Yellow Pages Annual Report 2019

FY2019 Annual Report · Yellow Pages

Loading PDF…

Table of Contents

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

Independent Auditor’s Report

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Consolidated Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Notes To The Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45-85

Message to Shareholders

February 13, 2020

Dear Shareholders,

During 2019, your management team and all of our YP colleagues continued to strengthen and increase the value of our company. It was a year of notable
accomplishments, including:

• Generated consistent improvements in ‘bending the revenue curve.’ Every quarter of the year, our initiatives produced an improved year-on-year rate of

revenue change in our YP segment.

•

Produced strong profitability. For the full year, our profit (measured as Adjusted EBITDA1) was 40.0% of revenues.

• Reduced debt dramatically. We reduced our Net debt excluding lease obligations1 by 70%, to only $54 million at year end, including fully repaying our Senior
Secured Notes three years ahead of maturity. Our Net debt excluding lease obligations at year end was $302 million less than it was only eight quarters earlier.

• Announced intention to fully repay debt. We intend to fully repay all of our remaining debt, our exchangeable debentures, on or shortly after May 31, 2021.

• Announced intention to initiate regular cash dividend. We intend to initiate a regular quarterly dividend of 11 cents per common share per quarter, beginning

in the second quarter of 2020.

• Continue to invest for the future. We continue to invest in our business, at levels we believe are optimal, including significant expansion of our tele-sales force

to support further ‘bending of the revenue curve’.

In two short years, we believe we have produced strong results and set our company on a promising course. Thank you for your continued support.

David A. Eckert

President and Chief Executive Officer

(1) Adjusted EBITDA is equal to Income from operations before depreciation and amortization, and restructuring and other charges (defined herein as Adjusted EBITDA), as shown in Yellow Pages Limited’s consolidated
statements of income. Net debt excluding lease obligations is comprised of Senior Secured Notes (including current portion) and Exchangeable debentures less Cash and restricted cash as presented in our
consolidated statements of financial position. Adjusted EBITDA and Net debt excluding lease obligations are non-GAAP financial measures and do not have any standardized meaning under IFRS. Therefore, they
are unlikely to be comparable to similar measures presented by other public companies. We use net debt excluding lease obligations as an indicator of the Company's ability to cover financial obligations and reduce
debt and associated interest charges as it represents the amount of debt excluding lease obligations that is not covered by available cash. We believe that certain investors and analysts use net debt excluding lease
obligations to determine a company’s financial leverage. The most comparable IFRS financial measure is total debt, as presented in the capital disclosures note in our annual consolidated financial statements. The
table below provides a reconciliation of total debt to net debt excluding lease obligations.

Net debt excluding lease obligations

(In thousands of Canadian dollars)

As at

Senior Secured Notes
Exchangeable debentures
Lease obligations

Total debt
Lease obligations
Cash and restricted cash

Net debt excluding lease obligations

December 31, 2019

December 31, 2018

−
98,537
57,885

156,422
(57,885)
(44,408)

54,129

167,489
96,179
75,320

338,988
(75,320)
(81,452)

182,216

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

February 12, 2020

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, 2019 and 2018 and should be read in conjunction with our Audited
Consolidated Financial Statements and accompanying notes for the years ended December 31, 2019 and 2018. Please also refer to Yellow Pages Limited’s press release
announcing its results for year ended December 31, 2019 issued on February 13, 2020. 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: https://corporate.yp.ca/en. 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 two collectively YP USA), Bookenda Limited (Bookenda) sold as of April 30, 2019, YP Dine
Solutions Limited (YP Dine) sold as of April 30, 2019, 9059-2114 Québec Inc. and ByTheOwner Inc. (the latter two collectively ComFree/DuProprio) 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, including potential repayment of the Company’s exchangeable debentures in full on or
shortly after May 31, 2021, at par, the initiation of a quarterly common share dividend of $0.11 per common share beginning in the second quarter of 2020, results of
operations and businesses of YP. These statements are considered ‘‘forward-looking’’ because they are based on current expectations, as at February 12, 2020, 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 revenue declines on cash flows; and

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Forward-looking information and statements are also based upon the assumption that none of the identified risk factors that could cause actual results to differ materially
from the anticipated or expected results described in the forward-looking information and statements will occur.

When used in this MD&A, such forward-looking statements may be identified by words such as ‘‘aim’’, ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘goal’’, ‘‘intend’’,
‘‘objective’’, ‘‘may’’, ‘‘plan’’, ‘‘predict’’, ‘‘seek’’, ‘‘should’’, ‘‘strive’’, ‘‘target’’, ‘‘will’’, ‘‘would’’ and other similar terminology. These statements reflect current expectations
regarding future events and operating performance and speak only as at the date of this MD&A. 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;

Successfully prosecuted legal action against the Corporation;

• 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 (defined
herein as Adjusted EBITDA) as shown in Yellow Pages Limited’s consolidated statements of income. 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

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 29 of this MD&A.

Adjusted EBITDA is derived from 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 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 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, as defined above, less CAPEX, which we
define as additions to intangible assets and additions to property and equipment less 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.
Adjusted EBITDA less CAPEX is also one component in the determination of short-term incentive compensation for all management employees.

The most comparable IFRS financial measure to Adjusted EBITDA less Capex is Income from operations before depreciation and amortization, impairment of intangible
assets and goodwill, and restructuring and other charges (defined above as Adjusted EBITDA) as shown in Yellow Pages Limited’s consolidated statements of income
(loss). Refer to page 6 and page 12 of this MD&A for a reconciliation of CAPEX and Adjusted EBITDA less CAPEX, respectively.

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 and Estimates

5. Risks and Uncertainties

6. Controls and Procedures

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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 and customer care team of over 300 professionals offer this full suite of marketing solutions to local businesses across the country, while also
supporting the evolving needs of its existing customer base of 153,300 SMEs.

Media Properties

The Company’s 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.
Descriptions of the Company’s digital media properties, listed by segment, are 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;

•

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

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

Other segment

•

YP Dine™ (sold as of April 30, 2019) – A digital property allowing users to discover, search for and book local restaurants in addition to offering online ordering
capabilities;

Bookenda.com (sold as of April 30, 2019) – An online transaction platform for users and merchants to interact and manage bookings and orders;

• RedFlagDeals.com™ (sold as of August 22, 2018) – A Canadian provider of online and mobile promotions, deals, coupons and shopping forums;

•

Yellow Pages NextHome (sold as of July 23, 2018) – Provided Canadians with information in making informed home buying, selling, and/or renting decisions;

• ComFree/DuProprio (sold as of July 6, 2018) – A Quebec real estate digital destination offering homeowners a professional and cost-effective service to market and

sell their homes; and

• Western Media Group (sold as of May 31, 2018) – Magazines generating local lifestyle content specific to the Western Canada region, in the restaurants, real estate

and lifestyle categories.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

Key Analytics

The success of our business is dependent upon continuing to improve operating profitability and capital spending efficiency. Longer-term improvements in profitability are
dependent upon growth in digital revenues and retaining and growing our customer base. Key analytics for the year ended December 31, 2019 include:

•

Adjusted EBITDA – Adjusted EBITDA decreased to $161.3 million, or 40.0% of revenues for the year ended December 31, 2019, compared to $192.6 million or
33.4% of revenues for the same period last year;

Adjusted EBITDA less CAPEX – Adjusted EBITDA less CAPEX decreased to $151.6 million for the year ended December 31, 2019 compared to $180.5 million for
the same period last year;

YP Digital Revenues – YP digital revenues decreased 16.5% year-over-year and amounted to $298.8 million for the year ended December 31, 2019;

YP Customer Count1 and ARPC2 – YP customer count decreased to 153,300 customers for the year ended December 31, 2019, as compared to 186,700 customers
for same period last year. The customer count reduction of 33,400 for the year ended December 31, 2019 compares to a decline of 40,600 in the comparable period
of the previous year. YP ARPC for the year ended December 31, 2019 was $2,567 as compared to $2,488 for the year ended December 31, 2018 representing an
increase of 3.2%.

1 YP Customer Count is defined as the number of customers advertising through one of our products as at the end of the reporting period on a trailing twelve month basis excluding 411.ca customers.
2 YP ARPC is defined as the YP average contracted revenue per customer on a trailing twelve month basis excluding 411.ca.

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 December 31,

YP
Other

Total Headcount

2019

1,973
8
−

1,981

2018

3,201
839
−

4,040

2019

9,647
91
−

9,738

2019

768
−

768

2018

964
46

1,010

2018

14,287
1,899
(4,150)

12,036

Change

(196)
(46)

(242)

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

2. Results

This section provides an overview of our financial performance in 2019 compared to 2018 and 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 page 3 of this MD&A
and are important aspects which should be considered when analyzing our performance.

Management’s Discussion and Analysis

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

For the years ended December 31,

Revenues
Income from operations before depreciation and amortization, impairment of intangibles 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

2019

403,213

161,345
40.0%
94,669
3.57
9,738
151,607
144,759

$
$
$
$
$

2018

577,195

192,565
33.4%
82,809
3.13
12,036
180,529
134,659

2017
(Restated)1

727,967

183,109
25.2%
(594,482)
(22.52)
60,885
122,224
116,577

$
$
$
$
$

1 Restated to reflect the adoption of new international financial reporting standards with an effect on the consolidated financial statements.

Revenues
(In thousands of Canadian dollars)

2019

2018

2017

$403,213

$577,195

$727,967

Adjusted EBITDA
(In thousands of Canadian dollars)

2019

2018

2017

$161,345

$192,565

$183,109

Adjusted EBITDA less CAPEX
(In thousands of Canadian dollars)

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

2019

2018

2017

$151,607

$180,529

$122,224

2019

2018

2017

$144,759

$134,659

$116,577

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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 sales2

Gross profit2
Other operating costs2

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
Loss (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

$
$

$
$
$

2019

403,213
158,674

244,539
83,194

161,345
39,109
−
12,499

109,737
39,600
367
−

69,770
(24,899)
−

94,669

3.57
3.16

2019

326,878
−
98,537

30.1%

Management’s Discussion and Analysis

% of
Revenues

2017
(Restated)1

% of
Revenues

41.2%

58.8%
25.5%

33.4%
13.2%
−
2.7%

17.4%
9.5%
(1.1%)
−

9.0%
(5.3%)
−

727,967
344,447

383,520
200,411

183,109
112,965
507,032
34,400

(471,288)
53,946
−
3,720

(528,954)
63,424
2,104

47.3%

52.7%
27.5%

25.2%
15.5%
69.7%
4.7%

(64.7%)
7.4%
−
0.5%

(72.7%)
8.7%
0.3%

(81.7%)

% of
Revenues

39.4%

60.6%
20.6%

40.0%
9.7%
−
3.1%

27.2%
9.8%
0.1%
−

17.3%
(6.2%)
−

2018

577,195
237,541

339,654
147,089

192,565
76,094
−
15,862

100,609
54,729
(6,129)
−

52,009
(30,800)
−

23.5% $

82,809

14.3% $

(594,482)

$
$

$
$
$

3.13
2.78

2018

442,369
167,489
96,179

59.6%

$
$

$
$
$

(22.52)
(22.52)

2017
(Restated)2

601,527
308,898
94,067

67.0%

1 Restated to reflect the adoption of new international financial reporting standards with an effect on the consolidated financial statements.
2 Certain comparative information has been restated to conform with the 2019 presentation.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

Segmented Information

Following the organizational changes made throughout fiscal year 2018 including the disposal or liquidation of several affiliates, the Company made changes during the
first quarter of 2019 to how it manages its business to assess performance and allocate resources. The Company’s operations have been categorized into two reportable
segments: YP and Other. The comparative figures have been restated to reflect the changes to the reportable segments.

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, digital display advertising,
video production and print advertising. This segment also includes the 411.ca digital directory service helping users find and connect with people and local businesses,
which was integrated with the Company’s wholly-owned subsidiary, Yellow Pages Digital & Media Solutions Limited, as at September 30, 2019.

The Other segment includes YP Dine digital property allowing users to discover, search for and book local restaurants until its sale on April 30, 2019. This segment also
includes Mediative until
its liquidation on January 31, 2019. Mediative’s offers included dedicated marketing and performance media services to national clients
Canada-wide. The operations of the businesses sold in 2018 are also included in this segment until their respective disposal date, namely:

•

Totem which provided customized content creation and delivery for global brands until its sale on May 31, 2018;

• Western Media Group, magazines generating local lifestyle content specific to the Western Canada region until its sale as of May 31, 2018;

• RedFlagDeals.com™, a Canadian provider of online and mobile promotions, deals, coupons and shopping forums, until its sale on August 22, 2018;

• ComFree/DuProprio (CFDP) provided homeowners in Canada with media to sell their homes in a cost-effective manner until its sale on July 6, 2018;

•

Yellow Pages NextHome until its sale on July 23, 2018; and

JUICE Mobile’s proprietary Programmatic Direct and Real-Time Bidding platforms that facilitated the automatic buying and selling of mobile advertising between
brands and advertisers, until its sale on December 31, 2018.

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 2019

Analysis of Consolidated and Segmented Operating and Financial Results

Fiscal year 2019 versus 2018

Revenues

(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Digital
Print

Other

Digital
Print

Intersegment eliminations

Digital
Print

Total revenues

Management’s Discussion and Analysis

2019

298,762
103,177

401,939

1,274
−

1,274

−
−

−

300,036
103,177

403,213

$
$

2018

% Change

$
$

357,705
127,897

485,602

84,534
8,043

92,577

(958)
(26)

(984)

441,281
135,914

577,195

(16.5%)
(19.3%)

(17.2%)

(98.5%)
(100.0%)

(98.6%)

nm
nm

(32.0%)
(24.1%)

(30.1%)

Total revenues for the year ended December 31, 2019 decreased by $174.0 million or 30.1% year-over-year and amounted to $403.2 million as compared to $577.2 million
for the same period last year. The decline in total revenues was due to the divestitures in the Other segment as well as lower digital and print revenues in the YP segment.

Total digital revenues decreased by $141.2 million or 32.0% year-over-year and amounted to $300.0 million for the year ended December 31, 2019 compared to
$441.3 million for the year ended December 31, 2018. The digital revenue decline was attributable to the divestitures in the Other segment as well as lower revenues in the
YP segment.

Total print revenues decreased by $32.7 million or 24.1% year-over-year and amounted to $103.2 million for the year ended December 31, 2019. The print revenue decline
for the year ended December 31, 2019 is a result of lower revenues in the YP segment and the divestitures in the Other segment.

Reportable Segments Revenues

Revenues for the YP segment for the year ended December 31, 2019 decreased by $83.7 million or 17.2% year-over year and amounted to $401.9 million compared to
$485.6 million for the same period last year. The decrease for the year ended December 31, 2019 is mainly due to the decline of our higher margin YP digital media and
print products and to a lesser extent to our lower margin digital services products, thereby creating pressure on our gross profit margins.

Digital revenues decreased 16.5% year-over-year and amounted to $298.8 million for the year ended December 31, 2019, compared to $357.7 million for the same period
last year. Digital revenues were adversely impacted by a decline in the number of digital customers partially offset by a sixth consecutive quarter of higher spend per
customer. The lower digital customer count is mostly attributable to a lower level of acquisition, driven in part by our focus on profitability.

Print revenues decreased by 19.3% year-over-year to $103.2 million for the year ended December 31, 2019. The results were adversely impacted by a decline in the number
of print customers and lower spend per customer.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Other

Other revenues amounted to $1.3 million for the year ended December 31, 2019 as compared to $92.6 million for the same period last year. The decline in other revenues
is due to the divestitures.

Management’s Discussion and Analysis

Gross Profit1
(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

YP
Other
Intersegment eliminations

Total gross profit

2019

243,889
650
−

% of
Revenues

% of

2018

Revenues % Change

60.7% $
51.0%
−

306,157
33,660
(163)

63.0%
36.4%
nm

58.8%

(20.3%)
(98.1%)
nm

(28.0%)

244,539

60.6% $

339,654

1 Certain comparative information has been restated to conform with the 2019 presentation.

Gross profit for the year ended December 31, 2019 decreased to $244.5 million or 60.6% of total revenues compared to $339.7 million, or 58.8% of total revenues, for the
same period last year. The decrease in gross profit is due to the pressures from lower overall revenues and change in product mix in the YP segment and to the divestitures
in the Other segment. The increase in gross profit as a percentage of revenues is due to the dilutive effect on profitability of the lower margin Other segment in 2018.

Reportable Segments Gross Profit

Gross profit for the year ended December 31, 2019 totalled $243.9 million, or 60.7% of revenues, compared to $306.2 million, or 63.0% of revenues, for the same period
in 2018. The decrease in gross profit and gross profit as a percentage of revenues is a result of the pressures from lower overall revenues and change in product mix as
well as investments in customer care starting in the second quarter of 2019 and investments in new customer acquisitions in the fourth quarter of 2019. The revenue
pressures and customer care and new customer acquisition investments were partially offset by higher efficiencies in sales and operations from optimizations and cost
reductions, as well as an increased focus on the profitability of our products and services. These measures included workforce reductions primarily in non-customer facing
areas in the first quarter of 2018 and call center consolidations and optimization of our servicing model in the second quarter of 2018.

Other

Gross profit for the Other segment totalled $0.7 million, for the year ended December 31, 2019, as compared to $33.7 million, or 36.4% of revenues, for the same period
last year. The decrease in gross profit margin for the year ended December 31, 2019 is due to divestitures.

Adjusted EBITDA

(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

YP
Other

Total Adjusted EBITDA

2019

161,014
331

161,345

% of
Revenues

% of

2018

Revenues % Change

40.1% $
nm

185,026
7,539

40.0% $

192,565

38.1%
8.1%

33.4%

(13.0%)
(95.6%)

(16.2%)

For the year ended December 31, 2019, Adjusted EBITDA decreased by $31.2 million or 16.2% to $161.3 million, compared to $192.6 million for the same period last year.
The Company’s Adjusted EBITDA margin amounted to 40.0% for the year ended December 31, 2019 compared to 33.4% for the same period last year. The decrease in
Adjusted EBITDA was the result of the revenue pressures in the YP segment as well as the divestitures in the Other segment. The increase in Adjusted EBITDA margin for
the year ended December 31, 2019 is mainly due to the dilutive effect on profitability of the lower margin Other segment in 2018 and reductions in both our cost of sales
and other operating costs. The reductions fully offset the revenue pressures in the YP segment for the year ended December 31, 2019.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

Reportable Segments Adjusted EBITDA

Adjusted EBITDA for the YP segment for the year ended December 31, 2019 totalled $161.0 million compared to $185.0 million for the same period in 2018. The decrease
in Adjusted EBITDA is a result of lower overall revenues, pressures from the change in product mix and investments in customer care. The Adjusted EBITDA margin for the
YP segment for the year ended December 31, 2019 increased to 40.1% from 38.1% for the same period last year. The increase in Adjusted EBITDA margin for the year
ended December 31, 2019 is due to the revenue pressures and investments in customer care and investments in new customer acquisition being fully offset by an increased
focus on the profitability of our products and services and reductions in both our costs of sales and other operating costs. The decrease in cost of sales was mainly due to
workforce reductions primarily in non-customer facing areas in the first quarter of 2018 and to call center consolidations and optimization of our servicing model in the second
quarter of 2018. The decrease in other operating costs included reductions in our workforce and associated employee expenses, reductions in the Company’s office space
footprint, other spending reductions across the segment as well as an adjustment to the variable compensation expense in the first quarter of 2019 mainly due to employee
attrition and previous year performances.

Other

Adjusted EBITDA for the Other segment for the year ended December 31, 2019, amounted to $0.3 million. This compares to $7.5 million, or 8.1% of revenues, for the same
period last year. The year-over-year decrease is due to the divestitures.

Adjusted EBITDA less CAPEX

(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Adjusted EBITDA
CAPEX

Other

Adjusted EBITDA
CAPEX

Total Adjusted EBITDA less CAPEX

2019

161,014
9,460

151,554

331
278

161,345
9,738

151,607

$
$

2018

% Change

$
$

185,026
9,556

175,470

7,539
2,480

5,059

192,565
12,036

180,529

(13.0%)
(1.0%)

(13.6%)

(95.6%)
(88.8%)

(99.0%)

(16.2%)
(19.1%)

(16.0%)

For the year ended December 31, 2019, Adjusted EBITDA less CAPEX decreased by $28.9 million or 16.0% to $151.6 million compared to $180.5 million for the same
period last year. Adjusted EBITDA less CAPEX for the year ended December 31, 2019 was mainly impacted by lower Adjusted EBITDA partially offset by decreased
spending on software development and was further negatively impacted by lease incentives received in 2018.

Reportable Segments Adjusted EBITDA less CAPEX

Adjusted EBITDA less CAPEX for the year ended December 31, 2019 totalled $151.6 million compared to $175.5 million for the same period last year. The decrease for
the year ended December 31, 2019 is mainly due to lower Adjusted EBITDA, partially offset by decreased spending on software development and was further negatively
impacted by lease incentives received in 2018.

Other

Adjusted EBITDA less CAPEX for the Other segment for the year ended December 31, 2019 is minimal, as compared to $5.1 million in the same period last year. The
year-over-year decrease is a result of the divestitures.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Depreciation and Amortization

Depreciation and amortization decreased to $39.1 million for the year ended December 31, 2019 compared to $76.1 million for the same period last year primarily due to
lower software development expenditures.

Management’s Discussion and Analysis

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 of right-of-use assets and future operation costs related to lease contracts for offices closed
Pension settlement (recovery) costs and past service (recovery) costs, net
Other fees

Total restructuring and other charges

2019

10,767
(99)
371
(980)
2,440

12,499

2018

31,231
(14,095)
(2,029)
755
−

15,862

The Company recorded restructuring and other charges of $12.5 million for the year ended December 31, 2019 consisting of restructuring charges of $12.1 million relating
to workforce reductions, a $1.9 million charge related to future operation costs provisioned related to lease contracts for office closures, a $0.3 million charge related to
software disposal, offset by a net recovery of $1.8 million from more favorable lease recoveries than anticipated.

During the year ended December 31, 2018, the Company recorded restructuring and other charges of $15.9 million consisting of restructuring charges of $32.0 million
mainly due to workforce reductions, offset by the $14.1 million impact of a favorable litigation settlement on a contractual obligation with a vendor. Additionally, the
restructuring charges were offset by a net recovery of $1.6 million from more favorable lease recoveries than anticipated partially offset by the impairment of right-of-use
assets and a net recovery of $0.4 million from future operation costs related to lease contracts for office closures.

Financial Charges

Financial charges decreased to $39.6 million for the year ended December 31, 2019 compared to $54.7 million for the same period last year. The decrease is primarily due
to a lower level of indebtedness due to repayments of the Senior Secured Notes. The Company’s effective average annual interest rate on our debt portfolio excluding capital
leases as at December 31, 2019 was 9.0% (2018 – 9.2%).

Provision for (Recovery of) Income Taxes

The combined statutory provincial and federal tax rates were 26.8% for the year ended December 31, 2019 and 26.9% for the same period in 2018. The Company recorded
a recovery of income tax of $24.9 million for the year ended December 31, 2019, comprised of recognition of previously unrecognized tax attributes and temporary
differences of $44.2 million. The Company recorded an income tax recovery of 35.7% of earnings for the year ended December 31, 2019 (2018 – an income tax recovery
of 59.2%). These recoveries are non-cash items.

In comparison, 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.

The Company recorded an income tax recovery of 35.7% of earnings for the year ended December 31, 2019 this compares to an income tax recovery of 59.2% recorded
for the year ended 2018. The difference between the effective and the statutory rates for the year ended December 31, 2019 is mainly due to recognition of previously
unrecognized tax attributes and temporary differences and non-deductibility of certain expenses for tax purposes. 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Net earnings

The Company recorded net earnings of $94.7 million for the year ended December 31, 2019 as compared to $82.8 million for the same period last year. The increase in
net earnings for the year ended December 31, 2019 compared to the same period last year is mainly due to the lower depreciation and amortization expenses and lower
financial charges from a reduced level of indebtedness due to repayment of the Senior Secured Notes partially offset by lower Adjusted EBITDA and lower recovery of
income taxes.

Management’s Discussion and Analysis

Fiscal year 2018 versus 2017

Revenues

(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Digital
Print

Other

Digital
Print

Intersegment eliminations

Digital
Print

Total revenues

2018

357,705
127,897

485,602

84,534
8,043

92,577

(958)
(26)

(984)

441,281
135,914

577,195

$
$

2017
(Restated)1

% Change

$
$

417,466
165,674

583,140

125,026
21,253

146,279

(1,385)
(67)

(1,452)

541,107
186,860

727,967

(14.3%)
(22.8%)

(16.7%)

(32.4%)
(62.2%)

(36.7%)

(30.8%)
nm

(32.2%)

(18.4%)
(27.3%)

(20.7%)

1 Restated to reflect the adoption of new international financial reporting standards with an effect on the 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 in the Other segment. 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 in the Other segment. 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 attributable to lower
revenues in both segments.

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 was attributable to the YP segment.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

Reportable Segments Revenues

Revenues for the YP segment for the year ended December 31, 2018 decreased by $97.5 million or 16.7% to $485.6 million from $583.1 million for the same period in 2017.
The decrease for the year ended December 31, 2018 was 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.

Digital revenues decreased 14.3% year-over-year and amounted to $357.7 million for the year ended December 31, 2018, compared to $417.5 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 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.

Other

Other revenues decreased by $53.7 million, of which $33.3 million is attributable to the divested businesses, to $92.6 million for the year ended December 31, 2018 from
$146.3 million for the same period in 2017. The decline in Other revenues was mainly a result of the Company divesting the business operations of Comfree in July 2018,
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.

Gross Profit1

(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

YP
Other
Intersegment eliminations

Total gross profit

2018

306,157
33,660
(163)

% of
Revenues

2017
(Restated)2

% of
Revenues

% Change

63.0% $
36.4%
nm

339,477
44,537
(495)

58.2%
30.4%
nm

52.7%

(9.8%)
(24.4%)
(67.1%)

(11.4%)

339,654

58.8% $

383,519

1 Certain comparative information has been restated to conform to the 2019 presentation.
2 Restated to reflect the adoption of new international financial reporting standards with an effect on the consolidated financial statements.

Gross profit for the year ended December 31, 2018 amounted to $339.7 million or 58.8% of total revenues representing a decrease of $43.9 million year-over-year of which
$14.2 million is attributable to the divested businesses. This compares to $383.5 million or 52.7% of total revenues for the same in 2017. The increase in gross profit as a
percentage of revenues was 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 $306.2 million, or 63.0% of revenues as compared to $339.5 million, or 58.2% 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 revenue pressures
were 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Other

Gross profit for the Other segment amounted to $33.7 million, or 36.4% of revenues, for the year ended December 31, 2018 as compared to $44.5 million, or 30.4% of
revenues, for the year ended December 31, 2017.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.

Management’s Discussion and Analysis

Adjusted EBITDA

(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Other

Total Adjusted EBITDA

2018

185,026

7,539

192,565

% of
Revenues

2017
(Restated)1

% of
Revenues

% Change

38.1%

$182,590

8.1%

519

33.4%

$183,109

31.3%

0.4%

25.2%

1.3%

5.2%

1 Restated to reflect the adoption of new international financial reporting standards with an effect on the 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 in 2017.
Our Adjusted EBITDA margin amounted to 33.4% for the year ended December 31, 2018 compared to 25.2% for the year ended December 31, 2017. 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 $185.0 million from $182.6 million for the same period in 2017. The Adjusted
EBITDA margin for the YP segment for the year ended December 31, 2018 amounted to 38.1% compared to 31.3% for the same period in 2017. 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.

Other

Adjusted EBITDA for the Other segment for the year ended December 31, 2018, amounted to $7.5 million, or 8.1% of revenues. This compares to $0.5 million, or 0.4% of
revenues, for the same periods in 2017. The increase in the 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 in 2017 due to a non-recurring contract termination fee incurred in the first quarter of 2017.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Adjusted EBITDA less CAPEX

(In thousands of Canadian dollars, except percentage information)

For the years ended December 31,

Adjusted EBITDA
CAPEX

Other

Adjusted EBITDA
CAPEX

Total Adjusted EBITDA less CAPEX

1 Restated to reflect the adoption of new international financial reporting standards with an effect on the consolidated financial statements.

Management’s Discussion and Analysis

2018

185,026
9,556

175,470

7,539
2,480

5,059

192,565
12,036

180,529

$
$

2017
(Restated)1

% Change

182,590
53,772

128,818

519
7,113

(6,594)

183,109
60,885

122,224

1.3%
(82.2%)

36.2%

nm
(65.1%)

5.2%
(80.2%)

47.7%

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
in 2017. 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

Adjusted EBITDA less CAPEX for the year ended December 31, 2018 totalled $175.5 million compared to $128.8 million for the year ended December 31, 2017.
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.

Other

Adjusted EBITDA less CAPEX for the Other segment for the year ended December 31, 2018 increased to $5.1 million as compared to a loss of $6.6 million in the same
period in 2017. The improvements in Adjusted EBITDA less CAPEX were due to increased Adjusted EBITDA as well as reduced capital expenditures on software
development.

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 year ended December 31, 2017
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 2019

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

1 Restated to reflect the adoption of new international financial reporting standards with an effect on the consolidated financial statements.

Management’s Discussion and Analysis

2018

31,231
(14,095)
(2,029)
755
−
−

15,862

2017
(Restated)1

15,098
−
17,188
1,332
601
181

34,400

The Company 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 in 2017. The increase was primarily due
to the issuance of the $315.0 million principal amount 10.00% Senior Secured Notes on October 19, 2017, which accrued interest at a higher rate than the prior Senior
Secured Notes. The Company’s effective average annual 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 an income tax 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

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 year ended December 31, 2017. 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.

Summary of Consolidated Quarterly Results

The following table shows selected consolidated financial data of Yellow Pages for the eight most recent quarters.

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

YP revenues
Other revenues and Intersegment

Eliminations

Total revenues
Operating costs
Income from operations before

depreciation and amortization, and
restructuring and other charges
(Adjusted EBITDA)
Adjusted EBITDA margin
Depreciation and amortization
Restructuring and other charges (recovery)
Income from operations
Financial charges, net
Loss (gain) on sale of businesses
(Recovery of) provision for income taxes
Net earnings (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share

93,507

−
93,507
58,751

34,756
37.2%
8,678
5,719
20,359
7,360
10
(40,608)
53,597
2.02
1.70

$
$
$

98,147

−
98,147
60,361

37,786
38.5%
9,221
2,347
26,218
7,019
160
5,200
13,839
0.52
0.49

$
$
$

106,610

162
106,772
63,350

43,422
40.7%
10,082
1,571
31,769
11,456
197
5,543
14,573
0.55
0.51

$
$
$

2019

103,675

1,112
104,787
59,406

45,381
43.3%
11,128
2,862
31,391
13,765
−
4,966
12,660
0.48
0.45

110,782

13,737
124,519
83,370

41,149
33.0%
17,063
1,198
22,888
13,516
(205)
(30,380)
39,957
1.51
1.28

$
$
$

117,647

12,503
130,150
83,889

46,261
35.5%
18,945
5,220
22,096
13,074
(6,827)
(11,276)
27,125
1.03
0.89

$
$
$

129,339

33,873
163,212
105,990

57,222
35.1%
19,202
(1,754)
39,774
13,977
903
8,248
16,646
0.63
0.56

$
$
$

2018

127,834

31,480
159,314
111,381

47,933
30.1%
20,884
11,198
15,851
14,162
−
2,608
(919)
(0.03)
(0.03)

Sequential quarterly revenue trends are impacted by the YP segment’s print publication distribution schedules, with the second quarter being the strongest quarter.
Year-over-year the quarterly revenues have decreased principally due to revenue declines in the YP segment associated with overall loss of customers partially offset by
an increasing ARPC over the last six quarters. The decline in revenues of the Other segment is a result of the divestitures or liquidation of unprofitable or non-synergistic
businesses throughout 2018 and during the first two quarters of 2019.

Operating costs decreased over the periods due to lower revenues, an increased focus on the profitability of our products and services, reductions in our cost structure
during 2018 and over the course of 2019. These measures related to workforce reductions primarily in non-customer facing areas in the first quarter of 2018, to call center
consolidations and optimization of our servicing model in the second quarter of 2018, reductions in our workforce and associated employee expenses, reductions in the
Company’s office space footprint, cost optimizations in technology infrastructure and other spending reductions across the YP segment. These cost reductions initiatives
were partially offset by investments in customer care and new customer acquisitions starting in the third quarter of 2019. The first quarter of 2019 also benefited by an
adjustment to the variable compensation expenses mainly due to employee attrition and previous year performances. Furthermore, operating costs for the second half of
2018 were also reduced by the divestiture of businesses and this continued through 2019 with the completion of the liquidation of Mediative division in the first quarter and
the sale of YP Dine and Bookenda in the second quarter.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

The Adjusted EBITDA margin showed continued improvement in the first two quarters of 2019 as reductions in our cost structure and emphasis on the profitability of our
products and services more than offset the pressures from lower overall revenues and change in product mix in the YP segment. The Adjusted EBITDA margins decreased
in the third and fourth quarter of 2019 due to the revenue pressures and investments in customer care and new customer acquisitions.

Depreciation and amortization have been decreasing due to lower intangible assets resulting from decreasing software development expenditures as well as 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 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 a more favorable lease recovery than anticipated.

The financial charges have been declining as a result of lower indebtedness.

Net earnings were stable during the first three quarters of 2019, while the fourth quarter benefited from recording a recovery of income taxes of $40.6 million, comprised
of the recognition of previously unrecognized tax attributes of $44.2 million. 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.

ANALYSIS OF FOURTH QUARTER 2019 RESULTS

Revenues

(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

Digital
Print

Other

Digital
Print

Intersegment eliminations

Digital
Print

Total revenues

2019

70,162
23,345

93,507

−
−

−

−
−

−

2018

82,722
28,060

110,782

13,989
−

13,989

(252)
−

(252)

70,162
23,345

93,507

$
$

96,459
28,060

124,519

$
$

% Change

(15.2%)
(16.8%)

(15.6%)

(100.0%)
−

(100.0%)

nm
−

(27.3%)
(16.8%)

(24.9%)

Total revenues for the three-month period ended December 31, 2019 decreased by $31.0 million or 24.9% year-over-year and amounted to $93.5 million as compared to
$124.5 million for the same period last year. The decline in total revenues for the quarter ended December 31, 2019 was due to lower digital and print revenues in the
YP segment as well as the divestitures in the Other segment.

Total digital revenues decreased by $26.3 million or 27.3% year-over-year and amounted to $70.2 million during the fourth quarter of 2019 compared to $96.5 million for
the same period last year. The digital revenue decline for the three-month period ended December 31, 2019 was attributable the divestitures in the Other segment as well
as lower revenues in the YP segment.

Total print revenues decreased by $4.7 million or 16.8% year-over-year and amounted to $23.3 million during the fourth quarter ended December 31, 2019. The print
revenue decline for the three-month period ended December 31, 2019 is a result of lower revenues to the YP segment.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

Reportable Segments Revenues

Revenues for the YP segment for the fourth quarter of 2019 decreased by $17.3 million or 15.6% year-over-year and amounted to $93.5 million compared to $110.8 million
for the same period last year. The decrease for the quarter ended December 31, 2019 is mainly due to the decline of our higher margin YP digital media and print products
and to a lesser extent to our lower margin digital services products, thereby creating pressure on our gross profit margins.

Digital revenues decreased 15.2% year-over-year and amounted to $70.2 million for the fourth quarter of 2019, this compares to $82.7 million for the same period last year.
Digital revenues were adversely impacted by a decline in the number of digital customers partially offset by a sixth consecutive quarter of higher spend per customer.
The lower digital customer count is mostly attributable to a lower level of customer acquisition, driven in part by our focus on profitability.

Print revenues decreased by 16.8% year-over-year to $23.3 million during the fourth quarter of 2019. The results were adversely impacted by a decline in the number of
print customers and lower spend per customer.

Other

Due to the divestitures there were no revenues generated by the Other segment during the fourth quarter of 2019, resulting in a year-over-year decline of $14.0 million in
Other revenues.

Gross Profit1

(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

YP
Other
Intersegment eliminations

Total gross profit

% of
Revenues

% of

2018

Revenues % Change

2019

54,799
−
−

58.6% $ 69,963
4,534
(70)

−
−

63.2%
32.4%
nm

59.8%

(21.7%)
(100.0%)
nm

(26.4%)

54,799

58.6% $ 74,427

1 Certain comparative information has been restated to conform with the 2019 presentation.

Gross profit decreased to $54.8 million, or 58.6% of total revenues, for the fourth quarter of 2019 compared to $74.4 million or 59.8% of total revenues, for the same period
last year. The decrease in gross profit is due to the pressures from lower overall revenues and change in product mix in the YP segment and to the divestitures in the Other
segment.

Reportable Segments Gross Profit

Gross profit for the YP segment for the three-month period ended December 31, 2019 totalled $54.8 million, or 58.6% of revenues, compared to $70.0 million, or 63.2% of
revenues, for the same period last year. The decrease in gross profit and gross profit as a percentage of revenues for the three-month period ended December 31, 2019
is a result of the pressures from lower overall revenues and change in product mix as well as investments in customer care and investments in new customer acquisition.
The revenue pressures and customer care and new customer acquisition investments were partially offset by higher efficiencies in sales and operations from optimization
and cost reductions, as well as an increased focus on the profitability of our products and services.

Other

Due to the divestitures there was no gross profit generated by the Other segment during the fourth quarter of 2019, resulting in a year-over-year decline of $4.5 million in
Other gross profit.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Adjusted EBITDA

(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

Other

Total Adjusted EBITDA

Management’s Discussion and Analysis

% of
Revenues

2019

% of

2018

Revenues % Change

34,756

37.2% $

38,853

−

2,296

34,756

37.2% $

41,149

35.1%

16.4%

33.0%

(10.5%)

(100.0%)

(15.5%)

Adjusted EBITDA decreased by $6.4 million to $34.8 million during the fourth quarter of 2019, compared to $41.1 million during the same period last year. The Company’s
Adjusted EBITDA margin for the three-month period ended December 31, 2019 was 37.2% compared to 33.0% for the same period last year. The decrease in Adjusted
EBITDA for the three-month period ended December 31, 2019 is the result of the revenue pressures in the YP segment as well as the divestitures in the Other segment.
The increase in Adjusted EBITDA margin is mainly due to reductions in both our cost of sales and other operating costs which fully offset the revenue pressures in the YP
segment as well as the dilutive effect on profitability of the lower margin Other segment in 2018.

Reportable Segments Adjusted EBITDA

Adjusted EBITDA for the YP segment for the fourth quarter of 2019 totalled $34.8 million compared to $38.9 million for the same period last year. The decrease in Adjusted
EBITDA is a result of lower overall revenues, pressures from the change in product mix and investments in customer care and investments in new customer acquisition.
The Adjusted EBITDA margin for the YP segment for the fourth quarter of 2019 was 37.2% compared to 35.1% for the same period last year. The increase in Adjusted
EBITDA margin for the fourth quarter is due to the revenue pressures and investments in customer care and investments in new customer acquisition being more than offset
by an increased focus on the profitability of our products and services and reductions in both our cost of sales and other operating costs. The decrease in other operating
costs included reductions in our workforce and associated employee expenses, reductions in the Company’s office space footprint and other spending reductions across
the segment.

Other

Due to the divestitures there was no Adjusted EBITDA generated by the Other segment during the fourth quarter of 2019, resulting in a year-over-year decline of $2.3 million
in Other Adjusted EBITDA.

Adjusted EBITDA less CAPEX

(In thousands of Canadian dollars, except percentage information)

For the three-month periods ended December 31,

Adjusted EBITDA
CAPEX

Other

Adjusted EBITDA
CAPEX

Total Adjusted EBITDA less CAPEX

2019

34,756
1,981

32,775

−
−

−

34,756
1,981

32,775

$
$

2018

38,853
3,801

35,052

2,296
239

2,057

41,149
4,040

37,109

$
$

% Change

(10.5%)
(47.9%)

(6.5%)

(100.0%)
(100.0%)

(100.0%)

(15.5%)
(51.0%)

(11.7%)

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Adjusted EBITDA less CAPEX decreased by $4.3 million or 11.7% to $32.8 million during the fourth quarter of 2019 compared to $37.1 million during the same period in
2018. Adjusted EBITDA less CAPEX for the three-month period ended December 31, 2019 was mainly impacted by lower Adjusted EBITDA partially offset by decreased
spending on software development.

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, 2019 totalled $32.8 million compared to $35.1 million for the same period
last year. The decrease for the three-month period ended December 31, 2019 is mainly due to lower Adjusted EBITDA, partially offset by lower capital expenditures in
software development.

Other

Adjusted EBITDA less CAPEX for the Other segment for the three-month period ended December 31, 2019, is $nil, as compared to Adjusted EBITDA less CAPEX of
$2.1 million for the same period last year. The year-over-year decrease is a result of the divestitures.

Depreciation and Amortization

Depreciation and amortization decreased to $8.7 million for the three-month period ended December 31, 2019 compared to $17.1 million for the same period last year.
The decrease is primarily due to lower software development expenditures.

Restructuring and Other charges

(In thousands of Canadian dollars)

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

2019

5,844
−
(336)
(980)
1,191

5,719

2018

5,387
(3,537)
468
(1,120)
−

1,198

The Company recorded restructuring and other charges of $5.7 million for the three-month period ended December 31, 2019 consisting of restructuring charges of
$6.0 million relating to workforce reductions, a $0.8 million charge related to future operation costs provisioned related to lease contracts for office closures, offset by a
$1.1 million recovery from more favorable lease recoveries than anticipated. 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.

Financial Charges

Financial charges decreased to $7.4 million for the fourth quarter of 2019 compared to $13.5 million for the same period in 2018. The decrease is primarily due to a lower
level of indebtedness due to repayments of the Senior Secured Notes.

Recovery of Income Taxes

The combined statutory provincial and federal tax rates were 26.8% and 26.9% for the three-month periods ended December 31, 2019 and 2018, respectively. During the
fourth quarter ended December 31, 2019, the Company recorded a recovery for income tax of $40.6 million, comprised of recognition of previously unrecognized tax
attributes and temporary differences of $44.2 million. These recoveries were non-cash items.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

In comparison, the Company recorded a recovery for income taxes of $30.4 million during the fourth quarter ended December 31, 2018, 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 were non-cash items.

The difference between the effective and the statutory rates for the fourth quarter of 2019 is mainly due to recognition of previously unrecognized tax attributes and
temporary differences. The difference between the effective and the statutory rates for the fourth quarter of 2018 is mainly due to the recognition of previously unrecognized
tax attributes and a resolution of uncertain tax positions.

Net earnings

We recorded net earnings of $53.6 million and $40.0 million during the three-month periods ended December 31, 2019 and 2018, respectively. The improvement in net
earnings is mainly due to decreased depreciation and amortization expenses due to lower software development expenditures, lower financial charges from a reduced level
of indebtedness and higher recovery of income taxes partially offset by lower Adjusted EBITDA and increase in restructuring and other charges.

Management’s Discussion and Analysis

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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

2019

44,408

−
98,537
57,885

156,422
(16,660)

139,762
80.1%

2018

81,452

167,489
96,179
75,320

338,988
(119,164)

219,824
117.2%

As at December 31, 2019, Yellow Pages had $112.0 million of debt net of cash and restricted cash, compared to $257.5 million as at December 31, 2018.

The total debt net of cash and restricted cash to latest Twelve-Month Adjusted EBITDA1 ratio as at December 31, 2019 was 0.7 times compared to 1.3 times as at
December 31, 2018. The decrease is mainly due to elimination and reduction in Senior Secured Notes and lease obligations.

Total Debt Net of Cash and Restricted Cash
to Latest Twelve-Month Adjusted EBITDA1 Ratio

Capital Structure
(In millions of Canadian dollars)

Dec. 31, 2019

0.7

Dec. 31, 2019

($16.7)

$156.4

Dec. 31, 2018

1.3

Dec. 31, 2018

($119.2)

$339.0

Latest twelve-month income from operations before depreciation and amortization, 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.

Deficiency

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. At the request of the Company, the ABL agreement was amended on November 18, 2019 to reduce the total commitment from
$50.0 million to $25.0 million. 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 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, 2019, the Company fixed charge coverage ratio was 1.5 times. The Company had $3.4 million of letters of credit
issued and outstanding under the ABL. As such, $21.6 million of the ABL was available as at December 31, 2019. As at December 31, 2019, the Company was in compliance
with all covenants under the loan agreement governing the ABL.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

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 accrue interest at a rate of 10.00% per annum and are payable in semi-annual instalments in arrears on May 1 and November 1 of each year.

Mandatory Redemption

Pursuant to the indenture governing the Notes, the Company was required to use an amount equal to 100% of its consolidated Excess Cash Flow, as defined in the
indenture, 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 (or first following business 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 was required to use 75% 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. In 2019, the Company made
in aggregate mandatory principal redemption payments of $100.7 million on the Notes.

Optional Redemption

From November 1, 2018 to October 31, 2019, the Company had the option to 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 had the option to redeem all or part of the Notes at 101% of the aggregate principal amount,
plus accrued and unpaid interest. Beginning November 1, 2020, the Company would have had the option to redeem all or part of the Notes at 100% of the aggregate
principal amount, plus accrued and unpaid interest. In 2019, the Company made in aggregate optional principal redemption payments of $69.6 million.

With the mandatory and optional redemption payments made during the year, the Company has fully repaid the outstanding balance of the Notes as at December 31, 2019.

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, 2019, and December 31, 2018, the face value of the Exchangeable Debentures
was $107.1 million. As at December 31, 2019, the value of the Exchangeable Debentures less unaccreted interest was $98.5 million compared to $96.2 million as at
December 31, 2018.

Interest on the Exchangeable Debentures accrues at a rate of 8% per annum if, for the applicable interest period, it is paid in cash or 12% per annum, for the applicable interest
period, if the Company makes a Payment in Kind election to pay interest in respect of all or any part of the then outstanding Exchangeable Debentures in additional Exchangeable
Debentures. Interest on the Exchangeable Debentures is payable semi-annually in arrears in equal instalments on the last day of May and November of each year.

The indenture governing the Exchangeable Debentures contains restrictive covenants, including restrictions on the incurrence of additional indebtedness, the payment of
dividends and other payment restrictions, the creation of liens, sale and leaseback transactions, mergers, consolidations and sales of assets and certain transactions with
affiliates. The indenture does not contain the obligation to maintain financial ratios. Financial ratio restrictions only apply upon incurrence of indebtedness and other
transactions.

The indenture does permit the Company to make restricted payments, including payment of dividends and common stock buyback, in an aggregate amount not to exceed
$20.0 million since the date of the indenture. To-date, the Company has made no restricted payments since the indenture went into effect. As at December 31, 2019, the
Company was in compliance with all covenants under the indenture governing the Exchangeable Debentures.

Exchange Option

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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 Company intends to make an optional redemption payment to fully repay its Exchangeable Debentures on or shortly after May 31, 2021 according to the terms above
(i.e. at a redemption price of 100%).

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 insignificant as at December 31, 2019 (2018 – $nil).

Management’s Discussion and Analysis

Credit Ratings

DBRS Limited

B (high)/Issuer rating – stable outlook
B (high)/Credit rating for Exchangeable Debentures

Liquidity

Standard and Poor’s Global Ratings

B-/Corporate credit rating – positive outlook
B/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, 2019,
the Company had approximately $44.4 million of cash and $21.6 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 May 11, 2018, an amendment to the Stock Option Plan was
approved, increasing 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.

Share Data

Outstanding Share Data

As at

Common shares outstanding
Exchangeable Debentures outstanding1
Common share purchase warrants outstanding
Stock options outstanding²

February 12, 2020

December 31, 2019

December 31, 2018

28,075,308
5,624,422
2,995,484
1,983,102

28,075,308
5,624,422
2,995,484
1,347,052

1 As at February 12, 2020, 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.

Included in the stock options outstanding balance of 1,983,102 and 1,983,102 as at February 12, 2020 and December 31, 2019, are nil stock options exercisable as at those dates. Included in the stock options
outstanding balance of 1,347,052 as at December 31, 2018 are 60,425 stock options exercisable as at that date.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Dividend Policy

On February 12, 2020, the Board approved management’s intention to declare and pay dividends of $0.11 per common share per quarter starting in the second quarter of 2020.

YP’s dividend payout policy and the declaration of dividends on any of the Company’s outstanding shares are subject to the discretion of the Board and, consequently, there
can be no guarantee that the dividend payout policy will be maintained or that dividends will be declared. Dividend decisions will continue to be dependent on YP’s
operations and financial results subject to the Board’s assessment on a quarterly basis which are, in turn, subject to various assumptions and risks, including those set out
in this MD&A.

Management’s Discussion and Analysis

Contractual Obligations and Other Commitments

(in thousands of Canadian dollars)

Lease obligations1,2
Exchangeable Debentures1
Operating portion of lease obligations
Other
Total contractual obligations

1 Principal amount.
2 Net present value.

Lease obligations

Total

57,886
107,089
73,366
45,296
283,637

1 year

2,767
−
5,036
18,667
26,470

Payments due for the years following December 31, 2019

2 – 3 years

4 – 5 years

After 5 years

5,604
107,089
10,239
20,187
143,119

7,001
−
10,615
5,229
22,845

42,514
−
47,476
1,213
91,203

We entered into finance lease agreements for premises. As at December 31, 2019, minimum payments under these finance leases up to 2033 total $57.9 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, 2019, minimum payments for the
operating portion under these leases up to 2033 total $73.4 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 2020 and 2032. We also have purchase obligations under service contracts for both operating and capital expenditures. As at
December 31, 2019, we have an obligation to purchase services for $45.3 million over the next five years and thereafter. Cash from operations will be used to fund these
purchase obligations.

Pension Obligations

YP sponsors a pension plan registered with the Canada Revenue Agency and the Financial Services Commission of Ontario with defined benefit (DB) for employees hired
prior to January 1, 2006, and defined contribution (DC) components for the non Québec based employees hired on or after January 1, 2006 (the YP Pension Plan) as well
as a DC plan registered with the Régie des Rentes du Québec (the YP Québec Plan), for the Québec based employees hired on or after January 1, 2006. Both plans
together cover substantially all employees of the Company.

As at December 31, 2019, the DB component of the YP Pension Plan’s assets market value totalled $481.7 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 19.54% for 2019, 0.26% above our benchmark portfolio.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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 eliminates 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 a 10-year period starting in 2019. The next actuarial valuation for funding purposes will be prepared
no later than December 31, 2020.

In 2019, the Company made annual contributions equivalent to the current service cost (the Annual Employer Cost) of $10.2 million, including $1.8 million to fund the deficit.
Total cash payments are expected to amount to $9.6 million for 2020.

Management’s Discussion and Analysis

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
Business acquisition

Cash flows used in financing activities
Repayment of senior secured notes
Payment of lease obligations

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

CASH AND RESTRICTED CASH, END OF YEAR

Cash flows from operating activities

2019

2018

113,346
31,413

144,759

(9,647)
(91)
−
466
1,936
(400)

(7,736)

(170,231)
(3,836)

(174,067)

(37,044)
81,452

44,408

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

Cash flows from operating activities increased by $10.1 million to $144.8 million from $134.7 million for the year ended December 31, 2019 mainly due to lower payments
for restructuring and other charges of $18.4 million, lower interest paid of $20.3 million due to a lower level of indebtedness due to repayments of the Senior Secured Notes
and lower funding of post-employment benefit plans of $1.4 million, mainly offset by lower Adjusted EBITDA of $31.2 million.

Cash flows used in investing activities

Cash flows used in investing activities decreased by $59.2 million mainly due to lower proceeds received on sale of businesses of $61.7 million and lower lease incentives
received of $4.2 million, partially offset by lower investments in software development and property and equipment of $6.4 million.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

Cash flows used in financing activities

Cash flows used in financing activities amounted to $174.1 million for the year ended December 31, 2019 as compared to $151.1 million for the same period last year.
During 2019, a payment of $170.2 million was made on the Senior Secured Notes compared to $144.8 million during the same period last year.

Financial and other instruments

(See Note 24 of the Audited Consolidated Financial Statements of the Company for the years ended December 31, 2019 and 2018).

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

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 insignificant as at December 31, 2019 (2018 – $nil).

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.

Allowance for revenue adjustments

The Company records an allowance for revenue adjustments as a reduction to revenue, this reflects an estimate of claims expected from customers. The Company updates
its estimate of the allowance for revenue adjustments based on historical experience related to claims, as well as client-related factors. This significant estimate could affect
Yellow Pages Limited’s future results if actual claims are higher or lower than previously anticipated.

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, 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.

Measurement of ECL allowance for trade receivables

In relation to the impairment of trade receivables (including contract assets), the Company uses the ECL model, which requires the Company to account for the ECL and
changes in the ECL at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. The ECL related to doubtful accounts for trade
receivables (also referred to as allowance for doubtful accounts) is established based on various factors, including amongst others the age of the exposure and in some
case the customer’s solvency. This significant estimate could affect the Company’s future results if there is a sudden change in economic conditions or customer solvency.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

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.

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, remeasured to the extent that probable sufficient taxable profits will be available, or 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.

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.
This estimate was not material for the year-ended December 31, 2019, but was significant for the year ended December 31, 2018.

Accounting Standards

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

The Company adopted, effective January 1, 2019, the narrow amendments to IAS 12- Income Taxes and IAS 23- Borrowing Costs, stemming from the Annual
Improvements 2015-2017 Cycle project. The adoption of these narrow amendments did not have a significant impact on the Company’s consolidated financial statements.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

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

IFRIC 23 − Uncertainty over Income Tax Treatments

The Company has applied IFRIC 23 – Uncertainty over Income Tax Treatments effective for annual periods beginning on or after January 1, 2019. 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. The adoption of IFRIC 23 has not had a significant impact on the consolidated financial
statements of Yellow Pages Limited.

Amendments to IAS 19 − Employee Benefits

Yellow Pages Limited has applied the amendments to IAS 19 effective for annual periods beginning on or after January 1, 2019. These amendments 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 after the plan amendment, 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 after that event.

• Determine net interest for the remainder of the period after the plan amendment, 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).

The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling.
This amount is recognized in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that
effect, excluding amounts included in the net interest, is recognized in other comprehensive income.

There was no impact to the Company’s consolidated financial statements for the year ended December 31, 2019 as a result of the adoption of these amendments to IAS 19.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

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.

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;

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

•

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.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

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 three billing and collection services agreements. The agreement with Bell Canada (‘‘Bell’’) expires on December 31, 2020 and the agreement with Northwestel Inc.,
an affiliate of Bell expires, November 29, 2032. The agreement with TELUS Communications Inc. (TELUS) expires in 2031. Through these agreements, our billing is
included as a separate line item on the telephone bills of Bell and TELUS customers who use our services. Bell and TELUS (the Telco Partners) contract with third parties
to conduct monthly billing of customers who use them as their local telephone service providers. In addition, the Telco Partners provide collection services for the
Corporation with those customers who are also their customers. Additionally, the Corporation has entered into publishing agreements with each Telco Partner. If the
Corporation fails to perform its obligations under these agreements and the agreements are consequently terminated by such Telco Partner, other agreements with such
Telco Partners 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.

Successfully prosecuted legal action against the Corporation, could adversely affect the results of operations and financial condition of the Corporation.

From time to time, the Corporation may be the subject of litigation arising out of its operations. The Corporation is not currently a party to any material litigation. However,
if any legitimate cause of action arose which was successfully prosecuted against the Corporation, the results of operations and financial condition could be adversely
affected. Claims under such litigation may be material or may be indeterminate. Various types of claims may be made including, without limitation, breach of contract,
negligence, tax and employment matters. The outcome of such litigation is uncertain and may materially impact the Corporation’s financial condition or results of operations
and the Corporation may be required to incur significant expenses or devote significant resources in defense against any such litigation. Moreover, unfavorable outcomes
or settlements of litigation could encourage the commencement of additional litigation.

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 seven union agreements. Each of the union agreements have been
successfully renegotiated, four of which expire on December 31, 2021, two others on June 30, 2022 and the last on March 31, 2023.. 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

Challenge by tax authorities of the Corporation’s position on certain income tax matters could have a material adverse effect on the Corporation, its business,
results from operations and financial condition

In the normal course of the 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 cyber-attacks, or 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.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Management’s Discussion and Analysis

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, 2019.

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, 2019.

During the quarter beginning on October 1, 2019 and ended on December 31, 2019, 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 2019

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Yellow Pages Limited

Opinion

We have audited the consolidated financial statements of Yellow Pages Limited (the ‘‘Company’’), which comprise the consolidated statements of financial position as at
December 31, 2019 and 2018, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended, 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, 2019 and 2018, and
its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (‘‘IFRS’’).

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.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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 LLP1

Montréal, Québec
February 12, 2020

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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

As at

ASSETS
CURRENT ASSETS

Cash and restricted cash (Note 5)
Trade and other receivables (Notes 6 and 24)
Prepaid expenses
Deferred publication costs
Net investment in subleases (Note 8)
Income taxes receivable (Note 16)

TOTAL CURRENT ASSETS

NON-CURRENT ASSETS

Deferred commissions (Note 7)
Financial and other assets (Notes 14 and 24)
Right-of-use assets (Note 8)
Net investment in subleases (Note 8)
Property and equipment (Note 9)
Intangible assets (Note 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)
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

TOTAL LIABILITIES AND DEFICIENCY

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

December 31, 2019

December 31, 2018

44,408
87,250
5,563
2,492
926
344

140,983

3,610
829
14,060
25,611
12,309
89,749
39,727

185,895

326,878

33,662
26,644
2,667
2,767
−

65,740

1,576
122,567
55,118
−
98,537

277,798

343,538

6,595,802
(6,612,462)

(16,660)

326,878

81,452
132,534
6,330
2,191
13
668

223,188

8,518
6,685
32,583
7,379
29,518
117,096
17,402

219,181

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Consolidated Statements of Income
(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, and restructuring and other charges
Depreciation and amortization (Notes 8, 9 and 10)
Restructuring and other charges (Note 12)

Income from operations
Financial charges, net (Note 21)
Loss (gain) on sale of businesses (Note 4)

Earnings before income taxes
Recovery of income taxes (Note 16)

Net earnings

Basic earnings per share

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

Diluted earnings per share

2019

403,213
241,868

161,345
39,109
12,499

109,737
39,600
367

69,770
(24,899)

94,669

3.57

2018

577,195
384,630

192,565
76,094
15,862

100,609
54,729
(6,129)

52,009
(30,800)

82,809

3.13

26,523,234

26,423,158

3.16

2.78

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

32,526,598

32,636,146

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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

For the years ended December 31,

Net earnings

Other comprehensive income:

Items that will not be reclassified subsequently to net earnings
Net change in fair value of equity investments reported in other comprehensive income (‘‘FVOCI’’) (Note 24)
Actuarial gains (Note 13)
Income taxes relating to items that will not be reclassified subsequently to net earnings

Other comprehensive income

Total comprehensive income

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

2019

2018

94,669

82,809

−
9,814
(2,634)

7,180

(5,502)
11,461
(3,079)

2,880

101,849

85,689

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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

For the years ended December 31,

Shareholders’
capital
(Note 17)

Restricted

shares Warrants

Compound
financial
instruments1

Stock-based
compensation
and other
reserves

Reduction
of capital
reserve

Total capital
and reserves

Deficit

Total
deficiency

2019

Balance, December 31, 2018

4,031,685 $

(23,421) $

1,456

3,619

124,755 $

2,457,053 $

6,595,147 $

(6,714,311) $

(119,164)

Other comprehensive income
Net earnings

Total comprehensive income
Restricted shares settled
Restricted shares (Note 19)
Stock options (Note 19)

−
−

−
−
−
−

−
−

−
2,000
−
−

−
−

−
−
−
−

−
−

−
−
−
−

−
−

−
(2,000)
(515)
1,170

−
−

−
−
−
−

−
−

−
−
(515)
1,170

7,180
94,669

101,849
−
−
−

7,180
94,669

101,849
−
(515)
1,170

Balance, December 31, 2019

4,031,685 $

(21,421) $

1,456

3,619

123,410 $

2,457,053 $

6,595,802 $

(6,612,462) $

(16,660)

Shareholders’
Capital
(Note 17)

Restricted
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
Adjustment for IFRS 15
Adjustment for IFRS 16

Restated balance

December 31, 2017

Adjustment for IFRS 9

4,031,685 $

(27,572) $

−
−

1,456
−
−

4,031,685

(27,572)

1,456

−

Restated balance, January 1, 2018

4,031,685

(27,572)

1,456

Other comprehensive income
Net earnings

Total comprehensive income
Restricted shares settled
Restricted shares (Note 19)
Stock options (Note 19)

−
−

−
−
−
−

−
−

−
4,151
−
−

−
−

−
−
−
−

3,619
−
−

3,619

−

3,619

−
−

−
−
−
−

129,280 $

2,457,053 $

6,595,521 $ (6,814,317) $

−
−

26,050
(7,133)

(218,796)
26,050
(7,133)

129,280

2,457,053

6,595,521

(6,795,400)

(199,879)

−

(4,600)

129,280

2,457,053

6,595,521

(6,800,000)

(204,479)

−
−

−
(4,151)
(810)
436

−
−

−
−
−
−

−
−

−
−
(810)
436

2,880
82,809

85,689
−
−
−

2,880
82,809

85,689
−
(810)
436

Balance, December 31, 2018

4,031,685 $

(23,421) $

1,456

3,619

124,755 $

2,457,053 $

6,595,147 $

(6,714,311) $

(119,164)

The equity component of the exchangeable debentures presented above is net of income taxes of $1.3 million (2018 - $1.3 million).

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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

For the years ended December 31,

OPERATING ACTIVITIES

Net earnings
Adjusting items

Stock-based compensation expense (recovery) equity settled
Depreciation and amortization
Restructuring and other charges
Financial charges, net
Loss (gain) on sale of businesses
Recovery of income taxes

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, net

INVESTING ACTIVITIES

Additions to intangible assets
Additions to property and equipment
Lease incentives received (Note 8)
Payments received from net investment in subleases
Proceeds on sale of businesses (Notes 4 and 5)
Business acquisition

FINANCING ACTIVITIES

Repayment of senior secured notes (Note 14)
Payment of lease obligations (Note 8)

NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH
CASH AND RESTRICTED 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.

2019

2018

94,669

82,809

655
39,109
12,499
39,600
367
(24,899)
31,413
(4,043)
(17,994)
(26,881)
264

144,759

(9,647)
(91)
−
466
1,936
(400)

(7,736)

(170,231)
(3,836)

(174,067)

(37,044)
81,452

44,408

(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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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 1751 Rue Richardson, Montreal, Québec, Canada, H3K 1G6 and the common shares of Yellow Pages Limited
are listed on the Toronto Stock Exchange (‘‘TSX’’) under the symbol ‘‘Y’’.

The Board of Directors (the ‘‘Board’’) approved the consolidated financial statements for the years ended December 31, 2019 and 2018 on February 12, 2020 for publication
on February 13, 2020.

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

2. Revised standards

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

The Company adopted, effective January 1, 2019, the narrow amendments to IAS 12 – Income Taxes and IAS 23– Borrowing Costs, stemming from the Annual
Improvements 2015-2017 Cycle project. The adoption of these narrow amendments did not have a significant impact on the consolidated financial statements of Yellow
Pages Limited.

IFRIC 23 – Uncertainty over Income Tax Treatments

The Company has applied IFRIC 23 – Uncertainty Over Income Tax Treatments effective for annual periods beginning on or after January 1, 2019. 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. The adoption of IFRIC 23 has not had a significant impact on the consolidated financial
statements of Yellow Pages Limited.

Amendments to IAS 19 – Employee Benefits

Yellow Pages Limited has applied the amendments to IAS 19 effective for annual periods beginning on or after January 1, 2019. The amendments 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 after the plan amendment, 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 after that event.

• Determine net interest for the remainder of the period after the plan amendment, 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).

The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This
amount is recognized in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect,
excluding amounts included in the net interest, is recognized in other comprehensive income.

The amendments to IAS 19 have not had a significant impact on the consolidated financial statements of Yellow Pages Limited.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(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.

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 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, as incurred.

3.5 Cash and restricted cash

3.5.1 Cash

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

3.5.2 Restricted cash

Restricted cash is cash where specific restrictions exist on the Company’s ability to use this cash. Restricted cash consisted primarily of cash held in escrow, which was
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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

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, net investment in subleases, and 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.

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.

The Company has a loan receivable associated with a forward contract under this category. The loan receivable is included in other receivables.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Impairment of financial assets

In relation to the impairment of financial assets, IFRS 9 requires an expected credit losses (‘‘ECL’’) model. The ECL model requires the Company to account for the ECL
and changes in the ECL at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. For trade receivables (including contract
assets), the Company applied the simplified approach permitted under IFRS 9, which requires lifetime ECL to be recognized from initial recognition. While cash and
restricted cash, other receivables and net investment in subleases are also subject to the impairment requirements under IFRS 9, the identified ECL was immaterial. The
lifetime ECL related to doubtful accounts for trade receivables (also referred to as allowance for doubtful accounts) is established based on various factors, including
amongst others the age of the exposure and in some case the customer’s solvency.

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. The same factors are considered when
determining whether to write-off amounts charged to the ECL allowance for trade receivables against the customer accounts receivable. The assessment of the probability
of default and loss given default is based on historical data adjusted for current customer circumstances. No customer accounts receivable are written-off directly to the bad
debt expense.

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, at fair value less transaction costs.

The Company’s financial liabilities include trade and other payables, lease obligations, 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.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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:

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

•

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.

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, 2019, the expected useful lives are as follows:

Office equipment
Computer equipment
Other equipment
Leasehold improvements

10 years
3 years
3 – 12 years
Shorter of term of lease or useful life

The residual value, the depreciation method and the useful life of an asset are reviewed at a minimum annually. Property and equipment are tested for impairment when
an indication of impairment loss exists. When the asset’s recoverable amount is less than its net carrying value, an impairment loss is recognized. Where an individual asset
does not generate independent cash inflows, Yellow Pages Limited determines the recoverable amount of the cash generating units (‘‘CGUs’’) or group of CGUs to which
the asset belongs.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

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:

•

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.

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 (‘‘IBR’’)
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.

For short-term leases (lease term of 12 months or less) and leases of low-value assets, as permitted, the Company has opted to recognize a lease expense on a straight-line
basis. This expense is presented within Operating Costs in the consolidated statements of income. The amounts related to these low value leases are immaterial.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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:

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

•

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 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

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

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

An intangible asset is de-recognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from the de-recognition
of an intangible asset, measured as the difference between the net disposal proceeds or fair value, as applicable, and the carrying value of the asset, are recognized in the
statement of income 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 and is not subsequently reversed.

As a result of the impairment losses recorded on goodwill
ComFree/DuProprio (‘‘CFDP’’), the Company no longer has goodwill.

in prior years and the disposal of the remaining goodwill

in 2018 concurrently with the disposal of

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

3.13 Impairment of tangible and intangible assets

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.

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 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(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 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. Past service costs are recognized in the statement of income 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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

as equity-settled instruments and recorded accordingly in equity. In the event these plans are unfunded, Yellow Pages Limited will pay to the eligible employees and
directors, upon vesting of the instruments, an amount in cash. The unfunded portion of these plans is treated as cash-settled instruments and recorded as a liability. The
share appreciation rights are settled in cash and recorded accordingly as a liability. At each reporting period, the liabilities from these plans is re-measured at fair value with
any changes recorded in operating costs. Certain of the Company’s stock options may be settled in cash upon certain conditions being met. These stock options are
recorded as a liability, which is re-measured at fair value at each reporting period with any changes recorded in operating costs.

The fair value determined at the grant date of the share-based instruments is expensed on a straight-line basis over the vesting period, based on Yellow Pages Limited’s
estimate of share-based instruments that will eventually vest. At each reporting period, Yellow Pages Limited revises its estimate of the number of share-based instruments
expected to vest. The impact of the revision of the original estimate, if any, is recognized in the statement of income, 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 two
reportable segments: YP 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 consist of contract-based fees made up of a significant volume of low-dollar value transactions and relate to digital and print revenues.
The Company’s revenues are measured at the fair value of the consideration received or receivable after deduction of an allowance for revenue adjustments 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, which is generally 12 months, 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.

The allowance for revenue adjustments is recorded as a reduction of revenue and reflects an estimate for claims expected from customers. This estimate is based in part
on the Company’s historical claims experience.

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(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 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, 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.

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Significant estimates

Allowance for revenue adjustments

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 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, 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

In relation to the impairment of trade receivables (including contract assets), the Company uses the ECL model, which requires the Company to account for the ECL and
changes in the ECL at each reporting date to reflect changes in credit risk since initial recognition of the trade receivable. The ECL related to doubtful accounts for trade
receivables (also referred to as allowance for doubtful accounts) is established based on various factors, including amongst others the age of the exposure and in some
case the customer’s solvency. This significant estimate could affect the Company’s future results if there is a sudden change in economic conditions or customer solvency.

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 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.

Useful lives of intangible assets and property and equipment

Employee future benefits

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Income taxes

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

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. This
estimate was not material for the year-ended December 31, 2019, but was significant for the year ended December 31, 2018.

4. Loss (gain) on sale of businesses

On April 30, 2019, the Company sold its business in restaurant booking and table management through the asset sales of YP Dine, Bookenda and its 40% interest in the
Bookenda International business for a total consideration of $2.1 million (including a working capital adjustment). Of this amount, $0.2 million remains in escrow, and will
be released twelve (12) months after the sale. The sale resulted in the recognition of a $0.4 million loss in the consolidated statements of income. The net carrying value
of the assets and liabilities at the time of disposal was $1.9 million, consisting primarily of intangible assets.

Effective May 31, 2018, Yellow Pages disposed of Totem and Western Media Group, two affiliates of the Company, which resulted in the recognition of a $0.7 million gain
in the consolidated statements of income.

On July 6, 2018, the Company’s wholly-owned subsidiary, Yellow Pages Digital & Media Solutions Limited, sold CFDP to Purplebricks Group PLC (‘‘PB’’) for cash
consideration of $51.0 million on a cash free debt free basis, 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, provided there are no outstanding legal claims. A loss of $0.8 million was recorded in the consolidated statements of
income.

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.

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

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

The Company recorded an aggregate of $0.5 million (2018 - $1.3 million) of transaction and other related costs on the sale of businesses described above in 2019, netted
against the loss (gain) on sale of businesses.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

The carrying value of the assets and liabilities at the time of disposal of CFDP, the assets related to the operation of the RedFlagDeals division, Yellow Pages NextHome
business, Totem, Western Media Group, and JUICE in 2018 are as follows:

Notes To The Consolidated Financial Statements – December 31, 2019
(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

8,279

51,276

49,215

Other

198
300
51
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, 2019, the restricted cash balance is $nil.

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, subject to the
terms of the Senior Secured Notes agreement. This amount was included in the scheduled Senior Secured Notes redemption payment made 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
Allowance for revenue adjustments and ECL

Contract assets net of allowance for revenue adjustments and ECL

December 31, 2019

December 31, 2018

41,785
(3,703)

38,082

51,601
(3,656)

47,945

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 receivables once
it is invoiced to the customer.

The year-over-year changes in contract assets are primarily related to the fluctuation in print revenue.

The revenues related to the performance obligations that are unsatisfied (or partially unsatisfied at the reporting date) are expected to be recognized over the next
twelve (12) months.

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

7. Deferred commissions

Deferred commissions, opening balance
Additions – costs to obtain contracts
Amortization recorded in operating costs

Deferred commissions, closing balance

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

2019

8,518
3,129
(8,037)

3,610

2018

16,879
7,255
(15,616)

8,518

Deferred commissions paid to sales representatives 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 the benefit. The Company recognizes the commissions paid to sales representatives for contract renewals with revenue recognized
within one year or less as an expense.

8. Leases

During the year ended December 31, 2019, the Company surrendered the leases of some vacated office locations resulting in a decrease in right-of-use assets and property
and equipment related to these office locations, consisting mainly of leasehold improvements and office equipment as well as a decrease in lease obligations. The Company
also subleased some office spaces previously vacated, resulting in a decrease in right-of-use assets and property and equipment related to these office locations consisting
mainly of leasehold improvements and office equipment as well as an increase in net investment in subleases.

The impact of the transactions described above resulted in the following:

•

A reduction in right-of-use assets of $17.5 million (2018 - $15.9 million);

A reduction in lease obligations of $14.1 million (2018 - $9.9 million);

An increase in net investment in subleases of $19.3 million (2018 - $7.6 million); and

A reduction in property and equipment of $14.1 million (2018 - $nil).

As a result of the transactions described above the Company recorded a net recovery of $1.8 million (2018 – net recovery of $1.6 million) to restructuring and other charges
for the year ended December 31, 2019.

Lease obligations

The following table summarizes the continuity of the lease obligations:

As at

Lease obligations, opening balance
Additions
Lease incentives received
Surrenders or disposals of right-of-use assets
Payment of lease obligations

Lease obligations, closing balance

Less current portion

Non-current portion

December 31, 2019

December 31, 2018

75,320
496
−
(14,095)
(3,836)

57,885

2,767

55,118

86,179
1,180
4,150
(9,906)
(6,283)

75,320

4,352

70,968

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Maturity analysis – contractual undiscounted cash flows

As at

Less than one year
One to five years
More than five years

Total undiscounted lease obligations

Amounts recognized in the consolidated statements of income

For the years ended

Depreciation expense on right-of-use assets
Interest expense on lease obligations
Interest income on investment in subleases

8.1 As a lessee

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

December 31, 2019

December 31, 2018

7,109
27,809
57,587

92,505

10,097
34,084
82,566

126,747

December 31, 2019

December 31, 2018

$
$
$

(1,542)
(4,799)
1,582

$
$
$

(2,793)
(6,409)
216

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 assets1

Right-of-use assets, opening balance
Additions
Depreciation expense
Impairment
Surrenders or disposals2

Right-of-use assets, closing balance

2019

32,583
496
(1,542)
−
(17,477)

2018

50,644
1,180
(2,793)
(1,627)
(14,821)

14,060

32,583

1 Right-of-use assets consist almost entirely of office spaces.
2

In 2019,the Company wrote-off office equipment under finance leases of $7.9 million cost and equivalent accumulated depreciation, therefore the impact on the net book value of the right-of-use-assets was $nil.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

8.2 As a lessor

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.

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

8.2.1 Net investment in subleases

Net investment in subleases, opening balance
Additions
Accretion of net investment in subleases
Payment received from sub-lessees

Net investment in subleases, closing balance

Less current portion

Non-current portion

8.2.2 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

2019

7,392
19,287
324
(466)

26,537

926

25,611

2018

−
7,603
−
(211)

7,392

7,379

December 31, 2019

December 31, 2018

3,022
3,066
3,128
3,143
3,255
27,919

43,533

16,996

26,537

919
870
796
810
817
9,468

13,680

6,288

7,392

YELLOW PAGES LIMITED ANNUAL REPORT 2019

9. Property and equipment

Cost
As at December 31, 2018
Additions
Disposals, write-offs and transfers

As at December 31, 2019

Accumulated depreciation
As at December 31, 2018
Depreciation expense
Disposals, write-offs and transfers

As at December 31, 2019

Net book value as at December 31, 2019

Cost
As at December 31, 2017
Additions
Disposals, write-offs and transfers

As at December 31, 2018

Accumulated depreciation
As at December 31, 2017
Depreciation expense
Disposals, write-offs and transfers

As at December 31, 2018

Net book value as at December 31, 2018

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Office
equipment

Computer
equipment

Other
equipment

Leasehold
improvements

20,112
25
(12,193)

7,944

12,096
241
(5,670)

6,667

1,277

Office
equipment

26,213
85
(6,186)

20,112

10,207
2,067
(178)

12,096

8,016

43,052
91
(1,688)

41,455

38,561
2,222
(1,521)

39,262

2,193

Computer
equipment

46,140
1,161
(4,249)

43,052

35,697
4,288
(1,424)

38,561

4,491

492
−
(81)

411

333
6
−

339

Other
equipment

683
−
(191)

492

399
115
(181)

333

159

51,336
−
(36,082)

15,254

34,484
806
(28,803)

6,487

8,767

Leasehold
improvements

56,887
−
(5,551)

51,336

32,654
2,883
(1,053)

34,484

16,852

2019

Total

114,992
116
(50,044)

65,064

85,474
3,275
(35,994)

52,755

12,309

2018

Total

129,923
1,246
(16,177)

114,992

78,957
9,353
(2,836)

85,474

29,518

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

10. Intangible assets and goodwill

Trademarks
and domain
names

Non-
competition
agreements

Customer-
related
intangible
assets

90,689

(78)

90,611

20,062
7,823
(78)

27,807

62,804

Trademarks
and domain
names

110,518
−
(19,829)

90,689

12,308
7,817
(63)

20,062

70,627

259,669

(686)

258,983

259,669
−
(686)

258,983

−

Non-
competition
agreements

261,943
−
(2,274)

259,669

261,218
250
(1,799)

259,669

−

−
−
−

−

−
−
−

−

Customer-
related
intangible
assets

10,698
−
(10,698)

−

9,399
767
(10,166)

−

Software1

381,967
9,647
(132,789)

258,825

335,498
26,469
(130,087)

231,880

26,945

Software1

403,128
13,605
(34,766)

381,967

310,010
55,114
(29,626)

335,498

46,469

Total
Intangible
assets

732,325
9,647
(133,553)

608,419

615,229
34,292
(130,851)

518,670

89,749

Total
Intangible
assets

786,287
13,605
(67,567)

732,325

592,935
63,948
(41,654)

615,229

117,096

2019

Goodwill

Total intangible
assets

−
−
−

−

−
−
−

−

732,325
9,647
(133,553)

608,419

615,229
34,292
(130,851)

518,670

89,749

2018

Total intangible
assets and
goodwill

813,116
13,605
(94,396)

732,325

592,935
63,948
(41,654)

615,229

117,096

Goodwill

26,829
−
(26,829)

−

−
−
−

−

Cost
As at December 31, 2018
Additions
Disposals, write-offs and transfers2

As at December 31, 2019

Accumulated amortization
As at December 31, 2018
Amortization expense
Disposals, write-offs and transfers

As at December 31, 2019

Net book value as at December 31, 2019

Cost
As at December 31, 2017
Additions
Disposals, write-offs and transfers

As at December 31, 2018

Accumulated amortization
As at December 31, 2017
Amortization expense
Disposals, write-offs and transfers

As at December 31, 2018

Net book value as at December 31, 2018

1 Software under development amounted to $1.9 million (2018 - $7.7 million).
2 Disposals and write-offs mainly relate to decommissioned software.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Impairment of intangible assets and goodwill

As a majority of the intangible assets do not generate cash inflows that are largely independent of those from other assets or group of assets, the Company performs its
impairment analysis of its intangible assets at the CGU level. Following the organizational changes made throughout fiscal 2018 and during the first quarter of 2019, the
Company has one remaining group of CGUs to which assets belong: YP (refer to Note 18).

2019

The Company did not have goodwill and indefinite life intangible assets subject to annual impairment during the year ended December 31, 2019. In 2019, an assessment
of indicators of impairment was performed on the finite life intangible 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.

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 intangible assets and no further impairment analysis was required.

11. Trade and other payables

As at

Trade
Accrued interest on senior secured notes and exchangeable debentures
Payroll related
Long-term incentive plans
Other accrued liabilities

12. Provisions

December 31, 2019

December 31, 2018

18,557
723
4,123
5,106
5,153

33,662

30,040
3,567
5,086
2,287
6,540

47,520

Yellow Pages Limited recorded restructuring and other charges of $12.5 million for the year ended December 31, 2019 consisting of restructuring charges of $12.1 million
relating to workforce reductions, a $1.9 million charge related to future operation costs provisioned related to lease contracts for office closures, a $0,3 million charge related
to software disposal offset by a net recovery of $1.8 million from more favorable lease recoveries than anticipated.

During the year ended December 31, 2018, Yellow Pages Limited recorded restructuring and other charges of $15.9 million consisting of restructuring charges of
$32.0 million mainly due to workforce reductions, offset by the $14.1 million impact of a favorable litigation settlement on a contractual obligation with a vendor. Additionally,
the restructuring charges were offset by a net recovery of $1.6 million from more favorable lease recoveries than anticipated partially offset by the impairment of right-of-use
assets and a net recovery of $0.4 million from future operation costs related to lease contracts for 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Provisions for
restructuring

Provisions for
other charges

Other
provisions

Total
provisions

As at December 31, 2018
Charges1
Payments

As at December 31, 2019
Less current portion

Non-current portion

9,131
10,839
(12,541)

7,429
6,187

1,242

4,586
2,509
(5,453)

1,642
1,513

129

Included in the restructuring and other charges of $12.5 million on the statement of income is a net recovery of $0.8 million not affecting the provision.

As at December 31, 2017
Charges (recovery)1
Payments
Disposals

As at December 31, 2018
Less current portion

Non-current portion

Provisions for
restructuring

Provisions for
other charges

10,081
30,838
(31,788)

9,131
8,384

747

20,474
(11,318)
(4,570)

4,586
3,710

876

25,766
13,202
(19,819)

19,149
18,944

205

Other
provisions

23,076
25,467
(19,286)
(3,491)

25,766
25,579

187

39,483
26,550
(37,813)

28,220
26,644

1,576

Total
provisions

53,631
44,987
(55,644)
(3,491)

39,483
37,673

1,810

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

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

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Canadian Institute of Actuaries and Society of Actuaries, as at December 31, 2017, and extrapolated to December 31, 2019. 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 and the results were extrapolated to December 31, 2019.

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, 2019 and 2018 were as follows:

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

As at

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

Including unfunded supplementary defined benefit pension plans.

December 31, 2019

December 31, 2018

Pension benefits1

Other benefits

Pension benefits1

Other benefits

443,861
5,025
673
16,093
66,115
(47,320)
−
(418)

484,029

543,106
2,974
673
(47,320)
−
19,939
−

(1,026)
54,394

572,740

(88,711)

–
2,374
−
−
−
(2,374)
−
−

−

33,107
6
−
(2,374)
−
1,164
(980)

−
2,933

33,856

(33,856)

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)

−
2,152
−
−
−
(2,152)
−
−

−

39,231
18
−
(2,152)
−
1,330
(250)

928
(5,998)

33,107

(33,107)

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 2019

The significant assumptions adopted in measuring Yellow Pages Limited’s pension and other benefit obligations as at December 31, 2019 and 2018 were as follows:

Notes To The Consolidated Financial Statements – December 31, 2019
(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, 2019

December 31, 2018

Pension benefits

Other benefits

Pension benefits

Other benefits

3.10%
1.90%
1.40%

3.90%
3.80%
1.90%
1.40%
15

3.10%
n.a
2.00%

3.80%
3.80%
n.a
2.00%
13

3.80%
1.90%
1.40%

3.50%
3.50%
2.25%
1.75%
14

3.80%
n.a
2.00%

3.50%
3.50%
n.a
1.75%
12

1 As at December 31, 2019 and December 31, 2018: 1.40% plus a productivity, merit and promotional scale.

For measurement purposes, actual per capita cost of covered medical care benefits was used for 2019. The rate of increase of the cost of medical care was assumed at
5.28% for the next 4 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 2019. The rate of increase of the cost of dental care was assumed at 4.00% for the next 4 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, 2019 would have been affected by changes that were reasonably possible at that date in
each significant actuarial assumption:

Decrease of 0.25% in discount rate, end of year
Increase of 0.25% in the inflation rate
Increase of 1% in health care cost trend rates

Pension benefits

Other benefits

$
$
$

22,848
8,075
n.a

$
$
$

1,149
−
2,212

YELLOW PAGES LIMITED ANNUAL REPORT 2019

The net benefit plan costs included in the statements of income and other comprehensive income are comprised of the following components:

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

For the years ended December 31,

Current service cost1
Administration costs1
Recovery of past service costs2
Loss on settlement2

Service cost

Interest cost
Interest income

Net interest on the net defined benefit obligation (Note 21)

Net benefit costs recognized in the statement of income

Actuarial (gains) losses recognized in OCI

Total net benefit plan (recovery) costs for the Yellow Pages (‘‘YP’’) defined benefit plans
Net benefit plan costs for the YP defined contribution plans1

Total net benefit plan (recovery) costs

Included in operating costs.

Included in restructuring and other charges.

Pension benefits

2019
Other benefits

Pension benefits

2018
Other benefits

2,974
418
−
−

3,392

19,939
(16,093)

3,846

7,238

(12,747)

(5,509)
2,792

(2,717)

6
−
(980)
−

(974)

1,164
−

1,164

190

2,933

3,123
−

3,123

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)

As a result of workforce reductions during the year ended December 31, 2018, 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 and January 16, 2018. 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. No significant workforce reductions occurred during the year ended

December 31, 2019.

For the postretirement plan, the May 16, 2019 announcement regarding the elimination of the British Columbia Medical Services Plan (‘‘MSP’’) premiums gave rise to a
recovery of past service cost of $1.0 million in 2019.

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, 2019 and 2018:

(in percentages - %)

Fair value of the plan assets:

Pooled fund units

Canadian pooled equity funds
Global pooled equity funds
Emerging markets pooled equity funds
Canadian pooled fixed-income funds
Pooled real estate funds
Pooled private equity funds
Pooled infrastructure funds

Cash and cash equivalents

December 31, 2019

December 31, 2018

7.5
30.0
12.5
44.5
4.0
0.5
0.5
0.5

8.0
33.0
14.5
44.5
−
−
−
−

As at December 31, 2019 and 2018, the publicly traded equity securities did not directly include any shares of Yellow Pages Limited.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

The total cash payments for pension and other benefit plans made by Yellow Pages Limited amounted to $10.2 million for 2019 (2018 – $14.5 million). Total cash payments
for pension and other benefit plans expected in 2020 amount to approximately $9.6 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.

In addition, Yellow Pages Limited recorded an expense for provincial, federal and state pension plans of $3.0 million for the year ended December 31, 2019 (2018 – $5.7 million).

As at December 31, 2019, Yellow Pages Limited had recognized an accumulated balance of $50.6 million, net of income taxes of $16.2 million, in actuarial losses in OCI.

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

14. Senior secured notes

The table below represents the continuity of the Senior secured notes:

As at

Senior secured notes, opening balance
Repayment of senior secured notes
Discount accretion for the year1

Senior secured notes, closing balance

The variance of unaccreted discount for the years ended December 31, 2019 and December 31, 2018, respectively.

The Senior secured notes is comprised of the following:

As at

Principal amount of the senior secured notes (at maturity, November 1, 2022)
Less unaccreted discount

Less current portion1

Non-current portion

December 31, 2019

December 31, 2018

167,489
(170,231)
2,742

−

308,898
(144,769)
3,360

167,489

December 31, 2019

December 31, 2018

−
−

−

170,231
2,742

167,489
90,000

77,489

The current portion of the 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 Senior Secured Notes.

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. The ABL agreement was amended on November 18, 2019 to reduce the total commitment from $50.0 million to $25.0 million.
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, 2019, the Company’s fixed charge coverage ratio was 1.5 times and the Company had $3.4 million of letters of credit issued and outstanding
under the ABL. As such, $21.6 million of the ABL was available as at December 31, 2019. 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, 2019, the Company was in compliance with all covenants under the loan agreement governing the ABL.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

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, a $6.3 million discount.
The Notes accrued interest at a rate of 10.00% per annum and were payable in semi-annual instalments in arrears on May 1 and November 1 of each year.

Mandatory Redemption

Pursuant to the indenture governing the Notes, the Company was required to use an amount equal to 100% of its consolidated Excess Cash Flow, as defined in the
indenture, 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 (or first following business 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 was required to use 75% 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. In 2019, the Company made,
in aggregate, mandatory principal redemption payments of $100.7 million on the Notes.

Optional Redemption

From November 1, 2018 to October 31, 2019, the Company had the option to 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 had the option to redeem all or part of the Notes at 101% of the aggregate principal amount,
plus accrued and unpaid interest. Beginning November 1, 2020, the Company would have had the option to redeem all or part of the Notes at 100% of the aggregate
principal amount, plus accrued and unpaid interest. In 2019, the Company made, in aggregate, optional principal redemption payments of $69.6 million.

With the mandatory and optional redemption payments made during the year, the Company has fully repaid the outstanding balance of the Notes as at December 31, 2019.

15. Exchangeable debentures

As at

Principal amount of exchangeable debentures (at maturity, November 1, 2022)
Less unaccreted interest

The table below represents the continuity of the Exchangeable debentures:

As at

Exchangeable debentures, opening balance
Interest accretion for the period1

Exchangeable debentures, closing balance

December 31, 2019

December 31, 2018

107,089
8,552

98,537

107,089
10,910

96,179

December 31, 2019

December 31, 2018

96,179
2,358

98,537

94,067
2,112

96,179

The variance of unaccreted interest for years ended December 31, 2019 and December 31, 2018, respectively.

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, 2019 and 2018, the face value of the Exchangeable Debentures was $107.1
million. As at December 31, 2019, the value of the Exchangeable Debentures less unaccreted interest was $98.5 million compared to $96.2 million as at December 31, 2018.

Interest on the Exchangeable Debentures accrues at a rate of 8% per annum if, for the applicable interest period, it is paid in cash or 12% per annum, for the applicable
interest period, if the Company makes a Payment in Kind election to pay interest in respect of all or any part of the then outstanding Exchangeable Debentures in additional
Exchangeable Debentures. Interest on the Exchangeable Debentures is payable semi-annually in arrears in equal instalments on the last day of May and November of each
year.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

As at December 31, 2019, 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 Notes have been repaid in full, redeem all or part of the Exchangeable Debentures at its option, upon
not less than 30 but no 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 before income taxes
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 and temporary differences
Non-deductible expenses for tax purposes
Change in estimate relating to prior periods

For the years ended December 31,

2019

69,770
26.84%
18,726

−
(44,241)
616
−

2018

52,009
26.94%
14,011

(37,074)
(8,512)
492
283

Recovery of income taxes

(24,899)

(30,800)

The combined applicable statutory tax rate decreased by 0.10% resulting mainly from the provincial allocation of revenues earned and the decrease in the Quebec and Alberta statutory tax rates.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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

For the years ended December 31,

Current
Deferred

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

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

2019

−
(24,899)

(24,899)

2018

2,348
(33,148)

(30,800)

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, 2018
Expense (benefit) to statement of

income

Expense to OCI
Other

2,398

(16,269)

−

(6,574)

−

(3,391)
−
−

4,489
−
−

(710)
−
−

3,940
2,634
−

(8,613)
−
−

Balance, December 31, 2019

(993)

(11,780)

(710)

–

$ (8,613)

–

−
–
−

–

3,043

−

(17,402)

(670)
−
−

(19,944)
−
(60)

(24,899)
2,634
(60)

2,373

$(20,004)

(39,727)

Balance, December 31, 2017
Acquisitions (Dispositions)
Expense (Benefit) to statement of

income

Expense to OCI
Other

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

3,732
−

(5,504)
−

(3,164)
−

(41,490)
417

(10,850)
−

11,507
9

3,610
−

63,774
(7,692)

21,615
(7,266)

(1,334)
−
−

(10,765)
−
−

3,164
−
−

31,411
3,088
−

10,850
−
−

(11,516)
−
−

(567)
−
−

(54,391)
(21)
(1,670)

(33,148)
3,067
(1,670)

Balance, December 31, 2018

2,398

(16,269)

−

(6,574)

−

3,043

−

(17,402)

As at December 31, 2019, the Company and its subsidiaries have not recognized deferred income tax assets with respect to US operating losses of $204.7 million, which
expire gradually between 2028 and 2037 and indefinitely when incurred after 2017, Canadian capital losses of $9.7 million which can be utilized indefinitely and US capital
losses of $5.2M which expire in 2024.

As at December 31, 2019, the Company and its subsidiaries have not recognized deductible temporary differences of $675.7 million (2018 – $897.8 million).

17. Shareholders’ capital

Common shares − Issued

For the year ended December 31, 2019

Balance, December 31, 2018
Exchange of common share purchase warrants

Balance, December 31, 2019

Number of Shares

28,075,308
−

28,075,308

Amount

4,031,685
−

4,031,685

YELLOW PAGES LIMITED ANNUAL REPORT 2019

For the year ended December 31, 2018

Balance, December 31, 2017
Exchange of common share purchase warrants

Balance, December 31, 2018

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Number of Shares

28,075,306
2

28,075,308

Amount

4,031,685
−

4,031,685

Yellow Pages is authorized to issue an unlimited number of common shares.

The holders of the common shares of Yellow Pages are entitled to one vote per common share at all meetings of shareholders of the Company. The holders of the common
shares of Yellow Pages are entitled to receive any dividend declared by the Board of Directors of the Company on the common shares. In the event of the liquidation,
dissolution or winding-up of Yellow Pages, whether voluntary or involuntary, the holders of the common shares of Yellow Pages are entitled to receive, after payment of all
liabilities of Yellow Pages and subject to the preferential rights of any class of shares of Yellow Pages ranking in priority to the common shares of Yellow Pages, the remaining
assets and property of Yellow Pages.

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 1,511,649 as at
December 31, 2019 (see Note 19).

Under the Stock Option Plan, the maximum number of common shares authorized for issuance upon the exercise of options is 2,806,932 (see Note 19).

Warrants

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

During the year ended December 31, 2018, 2 Warrants, were exercised in exchange for 2 common shares of Yellow Pages Limited. As at December 31, 2019 and 2018,
the Company had a total of 2,995,484 Warrants outstanding.

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

Earnings per share

2.27%
10 years
December 20, 2022
33.5%

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 used in the computation of basic earnings per share to net earnings adjusted for any dilutive effect:

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

2019

26,523,234
378,942
5,624,422

32,526,598

2018

26,423,158
588,566
5,624,422

32,636,146

YELLOW PAGES LIMITED ANNUAL REPORT 2019

For the years ended December 31,

Net earnings used in the computation of basic earnings per share
Impact of assumed conversion of exchangeable debentures, net of applicable taxes

Net earnings used in the computation of diluted earnings per share

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

2019

94,669
7,993

102,662

2018

82,809
7,802

90,611

The weighted average number of shares outstanding used in the earnings 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 years ended December 31, 2019 and 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 and therefore are not dilutive.

18. Segmented information

Following the organizational changes made throughout fiscal year 2018 including the disposal or liquidation of several affiliates, the Chief Operating Decision Maker made
changes during the first quarter of 2019 to how the business is reviewed, performance is assessed and resources are allocated. The Company’s operations are now
categorized into two reportable segments: YP and Other. The comparative figures have been restated to reflect the changes to the reportable segments.

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 also includes the 411.ca digital directory service helping users find and connect with people and local
businesses which was integrated with the Company’s wholly-owned subsidiary, Yellow Pages Digital & Media Solutions Limited, as at September 30, 2019.

The Other segment includes YP Dine digital property allowing users to discover, search for and book local restaurants in addition to offering online ordering capabilities until
its sale on April 30, 2019. This segment also includes Mediative until its liquidation on January 31, 2019. Mediative’s offers included dedicated marketing and performance
media services to national clients Canada-wide. The operations of the businesses sold in 2018 are also included in this segment until their respective disposal date, namely:

•

Totem which provided customized content creation and delivery for global brands until the operations were sold as of May 31, 2018;

• Western Media Group, magazines generating local lifestyle content specific to the Western Canada region until its sale as of May 31, 2018;

• RedFlagDeals.com™, a Canadian provider of online and mobile promotions, deals, coupons and shopping forums, until its sale on August 22, 2018;

• ComFree/DuProprio (CFDP) provided homeowners in Canada with media to sell their homes in a cost-effective manner, sold as of July 6, 2018;

•

Yellow Pages NextHome sold as of July 23, 2018; and

JUICE Mobile’s proprietary Programmatic Direct and Real-Time Bidding platforms that facilitate the automatic buying and selling of mobile advertising between
brands and advertisers, until its sale on December 31, 2018.

Segment results include items directly attributable to the segment as well as those that can be allocated on a reasonable basis. The Company accounts for transactions
between reportable segments in the same manner it accounts for transactions with external customers and eliminates them on consolidation. The President and Chief
Executive Officer (‘‘CEO’’) is the Chief Operating Decision Maker and he uses Income from operations before depreciation and amortization, and restructuring and other
charges less additions to intangible assets, and property and equipment, to measure the performance of each segment. The Chief Operating Decision Maker also reviews
revenues by similar products and services, such as Print and Digital.

Print revenues are recognized at a point in time, whereas 99% of digital revenues were recognized over the term of the contract and 1% at a point in time for the year ended
December 31, 2019, compared to 93% of digital revenues that were recognized over the term of the contract and 7% at a point in time for the same period last year. The
year-over-year change is mainly due to the divestitures of affiliates throughout 2018, which had digital revenues recognized at a point in time.

The following tables present financial information for the years ended December 31, 2019 and 2018.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

For the year ended December 31, 2019

Revenues
Digital
Print

Total revenues
Operating costs

Income from operations before depreciation and amortization, and restructuring and other charges
Depreciation and amortization
Restructuring and other charges
Financial charges, net
Loss on sale of businesses
Recovery of income taxes

Net earnings

For the year ended December 31, 2018

Revenues
Digital
Print

Total revenues
Operating costs

Income from operations before depreciation and amortization, and restructuring and other charges
Depreciation and amortization
Restructuring and other charges
Financial charges, net
Gain on sale of businesses
Recovery of income taxes

Net earnings

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Other

Intersegment
eliminations

Yellow Pages
Limited

298,762
103,177

401,939
240,925

161,014

1,274
–

1,274
943

331

–
–

–

Other

Intersegment
eliminations

Yellow Pages
Limited

357,705
127,897

485,602
300,576

185,026

84,534
8,043

92,577
85,038

7,539

(958)
(26)

(984)
(984)

–

300,036
103,177

403,213
241,868

161,345
39,109
12,499
39,600
367
(24,899)

94,669

9,738

441,281
135,914

577,195
384,630

192,565
76,094
15,862
54,729
(6,129)
(30,800)

82,809

12,036

Additions to intangible assets and property and equipment, net of lease incentives received

9,556

2,480

–

Additions to intangible assets and property and equipment

9,460

278

–

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

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 years ended December 31, 2019 and 2018, nil common shares of Yellow Pages Limited were purchased on the open market of the TSX by the trustee appointed
under the RSU and PSU Plan 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 1,511,649 as at December 31, 2019.

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

399,503
87,684
−
(94,153)
(74,498)

318,536

0.9

2019
PSUs1

189,063
−
(49,774)
−
(78,883)

60,406

0.1

RSUs

763,624
90,344
−
(162,574)
(291,891)

399,503

1.4

2018

PSUs¹

795,811
−
(59,339)
(36,340)
(511,069)

189,063

0.8

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 30,186 common shares as at December 31, 2019 (2018 – 94,514 common shares).

The reduction in payout is related to the under-achievement of certain performance targets resulting in a reduction of 100% for the year ended December 31, 2019 (2018 – 62%).

During the year ended December 31, 2019, a recovery of $0.5 million (2018 – an expense of $1.4 million) was recorded in the consolidated statements of income 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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Outstanding, beginning of year
Granted²
Forfeited
Settled
Variation due to change in stock price

Outstanding and vested, end of year

Number of DSUs

255,755
69,680
−
−
−

325,435

2019
Liability1

1,557
433
−
−
958

2,948

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

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.

The liability related to the DSUs granted represents the portion that is vested 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 May 11, 2018, an amendment to the Stock Option Plan was approved, increasing the maximum number of common shares
authorized for issuance upon the exercise of options, from 1,290,612 to 2,806,932.

Stock options granted that are payable in cash upon certain conditions being met 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:

Outstanding, beginning of year
Variation due to change in fair value and vesting

Outstanding, end of year

Vested, end of year

Number of options

701,875
−

701,875

545,903

2019
Liability1

365
713

1,078

Number of options

701,875
−

701,875

311,944

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.

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

2019

Outstanding, beginning of year
Granted
Forfeited

Outstanding, end of year

Exercisable, end of year

Number of options

Weighted average
exercise price per option

Number of options

Weighted average exercise
price per option

1,347,052
884,784
(248,734)

1,983,102

−

$
$
$

8.39
5.86
9.61

7.11

−

1,024,550
801,202
(478,700)

1,347,052

60,425

$
$
$

10.11
7.70
10.91

8.39

18.22

YELLOW PAGES LIMITED ANNUAL REPORT 2019

2018
Liability1

194
171

365

2018

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, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Exercise price

$5.86
$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
outstanding

Weighted average
remaining life

Number of options
outstanding

2019

2018

Weighted average
remaining life

762,777
495,256
701,875
−
19,869
−
3,325
−
−
−

1,983,102

−

3.2
2.1
0.7
−
2.6
−
3.2
−
−
−

2.0

−

−
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

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

$
$

2019

5.86
5.86
61.1%
4 years
2.18%
3.2 years

$
$

2018

7.68
7.70
43.2%
4 years
2.41%
3.2 years

During the year ended December 31, 2019, an expense of $1.9 million (2018 – $0.6 million) was recorded in the consolidated statements of income in operating costs in
relation to the Stock Option Plan for both the cash-settled and equity-settled options.

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 2019

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, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Outstanding, beginning of period
Variation due to change in fair value and vesting

Outstanding, end of period

Vested, end of period

Number of SARs

701,875
−

701,875

545,903

2019
Liability1

365
713

1,078

Number of SARs

701,875
−

701,875

311,944

2018
Liability1

194
171

365

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.

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 ECL, net of recovery (Note 24)

2019

9.12
7.97
41.0%
3 years
2.04%
0.7 years

2019

112,965
73,738
18,085
26,027
11,053

241,868

$
$

2018

9.12
7.97
41.0%
3 years
2.04%
1.7 years

2018

181,808
112,365
37,592
37,494
15,371

384,630

$
$

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.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

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
Amortization of financing costs
Optional redemption price premium on senior secured notes
Interest on lease obligations net of interest income on investment in subleases
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, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

2019

24,661
6,013
1,091
3,217
5,010
(392)

2018

42,963
1,617
−
6,193
4,985
(1,029)

39,600

54,729

2019

−
467

$
$

2018

253
690

$
$

a) As at December 31, 2019, 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:

2020
2021
2022
2023
2024
Thereafter

Total commitments

23,703
17,658
12,768
8,791
6,334
48,689

117,943

b) Yellow Pages Limited has three billing and collection services agreements. The agreement with Bell Canada (‘‘Bell’’) expires on December 31, 2020 and the agreement
with Northwestel Inc., an affiliate of Bell expires, November 29, 2032. 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 2019

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, 2019
(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, trade receivables from customers and investment in subleases. 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, 2019

December 31, 2018

58,309
12,400
7,876

78,585

8,665

87,250

85,331
21,975
11,238

118,544

13,990

132,534

1 Other receivables as at December 31, 2019 included a loan receivable associated with a forward contract. Other receivables as at December 31, 2018 included a loan receivable associated with a forward contract

and accrued receivables related to JUICE and Mediative.

YELLOW PAGES LIMITED ANNUAL REPORT 2019

The following table provides information about the exposure to credit risk and the ECL allowance for trade receivables (including contract assets).

For the years ended December 31,

2019

2018

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Current
Past due less than 180 days
Past due over 180 days

Total

Expected credit
loss rate

Gross carrying
amount1

ECL allowance

Expected credit
loss rate

Gross carrying
amount1

ECL allowance

4.4%
21.8%
59.2%

61,006
15,856
19,303

96,165

2,697
3,456
11,427

17,580

3.1%
16.2%
54.6%

88,100
26,211
24,771

139,082

2,769
4,236
13,533

20,538

The gross carrying value is net of the allowance for revenue adjustments.

The following table shows the movement in ECL allowance that has been recognized for trade receivables (including contract assets).

As at

Balance, beginning of the year
Remeasurement of ECL allowance, net of recovery (bad debt expense)
Amounts written-off

Balance, end of year

December 31, 2019

December 31, 2018

20,538
11,053
(14,011)

17,580

21,664
15,371
(16,497)

20,538

Yellow Pages Limited estimates the loss allowance on the net investment in subleases at the end of the reporting period at an amount equal to lifetime ECL. None of the
net investment in subleases at the end of the reporting period is past due, and taking into account the historical default experience and the future prospects of the industries
in which the lessees operate, together with the value of collateral held over the net investment in subleases, the ECL on net investment in subleases is immaterial.

(i) Interest Rate Risk

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

(ii) Foreign Exchange Risk

Yellow Pages Limited is exposed to foreign exchange risk arising from various currency transactions, which are not significant. Foreign exchange transaction risk arises
primarily from commercial transactions that are denominated in a currency that is not the functional currency of Yellow Pages Limited’s business unit that is party to the
transaction. Yellow Pages Limited is exposed to fluctuations in the U.S. dollar. The effect on net earnings from existing U.S. dollar exposures of a one point increase or
decrease in the Canadian/U.S. dollar exchange rate is not significant. The Company’s expenditures, net of revenues, denominated in U.S. dollars were approximately
$9.5 million for the year ended December 31, 2019 (2018 – $14.7 million). As at December 31, 2019, 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 ANNUAL REPORT 2019

Yellow Pages Limited manages this risk by maintaining detailed cash forecasts and long-term operating and strategic plans. The management of liquidity requires a constant
monitoring of expected cash inflows and outflows which is achieved through a detailed forecast of the Company’s liquidity position to ensure adequate and efficient use of
cash resources.

The Company expects to meet its 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:

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

Non-derivative financial liabilities
Exchangeable debentures1
Trade and other payables
Provisions

Total, net

1 Principal amount.

Fair value hierarchy

Payments due for the years following December 31, 2019

Total

107,089
33,662
28,220

168,971

1 year

−
33,662
26,644

60,306

2 – 3 years

4 – 5 years

107,089
−
1,535

108,624

−
−
41

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 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.

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.

The fair value of 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, 2019. 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, and the fair value of net investment in subleases is not included below since the economic
conditions which may have influenced their fair value have not significantly changed and therefore their carrying amount is a reasonable approximation of their fair value
at December 31, 2019.

Exchangeable debentures

Level

Carrying Value

Fair Value

98,537

109,231

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Notes To The Consolidated Financial Statements – December 31, 2019
(all tabular amounts are in thousands of Canadian dollars, except share information)

25. Capital disclosures

Yellow Pages Limited’s objective in managing capital is to ensure sufficient liquidity to cover financial obligations and investment requirements. Reducing debt and
associated interest charges is one of the Company’s primary financial goals which will improve its financial flexibility and support the implementation of its strategic
objectives.

Yellow Pages Limited monitors its capital structure and makes adjustments based on the objectives described above in response to changes in economic conditions and
the risk characteristics of the underlying assets and the Company’s working capital requirements.

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

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

As at

Cash and restricted cash

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 ratio3

December 31, 2019

December 31, 2018

44,408

98,537
57,885

156,422
(16,660)

139,762
80.1%

2019

161,345
0.7

81,452

167,489
96,179
75,320

338,988
(119,164)

219,824
117.2%

2018

192,565
1.3

1 Represents the principal amount less unaccreted discount on the 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, 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, 2019 and 2018 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 2019

27. List of subsidiaries

As at

Canada

Yellow Pages Digital & Media Solutions Limited
411 Local Search Corp.1
YP Dine Solutions Limited 2
Bookenda Limited 2

USA

YPG (USA) Holdings, Inc.
Yellow Pages Digital & Media Solutions, LLC

Notes To The Consolidated Financial Statements – December 31, 2019
(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
Digital media marketing solutions provider
Local digital restaurant guides provider
Booking and reservation management system provider

Holding company
Operational support services provider

2019

100%
100%
100%
100%

100%
100%

2018

100%
100%
100%
100%

100%
100%

1 Effective September 30, 2019, 411 Local Search Corp. was liquidated into Yellow Pages Digital & Media Solutions Limited.
2 On December 31, 2019, YP Dine Solutions Limited and 4400348 Canada Inc. (‘’Bookenda Limited’’) were liquidated into Yellow Pages Digital & Media Solutions Limited.

28. Related party disclosures

Key management personnel compensation

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

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

For the years ended December 31

Salary, fees and other short-term employee benefits
Post-employment benefits
Stock-based compensation
Termination benefits

2019

6,380
111
2,079
841

9,411

2018

6,621
63
2,177
−

8,861

YELLOW PAGES LIMITED ANNUAL REPORT 2019

Executive Team

Board of Directors

Head Office

David A. Eckert
President and Chief Executive Officer

John R. Ireland
Senior Vice-President, Organizational
Effectiveness

Franco Sciannamblo
Senior Vice-President, Chief Financial Officer

Sherilyn King
Vice President of Sales and Customer Service

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

Y.WT

Exchangeable Debentures
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.