Transcontinental continues solid performance in its third-quarter and maintains earnings per share objective for 2007



    MONTREAL, Sept. 13 /CNW Telbec/ -

    
    - Growth of 9% in adjusted(1) operating income before amortization;
      excluding the foreign exchange rate impact, growth of 17%.
    - Organic growth in revenues of 3.4% and 5.5% organic growth in
      adjusted(1) operating income before amortization.
    - Growth of 22% in cash flow from operations before changes in non-cash
      operating items.
    - Growth of 13% in net income; on a per-share basis, net earnings rose
      18%, from $0.28 to $0.33.
    - Slight increase in adjusted(1) net income; on a per-share basis,
      adjusted(1) net earnings rose from $0.33 to $0.34, up 3%, but growth of
      18% excluding the foreign exchange rate impact.
    - Annual earnings-per-share objective of $1.52 to $1.65 maintained, as
      announced at the start of the fiscal year, despite the rising Canadian
      dollar.
    - Announcement on August 21 of takeover bid to acquire PLM Group,
      Canada's fourth-largest printer and mailing of takeover bid circular to
      PLM Group shareholders on September 10.
    - Excellent financial position for further growth.


    Transcontinental today reported solid financial results for its third
quarter ended July 31, 2007, despite a negative foreign exchange impact. After
its promising second quarter, all financial performance indicators are up in
the third quarter over the same period in 2006.
    "We are very satisfied with the results for the third quarter and first
nine months of the year," said Luc Desjardins, president and chief executive
officer of Transcontinental. "We had said in the two prior quarters that the
second half, and particularly the fourth quarter, would be better than it
historically has been compared to the first half, primarily because of the
evolution of our business portfolio and the trend to greater seasonality in
some niches. We are also reaping the benefit of our major reorganization
projects, especially in commercial printing in Canada, as well as the
turnaround in our Mexican operations. These achievements have more than offset
the negative impact of the exchange rate, the higher-than-expected cost of
starting up our new flyer printing equipment, which is now fully operational,
and lower-than-expected direct-marketing revenue in the United States."
    Mr. Desjardins continued: "For the rest of the year we will focus our
efforts on sales development, digital development in our Media sector and
further improvement in our competitiveness. Taking into account a constant
exchange rate of $1.05 CAD/USD, we are maintaining our earnings-per-share
objective of $1.52 to $1.65 for fiscal 2007. We would maintain this objective
even if the CAD/USD achieved parity by the end of the year."
    The Corporation is in an excellent financial position for further growth
through acquisitions, among other things, with a net funded debt to total
capitalization ratio of 27% as at July 31, 2007, which is below the 35% - 50%
objective set by the Board of Directors. Pro forma the PLM acquisition, which
will be paid in cash and financed from existing credit facilities, the net
debt to total capitalization ratio would have been about 32%.

    Financial Highlights

    In its third quarter, Transcontinental reported a 3% increase in
consolidated revenues, to $546.5 million, compared to $528.9 million for the
same quarter a year earlier. Adjusted operating income before amortization
rose 9%, from $74.8 million in 2006 to $81.3 million in 2007. Excluding the
exchange rate fluctuations between the Canadian dollar and its U.S. and
Mexican counterparts, which lowered revenue by $7.6 million and adjusted
operating income before amortization by $6.3 million, revenue would have grown
4.8% and adjusted operating income before amortization 17.1%. Thus the
acquisitions made in 2006, higher volumes in certain segments and many
cost-reduction initiatives throughout the Corporation more than offset the
lower volume in other segments.
    Net income rose 13%, from $24.7 million to $27.8 million; on a per-share
basis, net earnings were up 18%, from $0.28 to $0.33. Adjusted net income,
which does not take into account unusual items related to asset impairment,
restructuring costs and unusual adjustments to income taxes of $2.4 million in
2006, was up slightly, from $28.3 million to $28.4 million; on a per-share
basis, adjusted net income rose 3%, from $0.33 to $0.34. Excluding the
exchange rate impact, adjusted earnings per share grew 18%.
    In the first nine months of fiscal 2007, consolidated revenue was up 2%,
from $1.665 billion to $1.695 billion, while adjusted operating income before
amortization was up 2%, from $245.4 million to $249.8 million. Excluding the
exchange rate impact, which reduced revenue by $16.2 million and adjusted
operating income before amortization by $15 million, revenue grew 2.8% and
adjusted operating income before amortization 7.9%.
    Net income was down 5%, from $86.3 million in the first nine months of
2006 to $82 million in 2007. The decrease stems primarily from higher
restructuring and asset impairment costs, higher amortization costs related to
acquisitions and equipment investments since last year, and higher financial
expenses. On a per-share basis, net earnings declined 3%, from $0.99 to $0.96.
Adjusted net income, excluding after-tax asset impairment and restructuring
costs of $5.9 million in 2007 and $3.3 million in 2006, as well as unusual
adjustments to income taxes of 2.4 million in 2006, was down 4%, from
$92 million to $87.9 million. On a per-share basis, adjusted net income
declined 2%, from $1.05 to $1.03.
    Excluding the negative foreign exchange impact in the first nine months of
2007, adjusted earnings per share would have been $1.17, up 11% over 2006.
This measurement is a good indicator of the Corporation's operating
performance for the first nine months of the year.
    For more detailed financial information, please see Management's
Discussion and Analysis for the third quarter ended July 31, 2007 at
www.transcontinental.com, under "Investors."

    Operating Highlights

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

    - Several acquisitions in the Media sector, including the newspapers The
      Grenfell Sun, The Broadview Express and The Oxbow Herald in
      Saskatchewan, as well as The Seaway News in Ontario. Also, we completed
      the acquisition of six construction and renovation magazines from Les
      Editions Ma Maison print media group, confirming our position as the
      leader in this market in Quebec. We also launched Transcontinental
      Custom Communications, a joint venture with the U.K. agency Seven
      Squared, to offer custom publishing services to Canadian and U.S.
      clients, an important growth segment for Transcontinental moving
      forward.

    - On the printing side, Transcontinental was selected to print Harry
      Potter et les reliques de la mort (Harry Potter and the Deathly
      Hallows), the over-800-page seventh and final volume in the Harry
      Potter series. Transcontinental, for the third consecutive volume, was
      the designated printer of the French edition for the Canadian market.
      Furthermore, work on the project to print the San Francisco Chronicle
      is on schedule. The team is in place, the site has been chosen and the
      printing equipment ordered. Transcontinental is also in discussions
      with several other daily newspaper publishers. The expansion of
      Transcontinental Metrolitho in Sherbrooke, which specializes in short-
      run book printing, will be completed in the first quarter of 2008.  We
      also started to print flyers for Provigo on the new equipment in our
      Saint-Hyacinthe plant, under the new agreement signed with Loblaw
      Company Ltd. in 2006.

    - Recognized as a leader in the protection of the environment and
      sustainable development, Transcontinental plans to continue exercising
      this leadership by mobilizing its employees and implementing concrete
      action. Among other things, in the third quarter, Transcontinental
      Direct Montreal became Transcontinental's first Web printer to obtain
      "chain-of-custody" certification under the Forest Stewardship Council
      (FSC). This certification identifies products that are produced
      responsibly for society and the environment. Six sheetfed printing
      plants in Manitoba, Ontario and Quebec have already obtained this
      certification. We also published the second issue of the magazine
      Vision durable, whose mission is to educate business people about
      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      Nine months ended
                                          July 31                July 31
    (in millions of dollars,
    except per share amounts)       2007        2006        2007        2006
    -------------------------------------------------------------------------
    Net income                 $    27.8   $    24.7   $    82.0   $    86.3
    Non-controlling interest           -           -         0.3         0.5
    Income taxes                    13.2        10.3        36.7        39.5
    Discount on sale of
     accounts receivable             2.9         1.9         8.8         5.8
    Financial expenses               7.2         8.0        23.1        22.1
    Impairment of assets
     and restructuring costs         0.9         1.7         8.7         4.9
    Amortization                    29.3        28.2        90.2        86.3
    -------------------------------------------------------------------------
    Adjusted operating income
     before amortization       $    81.3   $    74.8   $   249.8   $   245.4
    -------------------------------------------------------------------------
    Net income                 $    27.8   $    24.7   $    82.0   $    86.3
    Impairment of assets and
     restructuring costs
     (after tax)                     0.6         1.2         5.9         3.3
    Unusual adjustments to
     income taxes                      -         2.4           -         2.4
    -------------------------------------------------------------------------
    Adjusted net income             28.4        28.3        87.9        92.0
    -------------------------------------------------------------------------
    Average number of
     shares outstanding             84.5        86.9        85.2        87.6
    -------------------------------------------------------------------------
    Adjusted earnings
     per share                  $   0.34   $    0.33   $    1.03   $    1.05
    -------------------------------------------------------------------------
    Cash flow related to
     (used in) operating
     activities                    113.5        71.3       136.0       (11.4)
    Changes in non-cash
     operating items                47.1        16.7       (69.3)     (199.6)
    -------------------------------------------------------------------------
    Cash flow from operating
     activities before changes
     in non-cash
     operating items            $   66.4   $    54.6   $   205.3   $   188.2
    -------------------------------------------------------------------------
    Long-term debt                 459.4       468.9   $   459.4   $   468.9
    Current portion of
     long-term debt                                         10.4         7.7
    Bank overdraft                                             -         0.1
    Cash and temporary
     investments                                           (46.8)      (29.1)
    -------------------------------------------------------------------------
    Net indebtedness            $  423.0   $   447.6   $   423.0   $   447.6
    -------------------------------------------------------------------------

    Corporate Affairs

    On August 21, 2007, Transcontinental announced that it was making a
takeover bid to acquire PLM Group, the fourth largest printer in Canada.
Transcontinental is making an all-cash offer to acquire all of PLM's
approximately 29.5 million shares outstanding, on a fully diluted basis, at
C $3.50 per share, for a total enterprise value of about $130 million
including debt. Transcontinental and PLM have signed a Support Agreement
pursuant to which the PLM Board of Directors has unanimously agreed to
recommend that shareholders accept the offer of Transcontinental. Barry N.
Pike, founder and Chairman of the Board and Chief Executive Officer of PLM,
and Pike Holdings Inc., a holding company controlled by Mr. Pike, which
combined hold approximately 51.2% of the shares outstanding, have signed a
hard Lock-Up Agreement pursuant to which they have agreed to tender the shares
they hold and accept the offer of Transcontinental.
    On September 10, Transcontinental sent PLM shareholders a takeover bid
circular. During that same period, the PLM Board of Directors sent its
shareholders a circular that recommends, among other things, acceptance of the
offer of Transcontinental.
    Transcontinental's offer is subject to certain usual conditions, including
the deposit of 66 2/3% of shares outstanding and obtaining regulatory
approvals. In this regard, the Corporation received approval from the
Competition Bureau on September 10, 2007. The transaction is expected to close
in October 2007.

    Dividend

    At its September 13, 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 October 26, 2007 to
shareholders of record at the close of business on October 5, 2007. On an
annual basis, this represents a dividend of $0.28 per common share. Dividends
paid by Transcontinental to Canadian residents are eligible dividends under
federal and provincial Income Tax laws.

    Additional Information

    Upon releasing its quarterly results, Transcontinental will hold a
conference call for the financial community today at 2:15 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. 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 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 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 September 13, 2007. We disclaim
any intention or obligation to update or revise any forward-looking statements
unless otherwise required by the Securities Authorities.

    --------------------------------------
    (1) Please refer to "Reconciliation of Non-GAAP Financial Measures."



                                           CONSOLIDATED STATEMENTS OF INCOME
                                                                   unaudited

    (in millions of dollars,      Three months ended       Nine months ended
     except per share data)              July 31                 July 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenues                   $   546.5   $   528.9   $ 1,695.4   $ 1,665.1
    Operating costs                399.3       392.5     1,248.1     1,231.9
    Selling, general and
     administrative expenses        65.9        61.6       197.5       187.8
    -------------------------------------------------------------------------
    Operating income
     before amortization,
     impairment of assets and
     restructuring costs            81.3        74.8       249.8       245.4
    Amortization                    29.3        28.2        90.2        86.3
    Impairment of assets
     and restructuring
     costs (Note 4)                  0.9         1.7         8.7         4.9
    -------------------------------------------------------------------------
    Operating income                51.1        44.9       150.9       154.2
    Financial expenses               7.2         8.0        23.1        22.1
    Discount on
     sale of accounts
     receivable (Note 7)             2.9         1.9         8.8         5.8
    -------------------------------------------------------------------------
    Income before income
     taxes and non-controlling
     interest                       41.0        35.0       119.0       126.3
    Income taxes (Note 3)           13.2        10.3        36.7        39.5
    Non-controlling interest           -           -         0.3         0.5
    -------------------------------------------------------------------------
    Net income                 $    27.8   $    24.7   $    82.0   $    86.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Per share
     (basic) (Note 9)
    Net income                 $    0.33   $    0.28   $    0.96   $    0.99
    -------------------------------------------------------------------------
    Per share
     (diluted) (Note 9)
    Net income                 $    0.33   $    0.28   $    0.96   $    0.98
    -------------------------------------------------------------------------
    Average number of shares
     outstanding (in millions)      84.5        86.9        85.2        87.6
    -------------------------------------------------------------------------

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


                             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                                   unaudited

                                  Three months ended       Nine months ended
    (in millions of dollars)             July 31                 July 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Net income                 $    27.8   $    24.7   $    82.0   $    86.3
    Other comprehensive
     (loss) income:
    Unrealized gains on
     derivatives designated
     as cash flow hedges,
     net of income taxes
     of $0.9 million and
     $1.5 million for the
     three-month and
     nine-month periods
     ended July 31, 2007,
     respectively                    1.8           -         3.0           -
    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
     $0.5 million and
     $1.5 million for the
     three-month and
     nine-month periods
     ended July 31, 2007,
     respectively                   (1.2)          -        (3.4)          -
    -------------------------------------------------------------------------
    Change in gains on
     derivatives designated
     as cash flow hedges             0.6           -        (0.4)          -
    Unrealized (losses) gains
     on translation of
     financial statements
     of self-sustaining
     foreign operations             (6.8)        2.5        (8.7)       (5.9)
    -------------------------------------------------------------------------
    Other comprehensive (loss)
     income                         (6.2)        2.5        (9.1)       (5.9)
    -------------------------------------------------------------------------
    Comprehensive income       $    21.6   $    27.2   $    72.9   $    80.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                                                   unaudited

                                                           Nine months ended
    (in millions of dollars)                                     July 31
    -------------------------------------------------------------------------
                                                            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                                              82.0        86.3
    -------------------------------------------------------------------------
                                                           850.8       789.4
    Premium on redemption of shares (Note 9)               (37.2)      (42.5)
    Dividends on shares                                    (17.4)      (16.2)
    -------------------------------------------------------------------------
    Balance, end of period                             $   796.2   $   730.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


                                                 CONSOLIDATED BALANCE SHEETS
                                                                   unaudited

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

    Current assets
      Cash and temporary investments                   $    46.8   $    89.3
      Accounts receivable (Note 7)                         132.5       176.3
      Income taxes receivable                                2.2         2.2
      Inventories                                           83.3        92.8
      Prepaid expenses and other current assets             18.7        17.4
      Future income tax assets                               6.2         6.3
    -------------------------------------------------------------------------
                                                           289.7       384.3

    Property, plant and equipment                          700.4       713.6
    Goodwill                                               879.7       881.5
    Intangible assets                                      159.8       165.8
    Future income tax assets                                63.3        59.1
    Other assets                                            95.9        70.4
    -------------------------------------------------------------------------
                                                       $ 2,188.8   $ 2,274.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Current liabilities
      Accounts payable and accrued liabilities         $   324.5   $   417.4
      Income taxes payable                                  30.5        53.3
      Deferred subscription revenues and deposits           46.2        54.2
      Current portion of long-term debt                     10.4        12.7
    -------------------------------------------------------------------------
                                                           411.6       537.6

    Long-term debt                                         459.4       467.9
    Future income tax liabilities                           77.2        70.1
    Other liabilities                                       71.6        42.0
    -------------------------------------------------------------------------
                                                         1,019.8     1,117.6
    -------------------------------------------------------------------------

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

    Commitments (Note 14)

    Shareholders' equity
      Share capital (Note 9)                               396.0       407.6
      Contributed surplus (Notes 9 and 10)                   8.5         6.9
      Retained earnings                                    796.2       769.0
      Accumulated other comprehensive loss (Note 11)       (32.5)      (27.2)
    -------------------------------------------------------------------------
                                                           763.7       741.8
    -------------------------------------------------------------------------
                                                         1,168.2     1,156.3
    -------------------------------------------------------------------------
                                                       $ 2,188.8   $ 2,274.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                   unaudited

                                  Three months ended       Nine months ended
    (in millions of dollars)             July 31                 July 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Operating activities
      Net income               $    27.8   $    24.7   $    82.0   $    86.3
        Items not affecting
         cash and cash
         equivalents
          Amortization              38.4        31.9       108.8        97.8
          Impairment of assets
           (reversal) (Note 4)       0.1           -         3.6        (0.5)
          Gain on disposal
           of assets                   -        (0.2)       (0.2)       (1.1)
          Future income taxes       (2.6)       (3.4)        1.3        (2.7)
          Non-controlling
           interest                    -           -         0.3         0.5
          Accrued pension
           benefit asset
           and liability             1.6         1.2         6.8         6.8
          Stock-based
           compensation and
           other stock-based
           payments (Note 10)        0.6         0.6         1.8         1.4
          Other                      0.5        (0.2)        0.9        (0.3)
    -------------------------------------------------------------------------
      Cash flow from
       operating activities
       before changes in
       non-cash operating
       items                        66.4        54.6       205.3       188.2
      Changes in non-cash
       operating items              47.1        16.7       (69.3)     (199.6)
    -------------------------------------------------------------------------
      Cash flow related to
       (used in) operating
       activities                  113.5        71.3       136.0       (11.4)
    -------------------------------------------------------------------------

    Investing activities
      Business
       acquisitions (Note 12)       (5.3)       (2.7)      (15.5)       (3.0)
      Acquisitions of property,
       plant and equipment         (28.2)      (28.7)      (83.0)      (80.6)
      Disposals of property,
       plant and equipment           1.0         0.7         2.0         8.1
      Increase in other assets      (5.6)       (6.7)      (19.1)      (25.0)
    -------------------------------------------------------------------------
      Cash flow used in
       investing activities        (38.1)      (37.4)     (115.6)     (100.5)
    -------------------------------------------------------------------------

    Financing activities
      Reimbursement of
       long-term debt             (106.0)       (5.5)     (108.8)       (7.5)
      Increase in revolving
       term credit facility         74.0           -       113.5           -
      Dividends on shares           (5.8)       (5.7)      (17.4)      (16.2)
      Redemption of
       shares (Note 9)             (34.6)      (10.9)      (49.7)      (56.8)
      Issuance of
       shares (Note 9)               0.3         0.7         0.7         2.9
      Other                         (0.1)          -        (0.6)       (0.5)
    -------------------------------------------------------------------------
      Cash flow used in
       financing activities        (72.2)      (21.4)      (62.3)      (78.1)
    -------------------------------------------------------------------------

    Effect of exchange rate
     changes on cash and cash
     equivalents denominated
     in foreign currencies          (0.5)        0.2        (0.6)       (3.0)
    -------------------------------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents                     2.7        12.7       (42.5)     (193.0)
    Cash and cash equivalents
     at beginning of period         44.1        16.3        89.3       222.0
    -------------------------------------------------------------------------
    Cash and cash equivalents
     at end of period          $    46.8   $    29.0   $    46.8   $    29.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents
     are comprised of
      Cash and temporary
       investments             $    46.8   $    29.1   $    46.8   $    29.1
      Bank overdraft                   -        (0.1)          -        (0.1)
    -------------------------------------------------------------------------
                               $    46.8   $    29.0   $    46.8   $    29.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Additional information
      Interest paid            $    13.1   $    12.4   $    27.1   $    25.8
      Income taxes paid             10.2        22.2        55.2        86.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


                              NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                                                   unaudited
                    For the three-month and nine-month periods ended July 31
    -------------------------------------------------------------------------

    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 consolidated 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 amortized 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 consolidated financial statements are
restated to reflect the application of this Section only 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       Nine months ended
                                        July 31                 July 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Statutory tax rate              32.4%       34.6%       32.2%       33.1%
    Manufacturing and processing
     profits tax credits            (0.7)       (0.8)       (0.6)       (0.8)
    Effect of foreign tax rate
     differences                    (2.8)       (4.3)       (3.3)       (3.7)
    Other                            3.4        (6.7)        2.6         0.8
    -------------------------------------------------------------------------
    Effective tax rate before
     the following items:           32.3        22.8        30.9        29.4
      Impairment of assets and
       restructuring costs          (0.1)       (0.1)       (0.1)          -
      Effect of changes in
       statutory tax rates (a)         -       (16.3)          -        (4.5)
      Retroactive taxes (b)            -        23.0           -         6.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Effective tax rate              32.2%       29.4%       30.8%       31.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    a) On June 6, 2006, Bill C-13, an act to implement certain provisions of
       the budget tabled in Parliament on May 2, 2006, was submitted for a
       third reading in the House of Commons and then became law as Bill C-13
       received royal assent on June 22, 2006. A decrease of $6.0 million in
       future income tax liabilities was recorded in the third quarter of
       fiscal 2006 to reflect the changes in statutory tax rates.
    b) On June 9, 2006, the Quebec government enacted Bill 15 in the Quebec
       National Assembly to amend the Taxation Act and other legislative
       provisions. An unusual charge for retroactive taxes and related
       charges of $8.4 million was recorded in the third quarter of fiscal
       2006.


    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   Nine months  Three months   Nine months
     of                    ended         ended         ended         ended
     dollars)             July 31       July 31       July 31       July 31
    -------------------------------------------------------------------------
                       2007   2006   2007   2006   2007   2006   2007   2006
    -------------------------------------------------------------------------
    Commercial
     printing
     operations (a)
      Impairment of
       assets         $ 0.1  $   -  $ 3.6  $   -  $ n/a  $ n/a  $ n/a  $ n/a
      Workforce
       reduction
       costs            0.2      -    3.3      -    0.6      -    1.7      -
      Transfer of
       printing
       equipment
       and other
       costs            0.4      -    1.1      -    0.4      -    1.1      -
    Toronto
     printing
     operations (b)
      Workforce
       reduction
       costs            0.2    0.6    0.2    2.8    0.2    0.7    1.0    0.8
      Transfer of
       printing
       equipment and
       other costs        -    0.3    0.4    0.3      -    0.3    0.4    0.3
    Book printing
     operations (c)
      Workforce
       reduction
       costs              -      -      -      -      -      -      -    0.8
      Transfer of
       printing
       equipment and
       other costs        -    0.8    0.1    2.3      -    0.8    0.1    2.3
    Manufacturing
     strategy (d)
      Workforce
       reduction
       costs              -      -      -      -      -      -      -    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
    -------------------------------------------------------------------------
                      $ 0.9  $ 1.7  $ 8.7  $ 4.9  $ 1.2  $ 1.8  $ 4.3  $ 4.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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, which initially resulted in total restructuring costs of
       $9.2 million to be incurred within the twelve months following the
       announcement. During the third quarter of fiscal 2007, total
       restructuring costs were revised to $9.5 million, of which
       $3.3 million is for workforce reductions costs instead of
       $3.1 million initially planned, $3.6 million is for an impairment of
       assets for building and equipment that are no longer necessary in the
       outgoing operations of the Corporation instead of the $3.5 million
       initially planned and $2.6 million for the transfer of printing
       equipment and other costs. Of the $9.5 million, an amount of
       $8.0 million was charged to income during the first nine-months of
       fiscal 2007, of which an amount of $3.6 million is for an impairment
       of assets, $0.3 million in the Printing Products and Services sector
       and $3.3 million in the Marketing Products and Services sector, an
       amount of $3.3 million is for workforce reduction costs, $1.8 million
       in the Printing Products and Services sector and $1.5 million in the
       Marketing Products and Services sector and an amount of $1.1 million
       is for the transfer of printing equipment and other costs,
       $1.0 million in the Printing Products and Services sector and
       $0.1 million in the Marketing Products and Services sector. As at
       July 31, 2007, an amount of $1.6 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 2006 and then revised to
       $4.3 million during the third quarter of fiscal 2007, of which
       $3.0 million is for workforce reduction costs instead of the
       $2.8 million previously planned, $1.1 million for the transfer of
       printing equipment and other costs instead of the $1.0 million
       previously planned and $0.2 million for an impairment of assets. As at
       July 31, 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 was 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 July 31:

    (in millions of dollars)                               Nine months ended
                                                                 July 31
    -------------------------------------------------------------------------
                                                            2007        2006
    -------------------------------------------------------------------------

    Balance, beginning of period                       $     1.4   $     1.5
    Additions
      Workforce reduction costs                              3.5         2.8
      Transfer of printing equipment and other costs         1.6         2.6

    Reductions
      Amount paid for workforce reduction                   (2.7)       (2.1)
      Amount paid for transfer of printing equipment
       and other                                            (1.6)       (2.8)
    -------------------------------------------------------------------------
    Balance, end of period                             $     2.2   $     2.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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, Inc. 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       Nine months ended
    (in millions of dollars)             July 31                 July 31
    -------------------------------------------------------------------------
                                    2007        2006      2007          2006
    -------------------------------------------------------------------------

    Pension plans
      Defined benefit
       pension plans            $    6.3   $     5.7   $    17.5   $    18.7
      Defined contribution
       pension plans                 0.8         0.7         2.4         2.2
    -------------------------------------------------------------------------
                               $     7.1   $     6.4   $    19.9   $    20.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7. Accounts receivable

    As at July 31, 2007, $276 million of accounts receivable ($282 million as
at October 31, 2006) had been sold under the accounts receivable
securitization program, of which $39 million ($39 million as at October 31,
2006) was kept by the Corporation as retained interest, resulting in a net
consideration of $237 million, including C$206 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
$2.9 million and $8.8 million, respectively, for the three-month and
nine-month periods ended July 31, 2007 ($1.9 million and $5.8 million for the
same periods in 2006), which are presented under "Discount on sale of accounts
receivable" in the consolidated statements of income.

    8. Debt instruments

    On June 1, 2007, Unsecured Senior Debentures totalling $100 million
matured. These have been reimbursed using the existing term revolving credit
facility.

    9. Share capital

    Earnings per share

    The table below shows the calculation of basic and diluted earnings per
share:
                                  Three months ended       Nine months ended
                                        July 31                 July 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Numerator (in millions
     of dollars)
      Net income               $    27.8   $    24.7   $    82.0   $    86.3
    -------------------------------------------------------------------------
    Denominator (in millions)
      Weighted average number
       of shares                    84.5        86.9        85.2        87.6
      Dilutive effect of
       stock options and
       warrants                      0.2         0.1         0.2         0.2
    -------------------------------------------------------------------------
      Weighted average
       diluted number of
       shares                       84.7        87.0        85.4        87.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings per share   $    0.33   $    0.28   $    0.96   $    0.99
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings per
     share                     $    0.33   $    0.28   $    0.96   $    0.98
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    A total of 612,600 stock options were considered to be anti-dilutive in
the calculation of the diluted earnings per share for the three-month period
ended July 31, 2007, since their exercise price was greater than the average
stock price during this period.
    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 942,600 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 July 31, 2006, 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 the
three-month and nine-month periods ended July 31, 2007, the amounts received
were $0.3 million and $0.7 million, respectively, and $0.1 million and
$0.2 million, respectively, were transferred from contributed surplus to share
capital for the same periods. For the three-month and nine-month periods ended
July 31, 2006, the amounts received were $0.7 million and $2.9 million,
respectively, and a negligible amount and $0.3 million, respectively, were
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 third quarter of fiscal 2007, the Corporation purchased
1,554,900 of its Class A Subordinate Voting Shares at a weighted average price
of $21.26 for a total consideration of $33.0 million and 72,200 of its Class B
Shares at a weighted average price of $21.75 for a total consideration of
$1.6 million in accordance with its renewed Normal Course Issuer Bid. Of the
total consideration of $34.6 million, $8.8 million corresponds to the book
value and $25.8 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 July 31, 2007, the Corporation
purchased 2,174,300 of its Class A Subordinate Voting Shares at a weighted
average price of $21.31 for a total consideration of $46.3 million and 119,800
of its Class B Shares at a weighted average price of $21.76 for a total
consideration of $2.6 million in accordance with its renewed Normal Course
Issuer Bid. Of the total consideration of $49.7 million, $12.5 million
corresponds to the book value and $37.2 million corresponds to the premium
paid. The premium was accounted for as a decrease in retained earnings.
    During the third quarter of fiscal 2006, the Corporation purchased 399,300
of its Class A Subordinate Voting Shares at a weighted average price of $19.19
for a total consideration of $7.7 million and 170,551 of its Class B Shares at
a weighted average price of $18.95 for a total consideration of $3.2 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 $10.9 million, $2.6 million corresponds to the book
value and $8.3 million corresponds to the premium paid. The premium was
accounted for as a decrease in retained earnings.
    During the nine-month period ended July 31, 2006, the Corporation
purchased 2,408,600 of its Class A Subordinate Voting Shares at a weighted
average price of $19.06 for a total consideration of $46.0 million and 575,651
of its Class B Shares at a weighted average price of $18.87 for a total
consideration of $10.8 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 $56.8 million,
$14.3 million corresponds to the book value and $42.5 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

    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 July 31,
2007. For the nine-month period ended July 31, 2007, 138,310 DSU and
30,788 RSU were granted.
    As at July 31, 2007, 165,478 DSU and 26,507 RSU were outstanding. The
expenses recorded in the consolidated statements of income for the three-month
and nine-month periods ended July 31, 2007 were $0.2 million and $0.6 million,
respectively. The impact on the consolidated statements of income for the
three-month and nine-month periods ended July 31, 2006 was negligible. No
amount has been paid under the plan for the three-month and nine-month periods
ended July 31, 2007 and 2006.

    Stock option plan

    As at July 31, 2007, 1,880,306 stock options were granted, of which,
979,756 could be exercised.
    There were no stock options granted for the three-month period ended
July 31, 2007 and 50,000 stock options were granted with a weighted average
exercise price of $19.38 for the same period in 2006. For the nine-month
periods ended July 31, 2007 and 2006, 160,100 and 570,400 stock options were
granted with a weighted average exercise price of $20.90 and $19.26,
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 nine-month periods ended July 31:

                                                            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%       4.00%
    Expected life                                         5 years     5 years


    Stock-based compensation costs of $0.6 million was charged to income for
the three-month periods ended July 31, 2007 and 2006. For the nine-month
periods ended July 31, 2007 and 2006, $1.8 million and $1.4 million were
charged to income, respectively.

    11. Accumulated other comprehensive loss

                                                           Nine months ended
    (in millions of dollars)                                     July 31
    -------------------------------------------------------------------------
                                                            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 loss                                (9.1)       (5.9)
    -------------------------------------------------------------------------
    Balance, end of period                             $   (32.5)  $   (29.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at July 31, 2007, gains on derivatives designated as cash flow hedges
of $2.7 million, net of income taxes of $1.3 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 $0.7 million, net of income taxes of $0.4 million, are
expected to be reclassified to net income over a three-year period.

    12. Business acquisitions

    During the nine-month period ended July 31, 2007, the Corporation made the
following acquisitions:

    Operating                                                        Date of
    sector      Acquisitions                                     acquisition
    -------------------------------------------------------------------------
    Media       Assets of Seaway News, owner of a weekly       July 28, 2007
                newspaper in Cornwall, Seaway news, serving
                the eastern Ontario region

                Assets of Résonat Distribution Ltée, Québec    June 18, 2007
                Site Web.com Ltée and Condo Direct Ltée.,
                owners of Condo Direct and Condo and Loft
                D'aujourd'hui, magazines related to home
                building and renovation in Quebec

                100% of the shares of Les Productions          June 18, 2007
                Ma Maison Direct Ltée and Magazine des
                Maisons Neuves du Grand Montréal Ltée,
                owners of Maison D'aujourd'hui, Maison
                Directe, MaisonMax.com, MaisonNeuve.com
                and www.maisonmax.com Web site, magazines
                and web site related to home building and
                renovation in Quebec

                100% of the shares of The Oxbow Herald Ltd,    June 14, 2007
                owner of The Oxbow Herald, weekly newspaper
                in SouthEast Saskatchewan

                Assets of The Broadview express and              May 1, 2007
                The Grenfell Sun, weekly newspapers in
                Southern Saskatchewan

                100% of the shares of Radville Star        December 19, 2006
                Managament, owner of The Radville Star
                and The Deep South Star, newspaper in
                Southern Saskatchewan

    -------------------------------------------------------------------------

                                                Chenelière
                                                 Education
    (in millions of dollars)                           Inc.   Others   Total
    -------------------------------------------------------------------------
    Assets acquired
      Working capital                               $ (0.5)  $  0.4   $ (0.1)
      Property, plant and equipment                      -      0.4      0.4
      Goodwill                                         0.5      8.9      9.4
      Amortizable intangible assets                   (0.7)       -     (0.7)
    -------------------------------------------------------------------------
                                                      (0.7)     9.7      9.0
    -------------------------------------------------------------------------
    Liabilities assumed
      Future income tax liabilities                    0.4        -      0.4
    -------------------------------------------------------------------------
                                                       0.4        -      0.4
    -------------------------------------------------------------------------
                                                    $ (0.3)  $  9.7   $  9.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Consideration
      Cash paid                                     $  9.8   $  5.7   $ 15.5
    Balance of sale payable, maturing
     within one year, bearing no interest             (9.6)     4.0     (5.6)
      Short-term liabilities                          (0.5)       -     (0.5)
    -------------------------------------------------------------------------
                                                   $  (0.3)  $  9.7   $  9.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Chenelière Education Inc.

    During the nine-month period ended July 31, 2007, adjustments were made to
the purchase price allocation of Chenelière Education Inc, which was acquired
on August 31, 2006, to reflect the final valuation of the assets acquired and
the final determination of the costs related to the acquisition.
    During the nine-month period ended July 31, 2007, the Corporation paid an
amount of $9.8 million, of which $0.5 million was included in short-term
liabilities and $9.3 million in balance of sale payable as at October 31,
2006. As at July 31, 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 is
included in "Current portion of long-term debt" and $3.1 million is included
in "Long-term debt" in the consolidated balance sheet.

    Others

    The purchase price allocations of the other acquisitions are preliminary
and could change once the valuation of the assets acquired is concluded and
the final determination of the costs related to the acquisition has been made.

    13. 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 10. 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 July 31, 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
July 31, 2007, is recorded on the Corporation consolidated balance sheet with
changes in fair value recognized in net income.

    14. Commitments

    During the nine-month period ended July 31, 2007, the Corporation entered
into new commitments to acquire machinery and equipment. As at July 31, 2007,
$36.4 million (US$26.3 million, $0.2 million euro and C$8.2 million) remained
committed and unaccounted for. Minimum payments required in 2007, 2008 and
2009 are $9.4 million, $23.6 million and $3.4 million, respectively.

    15. 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       Nine months ended
    (in millions of dollars)             July 31                 July 31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Revenues
      Printing Products and
       Services                $   167.8   $   166.3   $   532.6  $    523.8
      Marketing Products and
       Services                    248.1       250.1       784.4       802.3
      Media                        156.5       136.5       454.6       418.7
      Other activities and
       unallocated amounts           3.0         3.3        10.8         9.6
      Inter-segment sales
        Printing Products and
         Services                  (16.7)      (14.3)      (49.0)      (46.2)
        Marketing Products and
         Services                   (7.3)       (9.4)      (25.6)      (31.4)
         Media                      (4.9)       (3.6)      (12.4)      (11.7)
    -------------------------------------------------------------------------
      Total inter-segment
       sales                       (28.9)      (27.3)      (87.0)      (89.3)
    -------------------------------------------------------------------------
                               $   546.5   $   528.9   $ 1,695.4  $  1,665.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating income before
     amortization, impairment
     of assets and
     restructuring costs
      Printing Products and
       Services                $    25.9   $    25.2   $    91.0   $    83.1
      Marketing Products and
       Services                     27.3        30.8        90.9       106.5
      Media                         34.0        23.2        84.5        69.5
      Other activities and
       unallocated amounts          (5.9)       (4.4)      (16.6)      (13.7)
    -------------------------------------------------------------------------
                               $    81.3   $    74.8   $   249.8   $   245.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating income
      Printing Products and
       Services                $    15.9   $    15.2   $    59.0   $    52.3
      Marketing Products and
       Services                     12.3        14.4        40.1        56.6
      Media                         30.1        20.9        72.4        62.5
      Other activities and
       unallocated amounts          (7.2)       (5.6)      (20.6)      (17.2)
    -------------------------------------------------------------------------
                               $    51.1   $    44.9   $   150.9   $   154.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Acquisitions of property,
     plant and equipment(1)
      Printing Products and
       Services                $    17.1   $     9.0   $    33.6   $    31.5
      Marketing Products and
       Services                      8.4        16.0        44.7        40.4
      Media                          2.8         2.5         5.7         5.7
      Other activities and
       unallocated amounts           1.3         1.2         4.1         3.0
    -------------------------------------------------------------------------
                               $    29.6   $    28.7   $    88.1   $    80.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Amortization of property,
     plant and equipment
      Printing Products and
       Services                $     9.2   $     8.5   $    27.5   $    26.5
      Marketing Products and
       Services                     14.2        15.0        44.1        45.7
      Media                          2.9         2.2         8.7         6.6
      Other activities and
       unallocated amounts           1.1         1.1         3.4         3.1
    -------------------------------------------------------------------------
                               $    27.4   $    26.8   $    83.7   $    81.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Those amounts represent total expenditures for additions to property,
        plant and equipment for the three-month and nine-month periods ended
        July 31, 2007, regardless whether they are paid or not.


                                                           As at       As at
                                                         July 31  October 31
    (in millions of dollars)                                2007        2006
    -------------------------------------------------------------------------
    Assets
      Printing Products and Services                   $   556.4   $   544.2
      Marketing Products and Services                      764.1       787.4
      Media                                                802.4       773.3
      Other activities and unallocated amounts              65.9       169.8
    -------------------------------------------------------------------------
                                                       $ 2,188.8   $ 2,274.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Goodwill
      Printing Products and Services                   $   110.3   $   110.5
      Marketing Products and Services                      264.0       273.2
      Media                                                504.5       496.9
      Other activities and unallocated amounts               0.9         0.9
    -------------------------------------------------------------------------
                                                       $   879.7   $   881.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    16. Subsequent events

    Redemption of shares

    The Corporation purchased 11,100 of its Class A Subordinate Voting Shares
at a weighted average price of $18.60 for a total consideration of
$0.2 million and 200 of its Class B Shares at a weighted average price of
$20.37 for a negligible total consideration between August 1, 2007 and
September 12, 2007 in accordance with its Normal Course Issuer Bid as
described in Note 9.

    Takeover bid

    On August 21, 2007, the Corporation has agreed to make a takeover bid to
the shareholders of PLM Group Ltd., a printer in the Greater Toronto Area, in
the Marketing Products and Services sector. The Corporation is making an
all-cash offer to acquire approximately 29.5 million shares of PLM Group Ltd,
on a fully diluted basis, at $3.50 per share, for a total consideration of
approximately $130 million, including debt. The transaction is expected to
close in October 2007.

    Purchase of machinery and equipment

    On August 21, 2007, the Corporation entered into new commitments to
acquire machinery and equipment for a total consideration of US$33.6 million.
Minimum payments required in 2007, 2008 and 2009 are US$10.1 million,
US$13.1 million and US$10.4 million, respectively.

    17. Effect of new accounting standards not yet implemented

    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 prescribed 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. The Corporation is currently evaluating the impact of the
adoption of this new Section on the consolidated financial statements.

    Financial Instruments - Disclosures

    In December 2006, the CICA issued Section 3862, Financial Instruments -
Disclosures, replacing Section 3861 - Financial Instruments - Disclosure and
Presentation. 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 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 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, replacing Section 3861 - Financial Instruments - Disclosure and
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. 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 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
Corporation is currently evaluating the impact of the adoption of this new
Section on the consolidated financial statements.

    18. 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

Organization Profile

Transcontinental Inc.

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