (financial liability)
Total
Level 1
Level 2
Level 3
Total
$
$
–
–
–
$
$
–
–
–
$
$
3,520
(18,472)
(14,952)
$
$
3,520
(18,472)
(14,952)
Yellow Media Limited’s AFS investment is comprised of a privately held equity security and is carried at fair value based on
estimates that are based on market rates prevailing at the statement of financial position date.
The following table represents the reconciliation of Level 3 fair value measurements:
As at December 31, 2012
Other
As at December 31, 2013
Investment –
available-for-sale
Put option –
financial liability
$
$
3,520
–
3,520
$
$
(18,479)
7
(18,472)
$
$
Investment –
available-for-sale
Put option –
financial liability
As at December 31, 2011
Addition
Reclassification from investment in associate to available-for-sale
Gain on revaluation
As at December 31, 2012
$
$
–
–
1,337
2,183
3,520
$
–
$
(18,479)
–
–
$
(18,479)
$
(14,959)
2013
Total
(14,959)
7
(14,952)
2012
Total
–
(18,479)
1,337
2,183
The fair value of the put option is the difference between the price to acquire the remaining ownership interest in an associate,
which is based on a fixed multiple of adjusted earnings, income taxes, depreciation and amortization, and the fair value of the
investment in an associate, using similar assumptions as those used for the online products of Yellow Pages Group, as
described in Note 4 – Impairment of goodwill, intangible assets and property, plant and equipment. Actual performance of the
investment in an associate or changes in its fair value may affect the fair value of the put option.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(all tabular amounts are in thousands of Canadian dollars, except share information)
22. CAPITAL DISCLOSURES
Yellow Media Limited’s objective in managing capital is to ensure sufficient liquidity to cover financial obligations and investment
requirements. Reducing debt and associated interest charges is one of the Company’s primary financial goals which will improve its
financial flexibility and support the implementation of its strategic objectives.
Yellow Media Limited 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 and the Company’s working capital
requirements.
The primary measure used by Yellow Media Limited to monitor its financial leverage is its ratio of consolidated net debt to
consolidated Latest Twelve Month EBITDA1. Yellow Media Limited also uses other financial metrics to monitor its financial leverage
including net debt to Latest Twelve Month EBITDA1, Fixed Charges Coverage Ratio and Net Debt to Capitalization.
Yellow Media Limited’s capital is comprised of Net debt, Exchangeable Debentures and equity attributable to shareholders of
Yellow Media Limited as follows:
As at
Cash and cash equivalents
Senior Secured Notes
Exchangeable Debentures
Obligations under finance leases
Net debt, net of cash
Equity attributable to shareholders
Non-controlling interests
Total capitalization
Net debt to total capitalization
Latest Twelve Month EBITDA1,2
Net Debt to Latest Twelve Month EBITDA ratio1
December 31, 2013
December 31, 2012
$
$
202,287
646,577
87,934
891
$
533,115
544,495
–
$
$
$
106,807
800,000
86,667
1,831
781,691
285,749
411
$
1,077,610
$
1,067,851
49.5%
73.2%
For the years ended December 31,
2013
$
416,112
1.3
2012
(Revised – Note 2)
$
569,380
1.4
1 Latest twelve month income from operations before depreciation and amortization, impairment of goodwill, intangible assets and property, plant and equipment, and
restructuring and special charges (“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.
2 Latest Twelve Month EBITDA for the prior period was revised to reflect the adoption of IAS 19 (Revised), Employee Benefits, as described in Note 2 – Revised Standards.
23. GUARANTEES
In the normal course of operations, Yellow Media Limited has entered into agreements which are customary in the industry.
Yellow Media Limited 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 Limited. Yellow Media Limited benefits from
directors’ and officers’ liability insurance which it has purchased. No amount has been accrued in the consolidated statement of
financial position as at December 31, 2013 with respect to this indemnity.
Pursuant to the acquisitions of Aliant, YPG USA, the contribution of YPG Directories, LLC to Ziplocal 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 Limited had entered into
agreements whereby Yellow Media Limited agreed 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 Limited in the
performance of its obligations under these agreements and (ii) any breach of a representation contained therein. Furthermore,
agreements entered into by LesPAC, Trader Corporation 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, 2013 with respect to these indemnities.
The nature of these guarantees prevents Yellow Media Limited from making a reasonable estimate of the maximum potential
amount it could be required to pay to counterparties.
Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2013
(ALL TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE INFORMATION)
24. SEGMENTED INFORMATION
The Company operates in a single business segment which is to provide Canadian advertisers with digital and traditional media
solutions.
As at December 31, 2013, Yellow Media Limited had non-current assets, other than deferred tax assets, held in a foreign country
(United States of America) of $4.2 million (2012 - $4.9 million).
25. LIST OF SUBSIDIARIES
As at
Canada
YPG Financing Inc.
Yellow Pages Group Corp.
Mediative G.P. Inc.1
Mediative Performance L.P.1
Wall2Wall Media Inc.
USA
YPG (USA) Holdings, Inc.
Yellow Pages Group, LLC
December 31, 2013
December 31, 2012
Consolidation
% ownership
Consolidation
% ownership
Full consolidation
Full consolidation
–
–
100 Full consolidation
100 Full consolidation
– Full consolidation
– Full consolidation
Full consolidation
100 Full consolidation
Full consolidation
Full consolidation
100 Full consolidation
100 Full consolidation
100
100
60
60
100
100
100
1 During the second quarter of 2013, the Company acquired the remaining 40% of Mediative G.P. Inc. and Mediative Performance L.P. in exchange for cash
consideration of $3.6 million. These entities were integrated within Yellow Pages Group Corp. and subsequently dissolved in 2013.
26. RELATED PARTY DISCLOSURES
KEY PERSONNEL COMPENSATION
Yellow Media Limited’s key personnel have authority and responsibility for planning, directing and controlling the Company’s
activities and consist of Yellow Media Limited’s executive team and the Board of Directors.
Total compensation expense for key personnel, and the composition thereof, is as follows:
Salary, fees and other short-term employee benefits
Post-employment benefits
Stock-based compensation
Termination benefits
For the years ended December 31
2013
$
5,968
$
457
2,060
5,555
2012¹
6,130
(1,011)
4
670
$
14,040
$
5,793
1 During 2013, management reassessed its key management personnel. The prior period has been revised to reflect this change in composition.
OTHER RELATED PARTY TRANSACTIONS
For the years ended December 31,
Sales of good and services
Associate
Transaction value
Balance outstanding
2013
2012
2013
2012
$
3,479
$
6,207
$
662
$
900
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.
27. COMPARATIVE FIGURES
Yellow Media Limited reclassified $7.4 million of provisions as at December 31, 2012 from current to non-current liabilities, as
well as $1.7 million of trade and other receivables to financial and other assets as they are due beyond twelve months from the
statement of financial position date.
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Y E L L O W M E D I A L I M I T E D 2 0 1 3 A N N U A L R E P O R T
c o R p o R Ate inf oR mAti on
16 place du commerce
Verdun, Québec H3e 2A5
ypg.com
inve stor relations
1 877 Ylo-2003 (1 877 956-2003)
ir.info@ypg.com
auditors
Deloitte llp
shares and oth er sec urit ies list ed
on th e toronto stock e xchange
Y
common Shares
YPG.DB
Senior Subordinated unsecured exchangeable Debentures
Y.WT
Warrants
transfe r agen t
canadian Stock transfer company inc.
2001 university Street, Suite 1600
montréal, Québec H3A 2A6
telephone: 1 800 387-0825
inquiries@canstockta.com
annual rep ort
ce rapport est également disponible en français.
pour obtenir la version française, veuillez communiquer avec
la Société canadienne de transfert d’actions inc. à l’adresse indiquée.
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www.ypg.com
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2013 ANNUAL REPORT