Transcontinental achieves solid performance in second quarter and maintains earnings-per-share objective despite rise in canadian dollar



    
    - 2% growth in adjusted operating income before amortization; excluding
      the foreign exchange impact, growth of 7%.
    - 20% growth in cash flow from continuing operations before changes in
      non-cash operating items.
    - Slight increase in net income; on a per-share basis, net earnings rose
      3%, from $0.39 to $0.40.
    - 4% decrease in adjusted net income; excluding the foreign exchange
      impact, growth of 9%; on a per-share basis, adjusted net income
      remained stable at $0.41.
    - Annual earnings-per-share objective of $1.52 to $1.65 before unusual
      items maintained, as announced at the start of the fiscal year, despite
      the rising Canadian dollar.
    - Launch of Canadian edition of More magazine a big success.
    - Start-up in April of the new press at Transcontinental Saint-Hyacinthe,
      which now prints flyers for the Provigo banner, added upon renewal of
      contract with Loblaw Companies Ltd.
    - Excellent financial position for further growth.
    

    MONTREAL, June 14 /CNW Telbec/ - Transcontinental today reported solid
financial results for its second quarter ended April 30, 2007, despite a
negative foreign exchange impact and a soft advertising market in certain
segments. As mentioned in the previous quarter, management expects results for
the second half to be higher than they have historically been compared to the
first half. This is due to the change in its business portfolio - related
primarily to the acquisition of Chenelière Education in 2006 - and the trend
to greater seasonality in certain niches. Transcontinental remains in an
excellent position to achieve earnings per share before unusual items in the
previously announced range of $1.52 to $1.65 for 2007.
    "We are very satisfied with the second-quarter results and the first half
of the year, which are promising for the remainder of 2007," said
Luc Desjardins, president and chief executive officer of Transcontinental.
    "We are gradually reaping the benefit from our major reorganization
projects in Canada, the United States and Mexico, as well as from our
investments in new technology and the ongoing continuous improvement
initiatives throughout the company, which have more than offset the negative
foreign exchange impact and the softness in certain segments of the
advertising market. For the rest of the year we plan to focus our efforts on
sales growth, digital development in the Media sector and improving our
ability to compete, primarily in the commercial printing sector."
    "Due to the recent rise in the Canadian dollar, we have revised our
assumptions for the rest of the year downward, from $1.10 CAD/USD to
$1.05 CAD/USD," Mr. Desjardins said. "Taking into account the unfavorable
impact of this change and the previously announced investment of about
five million dollars in Evolution 2010 initiatives, as well as the positive
impact of our share buy-back program, we are maintaining our
earnings-per-share objective of $1.52 to $1.65 for fiscal 2007. This objective
would be maintained even with the assumption of an exchange rate at parity by
the end of the year."
    The Corporation is in an excellent financial position for further growth,
with a net funded debt to total capitalization ratio of 28% as at April 30,
2007.

    Financial Highlights

    In its second quarter, Transcontinental reported a 2% increase in
consolidated revenues, to $580.7 million, compared to $570.9 million for the
same quarter a year earlier. Adjusted operating income before amortization
rose 2% to $92.8 million, compared to $91.4 million in 2006. Excluding the
exchange rate fluctuations between the Canadian dollar and its U.S. and
Mexican counterparts, which lowered revenue by $3.4 million and adjusted
operating income before amortization by $5.2 million, adjusted operating
income before amortization would have grown 7%. Thus the acquisitions made in
2006, higher volumes in certain segments and many cost-reduction initiatives
throughout the Corporation more than offset lower volume in other segments and
additional investments in the Media sector.
    Net income rose slightly, from $33.7 million in the second quarter of
2006 to $34 million in 2007; on a per-share basis, net earnings were up 3%,
from $0.39 to $0.40. Adjusted net income, which does not take into account
unusual items related to asset impairment and restructuring costs, declined
4%, from $35.8 million to $34.5 million; on a per-share basis, adjusted net
income remained stable at $0.41. Excluding the exchange rate impact, growth
would have been 9%.
    In the first six months of fiscal 2007, consolidated revenue was up
slightly, from $1.136 billion to $1.149 billion, while adjusted operating
income before amortization was down slightly, from $170.6 million to
$168.5 million. Excluding the exchange rate impact, which reduced revenue by
$8.6 million and adjusted operating income before amortization by $8.7
million, adjusted operating income before amortization would have been up 4%.
    Net income was down 12%, from $61.6 million in the first half of 2006 to
$54.2 million in 2007. The decrease stems primarily from asset impairment and
higher restructuring costs. In 2007, these costs were mainly related to the
restructuring plan for commercial printing operations announced in the first
quarter. On a per-share basis, net earnings declined from $0.70 to $0.63.
Adjusted net income, excluding pre-tax restructuring charges of $7.8 million
in 2007 and $3.2 million in 2006, was down 7%, from $63.8 million to
$59.5 million. On a per-share basis, adjusted net income decreased 4%, from
$0.73 to $0.70.
    Excluding the negative foreign exchange impact in the first half of 2007
and unusual items, earnings per share would have been $0.78, up 7% over the
first half of 2006. This measurement is a good indicator of the Corporation's
operating performance for the first half of the year.
    For more detailed financial information, please see Management's
Discussion and Analysis for the second quarter of 2007 at
www.transcontinental.com, under "Investors."

    Operating Highlights

    The main operating highlights for the second quarter of 2007 are as
follows:

    - On February 21, Transcontinental announced the creation of a division,
    under Ted Markle as senior vice president, dedicated to the
    North American development of its outsourced newspaper printing offer
    and operating its newspaper printing plants in the United States. The
    preliminary stages of the San Francisco Chronicle project are going
    well. The site has been chosen, the printing equipment ordered and the
    team responsible for setting up the project infrastructure and hiring
    will be in place within a few weeks. Discussions are ongoing with a
    number of U.S. daily newspaper publishers.

    - Transcontinental is consolidating its leading position in delivering
    products and services to Canadian retailers. In the first quarter of
    2007, the Corporation announced a five-year agreement with Hudson's Bay
    Company to print all flyers for Zellers, The Bay and Home Outfitters.
    The contract includes materials for the loyalty programs run by these
    banners, as well as a number of new value-added products and services.
    The contract started on February 1, 2007, and is valued at
    $350 million, of which approximately $75 million is new business for
    Transcontinental.

    In April, Transcontinental started printing flyers for the Provigo
    chain at its plant in Saint-Hyacinthe, Quebec, under the new agreement
    with Loblaw Companies Limited that took effect in 2006. With this
    contract, Transcontinental renewed its flyer printing for the Loblaws
    banner across Canada and added, as of this spring, the Provigo banner.
    The contract has an annualized value of more than $60 million, of which
    one third is new business from Provigo.

    - On March 21, following an exclusive agreement signed with renowned U.S.
    publisher Meredith Corporation, Transcontinental launched the Canadian
    version of More magazine, named Magazine of the Year in the United
    States by Advertising Age. Designed for women aged 40 and up, More
    fills an underserved niche in the Canadian market and rounds out
    Transcontinental's portfolio of women's magazines. The first issue was
    a big success with advertisers and readers.

    - Transcontinental has always endorsed environmental conservation and
    sustainable development, and this commitment has been recognized over
    the years by numerous awards. Transcontinental plans to continue to
    exercise its leadership in this area by mobilizing employees and taking
    concrete action. In the second quarter, the Transcontinental Printing
    Book Group introduced a brochure for book publishers to promote a new
    paper made of 100% post-consumer recycled content. Furthermore,
    Transcontinental Media announced the launch of the magazine Vision
    Durable, whose mission is to help businesses embrace sustainable
    development.

    Reconciliation of Non-GAAP Financial Measures

    Financial data have been prepared in conformity with Generally Accepted
Accounting Principles (GAAP). However, certain measures used in this press
release do not have any standardized meaning under GAAP and could be
calculated differently by other companies. The Corporation believes that
certain non-GAAP financial measures, when presented in conjunction with
comparable GAAP financial measures, are useful to investors and other readers
because that information is an appropriate measure for evaluating the
Corporation's operating performance. Internally, the Corporation uses this
non-GAAP financial information as an indicator of business performance, and
evaluates management's effectiveness with specific reference to these
indicators. These measures should be considered in addition to, not as a
substitute for or superior to, measures of financial performance prepared in
accordance with GAAP.
    Below is a table that reconciles GAAP financial measures to non-GAAP
financial measures.


    
                                  Three months ended        Six months ended
    (in millions of dollars,                April 30                April 30
     except per share amounts)      2007        2006        2007        2006
    -------------------------------------------------------------------------
    Net income                 $    34.0   $    33.7   $    54.2   $    61.6
    -------------------------------------------------------------------------
    Non-controlling interest           -           -         0.3         0.5
    Income taxes                    16.0        16.0        23.5        29.2
    Discount on sale of
     accounts receivable             2.7         1.8         5.9         3.9
    Financial expenses               8.9         7.5        15.9        14.1
    Impairment of assets and
     restructuring costs             0.6         3.1         7.8         3.2
    Amortization                    30.6        29.3        60.9        58.1
    -------------------------------------------------------------------------
    Adjusted operating income
     before amortization       $    92.8   $    91.4   $   168.5   $   170.6
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net income                 $    34.0   $    33.7   $    54.2   $    61.6
    -------------------------------------------------------------------------
    Impairment of assets and
     restructuring costs
     (after tax)                     0.5         2.1         5.3         2.2
    -------------------------------------------------------------------------
    Adjusted net income             34.5        35.8        59.5        63.8
    -------------------------------------------------------------------------
    Average number of shares
     outstanding                    85.4        87.2        85.6        87.9
    -------------------------------------------------------------------------
    Adjusted earnings per
     share                     $    0.41   $    0.41   $    0.70   $    0.73
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Cash flow related to
     (used in) operating
     activities                $    24.4   $    27.3   $    22.5   $   (82.7)
    -------------------------------------------------------------------------
    Changes in non-cash
     operating items               (52.6)      (37.1)     (116.4)     (217.5)
    -------------------------------------------------------------------------
    Cash flow from operating
     activities before changes
     in non-cash operating
     items                     $    77.0   $    64.4   $   138.9   $   134.8
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Long-term debt                                     $   503.3   $   470.8
    -------------------------------------------------------------------------
    Current portion of
     long-term debt                                         10.5         8.0
    -------------------------------------------------------------------------
    Bank overdraft                                             -         0.2
    -------------------------------------------------------------------------
    Cash and temporary
     investments                                           (44.1)      (16.5)
    -------------------------------------------------------------------------
    Net indebtedness                                   $   469.7   $   462.5
    -------------------------------------------------------------------------


    Dividend

    At its June 14, 2007 meeting, the Corporation's Board of Directors
declared a quarterly dividend of $0.07 per share on Class A Subordinate Voting
Shares and Class B shares. These dividends are payable on July 27, 2007 to
shareholders of record at the close of business on July 9, 2007. On an annual
basis, this represents a dividend of $0.28 per common share. Dividends paid by
Transcontinental to Quebec residents are eligible dividends as per the
proposed changes announced during the March 23, 2006 Quebec Budget speech.

    Additional Information

    Upon releasing its quarterly results, Transcontinental will hold a
conference call for the financial community today at 4:15 p.m. Media may hear
the call in listen-only mode or tune in to the simultaneous audio broadcast on
Transcontinental's website, which will be archived for 30 days.

    About Transcontinental Inc.

    The largest printer in Canada and sixth-largest in North America,
Transcontinental also ranks as the country's leading publisher of consumer
magazines and French-language educational resources, and its second-largest
community newspaper publisher. Transcontinental distinguishes itself by
creating strategic partnerships that integrate the company into its customers'
value chain, notably through its unique newspaper printing outsourcing model
and its value-added services. From mass to highly personalized marketing, the
company offers its clients integrated solutions which include a
continent-leading direct marketing offering, a diverse digital platform and a
door-to-door advertising material distribution network. Transcontinental is a
company whose values, including respect, innovation and integrity, are central
to its operation.
    Transcontinental (TSX: TCL.A, TCL.B) has more than 14,500 employees in
Canada, the United States and Mexico, and reported revenues of C$2.3 billion
in 2006.

    Note: This press release contains certain forward-looking statements
concerning the future performance of the Corporation. Such statements, based
on the current expectations of management, inherently involve numerous risks
and uncertainties, known and unknown. We caution that all forward-looking
information is inherently uncertain and actual results may differ materially
from the assumptions, estimates or expectations reflected or contained in the
forward-looking information, and that actual future performance will be
affected by a number of factors, many of which are beyond the Corporation's
control, including, but not limited to, the economic situation, exchange rate,
energy costs, increased competition, the Corporation's capacity to implement
its strategic plan and cost-reduction program and make and integrate
acquisitions. The risks, uncertainties and other factors that could influence
actual results are described in the Management's Discussion and Analysis for
the second quarter of 2007 and Management's Discussion and Analysis for the
fiscal year ended October 31, 2006 and the 2006 Annual Information Form.
    The forward-looking information in this release is based on current
expectations and information available as of June 14, 2007. We disclaim any
intention or obligation to update or revise any forward-looking statements
unless otherwise required by the Securities Authorities.


                                           CONSOLIDATED STATEMENTS OF INCOME
                                                                   unaudited

    (in millions of dollars,      Three months ended        Six months ended
     except per share data)                 April 30                April 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenues                   $   580.7   $   570.9   $ 1,148.9   $ 1,136.2
    Operating costs                421.4       413.5       848.8       839.4
    Selling, general and
     administrative expenses        66.5        66.0       131.6       126.2
    -------------------------------------------------------------------------

    Operating income before
     amortization, impairment
     of assets and
     restructuring costs            92.8        91.4       168.5       170.6
    Amortization                    30.6        29.3        60.9        58.1
    Impairment of assets
     and restructuring
     costs (Note 4)                  0.6         3.1         7.8         3.2
    -------------------------------------------------------------------------

    Operating income                61.6        59.0        99.8       109.3
    Financial expenses               8.9         7.5        15.9        14.1
    Discount on sale
     of accounts
     receivable (Note 7)             2.7         1.8         5.9         3.9
    -------------------------------------------------------------------------

    Income before income taxes
     and non-controlling
     interest                       50.0        49.7        78.0        91.3
    Income taxes (Note 3)           16.0        16.0        23.5        29.2
    Non-controlling interest           -           -         0.3         0.5
    -------------------------------------------------------------------------
    Net income                 $    34.0   $    33.7   $    54.2   $    61.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share (basic) (Note 8)
    Net income                 $    0.40   $    0.39   $    0.63   $    0.70
    -------------------------------------------------------------------------
    Per share (diluted)
     (Note 8)
    Net income                 $    0.40   $    0.39   $    0.63   $    0.70
    -------------------------------------------------------------------------

    Average number of shares
     outstanding (in millions)      85.4        87.2        85.6        87.9
    -------------------------------------------------------------------------

    The notes are an integral part of the consolidated financial statements.


                             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                                   unaudited

                                  Three months ended        Six months ended
    (in millions of dollars)                April 30                April 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Net income                 $    34.0   $    33.7   $    54.2   $    61.6
    Other comprehensive
     income:
    Unrealized gains on
     derivatives designated as
     cash flow hedges, net of
     income taxes of
     $2.1 million and
     $0.6 million for the
     three-month and six-month
     periods ended April 30,
     2007, respectively              4.2           -         1.2           -
    Reclassification adjustment
     for gains on derivatives
     designated as cash flow
     hedges in prior periods
     transferred to net income
     in the current period,
     net of income taxes of
     $0.4 million and
     $1.0 million for the
     three-month and six-month
     periods ended April 30,
     2007, respectively             (1.0)          -        (2.2)          -
    -------------------------------------------------------------------------
    Change in gains (losses)
     on derivatives designated
     as cash flow hedges             3.2           -        (1.0)          -
    Unrealized losses on
     translation of financial
     statements of
     self-sustaining foreign
     operations                     (5.6)       (8.1)       (1.9)       (8.5)
    -------------------------------------------------------------------------
    Other comprehensive income      (2.4)       (8.1)       (2.9)       (8.5)
    -------------------------------------------------------------------------
    Comprehensive income       $    31.6   $    25.6   $    51.3   $    53.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                                                   unaudited

                                                            Six months ended
    (in millions of dollars)                                        April 30
    -------------------------------------------------------------------------
                                                            2007        2006
    -------------------------------------------------------------------------

    Balance, beginning of period, as previously
     reported                                          $   769.0   $   703.1
    Financial instruments - recognition and
     measurement (Note 2)                                   (0.2)          -
    -------------------------------------------------------------------------
    Restated balance, beginning of period                  768.8       703.1
    Net income                                              54.2        61.6
    -------------------------------------------------------------------------
                                                           823.0       764.7
    Premium on redemption of shares (Note 8)               (11.4)      (34.2)
    Dividends on shares                                    (11.6)      (10.5)
    -------------------------------------------------------------------------
    Balance, end of period                             $   800.0   $   720.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The notes are an integral part of the consolidated financial statements.


                                                 CONSOLIDATED BALANCE SHEETS
                                                                   unaudited

    (in millions of dollars)                               As at       As at
                                                        April 30, October 31,
                                                            2007        2006
    -------------------------------------------------------------------------

    Current assets
      Cash and temporary investments                   $    44.1   $    89.3
      Accounts receivable (Note 7)                         179.9       176.3
      Income taxes receivable                                2.4         2.2
      Inventories                                           85.6        92.8
      Prepaid expenses and other current assets             16.8        17.4
      Future income tax assets                               6.3         6.3
    -------------------------------------------------------------------------
                                                           335.1       384.3

    Property, plant and equipment                          707.0       713.6
    Goodwill                                               880.1       881.5
    Intangible assets                                      161.7       165.8
    Future income tax assets                                60.7        59.1
    Other assets                                            90.7        70.4
    -------------------------------------------------------------------------
                                                       $ 2,235.3   $ 2,274.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Current liabilities
      Accounts payable and accrued liabilities         $   316.7   $   417.4
      Income taxes payable                                  26.4        53.3
      Deferred subscription revenues and deposits           52.0        54.2
      Current portion of long-term debt                     10.5        12.7
    -------------------------------------------------------------------------
                                                           405.6       537.6

    Long-term debt                                         503.3       467.9
    Future income tax liabilities                           76.6        70.1
    Other liabilities                                       62.9        42.0
    -------------------------------------------------------------------------
                                                         1,048.4     1,117.6
    -------------------------------------------------------------------------

    Non-controlling interest                                 0.8         0.8
    -------------------------------------------------------------------------

    Commitments (Note 13)

    Shareholders' equity
      Share capital (Note 8)                               404.4       407.6
      Contributed surplus (Notes 8 and 9)                    8.0         6.9
      Retained earnings                                    800.0       769.0
      Accumulated other comprehensive income (Note 10)     (26.3)      (27.2)
    -------------------------------------------------------------------------
                                                           773.7       741.8
    -------------------------------------------------------------------------
                                                         1,186.1     1,156.3
    -------------------------------------------------------------------------
                                                       $ 2,235.3   $ 2,274.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The notes are an integral part of the consolidated financial statements.


                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                   unaudited

                                  Three months ended        Six months ended
                                            April 30                April 30
    -------------------------------------------------------------------------
    (in millions of dollars)        2007        2006        2007        2006
    -------------------------------------------------------------------------

    Operating activities
      Net income               $    34.0   $    33.7   $    54.2   $    61.6
        Items not affecting
         cash and cash
         equivalents
        Amortization                35.9        34.2        70.4        65.9
        Impairment of assets
        (reversal) (Note 4)            -           -         3.5        (0.5)
        Gain on disposal of
         assets                        -        (1.0)       (0.2)       (0.9)
        Future income taxes          3.6        (6.6)        3.9         0.7
        Non-controlling interest       -           -         0.3         0.5
        Accrued pension benefit
         asset and liability
         fluctuation                 2.5         3.7         5.2         6.8
        Stock-based compensation
         and other stock-based
         payments (Note 9)           0.6         0.4         1.2         0.8
         Other                       0.4           -         0.4        (0.1)
    -------------------------------------------------------------------------
      Cash flow from operating
       activities before changes
       in non-cash operating items  77.0        64.4       138.9       134.8
      Changes in non-cash operating
       items                       (52.6)      (37.1)     (116.4)     (217.5)
    -------------------------------------------------------------------------
      Cash flow related to
      (used in) operating
       activities                   24.4        27.3        22.5       (82.7)
    -------------------------------------------------------------------------

    Investing activities
      Business acquisitions
      (Note 11)                     (0.2)       (0.3)      (10.2)       (0.3)
      Acquisitions of property,
       plant and equipment         (32.8)      (29.2)      (54.8)      (51.9)
      Disposals of property,
       plant and equipment           0.9         6.1         1.0         7.4
      Increase in other assets      (8.3)      (14.8)      (13.5)      (18.3)
    -------------------------------------------------------------------------
      Cash flow used in investing
       activities                  (40.4)      (38.2)      (77.5)      (63.1)
    -------------------------------------------------------------------------

    Financing activities
      Reimbursement of long-term
       debt                         (0.7)       (0.9)       (2.8)       (2.0)
      Increase in revolving term
       credit facility              39.5           -        39.5           -
      Dividends on shares           (6.0)       (5.7)      (11.6)      (10.5)
      Redemption of shares
      (Note 8)                      (5.1)      (14.1)      (15.1)      (45.9)
      Issuance of shares (Note 8)    0.4         1.0         0.4         2.2
      Other                            -           -        (0.5)       (0.5)
    -------------------------------------------------------------------------
      Cash flow related to (used in)
       financing activities         28.1       (19.7)        9.9       (56.7)
    -------------------------------------------------------------------------

    Effect of exchange rate changes
     on cash and cash equivalents
     denominated in foreign
     currencies                     (0.2)       (2.8)       (0.1)       (3.2)
    -------------------------------------------------------------------------
    Increase (decrease) in cash
     and cash equivalents           11.9       (33.4)      (45.2)     (205.7)
    Cash and cash equivalents
     at beginning of period         32.2        49.7        89.3       222.0
    -------------------------------------------------------------------------
    Cash and cash equivalents
     at end of period          $    44.1   $    16.3   $    44.1   $    16.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents
     are comprised of Cash and
     temporary investments     $    44.1   $    16.3   $    44.1   $    16.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Additional information
      Interest paid            $     1.4   $     1.1   $    14.0   $    13.3
      Income taxes paid             18.3        20.0        45.0        64.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The notes are an integral part of the consolidated financial statements.


                              NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                                                   unaudited
                    For the three-month and six-month periods ended April 30
    -------------------------------------------------------------------------

    The interim financial statements should be read in conjunction with the
most recent annual consolidated financial statements.

    1. Significant accounting policies

    These interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles ("GAAP"),
using the same accounting policies as outlined in Note 1 and Note 2 to the
consolidated financial statements for the year ended October 31, 2006, except
for the changes in accounting policies described in Note 2. The operating
results for the interim periods are not necessarily indicative of full-year
results due to the seasonality of certain operations of the Corporation.
Results of both publishing and printing operations are significantly
influenced by the advertising market, which is stronger in the second and
fourth quarters.

    2. Changes in accounting policies

    a) Financial instruments - recognition and measurement

    On November 1, 2006, the Corporation adopted Section 3855 of the Canadian
Institute of Chartered Accountants' ("CICA") Handbook, Financial Instruments -
Recognition and Measurement. It exposes the standards for recognizing and
measuring financial instruments in the balance sheet and the standards for
reporting gains and losses in the financial statements. Financial assets
available for sale, assets and liabilities held for trading and derivative
financial instruments, part of a hedging relationship or not, have to be
measured at fair value.

    The Corporation has made the following classifications:

    - Cash and temporary investments are classified as financial assets held
      for trading and are measured at fair value. Gains and losses related
      to periodical revaluation are recorded in net income.
    - Other than temporary investments will be classified as either financial
      assets held to maturity and will thus be measured at cost or as
      available-for-sale and will thus be marked-to-market through
      comprehensive income at each period end.
    - Accounts receivable are classified as loans and receivables and are
      initially measured at fair value and subsequent periodical revaluations
      are recorded at amortized cost using the effective interest rate
      method.
    - Bank overdraft, accounts payable and accrued liabilities and long-term
      debt are classified as other liabilities and are initially measured at
      fair value and subsequent periodical revaluations are recorded at
      amortized cost using the effective interest rate method.

    The adoption of this Section is done retroactively without restatement of
the consolidated financial statements of prior periods. As at November 1,
2006, the impact on the consolidated balance sheet of measuring the financial
assets and liabilities using the effective interest rate method and of
reclassifying the costs directly attributable to the issuance of the long-term
debt was an increase in future income tax assets of $0.1 million and a
decrease in property, plant and equipment, other assets, long-term debt and
opening retained earnings of $1.2 million, $1.8 million, $2.7 million and
$0.2 million, respectively.
    The impact on the consolidated balance sheet of measuring hedging
derivatives at fair value as at November 1, 2006 was an increase in other
assets, future income tax liabilities, other liabilities and accumulated other
comprehensive income of $6.5 million, $1.8 million, $0.9 million and
$3.8 million, respectively. Prior periods were not restated.
    The Corporation selected November 1, 2002 as its transition date for
embedded derivatives. An embedded derivative is a component of a financial
instrument or another contract of which the characteristics are similar to a
derivative. This had no impact on the consolidated financial statements.

    b) Comprehensive income

    On November 1, 2006, the Corporation adopted Section 1530 of the CICA
Handbook, Comprehensive Income. It describes reporting and disclosure
recommendations with respect to comprehensive income and its components.
Comprehensive income is the change in shareholders' equity, which results from
transactions and events from sources other than the Corporation's
shareholders. These transactions and events include changes in the currency
translation adjustment relating to self-sustaining foreign operations and
unrealized gains and losses resulting from changes in fair value of certain
financial instruments.
    The adoption of this Section implied that the Corporation now presents a
consolidated statement of comprehensive income as a part of the consolidated
financial statements. The comparative statements are restated to reflect the
application of this Section for changes in the balances for foreign currency
translation of self-sustaining foreign operations.

    c) Equity

    On November 1, 2006, the Corporation adopted Section 3251 of the CICA
Handbook, Equity, replacing Section 3250, Surplus. It describes standards for
the presentation of equity and changes in equity for reporting period as a
result of the application of Section 1530, Comprehensive Income.

    d) Hedges

    On November 1, 2006, the Corporation adopted Section 3865 of the CICA
Handbook, Hedges. The recommendations of this Section expand the guidelines
required by Accounting Guideline 13 (AcG-13), Hedging Relationships. This
Section describes when and how hedge accounting can be applied as well as the
disclosure requirements. Hedge accounting enables the recording of gains,
losses, revenues and expenses from the derivative financial instruments in the
same period as for those related to the hedged item.

    3. Income taxes

                                  Three months ended        Six months ended
                                            April 30                April 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Statutory tax rate              34.0%       33.6%       32.6%       33.6%
    Manufacturing and processing
     profits tax credits            (0.6)       (0.8)       (0.6)       (0.9)
    Effect of foreign tax rate
     differences                    (2.4)       (3.1)       (3.9)       (3.4)
    Other                            1.0         2.6         2.2         2.8
    -------------------------------------------------------------------------
    Effective tax rate before
     the following item:            32.0        32.3        30.3        32.1
      Impairment of assets and
       restructuring costs             -        (0.1)       (0.2)       (0.1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Effective tax rate              32.0%       32.2%       30.1%       32.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    4. Impairment of assets and restructuring costs

    The following table summarizes the impairment of assets and restructuring
costs:

                            Charged to income                Paid
    -------------------------------------------------------------------------
    (in millions      Three months    Six months  Three months    Six months
    of                       ended         ended         ended         ended
    dollars)              April 30      April 30      April 30      April 30
    -------------------------------------------------------------------------
                       2007   2006   2007   2006   2007   2006   2007   2006
    -------------------------------------------------------------------------
    Commercial
     printing
     operations(a)
      Impairment
       of assets      $   -  $   -  $ 3.5  $   -  $ n/a  $ n/a  $ n/a  $ n/a
      Workforce
       reduction
       costs              -      -    3.1      -    0.7      -    1.1      -
      Transfer of
       printing
       equipment and
       other costs      0.6      -    0.7      -    0.6      -    0.7      -
    Toronto printing
     operations(b)
      Workforce
       reduction costs    -    2.2      -    2.2    0.4    0.1    0.8    0.1
      Transfer of
       printing
       equipment and
       other costs        -      -    0.4      -      -      -    0.4      -
    Book printing
     operations(c)
      Workforce
       reduction costs    -      -      -      -      -    0.1      -    0.8
      Transfer of
       printing
       equipment and
       other costs        -    0.9    0.1    1.5      -    0.9    0.1    1.5
    Manufacturing
     strategy(d)
      Workforce
       reduction costs    -      -      -      -      -    0.1      -    0.4
    Winnipeg printing
     operations(e)
      Impairment of
       assets
       (reversal)         -      -      -   (0.5)   n/a    n/a    n/a    n/a
      Workforce
       reduction costs    -      -      -      -      -      -      -    0.1
      Transfer of
       printing
       equipment and
       other costs        -      -      -      -      -      -      -    0.2
    -------------------------------------------------------------------------
                      $ 0.6  $ 3.1  $ 7.8  $ 3.2  $ 1.7  $ 1.2  $ 3.1  $ 3.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    a) During the first quarter of fiscal 2007, the Corporation initiated a
       restructuring plan for its commercial printing operations in the
       Printing Products and Services and Marketing Products and Services
       sectors. Total restructuring costs related to this plan are expected
       to reach $9.2 million within the next twelve months, of which
       $3.5 million are for an impairment of assets for building and
       equipment that are no longer necessary in the ongoing operations of
       the Corporation, $3.1 million are for workforce reduction costs and
       $2.6 million for the transfer of printing equipment and other costs.
       Of the $9.2 million, an amount of $7.3 million was charged to income
       during the first half of fiscal 2007, of which an amount of
       $3.5 million is for an impairment of assets, $0.2 million in the
       Printing  Products and Services sector and $3.3 million in the
       Marketing Products and Services sector; an amount of $3.1 million is
       for workforce reduction costs, $1.8 million in the Printing Products
       and Services sector and $1.3 million in the Marketing Products and
       Services sector and an amount of $0.7 million is for the transfer of
       printing equipment and other costs in the Printing Products and
       Services sector. As at April 30, 2007, an amount of $2.0 million
       remained unpaid.
    b) During the second quarter of fiscal 2006, the Corporation adopted a
       plan for the consolidation of its commercial products and direct-
       marketing printing facilities located in the Toronto area in the
       Marketing Products and Services sector, which initially resulted in
       total restructuring costs of $2.8 million over the six-month period
       following the announcement. Total restructuring costs were revised to
       $4.0 million during the fourth quarter of fiscal 2006, of which
       $2.8 million are for workforce reduction costs instead of the
       $2.3 million initially estimated, $1.0 million instead of the
       $0.5 million initially estimated for the transfer of printing
       equipment and other costs and $0.2 million for an impairment of
       assets, which was not initially identified. As at April 30, 2007, an
       amount of $0.6 million remained unpaid.
    c) On April 5, 2005, the Corporation announced the consolidation of
       certain book printing operations in the Printing Products and Services
       sector, which initially resulted in an impairment of assets and total
       restructuring costs of $6.1 million. Certain buildings and equipment
       that were no longer necessary in the ongoing operations of the
       Corporation were identified as part of this consolidation and an
       impairment of $2.3 million was initially estimated during the second
       quarter of fiscal 2005 and revised to $1.6 million during the fourth
       quarter of fiscal 2005. In addition, total restructuring costs
       expected over the twelve-month period following the announcement were
       $3.8 million, of which $1.3 million were for workforce reduction costs
       and $2.5 million for the transfer of printing equipment and other
       costs. During the second and fourth quarters of fiscal 2006, amounts
       of $1.0 million and $0.4 million, respectively, were added to the
       expected restructuring costs related to the transfer of printing
       equipment and other costs, which increased the total restructuring
       costs to $6.8 million for this consolidation project. The
       consolidation was completed during the first quarter of 2007.
    d) On November 16, 2004, the Corporation announced major investment
       projects to purchase equipment in the Printing Products and Services
       and Marketing Products and Services sectors. As part of the review of
       the manufacturing strategy, which resulted in these investment
       projects, some equipment that was no longer necessary in the ongoing
       operations of the Corporation was identified. The expected costs were
       $7.5 million, of which $4.9 million and $1.9 million represent an
       impairment of assets in the Printing Products and Services and
       Marketing Products and Services sectors, respectively, and
       $0.3 million and $0.4 million represent workforce reduction costs in
       the Printing Products and Services and Marketing Products and Services
       sectors, respectively. The consolidation was completed during the
       third quarter of 2006.
    e) On August 19, 2004, the Corporation announced the consolidation of its
       Winnipeg retail printing operations in the Marketing Products and
       Services sector. During the fourth quarter of 2005, the Corporation
       reversed $0.5 million of the $2.7 million initially accrued for
       workforce reduction costs. In addition, the actual expense for the
       transfer of printing equipment and other costs amounted to
       $1.0 million instead of the $1.3 million initially estimated. During
       the first quarter of fiscal 2006, real estate assets were sold
       resulting in a gain on disposal of $0.5 million. The consolidation was
       completed during the first quarter of 2006.


    The following table provides a reconciliation of all restructuring
provisions, which are included in "Accounts payable and accrued liabilities"
in the consolidated balance sheets as at April 30:

                                                   Six months ended April 30
    -------------------------------------------------------------------------
    (in millions of dollars)                                2007        2006
    -------------------------------------------------------------------------

    Balance, beginning of period                       $     1.4   $     1.5
    Additions
      Workforce reduction costs                              3.1         2.2
      Transfer of printing equipment and other costs         1.2         1.5

    Reductions
      Amount paid for workforce reduction                   (1.9)       (1.4)
      Amount paid for transfer of printing equipment
       and other                                            (1.2)       (1.7)
    -------------------------------------------------------------------------
    Balance, end of period                             $     2.6   $     2.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    5. Discontinued operations

    On October 8, 2004, the Corporation announced that an unfavourable ruling
was rendered by a California court in the lawsuit brought by Softbank Content
Services against 9112-0691 Québec inc. (previously named MPO Canada inc.), a
holding company owned equally by Transcontinental inc. and 3093-8195 Québec
inc., a subsidiary of MPO S.A. The lawsuit involved a guarantee awarded to
Softbank Content Services, Inc. by MPO Canada inc. in 1999 on behalf of
Americ Disc Inc., its then wholly-owned subsidiary. During the second quarter
of fiscal 2007, following a ruling on appeal, the Corporation paid a total
amount of US$5.8 million to Softbank Content Services, Inc. in final
settlement of the lawsuit. This amount was provided for in 2004.

    6. Employee future benefits

    Pension plans

    The Corporation offers various contributory and non-contributory defined
benefit pension plans and defined contribution pension plans to its employees
and those of its participating subsidiaries. The cost related to those plans
is as follows:

                                  Three months ended        Six months ended
                                            April 30                April 30
    -------------------------------------------------------------------------
    (in millions of dollars)        2007        2006        2007        2006
    -------------------------------------------------------------------------

    Pension plans
      Defined benefit pension
       plans                   $     5.0   $     6.8  $     11.2  $     13.0
      Defined contribution
       pension plans                 0.8         0.8         1.6         1.5
    -------------------------------------------------------------------------
                               $     5.8   $     7.6  $     12.8  $     14.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    7. Accounts receivable

    As at April 30, 2007, $267 million of accounts receivable ($282 million as
at October 31, 2006) had been sold under the accounts receivable
securitization program, of which $36 million ($39 million as at October 31,
2006) were kept by the Corporation as retained interest, resulting in a net
consideration of $231 million, including C$199 million and US$29 million
($243 million as at October 31, 2006, including C$206 million and US$33
million) which represents the maximum net consideration the Corporation could
have obtained on those dates in accordance with the program terms and
conditions. The retained interest is recorded in the Corporation's accounts
receivable at the lower of cost and fair market value. Under the program, the
Corporation recognized an aggregate discount on sale of accounts receivable of
$2.7 million and $5.9 million, respectively, for the three-month and six-month
periods ended April 30, 2007 ($1.8 million and $3.9 million for the same
periods in 2006), which are presented under "Discount on sale of accounts
receivable" in the consolidated statements of income.

    8. Share capital

    Earnings per share

    The table below shows the calculation of basic and diluted earnings per
share:

                                  Three months ended        Six months ended
                                            April 30                April 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Numerator (in millions
     of dollars)
      Net income               $    34.0   $    33.7   $    54.2   $    61.6
    -------------------------------------------------------------------------
    Denominator (in millions)
      Weighted average number
       of shares                    85.4        87.2        85.6        87.9
      Dilutive effect of stock
       options and warrants          0.1         0.2         0.2         0.2
    -------------------------------------------------------------------------
      Weighted average diluted
       number of shares             85.5        87.4        85.8        88.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings per share   $    0.40   $    0.39   $    0.63   $    0.70
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings per share $    0.40   $    0.39   $    0.63   $    0.70
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    A total of 629,420 stock options were considered to be anti-dilutive in
the calculation of the diluted earnings per share for the three-month period
ended April 30, 2007, since their exercise price was greater than the average
stock price during this period.
    A total of 638,340 stock options were considered to be anti-dilutive in
the calculation of the diluted earnings per share for the three-month period
ended January 31, 2007, since their exercise price was greater than the
average stock price during this period.
    A total of 1,406,380 stock options and 350,000 warrants were considered to
be anti-dilutive in the calculation of the diluted earnings per share for the
three-month period ended April 30, 2006, since their exercise price was
greater than the average stock price during this period.
    A total of 1,055,160 stock options and 350,000 warrants were considered to
be anti-dilutive in the calculation of the diluted earnings per share for the
three-month period ended January 31, 2006, since their exercise price was
greater than the average stock price during this period.

    Exercise of stock options

    When officers and senior executives exercise their stock options, the
amounts received from them are credited to share capital. For stock options
granted since November 1, 2002, the amount previously accounted for as an
increase to contributed surplus is also transferred to share capital. For both
the three-month and six-month periods ended April 30, 2007, the amount
received was $0.4 million and $0.1 million was transferred from contributed
surplus to share capital for the same periods. For the three-month and
six-month periods ended April 30, 2006, the amount received was $1.0 million
and $2.2 million, respectively, and a negligible amount was transferred from
contributed surplus to capital stock for the same periods.

    Redemption of shares

    The Corporation is authorized to purchase for cancellation on the open
market, between November 21, 2006 and November 20, 2007, up to 3,448,698 of
its Class A Subordinate Voting Shares, representing 5% of the 68,973,966
issued and outstanding Class A Subordinate Voting Shares as of November 7,
2006, and up to 852,907 of its Class B Shares, representing 5% of the
17,058,145 issued and outstanding Class B Shares as of November 7, 2006. The
purchases are made in the normal course of business at market prices through
the facilities of the Toronto Stock Exchange in accordance with the
requirements of the exchange.
    During the second quarter of fiscal 2007, the Corporation purchased
192,000 of its Class A Subordinate Voting Shares at a weighted average price
of $21.71 for a total consideration of $4.2 million and 42,300 of its Class B
Shares at a weighted average price of $21.85 for a total consideration of
$0.9 million in accordance with its renewed Normal Course Issuer Bid. Of the
total consideration of $5.1 million, $1.1 million corresponds to the book
value and $4.0 million corresponds to the premium paid. The premium was
accounted for as a decrease in retained earnings.
    Between November 1, 2006 and November 20, 2006, the Corporation purchased
39,600 of its Class A Subordinate Voting Shares at a weighted average price of
$20.07 for a total consideration of $0.8 million and none of its Class B
Shares in accordance with its previous Normal Course Issuer Bid as described
in Note 17 of the consolidated financial statements for the year ended October
31, 2006. Between November 21, 2006 and April 30, 2007, the Corporation
purchased 619,400 of its Class A Subordinate Voting Shares at a weighted
average price of $21.42 for a total consideration of $13.3 million and 47,600
of its Class B Shares at a weighted average price of $21.76 for a total
consideration of $1.0 million in accordance with its renewed Normal Course
Issuer Bid. Of the total consideration of $15.1 million, $3.7 million
corresponds to the book value and $11.4 million corresponds to the premium
paid. The premium was accounted for as a decrease in retained earnings.
    During the second quarter of fiscal 2006, the Corporation purchased
507,900 of its Class A Subordinate Voting Shares at a weighted average price
of $18.43 for a total consideration of $9.4 million and 254,400 of its Class B
Shares at a weighted average price of $18.59 for a total consideration of
$4.7 million with its previous Normal Course Issuer Bid as described in Note
17 of the consolidated financial statements for the year ended October 31,
2006. Of the total consideration of $14.1 million, $3.2 million corresponds to
the book value and $10.9 million corresponds to the premium paid. The premium
was accounted for as a decrease in retained earnings.
    During the six-month period ended April 30, 2006, the Corporation
purchased 2,009,300 of its Class A Subordinate Voting Shares at a weighted
average price of $19.06 for a total consideration of $38.3 million and 405,100
of its Class B Shares at a weighted average price of $18.84 for a total
consideration of $7.6 million with its previous Normal Course Issuer Bid as
described in Note 17 of the consolidated financial statements for the year
ended October 31, 2006. Of the total consideration of $45.9 million,
$11.7 million corresponds to the book value and $34.2 million corresponds to
the premium paid. The premium was accounted for as a decrease in retained
earnings.

    9. Stock-based compensation plans

    Share unit plan

    On December 14, 2006, the Corporation modified its share unit plan to
include additional senior executives. Previously, the only participant in this
plan was the President and Chief Executive Officer. The share units are
granted under the form of deferred share units ("DSU") or restricted share
units ("RSU"). A portion of share units will vest based on economic value
creation compared to a target and another portion of share units will vest
based on tenure.
    No share units were granted for the three-month period ended April 30,
2007. For the six-month period ended April 30, 2007, 138,310 DSU and
30,788 RSU were granted.
    As at April 30, 2007, 26,507 RSU and 171,712 DSU were outstanding. The
impact on the consolidated statements of income for the three-month and
six-month periods ended April 30, 2007 was $0.3 million and $0.4 million,
respectively. The impact on the consolidated statements of income for the
three-month and six-month periods ended April 30, 2006 was negligible. No
amount has been paid under the plan for the three-month and six-month periods
ended April 30, 2007 and 2006.

    Stock option plan

    As at April 30, 2007, 1,931,686 stock options had been granted, of which,
991,846 could be exercised.
    There were no stock options granted for the three-month period ended April
30, 2007 and 15,000 stock options were granted with a weighted average
exercise price of $17.95 for the same period in 2006. For the six-month
periods ended April 30, 2007 and 2006, 160,100 and 520,400 stock options were
granted with a weighted average exercise price of $20.90 and $19.25,
respectively.
    The table below summarizes the assumptions used to calculate the weighted
average fair value of stock options granted on the date of the grant using the
Black-Scholes model for the six-month periods ended April 30:

                                                            2007        2006
    -------------------------------------------------------------------------

    Fair value of stock options                        $    5.16   $    5.19

    Assumptions:
    -------------------------------------------------------------------------
    Dividend rate                                            1.1%        0.9%
    Expected volatility                                     22.6%       25.0%
    Risk-free interest rate                                 3.96%       3.95%
    Expected life                                        5 years     5 years


    Stock-based compensation costs of $0.6 million and $0.4 million were
charged to income for the three-month periods ended April 30, 2007 and 2006,
respectively. For the six-month periods ended April 30, 2007 and 2006,
$1.2 million and $0.8 million were charged to income, respectively.


    10. Accumulated other comprehensive income

                                                   Six months ended April 30
    -------------------------------------------------------------------------
    (in millions of dollars)                                2007        2006
    -------------------------------------------------------------------------
    Balance, beginning of period, as previously
     reported                                          $       -   $       -
    Unrealized losses on translation of financial
     statements of self-sustaining foreign
     operations                                            (27.2)      (23.8)
    Financial instruments - recognition and
     measurement (Note 2)                                    3.8           -
    -------------------------------------------------------------------------
    Restated balance, beginning of period                  (23.4)      (23.8)
    Other comprehensive income                              (2.9)       (8.5)
    -------------------------------------------------------------------------
    Balance, end of period                             $   (26.3)  $   (32.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at April 30, 2007, gains on derivatives designated as cash flow hedges
of $2.0 million, net of income taxes of $1.0 million, reported under
"Accumulated other comprehensive income" in the consolidated balance sheet are
expected to be reclassified to net income within the next twelve months. The
remaining gains of $0.8 million, net of income taxes of $0.4 million, are
expected to be reclassified to net income over a three-year period.

    11. Business acquisitions

    Chenelière Education Inc.

    During the six-month period ended April 30, 2007, adjustments were made to
the purchase price allocation of Chenelière Education Inc. which was acquired
on August 31, 2006.
    Amortizable intangible assets were decreased by $0.7 million to reflect
the final valuation of the assets acquired and a decrease of $0.3 million in
the balance of sale payable was recorded following the final determination of
the costs related to the acquisition. Future income tax assets related to
these adjustments were increased by $0.2 million. The impact of these
adjustments was an increase of $0.2 million in goodwill.
    During the three-month and six-month periods ended April 30, 2007, the
Corporation paid an amount of $0.2 million and $9.8 million, respectively,
comprised of $0.5 million of short-term liabilities and $9.3 million of
balance of sale payable. As at April 30, 2007, the balance in short-term
liabilities is $0.3 million, which is included in "Accounts payable and
accrued liabilities" and the balance of sale payable is $6.3 million, of which
$3.2 million are included in "Current portion of long-term debt" and
$3.1 million are included in "Long-term debt" in the consolidated balance
sheet.

    Radville Star Management

    On December 20, 2006, the Corporation acquired 100% of the shares of
Radville Star Management, owner of two newspapers, The Radville Star and The
Deep South Star in Saskatchewan, in the Media Sector for a total cash
consideration of $0.4 million.

    12. Financial instruments

    During the first quarter of fiscal 2007, the Corporation entered into a
total return swap agreement with a financial institution in order to minimize
the impact of the fluctuations in its Class A Subordinate Voting Share price
on its compensation expense which includes a charge related to its share unit
plan as described in Note 9. The Corporation now receives or pays, on a
quarterly basis, the difference between the fixed share price of the total
return swap and the Class A Subordinate Voting Share price, less any amount
previously received or paid. As at April 30, 2007, the total return swap
agreement covered 118,000 Class A Subordinate Voting Shares. The term of this
total return swap agreement ranges from one to five years, with a fixed price
of $21.07. The fair value of the swap agreement, which is negligible as at
April 30, 2007, is recorded on the Corporation balance sheet with changes in
fair value recognized in net income.

    13. Commitments

    During the six-month period ended April 30, 2007, the Corporation entered
into new commitments to acquire machinery and equipment. As at April 30 2007,
$38.1 million (US$29.8 million, euros$0.8 million and C$3.7 million) remained
committed and unaccounted for. Minimum payments required in 2007, 2008 and
2009 are $20.3 million, $15.7 million and $2.1 million, respectively.

    14. Segmented information

    Sales between sectors of the Corporation are measured at fair value.
Transactions, other than sales, are measured at carrying value.

                                  Three months ended        Six months ended
    (in millions of dollars)                April 30                April 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Revenues
      Printing Products and
       Services                $   182.4   $   181.9   $   364.8   $   357.5
      Marketing Products and
       Services                    269.6       271.5       536.3       552.2
      Media                        155.5       148.4       298.1       282.2
      Other activities and
       unallocated amounts           4.3         3.3         7.8         6.3
      Inter-segment sales
        Printing Products and
         Services                  (16.9)      (16.7)      (32.3)      (31.9)
        Marketing Products and
         Services                  (10.1)      (12.9)      (18.3)      (22.0)
        Media                       (4.1)       (4.6)       (7.5)       (8.1)
    -------------------------------------------------------------------------
      Total inter-segment
       sales                       (31.1)      (34.2)      (58.1)      (62.0)
    -------------------------------------------------------------------------
                               $   580.7   $   570.9   $ 1,148.9   $ 1,136.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating income before
     amortization, impairment
     of assets and
     restructuring costs
      Printing Products and
       Services                $    33.7   $    32.4   $    65.1   $    57.9
      Marketing Products and
       Services                     33.0        38.1        63.6        75.7
      Media                         30.8        26.6        50.5        46.3
      Other activities and
       unallocated amounts          (4.7)       (5.7)      (10.7)       (9.3)
    -------------------------------------------------------------------------
                               $    92.8   $    91.4   $   168.5   $   170.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating income
      Printing Products and
       Services                $    23.2   $    21.6   $    43.1   $    37.1
      Marketing Products and
       Services                     17.6        20.0        27.8        42.2
      Media                         26.9        24.3        42.3        41.6
      Other activities and
       unallocated amounts          (6.1)       (6.9)      (13.4)      (11.6)
    -------------------------------------------------------------------------
                               $    61.6   $    59.0   $    99.8   $   109.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Acquisitions of property,
     plant and equipment(1)
      Printing Products and
       Services                $    13.7   $     9.4   $    16.5   $    22.5
      Marketing Products and
       Services                     15.0        16.9        36.3        24.4
      Media                          1.9         1.9         2.9         3.2
      Other activities and
       unallocated amounts           1.8         1.0         2.8         1.8
    -------------------------------------------------------------------------
                               $    32.4   $    29.2   $    58.5   $    51.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Amortization of property,
     plant and equipment
      Printing Products and
       Services                $     9.3   $     9.3   $    18.3   $    18.0
      Marketing Products and
       Services                     14.9        15.1        29.9        30.7
      Media                          2.9         2.2         5.8         4.4
      Other activities and
       unallocated amounts           1.2         1.1         2.3         2.0
    -------------------------------------------------------------------------
                               $    28.3   $    27.7   $    56.3   $    55.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Those amounts represent total expenditures for additions to property,
        plant and equipment for the three-month and six-month periods ended
        April 30, 2007, regardless whether they are paid or not.


                                                           As at       As at
                                                        April 30  October 31
    (in millions of dollars)                                2007        2006
    -------------------------------------------------------------------------
    Assets
      Printing Products and Services                   $   555.2   $   544.2
      Marketing Products and Services                      797.0       787.4
      Media                                                779.4       773.3
      Other activities and unallocated amounts             103.7       169.8
    -------------------------------------------------------------------------
                                                       $ 2,235.3   $ 2,274.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill
      Printing Products and Services                   $   110.4   $   110.5
      Marketing Products and Services                      272.7       273.2
      Media                                                496.1       496.9
      Other activities and unallocated amounts               0.9         0.9
    -------------------------------------------------------------------------
                                                       $   880.1   $   881.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    15. Subsequent events

    Redemption of shares

    The Corporation purchased 667,400 of its Class A Subordinate Voting Shares
at a weighted average price of $21.72 for a total consideration of $14.5
million and 59,400 of its Class B Shares at a weighted average price of $21.84
for a total consideration of $1.3 million between May 1, 2007 and June 13,
2007 in accordance with its Normal Course Issuer Bid as described in Note 8.

    Debt instruments

    On June 1, 2007, Unsecured Senior Debentures totalling $100 million
matured. These debentures are not included in the current portion of long-term
debt on the consolidated balance sheets as at April 30, 2007 as they have been
reimbursed using the existing term revolving credit facility.

    16. Effect of new accounting standards not yet implemented

    Financial instruments - Disclosures

    In December 2006, the CICA issued Section 3862, Financial instruments -
Disclosures. This Section applies to fiscal years beginning on or after
October 1, 2007. It describes the required disclosures related to the
significance of financial instruments on the entity's financial position and
performance and the nature and extent of risks arising for financial
instruments to which the entity is exposed and how the entity manages those
risks. This Section complement the principles of recognition, measurement and
presentation of financial instruments of Sections 3855, Financial
instruments - Recognition and measurement, 3863, Financial instruments -
Presentation and 3865, Hedges. The Corporation is currently evaluating the
impact of the adoption of this new Section on the consolidated financial
statements.

    Financial instruments - Presentation

    In December 2006, the CICA issued Section 3863, Financial instruments -
Presentation. This Section applies to fiscal years beginning on or after
October 1, 2007. It establishes standards for presentation of financial
instruments and non-financial derivatives. It complements standards of Section
3861, Financial instruments - Disclosure and Presentation. The Corporation is
currently evaluating the impact of the adoption of this new Section on the
consolidated financial statements.

    Capital disclosures

    In December 2006, the CICA issued Section 1535, Capital disclosures. This
Section applies to fiscal years beginning on or after October 1, 2007. It
establishes standards for disclosing information about entity's capital and
how it is managed to enable users of financial statements to evaluate the
entity's objectives, policies and procedures for managing capital. The
Corporation is currently evaluating the impact of the adoption of this new
Section on the consolidated financial statements.

    17. Comparative figures

    Certain prior period figures have been reclassified to conform with the
current period presentation.
    




For further information:

For further information: Media: Pierre Leduc, Media Relations, (416)
859-8562, pleduc@tsa.ca; Financial Community: Jennifer F. McCaughey, Director,
Investor Relations, Transcontinental Inc., (514) 954-2821,
jennifer.mccaughey@transcontinental.ca, www.transcontinental.com

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Transcontinental Inc.

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