Transcontinental Inc.

Transcontinental Inc.

March 17, 2005 11:29 ET

Transcontinental Announces First Quarter Earnings Up 10% and a Dividend Increase of 22%


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: TRANSCONTINENTAL INC.

TSX SYMBOL: TCL.SV.A
TSX SYMBOL: TCL.MV.B

MARCH 17, 2005 - 11:29 ET

Transcontinental Announces First Quarter Earnings Up
10% and a Dividend Increase of 22%

MONTREAL, QUEBEC--(CCNMatthews - March 17, 2005) - Transcontinental Inc.
(TSX:TCL.SV.A)(TSX:TCL.MV.B)



- 12% increase in revenues and 7% increase in operating income before
depreciation and amortization
- 10% increase in net earnings per common share, from $0.30 to $0.33
- All three sectors contributed to organic growth in the quarter
- Initial earnings per common share objective for 2005 of
$1.74 to $1.82 maintained
- Excellent financial position to pursue growth
- 22% dividend increase for common shareholders


Transcontinental's momentum continued in the first quarter of 2005 with
a significant increase in revenues, operating income before depreciation
and amortization and net income. An increase in sales volume and the
Corporation's cost-reduction program more than offset lower sales prices
in some niches and the negative impact of the exchange rate. Note that
all three sectors contributed positively to organic growth in revenue
and operating income before depreciation and amortization in the quarter.

"We are very satisfied with our first quarter results because we have
maintained our momentum from the second half of fiscal 2004," said
Daniel Denault, vice president and chief financial officer of
Transcontinental. "Our systematic efforts to develop cross-selling
initiatives, combined with our capital investments over the past several
years and numerous programs to improve efficiency under our Horizon 2005
business project, have generated organic growth of 4% in revenues and 7%
in operating income before depreciation and amortization. The highlight
of the quarter was the development of our direct marketing operations in
the United States and increased sales volume with a number of customers.

"Management is thus maintaining its initial earnings per share
objective, excluding non-recurring items, of $1.74 to $1.82 for 2005"
continued Mr. Denault. "This represents an increase of 2% to 6% over
fiscal 2004, and 9% to 13% excluding the anticipated negative exchange
rate impact of $0.12 per share; it is therefore in line with our
long-term organic growth objective. Another sign that management is
confident in the company's future is that it is also announcing a 22%
dividend increase for common shareholders."

Financial Highlights

In the first quarter ended January 31, 2005, Transcontinental reported
consolidated revenues of $517 million versus $460 million in the same
quarter of 2004, a 12% increase, while operating income before
depreciation and amortization rose to $79 million, up 7% over $74
million in 2004. The increases of 4%, or $18 million, in organic growth
in revenues and 7%, or $5 million, in organic growth in operating income
before depreciation and amortization stem primarily from the following:
magazine and catalogue printing, direct marketing in the United States,
flyer printing, and the distribution of advertising material. The three
acquisitions completed in fiscal 2004 - U.S. direct marketer CC3,
printer and publisher Optipress in the Atlantic provinces and Canadian
magazine publisher Avid Media - added $43 million to revenues and $2
million to operating income before depreciation and amortization. The
integration of CC3 is progressing as planned with a 10% revenue increase
from organic growth. However, the seasonal nature of Avid Media's
operations and a lower than anticipated contribution from Optipress
mitigated the contribution from acquisitions to consolidated operating
income before depreciation and amortization. The results of these two
acquisitions, although creating a temporary decrease in
Transcontinental's consolidated operating income before depreciation and
amortization, should improve in upcoming quarters. The paper effect had
a $4 million positive impact on revenues without affecting operating
income before depreciation and amortization. Finally, fluctuations in
the exchange rate between the Canadian dollar and its U.S. and Mexican
counterparts decreased revenues by $8 million and operating income
before depreciation and amortization by $2 million.

Net income rose 10%, from $26 million in the first quarter of 2004 to
$29 million in 2005, due to the increase in operating income before
depreciation and amortization and the decrease in financial expenses. On
a per-common-share basis, it rose from $0.30 to $0.33. Lastly, as at
January 31, 2005, Transcontinental's net indebtedness amounted to $378
million and its ratio of net funded debt to total capitalization was
27%, compared to 38% in the first quarter of 2004; including the
acquisition of JDM, Inc., completed on February 14, 2005, the ratio is
32%.

Highlights of Operations

The following are the main operating highlights for the first quarter of
2005 by sector:

- Revenues in the Information Products Printing sector rose by 9%, from
$165 million in the first quarter of 2004 to $179 million in 2005, while
operating income before depreciation and amortization rose 10%, from $30
million to $33 million. Organic growth in revenues and operating income
before depreciation and amortization came mainly from the Magazine and
Catalogue Group, which increased its sales volume, primarily in the
United States, and benefited from new titles in the Media sector.
Mexican operations also had a good quarter, benefiting from last year's
sales development efforts. Operating income margin before depreciation
and amortization rose from 18.3% in the first quarter of 2004 to 18.5%
in the first quarter of 2005.

- Revenues in the Marketing Products Printing sector rose from $199
million in the first quarter of 2004 to $234 million in 2005, an
increase of 18%, while operating income before depreciation and
amortization rose 15%, from $25 million in the first quarter of 2004 to
$28 million in 2005. The driver of growth was the Retail Group and
direct marketing operations in the United States, which was partially
offset by commercial printing in Canada, a highly competitive segment.
Operating income margin before depreciation and amortization decreased
from 12.5% in the first quarter of 2004 to 12.1% in 2005 due to the
negative impact of the exchange rate and pricing pressure in commercial
printing.

- Revenues in the Media sector rose 10%, from $117 million in the first
quarter of 2004 to $130 million in 2005, while operating income before
depreciation and amortization rose 3%, from $20 million to $21 million.
This growth came mainly from door-to-door advertising material
distribution, which had a record quarter, and community newspaper
publishing in Quebec. These elements were partially offset, at the
operating income before depreciation and amortization level, by the
negative contribution from acquisitions, due to the seasonal nature of
the operations and greater investments in our brands. Operating income
margin before depreciation and amortization therefore decreased from
16.9% in the first quarter of 2004 to 15.8% in 2005.

- On November 16, 2005, the Corporation announced a $53 million special
investment: the purchase of three printing presses and related automated
finishing equipment. Two of the new presses will be used to print
magazines, catalogues and other commercial products, while the third
will be used to print books, primarily for the U.S. market. These
presses will significantly increase productivity and flexibility, as
well as the overall quality of printed products.

Additional Information

Management's Discussion and Analysis for the first quarter of 2005,
along with full financial statements, are posted on the home page of the
Corporation's Web site at www.transcontinental.com.

Upon releasing its quarterly results, Transcontinental will hold a
conference call with financial analysts today at 4:15 p.m. EST. There
will be a simultaneous audio broadcast on Transcontinental's website,
which will be archived for 30 days.

Dividend Increase

At its March 17, 2005 meeting, the Corporation's Board of Directors
voted a quarterly dividend of $0.055 per share on Class A Subordinate
Voting Shares and Class B Shares, which is an increase of 22% over the
dividend paid last quarter. These dividends are payable on May 2, 2005
to shareholders of record at the close of business on April 11, 2005. On
an annual basis, this represents a dividend of $0.22 per common share.

Subsequent Events

On February 14, 2005, Transcontinental acquired the operating assets of
JDM, Inc., through its wholly-owned subsidiary Transcontinental Direct
U.S.A. Inc. This transaction raises Transcontinental Direct U.S.A.'s
production capacity to more than 5 billion direct mail pieces annually
while also adding JDM's state-of-the-art production and control systems,
mailing logistics, and strong management team. JDM has five facilities
in Pennsylvania comprising a printing plant and a main direct mail
lettershop, along with three other direct mail facilities. It is a
fast-growing company renowned for its operational excellence and a
market leader in high-speed inkjet personalization technology. JDM has
over 1100 employees and reported revenue of C$112 million in 2004.

On March 1, 2005, Transcontinental received the second and final portion
of proceeds from its issue of US$100 million in Unsecured Senior Notes
to a group of investors through a private placement in the United States
on October 27, 2004. The notes were issued in four tranches maturing in
7, 9 and 11 years and carry floating interest rates. Of the US$100
million, US$52.5 million was received in October 2004 and US$47.5
million on March 1, 2005. The latter amount was used to finance part of
the recent acquisition of the operating assets of JDM, Inc. in the
United States.

Corporate Affairs

Early in the second quarter, two awards drew attention to the high
regard Transcontinental's management team enjoys in the Canadian and
Quebec business communities. Remi Marcoux, Transcontinental's executive
chairman of the board, was named the fourth most respected CEO in Canada
in the Tenth Annual Survey of Canada's Most Respected Corporations. The
KPMG survey group was composed of 263 leading CEOs in Canada.
Subsequently, Luc Desjardins, president and chief executive officer of
Transcontinental, was one of three Quebec business leaders honoured for
their exemplary management practices at the Les Nouveaux PerformantsTM
awards ceremony.

Transcontinental is also highly regarded in Canada for its exemplary
corporate governance, as well as its integrity and the transparency of
its communications with investors. At the 2005 edition of the IR
Magazine gala, the most important investor relations awards in Canada,
Transcontinental won in two categories. Stephane Milot,
Transcontinental's director of public and investor relations, was
awarded the prize for "Best Investor Relations Officer" in the "small
cap" category. Transcontinental also shared the "Best Use of
Conferencing" award with a major Canadian retailer.

Lastly, Transcontinental's Annual Meeting of Shareholders will be held
on Wednesday, March 30, 2005, at 4 p.m., at Hotel Omni Mont-Royal, Salon
des Saisons, 1050 Sherbrooke St. West in Montreal. The meeting will be
preceded by a press conference at the same location at 11 a.m. There
will be an audio broadcast of the event on the Corporation's website.

Profile

Transcontinental Inc. is the seventh largest printer in North America
and the fourth largest print media group in Canada. Transcontinental is
Canada's leading printer in the flyer, book and newspaper niches, and a
strong second in magazines, catalogues and other commercial products.
Through its Canadian and U.S. direct marketing facilities,
Transcontinental has the geographic platform and complete service
offering needed to cover the entire North American market.
Transcontinental is also Canada's leading publisher of consumer
magazines, the country's second largest publisher of community
newspapers, and a leader in the door-to-door distribution of advertising
material. Transcontinental is a company whose values, including respect,
innovation and integrity, are central to its operation.

Transcontinental's shares are listed on the Toronto Stock Exchange under
the ticker symbols TCL.SV.A and TCL.MV.B. The company has more than
14,000 employees in Canada, the United States and Mexico, and reported
revenues of C$2.05 billion (US$1.7 billion) in 2004.

Note: This news release may contain forward-looking statements. Such
statements, based on the current expectations of management, inherently
involve numerous risks and uncertainties, known and unknown. Actual
future results may differ materially. The risks, uncertainties and other
factors that could influence actual results are described in
Management's Discussion and Analysis for the first quarter of 2005, the
same document for the fiscal year ended October 31, 2004, as well as in
the annual information form. The forward-looking information in this
release is based on information available as of March 17, 2005.




HIGHLIGHTS
unaudited

Three months ended
(in thousands of dollars, except per share data) January 31
---------------------------------------------------------------------
2005 2004 Change
(restated)(2) %
---------------------------------------------------------------------
Operations
Revenues $ 516,681 $ 459,767 12
Operating income before
depreciation and amortization 78,944 73,609 7
Operating income 51,192 47,620 8
Income from continuing operations 29,059 26,468 10
Loss from discontinued operations - (39) -
Net income 29,059 26,429 10
Cash flow from continuing operations
before changes in non-cash operating
items 60,076 61,000 (2)
---------------------------------------------------------------------

Investments
Acquisitions of property, plant and
equipment, net amount 26,072 10,961 -
Business acquisitions(1) - 190,495 -
---------------------------------------------------------------------

Financial condition
Total assets 1,939,049 1,818,238 7
Net indebtedness 377,523 554,057 (32)
Shareholders' equity 1,009,935 899,097 12
Net indebtedness / Total
capitalization 27% 38% (11)
---------------------------------------------------------------------

Per common share data (basic)
Income from continuing operations $ 0,33 $ 0,30 10
Loss from discontinued operations - - -
Net income 0,33 0,30 10
Cash flow from continuing operations
before changes in non-cash operating
items 0,68 0,69 (2)
Dividends on common shares 0,045 0,035 29
Common shareholders' equity 11.35 10.13 12
---------------------------------------------------------------------

Average number of common shares
outstanding ('000) 88,892 88,702
---------------------------------------------------------------------

Number of common shares at end of
period ('000) 88,985 88,788
---------------------------------------------------------------------

(1) Total consideration in cash or otherwise for businesses acquired
through the purchase of shares or assets.

(2) The restatement of 2004 is related to a change in an accounting
policy, which is described in Note 2 to the consolidated
financial statements.



CONSOLIDATED STATEMENTS OF INCOME
unaudited

Three months ended
(in thousands of dollars, except per share data) January 31
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------

Revenues $ 516,681 $ 459,767
Operating costs 380,955 338,721
Selling, general and administrative expenses 56,782 47,437
---------------------------------------------------------------------

Operating income before depreciation and
amortization 78,944 73,609
Depreciation and amortization 27,752 25,989
---------------------------------------------------------------------

Operating income 51,192 47,620
Financial expenses 5,334 6,534
Other expenses (Note 5) 1,625 1,725
---------------------------------------------------------------------

Income from continuing operations before income
taxes and non-controlling interest 44,233 39,361
Income taxes 14,349 11,971
---------------------------------------------------------------------

Income from continuing operations before
non-controlling interest 29,884 27,390
Non-controlling interest 825 922
---------------------------------------------------------------------

Income from continuing operations 29,059 26,468
Loss from discontinued operations - (39)
---------------------------------------------------------------------
Net income $ 29,059 $ 26,429
---------------------------------------------------------------------
---------------------------------------------------------------------

Per common share (basic) (Note 6)
Income from continuing operations $ 0,33 $ 0,30
Loss from discontinued operations - -
Net income 0,33 0,30
---------------------------------------------------------------------

Per common share (diluted) (Note 6)
Income from continuing operations $ 0,33 $ 0,30
Loss from discontinued operations - -
Net income 0,33 0,30
---------------------------------------------------------------------

Average number of common shares
outstanding ('000) 88,892 88,702
---------------------------------------------------------------------

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



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
unaudited

Three months ended
(in thousands of dollars) January 31
---------------------------------------------------------------------
2005 2004
(restated)
---------------------------------------------------------------------

Balance, beginning of period, as previously
reported $ 585,855 $ 472,095
Asset Retirement Obligations (Note 2) (426) (426)
---------------------------------------------------------------------
Restated balance, beginning of period 585,429 471,669
Net income 29,059 26,429
---------------------------------------------------------------------
614,488 498,098

Dividends on common shares (4,004) (3,105)
---------------------------------------------------------------------
Balance, end of period $ 610,484 $ 494,993
---------------------------------------------------------------------
---------------------------------------------------------------------

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



CONSOLIDATED BALANCE SHEETS
As at As at
January 31 October 31
2005 2004
(unaudited)(restated and
(in thousands of dollars) audited)
---------------------------------------------------------------------

Current assets
Cash and temporary investments $ 82,866 $ 139,855
Accounts receivable (Note 5) 120,260 151,134
Income taxes receivable 4,453 3,589
Inventories 83,899 87,976
Prepaid expenses and other current assets 20,505 17,666
---------------------------------------------------------------------
311,983 400,220


Property, plant and equipment 669,340 665,762
Goodwill 750,985 749,258
Intangible assets 144,837 145,323
Future income tax assets 34,268 27,391
Other assets 27,636 26,165
---------------------------------------------------------------------
$ 1,939,049 $ 2,014,119
---------------------------------------------------------------------
---------------------------------------------------------------------

Current liabilities
Bank overdraft $ 1,457 $ 352
Accounts payable and accrued liabilities 255,528 385,185
Income taxes payable 60,897 49,447
Deferred subscription revenues and deposits 48,800 46,706
Current portion of long-term debt 11,112 11,628
---------------------------------------------------------------------
377,794 493,318

Long-term debt 447,820 444,695
Future income tax liabilities 80,334 73,455
Other liabilities 21,971 21,532
---------------------------------------------------------------------
927,919 1,033,000
---------------------------------------------------------------------

Non-controlling interest 1,195 1,195
---------------------------------------------------------------------

Shareholders' equity
Capital stock 417,887 416,103
Contributed surplus 4,262 3,809
Foreign currency translation adjustment (22,698) (25,417)
Retained earnings 610,484 585,429
---------------------------------------------------------------------
1,009,935 979,924
---------------------------------------------------------------------
$ 1,939,049 $ 2,014,119
---------------------------------------------------------------------
---------------------------------------------------------------------

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



CONSOLIDATED STATEMENTS OF CASH FLOWS
unaudited

Three months ended
(in thousands of dollars) January 31
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------

Operating activities
Income from continuing operations $ 29,059 $ 26,468
Items not affecting cash and cash
equivalents
Depreciation and amortization 29,537 27,503
Gain on disposal of assets (30) (90)
Future income taxes (93) 5,291
Non-controlling interest 825 922
Unrealized foreign exchange loss on long-term
monetary items 325 696
Other 453 210
---------------------------------------------------------------------
Cash flow from continuing operations before
changes in non-cash operating items 60,076 61,000
Changes in non-cash operating items (84,738) (71,551)
---------------------------------------------------------------------
Cash flow from continuing operations (24,662) (10,551)
---------------------------------------------------------------------

Investing activities
Business acquisitions - (188,394)
Acquisitions of property, plant and equipment (27,028) (13,014)
Disposals of property, plant and equipment 1,204 2,053
Other (4,044) (2,475)
---------------------------------------------------------------------
(29,868) (201,830)
---------------------------------------------------------------------

Financing activities
Reimbursement of long-term debt (1,928) (16,971)
Increase in revolving term credit facility - 142,835
Dividends on common shares (4,004) (3,105)
Issuance of common shares 1,784 1,297
Other (825) (922)
---------------------------------------------------------------------
(4,973) 123,134
---------------------------------------------------------------------

Effect of exchange rate changes on foreign cash
and cash equivalents 1,409 670
---------------------------------------------------------------------

Cash and cash equivalents used in continuing
operations (58,094) (88,577)

Cash and cash equivalents used in discontinued
operations - (53)
---------------------------------------------------------------------
Decrease in cash and cash equivalents (58,094) (88,630)
Cash and cash equivalents at beginning of
period 139,503 89,316
---------------------------------------------------------------------
Cash and cash equivalents at end of period $ 81,409 $ 686
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
Additional information
Interest paid $ 11,654 $ 12,975
Income taxes paid 3,857 2,876
---------------------------------------------------------------------
---------------------------------------------------------------------

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



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited
For the three-month periods ended January 31


1. Significant accounting policies

These interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles, using
the same accounting policies as outlined in Note 1 to the consolidated
financial statements for the year ended October 31, 2004, except for the
changes in accounting policies as indicated 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.

2. Changes in accounting policies

Asset Retirement Obligations

In 2003, the Canadian Institute of Chartered Accountants (CICA) issued
Section 3110 of the CICA Handbook, Assets Retirement Obligations, which
applies to fiscal years beginning on or after January 1, 2004. On
November 1, 2004, the Corporation adopted these recommendations
retroactively with restatement of prior periods. In accordance with
these recommendations, a liability must be recorded at fair value in the
period in which a legal obligation associated to the retirement of an
asset is incurred. The obligation is initially measured at fair value
using an expected present value technique and is subsequently adjusted
for any changes resulting from the passage of time and any changes to
the timing or the amount of the original estimate. Upon initial
recognition of a liability for an asset retirement obligation, an asset
retirement cost is capitalized as part of the carrying amount of the
related asset by the same amount as the liability and is amortized into
income over its remaining useful life.

Asset retirement obligations in connection with the adoption of Section
3110 were linked to removal obligations on certain buildings. The
adoption of Section 3110 has decreased the opening retained earnings for
fiscal 2005 and 2004 by $0.4 million and increased property, plant and
equipment, future income tax assets and other liabilities as at November
1, 2004 and 2003 by $0.5 million, $0.2 million and $1.1 million,
respectively.

The impact on the consolidated statements of income for the three-month
periods ended January 31, 2005 and 2004 was negligible.

Consolidation of Variable Interest Entities

In 2003, the CICA issued Accounting Guideline 15 (AcG-15), Consolidation
of Variable Interest Entities, which applies to fiscal years and interim
periods beginning on or after November 1, 2004 and provides guidance on
the application of the standards set out in CICA Handbook Section 1590,
Subsidiaries, for certain entities defined as variable interest entities
(VIEs). VIEs are entities in which equity investors do not have
controlling financial interest or the equity investment at risk is not
sufficient to permit the entity to finance its activities without
additional subordinated financial support provided by other parties.
AcG-15 requires the consolidation of a VIE by its primary beneficiary,
i.e., the party that receives the majority of the expected residual
returns and/or absorbs the majority of the entity's expected losses. The
application of this Guideline has no impact on the consolidated
financial statements.

3. Impairment of assets and restructuring costs

On November 16, 2004, the Corporation announced a major investment
project to purchase equipment in the Information Products Printing and
Marketing Products Printing sectors. As part of the review of the
manufacturing strategy which resulted in this investment project,
certain equipment no longer necessary in the ongoing operations of the
Corporation were identified. The resulting expense charged to income for
fiscal 2004 was $7.5 million, of which $4.9 million and $1.9 million
represent asset impairment and $0.3 million and $0.4 million represent
contractual termination benefits in the Information Products Printing
and Marketing Products Printing sectors, respectively. No amounts have
been paid as at January 31, 2005.

On August 19, 2004, the Corporation announced the consolidation of its
Winnipeg printing operations in the Marketing Products Printing sector.
Total restructuring costs expected over the period of twelve months
following the announcement are $4 million, of which $2.7 million are for
workforce reductions and $1.3 million for the transfer of printing
equipment and other costs. An amount of $2.7 million for contractual
termination benefits was charged to income for fiscal 2004 of which $1.2
million has been paid as at January 31, 2005. No amount for the transfer
of printing equipment and other costs was charged to income for the
three-month period ended or has been paid as at January 31, 2005.


4. Employee future benefits

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:



(in thousands of dollars) Three months ended
January 31
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------

Pension plans
Defined benefit pension plans $ 3,831 $ 3,864
Defined contribution pension plans 309 72
---------------------------------------------------------------------
$ 4,140 $ 3,936
---------------------------------------------------------------------


5. Accounts receivable

As at January 31, 2005, $307 million of accounts receivable, including
C$223 million and US$70 million, ($282 million as at October 31, 2004)
had been sold under the accounts receivable securitization program, of
which $45 million ($37 million as at October 31, 2004) were kept by the
Corporation as retained interest, resulting in a net consideration of
$262 million, including C$155 million and US$89 million, ($245 million
as at October 31, 2004) on the sale. 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 sales of receivables of $1.6 million for the three-month
period ended January 31, 2005 ($1.7 million for the same period in
2004), which is included in "Other expenses" in the consolidated
statements of income.

6. Capital stock

Stock option plan

As at January 31, 2005, 2,243,391 stock options had been granted, of
which, 820,051 could be exercised.

For the three-month periods ended January 31, 2005 and 2004, 404,800 and
383,800 stock options were granted with a weighted average exercise
price of $22.41 and $22.02, respectively.

The table below summarizes the assumptions used to calculate the fair
value of options granted on the date of the grant using the
Black-Scholes model for the three-month periods ended January 31 :



2005 2004
---------------------------------------------------------------------

Weighted average fair value of options $ 9.11 $ 9.23

Assumptions:
---------------------------------------------------------------------
Dividend rate 0.8% 0.8%
Expected volatility 30.0% 30.0%
Risk-free interest rate 3.92% 4.39%
Expected life 7 years 7 years

The stock-based compensation cost of $0.5 million ($0.01 per share)
and $0.2 million ($0.00 per share) was charged to income for the
three-month periods ended January 31, 2005 and 2004, respectively.

Earnings per share

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

Three months ended
(in thousands of dollars, except per share data) January 31
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------

Numerator
Income from continuing operations $ 29,059 $ 26,468
---------------------------------------------------------------------

Denominator (in thousands)
Weighted average number of shares 88,892 88,702
Dilutive effect of stock options and warrants 429 624
---------------------------------------------------------------------
Weighted average diluted number of shares 89,321 89,326
---------------------------------------------------------------------
Basic earnings per common share from continuing
operations $ 0.33 $ 0.30
---------------------------------------------------------------------
Diluted earnings per common share from
continuing operations $ 0.33 $ 0.30
---------------------------------------------------------------------

No options and no warrants were considered to be anti-dilutive in the
calculation of the diluted earnings per share for the three-month
periods ended January 31, 2005 and 2004.

7. Segmented information

Sales between sectors of the Corporation are made at market
conditions. Transactions, other than sales, are made at exchange
amounts.


Three months ended
(in thousands of dollars) January 31
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------

Revenues
Information Products Printing $ 179,184 $ 164,519
Marketing Products Printing 234,288 198,760
Media 129,666 117,365
Other activities and unallocated amounts 1,637 1,248
Inter-segment sales (28,094) (22,125)
---------------------------------------------------------------------
$ 516,681 $ 459,767
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating income before depreciation and
amortization
Information Products Printing $ 33,113 $ 30,117
Marketing Products Printing 28,423 24,819
Media 20,516 19,825
Other activities and unallocated amounts (3,108) (1,152)
---------------------------------------------------------------------
$ 78,944 $ 73,609
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating income
Information Products Printing $ 21,606 $ 19,316
Marketing Products Printing 15,721 13,162
Media 17,993 17,649
Other activities and unallocated amounts (4,128) (2,507)
---------------------------------------------------------------------
$ 51,192 $ 47,620
---------------------------------------------------------------------
---------------------------------------------------------------------
Acquisitions of property, plant and equipment
Information Products Printing $ 12,554 $ 6,416
Marketing Products Printing 10,701 5,120
Media 2,126 942
Other activities and unallocated amounts 1,895 536
---------------------------------------------------------------------
$ 27,276 $ 13,014
---------------------------------------------------------------------
---------------------------------------------------------------------


As at As at
January 31 October 31
2005 2004
(restated and
audited)
---------------------------------------------------------------------

Assets
Information Products Printing $ 557,101 $ 544,933
Marketing Products Printing 598,317 639,003
Media 611,715 628,067
Other activities and unallocated amounts 171,916 202,116
---------------------------------------------------------------------
$ 1,939,049 $ 2,014,119
---------------------------------------------------------------------
---------------------------------------------------------------------

Goodwill
Information Products Printing $ 130,360 $ 130,256
Marketing Products Printing 199,041 197,333
Media 420,806 420,806
Other activities and unallocated amounts 778 863
---------------------------------------------------------------------
$ 750,985 $ 749,258
---------------------------------------------------------------------
---------------------------------------------------------------------


8. Subsequent Events

On February 14, 2005, the Corporation completed the acquisition of the
assets of JDM, Inc., a direct marketing company operating in the United
States, in the Marketing Products Printing sector for a total
consideration of US$86.9 million (C$107.1 million).

On March 1, 2005, the Corporation received US$47.5 million, the second
and final portion of US$100 million of Unsecured Senior Notes issued to
a group of investors through a private placement in the United States on
October 27, 2004.

9. Comparative figures

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

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