YELLOW MEDIA INC. ANNUAL REPORT 2011

Adjusted Earnings from Continuing Operations

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

Adjusted Earnings from Continuing Operations (in thousands of Canadian dollars – except share information ) Download the Excel document (XLS 26 KB)
	Years ended December 31,
	2011		2010
Net (loss) earnings from continuing operations	$	(2,708,122)	$	231,786
Attributable to non-controlling interest	490		164
Dividends to preferred shareholders	(22,539)		(22,834)
Net (loss) earnings from continuing operations available to common shareholders of Yellow Media Inc.	(2,730,171)		209,116
Amortization of intangible assets^1,3	116,707		133,696
Impairment of goodwill and intangible assets⁵	2,880,677		―
Acquisition-related costs^2,3	5,582		21,433
Restructuring and special charges³	18,848		22,005
Financial charges³	94,150		104,054
Interest paid	(141,555)		(137,871)
Gain on disposal of subsidiary³	(4,478)		―
Impairment of investment in associate(net of income taxes of $0.2 million)	50,271		―
Non-cash income taxes	(18,054)		68,747
Adjusted earnings from continuing operations	$	271,977	$	421,180
Weighted average number of common shares outstanding	511,765,665		503,111,679
Adjusted earnings per common share from continuing operations^3,4	$	0.53	$	0.84
Dividends on common shares	$	207,345	$	402,719
Dividends declared per common share	$	0.40	$	0.80
Payout ratio	75%		95%

¹ Represents amortization of intangible assets attributable to shareholders.
² Acquisition-related costs are excluded from the calculation as they do not reflect the ongoing operations of the business.
³ Items are net of income taxes using the combined statutory provincial and federal tax rate of 27.9% (29.9% for 2010).
⁴ Please refer to Section 2 – Results for the calculation of Basic earnings per share.
⁵ Item is net of income taxes of $19.3 million.

Free cash flow from continuing operations

Free cash flow from continuing operations (in thousands of Canadian dollars)
	Three-month periods ended December 31			Years ended December 31,
	2011		2010	2011	2010
Cash flow from operating activities from continuing operations		$92,964	$153,615	$336,573	$569,607
Capital expenditures, net of lease inducements		14,741	13,396	61,399	40,396
Free cash flow from continuing operations		$78,223	$140,219	$275,174	$529,211

Dividends

Dividends (in thousands of Canadian dollars- except share information)
	Three-month periods ended December 31		Years ended December 31,
	2011	2010	2011	2010
Accumulated dividends, beginning of period¹	$3,642,527	$3,334,551	$3,435,182	$3,032,463
Dividends on common shares	―	100,631	207,345	402,719
Accumulated dividends, end of period¹	$3,642,527	$3,435,182	$3,642,527	$3,435,182
Accumulated dividends per common share, beginning of period	$7.60	$7.00	$7.20	$6.40
Dividends declared per commonshare	―	0.20	0.40	0.80
Accumulated dividends per common share, end of period	$7.60	$7.20	$7.60	$7.20

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

Dividends on Common Shares

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

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