RONA INC.
TSX : RON

RONA INC.

February 25, 2010 08:38 ET

RONA Ends Year on High Note With Increased Sales and Profits in Fourth Quarter 2009

BOUCHERVILLE, QUEBEC--(Marketwire - Feb. 25, 2010) - RONA inc. (TSX:RON)

FOURTH QUARTER HIGHLIGHTS



-- Sales increase 1.5% and same-store sales up 0.7%
-- Operating income (EBITDA) margin up 22 basis points (10 basis points
excluding unusual items related to store consolidations in 2008)
-- Net earnings $30.9 million, up $1.1 million from 2008.
-- Diluted earnings per share at $0.24, compared to $0.25 in fourth
quarter 2008 - short-term dilution effect of $0.02 per share following
stock issue last June
-- Substantial numbers of applications for RONAdvantage home renovation
tax credit incentive program, representing home renovation projects
worth more than $140 million over the full duration of the program
-- Four new controlled labels launched (FACTO, UBERHAUS, UBERHAUS DESIGN
and UBERHAUS PRO) and four new product categories introduced
-- Launch of the new STUDIO by RONA store concept featuring interior
decoration and paint - 3 new stores already open
-- Creation of an innovative succession planning program to facilitate
store acquisitions for aspiring entrepreneurs


RONA inc. (TSX:RON), the largest Canadian distributor and retailer of hardware, renovation and gardening products, posted consolidated sales of $1,140.9 million in fourth quarter 2009, up $16.3 million or 1.5% from the $1,124.6 million sales figure posted in 2008. This growth stems from a 0.7% increase in same-store sales, new store openings and higher distribution sales. The fourth quarter also saw a return to increased profits for RONA, with net earnings of $30.9 million, up $1.1 million from 2008.

Consolidated sales for the 2009 fiscal year totalled $4,677.4 million, a decrease of $213.8 million or 4.4% less than the $4,891.1 million figure posted in 2008. This is the result of a 4.8% decline in same-store sales and lower distribution sales, due mainly to a drop in housing starts this year, especially in the first half of the year, which put downward pressure on sales by building materials specialists and on home renovation spending, since new home buyers generally undertake major improvements in the months and years immediately following their purchase of a new property. The decline in same-store sales can also be attributed to low consumer confidence in Canada, which still lags behind last year, despite some recent improvement.

Fourth quarter 2009 operating income reached $78.8 million compared to $75.3 million, up $3.5 million or 4.7% over fourth quarter 2008. The EBITDA margin grew by 22 basis points, from 6.69% to 6.91%. Operating income, excluding unusual items related to store consolidation in 2008, was $78.4 million in fourth quarter 2009, up $2.3 million or 3.0% over fourth quarter 2008. The EBITDA margin, excluding unusual items, grew by 10 basis points, from 6.77% to 6.87%.

Operating income for fiscal year 2009 amounted to $333.0 million, down $31.7 million or 8.7% from the $364.7 million posted in 2008. The EBITDA margin went from 7.46% in 2008 to 7.12% in 2009, a decrease of 34 basis points, due largely to the pressure of lower same-store sales on costs that are hard to contain. Excluding unusual items, operating income was $346.8 million in 2009, down $30.1 million or 8.0% from 2008. The EBITDA margin declined from 7.71% in 2008 to 7.41% in 2009, a decrease of 30 basis points, despite a 4.8% reduction in same-store sales and a greater proportion of distribution activities, which generate lower margins than retail activities.

Net earnings for 2009, including unusual items, decreased by $18.2 million or 11.6% to $138.3 million or $1.11 per share (diluted), compared to $156.5 million or $1.34 per share (diluted) in 2008. Excluding unusual items, net earnings were $147.8 million in 2009, or $1.19 per share (diluted), compared to $167.5 million or $1.44 per share (diluted) in 2008, down $19.7 million or 11.7%. The numerous efficiency improvements introduced under the PEP program (productivity, efficiency, profitability) in Phase 1 of RONA's 2008-2011 strategic plan helped offset the negative impact of continued pressure on sales in the renovation-construction industry due largely to low consumer confidence. Since the beginning of the year, the PEP program has, for example, helped RONA improve its gross margin, reduce inventories, optimize its existing store network and reduce transportation and logistics costs.

"RONA's 2009 results clearly show that our business plan was on the money for the tough economic situation we were facing. We're ending the year with same-store sales and net earnings up for the fourth quarter. This improvement in our performance reflects the beginnings of an economic recovery, plus the success of RONA's own efficiency improvement program and our many renovation stimulus initiatives," said RONA president and CEO Robert Dutton.

"Over the last two years, our 30,000 employees have pooled their talents and efforts to make RONA the most efficient, most innovative company in our industry in Canada. The many improvements we've made, and those still to come in the years ahead, have put us in a very advantageous position in our industry, so we can capitalize on the four growth vectors that are the foundation of our success: customer growth, development of the affiliated dealers' network, construction of new stores, and strategic acquisitions. I can assure you that RONA is more ready than ever for the recovery and set to undertake a new growth phase with our New World program," Dutton concluded.

2009 MAIN ACHIEVEMENTS

RONA's 2008-2011 strategic plan was presented to the financial community during Investors Day on February 27, 2008 in Montreal. A news release outlining the issues and objectives of the plan was also published that day. RONA management made a commitment to provide continuous updates of the plan's progress. The information below presents the Company's main achievements in 2009 with regards to the 2008-2011 strategic plan.



1. Sales and customer loyalty increase across the RONA network:

-- There was a major increase in applications for the RONAdvantage
home renovation tax credit incentive program. Over 18,000
applications representing renovation projects worth more than
$140 million were received across the RONA network.
-- The success of RONAdvantage has also had a major positive effect
on the number of new RONA VISA Desjardins credit cards issued
since the beginning of the year (over 30% growth), the volume of
financing (over 60% growth), installation services (over 15%
growth) and the use of RONA Project Guides to help carry out these
renovation projects.
-- The new top-quality controlled-label HAUSSMANN and HAUSSMANN XPERT
tools were launched and some 40 new RONA ECO products were
introduced.
-- Penetration by RONA private brand and controlled-label products
increased from 17% at the beginning of 2009 to over 19% at year
end.
-- Four new controlled labels (FACTO, UBERHAUS, UBERHAUS DESIGN and
UBERHAUS PRO) and four new product categories were launched.
-- Commercial and professional sales at big-box stores in Ontario
increased over 15%.
-- Same-store sales grew for Noble Trade Plumbing Supplies, despite a
declining market.
-- A 188,000-square-foot expansion was undertaken at the Commercial
and Professional Market division distribution centre in Ontario,
which specializes in plumbing, heating and ventilation supplies,
in order to increase the variety of products available.
-- Two new 52,000-square-foot proximity stores were opened: one under
the TOTEM Building Supplies banner in Strathmore, Alberta, and one
under the RONA banner in Saint-Georges, Quebec.
-- The Reno-Depot renovation program was finalized. This includes
major renovations in several stores and a major reconstruction and
expansion of the store in LaSalle, Quebec.
-- STUDIO by RONA, a new store concept, was launched, with three new
stores opened in the Montreal region late in the year.
-- An exclusive partnership agreement was signed with Maple Leaf
Sports & Entertainment Ltd. that delivers permanent, on-camera
RONA branding during home games by the teams in the Maple Leaf
organization at the Air Canada Centre (including on-ice RONA
logos) and Ricoh Coliseum.

2. Improvement in the profitability of our corporate store network:

-- Consolidated gross margin increased by 8 basis points. Given
better terms and conditions from our suppliers and the resulting
supportive effect on the growth of the network, the adjusted gross
margin increased by 34 basis points. This increase stems from a
major reduction in store losses ("shrink"), an increase in the
penetration rate of private brand and controlled-label products,
further improvements in terms and conditions from our suppliers
and optimized management of product categories.
-- Our turnaround plan for underperforming stores has produced very
good results, as these stores have posted relatively higher
increases in sales and operating income than the network as a
whole this year.
-- Improved opening process for new stores, including increased
marketing and merchandising activities in the pre-opening period
and better coordination and integration of the Company's
development activities.

3. Optimization of the supply chain:

-- A $50 million or 6.6% reduction in same-store and distribution
centre inventories (excluding acquisitions and new stores)
compared to 2008 resulted in lower operating costs and financial
charges. Inventories were reduced by $37 million, including new
stores and acquisitions.
-- Reduced transportation costs and ongoing improvements in demand
management resulted in a reduction of over $8 million in logistics
costs in 2009.
-- Gains in efficiency were made at our distribution centres and
stock rotation was better, despite declining sales.

4. Accelerate recruitment of independent dealer-owners:

-- In 2009, 14 dealer-owners were recruited, representing estimated
annual retail sales of over $30 million.
-- RONA dealer-owners have been very busy this year, completing 96
expansion and renovation projects totalling nearly $50 million in
investments.
-- Jean-Luc Meunier was appointed senior vice president, affiliate
dealer-owner network development. At RONA, Meunier's team is in
charge of recruitment and development of the affiliate dealer-
owner network and dealer support.
-- An innovative succession planning program was introduced at the
end of the year. This program is designed to facilitate store
acquisitions by family members of independent dealer-owners, by
RONA employees or by aspiring entrepreneurs from outside the
Company.
-- In February 2010 the Company launched a dynamic nationwide
campaign targeting hardware, lumber and building materials dealers
with a view to acquiring their businesses or helping them develop
their own succession plans based on RONA's new program.


CASH FLOWS AND FINANCIAL POSITION

Operations generated $260.0 million in 2009, compared to $264.1 million in 2008. Net of changes in working capital, operations generated $282.8 million, down from $347.5 million in 2008.

Throughout the entire year, the Company exercised disciplined financial management and strictly monitored investments in fixed assets. In 2009, RONA invested $161.9 million in capital spending and intangible assets, $34.2 million less than the $196.1 million invested in 2008. These investments were devoted to the expansion of our retail network, including the construction of new stores as well as maintenance, renovations and upgrades of existing stores to reflect our new concepts. We also allotted part of these investments to ongoing improvements in our IT systems, in order to increase our operational efficiency. Non-core assets were also sold off in 2009, generating an additional cash inflow of $8.7 million.

Proceeds of the stock issue completed last June, major cash flow generated by our operations, and disciplined management of working capital throughout this quarter allowed RONA to finance our various investment projects and still reduce bank loans and rotating credit by $58.2 million. On December 27, 2009, the Company's net debt was reduced by $283.8 million compared to the same date in 2008. On December 27, 2009, RONA had $239.3 million in cash, which will be used over forthcoming quarters to develop various growth projects in Phase 2 of the Company's 2008-2011 strategic plan. RONA also has an undrawn committed credit facility of up to $650 million.

RONA's balance sheet remains strong. On December 27, 2009, the ratio of total net debt to capital was 10.4%, compared to 25.0% at the end of 2008. The equity/asset ratio was 64.7% at year end 2009, compared to 59.2% at the same date in 2008.

OUTLOOK

With the beginnings of a moderate economic recovery underway, and in view of the significant achievements of the PEP program (productivity, efficiency, profitability), RONA intends to move quickly so as to take advantage of various business opportunities in its sector. The Company has a solid balance sheet with extensive financial flexibility, which will be a clear asset in the implementation of Phase 2 of the 2008-2011 strategic plan, the New World program.

Under the New World program, RONA will seek growth through the four following vectors: on one hand, development of the network through the three vectors represented by store construction, development of the affiliate network, and strategic acquisitions, and on the other hand, the customer growth vector - the term RONA now uses to designate organic growth or same-store growth. The objective is to increase RONA's market share in the industry in Canada from the current 17.5% to 20%.

Customer growth will be stimulated by numerous initiatives to improve the customer experience - innovative store concepts, new product categories, new private brand and controlled-label products, new tools to improve customer loyalty, and new training programs for store employees. The Company's new succession planning program will also help RONA attract next-generation dealer-owners and continue to be the company that offers independent dealer- owners in Canada the best development support.

The main financial objectives of the New World program are:



-- Increase the EBITDA margin by 20 to 30 basis points per year.
-- Increase earnings per share by an average of 10% to15% over the period.
-- Increase the return on capital by 75 to 100 basis points over the
period.
-- Maintain a top-quality credit rating.


Achievement of these objectives is based on the following assumptions:



-- Same-store sales will increase by 2% to 2.5% on average over the
period.
-- The penetration rate for private brand and controlled-label products
will increase from 19% to 24%.
-- Retail sales in the affiliate network will grow by $100 million
to $150 million per year.
-- Sales of about $80 million per year will be generated by new store
construction and relocation or expansion of existing stores.
-- There will be further strategic acquisitions.


The quarterly breakdown for spending on advertising in 2010 will be quite different from 2009. Close to $5 million will be spent in the first quarter under the major "Made in Canada" campaign for the 2010 Vancouver Olympics. This amount will however be offset by equivalent reductions in the next quarters of 2010. RONA expects this campaign to have a significant impact on the company's reputation from coast to coast.

In short, management can confirm that RONA has taken the necessary steps over the last two years to prepare for the economic recovery. We are ready for the challenge of the New World that lies ahead - ready, most of all, to begin a phase of renewed growth.

ADDITIONAL INFORMATION

The Management's Discussion and Analysis (MD&A) and unaudited financial statements for 2009 can be found in the "Investor Relations" section of the Company's website at www.rona.ca, and at www.sedar.com. The Company's Annual Report can also be found on the RONA website, along with other information about RONA, including its Annual Information Form, which can also be found on the SEDAR website.

TELEPHONE CONFERENCE WITH THE FINANCIAL COMMUNITY

On Thursday, February 25, 2010, at 1:00 p.m. (EST), RONA will hold a telephone conference for the financial community. To join the conference, please call 514-861-4190 or 1 877 677-7769. To listen to the call online, please go to: http://events.startcast.com/events6/153/C0010/Default.aspx.

NON-GAAP PERFORMANCE MEASURES

In this News Release, as in our internal management, we use the concept of "earnings before interest, taxes, depreciation, amortization and non-controlling interest" (EBITDA), which we also refer to as "operating income." This measure corresponds to "Earnings before the following items" in our consolidated financial statements. We also use the concept of "adjusted gross margin," which corresponds to sales less the cost of goods sold including all vendor rebates.

While EBITDA does not have a definition that is standardized by GAAP, it is widely used in our industry and in financial circles to measure the profitability of operations, excluding tax considerations and the cost and use of capital. Adjusted gross margin is used by RONA's management to analyze the profitability of our network, including all vendor rebates. Given that these measures are not standardized, EBITDA and adjusted gross margin cannot be compared from one company to the next. Still, we establish them in the same way for each of the segments identified, and, unless expressly mentioned, our method does not change over time. EBITDA and adjusted gross margin must not be considered separately or as a substitute for other performance measures calculated according to GAAP but rather as additional information.

FORWARD-LOOKING STATEMENTS

This News Release includes "forward-looking statements" that involve risks and uncertainties. All statements other than statements of historical facts included in this News Release, including statements regarding the prospects of the industry and prospects, plans, financial position and business strategy of the Company, may constitute forward- looking statements within the meaning of the Canadian securities legislation and regulations. Investors and others are cautioned that undue reliance should not be placed on any forward-looking statements.

For more information on the risks, uncertainties and assumptions that would cause the Company's actual results to differ from current expectations, please also refer to the Company's public filings available at www.sedar.com and www.rona.ca. In particular, further details and descriptions of these and other factors are disclosed in the MD&A under the "Risks and uncertainties" section and in the "Risk factors" section of the Company's current Annual Information Form.

The forward-looking statements in this News release reflect the Company's expectations as at February 25, 2010, and are subject to change after this date. The Company expressly disclaims any obligation or intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by the applicable securities laws.

ABOUT RONA

RONA is the largest Canadian distributor and retailer of hardware, home renovation and gardening products. RONA operates a network of nearly 700 corporate, franchise and affiliate stores of various sizes and formats. With close to 30,000 employees working under its family of banners in every region of Canada and more than 16 million square feet of retail space, the RONA store network generates over $6 billion in annual retail sales. Visit rona.ca.



Consolidated Financial Statements

December 27, 2009 and December 28, 2008


RONA inc.
Consolidated Earnings
Years ended December 27, 2009 and December 28, 2008
(Unaudited, in thousands of dollars, except earnings per share)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
(Restated (Restated
- Note 2) - Note 2)

Sales $1,140,932 $1,124,612 $4,677,359 $4,891,122
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings before
the following
items (Note 6) 78,811 75,292 332,994 364,729
-------------------------------------------------------------------------

Interest on
long-term debt 5,277 5,694 20,951 28,106
Interest on bank
loans 855 590 2,586 2,134
Depreciation and
amortization
(Notes 12,14,15) 25,744 24,678 103,160 100,958
-------------------------------------------------------------------------
31,876 30,962 126,697 131,198
-------------------------------------------------------------------------
Earnings before
income taxes and
non-controlling
interest 46,935 44,330 206,297 233,531
Income taxes
(Note 7) 14,268 13,656 62,714 71,928
-------------------------------------------------------------------------
Earnings before
non-controlling
interest 32,667 30,674 143,583 161,603
Non-controlling
interest 1,842 921 5,331 5,152
-------------------------------------------------------------------------
Net earnings and
comprehensive
income $30,825 $29,753 $138,252 $156,451
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net earnings per
share (Note 27)
Basic $0.24 $0.26 $1.12 $1.35
Diluted $0.24 $0.25 $1.11 $1.34
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.



RONA inc.
Consolidated Retained Earnings
Consolidated Contributed Surplus
Years ended December 27, 2009 and December 28, 2008
(Unaudited, in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2009 2008
-------------------------------------------------------------------------
(Restated
- Note 2)
Consolidated Retained Earnings
Balance, beginning of year, as previously
reported $1,053,166 $892,967
Change in accounting policy - Goodwill and
intangible assets (Note 2) (24,290) (20,542)
-------------------------------------------------------------------------
Restated balance, beginning of year 1,028,876 872,425
Net earnings 138,252 156,451
-------------------------------------------------------------------------
1,167,128 1,028,876
Expenses relating to the issue of common
shares, net of income tax recovery of $2,042 5,320 -
-------------------------------------------------------------------------
Balance, end of year $1,161,808 $1,028,876
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Consolidated Contributed Surplus
Balance, beginning of year $12,563 $11,045
Compensation cost relating to stock option plans 946 1,518
Exercise of stock options (34) -
-------------------------------------------------------------------------
Balance, end of year $13,475 $12,563
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.



RONA inc.
Consolidated Cash Flows
Years ended December 27, 2009 and December 28, 2008
(Unaudited, in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
(Restated (Restated
- Note 2) - Note 2)
Operating activities
Net earnings $30,825 $29,753 $138,252 $156,451
Non-cash items
Depreciation and
amortization 25,744 24,678 103,160 100,958
Derivative
financial
instruments 72 1,011 (1,116) 1,192
Future income
taxes 6,499 (1,867) 9,225 (2,917)
Net gain on
disposal of assets (523) (926) (2,358) (2,796)
Impairment charge
on fixed assets
held for sale - - 2,050 -
Compensation cost
relating to stock
option plans 237 380 946 1,518
Compensation cost
relating to share
unit plans 710 296 2,557 1,091
Non-controlling
interest 1,842 921 5,331 5,152
Other items 576 1,259 1,975 3,465
-------------------------------------------------------------------------
65,982 55,505 260,022 264,114
Changes in working
capital items
(Note 8) 138 27,880 22,752 83,373
-------------------------------------------------------------------------
Cash flows from
operating activities 66,120 83,385 282,774 347,487
-------------------------------------------------------------------------
Investing activities
Business acquisitions
(Note 9) (520) (765) (3,734) (4,824)
Advances to joint
ventures and other
advances 57 (18) 5 8,139
Other investments (499) (715) (3,995) (3,155)
Fixed assets (23,956) (50,749) (115,713) (161,869)
Intangible assets (13,844) (15,714) (46,186) (34,276)
Other assets (75) (754) (4,837) (10,565)
Disposal of fixed
assets 1,596 2,777 6,291 11,686
Disposal of
investments 517 1,908 2,422 10,618
-------------------------------------------------------------------------
Cash flows from
investing activities (36,724) (64,030) (165,747) (184,246)
-------------------------------------------------------------------------
Financing activities
Bank loans and
revolving credit (810) (25,354) (43,046) (131,518)
Other long-term debt 458 6,583 646 8,560
Repayment of other
long-term debt
and redemption of
preferred shares (6,234) (15,904) (15,819) (33,946)
Issue of common
shares 1,141 1,194 176,936 5,592
Cash dividends paid
by a subsidiary to
non-controlling
interest (1,470) (2,450) (1,470) (2,450)
Expenses relating
to the issue of
common shares - - (7,362) -
-------------------------------------------------------------------------
Cash flows from
financing activities (6,915) (35,931) 109,885 (153,762)
-------------------------------------------------------------------------

Net increase
(decrease) in cash 22,481 (16,576) 226,912 9,479
Cash, beginning of
year 216,776 28,921 12,345 2,866
-------------------------------------------------------------------------
Cash , end of year $239,257 $12,345 $239,257 $12,345
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary
information
Interest paid $535 $1,541 $25,493 $33,165
Income taxes paid $19,124 $8,255 $49,450 $75,508
-------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.



RONA inc.
Consolidated Balance Sheets
December 27, 2009 and December 28, 2008
(Unaudited, in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2009 2008
-------------------------------------------------------------------------
(Restated
- Note 2)
Assets
Current assets
Cash $239,257 $12,345
Accounts receivable (Note 10) 250,845 234,027
Income taxes receivable 2,436 6,475
Inventory (Note 5) 726,262 763,239
Prepaid expenses 18,114 11,202
Derivative financial instruments (Note 23) 801 1,089
Future income taxes (Note 7) 15,914 19,274
-------------------------------------------------------------------------
1,253,629 1,047,651
Investments (Note 11) 11,978 10,186
Fixed assets (Note 12) 868,359 822,375
Fixed assets held for sale (Note 13) 13,242 34,870
Goodwill 455,572 454,889
Intangible assets (Note 14) 89,828 57,056
Other assets (Note 15) 29,682 27,210
Future income taxes (Note 7) 27,593 24,681
-------------------------------------------------------------------------
$2,749,883 $2,478,918
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities
Current liabilities
Bank loans (Note 16) $5,211 $8,468
Accounts payable and accrued liabilities 427,817 422,318
Derivative financial instruments (Note 23) 776 2,180
Future income taxes (Note 7) 4,900 4,461
Instalments on long-term debt (Note 17) 9,996 15,696
-------------------------------------------------------------------------
448,700 453,123
Long-term debt (Note 17) 430,524 478,475
Other long-term liabilities (Note 18) 31,317 28,571
Future income taxes (Note 7) 27,542 21,304
Non-controlling interest 32,761 29,220
-------------------------------------------------------------------------
970,844 1,010,693
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (Note 20) 603,756 426,786
Retained earnings 1,161,808 1,028,876
Contributed surplus 13,475 12,563
-------------------------------------------------------------------------
1,779,039 1,468,225
-------------------------------------------------------------------------
$2,749,883 $2,478,918
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.



RONA inc.
Notes to Consolidated Financial Statements
December 27, 2009 and December 28, 2008
(Unaudited, in thousands of dollars, except amounts per share)


1. Governing statutes and nature of operations

The Company, incorporated under Part IA of the Companies Act (Quebec), is a distributor and a retailer of hardware, home improvement and gardening products in Canada.

2. Changes in accounting policies

Goodwill and intangible assets

At the beginning of 2009 the Company, in accordance with transitional provisions, retroactively adopted Section 3064 of the Canadian Institute of Chartered Accountants' (CICA) Handbook, Goodwill and intangible assets, which replaces Section 3062 of the same title. The section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets, including internally generated intangible assets. Pre-opening expenses for stores and distribution centres (previously included in other assets), advertising costs, including those related to store openings and costs incurred for Olympic and Paralympic sponsorship (previously included in prepaid expenses) no longer meet the capitalization criteria of the new section. The balances in these asset accounts as at December 31, 2007- that is, at the beginning of first quarter 2008 - were restated and included in retained earnings and the results of operations of 2008 were also restated. In addition, certain amounts previously included in fixed assets were reclassified to Intangible assets as a result of this change in accounting policy.


The impact of the recommendations of the new section on the consolidated financial statements is as follows:



Fourth Quarter 2008
-------------------------------------------------------------------------
Previously
reported Adjustments Restated
-------------------------------------------------------------------------
Consolidated Earnings
Earnings before the following
items $70,914 $4,378 $75,292
Depreciation and amortization 26,192 (1,514) 24,678
Income taxes 11,838 1,818 13,656
Non-controlling interest 903 18 921
Net earnings and comprehensive
income 25,697 4,056 29,753
Net earnings per share - basic 0.22 0.04 0.26
Net earnings per share - diluted 0.22 0.03 0.25

Consolidated Cash Flows
Net earnings 25,697 4,056 29,753
Depreciation and amortization 26,192 (1,514) 24,678
Future income taxes (1,696) (171) (1,867)
Non-controlling interest 903 18 921
Changes in working capital items 36,896 (8,720) 28,176
Fixed assets (66,463) 15,714 (50,749)
Intangible assets - (15,714) (15,714)
Other assets (7,085) 6,331 (754)

Consolidated Balance Sheets
Assets
Income taxes receivable - - -
Prepaid expenses - - -
Future income taxes - current - - -
Fixed assets - - -
Intangible assets - - -
Other assets - - -
Liabilities
Future income taxes - current - - -
Future income taxes - long-term - - -
Non-controlling interest - - -
Retained Earnings - beginning
of year - - -


Year-to-date December 28, 2008
-------------------------------------------------------------------------
Previously
reported Adjustments Restated
-------------------------------------------------------------------------
Consolidated Earnings
Earnings before the
following items $377,101 $(12,372) $364,729
Depreciation and amortization 108,091 (7,133) 100,958
Income taxes 73,541 (1,613) 71,928
Non-controlling interest 5,030 122 5,152
Net earnings and comprehensive
income 160,199 (3,748) 156,451
Net earnings per share - basic 1.39 (0.04) 1.35
Net earnings per share - diluted 1.37 (0.03) 1.34

Consolidated Cash Flows
Net earnings 160,199 (3,748) 156,451
Depreciation and amortization 108,091 (7,133) 100,958
Future income taxes (1,733) (1,184) (2,917)
Non-controlling interest 5,030 122 5,152
Changes in working capital items 75,336 9,128 84,464
Fixed assets (196,145) 34,276 (161,869)
Intangible assets - (34,276) (34,276)
Other assets (13,380) 2,815 (10,565)

Consolidated Balance Sheets
Assets
Income taxes receivable $6,046 $429 $6,475
Prepaid expenses 33,104 (21,902) 11,202
Future income taxes - current 13,800 5,474 19,274
Fixed assets 875,634 (53,259) 822,375
Intangible assets 3,797 53,259 57,056
Other assets 38,466 (11,256) 27,210
Liabilities
Future income taxes - current 4,854 (393) 4,461
Future income taxes - long-term 23,998 (2,694) 21,304
Non-controlling interest 29,098 122 29,220
Retained Earnings - beginning
of year 892,967 (20,542) 872,425


Credit risk and the fair value of financial assets and financial liabilities

In January 2009, the Emerging Issues Committee of the CICA issued EIC-173, Credit risk and the fair value of financial assets and financial liabilities, which provides guidance on how to measure financial assets and liabilities, taking into account the company's own credit risk and the counterparty credit risk in determining the fair value of financial assets and financial liabilities including financial derivatives. The adoption of these recommendations had no material impact on the results, financial position and cash flows of the Company.

Financial instruments - disclosures

In June 2009, the CICA issued revisions release no. 54, which includes several amendments to Section 3862, Financial instruments - disclosures. This Section has been amended to include additional disclosure requirements about fair value measurements of financial instruments and to enhance liquidity risk disclosures. The amendments apply to annual financial statements relating to fiscal years ending after September 30, 2009. The Company adopted the amendments to Section 3862 in the fourth quarter and this had no impact on the Company's results, financial position or cash flows.

3. Effect of new accounting standards not yet implemented

Business combinations

In January 2009, the CICA issued Section 1582, Business combinations which replaces, Section 1581 of the same title. This section applies prospectively to business combinations for which the date of acquisition is in fiscal years beginning on or after January 1, 2011. The section establishes standards for accounting for a business combination.

Consolidated financial statements and non-controlling interests

In January 2009, the CICA issued Section 1601, Consolidated financial statements, and Section 1602, Non-controlling interests which together replace Section 1600, Consolidated financial statements. These sections apply to interim and annual consolidated financial statements for fiscal years beginning on or after January 1, 2011. They establish standards for the preparation of consolidated financial statements and accounting for a non-controlling interest in a subsidiary in the consolidated financial statements subsequent to a business combination.

International financial reporting standards (IFRS)

In February 2008, the Accounting Standards Board of Canada announced that Canadian GAAP for publicly accountable enterprises will be replaced by IFRS for financial statements relating to fiscal years beginning on or after January 1, 2011. When converting from Canadian GAAP to IFRS, the Company will prepare both current and comparative information using IFRS. The Company expects this transition to have an impact on its accounting policies, financial reporting and information systems.

The Company is currently evaluating the impact of these new standards on its consolidated financial statements.

4. Summary of significant accounting policies

Accounting estimates

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts recorded in the financial statements and notes to financial statements. Significant estimates in these consolidated financial statements relate to the valuation of accounts receivable, inventory, long-term assets, goodwill, store closing costs, income taxes as well as certain economic and actuarial assumptions used in determining the cost of pension plans and accrued benefit obligations. These estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future. Actual results may differ from those estimates.

Principles of consolidation

These financial statements include the accounts of the Company and its subsidiaries. Moreover, the Company includes its share in the assets, liabilities and earnings of joint ventures in which the Company has an interest. This share is accounted for using the proportionate consolidation method.

Revenue recognition

The Company recognizes revenue at the time of sale in stores or upon delivery of the merchandise, when the sale is accepted by the customer and when collection is reasonably assured. Interest relating to receivables and loans and advances is recorded monthly in accordance with contractual provisions.

Inventory valuation

Inventory is valued at the lower of cost and net realizable value. Cost is determined using the weighted average cost method.

Vendor rebates

The Company records cash consideration received from vendors as a reduction in the price of vendors' products and reflects it as a reduction to cost of goods sold and related inventory when recognized in the consolidated statements of earnings and consolidated balance sheets. Certain exceptions apply where the cash consideration received is either a reimbursement of incremental selling costs incurred by the reseller or a payment for goods or services delivered to the vendor, in which case the rebate is reflected as a reduction of operating expenses.

The Company recognizes these rebates when receipt is more likely than not and the amounts can be reasonably estimated.

Customer rebates

The Company records cash consideration paid to customers as a reduction in the selling price of the product and classifies it as a reduction to sales in the statement of earnings.

Fixed assets

Fixed assets are recorded at cost including capitalized interest, if applicable. Depreciation commences when the assets are put into use and is recognized using the straight-line method and the following annual rates in order to depreciate the cost of these assets over their estimated useful lives.



Rates
----------------------------------------------
Parking lots 8% and 12.5%
Buildings 4%
Leasehold improvements 5% to 33%
Furniture and equipment 10% to 30%
Computer hardware 10% to 33%


Impairment of long-term assets

Fixed assets are tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-term asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impairment loss must be recognized and is equivalent to the excess of the carrying amount of the long-term asset over its fair value.

Intangible assets

Software and trademarks with definite lives are recorded at cost. Trademarks are amortized on a straight-line basis over periods ranging from five to seven years and software is amortized on a straight-line basis over periods ranging from four to ten years. The amortization method and estimate of useful life are reviewed annually.

Trademarks with indefinite lives are tested for impairment annually or circumstances indicate that the carrying amount may not be recoverable. carrying amount of the asset exceeds its fair value.

Goodwill

Goodwill is the excess of the cost of acquired enterprises over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances indicate that it is impaired. The impairment test consists of a comparison of the fair value of the Company's reporting units with their carrying amount. When the carrying amount of a reporting unit exceeds the fair value, the Company compares the fair value of goodwill related to the reporting unit to its carrying value and recognizes an impairment loss equal to the excess. The fair value of a reporting unit is calculated based on evaluations of discounted cash flows.

Other assets

Financing costs relate to credit facilities and are amortized on a straight-line basis over the financing term over a period of six years.

Costs related to sale and leaseback agreements are amortized over the lease term according to the straight-line method.

Dealer recruitment costs are amortized on a straight-line basis over a period of five years.

Income taxes

The Company uses the liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined according to differences between the carrying amounts and tax bases of assets and liabilities. They are measured by applying enacted or substantively enacted tax rates and laws at the date of the financial statements for the years in which the temporary differences are expected to reverse.

Other long-term liabilities

Other long-term liabilities consist of a deferred gain on a sale and leaseback transaction and deferred lease obligations. They are amortized using the straight-line method over the terms of the leases.

Deferred lease obligations result from the recognition, by the Company, of the rental expense on a straight-line basis over the lease term when leases contain a predetermined fixed escalation of the minimum rent.

Stock option plans

The Company accounts for options issued according to the fair value based method. Compensation cost is measured at the grant date and is recognized over the applicable stock option vesting period. Any consideration received from employees when options are exercised or stock is purchased is credited to share capital as well as the related compensation cost recorded as contributed surplus.

Share unit plan for officers

The Company offers a restricted share unit plan (RSU) to officers and key employees of the Company and its subsidiaries. The RSUs are vested over a maximum term of three years based on performance targets. The RSUs are recognized as a compensation expense on a straight-line basis over the vesting period based on the forecasted attainment of targets. The RSUs are revalued at fair market value at the end of each reporting period until the vesting date using the market price of the Company's common shares. Fair market value changes are accounted for as compensation expense with a corresponding charge to accounts payable and accrued liabilities.

Share unit plan for directors

Members of the Company's Board of Directors, who are not Company's management, may elect to receive all or a portion of their annual fees in the form of deferred share units (DSUs). The DSU compensation liability is accounted for based on the number of units outstanding and the average market value of the Company's common shares. Fair market value changes are accounted for as compensation expense with a corresponding charge to accounts payable and accrued liabilities.

Foreign currency translation

Monetary items on the balance sheet are translated at the exchange rates in effect at year end, while non-monetary items are translated at the historical rates of exchange. Revenues and expenses are translated at the rates of exchange in effect on the transaction date or at the average exchange rates for the period. Gains or losses resulting from the translation are included in earnings for the year.

Financial instruments

Financial assets and liabilities are initially measured at fair value and their subsequent measurement depends on their classification as described below:



-- Cash is classified as a "financial asset held for trading" and is
measured at fair value. All changes in fair value are recognized in
earnings.
-- Accounts receivable and long-term loans and advances (included in
investments) are classified as "loans and receivables" and are
recognized at cost which, at initial measurement, corresponds to fair
value. Subsequent revaluations of accounts receivable are recorded at
amortized cost which generally corresponds to initial measurement less
any allowance for doubtful accounts. Subsequent revaluations of long-
term loans and advances are recognized at amortized cost using the
effective interest method.
-- Bank loans, accounts payable and accrued liabilities and the revolving
credit are classified as "other financial liabilities". They are
initially measured at fair value and subsequent revaluations are
recognized at amortized cost using the effective interest method.
-- Long-term debt is classified as "other financial liabilities". With
the exception of the revolving credit, long-term debt is measured at
amortized cost, which corresponds to the initially recognized amount
plus accumulated amortization of financing costs. The initially
recognized amount corresponds to the principal amount of the debt less
applicable financing costs.
-- The Company uses derivative financial instruments to manage foreign
exchange risk. The Company does not use derivative financial
instruments for speculative or trading purposes. The derivatives are
classified as "assets or liabilities held for trading" and are
measured at fair value.
-- Transaction costs related to other financial liabilities are recorded
as a reduction in the carrying amount of the related financial
liability.
-- The Company records as a separate asset or liability only those
derivatives embedded in hybrid financial instruments issued, acquired
or substantially modified by the Company as of December 29, 2002 when
these hybrid instruments are not recorded as held for trading and
remained outstanding at January 1, 2007. Embedded derivatives that are
not closely related to the host contracts must be separated from the
host contract, classified as a financial instrument held for trading
and measured at fair value with changes in fair value recognized in
earnings. The Company has not identified any embedded derivatives to
be separated other than derivatives embedded in purchase contracts
concluded in a foreign country and settled in a foreign currency that
is not the conventional currency of either of the two principal
parties to the contract. Although the payments are made in a foreign
currency that is routinely used in the economic environment where the
transaction occurred, the Company has decided to separate the embedded
derivatives.


Employee future benefits

The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The Company has adopted the following accounting policies for the defined benefit plans:



-- The actuarial determination of the accrued benefit obligations for
pension uses the projected benefit method prorated on service and
management's best estimate of expected plan investment performance,
salary escalation and retirement ages of employees;
-- For the purpose of calculating the expected return on plan assets,
those assets are valued at fair value;
-- Past service costs from plan amendments are deferred and amortized on
a straight-line basis over the average remaining service period of
employees active at the date of amendments;
-- Actuarial gains (losses) arise from the difference between actual
long-term rate of return on plan assets for a period and the expected
long-term rate of return on plan assets for that period or from
changes in actuarial assumptions used to determine the accrued benefit
obligations. The excess of the net actuarial gain (loss) over 10% of
the greater of the benefit obligations and the fair value of plan
assets is amortized over the average remaining service period of
the active employees. The average remaining service period of the
active employees covered by the pension plans is 12 years (12 years
at December 28, 2008);
-- The transitional obligation is amortized on a straight-line basis over
a period of 10 years, which is the average remaining service period of
employees expected to receive benefits under the benefit plan in 2000.


For defined contribution plans, the pension expense recorded in earnings is the amount of contributions the Company is required to pay for services rendered by employees.

Earnings per share and information pertaining to number of shares

Earnings per share are calculated by dividing net earnings available for common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share are calculated taking into account the dilution that would occur if the securities or other agreements for the issuance of common shares were exercised or converted into common shares at the later of the beginning of the period or the issuance date. The treasury stock method is used to determine the dilutive effect of the stock options. This method assumes that proceeds of the stock options during the year are used to redeem common shares at their average price during the period.

Fiscal year

The Company's fiscal year ends on the last Sunday of December. The fiscal years ended December 27, 2009 and December 28, 2008 include 52 weeks of operations.

Comparative figures

Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.

5. Inventory

For the thirteen and fifty-two-week periods ended December 27, 2009, amounts of $826,403 and $3,397,928 of inventory were expensed in the consolidated results ($815,797 and $3,571,962 as at December 28, 2008). These amounts include an inventory write-down charge of $5,738 and $35,986 ($7,840 and $46,752 as at December 28, 2008).

6. Store closing costs

Exit and disposal costs and write-down of assets

In April 2008, management approved a detailed plan to close four of its stores included in the corporate and franchised stores segment. Three of these stores were closed in 2008 and one was closed in the second quarter of 2009. During the thirteen and fifty-two-week periods ended December 27, 2009, the Company recognized the following costs:



Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2009 2008 2009 2008
-------------------------------------------------------------------------

Lease obligations $- $- $14,355 $4,231
Inventory write-down - 100 525 2,214
Termination benefits - 13 - 277
-------------------------------------------------------------------------
Total recorded in
earnings before the
following items - 113 14,880 6,722
Fixed assets write-down - - - 2,857
-------------------------------------------------------------------------
Total costs $- $113 $14,880 $9,579
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The liability for exit and disposal costs and write-down of assets, included in accounts payable and accrued liabilities, is as follows:



2009 2008
-------------------------------------------------------------------------

Balance, beginning of year $3,575 $-
Costs recognized:
Lease obligations 14,355 4,231
Termination benefits - 277
Less: cash payments (3,590) (933)
-------------------------------------------------------------------------
Balance, end of year $14,340 $3,575
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Other closing costs

During the thirteen and fifty-two-week periods ended December 27, 2009, in addition to the exit and disposal costs and write-down of assets, the Company recorded operating costs, including interest and depreciation, for the liquidation of the assets of these stores in the amounts of $0 and $1,230 ($1,101 and $5,202 as at December 28, 2008).

7. Income taxes



2009 2008
-------------------------------------------------------------------------

Current $53,489 $74,845
Future 9,225 (2,917)
-------------------------------------------------------------------------
$62,714 $71,928
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Future income taxes arise mainly from the changes in temporary differences.

The Company's effective income tax rate differs from the statutory income tax rate in Canada. This difference arises from the following items:



2009 2008
-------------------------------------------------------------------------

Federal statutory income tax rate 19.0 % 19.5 %
Statutory rate of various provinces 11.6 11.2
-------------------------------------------------------------------------
Combined statutory income tax rate 30.6 30.7
Non-deductible costs 0.3 0.3
Other (0.5) (0.2)
-------------------------------------------------------------------------
Effective income tax rate 30.4 % 30.8 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Future income tax assets and liabilities result from differences between the carrying amounts and tax bases of the following:



2009 2008
-------------------------------------------------------------------------
Future income tax assets
Current
Non-capital loss carry-forwards $1,257 $1,325
Direct costs related to business acquisitions 338 700
Provisions not deducted and other 14,319 17,249
-------------------------------------------------------------------------
$15,914 $19,274
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Long-term
Non-capital loss carry-forwards $8,850 $7,602
Fixed assets 7,082 7,095
Deferred gain on sale and leaseback transaction 3,179 3,645
Goodwill 948 1,101
Expenses relating to the issue of common shares 1,633 -
Deferred revenue and other 5,901 5,238
-------------------------------------------------------------------------
$27,593 $24,681
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Future income tax liabilities
Current
Incentive payments received $2,408 $2,691
Other 2,492 1,770
-------------------------------------------------------------------------
$4,900 $4,461
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Long-term
Fixed assets $13,853 $10,698
Goodwill 7,524 5,842
Pension plans 3,276 2,395
Other 2,889 2,369
-------------------------------------------------------------------------
$27,542 $21,304
-------------------------------------------------------------------------
-------------------------------------------------------------------------


8. Cash flow information

The changes in working capital items are detailed as follows:



2009 2008
-------------------------------------------------------------------------

Accounts receivable $(14,777) $(6,518)
Inventory 38,155 94,455
Prepaid expenses (6,912) 798
Accounts payable and accrued liabilities 2,247 (5,743)
Income taxes payable 4,039 381
-------------------------------------------------------------------------
$22,752 $83,373
-------------------------------------------------------------------------
-------------------------------------------------------------------------


9. Business acquisitions

During 2009, the Company acquired one company (two companies in 2008), operating in the corporate and franchised stores segment, by way of an asset purchase. Taking direct acquisition costs into account, these acquisitions were for a total consideration of $3,734 ($5,622 in 2008). The Company financed these acquisitions from its existing credit facilities. The results of operations of these companies are consolidated from their date of acquisition.

The preliminary purchase price allocation of these acquisitions was established as follows:



2009 2008
-------------------------------------------------------------------------

Accounts receivable $1,125 $2,697
Inventory 1,177 2,997
Other current assets 61 66
Fixed assets 105 4,658
Goodwill 1,266 2,725
Current liabilities - (4,413)
Long-term debt - (3,108)
-------------------------------------------------------------------------
3,734 5,622
Less: Accrued direct acquisition costs - (48)
Balances of purchase prices - (750)
-------------------------------------------------------------------------
Cash consideration paid $3,734 $4,824
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The Company expects that an amount of $944 ($1,206 in 2008) of goodwill will be deductible for tax purposes.

10. Accounts receivable



2009 2008
-------------------------------------------------------------------------

Trade accounts
Affiliated and franchised stores $73,963 $63,361
Joint ventures 5,475 6,443
Other (retail customers) 161,879 155,689
Other accounts receivable 6,884 6,806
Portion of investments receivable within one year 2,644 1,728
-------------------------------------------------------------------------
$250,845 $234,027
-------------------------------------------------------------------------
-------------------------------------------------------------------------


11. Investments



2009 2008
-------------------------------------------------------------------------

Companies subject to significant influence
Shares, at equity value $4,495 $3,342
Preferred shares, at cost, redeemable over
10 years, maturing in 2011 160 240
Loans and advances, at cost
Mortgages and term notes, weighted average
rate of 4,6% (5.9% in 2008), maturing at various
dates until 2016 9,107 7,667
Other 860 665
-------------------------------------------------------------------------
14,622 11,914
Portion receivable within one year 2,644 1,728
-------------------------------------------------------------------------
$11,978 $10,186
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The consolidated statement of earnings includes dividend income of $0 ($29 in 2008) and interest income of $2,202 ($3,466 in 2008).

12. Fixed assets



2009
-------------------------------------------------------------------------
Accumulated
Cost depreciation Net
-------------------------------------------------------------------------

Land and parking lots $206,669 $21,653 $185,016
Buildings 277,229 57,236 219,993
Leasehold improvements 207,232 100,022 107,210
Furniture and equipment 358,615 208,742 149,873
Computer hardware 125,962 93,645 32,317
Projects in process (a) 65,685 - 65,685
Land for future development 99,750 - 99,750
Assets under capital leases (b)
Furniture and equipment 15,076 8,227 6,849
Computer hardware 20,198 18,532 1,666
-------------------------------------------------------------------------
$1,376,416 $508,057 $868,359
-------------------------------------------------------------------------
-------------------------------------------------------------------------


2008
-------------------------------------------------------------------------
Accumulated
Cost depreciation Net
-------------------------------------------------------------------------

Land and parking lots $170,279 $16,359 $153,920
Buildings 259,219 45,919 213,300
Leasehold improvements 187,360 85,146 102,214
Furniture and equipment 333,593 181,992 151,601
Computer hardware 115,237 81,990 33,247
Projects in process (a) 62,819 - 62,819
Land for future development 91,707 - 91,707
Assets under capital leases (b)
Furniture and equipment 15,501 6,616 8,885
Computer hardware 21,252 16,570 4,682
-------------------------------------------------------------------------
$1,256,967 $434,592 $822,375
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Depreciation of fixed assets amounts to $84,252 ($84,350 of depreciation and $2,857 relating to a fixed asset write-down in 2008).



a. Projects in process include the costs related to the construction of the
buildings which will be used for store operations and for distribution
centres.
b. During the year, the Company acquired $871 ($2,743 in 2008) of assets
under capital leases.


For the year ended December 27, 2009 capitalized interest on fixed assets amounts to $4,514 ($6,112 in 2008).

13. Fixed assets held for sale

The Company has decided to dispose of land and buildings in the corporate and franchised store segment which are no longer used in operations, and accordingly, established a detailed plan to sell. The Company expects to dispose of these assets within the next twelve-month period.

During 2009, the Company disposed of four parcels of land and four buildings which had been held for sale (four parcels of land and four buildings in 2008) and recorded a gain on disposition of $2,351 ($3,691 in 2008). During the year, the Company reclassified $27,420 in fixed assets held for sale for more than one year to fixed assets. Given the real estate market downturn during the past months and despite the fact that the Company has taken the necessary measures to address these new market conditions, these assets no longer meet the criteria for presentation as fixed assets held for sale. This reclassification had no impact on the Company's results.

The fixed assets held for sale as at December 27, 2009 and December 28, 2008 meet the presentation criteria.

The change in fixed assets held for sale is as follows:



2009 2008
-------------------------------------------------------------------------

Balance, beginning of year $34,870 $-
Additions 8,854 41,170
Disposals (1,012) (6,300)
Impairment charge (2,050) -
Reclassification to fixed assets (27,420) -
-------------------------------------------------------------------------
Balance, end of year $13,242 $34,870
-------------------------------------------------------------------------
-------------------------------------------------------------------------


14. Intangible assets



2009
-------------------------------------------------------------------------
Accumulated
Cost depreciation Net
-------------------------------------------------------------------------
Intangible assets with definite lives
Trademarks $2,174 $1,348 $826
Software 143,835 57,154 86,681
-------------------------------------------------------------------------
146,009 58,502 87,507
Intangible assets with indefinite lives
Trademarks 2,321 - 2,321
-------------------------------------------------------------------------
$148,330 $58,502 $89,828
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2008
-------------------------------------------------------------------------
Accumulated
Cost depreciation Net
-------------------------------------------------------------------------
Intangible assets with definite lives
Trademarks $2,174 $698 $1,476
Software 98,326 45,067 53,259
-------------------------------------------------------------------------
-------------------------------------------------------------------------
100,500 45,765 54,735
Intangible assets with indefinite lives
Trademarks 2,321 - 2,321
-------------------------------------------------------------------------
$102,821 $45,765 $57,056
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Amortization of intangible assets amounts to $13,414 ($10,558 in 2008).

For the year ended December 27, 2009, capitalized interest on software amounts to $1,485 ($477 in 2008).

15. Other assets



2009 2008
-------------------------------------------------------------------------
At unamortized cost
Financing costs $2,776 $3,670
Costs related to sale and leaseback agreements 2,612 2,879
Dealer recruitment costs 11,317 10,765
Accrued benefit asset (Note 24) 12,977 9,896
-------------------------------------------------------------------------
$29,682 $27,210
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Amortization of other assets amounts to $5,494 ($3,193 in 2008).

16. Credit facilities



a) Parent company and some subsidiaries

Revolving credit

On October 6, 2006, the Company completed the refinancing of its credit
facilities by way of a new agreement with a syndicate of lenders. The
agreement provides for an unsecured, renewable credit facility of
$650,000. The premium on the base rate and borrowing costs varies in
accordance with the credit rating assigned to the unsecured debentures.
The facility is available until 2012.

Credit facilities can also be used to issue letters of guarantee and
credit letters for imports. At December 27, 2009, the letters of
guarantee issued amount to $1,717. For 2009, the weighted average
interest rate on the revolving credit is 1.9% (4.5% in 2008).

The Company is required to meet certain financial ratios. At December
27, 2009 and December 28, 2008, the Company is in compliance with these
requirements.

Letters of credit

The Company has also set up an unsecured credit facility up to an
amount of $55,000, utilized for the issuance of letters of credit for
imports. The terms and conditions to be respected are the same as for
the revolving credit. At December 27, 2009, the amount used is $33,332
($31,258 in 2008).

b) Other subsidiaries

Bank loans are secured by an assignment of certain assets in the amount
of $40,033 ($36,815 in 2008). These bank loans bear interest at rates
varying from prime rate to prime rate plus 0.5% and are renewable
annually. At December 27, 2009, the interest rates varied from 2.25% to
2.75% (3.5% to 3.75% in 2008). The amount authorized for these credit
facilities is $18,500 ($21,000 in 2008) and the amount used is $4,815
($7,340 in 2008).

c) Joint ventures

Bank loans are secured by an assignment of certain assets. The
Company's share of these assets amounts to $9,440 ($10,672 in 2008).
These bank loans bear interest at rates varying from prime rate to
prime rate plus 1% and are renewable annually. At December 27, 2009,
the interest rates varied from 2.25% to 3.25% (3.5% to 4.5% in 2008).
The amount authorized for these credit facilities is $18,400
($17,200 in 2008) and the amount used is $396 ($1,128 in 2008).


17. Long-term debt



2009 2008
-------------------------------------------------------------------------

Revolving credit, weighted average rate of
1.9% (4.5% in 2008) (Note 16 a) $- $39,789
Debentures, unsecured, par value $400,000, rate
of 5.4%, due in 2016 (a) 396,564 396,182
Mortgage loans, secured by assets having a
depreciated cost of $66,300 ($58,557 in 2008),
rates varying from prime less 0.25% to 8.5%
(1.68% to 7.95% in 2008) maturing on various
dates until 2023 33,561 37,524
Obligations under capital leases, rates varying
from 2.9% to 12.4 % (0% to 12.4% in 2008),
maturing on various dates until 2017 6,953 11,058
Balances of purchase prices, varying from prime
less 1% to 3%, payable on various dates
until 2010 442 5,618
Shares issued and fully paid 3,000,000 Class D
preferred shares (4,000,000 shares in 2008) (b) 3,000 4,000
-------------------------------------------------------------------------
440,520 494,171
Instalments due within one year 9,996 15,696
-------------------------------------------------------------------------
$430,524 $478,475
-------------------------------------------------------------------------
-------------------------------------------------------------------------

a. Effective rate of 5.5%.
b. During the year, the Company redeemed 1,000,000 shares (1,000,000
shares in 2008) for a cash consideration of $1,000 ($1,000 in 2008).
These shares are redeemable over a period of ten years.


The instalments and redemptions on long-term debt for the next years are as follows:



Obligations Long-term
under capital loans
leases and shares
-------------------------------------------------------------------------

2010 $3,818 $6,395
2011 2,073 9,388
2012 747 8,336
2013 256 5,268
2014 199 3,163
2015 and subsequent years 202 404,663
-------------------------------------------------------------------------
Total minimum lease payments 7,295
Financial expenses included in minimum lease
payments 342
-------------------------------------------------------------------------
$6,953
-------------------------------------------------------------------------
-------------------------------------------------------------------------


18. Other long-term liabilities



2009 2008
-------------------------------------------------------------------------
Deferred gain on sale and leaseback transaction $11,324 $12,470
Deferred lease obligations 19,993 16,101
-------------------------------------------------------------------------
$31,317 $28,571
-------------------------------------------------------------------------
-------------------------------------------------------------------------


19. Guarantees, commitments and contingencies

Guarantees

In the normal course of business, the Company reaches agreements that could meet the definition of "guarantees" in AcG-14.

The Company guarantees mortgages for an amount of $1,305. The terms of these loans extend until 2012 and the net carrying amount of the assets held as security, which mainly include land and buildings, is $5,688.

Pursuant to the terms of inventory repurchase agreements, the Company is committed towards financial institutions to buy back the inventory of certain customers at an average of 61% of the cost of the inventories to a maximum of $71,768. In the event of recourse, this inventory would be sold in the normal course of the Company's operations. These agreements have undetermined periods but may be cancelled by the Company with a 30-day advance notice. In the opinion of management, the likelihood that significant payments would be incurred as a result of these commitments is low.

Commitments

The Company has entered into lease agreements expiring until 2018 which call for lease payments of $66,134 for the rental of automotive equipment, computer equipment, distribution equipment, a warehouse and the building housing the head office and the distribution centre in Quebec.

The Company has also entered into lease agreements expiring until 2029 for corporate store space for minimum lease payments of $987,856.

As part of the operation of big-box stores with dealer-owners, the Company is initially involved as a primary tenant and then signs a subleasing agreement with the dealer-owners. In this respect, the Company is committed under agreements expiring until 2023 which call for minimum lease payments of $82,683 for the rental of premises and land on which the Company erected a building. In consideration thereof, the Company has signed subleasing agreements totalling $81,979.

The minimum lease payments (minimum amounts receivable) under lease agreements for the next five years are $123,334 ($10,033) in 2010, $117,116 ($10,077) in 2011, $108,323 ($10,037) in 2012, $99,597 ($9,787) in 2013 and $91,998 ($8,571) in 2014.

In 2005, the Company entered into an eight-year partnership agreement for Olympic and Paralympic sponsorship valued at $60,000. Moreover, in 2006 the Company committed an additional amount of $7,000 to financial support programs for athletes. At December 27, 2009, the balance due on these agreements is $13,725, i.e. $9,925 in 2010, $1,900 in 2011 and $1,900 in 2012.

Contingencies

Various claims and litigation arise in the course of the Company's activities and its insurers have taken up the Company's defence in some of these cases. In addition, upon the acquisition of Reno-Depot Inc., the vendor committed to indemnify the Company for litigation which the Company assumed in the course of this acquisition.

Management does not expect that the outcome of these claims and litigation will have a material and adverse effect on the Company's results and deemed its allowances adequate in this regard.

20. Capital stock

Authorized



Unlimited number of shares
Common shares
Class A preferred shares, issuable in series
Series 5, non-cumulative dividend equal to 70% of prime rate,
redeemable at their issuance price
Class B preferred shares, 6% non-cumulative dividend, redeemable at their
par value of $1 each
Class C preferred shares, issuable in series
Series 1, non-cumulative dividend equal to 70% of prime rate,
redeemable at their par value of $1,000 each Class D preferred shares,
4% cumulative dividend, redeemable at their issue price. Beginning in
2003, these shares are redeemable at their issue price over a maximum
period of ten years on the basis of 10% per year (Note 17)


Issued and fully paid:

The following tables present changes in the number of outstanding common shares and their aggregate stated value:



2009
-------------------------------------------------------------------------
Number of shares Amount
-------------------------------------------------------------------------

Balance, beginning of year 115,819,699 $423,477
Issuance in exchange for common share
subscription deposits 328,692 3,744
Issuance under stock option plans 113,775 502
Issuance in exchange for cash (a) 13,391,217 172,736
-------------------------------------------------------------------------
Balance before elimination of reciprocal
shareholdings 129,653,383 600,459
Elimination of reciprocal shareholdings (80,251) (524)
-------------------------------------------------------------------------
Balance, end of year 129,573,132 599,935
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deposits on common share subscriptions,
net of eliminations of joint ventures (b) 3,821
-------------------------------------------------------------------------
$603,756
-------------------------------------------------------------------------
-------------------------------------------------------------------------


2008
-------------------------------------------------------------------------
Number of shares Amount
-------------------------------------------------------------------------

Balance, beginning of year 115,412,766 $418,246
Issuance in exchange for common share
subscription deposits 197,854 3,349
Issuance under stock option plans 89,000 309
Issuance in exchange for cash 120,079 1,573
-------------------------------------------------------------------------
Balance before elimination of reciprocal
shareholdings 115,819,699 423,477
Elimination of reciprocal shareholdings (72,396) (435)
-------------------------------------------------------------------------
Balance, end of year 115,747,303 423,042
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deposits on common share subscriptions, net
of eliminations of joint ventures (b) 3,744
-------------------------------------------------------------------------
$426,786
-------------------------------------------------------------------------
-------------------------------------------------------------------------

a. In June 2009, the Company issued 13,374,500 common shares at a price of
$12.90 per share for total gross proceeds of $172,531.
b. Deposits on common share subscriptions represent amounts received
during the year from affiliated and franchised merchants in accordance
with commercial agreements. These deposits are exchanged for common
shares on an annual basis. If the subscription deposits had been
exchanged for common shares as at December 27, 2009, the number of
outstanding common shares would have increased by 251,114.


21. Stock-based compensation

Stock option plans

Stock option plan of May 1, 2002

The Company adopted a stock option plan for designated senior executives which was approved by the shareholders on May 1, 2002. A total of 2,920,000 options were granted at that date. Options granted under the plan may be exercised since the Company made a public share offering on November 5, 2002. The Company could grant options for a maximum of 3,740,000 common shares. As at December 27, 2009 the 2,920,000 options granted have an exercise price of $3.47 and of this number, 1,645,500 options (1,538,500 options as at December 28, 2008) were exercised.

The fair value of each option granted was estimated at the grant date using the Black-Scholes option-pricing model. Calculations were based upon a market price of $3.47, an expected volatility of 30%, a risk-free interest rate of 4.92%, an expected life of four years and 0% expected dividend. The fair value of options granted was $1.10 per option according to this method.

No compensation cost was expensed with respect to this plan for the years ended December 27, 2009 and December 28, 2008.

Stock option plan of October 24, 2002

On October 24, 2002, the Board of Directors approved another stock option plan for designated senior executives of the Company and for certain designated directors. The total number of common shares which may be issued pursuant to the plan will not exceed 10% of the common shares issued and outstanding less the number of shares subject to options granted under the stock option plan of May 1, 2002. These options become vested at 25% per year, if the market price of the common share has traded, for at least 20 consecutive trading days during the twelve-month period preceding the grant anniversary date, at a price equal to or higher than the grant price plus a premium of 8% compounded annually.

On March 8, 2007, the Board of Directors approved certain modifications to the plan. These modifications, approved by the shareholders at the annual shareholders' meeting on May 8, 2007, establish that this plan is no longer applicable to the designated directors of the Company and provide for the replacement of the terms and conditions for granting options under the plan by a more flexible mechanism for setting the terms and conditions for granting options. The Board of Directors will adopt the most appropriate terms and conditions relative to each type of grant. For the options granted on March 8, 2007, February 29, 2008, December 9, 2008 and March 11, 2009, the Board approved the option grants with vesting over a four-year period following the anniversary date of the grants at 25% per year.

As at December 27, 2009, the 2,475,752 options (1,959,052 options as at December 28, 2008) granted have exercise prices ranging from $10.62 to $26.87 ($10.86 to $26.87 as at December 28, 2008) and of this number, 91,875 options (85,100 options as at December 28, 2008) have been exercised and 691,525 options (274,450 options as at December 28, 2008) have been forfeited.

The fair value of stock options granted of $4.11 ($4.39 in 2008) was estimated at the grant date using the Black- Scholes option-pricing model on the basis of the following weighted average assumptions for the stock options granted during the period:



2009 2008
-----------------------------------------------------------------
Risk-free interest rate 1.98 % 3.19 %
Expected volatility in stock price 35 % 26 %
Expected annual dividend 0 % 0 %
Expected life (years) 6 6


Compensation cost expensed with respect to this plan amounts to $237 and $946 for the thirteen and fifty-two-week periods ended December 27, 2009 ($380 and $1,518 at December 28, 2008).

A summary of the situation of the Company's stock option plans and the changes that occurred during the periods then ended is presented below:



2009
-------------------------------------------------------------------------
Weighted average
Options exercise price
-------------------------------------------------------------------------
Balance, beginning of year 2,981,002 $11.46
Granted 516,700 10.62
Exercised (113,775) 4.11
Forfeited (417,075) 19.47
-------------------------------------------------------------------------
Balance, end of year 2,966,852 10.47
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Options exercisable, end of year 1,906,969 $7.72
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2008
-------------------------------------------------------------------------
Weighted average
Options exercise price
-------------------------------------------------------------------------
Balance, beginning of year 2,922,552 $11.31
Granted 258,200 13.99
Exercised (89,000) 3.47
Forfeited (110,750) 20.07
-------------------------------------------------------------------------
Balance, end of year 2,981,002 11.46
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Options exercisable, end of year 1,965,569 $7.22
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The following table summarizes information relating to stock options outstanding as at December 27, 2009:



Options Options
Exercise price Expiration date outstanding exercisable
----------------------------------------------------------------
$3.47 January 1, 2012 1,274,500 1,274,500
$10.62 March 11, 2019 498,500 -
$10.86 December 9, 2018 15,000 3,750
$14.18 March 1, 2018 198,425 50,600
$14.29 December 16, 2013 404,650 404,650
$20.27 December 22, 2014 96,000 96,000
$21.21 February 24, 2016 301,000 -
$21.78 September 1, 2016 17,576 4,394
$23.58 March 8, 2017 143,625 73,075
$26.87 February 24, 2016 17,576 -
----------------------------------------------------------------
2,966,852 1,906,969
----------------------------------------------------------------
----------------------------------------------------------------


Share unit plan for officers

The Company offers a share unit plan to officers and key employees of the Company and its subsidiaries under which restricted share units (RSUs) are granted. The RSUs are vested over a maximum term of three years based on performance targets. The RSUs are recognized as a compensation expense on a straight-line basis over the vesting period based on the forecasted attainment of targets. The RSUs are revalued at fair market value at the end of each reporting period until the vesting date using the market price of the Company's common shares. Fair market value changes are accounted for as compensation expense with a corresponding charge to accounts payable and accrued liabilities. RSUs that have been vested will be payable, at the Company's option, in cash or common shares, purchased on the secondary market, with an aggregate value equal to the amount that would have been paid in cash.



RSU
----------------------------------------------------------
2009 2008
----------------------------------------------------------
Number of units:
Balance, beginning of year 229,360 79,560
Granted 495,450 165,850
Forfeited (42,270) (16,050)
----------------------------------------------------------
Balance, end of year 682,540 229,360
----------------------------------------------------------
----------------------------------------------------------


The expense recorded in the consolidated statement of earnings for the thirteen and fifty-two-week periods ended December 27, 2009 amounts to $649 and $1,568 ($65 and $651 in 2008).

Share unit plan for directors

The Company offers a deferred share unit (DSU) plan for external directors. Under this plan, directors may elect to receive in the form of DSUs any percentage up to 100% of their fees payable in respect of serving as director. When a director elects to participate in this plan, the Company credits the director's account for a number of units equal to the deferred compensation divided by the average closing market price of the common shares of the Company during the five trading days immediately preceding the last day of each reporting period of the Company. Fair market value changes are accounted for as a compensation expense with a corresponding charge to accounts payable and accrued liabilities in the consolidated balance sheet. DSUs granted under this plan will be redeemable and the value of the units will be payable only when the unitholder ceases to be a director.



DSU
----------------------------------------------------------
2009 2008
----------------------------------------------------------
Number of units:
Balance, beginning of year 103,421 40,153
Directors' compensation 45,718 63,268
----------------------------------------------------------
Balance, end of year 149,139 103,421
----------------------------------------------------------
----------------------------------------------------------


The expense recorded in the consolidated statement of earnings for the thirteen and fifty-two-week periods ended December 27, 2009 amounts to $61 and $989 ($231 and $440 in 2008).

22. Capital disclosures

The Company maintains a level of capital that is sufficient to meet several objectives, including an acceptable total debt-to-capital ratio to provide access to adequate funding sources to support current operations, pursue its internal growth strategy and undertake targeted acquisitions.

Total debt includes bank loans and long-term debt. The Company's capital includes total debt and equity. As at December 27, 2009, the Company's net debt-to-capital ratio is 10.4% (25.0% as at December 28, 2008).

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Company may issue new shares or sell assets to reduce debt.

The Company's credit facilities include certain covenants affecting, among others, the leverage ratio and the interest coverage ratios. These ratios are submitted to the Board of Directors each quarter and, as at December 27, 2009 and December 28, 2008, the Company is in compliance with the ratios. Other than covenants related to its credit facilities, the Company is not subject to any other externally imposed capital requirements.

23. Financial instruments

The carrying amounts and fair values of financial instruments are as follows:



2009 2008
-------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
-------------------------------------------------------------------------
Financial assets
held for trading
Cash $239,257 $239,257 $12,345 $12,345
Derivative
financial
instruments 801 801 1,089 1,089
Loans and receivables
Accounts receivable 250,845 250,845 234,027 234,027
Loans and advances 9,107 9,337 7,667 7,877
Financial liabilities
Bank loans 5,211 5,211 8,468 8,468
Accounts payable
and accrued
liabilities 427,817 427,817 422,318 422,318
Revolving credit - - 39,789 39,789
Debentures 396,564 383,800 396,182 302,640
Mortgage loans
and balances of
purchase prices 34,003 35,237 43,142 43,945
Preferred shares 3,000 3,000 4,000 4,000
Financial liabilities
held for trading
Derivative financial
instruments 776 776 2,180 2,180
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The following methods and assumptions were used to determine the estimated fair value of each class of financial instruments:



-- The fair value of accounts receivable and accounts payable and accrued
liabilities is comparable to their carrying amount, given the short
maturity periods;

-- The fair value of loans and advances, mortgage loans and balances of
purchase prices was determined based on discounted cash flows using
effective interest rates available to the Company at the balance sheet
date.

-- The fair value of bank loans and revolving credit is comparable to
their carrying amount since they bear interest at rates comparable to
market rates.

-- The fair value of debentures was determined using their buying exchange
rates at the balance sheet date.

-- The fair value of class D preferred shares, included in long-term debt,
approximates their carrying amount (redemption value);

-- The fair value of derivative instruments was determined by comparing
the original rates of the derivatives with rates prevailing at the
revaluation date for contracts having equal values and maturities
(observable market data).


Fair value hierarchy

Amendments to Section 3862, Financial Instruments - disclosures, establish a fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company primarily applies the market approach for recurring fair value measurements. The Section describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);

Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value measurements as recorded in the balance sheet are classified as follows:



Level 1 Level 2 Level 3 Total
-------------------------------------------------------------------------
Assets
Cash $239,257 $- $- $239,257
Derivative
financial
instruments - 801 - 801
Liabilities
Derivative
financial
instruments - 776 - 776
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The revenues, expenses, gains and losses resulting from financial assets and liabilities recorded in net earnings are as follows:



2009 2008
-------------------------------------------------------------------------

Interest on accounts receivable $(2,942) $(2,603)
Interest on long-term loans and advances (2,202) (3,466)
Dividends on redeemable preferred shares - (29)
Interest on bank loans 2,586 2,134
Interest on long-term debt 20,951 28,106
Loss on fair value of derivative financial
instruments 462 846
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Credit risk

Credit risk relates to the risk that a party to a financial instrument will not fulfil some or all of its obligations, thereby causing the Company to sustain a financial loss. The main risks relate to accounts receivable and the Company's loans and advances receivable. The Company may also be exposed to credit risk from its cash and its forward exchange contracts, which is managed by only dealing with reputable financial institutions.

To manage credit risk from accounts receivable and loans and advances receivable, the Company has mortgages on some movable and immovable property owned by the debtors as well as guarantees. It examines their financial stability on a regular basis. The Company records allowances, determined on a client-per-client basis, at the balance sheet date to account for potential losses.

The aging of accounts receivable is as follows:



2009 2008
-------------------------------------------------------------------------

Current $187,623 $168,836
Past due 0 - 30 days 37,231 36,342
Past due 31-120 days 18,276 20,076
Past due over 121 days 11,417 12,549
-------------------------------------------------------------------------
Trade accounts receivable 254,547 237,803
Less: allowance for doubtful accounts 13,230 12,310
-------------------------------------------------------------------------
$241,317 $225,493
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The following table provides the change in allowance for doubtful accounts for trade accounts receivable:



2009 2008
-------------------------------------------------------------------------

Balance, beginning of year $12,310 $10,181
Doubtful accounts expense 4,038 3,384
Write-offs and recoveries (3,118) (1,255)
-------------------------------------------------------------------------
Balance, end of year $13,230 $12,310
-------------------------------------------------------------------------
-------------------------------------------------------------------------


As at December 27, 2009 the maximum exposure to credit risk is $500,010 ($255,128 as at December 28, 2008) which represents the carrying amount of financial instruments classified as assets, including cash in the amount of $239,257 ($12,345 in 2008).

Liquidity risk

Liquidity risk is the risk that the Company will be unable to fulfil its obligations on a timely basis or at a reasonable cost. The Company manages its liquidity risk by monitoring its operating requirements and using various funding sources to ensure its financial flexibility. The Company prepares budget and cash forecasts to ensure that it has sufficient funds to fulfil its obligations. In recent years, the Company financed the growth of its capacity, increase in sales, working capital requirements and acquisitions primarily through cash flows from operations, a debenture issue and the use of its revolving credit on a regular basis.

The following tables present the financial liability instalments payable when contractually due including interest payments, where applicable:



2009
-------------------------------------------------------------------------
Less than 1 - 2 3 - 4 5 years
Total 1 year years years and more
-------------------------------------------------------------------------
Debentures $556,556 $21,600 $43,200 $43,200 $448,556
Mortgage loans and
balances of purchase
prices 34,213 5,395 15,724 8,431 4,663
Obligations under
capital leases 7,295 3,818 2,820 455 202
Preferred shares 3,000 1,000 2,000 - -
Bank loans 5,211 5,211 - - -
Accounts payable and
accrued liabilities 418,257 418,257 - - -
Derivative financial
instruments 776 776 - - -
-------------------------------------------------------------------------
Total $1,025,308 $456,057 $63,744 $52,086 $453,421
-------------------------------------------------------------------------
-------------------------------------------------------------------------


2008
-------------------------------------------------------------------------
Less than 1 - 2 3 - 4 5 years
Total 1 year years years and more
-------------------------------------------------------------------------
Revolving credit $39,789 $- $- $39,789 $-
Debentures 578,156 21,600 43,200 43,200 470,156
Mortgage loans and
balances of purchase
prices 43,386 9,962 10,184 14,977 8,263
Obligations under
capital leases 11,467 5,016 5,561 819 71
Preferred shares 4,000 1,000 2,000 1,000 -
Bank loans 8,468 8,468 - - -
Accounts payable and
accrued liabilities 412,698 412,698 - - -
Derivative financial
instruments 2,180 2,180 - - -
-------------------------------------------------------------------------
Total $1,100,144 $460,924 $60,945 $99,785 $478,490
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Exchange risk

The Company is exposed to exchange risk as a result of its U.S. dollar purchases. To limit the impact of fluctuations of the Canadian dollar over the U.S. dollar on net earnings, the Company uses forward exchange contracts. The Company does not use derivative financial instruments for speculative or trade purposes.

As at December 27, 2009, the par value of forward exchange contracts is U.S. $70,700. The average rate of these contracts is 1.0612 and they expire on various dates until September 2010.

On December 27, 2009, a 1% increase or decrease in the exchange rate of the Canadian dollar compared to the U.S. dollar, assuming that all other variables are constant, would have resulted in a $37 ($144 in 2008) decrease or increase in the Company's net earnings for the year ended December 27, 2009.

Interest rate risk

In the normal course of business, the Company is exposed to interest rate fluctuation risk as a result of the floating- rate loans and debts receivable and loans payable. The Company manages its interest rate fluctuation exposure by allocating its financial debt between fixed and floating-rate instruments.

On December 27, 2009, a 25-basis-point increase or decrease in interest rates, assuming that all other variables are constant, would have resulted in a $330 ($229 in 2008) decrease or increase in the Company's net earnings for the year ended December 27, 2009.

24. Employee future benefits

At December 27, 2009, the Company has seven defined contribution pension plans (nine in 2008) and four defined benefit pension plans (four in 2008).

The total expense is $9,012 ($9,326 in 2008) for defined contribution pension plans.

Total cash payments for employee future benefits for 2009, consisting of cash contributed by the Company to its defined benefit and defined contribution pension plans, are $13,109 ($12,218 in 2008).

The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year. Actuarial valuations are performed on defined benefit plans for funding purposes every three years. One of the plans was valued as at December 31, 2007 and the others were valued as at December 31, 2008. The next actuarial valuations for funding purposes will be as at December 31, 2010 and December 31, 2011, respectively.

Combined information relating to the defined benefit pension plans is as follows:



2009 2008
-------------------------------------------------------------------------

Accrued benefit obligations
Balance, beginning of year $32,327 $40,736
Current service cost 328 499
Employee contributions 225 227
Interest cost 2,427 2,246
Benefits paid (2,573) (1,842)
Actuarial loss (gain) 5,427 (9,321)
Settlement (346) (218)
-------------------------------------------------------------------------
Balance, end of year $37,815 $32,327
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Plan assets
Fair value, beginning of year $35,169 $38,702
Actual return 4,333 (5,670)
Employer contributions 4,097 4,016
Employee contributions 225 227
Benefits paid (2,573) (1,842)
Settlement (572) (264)
-------------------------------------------------------------------------
Fair value, end of year $40,679 $35,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Funded status - surplus $2,864 $2,842
Unamortized past service cost - 8
Unamortized net actuarial loss 10,206 7,023
Unamortized transitional obligation - 45
Valuation allowance (93) (29)
-------------------------------------------------------------------------
Accrued benefit asset $12,977 $9,889
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Accrued benefit asset included in other
assets (Note 15) $12,977 $9,896
Accrued benefit liability included in accounts
payable and accrued liabilities $- $7
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Allocation of plan assets
Equity securities 59% 52%
Debt securities 41% 48%
-------------------------------------------------------------------------
Total 100% 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The net pension expense for defined benefit pension plans is as follows:



2009 2008
-------------------------------------------------------------------------

Current service cost $328 $499
Interest cost 2,427 2,246
Actual return on plan assets (4,333) 5,670
Actuarial loss (gain) 5,427 (9,321)
-------------------------------------------------------------------------
Elements of employee future benefits costs before
adjustments to recognize the long-term nature of
employee future benefits costs 3,849 (906)
Adjustments to recognize the long-term nature of
employee future benefits costs:
Difference between expected return and actual
return on plan assets 1,808 (8,396)
Difference between actuarial loss recognized and
actual actuarial (gain) loss on accrued benefit
obligations (4,991) 10,393
Loss on settlement 226 60
Amortization of past service costs 8 14
Amortization of transitional obligation 45 42
-------------------------------------------------------------------------
945 1,207
Valuation allowance relating to the accrued
benefit asset 64 (110)
-------------------------------------------------------------------------
Defined benefit pension costs recognized $1,009 $1,097
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The weighted average significant actuarial assumptions adopted in measuring the Company's accrued benefit obligations and net pension expense for the defined benefit plans are as follows:



2009 2008
-------------------------------------------------------------------------

Accrued benefit obligations as at December 31:
Discount rate 6.25% 7.5%
Rate of compensation increase 3.6% 3.5%
Benefit costs for the years ended December 31 :
Discount rate 7.5% 5.5%
Expected rate of return on plan assets 7.0% 7.0%
Rate of compensation increase 3.5% 3.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


25. Information on joint ventures

Interests in joint ventures may not be comparable from one year to another since the Company can dispose of its interests and can purchase interests in new joint ventures. Moreover, the latter may not have a complete financial year.

The Company's share in the assets, liabilities, earnings and cash flows relating to its interests in joint ventures is as follows:



2009 2008
-------------------------------------------------------------------------

Current assets $12,156 $11,728
Long-term assets 14,249 14,496
Current liabilities 6,269 6,854
Long-term liabilities 9,157 8,795
Sales 50,237 56,423
Earnings before interest, depreciation and
amortization, income taxes and non-controlling
interest 2,768 4,793
Net earnings 909 1,823
Cash flows from operating activities 2,113 (3,847)
Cash flows from investing activities (937) 4,808
Cash flows from financing activities (570) 703
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The Company's sales include sales to joint ventures at fair value in the amount of $87,153 ($92,586 in 2008).

The Company's share in the commitments of these joint ventures amounts to $265 ($117 in 2008).

26. Segmented information

The Company has two reportable segments: distribution and corporate and franchised stores. The distribution segment relates to the supply activities to affiliated, franchised and corporate stores. The corporate and franchised stores segment relates to the retail operations of the corporate stores and the Company's share of the retail operations of the franchised stores in which the Company has an interest.

The accounting policies that apply to the reportable segments are the same as those described in accounting policies. The Company evaluates performance according to earnings before interest, depreciation and amortization, rent, income taxes and non-controlling interest, i.e. sales less chargeable expenses. The Company accounts for intersegment operations at fair value.



Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
(Restated) (Restated)
Segment sales
Corporate and
franchised stores $877,304 $866,837 $3,540,227 $3,741,748
Distribution 527,597 513,555 2,318,172 2,357,209
-------------------------------------------------------------------------
Total 1,404,901 1,380,392 5,858,399 6,098,957
-------------------------------------------------------------------------
Intersegment sales
and royalties
Corporate and
franchised stores - - - -
Distribution (263,969) (255,780) (1,181,040) (1,207,835)
-------------------------------------------------------------------------
Total (263,969) (255,780) (1,181,040) (1,207,835)
-------------------------------------------------------------------------
Sales
Corporate and
franchised stores 877,304 866,837 3,540,227 3,741,748
Distribution 263,628 257,775 1,137,132 1,149,374
-------------------------------------------------------------------------
Total 1,140,932 1,124,612 4,677,359 4,891,122
-------------------------------------------------------------------------
Earnings before
interest,
depreciation and
amortization, rent,
income taxes and
non-controlling
interest
Corporate and
franchised
stores 92,580 87,131 370,812 403,119
Distribution 20,941 20,369 101,587 100,590
-------------------------------------------------------------------------
Total 113,521 107,500 472,399 503,709
-------------------------------------------------------------------------
Earnings before
interest,
depreciation and
amortization,
income taxes and
non-controlling
interest
Corporate and
franchised stores 63,067 59,824 252,840 286,177
Distribution 15,744 15,468 80,154 78,552
-------------------------------------------------------------------------
Total 78,811 75,292 332,994 364,729
-------------------------------------------------------------------------
Acquisition of fixed
assets and
intangible
assets
Corporate and
franchised stores 21,356 49,648 107,714 159,508
Distribution 16,443 17,392 54,290 41,832
-------------------------------------------------------------------------
Total 37,799 67,040 162,004 201,340
-------------------------------------------------------------------------
Goodwill
Corporate and
franchised stores (91) (1,456) 1,266 7
Distribution - - - -
-------------------------------------------------------------------------
Total $(91) $(1,456) 1,266 7
-------------------------------------------------------------------------
Total assets
Corporate and
franchised
stores 2,116,883 2,105,008
Distribution 633,000 373,910
-------------------------------------------------------------------------
Total $2,749,883 $2,478,918
-------------------------------------------------------------------------
-------------------------------------------------------------------------


27. Net earnings per share


The table below shows the calculation of basic and diluted net earnings per share:



Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
(Restated (Restated
- Note 2) - Note 2)

Net earnings $30,825 $29,753 $138,252 $156,451
-------------------------------------------------------------------------

Number of shares
(in thousands)
Weighted average
number of shares
used to compute
basic net earnings
per share 129,571.9 115,746.4 123,628.0 115,643.6
Effect of dilutive
stock options (a) 1,100.4 965.5 1,073.2 1,060.1
-------------------------------------------------------------------------
Weighted average
number of shares
used to compute
diluted net
earnings per
share 130,672.3 116,711.9 124,701.2 116,703.7
-------------------------------------------------------------------------

Net earnings
per share
Basic $0.24 $0.26 $1.12 $1.35
Diluted $0.24 $0.25 $1.11 $1.34
-------------------------------------------------------------------------
-------------------------------------------------------------------------

a. As at December 27, 2009, 575,777 common share stock options (1,166,952
options as at December 28, 2008) were excluded from the calculation of
diluted net earnings per share since these options have an antidilutive
effect.

Contact Information