Yellow Pages Annual Report 2018

FY2018 Annual Report · Yellow Pages

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corporate.yp.ca

Annual
Report

2018

Table of Contents

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

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Consolidated Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Consolidated Statements of Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Consolidated Statements of Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Notes To The Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50-96

Executive Team

Board of Directors

Head Office

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

Franco Sciannamblo
Senior Vice-President, Chief Financial Officer

Treena Cooper
Vice President, Secretary, and General Counsel

Susan Kudzman
Director and Chair of the Board

David A. Eckert
Director
President and Chief Executive Officer

Craig Forman
Director
Chair of the Corporate Governance and
Nominating Committee

Robert Hall
Director
Chair of the Audit Committee

Donald H. Morrison
Director

Kalpana Raina
Director

Paul W. Russo
Director
Chair of the Human Resources and
Compensation Committee

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

Y
YPG.DB Senior Subordinated Unsecured

Common Shares

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.

Management’s Discussion and Analysis

Message to Shareholders

Dear Shareholders,

Your management team and all of our YP colleagues worked hard during 2018 to strengthen our company and position us for future success. Among the most
significant accomplishments were:

• Spending reduced dramatically. Through aggressive but careful management of our resources, we cut our total spending (operating plus capital) by 35%

compared to the prior year.

• EBITDA less CAPEX rebounded strongly. Largely as a result of aligning our spending with our revenues, Adjusted EBITDA less CAPEX1 increased every

quarter (year-on-year), and for the full year it totalled 48% higher than the prior year.

• Extraneous businesses harvested. We divested, liquidated, or closed virtually all of our unprofitable and non -synergistic subsidiaries, divisions, and

businesses, generating approximately $75 million of cash and allowing management to focus resources and attention on improving our core business.

• Net debt reduced by almost half. With principal repayments of $144.7 million made on our Senior Secured Notes, we reduced our debt (excluding lease

obligations, net of cash) by almost half, to a level below 1x Adjusted EBITDA1.

• Collective bargaining agreements restructured. We have now restructured the collective bargaining agreements covering our entire sales force—a key
competitive advantage for us. The new agreements provide us with important new ability to manage and reward performance and with critical flexibility to
respond to the shifting needs of our competitive landscape.

In 2018, we did much of what we set out to do. We are considerably leaner, stronger, and more focused than we were a year ago. And now we have the ability to
manage our selling efforts. As we move forward, the bulk of our attention is on “bending the revenue curve” in our favor. While we do not underestimate the challenge,
we believe we are equipped to meet it.

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

David A. Eckert

President and Chief Executive Officer

1Adjusted EBITDA and Adjusted EBITDA less CAPEX are non-IFRS financial measures and do not have any standardized meaning under IFRS. Refer to page 3 of this Annual Report for
detailed definitions of these Non-IFRS measures.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

Management’s Discussion and Analysis

February 13, 2019

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, 2018 and 2017 and should be read in conjunction with our
Audited Consolidated Financial Statements and accompanying notes for the years ended December 31, 2018 and 2017. Please also refer to Yellow Pages Limited’s
press release announcing its results for year ended December 31, 2018 issued on February 13, 2019. 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), sold as of July 23, 2018;
YPG (USA) Holdings, Inc. and Yellow Pages Digital & Media Solutions LLC, the latter dissolved as of December 20, 2018 (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 and
sold as of July 6, 2018); Juice DMS Advertising Limited, sold as of December 31, 2018 and Juice Mobile USA LLC, dissolved as of December 20, 2018 (the latter two
collectively JUICE); and 9778748 Canada Inc. (Totem), sold as of May 31, 2018).

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 13, 2019, 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 products and services that support our customer base and drive improvement in average revenue per
customer (“ARPC”) ;

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 2018

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:

Management’s Discussion and Analysis

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

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

• 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 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 customers;

• A prolonged economic downturn in principal markets of the Corporation;

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

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

• 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;

• 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

• Work stoppages and other labour disturbances;

• 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;

• 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 32
of this MD&A.

We define Adjusted EBITDA as revenues less operating costs, as shown in Yellow Pages Limited’s consolidated statements of income (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

YELLOW PAGES LIMITED ANNUAL REPORT 2018

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 income (loss), less additions to intangible assets and to property and equipment, net of lease incentives
received, as reported in the Investing 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.

Management’s Discussion and Analysis

This MD&A is divided into the following sections:

1. Our Business and Customer Offerings

2. Results

3. Liquidity and Capital Resources

4. Critical Assumptions

5. Risks and Uncertainties

6. Controls and Procedures

YELLOW PAGES LIMITED ANNUAL REPORT 2018

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 over 300 professionals offers this full suite of marketing solutions to local businesses across the country, while also supporting
the evolving needs of its existing customer base of 188,000 SMEs. This segment included the operations of RedFlagDeals.com™, Canada’s leading provider of online
and mobile promotions, deals, coupons and shopping forums, until its sale on August 22, 2018.

The Company’s Agency segment provided marketing solutions that extend beyond SMEs, focusing on the national advertising needs of brands and publishers. The
Agency segment will no longer have operations as a result of the sale of Totem as of May 31, 2018, the sale of its JUICE assets for $1.0 million excluding working
capital as of December 31, 2018 and through the liquidation of its Mediative division by January 31, 2019. Mediative operated an extensive publisher network and one
of the country’s largest pools of consumer data, providing national brands and enterprises with marketing solutions that reached potential customers. JUICE, a mobile
advertising technology company, facilitated the automatic buying and selling of mobile advertising between brands and publishers through Programmatic Direct and
Real-Time Bidding platforms. Totem provided customized content creation and delivery for global brands.

The Real Estate segment provided homeowners in Canada with media to sell their homes in a proven and cost-effective manner as well as published locally-targeted
real estate listings. As a result of the sale of ComFree/DuProprio (CFDP) as of July 6, 2018 and Yellow Pages NextHome as of July 23, 2018, the Company divested
all of the operations of its Real Estate segment. This segment included the operations of these businesses up to their sale.

Yellow Pages Other segment includes the 411.ca digital directory service and included Western Media Group until the divestiture of that business for a nominal amount
as of May 31, 2018.

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 Segment

• 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;

• 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;

• The Corporation is the official directory publisher for Bell, Telus, Bell Aliant, MTS Allstream, and a number of other incumbent telephone companies; and

• The Company also operated RedFlagDeals.com™, Canada’s leading provider of online and mobile promotions, deals, coupons and shopping forums, until its

sale on August 22, 2018.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

Management’s Discussion and Analysis

Real Estate Segment

• The Company divested the business operations associated with both of its Real Estate segment media properties in separate transactions in July 2018.

• ComFree/DuProprio (sold as of July 6, 2018) – 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; and

• Yellow Pages NextHome (divested as of July 23, 2018) – Provides Canadians with helpful information in making informed home buying, selling, and/or renting

decisions. Digital properties operated under the Yellow Pages NextHome umbrella include YP NextHome Rent and YP NextHome New Construction.

Other segment

• 411.ca – A digital directory service to help users find and connect with people and local businesses, and until the sale as of May 31, 2018 of Western Media

Group, magazines generating local lifestyle content specific to the Western Canada region, in the restaurants, real estate and lifestyle categories.

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, 2018 include:

• Adjusted EBITDA – Adjusted EBITDA totalled $192.6 million, or 33.4% of revenues for the year ended December 31, 2018, compared to $183.1 million or

25.2% of revenues for the same period last year;

• Adjusted EBITDA less CAPEX – Adjusted EBITDA less CAPEX amounted to $180.5 million for the year ended December 31, 2018 compared to $122.2 million

for the year ended December 31, 2017;

• Digital Revenues – Consolidated digital revenues decreased 18.4% year-over-year, impacted significantly by our divestitures, and amounted to $441.3 million

for the year ended December 31, 2018, representing 76.5% of consolidated revenues;

• YP Segment Customer Count and ARPC – YP Segment customer count decreased to 188,000 customers for the year ended December 31, 2018, as compared to
229,000 customers for same period last year. The customer count reduction of 41,000 for the year ended December 31, 2018 compares to a decline of 12,500 in
the comparable period of the previous year. YP Segment ARPC for the year ended December 31, 2018 was $2,488 as compared to $2,464 for the year ended
December 31, 2017 representing an increase of 1%.

CAPEX
(In thousands of Canadian dollars)

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

Additions to intangible assets

Additions to property and equipment

Less lease incentives received

CAPEX

Headcount1

As at

Agency

Real estate

Other

Total Headcount

1The Company defines headcount as total employees excluding employees on short term and long term disability leave, and on maternity leave.

2018

2017

2018

3,201

8,670

14,287

13,018

(5,797)

1,899

(4,150)

2017

37,297

30,412

(6,824)

839
−
4,040

15,891

12,036

60,885

December 31,

2018

912

27
−
71

2017

1,882

181

463

178

Change

(970)

(154)

(463)

(107)

1,010

2,704

(1,694)

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2. Results

This section provides an overview of our financial performance in 2018 compared to 2017. 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 3 and 4 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

Net earnings (loss)

Basic earnings (loss) per share

CAPEX

Adjusted EBITDA less CAPEX

Cash flows from operating activities

2018

2017
(Restated)1

577,195

727,967

192,565

33.4%

82,809

3.13

12,036

180,529

134,659

183,109

25.2%

(594,482)

(22.52)

60,885

122,224

116,577

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

Revenues
(In thousands of Canadian dollars)

2018

2017

$577,195

$727,967

Adjusted EBITDA less CAPEX
(In thousands of Canadian dollars)

2018

2017

$180,529

$122,224

Adjusted EBITDA
(In thousands of Canadian dollars)

2018

2017

$192,565

$183,109

Cash Flows from Operating Activities
(In thousands of Canadian dollars)

2018

2017

$134,659

$116,577

YELLOW PAGES LIMITED ANNUAL REPORT 2018

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 sales

Gross profit

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

Income (loss) from operations

Financial charges, net

Gain on sale of businesses

Impairment of available-for-sale investments

Earnings (loss) before income taxes and loss from investment in a jointly controlled entity

(Recovery of) provision for income taxes

Loss from investment in a jointly controlled entity

Net earnings (loss)

Basic earnings (loss) per share

Diluted earnings (loss) per share

As at December 31,

Total assets

Senior Secured Notes (including current portion)

Exchangeable debentures

Total Senior Secured Notes and Exchangeable debentures to total assets

Management’s Discussion and Analysis

% of

2018

Revenues

2017
(Restated)1

% of

Revenues

577,195

237,319

339,876

147,311

192,565

76,094

−

15,862

100,609

54,729

(6,129)
−

52,009

(30,800)
−

82,809

3.13

2.78

2018

442,369

167,489

96,179

59.6%

41.1%

58.9%

25.5%

33.4%

13.2%
−
2.7%

17.4%

9.5%

(1.1%)
−
9.0%

(5.3%)
−
14.3% $

727,967

344,148

383,819

200,710

183,109

112,965

507,032

34,400

47.3%

52.7%

27.6%

25.2%

15.5%

69.7%

4.7%

(471,288)

(64.7%)

53,946
−
3,720

7.4%
−
0.5%

(528,954)

(72.7%)

63,424

2,104

8.7%

0.3%

(594,482)

(81.7%)

(22.52)

2017
(Restated)1

601,527

308,898

94,067

67.0%

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

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 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. This segment included the operations of RedFlagDeals.com™, Canada’s leading provider of online
and mobile promotions, deals, coupons and shopping forums, until its sale on August 22, 2018.

The Other segment includes the 411.ca digital directory service and, until the sale as of May 31, 2018, of Western Media Group, magazines generating local lifestyle
content specific to the Western Canada region, in the restaurants, real estate and lifestyle categories.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

Analysis of Consolidated and Segmented Operating and Financial Results
(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

Management’s Discussion and Analysis

2018

2017
(Restated)1

% Change

476,792 $

570,870

127,897

348,895

165,674

405,196

52,827

2,017

50,810

35,679

4,863

30,816

14,368

1,163

13,205

(2,471)

(26)

(2,445)

78,104

5,416

72,688

61,162

11,913

49,249

22,555

3,924

18,631

(4,724)

(67)

(4,657)

577,195 $

727,967

135,914 $

186,860

441,281 $

541,107

(16.5%)

(22.8%)

(13.9%)

(32.4%)

(62.8%)

(30.1%)

(41.7%)

(59.2%)

(37.4%)

(36.3%)

(70.4%)

(29.1%)

(47.7%)

(61.1%)

(47.5%)

(20.7%)

(27.3%)

(18.4%)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

For the year ended December 31, 2018, total revenues amounted to $577.2 million as compared to $728.0 million for the same period last year representing a
decrease of 20.7% year-over year or $150.8 million of which $33.3 million is attributable to the divested businesses. Other than the decrease resulting from the
divestitures, the decline in total revenues for the year ended December 31, 2018 was due to digital revenue declines in all segments and YP segment print revenue
decline.

For the year ended December 31, 2018, total digital revenues amounted to $441.3 million or 76.5% of revenues, representing a decrease of 18.4% year-over-year or
$99.8 million of which $20.0 million is attributable to the divested businesses. This compares to $541.1 million or 74.3% of revenues for the year ended December 31,
2017. Other than the decrease resulting from the divestitures, the digital revenue decline for the year ended December 31, 2018 was mainly attributable to the YP
segment where the results were adversely impacted by a decline in the number of digital customers partially offset by a higher spend per customer. The lower digital
customer count is attributable to both a lower level of customer acquisition in 2018, driven in part by our focus on profitability, and by higher churn, mainly caused by
the surge in customer acquisition in 2016 and 2017 of customers purchasing low end solutions which typically have higher churn rates. Revenue was further impacted
by the closure of certain US operations in the Agency segment to improve profitability as well as the wind down of the Mediative activities in the fourth quarter of 2018.

For the year ended December 31, 2018, total print revenues amounted to $135.9 million representing a decrease of 27.3% year-over-year or $50.9 million of which
$13.2 million was attributable to the divested businesses. Other than the decrease resulting from the divestitures, the print revenue decline for the year ended
December 31, 2018 is attributable to the YP segment where results were adversely impacted by a decline in the number of print customers and lower average spend
by customer.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 0

Management’s Discussion and Analysis

Reportable Segments Revenues

Revenues for the YP segment for the year ended December 31, 2018 decreased by $94.1 million or 16.5% to $476.8 million from $570.9 million for the same period in
2017. The decrease for the year ended December 31, 2018 is mainly due to the decline of our higher margin YP digital media and print products and, to a lesser
extent, our lower margin digital services products. This change in product mix created pressure on our gross profit margins. 2018 was further impacted by the sale of
RedFlagDeals.com™ on August 22, 2018.

Digital revenues decreased 13.9% year-over-year, or 13.6% excluding the sale of RedFlagDeals.com™, and amounted to $348.9 million for the year ended
December 31, 2018, compared to $405.2 million for the same period last year. Digital revenues were adversely impacted by a decline in the number of digital
customers offset in part by a higher spend per customer. The lower digital customer count is attributable to both a lower level of customer acquisition in 2018, driven in
part by our focus on profitability, and by higher churn, mainly caused by the surge in customer acquisition in 2016 and 2017 of customers purchasing low end solutions
which typically have higher churn rates.

Print revenues decreased by 22.8% year-over-year to $127.9 million for the year ended December 31, 2018. The results were adversely impacted by a decline in the
number of print customers and lower spend per customer.

Agency

Agency revenues for the year ended December 31, 2018 decreased 32.4% year-over-year and amounted to $52.8 million as compared to $78.1 million for the same
period last year. The decrease in Agency revenues for the year ended December 31, 2018 was impacted by the closure of certain US operations to improve
profitability, the sale of Totem as of May 31, 2018 as well as the wind down of the Mediative activities. Excluding the impact of the closure of certain US operations and
the sale of Totem, the Agency segment revenues decreased 25.6% for the year ended December 31, 2018.

Real Estate

Revenues for the year ended December 31, 2018 were $35.7 million as compared to $61.2 million for the same period last year. The decline for the year ended
December 31, 2018 is a result of the Company divesting the business operations associated with both of its Real Estate segment media properties in separate
transactions in July 2018.

Other

Other revenues decreased by $8.2 million to $14.4 million for the year ended December 31, 2018 from $22.6 million for the same period last year. The decline in Other
revenues is mainly due to a reduced advertiser count resulting from lower new customer acquisition at 411.ca and the divestiture of Western Media Group as of
May 31, 2018.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 1

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

Management’s Discussion and Analysis

2018

2017
(Restated)1

% % Change

302,954 63.5% $

333,890 58.5%

12,437 23.5%

11,791 15.1%

17,256 48.4%

28,815 47.1%

7,392 51.4%

9,818 43.5%

(163)

(495)

339,876 58.9% $

383,819 52.7%

(9.3%)

5.5%

(40.1%)

(24.7%)

(67.1%)

(11.4%)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

Gross profit for the year ended December 31, 2018 amounted to $339.9 million or 58.9% of total revenues representing a decrease of $43.9 million year-over-year of
which $14.2 million is attributable to divested businesses. This compares to $383.8 million or 52.7% of total revenues for the same period last year. The increase in
gross profit as a percentage of revenues is due to cost reduction measures and focus on profitability of our products and services offsetting the pressures from reduced
revenues and change in product mix.

Reportable Segments Gross Profit

Gross profit for the year ended December 31, 2018 was $303.0 million, or 63.5% of revenues as compared to $333.9 million, or 58.5% of revenues for the same period
in 2017. The decrease in gross profit is a result of reduced revenues and change in product mix. Gross profit as a percentage of revenues increased as the impact of
reduced revenues was more than offset by cost reduction measures and focus on profitability of our products and services. These measures included workforce
reductions primarily in non-customer facing areas in the first quarter of 2018, call center consolidations and optimization of our servicing model in the second quarter of
2018 as well as increased focus on profitable sales throughout 2018.

Agency

Agency gross profit for the year ended December 31, 2018 totalled $12.4 million, or 23.5% of revenues, as compared to $11.8 million, or 15.1% of revenues, for the
same period last year. The gross profit in the Agency segment for the year ended December 31, 2018 was favorably impacted by the closure of certain US operations
to improve profitability and by other cost reduction initiatives. The results for the year ended December 31, 2018 also improved relative to the same period last year
due to a non-recurring contract termination fee incurred in the first quarter of 2017.

Real Estate

Real Estate gross profit for the year ended December 31, 2018 amounted to $17.3 million, or 48.4% of revenues, as compared to $28.8 million, or 47.1% of revenues,
for the same period last year. The decrease in gross profit for the year ended December 31, 2018 is a result of the Company divesting the business operations
associated with both of its Real Estate segment media properties in separate transactions in July 2018.

Other

Gross profit for the Other segment amounted to $7.4 million, or 51.4% of revenues, for the year ended December 31, 2018 as compared to $9.8 million, or 43.5% of
revenues, for the same period last year. The decrease in gross profit for the year ended December 31, 2018 is due to lower revenues partially offset by an improvement in
gross profit as a percentage of revenues due to cost reductions. The results were further impacted by the sale of Western Media Group as of May 31, 2018.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 2

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

2018

(Restated)1 % Change

118,225 $

154,120

9,313

14,333

5,603

(163)

15,346

24,066

7,673

(495)

147,311 $

200,710

(23.3%)

(39.3%)

(40.4%)

(27.0%)

(67.1%)

(26.6%)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

For the year ended December 31, 2018, total other operating costs decreased by $53.4 million or 26.6% to $147.3 million from $200.7 million for the same period last year.
The decrease in total other operating costs for the year ended December 31, 2018 was mainly the result of reductions in our cost structure including reductions in our
workforce and associated employee costs, reductions in the Company’s office space footprint, and other spending reductions across the Company as well as the impact
from divestitures.

Reportable Segments Other Operating Costs

Other operating costs for the YP segment for the year ended December 31, 2018 totalled $118.2 million, as compared to $154.1 million for the same period last year.
The decrease for the year ended December 31, 2018 is mainly the result of reductions in our cost structure including reductions in our workforce and associated
employee costs, reductions in the Company’s office space footprint, and other spending reductions across the segment.

Agency

Other operating costs for the Agency segment for the year ended December 31, 2018 amounted to $9.3 million. This compares to $15.3 million for the same period last
year. The decrease in other operating costs for the year ended December 31, 2018 for the Agency segment is due primarily to a reduction in our workforce and
associated employee costs, the closure of certain US operations to improve profitability as well as the sale of Totem as of May 31, 2018.

Real Estate

Other operating costs amounted to $14.3 million for the year ended December 31, 2018, compared to $24.1 million for the same period last year as a result of the
Company divesting the business operations associated with both of its Real Estate segment media properties in separate transactions in July 2018.

Other

Other operating costs for the Other segment amounted to $5.6 million for the year ended December 31, 2018 compared to $7.7 million for the same period last year.
The decrease in other operating costs for the year ended December 31, 2018 is due to lower employee related costs, overall cost reductions and the sale of WMG as
of May 31, 2018.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 3

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

2018

2017
(Restated)1

% % Change

184,729 38.7% $ 179,770

31.5%

2.8%

3,124

2,923

5.9%

8.2%

1,789 12.5%

(3,555)

(4.6%)

(187.9%)

4,749

2,145

7.8%

9.5%

(38.5%)

(16.6%)

5.2%

192,565 33.4% $

183,109

25.2%

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.
For the year ended December 31, 2018, Adjusted EBITDA increased by $9.5 million or 5.2% to $192.6 million compared to $183.1 million for the same period last year. Our
Adjusted EBITDA margin amounted to 33.4% for the year ended December 31, 2018 compared to 25.2% for the same period last year. The increase in Adjusted EBITDA
and Adjusted EBITDA margin for the year ended December 31, 2018 was mainly the result of reductions in our cost structure including reductions in our workforce and
associated employee costs, reductions in the Company’s office space footprint, and other spending reductions across the Company.

Reportable Segments Adjusted EBITDA

Adjusted EBITDA for the YP segment for the year ended December 31, 2018 increased to $184.7 million from $179.8 million for the same period in 2017. The Adjusted
EBITDA margin for the YP segment for the year ended December 31, 2018 amounted to 38.7% compared to 31.5% for the same period last year. Despite overall lower
revenues and the pressures on margins, our Adjusted EBITDA and Adjusted EBITDA margin grew due to an increased focus on the profitability of our products and
services and reductions in our cost structure including reductions in our workforce and associated employee costs, reductions in the Company’s office space footprint,
and other spending reductions across the segment.

Agency

Agency Adjusted EBITDA for the year ended December 31, 2018 amounted to $3.1 million, or 5.9% of revenues, as compared to a loss of $3.6 million for the same
period last year. The increase in the Agency Adjusted EBITDA and Adjusted EBITDA margin for the year ended December 31, 2018 was impacted by the closure of
certain US operations to improve profitability and reductions in our workforce and associated employee costs. The Adjusted EBITDA for the year ended
December 31, 2018 also improved relative to the same period last year due to a non-recurring contract termination fee incurred in the first quarter of 2017.

Real Estate

Real Estate Adjusted EBITDA for the year ended December 31, 2018 amounted to $2.9 million, or 8.2% of revenues, as compared to $4.7 million, or 7.8% of revenues,
for the same period last year. The decrease for the year ended December 31, 2018 is a result of the Company divesting the business operations associated with both
of its Real Estate segment media properties in separate transactions in July 2018.

Other

Adjusted EBITDA for the Other segment for the year ended December 31, 2018, amounted to $1.8 million, or 12.5% of revenues. This compares to $2.1 million, or
9.5% of revenues, for the same periods last year.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 4

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

2018

2017
(Restated)1

% Change

173,965 $

124,694

184,729

10,764

2,864

3,124

260

2,460

2,923

463

1,240

1,789

549

180,529

192,565

179,770

55,076

(5,515)

(3,555)

1,960

3,441

4,749

1,308

(396)

2,145

2,541

122,224

183,109

12,036 $

60,885

39.5%

2.8%

(80.5%)

(151.9%)

(187.9%)

(86.7%)

(28.5%)

(38.5%)

(64.6%)

(412.6%)

(16.6%)

(78.3%)

47.7%

5.2%

(80.2%)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.
For the year ended December 31, 2018, Adjusted EBITDA less CAPEX increased by $58.3 million or 47.7% to $180.5 million compared to $122.2 million for the same period
last year. The increase in Adjusted EBITDA less CAPEX for the year ended December 31, 2018 was mainly impacted by higher Adjusted EBITDA and decreased spending
on software development, office and computer equipment and leasehold improvements associated with office relocations.

Reportable Segments Adjusted EBITDA less CAPEX

YP
Adjusted EBITDA less CAPEX for the year ended December 31, 2018 totalled $174.0 million compared to $124.7 million for the same period last year. The increase for
the year ended December 31, 2018 is mainly due to higher Adjusted EBITDA and lower capital expenditures in software development and lower spend in office and
computer equipment and leasehold improvements associated with office relocations.

Agency
Agency Adjusted EBITDA less CAPEX for the year ended December 31, 2018 amounted to $2.9 million as compared to a loss of $5.5 million for the same period last
year. The improvements in Adjusted EBITDA less CAPEX were due to increased Adjusted EBITDA as well as reduced capital expenditures on software development.

Real Estate
Adjusted EBITDA less CAPEX for the Real Estate segment amounted to $2.5 million for the year ended December 31, 2018 as compared to $3.4 million for the same
period last year. The decrease is due primarily to lower Adjusted EBITDA as a result of the Company divesting the business operations associated with both of its Real
Estate segment media properties in separate transactions in July 2018.
Other

Adjusted EBITDA less CAPEX for the Other segment for the year ended December 31, 2018 increased to $1.2 million as compared to a loss of $0.4 million in the
same period last year due to lower spend on leasehold improvements associated with the 411 office relocation in 2017.

Depreciation and Amortization
Depreciation and amortization decreased to $76.1 million for the year ended December 31, 2018 compared to $113.0 million for the same period last year primarily due
to the lower opening intangible asset balance following the impairment recorded in the fourth quarter of 2017 and decreased spend in software development.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 5

Restructuring and Other Charges
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Severance, benefits and outplacement

Settlement of litigation

Impairment (recovery) of right-of-use assets and future operating costs related to lease contracts for offices closed

Pension settlement costs and past service costs, net

Transaction costs

Other fees

Total restructuring and other charges

Management’s Discussion and Analysis

2018

2017
(Restated)1

31,231

(14,095)

(2,029)

755
−
−
15,862

15,098
−
17,188

1,332

601

181

34,400

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

Yellow Pages Limited recorded restructuring and other charges of $15.9 million for the year ended December 31, 2018 (2017 – $34.4 million) consisting of
restructuring charges of $31.2 million associated with workforce reductions, offset by the $14.1 million impact of a favorable litigation settlement on a contractual
obligation with a vendor. Additionally, the restructuring and other charges were offset by a net recovery of $2.0 million related to the impairment of right-of-use assets
and future operating costs provisioned for lease contracts for office closures. Included in this amount is a net recovery of $7.3 million as a result of a more favorable
lease recovery than anticipated, partially offset by the impairment of right-of-use assets and future operating costs related to lease contracts for office closures. For the
year ended December 31, 2017, we recorded restructuring and other charges of $34.4 million associated primarily with internal reorganizations and workforce
reductions of $15.1 million and with office closures of $17.2 million. Transaction costs of $0.6 million are comprised mainly of acquisition related costs.

Financial Charges

Financial charges increased to $54.7 million for the year ended December 31, 2018 compared to $53.9 million for the same period last year. The increase is primarily
due to the issuance of the $315.0 million principal amount 10.00% Senior Secured Notes on October 19, 2017, which accrues interest at a higher rate than the prior
Senior Secured Notes. The Company’s effective average interest rate on our debt portfolio excluding capital leases as at December 31, 2018 was 9.2% (2017 – 8.5%).

(Recovery of) provision for income taxes

The combined statutory provincial and federal tax rates was 26.9% for the year ended December 31, 2018 and 26.8% for the same period in 2017. The Company recorded a
recovery of income taxes of $30.8 million for the year ended December 31, 2018, comprised of recognition of previously unrecognized tax attributes of $8.5 million and a
resolution of uncertain tax positions of $38.6 million. These recoveries are non-cash items.

In comparison, the Company recorded a provision for income taxes of $63.4 million for the year ended December 31, 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 $500.0 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 $70.0 million during the fourth quarter of 2017. These expenses are non-cash items.

The Company recorded a recovery of 59.2% of earnings for the year ended December 31, 2018 compared to a provision for income taxes of (12%) on the losses for the year
ended December 31, 2017. The difference between the effective and the statutory rates for the year ended December 31, 2018 is mainly due to recognition of previously
unrecognized tax attributes, a resolution of uncertain tax positions and non-deductibility of certain expenses for tax purposes. 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.

Net earnings (loss)

Net earnings increased to $82.8 million for the year ended December 31, 2018 from a net loss of $594.5 million for the same period last year. Notwithstanding the impairment
charge of $507.0 million recorded in 2017, the improvement in net earnings is mainly due to higher Adjusted EBITDA, decreased depreciation and amortization expenses and
restructuring and other charges, a gain on the sale of businesses and the recovery of income taxes.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 6

Management’s Discussion and Analysis

Summary of Consolidated Quarterly Results

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

Revenues

124,519 $

130,150 $

163,212

159,314

178,549

175,695 $

193,515 $

180,208

2018

2017
(Restated)1

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 (recovery)

Income (loss) from operations

Financial charges, net

(Gain) loss on sale of businesses
Impairment of

available-for-sale investments

(Recovery of) provision for income taxes

Loss from investment in

a jointly controlled entity

Net earnings (loss)

Basic earnings (loss) per share

Diluted earnings (loss) per share

83,370

83,889

105,990

111,381

132,860

129,751

143,573

138,674

41,149

33.0%

17,063

−
1,198

22,888

13,516

(205)

46,261

35.5%

18,945

−

5,220

22,096

13,074

57,222

35.1%

19,202

−
(1,754)

39,774

13,977

(6,827)

903

−
(30,380)

−

(11,276)

−
39,957 $

−
27,125 $

1.51

1.28

1.03

0.89

−
8,248

−
16,646

0.63

0.56

47,933

30.1%

20,884

−
11,198

15,851

14,162

−

−
2,608

45,689

25.6%

26,205

507,032

17,552

(505,100)

16,221

−

−
63,014

45,944

26.1%

29,915

−
6,784

9,245

12,492

−

3,720

(902)

49,942

25.8%

29,262

−
2,778

17,902

12,808

−

−
2,344

41,534

23.0%

27,583

−
7,286

6,665

12,425

−

−
(1,032)

−
(919) $

267

1,116

362

359

(584,602) $

(7,181) $

2,388 $

(5,087)

(0.03) $

(22.26) $

(0.03) $

(22.26) $

(0.27) $

0.09 $

(0.19)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

Sequential quarterly revenue trends are impacted by the YP segment’s print publication distribution schedules, with the second quarter being the strongest quarter, and
seasonality in the Agency segment, with the fourth quarter historically being the strongest quarter with the exception of 2018 due to the wind down of Mediative
activities in the segment. Year-over-year the quarters have decreased principally due to revenue declines in the YP segment associated with overall loss of customers,
and declining ARPC, except for the fourth quarter of 2018 where ARPC improved by 1%. The third and fourth quarters of 2018 were further impacted by the divestiture
of businesses.

Operating costs in 2018 decreased as a result of reductions in our cost structure relating to workforce reductions and associated costs, reductions in the Company’s
office space footprint, cost optimizations in technology infrastructure and other spending reductions across the Company and emphasis on the profitability of our
products and services. The second half of 2018 was also impacted by the divestiture of businesses. Throughout the quarters in 2017, operating costs were consistent
with the movement in revenues as the pressure from a shift in the sales mix toward products with higher proportionate delivery costs was mitigated by workforce
reductions and other cost saving initiatives. In addition, the first half of 2017 was negatively impacted by higher consulting expenditures and a non-recurring contract
termination fee incurred in the first quarter.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 7

Management’s Discussion and Analysis

The Adjusted EBITDA margin improved in 2018 as reductions in our cost structure and emphasis on the profitability of our products and services more than offset the
impact of the decline in revenues. The Adjusted EBITDA margin remained relatively stable throughout 2017 as the pressure from a shift in the sales mix toward
products with higher proportionate delivery costs was mitigated by workforce reductions and other cost saving initiatives. In addition, the first half of 2017 was
negatively impacted by higher consulting expenditures and a non-recurring contract termination fee incurred in the first quarter.

Depreciation and amortization have been decreasing due to lower intangible assets resulting from decreasing software development expenditures. 2018 was further impacted
by lower intangible assets following the impairment recorded in the fourth quarter of 2017.

The Company’s restructuring and other charges mainly relate to workforce reductions and impairments of right-of-use assets and future operating costs related to
lease contracts for offices closed. The first quarter of 2018 benefited from the impact of a favourable litigation settlement on a contractual obligation with a vendor. The
second quarter of 2018 benefited from a net recovery of $7.3 million relating to the impairment of right-of-use assets and future operating costs provisioned for lease
contracts for office closures as a result of more favorable lease recovery than anticipated.

Financial charges increased starting in the fourth quarter of 2017 due 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. The fourth quarter of 2017 was further impacted by increased interest due to the overlap of both Senior
Secured Notes for a period of time.

The net earnings in the fourth quarter of 2018 benefited from the reversal of income tax provisions of $21.4 million related to previous taxation years and to the
recognition of previously unrecognized tax attributes for $8.5 million. The net earnings in the third quarter of 2018 benefited from the impact of the net gain on sale of
businesses of $6.8 million as well as the benefit of the reversal of income tax provisions of $18.3 million related to previous taxation years. Our net loss for the fourth
quarter of 2017 was due to the impairment charge of $507.0 million related to certain of our intangible assets and goodwill and impacted by the reversal of tax
attributes and deductible temporary differences representing an income tax expense of $75.0 million. 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 8

ANALYSIS OF FOURTH QUARTER 2018 RESULTS
(In thousands of Canadian dollars, except per share and percentage information)

For the three-month periods ended December 31,

Revenues

Cost of sales

Gross profit

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

Income (loss) from operations

Financial charges, net

Gain on sale of businesses

Earnings (loss) before income taxes and loss from investment in a jointly controlled entity

(Recovery of) provision for income taxes

Loss from investment in a jointly controlled entity

Net earnings (loss)

Basic earnings (loss) per share

Diluted earnings (loss) per share

Management’s Discussion and Analysis

% of

2018

Revenues

2017
(Restated)1

% of

Revenues

124,519

178,549

50,007

74,512

33,363

41,149

17,063

−

1,198

22,888

13,516

(205)

9,577

(30,380)

−

39,957

1.51

1.28

40.2%

59.8%

26.8%

33.0%

13.7%
−
1.0%

18.4%

10.9%

(0.2%)

7.7%

(24.4%)
−
32.1% $

85,992

92,557

46,868

48.2%

51.8%

26.2%

45,689

26,205

25.6%

14.7%

507,032

284.0%

17,552

9.8%

(505,100)

(282.9%)

16,221

−

(521,321)

9.1%
−
(292.0%)

63,014

35.3%

267

0.1%

(584,602)

(327.4%)

(22.26)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

1 9

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

2018

2017
(Restated)1

% Change

108,628 $

134,893

28,060

80,568

13,315

−

13,315

−
−
−
2,809

−

2,809

(233)

−
(233)

37,351

97,542

27,164

1,105

26,059

12,671

2,435

10,236

5,597

1,136

4,461

(1,776)

(15)

(1,761)

124,519 $

178,549

28,060

42,012

96,459 $

136,537

(19.5%)

(24.9%)

(17.4%)

(51.0%)

(100.0%)

(48.9%)

(100.0%)

(49.8%)

(100.0%)

(37.0%)

(86.9%)

(99.4%)

(86.8%)

(30.3%)

(33.2%)

(29.4%)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

For the three-month period ended December 31, 2018, total revenues amounted to $124.5 million as compared to $178.5 million for the same period last year
representing a decrease of 30.3% year-over year or $54.0 million of which $16.2 million is attributable to divested businesses. Other than the decrease resulting from
the divestitures, the decline in total revenues for the quarter ended December 31, 2018 was due to digital revenue decline in all segments and YP segment print
revenue decline.

For the three-month period ended December 31, 2018, total digital revenues amounted to $96.5 million or 77.5% of total revenues, representing a decrease of 29.4%
year-over-year or $40.1 million of which $11.6 million is attributable to divested businesses. This compares to $136.5 million or 76.5% of revenues for the same period
last year. Other than the decrease resulting from the divestitures, the digital revenue decline for the three-month period ended December 31, 2018 was mainly due to
the YP segment where the results were adversely impacted by a decline in digital customer count partially offset by a higher spend per customer. The lower digital
customer count is attributable to both a lower level of customer acquisition in 2018, driven in part by our focus on profitability, and by higher churn, mainly caused by
the surge in customer acquisition in 2016 and 2017 of customers purchasing low end solutions which typically have higher churn rates. Revenue was further impacted
by the wind down of the Mediative activities and by the closure of certain US operations in the Agency segment to improve profitability.

For the three-month period ended December 31, 2018, total print revenues amounted to $28.1 million representing a decrease of 33.2% year-over-year or $14.0 million
of which $4.7 million was attributable to the divested businesses. Other than the decrease resulting from the divestitures, the print revenue decline for the quarter
ended December 31, 2018 is attributable to the YP segment where results were adversely impacted by a decline in the number of print customers and lower average
spend by customers.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 0

Management’s Discussion and Analysis

Reportable Segments Revenues

Revenues for the YP segment for the three-month period ended December 31, 2018 decreased by $26.3 million or 19.5% to $108.6 million from $134.9 million for the
same period in 2017. The decrease for the three-month period ended December 31, 2018 is mainly due to the decline of our higher margin YP digital media and print
products and, to a lesser extent, our lower margin digital services products. This change in product mix created pressure on our gross profit margins. 2018 was further
impacted by the sale of RedFlagDeals.com™ on August 22, 2018.

Digital revenues decreased 17.4% year-over-year, or 16.4% excluding the sale of RedFlagDeals.com™, and amounted to $80.6 million for the three-month period
ended December 31, 2018, compared to $97.5 million for the same period last year. Digital revenues were adversely impacted by a decline in the number of digital
customers offset in part by a higher spend per customer. The lower digital customer count is attributable to both a lower level of customer acquisition in 2018, driven in
part by our focus on profitability, and by higher churn, mainly caused by the surge in customer acquisition in 2016 and 2017 of customers purchasing low end solutions
which typically have higher churn rates.

Print revenues decreased by 24.9% year-over-year to $28.1 million for the three-month period ended December 31, 2018. The results were adversely impacted by a
decline in the number of print customers and lower spend per customer.

Agency

Agency revenues for the three-month period ended December 31, 2018 decreased 51.0% year-over-year and amounted to $13.3 million as compared to $27.2 million
for the same period last year. The decrease in Agency revenues for the three-month period ended December 31, 2018 was impacted by the closure of certain US
operations to improve profitability as well as the sale of Totem as of May 31, 2018. Excluding these impacts, the Agency segment revenues decreased 49.1% for the
year ended December 31, 2018. The revenues decline for the three-month period ended December 31, 2018 was accelerated by the wind down of the Mediative
activities.

Real Estate

Revenues in the Real Estate segment amounted to nil for the three-month period ended December 31, 2018 as compared to $12.7 million for the same period last year
as a result of the Company divesting the business operations associated with both of its Real Estate segment media properties in separate transactions in July 2018.

Other

Other revenues for the three-month period ended December 31, 2018 amounted to $2.8 million as compared to $5.6 million for the same period last year. The decline
in Other revenues is mainly due to a reduced advertiser count resulting from the decline in customer acquisition at 411.ca and the divestiture of Western Media Group
as of May 31, 2018.

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

2018

2017
(Restated)1

% % Change

68,886

63.4% $

80,825

59.9%

4,008

−

1,688

30.1%
−
60.1%

(70)

4,131

15.2%

5,127

40.5%

(100.0%)

2,648

47.3%

(174)

(14.8%)

(3.0%)

(36.3%)

(59.8%)

(19.5%)

74,512

59.8% $

92,557

51.8%

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 1

Gross profit for the three-month period ended December 31, 2018 amounted to $74.5 million or 59.8% of total revenues representing a decrease of $18.0 million year-
over-year of which $6.8 million is attributable to the divested businesses. This compares to $92.6 million or 51.8% of total revenues for the same period last year. The
increase in gross profit as a percentage of revenues is mainly due to the Company’s cost reduction measures and focus on profitability of its products and services
offsetting the pressures from reduced revenues and change in product mix.

Management’s Discussion and Analysis

Reportable Segments Gross Profit

YP gross profit for the three-month period ended December 31, 2018 totalled $68.9 million, or 63.4% of revenues, compared to $80.8 million, or 59.9% of revenues, for
the same period last year. The decrease in gross profit is a result of reduced revenues and change in product mix. Gross profit as a percentage of revenues increased
as the impact of reduced revenues was more than offset by cost reduction measures and focus on profitability of our products and services. These measures included
workforce reductions primarily in non-customer facing areas in the first quarter of 2018, call center consolidations and optimization of servicing models in the second
quarter of 2018 as well as increased focus on profitability throughout 2018.

Agency

Agency gross profit for the three-month period ended December 31, 2018 amounted to $4.0 million, or 30.1% of revenues, as compared to $4.1 million, or 15.2% of
revenues, for the same period last year. The improved profitability from the closure of certain US operations and by other cost reduction initiatives was offset by the
wind down of the Mediative activities and by the impact of the sales of Totem as of May 31, 2018.

Real Estate

Gross profit for the Real Estate segment amounted to nil, for the three-month period ended December 31, 2018 as compared to $5,1 million, or 40.5% of revenues, for
the same period last year as a result of the Company divesting the business operations associated with both of its Real Estate segment media properties in separate
transactions in July 2018.

Other

Gross profit for the Other segment totalled $1.7 million, or 60.1% of revenues, for the three-month period ended December 31, 2018, as compared to $2.6 million, or
47.3% of revenues, for the same period last year. The decrease in gross profit for the three-month period ended December 31, 2018 is due to lower revenues partially
offset by an improvement in gross margin as percentage of revenue due to cost reductions. The results were further impacted by the sale of Western Media Group as
of May 31, 2018.

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

2017

2018

(Restated)1 % Change

30,517 $

36,359

1,826

−

1,090

(70)

2,953

5,858

1,872

(174)

33,363 $

46,868

(16.1%)

(38.2%)

(100.0%)

(41.8%)

(59.8%)

(28.8%)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

Other operating costs, which represent indirect costs, amounted to $33.4 million for the three-month period ended December 31, 2018, compared to $46.9 million in 2017
for the same period last year. The decrease in total other operating costs for the three-month period ended December 31, 2018 was mainly the result of reductions in
our cost structure including reductions in our workforce and associated employee costs, reductions in the Company’s office space footprint, and other spending
reductions across the Company as well as the impact from divestitures.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 2

Management’s Discussion and Analysis

Reportable Segments Other Operating Costs

Other operating costs for the YP segment for the three-month period ended December 31, 2018 totalled $30.5 million as compared to $36.4 million for the same period
last year. The decrease for the three-month period ended December 31, 2018 is mainly the result of reductions in our cost structure including reductions in our
workforce and associated employee costs, reductions in the Company’s office space footprint, and other spending reductions across the segment.

Agency

Other operating costs for the Agency segment for the three-month period ended December 31, 2018 amounted to $1.8 million. This compares to $3.0 million for the
same period last year. The decrease in other operating costs for the three-month period ended December 31, 2018 for the Agency segment is due primarily to a
reduction in our workforce and associated employee costs, the closure of certain US operations to improve profitability, the wind down of the Mediative activities as well
as the sale of Totem as of May 31, 2018.

Real Estate

Other operating costs for the Real Estate segment amounted to nil during the three-month period ended December 31, 2018 as compared to $5.9 million for the same
period last year as a result of the Company divesting the business operations associated with both of its Real Estate segment media properties in separate
transactions in July 2018.

Other

Other operating costs for the Other segment amounted to $1.1 million for the three-month period ended December 31, 2018 compared to $1.9 million for the same
period last year. The decrease is due to lower employee related costs, overall cost reductions and the sale of WMG as of May 31, 2018.
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

2018

2017
(Restated)1

% % Change

38,369 35.3% $

44,466 33.0%

2,182 16.4%
− 0.0%
598 21.3%

1,178

4.3%

(731)

(5.8%)

(100.0%)

776 13.9%

(13.7%)

85.2%

(22.9%)

(9.9%)

41,149 33.0% $

45,689 25.6%

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

Adjusted EBITDA decreased by $4.5 million to $41.1 million during the three-month period ended December 31, 2018, compared to $45.7 million during the same period
last year. Our Adjusted EBITDA margin for the three-month period ended December 31, 2018 was 33.0% compared to 25.6% for the same period last year. The
decrease in Adjusted EBITDA for the three-month period ended December 31, 2018 was impacted by lower overall revenues and unfavourable changes in product
mix. However revenue pressures were mostly offset by an increase in Adjusted EBITDA margin as a percentage of revenues due to reductions in our cost structure
including reductions in our workforce and associated employee costs, reductions in our office space footprint, and other spending reductions across the Company.

Reportable Segments Adjusted EBITDA

Adjusted EBITDA for the YP segment for the three-month period ended December 31, 2018 totalled $38.4 million, or 35.3% of revenues, compared to $44.5 million, or
33.0% of revenues, for the same period last year. The decrease in Adjusted EBITDA for the three-month period ended December 31, 2018 is due to lower overall
revenues and unfavourable changes in product mix. However revenue pressures were mostly offset by an increase in Adjusted EBITDA margin as a percentage of
revenues due to reductions in our cost structure including reductions in our workforce and associated employee costs, reductions in our office space footprint, and
other spending reductions across the Company.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 3

Management’s Discussion and Analysis

Agency

Agency Adjusted EBITDA for the three-month period ended December 31, 2018 amounted to $2.2 million, or 16.4% of revenues, as compared to $1.2 million, or 4.3%
of revenues, for the same period last year. The increase in the Agency Adjusted EBITDA and Adjusted EBITDA margin for the three-month period ended
December 31, 2018 was due to the closure of certain US operations improving profitability and reductions in our workforce and associated employee costs partially
offset by the wind down of the Mediative activities.

Real Estate

Adjusted EBITDA for the Real Estate segment was nil for the three-month period ended December 31, 2018 as compared to a loss of $0.7 million, for the same period
last year as a result of the Company divesting the business operations associated with both of its Real Estate segment media properties in separate transactions in
July 2018.

Other

Adjusted EBITDA for the Other segment for the three-month period ended December 31, 2018, amounted to $0.6 million, or 21.3% of revenues as compared to
$0.8 million, or 13.9% of revenues, for the same period last year. The decrease in Adjusted EBITDA for the three-month period December 31, 2018 is mainly due to
lower revenues largely offset by an improved Adjusted EBITDA margin resulting from cost reductions.

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

2018

2017
(Restated)1

% Change

34,443 $

38,369

3,926

2,162

2,182

−
−
−
504

598

29,129

44,466

15,337

1,219

1,178

(41)

(1,408)

(731)

677

858

776

(82)

37,109

41,149

29,798

45,689

4,040 $

15,891

18.2%

(13.7%)

(74.4%)

77.4%

85.2%

(148.8%)

(100.0%)

(41.5%)

(22.9%)

(217.1%)

24.5%

(9.9%)

(74.6%)

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

Adjusted EBITDA less CAPEX increased by $7.3 million to $37.1 million for the three-month period ended December 31, 2018 compared to $29.8 million during the same
period in 2017. The increase in Adjusted EBITDA less CAPEX for the three-month period ended December 31, 2018 was due to decreased spending on software
development, office and computer equipment and leasehold improvements associated with office relocations partially offset by lower Adjusted EBITDA.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 4

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, 2018 totalled $34.4 million compared to $29.1 million for the same
period last year. The increase in Adjusted EBITDA less CAPEX for the three-month period ended December 31, 2018 is mainly due to lower capital expenditures on
software development, office and computer equipment and leasehold improvements associated with office relocations partially offset by lower Adjusted EBITDA.

Agency

Agency Adjusted EBITDA less CAPEX for the three-month period ended December 31, 2018 amounted to $2.2 million as compared to $1.2 million for the same period
last year. The improvements in Adjusted EBITDA less CAPEX were due to increased Adjusted EBITDA.

Real Estate

Adjusted EBITDA less CAPEX for the Real Estate segment was nil for the three-month period ended December 31, 2018 as compared to a loss of $1.4 million for the
same period last year as a result of the Company divesting the business operations associated with both of its Real Estate segment media properties in separate
transactions in July 2018.

Other

Adjusted EBITDA less CAPEX for the Other segment amounted to $0.5 million for the three-month period ended December 31, 2018 as compared to $0.9 million for
the same period last year.

Depreciation and Amortization

Depreciation and amortization decreased to $17.1 million for the three-month period ended December 31, 2018 compared to $26.2 million for the same period last
year. The decrease is primarily due to the lower opening intangible asset balance following the impairment recorded in the fourth quarter of 2017 and decreased spend
on software development.

Restructuring and Other charges

For the three-month periods ended December 31,

Severance, benefits and outplacement

Settlement of litigation

Impairment of right-of-use assets and future operation costs related to lease contracts for offices closed

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

Other fees

Total restructuring and other charges

2018

2017
(Restated)1

5,387

(3,537)

468

(1,120)
−
1,198

3,574
−
13,555

557

(134)

17,552

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

For the three-month period ended December 31, 2018, we recorded restructuring and other charges of $1.2 million associated primarily with internal reorganizations
and workforce reductions offset by the $3.5 million impact of a favorable litigation settlement on a contractual obligation with a vendor. For the three-month period
ended December 31, 2017, we recorded restructuring and other charges of $17.6 million which was comprised primarily of lease contracts associated with office closures
as well as internal reorganizations and workforce reductions.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 5

Management’s Discussion and Analysis

Financial Charges

Financial charges decreased by $2.7 million to $13.5 million for the fourth quarter ended December 31, 2018 compared to $16.2 million for the same period in 2017. The
decrease is explained by higher interest rate on the Senior Secured Notes issued in in the fourth quarter of 2017 as well as the overlap of interest of both Senior Secured
Notes held for a time in the fourth quarter of 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 26.9% and 26.8% for the three-month periods ended December 31, 2018 and 2017, respectively. During the
fourth quarter ended December 31, 2018, the Company recorded a recovery for income taxes of $30.4 million comprised of recognition of previously unrecognized tax
attributes of $11.9 million and a resolution of uncertain tax positions of $21.4 million. These recoveries are non-cash items.

In comparison, the Company recorded an expense of income taxes of $63.0 million during the fourth quarter ended December 31, 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 $500.0 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 $70.0 million during the fourth quarter of 2017. These expenses are non-cash items.

The difference between the effective and the statutory rates for the fourth quarter of 2018 is mainly due to recognition of previously unrecognized tax attributes and a
resolution of uncertain tax positions. 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.

Net earnings (loss)

We recorded net earnings of $40.0 million and a net loss of $584.6 million during the three-month periods ended December 31, 2018 and 2017, respectively. The
improvement in net earnings, notwithstanding the $507.0 million impairment charge recorded in the three-month period ended December 31, 2017, is mainly due to
decreased depreciation and amortization expenses, restructuring and other charges and a recovery of income taxes.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 6

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 and restricted cash

Senior Secured Notes

Exchangeable debentures

Lease obligations

Total debt

Deficiency

Total capitalization

Total debt net of cash and restricted cash, to total capitalization

2018

81,452

167,489

96,179

75,320

338,988

(119,164)

219,824

117.2%

2017
(Restated)1

46,405

308,898

94,067

86,179

489,144

(199,879)

289,265

153.1%

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

As at December 31, 2018, Yellow Pages had $257.5 million of debt net of cash and restricted cash, compared to $442.7 million as at December 31, 2017.

The total debt net of cash and restricted cash to latest Twelve-Month Adjusted EBITDA2 ratio as at December 31, 2018 was 1.3 times compared to 2.4 times as at
December 31, 2017. The decrease is mainly due to higher Adjusted EBITDA and the mandatory debt redemption principal payments of $144.8 million made in 2018.

Total Debt Net of Cash and Restricted Cash
to Latest Twelve-Month Adjusted EBITDA2 Ratio

Capital Structure
(In millions of Canadian dollars)

Dec. 31, 2018

1.3

Dec. 31, 2018

($119.1)

$339.0

Dec. 31, 2017

2.4

Dec. 31, 2017

($199.9)

$489.1

2 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 page 3 for a definition of Adjusted EBITDA.

Total Equity

Total Debt

Asset-Based Loan

On October 19, 2017, the Company, through its subsidiary Yellow Pages Digital & Media Solutions Limited, renewed its five-year $50.0 million asset-based loan (ABL)
and extended the term of the ABL to August 2022 as well as reduced certain rates and fees. 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 $5.0 million if the Company’s trailing twelve-month fixed charge coverage ratio is below 1.1 times. As at December 31, 2018, the Company’s

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 7

Management’s Discussion and Analysis

fixed charge coverage ratio was below 1.1 times and the Company had $4.4 million of letters of credit issued and outstanding under the ABL, and a $9.9 million
deficiency in qualified collateral. As such, $30.7 million of the ABL was available as at December 31, 2018. As at December 31, 2018, 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 $315.0 million aggregate
principal amount of 10.00% Senior Secured Notes (the Notes) due November 1, 2022 at an issue price of $980 per $1,000 principal amount of the Notes, or $6.3 million
discount. The Notes accrued 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.

Mandatory Redemption

Pursuant to the indenture governing the 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 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 $20.0 million on the last day of the mandatory redemption period. The Company is required to use 75.0% of its consolidated Excess Cash Flow to
redeem the 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 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 Notes, repayment of the Notes other
than in connection with a mandatory redemption and any principal payments made in respect of the Company’s lease liability. In 2018, the Company made in
aggregate principal mandatory redemption payments of $144.8 million on the Notes.

Optional Redemption

From November 1, 2018 to October 31, 2019, the Company may, at its option, redeem all or part of the 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 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 Notes at 100% of the aggregate
principal amount, plus accrued and unpaid interest.

The Notes are guaranteed by Yellow Pages Limited and its subsidiaries, other than Yellow Pages Digital & Media Solutions Limited as issuer of the 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 Notes are senior secured obligations of Yellow Pages Digital & Media Solutions Limited. The
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 Notes, and rank senior in right of payment to all existing and future subordinated indebtedness of Yellow Pages Digital & Media Solutions Limited.

Certain Covenants

The indenture governing the 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 Notes.

As at December 31, 2018, the Company was in compliance with all covenants under the indenture governing the Notes.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 8

Management’s Discussion and Analysis

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, 2018, and December 31, 2017, the face value of the
Exchangeable Debentures was $107.1 million. As at December 31, 2018, the value of the Exchangeable Debentures less unaccreted interest was $96.2 million
compared to $94.1 million as at December 31, 2017.

Interest on the Exchangeable Debentures accrues at a rate of 8.0% per annum if, for the applicable interest period, it is paid in cash or 12.0% 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, 2018, the Company was in compliance with all covenants under the indenture governing the Exchangeable Debentures.

Exchange Option

Optional Redemption

The Company may, at any time on or after the date on which all of the 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.

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, 2018 (2017 – $nil).

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

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
December 31, 2018, the Company had approximately $81.5 million of cash and restricted cash and $30.7 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. On November 7, 2017, an amendment to
the Stock Option Plan was implemented to increase the maximum number of common shares authorized for issuance upon the exercise of options by 1,516,320, from
1,290,612 to 2,806,932.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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

2 9

Share Data

Outstanding Share Data

As at

Common shares outstanding
Exchangeable Debentures outstanding1
Common share purchase warrants outstanding

Stock options outstanding²

Management’s Discussion and Analysis

February 12, 2019

December 31, 2018

December 31, 2017

28,075,308

5,624,422

2,995,484

1,331,305

28,075,308

5,624,422

2,995,484

1,347,052

28,075,306

5,624,422

2,995,486

1,024,550

1 As at February 12, 2019, 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 1,331,305 and 1,347,052 as at February 12, 2019 and December 31, 2018, respectively, are 52,950 and 60,425 stock options exercisable as at those dates.

Included in the stock options outstanding balance of 1,024,550 as at December 31, 2017 are 281,325 stock options exercisable as at that date.

Contractual Obligations and Other Commitments

(in thousands of Canadian dollars)

Senior Secured Notes1,2
Lease obligations1
Exchangeable Debentures1
Operating portion of lease obligations

Other

Total

1 year

2 – 3 years

4 – 5 years

After 5 years

Payments due for the years following December 31, 2018

170,231

90,000

75,320

107,089

76,180

22,279

4,352

−
4,250

12,986

−
6,628

−
10,061

6,773

80,231

6,817

107,089

10,343

405

−
57,523

−
51,526

2,115

Total contractual obligations

451,099

111,588

23,462

204,885

111,164

1 Principal amount.
2 The repayment of the 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 Notes.

Lease obligations

We entered into finance lease agreements for premises. As at December 31, 2018, minimum payments under these finance leases up to 2034 total, on a net present
value basis, $75.3 million.

Operating portion of lease obligations

We rent our premises and office equipment under various leases for which an operating portion is recognized. As at December 31, 2018, minimum payments for the
operating portion under these leases up to 2034 total $76.2 million.

Purchase obligations

We use the services of outside suppliers to distribute and print our directories and have entered into long-term agreements with a number of these suppliers. These
agreements expire between 2019 and 2038. We also have purchase obligations under service contracts for both operating and capital expenditures. As at
December 31, 2018, we have an obligation to purchase services for $22.3 million over the next five years and thereafter. Cash from operations will be used to fund
these purchase obligations.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

3 0

Management’s Discussion and Analysis

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, 2018, the DB component of the YP Pension Plan’s assets market value totalled $441.7 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 -1.5% for 2018, 0.9% below our benchmark
portfolio.

The most recent actuarial valuation of the DB component of the YP Pension Plan for funding purposes was performed as at December 31, 2017. This is the first
valuation prepared with the new Ontario funding basis that eliminate solvency deficit contribution requirement if the plan is above 85% solvent. It also includes a
requirement to fund on a going-concern basis a Provision for Adverse Deviation (PfAD) that is determined based on plan characteristics. There is no solvency
contribution (above 85% solvent) but an annual contribution to cover the PfAD is required at $1.8 million for the 10-year period starting in 2019. The next actuarial
valuation for funding purposes will be prepared no later than December 31, 2020.

In 2018, the Company made annual contributions equivalent to the current service cost (the Annual Employer Cost) of $14.5 million, including $4.6 million to fund the
deficit. Total cash payments are expected to amount to $10.4 million for 2019.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

3 1

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

Lease incentives received

Payments received from net investment in subleases

Proceeds on sale of businesses

Purchase of available-for-sale investments

Investment in a jointly controlled entity

Business acquisition

Cash flows used in financing activities

Issuance of long-term debt, net of discount

Repayment of Senior Secured Notes

Debt issuance costs

Purchase of restricted shares

Payment of lease obligation

NET INCREASE IN CASH AND RESTRICTED CASH

CASH AND RESTRICTED CASH, BEGINNING OF YEAR

CASH AND RESTRICTED CASH, END OF YEAR

Management’s Discussion and Analysis

2018

103,231

31,428

134,659

(14,287)

(1,899)

4,150

211

63,665

−
−
(400)

51,440

−
(144,769)

−
−
(6,283)

(151,052)

35,047

46,405

81,452

2017
(Restated)1

110,216

6,361

116,577

(37,297)

(30,412)

6,824

−
−
(5,452)

(680)

(400)

(67,417)

308,700

(309,669)

(7,716)

(3,129)

(8,201)

(20,015)

29,145

17,260

46,405

1 Restated to reflect the application of amendments to published standards with an effect on the consolidated financial statements. See Note 2 of the Audited Consolidated Financial Statements.

Cash flows from operating activities

Cash flows from operating activities increased by $18.1 million to $134.7 million for the year ended December 31, 2018. Cash flows benefited by an additional $25.1
million generated by the change in operating assets and liabilities as well as $9.5 million higher Adjusted EBITDA and $7.0 million lower funding of post-employment
benefit plans in excess of costs partially offset by $16.3 million higher payments for restructuring and other charges payments and $5.3 million higher interest paid. The
restructuring and other charges relate to the workforce reductions, office closures, and asset impairments taken in 2018 and the higher interest paid is mainly due to
the higher interest rate on the senior notes.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

3 2

Management’s Discussion and Analysis

Cash flows from (used in) investing activities

Cash flows from investing activities amounted to $51.4 million for the year ended December 31, 2018 as compared to net cash used of $67.4 million for the same
period last year. This increase of $118.9 million is mainly due to proceeds received on sale of businesses of $63.7 million, decreased spending on office and computer
equipment and leasehold improvements, net of lease incentives, associated with office relocations of $25.8 million and decrease in spending of $23.0 million in
software development costs.

Cash flows used in financing activities

Cash flows used in financing activities amounted to $151.1 million for the year ended December 31, 2018 due primarily to the mandatory redemption of the Senior
Secured Notes of $144.8 million. Cash flows used in financing activities amounted to $20.0 million for the year ended December 31, 2017 due to the refinancing of its
senior secured notes and related transactional fees of $7.7 million and also due to the purchase of the 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.

Financial and other instruments

(See Note 24 of the Audited Consolidated Financial Statements of the Company for the years ended December 31, 2018 and 2017).

The Company’s financial instruments primarily consist of cash and restricted cash, trade and other receivables, trade and other payables, Senior Secured Notes,
Exchangeable Debentures and Lease obligations.

The redemption option on the Exchangeable Debentures 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, 2018 and 2017.

4. Critical Assumptions and Estimates

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.

Estimate of the lease term

When the Company recognizes a lease, it assesses the lease term based on the conditions of the lease and assesses whether it will extend the lease at the end of the
lease contract, or exercise an early termination option. The Company determined that the term of its leases are the original lease term as it is not reasonably certain
that the extension of termination options will be exercised. This significant estimate could affect Yellow Pages Limited’s future results if the Company extends the lease
or exercises an early termination option.

Assessment of whether a right-of-use asset is impaired

The Company assesses whether a right-of-use asset is impaired in accordance with IAS 36 – Impairment of assets, particularly when it vacates an office space and it
must determine the recoverability of the asset, depending on its capacity to sublease the assets or surrender the lease and recover its costs. The Company will
examine its lease conditions as well as local market conditions and estimate its recoverability potential for each vacated premise. The determination of the lease cost
recovery rate involves significant management estimates based on market availability of similar office space and local market conditions. This significant estimate could
affect Yellow Pages Limited’s future results if the Company succeeds in subleasing their vacated offices at a higher or lower rate or at different dates than initially
anticipated.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

3 3

Management’s Discussion and Analysis

Measurement of ECL allowance for trade receivables, contract assets and net investment in subleases

In relation to the impairment of financial assets, the Company uses the expected credit loss model, which requires the Company to account for expected credit losses
(“ECL”) and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.

At each reporting date, the Company assesses whether financial assets are credit impaired. The Company will consider a financial asset to be in default when the
indebted party is unlikely to pay its obligations to the Company in full, without recourse by the Company to actions such as realizing security (if any). The Company
elected to consider that default does not occur when a financial asset is 90 days past due as the Company has reasonable and supportable information to demonstrate
that a more lagging default criterion is more appropriate and that default risk is not necessarily increased. In assessing whether an indebted party is in default, the
Company will consider indicators that are qualitative (e.g. breach of conditions), quantitative (e.g. overdue status), and data developed internally and obtained from
external sources. Inputs into the assessment of whether a financial asset is in default and their significance may vary over time to reflect circumstances.

Determining the discount rate for leases

IFRS 16 requires the Company to discount the lease payments using the rate implicit in the lease if that rate is readily available. If that rate cannot be readily
determined, the lessee is required to use its incremental borrowing rate (“IBR”). The Company generally used its IBR rate when recording leases initially, since the
implicit rates were not readily available due to information not being available from the Lessor regarding the fair value of underlying assets and directs costs incurred by
the Lessor related to the leased assets. The IBR for each lease was based on the commencement date of the lease and recalculated at the remeasurement date
where applicable.

Intangible assets and goodwill

The valuations associated with measuring the recoverability of indefinite life 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 indefinite life intangible asset and goodwill
belongs, with its carrying value. The determination of the recoverable amount involves significant management estimates. As a result of the impairment losses
recorded on goodwill in prior years and the disposal of the remaining goodwill in 2018 concurrently with the sale of CFDP, the Company no longer has goodwill subject
to impairment and no longer has indefinite life intangible assets. Thus, in 2018 only an assessment of indicators of impairment was performed on the finite life
intangible assets.

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 2018

3 4

Management’s Discussion and Analysis

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 and reassesses its provisions if it receives information that
may reduce or increase it. 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

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, 2018 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 IFRS 2 − Share-based Payment

In June 2016, the International Accounting Standards Board (“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 did not 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 did not have a significant impact on the consolidated financial statements of Yellow Pages Limited.

Standards, interpretations and amendments to published standards adopted with an effect on the consolidated financial statements

IFRS 15 − Revenue from Contracts with Customers

Yellow Pages Limited has applied IFRS 15 − Revenue from Contracts with Customers effective for annual reporting periods beginning on or after January 1, 2018.
Under IFRS 15, revenues from print products are recognized upon delivery of the print directories instead of over the term of the publication period of twelve months.
Similarly, publication costs and commissions will be deferred and recognized upon delivery of the publication. Previously, the deferred publication costs and
commissions were deferred and amortized over the economic life of the directory, digital products and services. The recognition of revenue for the digital products has
not been materially impacted by the adoption of this standard and will continue to be recognized into income on a monthly basis from the point at which service is first
provided over the life of the contract. Certain revenues, such as website and video design fees, continue to be recognized upon completion of the design of the website
and video. Applying the practical expedient under IFRS 15, the Company recognizes as an expense the commissions paid for contract renewals with revenue
recognized over one year or less. However, costs to obtain contracts relating to the commission fees paid as a result of obtaining new sales contracts are amortized on
a straight-line basis over a two-year period as this reflects the expected period of benefit. Yellow Pages Limited has applied IFRS 15 in accordance with the full
retrospective approach.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

3 5

Management’s Discussion and Analysis

The revenue recognition policy and the amount of adjustment for each financial statement line item affected by the application of IFRS 15 for the prior periods are
disclosed in the Consolidated Financial Statements.

IFRS 16 − Leases

Yellow Pages Limited has early adopted IFRS 16 − Leases on January 1, 2018, which is effective for annual reporting periods beginning on or after January 1, 2019.
Previously, the Company classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and
rewards incidental to ownership of the underlying asset to the Company and classified operating lease payments as operating costs. Under IFRS 16, a lessee is
required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease obligation representing its obligation to make lease
payments. The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and impairment losses. The right-of-
use asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or
the site on which it is located, less any lease incentives received. The lease obligation is initially measured at the present value of the lease payments that are not paid
at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing
rate. Generally, the Company uses its incremental borrowing rate as the discount rate. The lease obligation is subsequently measured at amortized cost using the
effective interest rate method, and is subsequently adjusted for interest and lease payments. Onerous leases for base rent previously accrued in provisions are now
tested for impairment in accordance with IAS 36 – Impairment of Assets. Impairments of right-of-use assets continue to be recorded in restructuring and other charges
on the consolidated statements of income (loss). Yellow Pages Limited has applied IFRS 16 in accordance with the full retrospective approach.

At the transition date, we identified and reviewed each contract which had a lease. The leases identified related mainly to leases for office space. Given that the
Company decided to apply IFRS 16 retrospectively, we also obtained all modifications to the leases in order to present the information retrospectively.

Under IFRS 16, the Company is required to assess the classification of a sublease as a finance or operating lease, with reference to the right-of-use asset and not the
underlying asset. For the year ended December 31, 2018, the Company assessed and classified its subleases as finance leases under IFRS 16, and therefore
derecognized the right-of-use assets relating to the head leases being sublet, and recognized lease receivables equal to the net investment in the subleases,
recognized a gain in restructuring and other charges equal to the difference between the right of use assets and net investment in the subleases, retained the
previously recognized lease obligations in its capacity as lessee, recognized the related interest expense thereafter, and recognized interest income on the subleases
receivables in its capacity as finance lessor. The Company did not have net investments in subleases prior to adoption of IFRS 16.

The amount of adjustment for each financial statement line item affected by the application of IFRS 16 for the prior periods is disclosed in the Consolidated Financial
Statements.

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. IFRS 9 introduces new requirements for the classification and measurement of financial assets and liabilities, impairment for financial assets and
general hedge accounting. The adoption of IFRS 9 has not had a significant effect on the Company’s accounting policies related to financial liabilities. The impact of
IFRS 9 on the classification and measurement of financial assets is set out below. The Company has taken an exemption not to restate comparative information for
prior periods with respect to classification and measurement (including impairment) requirements. Differences in the carrying amounts of financial assets and financial
liabilities resulting from the adoption of IFRS 9 are recognized in deficit as at January 1, 2018. Accordingly, the information presented for 2017 does not reflect the
requirements of IFRS 9 but rather those of IAS 39.

The classification and measurement of financial assets is determined on the basis of the Company’s business model for managing the financial assets and their
contractual cash flow characteristics. Equity financial assets are subsequently measured at fair value through profit or loss unless the Company has made an
irrevocable election to measure them at fair value through other comprehensive income. The change in fair value of equity financial assets designated as such shall not
be subsequently transferred to profit or loss upon their disposal. On transition to IFRS 9, the Company has made the irrevocable election to present fair value gains
and losses on equity investments in other comprehensive income (“OCI”).

The comparison between the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s
financial assets is disclosed in the Consolidated Financial Statements. There were no changes to the measurement categories under IFRS 9 for the Company’s
financial liabilities as at January 1, 2018.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

3 6

Management’s Discussion and Analysis

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model. The expected credit loss model requires the Company to account for
expected credit losses (“ECL”) and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the
financial assets. For trade receivables, contract assets and net investment in subleases, the Company applied the simplified approach permitted under IFRS 9, which
requires lifetime ECL to be recognized from initial recognition.

For assets in the scope of IFRS 9 impairment model, expected credit losses are generally expected to increase. The amount of impairment allowance, as well as the
measurement categories affected by the application of IFRS 9 are disclosed in the Consolidated Financial Statements.

Standards, interpretations and amendments to published standards that are issued but not yet effective with effect on the consolidated
financial statements

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, 2019. The new standards which are considered to be relevant to Yellow Pages Limited’s operations are as follows:

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. IFRIC 23 is not expected to have a significant impact on the consolidated financial statements of Yellow Pages Limited.

Amendments to IAS 19 − Employee Benefits

The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that
when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to:

• Determine current service cost for the remainder of the period following the plan amendment date (measurement date), curtailment or settlement, using the actuarial
assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets following that event rather
than using the assumptions as at the beginning of the period as done currently; and

• Determine net interest for the remainder of the period following the plan amendment date, curtailment or settlement using: the net defined benefit liability (asset)
reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to remeasure that net defined benefit liability (asset)
rather than using the assumptions as at the beginning of the period as done currently.

The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after
January 1, 2019, with early application permitted. These amendments will apply only to any future plan amendments, curtailments, or settlements of the Company.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

3 7

Management’s Discussion and Analysis

5. 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.

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

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

3 8

Management’s Discussion and Analysis

A higher than anticipated rate of decline in print revenue resulting from changes in preferences and consumer habits could have a material adverse effect
on the Corporation, its business, results from operations and financial condition

The Corporation could be materially adversely affected if the usage of print telephone directories declines at a rate higher than anticipated. The development of new
technologies and the widespread use of the 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 impact on print products, and the decrease in usage gradually leads to
lower 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 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 characterized 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 2018

3 9

Management’s Discussion and Analysis

The inability of the Corporation to supply the relationships and technologies required to appropriately service the needs of its 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 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 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.

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, 2020. The agreement with TELUS Communications Inc. (TELUS) expires in 2031. Through these agreements, our billing is included as a

YELLOW PAGES LIMITED ANNUAL REPORT 2018

4 0

Management’s Discussion and Analysis

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
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. The Corporation currently has six union agreements, one of which has expired and one shall expire on
March 31, 2019. The parties of four of the six have successfully renegotiated new agreements with three year terms. If the Corporation is unable to renew the agreements with
its unionized staff as they come up for renegotiation from time to time, it could result in additional work stoppages and other labour disturbances, which could have a material
adverse effect on our business.

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 2018

4 1

Management’s Discussion and Analysis

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.

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 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 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.

6. 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, 2018.

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, 2018.

During the quarter beginning on October 1, 2018 and ended on December 31, 2018, 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 2018

4 2

INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Yellow Pages Limited

Opinion

We have audited the consolidated financial statements of Yellow Pages Limited and its subsidiaries (the “Company”), which comprise the consolidated statements of
financial position as at December 31, 2018 and 2017 and January 1, 2017, and the consolidated statements of income (loss), comprehensive income (loss), changes
in equity and cash flows for the years ended December 31, 2018 and 2017, and notes to the consolidated financial statements, including a summary of significant
accounting policies (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2018 and 2017
and January 1, 2017, and its financial performance and its cash flows for the years ended December 31, 2018 and 2017 in accordance with International Financial
Reporting Standards (“IFRS”).

Emphasis of Matter – Comparative Information

We draw attention to Note 2 to the financial statements, which explains that certain comparative information has been restated due to the application of new or revised
accounting standards. Our opinion is not modified in respect of this matter.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. The other information comprises:

• Management’s Discussion and Analysis; and

•

The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In
connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we
conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this
regard.

The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we
conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations,
or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

4 3

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

•

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.

• Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material

uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the

underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on

the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor’s report is Gianmarco Lombardi.

(signed) Deloitte LLP

Montréal, Québec
February 12, 2019
__________________
1 CPA auditor, CA, public accountancy permit No. A125494

YELLOW PAGES LIMITED ANNUAL REPORT 2018

4 4

Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at
ASSETS
CURRENT ASSETS

December 31, 2018

December 31, 2017
(Restated – Note 2)

January 1, 2017
(Restated – Note 2)

Cash and restricted cash (Note 5)
Trade and other receivables (Notes 6 and 24)
Prepaid expenses
Deferred publication costs
Income taxes receivable (Note 16)

TOTAL CURRENT ASSETS
NON-CURRENT ASSETS

Deferred commissions (Note 7)
Financial and other assets (Notes 14 and 24)
Investment in jointly controlled entity
Right-of-use assets (Note 8)
Net investment in subleases (Note 8)
Property and equipment (Note 9)
Intangible assets (Note 10)
Goodwill (Notes 4 and 10)
Deferred income taxes (Note 16)

TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES

Trade and other payables (Note 11)
Provisions (Note 12)
Deferred revenues (Note 6)
Current portion of lease obligations (Note 8)
Current portion of Senior Secured Notes (Note 14)

TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Provisions (Note 12)
Deferred income taxes (Note 16)
Post-employment benefits (Note 13)
Lease obligations (Note 8)
Senior Secured Notes (Note 14)
Exchangeable debentures (Note 15)

TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
CAPITAL AND RESERVES
DEFICIT
TOTAL (DEFICIENCY) EQUITY
TOTAL LIABILITIES AND (DEFICIENCY) EQUITY

81,452
132,534

6,330
2,191
668
223,175

8,518
6,685
−
32,583
7,392
29,518
117,096
−
17,402
219,194
442,369

47,520
37,673
3,190
4,352
90,000
182,735

1,810
−

132,352
70,968
77,489
96,179
378,798
561,533

6,595,147
(6,714,311)
(119,164)
442,369

46,405
184,676
8,760
3,977
3,214
247,032

16,879
13,338
−
50,644

−

50,966
193,352
26,829
2,487
354,495
601,527

83,627
45,251
7,530
1,888
54,939
193,235

8,380
24,102
143,372
84,291
253,959
94,067
608,171
801,406
6,595,521
(6,795,400)

(199,879)
601,527

17,260
188,219
8,934
4,524
3,057
221,994

19,955
4,008
1,157
40,937

−

35,864
740,932
45,342
50,214
938,409
1,160,403

79,494
51,684
8,131
9,045
75,161
223,515

3,343
7,108
154,172
52,607
234,508
92,174
543,912
767,427
6,597,891
(6,204,915)
392,976
1,160,403

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

Approved on behalf of Yellow Pages Limited by

(Signed)
Susan Kudzman, Director and Chair of the Board

(Signed)

Rob Hall, Director and Chair of the Audit Committee

YELLOW PAGES LIMITED ANNUAL REPORT 2018

4 5

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

For the years ended December 31,

Revenues (Note 18)

Operating costs (Note 20)

Income from operations before depreciation and amortization, impairment of intangible

assets and goodwill and restructuring and other charges

Depreciation and amortization (Notes 8, 9 and 10)

Impairment of intangible assets and goodwill (Notes 9 and 10)

Restructuring and other charges (Note 12)

Income (loss) from operations

Financial charges, net (Note 21)

Gain on sale of businesses (Note 4)

Impairment of available-for-sale investments (Note 24)

Earnings (loss) before income taxes and loss from investment in a jointly controlled entity

(Recovery of) provision for income taxes (Note 16)

Loss from investment in a jointly controlled entity

Net earnings (loss)

Basic earnings (loss) per share

Weighted average shares outstanding – basic earnings (loss) per share (Note 17)

Diluted earnings (loss) per share

2018

577,195

384,630

2017

(Restated – Note 2)

727,967

544,858

192,565

76,094

−

15,862

100,609

54,729

(6,129)
−

52,009

(30,800)
−

82,809

3.13

183,109

112,965

507,032

34,400

(471,288)

53,946
−
3,720

(528,954)

63,424

2,104

(594,482)

(22.52)

26,423,158

26,399,242

2.78

(22.52)

Weighted average shares outstanding – diluted earnings (loss) per share (Note 17)

32,636,146

26,399,242

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

YELLOW PAGES LIMITED ANNUAL REPORT 2018

4 6

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

For the years ended December 31,

Net earnings (loss)

Other comprehensive income (loss):

Items that will be reclassified subsequently to net earnings (loss)

Unrealized loss on available-for-sale investments

Reclassification to loss of impairment of available-for-sale investments

Net change in fair value of derivatives designated as cash flow hedges

Reclassification to loss of derivatives designated as cash flow hedges

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

Items that will not be reclassified subsequently to net earnings (loss)

Actuarial gains (Note 13)

Net change in fair value of equity investments reported in other comprehensive income (“FVOCI”) (Note 24)

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

Other comprehensive income

Total comprehensive income (loss)

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

2018

82,809

2017

(Restated – Note 2)

(594,482)

−
−
−
−
−
−

11,461

(5,502)

(3,079)

2,880

(3,720)

3,720

(1,020)

268

(728)

5,461
−
(1,464)

3,997

3,269

85,689

(591,213)

YELLOW PAGES LIMITED ANNUAL REPORT 2018

4 7

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

For the years ended December 31,

Shareholders’

capital

Restricted

(Note 17)

shares Warrants

Compound
financial
instruments1

Stock-based
compensation
and other
reserves

Reduction
of capital
reserve

Total capital
and reserves

Deficit

Total
deficiency

2018

Balance, December 31, 2017, as

previously reported

4,031,685 $

(27,572) $

−
−

1,456 $
−
−

3,619 $
−
−

−
−

129,280 $

2,457,053 $

6,595,521 $

(6,814,317) $
26,050
(7,133)

(218,796)

26,050
(7,133)

−
−

Adjustment for IFRS 15 (Note 2)
Adjustment for IFRS 16 (Note 2)
Restated balance,

December 31, 2017

Adjustment for IFRS 9 (Note 2)
Restated balance,

January 1, 2018

Other comprehensive income
Net earnings
Total comprehensive income
Restricted shares settled
Restricted shares (Note 19)
Stock options (Note 19)
Balance, December 31, 2018

Adjustment for IFRS 15 (Note 2)
Adjustment for IFRS 16 (Note 2)
Restated balance at December 31,
2016 and January 1, 2017
Other comprehensive income
Restated net loss (Note 2)
Restated total comprehensive loss
Restricted shares settled
Restricted shares (Note 19)
Stock options (Note 19)
Restated balance,
December 31, 2017

4,031,685
−

(27,572)
−

1,456
−

3,619
−

129,280
−

4,031,685
−
−
−
−
−
−

(27,572)
−
−
−
4,151
−
−

4,031,685 $

(23,421) $

1,456
−
−
−
−
−
−
1,456 $

3,619
−
−
−
−
−
−
3,619 $

129,280
−
−
−
(4,151)
(810)
436
124,755 $

−
−

2,457,053
−

2,457,053
−
−
−
−
−
−

6,595,521
−

(6,795,400)
(4,600)

(199,879)
(4,600)

6,595,521
−
−
−
−
(810)
436

(6,800,000)
2,880
82,809
85,689
−
−
−

(204,479)
2,880
82,809
85,689
−
(810)
436
(119,164)

2017

2,457,053 $

6,595,147 $

(6,714,311) $

Shareholders’
capital

Restricted

shares Warrants

Compound
financial
instruments1

Stock-based
compensation
and other
reserves

Reduction
of capital
reserve

Total capital
and reserves

Deficit

Total equity
(deficiency)

−
−

1,456 $
−
−

3,619 $
−
−

4,031,685
−
−
−
−
−
−

(31,848)
−
−
−
7,405
(3,129)
−

1,456
−
−
−
−
−
−

3,619
−
−
−
−
−
−

135,926 $

2,457,053 $

6,597,891 $

−
−

135,926
(728)
−
(728)
(7,405)
2,087
(600)

−
−

2,457,053
−
−
−
−
−
−

−
−

6,597,891
(728)
−
(728)
−
(1,042)
(600)

(6,228,987) $
28,961
(4,889)

368,904
28,961
(4,889)

(6,204,915)

3,997
(594,482)
(590,485)

392,976
3,269

(594,482)
(591,213)

−
−
−

−
(1,042)
(600)

Balance, December 31, 2016, as

previously reported

4,031,685 $

(31,848) $

4,031,685 $

(27,572) $

1,456 $

3,619 $

129,280 $

2,457,053 $

6,595,521 $

(6,795,400) $

(199,879)

1 The equity component of the exchangeable debentures presented above is net of income taxes of $1.3 million (2017 - $1.3 million).

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

YELLOW PAGES LIMITED ANNUAL REPORT 2018

4 8

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

For the years ended December 31,

OPERATING ACTIVITIES
Net earnings (loss)
Adjusting items

Stock-based compensation (recovery) expense − equity settled
Depreciation and amortization
Impairment of intangible assets and goodwill
Restructuring and other charges
Financial charges, net
Gain on sale of businesses
Impairment of available-for-sale investments
(Recovery of) provision for income taxes
Loss from investment in a jointly controlled entity

Change in operating assets and liabilities
Funding of post-employment benefit plans in excess of costs
Restructuring and other charges paid (Note 12)
Interest paid
Income taxes received (paid), net

INVESTING ACTIVITIES

Additions to intangible assets
Additions to property and equipment
Lease incentives received
Payments received from net investment in subleases
Proceeds on sale of businesses (Notes 4 and 5)
Purchase of available-for-sale investments
Investment in a jointly controlled entity
Business acquisition

FINANCING ACTIVITIES

Issuance of Senior Secured Notes, net of discount (Note 14)
Repayment of Senior Secured Notes (Note 14)
Debt issuance costs
Purchase of restricted shares
Payment of lease obligations

NET INCREASE IN CASH AND RESTRICTED CASH
CASH, BEGINNING OF YEAR
CASH AND RESTRICTED CASH, END OF YEAR (Note 5)

Supplemental disclosure of cash flow information (Note 22)

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

2018

2017

(Restated – Note 2)

82,809

(594,482)

(374)
76,094
−
15,862
54,729
(6,129)
−
(30,800)
−
31,428
(5,423)
(36,358)
(47,229)
50
134,659

(14,287)
(1,899)
4,150
211
63,665
−
−
(400)
51,440

−
(144,769)
−
−
(6,283)
(151,052)
35,047
46,405

81,452

1,487
112,965
507,032
34,400
53,946
−
3,720
63,424
2,104
6,361
(12,395)
(20,022)
(41,907)
(56)
116,577

(37,297)
(30,412)
6,824
−
−
(5,452)
(680)
(400)
(67,417)

308,700
(309,669)
(7,716)
(3,129)
(8,201)
(20,015)
29,145
17,260

46,405

YELLOW PAGES LIMITED ANNUAL REPORT 2018

4 9

Notes To The Consolidated Financial Statements – December 31, 2018
(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, suite 2.300, 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, 2018 and 2017 and authorized their publication
on February 13, 2019.

2. Revised standards

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

Amendments to IFRS 2 − Share-based Payment

IFRIC 22 − Foreign Currency Transactions and Advance Consideration

2.2 Standards, interpretations and amendments to published standards adopted with an effect on the consolidated financial statements

IFRS 15 − Revenue from Contracts with Customers

Yellow Pages Limited has applied IFRS 15 − Revenue from Contracts with Customers effective for annual reporting periods beginning on or after January 1, 2018.
Under IFRS 15, revenues from print products are recognized upon delivery of the print directories instead of over the term of the publication period of twelve months
(adjustment a). Similarly, publication costs and commissions will be deferred and recognized upon delivery of the publication (adjustment b). Previously, the deferred
publication costs and commissions were deferred and amortized over the economic life of the directory, digital products and services. The recognition of revenue for
the digital products has not been materially impacted by the adoption of this standard and will continue to be recognized into income on a monthly basis from the point
at which service is first provided over the life of the contract. Certain revenues, such as website and video design fees, continue to be recognized upon completion of
the design of the website and video. Applying the practical expedient under IFRS 15, the Company recognizes as an expense the commissions paid for contract
renewals with revenue recognized over one year or less. However, costs to obtain contracts relating to the commission fees paid as a result of obtaining new sales
contracts are amortized on a straight-line basis over a two-year period as this reflects the expected period of benefit (adjustment c). Yellow Pages Limited has applied
IFRS 15 in accordance with the full retrospective approach. The revenue recognition policy is described in Note 3.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 0

The amount of adjustment for each financial statement line item affected by the application of IFRS 15 for the prior periods is presented below.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Impact of the application of IFRS 15

Impact on net (liabilities) assets as at:

Differences increasing (decreasing) net assets (liabilities)

Adjustment note

December 31, 2017

January 1, 2017

Trade and other receivables

Deferred publication costs

Deferred commissions (previously presented in deferred publication costs)

Deferred revenues

Deferred income taxes

Net increase

Impact on net earnings for the year ended December 31, 2017:

(a) $

(b)

(c)

(a)

60,625

(49,602)

10,102

7,211

(2,286)

26,050

73,365

(56,620)

12,019

10,796

(10,599)

28,961

Differences increasing (decreasing) reported net earnings (loss)

Adjustment note

Year ended December 31, 2017

Revenues

Operating costs

Provision for income taxes

Net increase (decrease)

(a)

(b), (c)

(17,885)

6,661

8,313

(2,911)

The application of IFRS 15 resulted in a $29.0 million reduction of the Company’s deficit, and an increase in total equity of $29.0 million as at January 1, 2017.

There was no impact on other comprehensive income (loss) for the year ended December 31, 2017 associated with the application of IFRS 15.

As a result of the application of IFRS 15, the comparative Consolidated Statement of Cash Flows has been restated, with no impact on net cashflow.

IFRS 16 − Leases

Yellow Pages Limited has early adopted IFRS 16 − Leases on January 1, 2018, which is effective for annual reporting periods beginning on or after January 1, 2019.
Previously, the Company classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and
rewards incidental to ownership of the underlying asset to the Company and classified operating lease payments as operating costs. Under IFRS 16, a lessee is
required to recognize a right-of-use asset representing its right to use the underlying leased asset (adjustment a) and a lease obligation representing its obligation to
make lease payments (adjustment b). The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and
impairment losses. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the
underlying asset or the site on which it is located, less any lease incentives received. The lease obligation is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the
Company's incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. The lease obligation is subsequently
measured at amortized cost using the effective interest rate method, and is subsequently adjusted for interest and lease payments. Onerous leases for base rent
previously accrued in provisions are now tested for impairment in accordance with IAS 36 – Impairment of Assets. Impairments of right-of-use assets continue to be
recorded in restructuring and other charges on the consolidated statements of income (loss) (adjustment c). Yellow Pages Limited has applied IFRS 16 in accordance
with the full retrospective approach.

On transition to IFRS 16, the Company identified and reviewed each contract that had a lease. The leases identified related mainly to leases for office space. Given
that the Company decided to apply IFRS 16 retrospectively, we also obtained all modifications to the leases in order to present the information retrospectively.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 1

derecognized the right-of-use assets relating to the head leases being sublet, and recognized lease receivables equal to the net investment in the subleases,
recognized a gain in restructuring and other charges equal to the difference between the right of use assets and net investment in subleases, retained the previously
recognized lease obligations in its capacity as lessee, recognized the related interest expense thereafter, and recognized interest income on the subleases receivables
in its capacity as finance lessor. The Company did not have net investments in subleases prior to adoption of IFRS 16.

The amount of adjustment for each financial statement line items affected by the application of IFRS 16 for the prior periods is presented below.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Impact of the application of IFRS 16

Impact on net (liabilities) assets as at:

Differences increasing (decreasing) net assets (liabilities)

Adjustment note

December 31, 2017

January 1, 2017

Property and equipment (reclassification of pre-IFRS 16 right-of-use assets)

Right-of-use assets

Provisions

Long-term debt (reclassification of pre-IFRS 16 lease obligations)

Lease obligations

Deferred lease inducements

Deferred income taxes

Net increase (decrease)

Impact on net earnings for the year ended December 31, 2017:

(a)

(a), (c)

(c)

(b)

(a), (b)

(195)

50,644

8,299

215

(86,179)

17,749

2,334

(7,133)

(330)

40,937

2,309

359

(61,652)

11,821

1,667

(4,889)

Differences increasing (decreasing) reported net earnings (loss)

Adjustment note

Year ended December 31, 2017

Operating costs

Depreciation and amortization

Financial charges, net

Provision for income taxes

Net increase (decrease)

(a), (b)

(a)

(b)

10,347

(7,463)

(5,796)

668

(2,244)

The application of IFRS 16 resulted in a $4.9 million increase of the Company’s deficit, and a decrease in total equity of $4.9 million as at January 1, 2017.

There was no impact on other comprehensive income for the year ended December 31, 2017 associated with the adoption of IFRS 16.

As a result of the application of IFRS 16, the comparative Consolidated Statement of Cash Flows has been restated. Lease payments are now split between cash
payments for the interest portion of the lease obligation and repayment of its principal portion. The Company presents repayment of principal within the cash flows from
financing activities and interest paid is classified as part of cash flows from operating activities. Incentives received are classified in investing activities and not in
operating activities. Previously payments under operating leases were presented as part of cash flows from operating activities. As a result, operating, investing and
financing activities cash flows for the year ended December 31, 2017 have increased by $1.3 million, increased by $6.8 million and decreased by $8.1 million,
respectively.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 2

Cumulative impact of IFRS 15 and IFRS 16

The amount of adjustment for each financial statement line item affected by the application of IFRS 15 and IFRS 16 for the prior periods is presented below.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Impact on net (liabilities) assets as at:

Net (liabilities) assets¹ as previously reported

IFRS 15

IFRS 16

Net (liabilities) assets

¹ Represents total assets less total liabilities as presented in the consolidated statements of financial position.

Impact on net earnings for the year ended December 31, 2017:

Net loss as previously reported

IFRS 15

IFRS 16

Net loss

Impact on basic and diluted earnings per share for the year ended December 31, 2017:

Basic and diluted loss per share as previously reported

IFRS 15

IFRS 16

Basic and diluted loss per share

IFRS 9 − Financial Instruments

December 31, 2017

(218,796)

26,050

(7,133)

January 1, 2017

368,904

28,961

(4,889)

(199,879)

392,976

(589,327)

(2,911)

(2,244)

(594,482)

(22.32)

(0.11)

(0.09)

(22.52)

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 3

The following table explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s
financial assets as at January 1, 2018. There were no changes to the measurement categories under IFRS 9 for the Company’s financial liabilities as at January
1, 2018 and therefore the Company’s financial liabilities are not presented in the table below.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

As at January 1, 2018

Financial assets

Cash and restricted cash

Trade and other receivables

Original classification

New Classification under

Original Carrying amount

New carrying amount

under IAS 39

IFRS 9

under IAS 39

under IFRS 9

Loans and receivables

Amortized cost

46,405

184,676

5,502

236,583

46,405

180,076

5,502

231,983

Equity investments (presented in financial and other assets)

Available-for-sale

FVOCI – equity instrument

Total

Refer to Note 3 regarding the impairment of financial assets.

For assets in the scope of IFRS 9 impairment model, expected credit losses are generally expected to increase. The Company has determined that the application of
IFRS 9’s impairment requirements as at January 1, 2018 results in an additional expected credit loss allowance as follows.

Loss allowance at December 31, 2017 under IAS 39

Additional expected credit loss allowance recognized as at January 1, 2018 on:

Trade and other receivables as at January 1, 2018

Contract assets recognized on adoption of IFRS 15

Expected credit loss allowance at January 1, 2018 under IFRS 9

17,064

2,800

1,800

21,664

2.3 Standards, interpretations and amendments to published standards that are issued but not yet effective with effect on the consolidated

financial statements

IFRIC 23 − Uncertainty over Income Tax Treatments

Amendments to IAS 19 − Employee Benefits

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 4

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

3. Basis of presentation and significant accounting policies

3.1 Statement of compliance

These consolidated financial statements of Yellow 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 that have been applied consistently to all periods presented throughout
the consolidated entities. This is the first set of the annual financial statements in which IFRS 15 – Revenue from Contracts with Customers, IFRS 9 – Financial
Instruments and IFRS 16 – Leases have been applied. Changes in significant accounting policies are described in Note 2.

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, 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.

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 acquired
entity. 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).

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 5

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.5 Cash and restricted cash

3.5.1 Cash

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

3.5.2 Restricted cash

Restricted cash is cash where specific restrictions exist on the Company’s ability to use this cash. Restricted cash consists primarily of cash held in escrow, which is
subject to the terms of the Senior Secured Notes.

3.6 Financial instruments

Financial assets and financial liabilities are recognized in the Company’s statement of financial position when the Company becomes a party to the contractual
provisions of the instrument.

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

3.6.1 Financial assets

Initial recognition and measurement

Financial assets are classified into the following specified categories: “amortized cost”; “fair value through other comprehensive income for equity investment” (“FVOCI
– equity investment”); and “fair value through profit or loss” (“FVTPL”).

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for
managing them.

The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model
determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Subsequent measurement

Financial asset at amortized cost

The Company measures financial assets at amortized cost if both of the following conditions are met:

•
•

The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding

Financial assets at amortized cost are subsequently measured using the effective interest rate (“EIR”) method and are subject to impairment. Gains and losses are
recognized in profit or loss when the asset is derecognized, modified or impaired.

The Company’s financial assets at amortized cost include trade and other receivables, cash and restricted cash.

Financial assets at fair value through other comprehensive income for equity investment (“FVOCI – equity investment”)

Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at FVOCI when they meet the definition
of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the statement of profit or loss when the
right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case,
such gains are recorded in OCI.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 6

The Company elected to classify irrevocably its equity investments (presented in financial and other assets) under this category.

Financial asset at fair value through profit or loss” (“FVTPL”)

Financial assets at FVTPL include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial
assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or
repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective
hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or
loss, irrespective of the business model. Financial assets at FVTPL are carried in the statement of financial position at fair value with net changes in fair value
recognized in the statement of profit or loss.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

The Company currently has no financial assets under this category.

Derecognition

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another party.

There is no reclassification on derecognition of equity investments at FVOCI.

Impairment of financial assets

3.6.2 Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities designated at fair value through profit or loss (“FVTPL”), loans and borrowings, payables, or
as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of
loans and borrowings and payables.

The Company’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments.

Yellow Pages Limited recognizes all financial liabilities, specifically senior secured notes, exchangeable debentures, and trade and other payables, initially at fair value
less transaction costs and subsequently at amortized cost, using the effective interest method.

An embedded derivative is a component of a hybrid contract that also includes a non-derivative host – with the effect that some of the cash flows of the combined
instrument vary in a way similar to a stand-alone derivative. A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from
the host and accounted for as a separate derivative if it is separated from the host when certain conditions are met and accounted for as a separate derivative.
Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss.

The Company currently possesses an embedded derivative in the form of a redemption option for cash for the Company’s exchangeable debentures.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 7

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

Loans and borrowings

This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using
the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost
is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as
finance charges in the statement of profit or loss. This category applies to Senior Secured Notes and exchangeable debentures.

Derecognition

The Company derecognizes financial liabilities when, and only when, the Company's obligations are discharged, cancelled or have expired. The difference between
the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

3.7 Deferred publication costs

Deferred publication costs are 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 recognized in operating costs upon delivery of the publication or fulfillment of the digital products and
services.

3.8 Deferred commissions

Deferred commissions paid represent costs to obtain new sales contracts. These costs are amortized on a straight-line basis over a two-year period as this reflects the
expected period of benefit. The Company recognizes as an expense, the commissions paid for contract renewals with revenue recognized within one year or less.

3.9 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.

As at December 31, 2018, 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

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 8

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.

3.10 Leases

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an
identified asset, the Company assesses whether:

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

•

The contract involves the use of an identified asset;

The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
The Company has the right to direct the use of the asset.

At inception, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand-alone prices.

3.10.1 As a lessee

The Company recognizes a right-of-use asset and a lease obligation at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises
the initial amount of the lease obligation adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate
of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-
use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In
addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease obligation. Right-of-use
assets are tested for impairment in accordance with IAS 36 – Impairment of Assets, and impairments are recorded in restructuring and other charges on the
consolidated statements of income (loss).

The lease obligation is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Generally, the Company uses its incremental borrowing
rate as the discount rate.

The lease obligation is subsequently measured at amortized cost using the effective interest method (EIR) and is adjusted for accrued interest and lease payments
when there is a change in future lease payments arising from a change in an index or rate. It is remeasured if there is a change in the Company's estimate of the
amount expected to be payable under a residual value guarantee, if there are modifications to the lease conditions such as a change of square footage of a lease, or if
the Company changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease obligation is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or
loss if the carrying amount of the right-of-use asset has been reduced to zero.

3.10.2 As a lessor

When the Company acts as a lessor, it determines at lease commencement whether each lease is a finance lease or an operating lease.

To classify each lease, the Company makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership
incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the
Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

The Company assessed and classified its subleases as finance leases, and therefore derecognized the right-of-use assets relating to the respective head leases being
sublet, recognized lease receivables equal to the net investment in the subleases, retained the previously recognized lease obligations in its capacity as lessee,
recognized the related interest expense thereafter and recognized interest income on the subleases receivable in its capacity as finance lessor.

The Company currently has no operating leases.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

5 9

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.11 Intangibles assets

Intangible assets acquired through a business combination are identified and recognized separately from goodwill where they arise from legal or contractual rights or
are capable of being separated from the acquiree and sold, transferred, licensed or exchanged. The cost of such intangible assets is 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.

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, 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
Straight-line over 10 years1
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.

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.

3.12 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.

As a result of the impairment losses recorded on goodwill in prior years and the disposal of the remaining goodwill in 2018 concurrently with the disposal of
ComFree/DuProprio (“CFDP”), the Company no longer has goodwill.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 0

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.13 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 finite life 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.

Intangible assets with indefinite useful lives, intangible assets not yet available for use and goodwill, if any, 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.

3.14 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.

3.15 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. Provisions are reversed when new external factors, such as market conditions, or internal factors indicates that the
recoverable amount is higher or lower than originally anticipated.

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
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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 1

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.16 Employee benefits

3.16.1 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.

3.16.2 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.

3.16.3 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.

3.16.4 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.

3.16.5 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.

3.16.6 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

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 2

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

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.

3.17 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.

3.18 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.

3.19 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. The
consideration amounts are generally fixed.

Revenues from print products are recognized at a point in time upon delivery of the print directories. Print revenues are generally billed on a monthly basis over the
year of publication.

Digital revenues from classified and display advertisements are recognized into income over the term of the contract on a monthly basis from the point at which service
is first provided over the life of the contract, since the customer receives and consumes the benefits of the advertisement simultaneously over the period of display of
the advertisement. Certain revenues, such as website and video design fees, are recognized at a point in time upon completion of the design of the website and video
since the satisfaction of performance obligation is completed at that time.

Payments terms for all customers are generally due upon receipt of the invoice. The disaggregation of revenue by product group and segment has been disclosed in
the Segmented Information note.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 3

3.20 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, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.21 Taxation

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

3.21.1 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.

3.21.2 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.

3.21.3 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.

3.22 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 4

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, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Significant estimates

Estimate of the lease term

When the Company recognizes a lease, it assesses the lease term based on the conditions of the lease and determines whether it will extend the lease at the end of
the lease contract, or exercise an early termination option. The Company determined that the term of its leases are the original lease term as it is not reasonably
certain that the extension or early termination options will be exercised. This significant estimate could affect Yellow Pages Limited’s future results if the Company
extends the lease or exercises an early termination option.

Assessment of whether a right-of-use asset is impaired

The Company assesses whether a right-of-use asset is impaired in accordance with IAS 36 – Impairment of assets, particularly when it vacates an office space and it
must determine the recoverability of the asset, to the extent that the Company can sublease the assets or surrender the lease and recover its costs. The Company will
examine its lease conditions as well as local market conditions and estimate its recoverability potential for each vacated premise. The determination of the lease cost
recovery rate involves significant management estimates based on market availability of similar office space and local market conditions. This significant estimate could
affect Yellow Pages Limited’s future results if the Company succeeds in subleasing their vacated offices at a higher or lower rate or at different dates than initially
anticipated.

Measurement of ECL allowance for trade receivables, contract assets and net investment in subleases

Determining the discount rate for leases

IFRS 16 requires the Company to discount the lease payments using the rate implicit in the lease if that rate is readily available. If that rate cannot be readily
determined, the lessee is required to use its incremental borrowing rate (“IBR”). The Company generally used its IBR rate when recording leases initially, since the
implicit rates were not readily available due to information not being available from the Lessor regarding the fair value of underlying assets and directs costs incurred by
the Lessor related to the leased assets. The IBR for each lease was determined on the commencement date of the lease and recalculated at the remeasurement date
where applicable.

Intangible assets and goodwill

Yellow Pages Limited assesses impairment by comparing the recoverable amount of a CGU or group of CGUs to which an indefinite life asset and goodwill belongs,
with its carrying value. The determination of the recoverable amount involves significant management estimates. As a result of the impairment losses recorded on
goodwill in prior years and the disposal of the remaining goodwill in 2018 concurrently with the sale of CFDP, the Company no longer has goodwill subject to
impairment and no longer has indefinite life intangible assets. Thus, in 2018 only an assessment of indicators of impairment was performed on the finite life intangible
assets and no further impairment analysis was required.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 5

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Useful lives of intangible assets and property and equipment

Employee future benefits

Income taxes

Significant judgments

Uncertain tax provisions

Yellow Pages Limited reviews the adequacy of these provisions at each statement of financial position date and reassesses its provisions if it receives information that may
reduce or increase it. 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. Gain on sale of businesses

Effective May 31, 2018, Yellow Pages divested of Totem and Western Media Group, two affiliates of the Company. A gain of $0.7 million was recorded in the
consolidated statements of income (loss).

On July 6, 2018, the Company’s affiliate, Yellow Pages Digital & Media Solutions Limited, sold CFDP to Purplebricks Group PLC for cash consideration of $51.0 million
on a cash free debt free basis, which was subject to a working capital adjustment. An amount of $1.8 million has been placed in escrow, and is expected to be received
eighteen months following the sale. A loss of $0.8 million was recorded in the consolidated statements of income (loss).

On July 23, 2018 Yellow Pages Limited disposed of Yellow Pages NextHome business for a nominal amount. A loss of $0.7 million was recorded in the consolidated
statements of income (loss).

On August 22, 2018 Yellow Pages Limited sold the assets related to the operation of its RedFlagDeals division to VerticalScope Inc. for a value of $12.0 million. A gain
of $7.5 million was recorded in the consolidated statements of income (loss).

On December 31, 2018, Yellow Pages Limited sold its JUICE Mobile assets for $1.0 million excluding working capital. A loss of $0.6 million was recorded in the
consolidated statements of income (loss).

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 6

The Company recorded an aggregate of $1.3 million of transaction and other related costs on the sale of businesses described above, netted against the gain on sale
of businesses.

The carrying value of the assets and liabilities at the time of disposal of CFDP, the assets related to the operation of its RedFlagDeals division, Yellow Pages
NextHome business, Totem, Western Media Group, and JUICE Mobile are as follows:

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Assets

Prepaid expenses

Property and equipment

Right-of-use assets

Intangible assets

Goodwill

Liabilities

Deferred income taxes

Lease obligations

Other

Net assets and liabilities

Net cash inflow

Cash consideration

5. Restricted cash

CFDP

−
1,009

989

30,728

26,829

59,555

7,267

1,004

8,279

51,276

49,215

Other

198

300

6,679

−

7,228

−
56

421

477

6,751

14,450

Total

198

1,309

1,040

37,407

26,829

66,783

7,267

1,060

429

8,756

58,027

63,665

As at December 31, 2018, cash amounting to $1.4 million was restricted for use by the Company and its subsidiaries, primarily in respect of cash held in escrow, which is
subject to the terms of the Senior Secured Notes agreement. This amount will be included in the next scheduled Senior Secured Notes redemption payment on May 31, 2019.

6. Contract assets and liabilities

The following table provides information about contract assets, which are included in trade and other receivables.

As at

Contract assets included in trade and other receivables

Loss allowance for revenue adjustments and credit losses

Contract assets net of loss allowance for revenue adjustments and credit losses

December 31, 2018

51,601

(3,656)

47,945

December 31, 2017

(Restated – Note 2)

65,761

(1,920)

63,841

January 1, 2017

(Restated – Note 2)

80,023

(2,282)

77,741

The contract assets, which are included in trade and other receivables, consist of payments for print products on delivered directories that are not yet due from the
customer and represent the Company’s right to consideration for the services rendered. Any amount previously recognized as a contract asset is reclassified to trade
and other receivables at the point at which it is invoiced to the customer.

The year-over-year changes in contract assets are primarily related to the fluctuation in print product revenue. The revenues related to the performance obligations that
are unsatisfied (or partially unsatisfied at the reporting date) are expected to be recognized in 2019.

The contract liabilities consist of deferred revenues which primarily relate to the advance consideration received from customers for which revenue is recognized over time.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 7

7. Deferred Commissions

As at January 1

Additions – costs to obtain contracts

Amortization recorded in operating costs

As at December 31

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

2018

(Restated – Note 2)

2017

16,879 $

7,255

(15,616)

8,518 $

19,955

17,042

(20,118)

16,879

The Company recognizes an expense for commissions paid related to contract renewals with revenue recognized within one year or less. Costs to obtain contracts
relating to the commission fees paid as a result of obtaining new sales contracts are amortized on a straight-line basis over a two-year period as this reflects the
expected period of benefit

8. Leases

8.1 As a lessee

The Company leases offices, which typically run for a period of 15 to 18 years. Some leases include an option to renew the lease for an additional period of five years
after the end of the contract term.

8.1.1 Right-of-use assets

As at January 1

Depreciation expense

Impairment (recovery)

Additions

Disposal/transfer to net investment in subleases

As at December 31

Right-of-use assets consist almost entirely of office spaces.

2018

50,644

(2,793)

1,627

1,180

(18,075)

2017

40,937

(7,606)

(8,066)

25,901

(522)

32,583

$ 50,644

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 8

8.1.2 Maturity analysis – contractual undiscounted cash flows

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

As at

Less than one year

One to five years

More than five years

Total undiscounted lease obligation

8.1.3 Lease obligations

As at

Lease obligations

Less current portion

Non-current portion

December 31, 2018

75,320

4,352

70,968

8.1.4 Amounts recognized in statements of income (loss)

For the years ended

Depreciation expense on right-of-use assets

Interest expense on lease obligations

Interest income on investment in subleases

8.2 Net investment in subleases

December 31, 2018

10,097

34,084

82,566

126,747

December 31, 2017

(Restated – Note 2)

86,179

1,888

84,291

December 31, 2018

(2,793)

(6,409)

216

December 31, 2017

(Restated – Note 2)

8,783

39,631

100,860

149,274

January 1, 2017

(Restated – Note 2)

61,652

9,045

52,607

December 31, 2017

(Restated – Note 2)

(7,606)

(5,796)

−

The Company subleases offices that it originally leased in 2014, 2015 and 2017. The Company has classified these subleases as finance leases, because the
subleases cover the remaining term of the respective head lease.

8.2.1 Maturity analysis – contractual undiscounted cash flows

As at

Less than one year

One to two years

Two to three years

Three to four years

Four to five years

More than five years

Total undiscounted lease payments receivable

Unearned finance income

Net investment in subleases

December 31, 2018

December 31, 2017

(Restated – Note 2)

919

870

796

810

817

9,468

13,680

6,288

7,392

−
−
−
−
−
−
−

−

YELLOW PAGES LIMITED ANNUAL REPORT 2018

6 9

9. Property and equipment

Cost

As at December 31, 2017 (Restated)
Additions
Disposals, write-offs and transfers

As at December 31, 2018

Accumulated depreciation

As at December 31, 2017 (Restated)

Depreciation expense

Disposals, write-offs and transfers

As at December 31, 2018

Net book value as at December 31, 2018

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

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Office

equipment

Computer

equipment

Other

Leasehold

equipment

improvements

26,213

46,140

(6,186)

1,161

(4,249)

683
−
(191)

56,887
−
(5,551)

20,112

43,052

492

51,336

10,207

35,697

2,067

(178)

12,096

8,016

4,288

(1,424)

38,561

4,491

399

115

(181)

333

159

32,654

2,883

(1,053)

34,484

16,852

2018

Total

129,923

1,246

(16,177)

114,992

78,957

9,353

(2,836)

85,474

29,518

Office

equipment

Computer

equipment

Other

Leasehold

equipment

improvements

Total

2017

(Restated – Note 2)

27,773

41,689

2,215

43,183

5,877
−
(7,437)

6,567

(348)

(1,768)

87
−
(1,619)

14,174
−
(470)

26,213

46,140

683

56,887

16,021

31,772

1,684

29,519

1,491
−
(7,305)

5,893

(222)

(1,746)

111
−
(1,396)

3,604
−
(469)

10,207

16,006

35,697

10,443

399

284

32,654

24,233

114,860

26,705

(348)

(11,294)

129,923

78,996

11,099

(222)

(10,916)

78,957

50,966

YELLOW PAGES LIMITED ANNUAL REPORT 2018

7 0

10. Intangible assets and goodwill

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Trademarks
and domain
names

Non-
competition
agreements

Customer-
related
intangible
assets

Software1

Total
Intangible
assets

Goodwill

Cost

As at December 31, 2017

110,518

261,943

10,698

403,128

786,287 $

26,829 $

Additions

Disposals, write-offs and transfers

−
(19,829)

−
(2,274)

−
(10,698)

13,605

(34,766)

13,605

(67,567)

−
(26,829)

As at December 31, 2018

90,689

259,669 $

− $

381,967

732,325 $

− $

Accumulated amortization

As at December 31, 2017

Amortization expense

Disposals, write-offs and transfers

12,308

261,218

9,399

310,010

592,935 $

7,817

(63)

250

(1,799)

767

(10,166)

55,114

(29,626)

63,948

(41,654)

As at December 31, 2018

20,062

259,669 $

Net book value as at December 31, 2018 $

70,627 $

−

−
−

335,498

615,229 $

46,469 $

117,096 $

Cost

As at December 31, 2016

Additions

Impairment

Disposals, write-offs and transfers

As at December 31, 2017

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

Trademarks
and domain
names

Non-
competition
agreements

483,596
−
(360,578)

(12,500)

381,494
−
(119,551)
−
261,943

110,518

Customer-
related
intangible
assets

12,022
−
(1,358)

Software1

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 $

− $
−
−
−
− $

Goodwill

45,342 $
−
(18,513)
−
26,829 $

− $
−
−
−
− $
26,829 $

2018

Total intangible
assets and
goodwill

813,116

13,605

(94,396)

732,325

592,935

63,948

(41,654)

615,229

117,096

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

1 Software under development amounted to $7.7 million (2017 - $15.6 million).

YELLOW PAGES LIMITED ANNUAL REPORT 2018

7 1

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.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

2018

As a result of the impairment losses recorded on goodwill in prior years and the disposal of the remaining goodwill in 2018 concurrently with the sale of CFDP, the
Company no longer has goodwill and indefinite life intangible assets subject to annual impairment. Thus, in 2018 an assessment of indicators of impairment was
performed on the finite life intangibles assets and no further impairment analysis was required.

Yellow Pages Limited has accumulated impairment losses on intangible assets, goodwill, and property and equipment in the amounts of $1,379.6 million,
$5,866.3 million and $21.9 million, respectively.

2017

During the fourth quarter of 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.

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
$480.0 million in the Yellow Pages CGU and an impairment loss of $20.0 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 primarily 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 was $242.0 million and $145.0 million,
respectively.

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 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 impairment analyses are presented below:

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 $500.0 million,as discussed above.

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 LIMITED ANNUAL REPORT 2018

7 2

Key assumptions :

Terminal growth rate

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

1 The fair value less costs of disposal method used in 2017 requires the use of a post-tax rate.

11. 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

12. Provisions

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Yellow Pages

Other

Total

-15% to -5%

3% to 4.5%

-15% to 4.5%

9.1% to 14%

14% to 20%

9.1% to 20%

December 31, 2018

December 31, 2017

January 1, 2017

30,040

59,584 $

3,567

5,086

2,287

6,540

6,915

7,993

3,181

5,954

47,520

83,627

60,301

3,169

7,075

4,667

4,282

79,494

During the year ended December 31, 2017, Yellow Pages Limited recorded restructuring and other charges of $34.4 million due primarily to internal reorganizations
and workforce reductions, and lease contracts associated with office closures..

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.

Provisions for
restructuring

Provisions for
other charges

Other
provisions

Total
provisions

As at December 31, 2017 (Restated – Note 2)
Charges (recovery)1
Payments

Disposals

As at December 31, 2018

Less current portion

Non-current portion

10,081

20,474

23,076

30,838

(31,788)
−
9,131

8,384

(11,318)

(4,570)
−
4,586

3,710

25,467

(19,286)

(3,491)

25,766

25,579

53,631

44,987

(55,644)

(3,491)

39,483

37,673

747

876

187

1,810

1 Included in the restructuring and other charges of $15.9 million on the statement of income (loss) is a net recovery of $3.6 million not affecting the provision.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

7 3

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

13. 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.

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

Inflation 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 inflation rate. As such, a higher inflation rate than projected 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 December 31, 2017, and extrapolated to December 31, 2018. For funding purposes, an
actuarial valuation of the defined benefit component of the Yellow Pages pension plans was also performed as at December 31, 2017. The actuarial valuation for the
other benefits was performed as at December 31, 2018.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

7 4

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, 2018 and 2017 were as follows:

As at

December 31, 2018

December 31, 2017

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

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

Pension benefits1
507,022
8,119
868
16,594
(24,169)
(43,614)
(20,318)
(641)
443,861

$
$

611,163
4,313
868
(43,614)
(18,679)
20,249
(634)

2,058
(32,618)
543,106
(99,245)

Other benefits

$
$

−
2,152
−
−
−
(2,152)
−
−
−

39,231
18
−
(2,152)
−
1,330
(250)

928
(5,998)
33,107
(33,107)

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)

Other benefits

−
2,056
−
−
−
(2,056)
−
−
−

38,635
23
−
(2,056)
−
1,409
(34)

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

$
$

−
1,254
39,231
(39,231)

$
$

1 Including unfunded supplementary defined benefit pension plans.
While all the plans are not considered fully funded for financial reporting purposes, registered plans are funded in accordance with the applicable statutory funding rules
and regulations governing the particular plans.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

7 5

The significant assumptions adopted in measuring Yellow Pages Limited’s pension and other benefit obligations as at December 31, 2018 and 2017 were as follows:

Notes To The Consolidated Financial Statements – December 31, 2018
(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 increase1
Inflation Rate

Net benefit plan costs

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

Discount rate (interest expense), end of preceding year
Rate of compensation increase1
Inflation Rate

Weighted average duration (years)

December 31, 2018

December 31, 2017

Pension benefits

Other benefits

Pension benefits

Other benefits

3.80%

1.90%

1.40%

3.50%

2.25%

1.75%

3.80%

N/A

2.00%

3.50%

N/A

1.75%

3.50%

2.25%

1.75%

4.00%

3.75%

2.25%

1.75%

3.50%

N/A

1.75%

3.75%

N/A

2.00%

1 As at December 31, 2018: 1.40% plus a productivity, merit and promotional scale, and as at December 31, 2017: 1.75% plus a productivity, merit and promotional scale.

For measurement purposes, actual per capita cost of covered medical care benefits was used for 2018. The rate of increase of the cost of medical care was assumed
at 5.28% for the next 5 years followed by a linear decrease to 3.42% by 2040 and to remain at that level thereafter. For dental care benefits, actual per capita cost was
used for 2018. The rate of increase of the cost of dental care was assumed at 4.00% for the next 5 years followed by a linear decrease to 3.57% by 2040 and to remain
at that level thereafter.

The following table shows how the defined benefit obligation as at December 31, 2018 would have been affected by changes that were reasonably possible at that
date in each significant actuarial assumption:

Pension benefits

Other benefits

Decrease of 0.25% in discount rate, end of year

Increase of 0.25% in the inflation rate

Increase of 1% in health care cost trend rates

$ 20,055

6,719

N/A

$ 1,002
−
2,321

YELLOW PAGES LIMITED ANNUAL REPORT 2018

7 6

The net benefit plan costs included in the statements of income (loss) are comprised of the following components:
For the years ended December 31,

2018

2017

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Current service cost1
Administration costs1
Recovery of past service costs2
Loss on settlement2
Service cost1
Interest cost
Interest income
Net interest on the net defined benefit obligation (Note 21)
Net benefit costs recognized in the statement of income (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.
2 Included in restructuring and other charges

Pension benefits

Other benefits

Pension benefits

Other benefits

$
$

$
● $
$
$

4,313
641
(634)
1,639
5,959
20,249
(16,594)
3,655
9,614
(6,391)
3,223
3,887
7,110

$
$

$
$
$
$

18
−
(250)
−
(232)
1,330
−
1,330
1,098
(5,070)
(3,972)
−
(3,972)

$
$

$
$
$
$

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

As a result of workforce reductions during the years ended December 31, 2018 and 2017, 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 30, 2018, May 31, 2018, January 16, 2018, November 29, 2017, and March 31, 2017.
The assets distributed on settlement and the defined benefit obligation extinguished on settlement of $20.3 million and $18.7 million, respectively, during the year
ended December 31, 2018, 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 2018.

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, 2018 and 2017:

(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

Emerging markets pooled equity funds

Canadian pooled fixed-income funds

December 31, 2018

December 31, 2017

0.0

8.0

33.0

14.5

44.5

12.5

8.0

22.0

30.5

0.0

27.0

As at December 31, 2018 and 2017, 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 $14.5 million for 2018 (2017 – $25.0 million). Total cash
payments for pension and other benefit plans expected in 2019 amount to approximately $10.4 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 2018

7 7

In addition, Yellow Pages Limited recorded an expense for provincial, federal and state pension plans of $5.7 million for the year ended December 31, 2018
(2017 – $8.6 million).

As at December 31, 2018, Yellow Pages Limited had recognized an accumulated balance of $57.7 million, net of income taxes of $18.8 million, in actuarial losses in
OCI.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

14. Senior Secured Notes

The Senior secured notes is comprised of the following:

As at

December 31, 2018

Principal amount of the 10.00% Senior Secured Notes

Principal amount of the 9.25% senior secured notes

Less unaccreted discount

Less current portion1

Non-current portion

170,231
−

2,742

167,489

90,000

77,489

December 31, 2017

(Restated – Note 2)

January 1, 2017

(Restated – Note 2)

315,000
−
6,102

308,898

54,939

253,959

−
309,669
−
309,669

75,161

234,508

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 subject to an availability reserve of $5.0 million if the Company’s trailing twelve-month fixed
charge coverage ratio is below 1.1 times. As at December 31, 2018, the Company’s fixed charge coverage ratio was below 1.1 times and the Company had
$4.4 million of letters of credit issued and outstanding under the ABL and a $9.9 million deficiency in qualified collateral. As such, $30.7 million of the ABL was available
as at December 31, 2018. 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, 2018, 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 “Notes”) due November 1, 2022 at an issue price of $980 per $1,000 principal amount of the Notes, or
$6.3 million discount. The 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.

Mandatory Redemption

YELLOW PAGES LIMITED ANNUAL REPORT 2018

7 8

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

the 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 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 Notes, repayment of the Notes other
than in connection with a mandatory redemption and any principal payments made in respect of the Company’s lease obligations. In 2018, the Company made in
aggregate principal mandatory redemption payments of $144.8 million on the Notes.

Optional Redemption

Certain Covenants

15. Exchangeable debentures

As at

Principal amount of exchangeable debentures

Less unaccreted interest

December 31, 2018

107,089

10,910

96,179

December 31, 2017

(Restated – Note 2)

107,089

13,022

94,067

January 1, 2017

(Restated – Note 2)

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

YELLOW PAGES LIMITED ANNUAL REPORT 2018

7 9

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

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, 2018, 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. 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, upon, not less than 30 and not 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.

16. Income taxes

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

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

Resolution of uncertain tax positions
Recognition of previously unrecognized tax attributes
Non-deductible expenses for tax purposes
Change in estimate relating to prior periods
Unrecognized tax attributes and deductible temporary differences of the current year²
Reversal of tax attributes and deductible temporary differences of prior years²

(Recovery of) provision for income taxes

For the years ended December 31,
2017
(Restated – Note 2)

2018

52,009
26.94%
14,011

(37,074)
(8,512)
492
283
−
−
(30,800)

(528,954)
26.80%
(141,755)

−
−
913
−
134,509
69,757
63,424

1 The combined applicable statutory tax rate increased by 0.14% resulting mainly by provincial allocation of revenues earned and the decrease in the Quebec statutory tax rate and the increase in the British Columbia and

Saskatchewan statutory tax rate.

2 During the year ended December 31, 2017, the Company recorded a provision for income taxes of $63.4 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 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 $70.0 million during the fourth quarter of 2017.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 0

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

For the years ended December 31,

Current

Deferred

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

2017

2018

(Restated – Note 2)

2,348

(33,148)

(30,800)

(101)

63,525

63,424

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

Balance, December 31, 2017

(Restated – Note 2)

Acquisitions (Dispositions)

Expense (benefit) to

statement of income (loss)

Expense to OCI

Other

3,732
−

(5,504) $
−

(3,164) $
−

(41,490) $

(10,850) $

11,507

3,610

63,774

417

−

(7,692)

(1,334)
−
−

(10,765)
−
−

3164
−
−

31,411

3,088
−

10,850
−
−

(11,516)
−
−

(567)
−
−

(54,391)

(21)

(1,670)

21,615

(7,266)

(33,148)

3,067

(1,670)

Balance, December 31, 2018 $

2,398

(16,269) $

−

(6,574) $

−

3,043

−

(17,402)

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

Balance, December 31, 2016,

as previously reported

(574) $

(26,674) $

(4,039) $

(45,734) $

(8,244) $

17,655

4,104

11,468

(52,038)

Adjustment for IFRS 15 and

16 (Note 2)

Restated balance,

December 31, 2016

Expense (Benefit) to

statement of income (loss)

Expense to OCI

Balance, December 31, 2017

10,599

(1,667)

8,932

(574)

(26,674)

6,560

(45,734)

(8,244)

17,655

4,104

9,801

(43,106)

4,306
−

21,170
−

(9,724)
−

3,048

1,196

(2,606)
−

(6,148)
−

(494)
−

53,973
−

63,525

1,196

(Restated)

3,732

(5,504) $

(3,164) $

(41,490) $

(10,850) $

11,507

3,610

63,774

21,615

As at December 31, 2018, the Company and its subsidiaries has not recognized deferred income tax assets with respect to foreign operating losses of $200.9 million,
Canadian non-capital losses of $24.6 million, which both expire gradually between 2028 and 2038, and Canadian capital losses of $18.5 million which can be utilized
indefinitely.

As at December 31, 2018, the Company and its subsidiaries had not recognized deductible temporary differences of $897.8 million.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 1

17. Shareholders’ capital

Common shares − Issued

For the year ended December 31, 2018

Balance, December 31, 2017

Exchange of common share purchase warrants

Balance, December 31, 2018

For the year ended December 31, 2017

Balance, December 31, 2016

Exchange of common share purchase warrants

Balance, December 31, 2017

Warrants

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Number of Shares

Amount

28,075,306

28,075,308

4,031,685
−
4,031,685

Number of Shares

Amount

28,075,304

28,075,306

4,031,685
−
4,031,685

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

During each of the years ended December 31, 2018 and 2017, 2 Warrants, were exercised in exchange for 2 common shares of Yellow Pages Limited. As at
December 31, 2018 and 2017, the Company had a total of 2,995,484 and 2,995,486 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.

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

Risk free interest rate

Expected life

Expiry date

Expected volatility

2.27%

10 years

December 20, 2022

33.5%

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 2

Earnings (loss) per share

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

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

For the years ended December 31,

Weighted average number of shares outstanding used in computing basic earnings per share
Dilutive effect of restricted share units and performance share units

Dilutive effect of exchangeable debentures

Weighted average number of shares outstanding used in computing diluted earnings per share1

For the years ended December 31,

Net earnings (loss) used in the computation of basic earnings per share

Impact of assumed conversion of exchangeable debentures, net of applicable taxes

Net earnings (loss) used in the computation of diluted earnings per share

2018

26,423,158

588,566

5,624,422

2017

26,399,242
−

−

32,636,146

26,399,242

2018

(Restated –Note 2)

2017

82,809 $

(594,482)

7,802

−

90,611

(594,482)

1 The weighted average number of shares outstanding used in the earnings (loss) per share calculation is reduced by the shares held by the trustee for the purpose of funding the restricted share unit and
performance share unit plan (the “RSU and PSU Plan”).

For the year ended December 31, 2018, the diluted earnings per share calculation did not take into consideration the potential dilutive effect of the Warrants as well as
stock options that are not in the money as they are not dilutive. Yellow Pages Limited did not calculate the diluted loss per share for the year ended December 31,
2017 as the conversion of the restricted share units, performance share units, stock options, Exchangeable Debentures and Warrants would not be dilutive to the loss.

18. Segmented information

The operations are divided into four reportable segments: YP, Agency, Real Estate and Other, which operate primarily in Canada, with substantially all of their assets
also in Canada. The financial information has been prepared in the same manner as the December 31, 2017 audited financial statements except for reflecting changes
for the new standards adopted on January 1, 2018 in Note 2.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 3

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Print revenues are recognized at a point in time, whereas 93% of digital revenues were recognized over the term of the contract and 7% at a point in time for the year
ended December 31, 2018.

The following tables present financial information for the years ended December 31, 2018 and 2017:

For the year ended December 31, 2018

Agency

Real Estate

Other

eliminations

Limited

Intersegment

Yellow Pages

Revenues

Digital

Total revenues

Operating costs

127,897 $

2,017 $

4,863 $

1,163 $

(26) $

348,895

476,792

292,063

50,810

52,827

49,703

30,816

35,679

32,756

13,205

14,368

12,579

(2,445)

(2,471)

135,914

441,281

577,195

384,630

Income from operations before depreciation and amortization

and restructuring and other charges

184,729 $

3,124 $

2,923 $

1,789 $

–

192,565

Depreciation and amortization

Restructuring and other charges

Financial charges, net

Gain on sale of businesses

Recovery of income taxes

Net earnings

Additions to intangible assets and property and

76,094

15,862

54,729

(6,129)

(30,800)

82,809

equipment, net of lease incentives received

10,764 $

260 $

463 $

549 $

−

12,036

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 4

For the year ended December 31, 2017 (Restated – Note 2)

Agency

Real Estate

Other

eliminations

Limited

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Intersegment

Yellow Pages

Revenues

Digital

Total revenues

Operating costs

Income (loss) from operations before depreciation and

amortization, impairment of intangible assets and goodwill

and restructuring and other charges

Depreciation and amortization

Impairment of intangible assets and goodwill

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,

165,674 $

5,416 $

11,913 $

3,924 $

(67)

405,196

570,870

391,100

72,688

78,104

81,659

49,249

61,162

56,413

18,631

22,555

20,410

(4,657)

(4,724)

179,770 $

(3,555)

4,749 $

2,145 $

−

186,860

541,107

727,967

544,858

183,109

112,965

507,032

34,400

53,946

3,720

63,424

2,104

(594,482)

net of lease incentives received

55,076 $

1,960 $

1,308 $

2,541 $

−

60,885

19. 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.

During the year ended December 31, 2018, nil common shares of Yellow Pages Limited (2017 – 501,309) were purchased on the open market of the TSX by the trustee
appointed under the RSU and PSU Plan at a cost of $nil (2017 – $3.1million) 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 1,605,802 as at December 31, 2018.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 5

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

Number of

Outstanding, beginning of year

Granted

Additional payout related to achievement of performance targets²

Settled

Forfeited

Outstanding, end of year

Weighted average remaining life (years)

RSUs

763,624

90,344

(162,574)

(291,891)

399,503

1.4

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

2018

PSUs¹

795,811

(59,339)

(36,340)

(511,069)

189,063

0.8

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

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 94,514 common shares as at December 31, 2018 (2017 – 397,868 common shares).

2 The additional (reduction in) payout is related to the achievement of certain performance targets in excess (shortfall) of 100% and amounted to a reduction of 62% for the year ended December 31, 2018 (2017 –

additional 12%).

During the year ended December 31, 2018, an expense of $1.4 million (2017 – $2.1 million) was recorded in the consolidated statement of income (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 year

Granted²

Forfeited

Settled

Variation due to change in stock price

Outstanding and vested, end of year

Number of DSUs

332,245

126,338

(34,451)

(168,377)

−
255,755

2018
Liability¹

2,793

1,021

(303)

(1,372)

(582)

1,557

Number of DSUs

246,892
120,660

−
(35,307)

−

332,245

2017
Liability¹

4,368

1,230

−
(264)

(2,541)

2,793

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

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
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. On November 7, 2017, an amendment to the Stock Option Plan was implemented to increase the maximum number of
common shares authorized for issuance upon the exercise of options, from 1,290,612 to 2,806,932.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 6

During the year ended December 31, 2018, nil stock options (2017 – 701,875) 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, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

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

Number of options

701,875
−
−
701,875
311,944

2018
Liability¹

194
−
171
365
365

$
$

Number of options

−
701,875
−
701,875
77,986

2017
Liability

−
241
(47)
194
194

$
$

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:

Outstanding, beginning of year
Granted
Forfeited
Outstanding, end of year
Exercisable, end of year

Number of options

2018
Weighted average
exercise price per option

Number of options

2017
Weighted average
exercise price per option

1,024,550
801,202
(478,700)
1,347,052
60,425

$
$

10.11
7.70
10.91
8.39
18.22

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

$
$

16.73
7.97
18.78
10.11
14.28

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 7

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

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Exercise price

$7.61

$7.97

$10.12

$10.47

$16.44

$17.83

$19.61

$20.33

$24.65

Outstanding, end of year

Exercisable, end of year

Number of options

Weighted average

Number of options

Weighted average

outstanding

remaining life

outstanding

remaining life

2018

2017

550,588

701,875

11,375

25,239

13,525

17,050

7,700

4,900

14,800

1,347,052

60,425

3.1

1.7

1.3

3.6

3.2

4.2

2.5

2.4

2.2

2.4

2.6

−
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

Stock options were valued using a binomial option pricing model. Expected volatility is determined by the implied volatility from the current market price of the
Company’s outstanding warrants. The following table shows the key inputs into the valuation model for the years ended December 31:

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

$
$

2018

7.68
7.70
43.2%
4 years
2.41%
3.2 years

$
$

2017

9.12
7.97
41.0%
3 years
2.04%
2.7 years

During the year ended December 31, 2018, an expense of $0.6 million (2017 – a recovery of $0.4 million) was recorded in the consolidated statement of income (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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 8

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

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

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

Number of SARs

701,875
−
−
701,875
311,944

2018
Liability¹

194
−
171
365
365

$
$

Number of SARs

−
701,875
−
701,875
77,986

2017
Liability

−
241
(47)
194
194

$
$

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 determined by the implied volatility from the current market price of the Company’s
outstanding warrants. 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

20. Operating costs

For the years ended December 31,

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

Remeasurement of loss allowance, net of recovery (Note 24)

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

$
$

2018

9.12
7.97
41.0%
3 years
2.04%
1.7 years

$
$

2017

9.12
7.97
41.0%
3 years
2.04%
2.7 years

2017³

2018

(Restated – Note 2)

181,808

268,475

112,365

37,592

37,494

15,371

144,783

71,642

46,055

13,903

384,630

544,858

YELLOW PAGES LIMITED ANNUAL REPORT 2018

8 9

21. Financial charges, net

The significant components of the financial charges are as follows:

For the years ended December 31,

Interest on Senior Secured Notes and exchangeable debentures

Interest on lease obligations

Net interest on the defined benefit obligations

Other, net

22. 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

23. Commitments and contingencies

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

2018

(Restated – Note 2)

42,963

41,465

2017

6,193

4,985

588

5,796

5,669

1,016

54,729

53,946

2018

253

690

2017

1,274

937

a) As at December 31, 2018, Yellow Pages Limited has commitments under 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:

2019

2020

2021

2022

2023

Thereafter

Total commitments

17,236

9,310

7,524

5,323

5,425

53,541

98,359

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 expires on December 31, 2020. 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

9 0

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.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

24. 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’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.

The components of trade and other receivables are as follows:

As at

Current

Past due less than 180 days

Past due over 180 days

Trade receivables
Other receivables1
Trade and other receivables

December 31, 2018

(Restated – Note 2)

December 31, 2017

January 1, 2017

85,331

21,975

11,238

118,544

13,990

132,534

122,197

37,494

12,016

171,707

12,969

184,676

139,882

30,620

5,243

175,745

12,474

188,219

1 Other receivables as at January 1, 2017, December 31, 2017 and 2018 included a loan receivable associated with a forward contract and accrued receivables related to JUICE and Mediative.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

9 1

The following table provides information about the exposure to credit risk and ECLs for trade receivables and contract assets from individual customers as at
December 31, 2018 under IFRS 9.

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

For the year ended December 31, 2018

Current

Past due less than 180 days

Past due over 180 days

Total

1 The gross carrying value is net of sales allowances.

Expected credit

loss rate

Gross carrying
amount1

Lifetime ECL

3.1% $

16.2%

54.6%

88,100

26,211

24,771

139,082

2,769

4,236

13,533

20,538

The following table provides information about Allowance for doubtful accounts for trade receivables as at December 31, 2017 under IAS 39.

For the year ended December 31, 2017

Current

Past due less than 180 days

Past due over 180 days

Total

1 The gross carrying value is net of sales allowances.

Gross carrying
amount1

Allowance for

doubtful

accounts

122,996

798

42,285

23,491

4,791

11,475

188,772

17,064

The following table shows the movement in lifetime ECL that has been recognized for trade receivables, net investment in subleases and contract assets in
accordance with the simplified approach set out in IFRS 9. Comparative amounts for 2017 represent the allowance account for impairment losses under IAS 39:

As at

Balance, beginning of the year, under IAS 39

Adjustment on initial application of IFRS 9 (Note 2)

Balance, beginning of the year, under IFRS 9

Remeasurement of loss allowance, net of recovery

Amounts written-off

Balance, end of year

(i) Interest Rate Risk

December 31, 2018 December 31, 2017

17,064

4,600

21,664

15,371

(16,497)

20,538

13,881
−
13,881

13,903

(10,720)

17,064

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.
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 Notes and Exchangeable Debentures are fixed, the Company is not exposed to interest rate fluctuation risk.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

9 2

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

(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 $14.7 million for the year ended December 31, 2018 (2017 – $28.1 million). As at December 31, 2018, 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.

Pursuant to the indenture governing the Senior Secured 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 to redeem the Senior Secured Notes, on a semi-annual basis on the last day of May and November of each year, at a
redemption price equal to 100% of the principal amount, subject to the Company maintaining a minimum cash balance of $20.0 million on the last day of the mandatory
redemption period. The Company is required to use 75.0% of its consolidated Excess Cash Flow to redeem the Senior Secured 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 Senior Secured 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 Senior Secured Notes, repayment of the Senior Secured Notes other
than in connection with a mandatory redemption and any principal payments made in respect of the Company’s lease obligation.

Excluding the mandatory redemption obligations on the Senior Secured Notes, the Company expects to meet its other financial obligations through internally generated
cash and cash on hand.

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

Non-derivative financial liabilities
Senior Secured Notes1,2
Exchangeable Debentures1
Trade and other payables

Provisions

Total, net

Payments due for the years following December 31, 2018

Total

167,489

96,179

47,520

39,483

1 year

90,000
−
47,520

37,673

350,671

175,193

2 – 3 years

4 – 5 years

−
−
−
1,642

1,642

77,489

96,179
−
168

173,836

1 Discounted amount.
2 The repayment of the 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 Notes.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

9 3

Notes To The Consolidated Financial Statements – December 31, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

Fair value hierarchy

The three levels of fair value hierarchy are as follows:

•
•
•

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

Equity investments classified at FVOCI

Level December 31, 2018 December 31, 2017

January 1, 2017

−

5,502

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 first quarter of 2018, this investment was written down in Net
change in FVOCI to the expected realizable value following management’s decision to no longer invest in this business and relinquish all its equity interest.

During the year ended December 31, 2017, the Company 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 statements of income (loss).

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 the Senior Secured Notes and the exchangeable debentures is evaluated based on quoted market prices as at the statement of financial position
date. The Company has not adopted any hedge accounting during the period.

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, 2018. The fair value of cash and restricted cash, trade and other receivables, and trade and other payables are not included, as their
carrying amount is a reasonable approximation of fair value due to their short-term maturity:

Senior Secured Notes

Exchangeable debentures

25. Capital disclosures

Level

Carrying Value

Fair Value

167,489

96,179

173,372

107,089

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 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2018

9 4

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, 2018
(all tabular amounts are in thousands of Canadian dollars, except share information)

As at

Cash and restricted cash

10.00% Senior Secured Notes¹ (Note 14)

Exchangeable debentures² (Note 15)

Lease obligations (Note 8)

Total debt

Deficiency

Total capitalization

Total debt net of cash and restricted cash, to total capitalization

For the years ended December 31,

Latest Twelve Month Adjusted EBITDA³

The total debt net of cash and restricted cash to latest Twelve-Month Adjusted EBITDA ratio¹

December 31, 2018

December 31, 2017

81,452

167,489

96,179

75,320

338,988

(119,164)

219,824

117.2%

46,405

308,898

94,067

86,179

489,144

(199,879)

289,265

153.1%

2017

2018

(Restated – Note 2)

192,565

183,109

1.3

2.4

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.
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.

26. 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, 2018 and 2017 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 2018

9 5

27. List of subsidiaries

As at

Canada

Yellow Pages Digital & Media Solutions Limited
Yellow Pages Homes Limited1
411 Local Search Corp.
9059-2114 Quebec Inc.1
ByTheOwner Inc.1
Juice DMS Advertising Limited1
YP Dine Solutions Limited

Bookenda Limited
9778748 Canada Inc. (“Totem”)1

USA

YPG (USA) Holdings, Inc.
Yellow Pages Digital & Media Solutions, LLC2
Juice Mobile USA LLC2

1 Divested in 2018.
2 Dissolved in 2018.

28. Related party disclosures

Key management personnel compensation

Notes To The Consolidated Financial Statements – December 31, 2018
(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

2018

100%
−
100%
−
−
−
100%

100%
−

100%
−
−

2017

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 benefits¹

1 During 2017, management reassessed its key management personnel.

2018

6,621

2,177
−
8,861

2017

4,276

506

2,034

6,184

13,000

YELLOW PAGES LIMITED ANNUAL REPORT 2018

9 6

Table of Contents

Consolidated Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Consolidated Statements of Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Consolidated Statements of Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Notes To The Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50-96

Executive Team

Board of Directors

Head Office

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

Franco Sciannamblo
Senior Vice-President, Chief Financial Officer

Treena Cooper
Vice President, Secretary, and General Counsel

Susan Kudzman
Director and Chair of the Board

David A. Eckert
Director
President and Chief Executive Officer

Craig Forman
Director
Chair of the Corporate Governance and
Nominating Committee

Robert Hall
Director
Chair of the Audit Committee

Donald H. Morrison
Director

Kalpana Raina
Director

Paul W. Russo
Director
Chair of the Human Resources and
Compensation Committee

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

Y
YPG.DB Senior Subordinated Unsecured

Common Shares

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.

2018

Report
Annual

corporate.yp.ca