Yellow Pages Annual Report 2017

FY2017 Annual Report · Yellow Pages

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corporate.yp.ca

Annual
Report

2017

Table of Contents

Management’s Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Consolidated Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Consolidated Statements of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Notes To The Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51-88

Executive Team

Board of Directors

David A. Eckert
President and Chief
Executive Officer

John R. Ireland
Senior Vice-President,
Organizational Effectiveness

Dany Paradis
Senior Vice-President,
Sales and Customer Care

Stephen K. Smith
Senior Vice-President,
Profitable Growth

Ken Taylor
Senior Vice-President and
Chief Financial Officer

Robert F. MacLellan
Director and Chairman
of the Board
Chair of the Ad Hoc
Committee

David A. Eckert
President and Chief
Executive Officer

Craig Forman
Director
Corporate Governance and
Nominating Committee

Robert Hall
Director
Audit Committee

Susan Kudzman
Director
Chair of the Human Resources
and Compensation Committee

David A. Lazzarato
Director
Chair of the Audit Committee
Ad Hoc Committee

David G. Leith
Director
Chair of the Corporate
Governance and Nominating
Committee
Ad Hoc Committee

Donald H. Morrison
Director
Human Resources and
Compensation Committee

Martin Nisenholtz
Director
Human Resources and
Compensation Committee

Kalpana Raina
Director
Corporate Governance and
Nominating Committee

Paul W. Russo
Director
Human Resources and
Compensation Committee

Michael G. Sifton
Director
Audit Committee

Head Office

1751 rue Richardson
Montréal, Québec H3K 1G6

Investor Relations

Telephone: 1 877 956-2003
E-mail: ir.info@yp.ca

Auditor

Deloitte LLP

TSX Symbols

Common Shares

Y
YPG.DB Senior Subordinated
Unsecured
Exchangeable
Debentures

Y.WT Warrants

Transfer Agent

AST Trust Company
2001 Boul. Robert-Bourassa,
Suite 1600
Montréal, Québec H3A 2A6
Telephone: 1 800 387-0825
E-mail: inquiries@canstockta.com

For further information on Yellow Pages Limited, visit our corporate website at corporate.yp.ca.

Message to Shareholders

Dear Shareholders,

Since becoming CEO of your company in mid-September, I have been impressed by the commitment and determination of my colleagues throughout the organization
to create a great company. They and I have often discussed the characteristics of great companies, including delighting our customers at every opportunity, providing
rewarding opportunities and careers for our employees, and, crucially, providing fair returns to our investors. Every day since September, we have worked hard to
make the substantial changes to the company that are necessary to deliver sharply improved results, at as fast a pace of change as possible.

Among our highest priorities have been:

•

Aligning our spending with the realities of our current revenue. We took an important step by significantly reducing our workforce in January 2018
and we have begun managing our other spending—both operating and capital—much more tightly.

Assembling a superb executive management team. Our new team blends strong, successful experience in delivering turnaround results in our global
industry with very capable existing talent and experience within the company.

Solidifying our capital structure. In October 2017, we refinanced approximately $300 million of Senior Secured Notes and amended and restated our
Asset Based Loan facility. As a result, we do not have any material debt maturities prior to 2022, providing time to strengthen our performance.

Laying the groundwork for profitable growth. Among other steps, we have focused and accelerated our customer-oriented initiatives and begun a full
assessment of our products and our partnerships.

Reviewing the strategic value of every part of our business. We aim to deploy your capital only where there is a good expectation of superior returns.

Your new management team is committed to pleasing every customer, every day and to improving the company’s financial performance, as quickly as possible.

Thank you for your continued support as we make progress in improving your company and delivering superior returns.

David A. Eckert

President and Chief Executive Officer

YELLOW PAGES LIMITED ANNUAL REPORT 2017

Management’s Discussion and Analysis

February 8, 2018

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 Pages Limited and its subsidiaries for the years ended December 31, 2017 and 2016 and should be read in conjunction with our
Audited Consolidated Financial Statements and accompanying notes for the years ended December 31, 2017 and 2016. Please also refer to Yellow Pages Limited’s
press release announcing its results for year ended December 31, 2017 issued on February 8, 2018. Quarterly reports, the Annual Report, Supplemental Disclosure
and the Annual Information Form (AIF) can be found on SEDAR at www.sedar.com and under the “Investor Relations – Reports & Filings” section of our corporate
website: http://corporate.yp.ca. Press releases are available on SEDAR and under the “News – Press Releases” section of our corporate website.

The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) and the financial information herein was
derived from those statements. All amounts in this MD&A are in Canadian dollars, unless otherwise specified. Please refer to the section “Definitions Relative to
Understanding Our Results” for a list of defined non-IFRS financial measures and key performance indicators.

Our reporting structure reflects how we manage our business and how we classify our operations for planning and for measuring our performance.

In this MD&A, the words “we”, “us”, “our”, the “Company”, the “Corporation”, “Yellow Pages” and “YP” refer to Yellow Pages Limited and its subsidiaries (including
Yellow Pages Digital & Media Solutions Limited, 411 Local Search Corp. (411.ca), Yellow Pages Homes Limited (Yellow Pages NextHome), YPG (USA) Holdings, Inc.
and Yellow Pages Digital & Media Solutions LLC (the latter two collectively YP USA), Bookenda Limited (Bookenda), YP Dine Solutions Limited (YP Dine), 9059-2114
Québec Inc. and ByTheOwner Inc. (the latter two collectively ComFree/DuProprio), Juice DMS Advertising Limited and Juice Mobile USA LLC (the latter two
collectively JUICE), and 9778748 Canada Inc. (Totem)).

Caution Regarding Forward-Looking Information

This MD&A contains assertions about the objectives, strategies, financial condition, results of operations and businesses of YP. These statements are considered
“forward-looking” because they are based on current expectations, as at February 8, 2018, about our business and the markets we operate in, and on various
estimates and assumptions.

Forward-looking information and statements are based on several assumptions which may lead to actual results that differ materially from our expectations expressed
in, or implied by, such forward-looking information and statements, and that our business strategies, objectives and plans may not be achieved. As a result, we cannot
guarantee that any forward-looking statement will materialize and we caution you against relying on any of these forward-looking statements. Forward-looking
information and statements are included in this MD&A for the purpose of assisting investors and others in understanding our business strategies, objectives and plans.
Readers are cautioned that such information may not be appropriate for other purposes. In making certain forward-looking statements, we have made the following
assumptions:

•

that general economic conditions in Canada will not deteriorate;

that we will be able to attract and retain key personnel in key positions;

that we will be able to introduce, sell and provision the new products and services that support our customer base and ARPC assumptions;

that the decline in print revenues will remain at or below 25% per annum;

that YP segment gross profit margins will not deteriorate materially from current levels;

that continuing reductions in spending will mitigate the cash flow impact of any revenue declines on cash flows; and

that exposure to foreign exchange risk arising from foreign currency transactions will remain insignificant.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

Management’s Discussion and Analysis

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. 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. 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 and could have a material adverse effect on the Corporation, its business, results from operations and financial condition, including, but not
limited to, the following risk factors discussed under the “Risks and Uncertainties” section of this MD&A, and those described in the “Risk Factors” section of our AIF:

• Substantial competition could reduce the market share of the Corporation;

• A higher than anticipated rate of decline in print revenue resulting from changes in preferences and consumer habits;

•

The inability of the Corporation to attract, retain and upsell customers;

The inability of the Corporation to successfully enhance and expand its offering of digital marketing and media products;

The inability of the Corporation to supply the relationships and technologies required to appropriately service the needs of its national customers;

• A higher than anticipated proportion of revenues coming from the Corporation’s digital products with lower margins, such as services and resale;

•

Failure by the Corporation to stabilize or grow its revenues and customer base;

The Corporation’s business depends on the usage of its online and mobile properties and failure to protect traffic across the Corporation’s digital properties
could impair its ability to grow revenues and expand its business;

• Delays or inability in implementing technology systems and platforms required to support the Corporation’s business activities;

• Work stoppages and other labour disturbances;

•

The Corporation’s inability to attract and retain key personnel;

• Challenge by tax authorities of the Corporation’s position on certain income tax matters;

•

The loss of key relationships or changes in the level or service provided by mapping applications and search engines;

The failure of the Corporation’s computers and communication systems;

• Declines in, or changes to, the real estate industry;

•

The inability of the Corporation to generate sufficient funds from operations, debt financings, equity financings or refinancing transactions; and

Incremental contributions by the Corporation to its pension plans.

Definitions Relative to Understanding Our Results

Income from Operations before Depreciation and Amortization, Impairment of Intangible Assets and Goodwill, and Restructuring and Other Charges
(Adjusted EBITDA and Adjusted EBITDA Margin)

We report on our Income from operations before depreciation and amortization, impairment of intangible assets and goodwill, and restructuring and other charges
(Adjusted EBITDA). Adjusted EBITDA and Adjusted EBITDA margin are not performance measures defined under IFRS and are not considered to be an alternative to
income from operations or net earnings in the context of measuring Yellow Pages performance. Adjusted EBITDA and Adjusted EBITDA margin do not have a
standardized meaning and are therefore not likely to be comparable with similar measures used by other publicly traded companies. Adjusted EBITDA and Adjusted
EBITDA margin should not be used as exclusive measures of cash flow since they do not account for the impact of working capital changes, income taxes, interest
payments, pension funding, capital expenditures, business acquisitions, debt principal reductions and other sources and uses of cash, which are disclosed on page 35
of this MD&A.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

Management’s Discussion and Analysis

We define Adjusted EBITDA as revenues less operating costs, as shown in Yellow Pages Limited’s consolidated statements of loss. Adjusted EBITDA margin is defined as
the percentage of Adjusted EBITDA to revenues. We use Adjusted EBITDA and Adjusted EBITDA margin to evaluate the performance of our business as these reflect its
ongoing profitability. We believe that certain investors and analysts use Adjusted EBITDA and Adjusted EBITDA margin to measure a company’s ability to service debt and
to meet other payment obligations or as a common measurement to value companies in the media and marketing solutions industry as well as to evaluate the performance
of a business. Adjusted EBITDA is also one component in the determination of short-term incentive compensation for all management employees.

Adjusted EBITDA less CAPEX

Adjusted EBITDA less CAPEX is a non-IFRS financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to
similar measures presented by other publicly traded companies. We define Adjusted EBITDA less CAPEX as Adjusted EBITDA, or revenues less operating costs, as
shown in Yellow Pages Limited’s consolidated statements of loss, less additions to intangible assets and additions to property and equipment as reported in the
Investing Activities section of the Company’s consolidated statements of cash flows, net of lease incentives received, as reported in the Operating Activities section of
the Company’s consolidated statements of cash flows. We use Adjusted EBITDA less CAPEX as the key performance measure for our business as it reflects cash
generated from business activities. We believe that certain investors and analysts use Adjusted EBITDA less CAPEX to evaluate the performance of businesses in our
industry. Please refer to Section 1 – Our Business and Customer Offerings for a reconciliation of additions to intangible assets and property equipment net of lease
incentives received to CAPEX.

Free cash flow

Free cash flow is a non-IFRS financial measure generally used as an indicator of financial performance. It should not be seen as a substitute for cash flows from
operating activities. Free cash flow is defined as cash flows from operating activities presented in the Operating Activities section of the Company’s consolidated
statements of cash flows, less additions to intangible assets and additions to property and equipment as reported in the Investing Activities section of the Company’s
consolidated statements of cash flows. Free cash flow is not a standardized measure and is not comparable with that of other publicly traded companies. We consider
free cash flow to be an important indicator of the performance of our business as it reflects the Company’s ability to generate overall cash earnings and reflects the net
cash generated available for debt repayment, acquisitions or other activities, such as share buybacks or dividends. We believe that certain investors and analysts use
free cash flow to value a business and its underlying assets as well as to evaluate a company’s performance. The most comparable IFRS financial measure is cash
flows from operating activities. Please refer to Section 4 – Free Cash Flow for a reconciliation of cash flows from operating activities to free cash flow.

Net debt

Net debt is a non-IFRS financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures
presented by other publicly traded companies. We define net debt as current portion of long-term debt plus long-term debt and exchangeable debentures, less cash, as
presented in Yellow Pages Limited’s consolidated statements of financial position. We consider net debt to be an important indicator of our financial leverage as it
represents the amount of debt that is not covered by available cash. We believe that certain investors and analysts use net debt to determine a company’s financial
leverage. Net debt has no directly comparable IFRS financial measure; it is calculated using certain asset and liability categories from the consolidated statements of
financial position. Please refer to Section 3 – Liquidity and Capital Resources for a reconciliation of long-term debt, net of cash, to net debt.

This MD&A is divided into the following sections:

1. Our Business and Customer Offerings

2. Results

3. Liquidity and Capital Resources

4. Free Cash Flow

5. Critical Assumptions

6. Risks and Uncertainties

7. Controls and Procedures

YELLOW PAGES LIMITED ANNUAL REPORT 2017

Management’s Discussion and Analysis

1. Our Business and Customer Offerings

Our Business

Yellow Pages, a leading digital media and marketing solutions provider in Canada, offers targeted tools to local businesses, national brands and consumers allowing
them to interact and transact within today’s digital economy.

Customer Offerings

Yellow Pages offers, through its YP segment, small and medium-sized enterprises (SMEs) across Canada full-serve access to one of the country’s most
comprehensive suites of digital and traditional marketing solutions, notably online and mobile priority placement on Yellow Pages digital media properties, content
syndication, search engine solutions, website fulfillment, social media campaign management, digital display advertising, video production as well as print advertising.
The Company’s dedicated sales force of approximately 650 professionals offers our full suite of marketing solutions to local businesses across the country, while also
supporting the evolving needs of its existing customer base of 229,000 SMEs. In addition, the Company continues to enhance its value proposition to local businesses
by offering software as a service (SaaS) solutions and customer relationship management products. Yellow Pages offers restaurants a comprehensive solution which
allows them to effectively manage reservations and orders, grow market visibility and boost customer loyalty through Bookenda’s reservation management system, all
at a competitive cost. The Company has an exclusive licensing agreement with MyTime to resell the solution in Canada. MyTime is a cloud-based, all-in-one
commerce platform which includes online booking, automated marketing, point of sale and analytics for local businesses.

The Company’s Agency segment provides marketing solutions that extend beyond SMEs, focusing on the national advertising needs of brands and publishers.
Operating an extensive publisher network and one of the country’s largest pools of consumer data, Mediative provides national brands and enterprises with marketing
solutions that reach potential customers. JUICE, a mobile advertising technology company acquired in March 2016, facilitates the automatic buying and selling of
mobile advertising between brands and publishers through Programmatic Direct and Real-Time Bidding platforms. Through Totem, Yellow Pages provides customized
content creation and delivery for global brands. The Agency segment establishes Yellow Pages as a desktop and mobile national advertising agency.

The Company’s Real Estate segment provides homeowners in Canada with media to sell their homes in a proven and cost-effective manner as well as publishes
locally-targeted real estate listings. It addresses the needs of the consumer in the Canadian real estate market via its ComFree/DuProprio (CFDP) and Yellow Pages
NextHome subsidiaries. Via CFDP, the Company provides homeowners with media to sell their homes in a cost-effective manner, which positions Yellow Pages as a
leader in the Canadian consumer-to-consumer real estate market, with approximately 20% of all real estate listings and sales in Quebec represented through CFDP.
Various initiatives are being implemented to grow adoption of the platform in Ontario.

Yellow Pages Other segment offers a diversified portfolio of media properties to Canadian consumers, including the 411.ca digital directory service as well as
magazines generating local lifestyle content specific to the Western Canada region, in the restaurants, real estate and lifestyle categories.

YP Media Properties

The Company’s YP media properties, primarily desktop, mobile and print, continue to serve as effective marketplaces for Canadian local merchants, brands and
consumers. The Company’s network of media properties enables Canadians to discover businesses in their neighbourhoods across the services, real estate, dining
and retail verticals. A description of the Company’s existing digital media properties is found below:

• YP™ – Available both online at YP.ca and as a mobile application, YP allows users to discover and transact within their local neighbourhoods through

comprehensive merchant profiles, relevant editorial content, reviews and booking functionalities;

• Canada411 (C411) – One of Canada’s most frequented and trusted online and mobile destinations for personal and local business information;

• RedFlagDeals.com™ – Canada’s leading provider of online and mobile promotions, deals, coupons and shopping forums;

• YP Dine™ – A digital property allowing users to discover, search for and book local restaurants based on time of day, mood, purpose and expert suggestions, in

addition to offering online ordering capabilities;

• Bookenda.com – A leading online transaction platform for users and merchants to interact and manage bookings and orders;

• YP Shopwise™ – A mobile application offering geo-localized deals and flyers, as well as access to product catalogues from local and national retailers;

YELLOW PAGES LIMITED ANNUAL REPORT 2017

Management’s Discussion and Analysis

• ComFree/DuProprio – Currently Quebec’s leading real estate digital destination and one of the top five most-visited networks of real estate digital properties in

Canada, CFDP offers homeowners a professional and cost-effective service to market and sell their homes;

• Yellow Pages NextHome – Provides Canadians with helpful information in making informed home buying, selling, and/or renting decisions. Digital properties

operating under the Yellow Pages NextHome umbrella include YP NextHome Rent and YP NextHome New Construction; and

• 411.ca – A digital directory service to help users find and connect with people and local businesses.

Key Analytics
The long-term success of our digital-first business is dependent upon maintaining and growing our digital revenues and customer base and overall profitability. Key
analytics for the year ended December 31, 2017 include:

• Digital Revenues – Consolidated digital revenues decreased 2.3% year-over-year and amounted to $543.0 million for the year ended December 31, 2017,

representing 72.8% of consolidated revenues;

• Adjusted EBITDA – Adjusted EBITDA totalled $184.0 million, or 24.7% of revenues for the year ended December 31, 2017, relative to $235.2 million or 28.8%

of revenues for the same period last year;

• Customer Count – The Company’s customer count was 229,000 customers for the year ended December 31, 2017, as compared to 241,500 customers for same
period last year. This represents a net customer count decline of 12,500 year-over-year, compared to 3,500 net customers lost during the same period last year;

• Total Digital Visits – Total digital visits (TDV) totalled 644.9 million for the year ended December 31, 2017, up from 464.8 million during the same period last
year, attributable to Yellow Pages syndicating listings and content across its YP digital media properties and the Company’s strong partnership network. TDV
measures the number of visits made across the YP, YP Shopwise, YP Dine, RedFlagDeals, C411 and Bookenda online and mobile properties, as well as visits
made across the properties of the Company’s application syndication partners; and

• Adjusted EBITDA less CAPEX – Adjusted EBITDA less CAPEX amounted to $125.4 million for the year ended December 31, 2017 compared to $179.8 million

for the year ended December 31, 2016.

Customer Analytics¹

For the years ended December 31,

Customer count

Net new customers

Average Revenue per Customer (ARPC)

1 YP segment only.

CAPEX
(In thousands of Canadian dollars)

2017

229,000

(12,500)

2,488

2016

241,500

(3,500)

2,689

For the three-month periods and years ended December 31,

Additions to intangible assets

Additions to property and equipment

Less lease incentives received

CAPEX

2017

2016

2017

8,670

10,740

37,297

13,018

(5,892)

9,296

(7,605)

30,412

(9,094)

2016

50,787

12,719

(8,145)

15,796

12,431

58,615

55,361

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2. Results

This section provides an overview of our financial performance in 2017 compared to 2016 and 2015. We present several metrics to help investors better understand
our performance, including certain metrics which are not measures recognized by IFRS. Definitions of these non-IFRS financial metrics are provided on pages 2 and 3
of this MD&A and are important aspects which should be considered when analyzing our performance.

Management’s Discussion and Analysis

Highlights
(In thousands of Canadian dollars, except per share and percentage information)

For the years ended December 31,

Revenues

Income from operations before depreciation and amortization, impairment of intangible assets and goodwill, and restructuring

and other charges (Adjusted EBITDA)

Adjusted EBITDA margin

Impairment of intangible assets and goodwill

Net (loss) earnings

Basic (loss) earnings per share

CAPEX

Adjusted EBITDA less CAPEX

Cash flows from operating activities

Free cash flow

2017

2016

2015

745,852

817,979 $

829,771

183,985

235,191 $

260,687

24.7%

28.8% $

507,032

600,000 $

(589,327) $

(403,705) $

(22.32) $

58,615

125,370

115,344

47,635

(15.23) $

55,361 $

179,830 $

158,113 $

94,607 $

31.4%

−
61,055

2.29

75,421

185,266

197,566

122,145

Revenues
(In millions of Canadian dollars)

2017

2016

2015

Adjusted EBITDA less CAPEX
(In millions of Canadian dollars)

2017

2016

2015

$745.9

$818.0

$829.8

$125.4

$179.8

$185.3

Adjusted EBITDA
(In millions of Canadian dollars)

2017

2016

2015

Free Cash Flow
(In millions of Canadian dollars)

2017

2016

2015

$184.0

$235.2

$260.7

$47.6

$94.6

$122.1

YELLOW PAGES LIMITED ANNUAL REPORT 2017

Consolidated Operating and Financial Results
(In thousands of Canadian dollars, except per share and percentage information)

For the years ended December 31,

Revenues
Cost of sales1
Gross profit1
Other operating costs

Income from operations before depreciation and amortization, impairment of

intangible assets and goodwill, and restructuring and other charges (Adjusted

EBITDA)

Depreciation and amortization

Impairment of intangible assets and goodwill

Restructuring and other charges

(Loss) income from operations

Financial charges, net

Impairment of available-for-sale investments

(Loss) earnings before income taxes and loss from investment in a jointly

controlled entity

Provision for (recovery of) income taxes

Loss from investment in a jointly controlled entity

Net (loss) earnings

Basic (loss) earnings per share

Diluted (loss) earnings per share

Adjusted EBITDA less CAPEX

1 Prior year figures were restated to conform to the current year presentation.

As at December 31,

Total assets

Long-term debt (including current portion, excluding exchangeable

debentures)

Exchangeable debentures

Total long-term debt to total assets

Management’s Discussion and Analysis

% of

2017

Revenues

2016

Revenues

2015

Revenues

745,852

352,528

393,324

209,339

183,985

105,501

507,032

34,400

817,979

829,771

47.3%

52.7%

28.1%

24.7%

14.1%

68.0%

4.6%

357,821

460,158

224,967

43.7%

56.3%

27.5%

318,058

511,713

251,026

38.3%

61.7%

30.3%

235,191

104,882

600,000

22,961

28.8%

12.8%

73.4%

2.8%

260,687

31.4%

80,837
−
30,834

9.7%
−
3.7%

(462,948)

(62.1%)

(492,652)

(60.2%)

149,016

18.0%

48,150

3,720

6.5%

0.5%

56,130
−

6.9%
−

(514,818)

(69.0%)

(548,782)

(67.1%)

72,405

2,104

9.7%

0.3%

(145,517)

(17.8%)

440

0.1%

(589,327)

(79.0%) $

(403,705)

(49.4%) $

60,922
−

88,094

27,039
−
61,055

7.3%
−

10.6%

3.3%
−
7.4%

(22.32)

$
$

(15.23)

2.29

2.05

125,370

179,830

$ 185,266

2017

2016

2015

529,914

1,099,937

$ 1,710,627

309,113

94,067

76.1%

310,028

92,174

36.6%

407,353

90,478

29.1%

YELLOW PAGES LIMITED ANNUAL REPORT 2017

Management’s Discussion and Analysis

Segmented Information

The Company manages its business, assesses performance and allocates resources relative to four reportable segments: YP, Agency, Real Estate and Other.

The YP segment provides SMEs across Canada digital and traditional marketing solutions, including online and mobile priority placement on Yellow Pages digital
media, content syndication, search engine solutions, website fulfillment, social media campaign management and digital display advertising, video production and print
advertising.

The Agency segment provides national advertising services to brands and publishers, primarily through its Mediative division, and JUICE and Totem subsidiaries.
Mediative offers dedicated marketing and performance media services to national clients Canada-wide. JUICE’s proprietary Programmatic Direct and Real-Time
Bidding platforms facilitate the automatic buying and selling of mobile advertising between brands and advertisers. Totem is a creative agency specializing in
customized content creation and delivery for global brands.

The Real Estate segment provides homeowners in Canada with media and expertise to sell their homes as well as publishes locally-targeted real estate listings. It
addresses the needs of the consumer in the Canadian real estate market via its CFDP and Yellow Pages NextHome subsidiaries.

The Other segment offers a diversified portfolio of media properties to Canadian consumers, including the 411.ca digital directory service as well as local lifestyle
magazines specific to the Western Canada region, in the restaurants, real estate and lifestyle categories.

Analysis of Consolidated and Segmented Operating and Financial Results

Fiscal year 2017 versus 2016
Revenues
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Digital

Agency

Digital

Real Estate

Digital

Other

Digital

Intersegment eliminations

Digital

Total revenues

Digital

2017

2016

% Change

587,194

657,822

181,697

405,497

78,104

5,416

72,688

62,724

11,913

50,811

22,555

3,924

18,631

(4,725)

(68)

(4,657)

745,852

202,882

542,970

238,756

419,066

74,524

1,000

73,524

66,415

18,319

48,096

24,361

4,587

19,774

(5,143)

(455)

(4,688)

817,979

262,207

555,772

(10.7%)

(23.9%)

(3.2%)

4.8%

441.6%

(1.1%)

(5.6%)

(35.0%)

5.6%

(7.4%)

(14.5%)

(5.8%)

(8.1%)

(85.1%)

(0.7%)

(8.8%)

(22.6%)

(2.3%)

YELLOW PAGES LIMITED ANNUAL REPORT 2017

Operational Indicators

For the years ended December 31,
Digital-only customers1
Digital revenues (in thousands of Canadian dollars)

Digital revenues as a percentage of total revenues

1 YP segment only.

Management’s Discussion and Analysis

2017

84,700

542,970

72.8%

2016

76,800

555,772

67.9%

Total revenues for the year ended December 31, 2017 decreased by 8.8% year-over-year and amounted to $745.9 million as compared to $818.0 million for the same
period last year. Total revenue decline for the year ended December 31, 2017 as compared to the same period in 2016 is due mainly to lower print revenues as well as
digital revenue declines in all segments, with the exception of the Real Estate segment which gained 5.6% over 2016.

Total digital revenues decreased by 2.3% year-over-year and amounted to $543.0 million in 2017, or 72.8% of revenues. This compares to $555.8 million, or 67.9% of
revenues, for the same period last year. Total digital revenue decline for the year ended December 31, 2017. For the year ended December 31, 2017, 83% of renewing
customers maintained or increased their annual spending, as compared to 82% of customers over the same period last year.

Total print revenues decreased 22.6% year-over-year and amounted to $202.9 million in 2017, adversely impacted by a decline in the number of print customers and
the transition of print marketing spending to digital among our customers.

Reportable Segments Revenues

Customer Penetration

As at December 31,

Print
YP Digital Media1

Online priority placement

Mobile priority placement

Digital Services2

2017

63%

70%

60%

27%

11%

2016

68%

70%

61%

26%

10%

1 Percentage of YP customers purchasing at least one Online Priority Placement, Mobile Priority Placement, NetSync, Content, Video, and/or Legacy product.
2 Percentage of YP customers purchasing at least one Website, Search Engine Optimization (SEO), Search Engine Marketing (SEM), Facebook Solution, and/or Smart Digital Display product.

Revenues for the YP segment for the year ended December 31, 2017 totalled $587.2 million compared to $657.8 million for the same period last year. The decrease
for the year ended December 31, 2017 is mainly due to lower print revenues, with the decline rate stable year-over-year. The decline in digital revenues generated
from our higher margin YP digital media products was partially offset by growth in digital services, which operate at a lower margin, thereby creating pressure on our
gross profit margins.

Agency

Agency revenues for the year ended December 31, 2017 increased to $78.1 million as compared to $74.5 million for the same period last year. The increase in Agency
revenues for the year ended December 31, 2017 is due to the inclusion of Totem, acquired in September 2016 as well as the inclusion of JUICE, acquired in March
2016, offset by pressure from insourcing within the national agency industry and weaker than expected penetration of large account opportunities in the U.S. market.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 0

Real Estate

Revenues in the Real Estate segment amounted to $62.7 million for the year ended December 31, 2017 as compared to $66.4 million for the same period last year.
The decrease for the year ended December 31, 2017 is mainly due to lower print revenues from Yellow Pages NextHome.

Other

Other revenues remained amounted to $22.6 million for the year ended December 31, 2017 as compared to $24.4 million for the same period last year. The decline in
Other revenues is to a loss of a reseller and turnover in the sales department.
Gross Profit
(In thousands of Canadian dollars, except percentage information)

Management’s Discussion and Analysis

For the years ended December 31,

Agency

Real Estate

Other

Intersegment eliminations

Total gross profit

2017

2016

% % Change

$ 343,395 58.5% $

401,529 61.0%

11,791 15.1%

20,153 27.0%

(14.5%)

(41.5%)

28,815 45.9%

28,460 42.9%

1.2%

9,818 43.5%

11,257 46.2%

(495) 10.5%

(1,241) 24.1%

$ 393,324 52.7% $

460,158 56.3%

(12.8%)

(60.1%)

(14.5%)

Gross profit decreased to $393.3 million, or 52.7% of total revenues, for the year ended December 31, 2017 compared to $460.2 million, or 56.3% of total revenues, for
the same period last year. The decrease in gross profit for the year ended December 31, 2017 is primarily due to the decline in revenues in the YP segment, where the
Company earns higher gross profit as a percentage of revenues relative to the Company’s other segments, and a 12% decline in the Agency segment’s gross profit as
a percentage of revenues. The decline in gross profit as a percentage of revenue is mainly attributable to the fact that sales, delivery and support costs in the YP
segment have been reduced at a slower rate than the decline in revenues due to shifts in product mix and declines in sales productivity, in addition to weak U.S. sales
results in the Agency segment.

Reportable Segments Gross Profit

Gross profit for the YP segment for the year ended December 31, 2017 totalled $343.4 million, or 58.5% of revenues, compared to $401.5 million, or 61.0% of
revenues, for the same period last year. The decrease for the year ended December 31, 2017 is mainly due to a decline in sales productivity including a change in
digital product mix toward lower priced, lower margin products and the continuing decline in print revenues.

Agency

Agency gross profit for the year ended December 31, 2017 amounted to $11.8 million, or 15.1% of revenues, as compared to $20.2 million, or 27.0% of revenues, for
the same period last year. The decrease for the year ended December 31, 2017 in Agency gross profit is due to weakness in the U.S. market for JUICE due to
competitive challenges and a trend toward agency insourcing as well as a non-recurring contract termination fee incurred in the first quarter of 2017.

Real Estate

Gross profit for the Real Estate segment amounted to $28.8 million, or 45.9% of revenues, for the year ended December 31, 2017 as compared to $28.5 million, or
42.9% of revenues, for the same period last year. The increase for the year ended December 31, 2017 in both gross profit and gross profit margin is mainly due to cost
saving initiatives at Yellow Pages NextHome as well as favourable product mix and revenue growth at CFDP.

Other

Gross profit for the Other segment totalled $9.8 million, or 43.5% of revenues, for the year ended December 31, 2017, as compared to $11.3 million, or 46.2% of revenues,
for the same period last year. The decrease for the year ended December 31, 2017 is due to lower sales and as a result, higher proportionate fixed cost of sales.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 1

Other Operating Costs
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Agency

Real Estate

Other

Intersegment eliminations

Total other operating costs

Management’s Discussion and Analysis

2017

2016 % Change

160,554

176,154

16,502

24,906

7,872

(495)

16,705

25,107

8,242

(1,241)

209,339

224,967

(8.9%)

(1.2%)

(0.8%)

(4.5%)

(60.1%)

(6.9%)

Other operating costs, which represent indirect costs, decreased 6.9% to $209.3 million in 2017, compared to $225.0 million in 2016. The decrease in total other operating
costs for the year ended December 31, 2017 was due to cost reductions in employee related expenses, lower branding expenditures and cost optimizations in ISIT.

Reportable Segments Other Operating Costs

Other operating costs for the YP segment for the year ended December 31, 2017 totalled $160.6 million as compared to $176.2 for the same period last year. The
decrease for the year ended December 31, 2017 is mainly due to lower employee related expenses, branding expenditures as well as cost optimizations in ISIT.

Agency

Other operating costs for the Agency segment decreased to $16.5 million for the year ended December 31, 2017 as compared to $16.7 million for the same period last
year. The decrease in other operating costs for the year ended December 31, 2017 for the Agency segment is due primarily to lower employee related expenses,
partially offset by the inclusion of Totem, acquired in September 2016 as well as the inclusion of JUICE, acquired in March 2016.

Real Estate

Other operating costs for the Real Estate segment were stable during the year ended December 31, 2017 as compared to the same period last year.

Other

Other operating costs for the Other segment remained relatively stable year-over-year as compared to the same period last year.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 2

Adjusted EBITDA
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Agency

Real Estate

Other

Total Adjusted EBITDA

Management’s Discussion and Analysis

2017

2016

% % Change

182,841

31.1% $ 225,375

34.3%

(18.9%)

(4,711)

(6.0%)

3,909

1,946

6.2%

8.6%

3,448

3,353

3,015

4.6%

5.0%

12.4%

183,985

24.7% $ 235,191

28.8%

(236.6%)

16.6%

(35.5%)

(21.8%)

Adjusted EBITDA decreased by $51.2 million to $184.0 million during 2017, compared to $235.2 million during 2016. Our Adjusted EBITDA margin for 2017 was 24.7%
compared to 28.8% for 2016. The decrease in Adjusted EBITDA and Adjusted EBITDA margin for the year ended December 31, 2017 was mainly impacted by lower
overall revenues and unfavourable changes in product mix in the YP segment, partly offset by cost saving initiatives.

Reportable Segments Adjusted EBITDA

Adjusted EBITDA for the YP segment for the year ended December 31, 2017 totalled $182.8 million compared to $225.4 million for the same period last year. The
Adjusted EBITDA margin for the YP segment for 2017 was 31.1% compared to 34.3% for 2016. The decrease for the year ended December 31, 2017 is mainly due to
lower overall revenues and unfavourable changes in product mix, including lower print revenues and an increase in the proportion of lower priced, lower margin
services, partially offset by cost saving initiatives.

Agency

Agency Adjusted EBITDA for the year ended December 31, 2017 amounted to a loss of $4.7 million, or (6.0%) of revenues, as compared to income of $3.4 million, or
4.6% of revenues, for the same period last year. Agency Adjusted EBITDA for the year ended December 31, 2017 was negatively impacted by lower revenues due to
competitive pressures, including a trend toward insourcing within the national agency industry and weaker pricing and penetration of large account opportunities in the
U.S. market. Adjusted EBITDA for the year ended December 31, 2017 was further impacted by a non-recurring contract termination fee incurred during the first quarter
of 2017.

Real Estate

Adjusted EBITDA for the Real Estate segment amounted to $3.9 million, or 6.2% of revenues, for the year ended December 31, 2017 as compared to
$3.4 million, or 5.0% of revenues, for the same period last year. The increase for the year ended December 31, 2017 is mainly due to revenue growth at CFDP and
cost saving initiatives mainly at Yellow Pages NextHome.

Other

Adjusted EBITDA for the Other segment for the year ended December 31, 2017, amounted to $1.9 million, or 8.6% of revenues, as compared to $3.0 million, or 12.4%
of revenues, for the same period last year. The decrease in Adjusted EBITDA and Adjusted EBITDA margin for the year ended December 31, 2017 is mainly due to
lower revenues.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

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Adjusted EBITDA less CAPEX
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Adjusted EBITDA

CAPEX

Agency

Adjusted EBITDA

CAPEX

Real Estate

Adjusted EBITDA

CAPEX

Other

Adjusted EBITDA

CAPEX

Total Adjusted EBITDA less CAPEX

Adjusted EBITDA

CAPEX

Management’s Discussion and Analysis

2017

2016

% Change

129,760

174,852

182,841

53,081

(6,749)

(4,711)

2,038

2,642

3,909

1,267

(283)

1,946

2,229

125,370

183,985

58,615

225,375

50,523

1,213

3,448

2,235

2,070

3,353

1,283

1,695

3,015

1,320

179,830

235,191

55,361

(25.8%)

(18.9%)

5.1%

(656.4%)

(236.6%)

(8.8%)

27.6%

16.6%

(1.2%)

(116.7%)

(35.5%)

68.9%

(30.3%)

(21.8%)

5.9%

Adjusted EBITDA less CAPEX decreased by $54.5 million to $125.4 million during 2017, compared to $179.8 million during 2016. The decrease in Adjusted EBITDA less
CAPEX for the year ended December 31, 2017 was mainly impacted by lower Adjusted EBITDA as well as higher capital expenditures related primarily to leasehold
improvements associated with office relocations.

Reportable Segments Adjusted EBITDA less CAPEX

Adjusted EBITDA less CAPEX for the YP segment for the year ended December 31, 2017 totalled $129.8 million compared to $174.9 million for the same period last
year. The decrease for the year ended December 31, 2017 is mainly due to lower Adjusted EBITDA and increased capital expenditures in leasehold improvements
associated with office relocations.

Agency

Agency Adjusted EBITDA less CAPEX for the year ended December 31, 2017 amounted to a loss of $6.7 million as compared to income of $1.2 million. Reduced
capital expenditures during the year ended December 31, 2017 compared to the same period last year mitigated the Adjusted EBITDA shortfall in 2017 compared to
2016.

Real Estate

Adjusted EBITDA less CAPEX for the Real Estate segment amounted to $2.6 million for the year ended December 31, 2017 as compared to $2.1 million for the same
period last year. The increase for the year ended December 31, 2017 is mainly due to higher Adjusted EBITDA. Capital expenditures remained stable year-over-year.

Other

Adjusted EBITDA less CAPEX for the Other segment for the year ended December 31, 2017, amounted to a loss of $0.3 million as compared to income of $1.7 million
for the same period last year. The decrease in Adjusted EBITDA less CAPEX is mainly due to lower Adjusted EBITDA as well as increased capital expenditures during
the year ended December 31, 2017 primarily comprised of leasehold improvements associated with an office relocation as compared to the same period last year.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 4

Management’s Discussion and Analysis

Depreciation and Amortization

Depreciation and amortization remained relatively stable and amounted to $105.5 million during 2017 compared to $104.9 million in 2016.

Restructuring and Other Charges

In 2017, we recorded restructuring and other charges of $34.4 million associated primarily with lease contracts related to office closures, internal reorganizations and
workforce reductions. In 2016, we recorded restructuring and other charges of $23.0 million associated primarily with internal reorganizations and workforce reductions, as
well as transaction costs associated with the acquisition of JUICE.

Impairment of Intangible Assets and Goodwill

In the context of its annual impairment testing during the fourth quarter of 2017 and as a result of a shortfall in revenues in the Yellow Pages and Other CGUs
compared to previous estimates and uncertainty with regards to future long-term trends, the Company revised estimates of future cash flows to reflect recent historical
trends as the basis. In conjunction, the Company recorded an impairment loss of $500 million in the Yellow Pages and Other CGUs as the carrying value of the Yellow
Pages and Other CGUs exceeded their recoverable amount. The impairment loss was applied to trademarks and non-competition agreements of the Yellow Pages
CGU and primarily to goodwill of the Other CGUs. During the fourth quarter of 2017, the Company also impaired $7 million of assets that were decommissioned,
namely software.

In the context of its annual impairment testing and as a result of a marked acceleration in an unfavourable change in the product mix during the fourth quarter of 2016
in the Yellow Pages CGU, the Company determined that the recoverability of certain of its assets had to be reviewed for impairment purposes. Consequently, we
recorded an impairment loss of $600 million during the fourth quarter of 2016 related to certain of our intangible assets, namely our trademarks and non-competition
agreements.

The impairment charge is a non-cash item and does not affect the Company’s debt covenants.

Financial Charges

Financial charges decreased by $8.0 million to $48.2 million during 2017 compared to $56.1 million for 2016. The decrease is primarily due to a non-recurring charge in
2016 of $2.4 million related to a sales tax assessment associated with financing costs as well as a lower level of indebtedness, partially offset by the issuance of the
the 9.25% senior secured notes on
$315 million principal amount 10.00% senior secured notes on October 19, 2017 and
November 18, 2017, thereby the Company incurred interest on both sets of senior secured notes for a 30 day period. In addition, the $315 million principal amount
senior secured notes accrue interest at a higher rate than the prior senior secured notes. The Company’s effective average interest rate on our debt portfolio as at
December 31, 2017 was 9.5% (2016 – 8.9%).

the repayment of

Provision for (Recovery of) Income Taxes

The combined statutory provincial and federal tax rates were 26.8% and 26.9% for the years ended December 31, 2017 and 2016, respectively. The Company
recorded a provision for income taxes of $72.4 million during 2017, comprised of a recovery of income taxes of $134.5 million and a valuation allowance of the same
amount associated with an impairment loss of $500 million on certain of its intangible assets and goodwill recorded during the fourth quarter of 2017. Furthermore, the
Company recognized a reversal of tax attributes and deductible temporary differences representing an income tax expense of approximately $75 million during the
fourth quarter of 2017. These expenses are non-cash items.

In comparison, the Company recorded a recovery of $145.5 million during 2016, comprised of a recovery of income taxes of $161 million associated with an
impairment loss of $600 million on certain of its intangible assets recorded during the fourth quarter of 2016. The recovery of income taxes of $161 million is a non-
cash item.

The Company recorded a provision for income taxes of (14.0%) on the loss for the year ended December 31, 2017 compared to 26.5% on the loss for the year ended
December 31, 2016. The difference between the effective and the statutory rates in 2017 is mainly due to the reversal and the non-recognition of tax attributes and
deductible temporary differences from the current and previous years. The difference between the effective and the statutory rates in 2016 is due to the non-
deductibility of certain expenses for tax purposes.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 5

Loss from Investment in a Jointly Controlled Entity

On September 29, 2017, 9778730 Canada Inc., which held 100% of Coupgon Inc., ceased operations and the net book value of the investment of $0.7 million was
written off. The write-off is included in the loss from investment in a jointly controlled entity of $2.1 million for the year ended December 31, 2017. We recorded a loss
from our investment in a jointly controlled entity of $0.4 million during the year ended December 31, 2016.

Net Loss

We recorded a net loss of $589.3 million during 2017 compared with a net loss of $403.7 million during 2016. The net loss for the years ended December 31, 2017 and
2016 is principally explained by an impairment of intangible assets and goodwill of $507 million and $600 million in 2017 and 2016, respectively. The net loss for the
year ended December 31, 2017 was also impacted by the reversal of tax attributes and deductible temporary differences representing an income tax expense of
$75 million.

Management’s Discussion and Analysis

Fiscal year 2016 versus 2015
Revenues
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

2016

2015

% Change

Digital

Agency

Digital

Real Estate

Digital

Other

Digital

Intersegment eliminations

Digital

Total revenues

Digital

657,822

729,286

238,756

419,066

74,524

1,000

73,524

66,415

18,319

48,096

24,361

4,587

19,774

(5,143)

(455)

(4,688)

817,979

262,207

555,772

315,138

414,148

37,197

(9.8%)

(24.2%)

1.2%

100.3%

1,049.4%

37,110

45,899

24,900

20,999

22,894

3,470

19,424

(5,505)

(170)

(5,335)

829,771

343,425

486,346

98.1%

44.7%

(26.4%)

129%

6.4%

32.2%

1.8%

(6.6%)

167.6%

(12.1%)

(1.4%)

(23.6%)

14.3%

Total revenues for the year ended December 31, 2016 decreased by 1.4% year-over-year and amounted to $818.0 million as compared to $829.8 million for the same
period last year. Total revenue decline for the year ended December 31, 2016 as compared to the same period in 2015 is due mainly to lower print revenues. Included
in revenues for the year ended December 31, 2016 were revenues generated from CFDP and JUICE, acquired on July 1, 2015 and March 17, 2016, respectively. On a
pro forma basis, which adjusts revenues for the full inclusion of CFDP and JUICE in 2015 as well as for the full inclusion of JUICE during the first quarter of 2016, total
revenues decreased 6.2% year-over-year.

Total digital revenues grew 14.3% year-over-year to reach $555.8 million in 2016, or 67.9% of revenues. This compares to $486.3 million, or 58.6% of revenues, for the
same period in 2015. On a pro forma basis, digital revenues for the year ended December 31, 2016 increased approximately 5% year-over-year. For the years ended
December 31, 2016 and 2015, 83% of renewing customers maintained or increased their annual spending.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 6

Total print revenues decreased 23.6% year-over-year and amounted to $262.2 million in 2016, adversely impacted by a decline in the number of print customers and
the transition of print marketing spending to digital.

Management’s Discussion and Analysis

Reportable Segments Revenues

Revenues for the YP segment for the year ended December 31, 2016 totalled $657.8 million compared to $729.3 million for the same period the year prior. The
decrease for the year ended December 31, 2016 is mainly due to lower print revenues, which decreased 24.2% during the year ended December 31, 2016 and
amounted to $238.9 million as compared to $315.1 million for the same period last year. Digital revenues increased by 1.2% during the year ended
December 31, 2016 and amounted to $419.1 million as compared to $414.1 million for the year ended December 31, 2015.

Agency

Agency revenues for the year ended December 31, 2016 amounted to $74.5 million as compared to $37.2 million for the same period in 2015. The increase in Agency
revenues for the year ended December 31, 2016 is due to the acquisitions of JUICE and Totem, acquired in March 2016 and September 2016, respectively.

Real Estate

Revenues in the Real Estate segment amounted to $66.4 million for the year ended December 31, 2016 as compared to $45.9 million for the same period in 2015. The
increase for the year ended December 31, 2016 is due to the acquisition of CFDP on July 1, 2015.

Other
Other revenues amounted to $24.4 million for the year ended December 31, 2016 as compared to $22.9 million for the same period in 2015.

Gross Profit
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Agency

Real Estate

Other

Intersegment eliminations

Total gross profit

2016

2015

% % Change

$ 401,529 61.0% $

476,820 65.4%

20,153 27.0%

6,177 16.6%

28,460 42.9%

19,674 42.9%

11,257 46.2%

10,466 45.7%

(1,241) 24.1%

(1,424) 25.9%

$ 460,158 56.3% $

511,713 61.7%

(15.8%)

226.3%

44.7%

7.6%

(12.9%)

(10.1%)

Gross profit decreased to $460.2 million, or 56.3% of total revenues, for the year ended December 31, 2016 compared to $511.7 million, or 61.7% of total revenues, for
the same period in 2015. The decrease for the year ended December 31, 2016 in gross profit and gross profit as a percentage of total revenues is primarily due to a
change in product mix. For the year ended December 31, 2016, the gross profit margin was further impacted by the acquisitions of CFDP and JUICE, which operate at
a lower gross profit margin.

Reportable Segments Gross Profit

Gross profit for the YP segment for the year ended December 31, 2016 totalled $401.5 million, or 61.0% of revenues, compared to $476.8 million, or 65.4% of
revenues, for the same period in 2015. The decrease for the year ended December 31, 2016 is mainly due to lower print revenues and a change in digital product mix
toward lower margin products.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 7

Agency

Agency gross profit for the year ended December 31, 2016 amounted to $20.2 million, or 27.0% of revenues, as compared to $6.2 million, or 16.6% of revenues, for
the same period the year prior. The increase for the year ended December 31, 2016 in Agency gross profit is due to the acquisitions of JUICE on March 17, 2016 and
Totem in September 2016.

Real Estate

Gross profit for the Real Estate segment amounted to $28.5 million, or 42.9% of revenues, for the year ended December 31, 2016 compared to $19.7 million, or 42.9%
of revenues, for the same period in 2015. The increase in gross profit for the year ended December 31, 2016 is due to the acquisition of CFDP, acquired in July 2015.

Other

Gross profit for the Other segment remained relatively stable for the year ended December 31, 2016 and totalled $11.3 million, or 46.2% of revenues, as compared to
$10.5 million, or 45.7% of revenues, for the year ended December 31, 2015.

Management’s Discussion and Analysis

Other Operating Costs
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Agency

Real Estate

Other

Intersegment eliminations

Total other operating costs

2016

2015 % Change

176,154

215,887

(18.4%)

16,705

25,107

8,242

(1,241)

10,295

18,368

7,900

(1,424)

224,967

251,026

62.3%

36.7%

4.3%

(12.9%)

(10.4%)

Other operating costs, which represent indirect costs, decreased 10.4% to $225.0 million in 2016, compared to $251.0 million in 2015. The decrease in total other
operating costs for the year ended December 31, 2016 was due to cost saving initiatives in the YP segment, net of increased costs associated with the inclusion of
acquisitions in the Agency and Real Estate segments.

Reportable Segments Other Operating Costs

Other operating costs for the YP segment for the year ended December 31, 2016 totalled $176.2 million as compared to $215.9 for the same period last year. The
decrease for the year ended December 31, 2016 is mainly due to lower employee related expenses.

Agency

Other operating costs for the Agency segment for the year ended December 31, 2016 amounted to $16.7 million. This compares to $10.3 million for the same period in
2015. The increase in other operating costs for the year ended December 31, 2016 for the Agency segment is due primarily to the inclusion of JUICE, acquired in
March 2016 as well as the inclusion of Totem, acquired in September 2016.

Real Estate

Other operating costs for the Real Estate segment totalled $25.1 million during the year ended December 31, 2016 as compared to $18.4 million for the same period
the year prior. The increase is due to the inclusion of CFDP, acquired in July 2015.

Other
Other operating costs for the Other segment remained relatively stable year-over-year as compared to the same period last year.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 8

Adjusted EBITDA
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Agency

Real Estate

Other

Total Adjusted EBITDA

Management’s Discussion and Analysis

2016

2015

% % Change

$ 225,375 34.3% $

260,933 35.8%

(13.6%)

3,448

3,353

4.6%

5.0%

(4,118) (11.1%)

1,306

2.8%

3,015 12.4%

2,566 11.2%

183.7%

156.7%

17.5%

235,191 28.8% $ 260,687 31.4%

(9.8%)

Adjusted EBITDA decreased by $25.5 million to $235.2 million during 2016, compared with a decline of $55.3 million to $260.7 million during 2015. This represents a
year-over-year decline of 9.8% during 2016, as compared to a year-over-year decline of 17.5% the year prior. Our Adjusted EBITDA margin for 2016 was 28.8%
compared to 31.4% for 2015. The decrease in Adjusted EBITDA and Adjusted EBITDA margin for the year ended December 31, 2016 was mainly associated with
lower print revenues and an increase in the mix of lower margin digital products in the YP segment, partly offset by cost saving initiatives. The decline in the Adjusted
EBITDA margin was also impacted by the acquisitions of CFDP and JUICE, which operate at a lower Adjusted EBITDA margin relative to Yellow Pages prior to the
acquisitions.

Reportable Segments Adjusted EBITDA

Adjusted EBITDA for the YP segment for the year ended December 31, 2016 totalled $225.4 million compared to $260.9 million for the same period last year. The
Adjusted EBITDA margin for the YP segment for 2016 was 34.3% compared to 35.8% for 2015. The decrease for the year ended December 31, 2016 is mainly due to
lower print revenues and a shift in the mix of digital revenues toward lower price and lower margin products, partially offset by cost saving initiatives.

Agency

Agency Adjusted EBITDA for the year ended December 31, 2016 amounted to $3.4 million, or 4.6% of revenues, as compared to a loss of $4.1 million, or 11.1% of
revenues, for the same period last year. Agency Adjusted EBITDA for the year ended December 31, 2016 was favourably impacted by higher revenues resulting from
the acquisition of JUICE in March 2016.

Real Estate

Adjusted EBITDA for the Real Estate segment amounted to $3.4 million, or 5.0% of revenues, for the year ended December 31, 2016 as compared to
$1.3 million, or 2.8% of revenues, for the same period last year. The increase for the year ended December 31, 2016 is due to the acquisition of CFDP in July 2015.

Other

Adjusted EBITDA for the Other segment amounted to $3.0 million, or 12.4% of revenues, for the year ended December 31, 2016 as compared to $2.6 million, or 11.2%
of revenues, for the same period in 2015.

Depreciation and Amortization

Depreciation and amortization increased to $104.9 million during 2016 compared to $80.8 million in 2015. The increase is due to higher capital expenditures in connection
with the deployment of systems and platforms as the Company implements its digital transformation as well as amortization of the intangible assets related to the
acquisition of JUICE.

Impairment of Intangible Assets

YELLOW PAGES LIMITED ANNUAL REPORT 2017

1 9

Management’s Discussion and Analysis

recorded an impairment loss of $600 million during the fourth quarter related to certain of our intangible assets, namely our trademarks and non-competition
agreements. The impairment charge is a non-cash item and does not affect the Company’s debt covenants.

Restructuring and Other charges

In 2016, we recorded restructuring and other charges of $23.0 million associated primarily with internal reorganizations and workforce reductions, as well as transaction
costs associated with business acquisitions. In 2015, we recorded restructuring and other charges of $30.8 million associated primarily with workforce reductions related
to the corporate realignment, internal reorganizations, transaction costs associated with business acquisitions, and contract termination costs, partially offset by a
curtailment gain related to workforce reductions.

Financial Charges

Financial charges decreased by $4.8 million to $56.1 million during 2016 compared to $60.9 million for 2015. The decrease is due to a lower level of indebtedness, partially
offset by sales taxes resulting from the settlement of a sales tax assessment relating to financing costs and foreign currency losses. As at December 31, 2016, the effective
average interest rate on our debt portfolio was 8.9% (2015 – 9%).

(Recovery of) Provision for Income Taxes

The combined statutory provincial and federal tax rates were 26.9% and 26.7% for the years ended December 31, 2016 and 2015, respectively. The Company recorded a
recovery of $145.5 million during 2016, comprised of a recovery of income taxes of $161 million associated with an impairment loss of $600 million on certain of its
intangible assets recorded during the fourth quarter of 2016. The recovery of income taxes of $161 million is a non-cash item. The Company recorded an income tax
expense of $27,0 million in 2015. The Company recorded a recovery of 26.5% on the loss for the year ended December 31, 2016 compared to an expense of 30.7% on
earnings for the year ended December 31, 2015.

The difference between the effective and the statutory rates in 2016 and 2015 is due to the non-deductibility of certain expenses for tax purposes.

Loss from Investment in a Jointly Controlled Entity

On October 3, 2016, we acquired a 50% ownership in 9778730 Canada Inc., which owns 100% of Coupgon Inc., a digital coupon solutions provider. We recorded a loss
from our investment in a jointly controlled entity in the amount of $0.4 million during the year ended December 31, 2016.

Net (Loss) Earnings

We recorded a net loss of $403.7 million during 2016 as compared to net earnings of $61.1 million for 2015. The decrease for the year is principally explained by an
impairment of our intangible assets of $600 million as well as lower Adjusted EBITDA and higher depreciation and amortization, mainly resulting from a higher level of
capital expenditures in the context of the Company’s digital evolution as well as amortization of intangible assets related to the acquisition of JUICE.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 0

Summary of Consolidated Quarterly Results

Quarterly Results
(In thousands of Canadian dollars, except per share and percentage information)

Revenues

183,759 $

181,366 $

191,219 $

189,508 $

202,723 $

201,142 $

210,487 $

203,627

2017

2016

Management’s Discussion and Analysis

136,846

135,194

146,794

143,033

145,305

144,193

151,556

141,734

Operating costs
Income from operations before

depreciation and amortization,
impairment of intangible assets and
goodwill, and restructuring and other
charges (Adjusted EBITDA)

Adjusted EBITDA margin

Depreciation and amortization
Impairment of intangible assets and

goodwill

Restructuring and other charges

(Loss) income from operations

Financial charges, net

Net (loss) earnings

46,913

25.5%

24,386

507,032

17,552

(502,057)

14,622

(586,359)

46,172

25.5%

27,989

−
6,784

11,399

10,869

(4,446)

44,425

23.2%

27,346

−
2,778

14,301

11,329

820

46,475

24.5%

25,780

−
7,286

13,409

11,330

658

57,418

28.3%

27,745

600,000

7,493

(577,820)

12,661

(431,583)

56,949

28.3%

26,838

−
9,691

20,420

13,323

3,774

58,931

28.0%

25,440

−
1,519

31,972

15,950

10,953

61,893

30.4%

24,859

−
4,258

32,776

14,196

13,151

0.49

0.45

Basic (loss) earnings per share

Diluted (loss) earnings per share

(22.33) $

(0.17) $

0.03 $

0.02 $

(16.35) $

0.14 $

0.41 $

0.38 $

Revenues have generally decreased throughout the quarters principally due to revenue declines in the YP segment associated with overall loss of customers, and
declining average revenue per customer. Revenues were favourably impacted by the acquisition of JUICE on March 17, 2016, and by the acquisition of Totem
commencing in the fourth quarter of 2016.

Operating costs over the quarters, with the exception of the third and fourth quarters of 2017, have remained relatively stable despite workforce reductions, cost saving
initiatives and declining revenues due to the acquisition of JUICE on March 17, 2016, as well as changes in the sales mix toward products with higher proportionate
delivery costs. Operating costs in the third and fourth quarters of 2017 decreased primarily from lower employee related expenses and branding expenditures, and cost
optimizations in ISIT.

The Adjusted EBITDA margin declined starting in the second quarter of 2016 mainly as a result of the acquisition of JUICE and further declined in the first half of 2017
due primarily to declining revenues without proportionate declines in costs, including the impact of changes in sales mix to products with higher proportionate delivery
costs. The Adjusted EBITDA margin improved in the third and fourth quarters of 2017 due to cost saving initiatives as well as lower variable compensation associated
with lower revenues.

Depreciation and amortization expense in 2016 and 2017 were mainly associated with the deployment of platforms and applications. Amortization was further
increased starting in the second quarter of 2016 due to the amortization of intangible assets related to the acquisition of JUICE. Subsequent to the impairment testing
performed as at December 31, 2016, the Company revised the useful life of the non-competition agreements, which offset the expected decrease in the amortization of
the non-competition agreements.

The Company’s restructuring and other charges mainly relate to workforce optimization, lease contracts associated with office closures and acquisition activities.

Financial charges have steadily decreased over the quarters primarily due to a lower level of indebtedness. Financial charges in the fourth quarter of 2017 increased
due partially to the issuance of the 10.00% senior secured notes on October 19, 2017 and the repayment of the 9.25% senior secured notes on November 18, 2017.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 1

Our net losses for the fourth quarters of 2017 and 2016 were caused by impairment losses of $507 million and 600 million, respectively related to certain of our
intangible assets and goodwill. Our net loss for the third quarter of 2017 was due to an impairment charge on certain of our available-for-sale investments and the
write-off of our investment in a jointly controlled entity resulting from the shutdown of its operations.

Management’s Discussion and Analysis

Restructuring and Other Charges

(In thousands of Canadian dollars, except percentage information)

For the three-month periods and years ended December 31,

2017

Severance, benefits and outplacement

Lease contracts associated with office closures

Transaction costs

Pension settlement costs and past service service costs (recovery), net

Other fees

3,574

13,555
−−
557

(134)

2016

6,699

479

103

(43)

255

% Change

2017

2016

% Change

(46.6%) $

15,098

19,775

2,729.9%

(100%)

1,395.3%

(152.2%)

17,188

601

1,332

181

1,360

1,535

(43)

334

(23.7%)

1,163.8%

(60.8%)

3,197.7%

(45.8%)

49.8%

Total restructuring and other charges

17,552

7,493

134.2%

34,400

22,961

Restructuring and other charges for the three-month period and year ended December 31, 2017 amounted to $17.6 million and $34.4 million, respectively and was
comprised primarily of lease contracts associated with office closures as well as internal reorganizations and workforce reductions. During the three-month period and
year ended December 31, 2016, the Company recorded restructuring and other charges of $7.5 million and $23.0 million, mainly comprised of internal reorganizations
and workforce reductions as well as transaction costs associated with business acquisitions.

On January 16, 2018, Yellow Pages announced that it had taken a significant step in its program to reduce spending to drive improvement in its key operating measure
of Adjusted EBITDA less CAPEX by reducing its workforce by approximately 500 positions across Canada and in all functions of the organization. This represented a
reduction of approximately 18% of its workforce on a consolidated basis. The Company announced that it expects to record a restructuring charge of approximately
$17 million in the first quarter ending March 31, 2018 associated with this workforce reduction.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 2

ANALYSIS OF FOURTH QUARTER 2017 RESULTS

Revenues

(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

Digital

Agency

Digital

Real Estate

Digital

Other

Digital

Intersegment eliminations

Digital

Total revenues

Digital

Management’s Discussion and Analysis

2017

2016

% Change

139,748

157,817

42,070

97,678

27,164

1,105

26,059

13,027

2,436

10,591

5,597

1,136

4,461

(1,777)

(16)

(1,761)

183,759

46,731

53,274

104,543

26,457

989

25,468

13,751

4,125

9,626

6,191

1,240

4,951

(1,493)

(28)

(1,465)

202,723

59,600

137,028

143,123

(11.4%)

(21.0%)

(6.6%)

2.7%

11.7%

2.3%

(5.3%)

(40.9%)

10.0%

(9.6%)

(8.4%)

(9.9%)

19.0%

(42.9%)

20.2%

(9.4%)

(21.6%)

(4.3%)

Total revenues for the three-month period ended December 31, 2017 of $183.8 million decreased by 9.4% year-over-year relative to $202.7 million for the same period
last year. The total revenue decline for the three-month period ended December 31, 2017 as compared to the same period in 2016 is due mainly to lower print
revenues in the YP segment.

Total digital revenues decreased by 4.3% year-over-year and amounted to $137.0 million for the fourth quarter ended December 31, 2017, or 74.6% of total revenues.
This compares to $143.1 million, or 70.6% of revenues, for the same period last year. Total digital revenue decline for the three-month ended December 31, 2017 is
mainly attributable to the YP segment.

Total print revenues of $46.7 million decreased 21.6% during the fourth quarter 2017 due to a declining number of print customers and the transition of print marketing
spending to digital among our customers.

Reportable Segments Revenues

Revenues for the YP segment for the three-month period ended December 31, 2017 totalled $139.7 million compared to $157.8 million for the same period the year
prior. The decrease for the three-month period ended December 31, 2017 is mainly due to lower print revenues, with the decline rate stable year-over-year. The
decline in digital revenues generated from our higher margin YP digital media products was partially offset by growth in digital services, which operate at a lower
margin, thereby creating pressure on our gross profit margins.

Agency

Agency revenues for the quarter ended December 31, 2017 increased to $27.2 million compared to $26.5 million for the same period last year due to growth at JUICE.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 3

Real Estate

Revenues in the Real Estate segment amounted to $13.0 million for the fourth quarter ended December 31, 2017 as compared to $13.8 million for the same period last
year. The decrease for the three-month period ended December 31, 2017 is mainly due to lower print revenues at Yellow Pages NextHome, partially offset by growth
at CFDP.

Other

Other revenues for the fourth quarter ended December 31, 2017 amounted to $5.6 million as compared to $6.2 million for the same period last year. The decrease is
mainly due to the loss of a reseller and turnover in the sales department.

Management’s Discussion and Analysis

Gross Profit
(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

Agency

Real Estate

Other

Intersegment eliminations

Total gross profit

2017

2016

% % Change

84,111 60.2% $

94,923 60.1%

3,509 12.9%

6,567 24.8%

5,127 39.4%

5,724 41.6%

2,648 47.3%

2,880 46.5%

(11.4%)

(46.6%)

(10.4%)

(8.1%)

(174) 9.8%

(63) 4.2%

176.2%

95,221 51.8% $

110,031 54.3%

(13.5%)

Gross profit decreased to $95.2 million, or 51.8% of total revenues, for the three-month period ended December 31, 2017 compared to $110.0 million, or 54.3% of total
revenues, for the same period last year. The decrease for the three-month period ended December 31, 2017 in gross profit and gross profit as a percentage of total
revenues is primarily due to pressure on gross profit margins in the Agency segment resulting from increased competition, particularly in the U.S. market, and a trend
toward insourcing within the national agency industry.

Reportable Segments Gross Profit

Gross profit for the YP segment for the three-month period ended December 31, 2017 totalled $84.1 million, or 60.2% of revenues, compared to $94.9 million, or
60.1% of revenues, for the same period last year. The stability in gross profit as a percentage of revenues is mainly due to cost saving initiatives to offset the impact of
a change in sales mix toward lower margin products.

Agency

Agency gross profit for the three-month period ended December 31, 2017 amounted to $3.5 million, or 12.9% of revenues, as compared to $6.6 million, or 24.8% of
revenues, for the same period last year. The decrease for the fourth quarter ended December 31, 2017 in Agency gross profit is due to competitive pricing pressures,
particularly in the U.S. market, and a trend toward insourcing within the national agency industry.

Real Estate

Gross profit for the Real Estate segment amounted to $5.1 million, or 39.4% of revenues, for the three-month period ended December 31, 2017 as compared to
$5.7 million, or 41.6% of revenues, for the same period last year. The decrease for the three-month period ended December 31, 2017 in gross profit is due to lower
revenues in Yellow Pages NextHome, and the decrease in gross profit margin for the fourth quarter of 2017 is due to product and regional mix at CFDP.

Other

Gross profit for the Other segment totalled $2.6 million, or 47.3% of revenues, for the three-month period ended December 31, 2017, as compared to $2.9 million, or
46.5% of revenues, for the same period last year.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 4

Other Operating Costs
(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

Agency

Real Estate

Other

Intersegment eliminations

Total other operating costs

Management’s Discussion and Analysis

2017

2016 % Change

37,973

40,119

2,558

6,016

1,935

(174)

4,931

5,686

1,940

(5.3%)

(48.1%)

5.8%

(0.3%)

(63)

176.2%

48,308

52,613

(8.2%)

Other operating costs, which represent indirect costs, decreased 8.2% to $48.3 million for the fourth quarter ended December 31, 2017, compared to $52.6 million in 2016.
The decrease in total other operating costs for the three-month period ended December 31, 2017 was due to lower branding and employee related expenses.

Reportable Segments Other Operating Costs

Other operating costs for the YP segment for the three-month period ended December 31, 2017 totalled $38.0 million as compared to $40.1 for the same period last
year. The decrease for the three-month period ended December 31, 2017 is mainly due to lower branding and employee related expenses.

Agency

Other operating costs for the Agency segment for the three-month period ended December 31, 2017 amounted to $2.6 million. This compares to $4.9 million for the
same period last year. The decrease in other operating costs for the three-month period ended December 31, 2017 for the Agency segment is due primarily to lower
employee related expenses.

Real Estate

Other operating costs for the Real Estate segment remained relatively stable year-over-year amounting to $6.0 million during the fourth quarter ended
December 31, 2017 as compared to $5.7 million for the same period last year.

Other
Other operating costs for the Other segment remained stable year-over-year as compared to the same period last year.
Adjusted EBITDA
(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

Agency

Real Estate

Other

Total Adjusted EBITDA

2017

2016

% % Change

46,138 33.0% $

54,804 34.7%

951

3.5%

1,636

6.2%

(15.8%)

(41.9%)

(889)

(6.8%)

713 12.7%

0.3%

(2,439.5%)

940 15.2%

(24.1%)

(18.3%)

46,913 25.5% $

57,418 28.3%

Adjusted EBITDA decreased by $10.5 million to $46.9 million during the fourth quarter ended December 31, 2017, compared to $57.4 million during the same period last
year. Our Adjusted EBITDA margin for the fourth quarter of 2017 was 25.5% compared to 28.3% for the same period last year. The decrease in Adjusted EBITDA and
Adjusted EBITDA margin for the three-month period ended December 31, 2017 was mainly impacted by lower overall revenues and unfavourable changes in product
mix, partly offset by cost saving initiatives in the YP segment.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 5

Management’s Discussion and Analysis

Reportable Segments Adjusted EBITDA

Adjusted EBITDA for the YP segment for the three-month period ended December 31, 2017 totalled $46.1 million, or 33% of revenues, compared to $54.8 million, or
34.7% of revenues, for the same period last year. The decrease for the year ended December 31, 2017 is mainly due to a change in product mix and lower print
revenues, partially offset by cost saving initiatives.

Agency

Agency Adjusted EBITDA for the three-month period ended December 31, 2017 amounted to $1.0 million, or 3.5% of revenues, as compared to $1.6 million, or 6.2% of
revenues, for the same period last year. Agency Adjusted EBITDA for the three-month period ended December 31, 2017 relative to the same period in 2016 was due
to a decline in gross margin, partially mitigated by lower employee related expenses.

Real Estate

Adjusted EBITDA for the Real Estate segment amounted to a loss of $0.9 million, or (6.8%) of revenues, for the three-month period ended December 31, 2017 as
compared to $38 thousand, or 0.3% of revenues, for the same period last year. The decrease for the three-month period ended December 31, 2017 is mainly due to
lower revenues at Yellow Pages NextHome, partly offset by cost saving initiatives.

Other

Adjusted EBITDA for the Other segment for the three-month period ended December 31, 2017, amounted to $0.7 million, or 12.7% of revenues as compared to
$0.9 million, or 15.2% of revenues, for the same period last year. The decrease in Adjusted EBITDA and Adjusted EBITDA margin for the year ended
December 31, 2017 is mainly due to lower revenues.

Adjusted EBITDA less CAPEX
(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

Adjusted EBITDA

CAPEX

Agency

Adjusted EBITDA

CAPEX

Real Estate

Adjusted EBITDA

CAPEX

Other

Adjusted EBITDA

CAPEX

Total Adjusted EBITDA less CAPEX

Adjusted EBITDA

CAPEX

2017

2016

% Change

31,010

46,138

15,128

996

951

(45)

(1,543)

(889)

654

713

31,117

46,913

15,796

43,736

54,804

11,068

1,169

1,636

467

(629)

667

711

940

229

44,987

57,418

12,431

(29.1%)

(15.8%)

36.7%

(14.8%)

(41.9%)

(109.6%)

(145.3%)

(2,439.5%)

(1.9%)

(8.0%)

(24.1%)

(74.2%)

(30.8%)

(18.3%)

27.1%

Adjusted EBITDA less CAPEX decreased by $13.9 million to $31.1 million during the fourth quarter of 2017, compared to $45.0 million during the same period in 2016.
The decrease in Adjusted EBITDA less CAPEX for the three-month period ended December 31, 2017 was mainly impacted by lower Adjusted EBITDA as well as
higher capital expenditures related primarily to leasehold improvements associated with office relocations.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 6

Management’s Discussion and Analysis

Reportable Segments Adjusted EBITDA less CAPEX

Adjusted EBITDA less CAPEX for the YP segment for the three-month period ended December 31, 2017 totalled $31.0 million compared to $43.7 million for the same
period last year. The decrease for the fourth quarter ended December 31, 2017 is mainly due to lower Adjusted EBITDA and increased capital expenditures in
leasehold improvements associated with office relocations.

Agency

Agency Adjusted EBITDA less CAPEX for the three-month period ended December 31, 2017 amounted to $1.0 million as compared to $1.2 million for the same period
last year. Reduced capital expenditures during the three-month period ended December 31, 2017 compared to the same period last year mitigated the Adjusted
EBITDA shortfall for the fourth quarter ended December 31, 2017 compared to the fourth quarter ended December 31, 2016.

Real Estate

Adjusted EBITDA less CAPEX for the Real Estate segment amounted to a loss of $1.5 million for the three-month period ended December 31, 2017 as compared to a
loss of $0.6 million for the same period last year. The decrease for the fourth quarter ended December 31, 2017 is mainly due to lower Adjusted EBITDA. Capital
expenditures remained stable for the fourth quarter ended December 31, 2017 compared to the same period last year.

Other
Adjusted EBITDA less CAPEX for the Other segment remained stable and amounted to $0.7 million for the three-month periods ended December 31, 2017 and 2016.

Depreciation and Amortization

Depreciation and amortization amounted to $24.4 million during the fourth quarter of 2017 compared to $27.7 million during the fourth quarter in 2016. The charge for the
three-month period ended December 31, 2017 is primarily associated with capital expenditures for the deployment of systems and platforms and leasehold
improvements in association with office moves as well as amortization of the intangible assets related to the acquisition of JUICE. In addition, subsequent to the
impairment testing performed as at December 31, 2016, we revised the useful life of the non-competition agreements to reflect the revised period over which benefits
were expected to be incurred. As a result, the expected decrease in the amortization of the non-competition agreements resulting from the impairment charge taken in
2016 was offset by the impact of the shortened useful life.

Impairment of Intangible Assets and Goodwill

In the context of its annual impairment testing during the fourth quarter of 2017 and as a result of a shortfall in revenues in the Yellow Pages and Other CGUs
compared to previous estimates and uncertainty with regards to future long-term trends, the Company revised estimates of future cash flows to reflect recent historical
trends as the basis. In conjunction, the Company recorded an impairment loss of $500 million in the Yellow Pages and Other CGUs as the carrying value of the Yellow
Pages and Other CGUs exceeded their recoverable amount. The impairment loss was applied to trademarks and non-competition agreements of the Yellow Pages
CGU and primarily to goodwill of the Other CGUS. During the fourth quarter of 2017, the Company also impaired $7 million of assets that were decommissioned,
namely software.

The impairment charge is a non-cash item and does not affect the Company’s debt covenants.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 7

Management’s Discussion and Analysis

Restructuring and Other charges

During the fourth quarter of 2017, we recorded restructuring and other charges of $17.6 million associated primarily with lease contracts related to office closures,
internal reorganizations and workforce reductions. During the fourth quarter of 2016, we recorded restructuring and other charges of $7.5 million associated primarily with
internal reorganizations and workforce reductions, as well as transaction costs associated with business acquisitions.

Financial Charges

Financial charges increased by $2.0 million to $14.6 million during the fourth quarter of 2017 compared to $12.7 million for the same period in 2016. The increase is due to
the issuance of $315 million principal amount 10.00% senior secured notes on October 19, 2017. The Company used the net proceeds from the sale of the 10.00%
senior secured notes to redeem on November 18, 2017 all of its 9.25% senior secured notes due November 30, 2018.

Provision for (Recovery of) Income Taxes

The combined statutory provincial and federal tax rates were 26.8% and 26.9% for the three-month periods ended December 31, 2017 and 2016, respectively. During the
fourth quarter of 2017, the Company recorded a provision for income taxes of $69.4 million comprised of a recovery of income taxes of $134.5 million and a valuation
allowance of the same amount associated with an impairment loss of $500 million on its intangible assets and goodwill recorded during the fourth quarter of 2017.
Furthermore, the Company recognized a reversal of tax attributes and deductible temporary differences representing an income tax expense of approximately
$75 million during the fourth quarter of 2017. These expenses are non-cash items.

In comparison, the Company recorded a recovery of income taxes of $159.3 million during the fourth quarter of 2016, comprised of a recovery of $161 million associated
with the impairment loss of $600 million on certain of its intangible assets. The recovery of income taxes of $161 million is a non-cash item.

The difference between the effective and the statutory rates for the fourth quarter of 2017 is mainly due to the reversal and the non-recognition of tax attributes and
deductible temporary differences from the current and previous years. The difference between the effective and the statutory rates for the fourth quarter of 2016 is due to
the non-deductibility of certain expenses for tax purposes.

Loss from Investment in a Jointly Controlled Entity

On September 29, 2017, 9778730 Canada Inc., which held 100% of Coupgon Inc., ceased operations and the net book value of the investment of $0.7 million was
written off. We recorded a loss from our investment in an associate in the amount of $0.3 million during the fourth quarter of 2017 related to closure costs. We recorded a
loss from our investment in a jointly controlled entity in the amount of $0.4 million during the fourth quarter of 2016.

Net loss

We recorded net losses of $586.4 million and $431.6 million during the fourth quarters of 2017 and 2016, respectively. The net losses for the fourth quarter of 2017 and
2016 were due to charges of $507 million and $600 million in the fourth quarter of 2017 and 2016, respectively, related to the impairment of intangible assets and
goodwill. The net loss for the three-month period ended December 31, 2017 was also impacted by the reversal of tax attributes and deductible temporary differences
representing an income tax expense of $75 million.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 8

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

Capital Structure
(In thousands of Canadian dollars, except percentage information)

As at December 31,

Cash

10.00% senior secured notes

9.25% senior secured notes

Exchangeable debentures

Obligations under finance leases

Net debt

Equity

Total capitalization

Net debt to total capitalization

2017

46,405

308,898

−−
94,067

215

356,775

(218,796)

137,979

258.6%

2016

17,260

−
309,669

92,174

359

384,942

368,904

753,846

51.1%

Net Debt To Latest Twelve-
Month Adjusted EBITDA1 Ratio

Capital Structure
(In millions of canadian dollars)

$(218)

$357

Dec. 31, 2017

Dec. 31, 2016

1.9

1.6

Dec. 31, 2017

Dec. 31, 2016

Total Equity

$369
Net Debt

$385

As at December 31, 2017, Yellow Pages had $356.8 million of net debt, compared to $384.9 million as at December 31, 2016.
The net debt to Latest Twelve-Month Adjusted EBITDA1 ratio as at December 31, 2017 was 1.9 times compared to 1.6 times as at December 31, 2016. The increase is
mainly due to lower Adjusted EBITDA.

1 Latest twelve-month income from operations before depreciation and amortization, impairment of intangible assets and goodwill, and restructuring and other charges (Latest Twelve-Month Adjusted EBITDA).
Latest Twelve-Month Adjusted EBITDA is a non-IFRS measure and may not be comparable with similar measures used by other publicly traded companies. Please refer to pages 2 and 3 for a definition of
Adjusted EBITDA.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

2 9

Management’s Discussion and Analysis

Asset-Based Loan

In August 2013, the Company, through its subsidiary Yellow Pages Digital & Media Solutions Limited, entered into a five-year $50 million asset-based loan (ABL)
expiring in August 2018. The ABL is being 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 is secured by a first priority lien over the receivables of the Company. Interest is
calculated based either on the BA Rate or the Prime Rate plus an applicable margin. 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 December 31, 2017, the Company had $6.4 million of letters of credit issued and outstanding under
the ABL. As such, $43.6 million of the ABL was available as at December 31, 2017. As at December 31, 2017, the Company was in compliance with all covenants
under the loan agreement governing the ABL.

On October 19, 2017, the Company entered into an Amended and Restated Loan and Security Agreement to extend the term of the ABL to August 2022 as well as
reduce certain rates and fees.

10.00% Senior Secured Notes

Mandatory Redemption

Pursuant to the indenture governing the New Notes, the Company is required to use an amount equal to 100% of its consolidated Excess Cash Flow and any
designated net proceeds from asset sales for the immediately preceding mandatory redemption period to redeem the New Notes, on a semi-annual basis on the last
day of May and November of each year, commencing on May 31, 2018, at a redemption price equal to 100% of the principal amount, subject to the Company
maintaining a minimum cash balance of $20 million on the last day of the mandatory redemption period. The Company is required to use 75% of its consolidated
Excess Cash Flow to redeem the New Notes if the consolidated leverage ratio on the last day of the mandatory redemption period is no greater than 1.5 to 1. Excess
Cash Flow, as defined in the indenture governing the New Notes, means adjusted cash flows from operating activities, adjusted for the following items, as reported in
the Company’s consolidated statement of cash flows: capital expenditures subject to certain maximum amounts as provided in the indenture governing the New Notes,
repayment of the New Notes other than in connection with a mandatory redemption and any principal payments made in respect of the Company’s lease liability.

Optional Redemption

At any time prior to November 1, 2018, the Company may, at its option, redeem all or part of the New Notes at 103% of the aggregate principal amount, plus accrued
and unpaid interest. From November 1, 2018 to October 31, 2019, the Company may, at its option, redeem all or part of the New Notes at 102% of the aggregate
principal amount, plus accrued and unpaid interest. From November 1, 2019 to October 31, 2020, the Company may, at its option, redeem all or part of the New Notes
at 101% of the aggregate principal amount, plus accrued and unpaid interest. Beginning on November 1, 2020, the Company may, at its option, redeem all or part of
the New Notes at 100% of the aggregate principal amount, plus accrued and unpaid interest.

The New Notes are guaranteed by Yellow Pages Limited and its subsidiaries, other than Yellow Pages Digital & Media Solutions Limited as issuer of the New Notes,
(collectively, the Guarantors) and secured by first-priority liens and security interests, subject to permitted liens, in substantially all of the assets (other than the assets
securing the Company’s ABL) now owned or hereafter acquired by Yellow Pages Digital & Media Solutions Limited and the Guarantors, and second-priority liens and
security interests, subject to permitted liens, in the assets securing the ABL. The New Notes are senior secured obligations of Yellow Pages Digital & Media Solutions
Limited. The New Notes rank equally in right of payment with all indebtedness of Yellow Pages Digital & Media Solutions Limited that is not expressly subordinated in
right of payment to the New Notes, and rank senior in right of payment to all existing and future subordinated indebtedness of Yellow Pages Digital & Media Solutions
Limited.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

3 0

Management’s Discussion and Analysis

Certain Covenants

The indenture governing the New Notes limits or affects the Company’s ability to, among other things, incur additional indebtedness, pay dividends or make other
distributions or repurchase or redeem certain indebtedness or capital stock, make loans and investments, sell assets, incur certain liens, enter into transactions with
affiliate and consolidate, merge or sell all or substantially all of its assets. Such covenants are subject to certain limitations and exceptions as provided in the indenture
governing the New Notes.

As at December 31, 2017, the Company was in compliance with all covenants under the indenture governing the New Notes.

9.25% Senior Secured Notes

On December 20, 2012, the Company, through its subsidiary Yellow Pages Digital & Media Solutions Limited, issued $800 million of 9.25% senior secured notes (the
Senior Secured Notes) maturing November 30, 2018. Interest on the Senior Secured Notes was payable in cash, quarterly in arrears, in equal instalments on the last
day of February, May, August and November of each year. The Company used the net proceeds from the sale of the New Notes to redeem on November 18, 2017 all
of its Senior Secured Notes due November 30, 2018, including accrued and unpaid interest up to but excluding the redemption date. The total redemption price was
$1,020.2986 for each $1,000 principal amount of Senior Secured Notes, including interest of $20.2986.

Exchangeable Debentures

On December 20, 2012, the Company, through its subsidiary Yellow Pages Digital & Media Solutions Limited, issued $107.5 million of senior subordinated
exchangeable debentures (the Exchangeable Debentures) due November 30, 2022. As at December 31, 2017 and 2016, the face value of the Exchangeable
Debentures was $107.1 million. As at December 31, 2017, the value of the Exchangeable Debentures less unaccreted interest was $94.1 million compared to
$92.2 million as at December 31, 2016.

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 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, 2017, 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 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 repaid 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

3 1

Credit Ratings
DBRS Limited

B (high)/Issuer rating – stable outlook

BB (low)/Credit rating for Senior Secured Notes

B (low)/Credit rating for Exchangeable Debentures

Liquidity

Management’s Discussion and Analysis

Standard and Poor’s Rating Services

B-/Corporate credit rating – stable outlook

B+/Credit rating for Senior Secured Notes

CCC/Credit rating for Exchangeable Debentures

The Company’s principal source of liquidity is cash generated from operations and cash on hand. The Company expects to generate sufficient liquidity in the short term
and the long term to fund capital expenditures, working capital requirements and current obligations, and service its outstanding debt obligations. As at
February 7, 2018, the Company had approximately $52.8 million of cash and $43.8 million available under the ABL.

Options

On December 20, 2012, as part of the implementation of Yellow Pages 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 (the Participants) of Yellow Pages 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 Pages through the transition and transformation of
its business and to more closely align the interests of management with those of the shareholders of Yellow Pages Limited. A maximum of 1,290,612 stock options
may be granted under the Stock Option Plan.

The stock options expire approximately seven years after the grant date and Participants are required to hold 25% of the common shares received pursuant to the
exercise of the stock options until the Participants meet the ownership guidelines which apply to their respective position.

Share Data

Outstanding Share Data

As at

Common shares outstanding
Exchangeable Debentures outstanding1
Common share purchase warrants outstanding

Stock options outstanding²

February 7, 2018

December 31, 2017

December 31, 2016

28,075,308

5,624,422

2,995,484

1,021,450

28,075,306

5,624,422

2,995,486

1,024,550

28,075,304

5,624,422

2,995,488

630,950

1 As at February 7, 2018, Yellow Pages had $107.1 million principal amount of Exchangeable Debentures outstanding, which amount is exchangeable into 5,624,422 common shares of Yellow Pages Limited at an

exchange price of $19.04, subject to adjustment for specified transactions pursuant to the indenture governing the Exchangeable Debentures.

2 Included in the stock options outstanding balance of 1,021,450 and 1,024,550 as at February 7, 2018 and December 31, 2017, respectively, are 281,325 stock options exercisable as at those dates. Included in the

stock options outstanding balance of 630,950 as at December 31, 2016 are 186,550 stock options exercisable as at that date.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

3 2

Contractual Obligations and Other Commitments

Management’s Discussion and Analysis

Contractual obligations
(in thousands of Canadian dollars)

Long-term debt1,2
Obligations under finance leases
Exchangeable Debentures1

Operating leases

Other

Total

1 year

2 – 3 years

4 – 5 years

After 5 years

Payments due for the years following December 31, 2017

315,000

54,800

215

107,089

236,978

47,420

139

−
14,336

24,981

94,256

−
76

−
31,714

16,155

47,945

260,200

−
107,089

28,921

3,967

−
−
−
162,007

2,317

400,177

164,324

Total contractual obligations

706,702

1 Principal amount.
2 The repayment of the New Notes may vary subject to the Excess Cash Flow under the indenture governing the New Notes as well as the minimum cash balance requirement on the last day of the mandatory

redemption period under the indenture governing the New Notes.

Obligations under finance leases

We enter into finance lease agreements for office equipment and software. As at December 31, 2017, minimum payments under these finance leases up to 2019
totalled $0.2 million.

Operating leases

We rent our premises and office equipment under various operating leases. As at December 31, 2017, minimum payments under these operating leases up to 2034
totalled $237.0 million and include anticipated net obligations associated with vacated premises that have been recognized in restructuring.

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 2017 and 2038. We also have purchase obligations under service contracts for both operating and capital expenditures. As at
December 31, 2017, we have an obligation to purchase services for $47.4 million over the next five years and thereafter. Cash from operations will be used to fund
these purchase obligations.

Pension Obligations

YP sponsors a pension plan registered with the Canada Revenue Agency and the Financial Services Commission of Ontario with defined benefit (DB) for employees
hired prior to January 1, 2006, and defined contribution (DC) components for the non-Québec based employees hired on or after January 1, 2006 (the YP Pension
Plan) as well as a DC plan registered with the Régie des Rentes du Québec (the YP Québec 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, 2017, the DB component of the YP Pension Plan’s assets totalled $505.2 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 9.5% for 2017, 0.7% above our benchmark portfolio.

The most recent actuarial valuation of the defined benefit component of the YP Pension Plan for funding purposes was performed as at March 31, 2017. The March
2017 valuation resulted in a solvency deficit of $50.0 million to be funded over a five-year period. The next actuarial valuation will be as at March 31, 2020.

In 2017, the Company made annual contributions equivalent to the current service cost (the Annual Employer Cost) of $25.0 million, including $12.3 million to fund the
deficit. Total cash payments are expected to amount to $17.8 million for 2018, of which $6.9 million will be to fund the deficit.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

3 3

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

For the years ended December 31,

Cash flows from operating activities

Cash flows from operations, excluding change in operating assets and liabilities

Change in operating assets and liabilities

Cash flows used in investing activities

Additions to intangible assets

Additions to property and equipment

Purchase of available-for-sale investments

Business acquisitions

Investment in a jointly controlled entity

Cash flows used in financing activities

Issuance of long-term debt, net of discount

Repayment of long-term debt

Debt issuance costs

Purchase of restricted shares

Issuance of common shares upon exercise of stock options

NET INCREASE (DECREASE) IN CASH

CASH, BEGINNING OF YEAR

CASH, END OF YEAR

Cash flows from operating activities

Management’s Discussion and Analysis

2017

2016

133,186

(17,842)

115,344

(37,297)

(30,412)

(5,452)

(400)

(680)

(74,241)

308,700

(309,813)

(7,716)

(3,129)

−−

(11,958)

29,145

17,260

46,405

167,547

(9,434)

158,113

(50,787)

(12,719)

(50)

(35,271)

(1,597)

(100,424)

−
(97,325)

−
(10,472)

115

(107,682)

(49,993)

67,253

17,260

Cash flows from operations, excluding change in operating assets and liabilities

Cash flows from operations decreased by $34.4 million from $167.5 million for the year ended December 31, 2016 to $133.2 million for the same period in 2017. Cash
flows from operations in 2017 were impacted by lower cash Adjusted EBITDA of $57.8 million, partially offset by lower payments for restructuring and other charges
and lower interest paid.

Change in operating assets and liabilities

The change in operating assets and liabilities for the year ended December 31, 2017 generated an outflow of $17.8 million compared to $9.4 million for the same
period last year. The outflow for the year ended December 31, 2017 was due principally to a higher level of trade receivables and accounts payable as well as the
payment of annual variable incentive compensation provisioned for as at December 31, 2016, partially offset by the variable incentive compensation for the year ended
December 31, 2017. The outflow for the year ended December 31, 2016 was due to a higher level of trade receivables associated primarily with longer collection
cycles in the national advertising industry, lower deferred revenues mainly due to declining revenues, and a decrease in trade payables, partially offset by the receipt of
a settlement of sales tax assessments of $16.6 million.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

3 4

Management’s Discussion and Analysis

Cash flows used in investing activities

Cash used in investing activities amounted to $74.2 million for the year ended December 31, 2017 compared with $100.4 million for the same period last year. During
the year ended December 31, 2017, we invested in software development in the amount of $37.3 million and office and computer equipment and leasehold
improvements associated with office relocations in the amount of $30.4 million. During the year ended December 31, 2016, we invested $50.8 million in software
development and $12.7 million in office and computer equipment and leasehold improvements. Capital expenditures incurred during the year ended
December 31, 2016 and 2017 are related to investments required to maintain the integrity of our infrastructure as well as the development and implementation of new
technologies and software. During the year ended December 31, 2017, we acquired a minority share in Melian Labs, Inc., which operates a cloud-based local
commerce platform called MyTime, for $5.4 million. During the first quarter of 2016, we acquired the net assets of JUICE for a purchase price of $35.3 million.

Cash flows used in financing activities

Cash used in financing activities amounted to $12.0 million for the year ended December 31, 2017 compared to $107.7 million for the same period last year. During the
year ended December 31, 2017, we issued $308.7 million of New Notes, net of a discount of $6.3 million. We used the net proceeds from the sale of the New Notes to
redeem all of our 9.25% Senior Secured Notes that were due to mature November 30, 2018. The total repayments of the 9.25% Senior Secured Notes for 2017
amounted to $309.7 million of the Senior Secured Notes compared to $97.1 million during the same period last year. During the year ended December 31, 2017, we
purchased common shares of Yellow Pages Limited on the open market to fund the Restricted Share Unit and Performance Share Unit Plan at a cost of $3.1 million as
compared to $10.5 million for the same period last year.

Financial and Other Instruments

(See Note 21 of the Audited Consolidated Financial Statements of the Company for the years ended December 31, 2017 and 2016).

The Company’s financial instruments primarily consist of cash, trade and other receivables, trade and other payables, long-term debt and Exchangeable Debentures.

There is no carrying value of embedded derivatives as at December 31, 2017. 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

(In thousands of Canadian dollars)

For the three-month periods and years ended December 31,

2017

2016

2017

2016

Cash flows from operating activities

Capital expenditures

Free cash flow

5. Critical Assumptions and Estimates

27,544

27,874

115,344

158,113

(21,688)

(20,036)

(67,709)

(63,506)

5,856

7,838

47,635

94,607

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 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 Pages’ future results if the current

YELLOW PAGES LIMITED ANNUAL REPORT 2017

3 5

Management’s Discussion and Analysis

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 and equipment.

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

Yellow Pages performed its annual test for impairment of goodwill and indefinite life intangible assets in accordance with the policy described in Note 3.12 of the
Audited Consolidated Financial Statements of Yellow Pages Limited for the years ended December 31, 2017 and 2016.

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 Pages’ impairment reviews are disclosed in Note 7 of the Audited
Consolidated Financial Statements of Yellow Pages Limited for the years ended December 31, 2017 and 2016.

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 Pages’ ability to utilize the underlying future tax
deductions against future taxable income before they expire. Yellow Pages’ assessment is based upon existing tax laws and estimates of future taxable income. If the
assessment of Yellow Pages’ ability to utilize the underlying future tax deductions changes, Yellow Pages 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. 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 in
the foreseeable future.

Yellow Pages is subject to taxation in numerous jurisdictions. Significant judgment 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 Pages 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 Pages 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.

Accounting Standards

The following revised standards are effective for annual periods beginning on January 1, 2017 and their adoption has not had any impact on the amounts in our
consolidated financial statements but may affect the accounting for future transactions or arrangements:

Amendments to IAS 7 −− Statement of Cash Flows

In January 2016, the International Accounting Standards Board (IASB) published amendments to International Accounting Standard (IAS) 7 – Statement of Cash
Flows. The amendments are intended to improve information provided to users of financial statements about an entity’s financing activities, including changes from
financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates and changes
in fair value.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

3 6

Amendments to IFRS 12 −− Disclosure of Interest in Other Entities

In December 2016, the IASB issued amendments to IFRS 12 – Disclosure of Interest in Other Entities as part of its 2014-2016 Annual Improvements Cycle. The
amendment clarifies that the requirement to disclose summarised financial information does not apply for interests in subsidiaries, associates or joint ventures which
are classified, or included in a disposal group that is classified as held for sale in accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued
Operations.

Certain new standards, interpretations and amendments to existing standards have been published and are mandatory for Yellow Pages Limited’s accounting periods
beginning on or after January 1, 2018. The new standards which are considered to be relevant to Yellow Pages Limited’s operations are as follows:

IFRS 15 − Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15 – Revenue from Contracts with Customers. This new standard outlines a single comprehensive model for companies to use
when accounting for revenue arising from contracts with customers. It supersedes the IASB’s current revenue recognition standards, including IAS 18 – Revenue and
related interpretations. The core principle of IFRS 15 is that revenue is recognized at an amount that reflects the consideration to which the company expects to be
entitled in exchange for those goods or services, applying the following five steps:

Management’s Discussion and Analysis

•

Identify the contract with a customer;

Identify the performance obligations in the contract;

• Determine the transaction price;

•

Allocate the transaction price to the performance obligations in the contract; and

• Recognize revenue when (or as) the company satisfies a performance obligation.

This new standard also provides guidance relating to the accounting for contract costs as well as for the measurement and recognition of gains and losses arising from
the sale of certain non-financial assets. Additional disclosures will also be required under the new standard, which is effective for annual reporting periods beginning on
or after January 1, 2018, with earlier application permitted. For comparative amounts, companies have the option of using either a full retrospective approach or a
modified retrospective approach as set out in the new standard. The IASB published the final clarifications to IFRS 15 in April 2016, which do not change the underlying
principles of the standard yet clarify how the principles should be applied.

The adoption of IFRS 15 is expected to have an impact on the timing of recognition of revenues for print products as well as the deferral of related publication costs and the
inclusion of required disclosures in the consolidated financial statements of Yellow Pages Limited. Upon adoption of IFRS 15, print revenues will be recognized upon
delivery of the print directories instead of over the term of the publication period of twelve months. Similarly, deferred publication costs will be deferred and recognized
when the related print revenue is recognized. In addition, the accounting for IFRS 15 is subject to other adjustments, such as recognition of commissions.

Based on the preliminary assessment, when Yellow Pages Limited applies IFRS 15 for the first time for the year ending December 31, 2018, total assets as at
January 1, 2017 will increase by approximately $30 million, total liabilities will decrease by $1 million and deficit will be reduced by approximately $31 million. Net
earnings for the year ended December 31, 2017 will decrease by approximately $8 million with the corresponding decrease in deficit. Basic and diluted loss per share
will decrease by $0.31. Total assets as at December 31, 2017 will increase by approximately $23 million with the corresponding decrease in deficit.

IFRS 9 − Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 – Financial Instruments. IFRS 9 replaces the requirements in IAS 39 – Financial Instruments: Recognition and
Measurement for classification and measurement of financial assets and liabilities. The new standard introduces a single classification and measurement approach for
financial instruments, which is driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces
existing rule-based requirements and results in a single impairment model being applied to all financial instruments. IFRS 9 also modified the hedge accounting model
to incorporate the risk management practices of an entity.

Additional disclosures will also be required under the new standard. The new standard will come into effect for annual periods beginning on or after January 1, 2018
with early adoption permitted. IFRS 9 is not expected to have a significant impact on the consolidated financial statements of Yellow Pages Limited.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

3 7

Management’s Discussion and Analysis

IFRS 16 −− Leases

In January 2016, the IASB issued IFRS 16 – Leases. It supersedes the IASB’s current lease standard, IAS 17, which required lessees and lessors to classify their
leases as either finance leases or operating leases and to account for those two types of leases differently. It did not require lessees to recognize assets and liabilities
arising from operating leases, but it did require lessees to recognize assets and liabilities arising from finance leases.

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. It introduces a single lessee accounting model and requires a
lessee to recognize assets and liabilities for all leases with a term of more than twelve months and for which the underlying asset is not of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease
payments. The right-of-use asset is initially measured at cost and subsequently depreciated. The lease liability is initially measured at the present value of the lease
payments and subsequently adjusted for interest and lease payments. This accounting is subject to certain exceptions and other adjustments.

IFRS 16 contains disclosure requirements for lessees and lessors. This new standard will come into effect for annual periods beginning on or after January 1, 2019.
Earlier application is permitted for companies that apply IFRS 15 – Revenue from Contracts with Customers at or before the date of initial application of IFRS 16.

Based on its preliminary assessment, Yellow Pages Limited has identified lease contracts, virtually all are for office rentals, for which recognition will change under
IFRS 16. The recognition of the leased assets and their related liabilities will increase income from operations before depreciation and amortization, impairment of
intangible assets and goodwill, and restructuring and other charges, with a corresponding combined increase in depreciation and amortization and financial charges as
at the date of application of IFRS 16. Management intends to early adopt IFRS 16 for the annual period beginning on January 1, 2018.

Based on management’s preliminary assessment, when Yellow Pages Limited applies IFRS 16 for the first time for the year ending December 31, 2018, total assets as
at January 1, 2017 will increase by approximately $40 million with an increase to total liabilities of approximately $45 million and deficit will be reduced by $5 million.
Net earnings for the year ended December 31, 2017 will decrease by approximately $0.1 million with the corresponding adjustment in opening deficit. Basic and diluted
loss per share will decrease by $0.01. Total assets as at December 31, 2017 will increase by approximately $52 million with an increase in total liabilities of
approximately $57 million and deficit will be reduced by $5 million.

Amendments to IFRS 2 − Share-based Payment

In June 2016, the IASB published amendments to IFRS 2 − Share-based Payment. The amendments clarify that the accounting for the effects of vesting and non-
vesting conditions on cash-settled share-based payments follow the same approach as for equity-settled share-based payments. The amendments also clarify the
classification of share-based payment transactions with net settlement features as well as require additional disclosures for these transactions. They are effective for
annual periods beginning on or after January 1, 2018, applied prospectively, with earlier adoption permitted. The amendments to IFRS 2 are not expected to have a
significant impact on the consolidated financial statements of Yellow Pages Limited.

IFRIC 22 − Foreign Currency Transactions and Advance Consideration

In December 2016, the IASB issued an interpretation paper IFRIC 22 – Foreign Currency Transactions and Advance Consideration. This interpretation paper clarifies
that the foreign exchange rate applicable to transactions involving advance consideration paid or received is the rate at the date that the advance consideration is paid
or received and a non-monetary asset or liability is recorded, and not the later date at which the related asset or liability is recognized in the financial statements. This
interpretation is applicable for annual periods beginning on or after January 1, 2018, and can be applied either prospectively or retrospectively, at the option of the
entity. IFRIC 22 is not expected to have a significant impact on the consolidated financial statements of Yellow Pages Limited.

IFRIC 23 − Uncertainty over Income Tax Treatments

In June 2017, the IASB issued an interpretation paper IFRIC 23 – Uncertainty over Income Tax Treatments. This interpretation paper clarifies that in determining its
taxable profit or loss when there is uncertainty over income tax treatments, an entity must use judgment and apply the tax treatment that is most likely to be accepted
by the tax authorities. In assessing the likelihood that the tax treatment will be accepted, the entity assumes that the tax treatment will be examined by the relevant tax
authorities having full knowledge of all relevant information. This interpretation is applicable for annual periods beginning on or after January 1, 2019, with early
adoption accepted. Yellow Pages is evaluating the impact this interpretation paper will have on its consolidated financial statements.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

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Management’s Discussion and Analysis

6. Risks and Uncertainties

The following section examines the major risks and uncertainties that could materially affect YP’s future business results.

Understanding and managing risks are important parts of YP’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 YP, 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.

YP 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.

A prolonged economic downturn in principal markets of the Corporation could have a material adverse effect on the Corporation, its business, results from
operations and financial condition

The Corporation derives revenues principally from the sale of advertising in Yellow Pages print and digital directories across Canada. The Corporation’s advertising
revenues, as well as those of directories publishers in general, typically do not fluctuate widely with economic cycles. However, a prolonged economic downturn or
recession affecting the Corporation’s markets, or any deterioration in general economic conditions, could have a material adverse effect on the Corporation’s business.
The adverse effects of an economic downturn or recession on the Corporation could be compounded by the fact that the majority of the Corporation’s customers are
SMEs. Such businesses have fewer financial resources and higher rates of failure than larger businesses, and may be more vulnerable to prolonged economic
downturns. Therefore, these SMEs may be more likely to reduce or discontinue advertising with the Corporation, which 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 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 products providing information,
formerly exclusively available in print directories, 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 mobile 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

YELLOW PAGES LIMITED ANNUAL REPORT 2017

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Management’s Discussion and Analysis

advertising revenues. References to print business directories may decline faster than expected as users increasingly turn to digital and interactive media delivery
devices for local commercial search information.

The inability of the Corporation to attract, retain and upsell customers could have a material adverse effect on the Corporation, its business, results from
operations and financial condition

The Corporation’s revenues remain adversely impacted by a lower customer count. Failure to provide existing customers with marketing solutions that meet their key
marketing objectives and generate return on investment may limit the Corporation’s ability to retain existing customers. In addition, the inability of the Corporation’s
customer acquisition strategies and channels to find and attract new customers may limit the Corporation’s ability to grow its total customer count. These events 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 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 usage on its digital properties 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 digital
properties and provide new services and 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 digital
properties, or its advertising customers’ digital properties, 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 grow their investment in digital advertising; and

the Corporation may be unable to increase or maintain 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

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Management’s Discussion and Analysis

The inability of the Corporation to supply the relationships and technologies required to appropriately service the needs of its national customers could
have a material adverse effect on the Corporation, its business, results from operations and financial condition

The Corporation anticipates that it will continue to depend on various third-party relationships in order to grow its business, such as technology and content providers,
real-time advertising exchanges and other strategic partners. The Corporation may not be able to maintain such relationships and these third parties may experience
disruptions or performance problems, which could negatively affect the Corporation’s efficiency and reputation.

In addition, the Corporation relies heavily on information technology systems to manage critical functions of its digital and mobile marketing solutions. The future
success of the Corporation will depend in part upon its ability to continuously enhance and improve its existing solutions in a timely manner with features and pricing
that meet changing advertiser needs. As marketing via new digital advertising channels, such as mobile advertising is emerging, it may evolve in unexpected ways,
and the failure of the Corporation to adapt successfully to market evolution could have a material adverse effect on the Corporation, its business, results of operations
and financial condition.

A higher than anticipated proportion of revenues coming from the Corporation’s digital products with lower margins, such as services and resale, could
have a material adverse effect on the Corporation’s profitability

Digital advertising sold on the Corporation’s owned and operated media currently operate at the highest level of profitability relative to digital service (websites, search
engine optimization, content syndication and Facebook) solutions and resale (SEM) solutions. Revenues sourced from digital service and resale solutions that are
proportionally materially higher than anticipated may have an adverse impact on the Corporation’s profitability.

Failure by the Corporation to stabilize or grow its revenues and customer base

The Corporation's revenues remain adversely impacted by a lower customer count. Failure to provide existing customers with marketing solutions that meet their key
marketing objectives and generate return on investment may limit the Corporation's ability to retain existing customers. In addition, the inability of the Corporation's
customer acquisition strategies and channels to find and attract new customers may limit the Corporation's ability to grow its total customer count. These events could
have a material adverse effect on the Corporation, its business, results from operations and financial condition.

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 and ISIT employees. The loss of the services
of such key personnel could have a material adverse effect on the Corporation, its business, its results from operations and financial condition.

The Corporation’s business depends on the usage of its online and mobile properties and failure to protect traffic across the Corporation’s digital
properties could impair its ability to grow revenues and expand its business

The success of numerous of our customers’ marketing campaigns is dependent on how well they can attract valuable audiences. The Corporation will invest in order to
protect digital audiences across its network of online and mobile properties by enhancing the quality, completeness and relevance of the content distributed to its
properties, and by providing compelling verticalized sites and applications for local discovery. The Corporation may not be able to protect or grow traffic across its
digital properties and such investments may not prove to be cost-effective. There can be no assurance that current traffic or potential growth in traffic across the
Corporation’s digital properties may maintain or increase advertising customer renewal rates and/or annual spending, or lead to a measurable increase in advertising
customers.

Failure by either the Corporation or the Telco Partners to fulfill their 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 four billing and collection services agreements with Bell Canada (for itself and as a successor to Bell Aliant Communications LP and MTS Inc.) (Bell) and
expire on December 31, 2018. The agreement with TELUS Communications Inc. (TELUS) expires in 2031. Through these agreements, our billing is included as a
separate line item on the telephone bills of Bell and TELUS customers who use our services. Bell and TELUS (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 the Corporation with
those customers who are also their customers. Additionally, the Corporation has entered into publishing agreements with each Telco Partner. If the Corporation fails to
perform its obligations under these agreements and the agreements are consequently terminated by such Telco Partner, other agreements with such Telco Partners

YELLOW PAGES LIMITED ANNUAL REPORT 2017

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Management’s Discussion and Analysis

may also be terminated, including the Bell Canada Trademark License Agreement, the TELUS Trademark License Agreement, the MTS Inc. Branding and Trademark
Agreement and the Bell Canada Inc. 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 our other suppliers to fulfill their contractual obligations under these agreements could result in a material adverse effect on
our business.

Customers who do not use the Telco Partners as their local telephone provider as well as all new customers are billed directly by the Corporation.

Work stoppages and other labour disturbances could have a material adverse effect on the Corporation, its business, results from operations and financial
condition

Certain non-management employees of the Corporation are unionized. Current union agreements range between one to five years in duration and are subject to
expiration at various dates in the future. Four of these agreements have expired and are being renegotiated. If the Corporation 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 our 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

In the normal course of the Corporation'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 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 of service provided by mapping applications and search engines could have a material adverse effect
on the Corporation, its business, results from operations and financial condition

The Corporation has entered into agreements with mapping applications and search engines to promote its online directories. These agreements facilitate access to
the Corporation’s content and customer advertising, 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. Loss of key relationships or changes in the level of service provided by the mapping applications and
search engines 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 foregoing 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

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 media properties, 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 ISIT systems may be 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

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Management’s Discussion and Analysis

Declines in, or changes to, the real estate industry could have a material adverse effect on the Corporation, its business, results from operations and
financial condition

On July 1, 2015, Yellow Pages acquired CFDP, growing the Corporation into a leading digital real estate marketplace. As a result of the acquisition, the Corporation
has a greater presence in the real estate listing business. The CFDP business and financial performance are affected by the health of, and changes to, the real estate
industry. Home-buying patterns are sensitive to economic conditions and tend to decline or grow more slowly during economic downturns. A decrease in real estate
activities could lead to reductions in the purchase of package offerings by home sellers. CFDP is subject to rules and regulations in the real estate industry, which may
change from time to time in a way that may restrict or complicate CFDP’s ability to deliver its products and harm CFDP’s business and operating results. Declines or
disruptions in the real estate market could reduce demand for CFDP’s products and could harm its business and operating results. This 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 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. The Corporation’s ability to generate sufficient
funds from operations, debt financings, equity financings or refinancing transactions is, to a large extent, subject to economic, financial, competitive, operational and
other factors, many of which are beyond the Corporation’s control.

There can be no assurance that the Corporation will continue to be able to obtain on a timely basis sufficient funds on terms acceptable to the Corporation to provide
adequate liquidity and to finance the operating and capital expenditures necessary to overcome the challenges associated with the evolution 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 amount of debt 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 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, 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 or access to capital to repay in full that indebtedness.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

4 3

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 materially negative effect on the Corporation’s liquidity
and results from operations. The Corporation is currently making incremental contributions to its pension 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 materially 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 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.

Management’s Discussion and Analysis

7. Controls and Procedures

As a public entity, we must take steps to ensure that material information regarding our reports filed or submitted under securities legislation fairly presents the financial
information of YP. 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 (as 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, 2017.

Internal Control over Financial Reporting (ICFR)

The design and effectiveness of ICFR (as defined in National 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, 2017.

During the quarter beginning on October 1, 2017 and ended on December 31, 2017, no changes were made to the Company’s ICFR that has materially affected, or is
reasonably likely to materially affect, the Company’s ICFR.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

4 4

Independent Auditor’s Report

To the Shareholders of Yellow Pages Limited

We have audited the accompanying consolidated financial statements of Yellow Pages Limited, which comprise the consolidated statements of financial position as at
December 31, 2017 and December 31, 2016, and the consolidated statements of loss, consolidated statements of comprehensive 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 Pages Limited as at December 31, 2017 and
December 31, 2016, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

(signed) Deloitte LLP

February 8, 2018

Montréal, Québec

____________________
1 CPA auditor, CA, public accountancy permit No. A125494

YELLOW PAGES LIMITED ANNUAL REPORT 2017

4 5

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

As at

ASSETS
CURRENT ASSETS

Cash
Trade and other receivables (Note 21)
Prepaid expenses
Deferred publication costs
Income taxes receivable (Note 13)

TOTAL CURRENT ASSETS
NON-CURRENT ASSETS

Deferred publication costs
Financial and other assets (Notes 11 and 21)
Investment in a jointly controlled entity (Note 5)
Property and equipment (Note 6)
Intangible assets (Note 7)
Goodwill (Note 7)
Deferred income taxes (Note 13)

TOTAL NON-CURRENT ASSETS
TOTAL ASSETS

LIABILITIES AND EQUITY
CURRENT LIABILITIES

Trade and other payables (Note 8)
Provisions (Note 9)
Deferred revenues
Current portion of long-term debt (Note 11)

TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES

Provisions (Note 9)
Deferred lease inducements (Note 20)
Deferred income taxes (Note 13)
Post-employment benefits (Note 10)
Long-term debt (Note 11)
Exchangeable debentures (Note 12)

TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
CAPITAL AND RESERVES
DEFICIT
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY

December 31, 2017

December 31, 2016

46,405
124,051
8,760
53,579
3,214
236,009

6,778
13,338
−−
51,161
193,352
26,829
2,447
293,905
529,914

83,628
47,558
14,741
54,939
200,866

14,371
17,749
24,111
143,372
254,174
94,067
547,844
748,710
6,595,521
(6,814,317)
(218,796)
529,914

17,260
114,854
8,934
61,144
3,057
205,249

7,936
4,008
1,157
36,194
740,932
45,342
59,119
894,688
1,099,937

79,493
53,010
18,927
75,161
226,591

4,327
11,821
7,081
154,172
234,867
92,174
504,442
731,033
6,597,891
(6,228,987)
368,904
1,099,937

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

Approved on behalf of Yellow Pages Limited by

Robert F. MacLellan, Director

David A. Lazzarato, Director

YELLOW PAGES LIMITED ANNUAL REPORT 2017

4 6

Consolidated Statements of Loss
(in thousands of Canadian dollars, except share and per share information)

For the years ended December 31,

2017

2016

Revenues

Operating costs (Note 17)

745,852

561,867

817,979

582,788

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

and restructuring and other charges

Depreciation and amortization (Notes 6 and 7)

Impairment of intangible assets and goodwill (Notes 6 and 7)

Restructuring and other charges (Note 9)

Loss from operations

Financial charges, net (Note 18)

Impairment of available-for-sale investments (Note 21)

Loss before income taxes and loss from investment in a jointly controlled entity

Provision for (recovery of) income taxes (Note 13)

Loss from investment in a jointly controlled entity (Note 5)

Net loss

Basic loss per share

183,985

105,501

507,032

34,400

(462,948)

48,150

3,720

(514,818)

72,405

2,104

(589,327)

(22.32)

235,191

104,882

600,000

22,961

(492,652)

56,130
−
(548,782)

(145,517)

440

(403,705)

(15.23)

Weighted average shares outstanding – basic loss per share (Note 14)

26,399,242

26,500,861

Diluted loss per share

(22.32)

(15.23)

Weighted average shares outstanding – diluted loss per share (Note 14)

26,399,242

26,500,861

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

YELLOW PAGES LIMITED ANNUAL REPORT 2017

4 7

Consolidated Statements of Comprehensive Loss
(in thousands of Canadian dollars)

For the years ended December 31,

2017

2016

Net loss

Other comprehensive (loss) income:

Items that will be reclassified subsequently to net loss

Unrealized loss on available-for-sale investments (Note 21)

Reclassification to loss of impairment of available-for-sale investments (Note 21)

Net change in fair value of derivatives designated as cash flow hedges (Note 21)

Reclassification to loss of derivatives designated as cash flow hedges (Note 21)

Income taxes relating to items that will be reclassified subsequently to net loss

Items that will not be reclassified subsequently to net loss

Actuarial gains (Note 10)

Income taxes relating to items that will not be reclassified subsequently to net loss

Other comprehensive income

Total comprehensive loss

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

(589,327)

(403,705)

(3,720)

3,720

(1,020)

268

(728)

5,461

(1,464)

3,997

3,269

−
−
1,125

(129)

(267)

729

22,101

(5,941)

16,160

16,889

(586,058)

(386,816)

YELLOW PAGES LIMITED ANNUAL REPORT 2017

4 8

Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)

For the years ended December 31,

2017

Shareholders’

capital
(Note 14)

Restricted
shares

Warrants
(Note 14)

Compound
financial
instruments1

Stock-based
compensation
and other
reserves

Reduction
of capital
reserve

Total capital
and reserves

Deficit Total equity

Balance, December 31, 2016

4,031,685 $

(31,848) $

1,456 $

Other comprehensive (loss) income

Net loss

Total comprehensive loss

Restricted shares settled

Restricted shares (Note 16)

Stock options

−
−
−
−
−
−

−
−
−
7,405

(3,129)
−

Balance, December 31, 2017

4,031,685 $

(27,572) $

−
−
−
−
−
−
1,456 $

3,619 $

−
−
−
−
−
−
3,619 $

135,926 $

2,457,053 $

6,597,891 $

(6,228,987) $

368,904

(728)
−
(728)

(7,405)

2,087

(600)

−
−
−
−
−
−

(728)
−
(728)
−
(1,042)

(600)

3,997

3,269

(589,327)

(585,330)
−
−
−

(586,058)
−
(1,042)

(600)

129,280 $

2,457,053 $

6,595,521 $

(6,814,317) $

(218,796)

Balance, December 31, 2015

Other comprehensive income

Net loss

Total comprehensive income (loss)

Restricted shares settled

Restricted shares (Note 16)

Stock options (Note 16)

Exercise of stock options (Note 16)

Shareholders’
capital
(Note 14)
4,031,528 $

Restricted
shares
(24,965) $

Warrants
(Note 14)

Compound
financial
instruments1

1,456 $

3,619 $

Stock-based
compensation
and other
reserves
132,275 $

Reduction
of capital
reserve
2,457,053 $

Total capital
and reserves

6,600,966 $

−
−

−
−
−
−
157

−
−

−
3,589

(10,472)
−
−

−
−

−
−
−
−
−
1,456 $

−
−

−
−
−
−
−
3,619 $

729
−

729

(3,589)

5,578

975

(42)

−
−

−
−
−
−
−

729
−

729
−
(4,894)

975

115

2016

Deficit
(5,841,442) $

Total equity
759,524

16,160

16,889

(403,705)

(387,545)
−
−
−
−

(386,816)
−

(4,894)

975

115

Balance, December 31, 2016

4,031,685 $

(31,848) $

135,926 $

2,457,053 $

6,597,891 $

(6,228,987) $

368,904

¹ The equity component of the exchangeable debentures presented above is net of income taxes of $1.3 million (2016 - $1.3 million).

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

YELLOW PAGES LIMITED ANNUAL REPORT 2017

4 9

Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)

For the years ended December 31,

2017

2016

OPERATING ACTIVITIES

Net loss
Adjusting items

Stock-based compensation expense
Depreciation and amortization
Impairment of intangible assets and goodwill
Restructuring and other charges
Financial charges, net
Impairment of available-for-sale investments
Provision for (recovery of) income taxes
Loss from investment in a jointly controlled entity
Other non-cash items

Change in operating assets and liabilities
Funding of post-employment benefit plans in excess of costs
Restructuring and other charges paid (Note 9)
Interest paid
Income taxes paid, net
Lease incentives received

INVESTING ACTIVITIES

Additions to intangible assets
Additions to property and equipment
Purchase of available-for-sale investments (Note 21)
Business acquisitions (Note 4)
Investment in a jointly controlled entity (Note 5)

FINANCING ACTIVITIES

Issuance of long-term debt, net of discount (Note 11)
Repayment of long-term debt (Note 11)
Debt issuance costs
Purchase of restricted shares (Note 16)
Issuance of common shares upon exercise of stock options (Note 16)

NET INCREASE (DECREASE) IN CASH
CASH, BEGINNING OF YEAR

CASH, END OF YEAR

Supplemental disclosure of cash flow information (Note 19)

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

(589,327)

(403,705)

564
105,501
507,032
34,400
48,150
3,720
72,405
2,104
10,737
(17,842)
(12,395)
(22,632)
(36,111)
(56)
9,094
115,344

(37,297)
(30,412)
(5,452)
(400)
(680)
(74,241)

308,700
(309,813)
(7,716)
(3,129)
−−
(11,958)
29,145
17,260

46,405

7,974
104,882
600,000
22,961
56,130
−
(145,517)
440
9,967
(9,434)
(13,165)
(33,885)
(44,865)
(1,815)
8,145
158,113

(50,787)
(12,719)
(50)
(35,271)
(1,597)
(100,424)

−
(97,325)
−
(10,472)
115
(107,682)
(49,993)
67,253

17,260

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 0

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

1. Description

Yellow Pages Limited, through its subsidiaries, offers local and national businesses access to digital and print media and marketing solutions to reach consumers in all
the provinces and territories of Canada. References herein to Yellow Pages Limited (or the “Company”) represent the financial position, financial performance, cash
flows and disclosures of Yellow Pages Limited and its subsidiaries on a consolidated basis.

Yellow Pages Limited’s registered head office is located at The Nordelec, 1751 Richardson, Montreal, Québec, Canada, H3K 1G6 and the common shares of
Yellow Pages Limited are listed on the Toronto Stock Exchange (“TSX”) under the symbol “Y”.

The Board of Directors (the “Board”) approved the consolidated financial statements for the years ended December 31, 2017 and 2016 and authorized their publication
on February 8, 2018.

2. Revised standards

Standards, interpretations and amendments to published standards adopted with no effect on the consolidated financial statements

The following revised standards are effective for annual periods beginning on January 1, 2017 and their adoption has not had any impact on the amounts reported in
these consolidated financial statements but may affect the accounting for future transactions or arrangements:

Amendments to IAS 7 −− Statement of Cash Flows

In January 2016, the International Accounting Standards Board (“IASB”) published amendments to IAS 7 − Statement of Cash Flows. The amendments are intended to
improve information provided to users of financial statements about an entity’s financing activities, including changes from financing cash flows, changes arising from
obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates and changes in fair value.

Amendments to IFRS 12 – Disclosure of Interest in Other Entities

In December 2016, the IASB issued amendments to IFRS 12 – Disclosure of Interest in Other Entities as part of its 2014-2016 Annual Improvements Cycle. That
amendment clarifies that the requirement to disclose summarised financial information does not apply for interests in subsidiaries, associates of joint ventures which
are classified, or included in a disposal group that is classified as held for sale in accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued
Operations.

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

IFRS 15 − Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15 − Revenue from Contracts with Customers. This new standard outlines a single comprehensive model for companies to use
when accounting for revenue arising from contracts with customers. It supersedes the IASB’s current revenue recognition standards, including IAS 18 − Revenue and
related interpretations. The core principle of IFRS 15 is that revenue is recognized at an amount that reflects the consideration to which the company expects to be
entitled in exchange for those goods or services, applying the following five steps:

Identify the contract with a customer;
Identify the performance obligations in the contract;

•
•
• Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; and
•
• Recognize revenue when (or as) the company satisfies a performance obligation.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 1

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

modified retrospective approach as set out in the new standard. Yellow Pages Limited intends to use the full retrospective approach. The IASB published final
clarifications to IFRS 15 in April 2016, which do not change the underlying principles of the standard yet clarify how the principles should be applied.

The adoption of IFRS 15 will have an impact on the timing of recognition of revenues for print products as well as the deferral of related publication costs and the
inclusion of required disclosures in the consolidated financial statements of Yellow Pages Limited. Upon adoption of IFRS 15, print revenues will be recognized upon
delivery of the print directories instead of over the term of the publication period of twelve months. Similarly, deferred publication costs will be deferred and recognized
when the related print revenue is recognized. In addition, the accounting for IFRS 15 is subject to other adjustments, such as recognition of commissions.

Based on management’s preliminary assessment, when Yellow Pages Limited applies IFRS 15 for the first time for the year ending December 31, 2018, total assets as
at January 1, 2017 will increase by approximately $30 million, total liabilities will decrease by $1 million and deficit will be reduced by approximately $31 million. Net
earnings for the year ended December 31, 2017 will decrease by approximately $8 million with the corresponding decrease in deficit. Basic and diluted loss per share
will decrease by $0.31. Total assets as at December 31, 2017 will increase by approximately $23 million with the corresponding decrease in deficit.

IFRS 9 −− Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 − Financial Instruments. IFRS 9 replaces the requirements in IAS 39 − Financial Instruments: Recognition and
Measurement for classification and measurement of financial assets and liabilities. The new standard introduces a single classification and measurement approach for
financial instruments, which is driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces
existing rule-based requirements and results in a single impairment model being applied to all financial instruments. IFRS 9 also modified the hedge accounting model
to incorporate the risk management practices of an entity.

IFRS 16 − Leases

In January 2016, the IASB issued IFRS 16 − Leases. It supersedes the IASB’s current lease standard, IAS 17, which required lessees and lessors to classify their
leases as either finance leases or operating leases and to account for those two types of leases differently. It did not require lessees to recognize assets and liabilities
arising from operating leases, but it did require lessees to recognize assets and liabilities arising from finance leases.

IFRS 16 contains disclosure requirements for lessees and lessors. This new standard will come into effect for annual periods beginning on or after January 1, 2019.
Earlier application is permitted for companies that apply IFRS 15 − Revenue from Contracts with Customers at or before the date of initial application of IFRS 16.

Based on its preliminary assessment, Yellow Pages Limited has identified lease contracts, virtually all for office rentals, for which recognition will change under IFRS
16. The recognition of the leased assets and their related liabilities will increase income from operations before depreciation and amortization, impairment of intangible
assets and goodwill, and restructuring and other charges, with a corresponding combined increase in depreciation and amortization and financial charges as at the
date of application of IFRS 16. Management intends to early adopt IFRS 16 for the annual period beginning on January 1, 2018.

Based on management’s preliminary assessment, when Yellow Pages Limited applies IFRS 16 for the first time for the year ending December 31, 2018, total assets as
at January 1, 2017 will increase by approximately $40 million with an increase to total liabilities of approximately $45 million and deficit will be reduced by $5 million.
Net earnings for the year ended December 31, 2017 will decrease by approximately $0.1 million with the corresponding adjustment in opening deficit. Basic and
diluted loss per share will decrease by $0.01. Total assets as at December 31, 2017 will increase by approximately $52 million with an increase in total liabilities of
approximately $57 million and deficit will be reduced by $5 million.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 2

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Amendments to IFRS 2 −− Share-based Payment

IFRIC 22 − Foreign Currency Transactions and Advance Consideration

3. Basis of presentation and significant accounting policies

3.1 Statement of compliance

These consolidated financial statements of Yellow Pages 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 Pages Limited.

3.4 Basis of consolidation

3.4.1 Subsidiaries

Subsidiaries that are directly controlled by Yellow Pages Limited or indirectly controlled through other consolidated subsidiaries are fully consolidated. Subsidiaries are
all entities over which Yellow Pages 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 Pages Limited level.

3.4.2 Jointly controlled entities

Jointly controlled entities are all entities over which Yellow Pages Limited has joint control over the entity’s management and operating and financial policy and
generally implies holding 50% of the voting rights.

Investments in jointly controlled entities are accounted for using the equity method and are initially measured at cost. Subsequently, the share in profits or losses of the
jointly controlled entity attributable to equity holders of Yellow Pages 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 3

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

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 Pages Limited in exchange for control of the
acquiree. Transaction costs associated with business acquisitions are recognized in the statement of income (loss), as incurred.

Where a business combination is achieved in stages, Yellow Pages Limited’s previously held interests in the acquired entity are re-measured to fair value at the
acquisition date (the date Yellow Pages Limited attains control) and the resulting gain or loss, if any, is recognized in the statement of income (loss).

3.5 Cash

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

3.6 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.

Financial assets designated as FVTPL are carried at fair value. Changes in fair value are recorded in the statement of income (loss). Held-to-maturity investments and
loans and receivables are measured at amortized cost using the effective interest method. AFS financial assets are recorded at fair value on the date of acquisition,
and are revalued to fair value at each reporting date. The corresponding unrealized gains and losses are recorded in other comprehensive income (“OCI”) and are
reclassified to net income in the statement of income (loss) when realized or when an impairment is determined.

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 trade and other receivables are included in the loans and receivables category.

3.6.1 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.

3.6.2 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.

3.7 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, digital products and services revenues are recognized. An intangible asset is capitalized when the following conditions are met:

Yellow Pages 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 Pages 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 economic life of the directory, digital products and services.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 4

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.8 Property and equipment

Property and equipment are recognized at cost less accumulated depreciation and impairment losses. The various components of property and equipment are
depreciated separately based on 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 statement of income (loss) in the period in which they are
incurred. Yellow Pages 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 Pages 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.

As at December 31, 2017, 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 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 an
individual asset does not generate independent cash inflows, Yellow Pages Limited determines the recoverable amount of the cash generating units (“CGUs”) or group
of CGUs to which the asset belongs.

3.9 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 statement of income (loss), unless they are directly attributable to qualifying assets, in which case they are
capitalized in accordance with Yellow Pages 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 lease inducement liability. The aggregate benefit
of incentives is recognized as a reduction of rental expense on a straight-line basis.

3.10 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 deemed to be 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 5

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

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 Pages 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 statement of
income (loss) 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 Pages 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.

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
Customer-related intangible assets
Trademarks
Domain names
Software
1

Straight-line over shorter of 7 years or life of agreement
Straight-line over a period not exceeding 3 years
Indefinite or straight-line over 10 years1
Indefinite or straight-line over 4 – 12 years
Straight-line over 3 years

Subsequent to consecutive impairment losses incurred during the years ended December 31, 2017 and 2016 in the Yellow Pages CGU and uncertainty with regards to future long-term trends in future cash flows,
the indefinite life trademarks in the Yellow Pages CGU were classified as finite life as at December 31, 2017 and their useful lives were reduced to 10 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. The useful life of certain non-competition agreements was revised as at December 31, 2016 and reduced to 7
years, subsequent to an impairment loss incurred during the year ended December 31, 2016, which indicated a shortened period of future economic benefits.

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 or fair value, as applicable, and the carrying value of the asset, are
recognized in the statement of income (loss) when the asset is de-recognized.

3.11 Goodwill

Goodwill arising on the acquisition of a subsidiary is recognized as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the
excess of the sum of the purchase consideration over the fair value of identifiable net assets acquired.

Goodwill is not amortized. It is reviewed for impairment at least annually or sooner if indicators of impairment exist. Any impairment loss is recognized immediately in
the statement of income (loss) and is not subsequently reversed.

3.12 Impairment of tangible and intangible assets including goodwill

At each reporting date, Yellow Pages 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 Pages Limited estimates the recoverable amount of the CGU or group of CGUs to which the asset
belongs. A CGU is the smallest identifiable group of assets that generate cash inflows that are independent of those from other assets.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 6

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

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 statement of income (loss).

For the purpose of impairment testing of goodwill, goodwill is tested at the CGU level which represents the lowest level where goodwill is monitored for internal
management purposes. Goodwill is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired.

If the recoverable amount of a CGU or group of CGUs is less than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of goodwill
and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. 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 Pages 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 Pages Limited recognizes all financial liabilities, specifically long-term debt,
exchangeable debentures, trade and other payables, 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 statement of income (loss). Transaction costs incurred in
setting up these financial liabilities are recognized immediately as expenses in the statement of income (loss).

Yellow Pages Limited de-recognizes financial liabilities when, and only when, Yellow Pages Limited’s obligations are discharged, cancelled or expire.

3.15 Provisions

Provisions are recognized when Yellow Pages 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 Pages
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 Pages 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

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 7

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, net of any related discount. Debt instruments are subsequently measured at
amortized cost. Issue costs are initially capitalized and presented as financial and other assets on the statement of financial position. They are subsequently amortized
over the term of the debt instrument and presented as financial charges on the statement of income (loss). Accretion of any related discount is recognized over the
term of the debt instrument and presented as financial charges on the statement of income (loss).

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

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 statement
of income (loss) 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 Pages 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 Pages Limited recognizes all actuarial gains and losses arising subsequently from defined benefit plans in OCI. Re-measurement, 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. Re-measurement recognized in OCI is reflected immediately in retained
earnings and will not be classified to the statement of income (loss). Past service costs are recognized in the statement of income (loss) 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 Pages 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.

3.17.4 Termination benefits

Termination benefits are recognized as an expense when Yellow Pages 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 Pages 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 Pages 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 8

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.17.6 Share-based payment transactions

Yellow Pages Limited’s restricted share units, performance share units, deferred share units, stock options and share appreciated rights 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 is funded, eligible employees 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 Pages 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. The share appreciation rights are settled in cash and recorded accordingly as a liability. At each reporting period, the liabilities from these plans is re-
measured at fair value with any changes recorded in operating costs. Certain of the Company’s stock options may be settled in cash upon certain conditions being
met. These stock options are recorded as a liability, which is re-measured at fair value at each reporting period 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 Pages
Limited’s estimate of share-based instruments that will eventually vest. At each reporting period, Yellow Pages 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 statement of income (loss), with a corresponding
adjustment to the reserve.

3.18 Equity instruments issued by Yellow Pages 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
Pages Limited are recorded at the proceeds received, net of direct issue costs.

Transaction costs incurred by Yellow Pages 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 Pages 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’s operations are
divided into four reportable segments: YP, Agency, Real Estate and Other. The accounting policies the Company uses for its reportable segments are the same as
those used in its consolidated financial statements.

3.20 Revenues

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

YELLOW PAGES LIMITED ANNUAL REPORT 2017

5 9

Yellow Pages 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 statement of income (loss).

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.

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

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 statement of income (loss) 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 Pages 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 Pages
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 in the foreseeable future.

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 Pages 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 Pages 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 statement of income (loss), 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 0

3.24 Significant estimates and judgments

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

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Significant estimates

Business acquisitions

As a result of the business acquisition in March 2016 of Oriole Media Corp. (doing business as JUICE Mobile), Yellow Pages Limited measured the fair value of
JUICE Mobile’s intangible assets, namely its software, using the income approach (refer to Note 4 – Business acquisitions). The measurement at fair value required
significant estimation and was based on a discounted cash flow model which maximized the amount of observable market inputs as well as using forecasted cash flows.

Intangible assets and goodwill

The valuations associated with measuring the recoverability of identifiable intangible assets and goodwill 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 Pages Limited’s future results if the current estimates of future performance and fair values change.

Yellow Pages Limited assesses impairment by comparing the recoverable amount of a CGU or group of CGUs to which an identifiable intangible asset and goodwill
belongs, with its carrying value. The determination of the recoverable amount involves significant management estimates.

Yellow Pages Limited performs its annual test for impairment of indefinite life intangible assets and goodwill in the fourth quarter in accordance with the policy
described in Note 3.12.

Useful lives of intangible assets and property and equipment

Yellow Pages Limited reviews the estimated useful lives of its intangible assets and property 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 and equipment were adequate.

Employee future benefits

The present value of the defined benefit obligation is determined by employing the projected benefit method prorated on service 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 Pages Limited’s ability to utilize the
underlying future tax deductions against future taxable income before they expire. Yellow Pages Limited’s assessment is based upon existing tax laws and estimates
of future taxable income. If the assessment of Yellow Pages Limited’s ability to utilize the underlying future tax deductions changes, Yellow Pages 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. 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 in the foreseeable future.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 1

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Significant judgments

Uncertain tax provisions

Yellow Pages Limited is subject to taxation in numerous jurisdictions. Significant judgment 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 Pages 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 Pages 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.

4. Business acquisitions

2016

On March 17, 2016, Yellow Pages Limited acquired the net assets of Oriole Media Corp. (doing business as JUICE Mobile) through its subsidiaries Juice DMS
Advertising Limited and Juice Mobile USA LLC (the latter two collectively “JUICE Mobile”), for a purchase price of $35.3 million. The acquisition of JUICE Mobile, a
premium advertising technology company whose programmatic platforms facilitate the automatic buying and selling of mobile advertising between brands and
publishers, positioned Yellow Pages Limited as a desktop and mobile national advertising agency, expanding the Company’s reach of brands and media publishers.
The acquisition was fully funded with cash on hand. Transaction costs of $1.3 million were incurred during the year ended December 31, 2016, and were included in
restructuring and other charges.

The following table summarizes the transaction and the purchase price allocation, which was finalized in 2016:

Fair value of business acquired

Trade and other receivables
Other assets
Intangible assets
Goodwill
Trade and other payables
Other liabilities

March 17, 2016

9,003
644
15,220
18,513
(7,802)
(307)
35,271

JUICE Mobile’s revenues of $31.8 million and net loss of $6.7 million for the year ended December 31, 2016 were included in the consolidated statement of loss from
the date of acquisition. Yellow Pages Limited’s consolidated revenues and net loss for the year ended December 31, 2016 would have been $823.7 million and
$405.5 million, respectively, had the JUICE Mobile acquisition occurred on January 1, 2016.

The Company acquired in September 2016 the net assets of Totem via its subsidiary 9778748 Canada Inc., a creative agency specializing in customized content
creation and delivery for global brands for a purchase price of $1.2 million, payable over 3 years. During the year ended December 31, 2017, the first instalment of
$0.4 million was made.

Investment in a jointly controlled entity

On October 3, 2016, Yellow Pages Digital & Media Solutions Limited acquired a 50% ownership in 9778730 Canada Inc., which held 100% of Coupgon Inc., a digital
coupon solutions provider, for cash consideration of $1.2 million. The difference between the acquisition price and the fair value of the net assets acquired was
insignificant. During the year ended December 31, 2017, the Company invested an additional $0.7 million. On September 29, 2017, 9778730 Canada Inc. ceased

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 2

operations and the net book value of the investment of $0.7 million was written off. During the year ended December 31, 2017, the Company recorded equity losses of
$2.1 million, including the write-off of the investment of $0.7 million. The investment was accounted for using the equity method.

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

6. Property and equipment

Cost

As at December 31, 2016
Additions
Impairment

Disposals, write-offs and transfers

As at December 31, 2017

Accumulated depreciation

As at December 31, 2016

Depreciation expense

Impairment

Disposals, write-offs and transfers

As at December 31, 2017

Net book value as at December 31, 2017

Cost

As at December 31, 2015

Business acquisitions
Additions
Disposals, write-offs and transfers

As at December 31, 2016

Accumulated depreciation

As at December 31, 2015

Depreciation expense

Disposals, write-offs and transfers

As at December 31, 2016

Net book value as at December 31, 2016

Office equipment1

Computer

equipment

Other

Leasehold

equipment

improvements

37,293

41,689

2,215

43,183

5,877
−
(7,476)

6,567

(348)

(1,768)

87
−
(1,619)

14,174
−
(470)

35,694

46,140

683

56,887

25,211

31,772

1,684

29,519

1,633
−
(7,351)

5,893

(222)

(1,746)

111
−
(1,396)

3,604
−
(469)

19,493

16,201

35,697

10,443

399

284

32,654

24,233

Office equipment1

Computer

equipment

Other

Leasehold

equipment

improvements

32,700

37,425

2,139

33,911

4,586

(40)

159

4,180

(75)

(8)

314

8,961

(3)

37,293

41,689

2,215

43,183

124,380

23,778

25,348

1,384

25,111

1,470

(37)

25,211

12,082

6,499

(75)

31,772

9,917

304

(4)

1,684

531

4,411

(3)

29,519

13,664

75,621

12,684

(119)

88,186

36,194

2017

Total

124,380

26,705

(348)

(11,333)

139,404

88,186

11,241

(222)

(10,962)

88,243

51,161

2016

Total

106,175

542

17,789

(126)

¹ The net book value of office equipment includes $0.2 million of assets held under finance leases (2016 - $0.3 million).

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 3

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Intangible assets and goodwill

Trademarks
and domain
names1

Non-
competition
agreements

Cost

As at December 31, 2016

Additions

Impairment

Disposals, write-offs and transfers

483,596
−
(360,578)

(12,500)

As at December 31, 2017

110,518

381,494
−
(119,551)
−
261,943

Customer-
related
intangible
assets

12,022
−
(1,358)

Software2

Total
Intangible
assets

384,874

1,261,986 $

35,263

(8,400)

(8,609)

35,263

(489,887)

(21,075)

10,698

403,128

786,287 $

22,104

240,774

7,078

251,098

521,054 $

2,704
−
(12,500)

12,308

98,210

20,444
−
−
261,218

725

2,321
−
−
9,399

1,299

68,791

(1,494)

(8,385)

94,260

(1,494)

(20,885)

310,010

93,118

592,935 $

193,352 $

Accumulated amortization

As at December 31, 2016

Amortization expense

Impairment

Disposals, write-offs and transfers

As at December 31, 2017

Net book value as at December 31, 2017 $

Cost

As at December 31, 2015

Business acquisitions (Note 4)

Additions

Impairment

Disposals, write-offs and transfers

As at December 31, 2016

Accumulated amortization

As at December 31, 2015

Amortization expense

Trademarks
and domain
names1

Non-
competition
agreements

Customer-
related
intangible
assets

Software2

Total
Intangible
assets

Goodwill

Total intangible
assets and
goodwill

936,085
−
−
(452,489)
−
483,596

532,773

6,577

327,695

1,803,130 $

200
−
(147,511)

(3,968)

6,230
−
−
(785)

9,720

47,457
−
2

16,150

47,457

(600,000)

(4,751)

381,494

12,022

384,874

1,261,986 $

19,265

225,958

3,592

184,534

433,349 $

Disposals, write-offs and transfers

As at December 31, 2016

Net book value as at December 31, 2016

2,839
−
22,104

461,492

18,784

(3,968)

240,774

140,720

4,009

(523)

7,078

4,944

66,566

(2)

92,198

(4,493)

251,098

133,776

521,054 $

740,932 $

¹ Trademarks and domain names with indefinite useful lives amounted to $96.2 million (2016 - $456.8 million).

² Software under development amounted to $15.6 million (2016 - $10.6 million).

Goodwill

45,342 $
−
(18,513)
−
26,829 $

− $
−
−
−
− $
26,829 $

2017

Total intangible
assets and
goodwill

1,307,328

35,263

(508,400)

(21,075)

813,116

521,054

94,260

(1,494)

(20,885)

592,935

220,181

2016

26,829 $

18,513
−
−
−
45,342 $

− $
−
−
− $
45,342 $

1,829,959

34,663

47,457

(600,000)

(4,751)

1,307,328

433,349

92,198

(4,493)

521,054

786,274

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 4

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Impairment of intangible assets and goodwill

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 as follows: Yellow Pages 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).

Goodwill was tested for impairment at the lowest level within the Company at which the goodwill is monitored for internal management purposes: the Other CGUs.

During the fourth quarters of 2016 and 2017, the Company completed its annual 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 higher of fair value less costs of disposal and value in use valuation methods, both based on estimates of
discounted future cash flows.

2017

As a result of a shortfall in revenues in the Yellow Pages and Other CGUs compared to previous estimates and uncertainty with regards to future long-term trends, the
Company revised estimates of future cash flows to reflect recent historical trends as the basis. In conjunction, the Company recorded an impairment loss of
$480 million in the Yellow Pages CGU and an impairment loss of $20 million in a business within the Other CGUs group as the carrying values of these CGUs
exceeded their recoverable amounts. The impairment loss was applied to trademarks and non-competition agreements of the Yellow Pages CGU and primarily to
goodwill of the Other CGUS. The recoverable amount of the Yellow Pages CGU and Other CGUs post-impairment is $242 million and $145 million, respectively.

2016

The cash flows were based on the 2017 budget 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 17% and 20% and digital products and services revenue growth rates between 7% and 13% for
the Yellow Pages and Other CGUs.

As a result of a marked acceleration in an unfavourable change in the product mix in the Yellow Pages CGU, the Company recorded an impairment loss of
$600 million as the Company’s carrying value of if its Yellow Pages CGU exceeded its recoverable amount. The impairment loss was applied to certain intangible
assets of the Yellow Pages CGU, namely trademarks and non-competition agreements. The recoverable amount of the Yellow Pages CGU post-impairment is
$704 million, and represents its value in use. The recoverable amount of the Other CGUs exceeded their carrying values, and accordingly, no impairment was
recognized.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 5

Carrying values and other assumptions

Cash flows beyond five-year projections 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, 2017 and 2016 by CGU or group of CGUs, prior to the impairment charges, and the other key assumptions used for the
recoverable amount calculations for the December 31, 2017 and December 31, 2016 impairment analyses are presented below:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

As at

Carrying value of intangible assets and goodwill by CGU

Trademarks and domain names

Trademarks and domain names with finite lives

Non-competition agreements

Customer-related intangible assets

Software

Goodwill

Total carrying value of intangible assets and goodwill by CGU

As at

Carrying value of intangible assets and goodwill by CGU

Trademarks and domain names

Trademarks and domain names with finite lives

Non-competition agreements

Customer-related intangible assets

Software

Goodwill

Total carrying value of intangible assets and goodwill by CGU

¹ Prior to the impairment charge of $500 million (2016 – $600 million), as discussed above.
² Certain 2016 figures were restated to conform to the current year’s presentation.

Key assumptions :

Terminal growth rate

December 31, 2017

December 31, 2016
Discount rate – post-tax 1
December 31, 2017

December 31, 2016

Yellow Pages

Other

Total

December 31, 2017¹

426,462

30,362

456,824

890

119,423
−−
84,886
−−
631,661

1,074

853

2,657

8,232

45,342

88,520

1,964

120,276

2,657

93,118

45,342

720,181

Yellow Pages

Other

December 31, 20161,2
Total

876,835

2,094

286,816
−−
119,603
−−
1,285,348

31,401

908,236

3,651

1,415

4,944

14,173

45,342

5,745

288,231

4,944

133,776

45,342

100,926

1,386,274

Yellow Pages

Other

Total

-15% to -5%

-15% to 4.3%

3% to 4.5%

1% to 4.5%

-15% to 4.5%

9.1% to 14%

8.4% to 13.6%

14% to 20%

12.2% to 15%

9.1% to 20%

8.4% to 15%

¹ The fair value less costs of disposal method used in 2017 requires the use of a post-tax rate. In 2016, the Company used a value in use method, which requires the use of a pre-tax rate (Yellow Pages - 15.1% to

20.6%, Other – 14.8% to 18.6%)

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 6

Yellow Pages Limited has accumulated impairment losses on intangible assets, goodwill and property and equipment in the amounts of $1,391.1 million,
$5,866.3 million and $10.4 million, respectively.

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

8. Trade and other payables

As at

Trade

Accrued interest on long-term debt and exchangeable debentures

Payroll related

Long-term incentive plans

Other accrued liabilities

9. Provisions

December 31, 2017

December 31, 2016

59,584

6,915

7,993

3,181

5,955

83,628

60,300

3,169

7,075

4,667

4,282

79,493

During the year ended December 31, 2017, Yellow Pages Limited recorded restructuring and other charges of $34.4 million, which consists primarily of lease contracts
related to office closures, internal reorganizations and workforce reductions. During the year ended December 31, 2016, Yellow Pages Limited recorded restructuring
and other charges of $23 million due primarily to internal reorganizations and workforce reductions, and transaction costs associated with business acquisitions.

The provisions for restructuring and other 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, 2016
Charge1
Payments

Reclassifications and other

As at December 31, 2017

Less current portion

Non-current portion

Provisions for
restructuring

Provisions for
other charges

Other
provisions

Total
provisions

12,956

15,078

(18,731)

778

10,081

8,561

1,520

15,610

17,936

(3,901)

(778)

28,867

16,016

12,851

28,771

22,459

(28,154)

(95)

22,981

−−

57,337

55,473

(50,786)

(95)

61,929

47,558

14,371

¹ Included in the restructuring and other charges of $34.4 million on the statement of loss are net charges of $1.4 million not affecting the provision.

On January 16, 2018, Yellow Pages announced a workforce reduction of approximately 500 positions across Canada and in all functions of the organization. The
Company expects to record a restructuring charge of $17 million in the first quarter ending March 31, 2018 associated with this workforce reduction.

10. Post-employment benefits

Yellow Pages Limited maintains pension plans with defined benefit and defined contribution components which cover substantially all of the employees of Yellow
Pages Limited. Yellow Pages 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 7

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

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 obligation 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.

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. This was based on the actuarial valuation and the present value of the defined benefit plan obligation which was carried out by Morneau Shepell,
Fellows of the Canadian Institute of Actuaries and Society of Actuaries, as at March 31, 2017, and extrapolated to December 31, 2017. For funding purposes, an
actuarial valuation of the defined benefit component of the Yellow Pages pension plans was also performed as at March 31, 2017.

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, 2017 and 2016 were as follows:

As at

December 31, 2017

December 31, 2016

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
Assets distributed on settlement
Administration costs
Fair value of plan assets, end of year

Accrued benefit obligation, beginning of year
Current service cost
Employee contributions
Benefit payments
Defined benefit obligation extinguished on settlement
Interest cost
Recovery of past service costs
Actuarial (gains) losses due to:
Experience adjustments
Changes in financial assumptions
Defined benefit obligation, end of year
Net defined benefit obligation

¹ Including unfunded supplementary defined benefit pension plans.

Pension benefits1
506,913
16,654
1,244
18,512
25,349
(45,289)
(15,511)
(850)
507,022

$
$

622,450
5,496
1,244
(45,289)
(13,956)
22,772
(188)

(3,243)
21,877
611,163
(104,141)

$
$

Other benefits

−−
2,056
−−
−−
−−
(2,056)
−−
−−
−−

38,635
23
−−
(2,056)
−−
1,409
(34)

−−
1,254
39,231
(39,231)

Pension benefits1
487,884
17,907
1,486
19,087
20,456
(38,952)
–
(955)
506,913

632,599
5,526
1,486
(38,952)
–
24,672
(28)

Other benefits

–
2,002
–
–
−−
(2,002)
–
–
–

37,944
21
–
(2,002)
–
1,479
(15)

(2,010)
(843)
622,450
(115,537)

$
$

–
1,208
38,635
(38,635)

$
$

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 8

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 Pages Limited’s pension and other benefit obligations as at December 31, 2017 and 2016 were as follows:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

As at

Post-employment benefit obligation

Discount rate, end of year

Rate of compensation increase

Net benefit plan costs

Discount rate (current service cost), end of preceding year

Discount rate (interest expense), end of preceding year

Rate of compensation increase

Weighted average duration (years)

December 31, 2017

December 31, 2016

Pension benefits

Other benefits

Pension benefits

Other benefits

3.50%

2.25%

4.00%

3.75%

2.25%

3.50%

2.25%

3.75%

2.25%

3.75%

2.25%

4.25%

4.00%

2.95%

3.75%

2.25%

4.25%

4.00%

2.95%

For measurement purposes, a 7.7% annual increase in the per capita cost of covered medical care benefits (the medical care cost trend rate) was assumed in 2017.
The rate of increase of the cost of medical care was assumed to decrease to 7.4% in 2018 and gradually decline to 5% by 2026 and to remain at that level thereafter.
A 5.8% annual increase in per capita cost of covered dental care benefits was assumed in 2017. The rate of increase of the cost of covered dental care was assumed
to decrease to 5.6% in 2018 and gradually decline to 4% by 2026 and to remain at that level thereafter.

The following table shows how the defined benefit obligation as at December 31, 2017 would have been affected by changes that were reasonably possible at that
date in each significant actuarial assumption:

Decrease of 0.25% in discount rate, end of year

Increase of 0.25% in rate of compensation

Increase of 1% in health care cost trend rates

Pension benefits

Other benefits

23,225

2,220

N/A

1,330
−−
4,151

YELLOW PAGES LIMITED ANNUAL REPORT 2017

6 9

The net benefit plan costs included in the statements of loss are comprised of the following components:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

For the years ended December 31,

Current service cost
Administration costs
Recovery of past service costs
Loss on settlement
Service cost1
Interest cost
Interest income
Net interest on the net defined benefit obligation (Note 18)
Net benefit costs recognized in the statement of loss
Actuarial (gains) losses recognized in OCI
Total net benefit plan costs (recovery) for the Yellow Pages (“YP”) defined benefit plans
Net benefit plan costs for the YP defined contribution plans1
Total net benefit plan costs (recovery)

¹ Included in operating costs.

Pension benefits

Other benefits

Pension benefits

Other benefits

2017

2016

$
$

$
$
$
$

5,496
850
(188)
1,555
7,713
22,772
(18,512)
4,260
11,973
(6,715)
5,258
5,939
11,197

$
$

$
$
$
$

23
−−
(34)
−−
(11)
1,409
−−
1,409
1,398
1,254
2,652
−−
2,652

$
$

$
$
$
$

5,526
955
(28)
–
6,453
24,672
(19,087)
5,585
12,038
(23,309)
(11,271)
7,157
(4,114)

$
$

$
$
$
$

21
–
(15)
–
6
1,479
–
1,479
1,485
1,208
2,693
–
2,693

As a result of workforce reductions during the years ended December 31, 2017 and 2016, the number of employees covered by the pension plans decreased, and
these restructurings gave rise to a recovery of past service cost as at November 29, 2017, March 31, 2017, and November 10, 2016. The assets distributed on
settlement and the defined benefit obligation extinguished on settlement of $15.5 million and $14.0 million, respectively, during the year ended December 31, 2017
corresponds to the pension values paid out of the plan assets and the obligation recorded for the members who were terminated as part of prior restructurings. The
difference between these two amounts represents the loss on settlement of $1.6 million recognized in 2017.

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, 2017 and 2016:

(in percentages - %)

Fair value of the plan assets:

Canadian bonds and debentures

Canadian common stocks

Pooled fund units

Canadian pooled equity funds

Global pooled equity funds

Canadian pooled fixed-income funds

Cash and cash equivalents

December 31, 2017

December 31, 2016

12.5

8.0

22.0

30.5

27.0
−−

11.5

9.5

22.5

31.5

24.5

0.5

As at December 31, 2017 and 2016, the publicly traded equity securities did not directly include any shares of Yellow Pages Limited.

The total cash payments for pension and other benefit plans made by Yellow Pages Limited amounted to $25.0 million for 2017 (2016 – $26.8 million). Total cash
payments for pension and other benefit plans expected in 2018 amount to approximately $18 million.

Yellow Pages 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 Pages Limited is responsible to adequately fund the plans. Contributions reflect actuarial assumptions concerning future investment returns, salary projections
and future service benefits.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 0

In addition, Yellow Pages Limited recorded an expense for provincial, federal and state pension plans of $8.6 million for the year ended December 31, 2017
(2016 – $9.9 million).

As at December 31, 2017, Yellow Pages Limited had recognized an accumulated balance of $66.1 million, net of income taxes of $21.9 million, in actuarial losses in OCI.

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

11. Long-term debt

The long-term debt is comprised of the following:

As at

Principal amount of the 10.00% senior secured notes

Principal amount of the 9.25% senior secured notes

Less unaccreted discount

Obligations under finance leases

Less current portion1
Non-current portion

December 31, 2017

December 31, 2016

315,000
−−
6,102

308,898

215

309,113

54,939

254,174

–

309,669

–

309,669

359

310,028

75,161

234,867

¹ The current portion of the 10.00% senior secured notes may vary subject to the Excess Cash Flow clause as well as the minimum cash balance requirement on the last day of the mandatory redemption period

under the indenture governing the 10.00% senior secured notes.

Asset-Based Loan

In August 2013, the Company, through its subsidiary Yellow Pages Digital & Media Solutions Limited, entered into a five-year $50 million asset-based loan (“ABL”)
expiring in August 2018. On October 19, 2017, Yellow Pages Limited entered into an Amended and Restated Loan and Security Agreement extending the term of the
ABL to August 2022. The ABL is 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 is secured by 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, 2017, the Company had
$6.4 million of letters of credit issued and outstanding under the ABL. As such, $43.6 million of the ABL was available as at December 31, 2017. Interest is calculated
based either on the BA Rate or the 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, 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, 2017 and 2016, the Company was in compliance with all covenants under the loan agreement governing the ABL.

10.00% Senior Secured Notes

On October 19, 2017, Yellow Pages Limited, through its wholly-owned subsidiary, Yellow Pages Digital & Media Solutions Limited, issued $315 million aggregate
principal amount of 10.00% Senior Secured Notes (the “New Notes”) due November 1, 2022 at an issue price of $980 per $1,000 principal amount of the New Notes,
or $6.3 million discount. The New Notes will accrue interest from October 19, 2017 at a rate of 10.00% per annum, payable in semi-annual instalments in arrears on
May 1 and November 1 of each year commencing May 1, 2018. The Company incurred debt issuance costs of $7.9 million related to the issuance of the New Notes
during the fourth quarter. The debt issuance costs are presented in Financial and other assets on the consolidated statement of financial position and are being
amortized over the term of the New Notes.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 1

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Mandatory Redemption

Optional Redemption

Certain Covenants

As at December 31, 2017, the Company was in compliance with all covenants under the Indenture governing the New Notes.

9.25% Senior Secured Notes

On December 20, 2012, the Company through its subsidiary, Yellow Pages Digital & Media Solutions Limited, issued $800 million of 9.25% senior secured notes (the
“Senior Secured Notes”) maturing November 30, 2018. Interest on the Senior Secured Notes was 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 Company used the net proceeds from the sale of the New Notes to
redeem on November 18, 2017 all of its Senior Secured Notes due November 30, 2018, including accrued and unpaid interest up to but excluding the redemption
date. The total redemption price was $1,020.2986 for each $1,000 principal amount of Senior Secured Notes, including interest of $20.2986.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 2

12. Exchangeable debentures

As at

Principal amount of exchangeable debentures

Less unaccreted interest

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

December 31, 2017

December 31, 2016

107,089

13,022

94,067

107,089

14,915

92,174

On December 20, 2012, the Company through its subsidiary Yellow Pages Digital & Media Solutions Limited, 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 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 Yellow Pages Digital & Media Solutions Limited. The Exchangeable Debentures
are unconditionally guaranteed on a subordinated unsecured basis by Yellow Pages 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, 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, 2017 and 2016, the Company was in compliance with all covenants under the indenture governing the Exchangeable Debentures.

Exchange Option

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. The fair value was $nil as at December 31, 2017 (2016 – $0.1 million).

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 3

13. Income taxes

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

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Losses before income taxes and loss from investment in jointly controlled entity
Combined Canadian federal and provincial tax rates1
Income tax recovery at statutory rates
Increase (decrease) resulting from:

Unrecognized tax attributes and deductible temporary differences of the current year²
Reversal of tax attributes and deductible temporary differences of prior years²
Non-deductible expenses for tax purposes
Settlement of tax assessments
Other

Provision for (recovery of) income taxes

For the years ended December 31,
2016

2017

(514,818) $

26.80%

(137,967) $

134,509
74,950
913
−−
−−
72,405 $

(548,782)
26.88%
(147,509)

−
−
1,354
273
365
(145,517)

¹ The combined applicable statutory tax rate decreased by 0.08% resulting mainly from the provincial allocation of revenues earned and the decrease in the Quebec and Saskatchewan statutory tax rates, offset by

the increase in the New Brunswick statutory tax rate.

² During the fourth quarter ended December 31, 2017, The Company recorded a provision for income taxes of $72.4 million during 2017, comprised of a recovery of income taxes of $134.5 million and a valuation
allowance of the same amount associated with an impairment loss of $500 million on certain of its intangible assets and goodwill recorded during the fourth quarter of 2017. Furthermore, the Company recognized
a reversal of tax attributes and deductible temporary differences representing an income tax expense of approximately $75 million during the fourth quarter of 2017.

(Recovery of) provision for income taxes includes the following amounts:

Current

Deferred

For the years ended December 31,

2017

(101) $

72,506

72,405 $

2016

(145,606)

(145,517)

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 and
equipment and
lease incentives

Exchangeable
Debentures

Intangible
assets

Deferred income
tax (assets)
liabilities, net

December 31, 2016

(574) $

(26,674) $

(4,039) $

(45,734) $

(8,244) $

17,655

4,104

11,468

(52,038)

Expense (benefit) to

statement of loss

Expense to OCI

December 31, 2017

4,306
−
3,732

21,170
−
(5,504) $

875
−
(3,164) $

3,048

1,196

(41,490) $

(2,606)
−
(10,850) $

(6,100)
−
11,555

(494)
−
3,610

52,307
−
63,775

72,506

1,196

21,664

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 4

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Deferred
financing
costs

Non-capital
losses carry
forward

Deferred
revenues

Post-
employment
benefits

Accrued
liabilities

Property and
equipment and
lease incentives

Exchangeable
Debentures

Intangible
assets

Deferred income
tax liabilities
(assets), net

December 31, 2015

Business acquisitions

Expense (benefit) to

statement of loss

Expense to OCI

December 31, 2016

(4,521) $
−

(15,988) $
−

(5,610) $
−

(52,113) $
−

(10,923) $
−

10,919
−

3,947
−
(574) $

(10,686)
−
(26,674) $

1,571
−
(4,039) $

171

6,208

(45,734) $

2,679
−
(8,244) $

6,736
−
17,655

4,581
−

160,887

87,232

128

(477)
−
4,104

(149,547)
−
11,468

(145,606)

6,208

(52,038)

As at December 31, 2017, the Company had not recognized deferred income tax assets with respect to foreign operating losses of $181.5 million and Canadian non-
capital losses of $97.3 million. These losses expire gradually between 2028 and 2037.
As at December 31, 2017, the Company and its subsidiaries had not recognized deductible temporary differences of $845.8 million.

14. Shareholders’ capital

Common shares

For the year ended December 31, 2017

Balance, December 31, 2016

Exchange of common share purchase warrants

Balance, December 31, 2017

For the year ended December 31, 2016

Balance, December 31, 2015

Exercise of stock options (Note 16)

Exchange of common share purchase warrants

Balance, December 31, 2016

Warrants

Number of Shares

Amount

28,075,304

28,075,306

4,031,685
−
4,031,685

Number of Shares

Amount

28,063,919

11,375

28,075,304

4,031,528

157
−
4,031,685

On December 20, 2012, the Company issued 2,995,506 common share purchase warrants (“Warrants”).

During the years ended December 31, 2017 and 2016, 2 and 10 Warrants, respectively, were exercised in exchange for 2 and 10 common shares of Yellow Pages
Limited, respectively. As at December 31, 2017 and 2016, the Company had a total of 2,995,486 and 2,995,488 Warrants outstanding, respectively.

Each Warrant is transferable and entitles the holder to purchase one common share of Yellow Pages Limited 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 December 20, 2012 was $1.5 million.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 5

The fair value of the Warrants was calculated using a binomial option pricing model with the following assumptions:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Risk free interest rate

Expected life

Expiry date

Expected volatility

Loss per share

2.27%

10 years

December 20, 2022

33.5%

The following table reconciles the weighted average number of shares outstanding used in computing basic loss per share to the weighted average number of shares
outstanding used in computing diluted loss per share as well as net loss used in the computation of basic loss per share to net loss adjusted for any dilutive effect:

For the years ended December 31,

Weighted average number of shares outstanding used in computing basic and diluted loss per share

For the years ended December 31,

Net loss used in the computation of basic and diluted loss per share

2017

2016

26,399,242

26,500,861

2017

2016

(589,327) $

(403,705)

Yellow Pages Limited did not calculate the diluted loss per share for the years ended December 31, 2017 and 2016 as the conversion of the restricted share units,
performance share units, stock options, Exchangeable Debentures and Warrants would not be dilutive to the loss.

15. Segmented information

In 2017, the Company made changes to how it manages its business to assess performance and to allocate resources, with its operations being divided into four
reportable segments: YP, Agency, Real Estate and Other. The four segments operate primarily in Canada, with substantially all of their assets also in Canada.

The YP segment provides small and medium-sized businesses across Canada digital and traditional marketing solutions, including online and mobile priority
placement on Yellow Pages owned and operated media, content syndication, search engine solutions, website fulfillment, social media campaign management and
digital display advertising, video production and print advertising.

The Agency segment provides national advertising services to brands and publishers, primarily through its Mediative division, and JUICE Mobile and Totem
subsidiaries. Mediative offers dedicated marketing and performance media services to national clients Canada-wide. JUICE Mobile’s proprietary Programmatic Direct
and Real-Time Bidding platforms facilitate the automatic buying and selling of mobile advertising between brands and advertisers. Totem is a creative agency
specializing in customized content creation and delivery for global brands.

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The Company accounts for transactions
between reportable segments in the same manner it accounts for transactions with external customers and eliminates them on consolidation. The President and Chief
Executive Officer (“CEO”) is the Chief Operating Decision Maker and he uses Income from operations before depreciation and amortization, impairment of intangible
assets, goodwill and certain property and equipment, and restructuring and other charges less capital expenditures, to measure the performance of each segment.
The Chief Operating Decision Maker also reviews revenues by similar products and services, such as Print and Digital. The accounting policies the Company uses for
its reportable segments are the same as those used in its consolidated financial statements and reflected as such in the tables below.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 6

The following tables present financial information for the years ended December 31, 2017 and 2016.

For the year ended December 31, 2017

Agency

Real Estate

Other

eliminations

Limited

Intersegment

Yellow Pages

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Revenues

Digital

Total revenues

Operating costs

181,697 $

5,416 $

11,913 $

3,924 $

(68) $

405,497

587,194

404,353

72,688

78,104

82,815

50,811

62,724

58,815

18,631

22,555

20,609

(4,657)

(4,725)

Income (loss) from operations before depreciation and amortization,

impairment of intangible assets and goodwill, and restructuring and

other charges

Depreciation and amortization

182,841 $

(4,711) $

3,909 $

1,946 $

Impairment of intangible assets and goodwill

485,064

21,968

−

− $

−

Restructuring and other charges

Financial charges, net

Impairment of available-for-sale investments

Provision for income taxes

Loss from investment in a jointly controlled entity

Net loss

Additions to intangible assets and property and equipment,

net of lease incentives received

Goodwill

Intangible assets

(53,081) $

− −
151,660 $

(2,038) $

− $
6,521 $

(1,266) $

26,829 $

32,715 $

(2,230) $

− $
2,456 $

202,882

542,970

745,852

561,867

183,985

105,501

507,032

34,400

48,150

3,720

72,405

2,104

(589,327)

− $
− $
− $

(58,615)

26,829

193,352

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 7

For the year ended December 31, 2016

Agency

Real Estate

Other

eliminations

Limited

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Intersegment

Yellow Pages

Revenues

Digital

Total revenues

Operating costs

238,756 $

1,000 $

18,319 $

4,587 $

(455) $

419,066

657,822

432,447

73,524

74,524

71,076

48,096

66,415

63,062

19,774

24,361

21,346

(4,688)

(5,143)

Income from operations before depreciation and amortization,

impairment of intangible assets and restructuring and other charges $

225,375 $

3,448 $

3,353 $

3,015 $

600,000

−

262,207

555,772

817,979

582,788

235,191

104,882

600,000

22,961

56,130

(145,517)

440

− $

−

(50,523) $

− $
686,407 $

(2,234) $

18,513 $

15,348 $

(1,283) $

26,829 $

34,187 $

(1,321) $

− $
4,990 $

(403,705)

− $
− $
− $

(55,361)

45,342

740,932

Depreciation and amortization

Impairment of intangible assets

Restructuring and other charges

Financial charges, net

Recovery of income taxes

Loss from investment in a jointly controlled entity

Net loss

Additions to intangible assets and property and equipment,

net of lease incentives received

Goodwill

Intangible assets

16. Stock-based compensation plans

Yellow Pages Limited’s stock-based compensation plans consist of restricted share units, performance share units, deferred share units, stock options and share
appreciation rights.

Restricted Share Unit and Performance Share Unit Plan

On May 6, 2013, Yellow Pages Limited adopted a restricted share unit and performance share unit plan (the “RSU and PSU Plan”) to reward key employees and
officers of Yellow Pages Limited (the “Participants”). Following the implementation of the RSU and PSU Plan, Yellow Pages Limited granted to Participants a number
of restricted share units (“RSUs”) and/or performance share units (“PSUs”), as applicable, based on the volume weighted average trading price of the common shares
for the five days immediately preceding the grant date. 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. 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.

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 acquired on the open market. In the event the RSU and PSU Plan is unfunded, Yellow Pages Limited will pay to the Participant an amount in cash,
equivalent to the number of RSUs or PSUs that have vested.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 8

During the year ended December 31, 2017, 501,309 common shares of Yellow Pages Limited (2016 – 553,709) were purchased on the open market of the TSX by the
trustee appointed under the RSU and PSU Plan at a cost of $3.1 million (2016 – $10.5 million) and are restricted for the purpose of funding of the RSU and PSU Plan.
The total number of common shares of Yellow Pages Limited held by the trustee for the purpose of funding the RSU and PSU Plan amounted to 1,804,716 as at
December 31, 2017.

The following table summarizes the continuity of the RSUs and PSUs during the years ended December 31:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Number of

Outstanding, beginning of period

Granted

Additional payout related to achievement of performance targets²

Settled

Forfeited

Outstanding, end of period

Weighted average remaining life (years)

RSUs

444,355

846,007
−−
(182,305)

(344,433)

763,624

1.7

2017

PSUs¹

596,114

1,042,796

21,451

(200,793)

(663,757)

795,811

1.4

RSUs

464,924

199,427
−
(159,398)

(60,598)

444,355

1.1

2016

PSUs¹

520,117

327,137

26,259

(85,947)

(191,452)

596,114

1.1

¹ The outstanding number of PSUs represents a payout of 100%. In addition, the potential payout in excess of 100% and limited to a maximum payout of 150% pursuant to the achievement of certain performance

targets, amounted to 397,868 common shares as at December 31, 2017 (2016 – 297,990 common shares).

² The additional payout is related to the achievement of certain performance targets in excess of 100% and amounted to an additional 12% for the year ended December 31, 2017 (2016 – 44%).

During the year ended December 31, 2017, an expense of $2.1 million (2016 – $5.6 million) was recorded in the consolidated statement of loss in operating costs in
relation to the RSU and PSU Plan.

Deferred Share Unit Plan

On June 12, 2013, Yellow Pages Limited adopted a deferred share unit plan (the “DSU Plan”). The DSU Plan was amended in October 2013 to provide for the
participation by eligible employees as designated by the Board of Directors. The Company shall settle the vested deferred share units (“DSUs”) in cash or in common
shares of Yellow Pages Limited acquired on the open market at the discretion of the Company when a Director leaves the Board of Directors or an eligible employee
ceases employment with the Company.

The following table summarizes the continuity of the DSUs during the years ended December 31:

Outstanding, beginning of period

Granted

Settled

Variation due to change in stock price

Outstanding and vested, end of period

Number of DSUs

246,892

120,660

(35,307)

−−
332,245

2017
Liability¹

4,368

1,230

(264)

(2,541)

Number of DSUs

192,964
53,928

−
−

2016
Liability¹

2,947
825

−

596

2,793

246,892

4,368

¹ The liability related to the DSU Plan is recorded in trade and other payables, and the expense related to the units vested and the variation due to changes in stock price is included in operating costs.

Stock options

On December 20, 2012, as part of the implementation of Yellow Pages 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 Pages 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 Pages Limited through the transformation of its

YELLOW PAGES LIMITED ANNUAL REPORT 2017

7 9

business and to more closely align the interests of management with those of the shareholders of Yellow Pages Limited. A maximum of 1,290,612 stock options may
be granted under the Stock Option Plan. During the year ended December 31, 2017, 701,875 stock options (2016 – nil) were granted that are payable in cash upon
certain conditions being met. These stock options are presented as a liability.

The following table summarizes the continuity of the stock options presented as a liability during the years ended December 31:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Outstanding, beginning of period
Granted²
Variation due to change in fair value
Outstanding, end of period
Vested, end of period

Number of options

2017
Liability¹

Number of options

−−
701,875
−−
701,875
77,986

$
$
$
$
$

−−
241
(47)
194
194

−
−
−
−
−

2016
Liability

−
−
−
−
−

$
$
$
$
$

¹ The liability related to the stock options is recorded in trade and other payables, and the expense related to the vested options and the variation due to change in fair value are included in operating costs.

² The liability related to the stock options granted represents the portion that is vested as at December 31.

The following table summarizes the continuity of all stock options under the Stock Option Plan during the years ended December 31:

Number of options

2017
Weighted average
exercise price per option

Number of options

2016
Weighted average
exercise price per option

Outstanding, beginning of period
Granted
Exercised
Forfeited
Outstanding, end of period
Exercisable, end of period

630,950
701,875
−−
(308,275)
1,024,550
281,325

$
$
$
$
$
$

16.73
7.97
−−
18.78
10.11
14.28

522,950
251,700
(11,375)
(132,325)
630,950
186,550

The following table provides additional information about Yellow Pages Limited’s Stock Option Plan as at December 31:

2017

$
$
$
$
$
$

16.38
17.83
10.12
17.99
16.73
15.38

2016

Exercise price

$7.97

$10.12

$16.44

$17.83

$17.96

$19.61

$20.33

$24.65

Outstanding, end of period

Exercisable, end of period

Number of options

Weighted average

Number of options

Weighted average

outstanding

remaining life

outstanding

remaining life

701,875

167,375

67,500

20,800
−−
7,700

4,900

54,400

1,024,550

281,325

2.7

2.4

4.2

5.2
−−
3.5

3.4

3.2

2.8

2.9

−
167,375

166,050

163,000

4,600

7,700

4,900

117,325

630,950

186,550

−
3.3

5.2

6.2

5.4

4.5

4.4

4.2

4.8

3.6

YELLOW PAGES LIMITED ANNUAL REPORT 2017

8 0

Stock 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. The following table shows the key inputs into the valuation model for the years ended December 31:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Weighted average grant date share price
Exercise price
Expected volatility
Option life
Risk-free interest rate
Weighted average remaining life

2017

$
$

9.12
7.97
41%
3 years
2.04%
2.7 years

2016

$
$

18.28
17.83
35%
7 years
1.02%
6.2 years

During the year ended December 31, 2017, a recovery of $0.4 million (2016 – an expense of $1.0 million) was recorded in the consolidated statement of loss in
operating costs in relation to the Stock Option Plan.

Share appreciation rights plan

On September 15, 2017, Yellow Pages Limited adopted a share appreciation rights plan (the “SAR Plan”) to provide incentive compensation to key employees and
officers of Yellow Pages Limited (the “Participants”) who are in a position to make a material contribution to the successful operation of the business and to more
closely align the interests of management with those of shareholders of Yellow Pages Limited. The SARs are time-based awards and will vest upon the continuous
employment of the Participants at a date determined by the Board of Directors. Pursuant to the terms of the SAR Plan, the Participants will receive, upon vesting of the
SARs, a payment in cash representing the excess of the fair value of Yellow Pages Limited’s shares on the vesting date less the fair value of Yellow Pages Limited’s
shares on the grant date.

The following table summarizes the continuity of the share appreciation rights (“SARs”) during the years ended December 31:

Outstanding, beginning of period
Granted²
Variation due to change in fair value
Outstanding, end of period
Vested, end of period

Number of SARs

2017
Liability¹

Number of SARs

−−
701,875
−−
701,875
77,986

$
$
$
$
$

−−
241
(47)
194
194

−
−
−
−
−

2016
Liability

−
−
−
−
−

$
$
$
$
$

¹ The liability related to the SAR Plan is recorded in trade and other payables, and the expense related to the units vested and the variation due to change in fair value are included in operating costs.

² The liability related to the SARs granted represents the portion that is vested as at December 31.

SARs 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 SARs
granted. The following table shows the key inputs into the valuation model as at December 31:

Weighted average grant date share price
Exercise price
Expected volatility
SAR life
Risk-free interest rate
Weighted average remaining life

2017

$
$

9.12
7.97
41%
3 years
2.04%
2.7 years

2016

−
−
−
−
−
−

YELLOW PAGES LIMITED ANNUAL REPORT 2017

8 1

17. Operating costs

For the years ended December 31,

Salaries, commissions and benefits
Supply chain and logistics1
Other goods and services2
Information systems

Bad debt expense (Note 21)

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

2017

271,567

147,277

83,065

46,055

13,903

2016³

300,310

143,487

80,538

45,624

12,829

561,867

582,788

¹ Supply chain and logistics costs relate to external supplier costs for manufacturing and distribution of our print and online products.

² Other goods and services include promotion and advertising costs, real estate, office services, consulting services including contractors and professional fees. Operating leases recognized in operating costs

during the year amounted to $23.0 million (2016 - $22.5 million).

³ Certain expenses in the prior period were reclassified to conform to this year’s presentation.

18. Financial charges, net

The significant components of the financial charges are as follows:

For the years ended December 31,

Interest on long-term debt and Exchangeable Debentures

Net interest on the defined benefit obligations (Note 10)

Sales taxes on tax assessment relating to financing costs

Other, net

19. Supplemental disclosure of cash flow information

The following are non-cash transactions:

For the years ended December 31,

Additions to property and equipment included in trade and other payables

Additions to intangible assets included in trade and other payables

2017

2016

39,374

43,776

5,669

−−
3,107

7,064

2,372

2,918

48,150

56,130

2017

1,274

937

2016

5,525

2,405

YELLOW PAGES LIMITED ANNUAL REPORT 2017

8 2

20. Commitments and contingencies

a) As at December 31, 2017, Yellow Pages 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, and in the aggregate of:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

2018

2019

2020

2021

2022

Thereafter

Operating leases

Other

Total commitments

14,336

16,324

15,390

14,551

14,370

162,007

236,978

24,981

10,456

5,699

3,765

202

2,317

47,420

39,317

26,780

21,089

18,316

14,572

164,324

284,398

Under certain lease agreements, incentives for leasehold improvements exist. These lease incentives are accounted for in deferred lease inducements and amounted
to $17.7 million as at December 31, 2017 (2016 – $11.8 million).

b) Yellow Pages Limited has four billing and collection services agreements. Three of these agreements are with Bell Canada (for itself and as a successor to Bell
Aliant Regional Communications LP and MTS Inc.) (“Bell”) and expire on December 31, 2018. The agreement with TELUS Communications Inc. (“TELUS”) expires in
2031.

Pursuant to publication agreements with Bell and TELUS, Yellow Pages 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 and TELUS, 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 these publication agreements
are terminated in accordance with their terms, these other listing information and trademark licenses with Bell and TELUS, as the case may be, may also be
terminated. These other agreements with Bell and TELUS will terminate between 2031 and 2037.

c) Yellow Pages 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 Pages 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, and provisions 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 Pages Limited.

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 Pages Limited is
exposed to credit risk with respect to cash and trade receivables from customers. The carrying value of financial assets represents Yellow Pages Limited’s maximum
exposure.

Credit risk associated with cash is minimized substantially by ensuring that these financial assets are placed with creditworthy counterparties. An ongoing review is
performed to evaluate changes in the status of counterparties.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

8 3

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Yellow Pages Limited’s extension of credit to customers involves judgment. Yellow Pages 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 Pages 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 10% or more of revenues and there
are no trade receivables from any one individual customer that exceeds 10% of the total balance of trade receivables at any point in time during the year.

Bell and TELUS provide Yellow Pages 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 Pages Limited. Yellow Pages 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 Pages 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 and current economic conditions. Trade receivables are written off once determined not to be collectible. Subsequent recoveries
of amounts previously written off are credited to the statement of loss.

The components of trade and other receivables are as follows:

As at

Trade receivables

Current

Past due less than 180 days

Past due over 180 days

Trade receivables
Other receivables1
Trade and other receivables

December 31, 2017 December 31, 2016

61,572

37,494

12,016

111,082

12,969

124,051

66,517

30,620

5,243

102,380

12,474

114,854

¹ Other receivables as at December 31, 2016 and 2017 included a loan receivable associated with a forward contract.

Yellow Pages Limited’s trade receivables are stated after deducting an allowance for doubtful accounts. 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

Market Risk

(i) Interest Rate Risk

December 31, 2017 December 31, 2016

13,881

13,903

(10,720)

17,064

12,683

12,829

(11,631)

13,881

Yellow Pages Limited is exposed to interest rate risks resulting from fluctuations in interest rates on its ABL with rates which are generally based on the Prime rate or
Canadian BA rate. Yellow Pages Limited does not use derivative instruments to reduce its exposure to interest rate risk. 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 Pages 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

8 4

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

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 Pages Limited’s
fixed rate debt. As interest rates on the New Notes and Exchangeable Debentures are fixed, the Company is not exposed to interest rate fluctuation risk.

(ii) Foreign Exchange Risk

Yellow Pages 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 Pages Limited’s business unit that is
party to the transaction. Yellow Pages Limited is exposed to fluctuations in the U.S. dollar. The effect on net earnings from existing U.S. dollar exposures of a one point
increase or decrease in the Canadian/U.S. dollar exchange rate is not significant. The Company’s expenditures, net of revenues, denominated in U.S. dollars were
approximately $28 million for the year ended December 31, 2017 (2016 – $33 million). In 2016 and 2017, Yellow Pages Limited entered into foreign currency contracts
to hedge this risk. As at December 31, 2017, there were no foreign currency contracts outstanding.

Liquidity Risk

Liquidity risk is the exposure of Yellow Pages Limited to the risk of not being able to meet its financial obligations as they become due.

Yellow Pages 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 adequate and
efficient use of cash resources.

The Company is required to use an amount equal to 100% of its consolidated Excess Cash Flow to redeem on a semi-annual basis the New Notes. This requirement
is being met through internally-generated cash and cash on hand.

The following are the contractual maturities of the financial liabilities and related capital amounts:

Non-derivative financial liabilities
Long-term debt1,2
Obligations under finance leases1
Exchangeable Debentures1
Trade and other payables

Provisions

Total

¹ Principal amount.

Total

1 year

2 – 3 years

4 – 5 years

After 5 years

Payments due for the years following December 31, 2017

315,000

215

107,089

83,628

61,929

54,800

139
−
83,628

47,558

567,861

186,125

−
76
−
−
5,675

5,751

260,200
−
107,089
−
3,166

370,455

−
−
−
−
5,530

5,530

² The repayment of the New Notes may vary subject to the Excess Cash Flow clause as well as the minimum cash balance requirement on the last day of the mandatory redemption period under the indenture

governing the New Notes.

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, trade and other receivables, and trade and other payables is approximately equal to their carrying values due to their short-term maturity. The
fair value of the New Notes and the Exchangeable Debentures is evaluated based on quoted market prices as at the statement of financial position date.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

8 5

The following schedule represents the carrying values and the fair values of financial instruments not measured at fair value in the consolidated statement of financial
position as at December 31, 2017:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Current portion of long-term debt

Non-current portion of long-term debt

Exchangeable Debentures

Fair value hierarchy

The three levels of fair value hierarchy are as follows:

Level

Carrying Value

Fair Value

54,939

254,174

94,067

56,930

263,404

97,451

•
•
•

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 statements of financial position, classified using the fair value
hierarchy:

As at

Financial asset or liability

Investments – available-for-sale

Foreign currency forward contracts

Level December 31, 2017 December 31, 2016

5,502

−−

3,520

996

Yellow Pages Limited’s available-for-sale investments are comprised of privately held equity securities and are carried at fair value based on estimates on market rates
prevailing at the statement of financial position date. The available-for-sale investments are presented in financial and other assets in the consolidated statements of
financial position.

During the year ended December 31, 2017, the Company invested $5.4 million in Melian Labs, Inc., which operates an all-in-one commerce platform, MyTime, which
includes online booking, automated marketing, point of sale and analytics for local businesses.

During the year ended December 31, 2017, Yellow Pages determined that the fair value of certain of its available-for-sale investments were impaired and the fair value
of these investments was subsequently reduced to $nil. The impairment loss of $3.7 million is presented in impairment of available-for-sale investments in the
consolidated statement of loss.

In order to mitigate foreign exchange risk, Yellow Pages Limited entered into foreign currency forward contracts and designated them as cash-flow hedges for
accounting purposes. On December 4, 2017, the foreign currency forward contracts came to maturity and were settled as at that same date. The foreign currency
forward contracts were presented in prepaid expenses in the consolidated statement of financial position as at December 31, 2016.

22. Capital disclosures

Yellow Pages 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 PAGES LIMITED ANNUAL REPORT 2017

8 6

Yellow Pages 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 Pages Limited to monitor its financial leverage is its ratio of net debt to Latest Twelve Month Adjusted EBITDA³. Yellow Pages
Limited also uses other financial metrics to monitor its financial leverage including Fixed Charge Coverage Ratio and net debt to total capitalization.

Yellow Pages Limited’s capital is comprised of net debt, Exchangeable Debentures and equity attributable to shareholders of Yellow Pages Limited as follows:

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

As at

Cash

10.00% senior secured notes¹ (Note 11)

9.25% senior secured notes (Note 11)

Exchangeable Debentures² (Note 12)

Obligations under finance leases (Note 11)

Net debt
Equity attributable to shareholders
Total capitalization

Net debt to total capitalization

For the years ended December 31,

Latest Twelve Month Adjusted EBITDA³

Net debt to Latest Twelve Month Adjusted EBITDA ratio¹

¹ Represents the principal amount less unaccreted discount on the 10.00% senior secured notes.

² Represents the principal amount less unaccreted interest on the Exchangeable Debentures.

December 31, 2017

December 31, 2016

46,405

308,898
−−
94,067

215

356,775

(218,796)

137,979

258.6%

17,260

−
309,669

92,174

359

384,942

368,904

753,846

51.1%

2017

2016

183,985

235,191

1.9

1.6

³ Latest twelve month income from operations before depreciation and amortization, impairment of intangible assets and goodwill, and restructuring and other charges (“Latest Twelve Month Adjusted EBITDA”).

Latest Twelve Month Adjusted EBITDA is a non-IFRS measure and may not be comparable with similar measures used by other publicly traded companies.

23. Guarantees

In the normal course of operations, Yellow Pages Limited has entered into agreements which are customary in the industry that provide for indemnifications and
guarantees to counterparties in transactions involving business acquisitions, business dispositions and sale of assets. Yellow Pages 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 Pages Limited. Yellow Pages Limited benefits from directors’ and officers’ liability
insurance which it has purchased. No amount has been accrued in the consolidated statements of financial position as at December 31, 2017 and 2016 with respect to
these indemnities.

The nature of these guarantees prevents Yellow Pages Limited from making a reasonable estimate of the maximum potential amount it could be required to pay to
counterparties.

YELLOW PAGES LIMITED ANNUAL REPORT 2017

8 7

24. List of subsidiaries

As at

Canada

Yellow Pages Digital & Media Solutions Limited

Yellow Pages Homes Limited
411 Local Search Corp.
9059-2114 Quebec Inc.
ByTheOwner Inc.
Juice DMS Advertising Limited

YP Dine Solutions Limited

Bookenda Limited

9778748 Canada Inc. (“Totem”)

USA

YPG (USA) Holdings, Inc.

Yellow Pages Digital & Media Solutions, LLC

Juice Mobile USA LLC

25. Related party disclosures

Key management personnel compensation

Notes To The Consolidated Financial Statements – December 31, 2017
(all tabular amounts are in thousands of Canadian dollars, except share information)

Principal activity

Proportion of ownership

December 31,

Digital and print media marketing solutions provider

Publisher of locally-targeted real estate listings

Digital media marketing solutions provider

Holding company

Real estate and related services provider

Digital media marketing solutions provider

Local digital restaurant guides provider

Booking and reservation management system provider

Publisher

Holding company

Operational support services provider

Digital media marketing solutions provider

2017

100%

2016

100%

Yellow Pages Limited’s key management personnel have authority and responsibility for planning, directing and controlling the Company’s activities and consist of
Yellow Pages Limited’s executive team and the Board of Directors.

Total compensation expense for key management personnel, and the composition thereof, is as follows:

For the years ended December 31

Salary, fees and other short-term employee benefits

Post-employment benefits

Stock-based compensation

Termination benefits

¹ During 2017, management reassessed its key management personnel. The prior period has been revised to reflect this change in composition.

2017

4,276

506

2,034

6,184

2016

4,787

690

4,173

1,350

13,000

11,000

YELLOW PAGES LIMITED ANNUAL REPORT 2017

8 8

Table of Contents

Consolidated Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Notes To The Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51-88

Executive Team

Board of Directors

David A. Eckert
President and Chief
Executive Officer

John R. Ireland
Senior Vice-President,
Organizational Effectiveness

Dany Paradis
Senior Vice-President,
Sales and Customer Care

Stephen K. Smith
Senior Vice-President,
Profitable Growth

Ken Taylor
Senior Vice-President and
Chief Financial Officer

Robert F. MacLellan
Director and Chairman
of the Board
Chair of the Ad Hoc
Committee

David A. Eckert
President and Chief
Executive Officer

Craig Forman
Director
Corporate Governance and
Nominating Committee

Robert Hall
Director
Audit Committee

Susan Kudzman
Director
Chair of the Human Resources
and Compensation Committee

David A. Lazzarato
Director
Chair of the Audit Committee
Ad Hoc Committee

David G. Leith
Director
Chair of the Corporate
Governance and Nominating
Committee
Ad Hoc Committee

Donald H. Morrison
Director
Human Resources and
Compensation Committee

Martin Nisenholtz
Director
Human Resources and
Compensation Committee

Kalpana Raina
Director
Corporate Governance and
Nominating Committee

Paul W. Russo
Director
Human Resources and
Compensation Committee

Michael G. Sifton
Director
Audit Committee

Head Office

1751 rue Richardson
Montréal, Québec H3K 1G6

Investor Relations

Telephone: 1 877 956-2003
E-mail: ir.info@yp.ca

Auditor

Deloitte LLP

TSX Symbols

Common Shares

Y
YPG.DB Senior Subordinated
Unsecured
Exchangeable
Debentures

Y.WT Warrants

Transfer Agent

AST Trust Company
2001 Boul. Robert-Bourassa,
Suite 1600
Montréal, Québec H3A 2A6
Telephone: 1 800 387-0825
E-mail: inquiries@canstockta.com

For further information on Yellow Pages Limited, visit our corporate website at corporate.yp.ca.

2017

Report
Annual

corporate.yp.ca