Transcontinental announces a 17% rise in its first-quarter adjusted earnings per share and a dividend increase of 14%



    
    - Growth of 4% in revenues and 9% in adjusted operating income before
      amortization; excluding the foreign exchange rate impact, growth of 8%
      and 16%, respectively.
    - Significant increase in adjusted operating income margin before
      amortization, from 13.2% in the first quarter of 2007 to 13.8% in 2008;
      excluding the foreign exchange rate impact, margin of 14.2%.
    - Increase of 69% in net income; on a per-share basis, net income rose
      from $0.24 to $0.41, a 71% increase.
    - Increase of 13% in adjusted net income before unusual items; on a
      per-share basis, adjusted net income grew 17%, from $0.29 to $0.34.
    - Signing of exclusive six-year contract, valued at $210 million, to
      print Rogers' magazines starting in February 2009.
    - Acquisition of ThinData, a Canadian leader in permission-based email
      marketing.
    - Announcements of the launch of a French edition of More in Canada in
      the fall of 2008 and of investments totalling $80 million in two
      Montreal-area printing facilities.
    - Announcement by the Corporation of a 14% increase in its quarterly
      dividend, to $0.08 per share.
    - Excellent financial position to support further growth.
    - As previously announced, François Olivier has become President and
      Chief Executive Officer.
    

    MONTREAL, March 13 /CNW Telbec/ - Transcontinental today announced a
significant increase in revenues and earnings for the first quarter ended
January 31, 2008. This excellent performance is due to organic growth
throughout the organization, as well as to the new sales development and
operational efficiency measures introduced as part of the Evolution 2010
business project. Acquisitions made during 2007 offset the negative impact of
the exchange rate between the Canadian dollar and U.S. and Mexican currencies.
    "We are very satisfied with these first quarter results, which
demonstrate the soundness of our business project and our niche strategy,"
said François Olivier, President and Chief Executive Officer of
Transcontinental. "We are reaping the benefits of our major restructuring
projects and investments of recent years. Especially promising is the fact
that we have almost reached our goal of 5% organic growth in revenues, and we
have continued to invest in developing our printing, publishing and digital
media activities. Our solid financial position also gives us the flexibility
needed to better serve both existing and new customers, as demonstrated by the
new contract to print the Rogers magazine portfolio. We have also continued to
develop new non-print-related growth platforms that will allow our customers
to optimize their marketing effectiveness and make Transcontinental the
obvious choice as marketing partner. The recent acquisition of ThinData, a
Canadian leader in permission-based email marketing, is a good example of
this.
    "I am very confident that we will continue to grow in the medium and long
term," said Mr. Olivier. "Our solid financial position, combined with our
ability to generate cash flow, gives us the latitude we need to continue
investing in our development, notably through acquisitions. As a reflection of
our confidence in the future and our commitment to passing on to our
shareholders the benefits of Transcontinental's growth, we are today
announcing a 14% increase in shareholder dividends, which will rise from $0.28
to $0.32 per year."
    As at January 31, 2008, the Corporation's net indebtedness totalled
$525 million and its net funded debt to total capitalization ratio was 31%,
compared to 29% at the end of fiscal 2007, below the long-term objective of
35% to 50% set by management.

    Financial Highlights

    In the first quarter ended January 31, 2008, Transcontinental recorded
consolidated revenues of $596 million, up 4% compared to $572 million in the
same quarter of 2007. Adjusted operating income before amortization rose 9% to
$ 82.4 million, compared to $75.7 million in 2007. This dual increase was
fuelled by organic growth of 5% in revenues and 8% in adjusted operating
income before amortization, as well as the contribution of acquisitions. These
two factors more than offset the unfavourable changes in the exchange rate
between the Canadian dollar and the U.S. and Mexico currencies, which caused a
decrease of $21 million in revenues and $5.2 million in adjusted operating
income before amortization.
    Net income grew by 69%, from $20.2 million for the first quarter of 2007
to $34.1 million in 2008. This growth stemmed mainly from the increase in
adjusted operating income before amortization and the favourable change in
unusual items. On a per-share basis, net income rose 71%, from $0.24 to $0.41.
    Adjusted net income, which does not take into account unusual items
arising from asset impairment, restructuring costs and unusual adjustments to
income taxes, was up 13%, from $25.1 million in the first quarter of 2007 to
$28.4 million in 2008. On a per-share basis, the increase in adjusted net
income was 17%, rising from $0.29 to $0.34. This higher percentage reflects
the positive impact of the Corporation's normal course issuer bid. Excluding
the negative foreign exchange rate impact, adjusted net income would have been
$0.37 per share, up 28%. This measure provides a good indication of
Transcontinental's first quarter operating performance.
    For more detailed financial information, please see Management's
Discussion and Analysis for the First Quarter ended January 31, 2008 at
www.transcontinental.com, under "Investors."

    Operating Highlights

    The main operating highlights from the beginning of the first quarter of
2008 to date are as follows.

    
    - Once an acquisition has been made, the challenge is to achieve a swift,
      effective and harmonious integration. Transcontinental is well known
      for its ability to do this. Indeed, one of the highlights of the first
      quarter was the successful integration of PLM Group, Canada's fourth-
      largest printer and a major player in the direct marketing industry,
      and its 500 employees. PLM Group's diversified customer base includes
      many leading companies that will now benefit from access to
      Transcontinental's entire service offering. This promising
      complementarity quickly manifested itself.
    - Transcontinental signed an exclusive six-year contract to print
      Rogers' complete magazine portfolio, which comprises more than
      70 titles, including Chatelaine, Maclean's, L'actualité and Canadian
      Business. This contract, valued at about $210 million, represents all
      new business for Transcontinental and takes effect on February 1, 2009,
      at which time Transcontinental will become the largest catalogue and
      magazine-printer in Canada.
    - Transcontinental announced that in the fall of 2008 it will launch a
      French-language Canadian edition of More magazine, which targets the
      40+ women's demographic. This addition builds on the unprecedented
      success of the English-language edition of More launched in March 2007,
      and strengthens Transcontinental Media's position as Canada's leading
      publisher of consumer magazines, with more than 40 titles.
    - In February, Transcontinental announced plans to invest a total of
      $80 million to upgrade two facilities in the Montreal area. A first
      investment of $60 million will go to expand the Transcontinental
      Transmag newspaper printing plant and purchase state-of-the-art
      equipment. Clients, including Transcontinental Media, which has around
      40 of its newspapers printed there, will have the option of including
      100% colour on every page of a publication, a capability upon which
      growth in the industry is largely based. The second project will see an
      investment of $20 million in advanced equipment for Transcontinental
      Interweb Montreal, a catalogue and magazine printing facility on the
      South Shore.
    - Loblaw has outsourced its premedia activities to Transcontinental,
      including design, digital photography, image archiving, colour
      management and remote proofing.
    - On February 11, Transcontinental ceased the publication of the Halifax
      Daily News and on February 14 it launched a free daily newspaper,
      Metro, in partnership with Metro International S.A. and Torstar
      Corporation. Management believes that this type of publication is
      better suited to the Halifax market.
    - On March 11,Transcontinental Inc. acquired ThinData Inc., Canada's
      leading permission-based email marketing services firm. ThinData's
      offering fits perfectly with Transcontinental's value-added services
      growth strategy which includes expanding its premedia, database
      management, direct marketing and analytics and e-marketing capabilities
      to deliver unique solutions to its clients and its media properties.

    Reconciliation of Non-GAAP Financial Measures

    Financial data have been prepared in conformity with Canadian 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.
    A table that reconciles GAAP financial measures to non-GAAP financial
measures can be found on the following page.

                  Reconciliation of non-GAAP financial measures
                      For the First Quarter Ended January 31
                                   (unaudited)

    (in millions of dollars,
     except per share amounts)                              2008        2007
    -------------------------------------------------------------------------
    Net income                                          $   34.1    $   20.2
    Non-controlling interest                                 0.3         0.3
    Income taxes                                             2.4         7.5
    Discount on sale of accounts receivable                  3.1         3.2
    Financial expenses                                       8.5         7.0
    Impairment of assets and restructuring costs             1.9         7.2
    Amortization                                            32.1        30.3
    -------------------------------------------------------------------------
    Adjusted operating income before amortization       $   82.4    $   75.7
    -------------------------------------------------------------------------
    Net income                                          $   34.1    $   20.2
    Impairment of assets and restructuring
     costs (after tax)                                       1.3         4.9
    Unusual adjustments to income taxes                     (7.0)          -
    -------------------------------------------------------------------------
    Adjusted net income                                     28.4        25.1
    -------------------------------------------------------------------------
    Average number of shares outstanding                    83.5        85.8
    -------------------------------------------------------------------------
    Adjusted earnings per share                         $   0.34    $   0.29
    -------------------------------------------------------------------------

    Cash flow related to (used in) operating
     activities                                         $   33.0    $   (1.9)
    Changes in non-cash operating items                    (35.5)      (63.8)
    -------------------------------------------------------------------------
    Cash flow from operating activities before
     changes in non-cash operating items                $   68.5    $   61.9
    -------------------------------------------------------------------------

    Long-term debt                                      $  544.2    $  478.9
    Current portion of long-term debt                       14.5        10.7
    Cash and cash equivalents                              (33.2)      (32.2)
    -------------------------------------------------------------------------
    Net indebtedness                                    $  525.5    $  457.4
    -------------------------------------------------------------------------

    Corporate Affairs

    As announced in September 2007, François Olivier officially became
President and Chief Executive Officer of Transcontinental on February 20,
2008, at the annual shareholders' meeting.
    A new Board member was also appointed during the meeting: Lino A. Saputo,
Jr., President and Chief Executive Officer of Saputo Inc. Mr. Saputo will
bring to Transcontinental the benefit of his long experience with one of the
most respected companies in the North American business community.

    Normal Course Issuer Bid

    On December 17, 2007, the Corporation was authorized to purchase for
cancellation on the open market, between December 20, 2007 and December 19,
2008, up to 3,333,994 of its Class A Subordinate Voting Shares, representing
5% of the 66,679,889 issued and outstanding Class A Subordinate Voting Shares
as of December 10, 2007, and up to 845,271 of its Class B Shares, representing
5% of its 16,905,432 issued and outstanding Class B shares as of December 10,
2007. The purchases will be 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.
    In the first quarter of 2008, the Corporation purchased 718,300 of its
Class A Subordinate Voting Shares at an average price of $15.07 for a total
consideration of $10.8 million, and 4,000 of its Class B Shares at an average
price of $20.76 for a total consideration of $0.1 million.

    Dividend Increase

    At its March 13, 2008 meeting, the Corporation's Board of Directors
declared a quarterly dividend of $0.08 per share on Class A Subordinate Voting
Shares and Class B Shares, which represents an increase of 14% over the
dividend paid in the previous quarter. These dividends are payable on
April 25, 2008 to shareholders of record at the close of business on April 7,
2008. On an annual basis, this represents a dividend of $0.32 per share. This
new dividend increase reflects management's confidence in the future and its
commitment to passing on to shareholders the benefits of the Corporation's
growth.

    Additional Information

    Upon releasing its quarterly results, Transcontinental will hold a
conference call for the financial community today at 4:15 p.m. (ET). 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.
For Media requests for information or interviews, please contact
Nessa Prendergast, director, media relations, at 514 954-2809.

    About Transcontinental

    The largest printer in Canada and sixth-largest in North America,
Transcontinental is also 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
Corporation 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 close to 15,000 employees in
Canada, the United States and Mexico, and reported revenues of C$2.3 billion
in 2007.

    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 and the Corporation's capacity to
implement its strategic plan and cost-reduction program and make and integrate
acquisitions into its activities. The risks, uncertainties and other factors
that could influence actual results are described in the Corporation's
Management's Discussion and Analysis and the Annual Information Form.

    The forward-looking information in this release is based on current
expectations and information available as of March 13, 2008. The Corporation's
management disclaims any intention or obligation to update or revise any
forward-looking statements unless otherwise required by the Securities
Authorities.

                                           CONSOLIDATED STATEMENTS OF INCOME
                                                                   unaudited

                                                          Three months ended
    (in millions of dollars, except per share data)               January 31
    -------------------------------------------------------------------------
                                                            2008        2007

    Revenues                                           $   596.0   $   572.2
    Operating costs                                        442.9       431.4
    Selling, general and administrative expenses            70.7        65.1
    -------------------------------------------------------------------------

    Operating income before amortization, impairment
     of assets and restructuring costs                      82.4        75.7
    Amortization                                            32.1        30.3
    Impairment of assets and restructuring costs
     (Note 4)                                                1.9         7.2
    -------------------------------------------------------------------------

    Operating income                                        48.4        38.2
    Financial expenses (Note 5)                              8.5         7.0
    Discount on sale of accounts receivable (Note 8)         3.1         3.2
    -------------------------------------------------------------------------

    Income before income taxes and non-controlling
     interest                                               36.8        28.0
    Income taxes (Note 6)                                    2.4         7.5
    Non-controlling interest                                 0.3         0.3
    -------------------------------------------------------------------------
    Net income                                         $    34.1   $    20.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share (basic) (Note 9)
    Net income                                         $    0.41   $    0.24
    -------------------------------------------------------------------------

    Per share (diluted) (Note 9)
    Net income                                         $    0.41   $    0.23
    -------------------------------------------------------------------------

    Average number of shares outstanding
     (in millions)                                          83.5        85.8
    -------------------------------------------------------------------------
    The notes are an integral part of the consolidated financial statements.


                             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                                   unaudited


                                                          Three months ended
    (in millions of dollars)                                      January 31
    -------------------------------------------------------------------------
                                                            2008        2007
                                                                   (restated
                                                                      Note 2)
    -------------------------------------------------------------------------

    Net income                                         $    34.1   $    20.2
    Other comprehensive loss:
    Unrealized net losses on derivatives designated
     as cash flow hedges, net of income taxes of
     $1.4 million ($1.5 million in 2007)                    (2.8)       (3.0)
    Reclassification adjustment for net gains on
     derivatives designated as cash flow hedges in
     prior periods transferred to net income in the
     current period, net of income taxes of
     $0.8 million ($0.6 million in 2007)                    (1.4)       (1.2)
    -------------------------------------------------------------------------
    Change in net gains on derivatives designated
     as cash flow hedges                                    (4.2)       (4.2)
    Unrealized net gains on translation of financial
     statements of self-sustaining foreign operations        4.0         3.5
    -------------------------------------------------------------------------
    Other comprehensive loss                                (0.2)       (0.7)
    -------------------------------------------------------------------------
    Comprehensive income                               $    33.9   $    19.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                                                   unaudited

                                                          Three months ended
    (in millions of dollars)                                      January 31
    -------------------------------------------------------------------------
                                                            2008        2007
                                                                   (restated
                                                                      Note 2)
    -------------------------------------------------------------------------

    Balance, beginning of period, as previously
     reported                                          $   806.4   $   769.0
    Adjustments to opening retained earnings (Note 2)          -       (19.9)
    -------------------------------------------------------------------------
                                                           806.4       749.1
    Financial Instruments - Recognition and Measurement        -        (0.2)
    -------------------------------------------------------------------------
    Restated balance, beginning of period                  806.4       748.9
    Net income                                              34.1        20.2
    -------------------------------------------------------------------------
                                                           840.5       769.1
    Premium on redemption of shares (Note 9)                (6.9)       (7.4)
    Dividends on shares                                     (5.8)       (5.6)
    -------------------------------------------------------------------------
    Balance, end of period                             $   827.8   $   756.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The notes are an integral part of the consolidated financial statements.


                                                 CONSOLIDATED BALANCE SHEETS
                                                                   unaudited

    (in millions of dollars)
    -------------------------------------------------------------------------
                                                           As at       As at
                                                      January 31, October 31,
                                                            2008        2007
    -------------------------------------------------------------------------

    Current assets
      Cash and cash equivalents                        $    33.2   $    48.5
      Accounts receivable (Note 8)                         174.4       196.9
      Income taxes receivable                                1.3         1.3
      Inventories                                           86.4        91.0
      Prepaid expenses and other current assets             17.1        18.4
      Future income tax assets                               9.8        11.8
    -------------------------------------------------------------------------
                                                           322.2       367.9

    Property, plant and equipment                          748.7       739.7
    Goodwill                                               946.2       934.6
    Intangible assets                                      169.0       172.5
    Future income tax assets                                72.6        64.6
    Other assets                                            79.9        90.3
    -------------------------------------------------------------------------
                                                       $ 2,338.6   $ 2,369.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Current liabilities
      Accounts payable and accrued liabilities         $   342.4   $   400.5
      Income taxes payable                                  31.4        32.3
      Deferred subscription revenues and deposits           47.8        52.9
      Current portion of long-term debt                     14.5        14.2
    -------------------------------------------------------------------------
                                                           436.1       499.9

    Long-term debt                                         544.2       523.3
    Future income tax liabilities                          101.9       108.4
    Other liabilities                                       60.7        58.2
    -------------------------------------------------------------------------
                                                         1,142.9     1,189.8
    -------------------------------------------------------------------------

    Non-controlling interest                                 0.3         2.2
    -------------------------------------------------------------------------

    Commitments (Note 16)

    Shareholders' equity
      Share capital (Note 9)                               391.1       395.1
      Contributed surplus (Note 11)                          9.8         9.2
      Retained earnings                                    827.8       806.4
      Accumulated other comprehensive loss (Note 12)       (33.3)      (33.1)
    -------------------------------------------------------------------------
                                                           794.5       773.3
    -------------------------------------------------------------------------
                                                         1,195.4     1,177.6
    -------------------------------------------------------------------------
                                                       $ 2,338.6   $ 2,369.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The notes are an integral part of the consolidated financial statements.


                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                   unaudited

                                                          Three months ended
    (in millions of dollars)                                      January 31
    -------------------------------------------------------------------------
                                                            2008        2007
    -------------------------------------------------------------------------

    Operating activities
      Net income                                       $    34.1   $    20.2
      Items not affecting cash and cash equivalents
        Amortization                                        39.0        34.5
        Impairment of assets (Note 4)                        1.9         3.5
        Gain on disposal of assets                             -        (0.2)
        Future income taxes                                 (8.8)        0.3
        Non-controlling interest                             0.3         0.3
        Accrued pension benefit asset and liability          3.0         2.7
        Stock-based compensation and other stock-based
         payments (Note 10)                                  0.9         0.6
        Other                                               (1.9)          -
    -------------------------------------------------------------------------
      Cash flow from operating activities before
       changes in non-cash operating items                  68.5        61.9
      Changes in non-cash operating items                  (35.5)      (63.8)
    -------------------------------------------------------------------------
      Cash flow related to (used in) operating
       activities                                           33.0        (1.9)
    -------------------------------------------------------------------------

    Investing activities
      Business acquisitions (Note 13)                       (3.0)      (10.0)
      Acquisitions of property, plant and equipment        (31.3)      (22.0)
      Disposals of property, plant and equipment               -         0.1
      Increase in other assets                              (5.5)       (5.2)
    -------------------------------------------------------------------------
      Cash flow used in investing activities               (39.8)      (37.1)
    -------------------------------------------------------------------------

    Financing activities
      Increase in long-term debt                             0.1           -
      Reimbursement of long-term debt                       (1.7)       (2.1)
      Increase in revolving term credit facility             8.4           -
      Dividends on shares                                   (5.8)       (5.6)
      Redemption of shares (Note 9)                        (10.9)      (10.0)
      Other                                                 (0.3)       (0.5)
    -------------------------------------------------------------------------
      Cash flow used in financing activities               (10.2)      (18.2)
    -------------------------------------------------------------------------

    Effect of exchange rate changes on cash and cash
     equivalents denominated in foreign currencies           1.7         0.1
    -------------------------------------------------------------------------

    Decrease in cash and cash equivalents                  (15.3)      (57.1)
    Cash and cash equivalents at beginning of period        48.5        89.3
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period         $    33.2   $    32.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Additional information
      Interest paid                                    $    12.0   $    12.5
      Income taxes paid                                     15.3        26.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The notes are an integral part of the consolidated financial statements.


                              NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                                                   unaudited
                           For the three-month period ended January 31, 2008
    -------------------------------------------------------------------------

    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 3 to the
consolidated financial statements for the year ended October 31, 2007, except
for the changes in accounting policies disclosed in Note 3. 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 media and printing operations are significantly influenced by
the advertising market, which is stronger in the second and fourth quarters.
The fall is also the strongest period for book printing and for our business
segment of educational resources publishing.

    2. Restatement

    In the context of the preparation of its consolidated financial statements
for the year ended October 31, 2007, the Corporation's management identified
two accounting errors in prior years' financial statements relating to the
amortization of property, plant and equipment and income taxes.

    Amortization of property, plant and equipment.

    Opening retained earnings, accumulated other comprehensive loss and
comprehensive income for the period ended January 31, 2007 have been reduced
by $10.1 million, $1.0 million and $0.2 million, respectively.

    Income taxes

    Opening retained earnings for the three-month period ended January 31,
2007 have been reduced by $9.8 million.

    3. Changes in accounting policies

    a) Financial Instruments - Disclosures

    On November 1, 2007, the Corporation adopted Section 3862, Financial
    Instruments - Disclosures, replacing Section 3861 - Financial Instruments
    - Disclosure and Presentation. This Section 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 from financial instruments to which the entity is exposed
    and how the entity manages those risks. This Section complements 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 adoption of this Section implied that the Corporation now presents
    sensitivity analysis regarding foreign exchange risk, interest rate risk,
    commodity prices risk and stock-based compensation costs risk.
    Comparative information about the nature and extent of risks arising from
    financial instruments is not required in the year Section 3862 is
    adopted.

    b) Financial Instruments - Presentation

    On November 1, 2007, the Corporation adopted Section 3863, Financial
    Instruments - Presentation, replacing Section 3861 - Financial
    Instruments - Disclosure and Presentation. This Section establishes
    standards for presentation of financial instruments and non-financial
    derivatives.

    The adoption of this Section did not have a significant impact on the
    consolidated financial statements.

    c) Capital Disclosures

    On November 1, 2007, the Corporation adopted Section 1535, Capital
    Disclosures. This Section establishes standards for disclosing
    information about an 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 adoption of this Section implied that information on capital
    management is now included in the notes to the consolidated financial
    statements. This information is included in Note 15, Capital management.

    d) Accounting changes

    On November 1, 2007, the Corporation adopted the revised version of
    Section 1506 of the CICA, Accounting changes. This Section establishes
    criteria for changing accounting policies and treatment and disclosure of
    changes in accounting policies, changes in accounting estimates and
    correction of errors.

    The adoption of this Section implied that the Corporation makes voluntary
    changes in accounting policy only if they result in the financial
    statements providing reliable and more relevant information. Changes in
    accounting policy made by the Corporation are applied retrospectively
    unless doing so is impracticable or the change in accounting policy is
    made on the initial application of a primary source of GAAP in accordance
    with specific transitional provisions in that primary source. A change in
    accounting estimate is generally recognized prospectively and material
    prior period errors are corrected retrospectively.

    4. Impairment of assets and restructuring costs

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

                                         Three months ended January 31
    -------------------------------------------------------------------------
    (in millions of
     dollars)              Total                       2008
    -------------------------------------------------------------------------
                                     Liability                     Liability
                                         as at                         as at
                   Charged             October   Charged             January
                        to      Fore-       31        to                  31
                    income    casted      2007    income      Paid      2008

    Newspaper
     operations (a)
    Media
    Workforce
     reduction
     costs           $   -     $ 1.4     $   -     $   -     $   -     $   -
    Transfer of
     printing
     equipment and
     other costs         -       0.9         -         -         -         -
    Printing
     Products and
     Services
    Workforce
     reduction costs     -       0.3         -         -         -         -
    -------------------------------------------------------------------------
                         -       2.6         -         -         -         -
    Media
    Impairment of
     assets            1.9       1.9       n/a       1.9       n/a       n/a
    -------------------------------------------------------------------------
                     $ 1.9     $ 4.5     $   -     $ 1.9     $   -     $   -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Commercial
     printing (b)
    Printing
     Products and
     Services
    Workforce
     reduction costs $ 1.8     $ 1.8     $ 1.1     $   -     $ 0.2     $ 0.9
    Transfer of
     printing
     equipment and
     other costs       1.4       1.7         -         -         -         -
    Marketing
     Products and
     Services
    Workforce
     reduction
     costs             1.6       1.6       0.3         -       0.1       0.2
    Transfer of
     printing
     equipment and
     other costs       0.6       0.8         -         -         -         -
    -------------------------------------------------------------------------
                       5.4       5.9       1.4         -       0.3       1.1
    Printing
     Products and
     Services
    Impairment of
     assets            0.3       0.3       n/a         -       n/a       n/a
    Marketing
     Products and
     Services
    Impairment of
     assets            3.3       3.3       n/a         -       n/a       n/a
    -------------------------------------------------------------------------
                     $ 9.0     $ 9.5     $ 1.4     $   -     $ 0.3     $ 1.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Toronto
     printing
     operations (c)
    Workforce
     reduction
     costs           $ 3.0     $ 3.0     $ 0.6     $   -     $ 0.1     $ 0.5
    Transfer of
     printing
     equipment and
     other costs       1.0       1.0         -         -         -         -
    -------------------------------------------------------------------------
                       4.0       4.0       0.6         -       0.1       0.5
    Impairment
     of assets         0.2       0.2       n/a         -       n/a       n/a
    -------------------------------------------------------------------------
                     $ 4.2     $ 4.2     $ 0.6     $   -     $ 0.1     $ 0.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Book printing
     operations (d)
    Workforce
     reduction
     costs           $ 1.3     $ 1.3     $   -     $   -     $   -     $   -
    Transfer of
     printing
     equipment and
    other costs        3.9       3.9         -         -         -         -
    -------------------------------------------------------------------------
                       5.2       5.2         -         -         -         -
    Impairment of
     assets            1.6       1.6       n/a         -       n/a       n/a
    -------------------------------------------------------------------------
                     $ 6.8     $ 6.8     $   -     $   -     $   -     $   -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Total                                $ 2.0     $ 1.9     $ 0.4     $ 1.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                Three months ended January 31
    -------------------------------------------------------------------------
    (in millions of
     dollars)                                                    2007
    -------------------------------------------------------------------------
                                                           Charged
                                                                to
                                                            income      Paid

    Newspaper
     operations (a)
    Media
    Workforce
     reduction
     costs                                                   $   -     $   -
    Transfer of
     printing
     equipment and
     other costs                                                 -         -
    Printing
     Products and
     Services
    Workforce
     reduction costs                                             -         -
    -------------------------------------------------------------------------
                                                                 -         -
    Media
    Impairment of
     assets                                                      -       n/a
    -------------------------------------------------------------------------
                                                             $   -     $   -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Commercial
     printing (b)
    Printing
     Products and
     Services
    Workforce
     reduction costs                                         $ 1.8     $ 0.1
    Transfer of
     printing
     equipment and
     other costs                                               0.1       0.1
    Marketing
     Products and
     Services
    Workforce
     reduction
     costs                                                     1.3       0.3
    Transfer of
     printing
     equipment and
     other costs                                                 -         -
    -------------------------------------------------------------------------
                                                               3.2       0.5
    Printing
     Products and
     Services
    Impairment of
     assets                                                    0.2       n/a
    Marketing
     Products and
     Services
    Impairment of
     assets                                                    3.3       n/a
    -------------------------------------------------------------------------
                                                             $ 6.7    $  0.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Toronto
     printing
     operations (c)
    Workforce
     reduction
     costs                                                   $   -     $ 0.4
    Transfer of
     printing
     equipment and
     other costs                                               0.4       0.4
    -------------------------------------------------------------------------
                                                               0.4       0.8
    Impairment
     of assets                                                   -       n/a
    -------------------------------------------------------------------------
                                                             $ 0.4     $ 0.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Book printing
     operations (d)
    Workforce
     reduction
     costs                                                   $   -     $   -
    Transfer of
     printing
     equipment and
    other costs                                                0.1       0.1
    -------------------------------------------------------------------------
                                                               0.1       0.1
    Impairment of
     assets                                                      -       n/a
    -------------------------------------------------------------------------
                                                             $ 0.1     $ 0.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Total                                                    $ 7.2     $ 1.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    a) On February 11, 2008, the Corporation initiated a restructuring plan
       for its newspaper operations in the Media sector which includes the
       closing of The Daily News of Halifax and the launch of a free daily
       newspaper, Metro, for the Halifax market. The restructuring is
       expected to be finalized by the end of the second quarter of fiscal
       2008. During the first quarter of fiscal 2008, the Corporation
       performed an impairment test on the assets of The Daily News of
       Halifax, mainly comprised of non-amortizable intangible assets, and,
       as a result, recorded an impairment charge of $1.9 million.

    b) 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. The restructuring is expected to be completed in 2008.

    c) 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. The consolidation is expected
       to be completed in 2008.

    d) During the second quarter of fiscal 2005, the Corporation announced
       the consolidation of certain book printing operations in the Printing
       Products and Services sector. The consolidation was completed during
       the first quarter of 2007.

    5. Financial expenses

                                                          Three months ended
                                                               January 31
    (in millions of dollars)                                2008        2007
    -------------------------------------------------------------------------
    Financial expenses on long-term debt                 $   8.2     $   7.0
    Other expenses                                           0.4         0.5
    Foreign exchange gain                                   (0.1)       (0.5)
    -------------------------------------------------------------------------
                                                         $   8.5     $   7.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6. Income taxes
                                                          Three months ended
                                                               January 31
                                                            2008        2007
    -------------------------------------------------------------------------

    Statutory tax rate                                      31.9%      30.7%
    Effect of foreign tax rate differences                  (5.3)      (6.0)
    Other                                                   (1.1)       2.1
    -------------------------------------------------------------------------
    Effective tax rate before the following item:           25.5       26.8
      Effect of changes in statutory tax rates (a)         (19.0)         -
    -------------------------------------------------------------------------
    Effective tax rate                                       6.5%      26.8%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    a) On December 13, 2007, Bill C-28 received third reading in the House of
       Commons. Accordingly, the Federal Corporate Income tax rate reductions
       announced in the October 30, 2007 Economic Statement became
       substantively enacted for the purpose of preparing the consolidated
       financial statements in accordance with Canadian GAAP. This decrease
       in federal tax rate reduced both the income tax expense and net future
       income tax liabilities by $7.0 million during the first quarter of
       fiscal 2008.

    7. 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
                                                               January 31
    (in millions of dollars)                                2008        2007
    -------------------------------------------------------------------------
    Pension plans
      Defined benefit pension plans                      $   6.0     $   6.2
      Defined contribution pension plans                     0.8         0.8
    -------------------------------------------------------------------------
                                                         $   6.8     $   7.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8. Accounts receivable

    As at January 31, 2008, $330 million of accounts receivable ($273 million
as at October 31, 2007) had been sold under the accounts receivable
securitization program, of which $45 million ($37 million as at October 31,
2007) was kept by the Corporation as retained interest, resulting in a net
consideration of $285 million, including C$252 million and US$33 million
($236 million as at October 31, 2007, including C$209 million and US$29
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
$3.1 million for the three-month period ended January 31, 2008 ($3.2 million
for the same period in 2007).

    9. Share capital

    Earnings per share

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

                                                          Three months ended
                                                               January 31
                                                            2008        2007
    -------------------------------------------------------------------------
    Numerator (in millions of dollars)
      Net income                                        $   34.1    $   20.2
    -------------------------------------------------------------------------
    Denominator (in millions)
      Weighted average number of shares
       outstanding - basic                                  83.5        85.8
      Dilutive effect of stock options and warrants          0.1         0.2
    -------------------------------------------------------------------------
      Weighted average number of shares
       outstanding - diluted                                83.6        86.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings per share                            $   0.41    $   0.24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings per share                          $   0.41    $   0.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Stock options presented below were considered to be anti-dilutive in the
    calculation of the diluted earnings per share since their exercise price
    was greater than the average stock price during those periods.

                                                          Three months ended
                                                               January 31
                                                            2008        2007
    -------------------------------------------------------------------------
    Stock options                                      1,519,340     638,340
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the first quarter of 2008, the 350,000 warrants giving right to
    acquire Class A Subordinate Voting Shares expired.

    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 the
three-month periods ended January 31, 2008 and 2007, the amounts received were
both negligible, and no amount were transferred from contributed surplus to
share capital for the same periods.

    Redemption of shares

    The Corporation was authorized to purchase for cancellation on the open
market, between December 20, 2007 and December 19, 2008, up to 3,333,994 of
its Class A Subordinate Voting Shares, representing 5% of the 66,679,889
issued and outstanding Class A Subordinate Voting Shares as of December 10,
2007, and up to 845,271 of its Class B Shares, representing 5% of the
16,905,432 issued and outstanding Class B Shares as of December 10, 2007.
    The Corporation was 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.
    Purchases were 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 first quarter of fiscal 2008, the Corporation purchased 718,300
of its Class A Subordinate Voting Shares at a weighted average price of $15.07
for a total consideration of $10.8 million and 4,000 of its Class B Shares at
a weighted average price of $20.76 for a total consideration of $0.1 million.
Of the total consideration of $10.9 million, $4.0 million corresponds to the
book value and $6.9 million corresponds to the premium paid. The premium was
accounted for as a decrease in retained earnings.
    During the first quarter of fiscal 2007, the Corporation purchased 467,000
of its Class A Subordinate Voting Shares at a weighted average price of $21.21
for a total consideration of $9.9 million and 5,300 of its Class B Shares at a
weighted average price of $21.21 for a total consideration of $0.1 million. Of
the total consideration of $10.0 million, $2.6 million corresponds to the book
value and $7.4 million corresponds to the premium paid. The premium was
accounted for as a decrease in retained earnings.

    10. Stock-based compensation plans

    Share unit plan

    The Corporation offers a share unit plan to its senior executives under
which deferred share units ("DSU") and restricted share units ("RSU") are
granted.
    For the three-month period ended January 31, 2008, 188,505 RSU were
granted (138,310 DSU and 30,788 RSU in 2007).
    As at January 31, 2008, 129,914 DSU and 230,838 RSU were outstanding
(138,310 DSU and 64,081 RSU in 2007). The amounts recorded in the consolidated
statements of income for the three-month periods ended January 31, 2008 and
2007 were of $0.3 million and $0.1 million, respectively. No amount has been
paid under the plan for the three-month periods ended January 31, 2008 and
2007.

    Stock option plan

    As at January 31, 2008, 2,018,226 stock options were outstanding, of which
1,267,991 could be exercised.
    For the three-month periods ended January 31, 2008 and 2007, 159,700 and
160,100 stock options were granted with a weighted average exercise price of
$15.51 and $20.90, 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 three-month periods ended January 31:

                                                            2008        2007
    -------------------------------------------------------------------------
    Fair value of stock options                         $   4.04    $   5.16

    Assumptions:
      Dividend rate                                          1.2%        1.1%
      Expected volatility                                   26.0%       22.6%
      Risk-free interest rate                               3.65%       3.96%
      Expected life                                      5 years     5 years
    -------------------------------------------------------------------------

    11. Contributed surplus

                                                          Three months ended
                                                               January 31
    (in millions of dollars)                                2008        2007
    -------------------------------------------------------------------------
    Balance, beginning of period                        $    9.2    $    6.9
    Compensation costs relating to stock option
     plan (Note 10)                                          0.6         0.6
    -------------------------------------------------------------------------
    Balance, end of period                              $    9.8    $    7.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. Accumulated other comprehensive loss

                                             Foreign             Accumulated
                                            Currency        Cash  Other Com-
                                         Translation        Flow  prehensive
    (in millions of dollars)              Adjustment       Hedge        Loss
    -------------------------------------------------------------------------
    Balance as at November 1, 2007         $   (42.3)  $     9.2   $   (33.1)
    Net change in unrealized gains/losses,
     net of income tax                           4.0        (4.2)       (0.2)
    -------------------------------------------------------------------------
    Balance as at January 31, 2008         $   (38.3)  $     5.0   $   (33.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance as at November 1, 2006, as
     previously reported                   $       -   $       -   $       -
    Unrealized losses, net of income tax       (26.0)          -       (26.0)
    Financial instruments - Recognition
     and measurement                               -         3.8         3.8
    -------------------------------------------------------------------------
    Restated balance as at
     November 1, 2006                          (26.0)        3.8       (22.2)
    Net change in unrealized gains/losses,
     net of income tax                           3.5        (4.2)       (0.7)
    -------------------------------------------------------------------------
    Balance as at January 31, 2007         $   (22.5)  $    (0.4)  $   (22.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at January 31, 2008, the amounts expected to be reclassified to net
    income are as follows:

                                                2008        2009       Total
    -------------------------------------------------------------------------
    Gains on derivatives designated as
     cash flow hedges                      $     6.4   $     0.9   $     7.3
    Income taxes                                (2.0)       (0.3)       (2.3)
    -------------------------------------------------------------------------
                                           $     4.4   $     0.6   $     5.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. Business acquisitions

    During the first quarter of fiscal 2008, the Corporation made the
    following acquisitions:

    Operating                                                        Date of
    sector       Acquisition                                     acquisition
    -------------------------------------------------------------------------
    Media
               Assets of L'Autre Voix, weekly newspaper    December 21, 2007
               in the eastern Quebec City region

               Assets of Corriere Italiano, weekly         December 20, 2007
               newspaper serving the Italian community
               in Montreal area

               Assets of The Springhill-Parrsboro Record,  November 23, 2007
               weekly newspaper in Nova Scotia
    -------------------------------------------------------------------------

    (in millions of dollars)
    -------------------------------------------------------------------------
    Assets acquired
      Goodwill (tax basis of $1.5 million)                         $     1.5

    Liabilities assumed
      Working capital                                                   (0.2)
    -------------------------------------------------------------------------
                                                                   $     1.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Consideration
      Cash paid                                                    $     1.1
      Short-term liabilities                                             0.2
    -------------------------------------------------------------------------
                                                                   $     1.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the first quarter of 2008, the Corporation acquired an additional
    2% of the shares of PLM Group Ltd, for a total cash consideration of
    $1.9 million. The Corporation now owns 100% of the shares of
    PLM Group Ltd.

    14. Financial instruments

    Credit risk

    The Corporation is exposed to credit risk with respect to trade
receivables and derivative financial instruments.
    The Corporation analyzes and reviews the financial health of its current
customers on an ongoing basis and applies rigorous evaluation procedures to
all new customers. A specific credit limit is established for each customer
and reviewed periodically by the Corporation.
    The Corporation is protected against any concentration of credit risk
through its products, clientele and geographic diversity. As at January 31,
2008, no single customer accounts for more than 5% of its consolidated
revenues, and the Corporation's 20 largest customers account for less than 35%
of its consolidated revenues. As at January 31, 2008, the maximum credit risk
exposure for receivables corresponds to their carrying value. The Corporation
also has a credit insurance policy covering most of its major customers, for a
maximum amount of $30 million. The policy contains the usual clauses and
limits regarding the amounts that can be claimed by event and year of
coverage. The Corporation did not file any claim against this credit insurance
policy for the three-month period ended January 31, 2008.
    In addition, the Corporation has concluded long-term contracts with most
of its major customers. These contracts contain cost-escalation clauses
equivalent to those required by the Corporation's suppliers. The Corporation
determines past due receivables by considering the type of clients, historical
payment terms and in which sector the clients conduct business. On a quarterly
basis, allowance for doubtful accounts and past due receivables are reviewed
by management. The Corporation records impairment only on receivables for
which the recoverability is not reasonably certain.
    The Corporation is exposed to credit risk arising from derivative
financial instruments if a counterparty fails to meet its obligations;
however, it does not foresee such an occurrence since it deals only with
recognized financial institutions with superior credit ratings. As at January
31, 2008, the maximum exposure to credit risk is $7.3 million, which
represents the carrying value of the financial instruments.

    Liquidity risk

    The Corporation has contractual obligations and financial liabilities,
thus, is exposed to liquidity risk.
    The Corporation believes that future cash flows generated by operations
and access to additional liquidity through capital and banking markets will be
adequate to meet its financial obligations.

    Interest rate risk

    The Corporation is exposed to market risks related to interest-rate
fluctuations. In order to mitigate this risk, the Corporation maintains an
adequate balance of fixed versus floating rate debt. As at January 31, 2008,
the floating rate portion of the Corporation's long-term debt represented 54%
of the total while the fixed rate portion represented 46%.
    The Corporation is also exposed to interest rate fluctuations through its
securitization program, since the discount on the sale of accounts receivable
is based on the rate of the commercial paper issued by the trust. The trust
generally issues its commercial paper on a monthly basis. It is important to
note that while the Corporation has not been directly exposed to the current
credit crunch, it has been indirectly affected through its securitization
program since interest rates for this program have gone up slightly, albeit it
does not represent a significant additional cost to the Corporation.
    The Corporation believes that interest rates for the Canadian and U.S.
economies are not likely to trend upward in 2008 and deems that its exposure
to interest rates will be subdued in the coming quarters.
    For the first quarter of 2008, everything else being equal, an
hypothetical increase of 0.5% in interest rates would have had an unfavorable
impact of $0.5 million on net income and no impact on other comprehensive
loss. An hypothetical decrease of 0.5% in interest rates would have had an
opposite impact on net income and other comprehensive loss.

    Foreign exchange risk

    The Corporation has operations in the United States and Mexico, exports
its products to the United States and purchases machinery and equipment in
U.S. dollars. In addition, as at January 31, 2008, the Corporation has
long-term debt in U.S. dollars for a total amount of US$287.5 million
(US$227.9 million as at October 31, 2007) . The Corporation is therefore
exposed to foreign exchange risk.
    To mitigate the foreign exchange risk related to its exports to the United
States, the Corporation enters into foreign exchange forward contracts. As at
January 31, 2008, the Corporation entered into foreign exchange forward
contracts to sell US$87 million, (US$87.3 million as at October 31, 2007) of
which US$45 million and US$42 million will be sold in 2008 and 2009,
respectively. The terms of these forward contracts range from one month to
21 months, with rates varying from 1.0087 to 1.1643. The Corporation was also
party to a collar of US$2 million (US$6 million as at October 31, 2007). The
terms of this collar contract is five months, with a floor rate of 1.04 and a
cap rate of 1.0885. Hedging relationships were effective and in accordance
with the risk management objectives and strategies throughout the first
quarter of fiscal 2008.
    For the first quarter of 2008, everything else being equal, an
hypothetical strengthening of 5.0% of the U.S. dollar against the Canadian
dollar would have had a favorable impact of $3.5 million on net income and an
unfavorable impact of $3.0 million on other comprehensive loss. An
hypothetical weakening of 5.0% of the U.S. dollar against the Canadian dollar
would have had an opposite impact on net income and other comprehensive loss.
    For the first quarter of fiscal 2008, everything else being equal, an
hypothetical strengthening of 5.0% of the Mexican peso against the Canadian
dollar would have had a favorable impact of $0.1 million on net income and no
impact on other comprehensive loss. An hypothetical weakening of 5.0% of the
Mexican peso against the Canadian dollar would have had an opposite impact on
net income and no impact on other comprehensive loss.

    Commodity prices risk

    The Corporation is exposed to a financial risk related to fluctuations in
natural gas prices and manages it in order to minimize the impact on the
Corporation's results and financial position. The Corporation entered into
commodity swap agreements to manage a portion of its natural gas price
fluctuation exposure and is now committed to exchange, on a monthly basis, the
difference between a fixed price and a floating natural gas price index
calculated by reference to the notional amounts. Under this program, 40% of
the expected natural gas consumption is hedged for the next three fiscal
years. Hedging relationships were effective and in accordance with the risk
management objectives and strategies of the Corporation throughout the first
quarter of fiscal 2008.
    As at January 31, 2008, the Corporation had purchased commodity swap
agreements for 604,000 Gigajoules (533,000 Gigajoules as at October 31, 2007),
of which 284,000, 275,000 and 45,000 Gigajoules will mature in 2008, 2009 and
2010, respectively. The terms of theses commodity swap agreements range from
one month to 30 months, with prices varying from $7.38 to $8.97 per Gigajoule.
    For the first quarter of fiscal 2008, everything else being equal, an
hypothetical strengthening of 25.0% of gas prices would have had a unfavorable
impact of $0.1 million on net income and a favorable impact of $0.8 million on
other comprehensive loss. An hypothetical weakening of 25.0% of gas prices
would have had an opposite impact on net income and other comprehensive loss.

    Stock-based compensation costs risk

    The Corporation is exposed to a financial risk related to stock-based
compensation costs. Potential fluctuations in its Class A Subordinate Voting
Share price would have an impact on the charge related to its share unit plan
as described in Note 10. During the first quarter of fiscal 2007, the
Corporation entered into a total return swap agreement with a financial
institution in order to minimize this financial risk. 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 January 31, 2008, the total
return swap agreement covered 118,000 Class A Subordinate Voting Shares. The
remaining term of this total return swap agreement is four years, with an
option to terminate it before its maturity date without any costs. The fair
value of the swap agreement as at January 31, 2008, for a total amount of
$0.1 million, is recorded in the Corporation's consolidated balance sheet with
changes in fair value recognized in net income.
    For the first quarter of fiscal 2008, everything else being equal, an
hypothetical strengthening of 5.0% of the Class A Subordinate Voting Share
price would have had a negligible impact on net income and on other
comprehensive loss. An hypothetical weakening of 5.0% of the Class A
Subordinate Voting Share price would have had also a negligible impact on net
income and other comprehensive loss.

    Fair value

    The book value of certain financial instruments maturing in the short-term
approximates their fair value. These financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities. The table below shows the fair value and the book value of other
financial instruments.
    The fair value of long-term debt is determined essentially by discounting
cash flows, based on actual loan rates for long-term debt with similar
characteristics, or quoted market prices. The fair value of derivative
financial instruments is approximately the amounts for which the financial
instruments could be settled between consenting parties, based on current
market data for similar instruments. As estimates must be used to determine
fair value, they must not be interpreted as being realizable in the event of
an immediate settlement of the instruments.

                                    January 31, 2008        October 31, 2007
                                     Fair       Book        Fair        Book
    (in millions of dollars)        value      value       value       value
    -------------------------------------------------------------------------
    Long-term debt             $   560.6   $   558.7   $   539.5   $   537.5
    Foreign exchange forward
     contracts and collars     $     7.6   $     7.6   $    14.3   $    14.3
    Commodity swap agreements  $    (0.3)  $    (0.3)  $    (0.6)  $    (0.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    15. Capital management

    The Corporation's primary objectives of managing capital are:

      - Optimize leverage position by targeting a 35% to 50% net
        indebtedness/total capitalization ratio;
      - Maintain an investment grade credit rating;
      - Preserve its financial flexibility in order to benefit from potential
        opportunities as they arise.

    The Corporation manages the capital structure and makes adjustments to it
in light of changes in economic conditions and the risk characteristics of the
underlying assets.
    The Corporation monitors capital on the basis of net indebtedness/total
capitalization. For calculation purposes, net indebtedness refers to long term
debt, current portion of long term debt plus bank overdraft, less cash and
cash equivalents. Total capitalization comprises net indebtedness and
shareholder's equity.
    As at January 31, 2008, the net indebtedness/total capitalization ratio
was 31%. As at October 31, 2007, the net indebtedness/total capitalization
ratio was 29%. The variation of this ratio was mainly the result of the
redemption of shares. Capital management objectives, policies and procedures
were unchanged since the last period.
    For the three-month period ended January 31, 2008, the Corporation has not
been in default under any of its obligations regarding the term revolving
credit facility, the securitization program and other financial obligations.

    16. Commitments

    Machinery and equipment

    The Corporation is committed to acquire machinery and equipment. During
the first quarter of fiscal 2008, the Corporation entered into new
commitments, representing $12.2 million (US$12.3 million). Minimum payments
required in 2008 and 2009 are $3.0 million and $9.2 million, respectively.

    17. Segmented information

    Comparative figures of Printing Products and Services and Marketing
Products and Services have been reclassified to reflect the transfer of the
Boucherville plant from the Commercial Products Group, in the Printing
Products and Services sector, to the Catalogue and Magazine Group, in the
Marketing Products and Services sector.
    Sales between sectors of the Corporation are measured at fair value.
Transactions, other than sales, are measured at carrying value.

                                                          Three months ended
    (in millions of dollars)                                   January 31
    -------------------------------------------------------------------------
                                                            2008        2007
    -------------------------------------------------------------------------

    Revenues
      Printing Products and Services                   $   150.1   $   161.4
      Marketing Products and Services                      318.5       287.7
      Media                                                147.0       142.6
      Other activities and unallocated amounts               4.3         3.5
      Inter-segment sales
        Printing Products and Services                     (12.9)      (12.9)
        Marketing Products and Services                     (6.2)       (6.7)
        Media                                               (4.8)       (3.4)
    -------------------------------------------------------------------------
      Total inter-segment sales                            (23.9)      (23.0)
    -------------------------------------------------------------------------
                                                       $   596.0   $   572.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating income before amortization,
     impairment of assets and restructuring costs
      Printing Products and Services                   $    27.3   $    29.3
      Marketing Products and Services                       41.3        32.7
      Media                                                 20.0        19.7
      Other activities and unallocated amounts              (6.2)       (6.0)
    -------------------------------------------------------------------------
                                                       $    82.4   $    75.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating income
      Printing Products and Services                   $    18.7   $    18.9
      Marketing Products and Services                       23.1        11.2
      Media                                                 14.2        15.4
      Other activities and unallocated amounts              (7.6)       (7.3)
    -------------------------------------------------------------------------
                                                       $    48.4   $    38.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Acquisitions of property, plant and equipment(1)
      Printing Products and Services                   $    26.2   $     2.7
      Marketing Products and Services                        5.6        21.4
      Media                                                  1.5         1.0
      Other activities and unallocated amounts               0.4         1.0
    -------------------------------------------------------------------------
                                                       $    33.7   $    26.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Amortization of property, plant and equipment,
     intangible assets and deferred charges
      Printing Products and Services                   $     8.6   $     8.5
      Marketing Products and Services                       18.2        16.6
      Media                                                  4.0         3.9
      Other activities and unallocated amounts               1.3         1.3
    -------------------------------------------------------------------------
                                                       $    32.1   $    30.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) These amounts represent total expenditures for additions to property,
        plant and equipment, whether they are paid or not.


                                                           As at       As at
                                                      January 31, October 31,
    (in millions of dollars)                                2008        2007
    -------------------------------------------------------------------------
    Assets
      Printing Products and Services                   $   521.9   $   520.1
      Marketing Products and Services                      937.5       971.5
      Media                                                773.3       770.8
      Other activities and unallocated amounts             105.9       107.2
    -------------------------------------------------------------------------
                                                       $ 2,338.6   $ 2,369.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill
      Printing Products and Services                   $   110.2   $   110.2
      Marketing Products and Services                      329.4       319.9
      Media                                                505.7       504.3
      Other activities and unallocated amounts               0.9         0.2
    -------------------------------------------------------------------------
                                                       $   946.2   $   934.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    18. Subsequent events

    Redemption of shares

    The Corporation purchased 1,051,600 of its Class A Subordinate Voting
Shares at a weighted average price of $15.87 for a total consideration of
$16.7 million and 3,500 of its Class B Shares at a weighted average price of
$15.91 for total consideration of $0.1 million between February 1, 2008 and
March 12, 2008 in accordance with its Normal Course Issuer Bid as described in
Note 9.

    19. Effect of new accounting standards not yet implemented

    a) Inventories

    In March 2007, the CICA issued Section 3031, Inventories, replacing
Section 3030, Inventories. This Section applies to interim and annual
financial statements for fiscal years beginning on or after January 1, 2008.
The Section prescribes the accounting treatment for inventories such as
measurement of inventories at the lower of cost and net realizable value. It
provides guidance on the determination of cost and its subsequent recognition
as an expense, including any write-downs to net realizable value and reversal
of previous write-downs of inventories arising from an increase in net
realizable value. It also provides guidance on the cost methodologies that are
used to assign costs to inventories and it describes the required disclosures
on the carrying amount of inventories, the amount of inventories recognized as
an expense and the amount of write-downs or reversal of write-downs of
inventories.

    b) General standards of financial statement presentation

    In June 2007, Section 1400, General standards of financial statement
presentation, has been amended to include requirements to assess and disclose
an entity's ability to continue as a going concern. The new requirements are
effective for interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2008.

    c) Goodwill and intangible assets

    In February 2008, the CICA issued Section 3064, Goodwill and intangible
assets, which supersedes Section 3062, Goodwill and other intangible assets
and Section 3450, Research and development costs. This Section applies to
interim and annual financial statements for fiscal years beginning on or after
October 1, 2008. The Section establishes standards for the recognition,
measurement and disclosure of goodwill and intangible assets.
    The Corporation is currently evaluating the impact of the adoption of the
above standards on the consolidated financial statements.

    20. Comparative figures

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




For further information:

For further information: Media: Nessa Prendergast, Director, Media
Relations, Transcontinental Inc., (514) 954-2809,
nessa.prendergast@transcontinental.ca, www.transcontinental.com; Financial
Community: Jennifer F. McCaughey, Director, Investor Relations,
Transcontinental Inc., (514) 954-2821, jennifer.mccaughey@transcontinental.ca

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