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2. Results

This section provides an overview of our financial performance in 2007 compared to 2006 and 2006 compared to 2005. It is also important to note that in order to help our investors better understand our performance we rely on several metrics, some of which are not measures recognized by Generally Accepted Accounting Principles (GAAP). Definitions of these metrics are provided following the charts below and are important aspects which should be considered when analyzing our performance.

Overall Performance

• Adjusted Revenues increased by $239.2 million or 17.2% over the previous year to $1,629 million. Revenues increased by $239.5 million or 17.3% to $1,624.4 million over the previous year;
• Adjusted EBITDA increased by $123.1 million or 16.5% over the previous year to $871 million. EBITDA increased by $127.4 million or 17.1% to $874.2 million over the previous year; and
• Distributable cash per unit at $1.32 increased by 11.9% over the previous year.

¹We closed the Trader Media Corp. (TMC) acquisition on February 14, 2006, the Classified Media (Canada) Holdings Inc. (Trader Canada) acquisition on June 8, 2006 and the MTS Media (MTS) acquisition on October 2, 2006. In addition, we closed the LesPAC s.e.n.c. (Les PAC) acquisition on April 19, 2007, the Aliant Directory Services acquisition on April 30, 2007 and the Vertical Guides Limited Partnership acquisition on October 31, 2007. As such, included in the 2006 and 2007 results are the results of each acquired business from the respective date of acquisition to year end.

Definitions relative to understanding our results

Adjusted Revenues

We provide guidance and report on our revenue, adjusted for comparability purposes (Adjusted Revenues) by removing the effect of purchase accounting related to the acquisitions of Advertising Directory Solutions Holdings Inc. (ADS) and the assets of MTS, Aliant Directory Services (Aliant) and Vertical Guides Limited Partnership (Vertical Guides LP). Adjusted Revenues is a non-GAAP measure. It is not likely to be comparable to similar measures used by other publicly traded companies. For a reconciliation with Canadian GAAP please refer to Consolidated Operating and Financial Results later in this section.

Adjusted Revenues reflect the level of advertising activity that is generally billed in accordance with contractual terms with our advertisers. It is recognized on a monthly basis over the estimated life of our products. In print directories, it commences with the delivery of the directory; in online it commences with the display date of the advertisement. Amounts billed up front for directories are deferred and recognized over the period for which the corresponding directories are in circulation. Revenues are generally recognized and billed over periods not exceeding twelve months, or in the case of certain alphabetical directories, not exceeding twenty-four months.

Adjusted Income from Operations before Depreciation and Amortization Restructuring and Special Charges and Impairment of Intangible Assets (Adjusted EBITDA)

We provide guidance and report on our EBITDA (Income from operations before depreciation and amortization, restructuring and special charges and impairment of intangible assets) adjusted for comparability purposes (Adjusted EBITDA). These adjustments include removing the effect of purchase accounting related to the acquisitions of ADS and the assets of MTS, Aliant and Vertical Guides LP. The adjustments also exclude the impact of non-recurring transition expenses relating to acquisitions in the Directories segment. Adjusted EBITDA is a key measure used by management to evaluate performance.

Adjusted EBITDA is used in making decisions relating to our cash distributions to unitholders and in measuring compliance with debt covenants. We believe Adjusted EBITDA assists investors in assessing our performance on a consistent basis:

• without regard to restructuring and special charges and impairment of intangible assets – which are non-recurring by nature; and,
• without regard to depreciation and amortization, which are non-cash in nature and can vary significantly depending on accounting methods or on non-operating factors such as historical cost.

As stated, EBITDA is not a calculation based on GAAP. It is also not considered an alternative to income from operations or net earnings in the context of measuring YPG's performance. EBITDA does not have a standardized meaning and is therefore not likely to be comparable with similar measures used by other publicly traded companies. For a reconciliation with GAAP, please refer to Consolidated Operating and Financial Results later in this section. EBITDA should not be used as an exclusive measure of cash flow since it does not account for the impact of working capital changes, capital expenditures, debt principal reductions and other sources and uses of cash, which are disclosed on page 29 of this MD&A.

Distributable Cash

Distributable cash is a non-GAAP measure generally used by Canadian income trusts as an indicator of financial performance. It should not be seen as a measurement of liquidity or as a substitute for comparable metrics prepared in accordance with GAAP. Distributable cash is commonly used by investors, management and other stakeholders to evaluate the ongoing performance of YPG. Distributable cash may differ from similar calculations as reported by other companies and should not be considered comparable. For a reconciliation with GAAP, please refer to the Distributable Cash section 4 of this MD&A.

The revised Staff Notice 52-306 issued by the Canadian Securities Administrators (CSA) in 2006 concluded that distributable cash can only be considered as a cash flow measure. Consequently, we adopted the CSA's recommendations in the third quarter of 2006, retroactive to January 1, 2005. In July 2007, the CSA issued a replacement to National Policy 41-201 to provide additional guidance on disclosure of distributable cash. We also adopted these new recommendations in the second quarter of 2007 which had no impact on distributable cash.

Cash Distributions per Unit

We report on cash distributions per unit because it is a measure of return used by investors. Cash distributions per unit depend on our distributable cash and YPG's distribution policy.

We make monthly cash distributions to unitholders of record on the last business day of each month. For a description of our cash distribution policy, please refer to section 4 of this MD&A.

Performance Relative to Business Strategy

Organic growth

Our new Customer First tool is currently being extended coast-to-coast. The phases deployed nationally in 2007 were business profiles and ad request process. The deployment of call planning in our Calgary center of excellence was initiated during the year and will be fully deployed in 2008. Contract closure will allow for seamless sharing of best practices across the country. This phase will be introduced across Quebec and Ontario in the first half of 2008, followed by Atlantic and Western Canada in the second half of the year. This will effectively complete our transition to an integrated national platform.

During 2007 we also introduced our new parent and kids specialized guide, similar to those launched in the areas of home improvement and family care. In addition, following the successful launch of our Calgary companion directory in October, we will be expanding this new product to other markets, namely Quebec City and Edmonton, in 2008. These directories are smaller, more portable telephone directories that have the same customer base but are more targeted thus allowing more exposure for advertisers.

In October of 2007, YPG entered into a new strategic agreement with Google to become the first Canadian-based reseller of Google AdwordsTM ads. This will allow YPG to offer enhanced advertising offerings to help our advertisers market their businesses online. In late 2007, we announced an agreement with Microsoft® to add its highly advanced mapping service, Microsoft® Virtual Earth™, to our YellowPages.ca™ site. Visitors to our site now have access to maps which display current location data, high-resolution satellite and aerial images, and driving directions. They will also be able to view these maps in a variety of unique formats.

The national integration of Vertical Media is progressing on plan. Throughout 2007, we succeeded in achieving cost savings and efficiencies at Trader as we focussed on new technology implementation and on the integration of operations and sharing of best practices. These efforts should be completed by the end of 2008.

Our main focus is to re-design and automate our publishing business processes and to provide new tools to our sales force. We started introducing a new digital ad-taking system, a customer database and a billing tool – creating a virtually paperless environment. The platform will allow for standardization and productivity gains.

In 2007, we launched a highly effective national advertising campaign that reinforced Auto Trader™ as the most compelling source of automotive information.

We also reinforced our online offering. We launched a “Find a New Vehicle” function on AutoTrader.ca™ which allows us to tap into the new car advertising market which continues to grow.

From a cross-selling perspective with YPG, we inserted the new Yellow Pages™ Auto Edition in Toronto and Montreal Auto Trader™ magazines during the summer. This is an example of how we can leverage our capabilities between our Directories and Vertical Media platforms.

In April of 2007, we acquired the assets of Aliant which publishes directories in Atlantic Canada, in which we already owned a 12.86% interest. This acquisition has been integrated into our national directory platform, making us the sole incumbent directory publisher in the four Atlantic Provinces, publishing 35 directories with a total circulation of 1.8 million copies.

During the same month, we acquired a 50 per cent interest in a newly formed partnership that owns LesPAC.com, Quebec's leading classified web site in the generalist category. LesPAC.com brings additional enhanced local content and traffic to our online network of Directories and Vertical Media.

¹Adjusted Revenues and Adjusted EBITDA – The acquisitions of ADS, MTS, Aliant and Vertical Guides LP (the “acquisitions”) were accounted for using the purchase method of accounting which resulted in the elimination of deferred revenues and deferred publication costs related to those directories published prior to each acquisition. These deferred revenues along with related deferred publication costs would have been recognized in 2005 through 2009, had the acquisitions not occurred. As a result, reported revenues and expenses are not representative of revenues and expenses that would have otherwise been reported and are not representative of revenues and expenses that will be reported in subsequent periods.

The adjusted results are derived by excluding from the reported amounts the impact of purchase accounting and non-recurring transition expenses relating to acquisitions in the core Directories segment.

Analysis of Consolidated Operating and Financial Results

Fiscal 2007 versus 2006

Revenues increased by $239.5 million to $1,624.4 million compared to $1,385 million in 2006. For the year ended December 31, 2007, $161.9 million is attributable to the contribution of acquired businesses in 2006 and 2007, excluding their 2007 organic growth. Organic online revenue growth for the year reached 44%, well ahead of our 2007 online revenue growth target of 30%. Online revenues from the Directories and the Vertical Media segments combined reached $170.7 million in 2007. Online growth is driven by strong adoption of our online products and the introduction of new pay for performance products. Our network of web sites in Directories and Vertical Media attracted 9.9 million unduplicated unique visitors¹ on average during the fourth quarter of 2007. As of December 31, 2007, the number of YPG customers choosing to advertise both in print and online reached 54% across Canada.

¹Source: comScore Media Metrix Canada

EBITDA increased by $127.4 million to $874.2 million compared to $746.8 million in 2006. The increase for the year is mainly attributable to the contribution from MTS and Aliant. In addition, the full year contribution from the acquisition of Trader in 2006 further explains the variance for the year.

Cost of sales increased by $70.3 million to $442.7 million compared to $372.4 million in 2006. The increase for the year substantially relates to the acquisitions made in 2006 and 2007 as 2006 included only a 12.86% share of Aliant, and the results of Trader and MTS from their respective dates of acquisition.

Gross profit margin decreased from 73.1% in 2006 to 72.8% in 2007. The decrease is attributable to lower margins in the Vertical Media segment, which is included for all of 2007. The 2006 results included the results from the Vertical Media segment only from their respective dates of acquisition of February 14, 2006 and June 8, 2006.

General and administrative expenses increased by $41.8 million to $307.6 million compared to $265.8 million in 2006. The increase is mainly attributable to the acquisitions of MTS and Aliant. The acquisition of Trader explains the balance of the increase for the year as 2006 did not include a full year of results for Trader.

Depreciation and amortization increased by $53.3 million to $225.6 million compared to $172.2 million in 2006. The increase relates to the amortization of certain intangible assets related to the acquisitions of Aliant, MTS and LesPAC, offset in part by the lower amortization of intangible assets of Trader and ADS acquired in the first half of 2006 and 2005, respectively. For 2008, we expect depreciation and amortization to be approximately $165 million.

Financial charges increased from $134.3 million in 2006 to $137.4 million in 2007. This was a result of the interest on new net debt incurred to finance business acquisitions, partly offset by lower other charges related to derivative financial instruments and a repayment of debt with the proceeds from preferred shares. The effective average interest rate on our debt portfolio as of December 31, 2007 was 5.4%.

Pursuant to the issuance of Preferred Shares Series 1 in March 2007 and of Preferred Shares Series 2 in June 2007, dividends accrued for these preferred shares amounted to $16 million for 2007. Dividends on the Preferred Shares Series 1 and Series 2 of $10.3 million and $5.5 million, respectively, were paid during 2007. See section 3 – Liquidity and Capital Resources – Cumulative Redeemable Preferred Shares.

The combined effective provincial and federal tax rate was 31.6% in both 2007 and 2006. The Fund recorded a tax recovery of 6.7% of earnings in 2007 compared to a tax expense of 0.1% of earnings in 2006. The Fund's subsidiary, YPG LP, is a limited partnership, and as such, is not subject to income taxes whereas YPG LP's subsidiaries are subject to income tax. The difference between the statutory and the effective tax rates is primarily due to inter-company revenues which are not currently taxable when received by YPG LP. The enactment of the Budget Implementation Act 2007 (Bill C-52) on June 22, 2007 which contained legislation implementing proposed changes to the manner in which publicly-traded income-trusts such as the Fund and the distributions from such entities will be taxed effective in the 2011 taxation year has no impact on YPG's current earnings. In addition, the provision for income taxes was impacted by the enactment of lower future income tax rates during 2007. The operating activities are being carried on in corporate entities and as such, future income taxes are being calculated on all underlying operating assets and liabilities. For a more complete description of Bill C-52 and its impact on our results, see section 7 – Risk and Uncertainties.

Net earnings increased by $95.8 million to reach $527.7 million in 2007. In addition to the organic growth in the Directories segment, the positive variance for the year is due to net earnings generated by the acquisitions of Trader, MTS and Aliant.

Fiscal 2006 versus 2005

Revenues increased by $462 million to $1,385 million compared to $922.9 million in 2005. The portion of the increase attributable to the businesses acquired in 2006 represented $235.6 million of the variance. Also, the fact that the results of ADS were not included for the period from January 1, 2005 to May 25, 2005 amounted to $151.2 million. Online revenues from the Directories and the Vertical Media segments combined reached $101.1 million in 2006. Online growth was driven by strong usage of our online products. Our network of web sites in Directories and Vertical Media attracted 8.6 million unduplicated unique visitors1 for the month of December 2006.

EBITDA increased by $206.1 million to $746.8 million compared to $540.6 million in 2005.

Cost of sales increased by $180.7 million to $372.4 million compared to $191.7 million in 2005. The increase substantially related to the acquisitions of ADS, MTS, TMC and Trader Canada (“the Acquired Businesses”) as 2005 excluded the results of MTS, TMC and Trader Canada and included the results of ADS effective May 25, 2005.

Gross profit margin decreased from 79.2% in 2005 to 73.1% in 2006. The decrease was attributable to lower margins in the new Vertical Media segment.

General and administrative expenses increased by $75.2 million to $265.8 million over the previous year. The increase mentioned above included the impact of the acquisitions of TMC and Trader Canada amounting to $50.1 million and the remaining portion of the variance was largely resulting from the acquisition of ADS only effective from May 25, 2005 as well as incremental employee-related expenses.

¹ Source: comScore Media Metrix Canada

Depreciation and amortization decreased from $228.1 million in 2005 to $172.2 million in 2006. The decrease substantially related to the amortization of certain intangible assets of ADS acquired in May 2005 which were fully amortized at the end of the second quarter of 2006, offset in part by the amortization of intangible assets of TMC, Trader Canada and MTS acquired in 2006.

In performing our annual impairment test, we recorded an impairment charge of $7 million related to the SuperPages trademark and $1 million to the SuperPages.ca domain names. These intangibles were acquired as part of the ADS acquisition on May 25, 2005. These charges were recorded in the Directories segment.

Financial charges increased from $100.3 million in 2005 to $134.3 million in 2006. This increase was a result of (i) the interest on new net debt incurred to finance the acquisitions in 2006, (ii) the issuance of Medium Term Notes in November 2005 and February 2006 to refinance existing debt and extend the average term of the debt portfolio, (iii) the issuance of Exchangeable Debentures in July 2006 to refinance existing debt, offset by (iv) the non-recurring financing charges of $21.3 million in 2005 pertaining to the ADS acquisition. The effective average interest rate on our debt portfolio as of December 31, 2006 was 5.3%.

The combined effective provincial and federal tax rates were 31.6% and 33.2% in 2006 and 2005, respectively. The Fund recorded a tax expense of 0.1% in 2006 compared to a tax recovery of 18.6% in 2005. The Fund's subsidiary, YPG LP, is a limited partnership, and as such, is not subject to income taxes whereas YPG LP's subsidiaries are subject to income tax. The difference between the statutory and the effective tax rates is primarily due to inter-company revenues which are not taxable when received by YPG LP.

Net earnings increased by $190.1 million to reach $431.9 million in 2006. The positive variance for the year was mainly due to net earnings generated by the acquisitions of ADS, TMC and Trader Canada, net of the impact of purchase accounting.

Analysis of Adjusted Consolidated Operating and Financial Results

Fiscal 2007 versus 2006

Adjusted Revenues increased by $239.2 million to $1,629 million in 2007 compared to $1,389.7 million last year. The portion of the increase for the year attributable to the businesses acquired in 2006 and 2007 represents $161.9 million of the variance, excluding their 2007 organic growth. As stated earlier, online organic growth for the year reached 44% for a total of $170.7 million in 2007 for both the Directories and the Vertical Media segments.

Adjusted EBITDA increased by $123.1 million to $871 million in 2007 compared with $748 million in 2006. This increase is largely due to the contribution from acquired businesses and increased cost efficiencies realized during the year in both segments.

Cost of sales increased by $72.1 million to $450.3 million in 2007 compared with $378.2 million in 2006. The increase substantially relates to the acquisitions of MTS and Aliant as the 2006 results included only a 12.86% share of Aliant and included MTS only in the last quarter. Furthermore, the increase is also due to the acquisition of Trader as the 2006 results did not include a full year.

Gross profit margin decreased from 72.8% in 2006 to 72.4% in 2007. The decrease is attributable to lower margins in the Vertical Media segment. The 2006 results included the results from the Vertical Media segment from their respective dates of acquisition of February 14, 2006 and June 8, 2006.

General and administrative expenses increased by $44.1 million to $307.6 million in 2007 compared to $263.5 million in 2006. The increase is largely attributable to the acquisitions of MTS, Aliant and Trader.

Fiscal 2006 versus 2005

Adjusted Revenues increased by $437.2 million to $1,389.7 million compared to $952.5 million in 2005. The portion of the increase in Adjusted Revenues attributable to the businesses acquired in 2006 represents $235.6 million of the variance.

Adjusted EBITDA increased by $200 million to $748 million compared to $548 million in 2005.

Cost of sales increased by $151.7 million to $378.2 million compared with $226.5 million in 2005. The increase substantially related to the acquisitions of ADS, MTS, TMC and Trader Canada (“the Acquired Businesses”) as 2005 excluded the results of MTS, TMC and Trader Canada and included the results of ADS but only effective May 25, 2005.

Gross profit margin decreased from 76.2% in 2005 to 72.8% in 2006. The decrease was attributable to lower margins in the new Vertical Media segment.

General and administrative expenses increased by $85.5 million to $263.5 million in 2006. The increase included the impact of the acquisitions of TMC and Trader Canada amounting to $50.1 million and the remaining portion of the variance was largely resulting from the acquisition of ADS effective from May 25, 2005 as well as incremental employee-related expenses

Summary of Consolidated Quarterly Results

Adjusted Revenues reflect steady organic growth in our Directories segment quarter over quarter. In addition, Adjusted Revenues were favourably impacted by the acquisitions of TMC on February 14, 2006, Trader Canada on June 8, 2006, MTS on October 2, 2006, LesPAC on April 19, 2007, Aliant on April 30, 2007 and Vertical Guides LP on October 31, 2007. For the fourth quarter of 2007, revenues were lower than the third quarter due to the seasonality of certain Vertical Media publications. In the fourth quarter of 2006, this seasonality was offset by the acquisition of MTS.

The decrease in Adjusted EBITDA margins in 2006 reflects lower margins generated by acquired businesses in Vertical Media in the first and second quarters of 2006. The margins in the second half of 2006 have also been impacted by non-recurring transition expenses of approximately $9.5 million relating to the integration of the acquired businesses. In 2007, the steady increase in Adjusted EBITDA margins highlights the synergies realized through the various acquisitions. The decrease in the fourth quarter of 2007 is attributable to the seasonality of certain vertical media publications.

Net earnings were affected by purchase accounting and are not comparable quarter over quarter.

Analysis of fourth quarter 2007 Results

Revenues increased by $33.6 million to $412.6 million during the fourth quarter of 2007 compared with the same period last year. For the three-month period ended December 31, 2007, $16 million is attributable to the contribution of acquired businesses in 2006 and 2007, excluding their 2007 organic growth. Organic online revenue growth for the fourth quarter reached 38.5%. Online revenues from the Directories and the Vertical Media segments combined reached $48.3 million during the fourth quarter of 2007. Online growth is driven by strong adoption of our online products and the introduction of new pay for performance products.

EBITDA increased by $24.2 million to $221.9 million during the fourth quarter of 2007 compared with the same period last year. The increase for the fourth quarter is mainly attributable to the contribution from Aliant and cost efficiencies in both segments.

Cost of sales increased by $2.5 million to $111.9 million during the fourth quarter of 2007 compared with the same period last year. The increase for the fourth quarter substantially relates to the acquisition made in 2007 as the fourth quarter of 2006 included only 12.86% of Aliant. We also benefited from cost efficiencies following the integration of Trader.

Gross profit margin increased from 71.1% in the fourth quarter of 2006 to 72.9% in the fourth quarter of 2007. The increase for the three-month period ended December 31, 2007 is mainly due to the synergies being realized from the acquisitions of MTS and Aliant.

General and administrative expenses increased by $6.9 million to $78.8 million during the fourth quarter of 2007 compared with the same period last year. The increase for the fourth quarter is largely attributable to the acquisition of Aliant.

Depreciation and amortization increased from $37.1 million to $66.8 million during the fourth quarter of 2007 compared with the same period last year. The increase relates to the amortization of certain intangible assets related to the acquisitions of MTS, Aliant and LesPAC, offset in part by the lower amortization of intangible assets of Trader and ADS acquired in the first half of 2006 and 2005, respectively.

Financial charges decreased from $34.8 million in the fourth quarter of 2006 to $33.3 million in the fourth quarter of 2007. The interest on new net debt incurred to finance business acquisitions was more than offset by the reduction of interest following the repayment of debt with the proceeds from preferred shares earlier in 2007 and a credit related to derivative financial instruments in 2007.

Pursuant to the issuance of the Preferred Shares Series 1 and 2 earlier in 2007, dividends accrued for these preferred shares amounted to $5.7 million for the fourth quarter of 2007. Dividends on the Preferred Shares Series 1 and Series 2 of $5.7 million were paid during the fourth quarter of 2007. See section 3 – Liquidity and Capital Resources – Cumulative Redeemable Preferred Shares.

The combined effective provincial and federal tax rate was 31.6% in both 2007 and 2006. The Fund recorded a tax recovery of 35.2% of earnings and a tax expense of 4.0% of earnings for the three-month periods ended December 31, 2007 and 2006, respectively.

Net earnings increased by $44 million to reach $157 million during the fourth quarter of 2007. In addition to the organic growth in the Directories segment, the positive variance for the quarter ended December 31, 2007 is also due to net earnings generated by the acquisitions of MTS and Aliant.

Analysis of Adjusted fourth quarter 2007 Results

Adjusted Revenues increased by $33.3 million to $413.4 million in the fourth quarter of 2007 compared to the same period last year. The portion of the increase for the fourth quarter attributable to the businesses acquired in 2006 and 2007 represents $16 million of the variance.

Adjusted EBITDA increased by $24 million to $221 million in the fourth quarter of 2007 compared to the same period last year. This increase is largely due to the contribution from MTS and Aliant and cost efficiencies in both segments.

Cost of sales increased by $2.5 million to $113.5 million in the fourth quarter of 2007 compared with the same period last year. The increase substantially relates to the acquisition of Aliant as the 2006 results included only 12.86% of Aliant. We also benefited from cost efficiencies following the integration of Trader.

Gross profit margin increased from 70.8% in the fourth quarter of 2006 to 72.5% in the fourth quarter of 2007. The increase is attributable to synergies being realized from the acquisitions of MTS and Aliant.

General and administrative expenses increased by $6.9 million to $78.8 million in the fourth quarter of 2007 compared to the same period last year. The increase is largely attributable to the acquisition of Aliant.

Segmented Information – Directories

Key Performance Indicators

Each year, we set targets to advance our goals and drive results. The targets below have been established through our ongoing planning process.

The tables below provide supplemental information incorporating the results of MTS, Aliant and Vertical Guides LP (the “Acquired entities”) in 2006 as if YPG had owned those entities all year in order to better discuss performance on a comparable basis.

Adjusted Revenues on a comparable basis as if YPG had owned the Acquired entities from the beginning of each reporting period, grew at a level above our 2007 target ranges for the year ended December 31, 2007 at 5.3% and at the top end of our target range for the fourth quarter of 2007 at 4.8%. Adjusted EBITDA on a comparable basis grew at 6% for the fourth quarter of 2007, and at 6.6% for the year ended December 31, 2007. This growth is within our target range. The adjusted revenue growth reflects continued growth in our print products combined with strong performance in our online products as a result of an accelerated adoption of our online offerings. The Adjusted EBITDA reflects our cost containment efforts and synergies being realized from our integration of MTS and Aliant.

¹Includes 87.14% of Aliant

Operating and Financial Results

¹See Note 26 - Segmented Information of the audited consolidated financial statements of the Company for the year ended December 31, 2007.

Analysis of Operating and Financial Results – Year End and Fourth Quarter

Revenues increased by $30.7 million to $334.7 million during the fourth quarter of 2007 and by $134.8 million to reach $1,294.5 million for the year ended December 31, 2007, compared with the same periods last year. For the three-month period ended December 31, 2007, $14.9 million is mainly attributable to the contribution of Acquired entities in 2006 and 2007. For the year ended December 31, 2007, this explanation accounts for $70.3 million. Excluding the effect of purchase accounting, Adjusted Revenues increased by $30.4 million to $335.5 million during the fourth quarter of 2007 and by $134.6 million to $1,299.1 million for the year ended December 31, 2007, compared with the same periods last year. Organic growth amounted to $15.4 million or 4.8% for the fourth quarter of 2007, and $66 million or 5.3% for the year ended December 31, 2007.

EBITDA increased by $20 million to $199.4 million in the fourth quarter of 2007 and by $91.3 million to reach $772.4 million for the year ended December 31, 2007, compared with the same periods last year. Excluding the effect of purchase accounting and non-recurring transition expenses related to the acquisition of ADS, Adjusted EBITDA increased by $19.7 million to $198.5 million in the fourth quarter of 2007 and by $87 million to $769.3 million for the year ended December 31, 2007, compared with the same periods last year.

Cost of sales amounted to $73.2 million in the fourth quarter of 2007 compared with $71.3 million for the same period last year. Cost of sales was $282.3 million in 2007 compared to $262.9 million in 2006. Excluding the effect of purchase accounting, cost of sales increased in the fourth quarter of 2007 to $74.9 million compared with $73 million for the same period last year and to $289.9 million for the year ended December 31, 2007 compared to $268.7 million for the same period last year, mainly due to the acquisitions of MTS and Aliant and higher direct costs related to increased revenues.

Gross profit margin was 78.1% in the fourth quarter of 2007 compared to 76.5% for the same period last year and 78.2% for the year ended December 31, 2007 compared to 77.3% for the same period last year. Excluding the effect of purchase accounting, gross profit margin was 77.7% in the fourth quarter of 2007 compared to 76.1% for the same period last year and 77.7% for year ended December 31, 2007 compared to 76.9% for the same period last year. The increase in gross profit margin is attributable to synergies realized through the acquisitions of MTS and Aliant.

General and administrative expenses in the fourth quarter of 2007 increased by $8.8 million to $62.1 million and by $24.2 million to $239.9 million for the year ended December 31, 2007, compared with the same periods last year. The results of 2006 included MTS from the date of acquisition in the fourth quarter of 2006, and included only 12.86% of Aliant.

Depreciation and amortization increased from $26 million in the fourth quarter of 2006 to $54.6 million in the fourth quarter of 2007. The increase in the fourth quarter compared to the same period last year is due to the acquisitions of MTS and Aliant and the related increase of intangible assets. Depreciation and amortization increased to $179.2 million in 2007 compared to $140.8 million in 2006. The increase in the year substantially relates to the acquisition of MTS and Aliant offset in part by the lower amortization of intangible assets of ADS which was acquired in 2005. Excluding the effect of purchase accounting, depreciation and amortization was $11 million for the fourth quarter of 2007, down slightly from $12.4 million for the fourth quarter of 2006 and $39.7 million for the year ended December 31, 2007 when compared to $40.6 million for the same period last year.

In performing our annual impairment test in 2006, we recorded an impairment charge of $7 million related to the SuperPages trademark and $1 million to the SuperPages.ca domain names. These intangibles were acquired as part of the ADS acquisition on May 25, 2005. Since the acquisition, the Fund has not promoted the SuperPages trademark or domain names nor has it invested in creating awareness of the intangibles, choosing instead to promote and invest in our most significant Yellow Pages^TM, Pages Jaunes^TM and Walking Fingers & Design^TM trademark and YellowPages.ca domain names. Therefore, the trademark and domain names related to ADS will be amortized over their new estimated lives of 6 years and 18 years, respectively. No such impairment was recorded in 2007.

Segmented Information – Vertical Media

In addition to the results of Trader for a full year in 2007, this segment includes the results from the new partnership with LesPAC from the date of acquisition on April 19, 2007. In 2006, the results include TMC and Trader Canada only from their respective dates of acquisition on February 14, 2006 and June 8, 2006. As such, the comparison of year-over-year and reported figures may not be as meaningful as figures disclosed on a comparable basis.

Key Performance Indicators

Each year, we set targets to advance our goals and drive results. The targets below have been established through our ongoing planning process.

The tables below provide supplemental information incorporating the results of Trader and LesPAC in 2006 as if YPG had owned those entities all year in order to better discuss performance on a comparable basis.

Revenues on a comparable basis, as if YPG had owned the entities from the beginning of each reporting period, and adjusted for the timing of certain publications during the quarter grew at a level below our 2007 target range, at 3.4% for the fourth quarter of 2007 and at 4.5% for the year ended December 31, 2007. During the fourth quarter, a change in the distribution schedule of some automotive publications resulted in a lower number of publications and hence lower revenues for the quarter. In addition, during the quarter we discontinued certain publications which we considered to be less profitable. The impact of these changes was approximately $0.7 million for the quarter. Absent these changes, revenues on a comparable basis would have grown at 2.5% for the fourth quarter of 2007 and 4.3% for the year ended December 31, 2007. The focus on change management continues to result in short-term negative impacts on revenue growth. EBITDA, however, grew at a level above our 2007 target range, at 19.7% for the fourth quarter of 2007 and at 11.5% for the year ended December 31, 2007, reflecting our efforts to contain costs and improve profitability.

Operating and Financial Results

¹ See Note 26 - Segmented Information of the audited consolidated financial statements of the Company for the year ended December 31, 2007.

² After deducting non-recurring transition costs of $2 million (2006 - $4 million) and $6.4 million (2006 - $9.5 million) for the quarter and the year ended December 31, respectively.

Analysis of Operating and Financial Results – Year End and Fourth Quarter

Revenues from our Vertical Media segment amounted to $77.9 million in the three-month period ended December 31, 2007 compared to $75 million for the same period last year, and $329.9 million for the year ended December 31, 2007 compared to $225.2 million in 2006. The portion attributable to each product vertical is 65% for Automotive, 17% for Real Estate, 15% for Generalist and 3% for Employment and Other.

EBITDA increased by $4.2 million to $22.5 million for the three-month period ended December 31, 2007 and increased by $36.1 million to $101.8 million for the year ended December 31, 2007, compared to the same periods last year.

Cost of sales amounted to $38.6 million for the three-month period ended December 31, 2007 compared to $38 million for the same period last year. For the year ended December 31, 2007, cost of sales was $160.4 million compared to $109.5 million for the same period last year.

Gross profit margin was 50.4% for the three-month period ended December 31, 2007 compared to 49.3% for the same period last year and 51.4% for the years ended December 31, 2007 and December 31, 2006.

General and administrative expenses amounted to $16.7 million in the three-month period ended December 31, 2007 compared to $18.7 million for the same period last year. For the year ended December 31, 2007, general and administrative expenses were $67.7 million compared to $50.1 million for the same period last year. The increase is due to the fact that the 2006 results include TMC and Trader Canada only from their respective dates of acquisition on February 14, 2006 and June 8, 2006.

Depreciation and amortization amounted to $12.2 million the three-month period ended December 31, 2007 compared to $11.1 million for the same period last year and $46.4 million for the year ended December 31, 2007 compared to $31.4 million for the same period last year. Excluding the effect of purchase accounting, depreciation and amortization was $11.6 million for the three-month period ended December 31, 2007 compared to $2.7 million for the same period in 2006, and $19.3 million for the year ended December 31, 2007 compared to $6.1 million for the same period last year. Excluding the effect of purchase accounting, depreciation and amortization included a charge of $8.5 million relating to assets which were written off during the last quarter of 2007.