Transcontinental Inc — Interim / Quarterly Report 2021

Feb 25, 2021

CONSOLIDATED STATEMENTS OF EARNINGS

Unaudited

CONSOLIDATED STATEMENTS OF EARNINGS Unaudited
			Three	months	ended
		January 24,		January 26,
(in millions of Canadian dollars,unless otherwise indicated andper share data)	Notes		2021		2020
Revenues	3	$	622.7	$	705.8
Operating expenses	4		517.0		596.8
Restructuringand other costs	5		4.8		13.3
Operating earnings before depreciation and amortization			100.9		95.7
Depreciation and amortization	6		53.7		54.9
Operating earnings			47.2		40.8
Net financial expenses	7		10.8		14.0
Earnings before income taxes			36.4		26.8
Income taxes	8		8.6		20.3
Net earnings			27.8		6.5
Non-controllinginterest			0.1		0.1
Net earnings attributable to the shareholders of the Corporation		$	27.7	$	6.4
Net earningsper share - basic and diluted		$	0.32	$	0.07
Weighted average number of shares outstanding- basic and diluted(in millions)	12		87.0		87.3

The notes are an integral part of these condensed interim consolidated financial statements.

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1

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Unaudited

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Unaudited
			Three months		ended
		January 24,		January 26,
(in millions of Canadian dollars)	Notes		2021		2020
Net earnings		$	27.8	$	6.5
Other comprehensive income (loss)
Items that will be reclassified to net earnings
Net change related to cash flow hedges
Net change in the fair value of designated derivatives - foreign exchange risk			4.3		(0.5)
Net change in the fair value of designated derivatives - interest rate risk	9		(0.4)		0.2
Reclassification of the net change in the fair value of designated derivatives
recognized in net earnings during the period			3.2		0.8
Related income taxes			1.9		0.2
	14		5.2		0.3
Cumulative translation differences
Net unrealized exchange gains (losses) on the translation of the financial statements of foreign operations			(48.8)		7.5
Net gains on hedge of the net investment in foreign operations	9		23.5		0.8
Related income taxes			3.0		0.2
	14		(28.3)		8.1
Items that will not be reclassified to net earnings
Changes related to defined benefit plans
Actuarial gains (losses) on defined benefit plans			(9.7)		4.0
Related income taxes			(2.8)		1.0
	14		(6.9)		3.0
Other comprehensive income(loss)	14		(30.0)		11.4
Comprehensive income(loss)		$	(2.2)	$	17.9

The notes are an integral part of these condensed interim consolidated financial statements.

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2

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Unaudited

Unaudited
						Accumulated
							other			Non-
		Share	Contributed		Retained	comprehensive			controlling		Total
(in millions of Canadian dollars)	Notes	capital		surplus	earnings		loss	Total		interest	equity
Balance as at October 25, 2020	$	640.0	$	0.9	$ 1,107.2	$	(14.8)	$ 1,733.3	$	5.3	$ 1,738.6
Net earnings		—		—	27.7		—	27.7		0.1	27.8
Other comprehensive loss		—		—	—		(30.0)	(30.0)		—	(30.0)
Shareholders' contributions and
distributions to shareholders
Dividends	11	—		—	(19.6)		—	(19.6)		—	(19.6)
Balance as at January24,2021	$	640.0	$	0.9	$ 1,115.3	$	(44.8)	$ 1,711.4	$	5.4	$ 1,716.8
Balance as at October 27, 2019	$	641.9	$	1.1	$ 1,069.9	$	(25.9)	$ 1,687.0	$	4.2	$ 1,691.2
Impact of the transition to IFRS 16		—		—	(13.2)		—	(13.2)		—	(13.2)
Balance as at October 27, 2019 - adjusted		641.9		1.1	1,056.7		(25.9)	1,673.8		4.2	1,678.0
Net earnings		—		—	6.4		—	6.4		0.1	6.5
Other comprehensive income		—		—	—		11.4	11.4		—	11.4
Shareholders' contributions and
distributions to shareholders
Share redemptions	11	(3.8)		—	(3.3)		—	(7.1)		—	(7.1)
Exercise of stock options	13	1.9		(0.2)	—		—	1.7		—	1.7
Dividends	11	—		—	(19.2)		—	(19.2)		—	(19.2)
Balance as at January26,2020	$	640.0	$	0.9	$ 1,040.6	$	(14.5)	$ 1,667.0	$	4.3	$ 1,671.3

The notes are an integral part of these condensed interim consolidated financial statements.

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3

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Unaudited

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Unaudited
		As at		As at
	January 24,		October 25,
(in millions of Canadian dollars)	Notes	2021		2020
Current assets
Cash	$	182.0	$	241.0
Accounts receivable		410.9		461.2
Income taxes receivable		16.3		13.4
Inventories		271.0		288.8
Prepaid expenses and other current assets		27.7		20.3
		907.9		1,024.7
Property, plant and equipment		699.2		712.4
Right-of-use assets		133.4		134.6
Intangible assets		538.1		568.5
Goodwill		1,076.8		1,098.8
Deferred taxes		24.5		24.2
Other assets		28.2		35.2
	$	3,408.1	$	3,598.4
Current liabilities
Accounts payable and accrued liabilities	$	336.3	$	399.7
Provisions		6.1		7.9
Income taxes payable		14.8		8.4
Deferred revenues and deposits		9.5		9.0
Current portion of long-term debt	9	337.7		229.7
Currentportion of lease liabilities		22.7		22.8
		727.1		677.5
Long-term debt	9	578.9		790.4
Lease liabilities		130.7		132.0
Deferred taxes		129.9		133.9
Provisions		0.6		0.3
Other liabilities	10	124.1		125.7
		1,691.3		1,859.8
Equity
Share capital	11	640.0		640.0
Contributed surplus		0.9		0.9
Retained earnings		1,115.3		1,107.2
Accumulated other comprehensive loss	14	(44.8)		(14.8)
Attributable to the shareholders of the Corporation		1,711.4		1,733.3
Non-controllinginterest		5.4		5.3
		1,716.8		1,738.6
	$	3,408.1	$	3,598.4

The notes are an integral part of these condensed interim consolidated financial statements.

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4

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited
			Three months		ended
		January 24,		January 26,
(in millions of Canadian dollars)	Notes		2021		2020
Operating activities
Net earnings		$	27.8	$	6.5
Adjustments to reconcile net earnings and cash flows from operating activities:
Depreciation and amortization	6		58.7		60.3
Financial expenses on long-term debt and lease liabilities	7		9.5		14.4
Net losses on disposal of assets			0.3		1.5
Net losses on business disposals			—		4.3
Income taxes	8		8.6		20.3
Net foreign exchange differences and other			(2.5)		1.3
Cash flows generated by operating activities before changes in non-cash operating
items and income taxes paid			102.4		108.6
Changes in non-cash operating items			(8.6)		(28.6)
Income taxespaid			(9.1)		(16.3)
Cash flows from operatingactivities			84.7		63.7
Investing activities
Business combinations, net of acquired cash			—		(7.7)
Business disposals			—		232.1
Acquisitions of property, plant and equipment			(27.3)		(23.1)
Disposals of property, plant and equipment			0.1		0.1
Increase in intangible assets			(4.5)		(4.4)
Cash flows from investingactivities			(31.7)		197.0
Financing activities
Reimbursement of long-term debt	9		(83.4)		(8.3)
Net increase in credit facilities	9		3.4		—
Financial expenses paid on long-term debt	7 & 9		(7.6)		(13.2)
Repayment of principal on lease liabilities			(5.4)		(5.2)
Interest paid on lease liabilities			(0.9)		(0.6)
Exercise of stock options	13		—		1.7
Dividends	11		(19.6)		(19.2)
Share redemptions	11		—		(7.1)
Cash flows from financingactivities			(113.5)		(51.9)
Effect of exchange rate changes on cash denominated in foreign currencies			1.5		2.1
Net change in cash			(59.0)		210.9
Cash at beginningofperiod			241.0		213.7
Cash at end ofperiod		$	182.0	$	424.6
Non-cash investing activities
Net change in capital asset acquisitions financed byaccountspayable		$	0.5	$	(1.0)

The notes are an integral part of these condensed interim consolidated financial statements.

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5

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

1 GENERAL INFORMATION

Transcontinental Inc. (the "Corporation") is incorporated under the Canada Business Corporations Act. Its Class A Subordinate Voting Shares and Class B Shares are traded on the Toronto Stock Exchange. The Corporation's head office is located at 1 Place Ville Marie, Suite 3240, Montreal, Quebec, Canada H3B 0G1.

The Corporation is a leader in flexible packaging in North America and Canada's largest printer. The Corporation mainly conducts business in Canada, the United States and Latin America in three separate sectors: the Packaging Sector, the Printing Sector and the Media Sector. The Corporation’s main activities are described in Note 3 "Segmented Information".

The operating results for interim periods are not necessarily indicative of expected full-year results due to the seasonal nature of certain activities of the Corporation. Operating results are influenced by the advertising market, which is stronger in the fourth quarter.

The Corporation's Board of Directors approved these condensed interim consolidated financial statements on February 25, 2021.

2 SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

These interim consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). In particular, these interim consolidated financial statements were prepared in accordance with IAS 34 "Interim Financial Reporting", and therefore, are condensed consolidated financial statements since they do not contain all disclosures required by IFRS for annual consolidated financial statements. These condensed interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended October 25, 2020, which include the significant accounting policies used by the Corporation.

The accounting policies adopted in these condensed interim consolidated financial statements are based on IFRS issued, in force and which were adopted by the Corporation as at January 24, 2021. Any subsequent changes to the accounting policies that will take effect in the Corporation's annual consolidated financial statements for the year ending October 31, 2021 or after could result in a restatement of these condensed interim consolidated financial statements.

Critical judgments and sources of estimation uncertainty

The preparation of consolidated interim financial statements in accordance with IFRS requires the Corporation's management to make estimates and assumptions that affect the application of accounting policies and the amounts of assets, liabilities, revenues and expenses reported for the relevant periods. Detailed information on estimates, assumptions and critical judgments used by the Corporation is presented in the audited annual consolidated financial statements for the fiscal year ended October 25, 2020. Although management regularly reviews its estimates, actual results may differ.

In the context of the COVID-19 pandemic and the related climate of economic uncertainty, the Corporation revised some of its most complex estimates and assumptions, including significant judgment areas, used in preparing the interim consolidated financial statements for the three-month period ended January 24, 2021. In considering the impact of the COVID-19 pandemic on financial reporting, the Corporation determined whether there was an indication that assets, cash-generating units ("CGUs") or groups of CGUs might be impaired and assessed the credit risk on receivables (Note 15). These revisions of estimates had no material impact on the three-month period ended January 24, 2021. Additional revisions might be required in the future depending on the development of the COVID-19 pandemic and its impact on the Corporation's results of operations and financial position, and this could have an impact on the final measurement of the carrying amount of the Corporation's assets.

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6

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

3 SEGMENTED INFORMATION

The Corporation's operating segments are aggregated by management into three separate sectors: Packaging, Printing and Media.

The Packaging Sector, which specializes in extrusion, lamination, printing and converting packaging solutions, generates revenues from the manufacturing and recycling of flexible plastic and paper products, including rollstock, bags and pouches, coextruded films, shrink films and bags and advanced coatings. Its facilities are mainly located in the United States, Canada and Latin America.

The Printing Sector generates revenues from an integrated service offering to retailers, including premedia services, flyer and in-store marketing products printing, and doorto-door distribution, as well as an array of innovative print solutions for newspapers, magazines, 4-colour books and personalized and mass marketing products. Its facilities are located in Canada.

The "Other" column includes the Media Sector, certain head office costs as well as the elimination of inter-segment sales. The Media sector generates revenues from print and digital publishing products, in French and English, of the following types: educational books, specialized publications for professionals and newspapers. Inter-segment sales of the Corporation are recognized at agreed transfer prices, which approximate fair value. Transactions other than sales are recognized at carrying amount.

The following tables present the various segment components of the Consolidated Statements of Earnings:

							Consolidated	Consolidated
For the three-monthperiod ended January 24, 2021		Packaging		Printing		Other		Results
Revenues	$	337.2	$	274.4	$	11.1	$	622.7
Operating expenses		287.1		213.3		16.6		517.0
Restructuringand other costs		0.1		3.1		1.6		4.8
Operating earnings before depreciation and amortization		50.0		58.0		(7.1)		100.9
Depreciation and amortization		34.8		16.0		2.9		53.7
Operatingearnings	$	15.2	$	42.0	$	(10.0)	$	47.2
Adjusted operating earnings before depreciation and amortization(1)	$	50.1	$	61.1	$	(5.5)	$	105.7
Adjusted operating earnings(1)		30.7		46.3		(8.4)		68.6
Acquisitions of non-current assets(2)	$	23.0	$	4.4	$	4.9	$	32.3
							Consolidated
For the three-monthperiod ended January26,2020		Packaging		Printing		Other		Results
Revenues	$	371.5	$	325.8	$	8.5	$	705.8
Operating expenses		323.8		259.9		13.1		596.8
Restructuringand other costs		3.7		5.7		3.9		13.3
Operating earnings before depreciation and amortization		44.0		60.2		(8.5)		95.7
Depreciation and amortization		36.9		15.3		2.7		54.9
Operatingearnings	$	7.1	$	44.9	$	(11.2)	$	40.8
Adjusted operating earnings before depreciation and amortization(1)	$	47.7	$	65.9	$	(4.6)	$	109.0
Adjusted operating earnings(1)		27.6		51.8		(7.3)		72.1
Acquisitions of non-current assets(2)	$	11.5	$	9.8	$	5.2	$	26.5

(1) The Corporation’s officers mainly make decisions and assess segment performance based on adjusted operating earnings. Adjusted operating earnings before depreciation and amortization and adjusted operating earnings exclude restructuring and other costs, impairment of assets and amortization of intangible assets arising from business combinations.

(2) These amounts include internally generated intangible assets, acquisitions of property, plant and equipment and intangible assets, excluding those acquired as part of business combinations, whether they were paid or not.

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7

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

3 SEGMENTED INFORMATION (CONTINUED)

Additional information on revenues

The table below presents information on revenues disaggregated by type of products and geographical area, as well as a reconciliation with revenues by segment:

		Three months	ended	ended
	January 24,		January 26,
		2021		2020(1)
Packaging products
Americas	$	308.9	$	349.3
Rest of the world		28.3		22.2
		337.2		371.5
Printing services(2)
Retailer-related services(3)		154.9		196.3
Marketing products		53.9		52.5
Magazines and books		43.3		49.8
Newspapers		22.3		27.2
		274.4		325.8
Media(2)		13.7		11.8
Inter-segment sales		(2.6)		(3.3)
	$	622.7	$	705.8

The Corporation's total assets by segment are as follows:

		As at		As at
	January 24,		October 25,
		2021		2020
Packaging	$	2,166.8	$	2,238.9
Printing		871.3		926.3
Other(4)		370.0		433.2
	$	3,408.1	$	3,598.4

(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.

(2) Revenues from printing services and media are mainly derived from transactions in North America.

(3) Revenues from retailer-related services include printing, premedia and distribution services.

(4) This heading notably includes cash, income taxes receivable, property, plant and equipment, intangible assets, right-of-use assets, deferred taxes and defined benefit asset not allocated to segments.

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8

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

4 OPERATING EXPENSES

Operating expenses by major headings are as follows:

		Three	months	ended
	January 24,		January 26,
		2021		2020
Employee-related costs(1)	$	170.3	$	194.9
Supply chain and logistics(2)		328.1		374.7
Othergoods and services(3)		18.6		27.2
	$	517.0	$	596.8

(1) During the three-month period ended January 24, 2021, the Corporation recognized under "Employee-related costs", against eligible salary expenses, subsidies claimed under the Canada Emergency Wage Subsidy program amounting to $9.0 million. As at January 24, 2021, the Corporation had already received a portion of the subsidies claimed and continued to believe that there was reasonable assurance that the amount not yet received would be received from the Canadian federal government based on the fact that eligibility criteria were still met.

(2) "Supply chain and logistics" includes mainly production and distribution costs related to external suppliers.

(3) "Other goods and services" includes mainly promotion, advertising and telecommunications costs, office supplies, real estate expenses and professional fees.

5 RESTRUCTURING AND OTHER COSTS

Restructuring and other costs by major headings are as follows:

		Three	months	ended
	January 24,		January 26,
		2021		2020(1)
Workforce reductions(2)	$	2.5	$	4.7
Costs related to plant closures and restructuring(2)		0.8		1.9
Losses related to the sale of certain activities(3)		—		5.8
Onerous contracts		1.2		0.4
Business acquisition and integration costs(4)		0.1		0.3
Other elements		0.2		0.2
	$	4.8	$	13.3

(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.

(2) For the three-month periods ended January 24, 2021 and January 26, 2020, amounts presented under these captions include termination payments to employees as part of plant closures or workforce reorganizations, mainly in the Printing Sector, as well as related costs associated with such restructuring.

(3) For the three-month period ended January 26, 2020, the amount includes a $4.7 million loss on the disposal of the paper and woven polypropylene packaging operations.

(4) Business acquisition costs include transaction costs, primarily legal fees, success fees related to the acquisition and other professional fees, for potential or realized business combinations, as well as integration costs related to acquired companies.

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9

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

6 DEPRECIATION AND AMORTIZATION

Depreciation and amortization is as follows:

		Three	months	ended
	January 24,		January 26,
		2021		2020
Property, plant and equipment	$	29.4	$	30.5
Right-of-use assets		5.6		4.7
Intangible assets		18.7		19.7
		53.7		54.9
Intangible assets and other assets,recognized in revenues and operatingexpenses		5.0		5.4
	$	58.7	$	60.3

7 NET FINANCIAL EXPENSES

Net financial expenses are as follows:

		Three	months	ended
	January 24,		January 26,
		2021		2020
Financial expenses on long-term debt	$	8.7	$	13.6
Interest on lease liabilities		0.8		0.8
Net interest on defined benefit asset and liability		0.5		0.6
Other expenses (revenues)		0.2		(0.6)
Net foreign exchange losses(gains)		0.6		(0.4)
	$	10.8	$	14.0

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10

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

8 INCOME TAXES

The following table presents a reconciliation of income taxes at the Canadian statutory tax rate and at the effective tax rate:

		Three months	Three months	ended
	January 24,		January 26,
		2021		2020
Earnings before income taxes	$	36.4	$	26.8
Canadian statutorytax rate(1)		26.50 %		26.52 %
Income taxes at the statutory tax rate		9.6		7.1
Effect of differences in tax rates and additional income taxes in other jurisdictions		(1.8)		(0.2)
Income taxes on non-deductible expenses and non-taxable revenues		0.7		2.2
Income taxes on non-deductible restructuring and other costs and non-taxable revenues		—		12.8
Change in deferred tax assets on tax losses or temporary differences not previously recognized		0.1		(2.6)
Other		—		1.0
Income taxes at effective tax rate	$	8.6	$	20.3
Income taxes before the following items:	$	13.9	$	15.2
Income taxes on amortization of intangible assets arising from business combinations		(4.0)		(4.4)
Income taxes on restructuring and other costs, excluding tax impact of the disposal		(1.3)		(2.2)
Tax impact of the disposal		—		11.7
Income taxes at effective tax rate	$	8.6	$	20.3

(1) The Corporation's applicable tax rate corresponds to the combined Canadian tax rates applicable in the provinces where the Corporation operates.

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11

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

9 LONG-TERM DEBT

As at January 24, 2021, an amount of $337.7 million was presented in "Current liabilities", which was comprised of tranche B of $143.2 million (US$112.5 million) and tranche C of $191.10 million (US$150.0 million) of the U.S. dollar term loans, maturing on May 1, 2021 and November 1, 2021, respectively, and an amount of $3.4 million drawn on credit facilities.

Repayment of term loans

On October 30, 2020, the Corporation repaid the remaining portion of $83.2 million (US$62.5 million) on tranche A of the U.S. dollar term loans, maturing on that date.

Credit facilities

As at January 24, 2021, an amount of $3.4 million (US$2.6 million) had been drawn on the credit facilities, and the unused amount under the credit facilities was $428.5 million.

Hedging instruments

As at January 24, 2021, an amount of US$630.0 million ($802.2 million) of the term loans and existing credit facilities denominated in U.S. dollars had been designated by the Corporation as hedging instruments of its net investments in foreign operations. Consequently, during the three-month period ended January 24, 2021, a foreign exchange gain of $23.5 million was reclassified to other comprehensive loss.

In the last fiscal years, the Corporation entered into interest rate swaps as a hedge against risks related to future fluctuations of interest rates for an amount of US$450.0 million of certain of its term loans until their respective maturities. The Corporation applies cash flow hedge accounting by designating these swaps as hedging instruments. Consequently, during the three-month period ended January 24, 2021, the change in fair value of these hedging instruments, amounting to a loss of $0.4 million, was recognized in other comprehensive loss.

The Corporation must comply with certain restrictive covenants, including maintaining certain financial ratios. During the three-month period ended January 24, 2021, the Corporation has not been in default under any covenants.

10 OTHER LIABILITIES

The components of other liabilities are as follows:

			As at		As at
		January 24,		October 25,
	Note		2021		2020
Deferred revenues		$	1.9	$	2.1
Accrued liabilities and other liabilities			7.6		7.5
Stock-based compensation	13		11.9		14.8
Defined benefit liability			81.8		76.0
Derivative financial instruments			20.9		25.3
		$	124.1	$	125.7

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12

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

11 SHARE CAPITAL

The following table presents changes in the Corporation's share capital for the three-month period ended January 24, 2021:

	Number of
	shares		Amount
Class A Subordinate Voting Shares
Balance as at October 25, 2020	73,049,344	$	621.0
Conversion of Class B Shares into Class A Subordinate VotingShares	1,200		—
Balance as at January24,2021	73,050,544		621.0
Class B Shares
Balance as at October 25, 2020	13,975,826		19.0
Conversion of Class B Shares into Class A Subordinate VotingShares	(1,200)		—
Balance as at January24,2021	13,974,626		19.0
	87,025,170	$	640.0

Share redemptions

On September 18, 2020, the Corporation has been authorized to repurchase, for cancellation on the open market, or subject to the approval of any securities authority by private agreements, between October 1, 2020 and September 30, 2021, or at an earlier date if the Corporation concludes or cancels the offer, up to 1,000,000 of its Class A Subordinate Voting Shares and up to 191,320 of its Class B Shares. The repurchases are made in the normal course of business at market prices through the Toronto Stock Exchange.

The Corporation had been authorized to repurchase, for cancellation on the open market, or subject to the approval of any securities authority by private agreements, between October 1, 2019 and September 30, 2020, or at an earlier date if the Corporation concludes or cancels the offer, up to 1,000,000 of its Class A Subordinate Voting Shares and up to 190,560 of its Class B Shares. The repurchases were made in the normal course of business at market prices through the Toronto Stock Exchange.

On February 27, 2020, the Corporation was authorized to modify its share repurchase program in order to increase the maximum number of Class A Subordinate Voting Shares it is allowed to repurchase from 1,000,000 Class A Subordinate Shares to 2,000,000 Class A Subordinate Voting Shares. All other terms and conditions of the repurchase program remain unchanged.

During the three-month period ended January 24, 2021, the Corporation did not repurchase any of its Class A Subordinate Voting Shares or Class B Shares. The Corporation was under no obligation to repurchase its Class A Subordinate Voting Shares and Class B Shares as at as at January 24, 2021.

During the three-month period ended January 26, 2020, the Corporation redeemed and cancelled 449,900 of its Class A Subordinate Voting Shares at a weighted average price of $15.70, for a total cash consideration of $7.1 million. The excess of the total consideration over the carrying amount of the shares, in the amount of $3.3 million, was applied against retained earnings. The Corporation was under no obligation to repurchase its Class A Subordinate Voting Shares and Class B Shares as at January 26, 2020.

Dividends

Dividends of $0.225 and $0.22 per share were declared and paid to holders of shares for the three-month periods ended January 24, 2021 and January 26, 2020, respectively.

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13

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

12 NET EARNINGS PER SHARE

The following table presents a reconciliation of the components used in the calculation of basic and diluted net earnings per share:

			Three	months	ended
		January 24,		January 26,
			2021		2020
Numerator
Net earnings attributable to the shareholders of the Corporation		$	27.7	$	6.4
Denominator (in millions)
Weighted average number of shares - basic and diluted			87.0		87.3

As at January 24, 2021 and as at January 26, 2020, there were no dilutive instruments.

13 STOCK-BASED COMPENSATION

Share unit plan for certain officers and senior executives

The Corporation offers a share unit plan for certain officers and senior executives under which deferred share units ("DSU") and restricted share units ("RSU") are granted. Vested DSUs and RSUs will be paid, at the Corporation's discretion, in cash or with Class A Subordinate Voting Shares of the Corporation purchased on the open market.

The following table presents the changes in the plan's status for the three-month period ended January 24, 2021:

	Number of units	Number of units
	DSU	RSU
Balance as at October 25, 2020	547,645	1,093,533
Units granted	—	463,681
Units cancelled	(5,655)	(5,710)
Units paid	(1,491)	(100,068)
Units converted	7,291	—
Dividendspaid in units	5,607	10,569
Balance as at January24,2021	553,397	1,462,005

As at January 24, 2021, the liability related to the share unit plan for certain officers and senior executives was $21.4 million ($16.5 million as at October 25, 2020). The expenses recorded in the Consolidated Statements of Earnings for the three-month periods ended January 24, 2021 and January 26, 2020 were $7.2 million and $1.0 million, respectively. Amounts of $2.3 million and $3.6 million were paid under this plan for the three-month periods ended January 24, 2021 and January 26, 2020, respectively.

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14

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

13 STOCK-BASED COMPENSATION (CONTINUED)

Share unit plan for directors

The Corporation offers a deferred share unit plan for its directors. Under this plan, directors may elect to receive as compensation either cash, deferred share units, or a combination of both.

The following table presents the changes in the plan's status for the three-month period ended January 24, 2021:

	Number of units
Balance as at October 25, 2020	363,266
Directors' compensation	9,310
Units paid	(105,794)
Dividendspaid in units	2,697
Balance as at January24,2021	269,479

As at January 24, 2021, the liability related to the share unit plan for directors was $5.9 million ($6.3 million as at October 25, 2020). The expenses recorded in the Consolidated Statements of Earnings for the three-month periods ended January 24, 2021 and January 26, 2020 were $1.8 million and $0.4 million, respectively. An amount of $2.2 million was paid under this plan for the three-month period ended January 24, 2021 (nil for the three-month period ended January 26, 2020).

Total return swap

During the year ended October 25, 2020, the Corporation had entered into a total return swap on 950,000 units purchased at a weighted-average price of $16.37 to hedge a portion of the stock-based compensation expenses that vary based on the price of the Corporation's shares. The total return swap has a term of 12 months and can be renewed annually. The gain recognized in the Consolidated Statement of Earnings under "Operating expenses" for the three-month period ended January 24, 2021, corresponding to the change in the fair value of the total return swap for the units for officers and senior executives and the units for directors, before taking into account of dividends received and interest paid, amounted to $3.9 million.

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15

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

14 ACCUMULATED OTHER COMPREHENSIVE LOSS

								Actuarial
								gains and	Accumulated
				Net	Cumulative		losses related			other
		Cash flow	investment			translation		to defined	comprehensive
		hedges		hedges	differences		benefitplans			loss
Balance as at October 25, 2020	$	(16.4)	$	(10.1)	$	40.3	$	(28.6)	$	(14.8)
Net change ingains(losses),net of income taxes		5.2		20.5		(48.8)		(6.9)		(30.0)
Balance as at January 24, 2021	$	(11.2)	$	10.4	$	(8.5)	$	(35.5)	$	(44.8)
Balance as at October 27, 2019	$	(9.8)	$	(9.1)	$	31.1	$	(38.1)	$	(25.9)
Net change ingains,net of income taxes		0.3		0.6		7.5		3.0		11.4
Balance as at January 26, 2020	$	(9.5)	$	(8.5)	$	38.6	$	(35.1)	$	(14.5)

As at January 24, 2021, the amounts expected to be reclassified to net earnings in future years are as follows:

		2021		2022		2023		Total
Net change in the fair value of derivatives designated as cash flow hedges	$	2.8	$	(4.8)	$	(13.1)	$	(15.1)
Income taxes		0.8		(1.3)		(3.4)		(3.9)
	$	2.0	$	(3.5)	$	(9.7)	$	(11.2)

Actuarial gains (losses) on defined benefit plans

The actuarial gains (losses) on defined benefit plans recognized in other comprehensive income (loss) reflect the following items:

			Three months	Three months	ended
		January 24,		January 26,
			2021		2020
Actuarial losses on obligation - change in discount rate		$	(18.0)	$	(19.6)
Actuarial gains on plan assets - excluding interest income			6.7		24.2
Effect of the asset ceiling			1.6		(0.6)
		$	(9.7)	$	4.0

Actuarial losses on obligation recognized in the Statements of Comprehensive Income (Loss) for the three-month period ended January 24, 2021 are explained by the change in the discount rate, which decreased from 2.89% as at October 25, 2020 to 2.7% as at January 24, 2021 in Canada, and remained stable at 2.7% as at October 25, 2020 and as at January 24, 2021 in the United States. Actuarial gains on plan assets are attributable to the fact that actual rates of return on assets were overall greater than expected returns for the three-month period ended January 24, 2021.

Actuarial losses on obligation recognized in Statements of Comprehensive Income (Loss) for the three-month period ended January 26, 2020 are explained by the change in the discount rate, which decreased from 3.1% as at October 27, 2019 to 2.9% as at January 26, 2020 in Canada, and from 3.3% as at October 27, 2019 to 3.2% as at January 26, 2020 in the United States. Actuarial gains on plan assets are attributable to the fact that actual rates of return on assets were overall greater than expected returns for the three-month period ended January 26, 2020.

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16

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

15 FINANCIAL INSTRUMENTS

Fair value of financial instruments

The fair value represents the amount that would be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement date. The fair value estimates are calculated at a specific date taking into consideration assumptions regarding the amounts, the timing of estimated future cash flows and discount rates. Accordingly, due to its approximative and subjective nature, the fair value must not be interpreted as being realizable in an immediate settlement of the financial instruments.

The carrying amount of cash, accounts receivable, and accounts payable and accrued liabilities approximates their fair value due to their short term maturities.

The fair value of long-term debt is determined using the discounted future cash flow method and management's estimates for market interest rates for identical or similar issuances.

The only financial instruments of the Corporation that are measured at fair value on a recurring basis subsequent to their initial recognition are derivative financial instruments, including foreign exchange forward contracts, interest rate swaps, total return swaps and contingent considerations payable related to business combinations. The fair value of derivative financial instruments is determined using an evaluation of the estimated market value, adjusted for the credit quality of the counterparty. The valuation model for contingent considerations considers the present value of expected payments, discounted using a risk-adjusted discount rate. The expected payment is determined by considering various scenarios of achievement of pre-established financial performance thresholds, the amount to be paid under each scenario and the probability of each scenario.

The Corporation presents a fair value hierarchy with three levels that reflects the significance of inputs used in determining the fair value assessments.

The fair value of financial assets and liabilities classified in these three levels is evaluated as follows:

• Level 1 - Unadjusted prices on active markets for identical assets or liabilities

• Level 2 - Inputs other than the prices included within Level 1, that are observable for the asset or liability, directly (prices) or indirectly (derived from prices)

• Level 3 - Inputs for the asset or liability that are not based on observable market data

The following table presents the fair value and the carrying amount of other financial instruments and derivative financial instruments:

		**As at January **	**As at January **	24, 2021		As at October	As at October	25,2020
				Carrying				Carrying
		Fair value		amount		Fair value		amount
Foreign exchange forward contracts in assets	$	6.6	$	6.6	$	2.7	$	2.7
Interest rate swaps in assets		4.3		4.3		0.3		0.3
Contingent considerations		(3.2)		(3.2)		(3.5)		(3.5)
Long-term debt		(942.0)		(916.6)		(1,038.3)		(1,020.1)
Interest rate swaps in liabilities		(22.2)		(22.2)		(25.3)		(25.3)
Foreign exchange forward contracts in liabilities		(0.7)		(0.7)		(0.8)		(0.8)

These financial instruments are classified in Level 2 of the fair value hierarchy, except for contingent considerations payable related to business combinations, which are classified in Level 3. During the three-month period ended January 24, 2021, no financial instruments were transferred between Levels 1, 2 and 3.

Sensitivity analysis of the Level 3 financial instruments

As at January 24, 2021, all other things being equal, a 10% increase in expected financial performance thresholds of acquired businesses would have resulted in a decrease in net earnings of $5.3 million. A 10% decrease in expected financial performance thresholds would have resulted in an increase in net earnings of $3.2 million.

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17

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarters ended January 24, 2021 and January 26, 2020 (in millions of Canadian dollars, unless otherwise indicated and per share data)

15 FINANCIAL INSTRUMENTS (CONTINUED)

Fair value of financial instruments (continued)

The changes in Level 3 financial instruments are as follows for the three-month period ended:

	January 24,	January 24,
		2021
Balance, beginning of period	$	3.5
Amount included in net income		(0.2)
Exchange rate change		(0.1)
Balance, end ofperiod	$	3.2

Credit risk

The Corporation recognizes a loss allowance for credit losses using a probability-weighted estimate of credit losses. The Corporation establishes the loss allowance for credit losses on a collective and individual assessment basis, by considering past events, current conditions and forecasts of future economic conditions. Collective assessment is carried out by grouping together trade accounts receivable with similar characteristics, mainly by geographic area, the industry in which they operate and the number of days past due. In its assessment, management estimates the expected credit losses based on actual credit loss experience and informed credit assessment, taking into consideration forward-looking information. If actual credit losses differ from estimates, future earnings would be affected. In its assessment of the loss allowance for credit losses as at January 24, 2021, the Corporation considered the economic impact of the COVID-19 pandemic on its assessment, including the risk of default of its customers given the economic downturn caused by this pandemic.

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18