METRO INC. increased net earnings in the third quarter of 2008 and launches the METRO banner in Ontario

MONTREAL, Aug. 7, 2008 (Canada NewsWire via COMTEX) -- MTRAF | Quote | Chart | News | PowerRating -- << ------------------------------------------------------------------------- 2008 THIRD QUARTER HIGHLIGHTS - Sales of $3,370.0 million, up 0.9% - Net earnings of $92.6 million, up 3.7% - Fully diluted net earnings per share of $0.82, up 6.5% - Declared dividend of $0.125 per share, up 8.7% - Investment of $200 million to launch the Metro banner in Ontario ------------------------------------------------------------------------- >>

METRO INC. realized net earnings of $92.6 million in the third quarter of 2008, compared with $89.3 million for the corresponding period of the previous fiscal year, an increase of 3.7%, and fully diluted net earnings per share of $0.82 compared with $0.77 last year, an increase of 6.5%.

The Company's 2008 third quarter sales of $3,370.0 million were up 0.9% over the $3,341.0 million for the corresponding quarter last year. Excluding decreased sales of tobacco products, sales were up 1.5% over last year.

"We are pleased to have resumed net earnings growth in the third quarter of 2008. We resolved the issues associated with our new information systems in Ontario and achieved good performance in our Québec operations. We are also very excited to announce that we will invest $200 million to launch the Metro name in Ontario creating the largest grocery banner in the province. Starting next September, we will convert our five conventional banners over a 15-month period to the Metro name. Following this conversion, the Metro banner will be a 376-store strong national network that will contribute to the Company's future growth. As part of this change, we are also unveiling METRO INC's new signature which matches the new Metro banner logo," stated Eric R. La Flèche, President and Chief Executive Officer.

SALES

Third quarter sales reached $3,370.0 million, up 0.9% compared to $3,341.0 million last year. Excluding decreased sales of tobacco products, 2008 third quarter sales were up 1.5%. Third quarter same-store sales increased by 0.5%.

Sales for the first 40 weeks of 2008 reached $8,249.2 million, up 0.5% compared to sales of $8,212.2 million for the corresponding period of fiscal 2007. Excluding decreased sales of tobacco products, sales increased by 1.0%.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION

(EBITDA)(1)

Earnings before interest, taxes, depreciation and amortization(1) for the third quarter of 2008 were $207.0 million, up 5.7% from $195.9 million for the same quarter last year. Third quarter EBITDA(1) represented 6.1% of sales versus 5.9% last year. Excluding A&P Canada acquisition-related integration and rationalization costs of $5.4 million in 2007, adjusted EBITDA(1) for the third quarter of 2007 represented 6.0% of sales.

Our third quarter equity earnings from our investment in Alimentation Couche-Tard were $1.7 million in 2008 compared to $3.9 million in 2007. Alimentation Couche-Tard's 2008 fourth quarter results were affected by lower motor fuel gross margins in the U.S., higher electronic payment mode expenses and an economic slowdown in the U.S. South.

Excluding non-recurring items as well as equity earnings from our investment in Alimentation Couche-Tard, our adjusted 2008 third quarter EBITDA(1) was $205.3 million or 6.1% of sales versus $197.4 million or 5.9% of sales for the corresponding quarter of the previous fiscal year.

In the third quarter of 2008, we resolved the issues associated with our information systems in Ontario and our Québec operations continued to perform well, allowing a return to EBITDA(1) growth.

EBITDA(1) for the first 40 weeks of 2008 was $479.3 million or 5.8% of sales compared to $490.6 million or 6.0% of sales for the same period last year.

Excluding A&P acquisition-related integration and rationalization costs of $16.4 million, adjusted EBITDA(1) for the 2007 40-week period was 6.2% of sales.

Equity earnings from our investment in Alimentation Couche-Tard were $12.6 million for the 40-week period in 2008 compared to $17.7 million in 2007. Excluding non-recurring items as well as equity earnings from our investment in Alimentation Couche-Tard, EBITDA(1) for the first 40 weeks of 2008 was $466.7 million or 5.7% of sales versus $489.3 million or 6.0% of sales for the corresponding period last year.

The decrease in EBITDA(1) excluding equity earnings from our investment in Alimentation Couche-Tard for the 40-week period is due to our results for the first two quarters. Excluding equity earnings from our investment in Alimentation Couche-Tard, EBITDA(1) for the first two quarters as a percentage of sales were lower than the corresponding quarters in 2007. A more intense competitive environment in Ontario as well as the learning and training curves associated with our new Ontario information systems and a new Food Services warehouse in Québec affected our gross margins and costs.

<< EBITDA(1) Adjustments (Millions of dollars, unless otherwise indicated) 16 weeks / Fiscal Year 2008 2007 ------------------------------------------------------------------------- EBITDA Sales EBITDA/ EBITDA Sales EBITDA/ Sales Sales (%) (%) ------------------------------------------------------------------------- EBITDA 207.0 3,370.0 6.1 195.9 3,341.0 5.9 Integration and rationalization costs - - - 5.4 - - ------------------------------------------------------------------------- Adjusted EBITDA 207.0 3,370.0 6.1 201.3 3,341.0 6.0 Share of earnings from our investment in Alimentation Couche-Tard (1.7) - - (3.9) - - ------------------------------------------------------------------------- Adjusted EBITDA excluding share of earnings 205.3 3,370.0 6.1 197.4 3,341.0 5.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 40 weeks / Fiscal Year 2008 2007 ------------------------------------------------------------------------- EBITDA Sales EBITDA/ EBITDA Sales EBITDA/ Sales Sales (%) (%) ------------------------------------------------------------------------- EBITDA 479.3 8,249.2 5.8 490.6 8,212.2 6.0 Integration and rationalization costs - - - 16.4 - - ------------------------------------------------------------------------- Adjusted EBITDA 479.3 8,249.2 5.8 507.0 8,212.2 6.2 Share of earnings from our investment in Alimentation Couche-Tard (12.6) - - (17.7) - - ------------------------------------------------------------------------- Adjusted EBITDA excluding share of earnings 466.7 8,249.2 5.7 489.3 8,212.2 6.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- INTEREST, DEPRECIATION AND AMORTIZATION Total depreciation and amortization expenses for the third quarter and first 40 weeks of fiscal 2008 amounted to $55.2 million and $134.9 million respectively, compared with $51.1 million and $126.0 million for the same periods last year. The 2008 third quarter interest expenses totalled $17.5 million versus $19.2 million last year, while interest expenses for the 40-week period totalled $46.0 million versus $47.6 million last year. Interest rates for the first 40 weeks of 2008 averaged 5.3% versus 5.4% for the corresponding period last year. INCOME TAXES The 2008 third quarter and 40-week period income tax expenses of $41.7 million and $79.9 million represent effective tax rates of 31.0% and 26.8% respectively. In 2007, the third quarter and 40-week period income tax expenses were $39.2 million and $99.1 million respectively and represented effective tax rates of 31.2% and 31.3% respectively. In the first quarter of 2008, a decrease in our income tax expense of $11.4 million was recorded after the Canadian government completed milestones in the approval process for its Economic Statement, reducing future general corporate income tax rates. In the third quarter of 2007, an approval milestone was met with regard to the federal budget providing, among other things, for a decrease of 0.5% in the large business tax rate effective January 1, 2011. This decrease in the federal tax rate reduced our future tax liabilities by $1.8 million as well as our third quarter income tax expense by the same amount. Excluding these decreases in our 2008 and 2007 tax expenses, the effective tax rates for the 2008 40-week period, the third quarter of 2007, and the first 40 weeks of 2007 were 30.6%, 32.7% and 31.9% respectively. NET EARNINGS The 2008 third quarter net earnings were $92.6 million compared to $89.3 million for the corresponding quarter of fiscal 2007, an increase of 3.7%. Fully diluted net earnings per share rose 6.5% to $0.82 from $0.77 last year. In the third quarter of 2007, we had A&P Canada acquisition-related integration and rationalization costs of $5.4 million before taxes and a $1.8 million decrease in our income tax expense. Excluding these non-recurring items, adjusted net earnings(1) for the third quarter of 2007 were $91.1 million, and the adjusted fully diluted net earnings per share(1) were $0.78. Compared to the adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) for the third quarter of 2007, 2008 third quarter net earnings and fully diluted net earnings per share were up 1.6% and 5.1% respectively. Net earnings for the first 40 weeks of 2008 reached $220.4 million versus $219.0 million last year, up 0.6%. Excluding A&P Canada acquisition-related integration and rationalization costs of $16.4 million before taxes in 2007 as well as income tax expense decreases of $11.4 million in 2008 and $1.8 million in 2007, adjusted net earnings(1) for the 2008 40-week period were $209.0 million, down 8.4% from the $228.2 million for the corresponding period of 2007. Adjusted fully diluted net earnings per share(1) were $1.84, down 6.1% from $1.96 last year. Net Earnings Adjustments (Millions of dollars, unless otherwise indicated) 16 weeks / Fiscal Year ----------------------------------------- 2008 2007 Change ------------------------------------------------------------ Fully Fully Fully diluted diluted Net diluted Net EPS Net EPS earnings EPS earnings (Dollars) earnings (Dollars) (%) (%) ------------------------------------------------------------------------- Net earnings 92.6 0.82 89.3 0.77 3.7 6.5 Integration and rationali- zation costs after taxes - - 3.6 0.03 Decrease in tax expense - - (1.8) (0.02) ------------------------------------------------------------------------- Adjusted net earnings(1) 92.6 0.82 91.1 0.78 1.6 5.1 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 40 weeks / Fiscal Year ----------------------------------------- 2008 2007 Change ------------------------------------------------------------ Fully Fully Fully diluted diluted Net diluted Net EPS Net EPS earnings EPS earnings (Dollars) earnings (Dollars) (%) (%) ------------------------------------------------------------------------- Net earnings 220.4 1.94 219.0 1.88 0.6 3.2 Integration and rationali- zation costs after taxes - - 11.0 0.10 Decrease in tax expense (11.4) (0.10) (1.8) (0.02) Adjusted net earnings(1) 209.0 1.84 228.2 1.96 (8.4) (6.1) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarterly Highlights (Millions of dollars, unless otherwise indicated) 2008 2007 2006 Change (52 weeks) (52 weeks) (53 weeks) (%) ------------------------------------------------------------------------- Sales Q3 3,370.0 3,341.0 - 0.9 Q2 2,372.4 2,356.2 - 0.7 Q1 2,506.8 2,515.0 - (0.3) Q4 - 2,432.4 2,673.5 (9.0) ------------------------------------------------------------------------- Net earnings Q3 92.6 89.3 - 3.7 Q2 58.1 61.8 - (6.0) Q1 69.7 67.9 - 2.7 Q4 - 57.6 78.9 (27.0) ------------------------------------------------------------------------- Adjusted net earnings(1) Q3 92.6 91.1 - 1.6 Q2 58.1 65.5 - (11.3) Q1 58.3 71.6 - (18.6) Q4 - 66.8 71.0 (5.9) ------------------------------------------------------------------------- Fully diluted net earnings per share (Dollars) Q3 0.82 0.77 - 6.5 Q2 0.51 0.53 - (3.8) Q1 0.61 0.58 - 5.2 Q4 - 0.49 0.68 (27.9) ------------------------------------------------------------------------- Adjusted fully diluted net earnings per share(1) (Dollars) Q3 0.82 0.78 - 5.1 Q2 0.51 0.56 - (8.9) Q1 0.51 0.62 - (17.7) Q4 - 0.57 0.61 (6.6) ------------------------------------------------------------------------- Sales for the first three quarters of 2008 versus those for 2007 were affected by strong competition in Ontario. Excluding decreased sales of tobacco products, 2008 first quarter sales were up 0.3%, second quarter sales were up 1.2%, and third quarter sales were up 1.5%. Sales in the fourth quarter of 2007 versus those for the corresponding quarter of 2006 were affected by decreased sales of tobacco products, lost sales due to the disposal, in the fourth quarter of 2006, of our interest in a grocery wholesaler, and the impact of the 53rd week in 2006. Excluding these items, 2007 fourth quarter sales were up 0.7% over 2006. First quarter net earnings and fully diluted net earnings per share for 2008 were up 2.7% and 5.2% respectively over those for 2007. Excluding the income tax expense decrease of $11.4 million in 2008 and A&P Canada acquisition-related integration and rationalization costs of $5.6 million before taxes in 2007, adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) of 2008 were down 18.6% and 17.7% respectively. Second quarter net earnings and fully diluted net earnings per share were down 6.0% and 3.8% respectively from 2007. Excluding A&P acquisition-related integration and rationalization costs before taxes of $5.4 million in the second quarter of 2007, net earnings and fully diluted net earnings per share for the second quarter of 2008 were down 11.3% and 8.9% respectively compared to the adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) for the second quarter of 2007. The drop in profitability in the first two quarters of 2008 compared with the same quarters of 2007 stems from a more intensely competitive environment in Ontario and the issues associated with our new Ontario information systems and Québec Food Services warehouse. Third quarter net earnings and fully diluted net earnings per share were up 3.7% and 6.5% respectively from 2007. Excluding A&P acquisition-related integration and rationalization costs before taxes of $5.4 million and income tax expense reduction of $1.8 million resulting from reduction in tax rates applicable to large corporation announced by federal government in the third quarter of 2007, net earnings and fully diluted net earnings per share for the third quarter of 2008 were up 1.6% and 5.1% respectively compared to the adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) for the third quarter of 2007. The successful resolution of the issues associated with our new information systems in Ontario and the good performance of our Québec operations contributed to this earnings growth. Fourth quarter net earnings and fully diluted net earnings per share in 2007 and 2006 were impacted by, among other things, A&P acquisition-related integration and rationalization costs, a gain on disposal of an investment, and income tax expense variations resulting from fluctuations in tax rates applicable to large corporations announced by both governments. Excluding these non-recurring items and the impact of the 53rd week in 2006, adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) for the fourth quarter of 2007 were up 3.4% and 3.6% respectively over those for the corresponding period of 2006. 2008 2007 2006 ------------------------------------------------------------------------- (Millions of dollars) Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q4 ------------------------------------------------------------------------- Net earnings 69.7 58.1 92.6 67.9 61.8 89.3 57.6 78.9 Integration and rationalization costs after taxes - - - 3.7 3.7 3.6 9.2 2.1 Gain on disposal of investment after taxes - - - - - - - (8.6) Decrease in tax expense (11.4) - - - - (1.8) - (1.4) ------------------------------------------------------------------------- Adjusted net earnings(1) 58.3 58.1 92.6 71.6 65.5 91.1 66.8 71.0 53rd week - - - - - - - (6.4) ------------------------------------------------------------------------- Adjusted net earnings(1) excluding 53rd week 58.3 58.1 92.6 71.6 65.5 91.1 66.8 64.6 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2008 2007 2006 ------------------------------------------------------------------------- (Dollars and per share) Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q4 ------------------------------------------------------------------------- Fully diluted net earnings 0.61 0.51 0.82 0.58 0.53 0.77 0.49 0.68 Integration and rationalization costs after taxes - - - 0.04 0.03 0.03 0.08 0.02 Gain on disposal of investment after taxes - - - - - - - (0.07) Decrease in tax expense (0.10) - - - - (0.02) - (0.02) ------------------------------------------------------------------------- Adjusted fully diluted net earnings(1) 0.51 0.51 0.82 0.62 0.56 0.78 0.57 0.61 53rd week - - - - - - - (0.06) ------------------------------------------------------------------------- Adjusted fully diluted net earnings(1) excluding 53rd week 0.51 0.51 0.82 0.62 0.56 0.78 0.57 0.55 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash Position OPERATING ACTIVITIES Operating activities generated cash flows of $134.4 million in the third quarter and $264.7 million over the first 40 weeks of 2008, compared to $152.5 million and $318.5 million respectively in the corresponding periods of fiscal 2007. The decrease in third quarter cash flows in 2008 compared to 2007 is due mainly to a net change in non-cash items. The decrease in 40-week period cash flows compared to those for 2007 is due mainly to a change in future income taxes and a net change in non-cash items. INVESTING ACTIVITIES Investing activities required outflows of $39.6 million in the third quarter and $115.9 million in the first 40 weeks of 2008 versus $67.3 million in the third quarter of 2007 and $188.3 million in the first 40 weeks of 2007. These decreases are due primarily to reduced acquisition of fixed assets. During the first 40 weeks of 2008, the Company and the retailers invested $164.8 million in our retail network, for a gross expansion of 292,000 square feet or 1.6%, and a net expansion of 163,000 square feet or 0.9%. Major renovations and expansions of 20 stores were completed, and 7 new stores were opened. FINANCING ACTIVITIES Financing activities required outflows of $35.9 million and $124.6 million in the third quarter and 40-week period of 2008 versus 2007 third quarter and 40-week outflows of $20.1 million and $48.9 million. The increase in outflows between the 2008 periods and the 2007 periods is attributable mainly to the redemption of Class A Subordinate Shares in the amounts of $29.0 million and $80.3 million in the third quarter and 40-week period of 2008, versus redemption in the amount of $0.5 million for the third quarter and 40-week period of 2007. FINANCIAL POSITION Our financial position at the end of the third quarter of 2008 was very solid. We had an unused approved $400.0 million line of credit. Our long-term debt corresponded to 33.8% of the combined total of long-term debt and shareholders' equity (long-term debt/total capital). In the third quarter, the main elements of our long-term debt were as follows: Interest Rate Balance Maturity (Millions of dollars) ------------------------------------------------------------------------- Credit Facility A Rates fluctuate with changes in bankers' acceptance rates 394.5 August 15, 2012 Medium-term Series A notes 4.98% fixed rate 200.0 October 15, 2015 Medium-term Series B notes 5.97% fixed rate 400.0 October 15, 2035 ------------------------------------------------------------------------- At the end of the quarter, interest rate swap agreements in the notional amount of $150.0 million were outstanding under Credit Facility A. These agreements provide for the exchange of variable interest payments for fixed interest payments according to the following terms: Fixed Rate Notional Amount Maturity (Millions of dollars) ------------------------------------------------------------------------- 3.9480% 50.0 November 23, 2008 3.9820% 50.0 December 16, 2009 4.0425% 50.0 December 16, 2010 ------------------------------------------------------------------------- Giving effect to these swap agreements, at the end of the quarter, long-term indebtedness comprised $750.0 million at fixed rates ranging from 4.3980% to 5.97% and $244.5 million at variable rates which fluctuate with changes in bankers' acceptance rates. FINANCIAL RATIOS As at As at July 5, September 29, 2008 2007 ------------------------------------------------------------------------- Financial structure Long-term debt (Millions of $) 1,038.3 1,038.9 Shareholders' equity (Millions of $) 2,034.4 1,932.3 Long-term debt/total capital (%) 33.8 35.0 Fiscal 2008 Fiscal 2007 (40 weeks) (40 weeks) ------------------------------- Results EBITDA(1)/Interest (times) 10.4 10.3 ------------------------------------------------------------------------- CAPITAL STOCK, STOCK OPTIONS AND PERFORMANCE SHARE UNITS As at As at July 5, September 29, 2008 2007 ------------------------------------------------------------------------- Number of Class A Subordinate Shares outstanding (Thousands) 110,876 113,683 Number of Class B Shares outstanding (Thousands) 750 804 Stock options: Number outstanding (Thousands) 3,787 3,738 Exercise price $15.50 to $11.80 to $39.17 $39.17 Weighted average exercise price $23.19 $22.40 Number of performance share units: Number outstanding (Thousands) 210 124 Weighted average maturity 20 months 22 months ------------------------------------------------------------------------- NORMAL COURSE ISSUER BID PROGRAM The Company decided to renew the issuer bid program as an additional option for using excess funds. Thus, we will be able to decide, in the shareholders' best interest, to reimburse debt or to repurchase Company shares. Subject to regulatory approval, the Board of Directors authorized the Company to repurchase, in the normal course of business, between September 5, 2008 and September 4, 2009, up to 6,000,000 of its Class A Subordinate Shares representing approximately 5.4% of its issued and outstanding shares at the close of the Toronto Stock Exchange on August 6, 2008. Repurchases will be made through the stock exchange at market price and in accordance with its policies and regulations. The Class A Subordinate Shares so repurchased will be cancelled. Under the existing normal course issuer bid program covering the period from September 5, 2007 to July 30, 2008, the Company repurchased 4,000,000 Class A Subordinate shares at an average price of $26.55 per share for a total of $106.2 million, including, in the first quarter of 2008, 1,500,000 shares repurchased from A&P US at $27.25 per share for a total of $40.9 million, exercising the option granted the Company by A&P US. DIVIDENDS On August 6, 2008, the Company's Board of Directors declared a quarterly dividend of $0.125 per Class A Subordinate Share and Class B Share payable September 3, 2008, an increase of 8.7% over the dividend for the same quarter last year. On an annualized basis, this dividend represents more than 20% of 2007 net earnings. SHARE TRADING METRO INC. share price remained in the range of $21.00 to $35.85 over the first three quarters of fiscal 2008. During this period, a total of 65.1 million shares were traded on the Toronto Stock Exchange. The closing price on Friday, July 25, 2008 was $26.78, compared with $35.00 at the end of fiscal 2007. NEW ACCOUNTING POLICIES ADOPTED IN 2008 Capital and Financial Instruments In the first quarter of 2008, we adopted three new Handbook sections issued by the Canadian Institute of Chartered Accountants (CICA): Section 1535 "Capital Disclosures" establishes standards for disclosing information about an entity's capital and how it is managed. These standards require an entity to disclose the following: - its objectives, policies and processes for managing capital; - summary quantitative data about what it manages as capital; - whether during the period it complied with any externally imposed capital requirements to which it is subject; - when the entity has not complied with such requirements, the consequences of such non-compliance. Section 3862 "Financial Instruments - Disclosures" modifies the disclosure requirements for financial instruments that were included in Section 3861 "Financial Instruments - Disclosure and Presentation". The new standards require entities to provide disclosures in their financial statements that enable users to evaluate: - the significance of financial instruments for the entity's financial position and performance; - the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 "Financial Instruments - Presentation" carries forward unchanged the presentation requirements of the old Section 3861 "Financial Instruments - Disclosure and Presentation". The adoption of these guidelines did not have any material effect on our results, financial position or cash flows. RECENTLY ISSUED Inventories In March 2007, CICA issued the new Section 3031 "Inventories" which will replace Section 3030 "Inventories". The new Section prescribes measurement of inventories at the lower of cost and net realizable value. It provides guidance on the determination of cost, allows the use of the retail method, prohibits use in the future of the last-in, first-out (LIFO) method, and requires reversal of previous write-downs when there is a subsequent increase in the value of inventories. It also requires greater disclosure regarding inventories and the cost of sales. The new standard will be effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008. We do not foresee that this new section's adoption in our 2009 first quarter will have a significant impact on our results, financial position or cash flows. Goodwill and Intangible Assets In February 2008, the CICA issued a new Section 3064 "Goodwill and Intangible Assets" replacing Section 3062 "Goodwill and Other Intangible Assets" as well as Section 3450 "Research and Development Costs". The new Section 3064 states that upon their initial identification, intangible assets are to be recognized as assets only if they meet the definition of an intangible asset and the recognition criteria. Section 3064 also provides further information on the recognition of internally generated intangible assets (including research and development costs). As for subsequent measurement of intangible assets, goodwill, and disclosure, Section 3064 carries forward the requirements of the old Section 3062. The new Section applies to annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008. We are currently evaluating the effect of these new standards on our results, financial position and cash flows. International Financial Reporting Standards On February 13, 2008, the Accounting Standards Board confirmed the date of changeover from Canadian generally accepted accounting principles (GAAP) to International Financial Reporting Standards (IFRS). Canadian publicly accountable enterprises must adopt IFRS for their interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. We are currently developing our IFRS conversion plan and evaluating the effect of the new standards on our consolidated financial statements. Press Release This press release sets out the financial position and consolidated results of METRO INC. on July 5, 2008. It should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes in this press release along with the consolidated financial statements for the fiscal year ended September 29, 2007 and related notes and Management's Discussion and Analysis presented in the Company's 2007 Annual Report. This press release is based upon information as of July 25, 2008 unless otherwise stated. Forward-looking Statements Any statement contained in this press release which does not constitute an historic fact, may be deemed a projection. Verbs such as "believe", "foresee", "estimate", "expect" and other similar expressions appearing in this press release generally indicate projections. These projections do not provide guarantees as to the future performance of METRO INC. and are subject to risks, both known and unknown, as well as uncertainties which may cause the outlook, profitability and actual results of METRO INC. to differ significantly from the profitability or future results stated or implied in these projections. The risks identified by METRO INC. are described in the 2007 Annual Report under Risk Management. The forward-looking statements formulated in this press release are based on a certain number of assumptions regarding the economy, the market, and the Company's operations and financial position. One of these assumptions is that current trends in these areas will persist into the future. These assumptions are reasonable and applicable at this press release's date of issue only and represent our expectations at said time. METRO INC. does not intend to update the forward-looking statements that may be contained herein, except as required by law. Non-GAAP Measurements In addition to the Canadian generally accepted accounting principles (GAAP) earnings measurements provided, we have included certain non-GAAP earnings measurements. These measurements are presented for information purposes only. They do not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measurements presented by other public companies. Earnings before interest, taxes, depreciation and amortization (EBITDA) EBITDA is a measurement of earnings that excludes interest, taxes, depreciation and amortization. We believe that EBITDA is a measurement commonly used by readers of financial statements to evaluate a company's operational cash-generating capacity and ability to discharge its financial expenses. Adjusted EBITDA, adjusted net earnings and adjusted fully diluted net earnings per share Adjusted EBITDA, adjusted net earnings and adjusted fully diluted net earnings per share are earnings measurements that exclude non-recurring items. We believe that presenting earnings without non-recurring items leaves readers of financial statements better informed as to the current period and corresponding period's earnings, thus enabling them to better evaluate the Company's performance and judge its future outlook. Press Release on Ontario Supermarket Banner Conversion A press release on the banner change in Ontario was issued along with this press release. Conference Call Financial analysts and investors are invited to participate in a conference call on the 2008 third quarter results at 10:00 a.m. EDT on Thursday, August 7, 2008. To access the conference call, please dial (416) 644-3414 or (514) 807-8791. The media and public are invited to listen to the call in real time or delayed time on the METRO INC. Web site at www.metro.ca. ----------------------- (1) See section "Non-GAAP Measurements". Consolidated Statements of Earnings Periods ended July 5, 2008 and July 7, 2007 (Unaudited) (Millions of dollars, except for earnings per share) 16 weeks 40 weeks Fiscal Year Fiscal Year ----------- ----------- 2008 2007 2008 2007 ------------------------------------------------------------------------- Sales $ 3,370.0 $ 3,341.0 $ 8,249.2 $ 8,212.2 Cost of sales and operating expenses 3,164.7 3,143.6 7,782.5 7,722.9 Share of earnings in a public company subject to significant influence (1.7) (3.9) (12.6) (17.7) Integration and rationalization costs (note 3) - 5.4 - 16.4 ------------------------------------------------------------------------- Earnings before interest, taxes, depreciation and amortization 207.0 195.9 479.3 490.6 Depreciation and amortization 55.2 51.1 134.9 126.0 ------------------------------------------------------------------------- Operating income 151.8 144.8 344.4 364.6 Interest, net Short term - (0.7) 0.1 (2.0) Long term 17.5 19.9 45.9 49.6 ------------------------------------------------------------------------- 17.5 19.2 46.0 47.6 ------------------------------------------------------------------------- Earnings before income taxes 134.3 125.6 298.4 317.0 Income taxes (note 5) 41.7 39.2 79.9 99.1 ------------------------------------------------------------------------- Earnings before minority interest 92.6 86.4 218.5 217.9 Minority interest - (2.9) (1.9) (1.1) ------------------------------------------------------------------------- Net earnings $ 92.6 $ 89.3 $ 220.4 $ 219.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share (note 6) Basic $ 0.82 $ 0.77 $ 1.95 $ 1.90 Fully diluted $ 0.82 $ 0.77 $ 1.94 $ 1.88 ------------------------------------------------------------------------- See accompanying notes ----------- ----------- Consolidated Balance Sheets (Unaudited) (Millions of dollars) ----------- As at As at July September 5, 2008 29, 2007 ------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 124.7 $ 100.5 Accounts receivable 320.2 327.8 Inventories 578.9 588.2 Prepaid expenses 22.5 12.1 Future income taxes 19.1 26.1 ------------------------------------------------------------------------- 1,065.4 1,054.7 Investments and other assets 162.6 151.0 Fixed assets 1,182.2 1,202.8 Intangible assets 340.3 342.1 Goodwill 1,491.0 1,490.1 Accrued benefit assets 33.2 33.2 ------------------------------------------------------------------------- $ 4,274.7 $ 4,273.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank loans $ 0.6 $ 0.1 Accounts payable 981.9 1,043.6 Income taxes payable 3.0 20.3 Current portion of long-term debt 3.9 5.1 ------------------------------------------------------------------------- 989.4 1,069.1 Long-term debt 1,038.3 1,038.9 Accrued benefit obligations 55.8 54.9 Future income taxes 126.4 139.0 Other long-term liabilities 27.5 33.7 Minority interest 2.9 6.0 ------------------------------------------------------------------------- 2,240.3 2,341.6 ------------------------------------------------------------------------- Shareholders' equity Capital stock (note 7) 698.8 714.8 Contributed surplus 3.9 2.0 Retained earnings 1,332.5 1,214.3 Accumulated other comprehensive income (notes 2 and 8) (0.8) 1.2 ------------------------------------------------------------------------- 2,034.4 1,932.3 ------------------------------------------------------------------------- $ 4,274.7 $ 4,273.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes ----------- Consolidated Statements of Cash Flows Periods ended July 5, 2008 and July 7, 2007 (Unaudited) (Millions of dollars) 16 weeks 40 weeks Fiscal Year Fiscal Year ----------- ----------- 2008 2007 2008 2007 ------------------------------------------------------------------------- Operating activities Net earnings $ 92.6 $ 89.3 $ 220.4 $ 219.0 Non-cash items Integration and rationalization costs (note 3) - (1.7) - 2.5 Share of earnings in a public company subject to significant influence (1.7) (3.9) (12.6) (17.7) Depreciation and amortization 55.2 51.1 134.9 126.0 Amortization of deferred financing costs 0.6 0.6 1.6 1.6 (Gain) Loss on disposal and write-off of fixed and intangible assets (0.4) 2.5 (1.6) 2.8 Gain on disposal of investments - - (0.6) - Future income taxes 3.4 5.2 (4.6) 11.7 Stock-based compensation cost 1.2 1.6 2.7 2.8 Difference between amounts paid for employee future benefits and current period cost 5.1 (1.5) 0.9 (1.9) Minority interest - (2.9) (1.9) (1.1) ------------------------------------------------------------------------- 156.0 140.3 339.2 345.7 Net change in non-cash working capital related to operations (21.6) 12.2 (74.5) (27.2) ------------------------------------------------------------------------- 134.4 152.5 264.7 318.5 ------------------------------------------------------------------------- Investing activities Net change in investments and other assets (7.0) 2.7 (6.0) 1.6 Dividends of a public company subject to significant influence 0.7 - 2.2 1.2 Acquisition of fixed assets (35.3) (64.3) (99.2) (169.4) Disposal of fixed assets 9.4 6.0 15.8 8.5 Acquisition of intangible assets (7.4) (11.7) (28.7) (30.2) ------------------------------------------------------------------------- (39.6) (67.3) (115.9) (188.3) ------------------------------------------------------------------------- Financing activities Net change in bank loans 0.4 0.1 0.5 0.2 Issuance of shares (note 7) 1.7 1.3 3.6 11.0 Redemption of shares (note 7) (29.0) (0.5) (80.3) (0.5) Acquisition of treasury shares (note 7) - (0.7) (0.9) (3.2) Increase of long-term debt 0.5 1.0 1.6 2.8 Repayment of long-term debt (1.7) (3.4) (4.7) (8.2) Net change in other long-term liabilities 7.5 (4.4) (1.8) (12.2) Dividends paid (14.1) (13.3) (41.4) (38.6) Distribution to minority interest (1.2) (0.2) (1.2) (0.2) ------------------------------------------------------------------------- (35.9) (20.1) (124.6) (48.9) ------------------------------------------------------------------------- Net change in cash and cash equivalents 58.9 65.1 24.2 81.3 Cash and cash equivalents - beginning of period 65.8 181.9 100.5 165.7 ------------------------------------------------------------------------- Cash and cash equivalents - end of period $ 124.7 $ 247.0 $ 124.7 $ 247.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other information Interest paid $ 22.0 $ 27.1 $ 50.0 $ 57.6 Income taxes paid $ 38.8 $ 31.7 $ 101.8 $ 103.1 ------------------------------------------------------------------------- See accompanying notes ----------- ----------- Consolidated Statements of Retained Earnings 40-week periods ended July 5, 2008 and July 7, 2007 (Unaudited) (Millions of dollars) Fiscal Year ----------- 2008 2007 ------------------------------------------------------------------------- Balance - beginning of period $ 1,214.3 $ 1,013.2 Net earnings 220.4 219.0 Dividends (41.4) (38.6) Share redemption premiums (60.8) (0.4) ------------------------------------------------------------------------- Balance - end of period $ 1,332.5 $ 1,193.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes ----------- Consolidated Statements of Comprehensive Income Periods ended July 5, 2008 and July 7, 2007 (Unaudited) (Millions of dollars) (notes 2 and 8) 16 weeks 40 weeks Fiscal Year Fiscal Year ----------- ----------- 2008 2007 2008 2007 ------------------------------------------------------------------------- Net earnings $ 92.6 $ 89.3 $ 220.4 $ 219.0 Other comprehensive income Change in fair value of derivatives designated as cash flow hedges 0.6 3.1 (3.0) 3.0 Corresponding income taxes (0.2) (1.0) 1.0 (1.0) ------------------------------------------------------------------------- Comprehensive income $ 93.0 $ 91.4 $ 218.4 $ 221.0 ------------------------------------------------------------------------- See accompanying notes ----------- ----------- Notes to Interim Consolidated Financial Statements Periods ended July 5, 2008 and July 7, 2007 (Unaudited) (Millions of dollars, except for data per share) 1. Statement Presentation The unaudited interim consolidated financial statements were prepared by management in accordance with Canadian generally accepted accounting principles (GAAP). The accounting policies and procedures used in preparing these interim consolidated financial statements are the same as those used in preparing the audited annual consolidated financial statements for the year ended September 29, 2007, except for the new accounting policies described in note 2. The unaudited interim consolidated financial statements should be read along with the audited annual consolidated financial statements and notes to the statements in the Company's 2007 Annual Report. The operating results for the interim period covered do not necessarily reflect overall results for the fiscal year. Certain comparative figures have been reclassified to conform to the presentation being used in the current fiscal year. 2. New Accounting Policies ADOPTED IN 2008 Capital and Financial Instruments In the first quarter of 2008, the Company adopted three new Handbook sections issued by the Canadian Institute of Chartered Accountants (CICA): Section 1535 "Capital Disclosures" establishes standards for disclosing information about an entity's capital and how it is managed. These standards require an entity to disclose the following: - its objectives, policies and processes for managing capital; - summary quantitative data about what it manages as capital; - whether during the period it complied with any imposed capital requirements to which it is subject; - when the entity has not complied with such requirements, the consequences of such non-compliance. Section 3862 "Financial Instruments - Disclosures" modifies the disclosure requirements for financial instruments that were included in Section 3861 "Financial Instruments - Disclosure and Presentation". The new standards require entities to provide disclosures in their financial statements that enable users to evaluate: - the significance of financial instruments for the entity's financial position and performance; - the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 "Financial Instruments - Presentation" carries forward unchanged the presentation requirements of the old Section 3861 "Financial Instruments - Disclosure and Presentation". The adoption of these guidelines did not have any material effect on the Company's results, financial position or cash flows. ADOPTED IN 2007 Comprehensive Income, Financial Instruments and Hedges In the first quarter of 2007, the Company adopted the following new Handbook sections issued by the CICA: Section 1530 "Comprehensive Income" introduces a new financial statement which shows the change in equity of an enterprise from transactions and other events and circumstances from non-owner sources. Section 3855 "Financial Instruments - Recognition and Measurement" establishes standards for recognizing and measuring financial instruments, namely financial assets, financial liabilities and derivatives. The new standard lays out how financial instruments are to be recognized depending on their classification. Depending on financial instruments' classification, changes in subsequent measurements are recognized in net income or comprehensive income. The Company has implemented the following classification: - Cash and cash equivalents are classified as "Financial Assets Held for Trading". These financial assets are marked-to-market through net income at each period end. - Accounts receivable and loans to certain customers are classified as "Loans and Receivables". After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method. For the Company, the measured amount generally corresponds to cost. - Investments in companies are classified as "Available-for-sale Securities". These financial assets are marked-to-market through comprehensive income at each period end. - Bank loans, accounts payable, credit facilities, notes, loans payable, and obligations under capital leases are classified as "Other Financial Liabilities". After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method. For the Company, the measured amount generally corresponds to cost. Section 3865 "Hedges" whose application is optional, establishes how hedge accounting may be applied. The Company, in accordance with its risk management strategy, has decided to apply hedge accounting to its interest rate swaps and treat them as cash flow hedges. These derivatives are marked-to-market at each period end and resulting gains/losses are recognized in comprehensive income to the extent the hedging relationship is effective. These new standards have to be applied without restatement of prior period amounts. Upon initial application all adjustments to the carrying amount of financial assets and liabilities shall be recognized as an adjustment to the opening balance of retained earnings or accumulated other comprehensive income, depending on the classification of existing assets or liabilities. The Company has recognized a $0.4 adjustment to the opening balance of accumulated other comprehensive income with respect to the interest rate swaps designated as cash flow hedges. No adjustment has been recognized to the opening balance of retained earnings. RECENTLY ISSUED Inventories In March 2007, the CICA issued the new Section 3031 "Inventories", which will replace Section 3030 "Inventories". The new Section prescribes measurement of inventories at the lower of cost and net realizable value. It provides guidance on the determination of cost, allows the use of the retail method, prohibits use in the future of the last-in, first-out (LIFO) method, and requires reversal of previous write-downs when there is a subsequent increase in the value of inventories. It also requires greater disclosure regarding inventories and the cost of sales. The new standard will be effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008. The Company does not foresee that this new section's adoption in its 2009 first quarter will have a material effect on its results, financial position or cash flows. Goodwill and Intangible Assets In February 2008, the CICA issued a new Section 3064 "Goodwill and Intangible Assets" replacing Section 3062 "Goodwill and Other Intangible Assets" as well as Section 3450 "Research and Development Costs". The new Section 3064 states that upon their initial identification, intangible assets are to be recognized as assets only if they meet the definition of an intangible asset and the recognition criteria. Section 3064 also provides further information on the recognition of internally generated intangible assets (including research and development costs). As for subsequent measurement of intangible assets, goodwill, and disclosure, Section 3064 carries forward the requirements of the old Section 3062. The new Section applies to annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008. The Company is currently evaluating the effect of these new standards on its results, financial position and cash flows. International Financial Reporting Standards On February 13, 2008, the Accounting Standards Board confirmed the date of changeover from GAAP to International Financial Reporting Standards (IFRS). Canadian publicly accountable enterprises must adopt IFRS for their interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company is currently developing its IFRS conversion plan and evaluating the effect of the new standards on its consolidated financial statements. 3. Integration and Rationalization Costs Over fiscal 2007, the Company completed its plan for the integration and rationalization of its operations following the acquisition of A&P Canada. This three-part plan dealt with the store network, the integration of overall operations, and the implementation of information systems at A&P Canada. During the period ended July 7, 2007, integration and rationalization plan costs were as follows: By Nature of Project Fiscal Year 2007 16 weeks 40 weeks ------------------------------------------------------------------------- Stores $ - $ 2.2 Integration of operations 0.5 5.0 Implementation of information systems 4.9 9.2 ------------------------------------------------------------------------- $ 5.4 $ 16.4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- By Nature of Costs Fiscal Year 2007 16 weeks 40 weeks ------------------------------------------

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