MONTREAL--Sept. 14, 2004-- Transcontinental Inc. recorded a strong third quarter with a significant increase in revenues and earnings following record quarters in 2003 and 2002. The increase stems mainly from acquisitions made since the beginning of the fiscal year, organic growth in revenues and cost reductions and efficiency improvements related to the Horizon 2005 business project. Daniel Denault, Vice President and Chief Financial Officer of Transcontinental Inc. said: "We are very satisfied with the third quarter results of fiscal 2004. We have regained our momentum despite the continuing tough market conditions. Indeed, at the beginning of the year we told the market that the second half of the year would be better than the first six months. Our solid performance is mainly due to the successful integration of the companies acquired early in the year, that is, the printer and publisher Optipress in the Atlantic provinces, and the direct marketer CC3 in the United States, and to our capital investments, particularly in newspaper printing. We should also note also our many sales-development and efficiency-improvement initiatives under our business project Horizon 2005, as well as the turnaround in our Mexican operations and the Warminster direct marketing plant in the Philadelphia area, which benefited from its integration with CC3. "The Corporation is in a solid financial position to pursue growth in its strategic niches," continued Mr. Denault. "At 32%, our net funded debt to total capitalization ratio is significantly lower than the target ratio of 45% set by management. Furthermore, we will continue to reap the benefits of our capital investments in 2003 and since the start of 2004, as well as the many initiatives related to Horizon 2005. Management is therefore maintaining its target of earnings per common share before non-recurring items of $1.72 to $1.80 for fiscal 2004, but expects to be at the lower end of that range since the market continues to be highly competitive in North America and the anticipated improvement in demand is materializing more slowly than expected." Financial Highlights For the third quarter ended July 31, 2004, Transcontinental reported consolidated revenues of $502 million, up 16% over revenues of $433 million in the corresponding quarter in 2003. Operating income before depreciation, amortization and restructuring charge rose 21% to $85 million compared to $71 million in 2003. The integration of acquisitions made early in fiscal 2004 added $55 million to revenues and $6 million to operating income before depreciation and amortization; the paper effect had a negative impact of $6 million on revenues without affecting operating income, while exchange rate fluctuations between the Canadian dollar and its US and Mexican counterparts reduced revenues by $2 million without affecting operating income. In the third quarter, the Corporation disposed of its Media sector publishing and distribution assets in Winnipeg. Net of related taxes, the gain on disposal of $3 million, or $0.04 per share, was recorded as earnings from discontinued operations. Furthermore, on August 19, 2004, the Corporation announced the consolidation of its Marketing Product Printing operations in Winnipeg. A restructuring charge of $3 million, or $0.02 per share after taxes, was recorded in the third quarter of 2004 for workforce reduction. Net earnings thus increased 24%, from $28 million in the third quarter of 2003 to $35 million in 2004. On a per-common-share basis, net earnings increased 23%, from $0.32 in 2003 to $0.39 in 2004. Excluding the abovementioned non-recurring items, the Corporation's third quarter earnings per share would have been $0.37, up 16%. For the first nine months of fiscal 2004, consolidated revenues rose to $1.5 billion versus $1.4 billion in 2003, an increase of 7%, while operating income before depreciation, amortization and restructuring charge rose to $255 million, up 11% over $230 million in 2003. Net income thus increased 5%, from $96 million in 2003 to $100 million in 2004; on a per-common-share basis, it rose from $1.08 to $1.13. Were it not for the above-mentioned non-recurring items, the Corporation's earnings per share would have been $1.11 for the first nine months ended July 31, 2004, a 3% increase Operating Highlights The operating highlights of the third quarter are as follows: - Revenues in the Information Products Printing Sector rose 13%, from $151 million in the third quarter of 2003 to $171 million in the third quarter of 2004, while operating income before depreciation and amortization increased 27%, from $27 million to $35 million. This dual growth stems mainly from the contribution of the Optipress printing operations, organic growth, particularly in newspaper printing, and the general improvement in Mexican operations. Operating margin before depreciation and amortization rose from 18.2% in the third quarter of 2003 to 20.4% in 2004. - Revenues in the Marketing Products Printing Sector rose 22%, from $186 million in the third quarter of 2003 to $227 million in 2004, while operating income before depreciation, amortization and restructuring charge increased 31%, from $23 million to $30 million. Growth in both items is mainly due to the acquisition of the US direct marketing company CC3 and the success of the Retail Group's new sales approach. Cost reduction and efficiency improvement measures also played a role. Operating margin before depreciation, amortization and restructuring charge grew from 12.3% to 13.2%. - Media sector revenues increased 9%, from $116 million in 2003 to $127 million in 2004, while operating income before depreciation and amortization rose from $22 million to $23 million. Organic growth in women's magazines, community newspapers and advertising material distribution offset the decrease in revenues and earnings from daily newspapers in the Atlantic provinces and business publications. Operating income margin before depreciation and amortization went from 18.5% in the third quarter of 2003 to 17.7% in the same period in 2004. This temporary decrease is due to the acquisition of Optipress and Avid Media. The margin from the contribution of these acquisitions will improve in future quarters as identified synergies materialize. - The integration of CC3 in the United States proceeded as planned in the third quarter and will result in higher than anticipated synergies over the next three years. Revenues and earnings at the Dallas plant, which came online in the second quarter, are continuing to increase rapidly. Integration of the Liberty Graphics assets acquired in March 2004 is also proceeding as planned. Transcontinental's integrated offering and its unique geographic positioning, covering all of North America, is proving very attractive to major corporations who want to target their customers and reduce their mailing costs. Since its acquisition by Transcontinental, CC3 has reported annualized revenue growth of more than 15%. - On June 23, 2004, Transcontinental bought Avid Media, publisher of the magazines Canadian Gardening, Canadian Home Workshop, Canadian Home & Country and Outdoor Canada. These new titles have a total readership of 6.3 million and complement Transcontinental's existing publications on gardening, homes and home decor, outdoor activities and sports. This acquisition will enable the Corporation to increase its share of the Canadian magazine advertising market. Integration is proceeding as planned with teams formed of Transcontinental and Avid Media employees. The acquisition will add about $16 million in annual revenues to the Media sector. - Lastly, in the Horizon 2005 business project, approximately 1000 employees took the training course designed to foster common values, objectives and the new ways of doing things at Transcontinental and to extend the culture of continuous improvement and employee participation to all levels of the organization. More than 8000 employees have taken the course since the program started. Mission: Leadership, a unique manager-training program, will also be launched in the coming weeks. Kaizen workshops are continuing as planned; previously run by head office, these workshops and all other continuous improvement initiatives are now the responsibility of each operating sector. In sales development, the 13 market teams have been working well and cross-selling initiatives multiplied during the quarter. Additional Information Management's Discussion and Analysis of the financial situation and operating results for the third quarter of 2004, along with full financial statements, are available on the home page of the Corporation's website at www.transcontinental.com. Transcontinental will also host a conference call with the financial community today at 4:15 p.m. EDT. There will be a simultaneous audio broadcast on Transcontinental's website that will be archived for 30 days. Corporate Affairs On July 15, 2004, the Quebec Court of Appeal rejected Sun Media Corporation Inc.'s appeal in its case against the Societe de Transport de Montreal and Publications Metropolitaines Inc. In their unanimous judgment, Justices Andre Brossard, Therese Rousseau-Houle and Francois Pelletier dismissed the appeal of Quebecor Inc.'s subsidiary, which alleged a violation of its right to freedom of the press under the Canadian and Quebec charters of rights. The Quebec Court of Appeal also confirmed the validity of the exclusivity agreement granted by the Societe de transport de Montreal to the newspaper Metro, a publication owned by Publications Metropolitaines Inc., a partnership between Transcontinental Media Inc., Metro International S.A. and Gesca Ltd. In addition, in a survey released on September 8, 2004, Desjardins Securities ranked Transcontinental atop the Canadian media industry for corporate governance, for the second year in a row. Transcontinental scored a total of 29 points out of 35, compared to 21 last year, while the second-ranked company dropped from 17 to 16 points. The ranking is based on the following ten criteria: separation of the roles of chairman of the board and CEO; share structure; independence of board members; compensation for top executives; compensation for board members; attendance at board meetings; composition of board committees; loans to executives; off-balance-sheet items; and mandates other than auditing assigned to the auditors.